[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]





                            WHY DEBT MATTERS

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 25, 2014

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-71

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              BRAD SHERMAN, California
EDWARD R. ROYCE, California          GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma             MICHAEL E. CAPUANO, Massachusetts
SHELLEY MOORE CAPITO, West Virginia  RUBEN HINOJOSA, Texas
SCOTT GARRETT, New Jersey            WM. LACY CLAY, Missouri
RANDY NEUGEBAUER, Texas              CAROLYN McCARTHY, New York
PATRICK T. McHENRY, North Carolina   STEPHEN F. LYNCH, Massachusetts
JOHN CAMPBELL, California            DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota          AL GREEN, Texas
KEVIN McCARTHY, California           EMANUEL CLEAVER, Missouri
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin
BILL POSEY, Florida                  KEITH ELLISON, Minnesota
MICHAEL G. FITZPATRICK,              ED PERLMUTTER, Colorado
    Pennsylvania                     JAMES A. HIMES, Connecticut
LYNN A. WESTMORELAND, Georgia        GARY C. PETERS, Michigan
BLAINE LUETKEMEYER, Missouri         JOHN C. CARNEY, Jr., Delaware
BILL HUIZENGA, Michigan              TERRI A. SEWELL, Alabama
SEAN P. DUFFY, Wisconsin             BILL FOSTER, Illinois
ROBERT HURT, Virginia                DANIEL T. KILDEE, Michigan
MICHAEL G. GRIMM, New York           PATRICK MURPHY, Florida
STEVE STIVERS, Ohio                  JOHN K. DELANEY, Maryland
STEPHEN LEE FINCHER, Tennessee       KYRSTEN SINEMA, Arizona
MARLIN A. STUTZMAN, Indiana          JOYCE BEATTY, Ohio
MICK MULVANEY, South Carolina        DENNY HECK, Washington
RANDY HULTGREN, Illinois
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 25, 2014...............................................     1
Appendix:
    March 25, 2014...............................................    55

                               WITNESSES
                        Tuesday, March 25, 2014

Bernstein, Jared, Senior Fellow, the Center on Budget and Policy 
  Priorities.....................................................    15
Cote, David M., Chairman and Chief Executive Officer, Honeywell 
  International..................................................    10
Holtz-Eakin, Douglas, President, the American Action Forum.......    13
Rivlin, Hon. Alice M., Senior Fellow, Economic Studies, the 
  Brookings Institution..........................................    12

                                APPENDIX

Prepared statements:
    Bernstein, Jared.............................................    56
    Cote, David M................................................    65
    Holtz-Eakin, Douglas.........................................    89
    Rivlin, Hon. Alice M.........................................    97

              Additional Material Submitted for the Record

Fitzpatrick, Hon. Michael:
    Letters from 8th grade students Tia Farese, Elyse McMenamin, 
      and Alexander Frischmann discussing their concerns about 
      the national debt..........................................   103
    List of additional 8th grade students who submitted letters..   109

 
                            WHY DEBT MATTERS

                              ----------                              


                        Tuesday, March 25, 2014

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:07 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Bachus, 
Capito, Garrett, Neugebauer, McHenry, Bachmann, Pearce, Posey, 
Fitzpatrick, Luetkemeyer, Huizenga, Duffy, Hurt, Grimm, 
Stivers, Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Barr, 
Cotton, Rothfus; Waters, Maloney, Capuano, Clay, Lynch, Scott, 
Green, Cleaver, Ellison, Perlmutter, Himes, Carney, Foster, 
Kildee, Delaney, Sinema, Beatty, and Heck.
    Chairman Hensarling. The committee will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    This hearing is entitled, ``Why Debt Matters,'' and is the 
first of a series of hearings I expect our committee to hold on 
the subject of the pending national debt crisis.
    I have one short announcement. If Members have not seen the 
announcement, Secretary Lew was scheduled to testify before our 
committee tomorrow on his annual state of the international 
financial system testimony. His office has announced that he is 
having minor surgery today. We wish him well. He expects to 
recoup for the rest of the week and be back at Treasury next 
week, so it is our hope that we can reschedule Secretary Lew 
sometime in the next several weeks prior to the Easter break.
    I now recognize myself for 4 minutes to give an opening 
statement.
    Recently, I saw in the newspaper a headline that read, 
``Debts, deficits, once a focus, fade from the agenda.'' Shame 
on us if we allow that headline to prove accurate.
    In the last 6 years, we have accumulated more national debt 
than we did in our Nation's first 200 years. We are 
experiencing debt-to-GDP ratios not seen since the aftermath of 
World War II. That level of debt was episodic and temporary. 
Today's is structural and unsustainable.
    As a veteran of the supercommittee, Simpson-Bowles, and now 
Chair of this committee, my laptop is regrettably full of 
reports describing our debt as unsustainable. Yet denial, 
justification, and inaction continue to rule the day.
    We have had many sobering warnings that our Nation is 
headed for a crisis. Renowned economics writer Robert Samuelson 
has written that our failure to solve this dilemma could 
``trigger an economic and political death spiral.'' Erskine 
Bowles, co-chairman of President Obama's fiscal commission 
said, ``This debt is like a cancer. It is truly going to 
destroy the country from within.''
    We need not look much further than Detroit or Greece to see 
just how hurtful and harmful a debt crisis can be. In Greece, 
according to the latest official report, the unemployment rate 
is almost 30 percent. With unemployment so high, according to 
press reports, many college graduates have had to turn to 
subsistence farming in the country. Closer to home, a report 
from Detroit last year indicated that approximately 40 percent 
of the City's streetlights did not function. Only a third of 
the City's ambulances were working. And approximately 78,000 
buildings were vacant.
    Will our Nation as a whole ever experience a debt crisis 
comparable to Detroit or Greece? I do not believe so, but I do 
not know for sure. And I am greatly troubled by the fact that 
there are few instances in world history of republics existing 
much beyond 200 years, and most most met their demise through 
some type of fiscal crisis.
    But unsustainable levels of debt are not just the stuff of 
apocalyptic nightmares for some yet to be born and unknown 
future generation of Americans. No, unsustainable levels of 
debt are harming our country today as we speak. Just look at 
our lackluster economy.
    Bernie Marcus, former chairman of Home Depot, spoke for 
many job creators when he said, ``If we don't lower spending 
and if we don't deal with paying down the debt, we are going to 
have to raise taxes. Even brain-dead economists understand that 
when you raise taxes, you cost jobs.''
    Small business owners all over America feel likewise. As 
one of them told me, ``Jeb, I know somehow, someway, I am going 
to have to pay for all this debt, so now is not the time that I 
am going to buy a bunch of new equipment or hire a bunch of 
folks.''
    The national debt is clearly keeping people unemployed and 
underemployed. And it is estimated that we will spend $233 
billion this year on interest payments alone. That $233 billion 
is more than 7 times larger than the requested annual budget 
for the National Institutes of Health. Let us reflect upon all 
of the childhood cancer studies going unfunded today because of 
the national debt.
    Regrettably, the situation will get worse. The 
Congressional Budget Office projects as much as $630 billion a 
year of additional interest payments to be added to the debt. 
And interest payments on the debt are cannibalizing our 
discretionary budget, including our national defense.
    As interest rates rise, it is not just the Federal budget 
that will be squeezed. It will be the family budget, as well, 
especially as more Federal borrowing crowds out private 
borrowing on everything from credit cards to mortgages to 
student loans. In short, it has an adverse impact on almost 
every issue within this committee's jurisdiction.
    And that is why, as chairman, I am launching a series of 
hearings to be focused on our pending debt crisis. There is 
much at stake. We can no longer allow the debt-deniers among us 
to mask the threat or to change the subject. I believe any 
reasonable examination of history and economics will show that 
we are, indeed, headed for a debt crisis. It is the most 
foreseeable crisis in our Nation's history.
    As Members of the House of Representatives, we can 
certainly disagree about the solutions to avert the crisis, but 
we should unanimously agree that debt matters and that debt 
matters today.
    I now recognize the ranking member, Ms. Waters, for 5 
minutes for an opening statement.
    Ms. Waters. Thank you, Mr. Chairman. I ask for unanimous 
consent to speak out of order for 1 minute to recognize--
    Chairman Hensarling. Without objection.
    Ms. Waters. --the distinguished services of a member of the 
committee staff. Thank you very much.
    I would like to take this time to express my sincere 
gratitude for the dedication offered by Lawranne Stewart to our 
committee since 2001. She has offered her expertise in all 
facets under the committee's jurisdiction to members of this 
committee, including Ranking Member LaFalce. Then, we had 
Chairman Barney Frank and myself.
    Over the course of her service, she has played a lead role 
in crafting key reforms, not the least of which is the Dodd-
Frank Wall Street Reform and Consumer Protection Act, and I am 
pleased to say that she will be continuing her excellent record 
of public service at the Commodity Futures Trading Commission.
    Lawranne, we wish you all the best. Please stand for a 
moment so everybody can see you.
    [applause]
    Ms. Waters. Thank you very much, Mr. Chairman, for 
scheduling today's hearing to discuss the important role that 
fiscal policy plays in contributing to full employment and 
economic growth.
    As we continue to climb out of the worst recession since 
the Great Depression, it is essential that we get our fiscal 
policies right and that we hold firm our commitment to 
promoting growth and reducing economic inequality. And while my 
colleagues on the other side of the aisle endlessly use the 
national debt as an excuse to slash funding for important 
government programs, the fact remains that putting America back 
to work in an economy that works for everyone is undoubtedly 
the most effective and efficient way to reduce our debt and 
deficit.
    With that in mind, I am pleased to see that many of the 
witnesses here agree that Congress can best tackle the long-
term deficit and national debt by pursuing short-term increases 
in discretionary fiscal stimulus. I similarly urge such an 
approach and would suggest the chairman consider similar 
proposals in the President's Fiscal Year 2015 budget request.
    As we have learned in recent years, both at home, as well 
as in Europe, government austerity during a recession such as 
the sequester impedes growth. Unfortunately, we have learned 
this lesson the hard way. In contrast to previous recessions 
when the government provided much-needed fiscal stimulus, the 
recent drastic cuts to discretionary programs have been a 
headwind to our full recovery.
    Regardless, our progress toward shrinking the deficit in 
recent years leads me to believe that the timing of this series 
of hearings seems to be more inspired by politics than 
enhancing good policy. Especially given the fact that since 
President Obama took office, the budget deficit has fallen from 
10 percent of GDP in 2009 to 3 percent, which is the average 
size of the deficit over the past 40 years. President Obama's 
new budget proposal will help grow the economy even faster, 
reducing the deficit to 1.6 percent of GDP by the year 2024.
    As further cuts are made to the deficit they must be 
balanced with spending priorities that boost growth and fulfill 
our moral obligation to those in need. The social safety net 
has proven to be a crucial tool in lowering poverty rates by 
half. Pretending that cutting these programs would somehow 
magically lift people out of poverty is neither sensible nor 
fair.
    This committee should also advocate for a strong and stable 
financial system that protects consumers and safeguards the 
savings of working Americans. Doing so requires full funding 
for our Nation's regulators, the Securities and Exchange 
Commission (SEC), and the Consumer Financial Protection Bureau 
(CFPB), to ensure that the financial services industry adheres 
to the rules of the road. And we should provide stability to 
our Nation's business community by quickly reauthorizing the 
Terrorism Risk Insurance Act, known as TRIA, and the Export-
Import Bank, both of which increase employment and investment.
    We should support initiatives to reduce poverty by fully 
funding HUD's programs that provide public housing, work to end 
homelessness, and preserve access to affordable rental housing.
    And this committee should focus on sensible housing finance 
reform, not the radical remake of our housing finance system as 
called for by the PATH Act.
    And finally, Mr. Chairman, this Congress must avoid self-
inflicted wounds that have become all too commonplace, like the 
recent Republican shutdown of the government, threats of 
defaulting on our debts, and the sequester, all of which hurt 
economic growth, slowed job creation, and widened the gap 
between rich and poor. I think we can do better.
    I thank you, Mr. Chairman, and I yield back the balance of 
my time.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the chairman emeritus of the 
committee, Mr. Bachus, for 1 minute.
    Mr. Bachus. Thank you. I appreciate the panelists being 
here.
    I think we all agree that some of the measures that 
Congress has taken have helped in the short term in funding our 
deficit, but in the long term I think we would all agree that 
the debt is a threat to our economic growth, that it is not 
sustainable, and that it actually is, as the Chairman of the 
Joint Chiefs of Staff, Michael Mullen, says, a threat to our 
national security.
    Now, I would say that Chairman Bernanke probably has come 
up with the best advice, and he says we have to reform our 
entitlement programs--Social Security, Medicaid, and Medicare--
and that is probably the biggest step, and he said that if we 
act immediately, with long-term structural changes that don't 
even have to take effect now, that it would pay immediate 
benefits. He has also said that has to come from Congress and 
the Executive Branch. That is not monetary policy by the Fed.
    I think my time has expired, but I think it is simply 
whether Congress and the President have the will to act on our 
entitlement program. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Lynch, for a minute and a half.
    Mr. Lynch. Thank you, Mr. Chairman.
    The focus of today's hearing, ``Why Debt Matters,'' is 
certainly an important topic, and I thank the chairman for 
raising it. If the purpose of this hearing is to make the point 
that our national debt is on an unsustainable long-term 
trajectory, and we need to craft reforms to address the main 
drivers of that debt, I think you would find unanimous support 
for that proposition on this committee, in the House, and, 
indeed, in all of Congress.
    What makes this a challenging topic is not that we disagree 
about whether debt is a serious threat. It is that we 
fundamentally disagree about the best way to reduce our long-
term debt. Sequestration, which was the result of a deal cut to 
defuse a debt limit showdown in August of 2011, has 
significantly slashed domestic discretionary spending, slowing 
the growth of the U.S. debt, and our deficits have 
correspondingly declined from $1.4 trillion to a projected $514 
billion in this fiscal year. And Congressional Budget Office 
projections show that our deficit will be about 2.6 percent of 
GDP in the next fiscal year.
    But while this deficit reduction is important, it has been 
accomplished in a way that is in itself unsustainable and 
dangerous over the long term. We cannot simply cut ourselves to 
prosperity, and we certainly can't achieve a sustainable fiscal 
path when we attempt to balance our budget by slashing programs 
that invest in our future, programs like Head Start, medical 
research, housing programs, and infrastructure.
    I look forward to working with my colleagues on both sides 
of the aisle to find a solution to our fiscal challenges. And I 
look forward to hearing the thoughts of the witnesses about how 
we can best reach one of those solutions. Thank you, Mr. 
Chairman, and I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New Jersey, the 
chair of our Capital Markets Subcommittee, Mr. Garrett, for 1 
minute.
    Mr. Garrett. Thank you, Mr. Chairman. I would like to begin 
by thanking you for holding this hearing on our Nation's 
unsustainable fiscal path. I would also like to thank all of 
the witnesses for appearing today, as well.
    It is fitting that this hearing takes place as the House 
Budget Committee is preparing the Fiscal Year 2015 budget 
blueprint. Basic math dictates that you cannot fix the debt 
problem until you get your budget under control. As many have 
long said, we need a balanced budget plan to prevent further 
dipping into the red.
    Our Nation has long enjoyed something akin to an ultra-
platinum credit card status. Our credit limit is continually 
increased. Interest rates remain very low, at so-called 
introductory promotional levels. However, we know this deal is 
too good to be true. At some point, if we remain on our current 
course, reality will set in, and the bill will become due.
    So it is my hope that this hearing will underscore the 
fiscal threats on the horizon, that the horizon is not too far 
away, so that the American people will recognize the urgency of 
the situation and, most importantly, this Congress will, as 
well.
    With that, I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Colorado, Mr. 
Perlmutter, for 1 minute.
    Mr. Perlmutter. Thanks, Mr. Chairman.
    I think today's hearing should be titled, ``Why Revenue 
Matters.'' And there are two sides to a balance sheet--we all 
know that--the expense and revenue. And this requires us to 
consider both of these, not just the expense side, and we know 
that when President Clinton left office, we had a budget 
surplus. Revenues exceeded expenses.
    But due to two wars, two tax cuts, and a crash on Wall 
Street, all under the Bush Administration, we added trillions 
to our national debt. Now, thanks in large part to the efforts 
of the Obama Administration, our economy is recovering from the 
depths of the worst recession since the Great Depression.
    So I appreciate the panelists being here today, and I thank 
you for your work on trying to look at both sides of the 
ledger, not just the expense side or the debt side, because it 
takes both things. Our revenue is lower now than it has been in 
40 years in terms of a percentage of GDP. We need to have both 
sides in sync. We have to watch our expenses, but we have to 
have revenue for the priorities of this Nation. And I thank you 
for your service and your testimony today.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, the 
chairman of our Housing and Insurance Subcommittee, Mr. 
Neugebauer, for 1 minute.
    Mr. Neugebauer. Thank you, Mr. Chairman, for holding this 
important hearing titled, ``Why Debt Matters,'' talking about 
the Nation's excessive spending and debt, and how it impacts 
and impairs the Americans' confidence in the future.
    One of the things that I do as I travel around the country 
and around my district is, when I am in the audience, I ask 
everybody in the room this question: How many people in here 
are living a bigger, more prosperous life than their parents 
and their grandparents? And almost everybody raises their hand.
    The next question I ask them is, how many people in this 
room think that if we keep spending and borrowing at these 
excessive amounts that your children and your grandchildren 
will have a bigger and more prosperous life than you do? Nobody 
raises their hand.
    You see, what is going on right now is with all of this 
spending and borrowing, we are mortgaging the future of our 
children and our grandchildren, and the people who are in this 
generation today realize it. And it causes a lot of 
uncertainty, uncertainty with families, uncertainty with 
businesses, and so debt does matter.
    And, Mr. Chairman, I am so glad that you are holding this 
hearing, because I think it could be one of the most important 
hearings going on, on the Hill today. And with that, I yield 
back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Connecticut, 
Mr. Himes, for 2 minutes.
    Mr. Himes. Thank you, Mr. Chairman. And thank you for 
holding this hearing. I would like to thank the witnesses who 
are here who have spent years now, I think, advising this 
Congress on the challenges that we face with respect to our 
fiscal sustainability.
    I am actually very hopeful that we might have a good 
hearing today in which we discuss this in an honest fashion, 
where we acknowledge that very significant progress has been 
made in the last 5 years against an unsustainable budget. 
Almost $4 trillion by some estimates found that we will 
acknowledge that has not come free, that the workers at 
Sikorsky in my district, that people who rely on food stamps, 
that our infrastructure in this country has suffered 
dramatically because of those choices. And I hope that we will 
acknowledge that the fix here is actually not that challenging 
mechanically, that if we just find some targeted cuts and some 
egregious preferences in the tax code, we could get there on 
the current budget, and that if we are willing to do the hard 
work to make Medicare, Social Security, and Medicaid 
sustainable in an equitable way in the future, we will have 
solved this problem.
    No topic, of course, activates the moral high dudgeon of my 
colleagues quite as much as this one, and I would like to just 
offer a couple of thoughts, having spent a lot of time in rooms 
with the witnesses. Number one, if you can't agree that 
defense, where we currently outspend all of our conceivable 
enemies combined by a factor of 4 to 1, if you don't see that 
as an opportunity to reduce spending, you are not serious. If 
you can't find a single tax preference in the code to 
eliminate, you are not serious. If you voted against raising 
the debt ceiling and preserving the full faith and credit of 
this country, you are not serious. If you don't acknowledge 
that Medicare and Social Security in the long run need some 
equitable reform, you are not serious about this conversation 
we are having today.
    I hope we can be serious, because this is important. Let's 
use this to continue this discussion, not to pillory the 
President, not to score partisan points, not to suggest that it 
is my way or the highway.
    Mr. Chairman, if I may close with a quote from your 
editorial this morning in the Dallas News: ``This is America. 
We can and must do better.''
    I yield back the balance of my time.
    Chairman Hensarling. I am always happy to yield the 
gentleman more time if he wishes to quote the chairman.
    [laughter]
    The Chair now recognizes the gentleman from Illinois, Mr. 
Hultgren, for 1 minute.
    Mr. Hultgren. Thank you, Mr. Chairman.
    Our Nation faces a massive debt crisis, as our debt 
surpasses $17.5 trillion, as we can all see, or around $55,000 
per person, and that is not to mention my home State of 
Illinois' debt of almost $25,000 more per person.
    Unfortunately, many of our Nation's policymakers are 
ignoring this crisis, despite its real consequences for 
Illinoisans and Americans. This crisis translates into higher 
interest rates as we spend more money on interest to service 
the Federal debts and less, for example, on national defense 
and vital services.
    It also hurts working families, as mortgage costs go up and 
companies pass their increased borrowing costs onto consumers 
who pay more for daily staples of life and life becomes less 
affordable.
    And make no mistake. This debt crisis is a spending crisis. 
I have four children, and I refuse to stand by while Congress 
sacrifices their future and that of my constituents because it 
didn't address our spending addiction or place our entitlements 
system on a sustainable footing. That is why I am looking 
forward to this hearing.
    Thank you, Mr. Chairman. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now yields 30 seconds to the gentlelady from Ohio, 
Mrs. Beatty.
    Mrs. Beatty. Thank you, Mr. Chairman and Ranking Member 
Waters. And thank you to the witnesses for being here.
    Today's debate, as you have heard, is about how to balance 
the budget, spending, and taxation with that of future 
obligations and expectations. Although it seems that Democrats 
and Republicans agree that increasing the public debt is 
unsustainable in the long term, the disagreement always comes 
back to how to achieve the same goal of reaching a balanced 
budget.
    I tend to believe that there is a need to address this 
problem from both sides of the equation by increasing the 
revenue and cutting where appropriate.
    Thank you.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Ross, for 1 minute.
    Mr. Ross. Thank you, Mr. Chairman, for calling this 
important hearing.
    In these discussions, we toss around a lot of numbers, like 
the fact that we are over $17.5 trillion in debt, but what do 
these numbers really mean for Americans? Let me tell you.
    Young families in central Florida are struggling and 
sacrificing to make ends meet under the burden of high taxes 
and slow economic recovery. Every day I receive letters and 
phone calls from constituents I serve telling me about their 
financial struggles in this economy.
    The average family, in my home of Polk County, makes 
$37,000 a year. Yet if you divided up the country's debt, the 
amount of debt that each taxpayer owes would be $151,000 a 
year. That is more than 4 times their annual salary.
    These families are struggling already, struggling to get 
jobs, struggling to make ends meet for basic necessities like 
food and electricity. In 10 years, these same families will 
continue to struggle, even more so if we fail to enact 
meaningful spending reforms. Federal programs have been 
arbitrarily expanded without improving the efficiency or 
effectiveness of taxpayer dollars. The solution isn't spending 
more money. The solution is spending money more wisely.
    Republicans aren't looking simply to eliminate lifetime 
programs. We are looking to solutions and reforms to very real 
problems with potentially large consequences for inaction.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Kentucky, Mr. 
Barr, for 1 minute.
    Mr. Barr. Thank you, Mr. Chairman. I want to thank you for 
calling this important hearing and refocusing all of us on the 
consequences of our massive and growing Federal debt. Like you, 
I reject the premise that concern about the debt is fading. As 
I travel my district in central and eastern Kentucky, people 
consistently tell me that restoring fiscal responsibility is 
their top priority.
    And the reason is simple: People in my district are smart. 
They know it is a problem that the Federal Government spends 
significantly more than it takes in. They know that 
Washington's spending problem only gets worse the longer we 
delay honestly confronting it. And they know that future 
generations will have to work longer and harder in order to 
receive less as they shoulder the burden of debt that our 
Federal Government is now creating.
    In addition to reforming unsustainable mandatory spending 
programs, which are crowding out critical investments in 
education, medical research, transportation, and national 
security, our focus needs to be on durable, long-term economic 
growth and job creation. And we cannot create that job creation 
and growth if we are in a debt crisis that automatically 
imposes austerity on the American people.
    I yield back the balance of my time.
    Chairman Hensarling. The time of the gentleman has expired.
    We will now turn to our panel of witnesses. First, Mr. 
David Cote is the chairman and CEO of Honeywell International, 
where he has served for 12 years. Prior to his tenure at 
Honeywell, Mr. Cote held positions at other manufacturing 
companies, including 20 years at GE.
    Mr. Cote was appointed by President Obama to serve on the 
National Commission on Fiscal Responsibility and Reform, also 
known as the Simpson-Bowles Commission. He serves on the 
Steering Committee of the Campaign to Fix Debt, a bipartisan 
effort. He serves as the vice chairman of the Business 
Roundtable, and holds a bachelor's degree from the University 
of New Hampshire.
    Second, Dr. Alice Rivlin is clearly no stranger to our 
committee or Capitol Hill. She is a senior fellow in the 
economic studies program at the Brookings Institution. She also 
served on the Simpson-Bowles Commission. Prior to that, Dr. 
Rivlin has served in a number of very important roles in public 
service, including Director of the Congressional Budget Office, 
Director of the Office of Management and Budget, and Vice Chair 
of the Federal Reserve Board of Governors. She holds a Ph.D. in 
economics from Harvard.
    Third, Dr. Douglas Holtz-Eakin serves as the president of 
the American Action Forum. Like Dr. Rivlin, Dr. Holtz-Eakin 
previously served as Director of the Congressional Budget 
Office. He also served on the Financial Crisis Inquiry 
Commission in 2009. He earned his Ph.D. in economics from 
Princeton.
    And last but not least, Dr. Jared Bernstein is a senior 
fellow at the Center on Budget and Policy Priorities. From 2009 
to 2011, Dr. Bernstein served as Chief Economist and Economic 
Advisor to Vice President Biden. Dr. Bernstein currently sits 
on the Congressional Budget Office's advisory committee. He 
earned his Ph.D. in social welfare from Columbia University.
    Without objection, ladies and gentlemen, your written 
statements will be made a part of the record. Each of you has 
testified before Congress before, so hopefully, you recall the 
green, yellow, and red lighting system, and I would 
respectfully ask that each of you observe the 5-minute rule. 
And due to the acoustics of our room and the less-than-
desirable AV equipment, please pull the microphone very, very 
close to you as you speak.
    Mr. Cote, you are now recognized for 5 minutes.

