[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


                 REACHING AMERICA'S POTENTIAL: DELIVERING
                     GROWTH AND OPPORTUNITY FOR ALL
                               AMERICANS

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

                                HEARING

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

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 2, 2016

                               __________

                          Serial No. 114-FC08

                               __________

         Printed for the use of the Committee on Ways and Means
         
         
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                      COMMITTEE ON WAYS AND MEANS

                      KEVIN BRADY, Texas, Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
DEVIN NUNES, California              CHARLES B. RANGEL, New York
PATRICK J. TIBERI, Ohio              JIM MCDERMOTT, Washington
DAVID G. REICHERT, Washington        JOHN LEWIS, Georgia
CHARLES W. BOUSTANY, JR., Louisiana  RICHARD E. NEAL, Massachusetts
PETER J. ROSKAM, Illinois            XAVIER BECERRA, California
TOM PRICE, Georgia                   LLOYD DOGGETT, Texas
VERN BUCHANAN, Florida               MIKE THOMPSON, California
ADRIAN SMITH, Nebraska               JOHN B. LARSON, Connecticut
LYNN JENKINS, Kansas                 EARL BLUMENAUER, Oregon
ERIK PAULSEN, Minnesota              RON KIND, Wisconsin
KENNY MARCHANT, Texas                BILL PASCRELL, JR., New Jersey
DIANE BLACK, Tennessee               JOSEPH CROWLEY, New York
TOM REED, New York                   DANNY DAVIS, Illinois
TODD YOUNG, Indiana                  LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
ROBERT J. DOLD, Illinois
TOM RICE, South Carolina

                     David Stewart, Staff Director

         Janice Mays, Minority Chief Counsel and Staff Director


                            C O N T E N T S

                               __________
                                                                   Page

Advisory of February 2, 2016 announcing the hearing..............     2

                               WITNESSES

Jared Bernstein, Senior Fellow, Center on Budget and Policy 
  Priorities.....................................................    28
Kevin Hassett, Director of Economic Policy Studies and the State 
  Farm James Q. Wilson Chair in American Politics and Culture, 
  American Enterprise Institute..................................    18
Douglas Holtz-Eakin, President, American Action Forum............     6
Stephen Moore, Distinguished Visiting Fellow, Institute for 
  Economic Freedom and Opportunity, The Heritage Foundation......    49

                        QUESTIONS FOR THE RECORD

Chairman Kevin Brady of Texas....................................   122
Charles W. Boustany, Jr. of Louisiana............................   123

                       SUBMISSIONS FOR THE RECORD

ESCA, Employee-Owned S Corporations of America...................   132
The ESOP Association.............................................   137
RATE Coalition, Reforming America's Taxes Equitably Coalition....   143

 
                     REACHING AMERICA'S POTENTIAL:
                     DELIVERING GROWTH AND OPPORTUNITY
                           FOR ALL AMERICANS

                              ----------                              


                       TUESDAY, FEBRUARY 2, 2016

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                                    Washington, DC.

    The Committee met, pursuant to call, at 10:05 a.m., in Room 
1100, Longworth House Office Building, the Honorable Kevin 
Brady [Chairman of the Committee] presiding.
    [The advisory announcing the hearing follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
                         
                               
                                ----------

    Chairman BRADY. The committee will come to order.
    Welcome to the Ways and Means Committee hearing on 
``Reaching America's Potential: Delivering Growth and 
Opportunity for All Americans.'' I thank you all for joining us 
today.
    We are holding this hearing today because we want the 
American people to clearly understand the members of this 
committee are focused on their number one concern, the economy. 
This is what we hear about at home, and this is what we will 
take action on in Washington. For over 7 years, Americans 
watched in disappointment as the Obama White House has settled 
for slow growth. Time and time again, the President has refused 
to support bipartisan, commonsense policies that can improve 
the lives of millions of people across the country.
    And, today, February of 2016, we remain in the middle of 
the worst recovery in the post-war era. The fact is, if the 
speed of this recovery simply matched the post-1973 average, 
GDP per person would be 7.5 percent. That is a full $4,200 per 
person higher than it is today. That is about $17,000 for a 
family of four.
    While the economists in the room love to hear these numbers 
and percentages, I will take a moment to talk about what this 
means to the rest of us. With growth well below historic norms, 
productivity growth is near zero, and wage growth is flat. 
Median household incomes are down. That is no surprise to most 
Americans. Forty-six million Americans are living in poverty, 
including millions in the prime of their life who are sitting 
on the sidelines without work.
    The American people deserve better, and Washington doesn't 
have any more time to waste. I could spend the next hour 
discussing the failed policies of the past, but I won't. The 
American people need us to focus on what we can do today to 
make their tomorrow better. And as members of the Ways and 
Means Committee, we have a responsibility to deliver real 
leadership.
    We are committed to moving forward with a positive pro-
growth agenda for America. And in the weeks and months ahead, 
we will take action on tax reforms to boost investment and job 
creation; welfare reforms to help more people join the 
workforce and achieve the American dream; health reforms to 
truly make healthcare more affordable and accessible; trade 
expansion to open more foreign markets to American goods and 
services; entitlement reforms to strengthen Medicare and Social 
Security for the long haul; and government reforms to boost 
efficiency and effectiveness instead of stifling jobs and 
higher wages. Each of these steps will go a long way toward 
delivering the growth and opportunity all Americans need and 
expect.
    Today we are going to hear from a range of respected 
economic advisors about specific actions that we can take to 
ensure America reaches its full potential. I am honored to 
welcome Douglas Holtz-Eakin of the American Action Forum, Kevin 
Hassett of the American Enterprise Institute, Jared Bernstein 
of the Center On Budget and Policy Priorities, and Stephen 
Moore of the Heritage Foundation. You are all leaders in your 
field, and you all understand we can't accept the slow growth 
status quo.
    So growth matters. We have to take action to grow our 
economy. We have to take action to make it easier for the 
private sector, for Main Street, to create jobs. We have to 
take action to help Americans keep more of their hard-earned 
paychecks. Simply put, we have to take action.
    So thank you again for joining us, and I now yield to the 
distinguished Ranking Member from Michigan, Mr. Levin, for the 
purposes of an opening statement.
    Mr. LEVIN. Thank you very much, Mr. Chairman.
    And to the distinguished panel, we are glad you are here, 
and we are glad we are discussing this issue.
    The chairman talked about failed policies. I want to see if 
technology will work and put something on the screen there. 
There we go.
    This screen, this slide vividly illustrates failed 
policies. Before President Obama took office, that month, this 
country lost between 700,000 and 800,000 jobs in a month. All 
of that red is because of the failed policies of the previous 
administration. What has happened since? Over 14 million jobs 
have been created. Seventy straight months of growth. The 
unemployment rate has been essentially cut in half. And the 
annual deficit has gone down substantially. And over 18 million 
people have been insured.
    Essentially what is being proposed here by the Republican 
majority is this: The President inherited a deep hole, a deep, 
deep hole, the deepest since the Great Depression. Since then, 
we have essentially been digging out of it, and now it is being 
proposed in this testimony and by the Republican majority, go 
back to the failed policies, trickle-down economics, 
essentially digging the hole deeper and deeper.
    We have an issue of income inequality. The Republicans have 
failed--though they have dominated in this town--to do a single 
thing to address income inequality, except to propose more tax 
cuts for the very wealthy. And if there is an inversion, as 
taken place recently, where essentially a corporation is not 
moving anything except its headquarters to a different place to 
escape taxation, the answer from this Republican majority is, 
at best, kind of a blank stare.
    So the answer is not to return to the failed policies of 
the past, but to build on the progress that we have been making 
all of these months.
    So we welcome this panel, and you can expect very much that 
there will be some very important questions. I think we are 
going to hear a lot about dynamic scoring from one or more of 
you. And I finish by quoting Bruce Bartlett, and he says this 
about all of the talk about dynamic scoring, which essentially, 
I think, is an effort to kind of cover up policies that will 
mainly increase income inequality in this country, and he says: 
It is not about honest revenue estimating; it is about using 
smoke and mirrors to institutionalize Republican ideology into 
the budget process.
    That chart shows the consequences of that 
institutionalization. And the last thing we need to do is to go 
back to the past as we face the future; it is to build on the 
progress that we have made these last 7 years.
    I yield back.
    Chairman BRADY. Without objection, other members' opening 
statements will be made part of the record.
    Today's witness panel includes four experts on the U.S. 
economy and the importance of promoting economic growth. 
Douglas Holtz-Eakin is president of the American Action Forum. 
From 2001 to 2002, he was the Chief Economist on President 
Bush's Council of Economic Advisers. From 2003 to 2005, he 
served as the Director of the Congressional Budget Office.
    Kevin A. Hassett is the State Farm James Q. Wilson Chair in 
American Politics and Culture at the American Enterprise 
Institute. He is also a resident scholar and AIE's director of 
economic policy studies. He served as a policy consultant in 
the U.S. Department of Treasury during the George H.W. Bush and 
Bill Clinton administrations.
    Jared Bernstein is the senior fellow at the Center of 
Budget and Policy Positions. From 2009 to 2011, he was the 
Chief Economist and Economic Advisor to Vice President Joe 
Biden, Executive Director of the White House Task Force on the 
Middle Class, and a member of President Obama's economic team.
    Stephen Moore is a distinguished visiting fellow, Project 
for Economic Growth at the Heritage Foundation. He has written 
on the economy and public policy for The Wall Street Journal. 
He was also a member of the Journal's editorial board.
    The committee has received your written statements. They 
will all be part of the formal hearing record. You each have 5 
minutes to deliver your oral remarks.
    We will begin with Mr. Holtz-Eakin. Welcome back to our 
committee. And you can begin when you are ready, sir. Thank 
you.

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

    Mr. HOLTZ-EAKIN. Well, thank you Chairman Brady, and my 
congratulations to you. Ranking Member Levin and Members of the 
Committee, it is an honor to be here today.
    In my opening remarks, I will make three points. The first 
is that America has a growth problem, and the poster child for 
this is that the Congressional Budget Office has pegged the 
long-term potential for economic growth at 2 percent, which is 
below the average pace of the economic recovery, and so these 
are literally the good times, according to those numbers.
    The second point is that to address the growth problem, the 
committee needs to examine supply-side structural changes that 
either cause faster labor force growth or enhanced productivity 
growth.
    And my third point is there are, within the jurisdiction of 
this committee, potential reforms in trade, in taxes, and 
entitlements that can be useful in boosting the long-term rate 
of economic growth.
    Let me talk a little bit about each in turn.
    First, a way to think about the growth problem is this: In 
the post-war period up to 2007, growth averaged 3.2 percent a 
year, which when you combined with population growth meant that 
GDP per capita, roughly a measure of the standard of living 
income per person, doubled every 35 years. So in a single 
working career, you could imagine the standard of living 
doubling: people buying a home for the first time, sending kids 
to school, whatever that might be.
    If the CBO is right about its 2 percent projection and with 
population projections, it will take 70 years for the standard 
of living to double, and not in one working career, but in two, 
you might get back to the same kind of advances that Americans 
have been used to. Addressing that problem I think is central 
to the policy challenges that face the country.
    It would also help with some other things that the 
committee is quite familiar with, and that is the fiscal 
outlook for the Federal budget, right. As the CBO just pointed 
out in its baseline projections, we are on an unsustainable 
trajectory. We have been so for some time. Improvements in the 
economic growth will not solve this by itself. You can't grow 
your way out of this problem, but every 10th of a percentage 
point translates into roughly $300 billion, $325 billion in 
budgetary improvement over 10 years. And having better growth 
makes addressing these other challenges much, much easier. It 
is important for that reason.
    The second key point is you need to do supply-side 
productivity and labor-force-enhancing reforms to get better 
growth performance. This is literally by definition not an 
issue of stimulus or any of the kinds of things we have talked 
so much about in recent years. This is about the long-term rate 
of economic growth independent of business cycles. And they can 
only be addressed by things that raise the growth rate of 
either the number of workers, the labor force, or the output 
per worker, the income that they can produce, productivity. And 
those two things should be the focus of the committee's 
thinking: What can we do in the way of permanent changes to 
enhance labor force growth and/or productivity growth? And 
because these are long-term issues, you should be thinking hard 
about structural changes, permanent changes, not temporary 
policies that might alter incentives for a short time.
    Third is that there are some obvious areas where the 
committee, I think, should focus. The first would be in social 
safety net entitlements and efforts to make them more pro-work 
in every dimension. This morning my institution, the American 
Action Forum, released an analysis of a proposal by Speaker 
Ryan to enhance the earned income tax credit for those who do 
not have children. Doubling the childless EITC, in our 
estimates, would bring about a little over 8 million people 
into work in the United States. That is an enormous 
improvement. It would cost roughly $1,700 in taxpayer dollars 
per job created, which is way better than anything we have 
heard about in terms of job creation. And we know that the 
dividing line between the poor and the not poor in America is 
those who work, and any pro-work improvements of that type are 
things that the committee should be pursuing. Those are things 
that you could pursue.
    The trade agenda. Opening markets to trade is a crucial 
part of growth. Scale of market access helps our companies and 
our workers. The benefits of competition: enhanced 
productivity. It is no surprise that the high-productivity jobs 
are in the export sector, and that is where the high wages are.
    Tax reform I am sure we will get a chance to talk a lot 
about, but these are ways to increase the efficiency of the 
existing capital, augment capital, whether it is in innovative 
forms, in physical forms, or in the skills of workers. And most 
testaments indicate you could add as much as a half percentage 
point--I think that is the upper bound--over 10 years to the 
growth rate of the economy.
    And then the final one, which is I think crucial, is 
entitlement reform. Again, in the budget projections, 
entitlements are driving the large and unsustainable deficits 
in the future. That is not a pro-growth strategy. And on top of 
it, those entitlements are not serving the beneficiaries very 
well. So we can get a more durable social safety net, one that 
doesn't endanger the pace of economic growth and serves the 
beneficiaries better, and that is an agenda that I would 
recommend to the committee.
    So I thank you for the chance to be here today, and I look 
forward to your questions.
    Chairman BRADY. All right. Thank you very much.
    [The prepared statement of Mr. Holtz-Eakin follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    

                                 ------
    Chairman BRADY. Mr. Hassett, you are recognized.

    STATEMENT OF KEVIN HASSETT, DIRECTOR OF ECONOMIC POLICY 
             STUDIES, AMERICAN ENTERPRISE INSTITUTE

    Mr. HASSETT. Thank you, Chairman Brady, Ranking Member 
Levin. It is really an honor and a pleasure to be here. Like 
Mr. Holtz-Eakin, my testimony is really divided into three 
parts. We didn't coordinate on that ahead of time.
    The first part looks at how the economy has been doing and 
how that relates to what the administration has forecast the 
economy would be doing. And I think that the lesson of the 
first section of my presentation is that the administration has 
overestimated growth repeatedly, on average, by about a 
percentage point even though they have been able to update each 
year their forecasts based on the misses that they made before 
because my chart presents their forecasts a year ahead of the 
growth that we actually observe. And so, clearly, there is 
something going on where they are not using the right model or 
not updating the model that they are using because they keep 
making the same kind of mistake over and over and over again. I 
add--and it is an important qualification in my testimony--that 
I don't think that is a partisan thing at all because there are 
a heck of a lot of economists who are doing the same thing, you 
know, from the left and from the right.
    But the third chart in my presentation suggests that there 
is sort of a reason why this has been going on, and it is that 
we have had a financial crisis, as Ranking Member Levin's 
presentation suggested, that when President Obama came into 
office, it was a terrible, terrible time and financial markets 
were falling apart. And if you look at the Reinhart and Rogoff 
data that suggest, well, how would an economy do after a 
financial crisis, you can see that generally it does a lot 
worse than a typical recovery. And in my third chart, you can 
see that the U.S. is doing a lot worse than a typical recovery, 
but they are doing about as much worse as you typically see 
after a financial crisis. And so if you wanted a reason why we 
have not done better than we have, then you could say, well, it 
is because we have experienced exactly the same thing that for 
hundreds of years countries have experienced after a financial 
crisis.
    If you read Reinhart and Rogoff, you will see that part of 
the reason why you get slow growth is policy errors, and so 
then it opens up the question is, are there policies that we 
could pursue right now so that we could start to do better? And 
that is where the second part of my testimony begins. And there 
I think that there is a lot of hope. And, again, I don't think 
of it as a partisan hope. I think it is a hope for everybody 
who believes in science and economics.
    And I focus my presentation in the second part just on 
papers that in the last 3 years have come out in the American 
Economic Review. This is not a partisan place. It is like the 
gold standard of economic journals. And in there, there is this 
literature that is starting to find that tax policy has a much 
bigger effect than economists used to think, and this is 
looking at actually hard, time series evidence of how the 
economy moves up and down. And my presentation discusses why 
the scientists at top universities, including the Romers--
Christina Romer was President Obama's Chairman of the Council 
of Economic Advisers--that why they are finding this is really 
quite intuitive, that over time when the economy goes up and 
down, if the economy goes down, then members of the Ways and 
Means Committee historically have said: Gee, the economy went 
down. We have to do something about it. Maybe we should have a 
tax cut to try to get the economy out of this recession and/or 
a spending increase.
    But what that means is that if we look back at history over 
time, then in bad times, we have tended to lower taxes. And so 
if you don't account for that, then you will find that taxes 
tend to be low when things are bad, and you could, you know, 
conclude that supply-side economics doesn't work. In fact, it 
goes the other way.
    If you exclude those endogenous policies from your 
analysis, you tend to find really big positive effects of tax 
cuts, really big negative effects of tax hikes. And to put that 
in perspective, if President Obama's team had believed this 
latest literature and revised their year-ahead forecasts to 
account for the negative effects of the tax hikes that happened 
when we lifted the top marginal rate, then their forecasts 
would have just about nailed the GDP growth rather than missing 
it by a lot. And so I think that, yeah, that is the scale of 
the tax effect discussed in my testimony.
    The third part of my testimony, which is less important 
maybe now for discussion, is that, you know, technical staffs 
will often say: Well, there is no economic model that can give 
you effects as big as what they are finding in the data, so the 
data must be wrong. And I talk about why there have been a lot 
of developments in the theoretical literature that suggests 
that we now understand why the economy responds as much as it 
does. And there, again, it is very, very intuitive. If you are 
a 35-year-old worker and we lift the tax rate, then if you work 
an hour less, then you lose the hour wage, but you also lose 
whatever increment to your human capital you would get from 
working harder. So you get some experience. You drive up your 
wage in the future, and if you don't work, then you lose not 
only the wage today, but the wage in the future. But if you are 
a person like myself, 54 years old, then if I, you know, don't 
work an hour, I am not really going to change my future wage 
very much. And so if you lift the top rate, what you ought to 
see is that younger people don't respond very much because they 
are worried about investing in their future by working harder 
today, and older people, like myself, will respond a lot to 
taxes. If you account for that effect and build it into models, 
you end up getting out of the models effects that are just 
about the size that we are seeing in the time series data.
    And so, to conclude, what we are seeing now, I think, in 
the latest journals is almost a consensus emerging that taxes 
are having a much bigger effect on economies around the world 
than we thought. These results have been replicated in Canada, 
the U.S., the U.K., and Germany now. And so I think that what 
it suggests is that there is an enormous opportunity for this 
committee in the next few years to have a big positive effect 
on the growth of this economy.
    Thank you very much.
    Chairman BRADY. Thank you.
    [The prepared statement of Mr. Hassett follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    

                                 ------
    Chairman BRADY. Mr. Bernstein, you are recognized.

