[Senate Hearing 114-774]
[From the U.S. Government Publishing Office]




                                                       S. Hrg. 114-774
  
           THE STRATEGIC IMPLICATIONS OF THE U.S. DEBT

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

                                HEARING



                               BEFORE THE



                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE



                    ONE HUNDRED FOURTEENTH CONGRESS



                             SECOND SESSION



                               __________

                             APRIL 6, 2016

                               __________



       Printed for the use of the Committee on Foreign Relations
       
       
       
       
       
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]      
       


                   Available via the World Wide Web:
                         http://www.govinfo.gov
                         
                         
                         
                         
           U.S. GOVERNMENT PUBLISHING OFFICE
   
  30-414 PDF       WASHINGTON : 2018                               
  
  
  
                         
                         


                COMMITTEE ON FOREIGN RELATIONS         

                BOB CORKER, Tennessee, Chairman        
JAMES E. RISCH, Idaho                BENJAMIN L. CARDIN, Maryland
MARCO RUBIO, Florida                 BARBARA BOXER, California
RON JOHNSON, Wisconsin               ROBERT MENENDEZ, New Jersey
JEFF FLAKE, Arizona                  JEANNE SHAHEEN, New Hampshire
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
DAVID PERDUE, Georgia                TOM UDALL, New Mexico
JOHNNY ISAKSON, Georgia              CHRISTOPHER MURPHY, Connecticut
RAND PAUL, Kentucky                  TIM KAINE, Virginia
JOHN BARRASSO, Wyoming               EDWARD J. MARKEY, Massachusetts


                  Todd Womack, Staff Director        
            Jessica Lewis, Democratic Staff Director        
                    John Dutton, Chief Clerk        


                              (ii)        

  


                            C O N T E N T S

                              ----------                              
                                                                   Page

Corker, Hon. Bob, U.S. Senator from Tennessee....................     1


Cardin, Hon. Benjamin L., U.S. Senator from Maryland.............     2


Haass, Hon. Richard, President, Council on Foreign Relations, New 
  York, NY.......................................................     3

    Prepared statement...........................................     5


Tanden, Neera, President and CEO, Center for American Progress, 
  Washington, DC.................................................     7

    Prepared statement...........................................     9




                              (iii)        

  

 
            THE STRATEGIC IMPLICATIONS OF THE U.S. DEBT
                             

                              ----------                              


                        WEDNESDAY, APRIL 6, 2016

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:19 p.m., in 
Room SD-419, Dirksen Senate Office Building, Hon. Bob Corker, 
chairman of the committee, presiding.
    Present: Senators Corker [presiding], Risch, Rubio, 
Johnson, Flake, Gardner, Perdue, Isakson, Cardin, Murphy, and 
Markey.

             OPENING STATEMENT OF HON. BOB CORKER, 
                  U.S. SENATOR FROM TENNESSEE

    The Chairman. The Senate Foreign Relations Committee will 
come to order. We want to thank you both for being here.
    We were just remarking in the back that, typically, we have 
witnesses that have generally had some degree of overlap in 
thinking, and it has really helped our committee develop 
bipartisan consensus on so many issues. I will say that, today, 
that is not going to be the case. I really am stunned by the 
testimony of one of our witnesses today.
    The issue of our national debt has been an issue that our 
top military officials, Presidents on both sides of the aisle, 
and Secretaries of State on both sides of the aisle have 
considered to be a major threat to our Nation and limits our 
ability to respond to crises. I have been in several meetings 
today where other countries have been concerned about how we 
are going to be able to react to certain things.
    So I really am stunned by the testimony of one of our 
witnesses today, and I look forward to probing that, having 
received a summary of those statements.
    I think it is bipartisan, the idea that we have to figure 
out a way to come together and grind through the tough issues 
that our Nation is facing to ensure that we do not continue 
with the generational theft that is occurring right now, where 
we run deficits that future generations will pay.
    Again, it has been a significant national security issue. 
It is something that I think is important for us. And 
therefore, I am glad we are having the hearing today and 
certainly the forward to the questioning that will take place.
    So with that, I will turn to our ranking member, and I am 
sure he will have other comments to make relative to what is 
getting ready to happen.

             STATEMENT OF HON. BENJAMIN L. CARDIN, 
                   U.S. SENATOR FROM MARYLAND

    Senator Cardin. Mr. Chairman, I am not sure which of the 
testimonies--[Laughter.]
    Senator Cardin. Mr. Ambassador, I will try to help you out 
during the course of the hearing.
    I want to welcome both of our witnesses here. I am familiar 
with your statements, and I think there is a lot in both of 
these statements that is important for us going forward with 
our national security. And I look forward to this hearing, 
because there are two sides of the ledger.
    Obviously, the amount of debt that we incur every year is a 
matter of national security. We have to borrow the money. We 
borrow it from Americans. But we also borrow it from foreign 
interests, and that should be of concern to the United States. 
We also should pay our bills. That should be of concern to this 
country.
    But I just point out, on that side of the ledger, when you 
look at the cost of U.S. borrowing, when you look at the 
desirability of U.S. security, the international community does 
not seem to be too concerned about the amount of debt that we 
are issuing, from the point of view of the attractiveness and 
the cost of U.S. debt.
    Having said that, I agree that we need to do a better job 
on fiscal responsibility, and we should be paying more of our 
current expenses, which deal with how much money we spend and 
how much tax we collect, which brings me to the other side of 
the ledger dealing with national security.
    I think it is critically important the amount of money we, 
for example, spend for our defense and for our military. That 
is an important part of national security. The amount of money 
we invest in diplomacy and development assistance is part of 
our national security.
    So if we were to say, look, we will have less debt, but 
let's cut our military in half, and let's cut our national 
development assistance in half, I think that would compromise 
U.S. security. So how do we invest our money?
    But the other part of that, Mr. Chairman, is how do we 
invest in America? How do we invest in our roads, our bridges, 
our energy infrastructure? How do we invest in education and 
educating our workforce? How do we deal with climate change, 
which is presenting an international security issue? All of 
that requires expenditures on the spending side.
    So as we look at national security and the amount of debt 
that we acquire every year, we have to be concerned about debt. 
But we also have to be concerned about whether we are spending 
money at the level we should for the United States to maintain 
its position as the world's superpower.
    So I think both of our witnesses will give us different 
perspectives, but I agree with both, in that we have to be 
concerned about both sides of the ledger.
    And I look forward to the testimony, and I look forward to 
a robust discussion here today.
    Now you are shocked with the ranking member.
    The Chairman. I am, actually. So I hate that our 
distinguished Council on Foreign Relations leader is actually 
participating in this the way that it begins, but I do thank 
him for lending a staff member to us to run our committee, and 
I turn to both of you.
    Our first witness is the Honorable Richard Haass, president 
of the Council on Foreign Relations. Our second witness today 
is Neera Tanden, president and CEO for the Center for American 
Progress. I want to thank you both for being here and sharing 
your comments.
    I think you all know the drill, and that is, we have 
received your written testimony. If you could summarize that, 
and then look to questions, I would appreciate it.
    But thank you both again for being here, again, on a topic 
that I thought there would be general uniformity around, but 
apparently, already, because this may be perceived to be a 
reflection on somebody, I do not know--but I do look forward to 
the testimony. Thank you very much.
    Mr. Haass, if you would begin?

STATEMENT OF HON. RICHARD HAASS, PRESIDENT, COUNCIL ON FOREIGN 
                    RELATIONS, NEW YORK, NY

    Ambassador Haass. Thank you, Mr. Chairman. I want to thank 
you and the committee for the opportunity to testify.
    I just want to make clear that I am speaking for myself and 
not for the Council on Foreign Relations.
    But I do want to commend you and your colleagues here for 
holding this hearing and for considering the issues of debt and 
national security an integrated matter. It is important that 
they are not seen as distinct. There is an important degree of 
overlap.
    What makes this issue particularly difficult is it is an 
example of what I would describe as a slow-motion crisis. Slow-
motion crises tend to be phenomena that are underway and that 
have potentially substantial or even devastating consequences 
that will kick in gradually or only after the passage of 
considerable time.
    There is good and bad news in this. The good news is that, 
to a large degree, we know where things are heading, and we 
have time to do something about it. The bad news is that slow-
motion crises tend to generate little or no sense of priority 
but rather tend to promote complacency.
    The problem then is that we will forfeit the opportunity 
not just to prevent the crisis, but we end up denying ourselves 
remedies that are not severe.
    The debt problem is straightforward, I would think. 
According to the CBO and others, U.S. public debt is fast 
approaching a level, plus or minus, of $14 trillion. That is 
roughly equal to 75 percent of our current GDP. In a decade, 
debt will probably be between 80 percent and 90 percent of GDP.
    It is a question of when, and not if, the debt comes to 
exceed or far exceed GDP. That could happen in 15 years or even 
sooner.
    Let me say that this is a problem that not only will not 
fix itself, but it will grow worse. The principal driver of 
spending increases are entitlements, and that will become more 
of a factor as Americans of my generation retire in large 
numbers and live longer lives.
    Second, interest rates are at or near historic lows and are 
far more likely to rise than fall over the next few decades.
    Now specific projections as to the size of the debt and 
what it will cost to finance necessarily vary depending upon 
assumptions about economic growth, spending, taxation, and 
interest rates. But the trend is clear, and the trend is not 
our friend.
    There are a good many strategic consequences of our growing 
indebtedness. Let me just go through them rather quickly.
    First, the need to finance the debt will absorb an ever-
increasing amount of dollars and an ever-increasing share of 
the U.S. Federal budget. This will mean proportionally fewer 
resources will be available for national security, including 
defense, intelligence, homeland security, foreign assistance, 
and diplomacy. There will, as well, be fewer dollars available 
for discretionary domestic programs, ranging from education and 
infrastructure modernization to scientific research and law 
enforcement.
    Second, our inability to deal with our debt challenge will 
detract from the appeal around the world of the American 
political and economic model. It will make others less likely 
to want to emulate us and more wary of depending on us. The 
result would be a world that is less democratic and 
increasingly less deferential to U.S. security concerns.
    Third, mounting debt will leave the United States more 
vulnerable to the whims of markets and the machinations of 
governments. Already, approximately half of U.S. debt is held 
by foreigners. China is one of the two largest lenders, as you 
pointed out, Senator. I am not sanguine that China would not 
decide to slow or stop accumulating U.S. debt as a signal of 
displeasure, or even sell debt amidst, say, a crisis over 
Taiwan or the South China Sea.
    Fourth, mounting debt could absorb funds that would 
otherwise be invested at home or abroad. This will depress 
already modest levels of economic growth. High levels of debt 
and debt financing will increase concerns about the 
government's willingness to maintain the dollar's value. This 
will cause lenders to demand higher returns on their loans, 
something that will increase the cost of debt financing and 
further crowd out other spending and further depress growth. 
This is what we call a vicious, not a virtuous, cycle.
    Fifth, mounting debt limits American flexibility and 
resilience. There is no way of stating in the abstract what is 
the right level of debt for the United States, or knowing what 
level of debt is sustainable. But the United States does not 
want to make high levels of debt the new normal. We need 
flexibility should there be another financial crisis that 
requires large-scale fiscal stimulus or an unexpected major 
national security challenge that demands a costly response.
    Keeping debt levels low enough to allow for a surge, 
essentially to give ourselves some cushion to allow for a surge 
in spending without triggering an even worse debt crisis, seems 
to be a prudent hedge and worth paying a reasonable premium 
for.
    Sixth and last, mounting debt will hasten the demise of the 
dollar as the world's reserve currency. This will happen as a 
result of the loss of confidence in U.S. financial management 
and the related concern that what the United States will need 
to do to finance its debt will be at odds with what it should 
be doing to manage the U.S. and, indirectly, the world economy.
    And make no mistake about it, a post-dollar world will be 
both more costly and one of less leverage when it comes to 
imposing dollar-related sanctions.
    Mr. Chairman, I have a number of suggestions as to what 
should and should not be done to address this looming crisis, 
one that threatens American prosperity and American national 
security alike. I look forward to the comments and questions 
from yourself and your colleagues.
    [Ambassador Haass's prepared statement follows:]


                Prepared Statement of Richard N. Haass, 
                 President Council on Foreign Relations

