[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
THE CONGRESSIONAL BUDGET OFFICE'S
BUDGET AND ECONOMIC OUTLOOK
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, FEBRUARY 2, 2017
__________
Serial No. 115-02
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COMMITTEE ON THE BUDGET
DIANE BLACK, Tennessee, Interim Chairman
TODD ROKITA, Indiana, Vice Chairman JOHN A. YARMUTH, Kentucky,
MARIO DIAZ-BALART, Florida Ranking Minority Member
TOM COLE, Oklahoma BARBARA LEE, California
TOM McCLINTOCK, California MICHELLE LUJAN GRISHAM, New Mexico
ROB WOODALL, Georgia SETH MOULTON, Massachusetts
MARK SANFORD, South Carolina HAKEEM S. JEFFRIES, New York
STEVE WOMACK, Arkansas BRIAN HIGGINS, New York
DAVE BRAT, Virginia SUZAN K. DelBENE, Washington
GLENN GROTHMAN, Wisconsin DEBBIE WASSERMAN SCHULTZ, Florida
GARY J. PALMER, Alabama BRENDAN F. BOYLE, Pennsylvania
BRUCE WESTERMAN, Arkansas RO KHANNA, California
JAMES B. RENACCI, Ohio PRAMILA JAYAPAL, Washington
BILL JOHNSON, Ohio Vice Ranking Minority Member
JASON SMITH, Missouri SALUD O. CARBAJAL, California
JASON LEWIS, Minnesota SHEILA JACKSON LEE, Texas
JACK BERGMAN, Michigan JANICE D. SCHAKOWSKY, Illinois
JOHN J. FASO, New York
LLOYD SMUCKER, Pennsylvania
MATT GAETZ, Florida
JODEY C. ARRINGTON, Texas
A. DREW FERGUSON IV, Georgia
Professional Staff
Richard E. May, Staff Director
Ellen Balis, Minority Staff Director
C O N T E N T S
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Page
Hearing held in Washington, D.C., February 2, 2017............... 1
Hon. Diane Black, Interim Chairman, Committee on the Budget...... 1
Prepared statement of........................................ 4
Hon. John A. Yarmuth, Ranking Member, Committee on the Budget.... 6
Prepared statement of........................................ 8
Keith Hall, Ph.D., Director, Congressional Budget Office......... 10
Prepared statement of........................................ 12
Hon. Tom McClintock, Member, Committee on the Budget, questions
submitted for the record....................................... 52
Hon. Todd Rokita, Vice Chairman, Committee on the Budget,
questions submitted for the record............................. 53
Director Hall's responses to questions submitted for the record.. 54
THE CONGRESSIONAL BUDGET OFFICE'S BUDGET AND ECONOMIC OUTLOOK
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THURSDAY, FEBRUARY 2, 2017
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 10:00 a.m., in Room
1334, Longworth House Office Building, Hon. Diane Black
[interim chairman of the committee] presiding.
Present: Representatives Black, Cole, McClintock, Sanford,
Grothman, Renacci, Johnson, Lewis, Faso, Smucker, Arrington,
Ferguson, Yarmuth, Moulton, Jeffries, Higgins, DelBene,
Wasserman Schultz, and Khanna.
Interim Chair Black. The hearing will come to order.
Welcome to the Committee on the Budget Hearing on the
Congressional Budget Office's Budget and Outlook. I want to
thank everyone for being here this morning. We are holding this
hearing today to discuss the Congressional Budget Office's
budget and economic outlook which gives us a 10 year projection
of our spending, our national debt, and how the economy is
going to perform over the next decade.
The report forms the cornerstone of the work we do here at
the House Budget Committee, and I want to thank everyone at the
CBO for their hard work in producing this report. I would also
like to welcome the CBO director, Keith Hall. Director Hall, I
do appreciate your taking the time to testify today, and I look
forward to your insight as we discuss this report.
The discussion we will have today is a serious one because
as CBO indicates, we face enormous fiscal and economic
challenges. Deficits are beginning to rise again and economic
growth continues to be subpar. Legacies of the last
administration's policies that encourage more spending, more
debt, and more government. These challenges have a real impact
on every person in this country.
The numbers we are reviewing today affect the ability of
every American to buy groceries, obtain a loan, to start a
small business, or to get a good return on their retirement
plan. We know this to be the case because CBO's report is
telling us of what would happen if we kept President Obama's
policies in place. Without any changes to the current law, the
deficit would rise from $587 billion in fiscal year 2016 to
$1.4 trillion in fiscal year 2027. And during that same time
period, our national debt will jump to $30 trillion.
To put that in human terms, that is $93,000 for every
American. And for a lot of folks, that is about what it costs
to buy a home. CBO tells us that this ever-increasing debt
spiral will hamper economic growth and consign the country to a
lower standard of living.
As a grandmother, I want my grandchildren to have every
opportunity that I did. But on our current path, the dream of a
good job or owning a home and sending their kids to college is
becoming harder and harder. Much of this unsustainable fiscal
path is driven by projected spending for Medicare, Medicaid,
and Social Security over the next decade. But without reforms,
these programs are going to fail our seniors who have worked
hard and paid into them for their entire lives.
To compound these problems, economic growth is set to
average at a morbid 1.9 percent over the coming decade, well
below the historic average of just over three percent.
Slow economic growth hurts our country in multiple ways. It
means fewer jobs and less opportunities for Americans, it means
smaller paychecks and less financial security for those
Americans who have a job. In fact, more than 5 million
Americans are working part-time because they cannot find a
fulltime job.
That means that we got welders, computer technicians,
nurses, and people in all sorts of industries who want to
contribute to our economy, but they are being let down by the
rules and regulations coming out of Washington. The problem is
particularly acute among men.
One of the key symptoms of this subpar economic recovery
has been the decline in the labor workforce participant rate of
those of primary working age. And here is a story from a
gentleman named Chris back in my own district in Tennessee.
He said he was laid off just last year, and in his letter,
he said this to me, and I want to quote, I worked at this job
for 7 years. I am a hard worker and I have never tried for any
government assistance. I am positive I will have a job soon,
but I have been without a paycheck for months now, and if I
have to wait anymore, I will have no money for utilities or
support for me, my wife and 7-year-old.
Now, it is pretty clear that Chris is exactly the type of
worker that makes our economy the best in the world, and he is
a good husband and father who wants to take care of his family.
Chris wants to make our country stronger, and it is our job to
help give him that opportunity. A job is so much more than the
way we pay for rent or put gas in our car. A job helps us to
define ourselves. It gives people a sense of purpose. It helps
to build communities, and it can break cycles of poverty, and
when Americans have a steady job, they know the dignity of
work.
CBO's report tells us what will happen if we do nothing,
but that is certainly not the only choice we have. We can
choose to get our fiscal house back under control. We can
choose to get our economy growing again so that it works for
men and women of this country. And here, at the House Budget
Committee, that is exactly what we intend to do.
