    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

                          IMPEDIMENTS TO JOB CREATION

    =======================================================================

                                    HEARING

                                   before the

                          COMMITTEE ON WAYS AND MEANS
                         U.S. HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 30, 2011

                                   __________

                               Serial No. 112-09

                                   __________

             Printed for the use of the Committee on Ways and Means

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                          COMMITTEE ON WAYS AND MEANS

                         DAVE CAMP, Michigan, Chairman

    WALLY HERGER, California             SANDER M. LEVIN, Michigan
    SAM JOHNSON, Texas                   CHARLES B. RANGEL, New York
    KEVIN BRADY, Texas                   FORTNEY PETE STARK, California
    PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
    DEVIN NUNES, California              JOHN LEWIS, Georgia
    PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
    GEOFF DAVIS, Kentucky                XAVIER BECERRA, California
    DAVID G. REICHERT, Washington        LLOYD DOGGETT, Texas
    CHARLES W. BOUSTANY, JR., Louisiana  MIKE THOMPSON, California
    DEAN HELLER, Nevada                  JOHN B. LARSON, Connecticut
    PETER J. ROSKAM, Illinois            EARL BLUMENAUER, Oregon
    JIM GERLACH, Pennsylvania            RON KIND, Wisconsin
    TOM PRICE, Georgia                   BILL PASCRELL, JR., New Jersey
    VERN BUCHANAN, Florida               SHELLEY BERKLEY, Nevada
    ADRIAN SMITH, Nebraska               JOSEPH CROWLEY, New York
    AARON SCHOCK, Illinois
    LYNN JENKINS, Kansas
    ERIK PAULSEN, Minnesota
    KENNY MARCHANT, Texas
    RICK BERG, North Dakota
    DIANE BLACK, Tennessee

                           Jon Traub, Staff Director

                      Janice Mays, Minority Staff Director

                                C O N T E N T S

                                   __________
                                                                       Page

    Advisory of March 30, 2011, announcing the hearing...............     2

                                   WITNESSES

    Dr. Edward Lazear, Professor, Stanford University................     6
    Dr. Andrew Biggs, Resident Scholar, American Enterprise Institute    16
    Dr. Heather Boushey, Senior Economist, Center for American
      Progress.......................................................    25
    Dr. Veronique de Rugy, Senior Research Fellow, Mercatus Center...    49

                           SUBMISSIONS FOR THE RECORD

    Bobby L. Austin..................................................   113
    National Roofing Contractors Association.........................   123

                          IMPEDIMENTS TO JOB CREATION

                                  ----------

                           WEDNESDAY, MARCH 30, 2011

                         U.S. House of Representatives,
                                   Committee on Ways and Means,
                                                        Washington, DC.
        The committee met, pursuant to call, at 10:03 a.m., in Room
    1100, Longworth House Office Building, the Honorable Dave Camp
    [chairman of the committee] presiding.
        [The advisory of the hearing follows:]

    HEARING ADVISORY

    FROM THE
    COMMITTEE
     ON WAYS
    AND
    MEANS

                    Camp Announces Hearing on Impediments to

                                  Job Creation

    March 23, 2011

        Congressman Dave Camp (R-MI), Chairman of the Committee on Ways and
    Means, today announced that the Committee will hold a hearing on
    government policies and actions that are impediments to job creation.
    The hearing will take place on Wednesday, March 30, 2011, in Room 1100
    of the Longworth House Office Building, beginning at 10:00 A.M.

        In view of the limited time available to hear witnesses, oral
    testimony at this hearing will be from invited witnesses only. However,
    any individual or organization not scheduled for an oral appearance may
    submit a written statement for consideration by the Committee and for
    inclusion in the printed record of the hearing.

    BACKGROUND:

        There is widespread acknowledgment that the current pace of job
    creation in the United States is not sufficient to significantly reduce
    the nation's persistently high unemployment rate. If the current rate
    of growth continued, the unemployment rate would not return to
    ``normal'' until 2016 or later. With nearly 14 million Americans
    unemployed, and millions more unable to find full-time work or so
    discouraged that they've given up even looking for a job, Congress must
    ensure that government policies and actions are not preventing job
    creation. Many employers and economists believe that the recent
    increases in the scale and scope of government intervention in the
    economy are contributing factors to the lack of private sector job
    creation. Additionally, a bipartisan chorus of experts have stated that
    large deficits and debt significantly hamper the U.S. economy and limit
    economic growth. The hearing will explore the extent to which the
    expansion of the role of government is impeding economic growth and the
    extent to which current and projected budget deficits and debt are
    suppressing activity in the private sector and therefore suppressing
    job growth.

        In announcing the hearing, Chairman Camp stated, ``Contrary to what
    some in Washington believe, we cannot spend our way to prosperity.
    Washington needs to create an environment that allows the private
    sector to do what it does best--invest and create jobs. This hearing
    will help us identify areas where Congress needs to act to ensure that
    the government is not impeding job creation.''

    FOCUS OF THE HEARING:

        The hearing will focus on identifying impediments to job creation
    and the impact of budget deficits and growing debt levels in
    particular.

    DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

        Please Note: Any person(s) and/or organization(s) wishing to submit
    for the hearing record must follow the appropriate link on the hearing
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    From the Committee homepage, http://waysandmeans.house.gov, select
    ``Hearings.'' Select the hearing for which you would like to submit,
    and click on the link entitled, ``Click here to provide a submission
    for the record.'' Once you have followed the online instructions,
    submit all requested information. ATTACH your submission as a Word
    document, in compliance with the formatting requirements listed below,
    by the close of business on April 13th, 2011. Finally, please note that
    due to the change in House mail policy, the U.S. Capitol Police will
    refuse sealed-package deliveries to all House Office Buildings. For
    questions, or if you encounter technical problems, please call (202)
    225-1721 or (202) 225-3625.

    FORMATTING REQUIREMENTS:

        The Committee relies on electronic submissions for printing the
    official hearing record. As always, submissions will be included in the
    record according to the discretion of the Committee. The Committee will
    not alter the content of your submission, but we reserve the right to
    format it according to our guidelines. Any submission provided to the
    Committee by a witness, any supplementary materials submitted for the
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    written comments must conform to the guidelines listed below. Any
    submission or supplementary item not in compliance with these
    guidelines will not be printed, but will be maintained in the Committee
    files for review and use by the Committee.

        1. All submissions and supplementary materials must be provided in
    Word format and MUST NOT exceed a total of 10 pages, including
    attachments. Witnesses and submitters are advised that the Committee
    relies on electronic submissions for printing the official hearing
    record.

        2. Copies of whole documents submitted as exhibit material will not
    be accepted for printing. Instead, exhibit material should be
    referenced and quoted or paraphrased. All exhibit material not meeting
    these specifications will be maintained in the Committee files for
    review and use by the Committee.

        3. All submissions must include a list of all clients, persons and/
    or organizations on whose behalf the witness appears. A supplemental
    sheet must accompany each submission listing the name, company,
    address, telephone, and fax numbers of each witness.

        The Committee seeks to make its facilities accessible to persons
    with disabilities. If you are in need of special accommodations, please
    call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
    business days notice is requested). Questions with regard to special
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    materials in alternative formats) may be directed to the Committee as
    noted above.

        Note: All Committee advisories and news releases are available on
    the World Wide Web at http://www.waysandmeans.house.gov/.

        Chairman CAMP. The Ways and Means Committee will come to
    order for a full committee hearing on Impediments to Job
    Creation. If members would take their seats and members of the
    audience would take their seats, we will begin shortly.
        I think every member of this committee, Republican and
    Democrat alike, would agree on one basic fact, and that is the
    U.S. economy is not growing fast enough. If the pace of private
    sector job creation does not increase significantly, the
    national unemployment rate will remain unacceptably high for at
    least another 5 years.
        Currently, there are 14 million Americans who are
    unemployed. Millions more have given up looking for a job.
    These families have already waited too long for Congress to
    figure out we cannot spend our way to prosperity and job
    growth. Our experience over the last 2 years is clear; more
    government intervention fueled by more debt and higher taxes is
    not the answer. I am not sure that all of my colleagues in
    Congress have figured this out yet, and I hope they will listen
    carefully to what we will hear this morning.
        During the President's Deficit Commission on which I, Mr.
    Ryan and Mr. Becerra from this committee all served, we heard
    nonpartisan testimony that once a Nation's total debt equaled
    90 percent of its Gross Domestic Product, that that became a
    drag on economic growth. In fact, it would slow growth by about
    1 percent a year.
        The fact that large amounts of government debt slow down
    job creation should not be lost on lawmakers, especially since
    according to CBO, by the end of this year, our total debt will
    be over 100 percent of our GDP. The U.S. debt is so large that
    these experts warned it is costing us about a million jobs.
        I have had a chance to preview the witnesses' testimony,
    and they agree the recent run-up in the size and cost of
    government is holding our economy back. The Federal Government
    has grown so large it is casting a dark shadow over our
    recovery and literally has the families and employers I talk to
    in Michigan scared. Given that our debt well exceeds $40,000
    for every man, woman and child in the country, you can
    understand why.
        The American people know we are on an unsustainable path.
    What they don't know is when the system will come crashing down
    on them; when Washington will come looking to them for even
    more tax revenues or when foreign governments that are
    financing our debt, especially China, will call on us to repay
    the loans we have taken out.
        While fear can be a motivating factor, it has never
    propelled a Nation to prosperity. In our current situation,
    just the opposite appears to be true. Fear over rising debt
    levels and higher taxes has scared families and employers
    stiff. Small and large businesses alike are so uncertain about
    the future, they are even sitting on profits rather than invest
    them in this landscape of uncertainty. Not surprisingly, the
    result has been anemic job creation.
        The American public understands intuitively what economic
    research confirms. The smart policy is to control government
    spending. Based on the testimony I have seen, we will hear a
    lot of expert agreement this morning that this is the most
    effective path to addressing both our Nation's fiscal crisis
    and our Nation's job crisis. We need to get the government out
    of the way and let the private sector do what it does best,
    invest and create jobs.
        The problems created by growing deficits and debt are not
    new, nor are they the creation of one party alone. But they
    have gotten much more severe and what many viewed as a future
    problem is firmly here today. The truth is, there is plenty of
    blame to go around. But it would be a shame if we fall into the
    habit of pointing fingers rather than working to find
    bipartisan solutions that allow government to carry out its
    important functions without imposing crippling tax burdens on
    its families and job creators.
        I look forward to hearing from our witnesses in a few
    minutes, but I will now yield to Ranking Member Sandy Levin for
    the purposes of his opening statement.
        Mr. LEVIN. Thank you, Mr. Chairman. This is a hearing on
    impediments to job creation. A major impediment to job creation
    is the failure of the majority in the House to take any
    specific steps for job creation. In this committee, they have
    not marked up a single jobs bill. And when we on the Democratic
    side introduce a jobs bill, like the continuation of the very
    successful Build America Bonds, there is nothing in response
    but stony silence. Clearly, we must take steps to address the
    deficit.
        When the President took office, he had facing him a $1.5
    trillion deficit. But the deficit must not undermine economic
    recovery, or be used as a maneuver to tear apart the fabric of
    programs that are important for American families. This is
    exactly what happens when a party is gripped by extremism. This
    extremism is reflected in H.R. 1, which undermines important
    education programs like Pell Grants and Head Start, that
    represent vital investment in our future growth in jobs, law
    enforcement funding like the COPS program, that puts police on
    our streets, and environmental programs such as the Clean Water
    Revolving Fund, which creates jobs and ensures we have safe
    drinking water.
        Attacks on these programs is consistent with, and in my
    judgment, indeed encouraged by Republican witness testimony
    presented today with the blanket statement, ``The disease is
    government spending.'' It is also supported by the approach of
    another witness, Mr. Biggs, who years ago said the following in
    support of privatization of Social Security. ``In that way,
    Social Security reform, featuring personal retirement accounts,
    doesn't send just one liberal sacred cow to the slaughterhouse,
    it sends the whole herd. The greatest long-term effect of
    reforming Social Security to personal retirement accounts will
    not be on individual retirement savings, it will be on the way
    they view their relationship to the government to the economy
    and to each other.''
        If one wants to talk about a slaughterhouse and impediments
    to job creation, Federal Reserve Chairman Bernanke has
    predicted that the House Republican plan would lose, ``A couple
    of hundred thousand jobs,'' and there are estimates that go way
    beyond the 200,000 or several hundred thousand.
        Being very uncomfortable, Republicans have suddenly decided
    that they had better try to frame their efforts by pinning to
    them the word jobs. But playing games with words won't work. It
    is not a substitute for real action. If we want to talk about
    jobs and American families, real action would include bringing
    trade adjustment assistance up for a vote on the floor of the
    House.
        Now having lapsed, the 2009 program allowed almost 200,000
    workers without a job to undertake retraining as they try to
    find a job. This legislation was passed by this committee, but
    it has shamefully been set aside by House Republicans guided by
    the rigid ideology that is so rampant within the Republican
    conference. We need to take real action to help put Americans
    back to work. We welcome this debate and we look forward to the
    testimony today.
        Chairman CAMP. Thank you, Mr. Levin. I would say that this
    committee did pass the repeal of 1099s, which received a large
    bipartisan vote on the House floor and support of more than 70
    Democrats, which actually helps small businesses in their
    efforts to create jobs.
        Today's panel includes four witnesses. Dr. Edward Lazear
    from Stanford University. Dr. Andrew Biggs from the American
    Enterprise Institute, Dr. Heather Boushey from the Center for
    American Progress, and Dr. Veronique de Rugy from the Mercatus
    Center at George Mason University. I would like to thank all of
    our witnesses today for their participation in today's hearing.

     STATEMENTS OF EDWARD LAZEAR, PROFESSOR, STANFORD UNIVERSITY;
    ANDREW BIGGS, RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE;
        HEATHER BOUSHEY, SENIOR ECONOMIST, CENTER FOR AMERICAN
       PROGRESS; AND VERONIQUE de RUGY, SENIOR RESEARCH FELLOW,
                MERCATUS CENTER, GEORGE MASON UNIVERSITY

        Chairman CAMP. Each of you will be given an opportunity to
    use 5 minutes to present your testimony. Your full written
    statements will be entered into the record in their entirety.
    After all the panel completes their statements, we will then go
    to member questioning. So I will begin by recognizing Dr.
    Lazear for 5 minutes, thank you and welcome.
        Mr. LAZEAR. Chairman Camp.
        Chairman CAMP. If you could pull the microphone close, and
    you do have to push a button to make sure it is on. There
    should be a green light. Not now, no. Try again.
        Mr. LAZEAR. Now?
        Chairman CAMP. Try the other one.
        Mr. LAZEAR. It is red.
        Chairman CAMP. We will check for a second and see what is
    happening.
        Mr. LAZEAR. It is not a good start.
        Chairman CAMP. We will have you slide over.
        I apologize for the technical glitch.

                       STATEMENT OF EDWARD LAZEAR

        Mr. LAZEAR. All right.
        Chairman Camp, Ranking Member Levin and Members of the
    Committee, thank you for giving me the opportunity to speak to
    you today. In my 5 minutes, I would like to cover three issues.
    First, as is becoming well accepted, the current spending
    pattern is unsustainable. Second, the problem was created by
    policy and can be remedied by changing policy. Third, if the
    spending picture is not altered, economic growth will suffer,
    and with it employment, wages and the standard of living of the
    typical American.
        It is becoming common knowledge that the U.S. budget
    deficit is a threat to our long run economic survival. As our
    debt gets large relative to GDP, we will eventually have to
    service this debt out of tax revenues and offsets in other
    spending. More important will be the effect on the private
    economy as high levels of government borrowing raise interest
    rates and stifle business investment. A well-known study
    suggests that growth could fall by half at debt levels that we
    are rapidly approaching.
        Although the discussion is usually put in terms of the
    deficit, focusing on the deficit can lead to the wrong policy
    choices. The deficit is the difference between expenditures and
    revenues, but it is not only the difference that matters. The
    economic literature has documented that higher taxation also
    impedes growth. If spending is high, taxes must also be high to
    control the deficit.
        Policy is primarily responsible for the large deficits that
    are projected to be sustained into the near and distant future,
    although it is true that tax receipts fall during recessions.
    As economic activity rebounds, so to does revenue. The spending
    side is different. It is controlled by government policy and
    the President's projections move our post recession spending
    ratios up considerably from our historic norm of 20.8 percent.
    The long run numbers are frightening as chart 1 shows. The
    President's projections show an expanding gap between expenses
    and receipts. This implies that the deficit and debt will rise
    in the future, perhaps to crisis levels.
        I believe that we should take immediate actions to retrace
    our footsteps. We are currently well above the historic
    spending levels, but we can return to sustainable spending
    without slowing the recovery. This would require that we cut
    spending significantly in the next couple of years.
        In addition, I believe that we should institute a rule that
    constrains the growth in spending to the inflation rate, minus
    1 percent point, which would return us to historic levels in a
    few years.
        With the unemployment rate still close to 9 percent, job
    creation is obviously a primary focus. In the short run,
    increased employment comes with economic growth as chart 2
    shows. If you can switch the chart please, thank you. You see
    those lines move parallel there.
        The economy rarely creates jobs in the absence of economic
    growth, but over the longer run, the main effect of economic
    growth is on wage, which has a direct impact on the typical
    American standard of living. The link requires two steps.
    First, GDP growth is usually linked to productivity growth as
    chart 3 shows. Flip to chart 3, yeah. Second, both theory and
    experience imply that wage growth comes with productivity
    growth. Chart 4 shows that periods of high productivity growth
    are also periods of high compensation growth.
        In the labor market it is important to bear in mind one
    final point. Even during deep recessions a tremendous amount of
    hiring occurs. At the worst part of the recession, there was
    still around 3\1/2\ million hires per month, which means that
    over 30 percent of our workforce turned over in a year. Most
    hiring is for the purpose of replacement, not expansion. To
    ensure that hiring increases to levels that prevailed at the
    peak it is important that our labor market remain flexible.
        Let me conclude. We can best deal with our labor market
    problems by ensuring that we have a pro growth economic
    environment. Perhaps the largest threat to long-term growth is
    the recent high level of government spending, which will result
    in high deficits or will require that we raise taxes
    substantially. Either course impedes economic growth. The high
    level of spending can be reversed. If we adopt the appropriate
    policy, we can look forward to economic growth, low
    unemployment and rising wages. Thank you, and I welcome your
    questions.
        Chairman CAMP. Thank you very much.
        [The prepared statement of Mr. Lazear follows:]

        Chairman CAMP. Dr. Biggs, you have 5 minutes.

