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





 
                     MOVING AMERICA FORWARD: WITH A
                        FOCUS ON ECONOMIC GROWTH

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

                                HEARING

                               before the

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

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            JANUARY 13, 2015

                               __________

                          Serial No. 114-FC01

                               __________

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

                     PAUL RYAN, Wisconsin, Chairman

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

                       Joyce Myer, Staff Director

                  Janice Mays, Minority Chief Counsel


                            C O N T E N T S

                               __________
                                                                   Page

Advisory of January 13, 2015 announcing the hearing..............     2

                               WITNESSES

Martin Feldstein, The George F. Baker Professor of Economics, 
  Harvard University and President Emeritus of the National 
  Bureau of Economic Research....................................    21
Douglas Holtz-Eakin, President, American Action Forum............     8
Simon Johnson, Ronald A. Kurtz (1954) Professor of 
  Entrepreneurship, MIT Sloan School of Management...............    27


                     MOVING AMERICA FORWARD: WITH A



                        FOCUS ON ECONOMIC GROWTH

                              ----------                              


                       TUESDAY, JANUARY 13, 2015

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

    The Committee met, pursuant to call, at 10:01 a.m., in Room 
HVC-210, The Capitol, the Honorable Paul Ryan [Chairman of the 
Committee] presiding.
    [The advisory announcing the hearing follows:]
    
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    Chairman RYAN. The committee will come to order.
    First of all, I would like to start off by saying what an 
absolute privilege and honor it is to chair this committee. I 
have served with many of you on this committee for quite a 
while, 14 years for myself.
    I came into this Congress with a number of you. I see Mr. 
Larson there. I think Joe is coming. I came with Kevin. It has 
been an absolute pleasure serving on this committee, and I just 
want to tell you how I feel tremendously gratified and honored 
to be in this position.
    Second of all, announcement: We are obviously not in the 
Ways and Means room. As you know, the Ways and Means room is 
being rewired for sound reasons because it is also the 
alternative floor location.
    That rewiring and reworking of the room is supposed to be 
completed by April 16th. So, hopefully, if all goes well, we 
will stop having meetings and hearings in this room and resume 
it in the Ways and Means hearing room in mid-April.
    I have also seen this committee run very well and sometimes 
not so well. This committee deals with some of the toughest 
issues our country faces. I want to lead this committee so that 
we have a full debate on the issues, a full respectful debate 
on the issues.
    I also want to ensure that we treat each other with respect 
and that we conduct our debates in a civil manner, and I am 
going to work very closely with the Ranking Member, Mr. Levin, 
toward that result.
    I would also like to welcome all of our new Members and all 
of our returning Members.
    To our returning Members, I am very glad to have this 
opportunity to serve with you in this new Congress.
    And to our newest Members, I would like to introduce you by 
name.
    We have Pat Meehan from Pennsylvania; Kristi Noem from 
South Dakota; George Holding from North Carolina; and Jason 
Smith from Missouri.
    It is ``Missouri'' and not ``Missouri'' where you come 
from. Right?
    Mr. SMITH OF MISSOURI [No response].
    Chairman RYAN. Okay. Welcome to our new Members.
    Last week we noted the hearing titled ``Moving America 
Forward.'' Today we will hear from three experts about the 
economy. But, as a technical matter and for the time being, we 
are not going to be calling this a hearing.
    As we have discussed with the minority staff, the House has 
not yet elected Members to the standing committees, including 
the Committee on Ways and Means.
    Committees cannot organize until members are officially 
elected by the House. So we expect this election to happen this 
afternoon, and that is why we are technically holding an 
informal briefing this morning rather than a hearing.
    However, we will run the briefing under the rules of past 
Congresses where Members are recognized according to the 
Gibbons rule. The Gibbons rule is somewhat unique to the Ways 
and Means Committee.
    For the benefit of our new Members, the Gibbons rule 
provides that members present in the room at the time of the 
gaveling in will be recognized by seniority. Members who arrive 
after the gavel will be recognized in order in which they 
arrive without regard to seniority.
    Once we are to organize, we will ask unanimous consent for 
the transcript from this informal briefing to be included 
during our next hearing so that it is effectively a hearing.
    The fact that Mr. Levin and his staff worked with us right 
out of the gate to overcome these technical issues to make sure 
that we could meet and talk about the economy is exactly the 
example of the kind of camaraderie that it takes to make this 
committee run very well.
    And I thank the Ranking Member for that.
    Let me start by introducing our panel.
    Dr. Holtz-Eakin is president of the American Action Forum, 
and he is the former director of CBO.
    Professor Feldstein is the former chairman of the Council 
of Economic Advisors under President Reagan.
    And Professor Johnson is a senior fellow at the Peterson 
Institute for International Economics.
    I want to thank you all for sharing your time with us, and 
we look forward to hearing your testimony.
    Now, we wanted to hold this hearing because, the way I see 
it, our mission this year is to move America forward. And this 
committee--this committee is going to be command central.
    We are going to lead the charge in some of the biggest 
issues facing our economy: tax reform, trade agreements, health 
care. And our thinking is ``Let's get a lay of the land.''
    Before we can set things right with the economy, we have 
got to understand what is going wrong with the economy. So how 
are we doing? Well, we just got some good news. Jobs are up.
    But this bit of good news looks good only because the rest 
of the news has been so bad for so long. There is no getting 
around the fact that this is the worst economic recovery since 
the Great Depression.
    If our economy had grown at the pace of the average post-
war economy, gross domestic product would be about $5,700 more 
per person. Paychecks haven't budged, and more people have 
given up looking for work. In fact, there have never been more 
people out of the labor force than there are today, over 92 
million people.
    As one person in a recent focus group told NBC News, ``If 
you want to make $9 an hour, you can go get a job. But if you 
want to make a wage that can support your family, good luck.'' 
In other words, this latest job report is simply the nicest car 
in the junkyard.
    This administration's policies have pushed people off the 
field. What we need is to take people off of the sidelines and 
get them back into the economy, working, learning, building, 
creating, and we will expand opportunity for all Americans.
    And that is the second reason for this hearing. We want to 
start laying out solutions. This committee has already done a 
lot of work on that front, and this year we are going to build 
on those gains. The fact is we know what it will take to turn 
things around, and we just need to put those ideas to work.
    For instance, it is very clear that our Tax Code is broken. 
We have the highest corporate tax rate in the industrialized 
world. We are one of the few countries that taxes companies 
when they bring their money back home. And the Tax Code is so 
complex that Americans spend over 6 billion hours a year just 
filling out their tax returns.
    There is no good reason for any of this. We need to make 
the Tax Code simpler, fairer, and flatter so more people can 
invest and create jobs right here in America.
    We also have a good opportunity to expand markets for 
American exports. We are negotiating several big trade 
agreements right now, and the first thing we ought to do is 
pass Trade Promotion Authority.
    Trade Promotion Authority would empower Congress to set our 
negotiating objectives and hold the administration accountable. 
TPA would also help us get the best deal from our trading 
partners.
    As we all know, 96 percent of the world's consumers, 96 
percent of the world's consumers, they don't live here. They 
live in other countries. And U.S. manufacturers have more than 
a $50 billion surplus with trade agreement countries.
    In contrast, the U.S. trade deficit in manufacturing goods 
with the rest of the world was more than $500 billion. And I 
believe Americans can compete with any country. We just need to 
give them a chance. Break down these barriers and American 
trade, along with American jobs, will take off.
    We also need to repeal and replace Obamacare with patient 
center reforms. It may take a new President to fully repeal the 
law.
    And this is something we have litigated a lot in this 
committee, and I know that good people will have different 
opinions on this subject, but this is how we feel. We need to 
start dismantling it piece by piece and replacing it with far 
better reforms. We have already passed three bills to do just 
that.
    The point is take power away from bureaucrats and give it 
back to patients. That is how we can make health care more 
affordable. We have to get spending under control, we have to 
get spending under control, so that our country will no longer 
live under the threat of a debt crisis.
    And, finally, we have got to get people out of poverty. We 
have got to restore upper mobility. We have got to restore the 
promise and the notion of the American idea that the condition 
of your birth, it doesn't determine the outcome of your life in 
this country.
    That is what we were all taught. That is what we all 
learned. That is what many people have lived. But not enough 
are living it today. We need to get people from welfare to 
work.
    There is a lot of untapped potential in our country. And 
this committee, this committee, has a real opportunity to help 
working families get ahead, and that is what this committee is 
going to be about, moving America forward.
    So I have laid out just a few ideas to get the conversation 
started. Some, we will agree with one another. Some, we may 
not. I look forward to hearing from our Members and our 
witnesses. Everybody is going to have different ideas, and we 
want to hear them.
    But I think we can all agree that building a healthy 
economy, that is our mission this year. That is our focus. That 
is our goal. Because that is what the American people deserve.
    And, with that, I would like to yield to the distinguished 
Ranking Member from Michigan, Mr. Levin.
    Mr. LEVIN. Thank you very much. And congratulations on your 
chairmanship, Mr. Chairman. That wasn't our first wish.
    Let me also say that, as I expressed to you, if the Lions 
had beat the Packers, you would be clean-shaven today.
    Chairman RYAN. And you would have a beard.
    Mr. LEVIN. That is true.
    So I want everybody to know why Paul Ryan is growing a 
beard. And if the quarterback's health doesn't resume, I think 
you will be clean-shaven at the next hearing.
    Chairman RYAN. We shall see.
    Mr. LEVIN. But, anyway, good luck to the Packers.
    So let me just lay out a few views for us Democrats as we 
proceed.
    Our economy has experienced a major bounce back. It has 
rebounded from the loss of 7 million jobs in a single year, 
beginning in 2008, an unemployment rate that soared to 10 
percent in 2009.
    More than 11 million private-sector jobs have been created 
in the last 5 years, as shown in the chart that I hope will now 
appear here, with 58 straight months of private-sector job 
growth, leading the unemployment rate to fall to 5.6 percent.
    So I think reference to a ``junkyard'' is terribly 
misguided. I know something about cars. I think the economy of 
this country has been put back on its feet and is moving ahead.
    You can see it in the stock market, if you wish to look at 
it, that has climbed to record highs. And the deficit, as a 
percentage of GDP, has been cut by two-thirds since 2009.
    The Affordable Care Act, which the chairman and others 
continue to say should be repealed, has helped to dramatically 
cut the percentage of Americans without insurance. Millions now 
have it who never had it before. And healthcare premiums are 
growing at the lowest rate in 50 years.
    This major reversal from deep decline out of the junkyard 
to economic growth occurred despite Republican opposition to 
the President's proposals, repeated GOP threats to default on 
our debt obligations, and an incredibly harmful 16-day 
governmental shutdown fueled by an unending ideological 
opposition to the ACA.
    This year must see a different environment. It must, Mr. 
Chairman and colleagues, see bipartisan action on important 
issues.
    Among the deepest challenges facing our economy today 
remains one that has persisted for decades, starting in the 
1980s: stagnant middle-class wage growth.
    And now this second chart, a striking one from EPI, shows 
the nearly flat line of wage growth that the bottom 90 percent 
of American workers has experienced since 1980, even as incomes 
have grown significantly, indeed, dramatically, among the very 
wealthiest.
    This chart is really dramatic, showing, going back to 1980, 
the bottom 90 percent has more or less had stagnant income 
while for the very wealthy it has spiraled.
    Indeed, in December, the Post chronicled the longstanding 
problems facing America's middle class. They found that the 
average wage in a quarter of American counties actually is 
lower today than it was 35 years ago.
    That is real stagnation in the lives of America's middle 
class. And, yet, even immediate and much needed steps the 
Democrats have promoted to address this problem have 
encountered an ideological roadblock from Republicans.
    Efforts to increase the minimum wage and to ensure that 
women earn the same as men for equal work, those have 
encountered fierce Republican resistance.
    An administration proposal to require overtime pay for 
millions of additional white-collar workers who are currently 
not covered has been met with strong criticism from some 
Congressional Republicans.
    And financing the long-term needs of our Nation's 
infrastructure has taken a backseat despite the fact we know 
investments in infrastructure create jobs now and make us 
stronger in the future. And this committee has not held a 
hearing on this topic in the last 4 years.
    I hope that, in my further discussions with the chairman, 
we can reach agreement quickly on holding hearings on the 
financing of major infrastructure legislation as you, Mr. 
Chairman, and I have discussed.
    Tax reform, as you say, must be a central focus of this 
committee. Democrats believe that reforming the Tax Code should 
not be centered on rate cuts at the very top for the wealthiest 
Americans--and we have seen from the chart why that is true--
but, rather, on creating a Tax Code that is fair for working 
families, promoting economic growth, and eliminating loopholes 
for special interests, and ensuring that both individuals and 
businesses pay their fair share of taxes.
    Under any circumstances--and I emphasize that, Mr. Chairman 
and colleagues--we learned in 1986 and we relearned more 
recently that tax reform to progress, it is essential that 
there be serious open discussions on a bipartisan basis from 
the very beginning, Mr. Chairman, and throughout. I hope we can 
proceed accordingly.
    On TPP, negotiations are at a vital juncture, with many of 
the key issues still unresolved, as I am going to be laying out 
in the next days.
    TPP is the most significant multilateral negotiation in 
over 20 years involving 12 nations representing 40 percent of 
the world's economy and representing many new issues for such 
multilateral negotiations.
    How these issues are resolved is central to whether we are 
moving effective trade policy forward. The important challenge 
in trade is not just get it done, but get it right.
    Congress must be a full partner. And, as we have discussed, 
Mr. Chairman, I strongly suggest we organize on a bipartisan 
basis to work and discuss the substance of TPP.
    Thank you.
    Chairman RYAN. Thank you, Mr. Levin.
    For our witnesses, you will each have 5 minutes to present 
your testimony, with your full written statement submitted for 
the record.
    I would ask that--if you could just summarize your 
testimony in 5 minutes, because I know a lot of Members want to 
get on with questioning.
    We will start with Dr. Holtz-Eakin, then Professor 
Feldstein, then Professor Johnson.
    So, Dr. Holtz-Eakin, you are recognized.

 STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION 
                    FORUM (WASHINGTON, D.C.)

    Mr. HOLTZ-EAKIN. Thank you, Mr. Chairman, Ranking Member 
Levin, and Members of the committee. It is a privilege to be 
here today, and I look forward to your questions. You have my 
written statement. Let me make three points briefly before we 
turn to the questions.
    First, policies toward economic growth are really important 
right now. As the chairman outlined in his opening remarks, the 
economy is now growing at something that looks like about 2\1/
2\, 2\3/4\ percent. Third quarter over third quarter, it was 
2.7 percent.
    It generated 250,000 odd jobs in December----
    Chairman RYAN. Doug, can you pull the microphone a little 
closer.
    Mr. HOLTZ-EAKIN. It generated about 250,000 jobs in 
December, but we continue to see very flat and sluggish real 
wage growth. We continue to see median household incomes fail 
to rise, and there is an obvious need to do better than the 
2\3/4\.
    And there is some hope that, indeed, 2015 will show 
stronger economic growth, and I think we should all welcome 
that if it happens.
    But it is important to remember that the Congressional 
Budget Office pegs the long-term potential growth rate of the 
U.S. economy at 2.3 percent so that if you take that at face 
value, this is the boom. These are the good times. And the 
thought that that is the best we can do I find quite troubling.
    So I think the major objective for this committee, for the 
Congress as a whole, is to look for opportunities to change 
that 2.3 percent into a more rapid long-term potential growth 
for the U.S. economy so that we can get more sustained 
increases in the standard of living in the United States.
    Historically, since World War II, the standard of living in 
the U.S. doubled roughly every 32 years. So in a person's 
working career, they could anticipate the standard of living 
doubling. They could anticipate buying a boat or taking 
vacations, sending someone to college, getting improvements of 
that type.
    Given the pace of growth in recent years, we have seen the 
standard of living on track to double roughly every 90 years. 
That is simply unacceptable. We have to do much better over the 
long term in order for Americans to feel like they have the 
opportunity for the American dream.
    That kind of growth comes from two sources. The first 
source is to actually build up and accumulate your skills, you 
technologies, the capital, the factories, the equipment, the 
means of production.
    And incentives to accumulate those kinds of skills, 
technologies, and capital are essential and riddled throughout 
the jurisdiction of this committee, whether it is tax or trade 
or other policies. And that is one thing to focus on.
    The second is greater productivity from the things that--
especially workers in the economy. And productivity comes from 
strong incentives. It comes from a minimal interference from 
policies that distort the decisions that firms make, allow them 
to choose the means of production to the best of their ability. 
And focusing on stripping away interferences with the 
productivity growth I think should be high on the agenda for 
the committee.
    So what kinds of policies are they? Well, as has been 
mentioned, trade policies are a great opportunity right now, 
both the Trans-Pacific Partnership, the TPP, and, also, TTIP, 
Transatlantic Trade and Investment Partnership. Estimates in my 
testimony suggest that this could increase GDP by $200 billion 
if fully implemented.
    This has historically been a tremendous spur to 
productivity growth. If you go back to the mid-1990s, we put 
zero tariffs on semiconductors in a very important trade 
agreement, and immediately thereafter we saw a tremendous boom 
in the technology industries and the ability of Americans to 
compete and be very productive in those industries.
    And I would argue we would see the same more broad benefits 
from these trade deals. But to get that done, you do have to 
give the President Trade Promotion Authority. I think that 
should be a top priority of the Congress.
    Tax reform is a great opportunity. I won't belabor--the 
pieces are in my written testimony. But the corporation income 
tax is very anti-growth. Ours is structured to be particularly 
anti-competitive. It is complicated, and it raises almost no 
revenue. So we are in the worst of all possible places with our 
corporate code. Individual code is very complex.
    And the last is I would argue that the Affordable Care Act 
is riddled with anti-growth features. There is a lot of very 
bad tax policy as part of that. Put the need for revenues 
aside. The structure of the device tax, the structure of the 
health insurance fee are all highly inefficient and bad tax 
policy and ought to be looked at carefully.
    And the basic expansion of mandatory spending goes in the 
wrong direction--from the long-term problems in our Federal 
budget where we are going to need to control that spending to 
control the debt and reduce the threat to long-term economic 
growth.
    So there is a lot of opportunities in this Congress, and 
there is a great need for better long-term growth. I 
congratulate the committee for taking a look at these issues. 
And I look forward to your questions.
    Chairman RYAN. Thank you.
    [The prepared statement of Mr. Holtz-Eakin follows:]
    
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    Chairman RYAN. Professor Feldstein.

STATEMENT OF MARTIN FELDSTEIN, THE GEORGE F. BAKER PROFESSOR OF 
  ECONOMICS AT HARVARD AND PRESIDENT EMERITUS OF THE NATIONAL 
    BUREAU OF ECONOMICS RESEARCH (CAMBRIDGE, MASSACHUSETTS)

    Mr. FELDSTEIN. Thank you very much, Mr. Chairman.
    Chairman RYAN. You have got to turn it on, Professor, and 
pull it close to you. It is very unidirectional. Remember that 
word?
    Mr. FELDSTEIN. Thank you both for the invitation and for 
the advice on using this complex technology. I am pleased to 
appear again before this distinguished committee.
    Tax reform can be the major driver of faster GDP growth. 
Fortunately, the American Tax Code is now better in many ways 
than it was when I first appeared before this committee. We now 
have lower tax rates on personal incomes, on capital gains, and 
on corporate profits. That improves incentives and contributes 
to faster growth and better jobs.
    But there has also been backsliding in tax rates since the 
tax reform of 1986. Remedying this should be an important goal 
of tax reform. There are many high-priority tax reforms that 
can strengthen growth and reduce our fiscal deficits.
    Because my time is very limited, I will focus on a few 
things that receive less attention than they should. Let me 
start with tax reforms that can increase the employment of 
women and raise their after-tax incomes.
    Current tax and Social Security rules penalize married 
women more than others. The Federal Government taxes a wife's 
first dollar of earnings at the same rate as her husbands' last 
dollar of earnings. Other countries tax each individual on 
their own earnings, giving married women a greater incentive to 
work and to work at jobs that pay higher wages.
    Social Security now taxes a women on her full earnings, but 
often provides no extra benefits. So many women receive nothing 
for a lifetime of Social Security payroll taxes. Reforming 
these rules would increase women's labor force participation 
and the Nations's GDP.
    Let me turn to increasing employment among seniors. The 
labor force participation rate now declines from 64 percent 
among 60-year-olds to half that among those 65 to 69.
    As you know, Congress in 1983 raised the age for full 
Social Security benefits from 65 to 67 and, as a result, the 
labor force participation rate among 65- to 69-year-olds rose 
from 21 percent to 32 percent.
    Life expectancy at age 67 has increased by 3 years since 
1983. Raising the age for full benefits in line with that 
increase in life expectancy would expand the labor force and 
raise real GDP.
    Let me turn now to policies designed to raise our Nation's 
rate of saving and, therefore, our Nation's capital stock.
    Household saving back between 1960 and 1985 averaged 9 
percent of after-tax incomes. Now it is about a third of that. 
A variety of public policies contributes to the low rate of 
saving and the high rates of dis-saving. These include the 
deductibility of mortgage interest and the level of unfunded 
Social Security benefits.
    Automatic-enrollment IRA plans and a shift of Social 
Security to a mixed system with supplementary investment-based 
personal retirement accounts would increase national saving and 
would, therefore, increase business investment that would raise 
real incomes and create better paying jobs.
    Unfortunately, most of household saving is now absorbed by 
the Federal budget deficit. The resulting national debt has 
increased from less than 40 percent of GDP a decade ago to 75 
percent now, with the prospect that it will rise to more than 
100 percent unless Congress takes action to raise revenue and 
slow the growth of entitlements.
    The good news is that small reductions in the annual 
deficit can prevent the rising debt level and bring it back to 
lower levels. Reducing the annual deficit from today's 3 
percent of GDP to 2 percent would put us on a path to a debt 
ratio of less than 50 percent. That should be a basic goal for 
Congress in the next few years.
    Reducing the annual deficits requires a combination of 
slower growth of government spending and increased tax revenue 
because the annually appropriated spending for defense and 
nondefense program is already being squeezed to historically 
low levels. Controlling government spending requires slowing 
the growth of the middle-class programs for seniors.
    Tax revenue can be raised without increasing marginal tax 
rates by limiting the ability of taxpayers to use the tax 
expenditure features of the Tax Code to reduce their tax 
liabilities. These tax expenditures are a major form of 
government spending, indeed, I would say the major form of 
government domestic spending. Capping the use of these tax 
subsidies could also simplify the taxpaying process by inducing 
taxpayers to use the standard deduction rather than itemizing 
deductions.
    My written testimony provides a reference to a recent study 
of how such a cap on tax expenditures might be implemented.
    Finally, tax reform can also improve the way our Nation's 
savings are used. A key element in that is the corporate tax 
reform, reducing the corporate tax rate, now the highest in the 
industrial world, and shifting to the type of international tax 
rule, the territorial system that is used by every other 
industrial nation.
    So thank you again for the opportunity to summarize my 
views, and I look forward to your questions.
    Chairman RYAN. Thank you, Professor Feldstein.
    [The prepared statement of Mr. Feldstein follows:]
    
    
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    Chairman RYAN. Professor Johnson.