    Mr. Chairman, I want to begin by thanking the committee for this 
opportunity to testify. I should also make clear that I am speaking for 
myself and not for the Council on Foreign Relations, which takes no 
institutional position on this or any other matter of public policy. 
But before I turn to the subject matter of today's hearing, I also want 
to commend the Chairman and the members of the committee for holding 
this hearing. People often talk about issues such as the debt and 
issues involving national security, but rarely do they bring the two 
together and talk about them at one and the same time in an integrated 
manner. What you are doing here today is just what is needed; as I am 
fond of pointing out, universities have departments but the world does 
not.
    I would add that what makes this issue particularly difficult is 
that it is part of a class of what I would describe as slow motion 
crises. Slow motion crises are just that: phenomena or processes that 
are under way and that have potentially substantial or even devastating 
consequences that will kick in gradually, or, even if suddenly at some 
point, only after the passage of considerable time. They are thus 
fundamentally unlike an infectious disease outbreak or a financial 
collapse.
    There is both good and bad news in this. The good news is that to a 
large degree we know where things are heading. We also have time to do 
something about it. We can see the iceberg in our path, and there is 
ample time to turn the ship around. The bad news is that slow motion 
crises generate little or no sense of priority but rather tend to 
promote complacency. The temptation is to put them aside, to focus on 
today's crisis, to allow the urgent to take precedence over the 
important. The problem with this is that we will forfeit the 
opportunity not just to prevent a crisis from materializing but we deny 
ourselves those remedies that are not severe. To switch analogies, the 
medical equivalent would be to ignore the symptoms in the patient when 
the sickness was relatively easy to treat and to wait to do something 
only when it became life threatening.
    The problem being addressed here today is fairly straightforward. 
According to the Long-Term Budget Outlook released in June 2015 by the 
Congressional Budget Office and the CBO's more recent (January 2016) 
ten year Budget and Economic Outlook, the public debt of the United 
States is fast approaching $14 trillion. It now is equal roughly to 75% 
of GDP and in a decade will reach between 80 and 90% of GDP. Depending 
upon spending and revenue assumptions, it is a question of when and not 
if the amount of debt comes to exceed or far exceed GDP. This could 
well happen by 2030. What it will cost to service the debt will begin 
to rise rapidly, consuming an ever larger percentage of GDP and federal 
spending.
    I should note that this prediction is not universal, and that there 
are those who think it too negative based on revenue and rate 
predictions and above all on larger than expected cost-savings in the 
medical domain. This is of course possible, but so too is a worse than 
expected future based on slower growth, higher rates, higher than 
expected medical costs owing to a larger aging population, and much 
higher than imagined costs associated with adapting to the many effects 
of climate change.
    The causes of the debt problem are somewhat more controversial but 
still fairly straightforward. Although the federal deficit is 
considerably lower than it was just years ago, it is once again 
increasing, the result of greatly increased spending in select areas 
and low rates of economic growth. Some would say taxes or rather the 
lack of them are to blame as well, but U.S. corporate rates are high by 
global standards and individual rates are not conspicuously low.
    All things being equal, the problem will not only not fix itself 
but will grow worse. There are at least two reasons. First, the 
principal driver of spending increases, spending on entitlements such 
as Medicare, Medicaid, and Social Security, will likely become more not 
less of a factor as Americans retire in large numbers and live longer 
lives. Second, interest rates are near historic lows and are far more 
likely to rise than fall over future decades. Specific projections as 
to the size of the debt and what it will cost to finance necessarily 
vary depending on assumptions regarding economic growth, spending, 
taxation, inflation, and interest rates, but the trend is clear, and 
the trend is not our friend. Nor is time.
    There are a good many foreseeable strategic consequences of growing 
indebtedness. Let me suggest several:
    The most direct is that the need to finance the debt will absorb an 
ever-increasing amount of dollars and an ever-increasing share of the 
U.S. budget. This will mean proportionately fewer resources will be 
available for national security, including defense, intelligence, 
homeland security, and foreign assistance. There will as well be fewer 
dollars available for discretionary domestic programs ranging from 
education and infrastructure modernization to scientific research and 
law enforcement. What this portends is an increasingly sharp and 
destructive debate over guns versus butter while the two fastest 
growing parts of the budget, debt-service and entitlements, remain 
largely off limits.
    Mounting debt will raise questions around the world about the 
United States. Our inability to deal with our debt challenge will 
detract from the appeal of the American political and economic model. 
It will make others less likely to want to emulate U.S. and more wary 
of depending on U.S. as it will raise questions about this country's 
ability to come together and take difficult decisions. The result would 
be a world that is less democratic and increasingly less deferential to 
U.S. concerns in matters of security. To some extent this is already 
happening; not dealing with our debt promises to make a worrisome 
evolution that much more so.
    Mounting debt will leave the United States more vulnerable than it 
should be to the whims of markets and the machinations of governments. 
Already approximately half of U.S. public debt is held by foreigners, 
with China one of the two largest lenders. There are those who say not 
to worry about this, that China will be constrained by its interest in 
not seeing its own huge pool of dollars lose its value and by its need 
for the United States to continue to buy its exports. The result, 
according to this line of thinking, is the financial equivalent of 
nuclear deterrence. This may be true, but I for one am not sanguine 
that China would not decide to slow or stop accumulating U.S. debt as a 
signal of displeasure or even sell debt amidst say a crisis over 
Taiwan. In such circumstances, Chinese leaders might well judge it was 
worth paying a financial price to protect what they viewed as their 
vital national interests. Interestingly, it was American threats aimed 
at the pound sterling that more than anything else persuaded a British 
government that was fearful of the need to devalue its currency to back 
off its ill-fated venture to regain control of the Suez Canal in 1956.
    Mounting debt could absorb funds that could otherwise be usefully 
invested at home or abroad. This will in turn depress already modest 
levels of economic growth. Making matters worse is that high levels of 
debt and debt financing will increase concerns about the government's 
willingness to maintain the dollar's value or worse yet meet its 
obligations. This will cause foreigners in particular to demand high 
returns on their loans, something that will increase the cost of debt 
financing and further crowd out other spending and further depress 
growth. This is a vicious, not a virtuous, cycle.
    Mounting debt limits American flexibility and resilience. There is 
no way of stating in the abstract what constitutes the right level of 
debt for the United States or knowing with precision what level is 
sustainable. But the United states does not want to make high levels of 
debt the new normal as it removes flexibility if, for example, there 
were to be another financial crisis that required large-scale fiscal 
stimulus or an unexpected major national security challenge that 
demanded a costly response. Keeping debt levels low enough to allow for 
a surge in spending without triggering a debt crisis seems to be a 
prudent hedge and, as is the case with preventive medicine or 
insurance, worth paying a reasonable premium for.
    Let me just add one more prediction. Mounting debt will hasten the 
demise of the dollar as the world's reserve currency. This will happen 
as a result of loss of confidence in U.S. financial management and the 
related concern that what the United States will need to do to finance 
its debt will be at odds with what it should be doing to manage the 
U.S. and indirectly world economy. It is possible such a move away from 
the dollar would have happened were it not for the EU's problems and 
China not being prepared to free up the yuan. But the United States 
cannot depend forever on the weaknesses and errors of others, and a 
post-dollar world will be both more costly (as it will require 
Americans to move in and out of other currencies) and one of less 
leverage when it comes to imposing dollar-related sanctions.
    I understand it may be somewhat beyond the purview of today's 
hearing to offer up prescriptions about what needs to be done. That 
said, I find it impossible to resist laying down a few markers.
    A big driver of the debt will be the cost of entitlements. We need 
to raise the current and projected retirement age so that Social 
Security better reflects economic and demographic realities. It would 
also make sense to subject Social Security to a means test and reduce 
payments to the relatively wealthy for whom by definition such payments 
are not essential, to moderate cost of living adjustments, and to 
reform the fast-growing Disability program.
    Medicare and Medicaid are even more responsible for the entitlement 
burden. Some changes that could help here include accelerating the move 
away from a system based on fee for service and towards one that 
reflects quality of outcomes, finding a way to better deal with so-
called ``dual eligibles'' who qualify for both Medicare and Medicaid, 
raising the age of Medicare eligibility, increasing co-payments, 
limiting malpractice torts, and introducing some means-testing of 
benefits.
    Congress should avoid false ``solutions.'' The sequester is one of 
them. It ignores entitlements and favors both spending over investment 
and the present over the future. It should be jettisoned once and for 
all. The same holds for threats not to raise the debt ceiling. As every 
senator knows, failure to raise the debt ceiling does nothing to limit 
debt already incurred but it does raise major doubts in markets and 
around the world as to whether the United States is reliable and 
serious. Ironically, failure to raise the debt ceiling would trigger 
reactions that would lead to an increase in rates, something that in 
turn would slow growth and exacerbate the debt burden.
    Congress needs to be similarly careful about cutting defense. 
Current and projected defense spending is around 3% of GDP, far below 
historic averages. What is more, it is an increasingly dangerous and 
precarious world out there, and if the world becomes messier, there is 
no way the United States will be able to wall itself off from 
consequences partly brought about by our doing less. There is no other 
country willing and able to make a sizable contribution to order, and 
the world cannot order itself. Only the United States can play this 
role. The good news is that we can do so and tackle our debt challenge 
at one and the same time if we spend our resources wisely.
    What would help as much as reducing entitlements would be taking 
steps to increase economic growth. My list includes better K-12 as well 
as life-long education, a robust public/private infrastructure 
modernization program, immigration reform that creates greater 
opportunities for those with advanced degrees and needed skills to come 
and stay here, reform of corporate taxes so more money comes back to 
this country and is put to use, a reduction in so-called tax-
expenditures such as the mortgage interest deduction and a decision to 
tax employer contributions for health care premiums, and passing the 
Trans-Pacific Partnership and other trade pacts.
    Mr. Chairman, let me conclude where I began, by commending you and 
your colleagues for putting a spotlight on this issue. You will have 
performed an important public service if this hearing leads to more 
people in this country viewing our current and future debt not simply 
as an economic or domestic concern but also as a significant threat to 
this country's national security.
    Thank you. I look forward to any questions you may have.


    The Chairman. Thank you very much.
    Ms. Tanden?

   STATEMENT OF NEERA TANDEN, PRESIDENT AND CEO, CENTER FOR 
               AMERICAN PROGRESS, WASHINGTON, DC

    Ms. Tanden. Thank you so much, Chairman Corker, Ranking 
Member Cardin, and members of the committee. My name is Neera 
Tanden. I am the president of the Center for American Progress, 
and I am very thankful for the opportunity to testify today.
    I do hope we find some areas of common ground. I actually 
see some areas of common ground on these issues between 
Ambassador Haass and myself.
    CAP is an independent, nonpartisan educational institute 
dedicated to improving the lives of Americans through practical 
ideas and actions. At CAP, we believe that a robust middle 
class is vitally important to growing a stronger and more 
prosperous economy. I know that is a matter of concern for 
every member of this committee.
    I deeply appreciate the opportunity to speak to you on the 
broad topic of America's standing in the world, and how our 
economic success is a critical component of that. In fact, I 
could not agree more that our economic strength as a Nation 
helps determine our international strength.
    Where I may have a different focus is the source of that 
strength. I believe that the strength of our middle class has 
long been a key aspect of our international appeal. The 
American middle class is not only the engine of our Nation's 
economic growth, it is a symbol of our ideals, a promise that 
no matter what you look like or where you come from, you can 
succeed in the United States.
    Indeed, we have served as a bright beacon for economic 
opportunity. Immigrants from every country, including my own 
parents, have come to our shores in search of a better future 
for themselves and their families.
    But truthfully, we are at a crossroads. We are failing in 
many ways to live up to that promise for America's families.
    I do believe that our national debt is a long-term problem 
that we have to solve. Leadership is needed to address that 
challenge. But I also believe that the struggles of the middle 
class and those trying to get into the middle class is an 
urgent problem, not just an urgent moral problem, but a 
challenge for economic growth, writ large.
    While the recovery from the recession has been important, 
it remains incomplete. There is, so far, little evidence that 
U.S. Government debt is currently creating obstacles to further 
economic growth or threatening our national security.
    I want to say again, we do need to tackle the national debt 
over the long term. The question is, where are our priorities?
    When you look at our recovery, it has outpaced the recovery 
of our allies who have almost exclusively focused on debt. The 
European Union has grown at a much lower level--1.5 percent 
compared to the United States' 2.5 percent--and is projected to 
continue to grow at a much slower pace than the United States. 
These are the results of greater austerity.
    Now, we have been told time and time again, that the 
national debt will lead to higher national interest rates. That 
is usually how it works. However, we simply have not seen those 
predictions of higher interest rates pan out.
    The CBO has been predicting for years that Treasury 
interest rate increases were just around the corner. In 
February 2013, for example, CBO predicted that the interest 
rate on 10-year Treasury bonds would be 4.3 percent in 2016. On 
April 4, 2016, the interest rate was actually 1.78 percent.
    Moreover, we have heard claims that our debt-to-GDP ratio 
is a sign of impending crisis. But we have not seen that 
either. We have seen projections that our debt-to-GDP ratio 
would at this point be hovering over 90 percent. We are now at 
74 percent. And we know that other countries have sustained 
higher debt-to-GDP ratios without experiencing a debt crisis.
    Again, the question is not whether we should address these 
challenges; the question is, ``what is the best way to do so?''
    When it comes to addressing deficits, CAP believes that we 
should have a balanced approach. We have proposed a plan to 
eliminate the deficit over the next several decades to get us 
to zero, to get to a place where we are actually addressing the 
debt overall. We've proposed a balanced package that requires 
additional revenue as well as savings in a variety of programs, 
including savings in the Medicare program.
    So in short, I would just like to thank everyone for the 
ability to participate in this hearing. I think that America's 
strength comes, in part, from its economic standing. But as we 
see in today's national debate, Americans are concerned about a 
whole range of issues not just not our ability to address debt, 
but also how our economy is functioning, how it is producing 
prosperity, and whether all Americans can share in that 
prosperity. Thank you all very much.
    [Ms. Tanden's prepared statement follows:]


                  Prepared Statement of Neera Tanden, 
                President, Center for American Progress

