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


                     UNSUSTAINABLE FEDERAL SPENDING
                           AND THE DEBT LIMIT

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

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON OVERSIGHT
                           AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 2, 2016

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-69
                           
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


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                HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

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

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
              Subcommittee on Oversight and Investigations

                   SEAN P. DUFFY, Wisconsin, Chairman

MICHAEL G. FITZPATRICK,              AL GREEN, Texas, Ranking Member
    Pennsylvania, Vice Chairman      MICHAEL E. CAPUANO, Massachusetts
PETER T. KING, New York              EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina   KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                JOHN K. DELANEY, Maryland
STEPHEN LEE FINCHER, Tennessee       JOYCE BEATTY, Ohio
MICK MULVANEY, South Carolina        DENNY HECK, Washington
RANDY HULTGREN, Illinois             KYRSTEN SINEMA, Arizona
ANN WAGNER, Missouri                 JUAN VARGAS, California
SCOTT TIPTON, Colorado
BRUCE POLIQUIN, Maine
FRENCH HILL, Arkansas
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 2, 2016.............................................     1
Appendix:
    February 2, 2016.............................................    39

                               WITNESSES
                       Tuesday, February 2, 2016

Boccia, Romina, Deputy Director, Thomas A. Roe Institute for 
  Economic Policy Studies, and Grover M. Hermann Research Fellow, 
  The Heritage Foundation........................................    15
de Rugy, Veronique, Senior Research Fellow, Mercatus Center, 
  George Mason University........................................    14
McClintock, Hon. Tom, a Representative in Congress From the State 
  of California..................................................     1
Mitchell, Daniel J., Senior Fellow, the Cato Institute...........    12
Pocan, Hon. Mark, a Representative in Congress From the State of 
  Wisconsin......................................................     3
Stone, Chad, Chief Economist, Center on Budget and Policy 
  Priorities.....................................................    17

                                APPENDIX

Prepared statements:
    Boccia, Romina...............................................    40
    de Rugy, Veronique...........................................    51
    McClintock, Hon. Tom.........................................    57
    Mitchell, Daniel J...........................................    59
    Pocan, Hon. Mark.............................................    66
    Stone, Chad..................................................    68

 
                     UNSUSTAINABLE FEDERAL SPENDING.
                           AND THE DEBT LIMIT

                              ----------                              


                       Tuesday, February 2, 2016

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:05 p.m., in 
room 2128, Rayburn House Office Building, Hon. Sean P. Duffy 
[chairman of the subcommittee] presiding.
    Members present: Representatives Duffy, Fitzpatrick, 
Mulvaney, Hultgren, Wagner, Tipton, Poliquin, Hill; Green, 
Delaney, Beatty, Heck, and Sinema.
    Also present: Representative Schweikert.
    Chairman Duffy. The Subcommittee on Oversight and 
Investigations is called to order.
    The subject of today's hearing, as evidenced by the rapidly 
changing graphic on the screens around us, is, ``Unsustainable 
Federal Spending and the Debt Limit.''
    We have a series of votes coming up, so we will proceed 
with our first panel of witnesses. Welcome to the Honorable Tom 
McClintock, who represents the 4th Congressional District in 
California. Next, we have the Honorable Mark Pocan, who 
represents one of the great States, if not the greatest State, 
Wisconsin, from the 2nd Congressional District.
    With that, Mr. McClintock, you are recognized for 5 minutes 
for your opening statement.

STATEMENT OF THE HONORABLE TOM MCCLINTOCK, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. McClintock. Thank you, Mr. Chairman.
    Our government's good credit is vital to everything that we 
do here. And there are two ways to wreck that credit: by 
borrowing too much; or by failing to pay it back on time and in 
full.
    Congress alone has the constitutional power to tax, to 
borrow, and to spend. We regulate our borrowing through the 
debt limit. And when we need to increase it, we have a duty to 
review and revise the policies that are driving it.
    The United States now staggers under $19 trillion of debt, 
nearly half of it run up in the last 8 years. The interest on 
that debt is the fastest-growing component of the Federal 
budget. Within 5 years, it will consume more than we now spend 
for our entire defense establishment. That is why we dare not 
increase the debt without also correcting what is causing it.
    But that can often lead to temporary impasses. And when 
that happens, it is vital that credit markets maintain supreme 
confidence in the security of their loans, otherwise the 
interest rates that lenders charge us would quickly rise to 
account for the increased risk, and our precarious budget 
situation would rapidly spin out of control.
    The organic law that established the Treasury Department in 
1789 specifically says that it shall be the duty of the 
Secretary of the Treasury to digest and prepare plans for the 
improvement and management of the revenue and for the support 
of the public credit.
    ``Manage the revenue and support the public credit:'' the 
GAO clearly spelled out what that means in answering the Senate 
Finance Committee in 1985: ``Treasury is free to liquidate 
obligations in any order it finds will best serve the interests 
of the United States.''
    The Constitution commands that the public debt is not to be 
questioned, and this is the practical mechanism for it. Most 
State constitutions provide that first call on any revenues is 
to maintain and protect their sovereign credit.
    Now, that brings us to the fine point of the matter. In 
recent years, the Treasury Department has denied that it has 
either the ability or the authority to do so. Well, we now know 
from documents that were recently uncovered by this committee 
that this was a deliberate and calculated lie told to increase 
political pressure on Congress. We also know the Treasury 
Department was actually preparing contingency plans to 
prioritize debt at the same time the Treasury Secretary was 
publicly denying that he could.
    These documents also reveal that Federal Reserve officials 
were incredulous and appalled that the Administration would 
make such statements because they ran a severe risk of 
panicking credit markets.
    In 2001, I first introduced legislation to place an 
affirmative duty on the Treasury Department to provide first 
claim on any revenues for debt service. Ironically, the same 
Treasury Secretary who claimed he lacked legal authority 
opposed this bill that explicitly gave him that legal 
authority.
    In response to his untruthful claim that it wasn't 
possible, we amended my bill in 2013 simply to allow the 
Treasury Secretary to borrow above the debt limit to guarantee 
that the debt would be paid in full and on time without having 
to prioritize. It passed the House in 2013, and again last 
year.
    Opponents argued that this put creditors, like China, ahead 
of paying troops in the field. Actually, most of our debt is 
owed to Americans, and without our credit we can't pay our 
troops or anybody else. By protecting our credit first, we 
actually support and maintain our ability to pay for all of our 
other obligations.
    Now, the President said this was tantamount to a family 
saying it would make its house payment, but not its car 
payment. Both are bad, but let us continue this analogy. If the 
family is living on its credit cards, as we are as a Nation, it 
had better make the minimum payments on its credit card first 
or it won't be able to pay the rest of its bills. And when that 
family has to increase its credit limit because it is spending 
above its means, it had better have a serious conversation 
about what is driving that debt and what to do about it.
    Principled disputes over how the debt limit is addressed 
are going to happen from time to time. And just a few years 
ago, then-Senator Barack Obama vigorously opposed an increase 
in the debt limit sought by the Bush Administration. When these 
controversies erupt, as they inevitably do in a free society, 
it is imperative that credit markets are supremely confident 
that their loans to the United States are secure.
    Thank you.
    [The prepared statement of Representative McClintock can be 
found on page 57 of the appendix.]
    Chairman Duffy. Thank you, Congressman McClintock.
    I would just note that votes have been called. There are 9 
minutes on the clock. If this was in December, I would go to 
you, Mr. Pocan. But we have all realized that the new Speaker 
is calling votes after 15 minutes.
    So with that, if you two don't mind coming back after 
votes, the subcommittee will stand in recess and will reconvene 
after this series of votes.
    [recess]
    Chairman Duffy. The subcommittee will reconvene.
    Just to be clear, without objection, the witnesses' written 
statements will be made a part of the record. And once the 
witnesses of the first panel have finished presenting their 
testimony, the chairman and the ranking member will each have 5 
minutes to ask questions.
    So with that, we will now go to the gentleman from the 
great State of Wisconsin, Mr. Pocan, for 5 minutes.