                       STATEMENT OF ANDREW BIGGS

        Mr. BIGGS. Thank you very much. Chairman Camp, Ranking
    Member Levin and Members of the Committee. Thank you for
    offering the opportunity to testify with regard to Federal
    deficits and debt and how they might be resolved in a positive
    way with regard to job creation in the economy.
        Addressing deficits and debt is a truly daunting task. The
    CBO projects that over the next 25 years alone, the Federal
    Government faces a fiscal gap of 4.8 percent of GDP. Bridging
    that fiscal gap would require an immediate and permanent 23
    percent increase in all Federal tax revenues, or an equivalent
    reduction in Federal outlays. Delaying action only makes the
    gap larger.
        To resolve this gap, the Federal Government must undergo a
    significant fiscal consolidation, which is defined as a policy
    aimed at reducing government deficits and debt accumulation.
    Without a fiscal consolidation a debt or currency crisis is
    inevitable. Over the past several decades, many developed
    countries have undertaken fiscal consolidations, some have
    succeeded and others have failed. Both in causing lasting
    reductions in debt and in generating positive impacts in
    economic growth.
        What has separated the successes from the failures? To help
    answer this question in a recent article with my AEI
    colleagues, Kevin Hassett and Matthew Jensen, we reviewed the
    extensive existing literature on fiscal consolidations as well
    as conducting our own data analysis. We analyzed over 20
    countries covering a span of nearly 4 decades. We first
    isolated instances in which countries attempted to reduce their
    budget deficits, either through increased revenues or reduced
    government outlays. We then revisited these countries several
    years later to see which fiscal consolidations have succeeded
    in reducing debt and which had failed. And more importantly, we
    analyze what separated the successes from the failures.
        Our findings are striking. Countries that address their
    budget shortfalls to reduce spending were far more likely to
    succeed in reducing their debt than countries whose budget
    balancing strategies depended upon higher taxes. The typical
    unsuccessful fiscal consolidation consisted of 53 percent tax
    increases and 47 percent spending cuts. By contrast, the
    typical successful fiscal consolidation consisted of 85 percent
    spending cuts. These results are consistent with a large body
    of peer-reviewed academic research.
        Also consistent with other studies, we found the successful
    consolidations focused spending cuts in two areas: Social
    transfers, largely meaning entitlements in the American context
    and government wage bill, which means the size and pay of the
    public sector workforce.
        A second area of research, however, is more contentious.
    Some economists have found the fiscal consolidations can spur
    economic growth even in the short term by generating confidence
    in the private sector at the larger and more disruptive changes
    have been averted down the road. These expectational effects
    can offset the traditional Keynesian effects in which any
    fiscal consolidation, whether tax- or spending-based, would
    drain demand from the economy and hurt short-term growth.
        Harvard University economist Silvia Ardagna and Alberto
    Alesina found that only around 1 quarter of fiscal
    consolidations coincided with an increase in economic growth,
    but those that did were overwhelmingly composed of spending
    cuts, making up around 85 percent of the total. Fiscal
    consolidations that did not spur growth were composed on
    average of 63 percent tax increases and only 37 percent
    spending reductions.
        The IMF recently published a paper arguing that fiscal
    consolidations don't, in general, lead to higher economic
    growth. But IMF did conclude that spending-based fiscal
    consolidations will produce superior economic outcomes in terms
    of growth unemployment than would a tax-based consolidation.
    And that a fiscal consolidation that focused on reduced
    transfer spending likely would increase economic growth. For
    instance, the IMF study found an expenditure based fiscal
    consolidation would lead to GDP 1.4 percent higher 3 years
    later than would a tax based consolidation, equal to around
    $200 billion in today's dollars.
        Likewise, unemployment would be around one-half percentage
    point lower under an expenditure consolidation than tax-based
    consolidation. In today's economy, that would be equivalent to
    around 600,000 additional jobs. Moreover, the IMF approach does
    not negate the prior conclusion that spending-based fiscal
    consolidation are more likely to be successful in reducing
    deficits and debt than tax-based consolidations.
        To be clear the economic leadership isn't saying that the
    best way to stimulate the economy is to cut government
    spending. If short-term stimulus were the only goal, tax cuts
    likely would be preferable. But the literature does agree that
    if you must undergo a fiscal consolidation, and to be clear, we
    must in the very near future, then a fiscal consolidation based
    on spending reductions is more likely to succeed in reducing
    debt, and is more friendly to economic growth than a tax-based
    fiscal consolidation. Thank you.
        [The prepared statement of Mr. Biggs follows:]

        Chairman CAMP. Thank you very much. Dr. Boushey, you also
    have 5 minutes.

                      STATEMENT OF HEATHER BOUSHEY

        Ms. BOUSHEY. Wonderful. Thank you, Chairman Camp, and
    Ranking Member Levin for inviting me here today to testify. My
    name a Heather Boushey, I am a senior economist with the Center
    for American Progress Action Fund.
        I want to get right to my point. The policies that will
    create jobs are those that will increase aggregate demand by
    making investments that not only boost employment in the short
    term, but lay the foundations for long-term economic growth.
    Every policy should be examined to through the lens of whether
    or not it supports job creation and rebuilding our Nation's
    middle class.
        Let's be clear, we are here today because of the failed
    economic policies of the 2000s. The collapse of the housing
    market and the financial crisis upended the labor market
    causing unemployment to spike from just below 5 percent in
    early 2008 to 10 percent just a year and a half later in late
    2009. With the Federal funds rated zero since December of 2008
    and evidence of a liquidity trap, fiscal policy has been your
    primary lever to address high unemployment.
        While one cause of our current Federal deficit is the
    higher expenditures and lower tax revenues due to the Great
    Recession, the main causes of today's deficit were evident
    before the recession took hold. The prior administration left
    our country with a run-up of debt from a two unfunded wars
    along side massive tax cuts. The long-term challenges are
    compounded by the need to get health care costs under control.
        The supply side mantra of tax cuts for the wealthy has left
    our Nation indebted in ways that profoundly harmed our economy.
    The early 2000s saw unprecedented tax cuts for the wealthy, yet
    in the economic recovery that followed, growth in investment,
    employment and output were all slower than any other economic
    recovery in more than half a century. For the first time since
    the end of World War II, our Nation's middle class families saw
    their incomes fall in inflation-adjusted terms over an economic
    recovery. The hollowing out of our middle class is clear
    evidence of a failed economic model. It also encouraged
    economic instability as households borrowed to make up for
    falling incomes.
        We need to put our economy on a path to balance that starts
    policy that creates jobs now, make the investments we need to
    lay the foundation for long-term economic growth and build our
    middle class. In doing so, we will be able to repay our debts
    and see strong growth in the years to come. And I will note the
    Rogoff and Reinhardt study that has been discussed this morning
    connecting the high debt to lower growth is entirely driven by
    the demobilization following World War II, and therefore is not
    applicable necessarily in today's circumstances.
        There remain five seekers today for every job opening
    available. This unemployment is not a structural problem. The
    National Federation of Independent Businesses continues to
    report that the primary concern of small businesses in this
    country is sales. The shortfall and aggregate demand amounts to
    almost 6 percent of U.S. Gross Domestic Product even though the
    economy has been growing for six quarters now. This is the
    output gap that we need to fill in order to make our economy
    whole so that everyone who once worked can find a job.
        High unemployment not only creates significant hardships
    for individual families, it continues to threaten the recovery.
    The unemployed can't spend what they don't earn, which why
    unemployment directly adds to our Nation's aggregate demand
    problem.
        Funds spent on benefits and services designed to help the
    unemployed find new work have mitigated, not exacerbated the
    problem. The best economic evidence is that unemployment
    benefits and transitional jobs programs have helped the current
    recovery. By boosting economic growth, the actions we have
    taken over the past couple of years has actually made the long-
    term deficits smaller than it would have been without action.
        To address unemployment, Congress should focus on three
    specific policy goals: Boost aggregate demand and invest in our
    economy, including investing in infrastructure, which is the
    best way to ramp up employment now while building the
    foundation for a high productivity future; second, stop adding
    to the problem of unemployment. Once someone loses their job in
    this economy, they are facing a historically low odds of
    finding a new job; third, help the unemployed beat the odds and
    find work. In particular, programs like TANF emergency funds
    that put people to work in public-private partnerships should
    be reinstituted.
        The cost of inaction continue to far outweigh the cost of
    action. While we need to keep our eye on a growing Federal debt
    addressing the scourge of long-term unemployment now will do
    more to cut future deficits than not. Getting our economy
    growing again is the most important thing we need to do to
    address our budget woes, and that includes both a long hard
    look at our tax revenue and increasing that. Thank you.
        Chairman CAMP. Thank you very much.
        [The prepared statement of Ms. Boushey follows:]

        Chairman CAMP. Dr. de Rugy you have 5 minutes.

                     STATEMENT OF VERONIQUE de RUGY

        Ms. DE RUGY. Good morning, Chairman Camp, Ranking Member
    Levin and distinguished Members of the Committee. Thank you for
    inviting me to discuss how debt and deficits relate to economic
    growth and job creation. My name a Veronique deRugy and I am a
    senior research fellow at the Mercatus Center at George Mason
    University, where I specialize on tax and budget issues.
        Deficits and debt matter. They are the symptom of a disease
    called government spending. Overspending in the past, along
    with the near explosion of Social Security, Medicare and
    Medicare spending means it will be drowning in red ink for the
    foreseeable future. Unfortunately, the persistent failures of
    lawmakers to cut spending have created a situation where the
    symptoms produce symptoms of their own.
        I have three points to make today about large sustained
    deficits and debts. First, they cripple economic growth and
    destroy jobs; second, they are expensive and they are self-
    perpetrating; third, American families are the ones paying the
    price for these symptoms.
        To the first point, large and sustained deficits and debt
    in evidently cripple economic growth and destroy jobs. The
    money the Federal Government borrows comes from American
    savings, so does the money that American invest in the private
    sector's growth. There comes a point where there just aren't
    enough savings to satisfy both masters. So if the government
    borrows more money, domestic investment will go down as State
    economists call crowding out. And this State's company will
    build fewer factories, cut back on research and development and
    generate fewer innovations. As a result, our Nation's future
    earning prospect will then, and our future living standard will
    suffer. And pouring more money to foreign investors isn't the
    solution either, as this money needs to be repaid too.
        Second, deficits and debt are expensive and self-
    perpetrating. The more we borrow, the bigger our interest
    payments are. In spite of historically low interest rates, by
    the time my 8-year old daughter finishes high school, the
    Federal Government well spend a projecting $866 billion each
    year just to pay interest on our debt. That is more than what
    the U.S. spends now on two wars, plus the Department of
    Defense, Education, Energy and Homeland Security combined.
        As our deficit grows, the interest on our debt grows too.
    All too soon we will have to borrow money to pay for the
    interest on our debt. And if persistent deficits lead to higher
    interest rates, through the combination of concerns about
    inflation and potential default, these new rates can magnify
    the power of compounded interest. In other words, deficits find
    us at low rate today can lead to more deficits financed at
    higher rates in the future.
        Third, deficits and debt matter to American families and
    they are the ones who will suffer from economic uncertainty,
    high unemployment rate, higher interest rates, lower growth and
    lower standards of living brought by a fiscal crisis caused by
    too many deficits and too much debt. Yet the ones who will
    really suffer are our children. As the United States is set to
    embark in an unprecedented and massive transfer of wealth from
    younger taxpayers to older ones.
        Make no mistake, our children will be the ones who pay for
    the decisions we are making today. That fiscal crisis could be
    slow, yet rampant discussion of our economy. It could be abrupt
    with creditors losing faith and pulling their money from the
    United States overnight. Either way, things are way worse than
    they look on paper.
        According to the CBO, U.S. debt as a percentage of GDP will
    reach 200 percent by 2037. Those are projections. Not the real
    world. In the real world the economy could collapse before we
    could even get to the CBOs forecast level. Even the CBO
    acknowledges that possibility. And as long-term projections
    documents the CBO forecasts, the effect crowding out may have
    on GDP per capita and contrast it with commonly-used
    projections.
        Depending on the assumption made this data shows that per
    capita growth collapsing about 10 to 20 years from now due to
    crowding out. The contrast between this data and the data
    usually referenced by scholars like me and a governmental
    official is striking.
        What then should the government decide today? Well,
    Congress should address our fiscal imbalance today and tomorrow
    and should start to do it now. In particular, Congress should
    reform the main driver of spending explosion, Social Security,
    Medicare and Medicaid. That being said, I think everything
    should be on the table, including defense spending.
        It should also resist the temptation to address these
    deficits by raising taxes. No amount of taxes could address the
    immense fiscal imbalance that our country which face in the
    future. Furthermore, raising taxes would add to our problems by
    hindering economic growth, thereby reducing tax revenue and
    adding to the deficit.
        Thank you for the opportunity to testify before you today,
    and I am looking forward to your answers.
        Chairman CAMP. Thank you, thank you all for your testimony.
        [The prepared statement of Ms. de Rugy follows:]

        Chairman CAMP. Dr. Lazear, last week you were among a group
    of bipartisan former Council of Economic Advisor Chairs that
    signed an op-ed calling on the administration and Congress to
    address the Nation's fiscal crisis. And I would ask unanimous
    consent that the op-ed that I refer to be included in the
    record without objection.
        [The information follows:]