    Chairman Corker, Ranking Member Cardin, and fellow members of the 
Senate Foreign Relations Committee. My name is Neera Tanden, and I'm 
the president of the Center for American Progress (CAP). I want to 
thank you for the opportunity to testify before you today.
    CAP is an independent, nonpartisan educational institute dedicated 
to improving the lives of all Americans through progressive ideas and 
action. At CAP, we believe that a robust middle class is vitally 
important to growing a stronger and more prosperous economy. That's one 
of our core priorities, and I know it's a priority of every member of 
this committee.
    I appreciate the opportunity to speak to you on such a critical 
topic: how America's economic success is critical to maintaining our 
unmatched international standing. Indeed, I could not agree more that 
it is a central part of our international strength. Where I may have a 
different focus is the source of that strength. I believe that the 
strength of our middle class has long been the key to our international 
appeal. The American middle class is not only the engine of our 
nation's economic growth--it's a symbol of our ideals, a promise that--
no matter what you look like or where you come from--if you work hard 
and play by the rules, you have a fair shot at success.
    Indeed, America has served as the world's brightest beacon of 
economic opportunity. Immigrants from every country--including my own 
parents--have come to our shores in search of a better future for 
themselves and their families.
    Today, we're failing to fulfill that promise for too many American 
families. While our national debt is a long-term problem that we can 
and should tackle, the struggles of our middle class and those trying 
to get into it is an urgent problem--and, I believe, the proper concern 
of this committee and Congress.
Introduction and Background
    The U.S. economy is a vital source of our international power and 
influence. A strong economy is one that fully utilizes its resources 
and makes critical investments to increase prosperity for all of its 
citizens.
    In the aftermath of the financial crisis, the U.S. and our allies 
were pushed to the economic brink, suffering massive losses in jobs, 
revenue, private investment, and ultimately, growth. Faced with these 
challenges, our countries had two options: invest in our economy to 
spur recovery, or enact harsh austerity measures that would shrink 
growth and burden working families.
    The Obama administration acted swiftly to combat this sharp decline 
in demand with fiscal stimulus, and prevented the U.S. economy from 
sliding into an even deeper recession--and quite possibly a second 
Great Depression. The interventions taken by this administration saved 
entire industries and sectors of the U.S. economy from collapse.
    In fact, our recovery has outpaced some of our allies who chose to 
implement harmful austerity measures.\1\ In 2015, the U.S. was the 
fastest growing G-7 country (Canada, France, Germany, Italy, Japan UK, 
US), and the International Monetary Fund projects that we will continue 
to lead G7 growth in 2016 and 2017.\2\ While countries in the European 
Union grew at an average rate of 1.5 percent in 2015, the U.S. economy 
grew 2.5 percent and is projected to continue to grow a half a percent 
faster than other advanced economies. Indeed, Federal Reserve Chair 
Janet Yellen noted last week that while the outlook for the U.S. 
economy is favorable, its biggest threat is a weak global economy 
dragging down manufacturing and net exports.\3\
---------------------------------------------------------------------------
    \1\ Paul Krugman, ``The Austerity Delusion,'' The Guardian, April 
29, 2015, available at http://www.theguardian.com/business/ng-
interactive/2015/apr/29/the-austerity-delusion.
    \2\ International Monetary Fund, ``World Economic Outlook'' (2016), 
available at http://www.imf.org/external/pubs/ft/weo/2016/update/01/
#footT1.
    \3\ Janet Yellen, ``The Outlook, Uncertainty, and Monetary 
Policy,'' March 29, 2016, available at https://www.federalreserve.gov/
newsevents/speech/yellen20160329a.htm.
---------------------------------------------------------------------------
    Despite the limits placed on U.S. investment in the recovery, much 
progress has been made. Millions of jobs have been created, 
unemployment has fallen dramatically, and long-term debt projections 
have improved as well.\4\ And projections for growth in federal health 
care spending are down under the Affordable Care Act, even as we 
addressed a major national challenge by expanding health insurance to 
millions of uninsured Americans. In fact, the Congressional Budget 
Office recently published data showing that the total estimated federal 
spending for major health care programs in fiscal year 2016 will be 
lower than the FY 2016 projection the office published in January 
2009.\5\
---------------------------------------------------------------------------
    \4\ Richard Kogan, Paul N. Van de Water, and Cecile Murray, ``CBPP 
Projections Show Long-Term Budget Outlook Has Improved Significantly 
Since 2010 But Remains Challenging'' (Washington: Center on Budget and 
Policy Priorities, 2015), available at http://www.cbpp.org/research/
federal-budget/cbpp-projections-show-long-term-budget-outlook-has-
improved-significantly.
    \5\ Harry Stein, ``The Obama Health Care Legacy: More Coverage and 
Less Spending'' (Washington: Center for American Progress, 2016), 
available at https://www.americanprogress.org/issues/economy/news/2016/
03/25/134074/the-obama-health-care-legacy-more-coverage-and-less-
spending/.
---------------------------------------------------------------------------
    While the recovery from the recession remains incomplete, there is 
no evidence that the U.S. government debt is currently creating 
obstacles to further economic growth. To the contrary, many economists 
argue that now is the time to invest significantly in infrastructure, 
research and development, education, and other productivity-enhancing 
investments that will boost demand and produce long-term economic 
returns. That is because despite our broad economic growth rate, a 
clear problem remains weak demand. And weak demand is in part a product 
of stagnant wages. Between 2001 and 2015, our economy's productivity 
grew about two percent a year. During that same time period, real wages 
for most workers grew less than one percent per year. Despite the Great 
Recession, our economy has managed to grow, but the benefits of growth 
haven't reached most workers.\6\
---------------------------------------------------------------------------
    \6\ Federal Reserve Economic Database, ``Nonfarm Business Sector: 
Real Output Per Hour of All Persons,''; ``Average Hourly Earnings of 
Production and Non-Supervisory Workers,'' available at https://
research.stlouisfed.org/fred2/graph/?g=444i. Average hourly earnings 
were deflated with the Personal Consumption Expenditure Chain-Type 
Price Index.
---------------------------------------------------------------------------
Using National Debt for National Strength
    The United States is the strongest nation in the world. And when it 
comes to our economic and national security, we cannot afford to let 
false assumptions distort our choices.
    Neither our allies nor our adversaries doubt American strength or 
leadership. Nor do financial markets treat the U.S. debt as anywhere 
close to an immediate concern. Some predicted that there would be a 
sharp reversal in the willingness of creditors to lend to the U.S. 
government by now. But this thinking assumes that lenders will lose 
confidence in the America's ability to repay its debts. Frankly, there 
is no empirical basis whatsoever for this belief.
    Throughout the Great Recession and subsequent recovery, the market 
has yet to worry about a U.S. debt crisis--except for the manufactured 
crisis around the debt ceiling. We know this because both inflation and 
interest rates on Treasury bonds are at very low levels. This includes 
long-term Treasury interest rates and long-term inflation expectations. 
In fact, U.S. debt remains the world's safest investment.
    Time and again, we have been told that the debt will spell economic 
doom in the form of high interest rates. And in the fiscal outlook from 
the Congressional Budget Office, one of the major reasons for 
increasing deficits in future years is that CBO assumes that interest 
rates on Treasury bonds will increase to more normal levels from their 
current lows.\7\ But CBO has been predicting for years that Treasury 
interest rate increases were just around the corner. In February 2013, 
for example, CBO predicted that the interest rate on 10-year Treasury 
bonds would be 4.3 percent in 2016.\8\ On April 4, 2016, this interest 
rate was actually 1.78 percent.\9\
---------------------------------------------------------------------------
    \7\ Congressional Budget Office, ``Updated Budget Projections: 2016 
to 2026'' (2016),
    available at https://www.cbo.gov/sites/default/files/114th-
congress-2015-2016/reports/51384-MarchBaseline.pdf.
    \8\ Congressional Budget Office, ``The Budget and Economic Outlook: 
Fiscal Years 2013 to 2023'' (2013), available at https://www.cbo.gov/
publication/43907.
    \9\ U.S. Department of the Treasury, ``Daily Treasury Yield Curve 
Rates,'' available at https://www.treasury.gov/resource-center/data-
chart-center/interest-rates/Pages/TextView.aspx?data=yield.
---------------------------------------------------------------------------
    The budget outlook has improved dramatically as a result of lower-
than-expected interest rates.\10\ That does not mean interest rates 
will not rise in the future, but we should not take it as a given that 
they will rise as quickly or as high as has been predicted. A small 
difference in interest rates can make an enormous difference in both 
economic growth and fiscal costs.
---------------------------------------------------------------------------
    \10\ Harry Stein and Lauren Shapiro, ``Does Washington Have a 
Spending Problem or a Revenue Problem?'' (Washington: Center for 
American Progress, 2015), available at https://
www.americanprogress.org/issues/budget/news/2015/05/07/112689/does-
washington-have-a-spending-problem-or-a-revenue-problem/.
---------------------------------------------------------------------------
    Moreover, we have heard claims that our debt-to-GDP ratio is a sign 
of impending crisis. This, too, does not square with the facts. In 
2015, the U.S. debt-to-GDP ratio was about 74%. Many countries have 
sustained higher debt-to-GDP ratios without experiencing a debt crisis. 
Some countries, such as Russia and Iran, have much larger economic 
problems than the United States while also having lower debt-to-GDP 
ratios.\11\ This ratio does not independently determine the health of 
an economy.
---------------------------------------------------------------------------
    \11\ Central Intelligence Agency, ``Country Comparison: Public 
Debt'' in ``The World Factbook,'' available at
    https://www.cia.gov/library/publications/the-world-factbook/
rankorder/2186rank.html.
---------------------------------------------------------------------------
    We should also remember that the U.S. dollar is the global reserve 
currency, our debt is financed in U.S. dollars, and we maintain 
sovereign control of our monetary and currency policy.
    If there is a surplus of savings in the global economy--as many 
economists believe--that would explain why interest rates may remain 
low for a prolonged period of time. A high supply of savings without 
enough opportunities for productive investment would force savers to 
accept lower interest rates since they do not have better options to 
invest their money. This would also mean that we should increase public 
investment in order to put more of this surplus savings to productive 
use.\12\
---------------------------------------------------------------------------
    \12\ Lawrence H. Summers, ``U.S. Economic Prospects: Secular 
Stagnation, Hysteresis, and the Zero Lower Bound,'' Business Economics 
49 (2) (2014): 65-73, available at http://larrysummers.com/wp-content/
uploads/2014/06/NABE-speech-Lawrence-H.-Summers1.pdf.
---------------------------------------------------------------------------
    When used to support smart policy choices, the national debt can 
improve our economy and enhance our national security. When used to 
support poor choices--like the Iraq War or massive tax cuts for the 
wealthiest Americans--it harms both our economy and national security.
    The Center for American Progress recognizes that debt and deficits 
are a long term challenge we should take reasonable steps to address. 
By implementing balanced and gradual policies to address the nation's 
long-term fiscal challenges, we can prevent the need for more 
catastrophic measures and protect the integrity of vital programs like 
Social Security, Medicare, Medicaid, and SNAP that are fundamental to 
economic growth and middle-class prosperity. We have proposed 
eliminating the deficit by 2038. Our plans shows that it is possible to 
pursue progressive fiscal policies, preserve the basic social safety 
programs, and adequately fund defense, while maintaining a manageable 
level of debt. The CAP budget plan made significant investments to 
strengthen the middle-class and grow the economy. It also gradually 
balanced the budget, primarily by enacting policies to slow the growth 
of health care costs and raise an adequate level of revenue to meet the 
needs of an aging population.\13\ By FY 2040, our plan would reduce 
total outlays by 3.3% of GDP and increase total revenues by 3.7% of 
GDP, relative to the budget baseline from 2015. This would produce a 
budget surplus of 0.6% of GDP in FY 2040, which is more than enough to 
reduce the debt as a share of the economy.
---------------------------------------------------------------------------
    \13\ Harry Stein and Alexandra Thornton, ``Laying the Foundation 
for Inclusive Prosperity'' (Washington: Center for American Progress, 
2015), available at http://www.pgpf.org/sites/default/files/05122015--
solutionsinitiative3--cap.pdf.
---------------------------------------------------------------------------
    Numerous bipartisan commissions have recognized that revenues are a 
necessary element of any responsible long-term budget plan.\14\ Instead 
of signing pledges to oppose any increase in tax revenues, lawmakers 
must work together to pass a budget that bolsters the middle class and 
makes critical investments in our country's economic future.
---------------------------------------------------------------------------
    \14\ The National Commission on Fiscal Responsibility and Reform, 
The Moment of Truth (The White House, 2010), available at http://
www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/
TheMomentofTruth12--1--2010.pdf; The Debt Reduction Task Force, 
``Restoring America's Future: Reviving the Economy, Cutting Spending 
and Debt, and Creating a Simple, Pro-Growth Tax System'' (Washington: 
Bipartisan Policy Center, 2010), available at http://
bipartisanpolicy.org/sites/default/files/files/
BPC%20FINAL%20REPORT%20FOR%20PRINTER%2002%2028%2011.pdf.
---------------------------------------------------------------------------
    With new revenue streams and smart investments in the engines of 
economic growth, we can gradually reduce our debt and ensure future 
security and stability.
Make Critical Investments in Our Future
    For the U.S. to maintain global leadership and ensure national 
security going forward, we must make smart choices in both foreign and 
domestic policy, including how to best use U.S. borrowing capacity.
    The best ways to promote economic growth is through a strong and 
stable middle class with growing incomes. At a time when stagnant 
incomes remain a drag on the economy, we need some investments to 
foster shared prosperity. Growing the economy will not only ensure 
future security but reduce the debt burden in the long-run.
    Much like a family seeking to buy a car or a house, debt should be 
viewed as tool to make productive investments today and finance their 
payment over many years, rather than in a single cash payment. The 
federal budget is not the same as a household budget, however, and our 
government has a greater capacity to borrow and finance urgent needs 
than a family or a business. That is why it is essential to consider 
debt and deficits from the perspective of the entire economy and the 
entire nation.
    The very foundation of U.S. economic strength and security is a 
vibrant middle class. In recent decades, the very existence of the 
American middle class has been threatened by growing inequality and a 
lack of broadly shared prosperity. With interest rates still near 
record lows and wage growth still weak. Now is the moment to make smart 
public investments to help restore a strong middle class, support 
future productivity growth, and enhance America's standing in the 
world.
    Middle-class prosperity is not simply a consequence of economic 
growth--it is the engine of economic growth. In today's economy, strong 
and sustainable growth comes from the middle-class. A stronger middle-
class makes for a more productive workforce and a more stable level of 
the consumer demand.
    Stagnant wages and a lack of middle-class wealth also discourage 
business formation and contributed to a loss of 1 million entrepreneurs 
from 2002 to 2008, compared to the rate of business-owner households in 
the 1990s.\15\ More equitable economic policies would grow the economy 
by helping more people fully participate as workers, consumers, and 
entrepreneurs. That means higher wages, which lawmakers can achieve by 
raising the minimum wage, expanding overtime pay, strengthening worker 
voice, preserving social safety programs, and investing in human 
capital so that American workers can compete for high-paying jobs in a 
global marketplace.
---------------------------------------------------------------------------
    \15\ Jennifer Erickson and Adam Hersh, ``1 Million Missing 
Entrepreneurs'' (Washington: Center for American Progress, 2015), 
available at https://cdn.americanprogress.org/wp-content/uploads/2015/
05/InequalityEntrepreneurship-brief-5.19.pdf.
---------------------------------------------------------------------------
    But national security can also be threatened by a loss of U.S. 
leadership economically and scientifically, including a failure to make 
key investments in infrastructure, education, innovation and scientific 
research. Leading the world in these fields is the hallmark of U.S. 
national power. And training the next generation of American leaders 
will be critical to maintaining American influence and respect abroad. 
In fact, it was the Council on Foreign Relations that commissioned a 
report in 2012 which argued that deficiencies in our education system 
constitute one of the nation's top national security threats. Even 
military leaders are concerned that underinvestment in today's young 
people undermines the military force of tomorrow.\16\ Indeed many 
military and civilian defense leaders are also concerned about 
inadequate investment in diplomacy, development and economic 
statecraft. The United States needs to lead in the civilian and 
military tools of foreign policy to remain strong, advance our 
interests and protect our citizens.
---------------------------------------------------------------------------
    \16\ Mission: Readiness, ``About Us,'' available at https://
www.missionreadiness.org/about-us/.
---------------------------------------------------------------------------
    To be sure, sustaining economic growth over the long-run also 
requires addressing long-term fiscal challenges--including an aging 
population, rising health care costs, and a tax code that collects too 
little revenue and includes far too many loopholes for the wealthy and 
well-connected. We must also confront the fact that a struggling middle 
class has not always reaped the benefits of economic growth. Growing 
inequality, corporate short-termism, insufficient power of workers, 
unfair foreign trade practices, and other structural economic 
challenges threaten our growth and broadly shared prosperity.
    In short, we must ensure that the middle class enjoys the benefits 
of economic growth, women are able to participate equally in the 
economy, and young people have the opportunities to succeed without 
having to take on mountains of debt. That is all part of a strategy to 
ensure American success at home and in the world.
Conclusion
    Our country faces significant economic and national security 
challenges. These are not far-off problems or possibilities. They are 
happening right now. Middle class families are struggling to get by on 
stagnant wages. Indeed, these are the most pressing challenges to our 
economic standing. That economic strength will help ensure America's 
global standing in the future.
    Thank you, and I look forward to answering your questions.