STATEMENT OF SIMON JOHNSON, RONALD A. KURTZ (1954) PROFESSOR OF 
    ENTREPRENEURSHIP AT THE MIT SLOAN SCHOOL OF MANAGEMENT 
                   (CAMBRIDGE, MASSACHUSETTS)

    Mr. JOHNSON. Thank you, Mr. Chairman.
    I am the former chief economist of the International 
Monetary Fund, and I would like to make three points about the 
recent and likely future U.S. experience in a comparative and 
global context. The first point is about the recovery. The 
second is about the longer term stagnation of wages. And the 
third is about TPP, trade.
    On the recovery--on the recovery, if we look at the U.S. 
experience compared with all the other countries affected by 
the financial crisis--and it was a global financial crisis; it 
was the most serious crisis that the world has faced since the 
1930s--most other countries have struggled to recover from this 
crisis.
    The right response to such a shock includes the active use 
of discretionary fiscal policy where available. The difficulty 
with such--using such policy is: Can you make it timely? Can 
you target it appropriately? And will it be temporary?
    And we have seen problems across other countries on these 
dimensions. But, again, looking at the U.S., we have done 
remarkably well on exactly these points, including the fact 
that the deficit has now come down and the debt level, while it 
has increased, as Professor Feldstein said, is better than in 
other countries and is not yet close to any levels that would 
trigger a debt crisis.
    The problem, I would suggest, seen comparatively in the 
U.S. experience, has been the lack of consensus over the use of 
fiscal policy, including the repeated confrontations we have 
had around the debt ceiling and around the various issues that 
have triggered government shutdowns.
    These are destabilizing to financial markets. They create a 
high degree of uncertainty. They have damaged our trading 
partners, also. We have exacerbated the problems in the Euro 
area several times through exactly this mechanism. I wish that 
we would stop. I wish that we would focus more on the medium-
term issues that you are emphasizing, Mr. Chairman.
    In that context, during the attempt to recover, I think 
there have been two important achievements.
    The first is Dodd-Frank, which took on the issue of the 
financial risks that absolutely brought about the financial 
crisis. And if you repeal Dodd-Frank, you are going open 
yourself up again to another destabilizing global catastrophe.
    And the second is the Affordable Care Act, which, contrary 
to expectations from some sides, has contributed to holding 
down healthcare costs, as Mr. Levin said. It is absolutely 
essential that we control our spending on social insurance 
programs, as Mr. Holtz-Eakin has emphasized.
    I completely agree. And the Affordable Care Act has taken 
some very concrete steps in that direction. It is still early 
days, I agree, but we need those programs to have a chance to 
work and to be evaluated.
    Secondly, on the longer term issue of stagnant incomes, we 
really have to step back and look at where do these come from. 
It is since the 1980s. That is what Mr. Levin's graph showed 
you.
    And it is about technological change, which has eliminated 
middle-skill, middle-income jobs. It is about globalization, 
which has done the same thing, had big effects on inequality.
    And this process, again, has affected--this is nothing 
unique or special about the United States in this regard. Other 
countries are caught up in the same process.
    The difference, though, is in the degree to which--and the 
way in which public policy responds. You can either lean 
against that wind. You can work on improving human capital. You 
can work on education.
    You can also strengthen health care and make it available 
to more of your citizens as a way to compete globally and to 
share those benefits or you can prefer some sort of trickle-
down policies where you give advantages to people relatively 
high up the income scale--and, as you see, they have already 
done well before--you get into re-distribution--help those 
people and assume it is--that is going to share the benefits 
more broadly. That has been a disappointing performance for 90 
percent of Americans since the 1980s. It is a 30-year problem.
    I think Mr. Levin is right. There is plenty of scope here 
for changing and improving the tax system, keeping in mind the 
problems that we have, longstanding problems, with the decline 
of the middle class.
    Finally, on the trade agreements, I completely agree with 
Mr. Holtz-Eakin and Mr. Levin. These are very important issues. 
And TPP is absolutely center stage for this Congress.
    However, I would urge all Republicans and, of course, 
Democrats to take the issue of currency manipulation very 
seriously. There has in the past been cheating by some of the 
Governments with whom we trade.
    Cheating by Governments, that is something you usually 
don't like on the Republican side. They would--have been 
cheating through manipulating their currencies.
    Now, it is not currently the number one salient problem 
among the countries entering into the TPP agreement. That is a 
good thing. Now is a good moment precisely to negotiate that 
and to lock in the current more flexible currency arrangements, 
expectations, and norms.
    But please do not think that just trade, just opening of 
trade, just more trade on the lines of TPP, is necessarily good 
for the middle class. It depends on the terms of the trade. If 
you let other Governments continue to cheat, it will go badly 
for our middle class.
    Thank you.
    Chairman RYAN. Thank you, Professor Johnson.
    [The prepared statement of Mr. Johnson follows:]
    