Director Hall, thank you again for being here, and I look
forward to your testimony in how I can help guide us informing
the best policies to hold the Federal Government accountable,
grow our economy, and serve the American people. And with that,
I yield to my ranking member, Mr. Yarmuth.
[The prepared statement of Interim Chair Black follows:]
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Mr. Yarmuth. Thank you, Chairman Black, and thank you,
Director Hall for appearing before us today to outline CBO's
updated economic and budget outlook. Long-term outlook remains
troubling, of course. We are a few years away from an increase
in Federal deficits and debt driven by the increased healthcare
and retirement costs of an older population.
Your report outlines our circumstances as a new
administration takes office. Total deficits over 10 years are
essentially the same as you projected in August. You projected
this year's deficit to be lower than last year's and next
year's to be lower still, and as your report says, the economy
is currently on solid ground. That is a much better starting
point than President Obama faced 8 years ago. President Obama
inherited an economy in freefall. The country was in the midst
of the deepest recession in generations, losing nearly 800,000
jobs per month.
In its January 2009 outlook, CBO was projecting a deficit
of more than $1 trillion and the economy was projected to
shrink by 2.2 percent. That turned out to be optimistic. In
contrast, President Trump is inheriting a healthy economy.
The economy has added 15.8 million private sector jobs
since 2010. The unemployment rate is less than half its 2009
peak, and the budget deficit has fallen by more than $800
billion, a nearly two-thirds reduction as a share of the
economy. This year's CBO report projects that the economy will
grow at a 2.3 percent rate. Job creation will also grow at a
steady rate, and the deficit will shrink over the next 2 years.
What a difference 8 years makes. President Obama's economic
agenda is also paying dividends on many other fronts. Tens of
millions of Americans now have the economic security that comes
with having health coverage and thereby being free from fears
of an accident or illness sending them into bankruptcy. Stock
market has tripled in value, the auto industry has recovered
from a near death experience, manufacturing has added jobs for
the first time since the 1990s, and wages have begun to grow at
a healthy pace.
The financial industry is better capitalized and more
secure with stronger protections for consumers. We have
dramatically reduced our dependence on foreign oil and
increased our production of renewable energy. Housing prices
have largely recovered and millions of home owners are no
longer under water on their mortgages. I could go on and on,
and I probably should because I know my colleagues on the other
side of the aisle will present an alternative reality.
I am dealing in facts, and the fact is this Congress and
the new Trump administration are getting ready to take our
country down a far different path. Republican leadership is
moving to repeal the Affordable Care Act with no plan to
replace it. Thirty-two million people will lose health
coverage, premiums will double, and we will return to the days
when insurance companies decide who lives and who dies. House
Republicans are planning deep tax cuts and a rollback of
financial protections. Recent Republican Presidents have tried
this approach.
Each time, it resulted in skyrocketing deficits, a
recession, and ultimately a financial crisis, the most recent
of which brought our country to the brink of total collapse. I
was briefed by Paulson and Bernanke in 2008. I know how close
our Nation came to having the lights go out. The American
people cannot afford for us to make those same mistakes again.
Finally, I want to raise the issue of immigration. It has
been heart wrenching to see the immediate impact of the
President's executive order during the past week. It is
discouraging that the first immigration action of this White
House separated families, vilified the innocent, and will fail
to make our Nation safer by every logical measure.
That being said, I was a member of the Gang of Eight in
2013, four democrats and four republicans. We drafted
comprehensive immigration reform legislation that we were
confident had the bipartisan votes to pass the house. The only
thing missing was the political will of Republican leadership
to bring it to the floor.
Beyond addressing humanitarian and security needs, CBO has
repeatedly told us that comprehensive immigration reform would
mean a larger economy and a smaller budget deficit. It is my
hope that my colleagues across the aisle will recognize these
facts and enact the immigration reform we so desperately need.
We cannot solve the challenges we face as a Nation whether it
is immigration, health care, the economy, or passing a
congressional budget without acknowledging what got us here and
continuing on that path.
To return to where we were and abandon all the progress we
have made would be devastating, not just for American families
today but for generations to come. With that, Director Hall, I
look forward to your testimony. I yield back.
[The prepared statement of Mr. Yarmuth follows:]
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Interim Chair Black. Thank you, Mr. Yarmuth. In the
interest of time, if any other members have opening statements,
I ask you to submit them for the record.
I would like now to recognize the director of the CBO, Dr.
Keith Hall. Mr. Hall, thank you again for your time today, and
the committee has received your written statement, and it will
be made part of the formal hearing record. You have 5 minutes
to deliver your oral remarks. You may begin when you are ready.
STATEMENT OF KEITH HALL, PH.D, DIRECTOR, CONGRESSIONAL BUDGET
OFFICE
Mr. Hall. Thank you. Chairman Black, Ranking Member
Yarmuth, and members of the committee, thank you for inviting
me to testify about the Congressional Budget Office's most
recent analysis of the outlook for the budget and for the
economy.
I will discuss a few highlights of our updated budget and
economic projections which were released last week. After my
brief remarks, I will be happy to take your questions.
The economic forecast that underlies CBO's budget
projections indicates that in real terms gross domestic product
will expand an average annual pace of 2.1 percent over the next
2 years, if current laws remain generally unchanged, after
rising last year at an annual rate of 1.8 percent. We expect
that growth to boost employment, virtually eliminate the
remaining slack in the economy, and drop the unemployment rate
to 4.4 percent by the fourth quarter of 2018.
Further ahead, according to CBO's projections, GDP will
expand at an average annual rate of 1.9 percent over the second
half of the coming decade. That growth rate represents a
significant slowdown from the average over the 1980s, 1990s and
early 2000s, mainly because of the slower growth projected for
the Nation's supply of labor which largely results from ongoing
retirement of baby boomers and the relative stability in the
labor force participation rate among working women.
As slack diminishes over the next 2 years, we expect the
rate of inflation to rise to the Federal Reserve's goal of 2
percent and to stay there on average. We also anticipate that
the Federal Reserve will steadily raise the target for Federal
funds and that interest rates over the next few years will be
significantly higher than they are now.
CBO's current economic projections differ a bit from those
it published in August 2016. The agency now expects GDP in 2016
to be modestly lower than it projected last summer. It also
expects lower interest rates in the next 5 years but projects a
higher rate of labor force participation throughout the next
decade than it projected in August. In fiscal year 2016, for
the first time since 2009, the Federal budget deficit increased
in relation to GDP.
CBO projects that over the next 10 years, if current laws
remain generally unchanged, budget deficits would eventually
follow an upward trajectory, the results of three main trends.
First, strong growth in spending for retirement and
healthcare programs targeted to older people, especially Social
Security and Medicare.
Second, rising interest payments on the government's debt.
And third, modest growth in revenue collections. By the end
of the period, the accumulating deficits would drive up debt
held by the public from its already high level. Moreover, 3
decades from now, if current laws remain in place, that debt
would be nearly twice as high relative to GDP as it is this
year and would reach a higher percentage than any previously
recorded.