        Chairman CAMP. Why does such a distinguished and bipartisan
    group of economists think it is crucial that we act now to
    address our Nation's fiscal crisis?
        Mr. LAZEAR. Is this working yet?
        Chairman CAMP. I don't think it is working yet.
        Mr. LAZEAR. Thank you. Can you hear me now?
        Chairman CAMP. Yeah, I can.
        Mr. LAZEAR. I think the problem is obvious to all of us.
    Those of us who have been CEA chairs have had to put together
    forecasts every year. We had a committee called TROIKA inside
    the administration. We look at these numbers on a frequent
    basis, and it is quite apparent when you start looking at these
    data that the problem is overwhelming and it is a problem that
    is immediate. We are adding 10 percent, 10 percentage points to
    the debt to GDP ratio every year and that number is really a
    frightening number. So I think that is what has stimulated all
    of us to try to work together and to think about these issues
    together.
        Now obviously we don't all have the same solutions for the
    problem. We differ on some of the things that we like, and some
    of the things that we don't like, but we all recognize that if
    the problem goes unaddressed that it will be a problem that
    threatens the country and threatens our economic livelihood.
    And in particular what we are concerned about is that a couple
    of things will happen, first of all it will become very costly
    for the U.S. to borrow.
        It will be difficult to service our debt, but more
    important will be the effect on the private sector. When
    borrowing costs go up, it makes it difficult to invest. It also
    means that other investors from around the world will loose
    confidence in the United States, and those are the things we
    are most concerned about.
        Chairman CAMP. I notice that you all agree that we do need
    to find measures and ways to deal with our deficit and our
    debt. And I think it is unprecedented, I have never, in my time
    in Congress, seen a letter of this kind from both Republican
    and Democrat Counsel of Economic Advisor Chairs. These are all
    former chairs of that group that advises the President.
        There is a significant debate obviously occurring in the
    Congress right now about the best way to promote economic
    growth and job creation. And I would ask you, your testimony
    seems to say that we need to begin to reduce government
    spending. And can you walk me through how reducing government
    spending is connected to job creation?
        Mr. LAZEAR. Sure. Again, if I use the President's numbers,
    which I think are probably the easiest way to start, use the
    numbers that OMB puts out. The big problem that we have as we
    go into the future is that we just can't get to the situation
    that we want to be at by raising taxes; we are just never going
    to get there, it is simple arithmetic. If you look at the gap
    that the President is projecting out a couple of decades, we
    are talking about deficits somewhere in the order 8, 10,
    eventually 12 percent of GDP per year. To raise taxes enough to
    close that gap would mean that we would be raising taxes by
    about 50 percent. I just don't see that happening in this
    country. I surely hope it does not happen in this country. It
    would be a tremendous drag on the economy.
        So the problem that we face then is one of controlling
    spending. Now if we don't control spending, I really see it
    more as a negative. It is not so much that if we control
    spending, there will be this magical increase in economic
    growth; it is rather the reverse. If we don't control spending,
    what we will be doing is putting ourselves in a situation where
    we will have such strong impediments to economic growth that
    the economy will struggle. And we had examples of this, Japan
    has lost decade, now lost 2 decades, hopefully not 3 decades,
    is case in point.
        Chairman CAMP. All right. Dr. Biggs, do you care to comment
    on that?
        Mr. BIGGS. Well, I think I would reiterate what Professor
    Lazear said, that we are facing with a number of bad choices,
    particularly in entitlements. If we addressed these issues 10
    or 15 years from now we would have a much smoother glide path
    towards bringing the budget back into balance. We have much
    more leeway today in terms of the fiscal policy and the avenues
    we have available to us to address joblessness and fiscal
    stimulus in the short term.
        As it stands, though, we have to do two things at once: We
    have to both address deficits both in the short term and long
    term, and we have to think about how to stimulate the economy
    and keep the economy healthy going forward. And of course,
    those two things are linked. The stronger your economy, the
    more easily it can bear the debt that it has more easily it can
    bear government programs.
        So I think we have to say what steps together will both
    help us effectively address deficits and debt and will do it in
    a way that is, at the very least, neutral with regard to the
    economy, but we hope may be helpful with regard to the economy.
    The research that we have reviewed, and there is a fairly large
    body of it, indicates the best approach to that would be
    through reductions in government outlays rather than increases
    in revenues.
        Chairman CAMP. All right. Thank you. Dr. de Rugy, would you
    like to comment on the connection between reducing government
    spending and the promotion of jobs, job creation.
        Ms. DE RUGY. I would agree with Ed Lazear and Andrew Biggs
    about the connection that exists. And I would like to add to
    show that in the last 10 years, during President Bush's
    presidency, Federal spending has grown in real term by 60
    percent. We have had massive increase in spending in the last 3
    years, whether you think it was justified or not. We have tried
    the routes of stimulating the economy through massive spending
    and it hasn't worked.
        In fact, I would argue that it has hurt us more than
    anything else. And what we know is that we are at a time where
    basically--actually, economists have not really studied the
    situation in which we are. A situation where actually not only
    do we have unprecedented level of debt, but they are not about
    to end in the foreseeable future because of the explosion of
    spending on Social Security, Medicare and Medicaid. We have not
    studied this. I mean, like all the examples that economists
    have studied after the Second World War, where I agree the
    situations were different, there wasn't this massive extension
    already forecasted and projected.
        So we are at a situation where pretty much we know the
    consequences of spending more, we also know the consequences of
    taxing more. What we don't know is when we are going to reach
    this tipping point where things could absolutely really be bad
    for our economy. That will mean a slowdown of economic growth
    in a situation that we are already today, but in any case,
    means a destruction of jobs.
        Chairman CAMP. Thank you. Mr. Levin is recognized.
        Mr. LEVIN. Thank you and welcome. You know, there is no
    question of if there needs to be deficit reduction. The issue
    is how we do it. No one is saying do it by raising taxes alone.
    No one says that. I just want the record to be set straight.
    The private sector job losses from January 2001, to January
    2009, total 650,000 private sector jobs lost. From February
    2010 to February 2011, 1,526,000 private sector jobs increase.
    Those are the facts. A loss of 653,000 from 2001 to 2009; 1.5
    million increased in the private sector from February 2010 to
    February 2011. And everybody who constructs an economic theory
    needs to look at those facts.
        So now, let me just ask each of you what you think of the
    estimates of job losses from H.R. 1. I mention Chairman
    Bernanke, 200,000; Mark Zandi, 700,000; Goldman Sachs, a
    reduction in economic growth of 1\1/2\ to 2 percent in the
    second and third quarters of this year. Mr. Lazear, do you
    challenge those?
        Mr. LAZEAR. Let me just say two things, Congressman. The
    first thing I would say is that I certainly agree that we
    should be looking at the facts on job loss, but normally, what
    one does when one looks at the facts is you look from peak of a
    business cycle to peak of a business cycle or trough of a
    business cycle to the trough of the business cycle. You don't
    look from the peak of one business cycle to the trough of
    another. If you do that, you get a very distorted picture. And
    I would argue that is probably accounting for a good bit of the
    numbers that we saw.
        Mr. LEVIN. So even if you use that argument, the facts are
    striking in terms of the job loss for 8 years, and the job
    increase in 1 year.
        Mr. LAZEAR. Well, my argument would be that if you want to
    understand job growth, what you need to do is you need to
    correct for the business cycle. And if you correct for the
    business cycle you can get a very different picture.
        Mr. LEVIN. Well, send us something on how different it
    would be.
        Mr. LAZEAR. You would essentially see job decline during
    the recession that started in 2001, continue job growth from
    2003 to 2008 and then job decline from 2008 thereafter. So that
    is essentially the picture.
        Mr. LEVIN. Okay. We will be glad to look at those figures,
    but they don't change the basic fact.
        Mr. LAZEAR. But let me get to your more important question,
    which was do I believe in the numbers in terms of the effects.
        Mr. LEVIN. Is Bernanke right or wrong?
        Mr. LAZEAR. All right. I would say that I don't believe
    those numbers and I will tell you why I don't believe those
    numbers. I was also the chair of the committee that did exactly
    those numbers at the White House, and we did that for 3 years,
    and here is how those numbers are created. The way you create
    those numbers is you base them on a model, you do not base them
    on evidence. You base them on a model that says we know that if
    we spend so much in GDP, that will have a particular effect on
    GDP. And historically, there has been a relation between GDP
    and job growth.
        Mr. LEVIN. Let me say, my time is up. That is maybe what
    you did.
        Mr. LAZEAR. That is what Zandi does, that is what Goldman
    does, that is what CBO does.
        Mr. LEVIN. That is what Bernanke did?
        Mr. LAZEAR. That is what Bernanke does.
        Mr. LEVIN. So you don't give any credibility to his
    critique?
        Mr. LAZEAR. No. You asked me if I believe the numbers, I
    told you why I don't believe the numbers. The numbers are
    model-based rather than evidence-based.
        Mr. LEVIN. So you just dismiss all of the statements about
    the impact of H.R. 1 in terms of economy growth?
        Mr. LAZEAR. What I dismiss is those as evidence of the
    effect of a bill on jobs. What I don't dismiss is that they
    still----
        Mr. LEVIN. Let me--Ms. Boushey, quickly, would you respond
    to that?
        Chairman CAMP. Quickly, because his time has expired so you
    have a few seconds.
        Ms. BOUSHEY. Well, I mean, economists use models and so
    there is a bit of a challenge there. Especially looking at the
    Goldman Sachs estimate, these people did that estimate for
    their investors to help them determine how to invest and how
    they thought they were going to make money in the years to
    come. I take that very seriously, because if they think that
    this will be bad for growth, then that is how they are advising
    their clients. I mean, economists use models. We all agree
    there is some wiggle room in there, but certainly, we need to
    take these very seriously.
        Mr. LEVIN. Thank you.
        Chairman CAMP. Mr. Herger is recognized.
        Mr. HERGER. Thank you very much, Mr. Chairman. I want to
    thank you for holding this hearing. Certainly it is incredibly
    important what we are talking about now. We are in a very
    serious recession that has taken place not only in my district,
    but throughout this Nation. There is a concern of stability and
    whether or not we have the policies that are going to bring us
    out of it. Certainly the spending, this massive spending is at
    the heart of much of the concern that I hear when I am in my
    northern California district.
        Mr. Lazear, according to the CBO, in 6 of the President's
    proposed budgets over the next 10 years, the deficits will be
    in excess of $1 trillion. During that period of time our debt
    would more than double. I would like to ask you what are the
    likely economic consequences of this massive accumulation of
    debt envisioned by the President?
        Mr. LAZEAR. Well, again, I think I would use the word that
    I used before, I think it is frightening. And the reason I
    think it is frightening is that if we add that kind of debt to
    our fiscal situation, we need to service that debt. If we
    service that debt, we can only do it in one of two ways. Either
    we have to raise taxes, or we have to borrow even more. Raising
    taxes, we know, is not good for the economy. There are many,
    many studies that document that. Across countries, over time
    periods, I referenced some in my formal testimony. But in
    addition to that, if we try to borrow, what we will end up
    doing is driving up interest rates. We are already starting to
    see that at the long-term of the Treasury structure right now.
        When we start driving up interest rates, what that does is
    it imposes costs on businesses that are trying to borrow and
    trying to invest. And the one thing we do know is that
    investment is a huge driver of economic growth, and job growth
    depends on economic growth. So I guess I am very concerned
    about the effects of long-term deficits and the kinds of high
    deficits that you referred to, sir, on both economic growth
    through interest rates and through confidence in the United
    States as a place to invest.
        Mr. HERGER. I have to mention another concern that I have.
    As we look around the globe, we look at what has taken place in
    Greece, what has taken place in Ireland, some other countries,
    we can see that an economic crisis, a fiscal crisis can develop
    very suddenly. And my concern is with what we have seen take
    place, how quickly it can happen with, again, this incredible
    debt that we are seeing taking place here in the United States.
    In your opinion, are we currently on the fiscal path that could
    trigger a crisis similar to what we have seen in some of these
    countries, only on a much more substantial scale considering
    the size and importance of our economy?
        Ms. BOUSHEY. Can I take that one?
        Mr. HERGER. Dr. Biggs.
        Mr. BIGGS. In my written testimony, I quoted the well-known
    economists Ernest Hemingway who said that people go bankrupt
    two ways, gradually and then suddenly. And we are in the
    gradually phase now, we are accumulating more and more debt.
    For the moment we can bear that burden. We have been advantaged
    by the fact of financial instability in other parts of the
    world that has sort of a flight to safety approach and it helps
    the U.S. in the short term.
        Over the long term, though, both the history and theory of
    financial crisis isn't going to happen very quickly, they are
    like a bank run you don't know exactly what causes it, but once
    panic sets in and confidence is lost, these things can happen
    very, very fast.
        So the point is you don't want to get yourself into the
    region where that can happen. You can't say precisely when or
    what will trigger it, once you are in the region, that can be a
    very difficult place to be.
        Mr. HERGER. Would you say we are in the region again
    looking at the region that Greece was in?
        Ms. BOUSHEY. I would look at----
        Mr. BIGGS. I think we are entering the region now.
        Ms. BOUSHEY. I would look at what has happened in Ireland.
        Chairman CAMP. Would you please suspend? The gentleman will
    direct a question to you, thank you.
        Mr. HERGER. Dr. de Rugy.
        Ms. DE RUGY. One of the things we know is that investors
    rate a country on a curve, so basically, and this is why there
    is so much uncertainty and we can't tell you and pinpoint
    exactly when the crisis will happen. But one of the things that
    we know is that there will be a moment where it is really
    possible, and this is one of the things that keeps me up at
    night, where our investors are going to look at the U.S. and
    they are going to think that we are not as safe as we used to
    be, and they are first going to start to ask for a premium for
    potential risk of inflation, and they are also going to ask
    potentially for premium and that could happen.
        Chairman CAMP. All right. Thank you. The gentleman's time
    has expired. Mr. Levin is recognized. I am sorry. Mr. Rangel is
    recognized.
        Mr. RANGEL. Thank you, Mr. Chairman. The staff reports that
    the Bush tax cuts cost us about a loss in revenue of $1.6
    trillion, and the extension for the 2 years, $500 billion. Do
    any of you contradict that this increased our debt that we owed
    to have a negative impact? Or is that accepted? Silence means
    you agree.
        Mr. BIGGS. If I could quickly note. One of the points I
    made in my written testimony is that the fiscal gap, the CBO
    projects over the next 25 years and beyond is entirely a result
    of higher spending. The historically income taxes or total
    taxation has been about 18 or so percent of GDP, the CBO
    projects that going over the next 25 years taxes will equal
    20.7 percent of GDP.
        Mr. RANGEL. Let me try the question then. We had a deficit
    then and after the tax cut, you would agree that we didn't have
    the money to pay for it, we have to borrow the money to pay for
    it, the same way we have to borrow money for the $500 billion
    extensions of the President Obama continuation and extension of
    it. I don't think anyone wants to challenge, if you don't have
    the money and you reduce the revenue that the tax system says
    you can get, that you borrow that money----
        Mr. LAZEAR. I guess I would----
        Mr. RANGEL [continuing]. By short term.
        Mr. LAZEAR. I would respond to you two ways, Congressman.
    The first thing I would say is that the Bush tax cuts were in
    effect primarily throughout the Bush administration, that was a
    relatively benign period in terms of both----
        Mr. RANGEL. If we borrowed the money in order to do it, the
    answer is yes.
        Mr. LAZEAR. Excuse me, Congressman.
        Mr. RANGEL. What I am trying to say is, do you believe that
    we can raise any revenue now and it would help us to close the
    deficit?
        Mr. LAZEAR. That was my second point.
        Mr. RANGEL. Well, that is my first point.
        Mr. LAZEAR. All right. Sorry, sir. Which is that there is a
    short-run effect and a long-run effect. And I think what I
    think we are concerned about primarily is the long-run effect
    on economic growth. Whether we can get a year or 2 of
    additional revenue by increasing taxes right now, that is
    possible. I wouldn't deny that, there is some ambiguity there.
        Mr. RANGEL. If I was to share with you where we would get
    that money would be in closing tax loopholes that technically
    some people would say----
        Mr. LAZEAR. Yeah.
        Mr. RANGEL. They are getting a tax increase, but most
    economists agree that our corporate tax rate is too high at 35
    percent, but that the actual tax rate that corporations is
    closer to 20 in terms of what it should be in the first place.
    If you cut out all the preferential treatment and brought more
    equity to the table, that it would be perceived that America's
    the place to invest and that high corporate taxes would not be
    negative, do you agree with that?
        Mr. LAZEAR. I certainly agree with you.
        Mr. RANGEL. So you don't mind reducing revenues by
    reforming the system?
        Mr. LAZEAR. I think I better not start my statement with
    ``I certainly agree with you'' because you are going to cut me
    off right there. But go ahead, sir.
        Mr. RANGEL. But you do believe that having tax reform could
    make it easier to reduce the corporate rate?
        Mr. LAZEAR. I absolutely agree there is tremendous room for
    reform if our tax structure and corporate reform would be part
    of it.
        Mr. RANGEL. And reduce the rates?
        Mr. LAZEAR. Well, that is not my preferred solution. I was
    on the President's tax panel for a year before being chair of
    the council.
        Mr. RANGEL. You think rates should stay at 35 percent?
        Mr. LAZEAR. We had a different plan.
        Mr. RANGEL. I know, I am only talking about the rates. I
    know you know more about this than me, that is why I want to
    find out.
        Mr. LAZEAR. Well, I thought that was why you were asking
    me.
        Mr. RANGEL. The corporate rate is now 35 percent, right?
        Mr. LAZEAR. The corporate rate is 35 percent.
        Mr. RANGEL. And you support reform, right?
        Mr. LAZEAR. I do.
        Mr. RANGEL. And I am only asking would you support a
    dramatic reduction in the corporate rate at the same time?
        Mr. LAZEAR. I would prefer to see reductions in the
    corporate rate to the current rate, but there are alternative
    ways to do that that I would prefer than reducing the corporate
    rate.
        Mr. RANGEL. Okay. Well, when you talk about reducing or
    cutting back and spending, and everyone says it that way, that
    doesn't necessarily mean that you are saving money, does it?
        Mr. LAZEAR. It doesn't necessarily mean that you are saving
    money. What our concern is, again, that we need to have a tax-
    and-spend structure that is healthy for the economy in the long
    run. I don't see us getting to that by the solution that you
    are proposing, sir.
        Chairman CAMP. All right the gentleman's time has expired.
    Mr. Johnson is recognized.
        Mr. JOHNSON. Thank you, Mr. Chairman.
        You know, one aspect of the current fiscal debate which I
    don't think has received enough attention is foreign holdings
    of U.S. debt. As you may know, foreign-held debt has doubled
    during the last 5 years from just over $2 trillion to nearly
    $4.4 trillion. During this time, China has become the number
    one foreign holder of U.S. debt. In fact, China holdings have