   STATEMENT OF DAVID M. COTE, CHAIRMAN AND CHIEF EXECUTIVE 
                OFFICER, HONEYWELL INTERNATIONAL

    Mr. Cote. Chairman Hensarling, Ranking Member Waters, and 
distinguished members of the committee, it is my pleasure to 
appear before you today to discuss the importance of our long-
term debt, and thank you for doing this.
    As a country, we have a lot of strengths, but the world 
isn't standing still. We need to recognize: one, that we are in 
a different global economy than we were 20 years ago; two, that 
the global economy will change substantially over the next 20 
years; and that three, it will move forward with us or without 
us.
    The chart above shows that in 1990, the United States 
represented 27 percent of world GDP. By 2010, it was 26 
percent. And over the next 20 years, the percentage declines to 
24 percent. Other developed countries--Western Europe, Japan, 
Canada, et cetera--declined from 50 percent in 1990 to 41 
percent in 2010 and will decline further to 29 percent of by 
2030. And importantly, high-growth regions, or what some call 
developing economies, have grown from 23 percent of world GDP 
to 33 percent in 2010 and will continue growing to 47 percent 
of world GDP by 2030.
    In other words, what we think of as developing countries in 
20 years will account for almost half of world GDP. That is a 
big deal. If we are going to compete and win in this new world, 
we need to have an American competitiveness agenda.
    There are eight areas where we can make a difference now to 
ensure our future competitiveness: long-term debt; 
infrastructure; math and science education; immigration; tort 
reform; patents; energy; and free and fair trade. And for the 
purpose of today's hearing, I am going to focus on the long-
term debt.
    We should look at our debt, our spending, and our tax 
profile in terms of increasing global competitiveness. While we 
can put our heads in the sand for a few years and talk about 
declining deficits, the demographic freight train caused by 
Baby Boomers is still coming. If we just focus on this decade, 
on this chart, we can probably argue there is no issue, even 
though we are at a debt level comparable to some of the 
troubled European countries. If we expand this to the next 
decade, though, we can see it doesn't look as bright.
    And, remember, this doesn't predict any recessions. In the 
course of the next 20 years, there is a good chance of at least 
2 or perhaps 3 recessions that will worsen this picture. 
Additionally, in 2025, we will be spending $1 trillion a year 
just in interest.
    So how do you put a trillion dollars into perspective? You 
can see on this chart, if you had spent a million dollars a day 
since Jesus Christ was born 2,013 years ago, you still would 
not have spent a trillion dollars. And that will be our annual 
interest bill. It is unconscionable.
    To put our debt in further perspective, our debt as a 
percentage of GDP is about the worst in our history, only 
eclipsed by World War II, when we had a really good reason to 
borrow.
    Now, for those who think this is just a Wall Street 
problem, look at it this way: When 10-year Treasury notes go to 
7 percent, and as a result home mortgages go to 10 percent and 
car loans to 13 percent, families will have fewer dollars, and 
that is a Main Street problem.
    In addition to the amount of spending, the composition of 
spending changes over the next 10 years, with mandatory 
spending on autopilot, going from about two-thirds to three-
quarters of our total budget. Another way to think about it is 
that government spending overwhelmingly focuses on transfer 
payments, not investment. Transfer payments help perhaps to 
equalize distribution, but investment is what grows the pie.
    Changes made now can have a big effect in the second decade 
and allow people and systems time to adjust so it is much less 
onerous. Entitlements need to be reformed and a revenue 
increase is needed as a reasonable compromise. Revenue should 
be approached through tax code simplification. And Congressman 
Dave Camp's efforts to get this effort going should be 
applauded.
    If we had set out to create a system that was unfair, 
confusing, and globally uncompetitive, we couldn't have done 
this good a job. We need to rid ourselves of tax expenditures 
and significantly reduce rates. Then, we can raise revenue 
through a slight increase in those rates.
    To compete effectively in this increasingly competitive 
stage, we have to have a strong balance sheet. We don't have a 
strong balance sheet today. If you want another way to think 
about the impact of our debt in this new world, think of it 
this way: In 25 years, at current rates, China will eclipse the 
United States as the biggest economy in the world. At that same 
time, at current projections, U.S. debt will be over 100 
percent of GDP. Is that the legacy we want to leave our kids 
and grandkids?
    There is an economic Olympics going on right now. We can't 
just focus on beating the other Americans on the team. We need 
to look at all the other teams that are competing, and we have 
to beat them. It is important to have a vibrant democracy. At 
the same time, we can't let our commitment to democracy evolve 
into an excess of discordant pluralism and infighting that 
incapacitates our ability to make a collective decision.
    I do believe our form of government is the best there is. 
We shouldn't wait for a crisis to act on our long-term debt. We 
should start acting now.
    Thank you.
    [The prepared statement of Mr. Cote can be found on page 65 
of the appendix.]
    Chairman Hensarling. Dr. Rivlin, you are now recognized for 
5 minutes.

  STATEMENT OF THE HONORABLE ALICE M. RIVLIN, SENIOR FELLOW, 
          ECONOMIC STUDIES, THE BROOKINGS INSTITUTION

    Ms. Rivlin. Thank you, Mr. Chairman.
    I, too, am very glad you are holding this hearing. A couple 
of years ago, we all seemed obsessed by deficits and debt, and 
now the issue has dropped from conversation. People sort of 
say, ``Oh, didn't we solve that?'' Well, no, actually, we 
didn't.
    We still have a very high level of debt in relation to the 
size of our economy, and that ratio is increasing, and we still 
have a practical problem looming at us. I like to think of it 
as a practical problem rather than a crisis. We have the number 
of old people increasing dramatically in the next couple of 
decades. We have to figure out how to pay for commitments to 
older people, especially in health care, and provide other 
essential services of government at the same time. We have to 
figure out how to increase the productivity of younger people, 
people who will be in the workforce, so that it is easy to pay 
for government, as well as all the other things we want. I 
believe strongly that this practical problem will be solved 
only by bipartisan compromise and cooperation across party 
lines.
    Now, admittedly, the projections look better than they did 
back in 2010, when Dave Cote and I were serving with you, Mr. 
Chairman, on the Simpson-Bowles Commission. Then, we had a very 
fragile recovery, unemployment close to 10 percent, and 
deficits around 10 percent of the GDP. Those deficits were 
necessary, and we knew they would come down. But the scary part 
was that as the economy recovered and resumed normal growth, 
this demographic surge would start driving Federal spending up 
by the end of this decade.
    We were especially worried about Medicare and Medicaid, 
because historically, health spending has grown much faster per 
capita than GDP. Multiplying those rates of health spending by 
more older people would widen the wedge between spending and 
revenues, the revenues from our creaky tax system.
    Debt was on track to rise faster than the economy could 
grow. And all the bipartisan groups, including Simpson-Bowles, 
had the same prescription: Don't emphasize austerity right now, 
because the economy is fragile, but put in place reductions in 
the rate of growth of entitlements and raise more revenue from 
our creaky tax system by reforming it.
    Now, we have a short-run and a long-run budget outlook that 
is a little less scary. The economy is recovering. Deficits 
have plummeted. But looking ahead, we still see the rise in the 
2020s of the debt faster than the GDP can grow. We bought time 
in this recent agreement to work on this practical problem.
    But we also have to remember that the improvement in the 
projection is due to two factors that may not last: cuts in 
nonentitlement spending, especially discretionary spending, 
which account for most of the smaller projected debt increase; 
and slower assumed increases in health care costs. Both of 
those may be temporary.
    Yes, debt matters. We have to pay interest on it. We have 
been living in a fool's paradise with low interest rates. Debt, 
high debt, and high interest payments make us more vulnerable 
to foreign holders. They constrain our fiscal policy 
flexibility in the future.
    And if we don't do something, we might have a debt crisis--
ably described by my colleague on the left--a spike in interest 
rates. I don't think that is the most likely consequence. More 
likely is slower growth squeezing out public and private 
investment.
    The practical problem of an aging population is that we 
have more dependents and fewer people in the labor force. So we 
have two choices, and we have to do both. We can grow the labor 
force with immigration and encouraging people to work longer, 
or we can invest in productivity of the labor force, modernize 
our infrastructure, and upgrade skills. We have to do both.
    And I think, Mr. Chairman, it is time to end the blame 
game. Stop pointing at the Bush tax cuts or the Obama stimulus. 
Those may have played a role in the past, but going forward, 
the problem is managing our way through this aging population. 
We need both higher growth and a declining ratio of GDP to 
debt. That is going to take delivering on slower growth of 
entitlements and more revenue from a reformed tax code.
    Our system requires compromise and bipartisan cooperation 
to get anything serious done. The parties have common long-run 
objectives--higher growth and lower debt. The budget truce buys 
us some time to work together on how to solve those problems.
    [The prepared statement of Dr. Rivlin can be found on page 
97 of the appendix.]
    Chairman Hensarling. Thank you.
    Dr. Holtz-Eakin, you are now recognized for 5 minutes.

   STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, THE AMERICAN 
                          ACTION FORUM

    Mr. Holtz-Eakin. Thank you, Mr. Chairman, Ranking Member 
Waters, and members of the committee, for holding this hearing 
and for the privilege of appearing before you today.
    In my opening remarks, I will be brief and repeat some of 
the dire things that are true about the fiscal outlook and then 
emphasize that inaction on the long-term fiscal outlook is not 
costless. It harms the structure of the U.S. budget. It 
threatens the financial stability of this Nation. It leads to a 
situation in which the policy actions necessary to fix it are 
more draconian and undesirable. And ultimately, it visits great 
costs on the American people, and I would urge the Congress to 
begin addressing this problem immediately.
    As everyone knows, there is a brief window of stability in 
the debt as a fraction of GDP and the deficit as a fraction of 
GDP for the next couple of years, but that the fundamental 
problem remains and that, as we move forward over the 10-year 
budget window, the debt-to-GDP ratio rises continuously and 
dramatically in an unsustainable fashion upward.
    This is driven primarily by the large mandatory spending 
programs, in particular the health programs that Dr. Rivlin 
mentioned, and even with above-average revenue, we are going to 
have the deficits and debts rise. That is the core problem, and 
it leads to some real costs.
    The first, which has already been noted, is that mandatory 
spending and interest costs rise dramatically. Mandatory 
spending rises to be 62 percent of the budget. Interest costs 
rise from about 6 percent now to about 15 percent of the budget 
in 2024. So now you have 77 percent, almost 80 percent of the 
budget locked up in those, and that crowds out everything else 
which is in the discretionary accounts, which is everything our 
founders would have recognized as the role of government: 
national security; infrastructure; and basic research. And the 
structure of that budget fundamentally has the legacy programs 
of the past crowding out our future. It is unfair to the next 
generations, and it is a disservice to those trying to be more 
productive in the labor force.
    The second thing that happens is that it harms economic 
growth right now. This is a contentious issue in the economics 
literature, but if you look at the U.S. budget as an investor 
thinking about whether to build a factory in the United States 
or hire in the United States or expand in the United States, 
you have a trajectory that says there are three possible 
futures: one, a crisis; two, draconian tax increases to close 
the budget gaps; or three, control the mandatory spending 
programs.
    The first two of those are decidedly anti-growth. It is 
simply not a pro-growth strategy to sail straight into a crisis 
or to promise the kinds of tax increases that are necessary. 
The third is something that needs to be done.
    If investors come to the conclusion that number three is 
off the table, it will make the United States a completely 
inhospitable place to invest and expand. It will harm our 
competitiveness, as has been noted, but the chance of that 
happening is harming our growth now. How big it is, we don't 
know. But taking action can improve the economic outlook and 
improve growth in the near term. That is really important.
    Failing to do it puts us in a very undesirable situation. 
No one knows when such a crisis would actually rise, but for 
purposes of illustration in my testimony, we said, what happens 
in 2024? Suppose credit markets send the signal to the United 
States that this is it, we are going to downgrade you, we have 
had enough. Simply to keep the debt-to-GDP ratio constant, not 
to get it to come down, but just keep it at 78 percent means 
that in that year we have to get about $885 billion in deficit 
reduction.
    Now, that is not going to come out of the programs that are 
the problem. We can't change Social Security, Medicare, 
Medicaid, or the Affordable Care Act that fast. It is going to 
come out of discretionary spending and sharp tax increases. 
That means a 9 percent across-the-board increase in taxes, if 
that has half of it. It means a 30 percent across-the-board cut 
in discretionary spending, if you put half of it there. These 
are draconian policy moves that would harm the structure of our 
government and harm the people in the economy.
    And that would just keep it there for a year. You would 
need another $8 trillion of such actions over the succeeding 
decade just to stabilize debt-to-GDP. Waiting puts us in a very 
untenable position. It also raises the chance that we get the 
sharp spike in interest rates, which turn a mortgage from a 4 
percent interest rate to a 14 percent. That means monthly 
mortgage payments go from something like $1,200 to $3,600. It 
means that car loans go from $350 to $450. Student loans go 
from $350 a month to $641 a month.
    These are the kinds of things we cannot risk imposing on 
the U.S. economy and the families who live and work there. It 
is time to take action now to reduce the costs we are seeing in 
our budget structure, the drag on the economy, and the risk we 
run of financial instability coming from the Federal 
Government.
    Thank you for the chance to be here, and I look forward to 
your questions.
    [The prepared statement of Dr. Holtz-Eakin can be found on 
page 89 of the appendix.]
    Chairman Hensarling. Thank you.
    Now, Dr. Bernstein, you are recognized for 5 minutes.

