[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
THE FEDERAL GOVERNMENT ON AUTOPILOT:
MANDATORY SPENDING AND THE
ENTITLEMENT CRISIS
=======================================================================
HEARING
BEFORE THE
EXECUTIVE OVERREACH TASK FORCE
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
JULY 6, 2016
__________
Serial No. 114-81
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://judiciary.house.gov
___________
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
LAMAR S. SMITH, Texas ZOE LOFGREN, California
STEVE CHABOT, Ohio SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa Georgia
TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas JUDY CHU, California
JIM JORDAN, Ohio TED DEUTCH, Florida
TED POE, Texas LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia SCOTT PETERS, California
RON DeSANTIS, Florida
MIMI WALTERS, California
KEN BUCK, Colorado
JOHN RATCLIFFE, Texas
DAVE TROTT, Michigan
MIKE BISHOP, Michigan
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Executive Overreach Task Force
STEVE KING, Iowa, Chairman
F. JAMES SENSENBRENNER, Jr., STEVE COHEN, Tennessee
Wisconsin JERROLD NADLER, New York
DARRELL E. ISSA, California ZOE LOFGREN, California
LOUIE GOHMERT, Texas SHEILA JACKSON LEE, Texas
JIM JORDAN, Ohio HENRY C. ``HANK'' JOHNSON, Jr.,
TED POE, Texas Georgia
JASON CHAFFETZ, Utah JUDY CHU, California
TREY GOWDY, South Carolina TED DEUTCH, Florida
RAUL LABRADOR, Idaho CEDRIC RICHMOND, Louisiana
RON DeSANTIS, Florida SCOTT PETERS, California
KEN BUCK, Colorado
MIKE BISHOP, Michigan
Paul B. Taylor, Chief Counsel
James J. Park, Minority Counsel
C O N T E N T S
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JULY 6, 2016
Page
OPENING STATEMENTS
The Honorable Steve King, a Representative in Congress from the
State of Iowa, and Chairman, Executive Overreach Task Force.... 1
The Honorable Steve Cohen, a Representative in Congress from the
State of Tennessee, and Ranking Member, Executive Overreach
Task Force..................................................... 2
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Committee on the Judiciary 4
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 5
WITNESSES
C. Eugene Steuerle, Richard B. Fisher Chair & Institute Fellow,
The Urban Institute
Oral Testimony................................................. 7
Prepared Statement............................................. 10
Scott Lilly, Senior Fellow, Center for American Progress
Oral Testimony................................................. 20
Prepared Statement............................................. 22
Nicholas Eberstadt, Henry Wendt Chair in Political Economy,
American Enterprise Institute
Oral Testimony................................................. 30
Prepared Statement............................................. 32
THE FEDERAL GOVERNMENT ON AUTOPILOT: MANDATORY SPENDING AND THE
ENTITLEMENT CRISIS
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WEDNESDAY, JULY 6, 2016
House of Representatives
Executive Overreach Task Force
Committee on the Judiciary
Washington, DC.
The Task Force met, pursuant to call, at 1 p.m., in Room
210, Cannon House Office Building, the Honorable Steve King
(Chairman of the Task Force) presiding.
Present: Representatives King, Goodlatte, Gohmert,
Labrador, DeSantis, Buck, Bishop, Cohen, Conyers, and Lofgren.
Staff Present: (Majority) Paul Taylor, Chief Counsel;
Tricia White, Clerk; Zachary Somers, Parliamentarian & General
Counsel, Committee on the Judiciary; (Minority) James J. Park,
Minority Counsel; Veronica Eligan, Professional Staff Member.
Mr. King. The Executive Overreach Task Force will come to
order, and without objection, the Chair is authorized to
declare recesses of the Task Force at any time. And I will
recognize myself for an opening statement.
Today's hearing of the Task Force on Executive Overreach
will focus on mandatory spending at the Federal level, and the
resulting entitlement crisis. Federal spending is
characterized, excuse me, categorized as either discretionary
or mandatory spending.
Under discretionary spending, the President and Congress
decide each year which programs to fund, and how much. To do
so, they are supposed to enact 12 appropriations bills that
fund the defense budget, and a wide range of domestic programs.
Some programs are continued, some programs are created, and
some programs, less often, are ended.
But under mandatory spending, the President and Congress
create programs, mostly so-called entitlement programs, that
continue automatically from year to year. That is unless
Congress enacts laws in later years to change them.
These entitlements have increasingly dominated Federal
spending, and they grow automatically forever, by annually
providing more generous benefits to more eligible people. As
Urban Institute scholar Eugene Steuerle has written, ``to top
it off,'' and this is a quote, ``to top it off, these automatic
growth rates, particularly in retirement and health programs,
were sometimes set at levels above the growth rate, in people's
private incomes and the economy itself. Eventually, the
prospect of new and growing future deficits arises even in the
absence of any new congressional action.''
This trend is accelerating as ever more years of taxpayer
support are required as people live longer, and as there has
come to be fewer taxpayers relative to the beneficiaries, as
birthrates have fallen.
As Mr. Steuerle has summarized, ``Where policymakers of the
past could achieve budget balance simply by enacting few or no
increases in discretionary spending for a while, or in a few
cases, mainly after war, cutting discretionary spending, such a
strategy would prove futile in today's fiscal context.
``Now the reverse is true. Built-in growth in spending will
exceed the growth in revenue forever, or until the economy
collapses. Eventually, with revenues completely allotted to
finance fast-growing entitlements, Congress will have to
finance any dollar of discretionary spending by borrowing,
often from abroad.''
Recent experience in advanced economies indicates that
countries with debt above 80 percent of gross domestic product
and persistent deficits are vulnerable to doubts by lenders,
which lead to higher interest rates, which in turn make our
fiscal situation much worse by requiring us to devote an even
larger share of Federal revenues to paying for the interest on
our debt.
That is an unsustainable situation. Mandatory entitlements
continue to grow larger with the volume of current
beneficiaries, making the debt burden larger and larger as our
future generations grow smaller and smaller.
As researchers at the Urban Institute have concluded, ``If
current trends for younger generations are not reversed, within
a few decades they may become more dependent than older
generations of Americans today, especially in retirement, upon
safety net programs less capable of providing basic support.''
I look forward to hearing from all our witnesses today, and
discussing ways in which we might step away from the abyss that
has been growing steadily at our feet for decades. That abyss
cannot grow forever without opening under the feet of future
generations, and swallowing their futures and opportunities.
I would conclude my statement, and now recognize the
Ranking Member from Tennessee for his opening statement, Mr.
Cohen.
Mr. Cohen. Thank you, Mr. King, and I welcome the
witnesses. It has been clear, since the first hearing of this
Task Force, that my colleagues in the majority have attempted
to turn into constitutional issues what are essentially policy
disputes between the parties.
Indeed, at the first hearing, one of the majority witnesses
suggested the Constitution may require Congress to cut funding
for Social Security, Medicare and Medicaid. So it is not
surprising that today's hearing about mandatory spending and
the so-called ``entitlement crisis,'' is really about making
the argument to cut Social Security, Medicare and Medicaid,
three of the most important and most politically popular
entitlement programs, which conservatives are denied the votes
or political support to undermine outright.
These three programs constitute a majority of all Federal
spending, and by far the largest portion of mandatory spending.
And so when we talk about mandatory spending, we are talking
about these programs. And if there is a problem with the
finances of these programs, I would submit you can raise the
cap on Social Security and Medicaid to get sufficient funding,
not to take away from the people who need these programs,
perfectly within Congress' constitutional powers to constitute
power of the purse to pass mandatory spending measures that
avoid the annual appropriations process.
Doing so as a policy choice, one which Congress may be free
to revisit on its merits, but not one that is unconstitutional.
And the prior Congresses that enacted Social Security, Medicare
and Medicaid made the right choice in making funding mandatory
for those programs.
In the 81 years since President Roosevelt, Franklin
Roosevelt, signed the Social Security Act into law, Social
Security has remained one of the Nation's most successful and
effective programs, one that provides a basis for retirement
for our seniors, and social insurance for workers who have
become disabled, or for their survivors in the event of their
deaths.
According to the Center for Budget and Policy Priorities,
60 million Americans, or more than 1 in 6, received Social
Security benefits in June of 2015. And without Social Security,
almost half of Americans age 65 and older would be living well
below the poverty line. Thanks to Social Security, less than 10
percent currently do.