    more than tripled to $1.16 trillion. In response to these
    developments, I introduced last year the Foreign-Held Debt
    Transparency and Threat Assessment Act, legislation aimed at
    raising awareness of the threat to our economy and national
    security of our exploding debt.
        So with that said, what would be the economic consequences,
    especially with respect to job creation if China decided to
    significantly cut back its holdings of U.S. debt, one? And what
    would this mean for Main Street, small businesses, especially
    with respect to access to affordable credit? And I would
    appreciate Lazear, Biggs and de Rugy to answer first, and then
    Ms. Boushey as time permits.
        Mr. BIGGS. Sure. I will start quickly. Obviously, a large
    portion of the debt that has been issued and is currently being
    issued by the United States is held by overseas investors,
    including China. I am not an expert on foreign policy, but
    obviously, it does constrain our foreign policy choices. There
    was a New York Times story I remember a year or so ago when
    President Obama was visiting China, and the point of the story
    was that ordinarily our American President can go over to China
    and speak very forthrightly about human rights issues or
    national security issues, but in this case, we are now talking
    to our largest creditor. So that constrains us on non-economic
    policies.
        In terms of if China or other foreign holders were to
    essentially give up their holdings of American debt, I think
    the likely outcome then will be a devaluation of the dollar,
    which would have disruptive effects on the economy here in
    terms of jobs, job dislocations.
        Mr. LAZEAR. We did a study, sir, in 2007, again, at the
    Council of Economic Advisors and we looked at this. It was a
    big concern then, it is a much bigger concern now. At that
    time, we estimated that if China were to get rid of their
    treasury holdings, it would cost about 100 basis points in
    terms of an increase in interest rate, which is not enormous,
    but it is certainly significant and would have a significant
    impact on the economy.
        I think the more important point, though, is not the
    immediate impact on the economy, the more important point is
    the one that Dr. Biggs just talked about, which is the long-run
    impact.
        The United States enjoys a special position in the world of
    having the reserve currency, and that is a very important
    position for us. We have that status not by right, but because
    we have earned it, and we can certainly do things that will
    earn someone else the right to have that status in the future.
    So I think the big concern is that we need to show that we have
    our house in order so that others in the world will be willing
    to continue to hold our currency as the reserve currency.
        Mr. JOHNSON. Thank you.
        Ms. DE RUGY. I agree with my colleagues. I would add,
    though, that I think Lauren Kaines is the one who said if you
    borrow $1 from your bank, your bank owns you, and if you borrow
    $1,000 from your bank, you own the bank. And I want to
    believe--even though I agree with you guys--that China, I mean,
    by choice, should have our best interests at heart. The problem
    is what happens if China gets into a recession of its own and
    actually starts slowing down the amount of capital that it
    sends our way? Just that could actually throw us into disarray
    and raise interest rates. This is the concern I have.
        And one of the problems we have, I mean, even though it is
    in theory, not that much of a concern, is this amount of money
    that foreigners have, I mean, they are less loyal to American
    interests than domestic investment. And this is the reason why
    Japan, for instance, has been able to actually have these level
    of debts is that 95 percent of their debt held by the public is
    held domestically. You have lesser of a flight instinct in
    theory.
        And so, yes, it does expose us to significant risk, even
    though I just don't think it would be just in order to hurt us,
    it would be to protect their own investment. And if China gets
    in a serious recession, they will have no other choice than to
    stop sending that much money our way.
        Mr. JOHNSON. Go ahead, Ms. Boushey, if you wish.
        Ms. BOUSHEY. I agree with many of the comments up here. I
    want to focus on one thing that Dr. Biggs said, which is that
    that would lead to a devaluation. One, it is highly unlikely
    that China would do that because it would make their goods more
    expensive. We import a lot from them. But number two, if that
    were to happen, that would make our exports cheaper. So in many
    senses, some of the outcomes of that would be good for American
    manufacturing and for goods that we export. So there is a pro
    and a con there.
        Mr. JOHNSON. Thank you very much. I appreciate that.
        Chairman CAMP. Thank you.
        Mr. Stark is recognized.
        Mr. STARK. Thank you, Mr. Chairman.
        I would like to address this to Ms. Boushey. The
    Republicans have been busy over the last couple of months. They
    have passed legislation that would end foreclosure assistance
    programs with no alternative solution, they have repealed the
    Affordable Care Act with no alternative, they have moved to
    defund National Public Radio, to end public financing of
    campaigns so corporate money will have more influence on
    elections. They voted to extend the PATRIOT Act and make
    gradual cuts in domestic programs such as education, public
    safety, environmental protection.
        Today we are going to vote to spend $300 million on a pet
    project of the Speaker to use taxpayer dollars to subsidize
    private schools. And next week we will vote to restrict safe
    access to abortion.
        Now Ms. Boushey, will any of these bills create jobs?
        Ms. BOUSHEY. Well, it is a long list, and my instinct is
    that many of them may not. But let me just focus on a couple
    that you mention on that list. One thing that a number of the
    panelists up here have spoken about is the long-term health
    care costs are a critical piece of this long-term----
        Mr. STARK. I asked you a question; will any of those bills
    create jobs?
        Ms. BOUSHEY. I don't think any of those appear, of the list
    that you mentioned, focused on job creation.
        Mr. STARK. I don't think they will either. So do any other
    panelists have estimates on how many jobs will be created if
    these bills became law? Go ahead.
        Ms. DE RUGY. I mean, I don't think--you are probably right
    that this is not the point of this job. But I think there is
    the case to be made that the Federal Government should probably
    not be involved in absolutely everything that concerns our
    lives, and maybe there will be some very positive impact on
    having the Federal Government scale back its intervention on
    Americans lives.
        Mr. STARK. And how will that create jobs?
        Ms. DE RUGY. The less intervention and the less you tie
    Americans' hands, the more you help them actually do what they
    are good at, which is investing, entrepreneurial, create
    wealth, and help the economy grow.
        Mr. STARK. Any other panelists have any idea how those
    bills will create jobs?
        Mr. LAZEAR. Sir, I would comment on one of them, and that
    would be the health care legislation.
        Mr. STARK. I didn't mention that.
        Mr. LAZEAR. I am sorry, I thought you did.
        Mr. STARK. No, I didn't.
        Mr. LAZEAR. Okay. Then I withdraw my comment.
        Mr. STARK. Okay. You want to talk about health care
    legislation? I would be happy to do that. It is entitlement
    reform, it reduces Medicare spending, it extends solvency of
    Medicare for about 12 years.
        Mr. LAZEAR. The health care legislation, while scored by
    CBO as deficit reducing--and I will accept that as a given,
    also----
        Mr. STARK. What do you know about health care? You are not
    a very good economist, but I wonder what you know about health
    care? We have a group of second-rate economists here. And I
    don't know where they dragged--scraping the bottom of the
    barrel.
        Chairman CAMP. I would say to the gentleman, I think if we
    could confine our remarks to the topic at hand and not
    personally disparage the witnesses----
        Mr. STARK. It seems like the topic at hand is where you
    found these clowns.
        Chairman CAMP. Well, one of them is a Democrat witness.
        Mr. STARK. I understand that.
        Chairman CAMP. So they are not all Republican witnesses. It
    is the gentleman's time to proceed.
        Mr. LAZEAR. I am sorry. Would you repeat the question, sir?
        Mr. STARK. Well, I just wondered about your expertise in
    health care.
        Mr. LAZEAR. Oh. Well, you probably recall that I was the
    President's chief economic advisor for 3 years. We spent a lot
    of time talking about health care. The 2007 State of the Union
    address was all about health care, and I was instrumental in
    devising that.
        So I have certainly thought a good deal about health care
    over my career. But I don't think my credentials are really all
    that relevant at this point, the Senate has already confirmed
    my credentials.
        I think what I would like to talk to you about is the
    health care legislation. If you want to hear about it, I am
    certainly happy to talk about it, because as it concerns job
    creation, which I thought was your question, recall that the
    expenditures in the health care bill that we are talking about
    are about $1 trillion----
        Mr. STARK. Let's hear from Ms. Boushey about this. What do
    you think; health care have anything to do with this?
        Ms. BOUSHEY. Well, health care does have something to do
    with the long-term deficit, and so we do need to take steps and
    did take stops in the Affordable Care Act to get health care
    costs under control over the long term. And I would encourage
    you to continue to focus on that because if we care about the
    deficit--which is what this panel is about--then we should care
    about thinking about that in the long term?
        Mr. STARK. Thank you very much.
        Thank you, Mr. Chairman.
        Chairman CAMP. Thank you. Mr. Brady is recognized.
        Mr. BRADY. First to the panel, let me apologize to you for
    Mr. Stark. We may disagree on conclusions, but your
    credentials, lifetime of credentials in economics is so very
    impressive, and we appreciate you taking your time today to
    share that with this committee, and therefore with Congress.
        I think we are hearing a lot of Draconian projections about
    job losses due to minor spending reductions. But those same
    economists got it so wrong in the stimulus. Here we are 2 years
    later spending over $800 billion, we have 2.2 million fewer
    jobs today in America than when the stimulus began. We were
    told at this point the unemployment rate would be 6.9 percent--
    off by a mile. Mark Zandi, who was cited earlier today, he
    predicted we would create 4 million new jobs by the end of
    2010, we actually had 3 million fewer. He was off by 7 million
    jobs. It is time to stop listening to the economists who got it
    wrong and start listening to the economists who got it right.
        I want to pull up two charts, if I may, that follow on the
    testimony we heard today from our panelists. This chart follows
    the last 40 years in America. The blue line charts Federal
    Government spending from here in Washington. The red line
    charts job growth in the private sector, jobs along Main
    Street. As you can tell from the chart, there is no correlation
    between higher government spending and job growth in the
    private sector. In fact, for each of the four decades, there is
    a negative correlation between higher Federal spending and job
    growth in the private sector.
        The next chart tracks as--again, inspired by the testimony
    we have heard today--this tracks business investment, private
    business investment in America the last 40 years versus job
    growth in the private sector. What it shows is a very strong
    correlation in each of the last four decades; when businesses
    large and small buy new equipment, new software, invest in new
    buildings, jobs along Main Street grow.
        And so for Dr. Lazear and Dr. Biggs specifically, one, I
    would like your comments on the role of private investment in
    creating private sector jobs. And secondly, because, Dr. Biggs,
    the Joint Economic Committee report, ``Spend Less, Owe Less,
    Grow the Economy'' cited your study that our international
    competitors who got themselves in debt trouble, and reduced
    their debts credibly through spending cuts, not by tax
    increases, were able to grow their economy in the short term as
    well as the long term. So I would like both Dr. Lazear and Dr.
    Biggs' comments on these points.
        Mr. LAZEAR. Yes, sir. Congressman, let me start. I
    certainly agree that investment is a key component to both
    economic growth and job growth. In the short run, the chart
    that I showed is quite consistent with the one that you are
    showing now, which is that we do know that you just don't get
    job growth in the short run without seeing growth in economic
    activity. So the question is, how do we get growth in economic
    activity? I have never been a strong believer in the notion
    that the government can create a lot of economic activity.
    Occasionally, we can move it around--I think the government has
    done that in the past couple of years--but I don't see a lot of
    effect on aggregate economic activity from the kind of
    government programs that we have seen.
        In the longer run, the more important effect of investment
    is actually not on the number of jobs, it is on wages. And the
    reason it works on wages is that wages are very closely linked
    to productivity growth. And in order to get productivity
    growth, you have to have investment. And I would include in
    that, by the way, investment in human capital as well as
    investment in physical capital.
        Mr. BRADY. Thank you. Well said.
        Mr. BIGGS. Well, since Professor Lazear discussed
    investment, I will try to focus on the second part of your
    question since time is short.
        The study you referenced, and obviously the literature that
    I reviewed in my testimony has found that countries that
    attempt to get on top of their budget problems through reduced
    spending tend to be both more successful at cutting their
    deficit and debt, but also have better economic outcomes than
    those who try to address their budgets through increased taxes.
        For anybody who is doubting this, that is just my opinion.
    My testimony includes a large number of references to these
    findings in peer review journals that come to the same
    conclusion.
        I discuss there is a controversy among economists about to
    what degree fiscal consolidations will spur economic growth to
    help the economy. One number I cited from an IMF study found
    that a spending-based fiscal consolidation would produce
    unemployment half a percentage point lower than a tax-based
    fiscal consolidation 3 years after it took place. That was from
    a study that people cite as being a more pessimistic one in
    terms of these outcomes.
        So I can't promise you that cutting spending is going to
    rapidly increase growth, but given that you have to get on top
    of your budget, the research seems clear that going at it on
    the spending side seems to be more successful and better for
    the economy than going at it from the tax side.
        Mr. BRADY. Thank you. I yield back.
        Chairman CAMP. Thank you.
        Mr. Nunes is recognized.
        Mr. NUNES. Thank you, Mr. Chairman.
        Ms. Boushey, in your testimony you mention two wars that
    were unpaid for. Were you referring to Iraq and Afghanistan, or
    . . .
        Ms. BOUSHEY. I was.
        Mr. NUNES. How about Libya; is that unpaid for? Paid for?
    How does that fall?
        Ms. BOUSHEY. I was referring to the run-up in spending over
    the 2000s alongside tax cuts. So I was trying to make the point
    that the deficit was something that we inherited at the end of
    the last administration.
        Mr. NUNES. Right. I just want to clarify that the two wars
    you were referring to are Iraq and Afghanistan.
        How does Libya compare, what is happening in Libya today,
    compared to those two wars being paid for or not paid for?
        Ms. BOUSHEY. We are making choices about how we are
    spending scarce resources. I am not an expert on foreign
    policy, but as an economist who cares about job creation--and
    we are having this national conversation about deficits, it
    certainly is important for you to consider how those two pieces
    fit together. I would prioritize job creation here in the
    United States.
        Mr. NUNES. So the tax cuts that you are referring to that
    went alongside with the two wars, I assume those are the George
    W. Bush tax cuts of `01 and `03?
        Ms. BOUSHEY. Yes, sir.
        Mr. NUNES. And also supported by President Obama for a 2-
    year extension last year?
        Ms. BOUSHEY. As a part of a compromise that also extended
    unemployment insurance, yes.
        Mr. NUNES. So President Obama has basically carried forth
    not only going into wars that aren't paid for--right? In Libya,
    you agree with that?
        Ms. BOUSHEY. Wars in times of deficits, so yes.
        Mr. NUNES. And also supporting the extension of the tax
    cuts. So you disagree with the Obama administration's positions
    on wars that are not paid for and extending Bush tax cuts.
        Ms. BOUSHEY. Again, because I am an economist who doesn't
    focus on foreign policy, I don't want to comment on the war in
    Libya. However, on the tax cuts, that was a compromise where,
    in my professional opinion, those extensions to the unemployed
    were necessary, that was the price of getting it passed through
    Congress. So yes, I think we had to do it. But those tax cuts
    for the wealthy did not lead to the kinds of employment,
    investment, and wage gains that we would like to see, so I
    don't think that those--those are not what is going to be
    helping our economy right now.
        Mr. NUNES. So you sit around and you think about these
    things, you spend a lot of time researching this. So you don't
    support the current tax rates. I would just be interested to
    know, before this committee--since it is the tax writing
    committee--what rate should the tax levels be at? Let's take
    income tax and corporate income tax; what would you like to see
    those rates at?
        Ms. BOUSHEY. Well, one of the things that we talked about
    here on this panel this morning is the appropriate level of
    taxation. One of the ways that you can look at it--there are
    two points I would like to make. One is that the periods after
    which we have cut taxes for the wealthy over the past few
    decades--in the early 1980's and the early 2000's--and then in
    the early 1990's, we raised taxes, if you look at the
    recoveries to economic performance in the years after those
    different tax----
        Mr. NUNES. I understand the point that you are making, but
    what I am really interested in, since this is the committee
    that will take testimony and then we will begin to craft
    legislation, the chairman is looking at fundamental tax reform,
    so I think it is pertinent to this because tax reform is job
    creation. So do you have a range of what you think the tax
    rates should be on both the corporate side and the income tax
    side? Can you give us any number at all of what we should be
    looking at?
        Ms. BOUSHEY. I can't give you one number because it is
    complicated, but I do think that certainly higher would be my
    first answer. And second, one idea would be thinking about, the
    United States is one of the most lowest income tax countries in
    the OECD. If we just bumped up to the revenue generation
    strategies of Canada--our neighbor to the north who hasn't seen
    the same economic turmoil that we have--we would still be in
    the bottom third of all OECD countries, but we would be able to
    solve our deficit problems.
        Mr. NUNES. So you would like to see us at 25 percent of
    GDP?
        Ms. BOUSHEY. I can get back to you on a specific number. I
    am hesitant to say something without sort of doing some
    calculations that are hard to do at this moment.
        Mr. NUNES. I would assume that is probably what Canada is,
    roughly?
        Ms. BOUSHEY. I can't remember off the top of my head, but I
    am happy to get back to you.
        Mr. NUNES. But you will get back to me what percentage of
    GDP the tax rate should be at?
        Ms. BOUSHEY. Yes, sir.
        Mr. NUNES. And I know we are at a limited time here, but
    Mr. Lazear, what rate do you think the tax rate should be at
    that would get us to a point where we could get into job
    creation where businesses would be willing to invest?
        Mr. LAZEAR. Well, again, I don't think of the tax rate as
    generating jobs in the short run, and I don't think of
    expenditures as generating jobs in the short run. I think that
    the steps that we took in late 2008, early 2009 to get
    ourselves through the financial crisis are the steps that were
    appropriate in creating the job growth. We are going to see it,
    unfortunately, slower than I think we all had hoped, but that
    is where it is going to go.
        What I would say is that historically, our tax rate has
    been at 18 percent. We have been able to do quite well in terms
    of supporting the economy, growing the economy, supporting the
    government and doing the necessary things that government has
    to do with an 18 percent tax revenue over the past 30 years.
    That also means we have run about a 2 percent deficit. So at a
    2 percent deficit, we are bringing down the ratio of debt to
    GDP.
        Mr. NUNES. Mr. Chairman, I would also like to associate my
    comments with Mr. Brady's, that I don't think any of you are
    clowns or second-rate economists. I apologize for that.
        Chairman CAMP. Thank you.
        Mr. McDermott is recognized for 5 minutes.
        Mr. MCDERMOTT. Thank you, Mr. Chairman. I would ask
    unanimous consent to enter into the record, March 29, 2011, a
    letter to Harry Reid, Boehner, McConnell and Pelosi from 34
    chief executive officers of alternative energy companies.
        Chairman CAMP. Without objection.
        [The information follows:]