    
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    Chairman RYAN. Dr. Holtz-Eakin, let me start with you. Your 
opening testimony was pretty staggering. Historically, we have 
doubled our standard of living among Americans every 32 years. 
At the rate we are at right now, it is 90 years. Is that right?
    Mr. HOLTZ-EAKIN. It is ballpark. We have been growing per 
capita GDP at .7 percent. Very slow.
    Chairman RYAN. And our long-term CBO forecast, which you 
are the former director, is now growth rate of 2.3 percent?
    Mr. HOLTZ-EAKIN. Yes.
    Chairman RYAN. In a nutshell, what is the explanation for 
that, that slower growth rate?
    Mr. HOLTZ-EAKIN. There are two pieces.
    One is demography and the aging of the population, the 
retirement at older ages leading to fewer workers. The second 
is lower productivity growth.
    And that comes from many sources. And the CBO has over the 
past 6 years steadily marked down its perception of the 
capacity of the U.S. economy to produce productive workers.
    Chairman RYAN. Okay. So in two of those areas, this 
committee has enormous impact on issues within our 
jurisdiction.
    Mr. HOLTZ-EAKIN. Yes.
    Chairman RYAN. Demography, getting people into the 
workforce, and capital stock, productivity, and--the tax 
treatment of that.
    Mr. HOLTZ-EAKIN. Yes.
    Chairman RYAN. In 1996 to 2000, you had a Republican 
Congress and a Democratic President. The result of that 
combination then produced welfare reform, a capital gains tax 
cut, a reduction in spending, a balanced budget, the 
deregulation of a telecommunications industry, and he had 
already previously negotiated and got approval of trade 
agreements with bipartisan support.
    We saw very robust strong economic growth across the board. 
We saw people moving from poverty into the workforce, into 
better lives. It was a good time. It seems to me that that kind 
of combination of reforms is what we need now.
    Give me your general sense of what could we best do to pull 
from the 92 million people who are not at work, what could we 
do to pull them into the workforce to help deal with that 
productivity issue, to help deal with that demographic issue 
that is giving us these lower trend growth rates, which is 
giving us these lower standards of living? And what could we do 
on the tax front to help increase our productivity?
    Mr. HOLTZ-EAKIN. Let me start with the latter. I think, 
number one, you have to deal with the corporate Tax Code, which 
the OECD research has identified as the single most potent 
anti-growth tax. And we have the highest tax rates in the 
developed world. That is an invitation to--for bad growth 
performance and it also hurts our international 
competitiveness. I think you start with that.
    More generally, I think you have to be especially focused 
on the growth impacts of the tax treatment of the return to 
capital, dividends, interest, capital gains, the tax treatment 
of corporations in that regard.
    Economic growth is, in the end, quite simple. You give up 
something now in order to save and invest and make the economy 
bigger in the future. And at every margin, whether it is in 
Social Security rules, whether it is in tax rules, you want to 
provide people with incentives to do that and interfere with 
those incentives as little as possible in your Tax Code.
    On the work front, I think, you know, in the United States, 
the difference between being poor and not poor is work and the 
difference between being successful when working and less 
successful when working is education and skills.
    So at every juncture you want to have the social safety 
nets support work, as welfare reform did. And there is a lot of 
opportunities to do that. You want to take Social Security and 
make sure it doesn't discourage work at older ages where we are 
going to have more highly skilled older Americans in years to 
come.
    Every--every time you take up an issue in this committee, 
you ought to ask ``What are the work incentives and how can we 
do better?'' And I think that is the recipe.
    A lot people think growth is a bill. Growth--you pass a 
recovery act and you get growth and you check that box and go 
do other things. The truth is growth is a philosophy.
    At every juncture, when you have to make tough policy 
decisions, when there are environmental considerations versus 
growth considerations, labor considerations versus growth 
considerations, you have to err on the side of growth and give 
it a chance at the--in the policy discussion. And that is the 
job of this committee.
    Chairman RYAN. Professor Feldstein, you were around in the 
Reagan Administration during two rounds of tax reform. We had 
1981, Kemp-Roth; 1986, where the top rate was brought down to 
28 percent. Capital gains, I think, went up to 28, if I am not 
mistaken.
    Are there some lessons we should derive from that, 
positive, negative? That is Question 1.
    Question 2: That was a different era where the global 
economy was far less integrated than it is today. Our rates are 
the highest in the industrialized world on corporations.
    We are sort of unlike other countries in the industrialized 
world in that we tax most of our businesses as individuals 
through what we call pass-throughs, and the top effective rate 
there is, I believe, 44.6 percent effectively. So we are taxing 
our businesses at much higher rates than our foreign 
competitors are taxing theirs.
    In this global economy in the 21st century, how much of a 
difference is that making with respect to global 
competitiveness and capital flows? And what are the lessons 
what we ought to derive from your past experiences in 
broadening bases and lowering rates? And what mistakes did you 
make then that you think we should avoid, if there are any, in 
a couple of minutes?
    Mr. FELDSTEIN. Well, I think the tax reform experience in 
the 1980s during the Reagan years was a very positive one. We 
saw rates come down. We saw a significant increase in tax 
revenue as individuals shifted from tax shelters, shifted into 
reporting more income.
    And so the revenue cost of that was less than a pure static 
analysis would suggest and, yet, it also, of course, provided 
strong incentives for saving and for job growth.
    The corporate tax has become a bigger and bigger problem. 
We used to have a much higher corporate tax rate. We brought it 
down. The rest of the world brought it down more rapidly. So we 
now see ourselves with a higher corporate tax rate than every 
other country in the world.
    And that, of course, puts our companies at a disadvantage. 
It raises the cost of capital. It makes it more attractive to 
invest abroad than to invest in the United States. And it 
raises the cost and, therefore, the prices of American 
products. And that makes it harder for us to compete with 
imports and harder to compete as we export to the rest of the 
world.
    So I think that is why there is broad agreement that 
bringing down the corporate tax rate and moving to an 
integrated system, a so-called territorial system, for taxing 
corporate profits would make a lot of sense.
    Chairman RYAN. I want to be respectful of other's time and, 
therefore, cognizant of mine.
    So I will yield to Mr. Levin.
    Mr. LEVIN. Thank you.
    First, I would like there to be distributed two charts, if 
you would do that right now.
    And, also, to our three witnesses--it is a little clumsy 
here because of the way we are seated. Who is going to 
distribute them on this side, too? Who is doing that?
    Chairman RYAN. You are not going to do it on the screen?
    Mr. LEVIN. No. Just the old-fashioned way.
    Come on. Just take some and distribute them over here, too. 
Will you?
    Let me start--let me discuss it just quickly because I 
don't want to dwell on it, except I do think it is a mistake to 
minimize the progress that we have made in the last years. We 
need to look to the future, but trying to degrade or, I think, 
misdescribe what has happened in these last years is a serious 
mistake.
    These two charts show--to pick up what you have said, Dr. 
Johnson, the first chart shows the net employment gain in the 
U.S. compared to the U.K., Germany, Canada, Japan, Korea, and 
all others, and you will see that more than half of the 
employment gain from 2010 to 2014 was in the United States.
    The second chart, to pick up your point, Dr. Johnson, 
relates to GDP and selected economies.
    And now our three witnesses also have it.
    And it is very striking what has happened in other 
countries compared to the United States. And so, if we are 
going to move ahead, I think it is important not to misdescribe 
the past and I think it is also important for us to look at the 
policies that were undertaken.
    And I hope, if I might say so, that the Republicans will 
take another look at their opposition to stimulus policies that 
have really worked.
    Let me also say about the corporate rate, Dr. Feldstein and 
the other witnesses, I think we need to look at it. We need to 
also look at the effective tax rate because it varies 
dramatically according to sectors.
    In some sectors, they are paying the full mid-30s, but in 
other sectors, the effective tax rate is much lower, and in 
some cases, the effective tax rate is zero. So I think we need 
to take a good look at it.
    Going back to the first chart that I put on--actually, it 
was the second chart--I would like Dr. Johnson to--if we could 
put that back, the second chart that I referred to, which talks 
about essentially the stagnant income for the bottom 90 percent 
in contrast to the top 10 percent and the top 1 percent.
    Dr. Johnson, you referred to this a bit. But describe, if 
you would, a bit more--this goes back to the 1980s. And you 
mentioned a few of the factors.
    But as we try to turn our attention, as we must, to income 
stagnation for the middle class, just review what you think are 
the major factors that have caused this, going back now 35 
years.
    And maybe you can put on the screen, if we can do that 
technically, that second chart. If not, go ahead. Proceed.
    Mr. JOHNSON. Yes, Congressman.
    I think it is a very important chart, and I think it is 
important, also, that it doesn't matter too much which way you 
break it down.
    If you did this for the medium wage, if you do it for the 
lower 70 percent or the lower 20 percent, it is a very similar 
story, that people who used to be in the middle of the income 
distribution and people who were middle class, people who had a 
high school education or 1 year or 2 years after high school, 
have done relatively badly in terms of income growth.
    And that--the research on this, which has been done by many 
people, Mr. Levin, including David Autor and his colleagues at 
MIT, emphasizes the importance of technological change. So 
computers and information technologies automated away a lot of 
what were administrative clerical jobs before.
    Secondly, globalization, the pattern of trade that has 
developed, probably not as important as the technological 
change, but something that has reinforced that.
    And, in addition----
    Mr. LEVIN. Let me just break in.
    I think, as we talk about the importance of exports--and I 
want to do that--relating to globalization, you have to talk 
about the impact of imports. And there is often a tendency to 
look at just one side of the equation when clearly you have to 
look at both. I think that is your point.
    Mr. JOHNSON. That is a central point.
    So David Autor and colleagues have some recent research on 
the effect of China's surge in exports to the United States, so 
our imports from China in the 2000s.
    And they have mapped out in compelling detail the 
destruction of jobs in American manufacturing that came 
directly and specifically from that trade shock, which, by the 
way, was facilitated by an episode of currency manipulation in 
which the Chinese Renminbi was kept below its market value 
through deliberate government policy.
    So imports are absolutely very important, Mr. Levin. They 
destroy jobs. And then those people go down--if they can get a 
job, again, they go down in terms of the income that they can 
earn, and that is a big part of what lies behind the picture 
that you showed earlier.
    Mr. LEVIN. Thank you. My time is up.
    Chairman RYAN. Because we are having some technical 
difficulties with the technology here, for the record, it is, 
``When it comes to the pace of annual pay increases, the top 1 
percent wage growth grew 138 percent.'' That is the slide that 
the gentleman from Michigan was referring to.
    Mr. LEVIN. It was the second slide that we showed. Thank 
you.
    Chairman RYAN. Okay.
    Mr. Johnson.
    Mr. JOHNSON OF TEXAS. Thank you, Mr. Chairman. And, again, 
congratulations on being the new chairman. And I thank you for 
this hearing as well.
    Mr. Holtz-Eakin, I want to begin by asking you some 
questions regarding the Social Security disability.
    As you may know, the program is projected to become 
insolvent in 2016. And I will just say the last thing that 
should happen is Congress raiding the retirement program to 
bail out the disability program. This is worse than kicking the 
can down the road and actually makes the Social Security 
retirement program worse without doing anything to fix it.
    Do you believe that reforming disability insurance, DI, 
would improve economic growth at all?
    Mr. HOLTZ-EAKIN. Yes, in a couple of ways.
    First, on the merits of the program itself, we have a clear 
issue with people going onto disability insurance. And I think 
it is useful for this committee to review the definition of 
disability.
    We now basically divide people in these concrete groups: 
can work, disabled. And, in fact, there is a much more fluid 
reality out there about people with physical and mental 
disabilities being able to continue to work.
    And the DI program provides a bad incentive to have them 
not work at all. And there is a lot of fraud in the entry 
process on top of that.
    The second thing is DI is a black hole. People go into DI, 
they never come out.
    Mr. JOHNSON OF TEXAS. Tell me.
    Mr. HOLTZ-EAKIN. And I ought to--and I think the committee 
ought to think hard about especially young people who are on 
the DI program, who, if they got continuous monitoring, would 
actually find ways to exit and move into the labor force at a 
relatively young age, and we would benefit from that.
    So I think the structure of the program itself deserves 
serious review. And it is a great opportunity for the Congress 
to look at a mandatory spending program and, instead of just 
stealing money from another part and financing it or just 
cutting it, reforming it so that it meets its social safety net 
objectives and costs less. That is what we are going to have to 
do with the Federal budget.
    We have a mandatory spending problem in the years going 
forward. We have tried things like cutting Medicare physicians 
with the SGR. It doesn't work. We need reforms, not cuts, and 
DI is a good place to start.
    Mr. JOHNSON OF TEXAS. Thank you. I agree with you, and I am 
sure most of my colleagues do, too.
    As you know, it can take a long time for a person to 
receive a decision on an application for disability.
    For those that don't qualify for benefits, how does this 
time out of the labor force, in your opinion, affect their 
earnings?
    Mr. HOLTZ-EAKIN. In general, long spells of unemployment 
are bad for people's future earnings ability. And we learned 
that in this downturn. We have learned it--the same lesson 
again and again. To have a policy induce people to undertake 
such a spell is a bad incentive.
    Mr. JOHNSON OF TEXAS. You know, sometimes workers take 
Social Security before they stop working. In other cases, they 
need to keep working to supplement their retirement income.
    However, if they claim benefits before their full 
retirement age, their benefits are reduced based on how much 
they earn due to the retirement earnings test.
    How can we better encourage work, especially later in a 
worker's career?
    Mr. HOLTZ-EAKIN. There is a long list of things one can do 
by, as Dr. Feldstein mentioned, looking at the normal 
retirement age and moving it to match the current life 
expectancies, the taxation of Social Security earnings. When 
people are working and have earnings is something that is worth 
looking at.
    The program itself needs to be reformed. I mean, again, as 
the committee knows, this is a pension program that is kept 
actually set on the books by the promise to cut benefits 25 
percent across the board in 20 years. Not a very good way to 
run a pension program.
    So it ought to be reformed so that it will be sustainable 
for the future, people know what the deal will be. They will 
then be able to make their labor force decisions and know how 
much they have to earn and how long they have to work. All of 
that would be beneficial.
    Mr. JOHNSON OF TEXAS. Okay. Tell me why you think we ought 
to tax those earnings, because they have already been taxed 
once.
    Mr. HOLTZ-EAKIN. I didn't say I wanted to. I said I think 
you ought to re-examine that.
    Mr. JOHNSON OF TEXAS. Okay.
    Thank you, Mr. Chairman. Yield back.
    Chairman RYAN. Thank you.
    Mr. Lewis.
    Mr. LEWIS. Thank you, Mr. Chairman.
    Mr. Chairman, I want to take an opportunity to congratulate 
you on becoming the chairman of this committee. And, like Mr. 
Levin, I look forward to working with you, sir. Thank you.
    Welcome, members of the panel.
    Dr. Johnson, would you like to comment on the question 
raised by Mr. Johnson.
    Mr. JOHNSON. Yes, Mr. Lewis.
    This is an issue--a problem that we encounter in many 
severe crises. This is the--why preventing severe financial 
crises is so important, Mr. Johnson, because when so many 
people are dumped into the labor market--when so many people 
are dumped out of the labor market, lose their jobs--more than 
7 million people--as Mr. Levin said, you overwhelm everybody's 
capacity to cope and more people do end up on disability. A lot 
of them end up with stress on disability because of what has 
happened.
    So that is why the Dodd-Frank reforms are so important, and 
I urge you not to lose track of that part of the big picture. 
And this is why the fiscal stimulus was so important, also, 
getting people back to work, making sure that they stayed 
engaged with the labor force and kept those skills.
    As you said, it is about long term being thrown out of 
work, and then people couldn't find a job, Mr. Johnson. Those 
are the circumstances in which we found ourselves at the end of 
2008 and in 2009.
    Mr. LEWIS. Thank you very much, Dr. Johnson.
    The budget passed by the House Republicans last year would 
have unfairly targeted low- and moderate-income Americans for 
significant cuts in assistance with at least 69 percent of its 
non-defense cuts coming from programs that served people of 
limited means.
    Now, I want you to tell us: Do you worry that cutting 
medical, food, and education assistance to struggling Americans 
might be counterproductive to long-term economic growth?
    Mr. JOHNSON. Yes, Mr. Lewis. I think the human capital, 
people's ability to learn, children's ability to go to school 
and to concentrate, this is absolutely affected by their access 
to nutrition, by their access to health care.
    Medicaid for children is a very sensible investment in the 
long-term future growth of the country and in its fiscal 
sustainability because those are the people who pay taxes when 
they are grown up.
    If they can't concentrate, if they are--if they are sick, 
if they are absent from school for those reasons, or if their 
family has medical emergencies that mean they can't keep the 
children in school, all of this impacts negatively, obviously, 
the individuals and the family, but, also, the rest of us as a 
society and--and as people responsible for the fiscal accounts.
    Mr. LEWIS. Are you further concerned that huge cuts for 
low-income Americans might increase inequality, which is 
already a growing concern all across our country?
    Mr. JOHNSON. Yes, Congressman. I think inequality is an 
important issue, and that is what you saw in Mr. Levin's chart.
    But what I would stress, it is not just about inequality. 
It is not just about redistribution, at this point in our 
history, it is about growth. It is about human capital. It is 
about people. It is about who are you helping when they are 
young and they are poor and their families can't help them. 
What kind of opportunities are you providing?
    I think it is, also, Mr. Lewis, about immigration reform. 
We should be encouraging more people to enter the country 
legally and join the labor force, including families with young 
children.
    That is a huge advantage we have relative to other 
industrial countries, our potential growth in our labor force 
through legal immigration. No other major developed industrial 
country has that kind of opportunity looking forward.
    Mr. LEWIS. Thank you very much, Dr. Johnson.
    Chairman RYAN. Thank you.
    Mr. Nunes is recognized.
    Mr. NUNES. Thank you, Mr. Chairman.
    Dr. Holtz-Eakin, I have been working for several years on a 
proposal to kind of get us out of the sandbox that we have been 
in for the last 100 years with a progressive Tax Code and get 
us to a system that allows us to really let investment flow 
where it needs to flow and let capital come off the sidelines 
that is sitting on the sidelines not only in banks here in the 
United States, but, also, offshore and let that money go to 
where it is best used in the economy where entrepreneurs and 
investors want to invest.
    You are familiar. It is based off of the Bradford X Tax. 
What I did is I converted it into taking that tax and just 
looking at it as a--on all business activity and created a cash 
flow tax. Been working under Chairmen Camp and now Chairman 
Ryan with joint tax to try to get this to a revenue-neutral 
score because it is a theory now.
    But I am trying to vet it and get it out there in the 
public so that all Republicans, Democrats, the American people, 
have a chance to look at what it would look like under a 
completely different tax structure. I know you are familiar 
with it.
    And I would like for you just on the--if you could, on the 
record kind of talk about the positives and possibly the 
negatives with transitioning to a tax like this.
    Mr. HOLTZ-EAKIN. As you know, I am a student of the late 
David Bradford, who was one of the greatest tax policy minds 
this country has ever seen, and I am a big fan of your tax 
system as a result. I think it has a lot of virtues from the 
point of view of equalizing effective tax rates on investments 
across sectors of the economy--something that is an important 
consideration.
    It can be paired with the kind of territorial systems that 
Dr. Feldstein has mentioned that will allow us to stop the 
practice of locking offshore the overseas earnings of our most 
successful global companies and bringing those back, invest 
them in the United States. Again, that is having investment 
flow to its highest rate of return and reaping the reward of 
doing that.
    It, effectively, taxes people on what they take out of the 
economy, what they consume, as opposed to what they contribute 
to the economy--their efforts, their skills, their savings in 
the capital pool. And I think, as a basis for taxation, that is 
a very fair principle, to tax people on what they take out.
    And it distinguishes, as a result, between a high-income 
individual who lives a lavish lifestyle and takes a lot out and 
a high-income individual who plows it back into the economy and 
helps the Nation as a whole. And I think that is something we 
ought to think about when we think about fairness; not all 
high-income people are created equal.
    The downside, in many people's eyes, is the inability to, 
sort of, have high effective tax rates on the affluent--I think 
that can be addressed with a progressive tax structure--and how 
you treat the return to capital for people who are extremely 
successful.
    And this system, I think, is especially desirable because 
it basically turns the whole world into a big traditional IRA. 
You deduct any saving investment when you make it, and you tax 
everything that comes out, the original plus the earnings when 
it is realized.
    That means that if you, you know, hit a windfall, if you 
end up being Microsoft or you end up being an enormously 
successful startup, all of that success gets taxed. In other 
systems that try to attempt to give good investment incentives, 
they look like Roth-style things, where you pay the tax and 
then whatever happens after that goes untaxed. That allows much 
more in the way of windfalls to be untaxed.
    So if you have to pick at this point in time a pro-growth 
policy--and that would be a very pro-growth policy--that has 
better fairness considerations, I think it is really a very 
good candidate.
    Mr. NUNES. Well, it is fairer to the entrepreneur, right? 
Because now we have----
    Mr. HOLTZ-EAKIN. Yep.
    Mr. NUNES [continuing]. Entrepreneurs make their startup 
decisions based off of the Tax Code, which is exactly what we 
don't want them to do.
    Mr. HOLTZ-EAKIN. Yes.
    Mr. NUNES. We only have a minute left, Dr. Feldstein. I 
don't know if you are familiar with the X tax, but I would like 
to get your thoughts, if you could.
    Mr. FELDSTEIN. I am also a fan of the X tax. I think the 
idea as Douglas Holtz-Eakin described it, as a kind of 
generalized IRA in which individuals can save and pay tax only 
when they take it out, is a way of improving the fairness and 
also contributing to savings incentives and growth.
    Mr. NUNES. Well, I look forward to sharing the proposal 
with you. It is just a draft for now, but I would like to get 
your comments when you can.
    And I would also like to get your comments also, Mr. 
Johnson, at a later date.
    Thank you, Mr. Chairman. I yield back.
    Chairman RYAN. Thank you.
    Mr. Neal is recognized.
    Mr. NEAL. Thank you, Mr. Chairman. And congratulations 
again.
    The panelists that we all have are all well-regarded, so I 
want to talk a little bit about dynamic scoring. Recently, Mr. 
Larson and myself, we had a chance to see an almost completed 
project along the rail line from New Haven to Hartford and on 
to Springfield and on to eventually Saint Albans, Vermont. It 
will mean 12 to 16 more trains a day between New Haven and 
Springfield. There are two union stations that are under 
reconstruction because of it, involving substantial Federal 
expenditure, in one case up to $82 million.
    Now, I supported stimulus, got up on the floor and spoke in 
support of the stimulus package offered by President Obama. And 
I believe Dr. Feldstein supported the stimulus package.
    And you will have a moment, Doctor, to reject that if it is 
not true.
    But how, according to Mr. Ryan's dynamic scoring 
undertaking, would you measure the effect of stimulus in terms 
of investment, which I happen to believe is a pro-growth 
economic undertaking? And I am comfortable enough asking all 
three panelists to tell me what you think of it.
    Mr. FELDSTEIN. Let me go back to the stimulus bill in 2009. 
At that time, interest rates were down at about zero, and I 
thought we did need a fiscal stimulus. I thought the design of 
that particular bill was not good. I thought, in the end, it 
provided some stimulus but probably added more to the national 
debt than it did to GDP.
    I think, in the end, we have had a very significant 