  STATEMENT OF JARED BERNSTEIN, SENIOR FELLOW, THE CENTER ON 
                  BUDGET AND POLICY PRIORITIES

    Mr. Bernstein. Thank you, Chairman Hensarling and Ranking 
Member Waters, for the opportunity to testify before you today. 
As we have heard today, it is common for some policymakers to 
label our debt as unsustainable. This is only the case if 
policymakers fail to undertake further steps to put the debt on 
a sustainable path, reinforcing the significant improvements in 
recent years. Those steps must involve a balanced fiscal policy 
that includes both new revenues and spending cuts, as well as 
building on recent progress in slowing the rate of growth of 
health care costs.
    Increases in the national debt do not automatically signal 
a fiscal problem and, in fact, are necessary in special 
situations. There have been numerous times in our Nation's 
history, times of war and of large market failures like the 
recent Great Recession, where temporary expansions of deficit 
and debt have been essential to meet the challenges we faced.
    In fact, austerity measures that seek to reduce deficits 
and debt too quickly undermine the economy's ability to recover 
from the downturn, leading to reduced job and wage growth for 
the vast majority of households. Historically, the last time 
the debt was falling consistently within the latter 1990s, when 
strong growth and more balanced fiscal policy contributed to 
low deficits, declining debt ratios, and ultimately budget 
surpluses. In the 2000s, large tax cuts and weak growth 
reversed these fiscal gains. Those tax cuts, most of which were 
made permanent in 2012, are clearly implicated as a major 
factor driving deficits and debt since they were enacted.
    Now, since 2010, policymakers have legislated considerable 
financial consolidation, and the budget deficit has fallen very 
quickly in historical terms, as we have heard from 
Representative Waters. This decline, however, has led to fiscal 
headwinds that have significantly slowed economic growth and 
hampered the expansion.
    In fact, projected 10-year deficits have decreased by $5 
trillion since 2010. Now, a bit more than $4 trillion of those 
deficit savings have come from legislation, including the 
Budget Control Act and other measures. Importantly, 77 percent 
of that $4 trillion in deficit savings has come from spending 
cuts, meaning only 23 percent are from higher revenues.
    Now, these facts have at least two important implications 
for policy. First, the oft-cited notion that the current 
Administration has been profligate spenders is demonstrably 
wrong. Outlays adjusted for inflation and population growth are 
up 3 percent relative to 2008, 3 percent, thus including the 
significant anti-recessionary ramp-up in 2009. If we go from 
2009 to 2013, outlays are down 12 percent.
    Second, future fiscal consolidation much be more balanced 
with significant contributions from new revenues. The optimal 
time to reduce the budget deficit is when private sector 
economic activity is generating enough demand to fully utilize 
our economic resources, including human capital. With elevated 
unemployment, particularly long-term unemployment, weak labor 
force participation, only moderate job growth, and large 
holdings of investment capital on the sidelines, the economy 
still needs fiscal support, not fiscal consolidation.
    Expanding unemployment insurance to the long-term 
unemployed is warranted as the expiration of extended benefits 
at the end of last year occurred, even though the long-term 
unemployment rate was significantly above its level at past 
expirations. But considering this committee's jurisdiction, a 
number of programs that support low- and middle-income 
families, as well as the broader economy, have been cut through 
the various budget deals noted above, including the 
sequestration cuts from the Budget Control Act.
    These programs include regulatory functions of the Consumer 
Financial Protection Bureau, the government-sponsored 
enterprises supported the secondary mortgage market and the 
backstop for an affordable 30-year fixed-rate mortgage, 
financial oversight to avoid systemic risk, housing support for 
veterans, the elderly, and the disabled, rental assistance for 
low-income households, and neighborhood stabilization programs 
that remove blight, while creating jobs.
    Finally, turning to the long term, it is clear that our 
long-term debt picture has significantly improved in no small 
part due to the deficit savings that have been legislated since 
2010 as I referenced. Also, one of the main factors driving the 
long-term debt is the intersection of our aging demographics 
and the growth of health care costs.
    However, in recent years these costs have slowed 
significantly thanks, in part, to measures introduced by the 
Affordable Care Act, and that, too, has lowered our debt 
projections, although as Dr. Rivlin says, we don't know if 
these are here to stay.
    However, while our debt forecasts are improved, they still 
reveal significant pressures with debt projected to exceed 100 
percent of GDP before 2040. This projection strongly supports 
the need to continue to implement the efficiency-enhancing 
measures of the Affordable Care Act, continue to monitor and 
build on the recent progress we have seen in health care costs, 
and to pursue the balanced fiscal measures that I have 
discussed so far.
    Thank you very much.
    [The prepared statement of Dr. Bernstein can be found on 
page 56 of the appendix.]
    Chairman Hensarling. Thank you, Dr. Bernstein. And I thank 
all of the panelists.
    The Chair now yields himself 5 minutes for questions. Dr. 
Holtz-Eakin, we have heard much discussion today about a 
balanced approach to dealing with the pending debt crisis. I 
was struck by your testimony about--assuming GDP levels and 
CBO's baseline, the balanced approach in the fiscal 
consolidation split evenly between tax increases and spending 
cuts would require a 30 percent discretionary spending cut. Do 
I read that correctly?
    Mr. Holtz-Eakin. That is correct, in 2024.
    Chairman Hensarling. Within the 10-year budget window. Dr. 
Rivlin, I read a piece recently--perhaps you saw it--from 
Robert Samuelson in the Washington Post. Let me quote from it: 
``Something strange is happening in Washington. We are slowly 
dismantling the Federal Government, even as spending is growing 
larger. An aging population and higher health spending 
automatically increase budget outlays, which induced the 
President and Congress to curb spending on almost everything 
else, from defense to food stamps.''
    So we have heard many argue about a dichotomy between 
addressing the unsustainable debt and spending on certain 
discretionary programs, Section 8, LIHEAP, WIC. Is entitlement 
spending going to be the blob that ate discretionary 
government, Dr. Rivlin?
    Ms. Rivlin. Mr. Chairman, I think it already has been. In 
my opinion, we have cut discretionary spending to unsustainable 
levels, from 8 percent of the GDP, if you believe where it is 
going in the CBO projections, to 2.3 percent. I don't know that 
we can run our government and do the things that we need to do, 
all the things we are agreed we need to do, national defense 
and national parks and all that--
    Chairman Hensarling. So you would say the national debt 
today, as we speak, is harming discretionary government, 
including national defense?
    Ms. Rivlin. I think that the measures taken to control the 
debt have focused on discretionary spending and some other 
mandatory programs, which are not the big part of the problem. 
We haven't addressed either entitlement reform or tax reform. 
We need to do both.
    Chairman Hensarling. Mr. Cote, in my opening statement, you 
heard me quote the former chairman and founder of Home Depot 
about the connection between the debt and jobs and economic 
growth. I know the CEO of AutoNation has also said, ``The best 
thing that this town could do to help economic recovery become 
sustainable is to deal with the deficit and to see tax 
reform.''
    In my very unscientific survey of speaking to small 
businesspeople in the Fifth Congressional District of Texas, 
when I ask them what is impeding the growth of your small 
business, what is preventing you from hiring more people, 
frankly, Obamacare comes up number one, but this is not the 
place or the time to have that debate. Other regulations in 
general use comes in number two, but I can always tell you, the 
debt certainly makes the top five and also comes in three.
    I am not asking for you to speak on behalf of Honeywell and 
what you do on behalf of the shareholders of Honeywell, but 
given your vast business experience from your position at the 
Business Roundtable, is the size and unsustainability of our 
debt impacting current hiring decisions in America today?
    Mr. Cote. The way I would describe it--
    Chairman Hensarling. Could you pull the microphone a little 
bit closer?
    Mr. Cote. The way I would describe it is, I pulled together 
our top 300 global leaders at Honeywell every year. And for the 
fourth year in a row, the theme of the conference was growing 
in a slow-growth economy. And I just don't see us taking the 
actions that we need to as a country to get growth above that 
2.5 percent to 2.8 percent range. And so far, despite forecasts 
from a lot of economists, that is the way it has pretty much 
worked.
    And when we plan for our own company, we look at it and 
say, over the next 3 years, this is the right way to think 
about it, because something like the debt, which I think is an 
overwhelming issue, just isn't being addressed. So, yes, it 
does have an impact, because that is how we plan for a slower 
growth economy.
    Chairman Hensarling. My time is winding down, and I 
occasionally attempt to set a good example, but in the few 
seconds I have remaining, if we don't change the course we are 
on--and I understand, Dr. Bernstein, I thought it was an 
interesting choice of words to say we are not on an 
unsustainable path if we basically fix it, again, something is 
not broken if we fix it, something isn't dead if we resurrect 
it, but at the moment, it is unsustainable.
    If we do not change the path we are on, who will be hurt 
most, high-income individuals, middle-income individuals, or 
low-income individuals? I am already over my time, so, please, 
a one-word answer. Low, middle, or high?
    Mr. Cote, do you have an opinion on the matter?
    Mr. Cote. Yes. My view is it is low-income people who will 
be hurt the most.
    Chairman Hensarling. Dr. Rivlin?
    Ms. Rivlin. Yes, I agree with that.
    Chairman Hensarling. Dr. Holtz-Eakin?
    Mr. Holtz-Eakin. Yes, low.
    Chairman Hensarling. Dr. Bernstein?
    Mr. Bernstein. Probably middle- and low-income people.
    Chairman Hensarling. Middle and low. My time has expired.
    The Chair now recognizes the ranking member for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I certainly believe--and I think it has been either said or 
alluded to today--that recent increases in the debt held by the 
public reflect costs associated with the Bush-era tax cuts, the 
wars in Iraq and Afghanistan, and the economic downturn 
following the financial crisis.
    However, I really don't want to dwell on that. I want to 
talk about how we stimulate the economy. Republicans have been 
highly critical of the ability to grow the economy through 
fiscal stimulus, even in response to a recession. Similarly, my 
Republican colleagues have been highly critical of any effort 
by the Federal Reserve to stimulate growth.
    If we took their advice and eliminated both of these tools, 
how would you expect the economy to fare through the business 
cycle or through a devastating downturn, such as the one we 
experienced in 2008? Mr. Bernstein?
    Mr. Bernstein. I think the economic outcomes would have 
been considerably worse than they have been. And, in fact, one 
of the things that I mentioned in my testimony is the extent to 
which fiscal headwinds--that is, this very quick decline in the 
budget deficit from 10 percent of GDP calendar year 2009 to 3 
percent calendar year 2013, is widely agreed upon to have 
created fiscal headwinds that have slowed the economy's growth. 
Chairman Bernanke has made that point many times testifying 
before Congress, because when the private sector is still down 
on the mat, has yet to recover fully from the expansion, the 
gap in aggregate demand needs to be replaced by fiscal policy 
on one hand and by stimulative monetary policy on the other 
hand to lower the cost of borrowing.
    Ms. Waters. The Honorable Ms. Rivlin, would you respond to 
that? I am talking about stimulating the economy. Basically, I 
have said that the Republicans have been critical of the 
ability to grow the economy through fiscal stimulus even in a 
response to the recession and they have been critical of any 
effort by the Federal Reserve to stimulate growth.
    What would happen if we took their advice and if we 
eliminated both of these two? How would you expect the economy 
to fare through the business cycle or through a devastating 
downturn such as the one we experienced in 2008? Yes?
    Ms. Rivlin. I agree with what Dr. Bernstein has just said. 
I think we have had too much near-term austerity and not enough 
attention to the long-run growth of debt.
    What I would prescribe now is not so much more stimulus as 
more investment in future growth. I don't think it should be 
seen as a job-creation program as much as a productivity-
creation program, maybe do some of both, but that involves 
infrastructure, research, and upgrading the skills of the labor 
force by major amounts.
    Ms. Waters. Thank you very much.
    I have a little time left. Mr. Cote, would you weigh in on 
that question about stimulating the economy?
    Mr. Cote. I would agree with Alice. The only thing I would 
add is that we should be taking the time now to address our 
long-term issue, which is very real. That demographic freight 
train is coming.
    Ms. Waters. You mention actions we need to take to 
stimulate the growth. Do you have any specific recommendations?
    Mr. Cote. Yes. In my written testimony, I have eight areas, 
one of them being the debt, that I think we should focus on.
    Ms. Waters. Okay. What is the most important thing we 
should do?
    Mr. Cote. In the short term, I think things like 
immigration and infrastructure. In the longer term--and I would 
refer to it as seed-planting--I agree with Alice on just basic 
education, specifically math and science.
    Ms. Waters. So you believe immigration reform is good for 
this country--
    Mr. Cote. Yes.
    Ms. Waters. --that it would help stimulate the economy?
    Mr. Cote. Yes.
    Ms. Waters. Oh, thank you very much. Does everyone agree 
that immigration is good for the economy and would help to 
stimulate? Ms. Rivlin?
    Ms. Rivlin. Yes, I do. And there is a good CBO report on 
that.
    Ms. Waters. Mr. Holtz-Eakin?
    Mr. Holtz-Eakin. I do, and there is a good Holtz-Eakin 
report on that.
    Ms. Waters. And--
    [laughter]
    Mr. Bernstein. I do, as well, and I like the Holtz-Eakin 
and the CBO reports on that.
    Ms. Waters. Okay.
    Mr. Bernstein. I think that these issues--by the way, when 
we were talking about infrastructure and education and 
immigration reform, what we are really talking about is 
improving the supply side of the economy, improving the 
economy's capacity to grow its labor force in terms of 
immigration and its productive capacity in the terms of 
investing in our public good infrastructure, widely agreed 
upon--
    Ms. Waters. Mr. Chairman, this is a good panel. Can we hold 
them over and keep talking?
    [laughter]
    Chairman Hensarling. That works for me.
    Ms. Waters. Thank you very much. I yield back.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the chairman emeritus of the 
committee, Mr. Bachus from Alabama, for 5 minutes.
    Mr. Bachus. I thank the panelists. I think we all agree it 
is the calm before the storm. We have a short window of 
opportunity. I am going to go through something, and when I get 
through, I am going to ask if I have missed anything major.
    First, reform our entitlement programs, Medicare, Medicaid, 
Social Security. That is at least half the battle. And I think 
that both sides should agree that we are not talking about 
cutting spending. We are talking about slowing the growth of 
spending.
    And I also think that what Ms. Rivlin has said, and others, 
is that we can talk about job training, when we talk about 
Social Security, people on unemployment, people's Social 
Security, disability, because they are not--they don't have the 
skills, and I think because of the demographics, it is very 
important that we maximize the labor force we have.
    Now, the second component is economic growth. Tax reform 
has been mentioned. Trade agreements hadn't been mentioned, but 
I think that is a tough one, and I think we have to address 
that. A third one, immigration reform--the Senate did pass 
something. I have been on record as saying that I am for a 
pathway to legalization. The demographics there are also key. 
We need young, highly skilled workers. And I think we have to 
come together, and that may be more of a problem for 
Republicans.
    The fourth one is regulations. And Dr. Holtz-Eakin has done 
a lot of research on this. The Small Business Administration 
said that 14 percent of our national income is absorbed by 
complying with Federal regulation. Now, I think the first thing 
that we have to agree on is that all regulations aren't created 
equal. They are not all bad; they are not all good.
    But surely--and, again, I have heard Mr. Cote and Ms. 
Rivlin talk about velocity. We are growing at 2.5 percent. We 
need to grow at 4 percent, 4.5 percent. If Federal regulations 
absorb 14 percent of our national income, surely we can find 2 
percent--or one out of seven--of those regulations that don't 
have a good cost-benefit or actually are a drag on our economy.
    And, recently, we sort of turned the corner on this energy 
thing, because of what has happened in the Ukraine, and I think 
that is going to be positive. But I would ask you, is there 
anything I have missed of a big nature. Is aging population 
going to overwhelm us if we don't solve these problems?
    Mr. Bernstein. Can I just give a quick answer? On the 
reforming entitlements, I agree with the points you have made. 
I wanted to add one point. The median income of the typical 
Social Security or Medicare beneficiary is about $24,000, 
$25,000. So I don't think there is much we can do in terms of 
slowing the growth of their benefits without hurting vulnerable 
retirees. I do think there is something to be done for wealthy 
retirees, in terms of slowing the growth of their benefits, but 
there is less there than meets the eye when you actually look 
at the economic circumstances of the median beneficiary.
    Mr. Bachus. Right, and I agree. Social Security, I think, 
is less--less savings than Medicare and Medicaid. Anyone else?
    Mr. Holtz-Eakin. Congressman Bachus, I agree with your 
list. Not on your list was education reforms. I think those are 
crucial. We have documented the failure of the U.S. K-12 
education system down to the student, teacher, principal, 
school, district, county. We have the data, but we have yet to 
turn the corner and improve outcomes. We need to do that and 
improve, at the same time, lifelong learning and skills 
training. I think the quality of our labor in the end will be 
how we compete internationally, and we need to do that.
    Mr. Bachus. Education--I think maybe that should have been 
the first thing out of the box for the Administration. I agree.
    Ms. Rivlin. I would agree with the list, too. Let me make 
two quick points. One is, we need smarter regulation. Often, 
the goal of the regulation is a good thing; we just do it in an 
unnecessarily costly way.
    And second, the biggest thing in slowing the growth of 
entitlements is delivering health care services more 
efficiently and effectively. That is hard to do, but it is 
where the money is.
    Mr. Bachus. Thank you.
    Mr. Cote. And I agree substantively with everything you 
said. The trade point is one of the eight areas that I put in 
my written statement, and I agree on TPA.
    The only other thing I would add is putting all of this 
into context. And I oftentimes say that in Honeywell, you can't 
formulate a strategy and not look at what your competitors are 
doing, what your markets are doing, what is happening in 
technology. And that is a thing that seems to be missing in a 
lot of our discussions, is looking at what is going on in the 
world around us.
    And that first chart I showed is one that I show throughout 
the company that says this is how we need to start thinking. 
Our competitive world has changed. We need an American 
competitiveness agenda, and we ought to be thinking about all 
our actions in that context, because 75 percent of world GDP is 
outside the United States and it is changing rapidly.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Clay, for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman.
    And let me start with Dr. Bernstein. Is it realistic to 
balance the budget in the next few years by cutting spending? 
Or do increases in revenue have to be a part of the equation?
    Mr. Bernstein. I think the latter. Increases in revenues 
have to be part of the equation, in part because of the $4 
trillion in deficit savings accomplished thus far since 2010 in 
the various programs I mentioned in my testimony; 77 percent of 
those cuts--70 percent of those deficit savings have come from 
spending cuts, only 23 percent from revenues. There is a real 
imbalance there.
    And as one of the Representatives said earlier--I believe 
it was Mr. Perlmutter--revenues as a share of GDP are 
historically low. Part of that is the economy, but part of that 
is the legacy of tax cuts that I think were irresponsible in 
the context of trying to achieve a sustainable path.
    Mr. Clay. Ranking Member Waters mentioned the comprehensive 
immigration reform. And just this morning, the CBO issued a 
report on it about--should not the--do all of you think that 
the Congress should be more proactive about pushing legislation 
and policies that help stimulate the economy?
    The CBO said this morning that over the next 2 decades, if 
we pass H.R. 15, we would reduce the deficit by $900 billion, 
and $200 billion in the first decade. That would be 
significant, don't you think? And anyone can address it.
    Ms. Rivlin. I haven't seen this report, but, yes, clearly, 
that is significant.
    Mr. Clay. Let me ask Ms. Rivlin. At a recent Monetary 
Policy and Trade Subcommittee hearing, Josh Bivens, one of the 
witnesses, wrote in his testimony that it was too bad that the 
Fed's actions to stimulate the economy have not also encouraged 
higher levels of Federal spending. Do you share the view that 
it is unfortunate that lower rates have not resulted in more 
accommodative fiscal policy in recent years?
    Ms. Rivlin. As I said earlier, I think that in the last 
couple of years, Federal fiscal policy has been too austere. It 
is a mark of the resilience of the U.S. economy that we have 
survived this and the economy is growing. I think it would have 
been better to do less deficit reduction in the near term, 
especially on the spending side, and more in the longer term.
    Mr. Clay. Ms. Rivlin, what could the Congress do with 
respect to fiscal policy to complement the Federal Reserve's 
monetary policies and grow the economy? What productive steps 
can be taken to lessen the burden on the Federal Reserve?
    Ms. Rivlin. The Federal Reserve has been aggressive in easy 
money, and is now realizing that it can pull back a little bit. 
I think that is right. And the Congress, I think, needs to 