        Mr. MCDERMOTT. I put that in because I want to commend you
    on having brought to us today the architect of the Bush failure
    and a representative of the Koch Institute's ideas about the
    economy. It is important.
        I want to ask both of you a question. This letter says,
    ``We urge you to continue funding the Department of Energy's
    loan guarantee program for Section 1705 and 1703''--and I am
    sure, Mr. Lazear, you know what those are about. And it says,
    ``We are investing in projects with pending loan guarantees
    based on the good faith action that the DOE programs would
    function as stipulated in the law as the Congress intended. We
    are deeply concerned that eliminating funding for these
    critical programs would not only destroy thousands of pending
    jobs and hinder the growth of critically needed U.S. domestic
    energy production, but also defeat America's effort to compete
    with China, Germany, and others in the clean technology
    marketplace.'' They go on to talk about the fact that they have
    already invested $26 billion, and that has led to another $42
    billion in investment.
        Now listening to you, one would think that any investment
    by the government in anything in the private sector was bad. Do
    you think these 34 executives are wrong in asking for loan
    guarantees from the United States Government? Do you think
    President Obama's plan to give them loan guarantees to create a
    clean energy industry is wrong?
        Mr. LAZEAR. I guess I would make two comments. One is,
    first of all, I am not an anarchist, I don't think that
    government investment is always a bad thing.
        Mr. MCDERMOTT. So you think the CR that is being considered
    by the Tea Party Members of the House of Representatives is bad
    for the economy because it kills jobs?
        Mr. LAZEAR. No, I didn't say that. And I am not familiar
    with that legislation, so I won't comment on it. But what I did
    say was----
        Mr. MCDERMOTT. Don't you work at the Hoover Institute? I
    mean, you are looking at the economy. You are not paying
    attention to what these guys are doing?
        Mr. LAZEAR. I am trying to pay attention to what you guys
    are doing, and I hope that I am doing that in a fair and
    accurate way.
        The question that you asked in terms of do I think that the
    CEOs are justified in making their case? I certainly think they
    are justified in making their case for the industry----
        Mr. MCDERMOTT. No, no, no. You sat at the Bush table and
    created this thing.
        Mr. LAZEAR. Which thing is it that you are referring to?
        Mr. MCDERMOTT. These loan guarantees. I mean, you put this
    economy together, so you are saying they have a right to make
    their case. Of course they do.
        Mr. LAZEAR. I wish I had such power, sir. But what I
    believe we can do is I believe we can move resources around. I
    am less convinced that we can have an effect on aggregate
    economic activity. So my concern is not that we cannot create
    incentives for one industry to take off perhaps at the expense
    of another industry. I think the issue that we are concerned
    with today--and I am sure it is the issue that you are
    concerned with as well, sir--is creating jobs at the aggregate
    level, not simply moving them around. And I am not convinced
    that the kinds of stimulus activity that we have done has done
    much more than move jobs around.
        Mr. MCDERMOTT. I asked you about a specific program, a
    green energy program to compete with China.
        Mr. LAZEAR. I thought I answered your question.
        Mr. MCDERMOTT. Do you think aiding that industry in this
    country is a good idea?
        Mr. LAZEAR. Again, I am not a person who believes that it
    is good to pick industries and to invest in particular
    industries. I don't think that any government does a very good
    job of that. Occasionally, we do make decisions like that. For
    example, we do make decisions to fund education, we do make
    decisions to fund research. We have to make those decisions at
    the level of government. Sometimes we make mistakes, but I
    think----
        Mr. MCDERMOTT. Do you think, then, that the programs we
    have aiding the oil industry and the write-offs we give them,
    are they useful?
        Mr. LAZEAR. Again, I am not in favor of picking industries
    and aiding particular industries?
        Mr. MCDERMOTT. So you would end the oil subsidies as well?
        Mr. LAZEAR. As I said, I believe in policies that are as
    industry-neutral as possible.
        Mr. MCDERMOTT. I would like to hear from the Koch brothers.
        Ms. DE RUGY. Well, are you asking me whether anyone has put
    these words in my mouth? I am here just to talk about my
    research. And at Mercatus, we have a strict policy of
    separation and independence research. So I am talking about
    myself.
        Chairman CAMP. The time has expired, so if you could just
    very quickly comment. All right.
        Mr. NUNES. Mr. Chairman, would you yield? I just think that
    the committee has asked these panelists to come here, and I
    would just hope that both sides of the aisle would refrain from
    lobbing personal insults to the panelists.
        Mr. MCDERMOTT. Mr. Chairman, it is not an insult to say
    that the institute for which this woman works is funded by the
    Koch brothers. That is not an insult, that is a statement of
    fact.
        Chairman CAMP. All right. Why don't we continue on in
    regular order.
        Mr. Tiberi is recognized.
        Mr. TIBERI. Thank you, Mr. Chairman. I, too, apologize for
    the name calling today, it is just unwarranted.
        Ms. Boushey, just to comment--and I am not asking a
    question--in your exchange with Mr. Nunes here, you blamed the
    2001 tax cuts, the 2003 tax cuts, in part for our structural
    deficits. It is interesting to note that in February, just last
    month, we had a higher deficit than we had the entire year of
    2007, years after both tax cuts were in place. That is not my
    question. My question to you, ma'am, first; your research with
    respect to this debt that we have, the structural debt that we
    have today, what would it do to solve, in part, that debt
    problem--which the President's budget just punts on--if we just
    raise taxes to do it? What impact would that have on our
    economy and job creation in the private sector?
        Ms. DE RUGY. Well, I mean, I think it will have--I think we
    have already said it, it will probably have long-term
    disastrous consequences for economic growth. I mean, in order
    to get tax revenue, you need a thriving economy. And if you
    increase taxes to the point where there creates your
    disincentive to work, you will not get the revenues that you
    get. In fact, I would like to mention the research by Christina
    Romer, the former Chair of the Council of Economic Advisors,
    and her husband, David Romer, that has shown that if you raise
    taxes by 1 percent point of GDP in order to reduce the deficit,
    what you get is a decrease in GDP by 3 percent. And her
    research is very consistent with a lot of the economic research
    on this issue, so it would just not be a good idea.
        I would like to add one more point, which is that every
    solution that members of this committee design has to be
    realistic. I mean, in the history, in the last 60 or 70 years,
    as Mr. Biggs has said, the average rate of tax collection has
    been roughly 18 percent of GDP. Whether we like it or not,
    whether we think it should be higher or not, it is a reality
    and this reality is nonnegotiable.
        So any solution that we design should actually have a
    realistic expectation about what the government can do. For
    instance, the Deficit Commission, unfortunately, its solution
    rested on the government being able to raise 21 percent of GDP
    consistently. It has never happened before, and there is no
    reason to think that it would. That is why I am begging you
    to--whether we like taxes or not, to at least design solutions
    that are consistent with what the government can do based on
    how people respond.
        Mr. TIBERI. Thank you.
        Mr. Biggs, kind of to tail on what you just talked about in
    your research, when the private sector looks--from what I have
    heard back in my district from small business owners--looks at
    things that we do or don't do, whether it is uncertainty on
    what the Tax Code is going to be or a health care bill that is
    going to add cost to employers, they say that it causes them to
    kind of stand in place, not hire. Does your research indicate,
    whether it is the health care bill or the uncertainty of the
    Tax Code and the structural debt that they believe will cause
    us to increase taxes significantly, impact behavior in the
    research that you have done?
        Mr. BIGGS. Well, the research I have reviewed shows that
    one of the reasons why getting on top of your budget problems
    in the near term can spur economic growth is because it
    resolves these sorts of doubts that people have. Any investor
    dislikes risk. Risk reduces the value of your investment.
    Similarly, if you know that you are going to have higher costs
    in the future because taxes are going to decrease, that makes
    you less likely to invest as well. So resolving these issues in
    the near term helps both individuals, businesses and financial
    markets have confidence in the activities they are undertaking,
    and as a result they seem to undertake more of them. So there
    is a connection between getting on top of our fiscal problems
    in the right way and helping the economy recover over the long
    term.
        Mr. TIBERI. Mr. Lazear, I see you have a comment?
        Mr. LAZEAR. I completely agree with the points my
    colleagues raised. I still think that what we need to do is
    get--the kinds of things the government does and does
    effectively is not pick sectors, not try to grow particular
    programs, not try to grow particular jobs, but rather to create
    the kind of environment that is conducive to private
    businesses, the ones to which you referred, and allowing them
    to do the growth. And what that means, we really only know one
    way to do this, and the way we know to do this is to keep taxes
    low to allow for an open economy and to make sure that markets
    are free and open. And that is the best that the economists, I
    think, can advise you.
        Mr. TIBERI. Thank you. My time has expired.
        Chairman CAMP. Mr. Lewis is recognized.
        Mr. LEWIS. Thank you very much, Mr. Chairman.
        Dr. Boushey, the Bush tax cuts have been in place now for
    almost 10 years and they have not created a single job. During
    the Clinton administration, we created more than 22 million new
    jobs. In fact, we have lost hundreds of thousands of jobs, the
    budget is no longer balanced, the deficit increased under the
    Bush administration, and we all know the unemployment numbers.
    Despite this failed policy, Republicans want these tax cuts to
    continue and claim they will create jobs. What is your response
    to this argument? What would you suggest we do in terms of a
    tax policy to create jobs?
        Ms. BOUSHEY. I have two comments on that. Number one, the
    kinds of tax cuts that happened at the beginning of the Bush
    administration were focused on the highest income earners in
    the country, not necessarily people that invested that money in
    job creation, but just rich people in America. The evidence
    shows that that was not something that led to an increase in
    investment. We saw the slowest investment growth of any
    recovery in the recovery that happened in the 2000s after those
    tax cuts. The logic was you give more rich people their money
    back, they were going to invest and create jobs. Quite frankly,
    we know now that they didn't.
        At the same time, what you saw happening over the 2000's
    was a squeeze on the middle class. Again, that was the only
    economic recovery in the post-World War II period where middle
    class families had less income at the end of it than they did
    at the prior peek before the recession in the early 2000's.
    That, again, is failure, and that, of course, is part of the
    economic stability picture that we have seen in the ensuing
    years, families lost income, they put more people in the labor
    force, they took out more loans. And that, of course, was a
    piece of the housing bubble and the ensuing crisis.
        Then the third point I want to make is that, one of the
    things that we haven't talked enough about this morning is that
    we continue to be in a unique economic situation. The models
    that economists have about taxes and spending are, for the most
    part, research done in ``normal'' economic times. But we are in
    a moment where interest rates are at zero, they have been for a
    number of years now; we are in what is called a liquidity trap,
    where even if the government continues to spend, it is not
    crowding out private investment. There is no evidence that that
    is happening right now. And a piece of that is how we get to
    this output gap and how we need to keep spending. So while we
    may need to sort of deal with this deficit in the long term, in
    the immediate term, if we do that, we will probably experience
    the kind of contraction that the U.K. and Ireland are now
    experiencing after their austerity packages.
        Mr. LEWIS. Now, Dr. Boushey, I grew up in a little place in
    southern Alabama called Troy. And back then, a long time ago,
    when I was growing up--and up until some years ago in Alabama
    and many other parts of our country--people could kind of get a
    solid, dependable job at one of the local plants or factories.
    But our economy has changed now, hasn't it, Dr. Boushey?
        Can you explain why cutting investment in education will
    only lead to worse unemployment? What effect will reducing
    investment in transportation have on our economy? How are goods
    and freights supposed to be moved across our country if we do
    not take care of our roads, our bridges?
        Ms. BOUSHEY. Definitely. I mean, we have seen a decline in
    the middle class for decades now. And economists have tracked
    this polarization in the U.S. labor market with a growth in
    jobs at the low end, at the high end. But over the 2000's, we
    didn't even see the kinds of growth at the high end. You have
    really just seen a bottoming out of our labor market, and that
    has been hard on families. A piece of that right now, something
    that we can be doing is making these investments in
    infrastructure, in education, that would get people in jobs
    now, but it would also lay the foundations for long-term
    economic growth.
        The American Society of Civil Engineers estimates that we
    can spend trillions of dollars just to repair our fraying
    infrastructure. And that has real consequences, not just for
    workers, but for small business owners. I live here in the
    District of Columbia on 18th and U, and across the street from
    me is a small business owner who has seen his water main break
    three times in the past few years, and each time leading to his
    business closing. Now, thanks to the recovery dollars, they are
    replacing the 100-year-old water main breaks on my street and
    so that small business owner won't see that kind of challenge
    moving forward. So these investments are not only good for job
    creation now, but they are what keep our economy moving
    forward.
        Mr. LEWIS. Dr. Boushey, the last question; I am sure you
    have heard the reports that the Republican CR will cost our
    economy 700,000 jobs.
        Chairman CAMP. Very quickly, because the gentleman's time
    has expired.
        Mr. LEWIS. If you were Speaker Boehner, what would you do?
    What would your response be to the thousands of people who will
    lose their jobs?
        Ms. BOUSHEY. I think I would encourage him to focus on job
    creation and building a strong middle class. And I would ask
    whether each of those items in the cuts he is making would
    actually accomplish those goals. And I think the answer is many
    of them are not focused on that goal.
        Chairman CAMP. Thank you.
        Mr. Davis is recognized.
        Mr. DAVIS. Thank you, Mr. Chairman.
        A recent report by the Committee for a Responsible Federal
    Budget suggests that one of the groups most likely to be hurt
    by massive debt are the poor. That is because, as the report
    puts it, ``the poor and working poor already facing tough
    living conditions are particularly vulnerable to any
    deterioration in the economy which will reduce limited
    employment and income opportunities. Debt-related higher
    interest rates, whether through crowding-out pressures or a
    fiscal crisis, will make conditions even worse. Chances are
    that the fiscal pressures and political battles will mean less
    safety net resources available.''
        I would like to ask the panel whether they agree with that
    view. And if we don't get the debt under control, who will
    suffer the most when it comes to undermining job creation, the
    rich, the middle class, or the poor? Who is the most at risk,
    and what are the lasting impacts? And we can begin with Mr.
    Lazear.
        Mr. LAZEAR. Well, again, I would refer back to the letter
    signed by the 10 CEA chairs because the scenario that you are
    talking about is exactly the one that we feared and that we
    were trying to speak to. If we encounter another crisis of the
    sort that we have now or one that is potentially worse, we do
    expect to see very high rates of unemployment, very low rates
    of GDP growth. And we know that when unemployment goes up, the
    groups that suffer the most are the ones who are most
    vulnerable.
        So certainly to your question, I don't think there is any
    doubt that if you see high rates of unemployment, the people
    who can't easily carry through that period of tough times are
    the people with the least resources. So obviously, my concern
    would be for those individuals.
        Mr. DAVIS. Thank you, Mr. Biggs.
        Mr. BIGGS. I would agree and echo Professor Lazear's
    remarks. In a weak economy, where you are facing financial
    instability, higher income people, better educated people,
    people with some assets, they have the greater ability to
    whether that, to hedge the risks, to adjust things to get
    through tough times. People who don't have that ability are
    just in a much more difficult situation. So the point here is
    that you want to strengthen the economy, in particular, for the
    people at the bottom who really do need the help over the long
    term.
        Mr. DAVIS. Thank you.
        Ms. Boushey.
        Ms. BOUSHEY. We are already in a crisis for those families.
    And I agree with you that we should be focusing on them. What
    we need to be doing is focusing on getting them back to work
    now. And once we do that, then we can deal with our long-term
    debt. We are sort of putting the cart before the horse.
        And again, I point to the situation in Ireland, for
    example, which bailed out its banks, did an austerity package,
    and now has seen its bond rates double. The austerity has
    actually worsened the economic situation. So focusing on the
    debt before you have gotten your labor market in order is only
    going to add to the woes of America's working class.
        Mr. DAVIS. Ms. de Rugy.
        Ms. DE RUGY. One of the reasons why low-income people and
    their families are hurting is because for many years this
    government hasn't been doing the right thing. And when I hear
    the conversation about tax cuts costing the economy, there
    might be something to this, but it is comparing oranges and
    apples because there is also the, during the Bush years, a 60
    percent increase in real term of spending, and we should not
    forget this. And it was unfunded, a large part of it.
        But to your direct question, one of the reasons we need to
    act today is if we don't get our debt under control, if we
    don't get our spending under control, we are going to find
    ourselves in a situation where it is going to be a dramatic
    change right away. And we are going to find ourselves in a
    situation where we won't be able to actually sell assets in an
    organized fashion, but we are going to have to cut things
    across the board, like a fire sale type of thing, and we won't
    have enough time to actually set our priorities and make sure
    that the neediest people in our society are taken care of.
        Mr. DAVIS. Thank you.
        As a follow up, when it comes to choosing between
    maintaining the status quo of out-of-control spending or
    protecting the opportunities for Americans to achieve self-
    sufficiency, I think it becomes obvious that that needs to go.
    There is a direct correlation between increasing debt and
    reduced opportunities, particularly the unwillingness or
    pensiveness of employers to hire people or create new jobs
    because of the economic uncertainty.
        Is there any additional collateral damage that will be
    caused by not addressing our debt issues, that it will impact
    those primarily the most in need? And we can start with you and
    go back across.
        Ms. DE RUGY. Absolutely. I mean, I think we all agree that
    the most vulnerable people in society are poor people, and they
    are the one paying the brunt of all of the downturn of the
    economy. One of the reasons why we need absolutely to reform
    Social Security today is so that the program can actually be
    reverted to actually its original purpose, which is take care
    of the neediest of society. And the problem is if we don't do
    anything today, by the time the trust fund assets run out, the
    Social Security program is going to cut benefits across the
    board by 22 percent, and the people who are going to be hurt