    The Chairman. Thank you very much for your testimony and 
being here.
    I just want to say, this certainly was not a hearing to 
talk about the necessary solutions. I agree the middle class 
has had issues. It is more to talk about the strategic problem 
of having the debt that we have.
    So it seems like maybe there is some agreement. It 
certainly was not an attempt to attack any administration, but 
just to point out that, as a Nation, having huge amounts of 
debt does limit our abilities over time and is something that 
hurts future generations. So maybe your assignment was 
misunderstood.
    But with that, what I would like to do is turn to our 
ranking member. I would like to interject, as we move along. I 
know there will be numbers of questions.
    And I want to thank everybody for being here and 
participating.
    Senator Cardin. Thank you, Mr. Chairman. I thank you for 
this hearing.
    And I do understand the purpose of this hearing, that debt 
has an impact on our national security. As I said in my opening 
statement, it has an impact on our ability to directly fund 
national security budgets, whether it is the Department of 
Defense or the Department of State. It has an impact on 
America's confidence and reputation globally. And it has an 
impact on our reliance on other countries to buy our 
securities. So it clearly is an area of concern.
    I am proud to have been part of the Congress and have cast 
my vote in the Congress of the United States to balance the 
Federal budget. And we had a balance, and we did it the hard 
way, the old-fashioned way. We raised taxes and we cut 
spending. We did both. People said we could not do both. We did 
both, and we balanced the Federal budget.
    And despite the forecast that this would have a negative 
impact on our economy, because we were cutting spending and we 
were raising taxes--in other words, taking money out of the 
economy--it had a major plus to the economy. The economy grew 
dramatically after we balanced the Federal budget.
    So I agree with the chairman that we need to take a look at 
the size of the deficit.
    The point I bring up, though, is that when we went through 
the recession in 2007 to 2009, Democrats and Republicans came 
together and said, look, we have to incur debt. We have to put 
more money in the economy. We have to cut taxes, and we have to 
spend money in order to get this economy growing. And we 
recognized at that point that increasing the debt, although it 
is something we do not like doing, it was necessary in order to 
get our economy going.
    So I just wanted to make the point that debt and deficits 
in and of itself, you have to be where you are in the economy 
and where is it the right time to do what we should do.
    I happen to believe today we are wealthy enough and strong 
enough that we should have a balanced budget. We should be able 
to get to a balanced budget over a reasonable number of years. 
I believe that. So I agree with the emphasis.
    And it is not worth taking the risk of these large debts, 
so we are strong enough to be able to deal with it, and we 
should deal with it.
    But I do point out the fact that the United States has had 
one of the strongest recoveries from the deficit. We have had 
now I think it is 72 consecutive months of 14 million job 
growth. In 2014 and 2015, we saw over 5 million private sector 
jobs that grew in our economy.
    When you compare that to some of the countries in Europe 
that went through austerity, and Great Britain is a good 
example, they went through austerity after they thought they 
had recovered from the recession only to find that they were 
back in, basically, a recession.
    So the one thing we do not want to do for national security 
is be in a type of economy where middle-class families cannot 
do well, and we are, basically, in a recession losing jobs. 
That is not in our national security interests.
    I think that was the only point we were trying to make in 
regard to the size of the debt.
    But we are in agreement. We are in agreement that we should 
have a game plan today to bring our budget, certainly with less 
debt, annual deficits, but, clearly, to try to balance the 
Federal debt.
    So I do not know if I have any specific questions, but I 
will ask both, where do you see a disagreement or do you agree 
with what I just said, as far as the debt not being a one-
dimensional issue as it relates to our national security, that 
it is a tool has to be used at times, depending on our economic 
conditions?
    Ambassador Haass, do you disagree with that?
    Ambassador Haass. Senator, as is often the case, the devil 
is probably in the details. I do not think anyone would make 
the argument or should make the argument that deficits or debt, 
per se, is bad. It depends upon the scale of it, the absolute 
scale, the trajectory, what sort of assumptions you plug in 
about where the economy is going.
    I also never heard anyone say we ought to do something 
dramatic overnight, that we ought to, for example, try to bring 
down a 75 percent of GDP debt to something like 50 percent or 
25 percent. There is no reason to do things dramatic that would 
destroy economic growth.
    I think the real question is less where we are, sir, than 
our trajectory. What worries me is about the trajectory, and 
where we are heading.
    I simply make two points. Again, it is all assumption-
driven, but all things being equal, I think there is a 
powerful, powerful probability, overwhelming probability, that, 
all things being equal, the debt problem will get significantly 
worse with the passage of time. I find that hard to challenge.
    And secondly, the good news is, if we were to do some 
fairly modest things--I understand from Chairman Corker, this 
is not a conversation about remedies. But the good news is we 
have not reached a point of crisis, and there are things that 
we could and should do now that would not be all that dramatic 
that would put us on a much more sustainable trajectory.
    Again, I think it is really important not only that we 
avoid crisis, but that we give ourselves cushion. Look what 
happened after 9/11. We had enormous spending needs in national 
security. And after 2008, we had enormous spending requirements 
in order to jumpstart the economy.
    Part of the lesson of that is we never quite know when we 
may have to do somewhat similar things again for economic or 
strategic reasons. So why would we want to allow ourselves to 
assume a trajectory that would deny us those options if and 
most likely when we once again have enormous needs that come 
somewhat out of the blue?
    So I think the opportunity for Congress and for whoever is 
in the White House and the rest is to begin to put this country 
on a trajectory that is sustainable and is responsible. That is 
what this is about.
    Senator Cardin. I agree with everything you just said. 
There are two major factors that we can control, and that is 
how we spend money and how we raise money. Yes, a lot will 
depend on deficits and economic circumstances, some of which we 
control, some of which we do not control. And certainly, the 
Congress is not in the position of trying to control economic 
growth, even though we think we can.
    So the two areas where we can do our most good is how we 
spend our money and the amount we spend, and how we collect our 
revenues.
    Although we are not talking about remedies today, if we had 
a tax code that made some sense, it would be a lot easier for 
us to be able to match revenues and spending, which has been 
one of our challenges going forward.
    Ms. Tanden, I will give you a chance. You have 1 minute to 
respond before I lose my time.
    Ms. Tanden. I guess I would broadly agree. I would point 
out that we can take steps to address the long-term debt 
challenges that we have. We obviously have to address the 
deficit as well.
    I should note, though, that the deficit has come down 
dramatically. We have essentially reduced deficit projections 
by two-thirds. Now, I don't agree with all of the steps we have 
taken to do that, but we have reduced those projections. So 
Congress can act and make an impact.
    One particular area that I think is important to note is 
that we have saved considerable amounts of money from Medicare 
savings. So, Congress has taken steps--some in very bipartisan 
ways, some in less bipartisan ways--that have actually had a 
positive impact on these issues. And I hope that we can have a 
balanced approach going forward as well.
    Senator Cardin. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Johnson?
    Senator Johnson. Thank you, Mr. Chairman.
    When I took over the chairmanship of the Senate Committee 
on Homeland Security and Governmental Affairs, the first thing 
I did was we developed a mission statement. It is pretty 
simple: to enhance the economic and national security of 
America. I think they are inextricably linked.
    The subject of this hearing is the strategic implications 
of U.S. debt. Ronald Reagan I think taught us that you achieve 
peace through strength.
    Mr. Haass, I just want to talk to you about, as we take a 
look around the world, every one of these situations has its 
own root cause. But if we were economically stronger, if we 
were not on this unsustainable debt path--by the way, we just 
held a hearing in the Budget Committee. One of the things I 
have talked about is the 30-year projected debt, according to 
the CBO, is $103 trillion, $10 trillion the first decade, $20 
trillion the second, $65 trillion the third. Net private asset 
base of America is $116 trillion. I mean, there is the 
magnitude of the problem.
    But would China be pushing the South China Sea, would 
Russia have been so bold to take over Crimea and push into 
Eastern Ukraine, would Iran be rattling its saber as much is it 
is, if America were stronger?
    Ambassador Haass. Senator, it seems to me that strength is 
always a reflection of two things. One is existing capacity and 
the other is the political consensus and will to make use of 
it.
    I think that the perception around the world is less one of 
a question about American capacity and more to what extent we 
are willing and able to use the capacity we have. And that is 
the conclusion that I draw from conversations with people 
around the world.
    Some of it stems from what the United States has chosen to 
do and more important not to do in the Middle East. Some of it 
also stems, quite honestly, from elements of what is seen as 
American political dysfunction. High on my list is, for 
example, the inability to get a consensus to deal with things 
like TPP, which if not passed is ultimately as strategically 
damaging in Asia as what we did not do in Syria was 
strategically damaging for the United States in the Middle 
East.
    Predictability and reliability are the currency of the 
realm, if you are going to be a great power. And I think there 
are real questions now about the United States..
    My hunch is China is doing what it is doing in the South 
China Sea largely as a function of Chinese strategic 
assertiveness. There is an interesting debate going on amongst 
the people I hang out with. It is how much the Chinese are 
turning to foreign policy and, to some extent, satisfying 
nationalism, because it can no longer be satisfied with high 
rates of economic growth. There is a big debate going on about 
that.
    But my general sense is the debt problem is not linked. I 
do not think you can link it to the challenges that we are 
facing in the world now. What worries me, again, is trajectory 
and future, that it will raise questions about capacity, 
reliability, and will.
    So it seems to me it is part of a package of looming 
questions over America's ability to lead and act in the world.
    Senator Johnson. Again, you talked about willingness and 
capacity, and they are two different sides of a similar 
equation, though.
    Isn't it true that our adversaries--let's hope they do not 
become our full-blown enemies--sense a growing weakness? And 
doesn't that embolden them?
    Ambassador Haass. Absolutely. Again, people are constantly 
taking our measure, and they are taking our measure about what 
it is we are able to do, what it is we are prepared to do. This 
is everything from international things we do in the world to 
things we do at home. And I think that what you always want to 
do with countries that are either existing or potential 
adversaries is you want to let them know if they act in certain 
assertive or aggressive ways, they are going to be frustrated, 
shall we say.
    On the other hand, they do have other options. What you 
want to do is steer, say whether it is a country like China or 
Russia, toward a a constructive pattern or behavior, rather 
than overthrowing or overturning the applecart. They would say 
that would be a mistake, and instead, they are going to, at 
least in limited ways, cooperate.
    What that suggests to me is you need a combination of 
strength to push back, basically a hedging strategy. On the 
other hand, you want to have diplomatic openings available that 
are reasonable. You need the combination in how you approach 
any country.
    Senator Johnson. But it is definitely true not only is our 
willingness reduced, but our capacity, our capability, has been 
reduced, correct? We used to have almost an 800-ship Navy. Now 
we are under 300. And our adversaries, our potential enemies, 
know that.
    Ambassador Haass. There is no substitute for local military 
capability. If we are talking about a rebalancing towards the 
Asia-Pacific, we need to have the air forces and naval forces 
on the scene.
    You never want to put the Commander in Chief in a position 
that something happens and your only response is either delay 
or escalation. You do want to have local responses available. 
It is the best way both to deter, but also to respond in a way 
that does not need to be something much bigger than you would 
really would like to see.
    Senator Johnson. I think your third point was leave the 
United States more vulnerable to the machinations of 
government. Go through a scenario of what your concern would 
be. Let's say China decided to take $1.2, $1.3 trillion worth 
of its debt and start selling it.
    Can you kind of go through that scenario for me?
    Ambassador Haass. That is basically it. Where you have a 
situation where--we will use China as the example--there is 
confrontation between the United States and China over the 
South China Sea, over Taiwan, something between Japan and 
China, we have alliance relationships that would likely bring 
us in. I would never want to see the Chinese think one of the 
ways they could leverage us and get us to think twice about 
taking certain actions potentially on behalf of allies, 
thinking about the economic pressure they could put on this. It 
would not take necessarily that much, in terms of an 
announcement they were not going to continue to acquire debt or 
an announcement that they were maybe going to sell some.
    I understand there are people on the other side of this 
debate who would say they would never do that. It would mean 
they were shooting themselves in the foot twice over because 
they are large owners of American dollars and they would not 
want to see their holdings devalued. They obviously have a 
stake in their continued ability to export to us. But we should 
not kid ourselves.
    If the Chinese saw a vital national interest like Taiwan at 
stake or something with Japan in the South China Sea, they may 
very well calculate it is better to take a short-term economic 
hit and protect its nationalist interests, as they see it, than 
think about their own long-term economic health.
    Senator Johnson. And the harm that would cause America, if 
somebody starts flooding the market with bonds, that is 
potentially going to drive up the cost of interest, which again 
starts taking away resources for other things in America.
    Ambassador Haass. It is not just a matter of a crisis where 
you have geopolitical overtones. I do not want, if you will, 
the world to wake up where markets basically decide the United 
States is on an unsustainable trajectory, and then people start 
demanding higher returns in order to continue to lend us money.
    I used the phrase before, that is a vicious cycle, not a 
virtuous one, because it gets more expensive for us to borrow. 
That, in turn, slows down the economy. And that is exactly the 
path we do not want to get on.
    Again, the good news is we can avoid putting ourselves in 
that position, but we have to take action. It is not going to 
sort itself out by itself.
    Senator Johnson. Thank you. Thank you, Mr. Chairman.
    The Chairman. Senator Murphy?
    Senator Murphy. Thank you very much, Mr. Chairman and 
Ranking Member.
    Welcome to our guests. Count me amongst those who think 
that this is a very important hearing to have. Count me amongst 
those who are worried about the trendlines of American 
borrowing and debt.
    Certainly, as the father of a 7-year-old and a 4-year-old, 
I think every day about the burdens that we are leaving to the 
next generation, if we do not make smart decisions about both 
spending and revenue.
    But I also feel as if we have been having this discussion 
over the course of 30 years, that we have been told about the 
apocalyptic global implications of American debt for a very 
long time, and I think you can make a fairly serious argument 
that we have yet to see those predictions come true.