recovery because the Federal Reserve took over, introduced so-
called quantitative easing, drove down long-term interest 
rates. That ultimately led to, as Ben Bernanke predicted it 
would, led to big increases in both home values and stock 
market equity values, so household net worth rose $10 trillion 
in 2013. And that led to increased consumer spending. And that, 
in turn, led to more hiring by firms, more inventory 
accumulation. And that gave us the recovery that started in the 
second half of--the serious recovery that started in the second 
half of 2013.
    So I think that, as a more general proposition, when you do 
tax changes or you do spending, it is worth trying to calculate 
what that is going to do to GDP. And, historically, on the tax 
side, that has not been done, so Congress gets----
    Mr. NEAL. Could----
    Mr. FELDSTEIN [continuing]. An incorrect view of what the 
costs are of tax reductions and what the benefits are of tax 
increases.
    Mr. NEAL. Thank you, Doctor.
    Could we hear from the other two quickly? We only have 
about 2 minutes.
    Mr. HOLTZ-EAKIN. This is a big issue, but I would just 
point out a couple of obvious things.
    First, very few bills are substantial enough in their 
impact to merit looking for the growth impacts of those bills, 
which is what dynamic scoring does. It expands the boundary to 
check does the economy as a whole get larger or smaller as a 
result of the legislation. So, you know, a couple of bills in 
each Congress will probably merit this consideration. I don't 
think it is going to change most of the work of the Congress 
very much at all.
    The second thing I would say is this is not a new thing or 
a particularly exotic thing. Every President's budget is 
dynamically scored. If you read it, it says, these estimates 
are contingent on enacting all the policies of the President. 
So we have been doing it. The CBO has been doing it since 2003. 
The Joint Committee has done it.
    The third thing I will say--and I know we are running out 
of time: It is no more uncertain or no more difficult to do 
than conventional scoring. I had to score terrorism risk 
insurance, the financial consequences of an unknown attack at 
an unknown time with an unknown weapon. That is hard. I mean, 
so there are going to be judgments and difficulties in 
conventional and dynamic scoring. I don't think any of that 
should stop the members of this committee from knowing those 
things which are better for growth as opposed to those which 
are not.
    Mr. NEAL. Could we----
    Mr. JOHNSON. Well, Mr. Neal, I agree that we should 
consider the full growth implications, but dynamic scoring is 
very complicated.
    And some of these models that they are using for dynamic 
scoring have got some strange features, including full 
employment, for example. Now, assuming full employment in the 
modern American context is a little bit of a stretch, for 
example.
    So I think it needs to be used extremely carefully. And I 
worry that it can be and sometimes is used to justify whatever 
outcome people are seeking.
    Mr. NEAL. Mr. Chairman, I hope you will----
    Chairman RYAN. Thank you.
    Mr. NEAL [continuing]. Examine at the time the opportunity 
to apply dynamic scoring, if that is the embrace of the rules 
package passed by the House, that you will consider the idea of 
spending as it relates to the dynamic scoring.
    Chairman RYAN. It is in the House Rules. I think the 
gentleman should review, but----
    Mr. NEAL. We looked at it, Mr. Chairman. A bunch of the 
emphasis was on----
    Chairman RYAN. It is CBO and Joint Tax, and----
    Mr. NEAL [continuing]. Tax cuts.
    Chairman RYAN [continuing]. It is spending as well.
    Mr. NEAL. All right. Thank you.
    Chairman RYAN. So the gentleman's concerns have been 
addressed.
    Mr. LEVIN. No, but the language is different as to spending 
as to revenue.
    And I suggest--there is an article in The New York Times 
about Medicaid and children----
    Chairman RYAN. The gentleman's----
    Mr. LEVIN [continuing]. That you ought to look at.
    Chairman RYAN. The gentleman's time has expired. We can 
revisit this another time.
    Mr. Tiberi is recognized.
    Mr. TIBERI. Thank you, Mr. Chairman.
    Dr. Holtz-Eakin, you mentioned in your testimony that trade 
creates jobs, in fact, supports nearly 11 million jobs in the 
United States.
    In my home State of Ohio, home of the national champion 
Buckeyes, by the way, there are----
    Mr. HOLTZ-EAKIN. But no beard, sir?
    Mr. TIBERI. Because we are winning. Well, never mind.
    A lot of misconceptions, a lot of rhetoric thrown around, 
particularly during Presidential campaigns. In fact, we have 
had Presidential candidates talk about trade being bad but 
exports being good.
    Can you do trade without exports or exports without trade?
    Mr. HOLTZ-EAKIN. No.
    Mr. TIBERI. Okay.
    It has been pretty surreal to watch.
    In Ohio, international trade supports 1.4 million jobs. We 
in Ohio, since 2002, goods exported to our trading partners 
account for about a 48 percent increase over the last 12 years 
to our trading partners. Our trading partners purchased 19 
times more goods per capita from Ohio than nontrading countries 
in 2012. Canada is our biggest exporter, but NAFTA is bad, many 
people in Ohio think--again, campaign rhetoric.
    So my dad was a steelworker, and, like many jobs that 
people in that industry have had, those jobs didn't go 
overseas; technology changed those jobs.
    Oftentimes, Dr. Holtz-Eakin, we never hear about the 
advancement of technology and what that has done to our 
economy. The scapegoat tends to always be, ``These jobs went 
elsewhere.'' I have toured manufacturing plants where there 
used to be 20 people on an assembly line and now there is 1--19 
jobs gone because of technology. There are a lot of 
efficiencies, by the way, but those cost jobs.
    So, as we move forward, with respect to your testimony, I 
think there is a huge opportunity for America, whether you look 
at trade, exporting, the Tax Code. We in the United States are 
doing well despite the fact that we have one arm tied behind 
our back, whether it is the high corporate tax rate that we 
have talked about, whether it is the fact that we have fewer 
trading partners than many of our allies do around the world.
    Can you tell us why, particularly on trade, opening up 
additional markets and giving the President TPA is important 
sooner rather than later, why that is important to our economy 
and jobs in Ohio and other States?
    Mr. HOLTZ-EAKIN. So it is important now because we are not 
fully employed. We don't have everybody who wants to work at 
work. And additional opportunities to access markets and sell 
our products, bring people into the labor force to make those 
products are especially important right now. And moving quickly 
is beneficial.
    The second thing is we will be in at the ground floor of 
setting the rules for those trading arrangements. And if you 
are on the sidelines, the rules are written in ways that are 
probably undesirable, and waiting is not a good idea. Be at the 
table.
    Third thing that is important is that ultimately we would 
expect us to get back to full employment, but this is an 
opportunity to sell to the parts of the world where we are 
going to see the greatest income growth in the years to come. 
And that is better income. That means better jobs, not just 
more, but people's jobs will be better as a result.
    And then the third is you get the opportunity to take 
advantage of the technologies, as you said. If you have the 
ability to do something better, you can take advantage of that 
through trade.
    The biggest example of change in trade recently has been 
driven by technological advances in natural gas and oil 
exploration. It has changed the global lay of the land for the 
United States permanently. You could not imagine the level of 
geopolitical risk that we have in the Middle East right now and 
oil prices at $50 a barrel 5 years or 10 years ago. It just 
wouldn't happen. It has also changed our imports of those 
products, and that has been a big change in trade.
    So, you know, it is hard when people get displaced by 
trade. It happens. It is not all exports; there are imports. 
But it is an opportunity. And if the economy as a whole takes 
advantage of that opportunity, we have more people working and 
they are making more money.
    Mr. TIBERI. But the displacement is not----
    Mr. HOLTZ-EAKIN. No, it----
    Mr. TIBERI. It is also technology. Technology enters into 
it as well.
    Mr. HOLTZ-EAKIN. It is not all international trade.
    Mr. TIBERI. Right.
    Mr. HOLTZ-EAKIN. It is interregional trade. Textile jobs 
that used to be in the Northeast went to the South. I mean, 
this is part of an economy adjusting----
    Mr. TIBERI. Thank you.
    Mr. HOLTZ-EAKIN [continuing]. And it is not unique to 
trade.
    Chairman RYAN. Thank you.
    Mr. Doggett is recognized.
    Mr. DOGGETT. Thank you, Mr. Chairman.
    I suppose in a hearing on this topic of this import that it 
is merely an oversight that, I guess, the leader of Republican 
thinking on this, in the Senate at least, Senator McConnell, 
began this session by noting that what he called the uptick in 
our economy resulted from the mere expectation of a Republican 
Congress.
    And it is good to know that, after so many apocalyptic 
predictions about the Economic Recovery Act, the Affordable 
Care Act, and almost everything else that over the last 6 or 7 
years this administration either has done or has not done, that 
we have enough progress that some Republican leadership is 
claiming credit for all the things they said would hurt or 
hinder the economy that have, in fact, in most cases, helped it 
significantly. I guess that it does give new meaning to the old 
reference to the memory of an elephant.
    One of the areas that, of course, we have not seen the 
progress that we need to see that Mr. Johnson has referred to 
is the fact that not all Americans have shared. And this is not 
by accident. But the data is rather remarkable, that, according 
to the Pew Research Center, we have the widest wealth gap in 3 
decades, that the compensation for the chief executive officers 
at American corporations was about 20 times that of the typical 
worker back in the 1960s but in more recent years it has become 
about 300 times a typical worker's pay. Since 1979, worker 
productivity increased by about 65 percent, but worker wages 
remained essentially flat, but CEO pay grew by almost 1,000 
percent.
    I think that this income inequality has some of the same 
pernicious effects on economic growth in our country as just 
discrimination against various groups, gender discrimination, 
for example, claiming that we are not going to permit, as some 
societies continue to do, women to participate fully in our 
economy. Well, in this case, we have treated one group of 
Americans as really not having the potential to achieve their--
or not being able to fully achieve their God-given potential.
    Mr. Johnson, I just wanted to ask you about that further, 
what the impact is of decisions here in Congress, either 
through action or inaction, to not have all Americans 
participate in this and adopt policies like the American 
Opportunity Tax Credit and increases in Pell grants to assure 
that more Americans can share and can contribute to the 
economy. Does that have a direct impact on our future economic 
productivity and growth as a country?
    Mr. JOHNSON. Mr. Doggett, it has a huge impact.
    Look, the process of technology and globalization we have 
been discussing. Nobody is asking you to be like King Cnut 
trying to turn back the tide. You can't do that. But there are 
many sensible policies absolutely under the jurisdiction of 
this committee, including the Pell grants, for example, 
including other ways that will encourage people, give them an 
incentive, give them resources or enable them to become 
educated.
    We know what kind of skills you need in order to be 
productive, in order for our country to compete globally. We 
know you need to be much better at using information 
technology. We know that you need to have quantitative skills 
and analytical reasoning skills. We also know it is very hard 
for people for many parts of the income distribution to get 
those skills. And it is very hard for them to get any kind of 
post-high-school education.
    I think we should shift away from talking about K through 
12 as our expectation for education to K through 14, because 
you need those 2 years post-high-school to have any chance of 
decent, high lifetime earnings and being able to pay taxes.
    Mr. DOGGETT. As far as corporate taxes are concerned, Mr. 
Johnson, it is difficult to see how you can lower the rate much 
more for a company like General Electric unless you begin to 
pay them for operating, which we, in fact, have done in some 
years, where corporation after corporation pays its lobbyists 
more than it pays the Federal Treasury.
    As you look at corporate tax reform, is it important to 
close loopholes at the same time that we make any changes to 
the statutory rate?
    Mr. JOHNSON. Yes. I think you--if you are going to consider 
just corporate taxes, you should consider a revenue-neutral 
approach. Of course, quite a few of the proposals that we hear 
would do away with some form of accelerated depreciation. I am 
not sure that is going to help in terms of capital formation.
    But the other point is, compare around the world, compare 
with other countries. The World Bank does this, asks 
entrepreneurs how do they assess the business environment. We 
are number seven in the world, and we are very close to five of 
the countries that are above us in those rankings.
    Chairman RYAN. Thank you.
    Mr. Reichert.
    Mr. REICHERT. Thank you, Mr. Chairman. And congratulations 
again.
    Like my colleagues, I support a robust trade agenda. I come 
from Washington State, and I think most everyone knows that 
Washington State, with Boeing and Microsoft and other large 
corporations, 40 percent of the jobs created in Washington are 
a direct result of our strong trade agenda.
    Not only, I think, do most of the colleagues on this panel 
agree with the strong trade agenda, but, in fact, the President 
of the United States and our Ambassador, Mr. Froman, both agree 
that TPP and TPA are critical to doubling our exports and 
creating jobs in America.
    I happen to be a member of the President's Export Council 
and have been for the past 6 years and have been at almost 
every one of those meetings. And, of course, the President's 
wish and the Ambassador's wish is that the Democrats recognize 
the importance as much as the President and the Ambassador do 
and help him get both TPP and TPA passed through this Congress.
    As I said, 40 percent of the jobs in Washington State--now, 
Mr. Tiberi talked a little bit about technology. My focus is 
more on small business and how technology has helped small 
businesses. We all think of exports and larger corporations 
across this country exporting their goods like airplanes, et 
cetera, but I have a son-in-law who is currently in China, a 
small software producer, and I have a son who is a--it is a 
machine shop, who sends his product--they have 10 or 12 
employees. He sends his products all over the world.
    How important is trade, Mr. Holtz-Eakin, to these small 
businesses and the future and the expansion of their 
businesses? How important is trade to creating jobs in those 
small businesses and opportunities for people who migrate to 
those small businesses for their employment?
    Mr. HOLTZ-EAKIN. So, as a ballpark number, 70 percent of 
our exporters would be conventionally classified as small 
businesses. And because they are small, the value of what they 
export isn't that large, and those value numbers get dominated 
by the Boeings and Microsofts of the world. But in terms of 
being engaged in international commerce, small businesses do 
this. And it is an important part of their customer markets, to 
be able to get to other countries and sell there.
    We also know that it is those small and growing businesses 
that create the majority of jobs on an ongoing basis in the 
United States. So their access to those markets and their 
ability to trade is intimately linked to our success in 
creating new jobs at higher pay and getting rid of the old less 
high-paying jobs as a part of the national economic growth.
    So I think it is important to keep an eye on good ability 
to trade, trade agreements that level the playing field and 
allow us comparable access to other markets.
    Mr. REICHERT. And we are talking about 80 percent or more 
of the jobs created across this country are really created by 
small businesses, correct?
    Mr. HOLTZ-EAKIN. Yeah. The small growing businesses, that 
is the place where you see the majority of the job creation.
    Mr. REICHERT. And that really creates--trade really creates 
an opportunity to sell their product not only here, of course, 
in the United States but in what everybody has described, I 
think, on this panel--95 percent of our market is outside of 
this country.
    Mr. HOLTZ-EAKIN. And the advantages come in very subtle 
ways that are hard to document, but, you know, you sell in 
another market, you see the kinds of competitive pressures you 
face there, the kinds of technologies your competitors are 
using, the kinds of marketing business models they use. And 
those things get acquired and diffused into American firms and 
make them more effective, whether it is in physical 
technologies or the way they run their business. So there is a 
lot of advantage of being engaged in these activities.
    Mr. REICHERT. Thank you.
    Mr. Feldstein, I would like to address my last question to 
you quickly. In another area where we have the ability to boost 
our economy, it is through tax reform. As was mentioned many 
times, businesses large and small will benefit from finally, 
since 1986, looking at our Tax Code and creating some certainty 
and stability in our Tax Code and the opportunity to grow and 
invest, of course then creating jobs.
    What about passthrough businesses--sole proprietorships, 
partnerships, S corporations? They face a high marginal tax 
rate in addition to high compliance costs. How do you see the 
change in the Tax Code specifically helping those small 
passthrough businesses?
    Mr. FELDSTEIN. I think that is a major challenge that you 
face as a committee and as a Congress in dealing with tax 
reform, that lowering the corporate tax rate, where both the 
President and the Republicans have said we have to get down 
into the 20s, will still leave passthrough businesses, who file 
through their personal tax return, facing much higher tax 
rates.
    So somehow that has to be dealt with, and by treating the 
business income of passthrough individuals differently from 
other things so that, in effect, they get the advantages of the 
lower tax rates that come with corporate tax reform.
    Mr. REICHERT. I yield back.
    Chairman RYAN. Thank you.
    Mr. Larson.
    Mr. LARSON. Thank you, Mr. Chairman. And echoing the 
sentiments of the committee, congratulations on two fronts: 
becoming chairman and you and Mr. Kind's great success with the 
Green Bay Packers.
    Condolences to Kenny, Kevin, and Sam. You guys was robbed. 
It was a catch. But I don't want to create further controversy.
    I would also note that----
    Mr. LEVIN. How about the Detroit Lions?
    Mr. KIND. That is dynamic scoring, Mr. Chairman. I object.
    Chairman RYAN. It is called completing the process of the 
catch.
    Mr. LARSON. That is really dynamic scoring.
    But it does get to the point--first, I also want to 
acknowledge Aetna today, which in my district is announcing a 
floor of $16 per hour for its employees, in large part due to 
the success of the Affordable Care Act and coordinated care and 
all the innovation technology and coming and merging together 
of a pro-growth industry.
    So I wanted to acknowledge that and also return to the 
point of dynamic scoring, not as it related to the game, Ron, 
but as it relates to the rules that are before us and with 
respect to infrastructure in general, something that this 
committee desperately needs to address, in terms of our highway 
infrastructure but roads, bridges, sewage system, broadband for 
our schools.
    Quick answer from the members, a ``yes'' or ``no'': Should 
dynamic scoring be included in major national infrastructure 
programs?
    And we will start from left to right with Mr. Feldstein.
    ``Yes'' or ``no''?
    Mr. FELDSTEIN. If it is really major, I can see the case 
for it. But as has been commented on----
    Mr. LARSON. Well, with 70 percent of the roads and bridges 
in deterioration and that has long been neglected by the 
Congress, it seems like this is a pent-up need that certainly 
would require that.
    Mr. FELDSTEIN. It would be good to know what impact on GDP 
that kind of infrastructure program would have.
    Mr. LARSON. Mr. Holtz-Eakin.
    Mr. HOLTZ-EAKIN. If it is large-scale or mandatory 
spending, it will, under the House rule, be--it will be scored. 
I mean, that is the rule.
    If it is extremely large-scale and plausibly going to have 
macro impacts, the committee chairs can designate legislation 
to be major legislation and have it be dynamically scored.
    So, you know, there is nothing about these rules that tilts 
the field in one direction or the other.
    Mr. JOHNSON. Yes, Congressman, but can we also please 
include Medicaid for children, the Affordable Care Act, and the 
Dodd-Frank financial reforms, which are absolutely scored 
backwards, according to the CBO?
    If you repeal some parts of Dodd-Frank, you are supposedly 
going to save the budget. You are not going to save the budget 
anything; you are going to open yourselves up to massive 
financial risk and another debt catastrophe like the one we 
just had.
    So if you are going to fix scoring on all these dimensions, 
please do it comprehensively.
    Mr. LARSON. Now let me yield to my colleague from 
Massachusetts, who I think was making the point of 
differentiating on those rules as they exist. If I can, I would 
yield to Mr. Neal.
    Mr. NEAL. I think what we are trying to get to here is the 
idea that there are economic outcomes that come from 
significant infrastructure investments that are not only long 
overdue but have been resisted by the majority in the House.
    And the path forward seems to me to be one that would 
include, for example, an investment in two huge union stations 
from Hartford to Springfield, putting a lot of construction 
workers on the job; the rail being improved; broadband having 
been extended to the hill towns of western Massachusetts so 
that children--who, by the way, live in communities that have 
first-class colleges have to go to the parking lot at the local 
library during the evening hours to connect to the Internet.
    And I think that those are the sorts of measurements that 
we want to be assured of as we go forward. If we are only going 
to apply this to tax cuts, then it seems to me as though it is 
ill-considered. And if we decide that we are going to talk 
about long-term investments, what better way to do it that 
improving rail transportation?
    And just for our colleagues here that are dubious about 
high-speed rail, that first train when we got to western 
Massachusetts on the way to Vermont and to a couple of small 
towns, that train got up to 79 miles an hour. And how do we 
measure that accurately, consistent with the point that Mr. 
Larson has made, if we resist the idea that that doesn't count 
in terms of a long-term forecast of economic--and, Mr. Johnson, 
will you take a shot at that?
    Mr. JOHNSON. I think we should be considering these broader 
economic impacts, Mr. Neal. I worry about the uncertainty of 
the dynamic scoring model on the tax proposals. And I think 
that looms very large over this Congress. So that is why I 
think you have to be careful with exactly the details of the 
models that are being used and exactly the implications.
    But, of course, you are right; there are growth 
implications, positive growth implications, for renewing and 
expanding the infrastructure of this country.
    Chairman RYAN. Thank you.
    Time for the gentleman has expired.
    Mr. Boustany is recognized.
    Mr. BOUSTANY. Thank you, Mr. Chairman.
    Here we are in year 6 of the recovery, and I think we have 
all established that growth is absolutely essential.
    And I think, Mr. Holtz-Eakin, you really laid out the task 
of this committee very, very clearly. And our task is to 
accelerate long-term growth in this country beyond the paltry 
2.3 percent that we are seeing.
    And as I have looked and read many, many things during the 
course of these past few years, trade and energy have been the 
two accelerants that have worked against the drag that we have 
seen in this economy as we have tried to climb out of the 
recession.
    And I want to point out, in my State, in Louisiana, we are 
now seeing $86 billion in new investment in my district alone 
related to trade and energy. Exports now account for 25 percent 
of the State's GDP. We have doubled exports in 4 years. And 
this is all within the trade and energy space, from LNG exports 
to chemical and petrochemical exports. We have seen a 
resurgence in manufacturing as a result. These are bright 
spots.
    What really worries me in all of this are the macroeconomic 
threats to this, and we haven't talked about that today. From 
the slowing in Asia, slowing of growth in Asia, clearly the 
problems in Europe, where they can't get policy straight as to 
what direction they are going to go--and we are seeing, you 
know, many of these countries in recession--and, of course, 
insecurity in the Middle East and elsewhere, what do we do 
about those things?
    There are many things we have talked about here that we can 
do with regard to domestic policy, from tax reform, education, 
and so forth, much in the jurisdiction of this committee. But 
what can the United States do to mitigate these threats and 
lead? Because without U.S. leadership we will not see the type 
of growth needed in this country nor globally.
    I believe that America's opportunity to lead, the catalyst 
for leadership is trade promotion authority, which then opens a 
door and gives our negotiators the best leverage to move 
forward on TPP, on TTIP, on TISA, and all these trade 
agreements. This is the opportunity, and this is our 
opportunity for growth. We have to focus on what we can do to 
lead in the global economy.
    Now, with energy and trade and the success story we are 
seeing in Louisiana--and I am afraid a lot of that is 
threatened--there are two things I want to point out.
    One, it is my sense of it that these jobs related to 
exports and manufacturing exports as well as energy jobs pay 
significantly better than jobs unrelated to that. For instance, 
many, many folks back home with a high school education, not 
even an extra 2 years, are making pretty good money, 
significantly better than jobs unrelated to energy. And we know 
of stats that deal with trade- or export-related jobs. I think 
the figure is roughly around 18 percent higher than non-export-
related jobs.
    Would you all agree that these types of jobs pay better, on 
average?
    Mr. FELDSTEIN. I think that is a fact.
    Mr. BOUSTANY. So, as we deal with income inequality, this 
is also one of the potential solutions, by embracing trade 