Social Security is a particularly important source of
income for members of minority groups, who are
disproportionally likely to have low incomes and less ability
to save for retirement. For instance, 46 percent of African-
Americans age 65 and older relied on Social Security for 90
percent or more of their income, compared to 35 percent of
Whites.
This disparate impact shows that regardless of the intent--
and I know there is no intent on the part of the people that
proposed this--it is de facto racial in nature, and
discriminatory.
According to the Center for Medicare and Medicaid Services,
Medicare provided health insurance and other benefits to 54
million Americans in 2014, and the average monthly enrollment
for Medicaid in the Children's Health Insurance Program was 64
million in 2014, including 29 and a half million children.
Other programs that mandatory spending provisions include
SNAP, the Nation's foremost anti-hunger program, which in 2015
helped 43 million low-income Americans afford food, including
the 15 million children who are food-insecure and living below
the poverty line. That is one in five children in the richest
country on earth.
These programs represent our Nation's most basic commitment
to supporting our elders, and of protecting our most vulnerable
fellow citizens. And mandatory spending programs are vital to
ensuring the poor, the sick and the elderly are not sentenced
to a life of desperation and constant insecurity over essential
life necessities like food and healthcare.
While we are spending limited time and resources on a
budgetary policy dispute, calling it a constitutional issue, we
should really be addressing programs, pressing programs, that
have been ignored, like reinvigorating the Voting Rights Act,
criminal justice reform, and stopping the scourge of gun
violence. These are issues that need addressing that are
important.
And I would submit again, this past week we lost a great
hero in Eli Wiesel, a great man on the face of the earth, and
he talked about the fact that if you are dealing with an
issue--and he was talking about, I guess, physical violence,
but he said, ``If you do not take a position, if you do not
take a stand, you stand with the oppressor, and not with the
victim. And neutrality does not work, because neutrality
benefits only the oppressor and not the victim.''
In these situations where you are taking funding from
people who are poor, and otherwise would not have the money and
the means to have food or healthcare, and particularly to
African-Americans who grew up, many of them, in either a pre-
Brown, a Jim Crow world, or just the beginning of the change,
which was not enough to give them the opportunities for access
to moneys or to jobs that could give them good retirements, you
are talking about discriminating against the vulnerable, and
you are taking the role of helping the oppressor.
That is something we should never do, and that is why I am
pleased to be a Member of Congress and fight for those people
that need to be represented, and suggest that we, instead of
looking at these issues, we should be looking at raising the
cap, and having those that can afford pay a little more to take
care of those who cannot.
I thank our witnesses for their testimony, and I look
forward to the rest of the hearing. I yield back the balance of
my time.
Mr. King. I thank the Ranking Member from Tennessee for his
opening statement, and now recognize the Chairman of the full
Committee, Mr. Goodlatte from Virginia, for his opening
statement.
Mr. Goodlatte. Thank you, Chairman King, for convening this
sixth hearing of the Task Force on Executive Overreach, this
one focusing on the mandatory Federal spending that risks
stripping current and future generations of so many of the
opportunities previous generations enjoyed.
Federal spending as a percent of gross domestic product,
broken down by category, shows that entitlement spending has
grown the fastest, and now consumes the largest percentage of
our GDP. In the past, U.S. public debt as a percentage of gross
domestic product generally rose as a result of having to
conduct wars of a limited duration. When those wars were over,
the debt was gradually paid off.
More recently, however, public debt has risen as a result
not of wars, but of having to pay for entitlement programs that
are of indefinite duration, and difficult to reduce over time.
Total discretionary spending as a percentage of our economy has
gone down. Defense spending as a percentage of our economy has
gone down. Other non-defense discretionary spending has also
gone down.
What is increasingly going up is total mandatory spending
as a percentage of our economy, such that mandatory spending
now dominates the Federal budget. Making matters even worse,
the deficit spending it causes will lead to ballooning interest
payments in the years to come, as interest rates reach normal,
that is, higher levels.
By 2026, it is predicted that so much of the Federal budget
will be devoted to mandatory entitlement spending that just a
sliver of incoming annual revenue will be left to pay for
everything the Federal Government does other than mandatory
entitlement spending, such as paying for national defense, our
Federal courts, Federal policing, natural disasters, basic
research and everything else.
Federal tax rates are already steeply progressive, and the
pool of people in the labor market from whom taxes can be drawn
is shrinking as fewer and fewer people report even looking for
work. At the same time, older generations receive more in
public benefits than they pay in taxes. And so future
generations will have to pay much more in taxes to cover both
the public benefits costs to themselves, and the costs incurred
by all who came before them.
As fewer younger people must pay more to support the
benefits for larger older generations, younger people are less
able to afford children of their own, and so are having fewer
children. And the situation worsens going forward in a perverse
ripple effect.
Indeed, a 2013 cross-national study looked at measures such
as public debt per child, the ratio of childhood to elderly
poverty, and the skew toward older generations in social
spending. The study found that the United States ranked worst,
dead last, among 29 advanced countries in the degree to which
it imposes disproportionately large burdens on future
generations.
As University of Virginia philosophy professor Loren
Lomasky has written, theorists have devoted considerable
attention to injustices committed across lines of race and
gender. Far less attended are concerns of intergenerational
fairness. That omission is serious. Measures that have done
very well by baby boomers are much less generous to their
children, and worse still for their grandchildren.
The single greatest unsolved problem of justice in the
developed world today is transgenerational plunder. That is
grossly unfair to our young Americans, and to the wellbeing of
our pluralistic society as a whole.
I believe the only way to ensure Congress acts with fiscal
restraint over the long term is to pass a balanced budget
amendment to the Constitution. Back in 1995, when a balanced
budget amendment came within one vote of passing, the gross
Federal debt stood at $4.9 trillion. Today, it stands at over
$19 trillion. This experience has proven time and again that
Congress cannot, for any significant length of time, rein in
excessive spending, but two-thirds of each house of Congress
has yet to come to really appreciate that history and this
looming fiscal crisis. I look forward to hearing from all of
our witnesses today, and examining solutions for bringing our
fiscal house in order. Thank you, Mr. Chairman. I yield back.
Mr. King. I thank the Chairman for his opening statement,
and I now recognize the Ranking Member of the full Committee,
the venerable gentleman from Detroit, Mr. Conyers.
Mr. Conyers. Thank you very much, Chairman King. And I too
join in particularly welcoming Scott Lilly, as well as Mr.
Steuerle and Mr. Eberstadt. Members of the Committee, this is a
continuation of a decades-old line of attack by conservatives
on America's longstanding commitments to aid the elderly and
the poor, and I am not sympathetic with that point of view, and
it is a legitimate one that even rational people can hold or
claim is an important consideration.
Now, there are a couple things that we want to keep in mind
before the testimony of our witnesses comes forward. The first
is that mandatory spending and stopping the entitlement crisis
are really intended to slash programs such as Social Security,
Medicare, and even parts of Medicaid. These are the programs
that comprise the great majority of mandatory spending in the
Federal budget.
According to the Congressional Budget Office, Medicare and
Medicaid alone made up 40 percent of all mandatory spending in
the last fiscal year. And Social Security, Medicare and the
Federal share of Medicaid, the largest mandatory spending
programs, comprised a little bit over 50 percent of all Federal
spending. The budget deficit and the future solvency of the
trusts that fund Social Security and Medicare are important
issues in this discussion that merit close consideration.
But instead of putting forth a proposal that would help
raise revenue, there are friends of mine on this Committee, in
the majority, who propose to fund all these and other social
safety net programs through the annual appropriations process,
a process that often becomes mired in partisan division.
And so while they may protest that they would leave Social
Security and Medicare alone, keep in mind that other important
social safety net programs, such as food stamps, better known
as SNAP, Temporary Assistance for Needy Families, better known
as TANF, only account for 10 percent of the mandatory spending.
So if the majority's plan for reducing the Federal deficit
relies on cuts alone, you cannot do so simply by cutting
funding for these important social safety net programs through
the appropriations process. It cannot be done.
Subjecting Social Security, Medicare and Medicaid
recipients to an annual appropriations process threatens to
harm the basic economic well-being of seniors and working
people in need. And if you do not believe me, hold a hearing in
your congressional district, and let people know what you have
in mind, and I think I can fairly easily predict what the
result would be.