    I wanted to just posit an alternative scenario to both of 
you, as to how to read the last 5 to 8 years of American 
economic and political experience. It certainly has been a time 
of rising debt. Well, deficits have been declining. Debt, 
certainly, has been expanding. So there is no way around that.
    But there is also the story of truly exceptional economic 
and political flexibility that is exceptional relative to the 
way the rest of the world has dealt with the economic fallout 
of the Great Recession. It was this country alone amongst 
equals that was able to engage in pretty classic 
countercyclical economics, driving deficits up to 10 percent of 
GDP and then, through a combination of spending discipline and 
tax increases, driving them down to 3 percent of GDP.
    It was this political infrastructure, as dysfunctional as 
it is, that was responsible for saving two major industries, 
the auto industry and the financial industry.
    You can tell a story of the risk presented to the American 
model, I think as Mr. Haass put it, the risk that we detract 
from the appeal of the American political and economic model, 
purely through the prism of debt. But I would argue that as 
much as we still have to pay attention to that underlying 
liability, that the story of our economic recovery and of our 
relative political flexibility to deal with major challenges, 
frankly, over the course of the past 10 years, has been a 
pretty good advertisement for the American model, warts and 
all.
    That is my theory. Let me ask you, Ms. Tanden, and you, Mr. 
Haass, to reflect on what the global community, in particular 
market makers around the world, have taken from the story of 
America's economic recovery, and whether or not that does 
provide a pretty substantial counterbalance to risks that come 
from increased debt, in terms of the attractiveness of the 
American economic model. I am not talking about some of these 
other questions about what the logistical concerns are 
regarding other countries holding our debt.
    In terms of the attractiveness of the American political 
model, isn't there another story here?
    Ms. Tanden. I would agree. I would say that, first and 
foremost, there is a way for markets, not governments, but 
markets, to assess the risk of our national debt. It is long-
term interest rates, so we have that sense, day-to-day.
    And I want to note, once again, that long-term interest 
rates are currently at very low levels, both in the U.S. and 
around the world. But, to speak to your braoder point, I think 
the reality is that if you look at the United States vis-a-vis 
our competitors and allies, where there is often a lot of 
overlap, the United States has been more flexible.
    That is one of the reasons why--unlike some of our allies--
we are currently attracting investment. We have ways to 
determine how the global economy is looking at the United 
States. And the levels of investment in our country compared to 
other economies is one of them. That is a positive story.
    Europe has taken steps toward austerity. Their growth rate 
is lower. But beyond Europe, we are also seeing issues in the 
developing world.
    China's position this year, and the steps it took vis-a-vis 
its stock market, has created a real lack of confidence in the 
world. Whereas, the United States has a free and open market.
    I think it's hard to argue that our political institutions 
function very well all the time. But if you look at our p 
osition on the global scale--if you zoom out and look at it 
from a 60,000-foot perspective--the United States has taken 
stronger steps that have created more support for growth than 
many other countries over the last several years.
    Ambassador Haass. Senator, I actually think many aspects of 
the U.S. response to 2008 was both, in absolute and relative 
terms, admirable. Some of the individuals involved did fairly 
heroic things, from Secretary Paulson to Ben Bernanke, Tim 
Geithner and others.
    The debt, though, is a different issue. The debt is a long-
term issue, and there are two things that really concern me.
    One is demographics. Demographics are supertankers. You can 
see where they are heading, and we are heading to a society 
where the ratio of elderly and retired, vis-a-vis those who are 
working age, is going to move in a direction that we do not 
necessarily want to see. In self-interest, I am happy about it 
because, hopefully, I will be one of those elderly people. But 
the future is one of working people who are going to have to 
support a large number of retirees.
    And the big driver of debt is going to be entitlements. You 
look at Medicare even with slowing down of the curve or bending 
of the curve on cost increases, the day is going to come where 
Medicare is going to drive out a lot of other spending. Social 
Security will contribute to it.
    And secondly, rates. We are not talking about where rates 
are now or in 3 years or 5 years. But just by historic terms, 
rates are much closer to lows than they are to highs. It would 
not take a big upward movement in rates to have a tremendous 
impact on the burden of debt financing.
    So again, it may be that people like me are wrong and that 
we are exaggerating the potential risk. It is a little bit like 
fire insurance or preventive medicine. My instincts are, let's 
think about what would be a sensible premium. On the off chance 
I am right, and when we think about the obligation to the 
future, I think it would be criminal as a society--or 
negligent, I will use a better word--for us not to do certain 
sorts of things to put us on a safer trajectory.
    If it turns out the debt problem is not as bad as people 
like me think, we will not have paid a great deal. We will not 
have bankrupted ourselves. We will not have killed off American 
economic growth. But on the chance that people like me are 
closer to being right than wrong, then I think it would be seen 
as an extraordinarily wise investment to do something about it.
    Senator Murphy. Mr. Chairman, I would just recommend to 
everyone a simple table that talks about the average age of the 
United States and all of our competitor countries relative to 
today and 2030, because demographics is certainly something we 
should be concerned with, but is actually another success story 
of the American political and economic model. Between now and 
2030, we age by 2 years, and we actually go from being 4 years 
older on average than China to 4 years younger than China. Our 
European competitors are going to be in average ages of the 
high 40s and 50s.
    So I agree that Medicare is an enormous liability, but our 
history of immigration policy is also part of something that 
should make us feel pretty good about our model.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    I have my first interjection. These hearings sometimes 
surprise you. I thought that likely there would be an agreement 
that, strategically, for our Nation, having large amounts of 
debt over time is a problem. I am hearing that as long as you 
can outrun the slowest runner when a bear is chasing you, you 
are in great shape.
    This hearing is of great surprise to me. Certainly, how you 
solve the problem, there could be some disagreement. But the 
fact that we have people sitting on each side of the dais, some 
of whom perceive that ad infinitum debt with the demographic 
changes that are taking place is not a strategic foreign policy 
issue, not a strategic national security issue, is stunning to 
me.
    So this is quite an awakening moment to me. It is somewhat 
depressing, but quite awakening.
    Senator Perdue?
    Senator Murphy. To be fair, Mr. Chairman, I am not sure 
that I would paraphrase my remarks in the same way that you 
did.
    The Chairman. I am paraphrasing a number of comments, 
including a witness.
    But again, I would think that most Americans would agree 
that having the amount of indebtedness we have with the 
trajectory we are on is a problem for our Nation, not just from 
the standpoint of the middle class and economic growth and the 
lack of productivity that comes with lots of debt over time. We 
might disagree with how to solve that. I would expect that, of 
course. That is the debate that we have not had that our Nation 
should have, and the purpose of this hearing is to bring 
awareness to the fact that it is a national security issue, 
too. It is not just an issue relative to our balance sheet and 
deficits.
    But generally speaking, I do hear a lack of concern about 
that, which is somewhat surprising.
    Senator Perdue?
    Senator Perdue. Well, thank you for this hearing.
    As was mentioned earlier, we had a budget meeting this 
morning. The head of the GAO came in and talked about the 
budget, the process. And we will see another estimate coming 
from them tomorrow on certain aspects of our Federal spending.
    But I want to put this in perspective. I think the country 
faces two very serious crises right now, and they are 
interrelated. One is we have a global security crisis, and I 
see it on several fronts, five major levels that we are facing 
as a country.
    One is we have the rise of traditional powers, Russia and 
China.
    Second, we have the terrorist rise. ISIS right now has 
relationships around the globe, and they have a reach around 
the globe that we just have not seen in modern history.
    The third is this threat of nuclear proliferation among 
rogue nations. With the collaboration between North Korea and 
Iran right now, the JCPOA notwithstanding, they both are moving 
in that direction.
    The fourth is cyber. What we see going on in cyber warfare 
right now, with what Russia is doing in Eastern Europe, is 
profound. What we see on our own shores with cyber warfare is 
not to be ignored.
    And then last, the thing that we do not really talk about, 
is the arms race in space.
    So all these things create a pressure on our ability to 
deal with the global security crisis.
    I just got back from a week in the Middle East, and I can 
tell you, things are not getting better there. They are getting 
much worse on a humanitarian level as well as a security level. 
Development is taking a backseat.
    You talk about the middle class. The middle class is 
evaporating in the Middle East. It is not just declining. It is 
evaporating. Eleven million people in Syria are on the road 
going somewhere.
    So we have a huge problem there. The very time that we face 
this increasing threat to our country and the free world, by 
the way, we are spending less on the military than we have in 
50 years as a percentage of GDP, 3.1 percent. If that were to 
compare to just the 30-year average, adjusted taking the surge 
out, that is about 100 basis points less than the 30-year 
average, which is about $200 billion today.
    Now, I am not espousing that we are spending $200 billion 
less. I would like to see some efficiency made in the military, 
but I think it is really important to note that we are sitting 
on the smallest Army since World War II, the smallest Navy 
since World War I, and the oldest and smallest Air Force ever. 
I just do not understand it.
    Even Secretary Gates, in his last budget, for fiscal year 
2016, he proposed a budget that is some $66 billion greater 
than what we are spending right now. Now, those are real 
numbers.
    I have just seen, personally, how it affects our ability to 
affect the mission we have. Let me just give you an example 
very quickly.
    In Moron, Spain, we stood up 1.5 years ago, a Marine 
contingent to defend our Embassies in Africa. That is their 
only mission in life. They have 12 Osprey, V-22 airplanes. They 
are self-contained. They are mobile. They can get there in a 
matter of hours. The problem is that by having 12 planes over 
there and the delay in buying future V-22s, we now have to move 
six planes back. That cuts their ability in half. That means 
they can only defend one Embassy at a time in Africa.
    What that means is, if someone has a minor incident and 
they mobilize and go down to them, effectively what we need to 
do in most other Embassies is evacuate, because we do not have 
the ability to back up our defense. We can talk about JSTARS. 
We can talk about the human capital issue.
    But I think the bottom line is that we have increased 
threats. We have a question about if we are spending on the 
right priorities to defend our country and really to protect 
alliances around the world.
    At the same time then, as you have a global security 
crisis, you have a debt crisis. I am sorry. I am just a 
business guy, but here the realities. I mean, I do not 
understand why this is even a debate, honest to God, I do not. 
I mean, $19 trillion in debt, we talk about 75 percent of GDP. 
I feel like the Federal Government owes Social Security and 
they owe the trust fund for Medicare those dollars. Those are 
not to be ignored.
    So I talk about it being over 100 percent of GDP today and 
over $100 trillion in future unfunded liabilities that nobody 
wants to talk about.
    The interest rate today is so arbitrary. In 7 years, we 
have not adjusted interest rates. We had one in December, the 
first time the Fed has adjusted interest rates in 7 years, 
unprecedented.
    And that quarter-point increase in the interest rate 
effectively means $50 billion each year of new interest--$50 
billion. Imagine what that would do to AIDS. Imagine what that 
would do to Alzheimer's or cancer research, or to help build 
the middle class with economic development.
    Ms. Tanden, I agree 100 percent. Our goal right now is to 
build the middle class. It is under great jeopardy. It is in 
great jeopardy. Our economy is suffering through the worst 
recovery in 70 years. I understand the number of months of 
positive GDP growth, et cetera, et cetera. But there is no 
denying this economy is sitting down. $4.5 trillion the Fed has 
put into the economy is not working. Why? Because of our fiscal 
policies from this place here in Washington.
    I am a business guy. I can go on all day about why this 
economy is not growing, but I want to get to the question, very 
quickly.
    In the last 7 years, Dr. Haass, we borrowed 35 percent of 
what we spent as the Federal Government. We spent $25 trillion 
running the government. We borrowed $9 trillion. In the next 10 
years, the CBO says we are going to add another $9 trillion in 
debt, which is about 25 percent of what we will spend.
    So the bottom line, it says that mandatory spending is 70 
percent of our budget. That means that every dollar we spend on 
discretionary spending, that is military and nonmilitary 
discretionary, in my definition is borrowed, because the first 
dollars that come in go to mandatory.
    We cannot sustain that. There is no way this is 
sustainable.
    You have the best characterization that I have heard it, 
and I want you to expound on it. It is a slow-motion crisis. I 
have never heard anybody else talk about that. But you said the 
bad news is that slow-motion crises generate little or no sense 
of priority, but rather tend to promote complacency. Combine 
that with political gridlock here in Washington, and you can 
see why the approval rating of this body is 7 percent. You can 
see why Bernie Sanders and Donald Trump are doing what they are 
doing in the presidential race.
    So my question is, as an outside adviser, how do we break 
through to create the sense of urgency? And are we charting the 
right course, relative to debt being a threat to national 
security, from foreign policy?
    This is a bipartisan committee. I think we find common 
ground, that, economically, we are going to help the middle 
class. But I think the realization that we have to come to is 
that this is not just a crisis for our kids and grandkids. I am 
telling you right now, it is here right now.
    So I am asking you, as an adviser who has a picture of this 
thing, if interest rates were to go up to their 50-year average 
of 5 percent, we would be paying $1 trillion in interest. There 
is physically no way on a $4 trillion budget to do that. So 
please help us with some advice about how to break through 
here.
    Ambassador Haass. I feel like the kid in class who just got 
asked the toughest question. I will pick up on one thing that 
you said, and then I will do my best to answer it.
    I think it is important, and it gets back to some of the 
previous exchanges, we are not just like everybody else. We 
have responsibilities in the world. To say that we have come 
out of the recession slightly better than others, or our 
demographic picture is not as bad as others, that does not give 
me a lot of comfort.
    We have a role in the world, which is qualitatively 
different. There is no other country that plays such a role in 
the world to promote global order, and there is no alternative 
to us. This is not bragging. This is not saying we can do it 
alone. But we do have a unique role.
    So we have to have capacities that others do not have to 
have. The dollar plays a role that no other currency plays. The 
U.S. is a model that no other country is.
    So I think the United States is to some extent sui generis. 
It is one of the reasons the debt problem and the trajectory 
worries me so much.
    I do not think it is fair or smart to say we are better off 
than others. The question is where we are and are we heading 
where we need to be.
    Senator Perdue. I am sorry to interrupt. We are also 
subsidizing our allies who are spending, on average, much less 