Such high and rising debt would have serious negative
consequences for the budget and the Nation including an
increased risk of a fiscal crisis.
Our estimate of the deficit for 2017 is lower than our
August estimate, primarily because we now expect lower
mandatory spending. The current projection of the cumulative
deficit for the 2017 to 2026 period, however, is about the same
as we published in August.
I am often asked specifically about our projections for
Medicaid and Federal subsidies for health insurance purchased
through the market places established by the Affordable Care
Act. By CBO's estimates, an average of 12 million people under
the age of 65 will have health insurance in any given month in
2017 as a result of the expansion of Medicaid under the ACA.
In addition, CBO and the staff of the Joint Committee and
Taxation estimate that this year, nine million people per month
on average will receive subsidies for nongroup coverage
purchased through the marketplaces. An additional 1 million
people are projected to be covered by unsubsidized insurance
purchased through the marketplaces. We estimate that 27 million
people under the age of 65 will be uninsured on average in
2017.
CBO and JCT currently estimate that in 2017, Federal
spending for people made eligible for Medicaid covered by the
ACA will be $70 billion and that net Federal subsidies for
coverage obtained through the marketplaces will be $45 billion.
For the entire 10 year period, 2018 to 2027, if current laws
remain in place, those two types of costs would total $1.9
trillion. It is important to note CBO's baseline is not
intended to be a forecast of what will happen. Rather, it is
meant to provide a neutral benchmark that policymakers can use
to assess the potential effects of policy decisions.
CBO's budget and economic projections are predicated on the
assumption that the laws that are currently governing Federal
taxes and spending generally remain in place for the entire
projection period. Even if that occurred, and there are no
changes in those laws before the end of the period, it would
still not be possible to predict budgetary and economic
outcomes precisely because many other factors are uncertain.
Our goal is to construct budget and economic projections
that fall in the middle of the distribution of possible
outcomes given both the fiscal policy embodied in current law
and the availability of economic and other data. I would now be
happy to answer your questions.
[The prepared statement of Mr. Hall follows:]
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Interim Chair Black. Thank you, Mr. Hall. Now, we will
begin the question and answer session. If I could ask the staff
to bring up Figure 5 from my first question. Mr. Hall, CBO's
economic forecast has been trending sharply downward in the
recent years, and roughly 5 years ago, CBO was expecting real
GDP growth to average around three percent over the 10 year
budget horizon. Close to that long-term average growth rate
that we have seen here in the U.S., that figure has been
dropping consistently, and in this latest forecast, it is down
to just 1.9 percent.
So, it seems that CBO is expecting that the U.S. economy
will experience a protracted economic malaise for at least the
next decade under current policies. So, two questions I have
for you. First of all, what are the reasons for CBO keep
ratcheting down its projections for the GDP growth, and
secondly, how will this much lower expected growth path affect
our Federal budget?
Mr. Hall. They look forward over the next 10 years. We do
expect the slack in the economy to be virtually eliminated over
the next 2 years, so we will be on what we think is the
potential growth of GDP, and what is constraining the potential
growth of GDP as we forecast it something like 1.8, 1.9
percent, is a combination of a more slowly growing labor force.
A lot of that is an aging population as baby boomers retire,
not all of it, however, and slower productivity growth.
Since the end of the recession, productivity growth has
only been 0.8 percent, so it is less than 1 percent
productivity growth. We expect that will go up by the end of
the period as something like 1.3 percent, but that is still
lower than it has been in the past. So, in fact, if you sort of
take that labor force of growing 0.5 percent, productivity
growing 1.3 percent, add those together, that 1.8 percent, 1.9
percent is about our economic forecast. And so, the challenges
are slower growing labor force and slower growing productivity,
and again we have this issue with baby boomers in particular
that we have seen coming for a long time. It is just starting
to get closer and closer now.
Interim Chair Black. How do you expect what you are
projecting up here to affect the Federal budget?
Mr. Hall. Well, this is going to have an impact. This is
going make, it is going to contribute probably to the growth in
the deficit going forward. Something like productivity, for
example, which is part of what is at the heart here, has a
pretty significant impact on our budget forecast, so if we get
some increase, for example in productivity, we will have a
smaller growing deficit, but the problem is so big that even
that is not really going to solve the problem.
Interim Chair Black. So, to the other end of that, coupled
with this sluggish economy is the relentless rise in our
government spending and deficits. And your figures show that
the tax revenues are already above the 50 year averages of
percentage of DDP and are projected to keep growing, and yet
our spending keeps growing faster. If we tried to balance the
budget just by raising taxes, how big would the tax increase be
required in order to be able to catch up?
Mr. Hall. Well, just to give you some idea. We have
actually got a great little Figure 17, and it gives you some
idea of the size of the deficit relative to the size of things
like revenues and discretionary spending and etc. We see the
deficit in 10 years it is going to be about $1.4 trillion. That
is about 5 percent of GDP, and total revenues are going to be
about 18 percent of GDP in 10 years. So, it is a major chunk of
revenues right now. So, it would be a pretty significant
increase in revenues to get there.
Interim Chair Black. Any idea of what percent we would have
to increase taxes in order to be able to get there?
Mr. Hall. We have not done a scenario like that.
Interim Chair Black. But significant is what you are
saying.
Mr. Hall. It would be significant, and it would probably
also significantly change our economic forecast as well, so it
makes it particularly complicated.
Interim Chair Black. So, even for those who would favor
some combination of spending restraint and tax increases, is it
fair to say that getting control of spending is really
indispensable in this equation to overcome those chronic
deficits and debt?
Mr. Hall. Well, that seems to be the picture. The growing
deficit and the growing debt is so large it is hard to imagine
just picking on either revenues or outlays and not looking at
both things, and the broader you look, the smaller the change
you need. So, if you restrict yourself to just smaller buckets,
for example, just discretionary spending, you really got to
reduce discretionary spending. So, that is clearly one of the
features here that we see that this is a really big hole to
fill.
Interim Chair Black. So, on the other side of that. If we
could achieve a more robust degree of economic growth, say
something closer to that historic average of just a little over
3 percent, how much would that help us in shrinking those
deficits?
Mr. Hall. I will give you a little bit of an idea. We do
not have GDP in here, but we have a little scenario with
productivity growth. For every one-tenth of a percentage point
in productivity growth, we see the deficit in 10 years
shrinking by about $50 billion. So, something like an increase
in productivity of a half a percentage point would be pretty
significant, and that is going to reduce the deficit by about a
$250 million and that is out of a $1.4 trillion deficit. So,
that makes a difference, but it is, even a half a percentage
point is not enough to balance the budget essentially in 10
years.