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

    Mr. BERNSTEIN. Well, thanks so much, Chairman Brady and 
Ranking Member Levin, for having the hearing today.
    From the perspective of working families, probably the most 
important aspect of the current economy is the state of the job 
market. Here, the U.S. economy is on very solid ground. 
Payrolls were up $2.7 million last year, slightly below the 
2014 edition of 3.1 million jobs. The cumulative gain of 5.8 
million jobs marks the strongest 2 years of payroll gains since 
the late 1990s. As was said, private businesses have now added 
14.1 million jobs over 70--seven zero--straight months. That is 
a record consecutive streak. The unemployment rate is down by 
half since it peaked at 10 percent in late 2009.
    These developments, along with very low inflation, are 
helping to boost real earnings of middle wage workers. After 
falling for 3 years, their real weekly earnings rose in both 
2014 and 2015 by 1.8 percent and 1.4 respectively. In other 
words, while we can certainly find areas of concern in today's 
economy, there is too much inequality, too low productivity 
growth, we can and should grow faster than the average 2 
percent real growth rate over this expansion. The labor market 
has been long improving, and if anything, job growth has 
recently accelerated.
    Turning to tax policy, I stress two important criteria: 
making the Tax Code more effective at reducing rather than 
exacerbating pretax income and wealth inequality; ensuring 
ample revenues with respect to our fiscal obligations. Based on 
demographic pressures alone, we are going to need more, not 
less revenue going forward. One way to achieve these goals 
simultaneously, often with the added bonus of improving the 
economic efficiency of the Tax Code, is to eliminate or reduce 
tax subsidies and loopholes that contribute to wealth 
inequality, reduce investment, and incentivize the overseas 
outsourcing of American jobs.
    In the spirit of these criteria, I would strongly urge the 
committee to be extremely wary of what are essentially trickle-
down tax cut arguments. The evidence has not been friendly to 
such arguments. In my written testimony, I cite various 
nonpartisan experts. Here are some of their conclusions: Quote, 
``At the Federal level, there is virtually no evidence that 
broad-based corporate tax cuts have had a positive effect on 
growth. That has been amply demonstrated at the national level, 
where tax cuts have eroded revenue without discernible effect 
on economic activity.''
    Quote, ``There is no evidence that links aggregate economic 
performance to capital gains rates.''
    There has been, quote, ``no statistically significant 
correlation between capital gains rates and real growth in 
domestic GDP during the last 50 years.''
    Yes, there is significant room for improvement in our Tax 
Code, especially on the business side, but Congress must be 
wary of trickle-down tax cut fantasies. It would be nice if 
they were true, but they are not.
    Turning to issues of poverty and inequality, we are going 
to hear a lot today about ideas to increase the economy's 
growth rate, but since economic inequality began to rise in the 
1970s, middle class prosperity in the U.S. has not been a 
function of growth alone. As a much larger share of economic 
output has accumulated at the top of the income scale, less 
growth has reached the middle class and the poor. To the extent 
that low and middle income families have gotten ahead over 
these decades, it has been due to more hours of work at slower 
growing or even declining real hourly pay rates, increased 
government transfers, especially those associated work, like 
recently expanded earned income tax credits and the unique 
period of full employment in the late 1990s.
    We cannot assume that overall GDP or productivity growth 
will yield opportunities for less advantaged families. Growth 
can't help them if it fails to reach them. I hope we can 
discuss policy ideas to reconnect growth and more broadly 
shared prosperity.
    In this regard, the Affordable Care Act has been remarkably 
successful at reducing the economic insecurity associated with 
the lack of affordable health coverage as well as contributing 
to the slower growth of healthcare costs. Given the predominant 
role of healthcare spending in terms of our present and future 
fiscal outlook, the latter, slower growing healthcare costs, is 
essential in the pursuit of sustainable fiscal policy.
    Despite heated rhetoric against it, there is just no way 
the ACA has killed jobs. I noted earlier the strength of 
overall employment since health reform came online, but my 
testimony digs into this claim that rules associated with 
healthcare reform have led to more involuntary part-time work. 
To the contrary, such work has been declining since the ACA 
went into effect, the same way it has in past recoveries before 
it existed.
    Thank you. I look forward to your questions. And I actually 
yield back my time.
    Chairman BRADY. Thank you very much.
    [The prepared statement of Mr. Bernstein follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
                                 ------
    Chairman BRADY. Mr. Moore, you are recognized.

  STATEMENT OF STEPHEN MOORE, DISTINGUISHED VISITING FELLOW, 
 INSTITUTE FOR ECONOMIC FREEDOM AND OPPORTUNITY, THE HERITAGE 
                           FOUNDATION