According to the Center on Budget and Policy Priorities,
without any government income assistance, from safety net
programs like Social Security, the Nation's poverty rate would
almost have doubled in the year 2014. And so I am comparing
some of these figures with what my colleague from Tennessee,
Mr. Cohen, has already promoted with great skill, and so I will
cut this very short.
Imagine the harm it would do to the most vulnerable members
of our society if the funding for these programs were held
hostage to yearly budget negotiations, or benefits were
withheld because of a government shutdown, which, as we know,
has occurred before. Unfortunately, this scenario is entirely
possible, maybe even probable.
And so lastly, mandatory spending provisions are not a
historical accident, where Congress gave away too much power to
the executive. Rather, they more nobly reflect the Congress'
commitment to the American people; to care for the elderly
after a lifetime of considerably hard work, and to aid the
working poor. Mandatory spending for programs like Social
Security and Medicare is simply based on the need to ensure
stability in these and other vital programs, so that the most
vulnerable in our society can be assured of minimum income
standards to meet their basic human needs.
And so proposing to subject these programs to an annual
appropriations process cannot be a very humane or charitable
strategy. It may be accidental or inadvertent to denigrate the
working poor and the elderly as undeservers, undeserving
takers, something which I would love to discuss further. But I
welcome the witnesses, I thank the Chairman, and I look forward
to the discussion today. Thank you, Mr. King.
Mr. King. Resisting the temptation to engage in debate, I
thank the gentleman from Michigan. Without objection, other
Members' opening statements will be made a part of the record.
And let me now introduce our witnesses. Our first witness
is Eugene Steuerle, Institute fellow and Richard B. Fisher
Chair at the Urban Institute; our second witness is Mr. Scott
Lilly, senior fellow at the Center for American Progress; and
our third witness is Nicholas Eberstadt, the Henry Wendt
scholar in political economy at the American Enterprise
Institute.
We welcome you all here today, and look forward to your
testimony. Each of the witnesses' written statements will be
entered into the record in its entirety. I ask that each
witness summarize his testimony in 5 minutes or less. To help
you stay within that timeframe, there is a light in front of
you. The light will switch from green to yellow, indicating you
have 1 minute to conclude your testimony. When the light turns
red, it indicates the witness' 5 minutes have expired, and we
appreciate you just working to that direction.
Before I recognize the witnesses, it is the tradition of
the Task Force that they be sworn in. So, to the witnesses,
please stand to be sworn. Raise your right hand.
Do you solemnly swear that the testimony that you are about
to give will be the truth, the whole truth, and nothing but the
truth, so help you God? You may be seated. Let the record
reflect that the witnesses have all answered in the
affirmative.
And now I recognize our first witness, Mr. Steuerle, for
his 5 minutes of testimony. Please turn on the microphone, Mr.
Steuerle.
TESTIMONY OF C. EUGENE STEUERLE, RICHARD B. FISHER CHAIR &
INSTITUTE FELLOW, THE URBAN INSTITUTE
Mr. Steuerle. Mr. Chairman, Mr. Cohen, Members of the Task
Force, thank you for the opportunity to testify before you
today. The views expressed are my own, and should not be
attributed to the Urban Institute, its trustees or funders.
Let me begin by noting that we live at a time of
extraordinary possibility, but you would not believe it by
looking at the headlines. We have never been so rich, despite
going through a recent Great Recession, and even though many
needs remain unaddressed, and many do not share in that growth.
Yet partly because we are ruled over by dead men, and yes,
they were men, we stand with our backs to an ocean of
possibilities that lay at our feet. I try to show this by two
means. First, a decline in what I call fiscal democracy--that
is, the discretion left to current voters and policy makers to
determine how government should evolve. This index, which is
shown on the screen above you, measures how much of our current
revenues are pre-committed to programs that require no vote by
Congress, or in technical terms, to mandatory spending
programs.
This index, I should point out, is politically neutral.
Fiscal democracy is reduced both through increases in mandatory
spending, and reductions in taxes. By this measure, in 2009,
for the first time in U.S. history, every dollar of revenue was
pre-committed before the new Congress walked through the doors
of the Capitol.
The second piece of evidence, which I will elaborate on
more in my testimony, comes from simply comparing two budgets.
First, a traditional budget, such as prevailed over most of
this Nation's history, where spending is largely discretionary,
and second, a modern budget, where growth in spending and tax
subsidies are committed to rise automatically faster than
revenues.
Congress and the President end up in a never-ending game of
whack-a-mole, or should I say, whack-some-dough. No wonder
there are still budget problems after deficit-reducing actions
in 1982, 1983, 1984, 1987, 1990, 1993, 1997, 2005, 2011, 2013,
2015, among others.
Consider the consequences. It is not just the economic
problems of rising debt, and the inability to respond
adequately to the next recession; and the people who will be
hurt in that recession or the next emergency.
It is also the political requirement imposed upon you, as
legislators, to renege on promises to the public for both
spending increases and low taxes, and in facing their wrath in
the elections. Yet through the inability to work together, both
parties lose their agendas, getting government that is both fat
and ineffective at meeting public needs.
For example, out of a scheduled increase of close to
$12,000 annually per household in additional spending and tax
subsidies by 2026, almost nothing goes to programs that
encourage the development of earnings, wealth, human and social
capital. And kids get essentially nothing, nothing.
Restoring democracy requires nothing more or less than
restoring greater discretion to the budget. That is easy to say
economically, it is hard to say politically. Democrats must be
willing to limit the share of spending that grows
automatically.
And Republicans must do likewise for tax subsidies, while
agreeing to collect enough revenues to pay our bills. And both
the President and Congress need to be held responsible for all
changes in the budget, whether newly-enacted or passively
allowed to continue. Restoring discretion does not simply mean
paring program growth, or raising taxes, but opening the door
to modernizing programs to better meet public needs, including,
as I elaborate again in my testimony, on providing greater
opportunity for all.
I am not naive about the difficulty of reversing a
multidecade decline in fiscal democracy. Yet until we restore
greater discretion to the budget, the frustration and anger
exhibited and shown to political parties by the public here and
around the developed world will continue, deriving in no small
part from a budget process that has shifted national debates
from what we can do to what we cannot do. That is, from letting
dead men rule. Thank you.
[The prepared statement of Mr. Steuerle follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
______________
Mr. King. Thank you, Mr. Steuerle. The Chair now recognizes
Mr. Lilly for his testimony. Mr. Lilly?
TESTIMONY OF SCOTT LILLY, SENIOR FELLOW,
CENTER FOR AMERICAN PROGRESS
Mr. Lilly. Thank you, Mr. Chairman, Ranking Member Cohen,
Chairman Conyers. I think it is striking that the three of us
largely agree on one essential element here, and that is that
the Federal debt, the growth of Federal spending, is driven
entirely by entitlements.
I think it is important to go beyond that, and look at the
entitlements that are driving the debt. And those entitlements
are Social Security, Medicare, and Medicaid. Those, if you look
at real per capita growth of Federal spending over the last 30
years, those three programs by themselves accounted for more
than 100 percent of the growth. In other words, the rest of the
government shrank.
So all of the vitriol about the bureaucracy being out of
control, about the growth of the Federal Government, so forth
and so on, is basically false. The government as we think of
it--the 15 departments and all of the independent agencies--has
actually shrunk in size if you measure it by real per capita
spending.
What has changed is the amount of money that we send out to
individuals across the country. And that has gotten very
expensive, because we have--in the past, we had about half a
million people a year reaching retirement age. Today we have a
million and a half people a year reaching retirement age, and
so it is a lot more expensive to take care of.
Where I think I may disagree with my colleagues, at least
to some extent, is what do we do about that problem? CBO
estimates that Federal expenditures are going to rise from 19
or 20 percent of GDP, which they have been historically, to
around 24 percent of GDP, as the progression of retirement
increases. I think that is a reality that we all have to,
regardless of our views of entitlement programs or the benefits
of them, we need to face that reality. I do not think this
country is ready to do the things that some people advocate,
particularly the placement of Social Security benefits under
the appropriations process.