think about how to create jobs in the long run, which I think 
is investing in growth and infrastructure and skills 
development, and how to reduce the growth of the long-run debt, 
which requires tax reform and entitlement reform.
    Mr. Clay. And if the Congress and the Federal Reserve push 
stimulative policies at the same time, is there any inherent 
reason this would call the Fed's independence into question, as 
some have suggested?
    Ms. Rivlin. No, I don't think so. And former Chairman 
Bernanke has been very clear, it would have helped them if the 
fiscal policy had been less of a drag on the economy.
    Mr. Clay. Thank you for your responses.
    And, Mr. Cote, what do you consider to be the major drivers 
of the current deficit today?
    Mr. Cote. This is one where I think there are a lot of 
places to point to, and I would not point to any single item 
that has caused us to get to where we are today. The recession 
obviously had a huge impact. But instead, there is a phrase I 
use a lot in the company that says we are where we are, and I 
think it is more important for us to look at, what do we have 
to do going forward? And I completely agree with Alice's 
prescription.
    Mr. Clay. Thank you so much.
    Mr. Chairman, I yield back.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Texas, the chairman of our Housing and Insurance 
Subcommittee, Mr. Neugebauer, for 5 minutes.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Dr. Holtz-Eakin, one of the things that concerns me is that 
the dirty little secret here is we have had historically low 
interest rates. And we have had the Fed basically printing 
money at a fairly rapid rate.
    And so, one of the things that has kind of masked the 
consequence of these huge deficits is the fact that the Fed has 
bought down the yield curve to nearly zero and is furnishing 
about half the money to support these deficits.
    The question I have is--and I think you kind of started 
down that road--what happens if we then go to a more typical 
rate period and the Fed starts to unload their portfolio? I 
have seen some estimates where at some point in time, here in 
about 10 years, the interest at more historic rates would 
eclipse what we are spending on discretionary spending.
    Mr. Holtz-Eakin. There is no question. The CBO baseline, 
for example, is a good--is illustrative of this. They show 
rates essentially normalizing to historical levels. The 
interest costs go to $1 trillion. It exceeds what we would be 
spending on the Pentagon, national defense, for example. 
Interest is by itself over 3 percent of GDP, so it is an 
unsustainable deficit all by itself.
    And I think the important thing is not to focus on the 
numbers, right? It is the risks that you incur. And that is 
with normal interest rates--anything above that quickly may 
even double the interest costs, that gives you no flexibility 
in your budgetary activities and really hamstrings the Congress 
and the Administration in trying to execute any future policy.
    It is a disservice in a democracy, quite frankly, to tie 
the hands of the future in that way. And that is the risk we 
are running with our current budget policies.
    Mr. Neugebauer. Yes. And I think to just kind of amplify on 
that, Mr. Cote, you pointed out the fact that the U.S. GDP 
portion of the global economy is diminishing, and that these 
emerging markets that--China and other countries. So if you 
have a country that is on the pathway that we have all agreed 
is on here, and you are looking at not only what percentage of 
the economy--of the global economy is produced in the United 
States, the question is, is what about investment--are people 
going to want to invest in a country that has these potential 
liabilities?
    Because it is a deferred liability. If we are not 
recognizing those today, at some point in time, we have to pay 
for those. So how does that impact our global competitiveness 
to kind of stem the tide of the chart that you presented there, 
that is showing diminished activity in the United States?
    Mr. Cote. To be clear on the chart, it is the percent of 
world GDP. We are still growing during that time. And for the 
next 20 to 25 years, we should still be the world's biggest 
market. If the growth rates continue, though, with us at about 
2.5 percent, China at about 6 percent, in about 25 years, China 
is the world's biggest economy, and then things really start to 
change.
    There are a lot of things we need to improve our 
competitiveness and to attract people to the biggest market in 
the world, and that includes infrastructure, math and science 
education, immigration, trade, and all of the stuff we talked 
about. But debt has to be one of the biggest items.
    I just don't see how a company or a country competes if 
they have a bad balance sheet. And, again, if we take a look at 
the 20-year outlook, there is no assumption of any recessions 
in there, and we are not done with recessions, and my guess is 
everybody here would agree with that. There will be some other 
ones. If we don't have the firepower to address them when that 
time comes, I just don't know where things are going to go.
    Mr. Neugebauer. So is there a concern right now--we are the 
world's reserve currency, people want to hold dollars--that at 
some point in time people are concerned about, and has that 
already started?
    Mr. Holtz-Eakin. I think this is an important issue. People 
are starting to wonder about that. Having a reserve currency is 
good for international trade, and to have the United States no 
longer be a reserve currency would harm the global trading 
system. I think that is a real concern. The bad news has been, 
because we are a reserve currency, we are given more rope than 
other countries, and we have unfortunately used it and put 
ourselves in a very dangerous position.
    Mr. Neugebauer. Ms. Rivlin?
    Ms. Rivlin. I agree with that. It is sort of a fool's 
paradise, as I said in my testimony, that we have been living 
in, because we could borrow essentially without limit at very 
low interest rates, and we need to worry about what happens 
when that is no longer true.
    But I think one can exaggerate the problem of China being 
the biggest economy--with all due respect, Dave--they have a 
lot more people than we do, and their per capita income is 
still quite low. We are doing pretty well as a developed 
economy. We just have to do better. We have to invest more and 
reduce our long-run debt.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Georgia, Mr. Scott, 
for 5 minutes.
    Mr. Scott. Thank you. Thank you, Mr. Chairman.
    Let me just say at the outset that I think we are really 
going to have to, as a Nation, understand that we just cannot 
cut our way out of this deficit and our debt problem.
    The other thing is that we cannot solve our deficit and 
debt problem by omitting the very people who owe more to the 
greatness of the country and the sacrifice of this country, of 
the middle class, of the poor, of our veterans, and that is our 
multibillionaires and our multimillionaires.
    And my good friends on the other side of the aisle--my dear 
Republican friends, many of whom I love very dearly; they are 
wonderful, wonderful people--we cannot solve this debt problem 
on the backs of the middle class, on the backs of the poor 
people, on the backs of our veterans, while not asking the 
very, very wealthy to just make a sacrifice.
    The jobs deficit is part of the way out of this. But we 
have this overemphasis on cutting entitlements. We are a 
growing Nation. Social Security for our elderly is important. 
This is not so much an entitlement. These seniors paid into 
this. They sacrificed into it, many of them from when they were 
9 and 10 years old working. Their paycheck was taken. This is 
no giveaway.
    And when we look at unintended consequences, I think the 
best point I can make on this is the cutting of our military so 
haphazardly at this time, to cut our military below the 
manpower in the Army of below 430,000 soldiers, back at the 
time of the 1930s. Now, why do I say that? Because no thought 
has been given to the impact of what is going to happen to 
those veterans. What is going to happen to those who are going 
to be unloaded onto the system? Right now, 6,000 veterans are 
committing suicide every year; that is 17 every day.
    The fastest growing group of food stamp recipients, one of 
those programs that the other side wants to cut, 1 million 
veterans are on food stamps feeding their families. No thought 
is given to that.
    And when we dump all of these other veterans out of the 
Afghanistan war, and the Iraq war, we are coming home, is there 
any wonder, but nobody raises a question, where are we going to 
find jobs when the highest rate of unemployment in this country 
is on young veterans, 22 percent of whom can't find jobs?
    My friends of the other side of the aisle, when we look at 
this, I want you to say, yes, these billionaires and 
millionaires who have made their billions on the backs of our 
veterans over there dying on the battlefield, to protect their 
wealthy interests, need to begin to pay their fair share, 
because, folks, we can't solve this problem of our debt without 
increased revenue. And you are going to get it from the poor 
lady on Social Security?
    You are going to get it from the person who needs health 
care, while many right now can't get health care, because many 
of our Republican governors are stopping the Medicaid 
expansion? That would bring billions of dollars and jobs to the 
very people who need it the most.
    So, this bothers me greatly. Three weeks ago, I think, when 
Ms. Yellen was in here, I asked her about the dual mission, 
about the Fed; 90 percent of the American people don't even 
know that the Fed has a dual mission, employment. Where is the 
emphasis on jobs? That is the way that we are going to solve 
this debt problem, putting our veterans to work, stopping them 
from having to commit suicide because they have lost hope, and 
then telling our billionaires to help pay the cost.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from North Carolina, 
the chairman of our Oversight and Investigations Subcommittee, 
Mr. McHenry, for 5 minutes.
    Mr. McHenry. Thank you, Mr. Chairman. And this has 
certainly been an interesting hearing. I commend the ranking 
member for her words. She now sounds like a supply-sider. And I 
am grateful for that.
    In terms of the discussion today, we have seen some 
columnists around the country, Dr. Rivlin, who say that debt 
doesn't matter, that we don't have a debt problem. What would 
you say to those who don't believe that we have a debt problem?
    Ms. Rivlin. I would say they are wrong. All of us today 
have emphasized that a debt rising faster than your economy can 
grow is a big problem.
    Mr. McHenry. Can we just resolve this on the revenue side 
of the equation?
    Ms. Rivlin. No, but I don't think we can resolve it on the 
spending side entirely, either. And up to now, we have been 
doing more spending cuts than revenue increases. But I think of 
it as managing our way through the problem of the baby boom and 
retirement and longevity. We have to do that. We have to figure 
out how to pay for that and how to reduce the growth of the 
debt in the long run.
    Mr. McHenry. Dr. Holtz-Eakin, do you agree? Can we do this 
purely on the revenue side of the equation?
    Mr. Holtz-Eakin. No. No, you cannot tax your way out of 
this problem.
    Mr. McHenry. Okay. Now, in terms of Social Security, I 
believe--as the panel does, and most Members of Congress, as 
well--that Social Security is a very important program that we 
have to protect. We have to preserve it for those who are 
receiving the benefits today and those who are at or near 
retirement age, as well.
    But for my generation, who have time to plan, look, I am 
due to retire long after the Social Security system is broke. 
And under current law, it is going to be my generation that 
receives a fraction of the benefits they have been pledged. And 
so, I believe the insolvency of Social Security in 2023 to be 
real. Dr. Rivlin, would you agree?
    Ms. Rivlin. Yes, and 2023 isn't so long from now. People 
who will retire in 2023 are not our great-grandchildren. They 
are already in their mid-40s and need to know that the system 
is there for them.
    Mr. McHenry. Thanks. Dr. Holtz-Eakin?
    Mr. Holtz-Eakin. I just want to emphasize that you can 
look--the debt is a real problem and the mandatory spending 
programs are driving that debt, but the programs themselves 
need to be fixed for the beneficiaries. It is a great 
disservice to run a pension system that says, we are going to 
keep it solvent by cutting benefits 25 percent across-the-board 
for people in retirement. No one runs a pension system that 
way. That is terrible. It should be fixed right now on behalf 
of those people trying to make retirement plans. And Medicare 
is worse. Right now, the gap between money going in and money 
going out, payroll taxes and premiums and then spending, is 
about $300 billion. We have 10,000 new beneficiaries every day. 
That is not a program that will survive.
    And so, we have a big debt problem. It is hurting our 
competitiveness, but we have problems with our problems that 
are not going to serve these beneficiaries well. So, it is not 
just a matter of cutting. We have to fix their structure. We 
have to reform them so that they survive.
    Mr. Bernstein. Can I make a point to that?
    Mr. McHenry. I have one final question for Dr. Holtz-Eakin. 
So in terms--moving back to the revenue question, you have 
written about the need for tax reform. You praised Chairman 
Camp's--the chairman of the Ways and Means Committee--tax 
reform draft. He has asked for feedback from Members. I have 
provided it, along with over 55 of my colleagues signing on to 
a letter pointing out one of the flaws of his proposal and 
asking him to fix it, and that is a new tax within this tax 
reform draft, the only new tax in the draft, and it deals with 
a quarterly excise tax on banks and financial institutions 
generally.
    This is what I regard as an asset tax. And assets for banks 
are loans. So it runs counter, I believe, to our economic 
interest. Do you concur?
    Mr. Holtz-Eakin. I do. I have been supportive of the 
process of tax reform. It is very important that we get this 
done. Our tax system is harming us in both growth and 
competitiveness.
    But this excise tax on the very large--on a handful of very 
large financial institutions is at odds with tax reform, which 
should treat all economic activity more equally and not single 
out an industry or a size for a special tax. That seems very 
bad to me.
    This is going to hit the institutions that have about half 
the deposits in the United States. The implications are going 
to be found in households as much as anywhere else.
    Mr. McHenry. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Capuano, for 5 minutes.
    Mr. Capuano. Thank you, Mr. Chairman. I apologize for 
missing some of the hearing, but, well, we all have other 
things to do.
    I have read the testimony, but I would like to hear from 
the panel. Does anybody here think that we can--first of all, I 
want to be really clear. I don't know who said the debt doesn't 
matter. Whoever said debt doesn't matter doesn't have a credit 
card, doesn't have a mortgage, never bought an automobile--a 
car is what we call it, but I figured I would say automobile so 
you would know what I was talking about--and didn't have any 
kids who went to college. Debt matters. Of course it matters.
    For me, that whole issue is--I guess it is good politics, 
but it is a useless discussion. There are two questions. Number 
one is, what do we do about it? And the other part of that, I 
think history is important. How did we get where we are today 
so that we don't make the same mistakes or at least we know 
what the truth is?
    And does anybody here think that we can handle our debt 
situation on--and, Mr. Holtz-Eakin, I look at you, because I 
presume you might be the closest who might say yes to this--can 
we handle the debt problem just on the spending side? You don't 
think we should look at the revenue side at all?
    Mr. Holtz-Eakin. I think we should look at the revenue side 
in tax reform, and it will generate more revenue. I think that 
would be great.
    Mr. Capuano. Fair answer. We can always have the debate of 
what does and what doesn't, but I think that is a fair answer. 
So I think that kind of--and I assume none of the other panel 
would disagree with the concept that we have to look at the 
revenue side.
    So that kind of gets that off the table. So now the 
question is, okay, details. First of all, how did we get here? 
And do people disagree that there are a million ways, but from 
what I see, the most important--if I had to pick one thing that 
put us in the situation we are here at the moment is the tax 
decisions we made in the early part of this century. Does 
anyone disagree with that?
    Again, Mr. Holtz-Eakin, I look at you, because, again, you 
are the most likely to disagree with me.
    Mr. Holtz-Eakin. We were asked this question again and 
again and again during my tenure at the CBO, and if you look at 
the changes in the forecasted surpluses--that was what I 
inherited and that turned into deficits--the tax cuts are not 
the majority of that. It is, in the end, economic performance, 
which has been subpar, and the spending side, which are the 
dominant increases in the debt over that period.
    Mr. Capuano. Okay, so you don't think that--you think it is 
the spending side?
    Mr. Holtz-Eakin. I don't think that is a fair 
characterization--
    Mr. Capuano. Mr. Bernstein, what do you think, if you had 
to pick one item?
    Mr. Bernstein. I disagree on the facts there. And there is 
a chart in my testimony, figure three, which tries to answer 
that question by apportioning the growth in the debt to the 
wars, the Bush-era tax cuts, recovery measures, and the 
economic downturn, and if you look at figure three, you will 
see that, in fact, the Bush tax cuts are the primary factor 
there.
    If I may, can I speak to your question?
    Mr. Capuano. Hang on a second, Mr. Bernstein. I need to get 
to the others.
    Mr. Bernstein. Okay.
    Mr. Capuano. Ms. Rivlin, what do you think is the single 
most important factor that got us to where we are at the 
moment?
    Ms. Rivlin. At the risk of disrespect, I don't think that 
is a good question. I think we are where we are.
    Mr. Capuano. There are lots of bad questions on this panel.
    Ms. Rivlin. There is lots of blame to go around. Repealing 
the Bush tax cuts now is not an option, and we need to think 
about going forward.
    Mr. Capuano. Why is it not an option?
    Ms. Rivlin. Because a big tax increase on everybody, 
including low-income people, right now would be a disaster.
    Mr. Capuano. So, that is a political judgment. Very 
interesting, Ms. Rivlin.
    Ms. Rivlin. That would be an economic decision.
    Mr. Capuano. Fair point. Yes, I think you are sitting a 
little too close to Mr. Holtz-Eakin. Maybe we should split you 
two up.
    Mr. Cote, what do you think, if you had to pick one?
    Mr. Cote. First, coming from New Hampshire, you sound like 
a very smart guy to me.
    Mr. Capuano. There we go.
    [laughter]
    Mr. Cote. At the end of the day, I am not sure that it is a 
useful exercise. I am kind of with Alice on this one.
    Mr. Capuano. Fair enough.
    Mr. Cote. We are where we are, and we need to look at it 
as, where do we go from here?
    Mr. Capuano. Fair enough.
    Mr. Cote. And that is what we ought to be focusing on.
    Mr. Capuano. I think those are fair answers. I do want to 
point out, me trying to figure this all out and trying to 
figure out--getting ready for today, I did run across one 
interesting study by the Heritage Foundation that kind of 
ranked both debt--and, again, I accept the fact that we have a 
debt problem, so that kind of becomes null and void to me, but 
I also--they ranked a whole bunch of things. They do it--they 
seem to do it regularly, an index of economic freedom, they 
call it. And they rank tax burden as a percentage of GDP, which 
to me is more important than actual numbers.
    And they rank the United States of America as number 60 in 
taxes as a percentage of GDP. France is 65 percent, ahead of 
us. Italy is 58 percent. Germany is 51 percent, ahead of us, on 
and on and on. Russia has a higher tax burden. China does have 
a lower tax burden than we do.
    So the question is, when we are talking about 
competitiveness, which I think is what is important when it 
comes to taxes, who are we competing against? And I don't mean 
to be rude about it, but I really don't think that, for the 
most part, the United States is competing against Mauritius or 
Panama or Kenya or Malawi. Those are not countries we are 
competing against. The countries we are competing against, 
other than China, all have--or pretty much all have equal or 
larger tax burdens.
    And on China, the one thing nobody wants to talk about, the 
Heritage Foundation also ranks other things. And I don't get a 
chance to do it, because I let you answer my questions. I will 
have to come back to this. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New Jersey, the 
chairman of our Capital Markets and GSEs Subcommittee, Mr. 
Garrett.
    Mr. Garrett. Thank you, Mr. Chairman.
    I will start with Mr. Cote. In looking over your testimony, 
you draw the real connections between debt and interest rates 
and the impact on the economy, that more debt can mean less 
economic growth and fewer jobs at home on Main Street.
    And when you look at our current job recovery, such as it 
is, CBO recently reported that the Nation is significantly 
lagging behind the average job recovery, and the most striking 
factor is rather than closing that gap, our job market is 
actually getting worse, relative to the average recovery.
    Now, the President has been in office for 5\1/2\ years now. 
And we have seen during that time what some of us would call 
the tidal wave of spending. In light of all that, could you 
just comment on how does debt and spending, specifically 
entitlement spending, which brings us to, some of us would say, 
the brink of a bankruptcy, how does that affect a major 
corporation such as yours? And how does the fiscal instability 
that we have because of this looming debt affect you and your 
hiring decisions?
    Mr. Cote. It affects the way I think about how we run the 
company and how are we going to hire going forward. And when I 
put all this together, including all the other things that we 
are not doing anything about, whether it is math and science, 
infrastructure, immigration. There is a lot of stuff where we 
are not doing anything.
    As a result of that, I look at it and go, I need to plan 
for a low-growth environment. And when you look at a low-growth 
environment, we will say in the 2.5 percent range, companies 
generally don't need to hire, because they can be just that 
little bit more productive every year. And in a low-growth 
environment, you just don't need to bring any additional people 
on. In my view, we need to get growth up above 3 percent. And 
one of the ways to do that is to start addressing our debt now.
    Mr. Garrett. Thank you.
    Moving on, Dr. Rivlin, when I was out of the room, you 
mentioned our need to do smarter regulation, right? So I want 
to ask you to elaborate on just one specific thing. We passed a 
bill that I spent a lot of time on to improve cost-benefit 
analysis over at the SEC.
    I just want your opinion on that. We also introduced a bill 
that would require cost-benefit analysis over at the Fed on all 
of the regulations that they do now that they are encompassing 
the entire financial marketplace.