than 2 percent of their GDP as well.
    Ambassador Haass. That is true. But when it comes to our 
allies, we have to remind ourselves that one of the reasons we 
support our allies is not as a favor to them. It is a favor to 
ourselves. I believe we have gotten extraordinary return on our 
investment in Europe and Asia.
    Senator Perdue. I agree.
    Ambassador Haass. When I look at the history of the last 75 
years, essentially, it is remarkable history from the vantage 
point of American national security, both in what has happened 
and what has not happened. One of the reasons is that we have 
been so supportive of our allies.
    To answer your question, though, about how we change the 
conversation, I actually think it is part of a larger 
conversation, sir. I think it is part of a conversation where 
we take some of these issues like debt, and we connect it to 
national security, which is the logic of this hearing today. It 
involves a larger, pardon the expression, public education role 
about why the world matters, how it affects us, and the future 
of this country, what happens, if you will, to the 320 million 
Americans, how it is not something that we alone are going to 
determine.
    We are going to be dramatically and directly affected by 
what happens amongst the other 95 percent of the people in the 
world, what happens in questions of regional stability, the 
ability of the globe to deal with some of the challenges you 
mention, from cyber to proliferation.
    So I think the way to have an informed public debate on the 
consequences of our debt and its trajectory for national 
security is really to embed it in a larger debate about the 
consequences of what happens in the world for the welfare, the 
prosperity, and the security of the United States.
    What worries me is Americans often just do not see the 
connections between what goes on out there and what goes on and 
will go on here. I think it is actually a public education 
challenge for people in your position and for people in mine 
and others.
    Senator Perdue. Thank you.
    Ms. Tanden. May I respond, just briefly?
    Senator Perdue. Please.
    Ms. Tanden. I just want to make the broader connection 
between the decisions Congress makes or can make, and the issue 
of economic growth.
    So just as an example: large-scale investments in 
infrastructure generally--as you see in other countries--
improve productivity of the economy and help foster economic 
growth. While I absolutely agree that we do have to address the 
long-term debt in the United States,. we should do that in a 
reasonable way, and I would agree with Ambassador Haass that 
there are ways to do that.
    But we also have to think about how the decisions Congress 
is making today are affecting economic growth and productivity. 
For example, on issues like the investments we can make in 
infrastructure, where there has been continued bipartisan 
support, investment actually improves productivity and over the 
long run helps address the long-run challenges around deficits 
and debt.
    The stronger the economy is, the faster it is, the more 
heat there is to the economy, and that affects our debt numbers 
as well. So, I would just point out that there are decisions we 
all make today that can have that kind of impact.
    Senator Perdue. May I just quickly?
    The Chairman. Sure.
    Senator Perdue. I could not agree more. We have been 
looking for common ground, and here it is. There is an 
interconnectivity between growing the economy and the debt. You 
are not going to solve the debt crisis over the next 30 years 
just by growing economy, but you are not going to do it without 
doing it as well.
    You have to deal with Social Security and Medicare, which 
is 800-pound gorilla in the room, which also affects the 
economy itself. The drain on resources to support that takes 
away from investments in infrastructure. We see it right now in 
this very budget that we are dealing with today.
    So I see this as a very major part of a long-term plan.
    You said it best, Dr. Haass. This is not something that is 
going to be solved in next year's budget. We got here over 70 
years. It is going to--actually, in the last 15 years is when 
we created it. In the year 2000, we had $6 trillion of debt. 
Under the Bush administration, we added $4 trillion. It went to 
$10 trillion. Now we are up to $19 trillion.
    There are no innocent parties up here. We are all guilty of 
this. Someone said in testimony that we have seen the enemy and 
it is you guys, talking about us. And it is right.
    So the way out of here, I believe, is to save Social 
Security and Medicare, get the economy growing, solve this 
budget process, fix that, and get at the underlying cost of 
health care, which is driving the Medicare costs so 
dramatically. So I think there is common ground here.
    In this committee, what I am worried about is the 
interconnectivity with this national security issue that we 
have as a Nation and to fulfill our mission around the world to 
protect our national interests, but also our security here at 
home.
    Thank you both.
    The Chairman. Before moving to Senator Flake, I will make 
another interjection.
    I could not agree more on the infrastructure issue. And, 
unfortunately, what both sides of the aisle have been willing 
to do is to build infrastructure, but not pay for it. So we 
create these gimmicks. This last go-round was pretty remarkable 
in its gimmickry.
    I would just say, again, if it is important to have 
infrastructure, and as I believe it is, and if it is one of 
those things that actually drives the economy, would it not 
make sense that we actually paid for it? It is that 
fecklessness, that unwillingness to face up to the importance 
of things like that and pay for it that is, to me, creating 
this significant, down-the-road crisis that is happening over 
time for national security issues.
    Ms. Tanden. I just want to point to another area of comity 
where we very much agree that we should pay for infrastructure.
    The Chairman. And, of course, I am sorry, here in Congress, 
we run from those issues. And we are creating, unfortunately, I 
believe, a crisis down the road.
    Ambassador Haass. One thing about infrastructure really 
quickly, because one of the things I really like about this 
hearing is it takes an economic issue and blends it with 
national security.
    Infrastructure is the same thing. Beyond what it may do for 
jobs, it does two other things. It enhances American 
competitiveness, which is a national security issue. It also 
makes us much more resilient. It does not matter whether it is 
a manmade terrorist-type thing, or it is a storm, 
infrastructure enhances American resilience.
    It is a national security issue. And I think when Congress 
looks at it, it needs to look at it I think as much through 
that prism as it does through any budgetary prism.
    The Chairman. Again, just to add to it, we decided to drain 
our Strategic Petroleum Reserve, which is here for our national 
security, and to make up a number, that we were going to sell 
this oil for $89 a barrel down the road. We just made it up.
    Again, it is just us creating this slow-motion crisis that 
is occurring.
    Senator Flake?
    Senator Flake. Thank you, and thanks for calling this 
hearing. I appreciate the testimony.
    Ambassador Haass, you articulated my greatest fear that I 
often express when people ask what my concern is about the 
future. It is that we will wake up some morning and the 
financial markets will have already decided that they are not 
going to buy our debt, or we will have to do it a premium. And 
interest rates will go up, and then we are in a vicious circle, 
and we are Japan for decades or generations, just lost economic 
growth, and it is just impossible, given the austerity measures 
we would have to implement and what we would have to do, to 
have the economic growth that we need.
    But let me just turn to one aspect of the inability to have 
the resources with regard to soft power. We generically call it 
foreign aid. It is one of the least popular things to defend 
here.
    But if you can talk a little bit about that, not just 
funding our national security commitments abroad, but ensuring 
that we are in a position to defend those interests abroad.
    Say, in Africa, much of our ability to go in and help 
countries combat Boko Haram or al-Shabaab is because of our 
willingness in prior years to help them with the AIDS crisis 
through PEPFAR, or to help with other initiatives.
    Can you talk a little about that, how important that is, 
our engagements around the world, not just in national security 
but prior to that?
    Ambassador Haass. Thank you, sir.
    The first thing to say about foreign assistance is you 
would think we were spending a lot more on it than we are. The 
controversy or the reputation that it has is at variance with 
the facts, as you know, and as everyone sitting up there knows. 
We spend quite modest amounts on it.
    I also think it is useful to differentiate among various 
types of humanitarian aid. I think it is one of the things that 
again, as an American citizen, I feel best about.
    It is interesting that you mentioned PEPFAR. What an 
extraordinary initiative that was. It is good, old-fashioned 
humanitarian aid. It has kept a lot of people alive who would 
not otherwise not be alive. That is just the sort of thing we 
should be doing as a government. We also do more of it as a 
society than any other country in the world. That is something 
Americans can be proud of.
    I differentiate that from developmental kind of aid. It is 
a little bit more complicated, but I think the Millennium 
Challenge effort was a really important and useful intellectual 
and political innovation, because it became much more 
conditional in linking assistance for countries that were, as 
you know, adopting certain types of governance reforms, which, 
again, I thought was good, all of which is different from 
security aid, whether it is in the economic form, ESF, or 
military aid.
    But we need to do all of it. I actually thought, when I was 
in government, one of the most valuable and cheapest forms of 
security aid were things like IMET, the military training and 
educational assistance. For very small amounts of money in 
absolute and relative terms, we could bring people in midcareer 
levels over to the United States staff schools. They would get 
exposed to American theories of civil-military relations, to 
professionalism. They would go back and in many cases rise 
through the military ranks or through the political ranks, they 
would have significant influence within their own societies.
    It was a tremendous investment in promoting rule of law and 
respect for civil-military relations.
    So I actually think, all things being equal, that foreign 
assistance, writ large, turns out to be a pretty good return on 
investment for the United States.
    And it comes back to what we are talking about here, it is 
one of the things you do not want to see crowded out. It is too 
easy for a lot of things to get crowded out, because by the 
time you are paying inerest on the debt, and you are dealing 
with entitlements, national security and discretionary domestic 
spending, they are the collateral damage, if you will, of where 
we are heading on debt, and we have to figure out ways to 
protect them.
    The only way I know how to protect them is some combination 
of dealing with the drivers of debt and adopting policies that 
accelerate economic growth.
    Senator Flake. I appreciate that. It is often humorous to 
hear this discussion about building a wall on the Mexican 
border and having the Mexicans pay for it. Some are saying 
let's just cut off foreign aid, if they will not. That was 
talked about, foreign aid to Mexico. There really is none, 
other than some cooperation on drug initiatives and things like 
that.
    So it is often misunderstood and is often assumed that is a 
lot larger than it really is.
    But I appreciate the comments in this hearing. I do have a 
huge concern. This is bigger than any concern out there, in 
terms of terrorism or nuclear proliferation, because if we do 
not deal with this, we will not be able to respond to any of 
those threats. So it is the root of all of it.
    I do worry that we are really on borrowed time here. The 
point at which other countries will have hit that point where 
the financial markets decide, we have passed that. We are just 
the best house in a bad neighborhood.
    And I do not know how much longer we can go. But what I do 
know is that, once we wake up that morning when the markets 
have already decided, it is too late then without a good deal 
of pain and suffering for a number of years. So I hope we reach 
the realization before it to deal with this.
    And everyone knows what it is going to look like, at least 
the broad parameters. We have to bring in more revenue, not 
necessarily by raising rates, but by closing loopholes on the 
tax code. We have to do some kind of chained CPI on Social 
Security, or limit the growth thereof. Medicare, it is going to 
be some big reforms and means testing.
    I mean, any real solution is going to have those broad 
contours, at least. I just wish we would get to it sooner 
rather than later.
    Thank you, Mr. Chairman.
    The Chairman. Yes, if I could, just again, since I did not 
use my time on the front, most entities in the world try to 
protect themselves from the market fluctuations that occur. 
What I hear so many people in this hearing saying is, well, the 
market has been good to us, so what do we have to worry about? 
The fact is that a great nation or a great company or a great 
entity is constantly thinking about those things that could 
occur and trying to ensure that they have done everything they 
can to protect themselves from it. On the other hand, what we 
are doing is just rolling along and saying these guys have been 
good to us and we are faster than the slowest other country in 
the world, so we are going to be okay.
    I just never expected that to come out of this hearing 
today.
    Senator Rubio?
    Senator Rubio. Thank you. First, I am glad you are holding 
this hearing. It is a very interesting issue that I think 
brings into focus the broader narrative that Mr. Haass spoke 
about.
    One of the things that is happening in this country that 
has led to some of this turmoil and vibrant debate in this 
political cycle has been that the world has changed 
dramatically. We used to be a national economy and to some 
extent still are. But we are deeply impacted more than ever 
before by global currents, global markets, what is happening 
halfway around the world.
    Foreign policy is economic policy more today than it has 
ever been. I think someone used the statistic 5 percent of the 
world. We are 5 percent of the world population, 40 percent of 
its economy, but 5 percent of the world population.
    And the good news is that there are millions of people 
around the world that were once starving who now buy things, 
and they want to buy things from us and trade with us and 
travel. This is an extraordinary development. It is positive, 
but it has implications.
    And it is one of the things that has been so disruptive in 
the political debate, that we no longer fully control 
everything that happens in our economy, because so much of it 
is tied to something that happened in some remote place halfway 
around the world, and the debt is a part of that there.
    The second is this issue of debt. Look, if we were any 
other country looking at these numbers, we would be in a debt 
crisis. The reason why we are not is because the world still 
has confidence in America, because they believe Winston 
Churchill's statement that Americans always get it right after 
they have tried everything else first. And they believe we will 
ultimately get this right, and we will always pay our bills, 
and we will get this straightened out.
    So the stability of our political process, and its ability 
to solve problems, has implications on this as well.
    And I agree with you, Mr. Chairman. I do not know how this 
could be a question that the debt is not an issue, because if 
you think about what happened to Greece, if that were the 
United States, or what is happening in Puerto Rico as a 
territory happened in the broader country, the world would 
freak out. I do not know if this is scientific term for that, 
but I can just tell you the world would flip out. If the U.S., 
the most important and indispensable nation, were to have a 
debt crisis that would call into question its ability to pay 
its bills, it would have dramatic global implications. So this 
is a major issue.
    I would also say that you do not run up an $18 trillion 
debt with one party. This is a bipartisan debt. People say 
there is no bipartisanship in Washington? There most certainly 
is. There is an $18 trillion debt to prove it. Both parties 
have had control at different times, and they have written 
checks that they could not cash, and we are facing the 
consequences of that.
    But part of this debate has led us to this point, and I 
think Senator Flake alluded to it when he talked about foreign 
aid, this concept somehow that if only we did less around the 
world, we could take care of this issue. Foreign aid is the one 
I always hear about.
    When I explain to the people, I think it is 1 percent of 