  STATEMENT OF THE HONORABLE MARK POCAN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF WISCONSIN

    Mr. Pocan. Great. Thank you very much, Mr. Chairman, 
Ranking Member Green, and members of the subcommittee.
    Mr. Chairman, I just want to start out by saying that I 
think we can find bipartisan consensus on what you said at the 
beginning, that Wisconsin is the greatest State. So I just want 
to put that out there as a--
    Chairman Duffy. Hopefully, that is not where it ends.
    Mr. Pocan. Yes. Just official suck-up to start.
    Let me start with just a couple of things I want to put on 
your radar as we talk about this issue, and then let me address 
specifically the debt ceiling and the other issues that you are 
going to be talking about today.
    I think it is important that we should note the Federal 
deficit has declined under President Obama by two-thirds since 
he came into office, and that is extremely significant and part 
of what we are looking at. In fact, this year the CBO has 
predicted the Federal deficit will increase very slightly after 
6 consecutive years of decline, and that is due to our actions, 
what we did in December with the omnibus bill.
    Not only did we provide some marginal sequester relief, but 
we had loads of retroactive tax cuts. And of course, none of 
those tax cuts were paid for; I think the last estimate I saw 
was they will cost about $680 billion over the next 10 years. 
And as of October last year, as a percentage of the economy, 
the deficit is now down to 2\1/2\ percent, which is below the 
average of the past half-century, and it is down about 9.8 
percent since the President took office.
    I just put those out there because I think they are 
significant as we talk about the subjects that we are talking 
about.
    The second thing I just wanted to put out there for us to 
consider is the Simpson-Bowles Act that was out there, the 
proposal about how to try to provide relief--I know that I 
wasn't around; this is only my second term. But previously, 
when they were trying to find a grand bargain here in Congress 
and that couldn't happen, the Budget Control Act was put in 
place.
    And if you look at what was in the Simpson-Bowles Act that 
people have referred to often, we have already enacted 70 
percent of the non-defense discretionary cuts that were 
proposed by that Act. And according to the Center for a 
Responsible Budget, we have already cut 30 percent more 
discretionary spending than was proposed to be done by 2020 by 
Simpson-Bowles. All of those are programs that are important in 
our districts.
    And yet, at the same time, we have enacted less than one-
third of the proposed revenue changes that were also proposed 
by that.
    I just put that out there because as someone who has been a 
small-business owner for, this year it will be now 29 years, I 
look at that. A balance sheet is what we take in and what we 
put out. And I think that is significant because I don't think 
a lot of people realize what we have done on the taking out, 
but not necessarily the putting back in side of things.
    Specifically to the debt ceiling, when I talk to people in 
my part of Wisconsin, I think it is no different than yours, 
Mr. Chairman, when I try to explain what the debt ceiling is 
about; it is essentially we have made a home mortgage, we have 
committed to that payment, and when we lift the debt ceiling, 
it is really whether or not we are going to put that in the 
mail.
    And I think if you look at it as that, where the 
responsibility really is is up front where we decide whether or 
not we are going to make that decision, to make that spending, 
which is that home mortgage, rather than trying to deal with a 
debt limit when we often are putting ourselves in a pretty bad 
place.
    As a small-business owner, I know what happens. Last time 
when we shut the government down, I did happen to be around for 
that. I saw what happened across the country when we lost 
billions of dollars out of the economy, when it affected small 
businesses and the decision-making they are going to make. It 
had a really negative effect.
    And we have to be very careful when we put that out there 
as a tool, because I think all too often it has very negative 
ramifications. Our entire economy can be really rattled if we 
don't do the right thing. Millions of Americans could face 
delays in Social Security checks, veterans benefits, and other 
critical services. And it does put our country, I think, 
largely at risk.
    In the minute remaining, let me just touch briefly on the 
debt prioritization that I think has been part of the 
conversation that you are having.
    In many ways, I feel that the average person out there 
would look at this as somewhat of a ridiculous conversation, 
different than how we talk about things maybe in the Beltway. 
We need to pay our bills on time, period, and they expect that 
out of us. And the problem is that we haven't been doing that 
part of our jobs very well, so then this becomes a proposal 
that we need to look at.
    Fitch's ratings agency has already indicated that delaying 
payments on other obligations while honoring interest and 
principal payments would trigger a credit rating review and 
possibly a credit rating downgrade. So by doing something like 
this, we actually risk not only the credit of the country, but 
also there are many people who are worthwhile people who would 
get payments, veterans, students, the elderly, and others, whom 
I think come into play.
    I have 6 seconds left, so I will yield back at this point, 
but I will be glad to take any questions, Mr. Chairman.
    [The prepared statement of Representative Pocan can be 
found on page 66 of the appendix.]
    Chairman Duffy. Thank you, Congressman Pocan.
    The Chair now recognizes himself for 5 minutes for 
questions.
    I would just note that, giving my friend from Wisconsin a 
little bit of pushback, we have increased our debt by $8 
trillion. And we pay $255 billion a year just to service that 
debt. And I know that you look for a lot of revenue to spend in 
a lot of different programs. That is a lot of money that could 
go to building roads and bridges and helping poor people, that 
you are actually spending on servicing the debt. So I think 
this is a real problem that has really negative consequences 
for our constituents.
    I would just also note that when we have looked at the 
Treasury's internal and secretive analysis, they were looking 
at prioritizing principal, interest, Social Security, and 
veterans benefits, so those folks would have been taken care of 
first.
    But to you, Mr. McClintock. You have been working on this 
bill and have been a champion of it for a very long time. Are 
you surprised by the pushback that you are getting from the 
Administration and even from some folks across the aisle and 
then come to learn that they were doing exactly what you were 
talking about?
    Mr. McClintock. Nothing surprises me about the mendacity of 
this Administration anymore. So I can't say I was shocked, just 
shocked that there was a dissembling going on.
    But I will say this: Nobody advocates the Federal 
Government not paying any of its bills. That is not at issue 
here. Very bad things would happen if we were unable to pay any 
of those bills. That is not the issue here. It is not a 
question of taking out a mortgage and then not paying it, not 
putting the mortgage check in the mail, as my friend suggests.
    Here is the point. If you are paying your home mortgage 
with your credit card, and that is essentially what this 
country is doing at the moment, you darn well better be sure 
that you pay the credit card first, the minimum payment, or 
your credit gets cut off and you can't pay your home mortgage 
or your car payment or the grocery bill, for that matter. That 
is what is at stake here.
    And when credit markets begin to wonder if there is going 
to be a stalemate in Washington, the risk for making loans to 
the Federal Government goes up, the interest rates go up. And 
your point is spot on, our interest costs are already eating us 
alive, $255 billion this year just to rent the money we have 
already spent. We throw billion-dollar figures around here all 
the time without any reference point in the real world.
    Every billion dollars is about $8 from an average family's 
taxes, which means that if you are an average family paying 
average taxes, about $2,000 of which you sent to the IRS this 
year did nothing more than rent the money we have already 
spent. That has to be brought under control.
    But the first thing we have to do is be sure that our 
interest rates don't start to spiral because there is a 
perceived risk that the loans made to this government are not 
absolutely secure and sound.
    Chairman Duffy. And I would just note that the $255 billion 
on the $19 trillion is at historic low interest rates. Without 
even borrowing any more money, it is going to go up just with 
the increase in rates that are on our horizon. So I think it is 
important that we note that.
    I can't imagine in a family, as you just mentioned, Mr. 
McClintock, a mom and dad and a couple of kids having some 
tension about whether or not they can balance their budget. And 
if dad says, ``Let us not balance ever,'' and then mom says, 
``Listen, we have to be fiscally responsible,'' it is going to 
create tension between the two of them. And if the two of them 
actually agree that they are never going to pay it, but give it 
to the kids, I am sure the kids are going to get a little upset 
at that, too, and go, hey; it is going to create a dialogue. 
And I think that is what has happened here.
    But the point really is, and per your legislation and what 
we found out within Treasury was, we are going to pay the 
principal and the interest. We want to make sure American 
sovereign debt is never in jeopardy. But there is going to be a 
larger conversation about how we spend.
    And maybe to you, Mr. Pocan. I know that when the vote came 
up on Mr. McClintock's bill--I think my stats are right--almost 
every Democrat voted against it. And I hear your concern, I 
think you stated it well. But now knowing that Treasury was 
actually doing the very thing that Mr. McClintock was talking 
about, but saying something else publicly, I don't know if 
those who voted against it feel a little bit misrepresented by 
the Administration? And maybe if you were in line with the 
President and his view on Mr. McClintock's bill, maybe it would 
have been one of those bipartisan votes with 435 Members saying 
``aye'' to Mr. McClintock's proposal.
    Mr. Pocan. Yes, if I can, I think what I would offer is 
that I think the public looks at it differently. There is a 
reason why there is a 15 percent approval rating on Congress 
and they prefer traffic jams and zombies and head lice to us, 
right? They expect us to do our jobs. And we haven't done our 
jobs doing the process the way we are supposed to.
    Now, I am looking forward to this new day we are going to 
have in Congress. I know we are having a more thorough, 
regular-order process. But if we don't do our basic jobs in 
getting a budget done, we can't come to the Band-Aid solutions, 
which is what we are doing here, and that is what this proposal 
unfortunately is.
    So I think it comes down to the core of what we are 
supposed to do and what the public expects of us. And when we 
don't do our jobs, then we need to expect the public to prefer 
the things they prefer over us.
    I guess that is my response, that we should really be 
dealing with what we need to deal with first and foremost, and 
these things are either side attractions or Band-Aids.
    Chairman Duffy. Thank you. My time has expired.
    I now recognize the gentleman from Texas, Mr. Green, the 
ranking member of the subcommittee, for 5 minutes.
    Mr. Green. Thank you very much, Mr. Chairman.
    Of course, I thank my colleagues for being with us today. 
And I am grateful that you have given considerable thought to 
these questions.
    I will have an opening statement that I will deliver at a 
later time, but I do think it important to note that I don't 
think you will find a Member of Congress who won't agree that 
we should pay our debts. I don't think you will find a Member 
of Congress who would say we should shut down the government.
    However, I do know that there are Members of Congress who 
contend that you can make partial payments, and by making a 
partial payment you somehow cause everything to go on and you 
don't have a disruption in domestic markets and international 
markets.
    The witnesses who will be testifying after my colleagues 
will indicate some of the concerns that they have with 
reference to disruptions of markets in the event we make a 
partial payment of our debts, partial payment meaning just 
decide to pay the principal and interest, take care of the 
Treasuries, make sure the bonds are paid, and overlook things 
like Medicaid, Medicare, and Social Security. There is at least 
one witness who thinks that we should overlook Social Security, 
just pay the interest on the debt.
    So with that as the circumstance, Mr. Pocan, would you 
advocate in any way making a partial payment, meaning pay some 
parts of the debt, but not paying all of the debts?
    Mr. Pocan. I think that is what is really at the point that 
we are having a debate about, whether or not, if we did our 
jobs right in the first place, we don't have to have this 
ancillary conversation later. And that is exactly, I think, 
what we are doing.
    When I went through just my experience in that October when 
we were shut down for 17 days, people were very upset that we 
weren't doing our jobs. And it seemed like, I think there were 
22 demands that came during the 17 days. I remember one morning 
watching Darrell Issa on TV addressing a demand, and they said, 
oh, no, your demands have changed already, now it is a 
different demand. And we tried to keep up with the demands that 
were made.
    The bottom line is we just have to pay all of our bills. As 
you said, that is what the public expects of us, that is what 
we all want and need to do. But we have to be responsible and 
get that done. And if we don't get it done and we get to the 
point that we sometimes use the debt ceiling as an excuse, even 
though we have already made the expenditures, we have already 
done that and we can't use the other to not drop that envelope 
in the mail after we have already signed up for the mortgage. 
So it is incumbent on us to get that done.
    Mr. Green. I think it is also important that we give some 
definition to the term, ``raise the debt ceiling.'' Because I 
think there is a nebulous notion in the minds of the public as 
to what this actually means.
    It really means to pay the bills you have already incurred, 
that you have agreed to pay. Pay the bills that are owed and 
properly due as opposed to some notion that we are now trying 
to extend credit beyond some unreasonable amount. We are 
talking about money owed to people, in many cases doctors who 
will help us with Medicare and Medicaid, or money owed to 
businesses, but we are talking about paying what is owed.
    That is what raising the debt ceiling means, that we are 
simply going to pay the debt that we already owe, in fact that 
Congress has agreed to pay. Is this a fair statement, Mr. 
Pocan?
    Mr. Pocan. No, absolutely. That is the part that--maybe it 
is because I am still new around here and I go back to 
Wisconsin a lot, but that is what I hear from people when I 
talk to them. I try to bring Washington to them. I figure that 
is my job. And when you try to explain something like this, 
around here we have all sorts of things that just aren't ``real 
people-speak.'' We have inside-the-Beltway conversations and 
this is one that is a classic.
    If you agree to a home mortgage, you have to pay it; you 
can't decide not to because of something like we do with the 
debt ceiling. So that whole debate that we have is often to 
real people a very ridiculous debate that we wouldn't pay that; 
you have already authorized the expenditure. And then to have 
to have a Band-Aid solution because we didn't do our jobs to 
begin with is exactly what we are talking about.
    Mr. Green. And if you have third parties that we owe money 
to and they are, let us call them a part of the international 
community, and they see us bickering about paying debts that 
are already owed, does that have an adverse impact on them, do 
you think?
    Mr. Pocan. Yes, and it is not just us. It is the financial 
agencies that said that if we did that it would affect our 
credit rating, which would affect just about everything. I 
think it would have ripple effects throughout the economy, to 
businesses, to how we borrow, to everything else. So it does 
have real ramifications.
    And while sometimes I think that some enjoy the dance, the 
fight that we have around here, real people back in Wisconsin 
whom I talk to don't.
    Mr. Green. I thank you very much. And I will yield back. My 
time is up.
    Chairman Duffy. The gentleman yields back.
    That concludes the opening statements and the questions for 
our first panel. I want to thank Congressman McClintock and 
Congressman Pocan for their testimony and insight today. And I 
would just note the witnesses are now excused.
    We will now call our second panel as we make a transition 
here.
    I want to welcome our second panel. Thank you for being 
here. What we are going to do is the Chair and the ranking 
member will make opening statements. We will then introduce and 
recognize each of you for your opening statements, and then we 
will go to questions.
    So with that, the Chair now recognizes himself for 5 
minutes for an opening statement.
    Today's hearing is about unsustainable Federal spending and 
the credibility and trustworthiness of the Obama Administration 
on issues surrounding the debt limit. The United States is $19 
trillion in debt and growing at a rate of over $3 billion a 
day.
    The Federal Government spends $255 billion a year--$255 
billion a year--just to service the interest on our debt. 
Spending at this rate is unsustainable and is the reason why so 
many of my colleagues and I actually ran for Congress. We 
cannot continue to tax and spend and borrow on the backs of our 
next generation.
    The statutory debt limit established by Congress is a 
critical tool to keep our national debt in check and to protect 
taxpayers from runaway borrowing. In 2011, Congress challenged 
President Obama to address our Nation's debt by linking 
spending cuts to his request for a debt limit increase.
    As Americans and people all over the world watched this 
political fight play out, whether it was on the nightly news or 
on other networks, in 2011, 2013, and 2015, Administration 
officials repeatedly told the public that chaos would cripple 
the global economy if the debt limit wasn't raised and that 
legislative proposals to reduce the impact of hitting the debt 
limit, such as prioritizing payments on the debt, should not be 
taken seriously.
    We heard from officials, like Treasury Secretary Lew, 
former Deputy Secretary Neal Wolin, and former Assistant 
Secretary of Legislative Affairs Alastair Fitzpayne, that it 
would be ``unworkable'' for Congress to require the Treasury 
Department to prioritize principal and interest payments on the 
debt, and that the Administration had never made a decision to 
prioritize debt payments in the event the debt ceiling deal was 
not reached.
    And as noted by the Financial Services Committee staff 
report, multiple Treasury officials, including Secretary Lew, 
have created the misleading impression that prioritizing 
principal and interest payments on the debt, such as which was 
suggested by key credit rating agencies, is not a serious 
option available to the Administration in the event the debt 
ceiling was not raised.
    However, as revealed in the committee staff report, 
internal records of the New York Fed show that the 
Administration has been preparing debt ceiling contingency 
plans and running so-called tabletop exercises since at least 
2011 that take into account various payment prioritization 
scenarios, including the prioritization of Social Security, 
veterans benefits, and principal and interest payments over 
other government obligations.
    Moreover, these internal records reveal that the 
Administration in fact was planning to prioritize payments on 
the debt during the debt limit negotiations of 2013 in the 
event the debt ceiling was not raised.
    Rather than being forthright with the American people and 
assuring the financial markets and the holders of U.S. Treasury 
notes that the U.S. Treasury notes would not be defaulted on 
and the United States would not default on its sovereign debt, 
the Obama Administration chose instead to mislead the public 
for the purpose of pressuring Congress to acquiesce to the 
Administration's no-negotiation position on the debt ceiling. 
Basically, they were playing politics.
    The American people deserve and demand much better. Our 
Nation's creditworthiness should not be hindered by the 
Administration's lack of trustworthiness.
    I look forward to discussing the committee's staff report 
today and exposing the truth behind the Administration's 
misleading claims concerning its debt ceiling contingency 
plans. And I also look forward to having a frank discussion 
about the ever-increasing debt that the Federal Government is 
accruing and putting on the backs of our children and our 
grandchildren. And I am also looking forward to the testimony 
and feedback from our panel.
    With that, I conclude my remarks, and I recognize the 
gentleman from Texas, Mr. Green, the ranking member of the 
subcommittee, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    I would like to thank these witnesses as well. And I would 
note that prioritizing debt, such as you pay P&I, principal and 
interest, is but another way to say ``default.'' It really is.
    It is a means by which we will honor obligations to some 
and default on obligations to others. And some of the witnesses 
on the Republican side have indicated that prioritizing and 
paying some debt is not preferable, that there are 
consequences.
    And in fact, one witness--I have read all of the testimony, 
but one witness, and I am going to take a stab at your name, is 
it Ms. ``de Rugy?''
    Ms. de Rugy. Yes.
    Mr. Green. Okay. Ms. de Rugy--thank you--has indicated on 
page three of her testimony in the first full paragraph, to be 
sure, default should not be an option on the table. We will 
talk about that later. She also goes on to say that while 
Washington has difficult choices to make, defaulting on its 
debt obligations should not be part of the discussion about how 
to handle the debt limit or reduce long-term government 
spending.
    So why are we talking about prioritizing debt? What is this 
leading up to? Well, I think a better name for this hearing 
today would be, ``How to mislead voters away from legislation 
and toward confrontation.'' Because we are some 400-days-plus 
away from the debt ceiling, some 9,000-plus hours; there is 
plenty of time to deal with this debt ceiling without creating 
a crisis.
    There is no pending crisis now, no impending crisis. And 
because there is no impending crisis, we have somehow concluded 
that we need to now strategize on how we can prioritize the 
debt such that we can later on create a crisis. This crisis 
that we are creating gets in the way of legislation.
    The same witness, who is from George Mason University, has 
given the Majority an outline of what can be done to deal with 
the so-called debt ceiling and has indicated that there are 
several things that can be done and we should be pursuing the 
outline of what can be done. This is what some of your 
witnesses have indicated, that there are things that we can do 
to eliminate the possibility of having a debt ceiling that 
creates a confrontation.
    So we should be engaged in legislation right now. We should 
be legislating Mr. McClintock's bill.
    And finally this: The Majority has the control of both the 
House and the Senate. You indicated that if you could get 
control, you would do all of these things to deal with the debt 
ceiling, yet rather than deal with the legislative side of it, 
we are here today plotting a means by which we can have a 
partial default, and trying to convince the public that a 
partial default will in some way not be the equivalent of a 
default that would cause us to lose credit ratings, won't cause 
investors to conclude that Treasuries are not the best 
investment for them.
    Just pay the principal and interest. And by the way, when 
you just pay the principal and interest, you will not be paying 
payments to small businesses and contractors and vendors, 
Medicare payments to doctors, Medicaid payments to doctors and 
health providers. We won't be paying for the school lunch 
programs. We won't be paying for the NIH grants that we have 
outstanding. We won't be paying the salaries and benefits to 
Federal employees. We won't be paying for tax refunds.
    By making a partial payment, we then eliminate all of these 
other things that we are obligated to pay. So I don't think 
that this hearing is seriously about anything other than 
finding a clever way to default at some point in the future 
when the debt ceiling may become an issue because right now it 
has been suspended.
    And I take the debt ceiling seriously. I take debt 
seriously. I think we ought to cut and I think we ought to 
increase revenue so as to avoid having to have a debt crisis 
that will be something that we can manage, but for some reason, 
today we are going to look the other way and misdirect.
    I yield back.
    Chairman Duffy. The gentleman yields back.
    We now welcome our second panel of witnesses. First, we go 
to Dr. Mitchell, a senior fellow at the Cato Institute who 
specializes in fiscal policy.
    Next, Dr. ``de Rugy''--do I have that right, or close 
enough?
    Ms. de Rugy. Yes, close enough.
    Chairman Duffy. Okay. There was much discussion on how we 
say your name, so if I am close, good. Dr. de Rugy is a senior 
research fellow at the Mercatus Center at George Mason 
University, and a nationally syndicated columnist.
    Next, Ms. ``Boccia''--is that right?
    Ms. Boccia. It is ``Boccia,'' but thank you.
    Chairman Duffy. Okay. Ms. Boccia is the deputy director of 
the Thomas A. Roe Institute for Economics and Policy Studies, 
and a Grover M. Hermann research fellow at the Heritage 
Foundation.
    And finally, Dr. Stone is a chief economist at the Center 
on Budget and Policy Priorities, where he specializes in the 
economic analysis of budget and policy issues.
    To all of you, welcome.
    You see you have three lights at your desks: the green 
light means go; the yellow light means that you have one minute 
left; and the red light means your time is up. Your microphones 
are sensitive, so you have to make sure you have them on when 
you speak, as a reminder.
    And so with that, Dr. Mitchell, you are recognized for 5 
minutes for your opening statement.