policy, opening markets, and also embracing this remarkable 
energy revolution which we are seeing today, not penalizing it 
with taxes or other things, but embracing it as a truly 
revolutionary development that will put the United States in a 
leadership role.
    Yes, Mr. Johnson.
    Mr. JOHNSON. So, Mr. Boustany, I agree with you completely 
on the strategic role of trade. I think that is the right 
framework.
    But the question, particularly for this committee, is, do 
you want to give the--do you need the give the TPA, the so-
called fast track, to the administration right now? These 
negotiations are, as you know, quite well along, and you could 
instead focus your attention on the TPP and, if you want, on 
the TTIP, on the European----
    Mr. BOUSTANY. Look, reclaiming my time, I will say that our 
negotiators need to maximize their leverage in these 
negotiations. And I have had conversations with the Japanese, 
and they will admit that. They are going to put their best deal 
on the table when we have TPA.
    But I want to raise another issue. One of the biggest 
issues we are going to face in Louisiana is the lack of 
workforce to handle all these jobs with the new investment 
related to trade and energy. And I am very concerned about the 
rigidity in the labor market that we have in the United States. 
We are going to be robbing Peter to pay Paul within our State 
and along the immediate Gulf Coast. And we have high 
unemployment up in the Midwest and other areas.
    What can we do, what can this committee do to deal with 
this rigidity in the labor market?
    Mr. HOLTZ-EAKIN. I think you really have a limited number 
of tools in terms of geographic mobility, something which has 
diminished in the United States. There are certainly a lot of 
State-level policies, not in your jurisdiction, that I would 
urge the State-level Governors to look at. I mean, there is a 
lot of licensing and the like, certification, that just 
absolutely interferes with labor market mobility. I think it is 
quite excessive in the U.S.
    Those are some things. And then you have the social safety 
net. You want people to work, you don't want people tied out of 
the labor force because of the social safety net. So, as I 
said, everything work-related in that regard would help.
    Mr. BOUSTANY. Thank you.
    Chairman RYAN. Thank you.
    Time for the gentleman has expired.
    Mr. Blumenauer is recognized.
    Mr. BLUMENAUER. Thank you, Mr. Chairman.
    And I welcome your words and the spirit with which they 
were offered. And this hearing, I think, was an interesting and 
thought-provoking panel to get us going. The issues that we 
have referenced, in terms of tax, trade, and health care, are 
somewhat complex and controversial, but I think they absolutely 
need to be on the agenda.
    But I would argue that there may be something that the 
panel did not address that is tied to this that actually can 
have an opportunity to bring people together. I am thinking the 
next hearing might well have the president of the AFL-CIO, the 
president of the U.S. Chamber of Commerce, the president of the 
American Trucking Association, the president of civil 
engineers, environmentalists, truckers, who will unite and say, 
after 22 years, it might be time for us to raise the gas tax 
and fund our infrastructure.
    President Ronald Reagan, 22 years ago, 23 years ago, in his 
address for Thanksgiving, made an appeal that when Congress 
came back he wanted them to more than double the gas tax, 
because roads were falling apart, because there were hundreds 
of thousands of people who could be put to work, because it was 
a user fee that conferred benefits on people who paid it. And, 
in fact, there were costs that were being incurred at that time 
because of deteriorating roads. He said it would probably cost 
the average motorist less than a pair of shock absorbers.
    Well, today, we are in a situation, when we talk about 
productivity, 42 percent of our major urban highways are 
congested. And the estimates, I think, are not controversial 
across the political spectrum. It costs us about $100 billion a 
year. A third of our roads are in poor or mediocre condition, 
and it is costing the average motorist over $300 a year in 
damage to their vehicles.
    The S&P economic report--we talk about dynamic scoring. 
Well, I think there is--regardless of how you are going to use 
dynamic scoring or not, the evidence is strong that a $1.2 
billion investment in infrastructure is going to put close to 
30,000 people to work. And my friend, Mr. Boustany, wouldn't 
have to worry about whether it is in regions of high 
unemployment or not. These are jobs that would be available, 
family-wage jobs, for people across the country--across the 
country.
    Now, I would respectfully suggest that our committee has a 
unique responsibility. This title for transportation is Ways 
and Means. It is not the T&I Committee. This is our 
jurisdiction. We have not yet had a hearing on this in over two 
Congresses. We were going to have one. Chairman Camp offered it 
on the floor, you will remember, but circumstances didn't 
permit.
    I would respectfully suggest that this is an area that 
there is broad consensus, where we can get local governments, 
State governments, the private sector, the professions, 
environmentalists, and, as I say, truckers and AAA to come 
together and say, ``Congress, get off the dime.''
    When I came to the airport yesterday, the corner gas 
station was selling gasoline $1.60 a gallon less than the peak 
this spring. The average motorist, if we raised the gas tax 15 
cents over 3 years, would be paying less than a tenth of what 
they are already benefiting in terms of reduced gasoline 
prices. And remember, they are paying over $300 a year, damage 
to their cars.
    I would think we could have a very healthy discussion with 
experts across the political spectrum on what we could do. If 
somebody has a better approach than raising the gas tax, 
supported by two commissions from the Bush administration, 
let's hear from them.
    Chairman RYAN. Unfortunately, the time for the gentleman 
has expired to ask his question.
    Mr. BLUMENAUER. Okay.
    Don't you think?
    Thank you, Mr. Chairman----
    Chairman RYAN. You got it.
    Mr. BLUMENAUER [continuing]. For your courtesy.
    Chairman RYAN. All right. All right.
    Dr. Price is recognized.
    Mr. PRICE. Thank you, Mr. Chairman. And I want to join my 
colleagues who have congratulated you. I congratulate you on 
ascending to the chairmanship of the committee, and I look 
forward to working with you and assisting your efforts.
    I want to first talk a little bit about macroeconomic 
analysis or what my friends call dynamic scoring, which I call 
``realistic inaccurate scoring.''
    And I would just note with some amusement that all, except 
for Mr. Blumenauer, who used his entire time, all of my friends 
on the other side who asked questions of the panelists, Mr. 
Johnson and others, all of the questions that they asked were 
an effort to try to get an assessment of what a policy change 
would have on the economy. That is called macroeconomic 
analysis, dynamic scoring. It is what economists do every 
single day. They provide an assessment of the consequences of 
the policy decisions that we would make. So I want to welcome 
my colleagues to embracing the importance of macroeconomic 
analysis.
    I want to just state for the record that we are all very 
pleased that the economy has begun to become a little more 
robust. It is also important to remember that this is the 
slowest recovery of any economic downturn in this country 
ever--ever. There is a reason for that, and we as policymakers 
ought to be asking the question, why is that?
    I want to ask Dr. Holtz-Eakin--and I want to highlight your 
quote. I think it is important that we as policymakers ask the 
question, what are the work incentives to any policy endeavor 
that we undertake? What are the work incentives?
    And, to that end, we last week learned that the December 
jobs numbers resulted in a decrease in the unemployment rate to 
5.6 percent. That is a good thing, but it doesn't tell the 
whole story. The more troubling number was the labor 
participation rate. At 62.7 percent, the rate is the lowest 
that it has been in 37 years. You have to go back to the Carter 
administration to get rates this low.
    We also discovered within those job numbers that only 56.6 
percent of women are participating in the job market. That 
number is the lowest it has been in 26 years.
    So, Dr. Holtz-Eakin, I wonder if you wouldn't mind opining 
as to why the labor force participation rates are so slow and 
maybe provide us with two or three items that we might consider 
to increase participation in the labor market.
    Mr. HOLTZ-EAKIN. So, if you look at the decline, some of it 
is just demographics. We know that the baby boomers are aging 
and there are retirement possibilities out there, and so some 
of the decline in labor force participation comes from that.
    Mr. PRICE. How much would that account for?
    Mr. HOLTZ-EAKIN. It is about half of the decline, roughly, 
of what we have seen.
    Of the remainder--there was about a 2-percentage-point 
decline, ballpark. About half a percentage point appears to 
have been sort of traditional, cyclical stuff where people got 
discouraged, left the labor force, and may return. And then 
there is another quarter of the phenomenon which is just open 
to dispute. And will they come back is an important question 
from the perspectives of monetary policy, because, you know, 
how tight is the labor market, and when will wage inflation 
start to push into consumer inflation. It is also important 
from the point of view of productivity, and, you know, what are 
we going to have in the way of worker ability going forward.
    There, I tend to be in the camp that says they are not 
coming back. It has only been in the latter half of 2014 that, 
if you looked at an unemployed person, that the probability 
they would get a job exceeded the probability they would leave 
the labor force. And now it is just barely winning the race 
getting back to the job. If you look at someone who is out of 
the labor force, they are just not coming back. It is over 90 
percent for both men and women. They just stay out.
    So I think we have discouraged a chunk of workers in a very 
big and substantial way. And we ought to reexamine, from start 
to finish, the kinds of anti-work incentives that are in all of 
our social safety net programs. Because they have to be relying 
on the social safety net, to some extent, and we ought to just 
scrub them.
    Mr. PRICE. Do you want to highlight two or three of those?
    Mr. HOLTZ-EAKIN. Well, I mean, we know that a big chunk of 
this is going to come from single men whose labor force 
participation has gone down a lot. And the EITC is not 
particularly beneficial toward that. That is something that 
ought to be looked at.
    Another big decline has been in teens. One of the reasons I 
am deeply skeptical of the virtues of a minimum-wage increase 
is that we were raising the minimum wage through the great 
recession from previous legislation and teen departure from the 
labor force has been enormous. And that is the starting-out 
jobs that people rely on to get into the career ladder.
    And so, you know, I think we ought to look at, you know, 
what is going on with the teens, what is going on with the 
single men. And then, for the workers we have, don't let them 
leave. Look at the old-age issues.
    Chairman RYAN. Thank you.
    Mr. PRICE. Thank you, Chairman.
    Chairman RYAN. The time for the gentleman has expired.
    Mr. Kind is recognized.
    Mr. KIND. Thank you, Mr. Chairman. And I, too, want to 
congratulate my friend and colleague from Wisconsin for his 
chairmanship and look forward to working with you and see if we 
can, as a committee, at least find some common ground on some 
crucial issues facing our Nation.
    Mr. Johnson, you can comment on my preface to the question 
I am going to give to you, or not. But we are having a hearing 
today on the state of the economy, where we need to go as a 
Nation, the type of policies that make sense. But it is 
difficult in the current environment because it seems as if the 
parties are on two different planets. We keep talking past each 
other.
    And one of the concerns I have with many of my friends on 
the other side is--and most of the Republican economists, quite 
frankly, that come before us and their testimony or hearings or 
suggestions is there seems to be a three-note song that they 
love and repeat over and over again regardless of economic 
conditions. It is always about tax cuts, especially for the 
most well-off in our Nation. It is always about spending cuts, 
including important investments we should be making in the 
human capital of our Nation. It is always about deregulation, 
including deregulating the Wall Street banks under Dodd-Frank 
right now. And it doesn't matter what the economic 
circumstances are that we face at the time; it is the same 
three notes over and over and over again.
    Now, I am a former quarterback. I had a chance to play at 
Harvard for a few years in that. But I knew that if a play 
isn't working you have to change it in the huddle or on the 
line of scrimmage and call an audible. And it is an inability 
in order to call an audible, given the economic circumstances 
that we face, that leads to the gridlock and the head-butting. 
And it seems to me that it is less data- and fact-driven and 
more just ideological and philosophically driven.
    And that is where there is a problem. Because there is 
going to be an appropriate time to cut taxes and to increase 
spending or to raise taxes and reduce spending or to deregulate 
or to call for more regulations. And it is the ability to 
distinguish between the two that would turn us into a real 
partner with the private sector when it comes to economic 
growth and job creation. And it is that inability that has us 
tied up into knots.
    And you can comment on that, but what I want to ask you 
about--and having had a chance to read your testimony here, on 
page 2, item 9--and to get back to an original point you made 
in your opening statement--you said, and I quote, ``Our 
economic recovery was made much more difficult by the policies 
of budget issues, including the lack of consensus regarding the 
need to support the economy, actual or near government 
shutdowns and repeated confrontations over the debt ceiling. In 
particular, threatening to default on our country's national 
debt creates a great deal of uncertainty in that country. Such 
uncertainty discourages investment and consumption.'' You cite 
the debt-ceiling standoff, the fiscal-cliff standoff, all the 
uncertainty that it created.
    Would you care to expand on that with some recommendations 
on how we can overcome that in the future to really be a 
partner with the growth that we need right now?
    Mr. JOHNSON. Well, Congressman, my recommendation is, 
``Don't do it.''
    I testified to this committee, I think it was 2 years ago, 
under Chairman Camp, exactly about these points. And I 
beseeched all the Members not to engage in this kind of 
destabilizing confrontation politics where you threaten to 
default on the debt. That really is crazy, to use a technical 
term.
    To threaten government shutdowns and generate this 
uncertainty for everyone in and around government contracting, 
including the workers, again, that is not helpful. You can 
see--and this has been measured, and this was in my previous 
testimony to this committee--the wave of uncertainty spikes for 
everyone. And we know that kind of uncertainty discourages 
investment, discourages consumption, discourages hiring--all 
the parts of the recovery that Dr. Price was talking about.
    That is what we--absolutely all Americans must want 
everyone to get back to work, and then we can sort out how we 
improve opportunities and improve growth. But if you generate 
that kind of uncertainty, you will slow down the economy for 
sure.
    Mr. KIND. Now, there has been a lot of focus on tax reform 
and the impact it is going to have, but, again, if you look at 
the past data, the facts, you talk to businessowners 
themselves, I think the impact of tax policy is way overstated 
and way overplayed because of the multiple factors that 
businesses and owners have to make every day in regards to 
hiring decisions, sales, marketing, you name it. There are just 
many multiple factors in that.
    Can you speak upon that in regards to the whole dynamic-
scoring issue that we are talking about and how hard it really 
is to predict the macroeconomic impacts of virtually any of the 
policies that we have coming out of this place?
    Mr. JOHNSON. Well, first of all, Congressman, I think you 
are absolutely right, it is multidimensional, the environment 
for business. And you should look at the available measures, 
including the one I cited before, these doing-business 
indicators. We are number seven in those measures. But they 
look at two cities for the U.S., New York and L.A., and the 
problems they identify are more about real estate and local 
regulatory issues, not about the Federal Government.
    So I think benchmarking what business absolutely and 
actually needs makes sense. And I think you are going to see a 
range of things, including the availability of skilled labor. 
That is very important.
    Mr. KIND. It is also interesting, the last major tax reform 
in 1986 resulted in one of the largest corporate tax increases 
in our Nation's history at the time. And that was under 
President Reagan's administration.
    Chairman RYAN. Thank you.
    Time for the gentleman has expired.
    Mr. Buchanan is recognized.
    Mr. BUCHANAN. Thank you, Mr. Chairman. And I agree that 
this committee has got a real opportunity to work together and 
get some big things done right now.
    I want to touch quickly on the discussion earlier one of my 
colleagues brought up about corporate rates, the highest in the 
world. I happened to have the opportunity in the late 1980s to 
be in Hong Kong--flat rate, no deductions, or minimal 
deductions, was 20 percent. I was back there a couple, 3 years 
ago. They lowered it to 16. I asked them why. I said, 20 is 
more than fair, it seems to me. And he said, we need to be 
competitive in the world.
    So I think we agree that we need to do something with 
corporate rates. My concern is passthrough entities. You have 
touched on it a little bit. The effective rate in the country, 
when you add everything, is 44. If you add in State income tax 
for a lot of these States, the average is, what I read, is 
49.6. So if you look to move corporate rates from 35 to 28 to 
25, whatever they are thinking about doing there, I don't know 
how you can be competitive, a lot of businesses with C corps, 
in terms of passthroughs.
    One statistic I got is 99 percent of the companies 
registered, Florida and other places, are--take 95, 99--are 
small businesses. A lot of them are, obviously, passthrough. 
Sixty percent of the job creation comes through these 
businesses and many of these startups.
    And I would also say, in terms of reducing the rate, if you 
are a passthrough entity and you happen to have 70 employees 
and you are giving half of your money back to the various 
governments, it is pretty hard to be able to grow your 
business, add equipment, grow jobs when you are giving of it 
half away.
    My point, I guess, to the professors here today is your 
thoughts in terms of, if we lowered the rates in terms of 
passthroughs as well as C corps, what difference would that 
make in terms of growing the economy and creating jobs?
    And, Professor Holtz-Eakin, would you expand on that?
    Mr. HOLTZ-EAKIN. I think Dr. Feldstein mentioned earlier, 
you know, it is a bad tax policy that treats the same business 
activity differently depending on whether it is a passthrough 
or a C corporation. And that would drive you to organize your 
business on the basis of tax considerations, not on the basis 
of business decisions. That is the hallmark of the tax 
interfering with the efficiency in the economy.
    In the work I have done on sole proprietorships, 
partnerships, entrepreneurial kinds of ventures, relatively 
small, they are disproportionately sensitive to tax 
considerations. They are heavily reliant on their cash flow, in 
many cases, and so lowering taxes gives them greater cash flow. 
They can, as a result, invest more, hire more. And so you see 
strong linkages between tax policy toward those entities and 
their capacity to grow, expand payrolls, invest.
    I would be happy to get the research and citations to you, 
but they look much more sensitive on that front than do the 
larger C corps in terms of just pure rate sensitivity.
    Mr. BUCHANAN. Yeah. My sense, as someone who has been in 
business 30 years, you just see a lot of people moving from 
passthroughs, S corps, and partnerships and moving back to C 
corps.
    Mr. Feldstein, what are your thoughts? I know you touched 
on it, but could you add anything more to that conversation?
    Mr. FELDSTEIN. Well, but as you said, it is an option that 
companies have. So they can always go back to the C corp if 
that offers lower overall effective tax rates. And the reason 
that most corporations, small corporations prefer to be an S 
corp or some other form of passthrough is they avoid the second 
round of taxation on distribution of their corporate profits.
    So I think it is a complicated issue. There isn't any 
simple solution to how you integrate the two. But I think the 
basic principle ought to be to take taxes out of the choice 
between whether you are an S corp or a C corp.
    Mr. BUCHANAN. Thank you.
    I just would add that I remember, in the late 1970s, early 
1980s, we were all C corps. Then we went to S corps. Then we 
went to LLCs. And now we could come full circle and go back to 
C corps. But I think it would really hurt businesses, 
especially small businesses and startups, if we don't address C 
corps as well as all the passthroughs as well.
    Thank you. I yield back.
    Chairman RYAN. Thank you.
    Mr. Pascrell.
    Mr. PASCRELL. Thank you, Mr. Chairman. And good luck.
    Mr. Chairman, what I have noticed----
    Chairman RYAN. That means a lot coming from you. Thank you.
    Mr. PASCRELL. You are welcome.
    Mr. Chairman, I have noticed that we have lowered the 
decibels but we are still in ironclad position here and there. 
It is going to take a lot more than talk to get us out of the 
logjam.
    And just one example. I hear from your side all the time 
about discussing and debating the business tax extenders. I 
hear nothing about personal tax extenders. And I think that it 
has become quite obvious, if we are going to come to any 
agreements, that there need to be both in consideration. And I 
ask that you do that.
    And I sincerely wish you the best of luck. You are going to 
need it.
    The questions at hand, I think--and one I would like to ask 
Mr. Johnson on trade.
    You wrote an article in 2013 about what we needed to avoid 
in trade deals which look lovely from the outside. You talked 
about trade expanding unfairly at times, without a level 
playing field that protects our workers who benefit from free 
trade.
    Is it the workers in the factories or is it the 
shareholders and executives at the top that you are talking 
about?
    Mr. JOHNSON. Well, Congressman, as you know and as we have 
been discussing all morning, most of the gains in terms of 
income have been realized at the top of the income distribution 
over the past 30 years. And much of that is for management and 
for CEOs, although, obviously, highly skilled labor has also 
done well.
    And I think this is the important point about TPP, which is 
really, as I understand it, an issue before this committee, 
which is: Do you want to engage with the details?
    For example, on the auto industry, a point Mr. Levin has 
made, Japan has had a very closed market for cars and for auto 
parts for a long time. Are they really offering to open that up 
to U.S. exports? That would seem like an appealing opportunity. 
To what extent are they going to be held responsible for that?
    This is a link you can draw to jobs but only if you get 
into the details. If you grant TPA, you get the fast track, you 
are not going to be engaged in that discussion.
    I think I have heard committee members say they want to 
think about all of these pieces and how they can be helpful. 
Engage with TPP, not with the TPA, not at this stage. You don't 
need the TPA. Engage with the TPP. That is the way to have the 
conversation.
    Mr. PASCRELL. Mr. Feldstein, back in April 2009, you wrote 
a column for the Financial Times with the headline, ``Inflation 
Is Looming on America's Horizon.'' I think maybe you can recall 
that. In the almost 6 years since you wrote that piece, 
inflation has been consistently below the Federal Reserve's 2 
percent target while the unemployment rate continued to be 
elevated, causing real-world pain and hardship for a lot of 
Americans.
    Recently, with the economy improving, thanks largely to 
some specific policies that were passed between 2006 and 2010, 
the unemployment rate has been dropping, but we are still a 
long way away from a healthy economy. We all agree on that.
    Yet, despite your previous predictions of inflation, you 
have continued to call for the Federal Reserve to act 
aggressively--your word--despite the fact that our recovery is 
nowhere near complete and there are few signs that inflation 
will soon hit or even exceed the Federal Reserve's target.
    Why do you think your prediction in April of 2009 did not 
materialize?
    Mr. FELDSTEIN. Thank you for that question.
    I think, basically, Federal Reserve policy changed after 
that. We got the so-called unconventional monetary policy where 
the Fed, because they were authorized to pay interest on excess 
reserves, induced the commercial banks to deposit the extra 
funds that they got from the quantitative easing policy to 
deposit that back at the Federal Reserve. So we never saw the 
increase in the money supply that looked like it was going to 
happen back in 2009.
    So I think the Fed handled this very well. And, ultimately, 
as I said earlier in my comment, I think it was the Fed policy 
that gave us the strong recovery rather than fiscal policies in 
2009 and 2010.
    Mr. PASCRELL. Thank you.
    Yield back.
    Chairman RYAN. Time for the gentleman has expired.
    Mr. Paulsen is recognized.
    Mr. PAULSEN. Thank you, Mr. Chairman. And thanks for 
calling this hearing. I think it is aptly titled, Moving 
America Forward, with a new Congress, in particular.
    And the recent improvements we have seen in the economy is 
certainly welcome news, but it is certainly also drowned out by 
knowing, as has been stated by several Members already, the 
worst economic recovery since the Great Depression. The slowest 
economic recovery ever.
    We can't even get to an average. I mean, an average is a C 
grade. We should be able to at least get a C grade. And when 
wages are flat and household incomes are flat, people are 
taking notice.
    And I think the numbers that were--began with Mr. Holtz-
Eakin. You started out with saying the standard of living that 
Americans have enjoyed and appreciated, normally that is 
doubling every 32 years or so, and now it is going to double 
every 90 years.
    So you have added 60 years onto the standard of living for 
an American family. And it is probably no surprise, then, that 
