[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 
page of the Committee website and complete the informational forms. 
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 
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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 
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    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.]
    [Submissions for the Record follow:]




                                 
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