our budget, maybe? It may be even less. People always use 
foreign aid. ``If you just cut foreign aid, we can pay for'' 
and you fill in the blank. It just does not add up.
    But we never talk about the costs of not engaging in the 
world beyond foreign aid. So now you basically have someone--I 
do not want get into all that.
    Let me just say you, have a major voice in American 
politics today saying we can save a bunch of money, let's just 
get out of NATO. We can save a bunch of money, let's just get 
out of our relationship with Japan and South Korea, and put 
them in charge of their own security.
    I guess what I would ask both of you to comment on is, what 
would the world look like for America--let me just back up to 
one more point. I do not mean to take up all this time, because 
I want you to be able to answer this.
    But part of this economic growth that we benefited from 
would never have happened had the U.S. not helped Europe in the 
aftermath of the Second World War. It would never have happened 
had there not been a NATO.
    It would never have happened had there not been a U.S. 
supporting South Korea for all those years where South Korea's 
economy at one point, and I believe as late as the 1970s, was 
smaller than the North Korean economy. Today, they are the 
ninth largest economy in the world, I believe, and they are a 
contributor to foreign aid. They are a donor, not a recipient.
    Japan is another successful story, a nation we went to war 
with and then helped rebuild, and today is one of our strongest 
alliances in the world.
    So my question is, what would the world look like now, what 
opportunities would we not have, because none of this growth 
that we have had up to now would have been possible without 
those relationships and without that stability? What would the 
world look like economically and ultimately for our ability to 
pay our debts long term, if America were to walk away from its 
security agreements with Japan, with South Korea, and with 
NATO? Each of these are separate.
    Let me close with this, just to be clear that I am on the 
record. I think South Korea this year will contribute $800 
million in defense. The Japanese have stepped up in what they 
are doing in collective self-defense capabilities. And of 
course, NATO needs to be repurposed and modernized to face new 
threats, but the truth is, they are an indispensable part of 
the U.S. role around the world.
    So what are the economic costs and ultimately the impact on 
our ability to pay off the debt if the United States alliance 
with NATO, South Korea, and Japan is called into question?
    Ambassador Haass. Let me just say I would predict that any 
near-term savings would be overwhelmed by medium-term and long-
term costs. It would be penny-wise and pound-foolish.
    One is, your basic premise, Senator, is right, which is 
there has been an enormous economic dividend of global 
stability. If one looks at the last 75 years, the relative 
absence of great power conflict compared to the previous 
century has been a tremendous advantage for ourselves and 
others. The fact that you did not have proliferation by Japan, 
which would have changed the entire dynamic of Japanese-Chinese 
relations; the fact that the Cold War ended peacefully and 
ended in the way it did, with NATO and the West winning and the 
Warsaw Pact and the Soviet Union essentially losing; that all 
created the conditions for the extraordinary economic success 
of these decades.
    I understand that economics feeds into security, but 
security is even more of a prerequisite, I would argue, for 
economic success. So calculations of our, quote, unquote, 
``savings,'' even if the host nation support and offsets you 
mentioned did not exist, I think are way too pinched. It 
ignores the larger historical truth and the dynamics that, if 
we were to do less, others will do more. And that would 
probably be more than the circuits diplomatically could handle.
    I do not want to see Europe get interesting again. I do not 
want to see the Asia-Pacific get real interesting. The part of 
the world that is all too interesting is the Middle East.
    That is the part of the world where the United States is 
now doing appreciably less than it has done in recent history. 
That ought to be something of a strategic warning to us. When 
we are not prepared to play a significant role, the vacuum 
tends to get filled by others who are going to have agendas 
that may be very, very different from our own.
    So yes, it costs us 3 percent, 3.5 percent of GDP to do 
what we do in the name of national security, defense, plus 
intelligence and so forth. It is a bargain. It is a bargain, 
given the strategic and economic benefits.
    I think we have to understand it, and we have to explain 
it.
    Ms. Tanden. I would just add to that. I completely agree 
with Ambassador Haass. I would just add, perhaps to make it a 
tad more pointed, that withdrawing from NATO, creating deep 
military insecurity in the Asia-Pacific region, could have 
devastating economic impacts at any given point. The reality is 
that the United States deeply benefits from stability in Europe 
and in Asia, as does the global economy.
    Asia is a growing source of economic growth. The United 
States is still the strongest area of growth. These are areas 
in which having that security blanket keeps real disruption at 
bay. And the idea that we would withdraw, particularly from the 
Asia-Pacific region at a time where China is taking actions 
that are hard to explain, seems to me would create deep 
economic challenges over the next several decades.
    So, I would say, again, I think there is broader agreement 
on addressing the national debt, but that kind of withdrawal 
would lead to fundamental problems for any aspect of the U.S. 
economy that relates to trade and globalization.
    Senator Rubio. My point in asking that question is that I 
want to be clear that doing all these things that I just 
mentioned will do nothing to deal with the debt, but would, in 
fact, trigger a worsening debt, in my opinion, because of the 
additional costs that would be imposed on our economies. Thank 
you.
    The Chairman. It seems like you felt the need to express 
yourself based on comments you have heard over the course of 
the last several months.
    Senator Rubio. Not only that, but also just kind of seeing 
the world's reaction to this stuff. I mean, they are asking us, 
is this really going to happen? It is having an impact on 
people's psyche. They are wondering where America is headed, 
and they just want some reassurance that this is not going to 
happen.
    The Chairman. Thank you. Thank you so much.
    Ms. Tanden. I am glad you can provide that assurance.
    The Chairman. Senator Markey?
    Senator Markey. Thank you, Mr. Chairman.
    And thank both of you for being here today.
    The way President Obama has viewed his term of office is 
that he has tried to look at areas where there could be a 
pruning in the Federal budget, but at the same time, there has 
to be an investment strategy in health care, in education, in 
infrastructure, in the future.
    That is pretty clearly the only way in which we can compete 
in the long run with our economic rivals around the world. They 
each have a business plan. China has a business plan. Japan has 
a business plan. So we need to be able to say we have a 
business plan as well in our country.
    So if we are not investing in the clean energy sector, if 
we are not investing in NIH, if we are not investing in cyber 
technology, if we are not investing in all of the areas that 
have been identified as growth areas, and if we are not 
educating our population, especially since 15 percent of it is 
going to be minority, and we pull back from those sectors, 
well, we are playing right into the hands of our enemies or our 
rivals, our adversaries, economically. It is just as simple as 
that.
    So while I hear, philosophically, that people want the 
defense budget to be untouched, but, at the same time, the 
Federal deficit has to be reduced dramatically, well, there is 
another word for that. That is the future that you are talking 
about. That is how we project our power. It is through this 
incredible economic resource that we represent to the rest of 
the world.
    Now, I would just like to move for second, if I could, over 
to the defense budget. There is a proposal to have $1 trillion 
of new nuclear weapons systems in our country over the next 20 
years. That is a crazy number, from my perspective. We already 
have more than enough in order to accomplish those goals.
    So I would ask if either of you, since that is kind of the 
context of this discussion, we are in the Foreign Relations 
Committee, the projection of power by nuclear weapons capacity 
has clearly now injected itself into the presidential campaign.
    And I guess my question is, is that a good expenditure for 
the United States, Ms. Tanden, for us to put another $1 
trillion into nuclear weapons? Are we really going to buy 
ourselves $1 trillion worth of additional security in our 
country? Or is it just going to be added on to the already 
unnecessary expenditures in that nuclear area, when we should 
be trying to reduce the number of nuclear weapons that the 
U.S., Russia, China, and others have?
    Ms. Tanden. We definitely believe that we can maintain our 
military strength with a reduced stockpile, so that is not an 
area in which we think we need major expansions.
    But I do want to touch on your broader point. I hope that 
there is also broader agreement on this topic.
    I think it makes sense to think of the decisions we make 
from a competitiveness standpoint. And from that standpoint, in 
my opinion, investments in infrastructure, investments in 
research--at NIH research and in other areas, have led to 
economic competitiveness--from the growth of the pharmaceutical 
industry to other areas where we have made technological 
advancements. The broad point I would make in this hearing is 
that we should undoubtedly address deficits and the long-term 
debt as a challenge for this country.
    And we believe we can take balanced steps to do this. I 
agree with Senator Flake that it does mean additional revenue 
as well as additional savings, in particular areas.
    But the challenge around the debate about debt, over the 
last several years, is it has often meant that we do not make 
those investments necessary to keep our country competitive.
    And I completely take your point that that is, in my view, 
exactly the wrongheaded approach, that we should not forsake 
investments that lead to competitiveness for the U.S. economy 
over the long term because of our concerns about the national 
debt threatening that competitiveness.
    I believe we can actually take smart, balanced steps in 
Congress today to address deficits, while maintaining those 
critical investments. In fact, the Center for American Progress 
has laid out a strategy to get to zero debt.
    Senator Markey. So I ask this question in the context of 
the world in which we are living, looking at the Middle East--
--
    Ms. Tanden. Yes.
    Senator Markey.--looking at other flashpoints around the 
planet. And from my perspective, we just have to learn how to 
work smarter not harder when we are making defense 
expenditures, when our history has been ``all of the above, 
please,'' just keep checking it off.
    So right now, again, the Pentagon wants an air-launched 
nuclear cruise missile. My question is, do we really need a new 
air-launched nuclear cruise missile? Is that going to add to 
our defense, if it comes out of the kinds of programs that we 
need in a modern world where nuclear weapons are not usable?
    We just had a good referendum in America on that issue, 
because if we actually needed to use them, we have plenty right 
now.
    So can you deal with that, Mr. Haass, in terms of budgetary 
priorities from the defense perspective for our country over 
the next generation?
    Ambassador Haass. I would be happy to, Senator.
    First, all things being equal, I do not think the defense 
budget is the place to go if you are thinking about resolving 
the debt issue, point 1. We are talking about just over 3 
percent of GDP.
    To use your number, if we are talking about spending $1 
trillion over 20 years on nuclear systems, we are talking, in 
10 years, about spending over $1 trillion a year on Medicare. 
The spending that is driving the debt will not be defense. It 
is going to be entitlements. Let's not kid ourselves.
    Within defense, if you told me I have to make a choice 
where to put a marginal dollar, I would much prefer to put it 
on various types of conventional systems, sure. I would want to 
think about what we need to maintain, in particular, an 
adequate air and naval presence in the Asia-Pacific, what we 
need to maintain a sufficient air and ground presence on the 
European continent, enough Special Operations Forces to deal 
with counterterrorism in the Middle East and around the world.
    I have not done, Senator, enough of an analysis so I could 
say $500 billion as opposed to $1 trillion or $300 billion on 
nuclear would be sufficient. I am just not up-to-date enough on 
it, so I cannot tell you that.
    All I would say is I do not think the basic debate 
necessarily is this form of defense spending as opposed to that 
form of defense spending. I think we have to look at defense, 
which is one form of discretionary as opposed to other 
discretionary, and even more as opposed to nondiscretionary 
spending.
    And a lot of the conversation here today has been about the 
two largest forms of nondiscretionary spending, which is the 
financing of the debt, given rates, what it costs us to pay for 
the debt, and second of all, entitlements. Those are going to 
be the real drivers here, much more than discretionary domestic 
or national security.
    Senator Markey. I would say, if I may, Mr. Chairman, that 
when you are going over to entitlement programs, you are 
talking about grandma and grandpa, and you are saying they are 
the ones that must sacrifice. They are the ones that have to 
take the cuts. And if you are looking over at Medicaid, 
increasingly Medicaid is a program for grandma or grandpa to be 
able to stay in nursing homes with Alzheimer's, with 
Parkinson's, with these diseases. That is the fastest growing 
part of the Medicaid budget.
    So as we talk about this, we are talking about education, 
health care, infrastructure on the discretionary investment 
side. And if you are looking at nondiscretionary, you are 
looking at grandma and grandpa.
    And realistically, it is not going to happen. People are 
not going to step up and say we are going to dramatically slash 
either Social Security or Medicare or the kinds of Medicaid 
programs that are going to grandma and grandpa in our country. 
So just a realistic discussion about it, and accepting expert 
opinion that this debt that we have is not actually, right now, 
a threat to our country is I think a more realistic and 
honorable way of talking to the American people about it, 
because we are able to honor our obligations.
    At the same time, however, we have to look at the programs 
that should be re-examined. I would actually put the nuclear 
weapons programs in a very high category.
    I am going to make amendment on the floor before the end of 
the year on a lot of these nuclear programs. It will be a 
continuation of kind of the debate that we have been having in 
the country over the last 2 weeks about them, because it is a 
good way for the American people to access how the defense 
community views the kinds of weapon systems that they are 
believing that we need to protect America in the years ahead.
    I think we all saw the horrified reactions of the American 
people when they thought that nuclear weapons were going to 
become more usable in the years ahead. This is something that I 
think is unrealistic, not going to happen, and not anything the 
American people want to have happen.
    But we thank both of you for all of your fantastic service 
to our country.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Isakson?
    Senator Isakson. Thank you, Mr. Chairman. It is a 
fascinating hearing. Thank you for calling it.
    I apologize. I did not hear your testimony, but I read it. 
Listening to the questions, and I am kind of reminded of a 
story about a South Georgia Baptist deacon and his city 
flooded. He got the warning call that if he did not get up on 
his roof, he was going to die. So he got up on the roof of the 
house in the middle of the night and the waters kept rising.
    A boat came by from the Red Cross in a few minutes and 
said, ``Come on, jump in the boat. We'll save you.'' He said, 
``No, the Lord is going to save me. I'm not worried.''
    A few minutes later, another boat came by and said, ``Come 
on, jump in the boat. We're going to save you.'' He said, ``No, 
I don't have to worry. The Lord is going to save me.''
    Then pretty soon a helicopter came over and dropped down a 
harness and said, ``Please get on. The river is about to go 
over your house. You're going to die.'' He said, ``No, don't 
worry about that. The Lord is going to save me.''
    A few minutes later, he was at Saint Peter's gate. And when 
Saint Peter came out, he said, ``What in the world are you 
doing here?'' He said, ``Well, I drowned. The water went over 
my roof.'' Saint Peter said, ``Well, we sent two boats and a 
helicopter to save you. Why didn't you get on?''