    Is that the smarter type of regulation to which you are 
referring?
    Ms. Rivlin. I think cost-benefit analysis can be useful in 
figuring out where to go in regulation. It is very hard to do 
well, so I think just passing a bill to say we have to do it is 
just the beginning. It is really very hard to do well. But the 
basic spirit, yes, we need to look at, what is the cost of 
regulation compared to the benefits that we get out of it? That 
is important.
    Mr. Garrett. Yes, we are just trying to do the first step, 
just by getting the bill passed, and we are hoping that the SEC 
and then eventually the Fed will do the right thing.
    So moving down, as I said, the President has been in office 
now for 5\1/2\ years, and you hear a lot of people outside this 
room and inside this room who say that the solution to the 
problem, the debt problem, is what, is just raising revenues, 
raising taxes, and if you do that, that will right the 
proverbial ship of state.
    Wearing your former hat, I guess, or coming from where you 
did at the CBO, can you explain what the real-world impacts are 
once we get down the road, not too long from now, when we are 
going to hit over $800 billion in interest payments--and maybe 
you can estimate as to when we will be hitting that again--and 
what will be the impact on the economy when that day comes?
    Mr. Holtz-Eakin. When that day comes, you will have the 
Federal Government competing with the private sector for scarce 
investment funds. And we hope that we don't hit $800 billion 
until we are back at full employment, but from that point 
forward, those $800 billion in interest payments are going to--
about a third of that is going to crowd out private investment. 
And that will hurt productivity. It will hurt the incomes and 
the job prospects of people in 2019, 2020, 2021, whatever year 
it is we hit that, and those are real-world costs.
    It will also impede the flexibility of the Congress, which 
won't be able to spend the money on something else. It is 
locked into the budget. And if something untoward should 
happen, if we have another recession at some point, the ability 
to respond will be quite limited. And so it is a very negative, 
predictable impact. Plus, it impedes your risk management.
    Mr. Garrett. So hearing all that, but also hearing what 
some of the folks on the other side said during their opening 
comments, is it really credible to say that we are addressing 
our fiscal crisis, that we have been doing the right things 
over the last 5\1/2\ years, if that is the--what did you say--
predictable pathway?
    Mr. Holtz-Eakin. We haven't addressed our problems in the 
past 5 years, not at all. Our problem is in the mandatory 
spending programs. And I have been saying the same thing for 10 
years. This town loves to talk about tax policy. Great. Have a 
ball. Once you spend the money, you have to pay for it one way 
or another, and the spending is on the mandatory side. That is 
what we have to deal with.
    Mr. Garrett. Thank you. Thank you very much.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. I thank you and the 
ranking member for the hearing. I thank the witnesses for 
appearing today. And I would like to thank all of them, because 
some of your testimony, candidly speaking, has been a little 
bit surprising, but it has been pleasant to hear.
    And, Ms. Rivlin, I would like to thank you for something 
that you said. You seem to have a little bit of consternation 
as to whether or not we will eventually do the right thing. And 
I want to assure you, ma'am, this Congress will do the right 
thing, after we have tried everything else. We will do it. So 
today, hopefully, will get us closer to the right thing.
    Let me start with poverty prevention, if I may. There are 
programs, according to what the staff has accorded me, that 
have helped us prevent poverty from going to 29 percent 
compared to 16.1 percent in 2011. Let me pause and thank the 
staff, also, because the information that I have today is 
excellent, and I never want to neglect them, because they do 
outstanding work.
    But I do want to ask this about poverty prevention. Do you 
consider Social Security as a part of the poverty prevention 
effort in this country? Has Social Security kept people out of 
poverty? Is Social Security a program, a safety net program 
worthy of maintaining because of the way it impacts poverty?
    Mr. Bernstein, would you like to take that?
    Mr. Bernstein. Yes, very much so. If you took away Social 
Security from the elderly right now, their poverty rate would 
be 44 percent. That is a pretty scary thing to imagine. Adding 
Social Security back in, as we do in the real world, their 
poverty rate is 9 percent. Now, 9 percent seems high to me for 
our elderly population, but the fact that 44 percent of the 
elderly poor would be poor absent Social Security gets to the 
point that I was trying to make earlier, which is that while 
there is an appetite, I believe, from folks in this room today, 
and even some on the committee, to slow the growth of 
entitlement payments--and I share some of that appetite--it has 
to be done in a way that doesn't hurt economically vulnerable 
recipients, and most recipients are economically vulnerable.
    This notion that you can balance these programs by 
significant benefit reductions is illusory, because once you go 
down that path, you are going to very quickly hit the very 
folks we are talking about right now.
    Mr. Green. Thank you. Let's also talk for just one moment 
about the regulators. How important is it to fully fund the 
regulators, Mr. Bernstein? And what impact might fully funded 
regulators have on an economy?
    Mr. Bernstein. I think it is extremely important. And I 
noted in my testimony, as I tick through some of the areas that 
this committee oversees, talking about financial stability and 
consumer financial protection, I think we tend to have very 
short memories when it comes to regulation in this country. And 
as Alice said a few minutes ago, there are definitely costs, 
but there are also benefits.
    And the reason we are here talking about large debt levels 
and climbing out of the deepest recession since the Great 
Depression is because we had a housing bubble that was driven 
by financial practices that were, I think, widely recognized at 
this point to be terribly underregulated and got us into this 
mess in the first place. So the notion of regulating systemic 
risk and consumer protection in financial areas under this 
committee's purview is essential.
    Mr. Green. Thank you. And I will use the remaining time to 
make this brief comment, Mr. Chairman.
    I think that when we sent our troops into harm's way, we 
did it off-budget and there was no question as to how we would 
fund it. I am picking up on something that Reverend Scott to my 
right said, with our veterans. When they return, it really is 
sinful to talk about, how are we going to fund the programs 
that are necessary to reintegrate them into society?
    I am not saying that is not a good discussion to have, but 
if you are going to have it, you should have it when you send 
them and you should have it when you bring them home. To treat 
them with anything other than that level of respect, in my 
opinion, does not serve us well.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Luetkemeyer, for 5 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Mr. Cote, you have an international company, and you do 
business on an international basis, and I am sure you compete 
with other businesses around the world. How do you believe that 
whenever you are competing for business in other countries, 
they take our debt into consideration, when they are looking at 
doing business with you, doing business with other companies? 
Is that a factor in your business at all, do you believe?
    Mr. Cote. Do you mean in terms of how other countries look 
at us?
    Mr. Luetkemeyer. Right.
    Mr. Cote. At Honeywell as a competitor?
    Mr. Luetkemeyer. Right.
    Mr. Cote. No, I don't think so.
    Mr. Luetkemeyer. Okay. You do business with them, though. 
Do you have a sense that they have a consideration of our debt 
as a concern?
    Mr. Cote. That part they definitely do, not so much in, 
say, dealing with us, but I do get comments in other countries 
that I go to wondering when we are going to do something. They 
all recognize that it needs to happen.
    Mr. Luetkemeyer. Okay. Can you elaborate a little bit 
further? Okay. How many of them talked to you about this, all 
of them, some of them, just a few?
    Mr. Cote. I think some of them. I travel extensively. In 
this job alone, I have been to over 100 countries over the last 
12 years, so I end up in all kinds of conversations with all 
kinds of people. But I would say, it is certainly something 
that they are all aware of.
    Mr. Luetkemeyer. I know, sitting on this particular 
committee, we have the opportunity to meet with a lot of 
foreign finance ministers around the world, and these finance 
ministers, especially from Europe, sometimes come in and they--
one of the questions I always ask is, when do you get your 
economies going? Because you can keep stretching out your debt 
forever, but until you get your economy going, you can't pay it 
down.
    And we are in the same situation. We have to get our 
economy going so we start paying it down. But I think all of 
you this morning have sort of hit on what I believe we have to 
have--I don't necessarily like the words ``balanced approach,'' 
but I think you have to both cut spending and you also have to 
generate revenues. That is pretty obvious.
    But I think, as I go back home each weekend--and we have a 
district workweek each month--you talk to the small business 
people, even some of the larger businesses in my district, they 
are sitting on a lot of cash, but they are not going to do 
anything because the uncertainty that is in our economy right 
now. And most of it is caused by the Federal Government, either 
with our tax policy, our regulatory policy, some of them trade 
policy. For the bigger guys, it is trade policy. But for most 
of the small folks, regulatory policy is their biggest concern.
    And as the chairman indicated in his opening remarks, 
Obamacare is a big part of it, but it is all of the regulation 
together, whether it is DOL, the tax situation, it just is 
continual intrusion into their business that causes a level of 
uncertainty.
    And so until we get our heads wrapped around that and kind 
of stop this nonsense, I am not sure we are going to see any 
progressive improvement in our economy. The growth that we have 
experienced is basically all due to the energy sector of our 
economy. The rest of it has been flat over the last year, 2 
years, 3 years.
    So I am just kind of curious, Dr. Holtz-Eakin, you have a 
tremendous background in this area. Can you tell me, at what 
point do these regulations become so punitive that it drives 
everybody out of business? We are close to that already, I 
think. But do you think they can hold on for a while yet? Or 
where do you see us headed with the small businesses, 
especially?
    Mr. Holtz-Eakin. I am deeply concerned about the burden 
cumulatively on them from the spending that leads to the debt, 
the regulatory environment. I think Dr. Rivlin has it right. 
This is a very resilient economy. I am stunned again and again 
at the capacity of it to recover and grow, but you have to be 
respectful of the burdens that we are placing on it.
    And so when I think of the idea of doing cost-benefit 
analysis, I applaud that. Even though it can't always be done 
as well as we would like, the discipline of sitting down and 
saying, ``What are the costs and what are the benefits of this? 
And does it make sense to launch into this?'' is very useful. 
The thing I would urge the Congress to do would be for the 
first time to look back at existing regulations and take off 
the books some things that don't merit inclusion anymore. We 
never get rid of regulations. And that is a problem.
    Mr. Luetkemeyer. If we don't get our economy going, at what 
point--whenever we passed our budget resolution back in 
December, a lot of the ratings agencies were ready to downgrade 
us if we didn't do that. And at what point do you believe that 
they will start downgrading us or the markets will stop buying 
our debt?
    Mr. Holtz-Eakin. I believe that our most likely scenario is 
we go out 10 years and we are a slow-growth economy still, low 
wage growth, a very, very frustrated populous. And at that 
point, 10 years from now, the rating agencies are going to have 
to be concerned about our ability to service our debts, no 
question.
    Mr. Luetkemeyer. But they are already raising alarms. We 
just need to be listening to them.
    Mr. Holtz-Eakin. Yes, I think the thing to worry about is 
not the apocalyptic crisis hitting in the next 10 years, but 
the consequences of doing nothing after a bad economic 
performance for a decade.
    Mr. Luetkemeyer. Very good. Thank you. Thank you, Mr. 
Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    And with all due respect to the earlier opinion of the 
gentleman from Texas, we will now yield to the real reverend in 
the room. The Chair now recognizes the gentleman from Missouri, 
Mr. Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Dr. Bernstein, in response to Congressman Green's question 
about Social Security, the number of elderly, was that 44 
percent on top of the existing percentage of seniors or Social 
Security recipients? Or is that the total, 44 percent of--
    Mr. Bernstein. That is the total percentage of seniors, 65-
plus, who would be poor if we took Social Security out of the 
picture. Instead, the actual poverty rate for them is 9 
percent.
    Mr. Cleaver. Right, yes. Yes, that would include my 91-
year-old father. My three sisters and I were trying to figure 
out if he ever missed a day at work that we can remember. He 
remembers too much. But one of the problems we are having is--I 
don't think people realize who we are talking about when we 
talk about the poor.
    And all of them are Americans, but one of the interesting 
things--my district was changed with redistricting. I now 
represent three of Ike Skelton's former counties. And one of 
the things that I have discovered--in fact, there was a chart 
in Sunday's New York Times, the highest growing areas of 
poverty in the United States are the rural areas. And in my 
three rural counties, the percentage of individuals on some 
kind of Federal food programs, SNAP and so forth, the 
percentages are higher than in Kansas City, which is the 
largest city in my district.
    I don't think people realize that there is a symbiosis with 
rural and urban. And so because we have in our heads decided 
that when we talk about poverty, we are talking about urban 
centers, I think it does some damage, some distortions to the 
conversation.
    And prior to the 2008 expiration of the farm bill, the 
Department of Agriculture made 400,000 payments in terms of 
safety net payments, 400,000, and if they had had the money, it 
would have gone another $500 million. These are farming areas, 
rural areas. And so, I think we have to re-design the 
discussion.
    Minimum wage is $7.25, $2.13 for tipped individuals. So I 
would like to hear from all of you--is there a need for--I 
really would like if we had more time for you to talk about the 
need to change the discussion to Americans, but I want to find 
out if you can--if you can talk about the minimum wage and the 
need for raising the minimum wage.
    This year, the value of the minimum wage is scheduled to 
drop 1.7 percent. And if it continues to go in that direction, 
we are going to make more and more poor people who work every 
day. Can I just get a response from all of you?
    Mr. Bernstein. I think it would be very helpful to raise 
the minimum wage to boost the earnings of some of the very 
constituents you are talking about. A recent analysis by the 
Congressional Budget Office found that an increase of the type 
that you are describing would lift the pay of 24.5 million 
people. Now, it would also displace 500,000, but once those 
persons got a new job, that job would be a better job.
    Mr. Holtz-Eakin. I would just politely disagree. I think it 
is a case of someone's heart being in the right place, but it 
is a bad policy. The dividing line between poverty and non-
poverty in the United States is having a job. And the minimum 
wage does not help people get jobs. It harms their chances to 
get jobs. It is also not targeted very well on poor people.
    In the same CBO study, of the $31 billion that would be 
generated, only 19 percent went to people in poverty. So we can 
do better in worrying about the poor than to raise the minimum 
wage. I think it is a mistake at this point in time. The 
evidence is in the teenage unemployment rate that is over 20 
percent. We continued raising the minimum wage through the 
Great Recession, and those workers are now priced out of the 
labor market. We can't do that again.
    Ms. Rivlin. I favor raising the minimum wage, which hasn't 
been raised in a long time, but I think even more important is 
to raise the Earned Income Tax Credit, which is a more 
effective, more targeted way of reaching low-income people. And 
I also think it is a mistake to think that anybody who is in 
favor of controlling future deficits is against poor people. 
That is not what this is about.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, for 5 minutes.
    Mr. Huizenga. Thank you, Mr. Chairman. I appreciate that.
    And if I could just revisit very briefly with Ms. Rivlin 
here, what you were just saying, a long-term--if you could just 
maybe repeat or repackage what you just said about long-term 
deficit restraint not being an attack on the poor. I don't want 
to mischaracterize. I just want to make sure I was clear and 
understood what you said.
    Ms. Rivlin. Yes, that is what I did say. I think we have a 
serious poverty problem in the United States which needs to be 
attacked by raising incomes of low-income people and the 
opportunities to get out of poverty, but also the bad effects 
on the economy, which we have been discussing here for a long 
time, of not addressing our long-run debt, the increase in debt 
faster than the economy can grow, will injure the low- and 
middle-income people most, much more than higher-income people.
    Mr. Huizenga. All right, good. I just wanted to make sure I 
understood that, and I would wholeheartedly agree. And I had 
the pleasure and the opportunity to serve a former member of 
the Budget Committee, Peter Hoekstra. I served as his District 
Director for 6 years. It was early 1997 when I sat down with 
Pete and a guy named Mark Neumann from Wisconsin. John Kasich 
was Chair of Budget at the time. And I clearly remember 
Congressman Neumann at the time saying, ``Pete, we are going to 
come into balance this year. And if not this year, it is going 
to be by the second quarter next year of where we are going.''
    And as these policy wonks were diving into the numbers and 
all those things, it came to light and it came very apparent 
that it was mostly based on two things. First, our restrained--
not cut, but restrained--rate in the government growth. And 
second, economic activity. The economic activity that was being 
spurred along, some of--I remember the debate well. A lot of it 
was pent-up demand. A lot of the same things that we are even 
talking about now, seeing some of the economy going in, in 
where we are currently.
    What I am concerned about is when we are using $230 
billion, $240 billion to service our long-term debt, how long 
before we see interest rates go up--we have had Chair Yellen in 
those very seats. We had Ben Bernanke prior to that. Every 
person on the Fed has indicated which direction those interest 
rates are going, which is up. And I am concerned that with that 
level of debt that we have, as we see on the debt clock over 
here, servicing that debt, when we just go to where Germany is, 
much less Greece and Italy and Spain, that we are going to 
swamp the boat here. Is that not fair? A fair characterization, 
at least?
    Ms. Rivlin. No, I think that is a fair characterization, if 
we don't act, but we need to act sensibly and on both sides of 
the budget and to phase in reforms, in both taxes and 
entitlements, that will reduce the debt over the long term.
    Mr. Huizenga. The other thing that I am very concerned 
about--and I just met with someone who is in the venture 
capital space and management space--and we were having this 
discussion about what is going to pull us out of this debt 
situation, what is going to pull us out in the long term? I 
have seen some projections that anywhere from a 6 percent to an 
8 percent growth rate would need to happen here in the United 
States for us to take care of what our spending problem has 
created.
    And I know China is going into a tailspin because they are 
going to drop to a 7 percent or 8 percent. We could only dream 
to be at that kind of growth rate. Dr. Holtz-Eakin, would you 
mind maybe addressing that a little bit? And, Mr. Cote, I would 
like to hear from you, as well, what that would mean for your 
business, really quickly?
    Mr. Holtz-Eakin. It is very simple, and it has been true 
for a decade. We won't grow our way out of this problem. We 
will not tax our way out of this problem. The problem is the 
growth in the spending programs driven by demography and health 
care costs, and you have to get that. That is it.
    Mr. Cote. And I would agree. There is no way we can grow 
our way out of this. And getting back to your first point, with 
$20 trillion in debt and a 5 percent rate, which is not a crazy 
number, that is $1 trillion a year in interest, and it starts 
to feel more like a credit card where you just can't get ahead 
of it at that point. We are better off addressing it now.
    Mr. Huizenga. I appreciate that. And my time has expired, 
but that is exactly where, when I talk to especially the 
younger generation, they are just starting to figure out that 
the math isn't adding up.
    So thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has, indeed, 
expired.
    The Chair now recognizes the gentleman from Delaware, Mr. 
Carney, for 5 minutes.
    Mr. Carney. Thank you very much, Mr. Chairman. And thank 
you for having this hearing today. It is very interesting and 
very important.
    The title is, ``Why Debt Matters.'' We seem to have lost a 
little bit of focus on this issue recently, because of the 
agreement, the budget agreement for this year and for next, all 
the focus when we had deadlines, the deadline on the debt 
ceiling, the deadline on shutting down the government, kept a 
really, I thought, important focus on solutions to this issue, 
so now we don't--there is not a lot of discussion, so this has 
been very helpful.
    I am fairly new to the body. I was elected in 2010, one of 
the few Democrats. And when I first arrived here, I learned 
pretty quickly that we had a big fiscal problem. I am a former 
secretary of finance for the State of Delaware. We had to 
balance our budgets every year, and we had to make the 
difficult decisions in order to do that.
    We don't have to do that at all here, in terms of making 
those difficult decisions. There is a group--some of you are 
part of that or are aware of it, certainly--called Fix the 
Debt. And they have a spreadsheet of things that Congress could 
do to address some of these fiscal imbalances. I have been 
doing that as part of a group that I chair with Democrats and 
Republicans in going down the individual list.
    It is not easy, particularly when you get people in the 
room who have different perspectives on taxing, on spending, on 
how to address the issue of the poor and the like. One of the 
things that struck me over the last couple of years, Ms. 