Interim Chair Black. Let me go to another topic. Let's go
to Figure 2, please. One of the most troubling aspects of our
CBO's outlook is the stubbornly low rate of labor workforce
participation. That rate now stands at 62.7 percent close to a
40-year low, and CBO expects this to continue declining over
this next decade which is just really disappointing. Obviously,
the ongoing retirement of baby boomers generation plays a key
role, but CBO also states that government policies are
exacerbating the trend. Is it correct that the labor force is a
key component of economic growth, and how large does that role
play, and second to that is, what are some of the policies that
do affect this, and how do they crease incentives for work?
Mr. Hall. Sure. I would say if you look at the long run
growth of the economy, long run health of the economy, you can
look at two different things. You can look at labor force
growth, and you can look at productivity growth. If you compare
our growth that we see over the next 10 years to what we had in
the 1990s when we had 3.3 percent GDP, the slowdown of labor
force growth is about half that difference.
So, it is pretty significant, and you are right, although
baby boomers retiring is a source of that decline in labor
force participation, we also have lower labor force
participation by every cohort in the United States. And, that
is certainly one of the targets I think for having sort of a
supply side impact that raises potential GDP is doing things to
increase the labor force participation by working age people.
Interim Chair Black. What kind of policies can we initiate
to change this tragectory?
Mr. Hall. Well, certainly we have identified, we often do,
we point out what amounts to implicit taxes on work. There are
a number of things that are implicit taxes on work where we
reduce benefits when income goes up. The ACA itself probably
reduces labor force participation. That is a drag as well.
There are a number of things like that. I do not want to get
too specific about it, but just the sort of things that will
get people back into the workforce are things that will help
that labor force participation and help this potential GDP
growth problem that we have.
Interim Chair Black. I do thank you for all of your
comments on this, and I will go back to my opening remarks as I
conclude my time, that it really bothers me so much that we
have people who are out of the workforce because I know from my
career and my children and so on, that work is good for the
soul. And I often tell people that after you ask someone, you
say hello, this is my name, what is the second question you ask
them? What do you do? And if you are productive and you are
feeling good about your work and what you are contributing to
society, that overall helps the entire society.
And so, this is for me even more about how we have our
society grow as a society that is whole and healthy as much as
it is and what it will do to help keep the economy going. All
of this together is what makes our country great. Thank you,
and I now yield to the ranking member, Mr. Yarmuth.
Mr. Yarmuth. Thank you, Chairman Black. I am going to defer
my questions to later in the hearing.
Interim Chair Black. So, who came into the room? Oh, it is
coming. Okay. Would you like to yield to one of your members?
Mr. Yarmuth. Sure. I would like to.
Chairman Black. You know, that was here first.
Mr. Yarmuth. All right, Mr. Jeffries from New York was here
first, so I will yield to him.
Interim Chair Black. Mr. Jeffries, you are recognized for 5
minutes.
Mr. Jeffries. Thank you, chair, and thank the distinguished
ranking member for yielding. A statement was made earlier that
we can chose to get the economy working again. I want to pursue
that for a moment, because I think that the economy has been
working ever since the turnaround that we engineered by the
previous President 8 years ago. Is not it in fact the case that
when Barack Obama came into office this country was in a mess
and in the danger of total collapse?
Mr. Hall. Well, that is right. We were undergoing
significant job loss and decline in GDP growth.
Mr. Jeffries. Stock market was a mess. Correct?
Mr. Hall. Yes.
Mr. Jeffries. Automobile industry a mess. Correct?
Mr. Hall. Yes.
Mr. Jeffries. Bank industry a mess. Correct?
Mr. Hall. Yes.
Mr. Jeffries. 401k is a mess. Correct?
Mr. Hall. Yes.
Mr. Jeffries. Housing market a mess. Correct?
Mr. Hall. Yes.
Mr. Jeffries. And since 2010, this country has gained more
than 15 million private sector jobs. Is that right?
Mr. Hall. I think that is right.
Mr. Jeffries. Eight years ago, the stock market was around
6,000. Is that right?
Mr. Hall. That sounds right.
Mr. Jeffries. And now it is over 19,000. Is that correct?
Mr. Hall. Yes.
Mr. Jeffries. Eight years ago, the unemployment rate was at
over 10 percent. Is that right?
Mr. Hall. Yes.
Mr. Jeffries. And now it is under 5 percent. Is that
correct?
Mr. Hall. Yes.
Mr. Jeffries. The deficit has been reduced by more than a
trillion dollars over the last 8 years, correct?
Mr. Hall. That sounds right.
Mr. Jeffries. Okay. So, the statement about getting the
economy working again I think perhaps is inaccurate as a
snapshot of what actually has occurred over the last 8 years,
and so it seems that what we need to do is build upon the
tremendous progress that has been made under the leadership of
Barack Obama and keep this country moving forward. I would also
note on this question of whether we should cooperate with the
new President, that Barack Obama was able to lead an economic
turnaround without an ounce of cooperation from the other side
who decided to pursue an agenda of obstruction today,
obstruction tomorrow, obstruction forever over the last 8 years
and so hopefully we can find ourselves in a situation where we
move forward in a cooperative fashion in a way that benefits
all of America. In terms of our present situation, the CBO
expects that economic growth will be sluggish over the next
decade. Is that right?
Mr. Hall. That is correct.
Mr. Jeffries. And in part that is because of a decline in
labor force participation. Correct?
Mr. Hall. That is correct.
Mr. Jeffries. Now, would the retirement that will continue
of baby boomers out of the labor workforce exacerbate this
problem in a way that will continue to provide modest, if not
sluggish, economic growth moving forward over the next 10
years?
Mr. Hall. That is right. It is almost certainly going to
happen and certainly going to be a difficulty in achieving
higher economic growth.
Mr. Jeffries. And this is a problem that Japan for instance
which had a booming economy in the 1980s is experiencing today.
Is that true?
Mr. Hall. That is true.
Mr. Jeffries. And one of the reasons why Japan in
experiencing that problem is because they got very harsh
immigration policies, and they do not have the natural growth
from their own population that would lead to robust
participation in the labor force. Is that right?
Mr. Hall. Yes.
Mr. Jeffries. So, there was a comprehensive immigration
reform bill that I think was passed by the Senate in 2013. Mr.
Yarmuth mentioned it worked hard to get it enacted into law
here in the House, but due to the politics of the situation, it
did not go anywhere. I believe the CBO studied that particular
piece of legislation and concluded that over about a 20 year
period it will reduce the deficit I think by $700 billion. Is
that right?
Mr. Hall. That sounds right.
Mr. Jeffries. So, it would have a positive impact,
comprehensive immigration reform, on our economic situation.
Correct?
Mr. Hall. That is right. It is primarily through increased
growth in the labor force. So, that is one of the primary
constraint going forward is the growth in the labor force.
Mr. Jeffries. And one of the ways that we can deal with the
labor force moving forward is to make sure that our immigration
policies continue to welcome individuals who come to America,
work hard, will contribute to the labor force since we are not
naturally able to produce the numbers that would result in
increased economic productivity. Is that a fair statement?