    I think sometimes we are not looking at the boats that are 
passing us by to save ourselves.
    I would respectfully disagree that the debt is not a 
crisis. It is a major crisis. One of these days, the water is 
going to go over the roof, and we are going to be caught bad.
    Mr. Haass, you have a great paragraph in here, which I will 
build on for my single statement and a question. You all call 
this a slow-motion crisis, which is like the waters rising and 
finally getting the Baptist deacon. But there are solutions.
    In your testimony, you said that sequester is not one of 
them. It ignores entitlements and favors spending over 
investment and the present over the future.
    With regard to Senator Markey's statement a minute ago 
about Medicare reform and Social Security being about grandma 
and granddad, that is not true. In 1983, when I was 39 years 
old, Ronald Reagan and Tip O'Neill made a deal. They said 
Social Security is going broke in 2015, unless we save it, and 
they came and said, okay, anybody who was born after 1943, you 
are not going to be eligible for Social Security until age 66, 
not age 65.
    I was 39 in 1983. I was born in 1944, so they took away my 
first year of eligibility for Social Security. Then I did not 
know I would live to be 65, first. Second, I did not think the 
government was going to have any money left then anyway. So I 
did not really miss it. When I got to age 66 and finally 
qualified, I did not realize I missed a year.
    So the savings and significant contribution you can make to 
the debt is not about grandma and granddad today. It is about 
my grandchildren and my children.
    Just as the eligibility for Social Security will go to 67 
in a couple more years because that reform, eventually it is 
going to need to go to 68 and then 69 and then to 70. We need 
to reform and calibrate the formula as people live longer and 
they are more productive.
    And the savings are astronomical. Senator Corker was with a 
group that went to the White House. Remember when Ron Johnson 
did the calculation about the true value of the debt a few 
years ago, the debt at that time was $18 trillion. But if you 
take entitlements and leave them to go on their own and you do 
not raise a single dollar in taxes, or spend any more money on 
discretionary spending, the $18 trillion debt went $104 
trillion in 10 years.
    The time value of money and the compounding of interest is 
what all of us have to recognize in this solution. So we have 
to do spending reforms. We have to do revenue, as you said, 
things like that.
    But we need to wake up to the reality that our long-term 
obligations factored now can ease the pain for grandma and 
granddad today but save Social Security for my grandchildren in 
the future.
    Ambassador Haass. Thank you, Senator. I am glad you gave me 
a chance to respond to some extent also to Senator Markey. 
Senator Markey is a good friend, but I do not think framing the 
issue as grandma and grandpa is fair.
    We want to make sure Medicare and Social Security are there 
for grandma and grandpa but also for their kids and grandkids. 
That seems to me that we keep in mind certain statistics.
    If you are 65 years old today, the average American is 
going to live for at least another 20 years. Seventy-five years 
ago, if you were 65, you did not have anything like that kind 
of lifespan ahead of you. So we have to continue to raise 
eligibility ages for both Medicare and for Social Security.
    We have to means test it. It is ridiculous that people who 
are relatively well off, someone like myself, would be in a 
similar position for someone who was impoverished.
    So I think we need to take a look at these programs so, for 
the people who are truly needy, it is there. That is part of 
the social contract. I get it. That is just what we owe these 
people.
    But we have to, again, take into account changing 
demographic realities. We have to take into account questions 
of income and wealth. And then we can adjust these programs, so 
we have the coverage we need as a society.
    That has to be part of the conversation. It cannot be all 
or nothing. These programs are going to have to be adjusted.
    The good news is they can be adjusted so the bulk of these 
programs are there for those Americans who really need them. 
That has to be the goal.
    Ms. Tanden. May I respond?
    Senator Isakson. Sure. Absolutely.
    Ms. Tanden. Is that okay? To the issue of health care 
costs, in particular, and Social Security.
    I think that we should recognize with some note of optimism 
that we've actually seen real changes in the Medicare program. 
If you looked at CBO's projections in January 2010 versus what 
they are currently this decade, they show $1 trillion of 
savings in the Medicare program.
    That is because we have had lower national health 
expenditures. And I think that is partly, although not purely, 
driven by the payment reform changes in the Affordable Care 
Act.
    I think it is important to note that there are more reforms 
we can make to the Medicare program to ensure that 
beneficiaries are not bearing all of the burden of those 
changes.
    I think we have put forward ideas at the Center for 
American Progress that address the way we pay for the Medicare 
program. Those are important parts of a discussion to ensure 
that we have savings over the long term in the entitlement 
programs.
    I think the question is how we balance all of these issues 
together. Certainly, I will say again, that I think it is 
important to address these challenges. But it's also important 
to think about the impact of the decisions Congress makes when 
it chooses to reform entitlements or not invest in education; 
it's important to recognize how these decisions impact real 
people in our country. And Social Security is a good example.
    Retirement savings are dwindling in the United States. 
Fewer people have the same level of savings that they have had 
in previous generations. So when you make a decision to change 
the Social Security system or cut Social Security for 
beneficiaries, that, you are doing so at a time when the 
majority of Social Security beneficiaries have less of a 
retirement cushion than they have had in the past.
    So my view is that no topic should be off the table. Of 
course, we should address all of these issues. But we should 
also consider how these decisions impact people in the context 
of society.
    Just one last point. Raising the Medicare age, I should 
note, actually increases the national health expenditures 
because it shifts costs to the private-employer system and 
increases costs in that way. So I think that is a strategy that 
is not particularly useful to help lower health care costs 
overall.
    Senator Isakson. I will just add a comment. But, and this 
is my important point here, we already means test Medicare 
premiums. You pay your Medicare premium, the amount of your 
premium that you pay to Medicare is in part based on your 
income in the previous tax year. The better your lifestyle was, 
as Mr. Haass, your revenue was, the higher the premium you pay. 
I think it is up to almost $1,000 a month, if you are a very 
wealthy person, versus under $125, if you are not. Those are 
approximate numbers.
    My only comment was, discretionarily, we spend about $1.1 
trillion a year in entitlements and benefit programs and the 
safety net, none of which I am opposed to. We spend about $2.6 
trillion.
    We have to be willing to do in the future what Tip O'Neill 
and Reagan did 33 years ago, and that is look at the out-years, 
the time value of money and the compounding interest, and the 
miracle of discipline. There are a lot of things we can do that 
will not hurt Granny or Granddad, will not hurt the sick and 
elderly, will make our future a lot brighter, and our debt and 
deficit a lot lower.
    We cannot do the whole enchilada on that, but we can do a 
significant part of it because it is the largest contributor to 
the overall debt that we have.
    Thank you very much for your time.
    The Chairman. Thank you.
    I have one question, and then I am going to summarize.
    Ms. Tanden, we have people up here all the time talking 
with us about investments to make our economy stronger and our 
country stronger--infrastructure, education, things like that. 
You would agree, I would hope, that our unwillingness to deal 
with the entitlement issues thus far is what is crowding out 
much of that investment, would you not?
    Ms. Tanden. I guess I would just point out that Congress 
has made a series of decisions that actually have produced 
savings in entitlement programs.
    The Chairman. First of all, on the Social Security issue, I 
agree that there are seniors who are very dependent upon that 
and have put forth policies to say for people like me who had 
some good fortune in life, that mine should not increase nearly 
as rapidly as those people who are more fully dependent upon 
it. That is one way of making this work better for people.
    I agree with you 1,000 percent that the decisions that we 
make here affect real-life people, and we all know people that 
are very dependent upon this, and we need to take that into 
account.
    But let me go back to the competitiveness issue. I do not 
see how anybody could debate that our unwillingness to solve 
with actuarial changes, not draconian changes--our 
unwillingness to deal with the entitlement programs is what it 
is putting the pressure on those things that many people think 
would make our Nation stronger.
    It is our unwillingness over here because of the types of 
comments that Senator Markey made that were heartfelt, but it 
is that that is keeping us from doing much of what you would 
believe, I think, would be things that would make our country 
stronger.
    Ms. Tanden. I actually think that Congress has had a great 
deal of difficulty having an honest discussion about revenues. 
If you go through the last few budget debates, it does seem 
that there was more agreement on issues around entitlements 
than there was on revenues.
    But I have to say I am an outside observer to that process 
and the committee would know better than I. But as an outside 
observer, it has seemed that it has been more difficult for the 
Congress to address the issues around revenue and a balanced 
approach, and I appreciate that Senator Flake and others have 
talked about it in this room. It seems like that has been a 
difficult issue, as well as perhaps entitlements.
    The Chairman. Just for what it is worth, having been in the 
center of those conversations at the White House, and I think 
Senator Isakson was a part of that also, I think the issue has 
been that there is more than an openness on the revenue side, 
as long as people feel that there is a real solution being 
proposed on the other side.
    I think what people do not want to see happen is an 
increase in revenues without commensurate actuarial changes to 
try to solve the other issue. I think people want to put forth 
a solution, not something that is a Band-Aid.
    Did you want to make a comment, Ambassador? I was getting 
ready to summarize, but you look like you wanted to?
    Let me say this, I have had fun jousting with you a little 
bit, Ms. Tanden.
    Ms. Tanden. And here I am.
    The Chairman. You have a very warm personality and have 
some degree of humor, and I appreciate you being here.
    Ms. Tanden. Other people say it is more than that.
    The Chairman. I am sure if I knew you better, I would be 
saying the same thing.
    Before coming in, I expected that we were going to have a 
hearing where there was a central agreement over the fact that 
our national debt is a strategic problem for our country. And, 
by the way, it is such a privilege to serve in this body. Every 
day is like getting a Ph.D. in multiple topics. We have 
incredible access to information here.
    But I thought your testimony, in some ways, was going to be 
fringe testimony, somewhat crackpot in some ways, relative to 
the debt. I am just being honest. I thought it was not going to 
aid the discussion.
    But what I found in listening today is there truly is a 
difference--a huge difference, I might add--on each side of the 
aisle relative to the importance of us not having the kind of 
indebtedness that we have today. That is something that I have 
learned today.
    I am shocked by that, in many ways. It discourages me, 
relative to our Nation actually solving this problem.
    Typically, we have an agreement on the problem; we have a 
disagreement on how to solve the problem. Today, what I find is 
that we have a disagreement as to whether there is a problem or 
not. I find that incredibly discouraging.
    So I want to apologize to you, because actually your 
testimony represents, it appears to me, a widely held view on 
one side of the aisle, which is something that I just did not 
expect out of this meeting.
    Senator Cardin. I know you want to close, but could I just 
impose upon your good humor from one more moment.
    That is, I disagree with that summary, and I just want the 
record to reflect that. I have done some very unpopular things 
to reduce the deficit, including cutting spending, voting for 
spending cuts that were popular, and voting for tax increases, 
which are never popular, in order to reduce the deficit and to 
bring our budget into balance.
    I do not like deficits, particularly when you are wealthy 
enough and strong enough to be able to pay for it. And I think 
America is strong enough and wealthy enough to pay our bills. 
So I do not like deficits.
    But the point, I think, that some of us on the Democratic 
side have been making is that how you deal with the deficit is 
just as important as the deficit. If the consequences of 
dealing with the deficit is to deny the governmental sector, 
which is a critical part of the economy, to function, you can 
hurt the economy and your country. Where if you do not make the 
investments, and it could be in soldiers, it could be in guns, 
it could be in schools, it could be in border infrastructure, 
if you do not make those investments, you are compromising 
America's security.
    But I do not want you to leave with the impression that the 
Democratic side of this committee is insensitive to the 
deficit. We are not. Some of us served in Congress when we 
voted to balance the Federal budget, and we actually got it 
balanced.
    I fully agree that you have to take a look at all aspects. 
Nothing should be left off. You have to look at spending.
    I think you have to look at the tax code, if you want to 
know the truth. I think our tax code is terribly inefficient. 
As I have shown by a proposal that I made on progressive 
consumption tax, you can have the lowest marginal rates in the 
industrial world, and have a more progressive tax code than we 
have today and bring in the revenues you need in order to pay 
our bills.
    So there are ways that we can do this working together. So 
I would hope that, in regard to budget issues, that Democrats 
and Republicans could learn from each other. We are both 
concerned about the debt and deficit.
    I think Democrats are very concerned that there be adequate 
revenues in order to be able to make the investments that we 
think are important for the growth of our Nation. I think 
Republicans are very concerned that we do not hide the cost of 
spending, particularly on mandatory spending, and that we have 
reasonable, foreseeable, affordable programs in the future.
    I think we can listen to each other and learn from each 
other and pass a blueprint that would not only provide for the 
economic growth of our country, but deal with the security 
issues that you have raised, and the reason why we are having 
this hearing, because large, uncontrollable debt can compromise 
America's security, no question about it.
    The Chairman. I would just say that I appreciate you saying 
that. I have been in meetings with you. I remember one of the 
first meetings we had, when I barely knew you, was over fiscal 
issues one evening, and I was surprised, actually, because of 
the State you represent, by your seriousness about that issue.
    I will say again--you didn't hear some of the questioning 
that took place--I was somewhat surprised by some of the 
commentary here, and the thinking that the markets are treating 
us well, we really do not have an issue here that is 
particularly important, as was laid out in Ms. Tanden's 
testimony.
    I am just saying to you, after listening to the entire 
session today, I never would have thought that there would have 
been a difference--sure, as to how to solve it, I got that. 
That is the tough work that has to be done, and both sides are 
going to have to give. And I agree both sides can learn from 
each other.
    But I leave here today with a sense that there is also a 
significant difference among members as to whether this is a 
strategic issue or not. And that is not what I expected to come 
out of this hearing.
    But I thank you both. You have actually spurred one of the 
most interesting discussions we have had here. I appreciate 
your testimony.
    If possible, we would like to leave the record open until 
the close of business Friday. If you could do your best to 
respond to written questions, as soon as you practically can, 
we know you both have day jobs.
    Thank you for your testimony again, and this meeting is 
adjourned.
    [Whereupon, at 4:06 p.m., the hearing was adjourned.]