   STATEMENT OF DANIEL J. MITCHELL, SENIOR FELLOW, THE CATO 
                           INSTITUTE

    Mr. Mitchell. Thank you, Mr. Chairman, and members of the 
subcommittee. My name is Dan Mitchell, and I am a senior fellow 
at the Cato Institute. I appreciate the opportunity to 
summarize my testimony here.
    Our Nation faces very serious, long-run fiscal challenges 
thanks to changing demographics and poorly designed entitlement 
programs. All of you know that from various reports from CBO, 
OMB, GAO, and private forecasters. I would say all these 
estimates that we get tend to focus on the red ink, which I 
think is useful information, but I also think it is incomplete 
because what we should be focusing on is the underlying burden 
of government spending.
    The red ink is the symptom, and excessive government 
spending is the underlying problem. And that spending, whether 
it is financed by taxes, borrowing, or printing money, is what 
entails to a diversion of resources from the productive sector 
of the economy.
    It is also best to focus on government spending because 
projections of ever-larger levels of long-run debt are the 
result of ever-expanding amounts of Federal spending, not 
inadequate tax receipts.
    If you look at the CBO numbers that just came out, it is 
very clear that tax revenues already are above their long-run 
average, and not only that, but they are going to continue to 
increase over time, not because of legislated tax increases, 
but simply because some parts of the Tax Code aren't indexed to 
inflation, and also even low levels of economic growth will 
result in what is called real bracket creep over time.
    So when you are looking 1 decade, 2 decades, 3 decades down 
the road, Federal tax revenue will be growing as a share of the 
economy. The problem that we have with our long-run fiscal 
forecast is not on the revenue side of the equation. Revenues 
are growing, but the burden of government spending is growing 
even faster.
    And as I mentioned before, it is largely because of 
entitlement programs combined with changing demographics. A 
reasonable-sized welfare state is possible when you have a 
traditional population pyramid. But because of aging population 
and falling birthrates, we are moving toward a population 
cylinder, and that is going to create very, very serious 
problems. Indeed, if you look at some of these forecasts, we 
are on a path to becoming a failed European-style welfare 
state.
    As a matter of fact, if you look at some of the long-run 
numbers, not only from our own agencies, but if you look at 
what the International Monetary Fund is projecting, the 
Organization for Economic Cooperation and Development, the Bank 
for International Settlements, they all show numbers that are 
actually worse than what you see in terms of the long-run 
forecasts for France, Italy, Greece, and places like that.
    Now, I actually think those estimates are a little bit too 
pessimistic because they are basically premised on the notion 
that we have this big, built-in increase in government spending 
and tax revenues are growing only very slowly as a share of the 
economy and they assume compounding levels of government debt.
    We could actually solve that problem relatively simply by 
simply putting a cap on government spending. And so, even 
though these long-run forecasts show us with more long-run debt 
than France and Greece and Italy, I actually think our problem 
is much easier to solve because they are already at levels 
where the government is consuming more than half of the 
productive sector of the economy, and their tax burdens are at 
or above the revenue-maximizing level. That is a much, much 
harder problem to solve.
    We do have this long-run problem, so the question is, 
however you measure it, how do we solve it? Should the debt 
limit be an action-forcing event for fiscal reform?
    And my conclusion is yes, because it beats the alternative. 
And here is an example that I shared with the Senate Budget 
Committee a couple of years ago. Look at Greece today, a very 
deep recession, a completely miserable economic situation, 
incredibly high levels of unemployment, including 50 percent 
unemployment for young people. Why are they in this mess? 
Because they had a fiscal crisis.
    Imagine, though, if 15 or 20 or 25 years ago Greece had 
something akin to the debt limit, some action-forcing event. 
And let us say that some lawmakers 15 or 20 or 25 years ago 
threw sand in the gears, caused shutdowns, caused debt limit 
fights, whatever you want to call it, but imagine if all that 
had forced Greece to engage in reform. It might have caused a 
little bit of discomfort then, but it would have saved the 
Greek people from the much, much deeper levels of misery that 
they are suffering now.
    And I sort of view the whole debt limit fights or 
government shutdown fights, any of the fights that we are 
having now, sequester fights, they are basically an opportunity 
to save America from enduring that kind of suffering that the 
Greek people are dealing with. And so that is why a debt limit 
fight or some other fight would be necessary.
    Now there are, of course, arguments against this approach. 
One of the arguments is, and we saw this with the July 2015 GAO 
report, that, oh, if you have these debt limit fights, what is 
going to happen? You are going to have higher levels of 
interest on the debt. Again, that is peanuts compared to the 
long-term suffering that might occur.
    And the other argument is that you are going to have a 
default or you are not going to be able to pay interest on the 
debt.
    I will close with simply the point that in 2017, the next 
time we have a debt limit, CBO projects that revenues will be 
more than $3.5 trillion and they project that interest on the 
debt will be $308 billion, more than 11 times as much revenue 
as would be needed. So prioritization, not desirable, but it 
would work.
    Thank you.
    [The prepared statement of Dr. Mitchell can be found on 
page 59 of the appendix.]
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes Dr. de Rugy for 5 minutes.