Rivlin, is your co-chair, I guess, former Senator Domenici, who 
said that it is really all about health care. And I remember in 
a session with Maya MacGuineas, I asked her, so what are the 
solutions for health care? And she didn't have any good ones. 
Do you? Does anybody at the table have any suggestions with 
respect to what we do to bend the cost curve down for health 
care?
    Ms. Rivlin. Yes. I think there are quite a lot of things 
that we can do. And some of them are in process already and I 
think are already having an effect. A really important thing is 
to move away from the fee-for-service system of compensating 
providers, which incents them to provide more services, rather 
than better services. And accountable care organizations--
    Mr. Carney. We talk about that all the time, by the way, 
pay for performance and all that. It is hard to do.
    Ms. Rivlin. It is hard to do.
    Mr. Carney. Practically.
    Ms. Rivlin. And that is why it is a work in progress.
    Mr. Carney. Right.
    Ms. Rivlin. But I think payment reform and more competition 
in the health system are both part of the solution.
    Mr. Carney. Thank you.
    Dr. Bernstein?
    Mr. Bernstein. A few ideas that kind of hitchhike off of 
where Alice stopped. What seems to be helping so far--and, 
again, we don't know how deep this is, in terms of whether it 
will stick, but we have seen very notable progress in recent 
years in slowing the growth. We have actually bent the curve. 
Whether it stays bent remains to be seen.
    Efficiencies have occurred in bundling care, reducing 
unnecessary testing, and reducing hospital readmissions. All of 
those have made a notable difference in moving, as Alice 
suggested, from quantity to quality. The one area where we 
haven't done nearly enough is in the price of medication. There 
have been some extremely, I think, compelling exposes of the 
amount that we spend on medicine that in other advanced 
economies is a fraction of ours. I think that is a rich area of 
pursuit, and it will be--
    Mr. Carney. One of the targets, by the way, on that list, 
all the things that you mentioned are on the list that Fix the 
Debt is--Dr. Holtz-Eakin, did you have--
    Mr. Holtz-Eakin. I would just say two things. The first is, 
I think it is important to continue on this and not to get 
complacent. It is true that health care spending has grown more 
slowly recently, but that happened in the mid-to late-1990s for 
4 years, and it came right back.
    We are coming out of a recession. The Affordable Care Act 
is intended to have people spend more on health care, so there 
are a lot of things that could go the other direction.
    The second is, the strategy cannot be just cutting 
reimbursements to providers. We have done that before. It has 
always failed and been unwound. And then I think in the things 
that the Congress is looking at right now, there are two places 
where we are making a mistake.
    One is too aggressively cutting Medicare Advantage 
payments. It is the one thing that is not fee-for-service. It 
is not perfect. A lot of things are wrong that could be fixed, 
but it is not fee-for-service. We need to move people in that 
direction. And home health, where it is the one place with a 
very elderly and frail population, we get the care coordination 
that keeps people out of the hospital.
    Mr. Carney. Mr. Cote, last word, really quick?
    Mr. Cote. Yes, Erskine Bowles and Alan Simpson issued 
Simpson-Bowles 2.0 specifically for this, and that is about 20 
line items, and I would be happy to forward them to you.
    Mr. Carney. Great, thanks very much.
    Thank you, Mr. Chairman.
    Mr. Huizenga [presiding]. The gentleman's time has expired.
    And with that, we go to the gentleman from Wisconsin, Mr. 
Duffy.
    Mr. Duffy. Thank you, Mr. Chairman.
    I thank the panel for coming in today and, frankly, to see 
the bipartisanship, all agreeing that we have a problem with 
our debt is nice to hear.
    Many people on this committee have a majority of their 
constituents who are not millionaires and billionaires. Most of 
them are middle-class Americans. Many of them are poor 
Americans. And so, I think there is a consensus that we want to 
look out for those who are less fortunate in our districts and 
middle-class Americans in our districts.
    So I just want to get all of your opinions, that if we stay 
on the current course, we don't change, no modifications, can 
we just raise taxes on millionaires and billionaires, bring in 
enough revenue, and sail on our merry way? Is there enough 
money with millionaires and billionaires to fix our problem? 
Can we fix the problem there, Mr. Holtz-Eakin?
    Mr. Holtz-Eakin. No.
    Mr. Duffy. Mr. Bernstein?
    Mr. Bernstein. No.
    Mr. Duffy. Ms. Rivlin?
    Ms. Rivlin. No, but that doesn't mean that we shouldn't 
reform our tax system in a way that gets rid of a lot of 
special privileges for upper-income people. If we do that, we 
can lower the rates.
    Mr. Bernstein. It is a good place to start. But you can't 
finish there.
    Mr. Duffy. Mr. Cote?
    Mr. Cote. I would say the answer may not always be as 
credible coming from me, but the answer is still no. It is not.
    [laughter]
    Mr. Duffy. Point well made. And I think--my point for 
bringing that up is, we can't get a consensus about changing 
the drivers of our debt, modifying it, and I think some who 
don't want to change the current system continue to argue that 
we just go after millionaires and billionaires and we are fine. 
And I think the point that you all are agreeing to is that you 
can go there, but you can't get all the money there if you 
don't change. You are going to go for middle-class Americans, 
aren't you? You are going to go for poor Americans, correct? 
Mr. Holtz-Eakin?
    Mr. Holtz-Eakin. Yes, I think it is very important to 
recognize that if you sort of follow that line of reasoning, so 
you go get the millionaires and billionaires first, that staves 
off a little bit of the problem, the deficit narrows, you put 
off fixing the spending program, but the problem hasn't been 
solved, so now the mandatory spending ramps up and you have a 
big deficit again. What are you going to do?
    As I pointed out in my testimony, in the end, you are going 
to raise a lot of taxes. You have already used up the rich 
people.
    Mr. Duffy. Who is next, right?
    Mr. Bernstein. Can I just say, I don't disagree with that 
analysis. Actually, I agree with it. The one thing I will say, 
though, is that if you look at where all the growth in this 
economy over the last, say, 4 or 5 years, even going back 
further has accumulated, it has been at the top of the scale. 
Middle-class people, the folks you are talking about, really 
have gotten very little out of the economy's growth going back 
a few decades. And so in that sense, there is a logic to that 
is where you start. That is all.
    Mr. Duffy. Sure. And I am not going to go there, because I 
could talk about what is happening to our forestry industry in 
Wisconsin, what we are doing with energy exploration, what we 
are doing with mining, rules and regulations that impact 
manufacturing in my community. We will stay away from that. We 
are having a debt hearing here.
    And, Ms. Rivlin, you are not considered a rabid 
conservative, are you?
    Ms. Rivlin. I hope not.
    [laughter]
    Mr. Duffy. I would think not. And you agree that--listen, 
if we are looking to fix this problem, it is not inconsistent 
to say we are looking out for poor Americans and fixing a 
future debt crisis, right? As a nonconservative, you would 
agree with that statement? And you have made it here, right?
    Ms. Rivlin. Absolutely. We all have a stake in this, 
especially people who don't earn enough.
    Mr. Duffy. And, Mr. Bernstein, you are making comments 
about what happens to our seniors today who make $24,000, 
$25,000 a year. I have a lot of those people in my district. I 
am concerned about what happens with these programs for them.
    But 15 years from now, there will be another group of 
seniors who are going to retire, right? And they are going to 
be making $24,000, $25,000, $27,000 a year. And if this system 
isn't fixed, these programs won't be available for them, will 
they?
    Mr. Bernstein. No, they will be 75 percent available to 
them, but that is not adequate. So, I agree with your point.
    Mr. Duffy. So we are cutting our future poor seniors, if we 
don't fix--
    Mr. Bernstein. My only point is, don't break Social 
Security to fix Social Security. In other words, if someone 
says, fix Social Security, I am not sure what they are saying. 
If they are saying, let's broadly cut benefits across the scale 
or slow the growth rate of benefits across the scale, you are 
going to end up hurting people who actually depend on that 
income. That is the point.
    Mr. Holtz-Eakin. Can I--
    Mr. Duffy. And by not fixing the problem, you are going to 
hurt poor people and those who haven't saved as much as they 
should have either way? Mr. Holtz-Eakin, you have--
    Mr. Holtz-Eakin. I think that is unnecessarily alarmist. 
There have been a lot of Social Security reform plans. Dr. 
Rivlin is the author of some of them. All of them involve 
raising the minimum benefit. People are very cognizant of the 
need to fix the system and take care of poor people, but I 
don't think this is even on the table.
    Mr. Bernstein. I think it is on the table, because it is 
not just the minimum benefit. Remember, I am talking about the 
median recipient.
    Mr. Duffy. And just--I have to yield back in one moment, 
but when--maybe we have--
    Mr. Huizenga. Or right now.
    Mr. Duffy. Or right now. I think--
    [laughter]
    Willie Sutton said he robs banks because that is where the 
money is. I think, as you said, Ms. Rivlin, in health care, 
that is where the money is, and I think that is where the 
conversation has to start. I yield back.
    Mr. Huizenga. The gentleman from Wisconsin kindly yields 
back.
    And with that, we go to the gentleman prepared for the snow 
today in his sweater, Mr. Himes from Connecticut.
    Mr. Himes. Thank you, Mr. Chairman. And let me thank you 
all again. We are deep into hour number 3, and I really 
appreciate your work.
    I sometimes joke that in the last 5 years, I have put on 
probably 10 pounds in various dinners with Maya MacGuineas and 
Alan Simpson and Erskine Bowles and others. You have been in 
those rooms, too, really helping to educate us, and thank you 
for that commitment and for your time today.
    I have actually been encouraged by the fact that the 
conversation, I think, has been pretty real today. We have 
minimized the partisanship and the politicking. So I want to 
just ask three categories of questions. The first is, one of 
the things that I think has actually set us back, perhaps more 
on this side of the aisle than the other, is that for the last 
5 or 6 years, we have heard these constant sort of apocalyptic 
warnings that we are 1 week from being Greece, that we are, as 
Alan Simpson--and don't get me wrong, I have an immense amount 
of respect for him--labeled it, the moment of truth, the 
possibility that we are months away from skyrocketing interest 
rates. I understand this is a difficult question, but I think 
it is important.
    The kind of specter of skyrocketing interest rates, a loss 
of faith in the U.S.'s credit, is anybody willing to sort of 
offer a projection? Are we weeks, months, years, decades? How 
long do we have? Because I actually do think we will address 
this problem. How long do we have?
    Ms. Rivlin. I think we are quite a long way from an 
apocalypse of a sovereign debt crisis, but that doesn't mean we 
can wait to fix the problem, because the things you need to do 
to fix it take so long to phase in, if you do it sensibly, that 
we needed to start 2 years ago or 20 years ago to do them 
right, and now it is the time to start.
    Mr. Cote. I find it interesting, with a prediction of a 
crisis, that there is oftentimes a feeling that you can just 
start from where you are and then start drawing the line. Then 
it is just a linear growth of what the explosion possibility 
is, when in reality you can't predict when the herd turns. And 
when the herd turns, it is too late.
    And to the extent that you wait to find out when that is, 
that is going to be extremely painful for everybody, so it is 
not predictable. The specter is there, but none of us knows 
exactly where it is and when that herd turns against you. And 
when it does happen, it is too late.
    Mr. Himes. I appreciate that. So it is fair to say--and I 
completely agree--it is better to have addressed it long ago or 
now than to postpone. But it is fair to say that we are not a 
year or 2 away from skyrocketing interest rates--and, Ms. 
Rivlin, you said apocalypse, but this is not a next week or a 
next month problem?
    Ms. Rivlin. Yes, I agree with that.
    Mr. Himes. Okay, all right. Let me--one of the really 
disheartening things that occurred in the last couple of years 
was the President, at great cost to his own standing with his 
party, in his last budget offered meaningful and uncomfortable 
entitlement reform, so-called entitlement reform, in offering 
up the chained CPI. It is real. That is real money. It hurt him 
with his party. It hurt him with progressives, because, of 
course, chained CPI means that some of our least wealthy 
seniors will get a little less money in their Social Security 
checks in the months and years to come.
    That good-faith and costly attempt at entitlement reform 
was met with the head of the RNCC saying, ``We will attack the 
President for hurting seniors.'' So that gives you a sense for 
the challenge that we face when partisanship torpedoes costly 
and good-faith efforts at entitlement reform.
    So my question is, I do actually believe that most people 
in this room want to see Medicare and Social Security reformed 
for the long run in a way that insulates the disenfranchised 
and the vulnerable. I only have a minute. But I am wondering if 
you could each perhaps give us 2 or 3 thoughts on those actual 
initiatives within Social Security and Medicare that we should 
be willing to embrace on both sides of the aisle to achieve 
this.
    Mr. Holtz-Eakin. I would say just one thing. I think both 
sides of the aisle have to be very clear to the American people 
that these programs need fixed. And until we stop pretending 
they are fine--you can keep Medicare as you have and Social 
Security as we know it--then any attempt to change it proceeds 
to be either partisan or pernicious in its foundations. We have 
to explain to them that the changes are necessary, the number-
one--
    Mr. Himes. No, I hear that. I asked for specific measures. 
And I hear you. And, look, it is a tiny minority of my 
colleagues who actually will stand in front of anybody and say 
this is fine into perpetuity. I think it is a little bit of a 
straw man.
    I am asking, what two or three things should we embrace 
across the aisle to address this problem?
    Ms. Rivlin. I think it is a package. And the mistake of the 
President was to pull out that one thing. I would favor chained 
CPI as part of a Social Security reform that included an 
increase in the minimum benefit and the benefit for people who 
live a very long time, but a reduction in the revenues over 
time--in the benefits over time of very high-income people, not 
to zero, but phase it down, and increase in revenues. I think 
we should raise the cap on the Social Security payroll tax 
going forward.
    Mr. Bernstein. I was going to agree with raising the 
maximum cap, as well as another idea that was in Rivlin-
Domenici, which had to do with taking some revenue from the 
employer tax exemption for health insurance. It is worth 
looking into. It is a little more than we can get into right 
now--
    Ms. Rivlin. Yes, that is very important.
    Mr. Bernstein. --but I think it is a good idea.
    Mr. Cote. Chained CPI is one that always made sense to me. 
On the other side, I have always wondered--20 years ago, I was 
saying, I can't count on Social Security being there for me, 
yet I am going to receive it. Great.
    Mr. Himes. Thank you for your forbearance, Mr. Chairman.
    Mr. Huizenga. Yes, it is a rookie Chair mistake.
    [laughter]
    I got caught up in trying to make sure that we were 
equitably distributing our time here, and you snuck one past 
me. I guess maybe that was a make-up for the sweater comment.
    So with that, we go to Mr. Mulvaney from South Carolina for 
5 minutes.
    Mr. Mulvaney. I thank the chairman, and I thank the 
participants. I always enjoy the opportunity to do this. I 
always enjoy the opportunity to sit down and talk about these 
very important issues. Obviously, it is a pleasure to have a 
chance to listen to Ms. Rivlin and Mr. Holtz-Eakin, for whom I 
have a great deal of respect.
    I don't know you, Mr. Cote. It is the first time I have met 
you, but I have enjoyed what you have had to say today. Mr. 
Bernstein, you know that you and I don't agree on many things. 
And as someone who is trained in economics, not in music and 
social welfare, as you were, to hear your comments on economics 
is sort of like listening to somebody scratch a blackboard, 
but, still, I appreciate the opportunity.
    And then I sit here and I wonder, does it really make a 
difference? Are we really accomplishing anything? We are 
sitting here today. We are trying to make our points. The other 
side is trying to make their points. And we are not going to 
fix this. We have a leader in the White House who refuses to 
engage, someone who doesn't even--many members of this 
committee don't even know who the White House liaison is.
    You are not going to solve this problem without leadership. 
They are not going to convince us that Mr. Bernstein is right. 
We are not going to convince them that Dr. Holtz-Eakin is 
right. That takes leadership and the type of leadership that 
traditionally in this country has come from the White House. 
Whether it be Ronald Reagan or Bill Clinton, we have had a 
President who was willing to engage on the difficult issues to 
try and drive some sort of resolution to these very, very 
complicated issues.
    And if we don't get that, then the really important thing 
is something entirely different we haven't discussed here. The 
really important thing then is, if we don't fix it, all that 
really matters is, who is in charge when it breaks, us or them? 
That is what it comes down to. That was the issue in 2008, when 
we had the Great Recession, and the other side was entirely in 
charge and we had stimulus and bailouts and monetary policy 
that makes many of us pull our hair out.
    So the question becomes, who is going to be in charge the 
next time the system breaks? Who gets to fix it, us or them? So 
I think it is important that everybody knows who we are and 
what we stand for, who they are and what they stand for, and 
then they can decide.
    So with that, Dr. Bernstein, if I utter the phrase to you, 
``From each according to his abilities, to each according to 
his needs,'' do you look upon that generally favorably or 
generally unfavorably?
    Mr. Bernstein. Generally favorably.
    Mr. Mulvaney. Thank you, sir. I have no further questions.
    Mr. Huizenga. The gentleman yields back in a very unusual 
move, giving up time, but I appreciate it.
    With that, we go to Mr. Foster from Illinois for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman.
    And, let's see. I believe I had a slide coming up on the 
monitor, which maybe we caught the monitor operator golf cart. 
This is the graph that I hope--there it is. This is Peter 
Orszag's graph of the year, which shows the bending of the cost 
curve. The fraction of GDP devoted to Medicare spending both 
current to the current law projection and according to what 
is--what you would anticipate according to the measured growth 
rate from 2008 to 2012.
    As a scientist, I am very data-driven, and so I think it is 
very interesting to look at this and to see that, instead of 
rising from 3.5 percent to roughly 7 percent, that actually if 
you look at the data for the last 4 years, you will see that it 
affects--it bumps up slightly as the boomers retire and need 
the Medicare, and then goes back to 3.5 percent.
    And so my question, if this is, in fact, the way things 
play out, if we have, in fact, bent the cost curve, with a 
combination of the stimulus spending and medical health records 
and everything in Obamacare, the restructuring of the medical 
industry simply to be more--you can argue about what the reason 
is, but if this is the truth, this is the way things play out, 
is it broken? Is it a crisis?
    Mr. Bernstein. If costs truly grow in the health care 
system at 3.5 percent instead of 7 percent for all those 
years--
    Mr. Foster. This is not a--this is the fraction of GDP, 
right? The--
    Mr. Bernstein. Oh, okay.
    Mr. Foster. The Y axis is the fraction of GDP currently--
roughly 3.5--
    Mr. Bernstein. Same comment. As a fraction of GDP, if those 
costs stay there, Medicare spending stays there as opposed to 
the blue line, we have successfully bent the cost curve, which 
is--as I think all of us have said--an essential goal of 
achieving a sustainable budget path. I actually think there is 
no sustainable path that doesn't pass through that gateway.
    The question is, the gains that have been achieved, 2008 to 
2012, are assuming to continue to 2085. That is a very broad 
assumption. I very much hope it is correct, and I also very 
much--and I am a student of Peter's work on this--believe that 
he is on the right track when he identifies the very 
mechanisms, some of which you ticked off, that appear to be 
working.
    So what I have said in my testimony and what I come from--
and what I take away from that graph is that we have to monitor 
these gains and make sure that they stick. The last thing you 
would want to do is to repeal measures that have helped to 
generate them.
    Mr. Foster. Okay, thank you. Ms. Rivlin?
    Ms. Rivlin. I agree with that, but I think we need to work 
very, very hard to make sure that curve doesn't start 
accelerating again, because there are extreme upward pressures. 
Doctors are learning every day how to do more things and extend 
life, and some of those things are very expensive. So we have 
to keep working on, how do we keep that curve bent?
    Mr. Foster. All right. But if we succeed at bending the 
medical curve like this, then can we solve it much less 
painfully on the revenue side?
    Ms. Rivlin. Yes. If health care spending isn't going up 
faster than GDP, we have a much smaller problem to solve.
    Mr. Foster. Mr. Holtz-Eakin?
    Mr. Holtz-Eakin. I would just worry about the timescale on 
that. You will notice that it keeps going up through--it looks 
like 2035, and we are already at 78 percent debt-to-GDP at the 
end of the budget window, Social Security is going up, this is 
going up, all the other health programs go up. I am not sure 
you get to the part where it goes down. We have a big fiscal 
problem, and we need to fix it.
    Mr. Foster. Yes, Mr. Cote?
    Mr. Cote. Yes, from my perspective, given the 30 years of 
history prior to that, I don't know that I would bet on this 
unique 5-year period following the Great Recession as 
indicative of what the future is going to be. So I have all the 
same cautions that the other witnesses expressed. I hope it 
works out this way. It will clearly make it better. But I sure 
wouldn't bet on it.
    Mr. Foster. Yes. In fact, it is my belief--this is only 
through 2012--that 2013 numbers are, in fact, lower, so that we 
are, in fact, better off than the dashed red line. This plot is 
about a year old.
    Let's see. If I could change subjects a little bit, there 
was some discussion about uncertainty. And there are several 
things that have come through this committee having to do with 