a lot of folks in our country think this is the new normal. I 
think the public is accepting it. Unfortunately, many elected 
officials are accepting it. And we can do a lot better.
    And when you see that 72 percent of Americans just a few 
weeks ago think the economy is still in recession when we have 
been out of recession for 5\1/2\ years, actually, is pretty 
alarming.
    But I think what is most troubling is that two-thirds of 
Americans, if you ask them, you know, ``Are your children going 
to better off than you are?''--two-thirds of Americans say, 
``No.'' I mean, they don't see a bright horizon.
    And we know that the policies we have an opportunity to 
have an impact on in a new Congress now can make a difference 
in tax policy, fixing a broken Tax Code--we talked about that--
trade policy, knowing 750,000 jobs in my state of Minnesota are 
tied to trade.
    We have got huge opportunities with the transportation 
partnership, with the European Trade Agreement. Obviously, 
getting Trade Promotional Authority is key to that, though, if 
we are going to get the best deal on the table. I mean, there 
is no doubt about that.
    But, also, I want to talk about regulation. Maybe, Mr. 
Holtz-Eakin, you can just mention real quick: Is it possible to 
measure how much expansion of regulations in recent years are 
costing our workers, is costing the economy in slower growth? 
And, if so, how much, if you can measure that?
    Mr. HOLTZ-EAKIN. Well, thank you for the question.
    As I hope you know, at the American Action Forum, we have 
an ongoing attempt to measure the regulatory burden in the 
United States where what is called the Regulation Rodeo 
Database tracks all regulations coming out of every agency in 
the Federal Government and looks at a couple different measures 
of their burden, all of which are incomplete, but it gives you 
some sense.
    First is the self-reported compliance cost. Agencies say, 
``How long--how much will this cost to comply with?,'' and we 
can total up those compliance costs.
    There is the paperwork burden, you know, how many hours. 
And in my written testimony, there is some measure of the 
paperwork burden hours from different regulations in the 
Affordable Care Act, for example. You can look at that 
comprehensively.
    And I would be happy to get you the totals. But if you look 
at 2014, for example, you know, final regulation added just in 
terms of compliance costs about $20 billion in 2014 alone. If 
you think about doing that every year, that is a $200 billion 
tax increase.
    And if this committee was debating a $200 billion tax 
increase, we would have a strong discussion about whether it 
was economically desirable, what would be the growth impacts, 
you know, how did we want to think about that.
    That debate doesn't go on in the regulatory front. And I 
think, if you look back over the past 6 years, it has been an 
extraordinary period for regulation, and these costs display 
that.
    The only comparable period in my recent memory was post-
September 11th, 2001, when the Bush Administration did a lot of 
national security anti-terrorism regulation, which was 
comparably costly. These are--these are big impacts on the 
economy, and I think they merit consideration. I would be happy 
to get you the numbers.
    Mr. PAULSEN. Yeah.
    And, Mr. Chairman, I know we will be looking at that in the 
coming months.
    Let me ask one other question. Because I know--in the 
1990s, I understand that we were successful as a country in 
boosting the labor force participation rate, increasing take-
home pay and reducing poverty, all which has gone the opposite 
direction right now in these last 6 years currently through 
welfare reforms.
    Could another round of welfare reform do the same? Could it 
improve those numbers? Can we do more on welfare reform? Should 
we be looking at that? And what are some ideas? Mr. Holtz-
Eakin.
    Mr. HOLTZ-EAKIN. As I said, I think we need to look at the 
work incentives. The 1990s have lessons for the U.S. and, also, 
some things that are different.
    The economy grew and--and there is no substitute for rapid 
economic growth. And improving the long-term growth rate of 
this economy is, I think, the number one priority that makes 
the welfare reform of the 1990s easier to both enact and for 
those participants to be successful. So you want it in that 
kind of environment, and I think we should try to do that 
again.
    I don't think you want to replicate the dot-com bubble, 
which led to an enormous inflow of revenues, making it easier 
to balance the budget. You want to do it the old-fashioned way 
and not rely on a bubble that then breaks in 2001.
    And the kinds of spending restraints that were successful 
in the 1990s are no longer available. That was an era where 
discretionary spending and a peace dividend got us to a 
balanced budget.
    The spending problem now is in the mandatory programs. The 
discretionary part has been done. And so now the hard work 
remains. This is a different world.
    Mr. PAULSEN. Thank you, Mr. Chairman.
    Chairman RYAN. Thank you.
    Mr. Davis is recognized.
    Mr. DAVIS. Thank you very much, Mr. Chairman. And I thank 
you for calling this hearing.
    And I certainly thank our witnesses for participating.
    I also want to add my congratulations to you, my friend 
from the Midwest, for your ascendancy to the chairmanship of 
this tremendous committee.
    You know, I was having dinner with two of my grandsons the 
other day, and I asked them if they would pass me the glass of 
water.
    One said, ``Granddad, do you mean the water that--the glass 
that is half empty?'' The other one said, ``Or do you mean the 
one that is half full?'' And, of course, there was only one 
glass. They both saw the same glass, but they saw it 
differently.
    And like all of the Members of this committee, I am indeed 
pleased that our economy has made tremendous progress in the 
last several years. More people are working. Unemployment 
numbers are down. The economy is moving forward. And so there 
is reason for what I call joy, but not jubilation.
    Not jubilation because there are still too many people 
being left behind, too many people being unemployed or 
underemployed. People who even during this frigid climate 
throughout many areas of the country do not have heat in their 
homes, and others do not have homes to heat nor jobs for which 
to apply.
    Dr. Johnson, could you share what you would recommend in 
terms of policies that could keep our economy moving forward 
and could reach back and include in it some of those millions 
of people who are being left behind.
    Mr. JOHNSON. So, Congressman, I think that is the right way 
to think about the issue. And in section--second section of my 
testimony, I did try to lay out a range of ideas there.
    I think there are some very specific measures this 
committee could take up. Extending, expanding, the earned 
income tax credit, for example. Raising the minimum wage, which 
is not entirely within your jurisdiction, but certainly highly 
relevant to it. Support for education. Support for education 
that is available--early childhood education and post-high 
school education for low-income people, the Pell Grants, for 
example.
    I think there is a long list of specifics. And I think, if 
you are looking at the Tax Code and you are considering tax 
reform, it is very important to do that in a way that is 
revenue neutral so you keep the revenue in the budget. We have 
an aging population. We have continuing pressures from 
technology, from globalization.
    The Affordable Care Act has so far done a remarkable job in 
terms of slowing down healthcare inflation. But this is an 
aging population. We need to have the revenue there. We need to 
have the revenue base. And all of the proposals I have heard so 
far are cutting taxes and giving away revenue. Nobody likes 
taxes. But who has the responsibility here?
    Mr. DAVIS. Thank you.
    And let me just ask if each one of the witnesses would 
reply to this comment: The United States has the highest share 
of income going to the top 1 percent of earners compared to the 
other G7 countries.
    Does this policy--and the trend seems to be continuing to 
go. Does this seemingly help expand our economy? Does it have 
any impact on it? Is it intended to? Or what would your 
response just simply be?
    Mr. HOLTZ-EAKIN. It is a reflection of the global trends 
and the return to skills, and it is not unique to our economy. 
It has been going on since the 1980s. We have seen the top 
rising continually. We saw the bottom fall. It stopped.
    And I would point out that all of the evidence done at a 
big Harvard study on the mobility, the ability to get from the 
bottom to the middle and the middle to the top and top to the 
middle--that is part of mobility, too--says that mobility is 
unchanged over the past 50 years.
    So, for me, in reading that evidence, that says people 
still have a chance to get ahead in America. The rich can be 
rich in America. But we are not growing fast enough that we are 
happy with what is going on at the bottom.
    So I would focus on anti-poverty, on the ability to have 
the low levels of income be better in the future than they are 
at the present, that that gives people hope. That is the focus, 
the bottom and the poverty, not the top end.
    Mr. JOHNSON OF TEXAS [presiding]. Thank you. The time of 
the gentleman has expired.
    Mr. Marchant, you are recognized.
    Mr. MARCHANT. Thank you, Mr. Chairman.
    I would like to ask the panel some questions about the 
recent phenomena that has taken place in Texas and North Dakota 
in the oil patch.
    I think it is arguable that, over the last 5 years at 
least, the exploration, discovery, transmission of oil and gas 
in the United States has been a major factor in the economy 
picking up and probably the most robust part of the economy.
    And now that we have seen a significant price decrease in 
oil and we are seeing in my--I drive every week to the ranch on 
the weekend, and I gauge how--what prices are by a certain gas 
station on the highway. And it was 1.64 for regular gas this 
weekend.
    And my question is: Do the gains to the consumers and the 
lower cost to all businesses across the spectrum and their fuel 
costs offset the loss of economy that has been created by the 
boom in the oil patch over the last 5 years? And if we reach 
some stabilized level of oil prices at a significant lower 
amount, is this going to have any kind of long-term effect on 
the economy?
    And I would like each of your opinion.
    Mr. FELDSTEIN. Well, I think the decline in oil prices that 
we have experienced recently has been a very big plus for the 
U.S. economy. I think that is a view shared by the Federal 
Reserve and others, that we are going to see stronger growth 
because consumers' real incomes have gone up.
    Now, in part, we benefit at the cost of other countries 
that--from which we import oil. Most of it is internal. And, 
therefore, oil companies--U.S. oil companies are taking a hit 
at the same time that consumers are directly better off.
    But there is no question that the combination leads to 
stronger growth, higher real incomes, more consumer spending, 
better job creation in the near term.
    Mr. HOLTZ-EAKIN. The energy explosion the U.S. has had a 
dramatic impact on the economy over the past 5, 6 years. And I 
have never seen anyone do a full accounting of sort of what the 
stimulus was from the decline in that imports was important.
    The ability of chemical manufacturers to move back to the 
United States because of the cost of natural gas and other 
feedstocks, very important impacts. The direct employment 
effects in the oil patch, things like the income generated.
    But certainly it changed what used to be a world in which 
oil prices up, unambiguously bad for the United States, oil 
prices down, unambiguously good for the United States, to a 
more nuanced position.
    I still think that the bottom line is what Dr. Feldstein 
said. On a balance, we benefit from having these lower oil 
prices. But I think, if you look forward, some of the weakness 
right now is just global weakness. And as other economies grow 
more rapidly, we will see world oil prices go back up.
    They appear to be headed to stabilize in a range that will 
allow for profitable exploration and extraction in the United 
States. So I don't see any real long-term problem at the 
moment.
    I would not be surprised if we saw a downturn a bit in the 
oil patch because of the transitorily low world oil prices.
    But I think, on balance, this is a good thing for the 
United States and it has made this a very different world for--
from the perspective energy policies.
    Mr. MARCHANT. Thank you.
    Mr. JOHNSON. Congressman, on balance, I agree it is good. 
But I would stress two things.
    First of all, oil prices go up and they go down. You need 
an economy with a flexibility on the investment side. And there 
is a remarkable amount of technological innovation that we have 
seen through these investments in the past few years.
    And, secondly, on job mobility. So one thing the Affordable 
Care Act did that you may or may not like is it reduced job 
lock. It reduced the previous tendency of people to stick with 
a certain job or to stick with an employer even if there were 
good opportunities elsewhere because they didn't want to give 
up on the health care.
    Whatever you do, please do not return us to a situation 
where we have greater job lock because we need to be able to 
move people and capital to these new opportunities. And right 
now we are pretty good at it, better than we were.
    Mr. HOLTZ-EAKIN. Just add one thing.
    Oil and natural gas aren't identical in that most of the 
production out of a gas well is in the first year. And so, if 
you see gas prices go down, you will see a bigger drop-off in 
exploration. They can ramp it up quickly as well.
    It is the oil producers who sort of have to drill a well 
and count on getting sustained relatively high prices to make 
it worthwhile. They are the tougher call in this environment.
    Mr. MARCHANT. Yield back.
    Mr. JOHNSON OF TEXAS. Thank you. The time of the gentleman 
has expired.
    Ms. Black, you are recognized.
    Mrs. BLACK. Thank you, Mr. Chairman.
    And just in the absence of our chairman, I want to 
congratulate him as well. So everybody can tell him that I did 
so, since all the Members have up to this point.
    I want to go to the issue of capital. There was a very 
interesting talk that the chairman and the founder of FedEx 
gave to the U.S. Chamber a couple years ago.
    And I was really struck by what he said there, and it was 
so simple. And maybe because I am such a simple-minded person 
and not an economist, as you all are, it made so much sense to 
me.
    And we have talked about how do we have sustained economic 
growth, how do we have good-paying jobs. And he said in his 
talk it is about capital and, if you don't have an influx in 
capital, you are not going to create a job, you are not going 
to create a business which creates a job and, by that, there 
are taxes that are paid only to the product or the service that 
is produced as well as the income of those workers.
    And so, as we look at capital and how we are seeing that 
the influx of capital is not occurring, I want you, Mr. Holtz-
Eakin, to start us out with just the thoughts on what is it 
that keeps someone who would essentially be putting capital 
into the market because they would see a return--what is it 
that keeps us from seeing that influx of capital right now? Is 
it taxes? Is it regulation? Is it the issue of trade? Or is it 
all of those things combined?
    Mr. HOLTZ-EAKIN. I think you get impacts from all those 
things, quite frankly. If you look at the things that the 
Government can do to affect the incentives to save and invest, 
at the very highest level, the Federal budget is very anti-
growth.
    Basically, it taxes both consumption and the return to 
capital and uses it largely to subsidize consumption. Right? We 
give people health care. We give people subsidies because we 
want them to live better. That is consumption.
    So, as a Nation, it is anti-saving, anti-investment, anti-
accumulation of capital. It runs deficits and competes with the 
private sector for that capital.
    Within the budgetary framework, the large spending 
programs, which are all about consumption and largely old-age 
consumption, are crowding out any genuine investments in 
research, infrastructure, and education that the Federal 
Government makes. So we have a budget that is very anti-
accumulation of capital and anti-saving investment.
    The Tax Code can be the very same way. One of the reasons I 
am a big fan of the kind of Tax Code that Mr. Nunes is pushing 
is it allows for rapid capital recovery. It is essentially 
expensing of all capital investments. It is a powerful 
incentive and something that we need to get into the Tax Code 
as much as possible, and it treats all capital the same.
    You hire a worker and you educate him, you get to expense 
it. You buy a piece of machinery, you expense it. You put a 
worker in a lab for R&D, you are expensing it. You treat all 
the capital the same. That is a good thing to do.
    And then, at this household saving, we don't save very 
much. I think Dr. Feldstein has done more research on this than 
almost anybody.
    It is tax rules. It is the rules for higher education 
finance and why would you save for college education when the 
rules say we are not going to give any scholarships to you if 
you do. What about saving for retirement? What happens with 
Social Security and Medicare and the incentives to save?
    All of those things are important, but all of it comes back 
to are we going to save and are we going to invest. And we have 
got to look at those things.
    Mrs. BLACK. And, Mr. Holtz-Eakin, you keep talking about 
incentives, as all of you have. I think that is one of the 
things that we ought to be thinking about in this committee, is 
every time we think about a policy, we have to think about is 
it incentivizing what we want.
    And, unfortunately, I think, as you have already indicated, 
that--there are many policies that we have that are not 
incentivizing what we want. And that is what I hope that we 
will continue to do as we talk about policies in this 
committee, is to be able to tie that----
    Mr. Feldstein, would you like to weigh in on this issue of 
capital?
    Mr. FELDSTEIN. Well, the key is saving. If we don't save, 
we don't have capital. So the household saving rate is half--or 
closer to a third of what it was from 1960 to 1985. We did very 
well during those years.
    And, yet, now our saving rate is very low. And why? Partly 
because of the incentives to dis-save through mortgage 
deductions, partly because of other policies which substitute 
for saving.
    So we really should be examining what kind of policies we 
have that drive savings down for American households.
    Mrs. BLACK. Mr. Johnson, I have 30 seconds left, if you 
would like to weigh in from your perspective.
    Mr. JOHNSON. Ms. Black, I would say, when we discuss 
capital, please don't forget human capital, because one thing 
we have learned from 200 years of experience is that the 
prosperity of any country depends, first and foremost, on the 
education, on the skills, on the health of its citizens, its 
inhabitants, everyone.
    And please, when you are considering what the Federal 
Government does and doesn't do, remember social insurance was 
introduced to protect people, to encourage them to take risks, 
to encourage them to build the country, particularly after 
World War II, and it was great success. Please do not give that 
up.
    Mrs. BLACK. I know--reclaiming my time--I know I am out of 
time--but remembering that it is the private sector that really 
helps to grow the economy that makes all these great things 
possible.
    Yield back.
    Mr. JOHNSON OF TEXAS. Thank you, Ms. Black.
    Mr. Reed, you are recognized.
    Mr. REED. Thank you, Mr. Johnson.
    And thank you, Mr. Chairman, for holding this hearing 
today.
    Fascinating conversation. And we have covered a lot of 
territory. And I am not going to rehash that area, but also 
just say there is huge opportunities I see not only in the 
energy field, but in U.S. manufacturing in particular.
    But I do want to focus on one thing that the chairman said 
in his introductory remarks about the country's debt crisis and 
the debt crisis that potentially is that dark cloud that hangs 
over us.
    Now, Mr. Johnson, I read your testimony and you referenced 
the fact that we should not threaten the ability of the U.S. to 
pay its debt or the threat of not paying its debt causes some 
real destabilizing impacts, and I think you were referring to 
the debt ceiling debacles and fights that we have had here in 
Congress.
    But would you all agree, as economists, that there is a 
point in time with our debt load in America when it is just not 
going to be sustainable if we continue on the path that we are 
on?
    I mean, we are championing the fact that we have lowered 
the deficit per year. Great. I am all in. I appreciate that. 
But it is not getting to the root problem. Our national debt 
continues to grow.
    At what point in time--because you have got two pieces of 
debt, principal and interest. So at what point in time does the 
principal become unsustainable? Eighteen trillion is where we 
are at today. At what point in time can you continue policy 
from the Federal Reserve that keeps an interest rate at zero?
    As an economist, I can't imagine any of you would agree 
that is possible. I mean, as a non-economist, I would say that 
is impossible. So we are going to have an interest rate issue. 
At some point in time, inflation will come back.
    Does anyone on this panel think that we have tamed 
inflation and it will never be an issue to face America in the 
future, as economists? Correct?
    Everybody agrees that it is out there.
    So if you raise interest rates, at what interest rate does 
it become unsustainable? Can anybody give me any numbers? Maybe 
Mr. Feldstein.
    Mr. FELDSTEIN. Well, the Congressional Budget Office 
reminds us that interest rates, if we don't have an increase in 
inflation, will rise to 4, 4\1/2\ percent.
    And given the size of our debt, that is going to be a very 
substantial increase in our annual deficits and, therefore, in 
the growth of the debt.
    So that is why the CBO tells us that, if there aren't 
changes in entitlement programs or in revenue or some 
combination of the two, we are heading from a debt-to-GDP ratio 
of 75 percent, we are heading to 100 plus, and that gets us 
into serious trouble.
    And we have to remember that about more than half of that 
debt is held by people outside the United States. At some 
point, they may say, ``Gee. This isn't such a good idea.'' And 
if that happens, interest rates rise even further.
    So I think it is really important for this committee and 
this Congress to find ways to slow the growth of spending and 
to use tax reform, limiting tax expenditures, to raise revenue.
    Mr. REED. Mr. Holtz-Eakin.
    Mr. HOLTZ-EAKIN. I would just add to that, if--this is not 
years and years and years and years in the future. This is 
relatively imminent. Over the next 10 years, the CBO baseline, 
autopilot, says that the debt-to-GDP ratio starts to rise and 
that, when you get 10 years from now, we are running a 
trillion-dollar deficit, roughly 800 billion of which will be 
interest on previous borrowing.
    So we are perilously close to borrowing simply to pay 
previous interest. That is a debt spiral, and that is not a 
good thing.
    Mr. REED. And that is where I wholeheartedly agree with 
you. Because doesn't that put the whole thing at risk, all of 
our concern that we share? Mr. Johnson.
    Mr. JOHNSON. Yes.
    Mr. REED. And my colleagues on the other side of the aisle, 
I don't question that they care for American lives. I care for 
American lives.
    And if we get into the death spiral, don't you jeopardize 
it all? And shouldn't we, as responsible legislators, do the 
right thing, have the vision to deal with it now rather than 
later?
    Mr. JOHNSON. Yes, Mr. Reed. And there are three 
implications that I hope we can also agree on.
    First, don't give up on Dodd-Frank. The big hit to our debt 
came from the financial crisis. It came from the deep 
recession. Do not allow the financial sector to do that again. 
That is Job No. 1, absolutely.
    Second, be revenue neutral. Do not give up on the revenue. 
We need to keep a robust revenue base as the population ages.
    And, third, you have got to control healthcare costs. It is 
mandatory. That is--what Mr. Holtz-Eakin said is right. It is 
health care. It is health care, not just Medicare. It is health 
care. The Affordable Care Act has tilted the curve on that. We 
will see if they can keep at it. Please don't give up on that 
either.
    Mr. REED. But the costs keep going up in health care. It 
just the growth rate has gone----
    Mr. JOHNSON. Yes. It is demographics and it is technology 
we have to take into account.
    Mr. REED. Reclaiming my time, reclaiming my time, I think 
we all can agree that we have to do something on the debt 
issue.
    And, with that, I yield back.
    Mr. JOHNSON OF TEXAS. The gentleman's time has expired.
    Mr. Thompson, you are----
    Mr. THOMPSON. Thank you, Mr. Johnson.
    And my congratulations to Chairman Ryan as well.
    A number of the witnesses talked about tax expenditures, 
and there were some questions about that already today.
    Just yes or no. Should tax expenditures be revenue neutral? 
And we will start with Mr. Feldstein.
    Mr. FELDSTEIN. I think tax expenditure reform changes 
limits on tax expenditures.
    Mr. THOMPSON. Should they be revenue neutral?
    Mr. FELDSTEIN. No.
    Mr. THOMPSON. No? Okay.
    Mr. FELDSTEIN. I think they should both raise revenue and 
be used to lower tax rates.
    Mr. THOMPSON. Thank you.
    Mr. HOLTZ-EAKIN. I would have them be revenue neutral.
    Mr. THOMPSON. Mr. Johnson.
    Mr. JOHNSON. Well, I think the entire package of tax reform 
should be revenue neutral. But if you are considering--but I 
think you have to also recognize this point about the 
trajectory of healthcare costs going forward.
    You need a revenue base that is going to grow to support 
whatever forms of health care you think the government should 
and will be buying.
    Mr. THOMPSON. Thank you.
    A number of folks mentioned the fact that our recovery, 
notwithstanding the fact that it is pretty remarkable, has 
taken too long.
    I just think it is important to point out that, under the 
last administration, our economy wasn't just run into the 
ditch, it was run over the cliff. We had a long way to go to 
climb out.
    And I think it has been mentioned a couple of times--and I 
just want to reiterate it--that there was some impediments in 
us getting out of that--getting up from out of that cliff. 
Government shutdowns certainly didn't help. Near defaults 
certainly didn't help. And a repeated debt ceiling crisis 
certainly didn't help.
    So given where we were and where we are today, it has been 
a pretty remarkable recovery. I don't think anybody thinks this 
is where we need to stay. We need to keep going. But we have 
done quite a bit, and it is fairly impressive.
    And, Mr. Johnson, I would like to hear from you. To what do 
you attribute our growth in the economy and the progress that 