The average monthly benefit under Social Security for a
retired worker is $1,350. More than $350 of that amount goes to
out-of-pocket medical expenses. So if you believe that somebody
can live well on less than a thousand dollars a year for all
other expenses other than medical care, than this proposal
works fine. If you think that that is not enough, and the vast
majority of Americans, according to polling, think that it is
not enough, then you have to come up with some combination of
entitlement reform and tax increases. I think a large portion
of it is going to have to come from tax increases, because I do
not think either the elderly are willing to live on less, nor
are their children willing to pay more for their retirement
costs.
As a result, this country would have to increase revenues
substantially, but it is not out of the line. In fact, we would
still be one of the lowest-taxed Nations in the world if we
paid the cost of those retirement benefits. So I would like to
expand on that in the question period, but I think we need to
understand the problem, and I think this hearing is a good
thing for helping people understand what the problem is. But we
also have to think about the consequences of various
alternatives of dealing with it.
[The prepared statement of Mr. Lilly follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
_____________
Mr. King. Thank you for your testimony, Mr. Lilly, and the
Chair now recognizes Mr. Eberstadt for his testimony.
TESTIMONY OF NICHOLAS EBERSTADT, HENRY WENDT CHAIR IN POLITICAL
ECONOMY, AMERICAN ENTERPRISE INSTITUTE
Mr. Eberstadt. Mr. Chairman, distinguished Members, co-
panelists and guests, it is an honor to be here today. May I
ask you to put up my first slide, please?
[Slide shown.]
Mr. Eberstadt. Over the past half-century, American
politics, American governance and the American way of life
itself have been transformed by the growth of public
expenditures on social entitlement programs. In just----
Mr. King. Mr. Eberstadt, could you move the microphone a
little closer? Thank you.
Mr. Eberstadt. In just two generations, the government of
the United States has effectively become an entitlements
machine. As a day-to-day operation, the U.S. government devotes
more attention and resources to the public transfer of money,
goods and services to individual citizens than to any other
purpose, and the Federal Government more to these ends than to
all other purposes combined. Over these same years, entitlement
transfers have become a major component of the family budget of
the average American household, and our dependence on these
government transfers continues to rise.
The first law of social policy is that government programs
come not only with intended consequences, but with unintended
ones as well. Fifty years into our great social experiment of
expansion of entitlement programs, there is ample evidence to
indicate that the unintended consequences of this
reconfiguration have been major, and adverse. Why do we not go
on to that? Until about 1965, the accepted purpose of the
Federal Government, in keeping with its constitutional charge,
was governing.
The Federal Government spending patterns reflected that
mandate. The overwhelming share of Federal expenditures was
allocated to defending the republic against its enemies foreign
and domestic, and some limited public services and
infrastructural investments.
In fiscal year 1965, according to OMB, Federal entitlement
programs expended about 28 percent of the Federal Government's
total outlays. By FY 2015, entitlement programs reportedly
accounted for fully 72 percent of Federal Government total
expenditures.
Thus in a very real sense, American governance has
literally been turned upside down by entitlements, within our
lifetimes. A half-century of extraordinary expansion of
entitlement outlays has completely inverted the priority,
structure and functions of the Federal administration, as these
had been understood by all previous generations of Americans.
May I ask for the next slide, please?
[Slide shown.]
Mr. Eberstadt. And the one after that.
[Slide shown.]
Mr. Eberstadt. The explosive growth of entitlement outlays
was accompanied by a corresponding surge in the number of
Americans who had routinely applied for and accept government
benefits. Despite episodic attempts to limit the growth of the
welfare state, or occasional assurances that the era of big
government was over, the pool of entitlement beneficiaries
apparently has grown continuously.
Can we go to the next one, please?
[Slide shown.]
Mr. Eberstadt. This may be a little bit difficult to see.
Between 1983 and 2012, the percentage of Americans
participating in entitlement programs jumped by nearly 20
percentage points. Less than one-fifth of that 20 percentage-
point jump can be attributed to increased reliance on the two
old age programs--Medicare and Social Security.
Overwhelmingly, the growth in claimants has stemmed from an
extraordinary rise in means-tested entitlements. All told, more
than 35 percent of Americans were taking home at least some
benefit from a means-tested program by 2012, nearly twice the
share in 1983.
America today is almost certainly the richest society in
history, at any time, and it is also certainly more prosperous
and productive now than it was three decades ago. Yet
paradoxically, our government behaves as if Americans have
never been more needy.
Until and unless some sort of forcing financial crisis
suddenly restricts the resources available to it, continued
growth of the entitlement state looks very likely in the years
immediately ahead. And at this writing, I myself see no such
forcing crisis on the horizon. If that prognosis is correct, we
may expect the inadvertent consequences, to which I detail in
my prepared statement the rise of our entitlement state, to
become still more acute in the coming years. Thank you very
much.
[The prepared statement of Mr. Eberstadt follows:]*
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*Note: Supplemental material submitted with this statement is not
printed in this hearing record but is on file with the Task Force, and
can also be accessed at:
http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=105155
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
_____________
Mr. King. Thank you, Mr. Eberstadt, for your testimony, and
all the witnesses. I now recognize myself for 5 minutes. And I
would turn first to you, Mr. Eberstadt, and ask if you could
expand a little bit on a point that is in your written
testimony regarding male flight from work. What is this social
dynamic that is brought about, I think by your assertion at
least, because of the entitlement programs?
Mr. Eberstadt. Well, for over the postwar period, from
1948, when we started to collect detailed monthly employment
statistics, to the present, we have seen a dramatic decrease in
the proportion of prime age males--that is the Labor
Department's designation of men 25 to 54 years of age--who are
either working or unemployed and seeking work, which is to say,
in the labor force.
We have seen a growing proportion of men who are neither
working, nor looking for work. Most recent estimates by the
Labor Department are that almost 12 percent of men in this
prime group are neither working nor looking for work. When I
was a kid, back in 1965, the corresponding figure was about 3
percent, about a quarter of that.
Exactly why there has been this tremendous flight from work
is I think a very important and complex question. But certainly
this has coincided with the rise of various entitlement
availability programs. That does not prove causation.
Correlation does not prove causation. But certainly the rise of
these programs has helped to facilitate and to finance this
exit from the labor force.
Mr. King. Mr. Eberstadt, would you agree that it looks like
there is an incentive in the entitlement programs, though, that
discourage work, and that is a component in the data that you
have seen?
Mr. Eberstadt. This is one of the unintended consequences
of social policy to which I mentioned, yes.
Mr. King. I want to pose a question off of that. And that
is, and I have watched different places around the world as, it
looks like a group of people loses its work ethic over time.
And some of it has to do with the welfare programs, some of it
is just loss of opportunity, subtle and not producing in the
economy. Can you think of any examples where that work ethic
that has been inter-generationally diminished has been
reconstituted again back to the former work ethic?
Mr. Eberstadt. I think this has happened historically on a
number of occasions. If we look at the history of Victorian
England, for example, I think we saw a reinvigoration of work
ethic at various points and times. It has usually been
associated in other societies, like in England or Britain, with
a religious revival. I do not think that government is a very
effective instrument for engineering religious revivals, and I
hope government does not try to do that.
Mr. King. So probably the Protestant work ethic would be
some of that, and I recognize that. For now, I think you, and I
turn to Mr. Steuerle. And one of the things that you mentioned
was that we have never been so rich. I would assert we are the
richest country in the history of the world, and yet we cannot
sustain ourselves in real time, even when we are not in a
national security crisis mode. Can you enlighten us as to what
happens if we continue down this path? Where is the cliff, and
what does it look like?
Mr. Steuerle. I am not sure where the cliff is. I do know
that the increasing debt that we have as an economy decreases
our ability to react to different issues. I mentioned in my
testimony and elsewhere that our ability to react to the next
recession, or the next emergency, is much less. Even if we do
not actually fall off the cliff, we are still very tentative in
doing other things.
I would also point out, and I pointed this out through all
sorts of examples--I can give you more--the extraordinary
extent to which the growth in government is scheduled for
things that, generally speaking, I do not think either party
thinks is best.
So it may be Republicans do not want to have so much
growth, and it may be Democrats would rather the growth go
toward children, but the compromise is not there. I mentioned
we are spending nothing additional on children, on programs for
what I call human and social capital development. We are not
spending wisely. And I think all of this is really a budget for
a declining economy.