Mr. Hall. It probably is, although keep in mind the effects
of any particular labor immigration policy can be complicated,
so we would have to sort of see exactly what is being proposed,
but there is one constant in that it does affect the labor
supply and that labor supply does help GDP growth.
Mr. Jeffries. Okay. Thank you. I yield back.
Interim Chair Black. The gentleman from Oklahoma is
recognized. Mr. Cole.
Mr. Cole. Thank you, Madam Chairman, and thank you, Mr.
Director, for your testimony. It is always good to have you
here. I want to focus in on this trendline in terms of the
deficit just a little bit, and we as you know think of the
Federal budget in two different pots, discretionary and
mandatory spending, mandatory being primarily Social Security,
Medicare, Medicaid, the classic entitlement programs.'' What
has been the trendline on discretionary spending over the last
few years?
Mr. Hall. Well, discretionary spending is looking like it
is going to decline as a share of GDP. It has been declining,
so in fact while we look forward to the next 10 years and see
spending increase really significantly, discretionary spending
is not increasing significantly, and that in fact is declining
as a share of GDP.
Mr. Cole. As a share of GDP and since 2009 it has actually
declined very substantially in real terms just as an amount. I
mean we were actually spending considerably less on the
discretionary portions of the budget and that is everything
from defense to NASA to National Institutes of Health than we
were in 2009 and 2010. Is that correct?
Mr. Hall. That is correct, yes.
Mr. Cole. Give us the trendline if you would on mandatory
spending, again the classic entitlement programs. What has that
trend been in the last 5 or 6 years? Where do you see it going
over the next decade?
Mr. Hall. Well, mandatory spending continues to grow faster
than GDP, quite a bit faster. Ever, you know, the revenues are
growing as a share of GDP, but spending especially mandatory
spending is growing a lot fast. So, it is sort of a race that
mandatory spending is winning in adding to the deficit going
forward.
Mr. Cole. And are there any significant proposals out there
on either side of the aisle to change the direction of that,
slow it down, manage it a little bit better?
Mr. Hall. Nothing comes to mind. You know, one of the
things I like to point out, we just produced something called
options for reducing the deficit. Sort of a nice thick volume
with over a hundred options, and we give you some options on
things like mandatory spending and other things that you can
look at for reducing the deficit going forward. It gives you
some idea of how much of an impact those different options
would have.
Mr. Cole. When was the last time we had significant reform
in, let's say Social Security?
Mr. Hall. I think it has been a while. I am not an expert
in Social Security. There have been some adjustments in
benefits in delaying eligibility and some things like that, but
they still have not affected the long-run problem that we have
seen coming for decades. It is still coming.
Mr. Cole. I think the last time we really made much
progress in this area was actually very bipartisan, and it was
with President Reagan, and the House was Democratic in the
period. Tip O'Neill, Howard Baker in the Senate. In other
words, they came together, set up a commission and extended the
life of Social Security fairly dramatic in the middle 1980s. We
have not really gone back and done too much since then. Is that
correct as you recall?
Mr. Hall. That is correct.
Mr. Cole. I say this in a very self-serving way because my
friend, Mr. Delaney, on the other side, and I have a bill that
would set up another commission that would be, by nature,
bipartisan. It would be 7 and 6. We actually have introduced it
in a couple of Congresses. Seven members chosen effectively by
the President and the majority party, six by the minority, but
you would have to have nine votes to actually report something
to Congress. Congress would then have about 60 days to vote it
up or down, and I would invite my colleagues on both sides of
the aisle just to look at that legislation because I think if
you read the numbers, which you so accurately and persuasively
put out here, sooner or later we have to address mandatory
spending.
Neither side in the last campaign did that in any
meaningful way. Neither side, frankly, in the House and the
Senate has actually advanced legislation. We actually always
write a budget that addresses this, and I hope we do that
again, Madam Chairman. I hope we do not ignore the elephant in
the room, so to speak, and I am sure we will not under your
leadership and my good friend and ranking member I know has
these same concerns. But I know I am not using the question,
but I do want to finish and then I will yield back. I just
would invite my colleagues.
We can score points against one another all day. We both
have great arguments and great talking points. This is a
problem we could solve. It is a math problem. It is not as
tough as Medicare and Medicaid. We literally could sit down and
negotiate this through just as President Reagan and Speaker
O'Neill did and Howard Baker, and I would invite us to begin
that process because I do not like the way your numbers look at
the end of the decade. With that, I yield back. I thank you
very much. I thank you for your indulgence, Madam Chairman.
Interim Chair Black. Thank the gentleman from Oklahoma. The
gentleman from Massachusetts, Mr. Moulton is recognized for 5
minutes.
Mr. Moulton. Thank you, Madam Chair. I would just like to
begin by echoing the comments from Representative Cole because
I think you are right. Sometimes people ask me about what it is
like to serve on the Budget Committee and I say it is often a
great place for people who do not do math. If we started doing
math, we could solve a lot of problems. So, thank you, Mr.
Cole.
Director Hall, as I am sure you know, immigration has
become a major topic of discussion following President Trump's
executive order last week. Now, there is a lot of evidence that
the order is unconstitutional and it is certainly hurting our
national security overseas. Secretary Mattis and others have
made that clear, but it is also having a detrimental impact on
our economy here at home. The concern, of course, is that with
this executive order, the Trump administration is scaring away
some of the very people we need to continue growing the economy
as our labor force shrinks.
Now, many of America's major corporations and businesses
were founded by immigrants. For example, Steve Jobs. His father
came from Syria. Apparently, more than half of the current crop
of U.S. based startups valued at a billion dollar or more. So,
more than half of the current startups with a valuation of
billion dollars or more. Collectively, these 44 companies are
valued at 168 billion.
They were started by immigrants.
So, $168 billion of valuation creating 33,440 jobs in the
U.S. market and immigrants in these companies make up more than
70 percent of key management or product development positions.
So, we have heard in the past weeks CEOs from Facebook,
Starbucks, Goldman Sachs and other leaders in the business
community who have already stated that this ban will hurt their
ability to attract and retain talent, and that it may spur
people or companies to discount the U.S. as a place to pursue
business and investment opportunities. Colleges and
universities have also raised alarms, including those in my
district, about the impact that this will have on students and
faculty who hail from the seven countries targeted by the
order.
In 2016, international students in U.S. colleges surpassed
1 million for the first time, contributing more than $32
billion a year to our economy. Thirty-two billion dollars a
year, Madam Chair, would certainly help with our budget
deficit. That is the kind of consumer spending that we need
because it creates jobs.
So, I want to speak briefly about the impact on our
healthcare system because more than a quarter of the physician
workforce in the U.S. comes from other countries with more than
8,400 doctors working in the U.S. from two countries listed in
the executive orders, Syria and Iran alone. Now, we want those
talented doctors to be here saving American lives and helping
our healthcare system at a time of physician shortage. America
does not currently produce enough physicians to keep up with
demands. We have a current deficit of over 8,200 primary care
doctors. So, that deficit would literally double if the doctors
from Iran and Syria were not here.