    STATEMENT OF VERONIQUE DE RUGY, SENIOR RESEARCH FELLOW, 
            MERCATUS CENTER, GEORGE MASON UNIVERSITY

    Ms. de Rugy. Thank you, Mr. Chairman.
    Chairman Duffy, Ranking Member Green, and members of the 
subcommittee, thank you for the opportunity to testify before 
you today. My name is Veronique de Rugy, and I am a senior 
research fellow at the Mercatus Center.
    I would like to make three points today. First, since the 
debt limit showdown of 2011 and 2013, we have come a long way 
in understanding how the debt ceiling works and what are the 
options available for us the next time there is a crisis.
    Second, we still need to recognize that these fights that 
we are having over the debt ceiling are actually just a symptom 
of a much more problematic problem, and that is government's 
overspending. It is because the government year after year 
spends more than it should, that it needs to constantly or 
regularly at least increase its borrowing authority.
    This state of affairs is not sustainable. And we need to 
address the explosion of spending on the programs that are the 
drivers of our future debt.
    Thankfully, we actually have a lot of policy solutions 
available, either institutional reform or entitlement reform, 
that have been proposed over the years. And we can implement 
them to actually create a check on government spending.
    So, let me start. During the last debt ceiling debate in 
2011, my colleague Jason Fechner and I wrote a paper that 
explained that when the government reaches the debt ceiling, 
and then Treasury can no longer issue Federal debt, it would 
still have ways to stave off a regrettable default, by which I 
mean not paying interest on the debt and the principal.
    Using these techniques would give Congress time to reach an 
agreement about how to implement fundamental-type reform that 
would get us on a more sustainable fiscal path.
    At the time, we explained that, for instance, Treasury had 
several financial management options to continue paying the 
government's obligation, including but not only prioritizing 
payments, liquidating some assets to pay government bills and 
using the Social Security Trust Fund to continue paying Social 
Security benefits.
    At the time, we were told that these were not acceptable or 
possible options. This is why yesterday I was really glad to 
read this committee's report which actually shows that indeed 
Treasury has the ability to prioritize payment, including 
interest on the debt and principal and Social Security 
payments. And that even in 2013, the Federal Reserve of New 
York was actually running tabletop exercises to prepare for 
such contingencies.
    Now, it is important to note that we were never advocating 
any particular measure. More importantly, we often lamented 
that this path had to be pursued because of the 
irresponsibility of government. However, we noted that it was 
much more reasonable than defaulting on our debt or raising the 
debt ceiling without making any fundamental changes to the 
state of our finances. That is what Presidents and Congresses 
have done for decades.
    The debt ceiling was raised 20 times since 1993 and the 
result is a growing government and a Federal debt that has 
ballooned from less than $5 trillion to $19 trillion. And 
deficits are also going up according to the recent 
Congressional Budget Office report.
    Over the coming decade, the size of the Federal deficit 
will double to reach a gap of almost 5 percent of GDP. CBO 
predicts that deficits will total $9.4 trillion over 10 years. 
That is up from $1.5 trillion since its August report. And 
according to Treasury, unfunded liabilities average $75.5 
trillion.
    As Will Rogers once said, ``If you find yourself in a hole, 
stop digging.'' The government, too, needs to stop digging. 
That is true now, but it also is going to be important the next 
time you have a debate about raising the debt ceiling.
    Real institutional reform as opposed to one-time cuts would 
change the trajectory of fiscal policy and put the United 
States on a more sustainable path. I believe we should adopt a 
constitutional amendment to limit spending, but there are 
reforms that could be implemented immediately, such as ending 
the abuse of the emergency spending label, adopting a strict 
cut-as-you-go system, or creating a BRAC-like commission for 
discretionary spending.
    Finally, Congress must have the courage to implement real 
entitlement reform to curtail spending on Medicare, Medicaid, 
the Affordable Care Act subsidy, and Social Security. Without 
reform today, vast tax increases will be needed to pay for 
unfunded promises made to a steadily growing cohort of seniors.
    Fortunately, many workable solutions are available to 
lawmakers, including adding a system of personal savings 
accounts to Social Security, liberalizing medical savings 
accounts and making the latter permanent to reduce health care 
costs by increasing competition between providers and making 
consumers more responsive.
    So thank you, and I am ready for your questions.
    [The prepared statement of Dr. de Rugy can be found on page 
51 of the appendix.]
    Chairman Duffy. Thank you.
    The Chair now recognizes Ms. Boccia for 5 minutes.

  STATEMENT OF ROMINA BOCCIA, DEPUTY DIRECTOR, THOMAS A. ROE 
 INSTITUTE FOR ECONOMIC POLICY STUDIES, AND GROVER M. HERMANN 
            RESEARCH FELLOW, THE HERITAGE FOUNDATION

    Ms. Boccia. Chairman Duffy, Ranking Member Green, and 
members of the Subcommittee on Oversight and Investigations, 
thank you for having me here to testify today.
    My name is Romina Boccia, I am the Grover Hermann research 
fellow in Federal budgetary affairs, and deputy director at the 
Roe Institute in the Heritage Foundation. The views I express 
in this testimony are my own and should not be construed as 
representing any official position of the Heritage Foundation.
    The Nation is on a fiscal collision course. Absent 
presidential and congressional leadership through the regular 
budget process, the debt limit is a key action-forcing tool 
that drives the attention towards our Nation's precarious 
fiscal state and enables lawmakers to leverage a potential 
crisis scenario for necessary and urgent policy reforms that 
might not otherwise come about.
    Though the debt limit may be a blunt tool to motivate 
fiscal discipline, leveraging it to enact structural reforms 
that rein in growing spending and debt may very well prevent a 
much worse fiscal crisis. Contrast debt limit negotiations with 
an unexpected, sudden, and drastic fiscal crisis that would 
leave policymakers with few tools to respond in a predictable 
and gradual manner.
    The latest fiscal and economic projections by the 
Congressional Budget Office paint a very clear picture. 
Spending and debt are growing at an unsustainable pace, greatly 
increasing the risks of a sudden fiscal crisis during which 
investors would demand much higher interest rates to continue 
lending to the U.S. Government. Congress should prevent such a 
scenario by reforming those programs that drive the growth in 
spending and the debt before increasing the debt limit.
    Moreover, growing spending is driving debt to increasingly 
economically harmful levels. Projected deficits would push debt 
held by the public to 86 percent of GDP by the end of the 
decade, or about twice the historical average level. Several 
analysts and pundits argue that the debt limit is an archaic 
construct which serves no useful purpose. They argue that 
because Congress authorizes all spending, it does not make 
sense to have a separate limit on borrowing.
    I disagree. Ideally, congressional decisions to spend and 
borrow would be aligned. However, there are at least three 
reasons why the debt limit serves a useful purpose. First, the 
programs driving the majority of the growth in Federal spending 
were authorized many decades ago and they are now allowed to 
grow on autopilot with few congressional action-forcing 
deadlines to change those programs' trajectories.
    Second, the public, as we know from polling, does not 
recognize that it is their most cherished entitlement programs 
that are driving the growth in spending and the debt and the 
debt limit can help elevate public understanding while at the 
same time providing important political cover for lawmakers who 
seek to reduce spending on those entitlements.
    Third, lawmakers only control some of the factors that 
drive the growth in the debt. And economic downturns or 
unanticipated increases in interest costs may mean that 
previously authorized spending should be reconsidered in light 
of factors outside of Congress' control. The government should 
pay its bills, but it should also adjust commitments going 
forward.
    As the Federal Government approaches the debt limit, and 
absent congressional action to increase the limit, Treasury 
does not necessarily default on debt obligations. Treasury can 
reasonably be expected to prioritize principal and interest 
payments on the national debt, protecting the full faith and 
credit of the United States of America above all other 
spending.
    Sovereign debt default should never be a primary concern 
during a temporary debt limit impasse. Congress has voted in 
support of several bills that would allow Treasury to continue 
borrowing at the debt limit to meet debt service needs.
    In the event that insufficient cash levels became a concern 
to meet Federal debt obligations, Congress and the 
Administration could immediately act to remove at least this 
critical risk. Moreover, each year congressional budget 
committees and the Executive Branch should prepare a 
prioritized annual cash budget. This would be a prudent 
exercise to reveal to the public what Congress and the 
Executive Branch consider to be the most important national 
programs.
    It would also confront lawmakers and the public more 
directly with the important questions of whether the things the 
Federal Government is currently borrowing for are truly 
necessary. In the event of a debt limit impasse, this cash 
budget could serve as guidance for prioritization of payments 
at the debt limit.
    The debt limit provides an important action-forcing 
deadline to pursue the legislative steps necessary to rein in 
out-of-control entitlement spending. The debt limit also 
provides political leverage to pursue those reforms necessary 
to change the debt trajectory and restore economic growth to 
its full potential.
    Thank you.
    [The prepared statement of Ms. Boccia can be found on page 
40 of the appendix.]
    Chairman Duffy. Thank you.
    And the Chair now recognizes Dr. Stone for 5 minutes.