    Mr. MOORE. Mr. Chairman, thank you very much for the 
opportunity to testify.
    Chairman BRADY. Can you grab that microphone, Mr. Moore?
    Mr. MOORE. Thank you very much for the opportunity to 
testify today. I was thinking as I was just sitting in this 
grand room--I have been in this room, as many of us have, to 
testify--and I was thinking back about the mid-1980s, and 1985 
to 1986 sitting in the same room, and I see some of the same 
people--Congressman Johnson, I know you were here then--and we 
achieved something really remarkable, extraordinary, something 
that hardly has ever happened in the last 30 or 40 years, one 
of the great bipartisan achievements of this institution. I am 
talking, of course, about the 1986 Tax Reform Act. And this was 
an act that, as you all know, was bipartisan. We reduced tax 
rates from 50 to 28 percent at the top, and we did that by 
broadening the base, and in a very economically efficient way. 
And I think almost all economists--I can't speak for Jared--but 
I think all economists agree that what we did in 1986 was what 
increased the efficiency of the American economy by reducing 
distortions in the tax system.
    Now, the reason I mention this, Congressman, is that, many 
of you probably don't know this, but that bill was promoted by 
people like Bill Bradley, the Senator from New Jersey, a 
Democrat; Dick Gephardt, who was the minority leader among the 
Democrats was--I mean, the majority leader for the Democrats 
was one of the House sponsors of that bill; of course, Jack 
Kemp and others. And here is the amazing thing: A bill that 
lowered the highest income tax rate in the United States to 28 
percent passed 97 to 3 in the United States Senate. Let me say 
that again: 97 to 3. When is the last time in the last 30 years 
we have seen anything like that kind of bipartisan consensus?
    What I am suggesting is this is a plea to you, Mr. Levin, 
and to you, Mr. Brady, get together and get this done in a 
bipartisan way because the stakes are so huge. You have an 
opportunity, every single one of you on this committee has an 
opportunity to make history, and I hope you won't lose that 
opportunity. It has been 30 years. When you think about we did 
this in 1986, we haven't cleaned out the stables of the tax 
system in three decades. It is high time we do that.
    Let me talk a little bit, then, about the economy. First, 
this is a really, really weak recovery. And you don't have to--
it sort of reminds me of the old Groucho Marx line, ``Who are 
you going to believe, me or your own two eyes?'' I mean, we can 
present as many statistics as you possibly need about this 
recession, but you know the people who know that this is a 
flimsy, anemic recovery? The American people. And all you have 
to do is look at the people who voted in Iowa yesterday. Exit 
polls showed very clearly, what is their single biggest 
concern? The economy and jobs. The American people just aren't 
feeling love for this recovery that the President keeps 
trumpeting as some kind of grand success. People are nervous. 
People think the American dream is gone, and that is the 
economic reality that every American is dealing with today.
    So what is the problem? Well, if you look--if you don't 
mind turning to my testimony and looking at chart 1, if you 
have that in front of you, you can see the big problem is that 
we have had a recovery that is way, way, way behind trend. Now, 
it is absolutely true that Barack Obama inherited a terrible 
economy, but if you look at the Reagan recovery versus the 
Obama recovery, and I like to--I like this comparison because 
both these Presidents entered office during a period of great 
economic crisis. I can never understand, by the way, why people 
didn't say that what Ronald Reagan inherited in 1980, 1981 and 
1982 wasn't a financial crisis. My goodness, the stock market 
over the previous 14 years had lost 60 percent of its value; we 
had 14 percent inflation, 20 percent mortgage interest rates. I 
would submit to you folks that that is a financial crisis par 
excellence.
    And, basically, Reagan did use tax rate reductions, 
whatever you want to call it, supply-side economics, but we got 
$3 trillion more growth over this period. That is a big number.
    What I am saying is we would have $3 trillion more GDP 
today if we had a Reagan-style expansion rather than an Obama 
recovery. That is a huge number.
    Jared talks about income inequality. If we could just pass 
that money out, that extra $3 trillion, and pass it to every 
family, that means every family in America would have $15,000 
more income. The average family doesn't have $15,000 more 
income since Barack Obama came into office. The average family 
has about a thousand dollars less income.
    Now, if you will look--I am going to skip chart 2, and I 
just want to mention this issue about the recovery. This has 
been--if you look at the Economic Recovery Act that we passed 
in the stimulus bill, what is amazing about chart 3 is not only 
did it not work, but if you compare what was supposed to 
happen--these are the White House's numbers, not my numbers--
what it shows is not only did we have higher unemployment than 
we would have had if we would had the--in other words, what 
this is saying is the unemployment rate today and the 
unemployment rate over this 4-year period is higher than even 
the Obama people said if we had done nothing. We would have 
more jobs today if we had not done the economic stimulus than 
we did. Government spending is not a stimulus. What is a 
stimulus is tax reduction.
    What I say in my testimony--and I will end on this--is I 
believe the economy is very weak right now. I think we need an 
antirecession insurance policy, and the best way to do this is 
you should vote in the next weeks ahead to cut the corporate 
tax rate now as a kind of down payment on tax reform later. 
That will create jobs and that will bring those businesses that 
are leaving back to the United States.
    Chairman BRADY. Thank you, Mr. Moore.
    [The prepared statement of Mr. Moore follows:]
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    Chairman BRADY. I think it is well-known our committee is 
pursuing a pro-growth Tax Code that is built for growth, built 
for the growth of families' paychecks and for the growth of our 
local businesses, for the growth of the U.S. economy.
    Dr. Hassett, you explained, you know, these recent 
innovations in economic research that helps us see better about 
the impact of taxes on growth. And in the testimony, you state: 
When properly estimated, a 1-percent cut in taxes' share of the 
economy increases the economy by up to 2.5 percent over 3 
years, so in the fairly short term. The opposite is true as 
well. In laymen's terms, can you explain a little, just a 
little about what this new clarity, what creates that?
    Mr. HASSETT. Sure. I will give it another shot, try it in a 
slightly different way, that one of the things economists have 
learned in the last couple of decades is that if you want to 
evaluate a policy, the best way to do it is to have a random 
trial, right? So we apply policies to these folks but not to 
those folks, and we see what happens. If we design the trial 
well, we can learn.
    The problem with tax policy and how it affects the economy 
is you don't get random trials. What happens is that, you know, 
governments around the world change tax policy up and down in 
response to how the economy is doing, but every now and then, 
they will change tax policy because of some exogenous factor. 
And so what people have done is historians, like Christina 
Romer, perhaps the greatest economic historian alive, dug 
through all the tax bills and looked at the bills that were 
passed for exogenous reasons, so you could think of it as kind 
of like a random trial, or for endogenous reasons, like we are 
in a recession right now, so we need to do something. And then 
they looked at the effect of the exogenous ones, which are a 
true random experiment, and they tend to find really, really 
big effects of taxes. And this, again, is an experiment that 
has been repeated over and over. It is in the very, very top 
journals, the American Economic Review, the Quarterly Journal 
of Economics. It is Democrats and Republicans doing that kind 
of science and finding these big effects.
    And so to say that there is no evidence of these big 
effects is just--it is just false. There is a lot of evidence.
    And, you know, you cited Bill Gale's paper on this. I was 
his discussant at a Brookings conference, and I don't know if 
there are members of the audience who were there, but I think 
that they are probably going to have to revise that paper after 
the discussion. The fact is that there is really exciting 
literature going on that makes sense, and, again, that is the 
part where I start to peel it back. So we have got models that 
say that we should get an effect that that is big and that we 
should if--when we hike the tax rate like we just did, if the 
labor force participation for people late in their working 
lives goes down, which is exactly what we saw happen. And so 
things are really starting to add up and to line up.
    And so what that means, I think, is that people of this 
committee should recognize that they have a great 
responsibility because if you do the right things, you could 
really have a big positive effect on growth.
    Chairman BRADY. And those tax cuts were for productivity, 
incentivize productivity, the labor force. That is key.
    Mr. Moore, in your testimony, you talk a lot about how more 
and more American companies are being acquired by foreign 
companies because of our so anticompetitive tax system. Just 
first, it seems like every week, we are seeing a major 
announcement, including a local company that is headquartered 
maybe 2 miles from my own home. And so can you talk about what 
are the consequences of so--to American workers and to the 
American economy of so many companies leaving, and what is the 
urgency for Congress to act now to stem that tide and actually 
incentivize U.S. companies to remain and grow and invest here 
in the U.S.?
    Mr. MOORE. So if you look, Mr. Chairman and Members of the 
Committee, to my chart 5 of my testimony, I think this is 
highly instructive. What this is showing you is the black 
dotted line is the U.S. corporate tax rate, Mr. Chairman, over 
the last 30 years. As you can see, we haven't changed it. It 
has been flat. Look at the red pillars. That is the average of 
all of the countries that we compete with. I think this is 
something like the 30 major OECD countries. And look at what is 
happening. The rest of the world--Mr. Levin, you can call this 
trickle-down economics. You can call it whatever you want, but 
what is irrefutable is the rest of the world is racing to cut 
their corporate tax rates as fast as possible, and it has been 
happening relentlessly year after year after year.
    And so we have a Tax Code, I would argue, Mr. Chairman, 
that in the late 1980s and early 1990s was actually 
competitive. We were below where other countries were. We are 
in a global economy. There is no putting the genie back in that 
bottle. We do compete against China and Mexico and Australia 
and Europe. And we were in a situation where we could sustain a 
35-percent corporate tax rate because--guess what?--the rest of 
the world was higher than we were. Now the rest of the world, 
according to the latest numbers from the Tax Foundation, is 
somewhere between 24 and 25 percent.
    So this is a 10-percent--what I call this is a tariff that 
the United States is imposing than our own goods and services. 
How stupid is that? I mean, really. Why would we want to have a 
rate that is much higher than--we put every one of our 
corporations at a 10-percent disadvantage. That is just--look, 
if you cut me, I bleed red, white, and blue. I want a tax 
system that brings the jobs back to the United States.
    Now, your point is very well taken, Mr. Chairman. How many 
companies do we have to see week after week after week after 
week leave the United States, whether you are talking about 
Medtronic, one of our great medical manufacturing companies; 
Pfizer; just a week or two ago, it was Johnson Controls. 
Walgreen's was talking about leaving. I don't know if they have 
left, but they've been talking about it. I could go on and on. 
Burger King, another example.
    Ladies and gentlemen, how many companies have to leave 
before we take action? If you don't take action on this, Mr. 
Chairman, in the next couple of years, I guarantee you we are 
going to leave--lose more American companies to--and by the 
way, where are they going? They are going to Ireland. They are 
going to Canada. They are going to China. Ireland is 12.5 
percent. We are at 35 percent. Mr. Chairman, we can't compete 
under that kind of tax model.
    Chairman BRADY. Mr. Moore, before I turn very quickly to 
Mr. Holtz-Eakin, we are going to make significant changes in 
the way we tax to move to a pro-growth economy. So should our 
goal be to make these changes to get to the middle of the pack 
of our competitors or to move to the lead pack, you know, those 
top, most pro-growth tax rates in the world? Where should we be 
setting our target?
    Mr. MOORE. So what I recommended in my testimony, and this 
was based on some analysis that I have done with Larry Kudlow 
and Art Laffer--I know you are familiar with them--and what we 
basically recommend is because we are very worried about the 
U.S. economy right now--I think there is a threat of a 
recession. I am not saying there is going to be a recession, 
but we are in a danger zone right now. I think you all know 
that. We had in the last quarter, the numbers that came out, 
0.8 percent growth. If you take out government growth, because 
you guys grew spending the last quarter, the private GDP was 
about 0.5 percent. That is getting really close to recession.
    So what we recommend is a 15-percent corporate rate, which 
will bring us below the average. It will still be higher than 
Ireland and some other countries, but we will be below the 
average.
    And we recommend two other things, Mr. Chairman. You ought 
to allow immediate expensing for all corporate capital 
purchases, and we ought to have a repatriation policy of a tax 
rate of--we tried this in 2005. It was a big success. We raised 
revenue. We brought money back. Shareholders benefited from it, 
and it created jobs. If you would do those three things, I 
think you are putting a powerful punch into the economy.
    Chairman BRADY. All right. Thank you. And I apologize. I 
will be very brief.
    Dr. Holtz-Eakin, you have done a lot of study on the 
Affordable Care Act, the impact, not just on patient care, but 
the economy as well, and the growth of the--you spent a lot of 
time thinking about it. So I am going to--in healthcare, on the 
tax side of the equation, what are the one or two reforms we 
could put in place to ensure access to affordable high-quality 
healthcare as well as to improve the economy, your 
recommendations to us, because this is--will be part of our tax 
considerations as well?
    Mr. HOLTZ-EAKIN. Well, certainly I would urge the committee 
to look at all the taxes in the Affordable Care Act. It is, in 
my view, riddled with bad tax policy. Raising revenue in a fair 
and efficient fashion should be a standard that is applied to 
taxes in healthcare as well as taxes elsewhere.
    In particular, I think the committee should look at what is 
the future of the Cadillac tax, which has now been put off for 
a couple of years? It is not very good tax policy. It is very 
complicated and onerous to comply with. It is not particularly 
fair. Someone in the 15 percent bracket gets some of their 
compensation taxed at a 40-percent rate. I don't really 
understand that. And you ought to consider alternatives which 
end an open-ended tax subsidy to health insurance that is 
bigger for more wealthy people and look at ways to get either a 
cap on the exclusion or a flat tax credit, some cost control 
incentives and help for lower income Americans in getting 
private health insurance. I think those would be important.
    Chairman BRADY. Great. Thank you, Mr. Holtz-Eakin. I 
appreciate the testimony today.
    I recognize the Ranking Member, Mr. Levin, for his 
questions.
    Mr. LEVIN. And, Mr. Moore, I very much agree with you that 
tax reform is going to have to be bipartisan. And we started 
that way here in this committee with working groups, and then 
Mr. Camp went in a different direction. He did come up with a 
proposal that was serious. It was essentially discarded by the 
Republican majority, but a flaw in it, and a very significant 
one, was the lack of bipartisanship in putting together the 
proposal itself.
    You lose so many people in this country, Mr. Moore, when 
you say the previous repatriation effort was a success. It was 
a miserable failure. There is no evidence it created any jobs 
whatsoever. It maybe increased dividends. And for us to repeat 
that experience would be a terrible mistake.
    I also think that you really sell short what happened 
during these last 7 years when you compare the crisis that was 
faced by this administration with the crisis that was faced by 
President Reagan. I am not saying it wasn't an issue, a 
problem. It was. I think a lot of the responses were not 
correct. But in any event, to compare the two is, I think, a 
serious mistake, and you really sell short what was endeavored.
    I can remember hearing from the Bush Secretary of Treasury 
pleading with us to take action and saying there hadn't been a 
crisis like this since the Great Depression. And the majority 
of the votes for the so-called bailout in this House came from 
Democrats, talking about bipartisanship. So----
    Mr. MOORE. Look, there is no--oh, sorry.
    Mr. LEVIN [continuing]. You lose--you lose us.
    Also, I think in terms of your chart about the recovery 
gap, early on after the Reagan tax cuts, they increased taxes 
just a year before I got here. And then we continued to 
increase some of the taxes during the Reagan administration. So 
about half of the tax cuts were essentially taken away.
    But I would like, Mr. Bernstein, for you to comment on Mr. 
Hassett's claim that there is now some kind of some magic 
consensus among economists as to, for example, corporate 
taxation and supply-side tax policy in general because I think 
that is a figment of the economist's imagination.
    Mr. Bernstein.
    Mr. BERNSTEIN. Yeah. I agree with you. And I would argue 
that my friend Kevin--and I mean that, friend, not in the 
Washington sense; we really are friends. We write stuff 
together, so he is a colleague. But I think Kevin is 
misinterpreting that literature quite considerably, and I will 
explain why in a second. But I also wanted to clarify some of 
Steve's comments about the corporate tax, which I think are 
mostly wrong, but in one sense, we agree, which is that, in 
fact, as I said in my testimony, the corporate Tax Code really 
does need reform. And I doubt there are too many people in this 
room who wouldn't agree that a lower rate and a broader base 
would be a useful way forward, but I would also point out, as 
you suggested, that that is precisely what--part of what former 
chair of this committee, Dave Camp, proposed, and that was DOA, 
so it is a little bit more complicated.
    Another complicating factor is Steve mentioned inversions 
and talked about countries leaving to avoid paying 35 percent. 
Johnson Controls was paying a 19-percent tax rate. Now, that 
doesn't mean that they aren't going to go try to find a lower 
tax rate somewhere else, but let's not kid ourselves. 
Particularly when you are talking about multinationals, the 35-
percent rate may be the statutory rate, but the effective rate, 
far, far lower.
    The literature that Kevin mentioned does--is by no means as 
widely accepted as he suggested, and in fact, the quotes that I 
gave you are quotes that tax experts from both sides of the 
aisle very much stand by. We disagree that anyone would retract 
the points that I made.
    Was that you?
    Chairman BRADY. Yes.
    Mr. BERNSTEIN. Oh, sorry.
    Chairman BRADY. Time has expired----
    Mr. BERNSTEIN. Sorry.
    Chairman BRADY [continuing]. Bernstein.
    Mr. BERNSTEIN. Can I make a quick point?
    Chairman BRADY. Yes.
    Mr. BERNSTEIN. Okay. Kevin cited Christine Romer's work 
suggesting that the administration's estimates were wrong; if 
they would have incorporated it, they would have been 
different. That is just patently incorrect. Those effects would 
have lasted for a year or two, never 6 years. And, by the way, 
the tax cuts that he is referring to, that Kevin is referring 
to, was a tax increase on a very narrow slice at the top of the 
income scale, people above $450,000. That is not what that 
literature refers to.
    Chairman BRADY. Remind me not to give you extra time. Okay.
    Mr. BERNSTEIN. Well, thank you for----
    Chairman BRADY. Mr. Johnson, you are recognized for 5 
minutes.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    A few weeks ago, my home town, Plano, Texas, was named 
America's best city to find a job in in 2016. And not a day 
seems to go by that some major company isn't moving into that 
area with new jobs, and there is a reason. It is because the 
Lone Star State's formula for growth, low taxes and fewer 
regulations, make a difference. As the chairman is well aware, 
Texas knows how to create jobs. It wouldn't hurt for folks in 
Washington to maybe look to see what is going on down there. 
Maybe it will work in the whole country. What do you think?
    Mr. Holtz-Eakin, welcome. Does a slower rate of future 
economic growth mean for the economy--what does it mean, and 
Americans' living standards, how will it affect them?
    Mr. HOLTZ-EAKIN. As I mentioned in my opening remarks, I 
think it is quite telling for the projected future living 
standards. Slower economic growth comes from two things: one, a 
slower rate of population growth, but more importantly, recent 
and projected productivity growth is very low. And that is 
where the living standard comes from.
    If we push off into the future a doubling of the living 
standard every 70 years instead of every 35, we push the 
American dream further and further down the road, and that is 
simply something that makes me very concerned about the next 
generation and beyond.
    Mr. JOHNSON. What are three things that we can do to change 
that, and can you list them in order of priority?
    Mr. HOLTZ-EAKIN. I picked the three that I think are most 
important in my testimony. I think the committee should 
continue to pursue a trade agenda. We know that the vast 
majority of income growth in the globe will be outside the U.S. 
Certainly the vast majority of consumers will be out there. I 
think it is an imperative that our workers and the firms they 
work in have access to those markets on terms that are fair and 
reasonable, and that is what a well-negotiated trade agreement 
can provide.
    I think tax reform is very important. I will align myself 
more closely with Kevin on the benefits of good tax policy. 
They increase the efficiency of the economy and can spur 
economic growth.
    And I think you should have to put entitlement reform on 
the table. Our entitlements are not serving the beneficiaries 
well. They need to be better. It is a disgrace to give someone 
a Social Security system that is going to go broke in 20 years. 
And they are feeding the red ink that is the problem with our 
budget.
    Mr. JOHNSON. We think tax reforms are important too.
    You know, at the end of last year, the total debt exceeded 
$18 trillion. It is now on track to reach $29 trillion in 2026. 
And we have deficits of hundreds of billions of dollars that 
are adding more and more to that debt each year. Some are 
suggesting that the deficit and debt are not a problem. Do you 
think our growing debt represents a threat to our economy?
    Mr. HOLTZ-EAKIN. Yes, I do. If you look at the CBO budget 
projections, which are what happens on autopilot, where nothing 
gets done, the deficit is about $1.3 trillion 10 years from 
now. $830 billion of that is interest on previous borrowing. 
Interest is growing--net interest is growing at over 12 percent 