And so, Director Hall, I know you cannot speak directly to
the effects of this executive order as it was just released,
but based on the 2013 CBO report on immigration reform and
other work that CBO has done on this issue, can you talk in
general terms about the impact that such restrictive
immigration policies might have on the growth of our economy?
Mr. Hall. Well, you raise an interesting aspect of
immigration. And one of the reasons why we really kind of need
to see specific proposals is because the type of proposal has
different kinds of effects. The evidence is, for example, that
increased immigration of unskilled workers probably has an
effect in lowering wages for lower skilled workers in the
United States. However, when you go to the skilled workers,
they in fact increase productivity because as you say there are
a lot of entrepreneurs, etc. who are immigrants and skilled
immigrants, so that has sort of a different sort of side
effect.
Mr. Moulton. Right, and if you look at the countries in the
order like Iran and Syria, are they mostly skilled or unskilled
workers who are coming to the U.S.
Mr. Hall. I do not know offhand.
Mr. Moulton. It is mostly skilled workers.
Disproportionately, entrepreneurs and business people. Thank
you. Please continue.
Mr. Hall. Okay. Sure. So, you know, if you look at
immigration proposals it makes a difference if you are just
going to broadly increase immigration. If you are going to
increase immigration that is focused more on skilled workers
that has sort of a different effect than if it is unskilled
workers. The fundamental that our increased labor supply is
there, it is sort of the other effects that depend upon exactly
who is immigrating, and then of course the size of these would
be pretty significant. It is not clear that the executive order
that, at least from what I have seen, that that is large enough
to make us change our forecast.
Mr. Moulton. Thank you, sir.
Interim Chair Black. The gentleman's time has expired. The
gentleman from California, Mr. McClintock is recognized for 5
minutes.
Mr. McClintock. Thank you, Madam Chairman. There seems to
be two dominant themes coming from my friends across the aisle.
One is that the Obama economy has been wonderful and second, we
need more foreign immigration to compete for American jobs.
As to the first, I give them the same advice I tried to
offer them at our last meeting on Obamacare. Every American has
an up close and personal experience with the economy. They know
what is going on in their own lives, and any politician who
tries to convince them otherwise looks downright foolish. Some
people are doing very well in the Obama economy, most people
are not. If most people were doing well in this economy, the
Democrats would not have lost 67 U.S. House seats, 13 U.S.
Senate seats, 11 U.S. governors and more than 900 State
legislative seats, not to mention the presidency over the past
four election cycles. Just a word of unsolicited advice.
Second, with respect to foreign immigration, our foreign
immigration over the last decade has been unprecedented.
If my friends were correct, this should be the golden age
of the American economy. The impact has been very clear. Badly
depressed wages for working families and the lowest labor
participation rate since Jimmy Carter. But that is not what I
want to talk about. What I want to talk about is what Admiral
Mike Mullen warned us was in his professional military
judgment, the greatest single threat to our national security,
and that was our Nation's debt. And that warning was issued
about 5 years and about $4 trillion of debt ago. You report
that the debt held by the public this year is 77 percent, but
actually our total debt is well over 100 percent of our gross
domestic product. Is it not?
Mr. Hall. Well, we look at debt held by the public because
that is the important debt for the economy.
Mr. McClintock. I know you do, but I think that is highly
deceptive. The difference is mainly because Social Security as
it runs chronic deficits, we pay back what we borrowed by going
to the public for further borrowing. So, what we have got in
that overall debt number is in effect converting
intragovernmental debt into debt held by the public. Is not
that what is going on?
Mr. Hall. Well, that is right. To get to your number.
Mr. McClintock. So, we are so deceptively understating the
problem since unless we change the law, that gross debt which
is now over 100 percent of GDP is destined to become debt held
by the public over the next few years. Is not that correct?
Mr. Hall. Well, let me put it this way. The debt held by
the public is going to grow really significantly.
Mr. McClintock. It is already baked into our total debt
which is simply converting the debt we owe to Social Security
by borrowing from the public. That is already in those numbers
as long as Social Security continues its chronic deficit, that
is going to continue, and that is going to require a change in
laws. Is it not?
Mr. Hall. That would, yes.
Mr. McClintock. So, we are already approaching uncharted
territory for this Nation, and the question I have is that on
our current trajectory, are we courting a sovereign debt
crisis?
Mr. Hall. We are. One of the difficulties is, I cannot tell
you exactly.
Mr. McClintock. What does that crisis look like?
Mr. Hall. Well, as the debt continues to grow, interest
rates when they go back up to normal ranges, we are going to
have a major share of our budget just paying off interest. So,
that is going to be a real drain.
Mr. McClintock. So, would that affect our ability to
provide basic services?
Mr. Hall. It will. It is going to reduce flexibility.
Mr. McClintock. Would it imperil our ability to respond to
a military challenge on the magnitude that we faced after Pearl
Harbor?
Mr. Hall. Yeah, absolutely. Our ability to spend money is
going to be really limited.
Mr. McClintock. How would it affect our overall economy?
Mr. Hall. Well, part of what is going to happen is this is
a drag. This is an increase of interest rates. A lot of Federal
borrowing crowds out private borrowing, so we actually have
lower economic growth.
Mr. McClintock. In other words, when the Federal Government
borrows a dollar, it borrows it from that same capital market
that would otherwise be available to loan to consumers to make
consumer purchasers, to businesses to expand jobs. Is that
correct?
Mr. Hall. That is correct.
Mr. McClintock. Home buyers to buy new homes?
Mr. Hall. That is correct.
Mr. McClintock. Taxes are often suggested as an antidote to
debt, but are not debt and taxes the same thing? I mean, after
we have spent a dollar, have not we already decided to tax it.
The only question is whether we tax it now through current
taxes or borrow it now and tax it later through future taxes?
Mr. Hall. Yeah, we certainly sort of constantly remind you
that however you do it, whether you raise taxes or spending or
etc., a lot of the stuff it depends on how you pay for it.
Whether you let the deficit grow or not makes a big impact.
Mr. McClintock. Well, the deficit is just a future tax. We
borrow it now and we pay it back through future taxes. In other
words, is not to borrow from the Clinton maxim, is not the
spending stupid?
Mr. Hall. Well, certainly spending is the biggest single
problem going forward. The rate of spending exceeds the tax
rate.
Mr. McClintock. Thank you.
Interim Chair Black. The gentleman's time has expired. The
gentlelady from Washington. Ms. DelBene is now recognized for 5
minutes.
Ms. DelBene. Thank you, Madam Chair and Director Hall.
Thank you for being with us. My district in Washington State
has a northern border and is also home to I am pretty sure
nearly every point of view on every issue most of the time, but
one key difference has been immigration reform. We have heard
from business community, farmers, State-based community, folks
in travel and tourism, law enforcement all asking for
comprehensive immigration reform, and I was one of the folks
who lead the bill that we introduced in the House in the 113th
Congress similar to the one that passed the Senate that the CBO
has said would have a significant impact in reducing the
deficit about $700 billion in the second decade. I think you
confirmed that was the correct number.