uncertainty generated by government. And one of the big things 
that people come to me with is the business of terrorism risk 
insurance and that there are a number of contracts that have 
this written into it. If it is not reauthorized, there is a big 
problem with a very large number of commercial agreements.
    And I was wondering if you agree that this is a significant 
contributor to uncertainty when these key programs, like 
terrorism risk insurance, like the Export-Import Bank, and 
whether even a 30-year mortgage will exist, if this also 
contributes to uncertainty.
    Mr. Bernstein. Absolutely. I would argue even more so than 
some of the other factors discussed today.
    Mr. Foster. Okay. Thank you, I will yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Kentucky, Mr. 
Barr, for 5 minutes. Oops, I'm sorry. Excuse me. Too quick. I 
recognize the gentleman from Illinois for 5 minutes, Mr. 
Hultgren.
    Mr. Hultgren. Thank you, Mr. Chairman. I appreciate that. 
Thank you, Mr. Barr, too.
    Thank you for being here. This has been a very interesting 
hearing for me and an important start, and I think we would all 
agree that this is such an important start. So, Mr. Chairman, 
thank you for doing this. I look forward to these next months 
that we can hopefully really dig into this and see some 
significant steps.
    Mr. Cote, I want to start with you. First, I want to thank 
you for your great work. Another thing I am passionate about is 
STEM education and I appreciate you, I think, being recognized 
as one of the 100 CEO leaders on STEM education. Thank you for 
your great work there. That is very important for all of us, as 
well.
    I want to ask you--I know, with your role at Honeywell, you 
have had a great opportunity to meet with other business 
leaders around the world, world leaders. I know you have 
touched on this a little bit, but I wonder if you could talk a 
little bit more about how you hear for them, their perspective 
of our debt, impacting our competitiveness on the world stage.
    Mr. Cote. I think the way to think about it is that when 
you look at developed economies, everybody is looking to us to 
provide leadership for how we are going to get out of this 
thing. And I am struck by a comment that the ambassador from 
Romania told me at one point, and this is when I was on the 
Simpson-Bowles Commission. His comment was, ``We really hope 
you address your debt.''
    And I said, ``Well, yes, I understand, and it is important 
for us.'' And he said, ``No, no, it is not just important for 
you. It is important for us, because in a lot of our countries, 
we look at it and say, if even the United States can't figure 
this out and we count on them being the people to provide 
leadership, then what are we going to do?
    That really struck me at the time. And I said, that is a 
very good point. We need to provide leadership to the world. If 
you take a look at, whether it is Europe, the United States, 
Japan, or India, everybody is dealing with these big debt 
problems. This is an opportunity for us to provide leadership 
to the world.
    Mr. Hultgren. Thank you. I agree.
    Let me--Mr. Cote, in your testimony, you talked about how 
this isn't just a Wall Street problem, but also a Main Street 
problem. In my opening remarks, I mentioned something that I 
hear all the time from my constituents, that life is less 
affordable these days. Even people who have been working, 
haven't lost their job, to them, life is less affordable.
    I wondered if you could--I would open it up to any of you 
for a quick comment on, how do you see this impacting costs of 
goods, daily goods that people use, the fact that the debt is 
as significant as it is? Is there a connection of it really 
flowing down and impacting consumers? And I would open it to 
any of you.
    Mr. Bernstein. I don't see a clear connection between 
consumer prices. One of the things that tends to happen in the 
history of these variables, the economy slows down, the debt 
increases, and because of the economic slowdown, inflation 
tends to taper off, and that is what we have seen. So certainly 
there are longer-run stories where pressures could occur on 
interest rates and on prices, but in the near term, no.
    Mr. Hultgren. Does anyone else have any thoughts on this?
    Ms. Rivlin. I suspect--though I don't know--that many of--
when many of your constituents say life is less affordable, 
they mean they aren't earning as much as--their incomes haven't 
gone up as fast as they expected them to. It is not so much the 
prices. It is the slow growth in wages.
    Mr. Hultgren. I am hearing both. Certainly, filling up your 
gas tank is one of those things that people feel. Like going to 
the grocery store, you just don't get as much, and I think all 
of this ties back together.
    Dr. Holtz-Eakin, did you have--
    Mr. Holtz-Eakin. I think this is the key point. This has 
been a bad recovery from a jobs perspective, but it has been 
even worse from an income perspective. And so for those who 
have jobs, real wages aren't rising. And then, when you get 
spikes in food and energy prices, it feels bad. I don't think 
that is any--I think that is the key.
    Mr. Hultgren. Let me cover one last thing. I have just a 
minute left. But Dr. Rivlin mentioned the idea that part of the 
problem we have in getting this on the national agenda is our 
short national attention span. I wondered if you have any 
suggestions for us of how--what is one message that Americans 
need to hear from their Members of Congress so that they will 
focus more on this problem?
    Ms. Rivlin. I think the message is, we can get together 
across the aisle and fix it, rather than just talking about it. 
We need to be working on solutions.
    Mr. Holtz-Eakin. In my experience, no one cares about the 
Federal budget or the debt. They do care about the economy. And 
this is about better economic performance.
    Mr. Cote. I agree on the economy. And what I would love 
politicians to be doing out there is talking about this as a 
holistic issue, not just a tax issue, not just a spending 
issue. Not just, ``They are trying to take advantage of you. 
These guys ate your lunch.'' Rather, it should be a discussion 
about, ``Look, we really have an issue here, and we have 
overextended ourselves, and we need to work together to figure 
it out.''
    Mr. Hultgren. Yes, and my time is winding down, so I 
appreciate, again, all of you. Thank you for being here. And I 
do hope that this can be something we can come together on and 
find real solutions.
    With that, I yield back. Thank you, Mr. Chairman.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Maryland, Mr. Delaney, for 5 minutes.
    Mr. Delaney. Thank you, Mr. Chairman.
    And, Mr. Cote, I liked the way you just talked about the 
holistic issue, because it seems to me that--and you touched on 
this, I think, beautifully in your comments--the issue we have 
is a competitiveness issue. And that competitiveness issue is 
informed by the big macro trends in the world, which are 
globalization and technology.
    Unless we position ourselves as a country to spread out the 
benefits of globalization and technology more broadly around 
our society, we will continue to have the kind of economic 
picture we have today, which is very barbelled.
    And that is really the central issue. Our debt is a 
problem. Our debt ultimately, we all know, threatens the 
republic, but it is a particular problem in that context, it 
seems to me. It is not a problem in terms of today, does it 
affect--and you have obviously--you are closer to this than I 
am, but does it affect hiring decisions? Or does it affect the 
cost of living of average Americans? Because the data would 
probably suggest that it doesn't, because our interest rates 
are so low, so even though the number is really big, the actual 
cost of the debt that is trickling down to consumers is not a 
big number.
    So it seems to me this problem is, in part, being described 
incorrectly. And I used to say in, when I was in the private 
sector, that you can't solve a problem unless you can describe 
it well. We are not necessarily describing this problem well, 
because the problem with the debt is, number one, it does now 
and it will prevent us for a long time from doing the things we 
need to do to get our economy growing.
    And it also puts us in a position that if something really 
bad were to happen at the same time rates were going up, and 
those things could actually correspond, we have very little 
financial flexibility, and that is just a risk factor that we 
are carrying with us as a Nation that we don't fully 
appreciate. In other words, we have no margin of safety right 
now.
    You want to run the country with a margin of safety. I am 
sure you think about the balance sheet of your--you don't run 
at your maximum leverage all the time, because you never know 
what is going to come up, but part of the issue is I think we 
look at the $17 trillion number and we say, we have to get that 
to zero, right? And that is just a totally unrealistic way to 
look at this problem.
    I am just interested in the panel's opinion on whether we 
are actually thinking about this the right way, because it 
seems to me what we should be focusing on is the ratio between 
our economic growth and our debt as a percentage of our GDP. If 
we could have economic growth at 3 percent, like, Mr. Cote, you 
optimistically mentioned earlier, and if we get our debt down 
to 1.5 percent of GDP, if we could do that, we are done, right?
    Because it seems to me, over 20 years, if our economy grows 
at 3 percent, it will go from like a $17 trillion economy to a 
$30 trillion economy. And if we have 1.5 percent debt as a 
percentage of GDP over 30 years, it will go from like $12 
trillion to $18 trillion, and so these ratios will go from 72 
percent to 60 percent. That should be our goal.
    Do you all agree that is the way we should be thinking? 
Because we don't actually have to have zero deficit as a 
country. And I think to think that we are going to have a 
deficit of zero in light of the demographics of our Nation 
right now, I just think is almost an unrealistic goal. And if 
you set an unrealistic goal, you can't achieve it, because 
people kind of give up before they start.
    I am just interested--maybe I will start with Mr. Cote, and 
go quickly down the line--if that is the right framing for us 
to be thinking about this question.
    Mr. Cote. I would have to run the math. Conceptually, what 
you said sounds interesting to me. My concern, though, would 
still be that we never forecast recessions.
    Mr. Delaney. Right.
    Mr. Cote. And as I understand it, CBO is actually asked not 
to forecast recessions.
    Mr. Delaney. Right.
    Mr. Cote. The thought that over the next 10 years there 
won't be another one and how bad might it be and what kind of 
firepower we need and what kind of hole does that dig for us, 
over the next 20 years with the demographic bubble really 
hitting us in the second decade, not this one, and the prospect 
of at least two recessions during that time, that needs to be 
factored into our consideration. And I am just fearful that it 
isn't.
    Mr. Delaney. Right. Ms. Rivlin?
    Ms. Rivlin. I agree with the general spirit of your remark, 
which is what matters is the ratio of the debt to the GDP. And, 
remember, we have run this experiment. After World War II, that 
is exactly what we did. We grew the economy faster than the 
debt. It was a big success.
    Mr. Delaney. But it seems to me, if we do what we all know 
we have to do--there is a screaming need in this country for us 
to reform the entitlement programs and the mandatory spending 
programs. We cannot get the debt as a percentage of GDP down to 
that kind of 1.5 percent level, unless we do that. And we need 
to do things, Mr. Cote, you spoke about, in terms of a 
competitiveness agenda.
    And whether the number is 2 percent, 2.5 percent, or 3 
percent economic growth, because you are right, 3 percent is 
good years, you get a couple of recessions along the way, it 
averages down to 2.5 percent, that math still works, if we can 
get 1.5 percent to 2.5 percent.
    Dr. Holtz-Eakin?
    Mr. Holtz-Eakin. I am just going to agree with what has 
been said. The key indicator is debt relative to GDP. Our goal 
should be to stabilize it as quickly as possible and then send 
it south. And the--
    Mr. Delaney. Where do you think across, say, the next 10 or 
20 years, the deficit as a percentage of GDP is a reasonable 
target for us?
    Mr. Holtz-Eakin. I wouldn't target the deficit. I would 
target the debt. Get the debt down, by either growing rapidly--
    Mr. Delaney. To what percentage of our economy?
    Mr. Holtz-Eakin. Get it back down to 30 percent, please, 
quickly.
    Mr. Delaney. You think the--
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Kentucky, Mr. 
Barr, for 5 minutes.
    Mr. Barr. Thank you, Mr. Chairman. And I appreciate my 
friend, the gentleman from Maryland's, comments and questions 
relating to competitiveness and relating to the screaming need 
for entitlement reform, as he suggested. I agree with him, and 
I appreciate his perspective.
    To the point of competitiveness, Dr. Rivlin, I have a 
question for you. I wanted to ask whether you believe that 
raising taxes is a solution from a competitiveness standpoint 
or whether raising taxes would be a self-defeating effort.
    And I would reference a couple of observations about this, 
one from former CBO Director Peter Orszag, who said that tax 
rates would have to be raised substantially to finance the 
level of spending that we are projected to pursue on the 
baseline. The tax rate for the lowest tax bracket would have to 
be increased from 10 percent to 25 percent. The tax rate on 
incomes in the current 25 percent bracket would have to be 
increased to 63 percent. And the tax rate of the highest 
bracket would have to be raised from 35 percent to 88 percent. 
And the top corporate income tax rate, which by the way is the 
highest in the world right now, would also have to increase 
from 35 percent to 88 percent.
    And then, also, a second observation--the Third Way 
Foundation, which is, I believe, a liberal-leaning think tank 
in a 2012 report indicated that relying on taxes alone to hold 
long-term deficits at 3 percent of GDP would require phasing in 
a 60 percent tax increase on median-income families, raising 
their annual tax burden $6,200 in 2012 dollars.
    So with that in mind, is raising taxes a sound deficit 
reduction strategy? Or would it compromise American 
competitiveness and be self-defeating as we look to reduce the 
deficit?
    Ms. Rivlin. I think all of us have agreed that we can't 
solve this problem by revenues alone or by spending alone or by 
growth alone. That is not controversial. And I am not 
personally in favor of raising tax rates at all. I think we can 
reform our Tax Code, and Chairman Camp has a good example of 
how to do this, by broadening the base, by getting rid of 
spending in the Tax Code or reducing it drastically, and that 
will allow us to lower the rate--
    Mr. Barr. Republicans often--
    Ms. Rivlin. --and get us more revenue in the bargain.
    Mr. Barr. Dr. Rivlin, Republicans often talk about tax 
relief and Democrats often talk about focusing on raising 
revenue. Are there tax cuts, are there tax relief proposals 
which would also produce the kind of growth that would raise 
revenue? And could you identify those for us?
    Ms. Rivlin. Yes, I think that the plan in Simpson-Bowles, 
and the plan in Domenici-Rivlin, which was even better, are 
examples of such an approach.
    Mr. Barr. Okay. And to Dr. Holtz-Eakin, Keynesians 
regularly and accurately, in my opinion, describe fiscal 
restraint as austerity. They criticize spending cuts as harmful 
to growth. Two questions. One, are the Keynesians right? Do 
spending cuts necessarily impair economic growth? And, two, are 
all spending cuts equal? And which spending reforms are the 
kind of reforms which would have less negative impact on the 
economy?
    Mr. Holtz-Eakin. I will take the second one first. Not all 
spending cuts are created equal. Some are truly investments, 
and we genuinely need better infrastructure programs in the 
United States. I was on a commission that recommended some. I 
would be happy to get you the report. Those are very 
different--cutting those is very different than cutting a 
transfer program. And so, that is point number one.
    And the spending cuts we need to worry about. The spending 
we need to focus on is where the money is, in the mandatory 
spending.
    Mr. Barr. Mandatory spending. Thank you. And for any of the 
panelists here, I wanted to ask you about the impact that the 
national debt could potentially have on our foreign policy 
decision-making in this country. In an article in Barron's last 
week on Russian holdings of U.S. Treasuries, an adviser to 
President Putin said that they hold a decent amount of Treasury 
bonds, U.S. Treasury bonds, more than $200 billion, and if the 
United States dares to freeze accounts of Russian businesses 
and citizens, they can no longer view America as a reliable 
partner, and they will encourage everybody to dump U.S. 
Treasury bonds, get rid of dollars in an unreliable currency, 
and leave the U.S. market.
    In evaluating possible responses to Putin, Putin's 
aggression in Ukraine, how much weight should be put on the 
fact that Russia owns a material amount of U.S. Treasuries?
    Mr. Holtz-Eakin. I don't think you should look at that 
incident in isolation. The point is that the United States is a 
reserve currency, which helps us in all aspects of our 
international affairs. The U.S. Treasuries are the foundation 
of the global financial system. And liquid Treasuries are 
important.
    Preserving that, the reserve currency and the liquid 
Treasury, means getting our fiscal house in order. If we do 
that, we negotiate in all circumstances from the high ground.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Fitzpatrick, for 5 minutes.
    Mr. Fitzpatrick. I thank the chairman for calling the 
hearing. Chairman Hensarling has really had a laser focus on 
the issue of the national debt since he took the chairmanship, 
which is really important, given the challenges in this town. 
And I agree that, when I came here in the class of 2010, there 
was an awful lot of focus on spending, debts, deficit, and the 
like, not so much anymore as issues sort of evolve around us, 
as Dr. Rivlin said in her opening comments.
    There is not as much attention today, although earlier this 
morning, the Peter G. Peterson Foundation issued a press 
release that says Americans remain troubled by the long-term 
fiscal outlook. Only 29 percent of Americans say the country is 
headed in the right direction in addressing our national debt, 
with 59 percent believing the country is heading in the wrong 
direction. It goes on to say that voters are deeply concerned 
about America's long-term fiscal challenges.
    And although I don't hear it as much as I used to, I still 
hear it when I go back into my district in Bucks County, 
Pennsylvania. Mr. Chairman, these letters have all been 
received in my office since January of this year. And they are 
all about the national debt. I would ask unanimous consent that 
they be submitted as part of the record, if I could.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Fitzpatrick. I appreciate that.
    The interesting thing about these letters is that every one 
of them was written by a teenager concerned about the national 
debt. Alex Frischmann of Newton, which is in Council Rock 
School District, a great school district in south-central Bucks 
County, wrote to me in February. He said, ``This enormous debt 
that our country is experiencing is depressing growth right 
now. For Americans, this means fewer jobs, lower incomes, and 
depressed behavior/attitude. I believe if our nation continues 
to go deeper into debt, unemployment rates will continue to 
increase, and businesses in our country will feel the 
effects.''
    Tia Farese, in January, wrote that, ``I am worried because 
interest costs on debt takes away from the United States 
Government spending on important programs like education. I am 
especially worried about how increasing the national debt will 
affect future generations, including mine, because we will be 
paying off the debt and the interest for the spending by others 
today. I believe forcing future generations to pay for debt 
created today is not fair, because we were not the ones to 
cause our country to go into debt.''
    And we have had a great discussion here today in the 
hearing about debt-to-GDP and ratios and baselines. But there 
is a whole moral question, as well, that all of us need to 
address and need to think about as we go about making the 
important decisions.
    And I would ask each of you, if you would, if Alex were 
here or Tia were here, what would you say to them about the 
future of their country?
    Mr. Cote. I would say their letters are right on the money, 
and I wish they would write to all the other teenagers in the 
country to do the same thing, because they are absolutely 
right. They are the ones who are going to be the most affected 
by this and the ones who are going to inherit all the problems 
that we are creating.
    Mr. Fitzpatrick. Dr. Rivlin?
    Ms. Rivlin. I agree. And I do think it is a moral issue. 
But it isn't a simple issue. We really have to work through 
this problem in a bipartisan way.
    Mr. Holtz-Eakin. I am deeply concerned that we will default 
on the traditional commitment to leave behind an economy that 
is larger and stronger and a Nation that is more secure, 
because we will not take care of these problems. And I think 
that is a tremendous immorality visited on future generations.
    Mr. Bernstein. I hope that they maintain that level of 
insight as they grow up. Those are some very precocious 
constituents you have there.
    Mr. Fitzpatrick. Elyse McMenamin suggests removing baseline 
budgeting from annual Federal budgets permanently. The theory 
is that you just--you start with a baseline, and you increase 
each and every year. Any thoughts on removing baseline 
budgeting? Dr. Bernstein?
    Mr. Bernstein. I think baselines are--we have a couple of 
former CBO Directors up here. I think it has become incredibly 
confusing. There are numerous baselines, and I think the 
average person, even if they wanted to, would have a very hard 
time making sense of this, so somehow we have to do a better 
job of explaining it.
    Sometimes I think it would be good if we occasionally 
thought about zero-based budgeting, where we actually built the 
budget from the ground up and looked at every piece of it with 
a more careful eye.
    Mr. Fitzpatrick. Dr. Eakin?
    Mr. Holtz-Eakin. I am not a big fan of zero-based 
budgeting, because realistically that is almost impossible to 
do. There are lots of improvements that can be made to the 
baseline budgeting, so build a better baseline. Don't throw it 
out.
    Ms. Rivlin. I agree with that. You have to start from where 
you are, and you need to know where you are.
    Mr. Fitzpatrick. I yield back. Thank you.
    Chairman Hensarling. The time of the gentleman has expired. 
There are no other Members in the queue.
    I would like to thank our witnesses for their testimony 
today. And the Chair would note, notwithstanding the compelling 
nature of the testimony, the national debt clock increased 
roughly $385 million during your testimony.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing stands adjourned.
    [Whereupon, at 12:53 p.m., the hearing was adjourned.]
    
    
    
    
    
    
                            A P P E N D I X



                             March 25, 2014


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