a year in those projections. We are borrowing today, our 
previous borrowing, that is just unwise. It is also 
unsustainable and dangerous to the economy.
    Mr. JOHNSON. Thank you, Mr. Chairman. I yield back.
    Chairman BRADY. Thank you.
    Mr. Rangel, you are recognized.
    Mr. RANGEL. Thank you, Mr. Chairman.
    Mr. Moore, I was choked up to tears when you brought back 
the days of 1986 bipartisanship. And you have to realize at 
that time, Members talked with each other regardless of their 
party. And if somebody was saying that they wanted to have a 
tax cut or tax increase, people would say, ``Why,'' not whether 
that is the party line. So I think you threw the ball in the 
court of the Members of Congress, but when you talk about our 
corporate tax cut being so high, it is my understanding that 
some 26 of the major Fortune 500 corporations pay no taxes at 
all, that General Electric had $27.5 billion in profit, and 
they got a refund in terms of it. And so the private sector, I 
really think, is the greatest impediment because those that 
have this extraordinarily unconscionable tax rate don't pay the 
tax rate. So they are that not coming in here screaming about 
reform, but you are not going to find any Democrat that doesn't 
believe that we should reduce our corporate tax rates, but it 
is hard to find Republicans willing to put their names on 
anything, no matter how much of a distortion of the Tax Code it 
is, if someone could say they increased someone's taxes. And so 
we have a problem in abusing each other with rhetoric.
    And I think when we talk about whether or not we are using 
dynamic scoring or status current scoring, that it is a coverup 
for just saying cut taxes and not make it pain so much, but if 
we had people like you, Mr. Moore, that have been around the 
Hill and realize that a lot of the things that we do is because 
we don't want to have a label, but basically a lot of us, 
Democrats and Republican, know that compromise and working 
things out is the only way to get something done.
    It is almost unlawful--if I was to ask you to prepare a 
case as a representative for this country, say, for TPP, 
wouldn't you not say in order for that to be effective, that we 
would need infrastructure and that we would have to invest in 
it, and you could come up with some dynamic scoring as to how 
much the railroads and trains and planes would do, you could do 
it? If I was to ask you, what would make America great in terms 
of technology, couldn't you come up with some dynamic scoring 
that by keeping people out of jail and unemployed and having 
disposable income, they could buy and create jobs? You could do 
it. So I don't give a darn what economists call it. If we are 
not talking to each other, and dynamic scoring sounds like 
cheating to us, we don't care how rational it is. And if 
spending is something, even for the best of things, healthcare, 
education, building roads and whatnot, if that is going to mean 
that you can't be a good Republican, it doesn't work. So why 
don't the Chamber of Commerce and the Business Roundtable get 
rid of what is happening today and get back to 1986, where we 
would say, what did you mean by that, or can you change the 
language, or can you show what is going on, because the road 
that we are traveling is now the only people that are really 
not getting it are those people who had the hopes, the dreams 
that in this country, no matter what stage you are in, life can 
get better. And I don't see why the middle class is not 
considered good for America if you are rich or poor. If you are 
wealthy, you need middle America to invest.
    And so I yield back the balance of my time, because you 
people who are testifying have to recognize, it is hopeless for 
us to talk with each other when you start talking about dynamic 
scoring because you are talking about tax cutting and you are 
not talking about paying for the tax cuts, but if you talked 
about education, infrastructure, and bringing closer--ending 
the disparity in wages whether you are White or Black, 
Republican or Democrat, you are talking about what we used to 
talk about in 1986. And I wish we can get just some memory, as 
you have, of the days we have done that.
    Thank you, Mr. Chairman.
    Chairman BRADY. Thank you.
    Mr. Nunes, you are recognized.
    Mr. NUNES. Thank you. Thank you, Mr. Chairman.
    So I remain concerned that tinkering with the Tax Code is 
really going to have much of an impact at all because the 
income tax is just completely inefficient. The Congress picks 
winners and losers all of the time, and it is tough for us to 
get rid of all these winners or losers that we have picked over 
the years. And so I have long worked on a modified version of 
the X tax that I think most of you are familiar with, that does 
away with all of the loopholes. I think it is something that 
has bipartisan support, but because you are getting rid of 
essentially the income tax that has been in place for 100 
years, we need to properly vet a proposal of that magnitude.
    So my question--and I will start with Mr. Eakin--if this 
committee were to vet a modified X tax like the one I have 
proposed, what are the areas of focus that we should focus on 
as we review that proposal because if you make a change like 
this, you really are doing something that has never been tried 
globally before?
    I will start with you, Mr. Eakin.
    Mr. HOLTZ-EAKIN. Well, I have--I am a big fan of X tax 
style proposals, and they have some great efficiency virtues in 
that by expensing capital equipment, you equalize the tax 
treatment of capital investment, investment in skills and 
education because employers can subtract those. Because labor 
and capital are both expensed, your R&D, which is made of labor 
and capital, is expensed. You have now equalized the margins by 
which the economy grows: skills, physical capital, innovation. 
And we need to grow, and we need to make sure that we take the 
fastest route. I think looking at those and making sure those 
kinds of incentives are put in place are very important.
    Second is, think carefully about the X tax's distributional 
consequences because one of the things I like about X tax 
proposals is it is essentially turning the tax system into a 
traditional style IRA. You get to subtract a contribution, 
deduct it, expense it, and then it gets taxed when it comes out 
equally, interest, dividends, capital gains, no distortion on 
that front. That latter, I like a lot, but what gets 
unrecognized too often is when you do it that way, if someone 
gets lucky, right, so you may invest in a company and the rest 
of the global competition gets wiped out through an earthquake, 
stock scores, you make a ton of money, we capture the windfalls 
in that kind of a tax system, unlike one where you don't get 
the deduction; you get to keep everything afterwards, a Roth 
style IRA. So I think that it is a better distributional system 
than is typically perceived.
    And, finally, in the end, this is going to be a progressive 
consumption tax, tax on the consumed income base, I think that 
is exactly right, and--but you are going to have to look at how 
it integrates with the low-income support system and the 
poverty network where you set thresholds to begin that 
consumption, can't be done independently of what we are doing 
with the social safety net and the work incentives elsewhere.
    Mr. NUNES. Thank you, Mr. Eakin.
    Mr. Hassett.
    Mr. HASSETT. Thank you for being a leader on this topic, 
Mr. Nunes, too.
    You know, again, this is something--and it goes back to 
what Mr. Rangel was saying--you know, I don't think that my 
testimony earlier, for example, was about dynamic scoring. It 
was about thinking about if we do this, what happens to the 
economy. And I exactly applaud your analysis that if we are 
going to that, we need to do it for everything. So should we 
build a bridge is something we can analyze, like, what is it 
going to do to the economy if we build a bridge? The 
consumption tax is something, again, it is just completely 
resolved in the literature. You are a science denier if you 
don't recognize that----
    VOICE. Careful, careful.
    Mr. HASSETT [continuing]. Switching to a consumption tax is 
going to have positive effects on the economy. And it is very, 
very intuitive. The members of this committee need to 
understand, if you want to have higher consumption 5 years from 
now, where are you going to get the higher consumption? Well, 
you are going to have a higher wage, or you are going to have 
money in the bank. If you have money in the bank, then you 
could draw some of the money out of the bank or the interest on 
the money in the bank, and then you could use it to have higher 
consumption 5 years from now.
    The same is true for the economy. We want our economy to 
have higher consumption 5 years from now, and this is all 
Americans, then we have to have assets that we can draw 
consumption from. And so if we have something like the X tax 
that Mr. Nunes has been working on for years now, then the way 
you avoid the tax is you save for tomorrow. And so then 
tomorrow, Americans across the board have more stuff that they 
can use to finance their consumption. And so it is not magic. 
It is not hokum. It is just simple arithmetic that if we 
encourage people to acquire assets, then they can have higher 
future consumption.
    And so I applaud you, Mr. Nunes, for pursuing this.
    Mr. NUNES. Thank you.
    I know I only have 30 seconds left, that we are not going 
to get to Mr. Bernstein or Mr. Moore.
    But maybe, quickly, Mr. Bernstein, I don't know if you have 
looked at an X tax or not.
    Mr. BERNSTEIN. I will try to be quick.
    I think both of my colleagues made many good points. I take 
both of their points about efficiencies therein. And I think 
Doug's point is really important about the distributional 
impacts of consumption tax on those who consume but don't save.
    The only thing I would push back about Kevin's point is 
that, in fact, the price of capital is very low, it is very 
cheap, it is very excessive. That is not a binding constraint 
on investment right now.
    Mr. NUNES. Thank you, Mr. Chairman. I know I am out of 
time, but, Mr. Moore, I look forward to getting your response 
maybe at a later date.
    Thank you, Mr. Chairman. I yield back.
    Chairman BRADY. Thank you.
    Mr. McDermott, you are recognized.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    I have listened very carefully to the four of you for 
almost an hour now, and I have never heard the subject of 
student debt raised.
    Now, I would like to talk a little bit about my own 
experience. In 1970, I was a physician. I came out of the 
military. I moved to Seattle. I bought a house for $35,000. I 
was moving into the future, right? Today, you have 41 million 
people who are carrying $1.2 trillion worth of debt, and it is 
putting a damper on our economy that none of you have even 
mentioned. It is surprising to me.
    The average debt of a student coming--62 percent of the 
students in this country come out of college $35,000 in debt. 
Their money is going to go to that debt, not to buying a house 
in Seattle. And there is no way you can have that kind of debt 
and consider investing in the society. And kids are deciding 
now not to go to college because they can't see the benefit. Or 
I have kids in Seattle who are saying: I am going to Europe. I 
am going to Germany. I am going to France. I am going because 
college is free.
    And what is hard for me to understand is how you can avoid 
seeing the impact. These kids get these debts not only for 
them; their parents sign on to the debt, which changes their 
ability to retire because they have this big overhang of debt 
that their kid is still carrying. Seventy-seven percent of kids 
in this country say student loans are a major obstacle to 
obtaining a mortgage and buying a house.
    Now, if you want to talk about ObamaCare or EPA--Mr. Levin 
because he had to go to a meeting about Flint, Michigan. That 
is what you get when you get rid of regulations. If those are 
what you think will stimulate the economy, when is somebody 
going to talk about the young people in this country who are 
dragging debt no matter what they do?
    I worked on the Great Lakes every summer. I made enough 
money to pay for the whole school year. You kids work all 
summer now, you can't pay for one quarter. You can hardly pay 
for one course.
    And so I would like to hear you talk about student debt. Do 
you think it makes any difference, what happens to the kids in 
this country? Or do you think, why should they have to pay 7 
percent when businesses can borrow at the low rate, 1 percent, 
2 percent, something like that? They can't renegotiate their 
rates?
    We can't even get a hearing on a bill like that. I put the 
bill forward. I would like to hear you say what you think about 
student debt.
    Let's start with you, Mr. Eakin.
    Mr. HOLTZ-EAKIN. So I think you said two important things 
that are fundamental to this. The first is you used to be able 
to work during the summer and pay a whole quarter or semester. 
The fundamental problem is not the debt or the equity 
investment in higher education; it is how much higher education 
costs and what some kids are getting for it. That is a value 
proposition, and that is the fundamental issue that has to be 
dealt with.
    It is very similar to the kind of discussions we had back 
in 2006 and 2007 about healthcare reform, where there was a 
bipartisan agreement that we are spending too much on a product 
of highly uneven quality and there was an enormous amount of 
Federal subsidy going into it. The same conversation has to 
happen on higher ed.
    The second is this hearing is about better economic 
performance. There is no segment of the population that has 
been hit harder than young people by the Great Recession and 
the poor recovery, and that has exacerbated the difficulties 
they have in these debt-financed college educations.
    So, I mean, start with the fundamentals, and then figure 
out how we can target more effectively----
    Mr. MCDERMOTT. Why can't we have the banks allow the rate 
to go down? Or why can't we get kids into the Federal system 
and finance it all from the Federal Government at 1 or 2 
percent rather than doing it the way we are doing it now, which 
is----
    [Phone rings.]
    Mr. MCDERMOTT. Excuse me here a second.
    Chairman BRADY. If you are going to break into song, Mr. 
McDermott, we will need a warning on that.
    Mr. MCDERMOTT. Why can't we have renegotiation of loans 
with banks for students? Just give me the answer to that. Why 
can't students renegotiate?
    Mr. HOLTZ-EAKIN. Private lending has been essentially taken 
out of the Federal financing of higher education, and so there 
are no banks to negotiate with. And the rates are set in law by 
Members of Congress, so I would----
    Mr. MCDERMOTT. It is up to Congress to drop the rate----
    Mr. HOLTZ-EAKIN [continuing]. Get a mirror.
    Mr. MCDERMOTT. If we drop the rate on taxation from 35 
percent, maybe we could drop the rate on student loans to prime 
rate.
    Chairman BRADY. All time has expired.
    Mr. Reichert, you are recognized.
    Mr. REICHERT. Thank you, Mr. Chairman.
    Six years ago, President Obama set a bold goal of doubling 
exports by the end of 2014. I very much support the goal of 
increasing U.S. growth and creating jobs through increasing 
exports. Exports alone support 11.7 million American jobs, and 
the number of jobs tied to trade across the country has 
increased by over 110 percent since 1992. In my home State 
alone, this number is even higher. It is 129 percent, 
Washington State, the most trade-dependent State in the Nation.
    And because of this, members--as a member, one member, 
along with Pat Tiberi, who is not here today, and Mike Kelly, 
members of the President's Export Council, we have been pushing 
the administration to focus on new market access through high-
standard trade agreements to meet this goal. Since that time, 
the administration has launched a series of negotiations that I 
hope will yield ambitious trade agreements resulting in more 
good-paying jobs in America.
    I chair the Trade Subcommittee, so my question obviously 
will focus on trade. I am committed to strong oversight of 
these negotiations, including our negotiations for a U.S.-EU 
trade agreement and working with the administration on a way 
forward on this Trans-Pacific Partnership that is winding up 
hopefully sometime in the near future. We must get this right, 
however. It is too important for our global leadership and 
economic growth not to.
    So I noticed, Professor Holtz-Eakin, in your testimony, you 
mentioned trade as one of your key points in growing the 
economy. In fact, I think your statements were: It is crucial 
to economic growth. It increases market access, increases 
productivity, of course then leading to additional job growth 
in the United States.
    Can you expand a little bit more on the importance of trade 
and how it plays that strong role in growing our economy? And 
then, also, I think it might be important to mention maybe some 
of the evidence that you have to support that statement.
    Mr. HOLTZ-EAKIN. So I think broad economic engagement with 
the rest of the world is central to our future. As I mentioned 
before, we know there are large growing markets outside the 
United States, with the vast majority of consumers and income 
growth there. I think it is beholden to the U.S. to provide our 
workers access to selling their skills in those markets on 
terms that are level and, you know, represent the best of well-
negotiated trade agreements.
    A good example of the kinds of things that go on with trade 
is: You think of in the nineties when we thought we couldn't 
compete in semiconductors anymore, right? It was all going to 
go away. We eliminated all tariffs. There was an agreement, 
trade agreement, to eliminate tariffs on semiconductors around 
the world. The U.S. didn't lose. It absolutely came back and 
has high-productivity, excellent semiconductors.
    We can compete with anyone. The productivity pressures that 
come from trade generate productivity increases and allow 
employers to pay their workers better. That is why you get 
about a 20-percent bump in compensation in export-related 
industries and companies. And I think we ought to be 
consciously trying to, you know, pursue engagement all around 
the globe to get the right terms.
    And as a practical matter, if you look back at the history 
of the GATT and the WTO, I would like to believe, as a Ph.D. 
economist, that the virtues of good economic policy drove that. 
It didn't. The reality was we also faced a threat in the Soviet 
Union. We knit together a Western alliance on both economics 
and security grounds to face that threat. We need to think that 
way in the 21st century, as well, and knit together strategic 
alliances on economic and other grounds. And these trade 
agreements are great ways to do that.
    Mr. REICHERT. Very quickly.
    Mr. HASSETT. Yes. The one thing about it, though, is that 
the two issues are very connected. So we for sure should expand 
as much free trade as we can. But if we don't fix the Tax Code 
too----
    Mr. REICHERT. Oh, yeah.
    Mr. HASSETT [continuing]. What is going to happen is that 
they are going to produce the goods in Ireland that they sell 
to the place that we have the new trade deal with and that U.S. 
workers are going to be left behind, like they have been, 
because we are the high corporate tax place.
    And so if we really want to be a force multiplier with 
trade, then we have to fix the Tax Code as well.
    Mr. REICHERT. I totally agree with you. I think they are 
indeed in partnership.
    Finally, our committee considers policy ideas that will 
deliver growth and opportunity for all Americans. We focus on 
individual policies that are working, such as employee 
ownership. I want to thank Mr. Bernstein for his support of an 
ESOP bill that Mr. Kind and I are sharing together and 
proposing.
    And I yield back.
    Chairman BRADY. Thank you.
    And, Mr. Neal, you are recognized.
    Mr. NEAL. Thank you, Mr. Chairman.
    Having served here for a long time, I have a pretty good 
institutional memory of some of the facts that have been thrown 
out here today. And the argument, conveniently, as we move from 
Reagan to Obama, left out Clinton and Bush.
    So I am invited to the White House within weeks of George 
W. Bush's election with 11 others--the one I can recall that 
was there for the record was Cliff Stearns--and sat next to the 
President at the big table, and he laid out his plan for tax 
cuts. Paul O'Neill was there, and Vice President Cheney was 
there.
    And the President asked me what I thought. I was next up 
after he made the presentation. And I said: Mr. President, why 
don't we stick to the position that we are currently on and 
offer modest tax cuts to middle-income Americans and continue 
to pay down the debt? Well, obviously, he didn't accept that 
suggestion because taxes were cut by a trillion-three in 2001 
and a trillion more in 2003.
    So we take the Clinton surplus, and, with the tax cuts, we 
direct them to people at the very top and argue that that is 
going to trickle down to people at the very bottom. And, now, 
as economists, you must acknowledge that it was very slow in 
terms of growth. The whole notion of the Bush tax cuts were to 
speed up growth. It didn't happen.
    The Clinton position--and Bush I, incidentally--brought us 
to unparalleled prosperity of 23 million jobs, 4 balanced 
budgets.
    So we continue here to argue over this notion that if you 
simply cut taxes for people at the top it is going to be great 
for everybody across the country. And there is very little 
evidence to support that conclusion, including the argument 
about tax cuts paying for themselves.
    So you are talking to somebody who is very interested in 
using many of the arguments that you have all offered, because 
I read your stuff pretty faithfully, in trying to figure out a 
path forward with corporate taxes and personal income taxes 
which might put the country on a trajectory of pro-growth.
    But I want to come to Mr. Bernstein for a moment, because I 
want to tell you, in western Massachusetts, the money that we 
used for rail with stimulus worked on the north-south line--New 
Haven, Hartford, Springfield, and on to Vermont.
    And as it relates to the Internet in rural western 
Massachusetts, where private companies looked at the 
opportunities there to extend high-speed Internet, they 
couldn't do it. We used that money for middle mile 
opportunities.
    So, Mr. Bernstein, would you comment on those?
    Mr. BERNSTEIN. Yeah. This brings us to something we also 
haven't talked about which is really critical. If we believe--
and I am very much with you on this, Representative Neal--that 
part of dealing with our slow productivity growth problem is 
greater investment in public infrastructure--and you give a 
couple of great examples there--we are not going to be able to 
do that if we butcher our revenue base by reckless tax cuts.
    Now, that doesn't mean that every tax cut is a reckless tax 
cut. One of the things I haven't heard discussed here today is 
revenue neutrality. Any reform to, say, the business side of 
the Tax Code should have that as the lowest bar, but, as I said 
in my testimony, that is not enough. We are going to have to do 
better to make these investments that are so critical to our 
public goods and to our infrastructure that is too often 
deteriorating. You have managed to take the initiative in your 
State, and I very strongly suspect you are going to have 
productivity gains to show for them.
    In context of some of the comments that have been made 
here, under Ronald Reagan--and you will remember Steve's 
chart--the GDP was going up very quickly. Debt as a share of 
GDP increased 15 percentage points, from 25 percent of GDP to 
about 40 percent of GDP. Okay? So you can't make the kinds of 
investments you need if your tax cuts leave you in such an 
indebted situation even amidst relatively strong growth.