STATEMENT OF CHAD STONE, CHIEF ECONOMIST, CENTER ON BUDGET AND 
                       POLICY PRIORITIES

    Mr. Stone. Thank you.
    Chairman Duffy, Ranking Member Green, and members of the 
subcommittee, thank you for the opportunity to testify at 
today's hearing.
    In my written testimony, I make two broad points. The first 
is the need to focus not just on spending, but also on revenues 
in addressing our long-term budget challenges.
    The second is to caution strongly against thinking that the 
statutory limit on Federal debt has a constructive role to play 
in addressing those challenges.
    Budget deficits result from an imbalance between spending 
and revenue, rising debt relative to the size of the economy 
results from persistent large deficits, not from too much 
spending, per se. Any plausible amount of spending to meet 
society's needs is sustainable if there are sufficient revenues 
to avoid large deficits.
    CBO projects that under current tax and spending policies, 
rising debt will ultimately prove unsustainable. This poses a 
serious challenge to policymakers. At the same time, as I 
discuss in the first part of my testimony, there is not an 
immediate crisis. Policymakers, however, will have to make hard 
choices in setting a future course that is both fiscally 
responsible and realistic about the levels of spending and 
taxes appropriate to the country's needs. These decisions need 
to be kept separate from the debt limit.
    As I discussed in the second part of my testimony, the debt 
limit encourages reckless brinkmanship that makes it harder to 
work out the compromises necessary to achieve a sustainable 
deficit reduction agreement. As former Federal Reserve Chairman 
Ben Bernanke says in his recent book, refusing to raise the 
debt limit takes the economic well-being of the country 
hostage. That ought to be unacceptable, no matter what 
underlying issue is being contested.
    Here are some key points from my written testimony, that I 
will be happy to elaborate on later. On trends in government 
spending and debt, which I will always speak of relative to the 
size of the economy, i.e., as a share of GDP rather than in 
dollar terms, I have four charts in my testimony that help 
illustrate the following points.
    First, the financial crisis and the Great Recession were a 
major shock to the economy and the budget. But factors causing 
a surge in deficits and debt after 2008 were temporary revenue 
losses and spending increases due to the economic weakness and 
temporary tax cuts and spending increases to combat that 
weakness.
    Those policies have largely abated as the economy has been 
recovering. Stimulus programs have phased down and policymakers 
have enacted new deficit-reduction policies.
    Second, budget analysts have known for a long time that the 
aging of the population and rising health care costs are the 
drivers of long-term spending projections, not a problem of 
spending growing faster than the economy throughout the 
government.
    The Center on Budget and Policy Priorities finds, for 
example, that program, that is non-interest, spending outside 
of Social Security and Medicare, is running below its 
historical average as a percent of GDP and is projected to fall 
further in the future.
    Increasing generosity of benefits is not what is driving 
the increase in Social Security and Medicare spending. Rather, 
it is the rising share of the population eligible for benefits, 
and in Medicare rising health care costs, which affect public 
and private health care spending alike.
    Historical levels of spending and revenues are a poor guide 
to what is required to meet 21st Century national needs and be 
fiscally responsible.
    Third, and this is important, low-income programs are not a 
driver of long-term deficit projections. Specifically, outside 
of health care, Federal spending for low-income programs, 
including refundable tax credits, such as the earned income tax 
credit, are on track to fall below their 4-decade average of 
2.1 percent of GDP in coming years--fall below.
    Fourth, long-run fiscal sustainability does not require 
balanced budgets. For example, even though there were deficits 
in almost every year between World War II and the early 1970s, 
debt grew much more slowly than the economy, so the debt-to-GDP 
ratio fell dramatically.
    Let me be brief about the debt limit. Setting a limit on 
debt is an ineffective means of controlling deficits. That is a 
direct quote from a 2010 CBO report. Debt subject to a 
statutory limit is a measure that has no economic or financial 
significance. CBO instead features debt held by the public, 
basically the sum of all past deficits minus surpluses, in its 
presentations because that public borrowing is what affects 
national saving and credit markets.
    The debt limit is not innocuous if it is used politically 
and raises concerns that the United States might actually do 
the unthinkable and default on its financial obligations. It is 
not innocuous. Debt prioritization measures, like the ones we 
are talking about, do not mitigate that problem, even if it 
proves feasible to pull out and pay interest and Social 
Security obligations.
    By appearing to make a default legitimate and manageable, 
it would heighten the risk that one would actually occur. 
Failing to pay other obligations in a protracted showdown would 
be like sequestration on steroids and would be damaging to the 
United States credit rating.
    Thank you.
    [The prepared statement of Dr. Stone can be found on page 
68 of the appendix.]
    Chairman Duffy. Thank you.
    The Chair now recognizes himself for 5 minutes.
    This is really a hearing about Treasury and Treasury's, I 
would argue, dishonesty with this committee, this Congress, and 
with the American people.
    We had been talking about their need to prioritize debt 
payments or U.S. obligations. And they basically told the 
American people and us that this was unworkable when in fact 
they had a program in place to do just what we were talking 
about. And I would argue they were doing that for political 
reasons, to try to put the financial markets in turmoil over 
this spending fight that we are having.
    They have an obligation to be honest with this committee. 
And even now, the records that we have have come from the New 
York Fed. The Treasury has been less than compliant with this 
committee about their internal deliberations. And even when 
they send us documents, they try to thwart us by sending it in 
a format that we cannot print and we cannot search. This is not 
open and this is not transparent.
    I look to the ranking member. I would be delighted if we 
did not have to have any debates about spending because we had 
Barack Obama and my friends across the aisle who got it and 
said we have too much money going in current obligations and 
future obligations, we have to reform our budgets and our 
spending so there is no need to even talk about the debt limit. 
That would be beautiful, but that is not what is happening.
    We don't get to buy-in. And the bottom line is, to get a 
bill done you need the House, the Senate, and the President. So 
we need these tools to actually reform the way that we spend to 
save us, Dr. Mitchell, from a Greece-like scenario right here 
in America.
    When financial crises happen, and maybe, Dr. Mitchell, to 
you, to Greece, were the millionaires in Greece the worst-hurt 
from their crisis, or was it the poorest among the Greece 
population who were hurt from their financial crisis?
    Mr. Mitchell. If you look at the data in Greece, the 
unemployment rate, the actual, genuine spending cuts, not just 
spending cuts off a baseline, but the actual spending cuts that 
Greece has been forced to make, that was the thrust of my 
presentation. If you wait too long, if you keep kicking the can 
down the road, when the crisis eventually does occur it is 
much, much more serious.
    So that is why I think whatever short-term hiccup we have 
because we are fighting over a debt limit or something like 
that is a much easier and lower price to pay than the kinds of 
very negative consequences that the Greek people, especially 
low-income Greek people, have suffered as a result of the 
crisis.
    Chairman Duffy. I would agree. The poorest community in a 
society, who rely on their government for help, are the ones 
who will be hurt the worst if a crisis comes. So to tell those 
in need of government help, don't worry, we are going to give 
you all that you want and even more than you want for 5, 10, 20 
years, but then have a debt crisis and not be able to help them 
out, I think is disingenuous and dishonest.
    And frankly, talking about how this institution works, it 
is concerning for us that the other side doesn't talk about 
restraining spending, they just talk about more programs, more 
offerings, and more spending as opposed to spending restraint.
    Chairman Duffy. Dr. Stone, did you say that this debt limit 
situation and negotiation in the House was reckless? Was that 
your testimony?
    Mr. Stone. Risking default is reckless, yes.
    Chairman Duffy. So is it fair to say that you are calling 
Barack Obama reckless in 2006 when he said, ``The fact that we 
are here today to debate America's debt limit is a sign of 
leadership failure; it is a sign that the U.S. Government can't 
pay its own bills.'' He was in favor of using the debt limit to 
adjust how America spends.
    Are you saying that Barack Obama is reckless?
    Mr. Stone. I am saying that over history the existence of 
the debt limit has caused politicians to make, in voting on it 
on both sides, to make statements like that, but we reached a 
new level when we were using it to threaten shutting down the 
government as opposed to--
    Chairman Duffy. So you would agree with me that your 
statement is calling Barack Obama reckless when he was 
advocating for the same policies that we have advocated for in 
spending restraint, using the power of the purse of this 
institution? Yes?
    Mr. Stone. Demanding that the debt limit be raised as--
look--
    Chairman Duffy. Yes?
    Mr. Stone. Yes, for all politicians who have used the debt 
limit, but it is a careless statement. But in circumstances 
where it is not meant to lead to a shutdown of the government, 
it is less reckless.
    Chairman Duffy. Ms. Boccia, and I only have a few seconds 
left, do you think it is appropriate that the Congress try to 
restrain spending by using all tools possible to get a 
consensus about getting us on a trajectory that is sustainable 
in regard to our spending and our debt?
    Ms. Boccia. I think it is very much appropriate. I think 
Congress must use all the tools in its arsenal to rein in 
growing spending and debt. And to those who say it is okay, we 
will just raise taxes, the problem we have is that spending is 
growing much faster than the economy. And in the long run, you 
cannot raise taxes faster than the economy is growing. It is 
going to be impossible, which is why the CBO says this scenario 
is unsustainable.
    And the debt limit, I think, is a critical tool to bring 
about reforms before a sudden fiscal crisis ties Congress' 
hands.
    Chairman Duffy. Thank you.
    My time has expired.
    The Chair now recognizes the gentlelady from Ohio, Mrs. 
Beatty, for 5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman, and Ranking Member 
Green.
    I am going to be very brief and just make a statement I 
would like to be entered into the record, and a question. And 
if appropriate, I would like to yield the balance of my time to 
the ranking member.
    My statement for the record is that in that this is a 
formal hearing, I would appreciate, as we say ``chairman'' and 
``Dr.'' and ``Mr.'' that we make reference to the President of 
these United States as President Barack Obama in this hearing. 
That is just my personal statement.
    Secondly, my question is yesterday, the Majority released a 
press release in which I believe the chairman of this 
subcommittee was quoted as saying that President Barack Obama 
manufactured a crisis when talking about the consequences of 
raising the debt limit in 2011.
    Dr. Stone, do you believe that the President manufactured a 
crisis?
    Mr. Stone. I don't.
    Mrs. Beatty. Do you believe that failure to raise the debt 
limit is an actual crisis?
    Mr. Stone. Failing to raise the debt limit when it comes 
due, and when there are obligation to be paid, can create a 
crisis, yes.
    Mrs. Beatty. Thank you.
    Mr. Chairman, I would like to yield the balance of my time 
to Ranking Member Green.
    Mr. Green. I thank the gentlelady.
    And let us start with this notion that you have to have the 
House and the Senate and the President to legislate. That 
didn't stop us from voting more than 50 times to repeal the 
Affordable Care Act without the House and the Senate and the 
President. Legislate, you are in the Majority now. Do what the 
Majority should do and has a responsibility to do. Legislate!
    Pass Mr. McClintock's bill. I know what it does. But then 
you will have legitimized that process.
    What you want to do is have the Administration legitimize a 
process that has severe consequences so that you can continue 
to blame Barack Obama.
    And I yield to myself the notion that I should say, 
``President Barack Obama.'' And I am going to do that, but I 
had to do that for emphasis.
    This is what it is all about. You have witnesses on your 
side who have indicated that we should not default. Let us test 
this. If you think we should default on the debt, raise your 
hand. Let the record reflect that no one has raised a hand. 
They don't think we should default.
    Now, Mr. Stone, prioritizing and paying P&I only, is that a 
form of default?
    Mr. Stone. We are not meeting all of our obligations. Under 
the Constitution, we have a debt limit and we have the 
requirement to meet all of our financial obligations. They are 
in conflict.
    Mr. Green. So that is a form of default, all right.
    Let me ask my other friends on the panel. What do you call 
paying P&I only, not taking care of Social Security, not taking 
care of military obligations, not taking care of Medicaid and 
Medicare? What do you call the failure to take care of those 
things?
    And I will start with the lady that I called on earlier, 
Ms. de Rugy.
    Ms. de Rugy. I call that scare tactics.
    Mr. Green. Let me ask you this--
    Ms. de Rugy. In 2013 and 2011--
    Mr. Green. --if I may intercede, please, since I have the 
time. You call it scare tactics. Let me ask you this. You call 
default only if you don't pay P&I. That is your definition of 
default, I see, because if you thought that failure to pay P&I 
is default, then you would have to conclude that you are 
defaulting on those obligations as well. You can't conclude 
that only principal and interest is a part of our obligations. 
All of these other things are obligations, too.
    If you think that we only have an obligation to pay P&I, 
raise your hand. Nobody thinks that we only have an obligation 
to pay P&I. Let the record reflect that no one raised a hand.
    So this is really about trying to find a clever way to 
avoid making payments, have the Administration do it, not pass 
legislation to get it done. You have the Majority. Pass the 
legislation. Pass Mr. McClintock's bill. Pass other 
legislation.
    You have been given five things that you can do short of 
creating a debt crisis, short of defaulting. Five things that 
Ms. de Rugy has indicated we can do, five, and they don't 