Mr. King. Thank you, and then, Mr. Lilly, in your vision
into the future, if we continue down this path with this debt
load we have, or we adjust it with tax increases to make some
accommodations to that, is there a limit to what we can
sustain? Can we always raise taxes to get it back to I think
something resembling balance? Or is there a cliff for us? Is
our borrowing capacity getting limited, and if so is it a
percentage of GDP? How do you envision this thing getting out
of hand, because I know you are concerned about it?
Mr. Lilly. I mean, we are at 85 percent or 80 percent of--
our debt is 80 to 85 percent of GDP. I think that is way too
high. I want to see a fiscal policy that brings that debt back
down to below 50 percent. In 1974, we were at 24 percent. I
mean, that is a reasonable goal.
We have an unusual situation because of demography and the
huge number of people that were born after World War II. And I
think we have to recognize that, and we have to recognize that
we are going to have to raise more taxes in order to pay for
it. But that still leaves us at the very low end of
industrialized countries in terms of taxes. There are countries
that have been growing much faster than we have, that have tax
as a percentage of GDP that is nearly twice the level that we
have.
Mr. King. Would putting a much higher percentage of our
people to work, would be part of your solution?
Mr. Lilly. Absolutely, absolutely. I would like to say,
though, if I could, I think it is a great disservice to say
that welfare payments to working-age men has anything to do
with this entitlement program. That is a tiny, tiny share of
entitlement spending.
Mr. King. We will give you the last word on that, Mr.
Lilly. And now I yield back the balance of my time, and
recognize the gentleman from Tennessee, the Ranking Member, for
his questioning.
Mr. Cohen. Thank you, Mr. King. I find this terribly
disturbing that we are even talking about it. And I appreciate,
Mr. Steuerle, your statement--you understood and made clear
that it is both incomes as well as spending, and it could go
either way. You are interested in a neutral area.
So you agree that if we raise the cap on Social Security,
which is 1,185, and raise it considerably, we could bring
revenues that would take care of this problem or take care of
it to some extent. Is that not correct?
Mr. Steuerle. I have to give sort of a qualified answer.
Yes, as part of a compromise, I would actually agree to an
increase in this cap, partly because it has been lowered
through--has not kept up with real growth in wages. However, I
have real concern with raising taxes to put more money into
these programs, mainly for people like me. I cannot go into all
the details----
Mr. Cohen. No, it is not for people like you, particularly.
When you come to the understanding that African-Americans age
65 and older got 90 percent of their income from Social
Security, that 46 percent of African-Americans got 90 percent
of their income, and think about who they are. You start
drawing Social Security when you are 66.
That means that people get into Social Security who were
born in 1950, and give or take let us say people live to be 90.
There is outgrowth, but you are talking 1950 back to 1926.
Think about all those people in the South, African-Americans,
born between 1926 and 1950. What chance do they have to get
enough money to take care of themselves without Social
Security? They had no chance.
Mr. Steuerle. Part of my Social Security compromise is
actually to raise benefits for these people. But the average
person retiring on Social Security now retires for 12 more
years than he or she did in 1940. That does have an implication
for the issue that Mr. King raised about the percent of the
population that works. But I agree with you, I would spend more
money on those particular people on Social Security, but as
part of a compromise. It does not mean I still would not try to
get this system into balance.
Mr. Cohen. Yeah, well, you cannot balance things on people
born between 1926 and 1950. Particularly in the South, and it
was not that much better in the North. Opportunity was not
there for African-Americans. Opportunity was not there for
White people in Appalachia, either. People have not had
opportunity, and this has been a society of haves and have-nots
for a long time. It has just gotten to be more haves, or
wealthier haves. The Trumps, and all that multi-billionaire
world. Yeah, they want things cut, and they do not want to pay
on the 1,185 and more. But you got so many people out here,
they cannot deal with it.
Mr. , you talk about it great in the ivory tower. What
would you do about somebody that is born in the South, an
African-American in 1940? What chance do they have to have
enough funds? Were they deprived of some religious valuation
that made them not want to work? Or could they not work because
their government worked against them, and allowed
discrimination and Jim Crow laws, that put them in the back of
the line, and did not give them jobs? What would you do for
those people?
Mr. Eberstadt. I was born in 1955, sir, I did not have
any----
Mr. Cohen. You do not look African-American, you do not
look like the South. You did not have Jim Crow, you did not
have barriers put before you from the time you were born. And
these are the people you are trying to cut. What opportunities
do they have? Speechless. Mr. Lilly, tell me----
Mr. Eberstadt. Sir, I am not speechless. Were you----
Mr. Cohen. What would this Social Security cap be if it
kept up with inflation? Do you have any idea?
Mr. Lilly. I think it has been adjusted, you know,
relatively rapidly to deal with inflation. I do not think it is
that much out of line with that.
Mr. Cohen. It is 1185 in 2016, right?
Mr. Lilly. Yeah, and it was----
Mr. Cohen. 117 before that?
Mr. Lilly. Yeah. But less than 10 years ago, it was below
100. So it has gone up at pretty close to the rate of
inflation, and it may even be indexed, I think.
Mr. Eberstadt. The percent of wages subject to the cap has
been lowered mainly because of the increasing inequality in
wages in the economy, and also because there are certain self-
employed people who are excluded from the tax. However, Mr.
Lilly is right, it has kept up with inflation.
Mr. Cohen. Well, it might not have been set at the right
place when it started, so it may be the wrong criteria to look
at to see whether----
Mr. Lilly. What I would say is the problem with respect to
Social Security is relatively small. And there are reasonably
small adjustments that could be made to take Social Security
and make it solvent over a period of time at current benefit
levels. The real problem is Medicare. And as I tried to point
out in my testimony, it is not just your Medicare check, but
how much you have to pay in out-of-pocket expenses. And if your
out-of-pocket expenses eat up most of your Medicare, you do not
have enough to stay alive on. And that is the problem we face.
And there is no reason that we cannot raise the general
revenues to pay for Medicare. That is the way we pay for them
now, and we could pay for more of it if we would simply make
the tax adjustment, and avoid some, as you point out, terribly
painful choices that we would have as a society.
Mr. Cohen. Thank you.
Mr. King. The gentleman from Tennessee yields back. The
Chair now recognizes the gentleman from Idaho, Mr. Labrador.
Mr. Labrador. Thank you, Mr. Chairman. And, Mr. Eberstadt,
I had a couple of comments, but before I say anything, did you
want to respond to that question that was just asked to you,
that they were trying to put you in a situation that I thought
was a little bit unfair?
Mr. Eberstadt. Thank you very much for giving me an
opportunity, and I will try to answer your question. Of course
we have a long history of racial discrimination. It goes back
to President Obama's description of original sin in the United
States. It is our original sin.
There is no way to rewind history, as I tried to indicate.
What we can do is we can try to have a social safety net that
deals efficiently and in a targeted way with the people who
have the greatest need in our society. I think that is part of
what Mr. Steuerle was trying to say as well.
As for the greater question of whether the benefits which I
was mainly talking about, the means-tested benefits, have an
effect upon the quality of citizenship, and also upon the
likelihood of people's participation in the economy in the
future in growing wealth, I think that is something that we
also have to keep a careful eye on, because there are
unintended consequences in all social policies.
Mr. Labrador. Thank you, and there definitely are
unintended consequences. In fact, if you look at the areas of
the country that are suffering the most from poverty are the
places where, for the most part, the people complain the
loudest about it are representing them.
So I would be very careful. I would look at the history of
what these unintended consequences have been. And you find the
largest gaps in wages, you find the largest poverty pockets, in
some of these areas where so many people come here and they
like to lecture others on how much they care about those
people. But really what is happening in those communities is
that they are finding themselves further and further in poverty
and in need. I am pleased that we are examining here the
mandatory spending that is bankrupting this country.
Ever since I first sought election to Congress was to cut
back on the gross amount of spending authorized by this body
each and every year. In order to sustain the fiscal solvency of
this country, we need across-the-board cuts in spending, both
mandatory and discretionary. Nothing should be off the table.
It strikes me in the past 6 years, I have not truly been given
the opportunity to vote against these measures, and not really
been given the opportunity to vote against any mandatory
spending provisions.