    The Clinton years, as you suggested, go precisely the other 
way: very strong growth, strong productivity growth, 
productivity growing a point and a half faster than it is 
growing now, really remarkable productivity growth, and budget 
surplus, not budget imbalance. What did President Clinton do? 
He didn't take the advice of the supply-side tax-cutters. Quite 
to the contrary.
    So I think that the punch line of your comments is that, A, 
we have to invest in public infrastructure; B, that is going to 
take more revenues, not less; and, C, if we follow the supply-
side tax problems, we are going to be ending up in the same 
Ronald Reagan/George W. Bush position of not having the 
resources to make those critical investments.
    Mr. NEAL. Thank you, Mr. Chairman.
    Chairman BRADY. Thank you.
    Dr. Boustany, you are recognized.
    Mr. BOUSTANY. Thank you, Mr. Chairman.
    I think what hasn't been said here yet is that America is 
an exceptional Nation. And I think all of us believe that in 
our heart. Most Americans do. I have seen it when I have gone 
down to a shipyard in Morgan City, where workers, those who are 
still working, have the pride in their eyes in the 
craftsmanship that they have been able to put together to build 
vessels. Same in Cameron, where we have oil rigs that are 
stacked, but some are still working to fabricate, to hang on to 
those jobs. And those are good-paying jobs, much better paying 
than the average. The fact is, workers, American families are 
hurting, and they are hurting bad.
    I read the testimony last night, all of your testimony, and 
I can tell you, the charts, the graphs are depressing. Point-
seven percent growth in the last quarter of the year? 
Absolutely depressing. I put it down. I picked up Ian Toll's 
first volume on the Pacific War, our actions in World War II, 
and read the chapter on Midway. And it gives me hope that we 
are going to come out of this, because Americans always face a 
challenge and we always have an innovative response. That is 
why we are exceptional.
    We came out of the recession because we had a bump in 
exports and we had the shale revolution, and oil and gas 
production soared that helped us come out of that recession. 
And both are down now, as is consumption, manufacturing--all 
the indicators for our economy. We have to change it. That 
means understanding what is going on with trade and leading, as 
Mr. Reichert just talked about. It is about restoring growth, 
because we cannot restore American leadership without economic 
growth. Trade is key. We have to retool our Tax Code. I mean, 
right now, American companies are really struggling because of 
the Tax Code.
    And on the international side, whether it is the BEPS 
coming out of OECD, the hostility coming out of Europe on State 
aid, the adverse merger and acquisition activity, if we don't 
do this with a sense of urgency, we are going to lose. We need 
to understand the linkage between trade and energy. And we just 
opened up LNG exports and the potential for crude oil exports, 
but none of these things are going to solve that broad problem 
until we embrace this energy sector and understand how we 
retool our energy strategy to fit the 21st century. These 
things will make a major difference.
    My State of Louisiana understands this, but the Washington 
dysfunction here, the lack of a political will, and the lack of 
the understanding to sit down and have a real conversation 
about these issues and how we solve these things is what is 
holding us back. We have to take the bull by the horns here and 
start solving these problems for the sake of this country.
    I just want to focus, with the little bit of time I have 
left, on the international tax side of things. And I alluded to 
it with the urgency in which we need to approach this. But 
economic growth and prosperity and the well-being of American 
companies doing business all over the planet links directly 
back to the welfare of American families.
    I think you guys--would you all accept that concept? I 
think it is pretty intuitive.
    So if we don't stop the loss of major U.S.-headquartered 
companies--I mean, we are hemorrhaging this. We have had 
several of them just in January, major, high-profile ones, not 
to mention the lower-profile cases, and the fact that U.S. 
companies can't even compete in a merger and acquisition market 
today. We are losing in the global game. We have to stop it.
    Do you agree that this loss is felt all the way down into 
small communities across this country, whether it is suppliers 
or service providers that are linked to that economy, or even 
those that may not have that direct link, because of the drain 
on our economy, it is having an impact?
    Mr. Holtz-Eakin.
    Mr. HOLTZ-EAKIN. I think this is a national tragedy. And 
you look at the Budweiser-InBev merge. Headquarters leaves St. 
Louis for tax reasons. You know, Budweiser was, the Anheuser-
Busch brand was that town. And what happens to the Boy Scouts, 
the Girl Scouts, you know, the opera, anything like that, the 
suppliers in the local area? If you lose the headquarters, you 
start to lose the R&D. If you lose the R&D, you lose the 
manufacturing.
    We are losing the headquarters in every international 
merger and acquisition. We simply can't compete. We have gone 
from being the global economic predator to the prey. And this 
is not going to stop until the Tax Code gets changed. There is 
just no way around that.
    Mr. BOUSTANY. Others?
    Mr. MOORE. You know, I just want to touch on something you 
said about energy. We just did a study that finds that the 
value--I mean, look, the shale, oil, and gas revolution--you 
hit it right on the nose. Without the shale, oil, and gas 
revolution, we would not have had an economic recovery. It had 
nothing to do with the economic recovery. Just look at the 
statistics. On net, all of the new jobs that were created from 
2008 through around 2013, 2014, all of the net new jobs were in 
the shale, oil, and gas revolution. This is what bailed us out.
    Now, we are in a situation today because of these 
technologies--and, by the way, the technologies are getting 
better and better and better every single day. We have a 
massive lead over the rest of the world in this industry.
    Now, here is what is amazing----
    Mr. BOUSTANY. We don't want to repeat the same mistakes we 
made in the seventies with that technology.
    Mr. MOORE. You have it exactly right. But let me just throw 
out one statistic, if I may, to you. The value of American oil 
and gas at current technology, the recoverable oil and gas--and 
that has more than doubled over the last 10 years because of 
these new technologies--the value of that is $50 trillion--$50 
trillion to the U.S. economy. This is the single biggest 
priority we have as a country. We are sitting on a treasure 
chest of $50 trillion of assets. And this is under Federal 
public lands.
    Now, Mr. Chairman, this is an important point. What is the 
value to this of the taxpayer? You are talking about how we are 
going to pay for all these tax cuts. I will tell you how you 
are going to pay for it. We drill. And we have leases, and we 
have tax payments, and we estimate that the value of this asset 
to the Federal Government is about $3 trillion in tax payments 
and leases and royalties.
    Why don't we do that? If we need revenues, why don't we 
drill for this oil? I mean, we have a President----
    Mr. BERNSTEIN. Oil is $30 a barrel. Do you want more 
supply?
    Mr. MOORE. We have----
    Mr. BERNSTEIN. It makes no economic sense.
    Chairman BRADY. All time has expired.
    Mr. MOORE. It does because----
    Mr. BOUSTANY. Thank you, Mr. Chairman. I appreciate----
    Mr. MOORE [continuing]. The price of oil isn't going to 
stay at $30 a barrel.
    But the point is this: that we have a President right now 
who says, keep this $50 trillion asset underground. It is one 
of the dumbest policies. It is almost unpatriotic to say we 
shouldn't be drilling for our assets when you are talking about 
jobs that pay $80,000, $100,000, $150,000 a year.
    Chairman BRADY. All time--thank you, Mr. Moore. All time 
has expired.
    Mr. MOORE. Sorry.
    Chairman BRADY. We went over just a bit on that one. We 
will take it out of Mr. Roskam's time.
    Mr. Doggett, you are recognized.
    Mr. DOGGETT. Well, thank you so much.
    I am all for taking the bull by the horns, but not just for 
more bull, of which we hear a lot in this committee.
    I am pleased that Dr. Holtz-Eakin has been unequivocal in 
his prior testimony to the committee on one point with which I 
fully agree.
    And that is your comment, Dr. Holtz-Eakin, that, quote, ``I 
have never believed that tax cuts pay for themselves.'' That 
remains your position today, does it not?
    Mr. HOLTZ-EAKIN. Yes, it does.
    Mr. DOGGETT. And while there may be other reasons for 
supporting what this committee approved back in December in a 
massive tax cut approving so many tax expenditures that were 
made permanent, you do not disagree with the Committee for a 
Responsible Federal Budget, on whose board you recently served, 
that when you consider the interest cost and everything of 
borrowing the money rather than paying for those provisions, it 
added about $830 billion to the national debt over 10 years.
    Mr. HOLTZ-EAKIN. I actually haven't seen their publication, 
but I think we know from the CBO baseline, which incorporates 
that, that that is the position we are in.
    Mr. DOGGETT. That is right. That is about what the CBO 
estimated, as well. And, indeed, about $2 trillion added to the 
national debt over the next two decades.
    And I think the problem is that, while everyone on the 
committee enjoys the opportunity to vote for a reduction in 
taxes, as our former chairman Dave Camp found, there are not 
very many people that want to vote to pay for those revenue 
reductions. And as a result, tax reform--and I think this will 
be true of the international tax changes, some of which I 
support, that Chairman Brady spoke about yesterday--tax reform 
is just another way of saying: Cut taxes, borrow more money to 
fund whoever has the strongest lobbying team here.
    Now, the stated purpose of this hearing is to provide pro-
growth policies that deliver opportunities for all Americans. I 
think that would be something new in this committee, because, 
in fact, the way we have created so many loopholes and 
advantages for the advantaged in the Tax Code, it has played a 
major role in fostering inequality in this country.
    If you look back as far as 1965, the average corporate 
executive was being paid a salary that was 20 times that of the 
average worker, and today we know that is closer to 300 times 
the average worker. And yet this committee continues to 
support, a majority of it, a taxpayer subsidy for multimillion-
dollar executive bonuses.
    A major factor contributing to inequality in our country, 
the inequality that is concerning people of differing political 
philosophies today, is the Tax Code and the way it has been 
altered to benefit the few.
    A second factor that is important to note here is that 
there are things that might be done to encourage America's 
competitiveness other than just changes in taxes.
    And so if there is an issue about how to provide more young 
Americans an opportunity to get all the education they are 
willing to work for, how to train our workforce so that people 
that lose one job have a chance of getting a better job, every 
dollar that we would invest there, that has to be paid for 
under our budget rules by cutting something else.
    But you can go on a spending spree with tax expenditures 
and never pay a dime. And that is what the Congress did in 
December, and that is what is being proposed for this year as 
well.
    Dr. Bernstein, specifically with regard to those 
corporations that renounce their citizenship and decide to 
reincorporate in name only abroad to avoid paying their fair 
share of American security, do you support the concept of an 
exit tax similar to that that applies to individuals who 
renounce their citizenship in order to dodge taxes?
    Mr. BERNSTEIN. Yeah, I think the exit tax would be a useful 
idea. It would build on some of the efforts of the Treasury 
Department, which are constrained because they can't write 
legislation as this body can.
    And, in fact, I think you made an important point in 
passing there that often gets left behind. We talk about these 
inversions as if companies are moving everything overseas. I 
agree with my fellow panelists that we lose too much when 
headquarters are moved. But, in fact, oftentimes they are just 
moving their tax mailbox, as far as the IRS concern, booking 
profits in other countries with lower tax rates.
    And it will be a kind of race to the bottom if we try to do 
that, especially if this body follows a kind of CutGo, as 
opposed to PAYGO, where not just spending cuts have to be 
offset but tax cuts as well.
    Chairman BRADY. All time has expired.
    Mr. DOGGETT. Thank you, Mr. Chairman.
    Chairman BRADY. Thank you.
    Mr. Roskam, you are recognized.
    Mr. ROSKAM. Thank you, Mr. Chairman.
    Mr. Holtz-Eakin, can I ask you to give us some insight from 
your previous assignment as Director of the Congressional 
Budget Office? And here is our frustration. We have had a 
discussion about growth and so forth and the characterization 
of dynamic scoring and static scoring, and it is sort of a 
shirts-and-skins argument on that. But can you give some 
insight to a frustration that I have?
    So there is significant waste, significant fraud, 
significant abuse. The fraud numbers, for example, in Medicare 
blow your mind. The fraud numbers in EITC blow your mind. We 
are talking billions and billions and billions a week. And yet, 
when there are legislative proposals that CBO is asked to 
score, they come up with this catch-22 sort of thinking, and 
that is: Well, that is going to cost money, the remedy is going 
to cost money, and therefore you are not going to save money.
    Can you give us some insight into this ridiculous catch-22, 
only-in-Washington-D.C. approach? And, more specifically, how 
can we fix this? Because this is just too absurd for words.
    Mr. HOLTZ-EAKIN. Well, we have certainly gone to the weeds, 
sir, and your fellow committee members will regret the hearing.
    Okay. So there are a couple different things going on. 
First, the basic act of scoring says enactment of the 
legislation causes something to happen. So that, in this case, 
involves some sort of implementation of recoveries or antifraud 
or something in the executive branch. If that linkage isn't 
firm and secure, CBO cannot and will not score it. So that is 
one issue to check.
    Second, in its wisdom, Congress set up rules for the budget 
committee and CBO that basically said you cannot simply 
appropriate a dollar to the IRS and say, ``Go collect some 
money,'' decide that they will collect a dollar and a half, and 
then go spend the extra fifty cents. This was essentially a way 
to rein in--and I say this lovingly--the appropriations 
committees from simply appropriating money that they could then 
spend more.
    That particular decision meant that anytime you spend 
money, which is what you are frustrated by--you are spending 
some money, but you think you are going to get something back--
you have to demonstrate that the money in the legislation 
delivered to the agency a new tool not previously in existence 
that will in fact improve recoveries or prevent more frauds. 
And the new-tool test is the thing that is driving you crazy. 
If you are just giving them more money to do the same thing, 
you don't get any credit for recoveries and the like.
    And that is a----
    Mr. ROSKAM. What is the remedy? Is it reformation of the 
Budget Act? Is that where this----
    Mr. HOLTZ-EAKIN. Yeah, I mean, there is a big need for a 
reform of the Budget Act. It is long overdue. You know, it is 
50 years old almost, and there are lots of things about it that 
need to get fixed. And those kinds of things are incredibly 
frustrating because it does stand common sense on its head.
    Mr. ROSKAM. That is gentle, ``stands common sense on its 
head.'' I am with you.
    Mr. HOLTZ-EAKIN. Well, that was my job. I am a 
professional----
    Mr. ROSKAM. It denies gravity.
    So, Dr. Hassett, there was an interesting interchange that 
you had with Mr. Bernstein a couple of questions ago about 
interpretations of the new tax literature. Could you just 
respond to that?
    Mr. HASSETT. Yeah. Jared asserted that I am making some 
kind of mistake, and I can promise that I am not. And I can, 
you know, meet with Jared, who is a close friend. We have 
written papers together, which means he has written at least 
one good thing in his career.
    But I am happy to run through. I mean, again, you can 
just--the staff can grab the articles that I cite in my 
testimony and have a look at what they say.
    Absolutely, the idea that if you have an incentive for 
something that you get more of it and if you have a 
disincentive for something that you get less of it, you know, 
should not be a contentious idea. The question then is, how 
much?
    And it sort of befuddles me why someone would say that, you 
know, you could have much higher taxes but not create any 
disincentives, not cause any harm. And the zero position on 
that is something that I don't think is really defensible in 
the literature at all. And that seems to be where Jared is.
    So he is not only saying that I am incorrect when I just, 
you know, am reviewing the literature with citations, but he is 
making a point that I don't think that there is a good citation 
for. In fact, the article that he does cite in quotes leaves 
out a bunch of the papers that they just don't like the result 
of, apparently.
    Mr. BERNSTEIN. Can I respond quickly?
    Mr. ROSKAM. Quickly.
    Mr. BERNSTEIN. Yeah. The articles that I quote are just 
articles from the tax literature as well, so this is a debate.
    But I will say I think Kevin is wrong both on the facts and 
the theory, because when you raise a tax, yes, you will lead 
someone to say, ``Gee, I want to work less,'' on one side, 
because this is called the substitution effect, but also they 
might say, ``I want to work more because I now have a lower 
after-tax income. I better put in more hours.'' That is called 
an income effect. Both of those----
    Chairman BRADY. All time has expired.
    Mr. BERNSTEIN [continuing]. Are theoretically germane.
    Chairman BRADY. Thank you.
    Mr. Smith, you are recognized.
    Mr. SMITH OF NEBRASKA. Thank you, Mr. Chairman.
    And thank you to our panel. This, I believe, is a very 
important hearing. A lot of moving parts in our economy, 
certainly, across the country. I represent a constituency in 
Nebraska, and some of the States around us, we have had fairly 
strong economies throughout a lot of this time, although we are 
still affected by the weaker national economic recovery that we 
have experienced the last 7 years.
    Dr. Holtz-Eakin, you have done a lot of work on the 
ObamaCare, ACA, whatever one wishes to call it. Nebraska had 
the first collapse of a co-op--CoOportunity Health it was 
called--the first of the community-oriented and -operated 
health plans created by ObamaCare. That was the first to 
collapse. Eleven additional co-ops have collapsed, out of the 
23 created. And, obviously, that has an impact, leaving a lot 
of folks without the coverage that they were promised, or 
perhaps they were moved over to that against their preferences.
    But now we also have reports of major insurers, such as 
UnitedHealth and Humana, leaving the health exchanges. And I 
would say these are major losses and certainly contribute to 
what seems to be a growing dissatisfaction of the outcomes of 
ObamaCare.
    And I was just wondering if you might comment on what we 
might expect, economically or other dynamics out there, as a 
result of these new developments, newer developments, in 
ObamaCare.
    Mr. HOLTZ-EAKIN. I think there is good reason to be nervous 
about the stability and future of the exchanges under the 
Affordable Care Act.
    The reality is that enrollments grew however quickly you 
might want to think and then have just leveled off. We know 
that the people who buy health insurance first are those that 
need it the most, and the insurers' losses have proven that 
this is an expensive population, more expensive than 
anticipated. The co-ops, who had the dual handicaps of being 
highly inexperienced and using someone else's money--bad 
incentives always--have gone out of business on those losses. 
The major insurers, the Blues and others who have done this for 
a long time, are losing money in a big way.
    And the future is sort of in doubt. One possibility is 
these are simply--they are going to try to raise premiums in 
the traditional fashion and drive people out of exchanges, and 
they go into a death spiral. I doubt that Congress has the 
ethic to throw more money in and just turn these into glorified 
high-risk pools, where expensive people get subsidized to get 
their care.
    I think it is a deep concern. It is a budgetary concern. It 
is an insurance concern. And it is certainly a healthcare 
concern, because when people lose their insurance, as they did 
when the co-op collapsed in Nebraska and Iowa, they have to 
change provider networks, and this is always a bad thing for 
outcomes.
    So we are not in a good situation, and it is not obvious 
what the next step is going to be.
    Mr. SMITH OF NEBRASKA. So, from a consumer standpoint, what 
do you think consumers should see on the horizon? Perhaps any 
changes that they should expect or try to plan around?
    Mr. HOLTZ-EAKIN. The thing they face most imminently is 
higher premiums. I mean, these insurers are losing a lot of 
money. There is no other place to go than to raise premiums. So 
we have seen sharp premium increases already in the benchmark 
silver plans, and we have seen the kinds of disguised premium 
increases that come with narrower networks, higher copays and 
deductibles. That is the imminent threat.
    The bigger problem is insurers leaving. United has said 
they may leave. Aetna is talking about leaving. That diminishes 
their choice. There is a lot of evidence that with diminished 
choice comes less competition and higher premiums yet.
    So, in my view, whatever you thought of things when it 
first passed, it is not evolving in a very beneficial way for 
consumers in the individual market.
    Mr. SMITH OF NEBRASKA. Thank you.
    Mr. Moore, I know you have done a lot work on the national 
economy, and I certainly appreciate the graphs that you have 
submitted here. What kind of national impact do you think, 
national economic impact, we should see on the horizon because 
of the failures of ObamaCare?
    Mr. MOORE. Did you say the national impact of ObamaCare?
    Mr. SMITH OF NEBRASKA. Yes. Economic impact.
    Mr. MOORE. Look, I am not an expert on health care, but I 
do think one of the things I would recommend to you that would 
be a stimulus to the economy would be to lift the 50-worker 
rule. I can't tell you how many times I talk to employers, 
probably you know people in your own districts, who say, ``I 
will be dammed if I hire a 50th worker.'' Because what you have 
created is a cliff. Once you hit that 50th worker, not only 
does the insurance mandates apply to that worker but every one 
of your employees. So I would raise that to 200, 250 workers.
    Look, we still have a lot of unemployed Americans in this 
country. Why in the world would we pass a law that actually 
encourages employers to hire fewer workers? I never really 
could understand the logic of that. I mean, there is a term for 
this now that is going around the country among employers. They 
call themselves ``49ers.'' I am not talking about the San 
Francisco 49ers. These are companies that have capped their 
employment. I bet every one of you in your districts knows 
employers who have come to you with the same problem. We ought 
to fix that right away.
    Chairman BRADY. Thank you.
    Mr. SMITH OF NEBRASKA. Thank you.
    Chairman BRADY. All time has expired.
    Mr. Thompson, you are recognized.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Thank you to the witnesses for being here.