we have made?
    Mr. JOHNSON. Well, Congressman, the recovery is due, in 
part, to the fact that it is a strong, vibrant Nation. More 
than 300 million people took an enormous punch in the face from 
what happened in the financial sector and managed to get 
themselves back off the floor. So I think the resiliency of the 
American people is really important.
    They needed assistance. The Central Bank absolutely 
assisted, and I think they should get kudos for what they did. 
And they needed help from fiscal policy. This is standard. It 
is out of the textbook.
    And my colleagues here have in other circumstances spoken 
in favor or said positive things about stimulus of some kind 
when the economy goes down in the face of that shot.
    So the disappointment, to me, Mr. Thompson, is that we 
didn't all work together. It is, I think, rather sad and 
unfortunate and had a negative consequence that slowed the 
recovery that we had so much confrontation over fiscal policy 
when, in fact, there was just massive grounds for agreement 
under those circumstances.
    Mr. THOMPSON. Thank you.
    I also want to pick up where Mr. Blumenauer left off. He 
made quite a statement on infrastructure and the need for 
infrastructure. He didn't get to his question.
    But I agree that it is the most direct and the most 
immediate way to help our economy. There is not one of us on 
this dais or any of our colleagues in Congress whose districts 
wouldn't benefit greatly by an adequate level of investment in 
infrastructure.
    And I know, Mr. Johnson, you started to say something about 
the infrastructure, and I would like to hear your thoughts on 
how that would benefit our economy.
    Mr. JOHNSON. Yes. Well, I think it was Mr. Blumenauer who 
was making the point about the gas tax and the need for 
investment in roads.
    I was going to suggest you should consider investment in 
transportation more broadly. So it is not just necessarily 
about the roads. It is about how people move to and from work 
and around the country.
    And that is not just in the car----
    Mr. THOMPSON. And infrastructure is not, nor should it be, 
limited to just roads. It is roads.
    Mr. JOHNSON. Yes.
    Mr. THOMPSON. It is bridges. It is transportation. It is 
broadband----
    Mr. JOHNSON. And it is addressing--it is absolutely 
broadband. It is addressing congestion, Mr. Thompson. So if 
sometimes--in some situations, if you just add capacity to the 
roads, more people drive.
    In those parts of the country, it makes sense to add 
alternatives to cars and to invest in that and to use revenue 
sources, such as gasoline tax, if you were going to consider 
increasing it, to invest in transportation infrastructure.
    Mr. THOMPSON. And then, while we are on that, what--Mr. 
Johnson, what impact do cuts and our inadequate investments in 
infrastructure, education, energy have on job creation in our 
economy?
    Mr. JOHNSON. I think, if you look in comparative 
perspective, look to--look relative to the countries with which 
we compete in Europe or in Asia, including people who are 
already prosperous, and countries that are up and coming where 
we--our companies, our private sector, absolutely needs a 
supportive environment from the United States.
    One of the things that I hear a lot from entrepreneurs when 
I talk with them is the weakness of our infrastructure. 
Airports, for example. The lack of investment in some of our 
major airports is a big issue for our business people who are 
traveling back and forth competing in these international 
markets.
    Mr. THOMPSON. Thank you very much. My time has expired.
    Mr. JOHNSON OF TEXAS. Thank you. The time of the gentleman 
has expired.
    Mr. Young, you are recognized.
    Mr. YOUNG. Well, thank you, Mr. Chairman.
    I, too, want to join my colleagues in offering my 
congratulations to Chairman Ryan for his ascension to this 
position.
    I want to thank all of you, our panelists, for being here 
today for this freewheeling conversation.
    I would like to talk about tax reform, something that has 
been brought up a number of times today, but specifically 
focusing on tax reform for our smaller businesses, our younger 
firms.
    Last Congress we put together a draft, a so-called Camp 
draft, under former Chairman Camp's leadership, and analysis 
indicated that, were that draft implemented, albeit imperfect 
and requiring further iteration and elaboration, hopefully this 
Congress, we would increase the rate of GDP in this country, 
increasing GDP by up to $3.4 trillion and increasing employment 
by 1.8 million jobs.
    I do have concerns, however, back to the small and the 
younger firms, about some intimation by the President and by 
others in this town that we may only consider corporate reform 
as opposed to reforming the individual code so that those pass-
through entities likes S corporations and LLCs get the benefit 
of simplification, on one hand, and on marginal rate reduction, 
knowing that many of them pay over half of their profits in 
taxes when you combine the taxes at different levels of 
government.
    It bears reminding perhaps not you, but many of our 
constituents, that over the last decade more than six out of 
ten new jobs created in this country have been through these 
smaller firms and this is where over half of jobs currently 
exist in this country.
    So, really, my question for all of you is: Do you agree, 
and I will start with Dr. Holtz-Eakin--do you agree that we 
should be focusing on reforming not just the corporate code, 
but also taking a look at the individual code? And what would 
be the broader economic implications of only focusing on 
corporate as opposed to focusing on the entire Internal Revenue 
code?
    Mr. HOLTZ-EAKIN. Well, if you focus on corporate only, you 
limit your ability to improve the taxation of business income 
and incentives for hiring, investment, expansion. There is no 
doubt about that.
    I think everyone who wants to broaden bases, lower rates, 
and improve the quality of the tax policy in the United States 
would do both individual and corporate simultaneously for the 
reasons we discussed earlier, that you want to make sure the 
pass-throughs are treated in a sensible fashion.
    There are some particularly vexing issues in the--in the 
tax treatment of business income and investment income in the 
individual code right now, not the least of which is we now 
have three different Tax Codes: the ordinary income tax, the 
alternative minimum tax, and the new net investment surtax with 
a different definition of net investment that doesn't exist 
anywhere.
    And so, as a top priority, simplification of the Tax Code 
so that there is one set of tax rules that is permanent would 
help especially the smaller guys trying to deal with the 
business as a pass-through in a big way.
    And then we have back--done a lot of backsliding from the 
1980s when we got marginal rates down much lower. And the 
biggest obstacle to doing comprehensive reform, individual plus 
corporate, is the unwillingness of some to contemplate lower 
top marginal tax rates. It was done in the 1986 reform. It was 
very successful. And it has been unwound in the years since.
    Mr. YOUNG. Mr. Feldstein, if you could offer me, say, 30 to 
45 seconds of your perspective.
    Mr. FELDSTEIN. 28 percent. That was the rate that we had 
after the 1986 tax reform. It is now up in the 40s. So that is 
a very big difference for anybody who is contemplating a small 
business or expanding a small business.
    Mr. YOUNG. Mr. Johnson.
    Mr. JOHNSON. Mr. Young, don't forget, in 1986, there was an 
equalization of tax rates on labor income and capital income.
    And that is a principle that I think we should go back to 
because what you get is--if you are considering the distortions 
and the disincentives and if you are considering comprehensive 
tax reform--and I think you should think comprehensively and 
you should think comprehensively on a revenue neutral--I would 
say revenue-building basis, given the challenges that the 
country faces--the differential taxation between labor income 
and capital income introduces a lot a of distortions. And I 
think you should go back to it--on that point to the principles 
of 1986.
    Mr. YOUNG. And in my remaining time, Dr. Feldstein, should 
we coordinate reform between--as we reform the tax system, 
should we also consider coordinating those reforms with reform 
of the welfare system in this country?
    Mr. FELDSTEIN. Well, the welfare system, as previous 
comments have brought out, have become a disincentive for 
working for lower-income people, and we really ought to be 
looking at what food stamps, for example, has done to the 
incentive, particularly for second earners.
    Mr. YOUNG. Are there provisions of the code, however, that 
we ought to consider taking a look at with respect to this 
matter that----
    Mr. FELDSTEIN. Yes.
    Mr. YOUNG [continuing]. Would help individual persons?
    And what might they might be?
    Mr. FELDSTEIN. Well, I wouldn't draw the distinction 
between the Tax Code and the safety net provisions.
    But almost 50 million individuals are now receiving food 
stamps, and that creates very serious incentives for second 
earners. It creates a very high effective marginal tax rate for 
that group.
    Mr. YOUNG. Right. You pull away the benefits. Thank you.
    I yield back.
    Mr. JOHNSON OF TEXAS. The gentleman's time has expired.
    Mr. Kelly, you are recognized.
    Mr. KELLY. Thank you, chairman.
    And thank you all for being here.
    One of the things that has bothered me since I got here--I 
am from the private sector, and I have never understood how you 
can continually spend more than you take in and somehow look to 
the future and say ``We are going to be okay.''
    And the numbers may not be exact, but I think it is 
somewhere around 3.2 to $3.4 trillion a year we spend and we 
take in somewhere around 2.5 to 2.6 in tax revenues.
    And that is like telling somebody who makes 25- or $26,000 
a year ``It is okay to go out and spend 32,000 or 34,000 a 
year. And don't worry about it because you are always going to 
be able to borrow whatever you need. And if that doesn't work, 
you can down and start printing it in the basement.''
    We have talked about and we are bragging about the fact 
that we have reduced our deficit spending, but we don't talk 
about the effect it has on our long-term debt. It is the long-
term debt that is going to really affect our ability to 
recover.
    The numbers that I understand is that last year tax 
preparation took about $167 billion, tax preparation, and it 
took about 3\1/2\ billion hours to do it. I would think that 
most Americans would feel that that money and that time could 
have been used more effectively.
    Dr. Holtz-Eakin, I have listened to you many times.
    And, Dr. Feldstein, you, also.
    Mr. Johnson, I have never been with you before.
    My concern, quite frankly, is that we are not addressing 
the real problem here. Anybody that has a charge account, the 
worst thing you can do is to continually ask the bank or the 
lender to give you greater spending limits without being able 
to address the fundamental problem, that is, you are spending 
too much.
    So what we look at right now with tax reform, we have an 
excellent opportunity to get this country back on track.
    Dr. Holtz-Eakin, you talked about annual growth of 2.3 to 
2.4. I think that is absolutely pathetic in a country that is 
so blessed with so many assets. And to think ``Well, that is 
the new normal and that is what we should shoot for,'' that 
doesn't make sense to me.
    If there is a global market that we cannot only compete in, 
but dominate in, we have an excellent opportunity. And most of 
it, I would think, comes from energy.
    If you could just for a minute, the effects of lower costs 
of energy and our ability then to compete in the global market, 
where that would take us and how that would strengthen our 
position in the world.
    I think the geopolitical consequences of not being in the 
strongest position create the greatest danger for us not only 
abroad, but here at home.
    So just a little bit talk about--my goodness. 2.3, 2.4, 
that is the new normal? I would--I would think that is almost 
laughable.
    And if we are going to allow a political agenda to outpace 
policy, then we are in deep trouble. But energy and our ability 
to export energy and capitalize on it.
    Mr. HOLTZ-EAKIN. Well, as I said, I don't think anyone has 
done a comprehensive accounting of the benefits to the U.S. 
economy of the rapid expansion in the oil and natural gas 
industries in the United States.
    But we know from the post-war history of U.S. economic 
growth that a standard problem has been sharp spike in global 
oil prices, Federal Reserve's concern over inflation getting 
pushed into the system as a result, tightening of monetary 
policy, some combination of that leading to a recession, 
worsening budgetary outcomes in the process, having to fight 
anti-recession measures.
    We have seen that movie again and again and again. And I 
think the biggest difference now, given the distribution of 
production in North America and the rest of the world, is that 
is very different. And we won't see that to the extent that we 
have in the past, and that is the biggest benefit.
    We should continue to let the private sector pursue energy 
developments based on market incentives, and I think we should 
interfere less with incentives. I see no reason why we don't 
export our oil, for example. That ban is an anachronism and 
should be lifted as quickly as possible. It would allow U.S. 
gasoline prices to fall even farther because they are 
benchmarked with global prices and we could get them down.
    So we should pursue the energy. We have gotten a lot of 
benefits from it. We can get more. But I don't think we need to 
single out the energy sector as something--the only thing we 
are going to do. That would be bad economic policy. Let markets 
drive it. It will be successful.
    Mr. KELLY. And the effect--Dr. Feldstein, if you want to 
weigh in on this, also, the effect on businesses, the private 
sector especially, when one of your main worries is not your 
competition, but the way you are regulated and the way you are 
taxed by the country that you live and work in, and, by the 
way, the same country that you fund every single penny of 
either what they spend or what they borrow, I think we need to 
be looking at that as to how do we make those people stronger.
    I can tell you from being in the automobile business--
people get confused about this--in the early 1970s, when prime 
rate was at 21 percent--not 2.1 percent, but 21 percent--I 
understand it because, at that time, my floor plan at the 
dealership was 1 percent over prime.
    When you start paying 22 percent interest on inventory, 
what you do is you quit ordering cars, which means the guys 
that make tires don't make tires, the guys that build cars 
don't build cars. It has an effect that is overwhelming.
    If you could, we have an excellent opportunity right now to 
really lift this country to a level that it hasn't seen in 
quite some time if we look at this tax opportunity and pro-
growth.
    Mr. FELDSTEIN. I see you have about 1 second left. So I 
will simply say yes.
    Mr. KELLY. Okay. Well, you know what you said earlier about 
savings. I am 66 and you talked about the 67 years old. So I am 
hoping I have more than 1 second left. But thank you for coming 
here today. Thank you for your testimony.
    Mr. JOHNSON OF TEXAS. Your time has expired.
    Are you going to sell them all three a car?
    Mr. KELLY. You know what. I--you know, it is--there is a 
great market out there. Right now my question is always, ``What 
can you afford?'' ``Up to, but not more than''--and then we 
will get you there. And I don't know how many months or how 
much money down, but we will get you to where you need to be.
    Mr. JOHNSON OF TEXAS. Thank you.
    Mr. Renacci, you are recognized.
    Mr. RENACCI. Thank you, Mr. Chairman.
    And thank the witnesses for being here today.
    I want to follow up a little bit on what my colleague Mr. 
Reed was talking about and a little bit what Mr. Kelly was 
talking about, too.
    You know, we are talking about national debt and growth of 
the national debt. I always get concerned--you know, I was a 
businessman, also--because I am a big believer you have to look 
at the full picture.
    Before you can move forward, you have to know where you are 
at, before you can make decisions, policy decisions, any 
decision, moving forward. And I am always somewhat concerned 
that we always just zero in on the national debt without also 
zeroing in on all the unfunded liabilities that this country 
actually has.
    When you start to add those unfunded liabilities to the 
national debt, I believe you make different policy decisions 
than you may just zeroing in on the national debt. But I would 
like to hear what your thoughts are.
    And I will start with you, Mr. Feldstein. Why don't we look 
at the total picture? And do you think we should?
    Mr. FELDSTEIN. Well, I think a number of economists, a 
number of studies, and the CBO all do look at these unfunded 
liabilities. The danger when you do it is the numbers turn out 
to be so big that people just throw up their hands and say, 
``This is hopeless.''
    But it isn't hopeless. The real point is, if we slow the 
growth of some of these entitlement programs not by a lot, but 
by a little bit, then we can bend the curve and avoid this 
explosion of unfunded liability.
    So I think that is--that is the challenge. And--and I spoke 
about increasing the retirement age in line with the increase 
in life expectancy. That would make a big difference to these 
unfunded liabilities.
    Mr. RENACCI. You see, I am a big believer, if you know what 
all your liabilities are and you are making a policy decision 
and you see the liability curve has changed, you made a good 
decision. We don't do enough of that.
    Mr. Holtz-Eakin.
    Mr. HOLTZ-EAKIN. Well, I would say two things that I think 
got left out of this discussion. We all know the numbers are 
big and terrifying, and that is exactly right.
    Number one, I personally dislike the term ``unfunded 
liability'' in this context because they are not liabilities. 
They are policy decisions and promises made. They are not like 
contractual obligations in the private sector. They can and 
should be modified.
    Number two, to call them ``unfunded'' begs to fund them. 
Please don't. We can't afford that kind of a tax increase 
without killing the economy. It is just unreasonable. So I 
don't like the term.
    Second is this discussion is often posed by the green 
eyeshade types, me. CBO directors say, ``Oh, my God. These 
numbers are big, huge.'' These programs are important parts of 
the social safety net and they are falling apart.
    Social Security: 25 percent benefit cut across the board in 
20 years. Terrible way to run a pension system. Fix it.
    Medicare right now: Payroll taxes come in. Premiums come 
in. Spending goes out. Gap? $300 billion every year. 10,000 new 
beneficiaries every day. That is a program that will fall apart 
in its own financial weight. Terrible for seniors. Please fix 
it.
    Medicaid: A program where people go to the hospital for 
ordinary care at higher rates than the uninsured. Please fix 
it.
    So it is not just they are unfunded liabilities and that 
they threaten the economy. They are not doing their job either.
    Mr. RENACCI. But they are a liability. And I think, if we 
looked at them, we would make those decisions.
    Mr. Johnson.
    Mr. JOHNSON. I agree.
    We should look forward and we should understand what drives 
those costs. And it is health care costs across the economy 
paid by the Government and paid by the private sector.
    And we should be considering and trying to apply policies 
that shift--bend that curve, that slow down the rate of 
increase. The Affordable Care Act did that.
    Now, that is the data. Now, we will see--we will see--we 
will see if it lasts. I understand. We will see if it lasts. 
There is plenty of discussion there. I mentioned that in my 
testimony. All right.
    But that is what we should be looking for, policies that 
reduce--that forward trajectory of all healthcare costs, not 
just those very important ones paid by the Government.
    Mr. RENACCI. Thank you.
    Also, a big issue for me always in the private sector was 
certainty and predictability. We make decisions here that 
eliminate that certainty and predictability. Government is good 
at doing that for the business owner.
    I would like to hear your thoughts on--you know, we have 
these expiring tax provisions that were talked about. Talk 
about uncertainty and unpredictability. How does a business 
operate when they never know what their tax policy is?
    I want to know--and I know I have got 50-some seconds. So I 
will give you all an opportunity of what your thoughts are. 
Should these be permanent? They have been around for 20-plus 
years. What is your thoughts?
    Mr. FELDSTEIN. Certainly many of them get renewed every 
time, but there is an uncertainty about it. So why not make 
them permanent. That, seems to be, would be sensible.
    Mr. HOLTZ-EAKIN. There is no virtue to an annual tax 
extender's package. The practice should end. Make the good ones 
permanent. Get rid of the rest.
    Mr. JOHNSON. Uncertainty discourages investment, 
discourages hiring. Please do not--in addition to what you are 
proposing, do not have a confrontation over the debt ceiling or 
threaten more government shutdowns. Those generate a lot more 
uncertainty than the annual tax extenders.
    Mr. RENACCI. Thank you, gentlemen.
    I yield back.
    Mr. JOHNSON OF TEXAS. Thank you, sir.
    Mr. Rangel, you are recognized.
    Mr. RANGEL. Thank you, Mr. Chairman.
    And let me thank the panel.
    Professor Holtz-Eakin, you have been around so long that I 
almost consider you a part of--an extension of the Congress.
    But having said that, I am very optimistic as to what we 
can accomplish in the next 2 years. The President has 2 years 
left. We have a new chairman of this committee. And we have a 
lot of things that we have a priority: tax reform, 
infrastructure, education, disparity in incomes. But the one 
opportunity that I will just confine my inquiries today is 
going to be on trade.
    We have a new chairman. And I look forward to working with 
Chairman Tiberi on trade. And certainly Ranking Member Sandy 
Levin has dedicated a large part of his adult life to improving 
trade and creating jobs.
    A lot of things that you said could go unchallenged. But I 
hope that even after this hearing you and I can get together to 
see just what parts, in your professional opinion, we all agree 
on so that we can just keep out the rhetoric and start 
concentrating on those things that we can cooperate because the 
TPP and the Trans-Atlantic opportunities should not just fail 
because we are not talking to each other.
    Now, there is a lot of thought that the President should 
have trade authority because 435 people cannot negotiate a 
trade agreement and the fact that a lot of our foreign partners 
want to make certain that the Congress is not going to tear it 
apart and the President has the authority.
    And, of course, the Congress is caught in a position that--
we just don't want to be caught in the position that we have to 
vote yes or no when there is so much time and opportunity for 
us really to discuss what is in the bill, what are the winners 
and losers, and how are we prepared to deal with it.
    There are just some people, when you say trade, they say 
loss of jobs. Of course, other people say, ``We are talking 
about millions of jobs that are going to be created.''
    It would seem to me, Professor, that--why is it so 
difficult to determine where these jobs are going to be lost 
and where they are going to be gained?
    Because the fact remains that, if you are having a 
progressive trade agreement, whether it is because of cheap 
labor, whether it is loss of productivity, whether it is 
technology, there are a lot of Americans who totally are just 
out of it for whatever reason as a result of trade.
    Now comes an opportunity for new jobs to be created. And if 
we had any idea that included in these agreements were 
protection for the American people, the intellectual property, 
the standards are going to be there for health that--that these 
people--Communist countries especially are going to respect 
their workers. Environment is going to be protected.
    How do you expect that we should give the President the 
authority when we have not the transparency to educate a 
Congress, Republican and Democrats, when, say, TPP comes to the 
floor?
    Now, you know the politics of it so that you can get 
directly to the core and giving the answers to questions that 
some of us may not want to hear because it is easier 
politically to kick down the barn than to build it.
    But you have to admit that--if a person has lost their job 
for any reason and you tell them about great opportunities in 
TPP and that Congress doesn't know what it is and won't know 
what it is until the President gives the trade authority, what 
do you do?
    Mr. HOLTZ-EAKIN. I don't run for office, but you have 
already made that mistake.
    So I think, on the negotiating issue, it is not an either-
or choice. I think the President--every President should have 
Trade Promotional Authority. I believe that deeply for the 
reasons you actually described quite eloquently: their ability 
to seal the deal, make a firm commitment.
    At the same time, the Congress has its oversight 
capabilities and, you know, the trade ambassador should be at 
this table. And you should be weighing in on, ``What is the 
state of the negotiations? What are the provisions that I care 
about? Are you doing a good job?''
    There is no reason why they get to negotiate with no 
oversight from the Congress in a vacuum without any feedback--
--
    Mr. RANGEL. And the oversight----
    Mr. HOLTZ-EAKIN. I mean, that is an important----
    Mr. RANGEL. When we vote----
    Mr. JOHNSON OF TEXAS. Gentleman's time has expired.
    Mr. RANGEL [continuing]. We don't have oversight for 435 
members. It is either yes or it is no. And I am going to follow 
through with you.
    Mr. HOLTZ-EAKIN. Before the vote. During the negotiations. 
That is when it is important to have them at the table. That is 
what I would say is the right combination.
    Mr. RANGEL. I would like to follow up with you because----
    Mr. JOHNSON OF TEXAS. The gentleman's time has expired.
    Mr. Smith, you are recognized.
    Mr. SMITH OF NEBRASKA. Thank you, Mr. Chairman.
    Thank you to our panel for your participation here today.
    Obviously, America is a big place. The world is even 
bigger. And I think the discussions about trade and various--
and the economy, in general, are very important.
    You know, it has been interesting, as a representative from 
Nebraska, one of a number of plains and mountain west States, 
others being South Dakota, Wyoming, Utah--other notable States 
have fallen far below average unemployment and lower costs of 
living throughout a lot of the economic downturn.
    And what has been interesting, obviously, is that--these 
States that don't experience these substantial economic highs 
nor those lows that perhaps some other States have.
    And so I was wondering if you could reflect a little bit on 
the observations you may have made throughout the last few 