This is not so much executive overreach as it is a bloated
bureaucracy that continues to grow fat and spend money while
Congress does nothing. I am encouraged by this hearing today,
and I look forward to working with other Members on proposals
and bills that return the spending authority to Congress to
decide more regularly what is appropriate mandatory spending,
and what is simply wasteful
Mr. Steuerle, what sections of the Federal budget are the
largest contributors to mandatory spending?
Mr. Steuerle. So, in a lot of my writing I distinguish
between mandatory spending without built-in growth rates, and
those with built-in growth rates. The ones that have the built-
in growth rates are mainly the retirement and the health
programs--and by the way, the health programs include the tax
subsidy for health as well--and things like the mortgage
interest deduction.
So I include the tax subsidies in my examples of those that
grow automatically. For instance, people in my generation have
about twice the housing, or the value of housing, as my
parents' generation. Congress automatically let that subsidy
grow or double, without voting that that was the best way to
spend the money, when I think we could have done a lot better
for low-income people, people who do not have housing. The same
thing happens within the retirement and health arena.
Can I just give one statistic that I think might help think
about this? Thinking about the future as opposed just to
current levels: for a typical couple today, Social Security and
Medicare provide lifetime value benefits of about a million
dollars. Right now, that is about two-thirds Social Security,
about a third Medicare. That is a million dollars. You might
wonder how you get there; it is basically about $50,000 for a
couple, average couple, for about 20 years. For a typical
couple, they are on these benefits--that is the longer-living
of the two for close to 3 decades.
Now, for millennials, that million-dollar figure--and that
is the value needed in a savings account, if it is discounted
would grow to about $2 million.
Suppose we thought about that growth, that automatic growth
from a million to $2 million, and said, ``Is this the best way
to support millennials?'' Well, we add to their student debt,
we let their childcare, I am sorry, the child credit decline in
value, the tax credit. We do not give them wage support if they
are low-income. We do not provide them first-time home buyers'
subsidies.
I think there is a lot of ways of transferring this money
gradually over time to better provide work incentives, to
better provide support that would produce upward mobility, than
simply saying that all of the growth in government for you, you
millennials, whom we are neglecting already, is going to go to
you when you retire. But before then, we are going to forget
you.
Mr. Labrador. Well thank you, Mr. Chairman, I have run out
of time. So I yield back my time.
Mr. King. The gentleman from Idaho yields back. The Chair
will now recognize their Ranking Member of the full Committee,
Mr. Conyers.
Mr. Conyers. Thank you, Chairman King. This has been very
interesting. I would like to ask you all about the economic
reality of income inequality in America, the wealthiest country
on the planet.
And let me start with the senior fellow for the Center for
American Progress. But I will come to all of you here. It is my
understanding, shocking that one in five children in this
country live in poverty, but that on a larger basis of private
wealth, the top 1 percent of possessors of private wealth have
a greater income than the other 90 percent of the citizens put
together. Have you heard of that, mister senior fellow?
Mr. Lilly. Mr. Chairman, I think that is one of the great
tragedies in our society today. It is also a problem that we
have around the world. I think a lot of the divisiveness in
American politics today centers around the fact that people
feel disinherited. The working class feels that there is no way
out. They do not see a way out for their kids, and guess what,
we are finding out it is really bad for business, it is bad for
the direction--I think the American Chamber of Commerce is
absolutely apoplectic right now at the direction that this
country is going.
And I think they have to looking the mirror to some extent
and think about why there is this division, why is this
extremism showing itself in American politics. A country that
does not grow together and does not prosper together is not
going to be a strong country, and I think we are beginning to
see only the beginning of the downside of this terrible
division in the way we are growing.
Mr. Conyers. And you know, this is not even taking into
consideration the rather great improvement in the differences
of income inequality because of collective bargaining, which
has only recently come into our system in which people--we have
such a thing as a minimum wage, and we have some progressives
now arguing that a $15 minimum wage should be the bottom of the
income level, which leaves more conservative people that come
before the Congress apoplectic, that we would pay somebody a
minimum of $15 an hour. Would you begin our discussion on that,
Scott Lilly?
Mr. Lilly. Well, you know, I think there are a number of
things that you can do to reduce income inequality from a
policy side. I would say this topic that we are dealing with
right now in terms of Social Security benefits and Medicare and
so forth, is a huge factor.
In 1959, 30 percent of elderly people in the United States
lived in poverty. Today it is 9 percent, the lowest of any age
group. If we were to turn back and put Social Security payments
as subject to annual appropriations, we would be headed back to
that 30 percent and we would greatly exacerbate what is already
a huge problem in this country.
Mr. Conyers. Why do your two panelists on either side of
you not agree with that comment?
Mr. Steuerle. So I have never advocated putting Social
Security on annual appropriations; I have suggested that
whether Social Security or anything else, that we need to
figure out where we want the growth in government to go. So
think out 35 years from now. Even at our low economic growth
rate, the economy doubles in size, revenues probably double.
How do we want to spend that money best? I would argue that
it is time now to promote the types of things that you are
talking about, Mr. Conyers--which is on the opportunity front--
to touch the things that I think Mr. King is also talking
about--which is promoting more earnings and promoting more
labor supply, and trying to figure out how we could allocate
it.
My calculations are that in the direct support budget--that
is, take out the public goods--we spend about $35,000 a
household right now. Suppose in another 35 years that doubles
to $70,000. Now maybe it takes 40 years to get there with
Republicans, and maybe it takes 30 years to get there with
Democrats. It is still growing, as long as we can promote
economic growth.
I want to think about how we can really allocate that
growth best to the things that promote mobility, earnings
growth, wealth--and wealth inequality, by the way, is much
worse than income inequality. But I do not think our current
social programs are doing a good job of getting us there. And
even if you disagree with that statement, I think we can all
agree they could do a better job.
Mr. Conyers. Thank you so much. Could I just ask if our
other panelist, Mr. Eberstadt, did you have a view different
from the--well there are two different views. Where do you come
down on this discussion?
Mr. Eberstadt. I think Mr. Lilly is absolutely right in
emphasizing the importance and the future of unfunded
liabilities for the healthcare programs. I think Mr. Steuerle
is exactly right in emphasizing the importance of more rapid
economic growth. If we have more rapid economic growth, we have
got more options for everything. In terms of the question of
the poverty rate, this may be a little bit arcane for our
current discussion, but I think that the poverty rate is
actually a very poor measure of poverty in the United States
because it looks--in my view, it looks at the wrong end of the
telescope.
We should be looking at people's purchasing power and
people's spending power. And if we did that, poor people would
still be poor, but they are not going to be rich. But we would
have a much better understanding of how to target our resources
to the truly needy.
Mr. Conyers. Well, I thank you all for your interest. This
is a conversation that, Chairman King, we could have another
hearing on. And I congratulate you on picking this subject to
bring these three experts before us on.
Mr. King. Thank you, Mr. Conyers, for your engagement. And
the gentleman from Michigan has yielded back the balance of his
time. Chair will now recognize the other gentleman from
Michigan, Mr. Bishop.
Mr. Bishop. Thank you Mr. Chair, and thank you for this
hearing; I think it is a fantastic opportunity to discuss an
issue that is so very important to this country and the
citizens of this country and really one of the reasons--primary
reasons why I decided to run for Congress was to address this
issue, and not just for me, but for future generations.
I have got three young kids, and it occurs to me that if
someone does not step in very quickly, this will get out of
control. And my dad used to tell my sisters and me that if we
ever found ourself in a hole, the first thing you do is stop
digging. And this country, this government, at so many levels,
has not done that one essential thing, stop digging.
We continue to dig ourself in deeper. It is not rocket
science, we just spend more than we have, and we continue to
bury ourself in big government and programs that have failed
over the years. And I think there is an institutional reflex to
go to back to exactly where we started and to build from there,
and we have not reassessed our priorities over the years. And I
think that, coming from state government a few years back when
I served there, I think state government is a great incubator
for ideas on this subject.
And, for example, the State of Michigan was in a financial
death spiral. We were being steered right into the ground. I
read the title of the hearing today, ``The Federal Government
is on Autopilot,'' that is exactly what was happening in
Michigan and it was being driven right into the ground.
And changes had to be made, and were made. And about 2010,
a completely new group of leaders came in with a new idea and a
mandate to get things done, and Michigan has really turned
around, in every category, because of that leadership. And you
look at the other Midwest States, like Ohio, Indiana,
Wisconsin, all have made dramatic turnarounds because of
decisions that were made--tough decisions to address really
difficult structural problems with the State. And then you look
at Illinois, that has not made the decisions at all, and they
continue to drive themself into the ground.