    You know, I don't have the institutional memory that my 
friend Mr. Neal has. I haven't been here that long. But I do 
remember very precisely the night that I was in then-Speaker 
Nancy Pelosi's office when then-Secretary Paulson came in to 
tell her that things were so bad with the economy, if we didn't 
act immediately, that our entire economy was going to implode.
    So it just strikes me that to talk about not recovering 
quick enough, that the recovery hasn't been as robust as it 
should have, I don't think that that is particularly an honest 
assessment of what happened. We have not been in a situation as 
bad as we were on that point in our tenure here than the Great 
Depression.
    So the fact that we have been able to bring back incredible 
private-sector job growth, the investments that we made in 
infrastructure--I have had companies in my district tell me, 
had it not been for the little bit of investment that we have 
given these people to repave streets and highways, they would 
have closed their businesses, they would have lost their 
businesses. That investment, I believe, was very worthwhile.
    Now, fast forward to today, when we can see firsthand what 
a lack of investment in infrastructure is doing. Look at Flint, 
Michigan. The Ranking Member had to leave to go to a meeting on 
that. Children have been poisoned because we have not made the 
investments in infrastructure that we need to make. So not only 
did we lose the jobs and the economic growth that would have 
been brought about because of that investment, this is going to 
cost us dearly in the long run.
    Also, the talk today about tax cuts and the fact that we 
are even discussing going down the road of passing more tax 
cuts that are unpaid for I think is frightful. The idea that we 
can just run up the debt, we should all be concerned about 
that. And Mr. Doggett mentioned it earlier. We have just gone 
through this. We passed a massive tax expenditure package that 
is going to add to our debt and is going to become a greater 
drag on our economy.
    Now, like most of my colleagues here, I liked a lot of the 
tax policy that was in that package. As a matter of fact, a 
couple of the bills that I voted against were my bills because 
they--I voted against them because it was not paid for and the 
drag that would have on our economy.
    And the last point I want to make is on the issue of employ 
stock ownership plans. I have a number of those in my district, 
and I have a number of other people who would like to get those 
going. I am particularly interested in the idea that it would 
reduce wealth inequality, as was referenced in your article, 
Mr. Bernstein. And I think it is a great way to move forward 
something positive. It doesn't cost us any money, doesn't add 
to the debt, puts more people to work.
    And talk about looking into the eyes of your workers. The 
company Recology in my district, it is a municipal waste and 
recycling company. And when I go in to meet with them, they sit 
around that conference table, and you have mechanics, you have 
truck drivers, you have recycle gatherers or picker-uppers, and 
they are just very, very proud of the fact that they own part 
of this company. And I think we could do a lot more to improve 
our economy.
    So, Mr. Bernstein, I would appreciate hearing from you on 
those things.
    Mr. BERNSTEIN. Well, I won't repeat my findings because you 
very much nailed them, so thank you for that. The only thing I 
would add is that the other thing I have found is that in 
companies that have employee stock ownership programs the wage 
distribution tends to be considerably more narrow than in 
companies that don't. So it is not just that they are providing 
their folks with some capital in terms of retirement security, 
but also paying them, typically, well also.
    I have a couple of seconds. If it is okay, I would like to 
reference this discussion that just came up on the Affordable 
Care Act. And I am particularly interested in----
    Mr. THOMPSON. I think we are going to repeal that again 
today, appropriately since----
    Mr. BERNSTEIN. Well, that would be a huge mistake----
    Mr. THOMPSON [continuing]. Today is Groundhog Day.
    Mr. BERNSTEIN [continuing]. Based on the slides. First, 
just two things. I have 30 seconds.
    One is, Steve's point that somehow there has been an 
increase in involuntary part-time work because of this 50-hours 
rule is directly contradicted by the data, which shows, in 
fact, part-time work--involuntary part-time work is what we 
would expect if people are being forced into part-time work--is 
falling sharply. And I show that in figures 4 and 5.
    In figure 6, I show projections by the CBO that show 
savings of up to 3 percent of GDP based on costs of major 
health programs that have been----
    Chairman BRADY. Thank you, Mr. Bernstein.
    Mr. BERNSTEIN [continuing]. At least partly associated with 
the ACA.
    Chairman BRADY. Thank you. All time has expired.
    Mr. Paulsen, you are recognized.
    Mr. PAULSEN. Thank you, Mr. Chairman. You know, this 
hearing couldn't come at a more critical time, a more important 
time. The testimony has actually been really sobering, but it 
has also been really, really instructive.
    And it is true, when the President came in, we were in dire 
financial straits, a tough situation. But the fact remains, we 
have the worst economic recovery ever in the history of our 
country. We should be doing a lot better. The worst on record 
ever.
    And it is no wonder, actually, 72 percent of Americans 
today still think we are in recession right now. Median 
household income has actually dropped for the first time ever, 
also, during an economic recovery. So paychecks have dropped, 
wages are flat. And it also took nearly 5 years just to get 
back to having the same number of people working again than 
when the recession first started in December 2007. That is the 
longest period of time to return to the starting point in any 
recession, actually, also in American history.
    So, with that in mind, it is really critical, it is really 
important that we use every tool at our disposal--fixing a 
broken Tax Code, expanding markets overseas--to make sure that 
we are helping everyone achieve the American Dream and getting 
our economy back on track.
    So I want to go back to some of these international tax 
reform points and why this is so critical, from my perspective, 
because you mentioned Medtronic, Mr. Moore, for instance, a 
Minnesota company. It is just one of many companies that we 
have heard of changing their headquarters, moving it overseas, 
for instance. Since 1982, my understanding is we have had 51 
inversions, I think, that have taken place, but, actually, 20 
of those inversions have happened since 2012. We have three in 
January of this month alone. And so the trend has accelerated.
    And, actually, probably the real story is not the 
inversions but it is going to be the acquisitions of American 
companies by foreign competitors over time. And that is when 
you move the headquarters, you move the innovation, you move 
jobs overseas. So, in an iPod world, when you can move capital 
at the click of a mouse, we should be addressing this.
    So my question is this. I will start with you, Mr. Moore. 
Do you believe that we should also look at doing international 
reform as a downpayment to the broader reforms that are needed, 
that are tough, that are challenging to get bipartisanly done, 
that we need for this Congress, but should we move forward on 
that, to making sure that we are addressing this 
competitiveness issue rather than a tax avoidance issue?
    Mr. MOORE. You know, the thing that is remarkable about 
this issue is that, you know, when President Obama took office, 
he had a tax reform commission that was headed by Paul Volcker, 
who headed the Federal Reserve. And the Obama committee, or 
blue ribbon panel, basically said all the things that we are 
saying about the corporate tax: that it is chasing businesses 
and capital out of the country, that it is creating a 
competitive problem to the United States, and we ought to do 
something about this.
    And that was back in--I don't remember the exact year, but 
it was 2009, 2010. It was certainly in President Obama's first 
term. Here we are 5 years later, and we are still having this 
conversation. Why haven't we done something about this? I mean, 
how many companies have to leave?
    Now, look, maybe we have to have--I would favor just 
cutting the corporate rate right now to 15 percent. And, look, 
if we have to borrow to do it, do it, because that is going to 
bring jobs back to the United States.
    But if you want pay-fors, I will just give you one example. 
I mean, one of the atrocious add-ons to the tax bill that you 
all passed last year was this indefensible credit for the solar 
industry. And we know what happened with that money. So you 
gave about a half a billion dollars to the solar industry, and 
we know what happened. All that money got capitalized into 
value of the shares of companies like SolarCity. So all you did 
was you spent $500 million of taxpayer money to the 
shareholders of these companies. I mean, my goodness, how is 
that good tax policy?
    Let's find those kinds of loopholes and credits, get rid of 
them, and get that rate, Mr. Chairman, down as low as we 
possibly can before more of these companies leave.
    Mr. PAULSEN. Mr. Holtz-Eakin, some critics of moving to an 
exemption system for foreign earnings argue that it is some 
sort of zero-sum game and that any increase in investment 
abroad leads to a decrease in domestic investment here. You 
know, there is strong evidence that when American companies 
expand into foreign markets it helps the domestic economy.
    Mr. HOLTZ-EAKIN. You are exactly right. I mean, the 
evidence is these are complementary, not zero-sum substitutes, 
that if you invest abroad, you expand your domestic employment 
investment as well. That is an important thing to remember.
    I think there are other important things to just frame this 
issue. Right now, the discussion is entirely defensive. ``How 
do we hold on to our companies?'' We really should be on 
offense. We should want every company to locate here. We have 
some existing inbound investors, fully a fifth of our 
manufacturing base, and these are, you know, high-paying, good 
jobs. We want people to invest here. They are not going to do 
it if we remain the highest tax country in the developed world 
and retain our system of worldwide taxation.
    The chart that Mr. Moore showed about the rate coming down 
is one thing. The second thing that has happened is, basically 
one a year, the OECD countries have moved away from worldwide 
taxation. We are the last ones left. So there must be some 
magic secret that we have hidden away in the West Wing that 
makes this a good idea when everyone else has given it up. And 
that is a place to worry.
    I would also worry not just about the corporations but 
about the entrepreneurs tax through the passthroughs. One of 
the striking features of the recent data is the firm death rate 
for the first time has gone above the birth rate. We have seen 
the drop in firm startups be so dramatic that we are losing 
more firms than we are giving birth to.
    I would worry about all the things that affect 
entrepreneurs. It is tax, it is trade, it is the regulatory 
burden. There is no single lever. But we have a problem in our 
business community.
    Chairman BRADY. Thank you all. Time has expired.
    Mr. Marchant, you are recognized.
    Mr. MARCHANT. Thank you, Mr. Chairman.
    When I go back to my district and have townhall meetings, 
the subject that comes up most frequently is the national debt. 
Whether it is young people, older people, people on Social 
Security, it is the inevitable subject that always comes up.
    I would like all of your opinions, each of you to make a 
comment. What effect does the size of our national debt and the 
lack of a plan to reduce it have on our current economy? And 
what effect will it have on the ability of us to have a future 
growth economy? And let's just start with each panelist.
    Mr. HOLTZ-EAKIN. So the current trajectory for the debt is 
unsustainable; it is explosive. That is bad for the economy 
right now, because if you are any rational investor from 
anywhere around the globe and you look at the U.S. and you say, 
okay, within a decade we are going to get to the point where 
basically all borrowing is to pay interest on previous 
borrowing, that is a very dangerous place to put my money or 
hire my people.
    Because only a couple things can happen: You can raise a 
lot of taxes. The terms on that are going to be low. You could 
not do something and end up in a big financial crisis, a 
sovereign debt crisis. That is a terrible growth strategy. Or 
you could get the budget under control with some sensible 
spending reforms, but that is only one of three things that is 
a good thing.
    So it really damages the image of the United States as a 
place to start and to expand businesses. And that, I think, 
should be troubling to everyone right now.
    We may stabilize the debt, but we are at a very high level. 
And if you do that, you are baking in a lack of flexibility in 
the budget, because you are paying a lot of interest costs 
every year that could be devoted to the annual appropriations 
or some other pressing national need. There is an inflexibility 
as a Nation; you are exposed to interest rate shocks, and you 
are going to have to manage that in a global economy.
    So you give up a lot of the flexibility you would like to 
have, both as a budget entity and as a nation, by locking in at 
a high level. The best thing to do is to have a trajectory that 
stabilizes and then goes down, and that would be something that 
the committee should be looking for.
    Mr. MARCHANT. Mr. Hassett.
    Mr. HASSETT. I can be quick.
    There is a big literature that suggests that when debt 
relative to GDP--this is just gross debt--gets above about 90 
percent, then you get pretty slow growth. If you look at the 
forecast for the debt in the U.S., then it is easy to see about 
1 percent lower growth every year because of the high debt that 
we have over the next 30, 40 years. And that is something that 
we need to get out in front of or we are going to have that low 
growth.
    It is one of the reasons why, you know, 2 percent might 
actually be better than we can achieve. Because I don't think 
that those forecasts that we are looking at now that we are 
depressed about are fully incorporating the negative effects of 
the high debt.
    Mr. BERNSTEIN. So I don't think the negative effects of the 
high debt are nearly as visible as Kevin's comments would 
suggest. For example, debt is high right now, and interest 
rates are very low, have been very low, and probably will be 
very low for a long time coming. So it is more complicated than 
that.
    That said, I think Doug's point about the future is very 
well taken. And I don't think we are going to achieve a 
sustainable path unless we, and I guess I would argue you, 
accept that there is going to have to be spending cuts, which 
we have done a lot of already, but also revenue increases, 
which I think is just anathema to Members of this body. And we 
will never be able to achieve a sustainable path if people are 
unwilling to yield on that point.
    Mr. MOORE. So I guess I am the outlier here. Look, the debt 
is a result of low growth. Low growth is not caused by the 
debt. If we get this economy growing at 3\1/2\ to 4 percent, 
where we should be, we are really not going to have to worry so 
much about the debt because the debt is going to fall both in 
terms of getting to a balanced budget and also, what we care 
about, the debt as a share of GDP.
    So I would urge you all to concentrate about what do we do 
to get growth up, because growth up will reduce the burden of 
the debt. I mean, Jared is right; we have the lowest interest 
rates in 50 years.
    My problem with what we did in 2009 is not that we 
borrowed; it is just that we didn't get anything for the money. 
I mean, yeah, we borrowed a lot in the 1980s, but look what we 
got. We got tax rates down that caused one of the strongest 
expansions in the history of our country, and we defeated the 
Soviet Union, we won the cold war. That is a pretty good 
investment of $2 trillion to do those two things.
    I look at the economy now, and I look--we borrowed $8 
trillion in 7 years. What have we got to show for it? Solyndra? 
People on food stamps? People on unemployment benefits? I mean, 
there is just no lasting benefit to what happened when we did 
this.
    And I just want to go back to this one quick point, that, 
look, people keep asking, ``Gee, what if we hadn't done what we 
did? What if we didn't have the massive $8 billion bill?'' And 
we know what would have happened if we didn't, because this was 
a chart that was prepared. These were Jared Bernstein's own 
numbers. We have a higher unemployment rate than we would have 
had, according to Jared, if we hadn't borrowed all this money.
    Chairman BRADY. Thank you. All time has expired.
    Mr. Blumenauer, you are recognized.
    Mr. BLUMENAUER. It has been so long, I forgot where the 
button is.
    Thank you, Mr. Chairman. And I appreciate the diversity of 
opinions and the attitude that is being taken here this 
morning. I think this is important, and it has been useful.
    I appreciate Mr. Bernstein's work on ESOPs. I am going to 
defer, I think, to my friend Mr. Kind, who might want to talk 
about it, but I think those are such a powerful tool to 
stimulate economic growth and to align the interests of workers 
and the corporation in a very powerful way.
    I appreciated what we heard from Mr. Moore, talking about 
the 1986 spirit of cooperation and what happened in this 
committee with some disparate attitudes from people who--Reagan 
and Tip O'Neill. I would note that out of that compromise there 
was a significant increase in corporate tax rates, an increase 
in capital gains. There are some lessons there about the 
package that can be put together, and I hope we have a similar 
flexibility moving forward.
    In particular, I would go back 4 years earlier, when Ronald 
Reagan and Tip O'Neill raised the gas tax a nickel a gallon, 
and we got some things for it. And that was done on a 
cooperative, bipartisan basis, raising a user fee, not raising 
the deficit.
    I am hopeful that we might be able to exercise that same 
spirit of cooperation and bold thinking that isn't actually so 
bold--it is Eisenhower, it is Reagan, it didn't used to be 
controversial--in terms of the use of user fees rather than the 
gimmicks that we used this last year for--I am glad we have a 
5-year reauthorization. We have a little bit of money; we have 
5 years of certainty. But it is not on a sustainable basis 
going forward.
    I have shared with this committee before and I hope the 
committee, Mr. Chairman, might be able to at least spend a day 
looking at revisiting how we used to do it and listen to the 
broad consensus across interest groups--the U.S. Chamber of 
Commerce, the AFL-CIO, truckers and AAA, environmentalists, the 
people who are involved with road construction and other 
infrastructure--to look at something that is broadly agreed 
upon that would make a difference going forward.
    And, frankly, I think we raise the gas tax to abolish the 
gas tax, because it is not sustainable, going forward, to base 
on gallons of fuel consumed to finance the underpinnings of our 
infrastructure.
    And there is a better way. This committee has had 
legislation before it, which luckily got included in the 
reauthorization, to allow the pilot project that we have in 
Oregon to deal with road user charges that would be fairer, 
more sustainable, and would enable us to fine-tune the charge 
to be able to deal with things like congestion and maybe the 
lower costs in rural and small-town America. So it would be 
fairer, raise more money on a sustainable basis, and get rid of 
the gas tax, which is increasingly unrelated to road user 
benefit.
    But my question--and, Jared, maybe you would like to 
comment. What impact would it have over the next decade if we 
took that spirit of Ronald Reagan and Tip O'Neill and raised 
the user fee in a sustainable fashion in terms of putting 
Americans to work at family-wage jobs across the country and 
having something to show for it
    Mr. BERNSTEIN. Well, I will just reflect back to my 
comments to Mr. Marchant a second ago. I don't think there is a 
way forward that doesn't involve some compromise on this point. 
We can't achieve a sustainable budget simply by spending cuts. 
And, in fact, if you look at the nondefense discretionary side 
of the budget, where so much important spending goes on in 
issues like law enforcement, homeland security, education, 
research, public health, veterans medical care, that is slated 
to fall to its lowest share on record as a share of GDP by next 
year.
    Mr. BLUMENAUER. Help me, Mr. Bernstein, on infrastructure.
    Mr. BERNSTEIN. And so on--yes. So the tax on gas, on a 
gallon of gas, has been stuck at 18.4 cents in nominal terms 
since 1993. Now, in what kind of fantastical thinking can we 
pay for our roads, can we upgrade our roads on a tax that 
hasn't been updated in 20-plus years?
    Chairman BRADY. Thank you. All time has expired.
    Mr. Reed, you are recognized.
    Mr. REED. Thank you, Mr. Chairman, and thank you to the 
witnesses.
    Opening comment here, it has been interesting listening to 
the comments of my colleagues on the other side as well as the 
responses from the witnesses. And it is just ironic that I hear 
often about the glory days of the Clinton administration. The 
Clinton administration policies enacted a glorious budget 
surplus and economic growth, and that is all due to the Clinton 
administration. But yet when we talk about the Obama 
administration in this present economy, of course, it can't be 
the Obama administration's policies that are causing this slow-
growth economy. It has got to be all Bush No. 43, and we all 
blame it on prior--on Bush. So I think what we are hearing here 
is a lot of rhetoric, a lot of politics. You know what? I am 
sick and tired of that.
    What I am interested in is some real solutions from this 
panel as we go forward with some reforms that we all know need 
to be done. Obviously, we have a broken Tax Code. The Tax Code 
has to be fixed. I see that there is potentially a road ahead 
for us to do that, but is there something to be done in 2016 in 
regards to comprehensive tax reform? I am always the eternal 
optimist, but let's be realistic and maybe we downsize our 
expectations here a little bit and focus on something maybe we 
can do, and that is international tax reform. As we deal with 
international tax reform, we have had some conversations with 
the White House. We have had some conversations with folks on 
the other side of the aisle and other side of the Chamber in 
the Senate about a real need to fix this issue. And I think we 
all agree that that problem is in need of fixing, and I think 
there is a bipartisan, bicameral effort to potentially tackle 
this, but one of my concerns--and I am a strong voice for U.S. 
manufacturing. I am a strong voice for U.S. manufacturing. I do 
believe we can make it here to sell it around the world again. 
That is something I have adopted in my office, and I firmly 
believe that opportunity is before us. And so as we go through, 
we look at U.S. manufacturing, what two-thirds of our U.S. 
manufacturers on a pass-through status, being taxed on the 
individual side of the coin. I am interested, a sincere 
interest, from the panelists, as we do international tax reform 
and as we look at potential reforms on that front with our 
international corporate entities in particular, what can we be 
doing at the same time in a 2016 horizon that you guys could 
potentially offer us in regards to those pass-through entities, 
the two-thirds of the U.S. manufacturers that are in need of 
tax reform just as much as the international tax component of 
the Tax Code that is in need of fixing?