    the most are low-income people. So, yes, absolutely we need to
    do things right now.
        Mr. DAVIS. Thank you.
        Chairman CAMP. The gentleman's time has expired.
        Mr. Neal is recognized.
        Mr. NEAL. Thank you very much, Mr. Chairman.
        I want to thank Professor Lazear for saying that it was a
    good idea today to retrace our footsteps. Do you think in
    retrospect, Professor, that it was a good idea to cut taxes by
    $2.3 trillion and invade Iraq?
        Mr. LAZEAR. I am sorry.
        Mr. NEAL. I don't think that question could be any more
    clearer.
        Mr. LAZEAR. I just didn't hear the last three words. Oh,
    and invade Iraq.
        Mr. NEAL. Do you think, in retrospect, to cut taxes by $2.3
    trillion and invade Iraq?
        Mr. LAZEAR. And invade Iraq. I am sorry. Well, I certainly
    won't speak to the invasion of Iraq, that is outside of my area
    of expertise.
        Mr. NEAL. That is where the money has gone; $250 billion
    annually we are being asked to come up with and it is all
    borrowed money.
        Mr. LAZEAR. I understand that, sir. But again, if you look
    at the spending pattern during the Bush administration, what
    you will see is that spending average, 19.6 percent of GDP,
    which is the lowest level of spending----
        Mr. NEAL. You come back to those numbers. I am asking you a
    policy question, Professor.
        Mr. LAZEAR [continuing]. Relative to any recent President.
    So that doesn't mean that there aren't things that we could do
    that would improve the situation.
        Mr. NEAL. Were you in the room with Paul O'Neill, the
    Secretary of the Treasury?
        Mr. LAZEAR. No, I was not there.
        Mr. NEAL. You weren't there. Are you familiar with Lawrence
    Lindsey?
        Mr. LAZEAR. I didn't overlap with Lawrence Lindsey.
        Mr. NEAL. Do you accept now, in retrospect, his
    recommendation that we should have budgeted substantially
    greater dollars for the invasion of Iraq?
        Mr. LAZEAR. In terms of the accuracy of the budget, I think
    Larry was right, that it did cost more than I think they were
    projecting at the time, but again----
        Mr. NEAL. Well, good God, that is something we can all
    agree on in this room today.
        Now let me ask you this along the same line of reasoning
    here. President Obama mentioned on Monday night in his comments
    to the country that the war in Iraq was now going to cost $1
    trillion. Do you agree with that?
        Mr. LAZEAR. I haven't tallied up the exact number, so I
    can't testify to that right now.
        Mr. NEAL. Do you want to take a wild guess? That is
    frequently what economists do.
        Mr. LAZEAR. I prefer not to.
        Mr. NEAL. Do you agree with this following statement, that
    because of our VA system, for the next 40 or 50 years for those
    young men and women who have served us honorably, that they are
    going to be in need of a substantial amount of increased
    dollars for their health care?
        Mr. LAZEAR. I certainly think that we should take care of
    those who have served this country and take care of them well,
    absolutely, sir.
        Mr. NEAL. What is interesting about the commentary from our
    panelists today is Ms. de Rugy, she is of, I think, a similar
    mind to you on many of the policies here, but she is
    intellectually honest about what happened during the Bush years
    with spending. You haven't mentioned that.
        Mr. LAZEAR. I thought I did. I thought I gave you the exact
    numbers, sir.
        Mr. NEAL. Do you think that spending got out of control
    during the Bush years?
        Mr. LAZEAR. I thought I just told you--I stand by my
    statement.
        Mr. NEAL. Why don't you say it again.
        Mr. LAZEAR. The statement is, during the Bush years the
    average spend-to-GDP ratio was 19.6 percent----
        Mr. NEAL. All right. Let me come back to make perhaps a
    more simple statement. Are you arguing this morning that there
    was greater economic success during the Bush years than there
    was during the Clinton years?
        Mr. LAZEAR. I didn't say that.
        Mr. NEAL. I hope you didn't.
        Mr. LAZEAR. What I said was the economy certainly was doing
    very well during the period of 2006/2007. We had 4.4 percent
    unemployment. Those were very good times for the economy. We
    hit, obviously, one of the toughest financial situations we
    have had in this country in many, many years.
        Mr. NEAL. It needs to be acknowledged that TARP took place
    in October of 2008.
        Mr. LAZEAR. Correct.
        Mr. NEAL. Who was the President then?
        Mr. LAZEAR. President Bush.
        Mr. NEAL. Okay. That is a very important consideration as
    you lay out these dates.
        Now are you suggesting to me that on January 19, 2001, that
    the economy was ailing?
        Mr. LAZEAR. On January 19, 2001? Absolutely.
        Mr. NEAL. The economy was ailing?
        Mr. LAZEAR. Absolutely. We were in the beginning of the
    dot.com crash.
        Mr. NEAL. Let me take you back to this; do you think that
    it is accurate, as Mr. Lewis pointed out, that there were 22
    million jobs created during the Clinton years?
        Mr. LAZEAR. I understand that, but your question was, was
    the economy ailing in 2001? It certainly was ailing. We were
    going into a recession. We were going into the recession that
    started the Bush administration. We had just----
        Mr. NEAL. The Wall Street Journal says today that the
    economy began to tank in 2007.
        Mr. LAZEAR. Excuse me, sir. In 2000, we had two negative
    quarters of GDP growth. We were going into a recession.
        Mr. NEAL. This is the difficulty with witnesses coming here
    like this. I gave you some very basic numbers and you were
    evasive on them. And Ms. de Rugy, she was not evasive on those
    numbers. She was very clear; she said spending got out of
    control during the Bush years.
        Mr. LAZEAR. Sir, I am trying to answer your questions
    honestly, I am happy to do that. You posed a question, you
    said, do I think that we were in trouble in January of 2001?
    And I said absolutely. That is an honest answer. We were going
    into a recession. The data are clear on that. We had two
    negative quarters prior to that.
        Mr. NEAL. I am going to close on the statement with which I
    opened; do you think it was a good idea in retrospect to cut
    taxes by $2.3 trillion and invade Iraq?
        Mr. LAZEAR. I think that the Bush tax cuts in 2003 were
    absolutely a good idea. The investment tax credits stimulated
    investment and got the economy going again.
        Mr. NEAL. Thank you, Mr. Chairman.
        Chairman CAMP. Thank you.
        Mr. Reichert is recognized.
        Mr. REICHERT. Thank you, Mr. Chairman. And thank you all
    for being here today experiencing this pleasant discussion.
        I have a simple question first for Dr. Lazear. The
    administration has stated that we will reach the statutory debt
    limit sometime this spring. The current limit is $14.2
    trillion, or nearly equal to the value of every good and
    service produced in the United States. How do you think the
    financial markets and the broader economy would react if
    Congress simply increased the debt limit and there was no
    credible commitment or action taken in addressing our current
    fiscal crisis?
        Mr. LAZEAR. Well, I think that the debt limit, to my mind,
    is more of a symbol than a reality. The reality comes earlier,
    I would say. So the front line of defense against increasing
    expenditures is not so much the debt limit, it is the actions
    that you and your committee in particular can take and take now
    in thinking about appropriations in the future budget.
        So I would actually urge action at an earlier stage rather
    than at the debt limit stage. I think that is really where the
    action has to be had in order to make a credible commitment to
    reducing future spending. I believe that that is where you are
    headed, I believe that is where you are trying to go, but I am
    not convinced that simply dealing with the debt limit would be
    an effective mechanism at this point.
        Mr. REICHERT. Anyone else on the panel care to comment?
        Mr. BIGGS. I agree with Professor Lazear. I think the
    symbolism in terms of the debt limit matter, things like
    dealing with the debt limit, things like do we take up the
    recommendations of President Obama's Fiscal Commission, does
    the administration's budget try to tackle deficits over the
    long term? My concern for the financial markets is when
    opportunities to get on top of these problems are pushed aside.
    When we say we appointed a debt commission, but we are going to
    ignore what they did. We have a debt limit, but we are going to
    raise it without taking any reforms. We have various
    opportunities to fix these problems and we push them aside.
        My fear is eventually financial markets may say they no
    longer have the will to get on top of these problems. And when
    financial markets begin to doubt you, that is when you enter a
    pretty dangerous zone.
        Ms. DE RUGY. If I can add something. I agree. I think this
    is a sign of where we stand with our reputation abroad. I think
    there is a lot of talk about how the bond market will get
    rattled if we don't increase the debt limit. But I actually
    think that if we increase the debt limit and then either with
    the debt limit legislation, which is not necessarily the right
    place to do it, but also later, if we increase the debt limit
    without signaling that we are going to be seriously committed
    to changing the path on which we spend, it will rattle the bond
    market too. This is one of the signs that the U.S. is really at
    the cusp of a potentially very grave situation where do or
    don't, you are dammed.
        Mr. REICHERT. Thank you.
        Dr. Boushey, did you want to comment on that?
        Ms. BOUSHEY. Certainly, thank you.
        I mean, I agree that the debt limit is an opportunity for
    us to have this conversation about getting our long-term fiscal
    house in order. However, in the short term, we need to be
    cognizant of the reality of our economic situation, that we do
    need to continue to keep spending to help boost job creation.
    And we don't want to be cutting back on making investments in
    long-term economic growth. So in the short term, that is a very
    important thing to do, to increase the debt limit.
        Over the long term, we do need to have a plan in terms of
    raising taxes and addressing the spending moving over the long
    term?
        Mr. REICHERT. Thank you.
        Let me ask one more question real quick. At the end of
    2008, our country had a total debt of $10.7 trillion, it is now
    $14.2 trillion, a 32 percent increase in a little over 2 years.
    And due to our current projected spending levels, no one
    expects this debt level to decrease. In fact, the President has
    submitted a $3.6 trillion budget, revenue projections have been
    $2.6 trillion, so we are $1 trillion in debt going into 2012.
        If I understood Dr. Boushey correctly, she agrees with this
    sort of math because it is a job creator. Dr. Lazear, what do
    you think about another $1 trillion deficit added to our
    country's debt 2012 as it relates to job creation?
        Mr. LAZEAR. Well, I guess I have a different view than Dr.
    Boushey. I was never a firm believer that the stimulus programs
    did much to increase jobs; and as a result, I don't think that
    cutting expenditures right now would have much of a negative
    impact on jobs.
        My concern is really for the longer run. I think that if we
    do add another $1 trillion to the deficit and then to the debt,
    we are talking about approaching numbers that are really going
    to have a significant detrimental effect on economic growth and
    on our long-term ability to borrow.
        Chairman CAMP. All right. Thank you. The gentleman's time
    has expired.
        Mr. Becerra is recognized.
        Mr. BECERRA. Thank you, Mr. Chairman. And thank you to all
    the witnesses for your testimony.
        We have been talking quite a bit about debt long term, the
    existing deficits, and how we want to get all of that under
    control. And interspersed in this conversation is how we get
    ourselves back on track. What I keep hearing is the more we do
    private sector investment, the more we see productivity
    increases for our workers, the better things will be. It sounds
    like at the end of the day what we are saying is the more we
    create jobs for Americans to take, the better off we will be.
    The more Americans can go to work, the more they can pay their
    fair share of taxes. And if we pay our fair share of taxes, our
    revenues will increase so we can cover some of our investments
    in education and defense and the rest.
        So it seems to me the more we have this conversation, the
    more we should talk about the fact that the worst deficit we
    face is the jobs deficit, is how we put those 14 million
    Americans who are still looking for work back into a good-
    paying job. And so when you see that during the Bush recession
    we lost 8 million jobs, and when you see that we had a
    turnaround, a situation where economically we were hemorrhaging
    close to three-quarters of 1 million jobs per month--that was
    the case in January, 2009, when George Bush handed the keys
    over to Barack Obama.
        Now that we are gaining jobs--in the last month, close to a
    quarter of a million new jobs--that is all great, but we have
    to still continue to do more. But as you talk about making cuts
    to our Federal investments, I think some of us are concerned
    that we are not really targeting the main contributors to these
    massive deficits.
        I have a chart on the screen that pulled together what the
    biggest contributors have been over the last decade or so
    toward our deficits, incoming deficits. And obviously the
    biggest is, as we would expect, the recession, naturally
    occurring at times that we have the cycles and the down cycle.
    Obviously, the cycle contributes quite a bit. But we also see
    that the Bush tax cuts from 2001 and 2003, if you continue to
    extend them forward, you can see the size of the contribution
    to the deficit that we get from those Bush tax cuts. You see
    there, the discussion has it centered a bit on the two wars
    that have not been paid for as well. You can see the other
    things that help contribute to these massive deficits.
        I am wondering if I could ask those of you who are here, if
    we were to make cuts and if we were to make investments, would
    it be wise to target the principal causes of our deficits
    before you start making cuts to investments to our kids, to our
    seniors, to our workers and to our veterans? Ms. Boushey.
        Ms. BOUSHEY. Certainly. I will start and I will leave time.
        Certainly, I mean, if we look at your chart, which the blue
    is the Bush tax cuts?
        Mr. BECERRA. That is correct.
        Ms. BOUSHEY. Certainly. You are asking us to think about
    what our national priorities are. And you are sort of forcing
    us to think about the role of job creation and investment in
    those priorities and how the Federal budget actually represents
    those. It doesn't seem to me that tax cuts for the wealthiest--
    that did not lead to strong investment or employment or gains
    for the middle class--should be a national priority over job
    creation in building a strong middle class. Yet the kinds of
    things that are being cut in H.R. 1 are those very investments
    that middle class and working class families can't buy out of.
    They can't send their kids to private school because they can't
    afford it. We need food safety, we need bridges and
    transportation, all the things that are going to be cut in this
    piece of legislation. So I think that is the right priority and
    what we should be thinking about.
        Mr. BECERRA. You mentioned H.R. 1, which is the Republican
    budget bill for 2011, the continuing resolution. That bill,
    H.R. 1, makes a cut of $1.1 billion to Head Start, which would
    leave 200,000 children without a Head Start program to attend
    as they get ready to go on to kindergarten. It would also
    probably lead to pink slips to about 55,000 Head Start
    teachers. That doesn't seem to be like a way to make
    investments for people who are currently working, teaching our
    children in Head Start programs who would ultimately be fired.
    Does that, Ms. Boushey, sound like a way to reduce our deficit
    in a smart way?
        Ms. BOUSHEY. Certainly not. It is kind of cutting off our
    nose to spite our face. We need to be making those investments
    in education and in teaching America's children. We also need
    to make sure that those people that have jobs can keep them.
    Programs like Head Start or the childcare programs or home
    health aides that we are cutting as a part of these budget
    cuttings both here and in the States make it harder for people
    who have those care responsibilities to keep their jobs. So we
    are harming America's families and making it harder for people
    to work, while at the same time, not investing in our future.
        Chairman CAMP. All right. Thank you. The gentleman's time
    has expired.
        Mr. Buchanan is recognized.
        Mr. BUCHANAN. Thank you, Mr. Chairman. And I want to thank
    our panelists today for being here.
        A couple of questions. One is, our debt is at $14 trillion,
    and you don't have to project far down the road we are going to
    be at $20 trillion. Money is almost historically free today,
    the cost of money, I think the interest debt is maybe a couple
    hundred billion. But if you have a normal rate, 4 or 5 percent,
    you are looking at $1 trillion a year in interest before you
    pay anybody anything in the very near future, say 5, 7 years,
    pick a time frame, but they are projecting trillion dollar
    deficits.
        When I was in Tampa last week talking to business people,
    that is one of the things, the reason we are not getting the
    job creation is because of the uncertainty around our debt and
    deficit and looking forward and Washington's inability to deal
    with it. So I guess, Mr. Lazear, what is your thought, first
    off, on the $1 trillion a year in interest--which could be very
    quickly down the road in the next 5 to 7 years--and then the
    uncertainty that is created by that possibility and where we
    are at today? So I guess it is a two-point question.
        Mr. LAZEAR. Thank you, Congressman. I think that is an
    excellent question.
        The point about interest rates going up I think is an
    important one. I think Dr. Boushey referred earlier to the
    liquidity trap, the fact that we are at low interest rates
    today--low, by the way, for the short term, not necessarily so
    low at the longer term--but absolutely true. And I think most
    people do expect that we will not see these interest rates
    being sustained into the long run, that we do expect the kinds
    of changes we are talking about which will place additional
    burdens on the budget.
        I guess my concern, you mentioned the word ``uncertainty,''
    and one of your colleagues did as well, my concern is actually
    not the uncertainty, my concern is the certainty of the deficit
    and this high debt problem that we have now. That is the
    problem that is plaguing the economy and that will plague
    business investment in the future. It is not the uncertainty,
    it is the fact that unless we do something, unless you, our
    elected officials, do something and do something pretty
    dramatic and pretty soon, we are going to be in the certain
    situation where our debt is so high relative to GDP that we are
    going to be placing very significant pressures on our economy.
        Mr. BUCHANAN. Thank you.
        Ms. Boushey, would you like to comment on that? If we don't
    do something substantial in the very near future, $1 trillion
    in interest that we are going to have to pay out, taxpayers'
    money? I can just tell you, talking with people, a lot of
    business people, there are health care issues they are
    concerned about in the cost of hiring an employee, but also the
    uncertainty with spending and debt is very real. I have been in
    business for 30 years, and I can tell you it is not
    comfortable. But I would like to get your thoughts on it.
        Ms. BOUSHEY. Certainly. I want to make three points. One is
    that every month the National Federation of Independent
    Businesses comes out with a survey and they ask small business
    owners what they are worried about. And month after month they
    do say sales. They are worried about customers coming in
    through their doors. I think that one of the big uncertainties
    that has hit people really hard is that people didn't expect
    this financial crisis to happen, they didn't expect the
    devastation that we have seen in our economy. Are we taking the
    steps now to make sure that it doesn't happen again? Are we
    moving forward? And so there certainly is uncertainty certainly
    about that and what Congress will do.
        But I think I want to reiterate, in the short term, we do
    need to make sure that we get people back to work. That is the
    foundation of having a strong economy. We need customers, we
    need people in charge.
        Mr. BUCHANAN. Let me just say, let me mention getting
    people back to work is important for us as leaders to deal with
    this issue in a real way on a bipartisan basis.
        Let me go to my next question because I haven't been here
    30 years, I have been here 4.
        Mr. BUCHANAN. One the things that concerns me is people
    like to talk about Bush, Obama, Clinton. But if you look back
    over 50 years the Democrats and Republicans have only balanced