So I raise this as a bigger issue. Government continues to
grow at just phenomenal rates because we have not been able to
do the very thing that we are sent here to do, which is to
control our spending and get this place under control. I worry
about my kids, and I worry about the future of this country
because of that very reason. I wonder, Mr. Eberstadt, can you
tell me anything--are there reforms that we can implement or
consider that would restore the role of Congress, and
rationally matching programs with the ability to pay for them?
Mr. Eberstadt. Sir, I think that is a pretty big order. I
think that is a pretty tall order. We have had two generations
of very, very strong momentum in developing the Federal
Government as an entitlements engine. And it did not happen by
accident; it happened because there is a great demand for this
on the part of voters in both parties. It is bipartisan.
I guess I would think that maybe the impetus for real
change has to come from the grassroots. I think it has to come
from the voters. As long as voters say we would like to limit
everybody's entitlements but our own, have a collective failure
here.
Mr. Bishop. That is a good point, and one that I was trying
to make earlier with regard to the states, because that
grassroots momentum started in Michigan, my home State, and
that is really what turned things around, and really was the
mandate for members of government to go back and do the right
thing. Mr. Steuerle, if government stays on this path, can you
reflect on what this means for my kids, for millennials?
Mr. Steuerle. I already gave the example of what we
promised for millennials, which is a hard time until they
retire, and then they retire. Now that path is, by the way, not
sustainable, but that is what currently scheduled in the
budget, that is, to say, where we are providing all the growth
in government. Now scheduled for about $12,000 more per
household, nothing goes for children, and there is actually not
very much for working families either.
I keep trying to emphasize in my testimony that I am really
trying to figure out a way to get through what I consider
sometimes called a classic prisoner's dilemma between the two
parties, where if either one leads too much by themselves, they
lose. And they lose because we the voters punish them. Because
you are in a position now where you are actually required with
the budget so out of balance, to take things back for the
public. Either to cut spending or to raise taxes. Take either
side. And the public does not like that.
An example of how this played out--I will not go to the
current election--I will go to the past election, when
President Obama ran against Governor Romney. They both accused
each other of cutting back on Medicare, and they were both
right on wanting to. So President Obama accused Governor Romney
of cutting back on Medicare because he tended to favor--spoke
somewhat in favor of a proposal--by Representative Paul Ryan,
which was not fully delineated, but it was basically to convert
the system a bit more toward a voucher system. Which, by the
way, we have for Obamacare.
Meanwhile, the Governor Romney accused President Obama of
cutting back on Medicare because in truth, that is partly how
he distributed some money in paying for health reform from
older people to younger people. He would not say that, but that
is what happened.
They were both right; the system is out of control, but you
could see how when you over-promise, it leads to this political
dynamic where both parties basically accuse the other of
cutting back on some untenable promise. We all know Medicare is
out of balance, we know it cannot be sustained. And yet as long
as we are in a situation where either party can blame the other
when trying to reform it--and because there will be less, yes,
there is less relative to an unsustainable promise--we are in
this box.
And so that box then, getting back to your question, this
ties us in these knots. For instance I did a recent study that
says of all the growth in spending, another one scheduled the
next 10 year--the majority of it goes for healthcare.
So for poor people and workers--Mr. Conyers cares a great
deal about poor people, and also Mr. Cohen. So we are going to
give them $400,000 a year surgeons, but we will be darned if we
are going to give them wage subsidies or help for their
children when they raise them. It is like a crazy box that we
are all trapped in. And so a lot of what I am trying to do is
create a process where there can be a compromise between both
parties about how to get out of this box or this classic--as I
say, it is sometimes called a ``prisoner's'' dilemma where if
you lead by yourself, as a party you lose.
Mr. Bishop. Thank you sir. Mr. Chair, I yield back.
Mr. King. The gentleman from Michigan returns his time. And
Chair would now recognize the gentlelady from California for 5
minutes.
Ms. Lofgren. Thank you Mr. Chairman. I think this is a good
hearing, and with a serious testimony, and I appreciate all of
the witnesses. Mr. Lilly, we knew you for so many years here
when you worked on the Hill, and we thank you for your service
here. And now that you are outside, I am wondering, I thought I
saw that--well, let me ask you. What percentage of the
mandatory spending on entitlement programs is for other than
Medicare, Social Security, or Medicaid? What is the percent? Do
you know that?
Mr. Lilly. Medicare, Medicaid, and Social Security are
about 73 percent of total entitlements. But then you have
military retirement, which is not in there, you have civil
service retirement, and you have veteran's benefits, which make
up another close to 10 percent. I mean I think there is kind of
an ugly part of this discussion, which is people use the word
entitlement with some racial implications. I think that is
true. I mean I know a lot of people do not, but there are some
people that do.
The truth is very, very little of the entitlement budget is
actually going to minority groups that some people would like
to undercut the whole--there may be a lot of State money that
goes there, but I think there is an innuendo there that drives
it. And the truth is, contrary to what Mr. Labrador said, the
people that get the most from Social Security, and the people
that are most dependent are rural White voters in Republican
districts. And I am somewhat amazed at the willingness of the
majority party to keep going down this road, because I think it
is absolute dynamite if they get to the end of it. I think the
whole purpose here is to get only partway down the road.
Ms. Lofgren. At home, people, you know, the veterans and
others talk about it as an earned benefits program, not an
entitlement program. I suppose we could argue about that. But
as I was thinking about those benefits that people have paid
into, either with their service in the military or through
paying into Social Security, what would happen if those were
subject to annual appropriations?
And I remember the government shutdown we had here; it was
a very depressing time on--here in the capital and in the
country. And one of the things that was important was that
Medicare recipients and Social Security recipients did not have
their benefits cut off. You know, we are not the most
functional institution right now. If we had another government
shutdown, and we had annual appropriations for these earned
benefit programs, would they just simply be cut off?
Mr. Lilly. It would depend on how understanding the Budget
Committee was and what kind of allocation they gave the
Appropriations Committee. But you are certainly setting up a
big fight between law enforcement and national security and
grandma's check. And I think she may keep part of her check,
but I think she would be quick vulnerable if we set up that
scenario.
Ms. Lofgren. You know, just a final comment. I hope that
there is general agreement--and I have heard that from both
sides of the aisle--that we need to be doing more for the young
people of this country. I very much feel that that is true. But
I am also mindful that these Social Security programs, number
one, the large number of survivors' benefits are children of
people who have died, and that is an essential safety net for
that group.
But that also, at least where I come from, if grandma is in
poverty, it is not grandma's problem by herself. I mean the
whole family is going to have to scramble together. So to think
that there is just an old person versus her daughter and her
grandchildren is not correct, because the whole family is in
this together. And if grandma is without any resources,
everybody else in the family is going to have to come up with a
way to keep grandma safe, sound, housed, fed, and the like. At
least that is the way it is in where I come from.
Mr. Lilly. The caps that we have put on Medicaid will
inevitably, if adopted, result in lots of old people being
taken out of nursing homes and put on their children's
doorsteps, which would have--we would go back to the way we
used to deal with old age 30 or 40 years ago, and it would be
catastrophic for families, for the future--the ability to
educate and send kids to college. It is a direction nobody in
this country wants to go, and it is foolish to talk about it as
a real plausible route.
Ms. Lofgren. I see my time has expired. Mr. Chairman, I
yield back.
Mr. King. I thank the gentlelady from California for
yielding back her time. And the Chair now recognize the
gentleman from Texas, Mr. Gohmert.
Mr. Gohmert. Well, I feel like I just listened to one of
the biggest reasons we are in trouble. Mr. Lilly, your
statements that often entitlement is used with racial
implications. Normally when I hear entitlements, most of the
people I know understand the majority of people are elderly
White people. And so I realize there is a component around this
town, to deal with issues in this town, that want to put
everything in racial perspective, but that is one of them that
is. And maybe some of your friends do, but I do not know any of
mine that do.
Mr. Lilly. Could I respond to that?