require a default. Is that a correct statement, Ms. de Rugy?
    Ms. de Rugy. I don't--
    Mr. Green. Do any of these require default, the five things 
that you have given us?
    Ms. de Rugy. These are like suggested fundamental reforms--
    Mr. Green. I understand. But do any of your suggestions 
require default?
    Ms. de Rugy. --that Congress should agree on some of them.
    Mr. Green. So you are saying your suggestions will require 
default?
    Ms. de Rugy. Default defined as paying interest on the 
debt?
    Mr. Green. Default defined as not paying obligations.
    Ms. de Rugy. Absolutely not.
    Mr. Green. Okay. So you have these five things that your 
witness has said you can do. You can do these things. You are 
in the Majority. Behave like you are in the Majority, 
legislate, don't try to create some sort of false, phony 
charade indicating that you are trying to prevent a debt 
ceiling crisis when in fact that is what you are going to do by 
prioritizing.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Hultgren, for 5 minutes.
    Mr. Hultgren. Thank you, Mr. Chairman.
    Thank you all for being here. This is a very important 
subject, as we see ticking behind your heads and on the sides 
here. This is a huge challenge that we need to address, and we 
need to face. And I really do want to thank the witnesses for 
appearing here today.
    I especially wanted to thank our previous panel. 
Congressman McClintock has shown incredible leadership on this 
issue. I am proud to be a cosponsor of the Default Prevention 
Act and was pleased to see it passed last October. I hope we 
can continue to push on that.
    I have been more than frustrated with the Administration's 
apparent desire to increase our debt, and their disinterest in 
having serious conversations about reducing long-term spending, 
such as making reforms to our entitlement programs that we all 
know need to be discussed.
    My first question I am going to address to Dr. Mitchell and 
maybe if somebody else wants to jump in as well.
    But as we learned from the committee's report, the 
Administration is able to prioritize debt payments. In fact, 
they made plans to do so, but failed to share them with 
Congress and the American people.
    Given the fact that Treasury is capable of prioritizing 
debt payments over other obligations, wouldn't it make sense 
for Congress to mandate that debt payments should be 
prioritized in the event the debt ceiling is reached, to ensure 
that America does not default on its sovereign debt?
    Mr. Mitchell. Two things, sir. Presumably, legislation 
wouldn't be needed because I am sure Treasury, if push came to 
shove, would prioritize because no Treasury Secretary would 
actually want to have default. And it is important to 
underscore that default, that paying P&I first doesn't mean 
that you are ``defaulting'' on other obligations. It simply 
means that they are being postponed.
    Which brings up my second point. Plenty of State and local 
governments already do this. If States that are considered 
chronically mismanaged, like California, manage to prioritize 
at times when they run into their own fiscal challenges, I am 
sure that Treasury has all the expertise it would need to 
prioritize as well.
    Mr. Hultgren. Can I ask you a question on this just to 
clarify? Because I think so much of our economy is confidence-
driven. It is consumer confidence. And so it really goes back 
to, by doing something like this this, it is sending a message 
out there that you don't have to worry, this is taken care of, 
we have the resources to pay for it.
    So although you might be right in saying we can do this, I 
just think it sends that clear message that we will do this, 
that we are going to make sure that we are going to protect the 
American people, that our credit is important, that we are 
going to pay our bills. So I want to just--and maybe--
    Mr. Mitchell. I definitely think it would be good to pass 
the legislation, even though, in reality, I think Treasury 
would do the right thing anyhow.
    Mr. Hultgren. So we could do it. But by passing it, it just 
kind of makes that very clear. And I think it adds to that 
consumer confidence. And we have seen these threats, we have 
seen people abuse it, quite honestly on both sides, to push 
things through quickly without having the proper discussion or 
debate.
    Dr. de Rugy, did you have any thoughts on that?
    Ms. de Rugy. No. I agree. But I also think a lot of the 
time it is like a false debate, because it is implied that all 
that the government can do or Treasury can do at a time of 
reaching the debt ceiling is pay P&I. And what we have seen 
time and again is actually there is enough revenue not only to 
pay P&I, but also to pay other obligations.
    We have also seen, because it has been written up by GAO 
and it has been fact checked many times during the 2011 debate, 
that actually they could pay Social Security. And this is what 
I meant by scare tactics.
    So the idea that all we could do is P&I is usually, 
actually, a false debate. Of course, if we reached a point 
where P&I is so big because we have let the government grow so 
far, then we have bigger problems.
    Mr. Hultgren. Let me flip it around really quick. There is, 
I guess, agreement that there is flexibility already there. 
There is ability and some misinformation, I think, of what the 
Treasury can do and can't do.
    I guess to flip the question around, is there any valid 
reason for not supporting legislation instructing the 
Administration to prioritize payments to avoid defaulting on 
the Nation's sovereign debt? Wouldn't it be irresponsible not 
to do this in the event that the debt ceiling were reached?
    Ms. de Rugy. I guess no, it would actually end the debate.
    Mr. Hultgren. Yes?
    Mr. Stone. I don't think you would end the debate. Yes, 
Treasury has the ability to manage various things for a short 
period of time once the limit is formally reached. And yes, you 
could meet some of the obligations by paying principal and 
interest, but in a protracted shutdown, in a protracted 
situation, you would be not meeting other obligations and that 
doesn't inspire confidence when the rest of the world and 
creditors see people not getting paid.
    Mr. Hultgren. My time has pretty much expired.
    Did you have one last thing to say?
    Ms. Boccia. I think it will be tremendously helpful to have 
congressional guidance to give investors confidence. I also 
would urge Congress to mandate that the Executive Branch put 
together a prioritized cash budget to show exactly how a 
prioritized budget would work in the event of a debt limit 
impasse.
    Mr. Hultgren. Yes, I think that is a good idea.
    My time has expired. I yield back. Thanks, Mr. Chairman.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from Washington, Mr. 
Heck, for 5 minutes.
    Mr. Heck. Thank you, Mr. Chairman.
    I would like to begin my questions with a statement. I find 
all of this to be a bit surreal. And I will stipulate that is 
no doubt, in no small part, due to being raised in a household 
where mom and dad said, pay your bills.
    I have to say that this whole idea of blowing through the 
debt ceiling and prioritizing or defaulting or however you want 
to characterize it absolutely reminds me of a couple getting in 
an argument about how high their credit card bill has become, 
and somebody says, well, this is easy, tear up the bill, as 
opposed to the credit card. And that is, in effect, what is 
being suggested here today by many people.
    But not by everybody. In fact, I want to acknowledge that 
both Dr. de Rugy and Ms. Boccia had what I would characterize 
as the intellectual honesty to actually come out and say we 
need to cut Social Security in order to bring spending into 
line. And I think that is intellectually honest and I do 
commend you for it.
    Dr. Mitchell, I heard you say that we needed to reduce 
spending, we needed to reduce entitlements. Are you ready to 
throw in with your colleagues that that includes Social 
Security and that the way to control spending going forward, it 
is your position, includes cutting Social Security benefits?
    Mr. Mitchell. If you look at the just-released CBO report, 
we could balance the budget by 2026 if we simply limit the 
growth of spending to 2.5 percent a year. The problem, of 
course, is on the baseline, spending is projected to grow more 
than 4 percent a year. So we are not talking about cutting 
necessarily, although there are plenty of programs and 
departments that should be cut, we are talking about limiting 
the aggregate growth of spending that is paid within that 
limit.
    Mr. Heck. So it is pain-free?
    Mr. Mitchell. No, it is not pain-free at all. The interest 
groups would squeal if all of a sudden they were put on a diet, 
but that is exactly what things like a debt limit theoretically 
would do, force debate.
    Mr. Heck. Reclaiming my time, Dr. de Rugy and Ms. Boccia, 
thank you for your intellectual honesty.
    Dr. Stone, it seems to me that we are talking about this in 
kind of a hypothetical construct about what would happen, what 
could happen. And as it turns out, it seems to me this doesn't 
have to be a discussion about a hypothetical.
    I am reminded of a government that is unable to pay its 
bills right now. It does in fact have enough money to pay the 
interest to its bondholders, but not enough to pay all of its 
obligations, and that is Puerto Rico.
    I am trying to figure out what is the fundamental 
distinction between what is being proposed here, namely blowing 
through the debt limit and ``prioritizing'' and rendering 
ourselves Puerto Rico II. Is there any meaningful distinction 
between what they are having to go through? And does that make 
us seem as though we would be defaulting on our debt if we 
wanted to be like Puerto Rico?
    Mr. Stone. Actually, there is a distinction. And in talking 
about Puerto Rico, and talking about Greece, that is not who we 
should be talking about when we are talking about the United 
States situation. We should be talking about Japan, which has a 
debt to GDP ratio of 200 percent and has no trouble borrowing.
    The question is, how do financial markets react? Yes, down 
the road when U.S. debt to GDP is 400 percent, maybe we will 
have a financial crisis.
    Mr. Heck. But my point, I think, Dr. Stone, is there isn't 
anybody who would look at Puerto Rico and say they are not on 
the verge of defaulting.
    Mr. Stone. That is right.
    Mr. Heck. And if we were to do what is proposed here today, 
we would be defaulting.
    Mr. Stone. But we would be defaulting in the sense of not 
paying obligations because we were honoring a debt ceiling that 
we imposed on ourselves. That is why the family analogy doesn't 
make any sense.
    Families can set a credit card limit, and if the kid gets 
sick and they need to spend more they can raise it. It is not 
the credit card company cutting off families.
    Mr. Heck. Back to the credit card analogy, before my time 
expires, there has been a fairly cavalier use of the term 
``dishonesty'' here today, which I want to take exception to, 
because I think it speaks to character. There can be issues of 
lack of consistency and the like.
    But I guess it is in the eye of the beholder, because the 
truth of the matter is that this institution is governed by a 
PAYGO rule, which means that you can't increase spending or cut 
taxes without providing for it.
    But in fact, in the last several months we have increased 
the projected debt accumulation by over $1.5 trillion in the 
next 10 years because of decisions that this institution made 
to both cut taxes and increase spending.
    So I guess that could be characterized as dishonest in 
light of the arguments being advanced today. But I would prefer 
to render it less personal and just suggest it is not, frankly, 
terribly consistent, Mr. Chairman.
    And with that, I yield back the balance of my time.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentlelady from Missouri, Mrs. 
Wagner, for 5 minutes.
    Mrs. Wagner. Thank you, Mr. Chairman.
    And thank you to our esteemed panel for coming before this 
subcommittee to discuss this important issue of our Nation's 
debt, which now stands at an outrageous $19 trillion.
    For Congress, the debt ceiling should be an important and 
necessary tool to look back on our spending policies in order 
to find ways to cut this massive Federal Government. Instead, 
this Administration has used the debt ceiling as simply a blank 
check and a political attack vehicle.
    The American people are tired of the dysfunction in 
Washington and tired of their elected officials and leaders 
failing to get things done, and cutting our out-of-control and 
irresponsible debt is something the American people want done.
    In 2013, when I and a number of my House colleagues had the 
privilege of going to the White House to negotiate in very good 
faith with the President on the debt ceiling, he decided to use 
the opportunity to lecture and pontificate, not negotiate. And 
I was there.
    He used dramatic rhetoric such as not wanting to, 
``negotiate with a gun pointed at their heads,'' and used the 
press then to paint House Republicans as unwilling to talk and 
address the peoples' concern about our fiscally, as you all 
have stated, unsustainable and, I think as a mother of three, 
immoral debt.
    Now with these new revelations, and frankly, that is what 
we are here to discuss, Mr. Chairman, these revelations 
produced by this committee, it is clear that the Administration 
manufactured and hyped up the crisis in order to prevent, I 
think, Republicans and Congress, who are committed to slashing 
our debt, from enacting smart and responsible fiscal policy.
    Knowing now that the Administration was capable of 
prioritizing debt payments and actually running tabletop 
exercises after reaching the debt limit, do you find the 
Administration's statements to the contrary disingenuous, Ms. 
de Rugy?
    Ms. de Rugy. It is politics, so I guess I am not surprised.
    Mrs. Wagner. I think it is politics, too. So you do believe 
that the Administration had political motivations for making 
these misleading statements?
    Ms. de Rugy. I think the document makes it pretty clear. 
But one other thing that is also important is to actually not 
lose sight of why we are talking about prioritization, right? 
Why do you want to prioritize payments? So all of you can 
actually find a way out of the debt mess, especially the 
explosion going forward that we are talking about.
    So it is not just like not paying some of our obligations 
just for the sake of not paying some of our obligations. The 
ideas is a productive process that will lead to fundamental 
reform, an agreement among you to actually lead to a compromise 
to finding a way out of, honestly, putting a gigantic burden on 
our children.
    Mrs. Wagner. I agree.
    And Ms. Boccia, shouldn't the public and Congress have the 
right to know that the Administration has made these 
``contingency'' plans?
    Ms. Boccia. I think that the debt limit presents a game of 
chicken in which it is in the Executive Branch's interest not 
to reveal key information, like this committee just revealed 
yesterday, in order to leverage this to force Congress into 
just raising the debt limit, which Congress has complied with 
numerous times.
    I am very concerned that in fact we do not have a debt 
limit at this point. We have a debt limit suspension. There is 
no limit on borrowing.
    Mrs. Wagner. It is a blank check.
    Ms. Boccia. That is right.