Mr. Hall. That sounds right.
Ms. DelBene. But when we look at individual sectors, and
when I was elected in talking to our farmers, they said we need
two things. We need a farm bill and we need comprehensive
immigration reform, and we got a farm bill and folks have said
we are not sure we can stay in business if we do not have
immigration reform. If you look at a sector like agriculture,
do you see lack of immigration reform as actually having a
negative impact on economic growth?
Mr. Hall. We have not done that sort of analysis. We would
have to do a little work.
Ms. DelBene. Well, I can tell you that farmers definitely
feel that way, and it is an incredibly important issue, and the
reckless executive order has not helped and has impacted many
people's lives and has only continued to have a negative
impact. Before coming to Congress, I was a business woman and
entrepreneur and also ran the Department of Revenue for the
State of Washington, and since coming to Congress, I have been
very frustrated with our budget and appropriations process with
how they do not work.
In particular, we seem to live off of continuing
resolutions, and you would never run a business 30 or 60 days
at a time, and you definitely, it is no way to budget. It is
probably the most expensive and least efficient way to budget.
But we also, with sequestration on top of that, we end up
looking at folks have been focused on cuts but not on return on
investment, and I know that sometimes spending money on
important projects actually saves you money in the long run and
we get a great return. I was wondering when you look at your
models and look at things like infrastructure, research, and
education, how does our lack of investment in those areas
impact our future growth?
Mr. Hall. Well, I think the research is fairly clear that
generally Federal investment does increase productivity and it
does have an impact on growth. The research if pretty
incomplete in that it, identifying the different kinds of
investment is difficulty, what the rates of return are on
different kinds of investment. One of the big things though
about increasing investment is really depends upon how you pay
for it. If you increase investment and reduce spending in
another spot, so you do not have a net impact on spending, that
is a much more positive impact on the economy than if you let a
deficit grow.
Ms. DelBene. But if we, for example, have a pothole in the
road and we do not fix it and it might have cost a certain
amount to fix that pothole, next time because we did not fix
it, we end up having to replace the road bed, we end up
spending a lot more because we did not make that investment
early on. Is not that a fair point of view when we look at a
lot of these issues that we are not funding, or providing those
investments because we do not have a normal budget or
appropriations process? Is not that hurting our ability to see
progress in those areas?
Mr. Hall. That is right. Federal investment doing anything
that sort of helps companies be more productive, move products
around, encourage innovation, that does help productivity, and
that is obviously one of our big problems going forward. In one
of the issues, it is a little bit like in my mind a little bit
like cutting taxes. They both can stimulate the economy and
depends on how they work. They can both affect long-term
growth. The question a little bit is how much? You know,
investment, Federal investment in particular, there is often a
big delay, and there is some impact on interest rates, and that
impact on interest rates does raise the cost of debt in the
economy. So, it is not quite so clear, for example, that if you
just increase Federal investment, do not pay for it, let the
deficit grow, that probably does not have a net positive on the
economy.
Ms. DelBene. But also just cutting and not investing in
programs that give us a great return has a negative impact too,
and I think that is our role to decide what is giving us a
great return and making sure we are making those investments,
seeing what is not working and not making those investments,
and continuing resolutions and sequestration are us not taking
that responsibility seriously here and not making those
decisions and making the investments in the right way they need
to be made. Thank you. My time has expired. I yield back, Madam
Chair.
Interim Chair Black. The lady's time has expired. The
gentleman from Ohio, Mr. Renacci, is recognized for 5 minutes.
Mr. Renacci. Thank you, Madam Chairman. It is interesting.
First, I want to go back to my colleague, Mr. Cole, and say the
exact same thing. We could sit here all day and fire bullets
back and forth on political issues, but that is not going to
solve the issues of the day because the issue of the day is
that we have to get a budget and we have to live with a budget,
and before we can even get a budget we have to figure out where
we are out which is another problem around here. I have
mentioned since day one that we do not have a complete record
of financial information because we do not allow for all of our
debts to be added up, and we do not use the information that we
have then to make decisions, and then we do not look at the
past at the decisions we made.
As a business guy for 30 years, and actually a business guy
that took over 60 failed businesses and successfully turned
them around, you have to see where you are at first before you
can go forward. So, my frustration always builds when we start
to get into these political talking points because everybody's
district is going to have issues that concern them.
My district, I can tell you, the businesses, the people,
the individuals are all concerned about tax reform, regulation
reform and Obamacare reform, so again it is not what the
district is, it is what we can do as far as putting a budget
together and getting things moving. But, Dr. Hall, do not we
have the record revenues in the Treasury over the last few
years?
Mr. Hall. That is right. Well, I am not sure the record.
They are certainly above average right now and they are going
to actually go up as a share of GDP. So, we do not have
declining revenues.
Mr. Renacci. Right. So, we have record revenues, and in my
business world, what I would find is if you have record
revenues you were really doing really well except when you had
record expenditures that were exceeding those record revenues,
and I heard you say earlier that one of our issues is that we
are spending, you know, our biggest problem really is our
spending problem. Would you agree?
Mr. Hall. Yes. That is the major contributor to the
deficit.
Mr. Renacci. So, until we come together as Republicans and
Democrats and realize we have spending issues, and taxing, we
are not going to tax our way out of this, and we can put a
budget together, I think that is the starting point that I hope
at some point this committee can get to, having a good solid
budget that then we live with. My concern is again, it is
extremely alarming that our interest and our national debt is
projected to nearly quadruple to $768 billion in 2027. It
appears that as numbers continue to grow, we are going to have
less.
The time is now to start looking at our spending side
because if we just sit back and start saying the last President
was great, the President before that was great, and we do not
do anything, we are going to be in a deeper, deeper hole in the
next few years. Would you agree with that?
Mr. Hall. Absolutely. I think the sooner we get to solving
the deficit problem whether it is spending or whether it is
taxes or anything, but the sooner we start to address that, the
less of a change it is going to be. The easier it is going to
be to try to deal with it.
Mr. Renacci. I think the sooner we recognize that it is one
of the reasons I introduced the Fiscal State of the Nation
which would require the Controller General would come before
the House and Senate, a joint session of Congress, I had almost
170 cosponsors, Republicans and Democrats.
I actually hoped that new members here would join me as we
have refiled that bill, but do you agree that it would be a
good starting point to have someone, the Controller General,
come before the House and Senate and explain our growing
deficits and where the numbers are occurring and what is going
on so we have a starting point?
Mr. Hall. Absolutely. I hope we were providing some of that
information to you, but yes.
Mr. Renacci. I understand, and that is what you are doing
here today, but I think the important is as we continue to look
at these numbers, we have to start to realize that the growth
of our Federal debt is another issue concerns me and I heard
one of my colleagues earlier talk about this. If we do nothing,
I think the Federal deficit is projected to grow, if we just
stay on the same track, $9.6 trillion in the next 10 years. Is
that correct?