years about the differences between, you know, regions of the 
country, more specifically even States, because, obviously, we 
had our share of challenges in Nebraska amidst the economic 
downturn, but certainly we did not see that high unemployment 
rate that other States saw.
    Could any of you reflect on that a bit, perhaps starting 
with Dr. Holtz-Eakin.
    Mr. HOLTZ-EAKIN. I think the number one thing that differs 
going into the crisis is the state of housing markets. Housing 
markets were an integral part of the--of the Great Recession.
    We had two different kinds of bad housing markets. We had 
the one everyone hears about, which is the California, Nevada, 
Arizona, Florida style big housing bubble collapse and the 
roller coaster ride that that visited on everything related to 
housing.
    The Midwest had a very different housing problem. They 
never saw the housing bubble and collapse, but those were bad 
economies and they weren't growing rapidly and people turned 
their houses into--into second mortgages and third mortgages to 
get cash out of them because they were really struggling. And 
when the recession hit, they couldn't keep it up.
    And that was a very different style of housing problem. And 
the States' experiences I think start with those differences.
    They then differed greatly, depending on their oil and 
natural gas opportunities. The energy States did much better 
than did the rest quickly for reasons we have discussed 
already.
    And then I think the third thing is, you know, State 
government matters. I mean, in terms of the quality of the 
policymaking, you know, some States went in in terrible 
financial shape and were unable to help and assist the private 
sector. Others, like Indiana, went in in great shape. I don't 
know the details of every State.
    But I would look at those factors as well.
    Mr. SMITH OF NEBRASKA. Thank you.
    Mr. Feldstein.
    Mr. FELDSTEIN. Housing was very important, and there is a 
danger we are going to create some of those same problems 
again.
    As I understand the new rules, Fannie and Freddie will take 
mortgages with 3 percent down payments, 97 percent loan-to-
value ratio. That doesn't sound like a good idea.
    The notion was that mortgage originators should have an 
incentive to be careful by keeping some skin in the game, 5 
percent. That has been scrubbed. That is not part of the new 
rules.
    So I think we are creating a possibility that we are going 
to see in different parts of the country serious problems if 
house prices don't continue to rise at a uniform rate.
    Mr. SMITH OF NEBRASKA. Right.
    But looking back, were there any observations you made in 
terms of States that had relatively low unemployment in 
comparison to States' high unemployment?
    Mr. FELDSTEIN. Well, I think what Dr. Holtz-Eakin said is 
quite right, that there were big differences in what had 
preceded in the housing area. And, therefore, the downturn was 
much more serious in some areas where house prices had gotten 
way out of line.
    But if I can buy a house with only 3 percent down, there is 
going to be a temptation to start running up house prices again 
in those markets.
    Mr. SMITH OF NEBRASKA. Thank you.
    Mr. Johnson.
    Mr. JOHNSON. Just to pick up on one point made by Mr. 
Holtz-Eakin, which is many States do not have fiscal capacity 
to deal with crises, they either don't have the resources, they 
are not able to borrow, or maybe they run in a way that is a 
little too close to the edge, or they have balanced budget 
legislation. And that is why what the Federal Government does 
in terms of fiscal policy is particularly important.
    And that is why, you know, I think we should on a forward-
looking basis before it gets to a situation where there is a 
lot of rhetoric and confrontation think about what is the right 
way for fiscal policy to be involved in any future difficulties 
that occur at a State level, a regional level, or the national 
level.
    As I recall, at the end of 2007, early 2008, when you had a 
Republican President, there was a lot of Republican voices who 
were in favor of a fiscal stimulus at that point. I think Mr. 
Feldstein testified in some of those hearings and had a big 
impact. We should think about that before it gets partisan 
again.
    Mr. SMITH OF NEBRASKA. Thank you.
    And one additional question, Professor Holtz-Eakin: Do you 
believe that trade promotion authority would actually help 
American agriculture?
    Mr. HOLTZ-EAKIN. Yes. We have the most productive and 
efficient agricultural sector on the planet. And opening up, 
for example, the Japanese agriculture markets is a big 
opportunity, if it can be done.
    Mr. SMITH OF NEBRASKA. I agree. Thank you.
    I yield back.
    Mr. JOHNSON OF TEXAS. Thank you. Your time has expired.
    I now recognize Mr. Schock.
    Mr. SCHOCK. Thank you, Mr. Chairman.
    And I, too, wish to congratulate our new chairman of the 
committee.
    You know, I have been fascinated by all the questions from 
both sides about economic growth, static scoring or accurate 
scoring, as Chairman Price calls it. And it is particularly 
because I think the debate oftentimes, at least on this 
committee and even in the broader context in the political 
realm, between left and right on economic growth, on the 
disparity between haves and have-nots, the middle class, the 
wealthy, the poor, is really a question of whether or not you 
believe our economy is dynamic, whether or not you believe that 
the best way to create wealth, the best way for those without 
to have is whether to take from those who have and redistribute 
or whether to incentivize those who do not have to work, to 
innovate, to create, and, for those that have, to invest.
    And so, specifically, there has been a lot written about 
this over the last couple years, and I know one book that has 
been getting a lot of play right now, particularly on the left, 
is a book written by a French economist, Thomas Piketty, 
``Capital in the 21st Century.''
    And some of the most interesting assumptions he makes is 
basically that, throughout the last 100 years--he looks at the 
bottom 5 percent, the bottom 10 percent, all the way up to the 
top 1 percent--he is basically making the assumption that those 
in those percentiles pretty much remain the same and that there 
hasn't been the type of mobility and the type of upward 
mobility up the economic ladder that I think many of us on the 
right side of the aisle, at least, believe is what America is 
all about.
    Specifically, Mr. Feldstein, I know that you have taken Mr. 
Piketty on in these assumptions. And I wish you would just 
maybe speak a little bit about what you think this committee 
ought to be focused on in terms of the income disparities that 
are present in our economy and the best way to raise those who 
have without and those that are struggling to be in the middle 
class and those that are in the middle class to go even higher.
    Mr. FELDSTEIN. So Professor Piketty was really not 
concerned with that problem. He was concerned with high 
incomes. So I think that is the wrong place to focus.
    I think the right place to focus, if we are concerned about 
income distribution, is to focus on the question of poverty and 
what we are dealing with there. Part of that is a question of 
education. Part of it is labor force participation. Part of it 
is a measurement problem; it is not as bad as it looks.
    So I think all of those are things that this committee 
might spend some time focusing on, drilling down, and trying to 
understand what the actual nature is of, say, the bottom 10 
percent of the measured income distribution.
    Mr. SCHOCK. Mr. Holtz-Eakin, would you like to comment?
    Mr. HOLTZ-EAKIN. I think there are a couple responses to 
this whole discussion.
    One is, Mr. Piketty's research has been questioned on a 
number of fronts, and I think it is worth looking at just sort 
of the geeky, nerdy statistical fight about whether he is 
measuring something real or not. For example, tax reform caused 
a lot of people to report income after 1986 that they didn't 
previously. The world hadn't changed, but the reported world 
looks very difficult. And I would be nervous about that, that I 
think that is one of the things that is going on.
    Second is sometimes the wealth of the upper class went up 
relative to the middle class because we destroyed the wealth of 
the middle class. That is what the housing bubble did. Don't do 
it again. Right? That is the lesson of that. It is nothing 
about the top; it is about our housing policies.
    And then the third is, I will just echo the mobility 
evidence that says that, on the whole, mobility in the United 
States is the same as it was 50 years ago. People have a chance 
to get ahead. We just don't like how good getting ahead is. We 
don't like how good being at the bottom is. That is focusing on 
economic growth and antipoverty programs. And that is where the 
focus should be.
    Mr. SCHOCK. Mr. Johnson, I have 30 more seconds. Do you 
believe in mobility?
    Mr. JOHNSON. Of course. We all believe in mobility. I am an 
immigrant, Mr. Schock. I came here for exactly the mobility. 
But I think that the--and I think, by the way, the way you 
framed the discussion at the beginning is sensible and 
appropriate. I think you summed it up nicely.
    And I think if you go back to the chart Mr. Levin put up at 
the beginning showing what has happened since the 1980s, the 
big theme we have had in our public policies has been--not 100 
percent, but a big theme has been towards some form of trickle-
down and saying this will benefit other people, and it hasn't 
happened. And I think we should, in the basis of thinking about 
comprehensive tax reform, consider that.
    You know what we got out of the 1980s and out of the 1990s, 
and it was not more for the middle. It was more for the top. 
And it is a global competition for talent, as Mr. Holtz-Eakin 
said. That is absolutely right. And you have to think about how 
you handle that going forward.
    Mr. SCHOCK. Thank you.
    Chairman RYAN [presiding]. Time for the gentleman has 
expired.
    Dr. McDermott is recognized.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. I want to 
congratulate you. I think I will wait until after next Sunday 
in Seattle before I congratulate you totally.
    I listened--I mean, we have been here 3 hours, and you guys 
have been through the rack on about everything under the sun. 
But one of the interesting things I see, having sat through all 
of this, is very little is talking about the middle class and 
those people struggling to get on those ladders.
    One of them is students. There has been almost no 
discussion of the $1.2 trillion in student debt which is 
hanging over our students. And I look at that--I mean, I am a 
doctor, so I know what goes on in medicine, where you come out 
$300,000, $400,000 in debt, but even if you are going to be a 
schoolteacher, you are $60,000 in debt--what that does to your 
view of the economy and the society and how much you are going 
to invest.
    And when you are basically trying to succeed in survival 
and pay your debt service, there is nothing left to save. We 
hear there are no savings in America. Of course there isn't. 
Every middle-lass family in this country has put all their 
savings into their students' loans. They have signed their 
house notes, they have signed all kinds of stuff to do this.
    Now, one of the fascinating things about listening to this 
also has been--sometimes we get very centric about what happens 
in the United States, but, Mr. Johnson, I would like to hear 
your comments about the European attitude toward student debt 
and what that investment by those societies is making in terms 
of their future.
    Because I sit at--I have had a university in my district 
for a long, long time, ever since I came into politics. And I 
watch the National Institutes of Health dropping their 
investment on higher-level students. They used to do 19 
percent; now they are doing 6 percent of the grants. And there 
are people deciding, do they want to go into that kind of a 
thing?
    And what is the long-term effect of our heaping the debt on 
the students? That is really what I want to hear you talk 
about. And how do the Europeans do otherwise?
    Mr. JOHNSON. Well, Congressman, it is not just the 
Europeans. It is our other competitors around the world, 
including in Asia----
    Mr. MCDERMOTT. Yes.
    Mr. JOHNSON [continuing]. Where the attitude is exactly 
what you said, which is that you want a strong and expanding 
higher-education sector. You want more people with post-high-
school education. You want more people with vocational skills. 
And you don't want to load them--overburden them with debt. I 
think that there is a particular problem around the for-profit 
sector in the United States in higher education, and our 
competitors have, to some degree, avoided that.
    Higher education in this country has been a strength, and I 
think it will be a strength going forward. I think we need to 
expand that post-high-school vocational education, but expand 
the supply of it. Don't just subsidize people and encourage 
them to take on more debt to get various kinds of degrees. 
Expand the supply, increase the skills that are out there, have 
them come out with manageable, lower debt levels, to your 
point. That is going to be----
    Mr. MCDERMOTT. Let me interrupt you, then, to give you a 
suggestion to comment on.
    Why should a student in this country pay more than 1 
percent above prime on their student loans? Why don't we have 
our loans down at that level rather than these kids who have 
these 13.6 percent loans from private banks and all the other 
craziness?
    If we brought it so that every student could borrow for 
school to 1 percent above prime, how would that change the 
future?
    Mr. JOHNSON. Well, I think we want to be careful not to 
encourage overborrowing. But you are absolutely right that the 
level of interest rate on some of these loans is too high. And 
these people are a good credit risk, particularly depending on 
the exact conditions of the loan and the contract you are 
signing. You get paid. The default rate is relatively low. And 
it is hard to discharge, in many jurisdictions, as you know, 
discharge these debts in bankruptcy.
    Mr. MCDERMOTT. It is impossible in most.
    Mr. JOHNSON. If they are Federally guaranteed loans, 
certainly.
    So I think that we should look at this market and we should 
understand the competitive practices and we should understand 
some of the companies that are inappropriately gouging 
students. That is absolutely part of the picture.
    But, most of all, expand the opportunity, expand the supply 
of post-high-school vocational training.
    Mr. MCDERMOTT. Now I want a short answer on one more 
question.
    If the oil patch goes in the tank, as it looks like it is 
going to because of all this, of the cost of oil coming down so 
low and it is no longer--they are making it in banks all over 
the Southwest, they are starting again like they did in the 
housing and loan--should we bail them out?
    Mr. JOHNSON. No.
    Mr. MCDERMOTT. Thank you.
    Chairman RYAN. Okay. We will leave it at that.
    Ms. Noem is recognized.
    Mrs. NOEM. Thank you, Mr. Chairman. And congratulations. I 
am looking forward to being a part of the work that this 
committee is going to be doing.
    And I appreciate all of you being here and being here for 
so long and lending us your expertise.
    I wanted to talk a little bit about trade and the process 
for getting trade agreements accomplished. But I wanted to 
reference a comment that was made earlier by a member of the 
committee that was interesting to me, because he talked about 
Republicans and people on our side of the aisle continuously 
running the same playbook--lower taxes, less regulation, not 
spending dollars, cutting spending--and how that isn't working 
and we need to change the play.
    Well, I come from the State of South Dakota. In fact, I 
represent the entire State of South Dakota. And so we have made 
some tough decisions in that State. I served in the legislator 
from 2006 to 2010, so I was there during the crisis when we had 
such difficult times. We have become the number-one State in 
the Nation to do business in. And we have done it by keeping 
our tax burdens low.
    We have a regulatory burden that is minimal and allows 
businesses to come into the State and to thrive and survive and 
keep our people to work. We have a low unemployment rate. In 
fact, we even have a constitutional requirement to have a 
balanced budget every single year, which I believe Mr. Johnson 
earlier was indicating might be a problem for a State to have 
something like that when it comes to tough times. For us, it 
works. We make tough decisions, and, literally, within a year 
or 2, we can see our economy turn around and do very well.
    Our number-one industry is agriculture. And I have spent my 
life being a farmer and rancher and working very hard to 
increase not only my own businesses' opportunities but also 
agriculture in South Dakota and across the Nation, overseas. 
And so I am excited about the trade agreements that we have 
coming and the opportunities that that creates. But I also am 
kind of concerned about how the process goes down.
    Last year, the United States reached a record high at $152 
billion worth of exports that happened when it came to that. 
But, also, I see we have more opportunities, especially when it 
comes to agriculture products. And, in history, they have given 
us some sticky points with countries when we have negotiated. 
Sometimes the hang-up to getting agreements done has been ag 
products. We have faced barriers when it comes to sanitary and 
phytosanitary issues and discussions that have gone on.
    I would like to ask you: TPA, when it comes to getting 
that, historically, when we look at previous trade agreements, 
has it been bipartisan?
    I will reference Mr. Holtz-Eakin.
    Has it been a bipartisan agreement, traditionally, between 
Republicans and Democrats to give that type of authority to the 
President?
    Mr. HOLTZ-EAKIN. Yes. And, honestly, it has also been, in 
many cases, tough, because there is skepticism not just on the 
left but on the right, and Members have to work out their 
concerns in granting trade promotion authority. But it has been 
a bipartisan power given to both Republican and Democratic 
Presidents by Republicans and Democrats.
    Mrs. NOEM. Uh-huh. And then, in that role, when TPA is 
being sought after from Congress, what is the role of the 
President? Do they become a proponent of getting that type of 
negotiation power so they can complete these trade agreements?
    Mr. HOLTZ-EAKIN. Yes. I mean, White House involvement in 
this process is essential. White House leadership is essential. 
On any large bipartisan initiative, you have to have White 
House leadership to be successful. And that has been a recipe 
in the Bush administration, the Clinton administration.
    Mrs. NOEM. So tell me what the near-term effects we could 
have if some of these trade agreements are wrapped up--TPP, the 
agreement that we have in negotiation now with the European 
countries. What are some short-term, immediate effects we could 
see in the first 5 years of completing an agreement for that 
for our country? And then perhaps down the road 10 years from 
now, what would the benefits see that we would have in this 
country?
    Mr. HOLTZ-EAKIN. Well, as with almost any beneficial 
economic policy, at a time when you are operating, you know, 
below your potential, when we still have some people 
unemployed, we still have so many factories and acreage lying 
idle, you put those to use. And that is a good thing, and it 
happens quickly.
    But there are finite benefits to that, though. Eventually, 
that impact goes away. And the larger impact, I think, is the 
ability to set standards, make sure that the standards, for 
example, in manufacturing in the U.S. and the codes used to 
identify compliance with standards are accepted internationally 
and you are not missing from that negotiation.
    They are very durable then. You move the mix of your 
workforce into the attractive international opportunities, and 
you can pay them better. And that is why you have these sort of 
bonuses in export-related sectors in terms of pay.
    These are all very durable advantages to being engaged in 
trade and on negotiating good trade agreements.
    Mrs. NOEM. One of the comments or facts that I saw 
circulating around trade agreements and what they mean for our 
economy is that, traditionally, trade-related jobs pay more 
than non-trade-related jobs.
    Dr. Feldstein, would you care to comment on that and if 
that is true?
    Mr. FELDSTEIN. I believe it is true. I think it is very 
important, as you move towards TPA--and you can't do a trade 
agreement without it--that you understand exactly what the 
other side is thinking about putting on the table, what we are 
hoping they are doing. My sense is that we are not looking at 
as robust a set of agreements in agriculture with the Japanese 
as you and I might like.
    Chairman RYAN. Thank you.
    The gentlelady from California, Ms. Sanchez, is recognized.
    Ms. SANCHEZ. Thank you, Mr. Chairman.
    And thank you to our witnesses who have been here patiently 
answering our questions. I appreciate your willingness to join 
us.
    And I am a little bit confused about the purpose of this 
hearing, or, I should say, the information that has come out of 
this hearing. Because, on the one hand, I hear that, you know, 
our terrible President is sending our country down the drain 
with his un-American economic policies, but, on the other hand, 
we are hearing that our country has seen 58 consecutive months 
of job growth thanks to the leadership of President Obama. So I 
guess it just depends on whether you like the President or not.
    The Ways and Means Committee has a long history of holding 
substantive hearings in an effort to find solutions, actual 
solutions, to try to move the country forward. And I feel like 
today has just been a messaging piece, and there has not really 
been a lot of serious discussion.
    Is our economy a perfect economy? No, of course it is not. 
Should take-home pay for workers be higher? Absolutely. But, 
ironically, I don't see the Republican-led Congress stepping up 
to fight for workers anytime soon, because a whopping zero 
Members of that aisle could bring themselves to cosponsor a 
bill to raise our Federal minimum wage to $10.10 in the last 
Congress.
    In fact, most of our recent economic recovery in this 
country has come despite strong Republican opposition and 
brinkmanship. You know, this is a party that threatened to 
default on our financial obligations and that actually shut our 
government down, all at great cost to taxpayers.
    And while they continue to advocate for more tax cuts for 
the very rich, you know, they seem to live in this bubble where 
they think that history will somehow stop repeating itself and 
that their so-called strategies of trickle-down economics is 
going to magically work this time and benefit everybody, 
including minimum-wage workers.
    And let's talk about another piece, which is, you know, 
health care, which is probably one of the most important issues 
for many American families. And the Republican leadership on 
health care has been nonexistent, as well. Health care 
shouldn't be just a privilege that an entitled few get to have 
and can afford.
    Before the ACA was enacted, being a woman was considered a 
preexisting condition, and most women's health issues, 
including pregnancy, were routinely treated as preexisting 
conditions. But now, thanks to the ACA, women can't be denied 
coverage or charged more simply because of our gender, and we 
can now receive preventive services without out-of-pocket 
costs, and health plans must cover maternity services, all of 
which help many working women. Many women now must work to help 
support their families.
    Yet, despite the progress we have seen on women's health, 
we have seen 54 different votes to try to repeal the healthcare 
law but no coherent draft of a Republican alternative plan. If 
we repeal the ACA, what do they propose to replace it with?
    There have been, in real dollars and cents, many economic 
benefits from the healthcare law. And let's talk about the 
productivity gains that we have as a country from more women 
staying in the workforce, thanks to the preventive services and 
family-planning counseling that they receive because of the 
ACA.
    I am particularly sensitive to women's issues as they 
relate to the labor force and the workforce, and I want to talk 
about their participation in the workforce because I think it 
is critical for where our country goes in the future.
    I want to address some testimony by Mr. Feldstein and his 
claims that Social Security discriminates against women by 
taxing their income but not paying them the Social Security 
benefits that they have earned. Coming to that particular 
conclusion, I think, requires three sexist and completely 
incorrect assumptions, and I am going to talk about them 
because I think they are important.
    The first assumption is that, you know, it assumes that all 
women are married. Well, that is not the reality in my 
district.
    Second, it assumes that married women depend primarily on 
their husbands to support them and would therefore get the same 
benefit from Social Security if they didn't work as if they 
did. And, again, that is not necessarily the case for many of 
the constituents that I represent.
    And the third assumption that is built in to that statement 
is that only women and never men, mind you, only women would 
ever make a choice to earn less or work less, for example, by 
raising children while being supported by a spouse. And yet we 
know the reality is there are many stay-at-home dads now that 
work part-time or choose not to work to stay at home and raise 
kids.
    In fact, the truth is that the vast majority of men and 
women get Social Security benefits based on their earnings 
alone, whether or not they are married. A smaller number get 
the full benefit that they are entitled to from their own 
work--if I could just finish my sentence, Mr. Chairman. I am 
going to beg your indulgence.
    Chairman RYAN. You are doing great.
    Ms. SANCHEZ [continuing]. And then an additional benefit 
because a much higher-earning spouse has earned a higher family 
benefit.
    And I am just going to close by saying: And some married 
women and men do not work at all but still qualify for Social 
Security benefits via a spouse's work.
    So I just felt the need to point that out, because I don't 
know what reality you live in, but the reality that I live in 
is that most women now must work to help support a family and 
that, economically, it is no longer the case that women depend 
on men for their support.
    And I will yield back and thank the chairman for his 
indulgence.
    Chairman RYAN. Yep. I am happy to indulge the gentlelady 
from California.
    All time has expired. I believe no other Members are 
requesting time.
    Gentlemen, you have been here since 10:00 a.m. this 
morning. This is our first hearing in the new 114th Congress, 
and I very much thank you for taking time out of your busy 
schedules to indulge us today. Thank you very much for 
enlightening us in this hearing.
    The committee stands adjourned.
    [Whereupon, at 1:23 p.m., the committee was adjourned.]