    the budget five or six times in the last 50 years so there is
    plenty of blame to go around. You can come up with whatever
    rationale you want to come up with. I was here when the
    Democrats came up with PAYGO. I voted for it. When they had the
    Commission on looking at the deficit, I applauded that. I think
    it is a great opportunity.
        But again, we talk about it, but we don't do anything. But
    49 out of 50 States have a constitutional balanced budget
    amendment. Doesn't that make sense, I mean you have to--if you
    think of a family or if you think of a business. I have been in
    business, created a lot of jobs over 30 years. You have to be
    able to make a budget and pay your bills. But it forces
    Washington, the Congress to say, look, we take in 2.7 trillion,
    we give the taxpayers the best value we possibly can for the
    money. That is it, make the hard choices.
        The State of Florida, for example, has cut their budget
    every year, it seems like 2 or $3 billion, they have made hard
    choices. There is much shared pain that goes around. But
    doesn't a constitutional balanced budget amendment that phases
    in over time give some certainty to people in America as well
    as the right thing to do for Americans? I mean, Mr. Biggs, what
    do you think.
        Chairman CAMP. Very quickly, because the gentleman's time
    has expired.
        Mr. BIGGS. You can make the argument that a balanced budget
    amendment constrains Congress's ability to conduct
    countercyclical fiscal policy, and there is a cost there. But
    there is benefit in terms of restraining the natural impulse to
    overspend. And so I think on balance, it is something I would
    support because the problems we face going forward are so
    difficult.
        Chairman CAMP. Thank you. Mr. Thompson is recognized.
        Mr. THOMPSON. Thank you, Mr. Chairman. And I want to thank
    all the witnesses for being here today.
        Dr. Lazear, in your statement, you said that policy is
    primarily responsible for the large deficits that are projected
    to be sustained into the near and distant future. Now in regard
    to that policy, does this include borrowing to fund two wars?
    Borrowing to pay for Medicare Part D? And borrowing to finance
    a tax cut?
        Mr. LAZEAR. Yes. I would say legitimately that including
    policies of the Bush administration did add to that. Now, that
    was not the policy to which I was referring in that statement,
    but I would not deny that there were things that----
        Mr. THOMPSON. That is policy. Irrespective of when that tax
    cut was borrowed, when we borrowed to pay for that tax cut, it
    still adds to the problem.
        Mr. LAZEAR. Well, again, we have to be careful about the
    tax--when you say the tax cut. Remember there were three, as I
    recall, tax bills during the Bush administration, 2001, 2002
    and 2003. The 2003 was quite different from the other two, so I
    would distinguish those.
        Mr. THOMPSON. So I agree that our debt and our deficit is a
    huge problem, and it is a problem that we need to tackle, but I
    also believe that we are in a very fragile recovery right now
    in this economic recovery. And do you agree that with Senator
    Simpson and Erskine Bowles who chair, cochair the Debt
    Commission that we really need to be careful here, and this is
    something that we need to tackle, but we need to do it in a way
    that doesn't disrupt this fragile recovery.
        Mr. LAZEAR. Well, I agree that we need to do it in a way
    that doesn't disrupt the fragile economy, no question about it.
    Again, my guess is that you and I have different views of what
    that would mean in terms of the disruption of the current
    economy. As I said earlier, I have not been an admirer of the
    stimulus program. I don't think it has done much to create
    jobs.
        Mr. THOMPSON. I am asking you about the stimulus program, I
    am asking your about Debt Commission's proposals that actually
    get to the problem, they deal with it in a tough but
    responsible way, and they are very clear in pointing out that
    we need to do this in an appropriate way. Now Mr. Neal pointed
    out the third-party analysis, their disinterested party
    analysis, if you will. Other economists from around the country
    who point to H.R. 1. And if that were to go into effect, it
    would be the antithesis of what the Debt Commission is talking
    about when they say watch out for the fragile economy, that it
    would lose--it would cost us 700,000 jobs. That was the only
    point that I was trying to make.
        Dr. Boushey, again, I agree we have got fiscal problems and
    we need to deal with them, but at the same time, I think it
    would be penny wise or pound foolish, whatever that is, if we
    ignored appropriate government responsibilities and appropriate
    investments. And one of the areas where I think we are really,
    really lacking is in infrastructure, because bad and unsafe
    roads, bridges, rail lines, overpasses, our harbors, I believe
    is, in fact, a tax on American businesses.
        And that tax increase on American businesses means higher
    prices to American people, many of whom are unemployed, many of
    whom can't afford to pay that. These are the same American
    people as I say who are unemployed and who could be put back to
    work, if, in fact, we did make that investment in
    infrastructure to do away with this hidden tax that is there.
    Do you have any comments on that?
        Ms. BOUSHEY. Certainly. I think that those are exactly the
    kinds of investments we should be making right now. Interest
    rates are low, it is a good time for municipalities and for us
    to be sort of borrowing to pay for those necessary investments
    and getting our economy on the right road to recovery. We have
    an enormous backlog of projects that need to get done, an
    enormous backlog of unemployed workers who need jobs, many of
    whom lost their jobs in the construction industry. So it makes
    sound economic sense. It also will help push our economy into
    the 21st century, we have infrastructure in the country that is
    50 to 100 years old in many places. I already gave the example
    of the water pipes here in D.C. I mean, this is something that
    is unsustainable. We are gong to have to make that investment
    at some point. If you look over the course of an economic
    cycle, now is the perfect time to do it.
        Mr. THOMPSON. It is not just in D.C. There is not a
    congressional district in this country, every one of us
    represents a district that is woefully behind in our
    infrastructure investment. I don't care if it is clean water
    and sewer, healthy, safe, and passable bridges and roads. So
    thank you very much.
        Chairman CAMP. Thank you, Ms. Jenkins is recognized.
        Ms. JENKINS. Thank you, Mr. Chair, and thank you all for
    being here. I think we can all agree that America's financial
    situation, as it stands today, is unsustainable. Yet the
    President sent Congress a $3.7 trillion budget proposal with a
    record $1.6 trillion deficit that continues a very aggressive
    agenda of more government spending, more taxes, more deficits
    and more debt. The CBO predicted the national debt under
    Obama's proposals would double in 10 short years. The President
    refers to this as investing in our future. I consider it
    robbing our kids of their future.
        I think Dr. Boushey has made her position well-known this
    morning, agreeing with the President that it is an investment,
    but I would like the other panel members to comment on how you
    would characterize a proposal that doubles our national debt in
    this budget window.
        Mr. BIGGS. Well, I would fully acknowledge that President
    Obama entered office in a very difficult economic time, just as
    President Bush entered office in a difficult time. The thing
    that worries me about the administration's budget proposal is
    the lack of ambition over the medium in the long term. You
    would like to think they could say well, we have large deficits
    today because of the economy, but over 10 years, we are to
    bring ourselves back to balance. Their argument, well we will
    go through a down payment, which is we will bring ourselves
    back to primary balance, which is a lower standard. The CBO
    scoring of the budget proposal says they come under best year,
    about $175 billion short of that.
        So an answer I made to an earlier question is lost
    opportunities are the sorts of things that give people doubt
    about our will power to get on top of these problems. We have
    certain opportunities handed to us, where we can stand up and
    say yes, we are willing to make these difficult decisions. Each
    time we pass is another opportunity for people to say they are
    not serious about this.
        So, really the short-term problems, I think, are indeed an
    issue. What worries me more is there is no plan on how to get
    out of them.
        Ms. DE RUGY. I agree with you that a lot of the time we
    hear the word ``investment'' mentioned when really what we are
    talking about is just government spending. And giving it the
    label ``investment'' doesn't make its consequences any lesser.
    In fact, I would argue that it is time for everyone to think
    that yes, if our roads are in dire need of repair, what is this
    Congress willing to actually cut in the budget in order to make
    the necessary investments? And the problem is each time you
    heard the word ``investment,'' it is oh, this investment is
    necessary, but so is everything else.
        I agree, one of the things that is extremely worrisome with
    President Obama's recent budget is the actual lack, first of
    creativity or willingness to even address the future. And this
    is, as we have all said, worrying us because it will have
    consequences. We talk about the budget but we don't talk about
    the fact that our investors have got to be looking also at the
    financial statement of the United States the way we do and see
    the massive amount of unfunded liability. They must be knowing
    when the Social Security trust fund runs into a cash flow
    deficit forever, we are going to have to come up with money for
    this. Either in the form of taxes or more borrowing. So it is
    not even just what is on paper, it is all the things that are
    not on paper that adds up to the bill.
        Mr. LAZEAR. I certainly agree. I think the point that I
    would raise is one that we probably haven't talked enough
    about, and that is again, let's use the President's numbers,
    because you referred to the President and his budget. If you
    use the President's projections and you look at his charts, the
    charts I showed earlier, what you see is even with the kinds of
    tax increases that the President is proposing, we are nowhere
    near close to solving this problem. So this is not a situation
    where we can get there with the President's arithmetic, it is
    just not going to happen.
        The kinds of concerns that you have about your children's
    future, I think are concerns that I have as well and concerns
    that we need to address in ways other than the ones that the
    President is suggesting, simply because his budget, his own
    numbers acknowledge that this is just not going to do the job.
    So it is going to take some additional creativity on your part
    to get us there.
        Ms. JENKINS. Thank you. I believe, in today's testimony, we
    have proven that the Nation's debt and deficits are an
    immediate concern and that they are not a result of Americans
    paying too little taxes. Some of us believe that we really need
    to cut spending now. President Obama, through his proposed
    budget, however, has suggested that we merely freeze some
    discretionary spending at today's inflated levels as his
    solution to solving the Nation's problems. I see I am about out
    of time. Perhaps----
        Chairman CAMP. Time has expired. Mr. Pascrell is recognized
    for 5 minutes.
        Mr. PASCRELL. Thank you, Mr. Chairman. It is good to be
    here, to listen to a lot of things that have been repeated and
    repeated. I would like to jump right into questions. I know I
    only have 5 minutes but there is always time.
        Mr. Biggs, you were associate director of the National
    Economic Council for the White House in 2005. In your testimony
    before the committee today, and I respect your academia, I
    respect your research ability, but I have to ask you this
    question. You used the word gradual, these things sneak up on
    us, they don't happen usually over night, they don't happen all
    at once. What did you see in 2005 gradually happening to the
    economy, since we knew that the balloons were inflating. And we
    knew what was basically coming down the road, there were a few
    economists who warned us. What were you warning the White House
    about in 2005?
        Mr. BIGGS. My time at the National Economic Council in 2005
    was focusing on Social Security reform, which is a period of
    which President Bush proposed to reduce the rate of growth of
    benefits over the long term for medium and high income retirees
    while protecting benefits for low income individuals who need
    those benefits the most. That proposal that I worked on would
    have reduced the long-term Social Security deficit by somewhere
    around 60 percent, and I think, given considerable fiscal
    relief over the long term, in terms of reducing debt, that was
    the issue I focused on the time, I was not there given general
    economic advice to the President.
        Mr. PASCRELL. In order to give specific advice, you would
    have to see the clouds coming, there are distant early warning
    signals. We weren't paying for anything, Mr. Biggs? What was
    your position on not paying for two tax cuts, not paying for
    two wars, not paying for the prescription drug recommendation
    that was passed 3 o'clock in the morning when it was passed 8
    years ago? What were your recommendations about those things?
        Mr. BIGGS. I did not make any recommendations on those
    things. I believe most of them took place prior to the time I
    was at the NEC, so it is not something I made any
    recommendations on at all.
        Mr. PASCRELL. Thank you.
        Ms. de Rugy, am I pronouncing your name correctly?
        Ms. DE RUGY. Yeah.
        Mr. PASCRELL. Thank you. The debt versus the Gross Domestic
    Product, you talked about that. You said it was the highest in
    2011, did you not?
        Ms. DE RUGY. Well, I mean, since the Second World War.
        Mr. PASCRELL. The highest was in 1947.
        Ms. DE RUGY. I said ``since.''
        Mr. PASCRELL. The debt versus the Gross Domestic Product in
    2008, it was already 82 percent under President Bush. It was 56
    percent under President Clinton. So I want us to try to, in
    some manner, shape or form, get out of this amnesia we have
    about those 8 years. I think there is really systemic amnesia
    about what happened between 2001 and 2008. We know, for
    instance, that revenues as a percent of the Gross Domestic
    Product in 2000 were 20.6 percent; in 2010, 2010, 14.9 percent,
    projected by CBO to be 20.8 percent; and between 2012 and 2020-
    2021, rather, 19 and 9 percent.
        We are talking about paying off our debt, it is a very
    serious problem. I think you all enunciated it quite well. But
    we must remember what happened, compared to what happened in
    the 1990's or what happened in the 8 years preceding Clinton's
    administration. We created in the 1990's, 27 million jobs. That
    is a fact. You are entitled to your opinions, but you are not
    entitled to your own facts.
        Now what we did in 2001 and 2003 was to cut taxes, that is
    clear. We know what the record is. I am entitled to my own
    opinion but I am not entitled to Pascrell's facts. These are
    the facts. If you look at the jobs that continue, they went
    down from that period of time, cutting taxes automatically
    produces jobs. No, they don't. When you are spending
    frivolously, when you are not paying for anything you could cut
    taxes all you want. Because there is a revenue situation here
    we need to talk about, and I think it is very important that we
    do talk about it. The highest level at our best times, we had
    the revenues at the highest, highest levels----
        Chairman CAMP. The gentleman's time expired.
        Mr. PASCRELL [continuing]. When Clinton was the President.
    So don't blame this whole situation----
        Chairman CAMP. Regular order.
        Mr. PASCRELL [continuing]. On 2 years of the Obama
    administration.
        Chairman CAMP. The gentleman from Minnesota is recognized,
    Mr. Paulsen.
        Mr. PAULSEN. Thank you, Mr. Chairman. And first of all,
    thank you for taking the time to come and testify. I think
    hearings like this are very helpful. What is interesting to me
    is that as I travel around my district and I have met with a
    lot of small business people, and sure they talk about the tax
    environment, they talk about the regulatory environment. But
    increasingly, there are more and more of them that are talking
    about--actually, their concern about government's role in
    spending and the national debt and what that means in terms of
    that fiscal responsibility or lack thereof, eroding confidence
    in their investment decisions.
        And that is something that has been growing more and more
    in number over recent months, and especially over the last
    year, which is very interesting. And so I think this
    conversation is important because the chairman started out,
    unemployment levels are predicted to be fairly high for the
    next couple of years still, which is not a good situation which
    we all absolutely want to change.
        And in a global economy you can allocate capital at a click
    of a mouse so easily, anywhere you would like. I would like to
    obviously have this committee continue as the chairman wants to
    make the United States destination number 1, to create ideas,
    to generate economic growth and make it an opportunity, if you
    have an idea in the garage or in the backyard you can turn it
    into a company that is successful.
        I will start with Dr. Lazear. Do you believe that
    maintaining our current levels of spending where they are now,
    will help make the economy the number 1 destination for new
    ideas and innovation down the road where we have been and where
    we need to go.
        Mr. LAZEAR. No, I don't. And I think, again, that is my
    major concern and also the major concern of the other CEA
    chairs who signed that letter. The reason that we have that
    concern is that we believe if we allow the current situation to
    continue and to get out of hand, investors not only American
    investors, but investors around the world will lose confidence
    in the United States as a primary investment destination. If
    that happens, if that happens, we will find that the cost of
    funds goes up, we will find that the cost of doing business
    goes up. And with it, investment will decline, with that,
    productivity will decline, and with that wages and job growth
    will decline, so that is certainly my concern.
        Mr. PAULSEN. And Mr. Biggs, maybe you can elaborate too,
    because you cited studies that have suggested that cutting
    spending versus raising taxes in terms of rehabilitating our
    country's economy or their budget situation because some
    countries have approached a balanced approach from raising
    taxes, but looking at that proposition through the innovation
    lens, which option, cutting spending or actually raising taxes
    as a part of the equation might be more beneficial to those who
    have new ideas to create companies or create jobs?
        Mr. BIGGS. The interesting thing in the empirical research
    that we have reviewed is how overwhelming the case is that
    balancing your budget on the spending side is more likely to be
    successful than balancing it on the tax side. Study after study
    you can cite, they all come to very similar conclusions. What
    was still a little bit of a mystery is why that takes place.
    One of the reasons, I think, is especially if you do it in a
    large way, if you are sending a message that this is a place
    where your future is stable, and where you can make the kinds
    of investments, and you can take the kinds of risks that help
    make an economy vibrant over the long term.
        So you are not simply doing a bookkeeping exercise of
    reducing your deficit debt. You are also sending a message to
    individuals, to businesses, to financial markets that the
    country is open for business, and it is the place where you
    want to be. Ultimately, over the long term, that is an
    extremely important thing to do.
        Mr. PAULSEN. And Ms. de Rugy, you can comment as well, but
    let me ask you this as well, because I think you have got some
    part of your testimony, you raised some issues about the debt
    burden we have and the interest payments that we will have as a
    part of our debt. And obviously, a lot of my colleagues, we
    have been through tough economic times. And I am pretty brand
    new to Congress, but the fact is, if interest rates do climb,
    as the bond markets react as they will at some point that is
    going to consume a larger portion of our budget as paying
    interest.
        Ms. DE RUGY. Yes. It is--already you can see it in the CBO
    projection. And the CBO projections are already built in some
    level of interest increase, but they don't build in the type of
    increase and interest rate that we may see the day our
    investors get completely rattled, and we can actually see
    interest rates being way bigger. And when that happens, the
    debt can get out of control because we are going to be starting
    to actually pay--borrow money just to try to pay interest and
    it could get out of hand.