    Is there anything, Mr. Moore, that you could offer? And 
then we will just go right down----
    Mr. MOORE. Well, it is a great question. I mean, look, you 
are right. Most of our companies are small businesses, and they 
pass this through--and medium-sized businesses. So there is 
some thought about, you know, if we are going to cut the 
corporate tax, we should cut the tax on small businesses at the 
same rate. I am in agreement with that. I just think the 
emergency is so great on our corporate system, that I just want 
to get it done right now. That is my--and let's deal with that 
issue later. And that is sort of the way I feel about tax 
reform generally. I mean, there is nobody--I have devoted 30 
years to this issue of tax reform, so there is no one who wants 
it more with more urgency than I do, but I think we have got an 
emergency right now--we have talked about this all morning--
about getting that corporate tax--and, look, to the Democrats 
in this room, yes, we as Republicans are going to have to give 
up some of the things that we want to get this done.
    I mean, we are not saying it has to be our way, but this 
was done, Mr. Rangel. You know it. You were here in this room 
when it got done. And I loved what you said, by the way, in 
your opening statement. I mean, I think you and the chairman 
should get together for lunch and figure this stuff out. Maybe 
you do need to talk more because I agree with almost everything 
that you said.
    Mr. REED. Well, Steve, reclaiming my time, but I am really 
looking at, how can we take care of potentially an immediate 
concern that the pass-throughs, the U.S. manufacturers, the 
small businesses? Because one of the things I am concerned 
about is I come from rural western New York, and we have got a 
lot of people. And I go back to my home district. I am here on 
behalf of them. And I understand the concern on the 
international side, and we need to fix it. I join in that 
effort, but I want to do something for them, and I want to do 
something for them right now.
    So what can we do, Mr. Bernstein----
    Mr. BERNSTEIN. So I won't talk about this, but the strong 
dollar is making life very hard for our manufacturers, and----
    Mr. REED. I agree with you.
    Mr. BERNSTEIN [continuing]. I take your point about the 
inherent competitiveness. Instead of fighting over every one of 
the hundred tax deductions and expenditures in the Tax Code, I 
am all about closing the loopholes. We should limit those 
deductions and expenditures to 28 percent instead of the top 
rate of 40 percent. I think that would both improve efficiency, 
again, shut down subsidies and loopholes, and raise half a 
trillion dollars over 10 years.
    Mr. REED. Mr. Hassett.
    Mr. HASSETT. You know, I think that something that you guys 
could do this year would be just to--you know, Mr. Rangel, you 
said that we have got this high corporate tax, but none of the 
guys are paying it. You should experiment. If you cut the rate 
by 2 or 3 percentage points, you are not going to lose revenue. 
It is going to help American business. It is going to help 
American manufacturing. And the pass-through entities would see 
the rate reduction and change corporate form. It costs a couple 
of hundred bucks----
    Mr. REED. Do it across the board, rate reduction for 
everybody.
    Mr. HASSETT. Yeah.
    Mr. REED. My time has expired. Thank you.
    Chairman BRADY. Thank you.
    Mr. Pascrell, you are recognized.
    Mr. PASCRELL. Mr. Chairman, I listened very carefully to 
your introductory remarks, and you touched upon what we would 
be doing in terms of tax reform and welfare reform and health 
reform and trade expansion. And then I heard a lot of numbers 
go this way and then a lot of numbers come this way, and I said 
to myself, well, we have had smart people there like yourself 
before who said pretty much the similar, same kinds of stuff: 
How come we can't get this done? And my contention is that it 
has very little to do with the numbers because we all can make 
a case. We are all good lawyers when it comes to it, even 
though we are not lawyers all of us. You know, we need fact 
checks upon ourselves. We need fact checks. All of these 
scholars, I think they are good people. I have heard them 
testify, most of them, before. They have got a lot to say, a 
lot of good things to say. But you take the case of the 
threshold--since you are talking about the future and the 
economy--the threshold of the Affordable Care Act of 50 
employees, you know, let's take that as an example. In 2014, 
2014 alone, the number of workers employed part-time for 
economic reasons declined by more than 1 million. The greatest 
increase in involuntary part-time work came in 2008, and Obama 
was not the President, was not the President.
    So you painted--my good friend, Mr. Holtz-Eakin, you have 
painted a beautiful picture of the apocalypse; apocalypse II, 
it is all going to come down on us. I mean, maybe you are 
preparing us for the next recession, which you should be doing, 
part of your job, I think, but I think you need fact checks. 
You need them, and we need them. And then we could come to a 
conclusion together.
    We are not going to do--we have so many redos since we 
passed plan D and prescription drugs. Talk about the economy. 
It is not a major part of this big picture that we are dealing 
with--what is the future budget going to look like?--but it is 
a good thing to go back to. Democrats lost on that issue, if 
you remember. We lost at 3 o'clock in the morning, 4 o'clock in 
the morning. We lost on the issue. We campaigned against it. I 
went to senior citizens to tell them to--I had to tell senior 
citizens why I am going to vote against this thing, even though 
it is going to maybe help them with their prescription drugs, 
pay for them. And then we found out what had happened in that 
3:30, 4 o'clock in the morning and what it meant. Now, I didn't 
go back to my constituents, I didn't go back to my constituents 
and tell them: We lost, but we are going to fight this now.
    No. I went back to my constituents and said: I fought the 
good fight, and we lost. Now we are going to have to make this 
situation work.
    When has that happened in the past 8 years? When have you 
come forward with anything good to say about the economy? You 
would think--you know, we got--we have employed more people 
than all of the European countries put together since this 
great recession, depression, call it whatever the heck you want 
to call it. When have you ever come forward and said, ``Housing 
is better now than it was in 2007, building new housing''? When 
have you ever--I have never heard it from the other side, and a 
lot of these guys and gals are my friends. I have never heard 
it from them, ever. Why? He did some good. We have done some 
good. And we have done the best when we work together.
    So you can have all the numbers you want. You can have all 
the numbers to present, et cetera, et cetera. And I--you know, 
on page 11 in your report to us--Jared, you said something 
about the carried interest, and I think it is like a little 
mirror to this whole mess, carried interest, about how unfair 
that is when you are trying to deal with the economy, when you 
are trying to have fairness woven into the process, how 
important that would be, what the results of that would--that 
is, what, $16 billion over 10 years, and it is not going to 
change the history of mankind, but it is just one example. Why 
can't we even get to that, when I know there are people on the 
other side that want the same thing we want? So when we are 
talking about budgets and future budgets, we are talking about 
not only numbers; we are talking about attitudes and altitudes.
    Chairman BRADY. Thank you, Mr. Pascrell.
    Mr. PASCRELL. You are welcome.
    Chairman BRADY. Your time has expired.
    Mr. Kind, you are recognized.
    Mr. KIND. I thank the chair's courtesy. The dais kind of 
bends over here, and I get tucked away a little bit, but I want 
to thank the witnesses for your testimony here today.
    And, Mr. Bernstein, let me start with you and just pick up 
on a line that Mr. Thompson was questioning you about. And I 
want to commend you for the recent article that you wrote on 
ESOPs, entitled ``Employee Ownership, ESOPs, Wealth, and 
Wages.'' I believe for a long time that can be a tool when it 
comes to addressing income inequality.
    Representative Reichert and I have had this ESOP 
modernization bill pending before this committee.
    Mr. Chairman, I think that would be a very nice vehicle for 
us as a committee to move forward on. It doesn't cost anything. 
It makes it easier to convert to the ESOP model. I have visited 
a lot of the ESOP shops in my congressional district and 
throughout the State. And, you know, the pride of ownership, 
the productivity, the loyalty, all these factors coming into 
play, so I commend you for the article.
    And I would ask unanimous consent, Mr. Chairman, at this 
time to have that article included in the record.
    Chairman BRADY. Without objection.
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    Mr. KIND. Thank you.
    And another point that some of my colleagues have raised 
too, and that is the eagerness--and it is a concern I share--it 
is the eagerness for this Congress to support tax cuts that 
aren't paid for and that are not offset and the potential 
damage it can do for our fiscal solvency as a Nation at a time 
when we have got 10,000 boomers retiring every day in this 
country and joining Social Security and Medicare. And I know 
politically it is one of the easiest votes to cast is a tax cut 
that is not paid for, but there are consequences to it.
    We heard testimony earlier today from this panel talking 
about the beneficial effect of the Reagan tax cuts, but what 
was failed to be mentioned was the eight subsequent tax 
increases that followed that initial tax cut in order to deal 
with the exploding budget deficit that resulted from that 
decision.
    There was also talk about the idyllic 1986 tax reform 
moment where there was bipartisan support for reducing 
individual rates, but what was failed to be mentioned was it 
also entailed one of the largest business tax increases in our 
Nation's history at the time to help pay for a lowering of 
those individual rates in that 1986 reform bill.
    There has been testimony about what other nations are doing 
to lower their corporate rate, but what was failed to be 
mentioned is those same countries are dialing up their VAT in 
order to replace the lost revenue that they are experiencing 
from a reduction of the corporate rates. We don't have that 
luxury in this country, other than going after loopholes and 
expenditures within the Tax Code that we should be willing to 
go after and deal with that inefficiency in the Tax Code.
    And yet last December, this Congress again passed an $800 
billion permanent tax change to the Code without a nickel of it 
being offset, and as Mr. Doggett pointed out, that is $2 
trillion over 20. And a few years ago, we had permanency of the 
Bush tax cuts, 95 percent of what was made permanent in the Tax 
Code. It is a multitrillion dollar expense that our country 
will be suffering because, again, that was not offset. And this 
administration shares some of that blame. They have given up 
more baseline revenue funding in their 8 years in office than 
any previous administration has to this date. Even the Bush 
administration sunset his tax cuts to 10 years in order to make 
the budget scenario look better, even though at the time, 
everyone kind of knew that once you do it, it is going to be 
permanent at some point in the future.
    There is a cost, especially with the aging demographics of 
this Nation, that we are not addressing. And I just caution 
this committee to stop going down this road of delivering more 
tax goodies without any offsets, without any pay-fors. We have 
got to be more fiscally responsible for future generations than 
that.
    And I am also--and I think someone else mentioned it, but 
also, we need to have more testimony, more hearing about the 
type of investments we have to be making in the human capital 
of this Nation, not just corporations, not just businesses, but 
human beings.
    And, again, Mr. Bernstein, let me end it with you, and I 
want to thank you for the recent article you just published in 
the Washington Post about the missed opportunity of----
    Mr. BERNSTEIN. You are reading all my stuff. I----
    Mr. KIND. I am sorry, but it is jumping out at me for some 
reason, but----
    Mr. BERNSTEIN. That is great.
    Mr. KIND. If you want to, you know, pick that up just a 
little bit about that missed opportunity to----
    Mr. BERNSTEIN. Absolutely. First of all, on the ESOPs, let 
me just make one point about employee stock ownership programs. 
I think the Tax Code actually incentivizes ESOPs plenty as it 
is. What I would actually do, and I have talked to numerous 
employers, you probably have too, who are interested in 
starting ESOPs, but don't see the way forward, don't understand 
how to do it, think it is complicated, think it is expensive. I 
have recommended an agency, a small agency within Commerce that 
helps people who want to do that, just give them advice, and I 
write about that in my piece.
    Look, on investment in human capital, the piece I wrote 
yesterday that you are referring to talks about the return on 
investment in early childhood education. We can talk about 
early childhood, or we can talk about pre-K, quality pre-K. 
According to a really pretty careful analysis, Kevin talked 
about controlled studies, ideas where you look at the 
intervention on one group first that got the intervention, 
another group that didn't, we are talking about returns on 
investment that are as high as $8.50 for every dollar invested 
when these kids grow up. We are leaving large amounts of 
benefits on the table here and a lot of kids behind.
    Mr. KIND. Thank you, Mr. Chairman.
    Chairman BRADY. Ms. Black, you are recognized.
    Mrs. BLACK. Thank you, Mr. Chairman.
    And I want to ask my question to Mr. Holtz-Eakin. Some say 
that the deficit and the debt are not a problem. And I hear 
that from people, and it just drives me crazy because if you 
were in your own household building up the kind of debt that 
you had in the deficit and looking, by the end of--at the end 
of the last year, our total debt passed that $18 trillion mark. 
When I say this to my constituents, it is really hard to even 
fathom what that is because when I talk about trillions, it 
sounds almost like it is fictitious. The CBO now tells us that 
it is on track to reach $29 trillion by 2026. We should all be 
concerned about this when we talk about the economy.
    Do you think our growing debt is a threat to our economy?
    Mr. HOLTZ-EAKIN. I do. That trajectory turned level and 
forward is unsustainable. Something has to change. And how it 
gets changed is the central question. The first question is 
sort of, what you do? Do you get the debt to go down, or do you 
just, you know, get it stabilized somehow? I would argue 
against stabilizing it because even now we are spending over 
$200 billion a year on net interest with interest rates 
relatively low. Everyone on this committee can think of a good 
use of $200 billion to meet national needs. So locking in high 
levels of debt locks in high commitments for interest and 
crowds out other budgetary activities and/or returning the 
money to the private sector.
    The second issue is suppose you don't stabilize it, and 
then, you know, you have got even higher taxes. You know, you 
don't have to be a raving supply-sider to recognize how 
dangerous that is. Again, deficit out there at the end of 10 
years, $1.3 trillion. Suppose you wanted to just close the 
deficit. Do we really want a trillion dollar tax increase to do 
that? So you are going to have to take on some combination of 
activities, or if you don't, you know, private enterprise, 
either domestically originated or looking in from outside, is 
going to say: This is an unappetizing place to do business; we 
are going to go elsewhere.
    Mrs. BLACK. So if you had your way today, where would you 
say the first reform would be that we should start looking at 
to help to at least begin to solve this problem?
    Mr. HOLTZ-EAKIN. So the sad reality is that it is going to 
have to be in the area of the entitlement programs because all 
the budgetary work that has been done to date in recent years 
has focused on the discretionary side. That has never been the 
problem, and I think recent history has suggested the caps that 
were written into the Budget Control Act were unrealistic. On 
two occasions already, the Congress has undone them.
    So let us go to the real problem. The problem is mandatory 
spending programs: Social Security, Medicare and Medicaid, 
Affordable Care Act, go down the list. Many of those have a big 
demographic component so they are going to rise inexorably with 
the baby boom, so speed is of the essence. And, you know, all 
of them are going to require a lot of careful consideration on 
both sides of the aisle to get it done. I mean, so I hate to 
say it, you know, you got to go do entitlement reform, but you 
do, and it is going to be difficult, and doing it fast is 
important.
    Mr. MOORE. Let me make a quick point on this.
    Mrs. BLACK. Mr. Moore.
    Mr. MOORE. I am, obviously, for the kinds of reforms that 
Doug is talking about, but the focus of this hearing was on, 
what can we do to improve the economic growth of the country? 
And Doug probably knows these numbers by heart better than I 
do, but let me put it simply. If we keep having 2 percent 
growth, you can't get from here to a balanced budget. You just 
can't. The numbers, it doesn't matter how much you cut; you are 
not going to get it to a balanced budget with 2 percent growth 
rate. We have to get to 3 to 4. And I think we actually, given 
that we have been in such a growth rut for such a long time, I 
don't see why we couldn't strive for 5 percent growth. If you 
do that--now, you probably know these numbers better than do I, 
Doug--every percentage point increase in growth over a decade 
is, what, another $2 trillion or something?
    Mr. HOLTZ-EAKIN. Every tenth of a percent is about $300 
billion.
    Mr. MOORE. How much?
    Mr. HOLTZ-EAKIN. If you get a whole percentage point, you 
could get $3 trillion.
    Mr. MOORE. So that is why this is such an important 
hearing. You know, we need to concentrate obviously on spending 
control, but we also have to get that growth rate up to at 
least 3.5 percent.
    Mrs. BLACK. So that would be the second part of my 
question, actually, that you picked up on. In the growth, we 
can't just grow our way out of it. We do have to look on the 
spending side and----
    Mr. MOORE. What I am saying is it is a precondition.
    Mrs. BLACK. Absolutely.
    Mr. MOORE. It is a necessary, but not sufficient.
    Mrs. BLACK. And so the question on that, with my 35 seconds 
left, which we are not going to have an opportunity to discuss, 
is the whole issue of taxes. And as I tell people at my town 
hall meetings at home, if I can give you more money back in 
your pocket, what are you going to do with it? And, without 
exception, everybody in the room--mostly females, but the males 
also--say, I am going to spend it. And if you spend it, that 
increases the opportunity for another job. And if somebody has 
another job producing a product, that means that we are going 
to actually spend more money and bring in more revenue. So this 
whole thing about, well, reducing taxes really doesn't help, 
yes, it does because if I put a dollar back in your pocket, 
most people are going to say, ``I am going to spend a dollar,'' 
which means production of another product.
    So thank you, Mr. Chairman.
    Chairman BRADY. Thank you.
    Mr. Davis, you are recognized.
    Mr. DAVIS. Thank you very much, Mr. Chairman.
    Mr. Bernstein, you testified that our economy demonstrates 
solid labor market trends and that our entire poverty policies 
have helped reduce poverty over the past few decades. However, 
there remain groups of Americans who are not yet experiencing 
this economic recovery. For example, the University of 
Illinois, Chicago's Great Cities Institute, recently found that 
almost half of African-American men ages 20 to 24 in Chicago 
are neither in school or working. Alarmingly, this rate is 
higher than other racial and ethnic groups in Chicago and also 
is much higher than their peers in other large cities, such as 
Los Angeles and New York City.
    Let me ask you, what policies would you think are needed to 
help strengthen the economic well-being of these Americans who 
are not yet benefiting from the economic recovery that we talk 
about?
    Mr. BERNSTEIN. Well, thank you for asking that question and 
bringing it into this hearing, I think for the first time, a 
significant group of people who have been very much left 
behind. And these kinds of problems, deep disconnection from 
the overall economy, occur in neighborhoods across the country.
    I think what would help them most directly would be a job 
saturation program where direct job creation combined with a 
human capital program to help these folks improve their skills 
would really deal with a fundamental problem in these areas, 
which is they are job deserts. Even when we are competing--even 
when we are increasing employment throughout the country, there 
are areas of the country that remain essentially deserts in 
terms of job creation, and there we have a market failure. And 
when the market fails, the public sector has to step in and 
make up the difference. And when I say ``job saturation,'' I am 
not just talking about a job or two; I am thinking about a deep 
investment in direct employment opportunity coupled, again, 
with a human skills investment program as well.
    Mr. DAVIS. Well, let me thank you for that. And I also 
believe that we can look at improving TANF in a way that might 
add another opportunity in terms of subsidizing some of the 
jobs that are indeed created and also providing benefits to 
individuals who are childless, who don't necessarily have 
children, in terms of earned income tax credit and making use 
of that as a way of stimulating work for this group.
    Mr. BERNSTEIN. Yeah. I very much agree with you. And by the 
way, no less than my colleague Doug Holtz-Eakin down there, who 
is on the other side of the aisle, who mentioned the importance 
of expanding the earned income tax credit to childless adults, 
something that I think there is some bipartisan support for.
    In terms of TANF, you raise a really important point. Here 
is a program that was block granted back in 1996 and where 
welfare reform arguably had some positive results. What 
happened there was a real disinvestment in this program vis-a-
vis helping some of the most disadvantaged families with 
children. Back in 1996, right at the point where welfare reform 
was passed, 68 percent of poor families with kids received some 
benefits from the program. Now that is just around 20 percent. 
Only 8 percent of TANF funding goes to the basic assistance 
with childcare and work activities of the type we have talked 
about. So we have to be very careful and not go down this block 
granting, or what Congressman Ryan calls opportunity grant 
program, where we really disinvest in precisely the kind of 
investments that the neighborhoods that we are talking about so 
desperately need.
    Mr. DAVIS. And let me ask you quickly, there are still 
individuals suggesting that the Affordable Care Act is going to 
decrease jobs and work opportunity and eliminate jobs. Do you 
see any possible way that that happens as a result of the 
Affordable Care Act?
    Mr. BERNSTEIN. Well, I can only speak about the data record 
on this, the empirical evidence, and the empirical evidence 
shows that anyone who is claiming the ACA is a, quote, ``job 
killer''--you unfortunately hear those two words all too 
often--really has nothing to stand on. We have already talked 
about the job--the overall labor market improvement, which I 
think has been very strong, but I also pointed out that there 
has been no increase in involuntary part-time unemployment, as 