    Mrs. Wagner. And it is outrageous and it is immoral as far 
as I am concerned.
    Ms. Boccia, I hope I am pronouncing that correctly, did the 
Administration's choice to, I believe, play politics by 
withholding information about the Administration's ability to 
make payments on the debt create unnecessary uncertainty in the 
markets?
    Ms. Boccia. Because Congress hasn't been able to give 
guidance to the Administration on how to act at the debt limit, 
the Administration does have the leverage to refuse to pay our 
debt obligations. And putting that risk out there to use as 
political leverage, I think is very dangerous, because it 
reduces investor confidence.
    However, we had numerous rating agencies, in particularly 
Moody's and Fitch, say they did expect the Treasury to honor 
its obligations to the United States' debt holders.
    Mrs. Wagner. And quickly in my time that is left, Dr. 
Mitchell, oftentimes we see yields on short-term Treasuries 
spike during these debt ceiling negotiations, which increases 
the cost of borrowing for the Federal Government. Is it 
possible that Treasury's decision to withhold information on 
making debt prioritization payments end up costing the 
government more money?
    Mr. Mitchell. If you look at the GAO report from July 2015, 
they estimate that tens of millions of dollars of additional 
interests costs resulted from the Administration's lack of 
forthcomingness, honesty.
    Mrs. Wagner. Tens of millions of dollars because this 
Administration told me, and I was there, this President said he 
wouldn't negotiate when we had a gun to their heads, and he 
cost this country and the taxpayers and the people tens of 
millions of dollars.
    I thank you.
    I yield back. And I appreciate your indulgence.
    Chairman Duffy. The gentlelady yields back time she does 
not have.
    [laughter]
    The Chair now recognizes the gentleman from Colorado, Mr. 
Tipton, for 5 minutes.
    Mr. Tipton. Thank you, Mr. Chairman.
    And I thank our panel for taking the time to be here.
    Ms. Boccia, you just mentioned a game of chicken that the 
Administration was playing. Did that impact our markets?
    Ms. Boccia. If we look at the GAO report, then yes. If 
investors have no confidence that the Administration will do 
what is right and what is in the best interests of the United 
States, which would be to prioritize interest and principal on 
the debt during a debt limit impasse, then investors may demand 
higher interest rates or refuse to buy bonds during certain 
periods if they are not sure that they will be repaid.
    Mr. Tipton. So that did hurt the United States. Do you find 
it irresponsible of Secretary Lew to have made comments to 
Congress that we simply cannot pay the interest, pay the 
principal and the interest, be able to service portions of the 
debt, while at the same time they were making plans to do that 
very thing? Do they hold some culpability in roiling those 
markets?
    Ms. Boccia. I am glad to hear that the Treasury was 
responsible enough to make contingency plans, even though they 
indicated otherwise to the public. I would like for government 
to be honest, both to Congress and to the American public. It 
doesn't always happen for political reasons.
    Mr. Tipton. So that probably ties back to Dr. Stone's 
comments that candidate Obama rather than President Obama was 
being reckless when he had talked about the debt ceiling and 
then was concurrently reckless as President of the United 
States by instructing his Treasury Secretary to not be 
forthcoming with the American people. Is that accurate?
    Mr. Stone. I didn't say the second.
    Mr. Tipton. But it is accurate.
    Mr. Stone. No, it is not accurate. It is one thing when 
politicians are grandstanding over the debt limit. I am not 
defending the Treasury on whether they hid information or not. 
I am not commenting on that.
    But the Treasury was very forthcoming about all of the 
steps it was going to take after you hit the debt limit to try 
to arrange payments and things, to try to prevent a default.
    Mr. Tipton. I think we can probably dispute that from that 
report that they were holding that back.
    But you know, we were raising hands here. Who on the panel 
thinks that we can continue as a Nation to spend more than we 
take in? Let the record show no one thinks that we can continue 
to spend more than we are taking in as a country.
    When we were looking at--Dr. Stone thinks we can spend more 
than we take in.
    Mr. Stone. We can't spend a lot more than we take in. But 
in dollar terms, if we stabilize the debt--
    Mr. Tipton. How well did that work out for Greece, Dr. 
Stone?
    Mr. Stone. Greece is a completely different example.
    Mr. Tipton. It's a completely different example?
    Mr. Stone. Greece cannot borrow in its own currency. Greece 
cannot--
    Mr. Tipton. No, I think we have probably--Ms. Boccia, you 
had mentioned in your testimony that in the 2015 International 
Monetary Fund working paper, they concluded that a high level 
of public debt accompanied with consistent growth in that debt 
is a problem. Why is that going to be a continuing problem? Dr. 
Stone doesn't seem to think so.
    Ms. Boccia. We are seeing increasing evidence from 
economists across a wide range of spectrum, even those set out 
to counter the notion that high public debt hurts economic 
growth, they are not able to refute that.
    High public debt does hurt growth, but I think one of the 
main reasons for that is because it is fueled by greater 
spending. We don't have a tax problem. Taxes are at their 
historical level and rising above. What we have is a spending 
problem.
    I think Congress also needs to play its part. And the 
congressional budget takes many steps in the right direction, 
but Congress still has not put forth implementing legislation 
to truly balance the budget.
    Mr. Tipton. And I appreciate both your and Dr. de Rugy's 
comments of the hand-in-glove, of spending versus the debt that 
we have. We need to be able to address both of those.
    But Dr. Mitchell, could you maybe tell us what signals we 
are sending to the market by continually increasing the debt 
ceiling without engaging in actually having fiscal discipline? 
What are we telling the markets?
    Mr. Mitchell. It is ultimately a matter of trust whether or 
not investors will get paid back. And as Dr. Stone mentioned, 
Japan is still borrowing at 200 percent of GDP. We are 
borrowing right now at very low rates of interest, so we are 
trusted. As a matter of fact, you could maybe make an argument 
that we are too trusted, that markets are too trusting of 
government. Because if you go back 10 years, Greece was 
borrowing at very low rates.
    Mr. Tipton. Just to get in, before we run out of time here, 
as someone who is wanting to be paid back, when you are seeing 
.07 percent GDP growth in this country, are you starting to get 
a little concerned that you are going to be paid back?
    Mr. Mitchell. I am very concerned that with a long-term 
future of government growing faster than the private sector, we 
are on a path to becoming Greece if we don't engage in 
structural reform.
    Mr. Tipton. Thank you, sir.
    I yield back.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from Maine, Mr. 
Poliquin, for 5 minutes.
    Mr. Poliquin. Thank you, Mr. Chairman; I appreciate it very 
much.
    And thank you all for being here today.
    Before I entered Congress a year ago, I was the State 
treasurer in Maine and a small-business owner. I still am a 
small-business owner. And one of the things that we learned, 
those of us who are business owners is: number one, live within 
your means; and number two, be very, very careful with debt.
    Now, I will tell you, one of the things that we learned, 
Mr. Chairman, back in Maine when I was State treasurer, we 
actually had a debt clock that was unwinding. I come in here 
every hearing and I look at that $19 trillion continuing to 
spool up and it makes me sick to my stomach. It makes me sick 
to my stomach because there aren't enough people, frankly, on 
the other side of the aisle who have the guts to deal with 
this. They talk about it, but all they want is bigger 
government, more spending, and more debt, which results in 
higher taxes. And they, of course, want more regulations and 
higher energy costs, and that kills jobs.
    And it kills jobs, that is important, because if our folks 
don't have jobs, then they don't pay taxes, they are more 
dependent on the government, and we don't have the cash flow to 
meet our obligations.
    Now, the reason we were able to unwind our debt clock in 
Maine during 2011, 2012 is because we attacked a fundamental 
issue dealing with the debt, which is our unfunded pension 
liability, public pension fund. We looked it in the eye, we 
were serious about it, we engaged all stakeholders and we 
reduced 41 percent of that pension debt, which caused the debt 
clock to unwind.
    Now, we have the same problem here, Mr. Chairman. We have a 
$15 trillion unfunded defined benefit pension plan called 
Social Security. Now, we all know in this room and the folks 
who are listening, two-thirds of our budget is on autopilot in 
four programs: Medicare; Medicaid; Social Security; and 
interest on the debt, which isn't a program, but it continues 
to grow.
    When are we going to have a serious conversation with the 
kids in this country, 25- and 30-year-old folks to say, if you 
want these programs that are growing a lot faster than our tax 
revenues, we need to make some changes? We know what to do; it 
is simple math.
    Now, I am not talking about our seniors, Mr. Chairman, who 
have paid into these programs their whole lives and are 
depending on these programs. No change for them. But we have 
millennials, and there are a lot of them, a lot more than the 
baby boomers, and we can fix this.
    So that is one of the reasons, Mr. Chairman, why I support, 
and I know you do, too, and those on this side of the aisle do, 
a balanced budget amendment of the Constitution. My second day 
here, when I was still trying to find out where the men's room 
was. I cosponsored that bill. I think it would be the greatest 
institutional tool that Washington could have. Force Washington 
to live within its means so we can start paying down our debt.
    Now, Mr. Chairman, when we have Mr. Lew coming in here, the 
Secretary of the Treasury, telling us, well, the debt is no big 
deal, it is only 3, 4 percent of the GDP, we have talked about 
it today, you have, Mr. Chairman, thank you, the interest 
payments on that debt are now twice what we spend on veterans' 
benefits in a year. They are projected to exceed what we spend 
to defend our country in 8 years. It is a big deal.
    Now, I would say also, Mr. Chairman, that 4 years ago the 
annual budget deficit was $1.3 trillion, and it is now $440 
billion. We have a long way to go, but it has been cut in two-
thirds, not because some folks don't want to spend more, but 
because Republicans are trying to be fiscally disciplined and 
have spending caps in place.
    So my question to you, Mr. Mitchell, is--you have been 
around this town a lot longer than I have--do you think we have 
enough people in Congress who have the guts to address our 
spending problem, who will allow us to start whittling away at 
that $19 trillion debt that is chewing up our budget and 
putting a yoke around our kids' necks, that they are going to 
be saddled with, that creates a tremendous dark cloud above our 
economy and kills jobs and kills the kids of our future? What 
do you think?
    Mr. Mitchell. Normally, I am a pessimist, but for 5 years 
in a row the House has voted for a budget resolution that is 
based on the assumption of some genuine and serious reform to 
slow the growth of entitlement spending.
    And the Senate even did something sort of like that last 
year. So I think there is a recognition, to some degree, that 
there is a very serious problem.
    Obviously, those moves in Congress couldn't go anywhere 
because of opposition from the White House. But maybe, just 
maybe, within a couple of years we will be able to take a 
serious step in terms of preventing America from become Greece.
    Mr. Mitchell. Thank you very much, Mr. Mitchell.
    Dr. Stone, what do you think? Do you think we have enough 
people in Congress on both sides of the aisle? I know we do on 
this side. Do you think we have enough on the Democrats' side 
who are fiscally disciplined and conservative enough to start 
getting their act together and start living within our means? 
What do you think, sir?
    Mr. Stone. I think that in 2011 when we had the debt 
ceiling crisis and we had a commission, we had a super 
committee in Congress to try to make decisions. It was a 
bipartisan failure to come up with a permanent solution. It is 
hard choices. It takes--
    Mr. Poliquin. We don't need a commission, Mr. Stone, to 
make a decision, but we know what to do.
    Mr. Stone. No, no, no, no, no.
    Mr. Poliquin. This is all about politics and simple math.
    Mr. Stone. No, I am not talking about a commission. I was 
talking about a committee of Congress, a super committee.
    Chairman Duffy. The gentleman's time has expired.
    Mr. Stone, the gentleman's time has expired.
    Mr. Poliquin. Thank you very much, Mr. Chairman. I yield 
back my time which I don't have.
    Chairman Duffy. Thank you, you do not have any.
    The Chair now recognizes the gentleman from Arkansas, Mr. 
Hill, for 5 minutes.
    Mr. Hill. Thank you, Mr. Chairman.
    And I thank the panel for being with us. It's good to see 
my old friend, Dan Mitchell.
    I am reminded by listening to this discussion, and from my 
friend Mr. Heck, as a 30-year banker and business guy, of the 
woman who comes into the bank branch and says, ``I can't be 
overdrawn in my account.'' And the bank manager says, ``But you 
are.'' And she says, ``I can't be; I still have checks.''
    No laughter, oh well. Banking jokes just don't go over like 
they used to.
    [laughter]
    Thank you. Thank you to the gentleman from South Carolina.
    As a former Treasury official, it really saddens me to read 
comments from the New York Fed which say that the Treasury's 
position is crazy, counterproductive, and is adding risk to the 
system. And that my friend, former Treasury official, now a 
Governor of the Federal Reserve System, Jay Powell, says that 
Treasury is politicizing important fiscal policy.
    I think we should all be shocked by that, Democrats and 
Republicans, because there is no room for that in the proper 
governance of our country. And it goes absolutely against 
everything Hamilton put in place back in his report on the 
public debt, 1790.
    I am interested in some quick responses and then I have a 
couple of questions. Does everybody here--and I am interested 
because I have kind of gotten a couple of different feelings--
support the fact that we have a debt limit and it comes up and 
we debate it? Just raise your hands if you support the existing 
debt limit statute, effectively. Okay, three yes and one no.
    And do you all support Congressman McClintock's bill that 
we passed in the House last year? If you would raise your hands 
on that?
    Ms. Boccia. I am not sure that I am legally allowed to do 
this.
    Ms. de Rugy. I was going to say, I support the policy.
    Mr. Hill. Well, his bill was this issue of being able to, 
while we are negotiating a debt limit crisis, be able to 
continue to issue securities to pay the interest and keep 
payments current.
    Do you support a Greenspan-type commission which was used 