Mr. Gohmert. I am responding to you, so no, you do not get
a so rebuttal. If majority party goes down that road, they are
not going to like where they are going. If we do not go down
the road to get to fiscal responsibility, you are going to get
through your life okay. And the wake you leave behind is going
to be devastating and people will curse your name for future
generations. We have got to go down a road of fiscal
responsibility. So what I would like to do is talk about some
possible solutions.
For one thing, the way Congress has been structured after
Watergate, when the Democrats took over the majority, there
were a number of things that were put into play. The Committee
structure, the way it has ended up, you have Subcommittees
putting together budgets that include different public
assistance measures for the same groups.
And so, if you see one area where you think this is a bit
duplicative, maybe we should cut this because I feel sure we
have got other programs. Once you light into that, you are
called a racist, you are called a--you know, you hate elderly
people, you hate young people, it is just all about trying to
divide us when we are trying to get to a place of
responsibility before the system just collapses.
And my friend Dan Webster, former Speaker of the House in
Florida, said he took on one aspect, and that was the aspect of
how many Federal programs have we created that take people to
and from appointments. And he said he is pretty sure he has
found them all, but they are all through different
appropriations, through different Subcommittees, and he
believes 82 is how many there are. There may be a few more, but
he thinks he has found most of them.
If you were to try to take out one of those 82 programs in
one of those Subcommittee budgets, you would be accused of
being racist, hating the elderly, hating veterans, hating this
that or the other, when actually it seems to me if we got all
of those different methods of public assistance--whatever it
is, every form of public assistance in one Committee or one
Subcommittee, then we could say no we do not need 82.
Most of them have 20 seat vans that sit idly by, and when
they are used apparently usually average of like three people
taking a trip somewhere. So if we got down to one, then we
could make some real progress, we could help the same number of
people without all of the massive waste. Now Cleta Mitchell
made a suggestion before our Judiciary Committee, or I guess
this Committee--she said let the authorizing Committee be the
appropriating Committee, which is an interesting thought
because we have hundreds of millions, maybe billions of
dollars, that--I guess it is billions--that are being
appropriated even though the Authorizing Committee has not
authorized them. And so, anyway, I do not have a lot of time
when you only get 5 minutes.
Also, another thing that was set up after Watergate was the
automatic increase in every Federal department's budget, and we
have got to do away with that, so that when we try to slow the
rate of growth, then we are not vilified for making draconian
cuts, that a real cut would be a cut, and a real increase is an
increase. But I have been pushing that bill ever since I have
been here.
We have gotten through a couple of Republican Houses, but
not through the Senate. But there is no charity, individual,
company, partnership, nothing that has an automatic increase
every year, and until we stop that and force people to be in
government to be as responsible as people across America have
to be, we are not going to fix our problems. And I yield back.
Mr. King. I thank the gentleman from Texas. And the Chair
would now recognize the gentleman from Colorado, Mr. Buck.
Mr. Buck. I was just having fun over here listening to Mr.
Gohmert. Mr. Gohmert, do you need more time?
Mr. Gohmert. No.
Mr. Buck. You said you only had 5 minutes, you were going
to run out of time.
Mr. Gohmert. That is right.
Mr. Buck. All right. I have one sort of simple
straightforward question, and I am directed to Mr. Eberstadt to
start with. There are more than a dozen versions of a balanced
budget amendment running around Congress right now. What would
the effect of a balanced budget amendment be on this particular
area?
Mr. Eberstadt. Mr. Buck, I am really out of my depth, I
confess, on balanced budget amendments. I have followed various
entitlement programs and spending and dependency and labor
market, but I have got to guess that the other two experts here
will know a lot more about that particular area than I will.
Mr. Buck. Okay. I do not want to mispronounce your name.
Mr. Steuerle. It is just Steuerle. I grew up in the South,
I slur over the letters, so. Just Steuerle.
Mr. Buck. Okay. You want to take a shot at that?
Mr. Steuerle. I do think the issue here is a constitutional
issue, but I have to say constitutional with a small ``c,''
because I think it is actually crucial. My fear is in watching,
say, votes in California, or votes in Britain--I worry that we
cannot design a constitutional amendment well to deal with how
you organize fiscal policy.
So yes, I think that a budget should be basically balanced
over an economic cycle, or as Mr. Lilly says, even more than
balanced in the near term to get the debt to GDP ratio down.
But I fear trying to write a precise rule for how to do it,
because there is always something that comes up. An emergency,
a war. So you can put exceptions in. But you put something in a
constitution, and it is very hard to adjust.
I think at the end of the day you have got to come up with
rules on how the House, the Senate, and, if you want to, the
President when submitting budgets--that, as I say, with a small
``c''--can tend to have the constitutional constraint that the
old balanced budget rule, which was not in the Constitution,
provided. But I just fear we cannot write a formal
constitutional amendment that is going to actually work. That
we would ever word it right. And I fear the classic California
problem of how some of things work when you get into that type
of game.
Mr. Buck. And what is the alternative?
Mr. Steuerle. So I have quite a number of suggestions in
various writings that I have made. Among them, I think that
there are ways to hold Congress and the President more
responsible for keeping a budget balanced over a cycle. You
could tell the President this does not constrain him, but I
think in the public it would. You could say we the Congress
only accept a budget that is balanced over 10 years, or
balanced in some reasonable way over the 10 years. I want to be
careful because whether you do real or inflationary.
Mr. Buck. But you know what happens then----
Mr. Steuerle. And all these issues that are hard to define
precisely.
Mr. Buck. This Congress would blame it on the next one that
it was not balanced 10 years from now. That is the game.
Mr. Steuerle. But the last two Presidents have submitted
substantial increases in the debt in their initial years and
said, well, later on I will get around to dealing with it. At
least a rule like that would hold them responsible for telling
the public, ``Oh by the way, I am going to increase spending
for Medicare Part D, or I am going to increase spending for the
recession, but here is how I am going to pay for it at least
seven or 8 years down the road.''
They start off not doing it, and then they say after they
double the debt, they say, ``And now I am going to worry about
maybe cutting it back.'' There are other rules that I do not
have time to go through it, that I suggest I think Congress
could adopt that would be much stricter.
But the main thing that I emphasize as I state in my
testimony, there are all sorts of ways of writing budget rules
is I think we have to restore discretion. So we could require
some entitlements, by the way, like food stamps, to be actually
reauthorized. So that it is really not an entitlement the same
way.
I think Mr. Lilly is more of an expert on this than I am.
It is not an entitlement the same way as the ones that have
automatic growth. Because it does not grow automatically, and
it has got to be reauthorized. You could require more
reauthorization for every program. Also, I think every program
should be in a budget. Health programs, Social Security, it
should be in a budget.
Now, for instance, I would protect the inflation increases
for current elderly, so nobody is cutting back on benefits. But
target the growth, the automatic growth. For instance, I get
about 7 or 8 more years of retirement relative to when the
system was first established. That is worth about, for my wife
and me, about $300,000 more.
Did anybody really intend for me to get a $300,000 increase
in Social Security benefits, just by having more years in
retirement? I do not think so. Stuff like that should have to
be voted on and reauthorized. So by restoring discretion to the
budget, we create a process where there would then be a gap
between revenues and spending, which the parties could fight
over whether to have tax cuts or spending increases. That was
the tradition throughout almost all of our history.
And by the way, you know, consider all the political
arguments about why people in Congress cannot compromise. When
there is discretion, you have got to vote for a tax cut or a
spending increase because a budget building up surplus would
create huge problems. When spending grows faster than revenues,
now you have got to compromise. Saying, ``Who wants to step up
first and tell the public what they are not going to get? Who
is going to step up first and tell them what tax increases you
really want, or what spending cuts you really want,'' puts them
in a horrible box, is easier to compromise when you have got
more money to spend.
It is hard to compromise when all the contracts have
already been signed for infinity for how that money is going to
be spent.
Mr. Buck. Thank you, Mr. Chair.
Mr. Steuerle. So there is a lot of rules like that I think
we could develop.
Mr. Buck. I have got to yield back.
Mr. King. The gentleman from Colorado yields back. This
concludes today's hearing, and thanks to all our witnesses for
your testimony and your participation.
Without objection, all Members will have 5 legislative days
to submit additional written questions for the record, or
additional materials for the record. I thank the witnesses, and
I thank the members in audience. This hearing is adjourned.
[Whereupon, at 2:36 p.m., the Task Force was adjourned.]
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