        I would like to add something which, we have been focusing
    a lot on investors and how they will look at us. One of the
    important things about tackling our problems today and
    signaling to the American people that we are not continuing on
    the path that we are because--I mean, the American people is
    smart. They understand that when we spend today and we don't
    have this money, it is going mean that taxes are going to go
    up. And also, it is in the news all the time that interest
    rates are going to go up. So that is why demand is low, and
    that is why they are not going to shop. It is not because the
    government isn't investing enough. It is because they actually
    want to pay down their line of credit. They want to save money
    for when the really hard times hit again.
        And I think it is important to understand that the more
    government spends, or actual at least not change its path, the
    more it paralyzes investors and the American people, business
    owners and potential shoppers.
        Chairman CAMP. Thank you time has expired. Mr. Larson is
    recognized.
        Mr. LARSON. Thank you, Mr. Chairman. And I want to thank
    the panelists for their fine testimony today. I just have a
    brief question for Dr. Lazear and Dr. Boushey. We are all
    concerned about reducing government spending in the short term,
    I share those concerns. We are also concerned that we have to
    deal with the raising of the debt ceiling. My question is very
    specific, do you believe that it is wise to hold the full faith
    and credit of the United States hostage to deep cuts in order
    to deal with the issue of raising the debt ceiling?
        Mr. LAZEAR. Well, as I already testified, I think that the
    debt ceiling is one more symbol than substance. And I don't
    believe it would have significant impact one way or the other
    on markets right now. With that said, I don't feel that using
    the debt ceiling as a mechanism to control spending is probably
    the most effective way to do it. I would like to see your
    committee get ahead of that. I think that the appropriations
    process, the process that you go through is the appropriate
    one. And I hope that you will take our testimony seriously and
    work on those problems.
        Mr. LARSON. Dr. Boushey.
        Ms. BOUSHEY. I think the answer would be no. That I don't
    think that we should be held hostage to the debt ceiling in
    terms of making significant budget cuts that will significantly
    harm the economy.
        Mr. LARSON. Well, with regard to Social Security, I would
    just like to point out, and have this for the record that over
    time, Social Security has raised 14.6 trillion and spent 12
    trillion and people continue to pay into it. And I would
    concerned, Mr. Biggs, could you define nor me what you mean by
    middle earners?
        Mr. BIGGS. People in the middle of the earnings
    distribution.
        Mr. LARSON. And what would that be? If I am a middle earner
    in America, what portion of my benefit are you going to reduce?
        Mr. BIGGS. I think the average wage index now is about
    $42,000 per year.
        Mr. LARSON. So a person earning $42,000 per year should
    expect a decrease in their benefits in Social Security in your
    opinion, in order to make it more secure for the future?
        Mr. BIGGS. Well, if we don't take certain steps on Social
    Security that same individual and everybody else is going to
    get a 22 percent across-the-board benefit cut when Social
    Security becomes insolvent.
        Mr. LARSON. So the idea is that person in the middle that
    the middle class once again, a person that earns $42,000 a year
    will see his benefits shrink. And what does that do to that
    person? And what does that do to the economy? And what does
    that do in terms of this large group of Baby Boomers that will
    be coming through here? What do they do with income that they
    are going to spend in an economy if we are reducing that rate?
        Mr. BIGGS. What I have discussed is not reducing benefits
    for current retirees in any way, so the Baby Boomers really
    wouldn't be affected at all. And also to the degree you would
    reduce for higher earners, they would be done on a progressive
    basis. So somebody at the middle of the distribution would have
    a very, very small reduction in the growth of their benefit.
        Mr. LARSON. One man's tea is another man's poison. And when
    you say very small reduction, and you are living on that, the
    average that people are living on Social Security is something
    like $14,000 annually, these are very modest benefits.
        Mr. BIGGS. Why is one reason----
        Mr. LARSON. Why is it always the only way to help out a
    beneficiary is for them to take the cut?
        Mr. BIGGS. You can't----
        Mr. LARSON. We have got billionaires that aren't paying any
    taxes all over this country, we have everyone sheltering money
    offshore and we are going to have the middle class, a $42,000-
    a-year person bear that burden. That is what is an outrage,
    that is what is wrong when we have a program, one of the best
    programs in the world that is working for people. And we are
    preparing to look at a road map that privatizes Social Security
    and vouchers Medicare for these people in the middle. Thank
    you.
        Mr. BIGGS. Should I respond?
        Chairman CAMP. I think the gentleman has yielded back his
    time. Mr. Marchant is recognized.
        Mr. MARCHANT. Thank you, Mr. Chairman. Depending on what
    publication you believe today in the United States, we have--
    corporations have about $2 trillion in liquidity set aside, not
    spending it. The Federal Reserve has expanded its balance sheet
    to $2.5 trillion. And it is arguable, depending on what numbers
    you believe, that there are hundreds of billions of dollars of
    profits that are still abroad that have been earned and have
    not been brought back to the United States.
        So as a Ways and Means Committee, it looks to me like one
    of the big opportunities that we have is to find a way to
    persuade that large amount of capital, that is a historic
    amount of capital, that is sitting on the sidelines now,
    persuading them, incentivizing them and trying to find a way to
    help them convert that capital to jobs. They could do it today
    if they wanted to, but there is a tremendous reluctance on
    their part to take that capital and create jobs with it. A
    country that has combined austerity, budget cutting with job
    creation has been Germany in the last 2 years. They have gone
    through a significant austerity program. Yet their economy has
    started to grow. They are creating new jobs and their economy
    has recovered.
        One of the fears that I have is that very soon in the next
    year or so, these companies that are sitting on these assets
    will begin to, and you have seen it in just the last week,
    instead of creating new jobs, they will begin to look at
    mergers and acquisitions. When you look at a merger and
    acquisition situation, you don't really look at job expansion
    first. You look at consolidation of redundancy, you look at--
    you try to exploit every inefficiency that is in the business,
    and usually there is not a new net job creation.
        What do you think that this committee should be looking at
    in the theme of creating jobs, which creates economic activity,
    which creates additional income, which you combine with
    austerity to bring the economy back and put us back on the
    footing that we have? What can we do as a committee to reach
    out to this liquidity and say create jobs, help us back by
    creating jobs. Mr. Lazear.
        Mr. LAZEAR. Well, that is a tough question, so let me try
    to get at it in a couple of different ways. You talked a little
    bit earlier in your question about capital overseas and how
    that capital could be brought back to be productive.
    Repatriation of overseas capital is a big issue. Much of this
    has to do with a complicated set of international tax issues
    having to do with whether we have a worldwide or a territorial
    tax structure. That, to me, should be embedded in a more
    general picture of tax reform that we ought to be talking about
    taxes that are more friendly to investment, and there are a
    number of different ways to get at that. But again, I think
    that the lesson that we learn from looking at the economic
    literature, and there is a lot of it on this particular issue,
    is that the best way to enhance an economy's ability to grow
    and to create jobs and higher wages, by the way, is through low
    and efficient taxes, through an open economy, and through
    flexible and free markets. That is really the only way we know
    that works and that is the only way we know that works
    historically. And so I would stick with those three
    prescriptions and just push everything you can do to get in
    that direction.
        Now I know you have been talking about tax reforms,
    significant reform, I hope you do push down that path. I have
    spent much of my career thinking about it and I think it would
    be a very good way to go. Thank you, sir.
        Mr. MARCHANT. Yield back.
        Mr. JOHNSON. [Presiding.] The gentleman's time has expired.
    Mr. Berg, do you care to question?
        Mr. BERG. Thank you, Mr. Chairman. It has been a very
    interesting hearing today for the last 2\1/2\ hours. And we
    have gone down a lot of different trails and different tracks.
    Clearly, I guess, one of the observations that I had in North
    Dakota, if we have a prairie fire, everyone comes together and
    tries to get it put out. We don't waste any time figuring out
    who to blame the fire on. And it seems like today we spend a
    lot of time trying to blame who started the fire. I think we
    all agree there is a fire. And we all agree, I hope, that we
    need to get our economy back. And it seems that we have two
    separate views on how to do that.
        The view that was laid out was we would reduce spending. We
    encourage private sector growth through freezing or reducing
    taxes and regulation. And I am not quite clear on what the
    other alternative is, but it appears the other alternative
    would be not to reduce spending, possibly increase spending,
    possibly increase taxes, maybe increase some borrowing, which,
    again, from my perspective, that was something we did last
    year.
        So that is my first question for Ms. Boushey, is there any
    place that you can say this country, or this is the policy that
    we follow, was followed and historically look at the facts and
    say this policy of increasing spending and increasing taxes has
    resulted in a stronger economy and more jobs?
        Ms. BOUSHEY. The kind of economy we are in right now is one
    where interest rates continue to harbor near zero and we need
    to encourage people to invest that are not doing it. We have a
    lack of demand in our economy. So that is why, at this moment
    in time, you don't want to cut back government spending because
    that will reduce the amount of demand.
        Mr. BERG. I understand your argument.
        Ms. BOUSHEY. Oh, I am sorry, that what I thought you wanted
    me to----
        Mr. BERG. No, what I am asking for is are there any facts?
    We have facts laid out that said this country did this to
    reduce spending, they didn't cover their debt by increasing
    taxes. So I guess what I am looking for are specific examples
    where, again, some similar economy increased spending,
    increased taxes or increased debt and that created jobs.
        Ms. BOUSHEY. Japan, when it tried fiscal stimulus, saw
    improvements in its economy growth and performance, the United
    States.
        Mr. BERG. What years would that have been?
        Ms. BOUSHEY. Oh, now you are--I will get back.
        Mr. BERG. I am not trying----
        Ms. BOUSHEY. Let me go to the United States example. When
    Obama took office, we implemented, you implemented a massive
    stimulus proposal that then did lead to a sharp immediate
    reversal in job losses. The nadir of job losses in terms of
    jobs losses per month were in winter of 2008 and then it
    started going up, so that each month you saw fewer and fewer,
    and it was a very, very sharp reversal. And that is clear
    evidence above and beyond the kinds of analysis we have seen of
    the Recovery Act, that that certainly took things out of free
    fall and pushed them in the right direction. We have seen
    economic growth for 6 quarters now after----
        Mr. BERG. I just don't have much time and I know a lot of
    people are hungry. So the two examples you have are Japan and
    then the United States.
        Ms. BOUSHEY. Sweden, Germany. The example that Congressman
    Marchant just brought up of Germany. Germany saw larger
    output----
        Mr. BERG. Let me just ask you another question. Again I
    would be more than happy if you have specific time periods on
    these countries again, of U.S., Japan and Germany, I would love
    to have that. The other question again is everyone is saying we
    need a government program that creates jobs. Has there been a
    government program that has passed in the last 10 years that
    you can say this program created 2 million jobs?
        Ms. BOUSHEY. I can't think of one specific program, but
    let's try the chains of emergency dollars, they created a
    quarter of a million jobs last year in public private
    partnerships.
        Mr. BERG. You can get back to us on that. I would like to
    know what specific government program passed in the last 10
    years that had the impact clear and direct of 2 million jobs,
    or, say, a million jobs or more.
        Again, Mr. Chairman, my belief, and of course, the other
    thing I would like to say is I did not vote for the stimulus. I
    was enjoying life in North Dakota when the stimulus passed. I
    am here because of that stimulus and because of a lot of other
    things, which brings me back to one question, that is the
    health care debate.
        Mr. Lazear, could you explain the job impact of the health
    care law? I know you were cut off several times, but very
    quickly, what that impact will have on jobs?
        Mr. LAZEAR. I would say there is a direct impact of some of
    the taxes that are associated with the health care bill. One
    primarily, the tax on employers of $2,000 if you don't have a
    health care bill. So those kind of taxes are never good for
    creating jobs, we know that. I was more concerned about the
    long-term implications of very large increases in spending.
    Whether we cover it with tax increases or not, it is still a
    huge increase in spending, and that means, to my mind, that we
    are going in the wrong direction.
        Mr. JOHNSON. The time of the gentleman has expired.
        Mr. BERG. I yield back.
        Mr. JOHNSON. Thank you. Ms. Black, you are recognized for 5
    minutes.
        Mrs. BLACK. Thank you, Mr. Chairman and thank you panel
    members. I am the last one here standing, and I appreciate
    others that are standing behind me but I especially appreciate
    you all.
        I certainly agree with my colleague from North Dakota that
    it will not do us any good to litigate the past and we should
    learn from the past.
        And I also agree with my colleague from the other side of
    the aisle that said that there was some amnesia, because I
    think there is some amnesia here when we talk about President
    Bush and the Congress. And at that point in time when we
    started seeing all of this happening, I want to remind my
    colleagues that while President Bush was at the helm, there was
    also a Congress that was a Democrat-controlled Congress. So I
    think if we want to sit here and start throwing these things
    back and forth we ought not to have amnesia on all levels.
        I do want to say, as I have been back in my district in the
    last 100 days, it has been my goal to get to every one of my
    counties and to visit industry, to also do town hall meetings,
    and to visit with the elected officials. And without a doubt,
    the top two issues have been jobs and the spending. There is no
    doubt that that is the issue. But what I am hearing from those
    that are creating jobs is that they are scared. They are scared
    about what we are going to do to them next with regulation,
    with mandates. They are very uncertain about the economy and
    what is happening in the economy and the amount of debt.
        And you know what else they tell me, is they have the
    money, they have the capital. And not only that, there is also
    the demand for them to grow their businesses and to create
    jobs. If we want to help the middle class people to get back to
    work, that is what we need to do is make sure that we are
    helping those who are creating those jobs to have an
    environment where they can grow. And certainly piling up more
    debt is not giving them certainty that they can use their
    capital, this hard-working capital to put into their business
    to find out that they are not going to be able to reap a return
    on it.
        Ms. Boushey, you continue to talk about the rich. Can you
    define for me who are the rich?
        Ms. BOUSHEY. In the context of what I was talking about in
    terms of the tax cuts? Certainly.
        Mrs. BLACK. Yes, you talk about the rich and wealthy
    continually in both your testimony and also in your written.
        Ms. BOUSHEY. In that case, I would define it probably as
    the top fifth percent of earners in this country.
        Mrs. BLACK. Can you give me what that salary would be?
        Ms. BOUSHEY. That would be probably over around $250,000 a
    year, but I am probably getting the math a little bit off, but
    I am happy to----
        Mrs. BLACK. So someone who has invested everything that
    they own, put their life on the line and they go into business
    as a small business entrepreneur, and they finally make it. And
    they make $250,000 a year, which, by your definition that is
    rich, but I would argue with you, if you were to ask some of my
    businesses who have really worked hard to get there, and they
    finally are making a good salary, a good income, they would not
    probably consider themselves rich, but you consider them
    wealthy, you consider them rich. So what we should do is we
    should tax them at a very high level and punish them for being
    successful.
        Ms. BOUSHEY. Let's go back to the tax rates of the 1990's
    where we saw strong employment gains for everyone and we saw
    growth for incomes across the board. So that is actually what I
    am recommending, is that we reverse those tax cuts that gave
    the bulk of the tax benefits to people at the very top of the
    income distribution but that didn't help the rest of us, it
    didn't help our economy.
        Mrs. BLACK. Ms. Boushey, I think that what you are doing
    here is you are trying to just isolate one thing and not look
    at everything else that was going on around that time that may
    have affected what was happening at that time. But what I would
    like to do is I would like to hear from the other panelists.
    Now, I will tell you if I think there are tax loopholes for
    people who make millions and billions of dollars as have been
    used, then yes, we need to take a look at that if those people
    in those income brackets are not paying what we would consider
    to be their fair share.
        But to say that we want to punish those who have been
    entrepreneurs and done well, and they truly are the American
    dream, I mean that is what we want, we want the American dream.
    I would like to hear from the other panelists, what do you
    think about that?
        Ms. de Rugy. Can I add just a very short point? The fact,
    we always talk about the 1990's and how it was great and how it
    is always used by the other side by saying look marginal tax
    rates were increased. But I would also like to remind people
    that during the Clinton administration's year, spending in real
    terms only grew by 12 percent, 12 percent. And that was a
    significant impact, because when you increase spending, people
    understand, when you increase spending massively people
    understand that there will be tax increase in the future and
    that actually creates a lot of uncertainty and forces them to
    stay home.
        Mr. BIGGS. I would just give an example, I will say good
    things about my in-laws. My father-in-law is retired, but he
    was small businessman in rural Oregon, and when you are the
    owner there, you work hard for a long time, you sacrifice, you
    take the risk. If profits are low, you go without because you
    still have to pay your employees. When things turn out well,
    then you get the rewards. They are taking a risk in sacrificing
    at certain times in order to get that in later days. When they
    do succeed the more you penalize, or the higher tax that, it
    reduces the incentive to do the sacrifices that are needed to
    make the economy grow.
        Mrs. BLACK. Mr. Chairman, I know that I am out of time but
    I really want to make the point here since this committee
    hearing today was about how we create jobs, that we do not lose
    sight of the way we create jobs and that is by entrepreneurs,
    because 80 percent of our economy of businesses are created by
    entrepreneurs. And if we really want to encourage our
    entrepreneurs to take the risk, we need to also say to them we
    understand you take the risk, we are not going to take from
    you, but thank you very much.
        Mr. JOHNSON. Thank you. Your time has expired. I want to
    thank the panelists; all of you for your perseverance, and
    maybe you have got time for some lunch now. Thank you so much
    for being here. This committee stands adjourned.
        [Whereupon, at 12:45 p.m., the committee was adjourned.]
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