in 1983 to tackle something like Medicare? Is that an idea? Or 
do you think, as my friend from Maine says, it should be 
specifically the burden of the Congress? Or do you like the 
idea of an independent commission that gives Congress a BRAC, 
up-or-down vote type approach?
    Ms. de Rugy. That is different.
    Mr. Hill. You may comment on that, if you like.
    Dr. Mitchell, would you like to comment on that?
    Ms. de Rugy. I can comment on this. The 1983 commission was 
different from a BRAC commission. And the result led to 
increasing taxes and a lot of other problems that we are facing 
right now.
    Mr. Hill. Dan, any comment?
    Mr. Mitchell. As Dr. de Rugy said, the 1983 Social Security 
commission did lead to some significant tax increases. It did 
not lead to the kind of long-run structural reform that I think 
would have been a better approach.
    I do like the idea of doing anything, including 
commissions, that will at least help to inform the debate. But 
I am just not overly happy with the results we got from that 
one.
    Mr. Hill. Yes. I go home, and whenever I am in town hall 
meetings, people are so fixated on the trillion dollars, a 
third of the budget that we vote on and debate on here in the 
appropriations process. And it is just a disproportionate 
amount of things.
    I think Members of Congress here, when they are at home and 
we never hear from our constituents in a detailed, thoughtful 
way about the two-thirds of the budget that I think has been 
the anchor of our conversations today, that I agree have a big 
demographic, structural component to them.
    Dr. Stone, you talked about general thoughts about levels 
of debt to GDP. You are a classic economist on the one hand and 
on the other hand in your overview of that. But in the 
Reinhart/Rogoff papers that were delivered to NBER and all that 
back in 2008, 2009, they had specific views on debt to GDP 
levels for the long run.
    And I would be interested in each of your views on what you 
think that band is of where we need to move debt to GDP to have 
the national debt return to being a national blessing, and thus 
not be excessive.
    Dr. Mitchell?
    Mr. Mitchell. As I mentioned before, Japan has government 
debt 200 percent of GDP. They can still borrow. Argentina would 
probably be in default if they tried to go to 50 percent of 
GDP. So it really depends on the underlying conditions in the 
country, which is why I think the most important thing to focus 
on is capping the growth of government spending relative to the 
economy.
    The Swiss debt brake does that; it has been very, very 
successful. Hong Kong, Article 107 of their basic law, the goal 
isn't to balance the budget per se, it is to make sure 
government doesn't grow faster than the private sector.
    If we could have a rule like that where you address the 
underlying disease of too much government, then the symptom of 
red ink disappears. So I want to deal with the underlying 
problem. We deal with the underlying problem and the symptom of 
borrowing goes away.
    Mr. Hill. Thank you, Mr. Chairman.
    Chairman Duffy. The gentleman's time has expired.
    The Chair now recognizes the ranking member of the 
subcommittee, the gentleman from Texas, Mr. Green, for 5 
minutes.
    Mr. Green. Thank you, Mr. Chairman.
    And I would like to simply reiterate that my friends are in 
the Majority. To continue to blame the Democrats makes little 
sense to your voting public. They expect you to produce 
legislation. You want a constitutional amendment? You are in 
the Majority. You want to pass a bill that allows 
prioritization? You are in the Majority. You can do it. Believe 
me, trust me, you are in the Majority; you don't have to depend 
on Democrats to get it done.
    I think in the spirit of compromise that would be the 
better thing to do, but you are not willing to compromise. 
Therein lies the problem. If you want to do it, pass 
McClintock, pass it through the Senate, send it to the 
President, let us see if he will sign it. If he does not, then 
you go back through regular order and you produce something 
that we can all agree on to the extent that you have a Majority 
in the House, a Majority in the Senate, and a President to sign 
it.
    But don't behave like you are in the Minority and it is the 
mean old Democrats who won't let you pass legislation. It never 
stopped you from passing a repeal of the Affordable Care Act 
more than 50 times, more than 50 times, and there are still 
other repeals of it pending. You have repealed it consistently, 
okay? Then act like you are in the Majority and pass your 
legislation.
    Let us go to Mr. Stone.
    Mr. Stone, there was a comment made about Greece and you 
did not have an opportunity to finish. There was a comparison 
being made. Would you kindly finish your commentary?
    Mr. Stone. As I was saying, and Dr. Mitchell agrees, Japan 
is able to borrow with a debt ratio of 200 percent of GDP. And 
that is because Japan, the United States, and the U.K. borrow 
in their own currencies and have flexible exchange rates. That 
allows them to adjust.
    Now, nobody here, including me, thinks that the current GDP 
projections are ultimately sustainable. We are discussing 
whether the debt limit is a worthwhile tool to try to 
discipline our spending.
    Mr. Green. Exactly.
    Mr. Stone. And I strongly disagree with the idea that the 
debt limit has much to do with it or the prioritization. The 
prioritization makes sure that certain bills get paid and maybe 
some bondholders are happy with that, but there are a lot of 
bills that don't get paid and that doesn't make us look like a 
very fiscally responsible country and it makes it look like it 
is okay to not pay those bills in a protracted debt 
negotiation.
    Mr. Green. I appreciate your indicating that this is not an 
effective tool because of the consequences associated with a 
possible shutdown. And that causes me to harken back to 2011 
and what Moody's did when they downgraded us and we didn't have 
the shutdown. We were downgraded. And I think that Moody's gave 
us a negative and S&P put us on a credit watch.
    So our opinions count, but the opinions of the agencies 
that rate us count as well. And while we may pay P&I, it will 
cause a good deal of consternation in international markets as 
to whether or not we are going to pay all of our bills and 
eventually not pay P&I. Why put ourselves in that position? Why 
don't we legislate now, given that we have more than 400 days 
to do what Ms. de Rugy says, pass her recommendations if you 
would like to?
    Don't expect me to vote for all of the things that you 
would support. But if we can reach some sort of compromise, I 
think we can get this done. The problem is that there are 
people who don't want to compromise; they want us to support 
anything and everything and leave behind a good many people who 
are going to suffer as a result of the crisis that we will 
manufacture.
    To this end, it is my belief, Mr. Chairman, that Social 
Security is important to people who are receiving it. And I 
think we can sustain it. We can support it without it being a 
detriment to the economy. We have to work together and work out 
a compromise on Social Security. But we are not doing that.
    Rather than do that with Social Security as well as with 
Medicare, we are trying to find a clever way to create a debt 
crisis so that we can have the Administration prioritize.
    If you want a prioritizing to take place, pass the 
legislation, get it done. You are the Majority, it is your job 
to get it done. Don't whine and cry about how the Democrats 
won't support us and are there enough people here willing to do 
it. Yes, there are enough people willing to do it if you have 
the Majority and you use it properly.
    I yield back.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from South Carolina, 
Mr. Mulvaney, for 5 minutes.
    Mr. Mulvaney. Mr. Stone, in your report you cite a GAO 
report which says, regarding the debt ceiling crisis in 2011, 
``When the Treasury was close to breaching the debt limit, 
investors reported taking the unprecedented action of 
systematically avoiding certain Treasury securities. That cost 
from the Treasury from, roughly, $38 million to more than $70 
million in higher interest costs, amounting to, in essence, 
nothing more than a waste of taxpayers' money.''
    I take it that was because of the uncertainty in the 
markets. That is why interest rates go up, or that is one of 
the reasons that they do.
    If the Treasury had information at that time that could 
have calmed the markets by letting the markets know that we 
would have paid principal and interest, do you think they 
should have revealed it?
    Let me put it this way, if they had revealed it, would it 
have calmed the markets?
    Mr. Stone. It may have calmed the markets, but it wouldn't 
have--it may have partially calmed the markets because--
    Mr. Mulvaney. Do you think that the guys and gals who were 
thinking about buying Treasuries were worried about whether or 
not the national parks were going to be open? Or do you think 
they were worried about getting their money back if they bought 
Treasuries?
    Mr. Stone. They were worried about getting their money 
back.
    Mr. Mulvaney. And if the Treasury had information that 
would have assured them they would have gotten their money 
back, we might have saved that $38 million to $70 million, 
might we not?
    Mr. Stone. We might not have seen that shifting away from 
certain securities, given the timing of it.
    Mr. Mulvaney. You mention in your testimony in another 
place, your written testimony, it says that the debt ceiling, 
``plays no constructive role in enforcing budget discipline; 
rather, it encourages reckless brinkmanship.'' You have 
mentioned that a couple of times in your testimony.
    Would you be surprised that according to AEI, in 1979 the 
debt ceiling debate was used in order to leverage and require 
the President to present balanced budgets in the next following 
years, which he did? In 1980, the debt ceiling debate was used 
to reform import tariffs. In 1985, the debt ceiling was used to 
reform cigarette taxes and the alternative minimum tax.
    And there are several folks who were here in the 1990s who 
will swear to you that the debt ceiling discussion during the 
1990s led directly to the balanced budgets later that decade.
    So do you still stand by your testimony that it is never 
used in order to reach compromise that speaks to fiscal 
matters?
    Mr. Stone. No, I didn't say it was never used to reach 
compromise, although--
    Mr. Mulvaney. It says it plays no constructive role. Did it 
play a constructive role in 1979, 1980, 1985, and the 1990s?
    Mr. Stone. As a bargaining chip, I don't view that. I view 
the risks much too high relative to any--
    Mr. Mulvaney. That is not what you said. You said it plays 
no constructive role. But you would have to admit that in those 
circumstances, which I found in 3 minutes on the Internet, they 
were used for constructive purposes.
    Mr. Stone. I will use a dramatic analogy. If you play 
Russian roulette and you pull a blank--
    Mr. Mulvaney. Okay. So your testimony is hyperbole then and 
not really--
    Mr. Stone. No, no.
    Mr. Mulvaney. Okay, all right, that is fine.
    Last issue, default. Let us define default because it used 
to mean not paying interest on our debt or paying our principal 
on our debt. In fact, if you go back and you watch Secretary 
Lew's testimony, I have been doing this now since 2011, as has 
Mr. Duffy, we were on Joint Economic together, it used to be 
that we wouldn't be able to pay our financial obligations, we 
wouldn't be able to pay principal and interest. That changed 
and now the Administration uses the same terminology you use, 
which is we wouldn't be able to pay our obligations, making the 
equivalent that all payments are the same.
    So let us explore that a little bit. By the way, do we have 
a contractual obligation to pay back the debt? When we sell a 
Treasury to Mr. Duffy, are we making a legal promise to pay him 
back?
    Dr. Stone?
    Mr. Stone. Is the principal going to be repaid? Yes.
    Mr. Mulvaney. Yes, it is a legally enforceable promise to 
pay, right?
    Mr. Stone. Yes.
    Mr. Mulvaney. Let's see, last year, a couple of years ago, 
we spent $3 million on a NASA study on how Congress works. Does 
that rise to the same level of obligation, in your mind, as the 
promise to pay Mr. Duffy back the money with which he has 
bought a Treasury?
    Mr. Stone. We have obligations to honor all of our--we are 
required under the Constitution to honor all of our 
obligations. There is a conflict.
    Mr. Mulvaney. Okay. I am trying to drill down into that, 
Dr. Stone, because we are using the English language. It may be 
different at Swarthmore than it was at Georgetown, but I am 
just trying to figure out where we are. Is the obligation that 
we pay, for lack of a better word, NASA $3 million to study 
Congress--by the way, I could get a lot more fun on a list. We 
spent a couple hundred thousand dollars on studying the effect 
of cocaine on the sex habits of Japanese quail. If you would 
rather me use that example, I could, but let us stay with NASA 
for a second.
    Does the obligation that we have to pay NASA to study us 
rise to the same level legally as the obligation to pay Mr. 
Duffy back the money he lent us by buying a Treasury?
    Mr. Stone. I think you are not asking legally, you are 
asking in a sense of--
    Mr. Mulvaney. Well, pick one. Pick a legal sense, pick a 
political sense, are they of the same import, in your mind?
    Mr. Stone. Would the harm of not paying our financial 
obligations compare with a tiny amount of a study? No.
    Mr. Mulvaney. Okay.
    Mr. Stone. But for doctors, for hospitals--
    Mr. Mulvaney. And in principle, we are not breaking new 
ground here, Dr. Stone. I think everybody admits that some of 
the obligations of the Federal Government are more important 
than others. It is not going against some liberal/progressive 
orthodoxy to say it is more important to pay the debt than it 
is to pay to study quails having sex. That shouldn't be 
outrageous. If it is, we have a lot bigger issue to deal with.
    So I think you see what I am getting at, which is we are 
going to prioritize at some point. We do all the time. We admit 
to ourselves that the debt is more important than paying to 
study Congress or paying to study quails having sex. And that 
is all that we are asking to do in the prioritization bill.
    Mr. Stone. You prioritize when you pass a budget and pass 
laws for appropriations.
    Mr. Mulvaney. Can NASA sue us?
    Mr. Stone. And when the bills come due, you pay them.
    Mr. Mulvaney. Can NASA sue us to get the money? Mr. Duffy 
can sue us to get the money, can NASA sue us to get the money? 
We all know the answer to that.
    I wish we had more time to do this. This is the third or 
fourth time you and I have done this the last couple of years. 
I always enjoy your participation.
    Mr. Stone. It was fun.
    [laughter]
    Mr. Mulvaney. I look forward to having you back. Thanks, 
Dr. Stone.
    Chairman Duffy. The gentleman yields back. Thank you for 
your common-sense questions.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    I appreciate your time and your insight into today's 
hearing.
    And so without objection, this hearing is now adjourned.
    [Whereupon, at 4:28 p.m., the hearing was adjourned.]

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