Steve's model would predict. In fact, quite the opposite, and 
at the same time, there has been a clear increase in healthcare 
employment.
    Mr. DAVIS. Thank you very much.
    I yield back, Mr. Chairman.
    Chairman BRADY. Thank you.
    Mr. Kelly, you are recognized.
    Mr. KELLY. Thank you, Mr. Chairman.
    I thank the panel for being here.
    I heard one of my colleagues talk about being here when Mr. 
Paulsen came into the Leader's office and talked about the 
economic crisis. I remember that. I wasn't here. I was actually 
back in my dealership trying to figure out what the economic 
crisis meant to me because I had payroll to make. And there are 
many times--and most of us in the private sector have made sure 
that the people that work with us got paid, and we didn't get 
paid.
    But today's panel and the discussion was about economic 
growth. And I know we get too political in these things, and we 
don't talk enough about policy. You all study that, and you 
know what is going to make a difference. And, Steve, I have 
listened to you, and Mr. Bernstein, Mr. Hassett, Mr. Holtz-
Eakin, I mean, I really wanted to hear from you today. I don't 
need any more stump speeches, quite frankly. I have lived it. 
And I spent more time on the blacktop than a laptop, so nobody 
has to tell me about theoretically how things happen.
    When you put more money into the pockets of consumers, they 
spend it. That is what gets the economy going. People are not 
leaving this country because they hate it. They are leaving 
because it doesn't favor them anymore or offer them 
opportunity. That is ridiculous in America. And I am constantly 
concerned about it. And there was a cartoon I remember when I 
first came out of college that we had posted in the back 
office, and it said: The beatings will continue until morale 
improves.
    And I think just put that into the private sector and then 
constantly be beat up every single day because of your 
greediness, the fact that you want to do something with your 
money that the government doesn't agree with.
    So, Doug, between all of you, other than tax reform, and I 
am talking about complete tax reform, how are we going to grow 
our way out of this? There are opportunities all around the 
world. I would love to see us keep our base and then grow our 
opportunities. In a country that is awash in so many assets, 
the only thing missing right now is leadership to get us back 
to there. So if you can. There are only 3 minutes left, and I 
really appreciate you being here, but this is so basic. We 
should--this is like figuring out how many angels you can fit 
on the head of a pin. It is right in front of us how to fix it. 
We talked about energy. We talked about all the things we have 
going. Doug, and, please, and if you all can just go down 
through it. We have to get this fixed.
    Mr. HOLTZ-EAKIN. Yes. And you have heard my list before. 
The one thing that hasn't been discussed that I would emphasize 
is genuinely taking on the regulatory burden imposed by the 
Federal Government. At the American Action Forum, we read and 
follow every regulation issued by the Federal Government. We 
take at face value the cost the agencies themselves generate 
for what it will take for a private businessman to comply with 
them. In the past, a little over 7 years, the agencies have 
issued a final regulation at the rate of over one per day, and 
the cumulative regulatory burden is over $800 billion, as 
reported by the agencies themselves. That is basically $100 
billion a year in disguised taxes.
    Mr. KELLY. Just real quickly, would you please, for people 
who don't understand this, where do all those costs get 
transferred to?
    Mr. HOLTZ-EAKIN. They are going to show up as lower wages, 
higher prices, or people going out of business.
    Mr. KELLY. Amen. It is the price on the shelf when you are 
all done. I don't care if it is taxes or regulation; it gets 
added on to the finished product or service, which makes it 
harder for people to consume it, which makes it harder for us 
to compete in the global economy. This is a Forrest Gump 
moment. There ain't no fixing stupid.
    Mr. HOLTZ-EAKIN. So I would encourage everyone to take a 
look at that. You have a lot of oversight in this committee on 
places that issue some very expensive regs.
    Mr. HASSETT. Mr. Kelly, here is one way to think about your 
question. Would you like to go to Greece right now and start a 
business? Well, you can think: Well, you know, there probably 
aren't a lot of people starting businesses in Greece, and so if 
I brought some capital there, maybe I could make some money. 
But if you look at how busted the government is, then you can 
more or less be sure that if you started to have a successful 
business, then at some point a few years from now, they are 
going to take it out of your hide with higher taxes, and so you 
don't go. You don't think--like none of us in this room are 
thinking: Hey, let's all go to Greece and start businesses. 
Their business formation is low, so it is a great opportunity 
for us. It is because you are looking at a country that is 
fundamentally broke. If you look at the CBO long-run outlook 
for the U.S., we look like Greece not that far from now. And so 
if you want to----
    Mr. KELLY. A lot more zeroes.
    Mr. HASSETT. So other than tax reform, what can we do to 
create growth? We need to make ourselves a place where people, 
you know, basically want to go there and start a business----
    Mr. KELLY. Kind of like selling cars.
    Mr. HASSETT [continuing]. Because they are optimistic about 
the future.
    Mr. KELLY. Yeah. Yeah. It is kind of like selling cars. 
Right product, right----
    Mr. BERNSTEIN. I am on the other side, but I have an 
issue--an argument you might like here, which is, what about a 
minimum tax on foreign earnings? If that was set at an adequate 
level, firms could repatriate their earnings without further 
U.S. taxation. That is an idea the administration has put 
forth. I think Dave Camp had that idea as well. So a minimum 
tax on foreign earnings, I think would help get around a lot of 
this nonsense.
    Now I will argue with you very quickly, which is if you 
give a dollar to a very rich person, they won't spend it. So 
that has been shown time and again. They will save it. Now, 
that is not a bad thing, but I just want to correct the record 
on that point.
    Mr. KELLY. Steve.
    Mr. MOORE. Boy, you know, when I was at the Wall Street 
Journal, we used to talk to CEOs of the major American 
companies, you know, the great men and women who lead our 
companies, and, you know, the story of this half-baked recovery 
is this: businesses are making money. The stock market has done 
great over the last 5 or 6 years. It hasn't done so well 
recently, but it has been a huge--and that is because companies 
are profitable. And we would always ask these men and women, 
why--where the things have broken down in the economy is they 
are not reinvesting that money into the economy the way that 
they used to, at the rate that they used to. And we would 
always ask them--now this is just, you know, anecdotal--but 
almost every man and woman we talked to when we asked them, 
``why aren't you reinvesting,'' they said they are afraid. And 
then we would ask them, what are you afraid of? And think of 
what they have lived through: ObamaCare, tax increases on the 
rich, you know, massive increases in debt. All of these things 
have just pounded businesses down, so they are in a kind of 
state of hibernation right now. They are not spending. We need 
to get them to start spending and hiring again. And part of 
this is just attitudinal. Let's start treating businesses like 
they are good things rather than villains.
    Chairman BRADY. Thank you. All time has expired.
    Ms. Sanchez.
    Ms. SANCHEZ. Thank you, Mr. Chairman, and thank you to our 
witnesses for joining us today. This hearing feels like it is 
becoming a perennial favorite, which I think is very fitting 
for Groundhog Day. The committee now gathers at the beginning 
of each calendar year for the Republicans to decry the terrible 
economic decisions made by President Obama that have supposedly 
sent this country spiraling into a bottomless pit, while the 
Democrats on the committee point out some hard facts, such as 
the following: 70 consecutive months of private sector job 
growth; 14.1 million jobs created; the longest consecutive 
private sector job growth in our Nation's history; 18 million 
people who now have health insurance after ACA implementation, 
many of them my constituents, by the way.
    So here we are again for our annual meeting of what I like 
to call fact versus fiction. And I will at least give the 
majority credit for not inviting a witness here to testify 
today who submits overly sexist testimony like last year. At 
least that is a tiny step in the right direction.
    But more to the topic at hand, do I think that our economy 
is perfect today? Absolutely not, but we are far from barreling 
off a mountain into oblivion. And I know that that is not 
popular with the panic merchants on our panel today who are 
peddling the narrative that ``oh, my God, the sky is falling, 
the sky is falling.''
    I want to echo some of the sentiments made by many of my 
Democratic colleagues on the issue of wage stagnation in this 
country. Hard-working families are overdue for a well-earned 
raise, but I would note, again, just as I did at this same 
hearing last year, that there continues to be a whopping zero 
Republican cosponsors on the bill to raise our Federal minimum 
wage. And if Mrs. Black were here, I would like to ask her: 
How's that for putting a dollar in the pocket of a working 
person who would spend it? Let's think about raising the 
Federal minimum wage. What a novel concept.
    We have a tremendous opportunity to improve the economic 
conditions for working people all across the country. And the 
eternal optimist in me, despite everything that I have heard 
today, isn't ready to throw in the towel yet on fighting to 
ensure that the improvements that we make to our economy are 
felt by everyone, not just those at the very, very, very, very, 
very top of the food chain.
    Mr. Chairman, I know you have spoken a lot about your 
desire to focus much of this year on overdue international tax 
reform, but I hope that those efforts are not going to be done 
in a vacuum that forgets and disadvantages our domestic 
manufacturing sector because we need a level playing field in 
tax reform, and tackling this effort piecemeal is not the way 
to go, or we will harm our own manufacturers.
    Finally, with the rest of my time, which is short, I would 
like to turn to one of the biggest potential economic benefits 
to this country, and that is the economic benefit of 
comprehensive immigration reform. And just for a refresher, 
immigrants in this country are people who invest back into our 
communities by purchasing things like homes and school 
supplies, and starting businesses in many blighted areas. Half 
of the people who are living here in an undocumented status 
have been here for at least 10 years waiting patiently for a 
pathway to citizenship so that they can pay their fair share of 
taxes and contribute even more to our economy.
    Our failure to act on comprehensive immigration reform 
means that we are effectively walking away from economic growth 
that could also help improve the long-term financial standing 
of our Social Security trust fund.
    So in the last minute that I have left, Mr. Bernstein, 
given your policy expertise and your work, could you provide me 
with your thoughts on the issue of comprehensive immigration 
reform and why that isn't seriously being talked about today as 
a potential economic growth factor?
    Mr. BERNSTEIN. I will not only do that, but I will tie in 
some of the other issues you raised, in your what I thought 
were just a great set of commonsense comments there.
    By the way, I think you will find a lot of friends on this 
panel on the question of comprehensive immigration reform.
    The idea that the economy--I mean, the fact that the 
economy is growing more slowly than we like--we all share that 
view--is partly constrained by labor supply. Labor supply is 
growing more slowly than it used to, and that is a very direct 
factor into economic growth. This is well-known. And, in fact, 
if you look at projections as to what is slowing the economy 
down, it is diminished labor supply is, even more so than 
slower productivity growth, the main culprit. So CIR, 
comprehensive reform, in that spirit would very much attenuate 
that constraint.
    Now, if we are going to have more folks here, some of them 
are going to be low-income workers, disproportionately women, 
by the way, and therefore we need to raise the minimum wage as 
well awesome of the good EITC ideas we have heard even from 
colleagues on the other side. I think----
    Ms. SANCHEZ. And perhaps even closing the wage gap, but 
that is just my personal opinion. Continue.
    Mr. BERNSTEIN. Absolutely. Comprehensive immigration reform 
in tandem with an enhanced EITC and a higher minimum wage makes 
a lot of sense to me.
    Chairman BRADY. Thank you.
    All time has expired.
    Ms. SANCHEZ. Thank you, Mr. Chairman.
    Chairman BRADY. You bet.
    Mr. Renacci, you are recognized.
    Mr. RENACCI. Thank you, Mr. Chairman.
    I want to thank the witnesses. I apologize. I was away for 
a little bit of this listening to some budget issues, which I 
think are very important. Gives you a real good setup to come 
back here.
    At the end of last year, our debt rose over $18 trillion, 
and I know my colleague, Diane Black, talked about that, but 
that doesn't account for the $42 trillion liability that is not 
on the books and something we never talk about.
    When I was in the business world for almost three decades 
and I did a lot of turnarounds, first thing I did is I went 
into a troubled entity, and I determined what their balance 
sheet looks like. And I am very frustrated that here in 
Washington, we like to talk about $18 trillion. We never like 
to talk about the $42 trillion additional dollars that really 
are unfounded liabilities, and, again, it will be part of the 
balance sheet.
    So I would ask, maybe I will start with you, Mr. Holtz-
Eakin, why is it important to take a look at the total picture, 
including those unfunded liabilities? Because I do believe--and 
I want to get back to later with Mr. Moore--there are two sides 
to this. We are talking about economic growth, the importance 
of economic growth. Well, the one thing you have to do is you 
have to look at your expenditures. The other thing you have to 
do is you look at how you can increase payroll and employment, 
but if we don't--and somebody talked about Greece, which I 
think is so important. People look at this country and say we 
are still the greatest country in the world, but as this debt 
continues to grow, are we a place to really come and build a 
business? And we have got to make sure that we are always 
competitive, but don't we have to look at all of the 
liabilities and really make our decisions based on that?
    Mr. HOLTZ-EAKIN. Yes, you do and with the caveat that I 
don't like to refer to them as liabilities because they aren't 
the same as contracts that have to be honored. These are policy 
decisions that have been made in the past, should be rethought 
in the present, and have to look different in the future. But 
the reality is if you are sensible about looking at the 
commitments that are out there, add them up in a balance sheet 
style fashion, you know then one of two things. These are going 
to be the draws on the taxpayer to fulfill all those 
commitments, and that number is unthinkable; or these are going 
to be the kinds of commitments that are going to compete with 
national security and all the sort of basic functions of 
government that our Founders envisioned, basic research, 
infrastructure, education, those things. So, you know, take a 
look at those liabilities. Those are the entitlement programs, 
and make sure you see the scales of what they are going to 
impose on the rest of the economy.
    Mr. RENACCI. And, in turn, we could also look at the 
decisions we make and how they affect all those liabilities.
    Mr. HOLTZ-EAKIN. Of course. You should know the long-run 
implications of things you do right now.
    Mr. RENACCI. Mr. Moore, do you have any comments in regards 
to a total balance sheet picture here as something to look at?
    Mr. MOORE. It has always struck me, being any sort of 
budget expert in this town, that, as you just said, we don't do 
a balance sheet like a business does. I mean, it is sort of 
crazy that, you know, if we accounted like a business did, you 
know, we wouldn't pass any basic audit. So I like this idea of 
taking into account these long-term liabilities, but it is also 
important to remember that these liabilities are not baked in 
the cake. You know, nobody has a legal right to Social Security 
benefits. Nobody has a legal right to Medicare or these other 
things. You can change the benefits, and we ought to start 
looking at ways to change the benefits in ways that will reduce 
these long-time liabilities because they are not--you know, 
these $50 trillion of liabilities you are talking about, that 
is fixable. That is fixable, but we should start right now 
before all 80 million baby boomers have retired.
    Mr. RENACCI. Sure. If we have the political will----
    Mr. MOORE. Right.
    Mr. RENACCI [continuing]. They are fixable.
    On the growth side, I just have a question for--and this, 
Mr. Bernstein, you even talked about this. If we took some of 
the dollars that were overseas and brought them back and were 
able to put them at a lower rate, even zero tax--and I am just 
using an extreme--and put those and required those to be put 
right back into employment and adding employees to these 
companies that would have to be structured so that it was an 
employee based--I mean, isn't that going to boost the growth 
here in the country? And I would ask any of you.
    Mr. BERNSTEIN. Well, I mean, I think the idea of a 
repatriation, what you are talking about, some kind of 
repatriation of foreign earnings, has been found--and this is 
the Joint Tax Committee; this isn't a partisan thing--has been 
found to just incentivize more overseas deferral because they 
think they are going to get another repatriation somewhere down 
the road. If you have to do it, the way you described is a 
better way to do it, but it is a big revenue loser.
    Mr. RENACCI. Well, it is a revenue loser if we are 
expecting to get it back. We are never getting it back.
    Mr. Holtz-Eakin.
    Mr. HOLTZ-EAKIN. The quick thing I would say is think long 
term. The tax reform should be designed to be a good Tax Code 
in any set of circumstances, whether we happen to be in a boom 
or a recession. You know, you don't want to tailor a permanent 
reform designed to enhance the supply side to the conditions of 
the moment.
    Mr. RENACCI. Mr. Hassett.
    Mr. HASSETT. And the last thought on this is just that the 
folks who have a lot of unrepatriated money are folks who by 
definition have a lot of money. And so the point is that the 
domestic firm--for sure I am for, you know, allowing people to 
repatriate money permanently, you know, for free, but to do it 
for 1 year, you are basically taking folks who have a lot of 
money and letting them bring it home. And it is not really 
plausible that Apple would employ more people in the U.S. right 
now if we didn't cut the corporate rate and just let them bring 
some money home because they have all the money they need at 
home already.
    Mr. RENACCI. I would agree with you. It is not a 1-year 
program. I am just using that as an example because the only 
way to spur economic growth in this country is payroll. We have 
to increase payroll.
    Thank you all for your time. I yield back.
    Chairman BRADY. Thank you.
    Mr. Rice, for the final question.
    Mr. RICE. Thank you, Mr. Chairman.
    I think everybody here agrees that more growth solves a lot 
of our problems, if not most of our problems, right? And I 
agree that post-recession growth has been muted, and it is 
disappointing. And I believe the reason for that is we are not 
competitive around the world.
    Mr. Hassett, I am going to pick on you for a minute. If you 
have a company that--two companies, one is paying 35 percent 
tax, and the other is paying 15 percent tax, which one--and 
they are both selling to the same customers and they are both 
buying their products from the same suppliers, tell me the fate 
of those two companies.
    Mr. HASSETT. Yeah. So what is going to happen is the 15-
percent company is going to win, and the 35-percent company is 
going to go out of business; or the 15-percent company might 
buy the 35-percent company----
    Mr. RICE. So----
    Mr. HASSETT [continuing]. And after that purchase, they can 
move that----
    Mr. RICE. So when an American company paying 35 percent tax 
moves to Ireland to pay 13 percent tax, it is not a matter of 
patriotism. Is it? It is a matter----
    Mr. HASSETT. No.
    Mr. RICE. It is a matter of pure economic survival.
    Mr. HASSETT. That is the only way to survive.
    Mr. RICE. Now, I want you to--whoever believes that we are 
competitive in our Tax Code, please raise your hand, in the 
world. Okay. We agree on that.
    Whoever believes that our regulatory framework that costs 
$10,000 per employee in the United States is competitive in the 
world, please raise your hand. We all agree on that.
    Who agrees that our trade policy, our United States trade 
policy makes American companies, companies located here, more 
competitive in the world? Okay. We all agree on that. We are 
not competitive in any of those things.
    Who agrees that our current unsustainable debt path makes 
us more competitive in the world? We agree with that.
    Who agrees that our current policy on infrastructure and 
the failure to invest in infrastructure makes our companies 
more competitive in the world? We agree on that.
    So we recognize that in all these major areas, this country 
is not acting competitively. This is not a Republican or 
Democrat issue. This is an America, the country, versus the 
rest of the world issue. And what we have to recognize, what 
the American people have to recognize and what the Republicans, 
Democrats, and the President have to recognize is that there 
are people around the world who get up every day and go to work 
in all these countries, and their job is to try to figure out 
how to beat America economically. And there is nothing wrong 
with that. And the only problem is that we refuse to compete. 
They are winning because we won't do it, and the American 
people know it. Two-thirds, two-thirds of Americans believe 
that their children will not have the same opportunities that 
they have had. If that is not a good economic indication, I 
don't know what is. Two-thirds.
    We all agree. Everybody here agrees on this panel that we 
are not competitive, and we refuse to react. The President goes 
on TV. He complains about Congress. We sit here and fuss at 
each other. And nothing happens. All the while, more American 
jobs leave our shores. Our children can't find good-paying 
jobs. And the American people are sick of it. Hence, Donald 
Trump. I am sick of it too.
    Let's show some leadership. We have got to get together and 
fix this. If we ever decide that we want to be competitive, we 
will make America great again.
    Thank you very much. I yield back my time.
    Chairman BRADY. Thank you. I would like to thank all of our 
witnesses for appearing before us today.
    And please be advised, as you know, members may submit 
written questions to be answered later in writing, and the 
questions and your answers will be made part of the formal 
hearing record.
    Again, the discussion is growth, the changes in 
competitiveness Mr. Rice referenced. We have a lot of work to 
do, and I am confident actually we can do this. In fact, we 
don't have a choice. We have to do it.
    So, with that, the committee stands adjourned.
    [Whereupon, at 12:52 p.m., the committee was adjourned.]

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