Mr. Hall. That is right.
Mr. Renacci. So, these are all issues I hope that my
colleagues on both sides of the aisle can start talking about
as a way we can work together to come up with a solution and a
budget. I also have another bill which I think is so important.
When we pass a budget, we should follow a budget. We have had a
Budget Act since 1974. Most people do not realize that even
though we pass budgets, we never follow them.
Members from this committee, other committees come to the
floor, pass bills that break the budget. If we are ever going
to make things work, we have to come up with a solid budget and
live with that budget and not break the budget. So, I am hoping
that we can continue to work forward with these numbers. I
appreciate the information. There is plenty of information in
your report if everybody takes the time to read them. We are
not going in a great direction. We do not have a healthy
economy. We have what I would call a--we have an anemic
economy. Would you agree with that?
Mr. Hall. Yes.
Mr. Renacci. Thank you. I yield back.
Interim Chair Black. The gentleman's time has expired. The
gentlelady from Florida, Ms. Wasserman Schultz, is now
recognized for 5 minutes.
Ms. Wasserman Schultz. Thank you, Madam Chair. Our
colleagues on the other side of the aisle would do well to stop
patting themselves on the back for and take credit for voters
putting them in the majority rather than the cartographers and
map drawers who did a really good job of partisan
gerrymandering, Mr. McClintock, to ensure that the scales are
tipped in favor in virtually every State. Particularly, the
States where Republicans hold the majority and voters are not
able to choose their legislatures but rather legislators choose
their voters. And that is reflected in the brimming sea of
diversity that we see in this committee on the other side of
the aisle as opposed to our side of the aisle, and that also is
reflective of the difference dramatically in the policies that
result in how we govern. So, please spare us the political
advice.
That having been said, I think it is important to note that
Mr. Hall indicated that the slack in our economy is mainly
attributed to the available labor force. Largely attributed as
your said, Mr. Hall, to retirement of baby boomers and the
stability of women in the workforce. Is that right?
Mr. Hall. That is right, and by stability, I mean that in
the 1990s we had this great period of where women's labor force
participation was growing very quickly and we had significantly
more economic growth as a result and they have sort of closed
that gap and it is now sort of holding, so we are no longer
getting that faster growth.
Ms. Wasserman Schultz. You did indicate in your opening
statement that primarily, the slack in the economy is
attributed to those two things.
Mr. Hall. Well, right, and really, I think I was trying to
refer to the potential growth, the long-term growth of the
economy, but yes, I did talk about those two things.
Ms. Wasserman Schultz. Okay. Thank you. Our former CBO
director, Douglas Elmendorf, in a recent talk noted that under
the current caps on annual appropriations, Federal investment
in infrastructure, R&D, education and training, will soon be
smaller relative to GDP than at any time in the last 50 years.
He said that is not forward-looking growth-oriented budget
policy just to maintain the traditional level of investment as
a percentage of the economy requires a substantial increase in
the caps on appropriations. The caps on appropriations would
you not agree are a large part of what limits our ability to
see growth in the economy?
Mr. Hall. It certainly has been the limit on the
discretionary spending growth. That has been part of why it
looks to be declining over the next 10 years.
Ms. Wasserman Schultz. With the Budget Control Act of 2011
and sequestration, we continue to see dramatic cuts in
nondefense discretionary spending, dramatic cuts.
In 2010, nondefense discretionary spending was 4.5 percent
of GDP, 2016 it was 3 percent. It is projected that in 2027
nondefense discretionary spending will only be 2.4 percent of
GDP, and furthermore investment in infrastructure as a percent
of GDP has dropped from 0.8 percent in 1980 to 0.5 percent in
2015. Investment in research has dropped from 1 percent in 1965
to 0.4 percent of GDP in 2013, and finally investment for
education and training programs has dropped from 1 percent of
GDP in 1975 to 0.5 percent in 2013.
Director Hall, do you agree with your predecessor that
capping investing in research, infrastructure, and education is
incompatible with a budget policy that promotes growth in the
American economy? And should not we aim each year to include a
certain percentage of spending on discretionary programs that
promote economic growth especially given the President's Muslim
ban which will among other things keep those leaders and
research and development out of our country and hurt our
economy?
Mr. Hall. I would not make a recommendation, but I will say
that increase in Federal investment is one of the tools you
have for increasing potential GDP growth because it does
increase productivity of labor going forward.
Ms. Wasserman Schultz. And would not you say that generally
taking a balanced approach which is what Democrats have
promoted over the last 8 years to responsible spending cuts and
generating revenue is the most responsible way to address
deficits over a period of time, and would not you also say then
when it comes to dealing with our debt, that there is a
dramatically negative impact on our overall economy when we
threaten, as a Congress, to potentially not pay our bills?
Mr. Hall. I should say however Congress decides to address
the deficit, if they address it in a broader fashion, they may
need to make less dramatic changes in any one thing so that
does seem like that is a strategy certainly Congress could
take.
Ms. Wasserman Schultz. Thank you, very much. I yield back
the balance of my time.
Interim Chair Black. The gentlelady yields back. The
gentleman from Minnesota. Mr. Lewis is recognized for 5
minutes.
Mr. Lewis. Thank you, Madam Chair, and thank you, Dr. Hall,
for being here today. Talk a little bit about Federal
investment or Federal spending. In 2002, the Federal budget was
$2 trillion. Today, it is $3.4 trillion to your numbers. The
50-year average is about 18.4 percent of revenues. We are well
above that now and headed above that. Outlays, however, are
well above the 50-year average as well. Correct?
Mr. Hall. That is correct.
Mr. Lewis. The top one percent of income earners, if we are
going to look at revenues to balance this budget, the top one
percent of income earners right now pay about $543 billion in
income taxes. That is less than this year's deficit. Correct?
Mr. Hall. I think that is right. I do not know the numbers
exactly but that sounds about right.
Mr. Lewis. My question is this, I do not think we have a
revenue problem, if you look at these numbers again we are
above the 50-year average of 18.4 percent and moving higher
than that. How would we do that if you are just going to raise
revenue? I mean there is not enough money at the top is there?
Mr. Hall. Yes, we have not had any real specific analysis
of that but you are right, putting it all in revenues makes it
a pretty significant revenue increase just like putting it all
in outlays involves a pretty dramatic outlay drop. So, sort of
spreading it out is a different sort of strategy.
Mr. Lewis. You are servicing the debt and that interest on
the debt, $768 billion larger than the defense budget, for
instance, I believe in the next 10 years. What are you basing
that on with regards to interest rates? I think the post-World
War II 10-year treasury average is about 5.7 percent or down,
way down now to about 2.4 percent. How did you come up with
that calculation?
Mr. Hall. First of all, interest rates have been really
low. We have interest rates climbing up into somewhat their
historical range but we are still kind of at the lower end of
that range. So, we are somewhere over 3 percent eventually on
the interest rates. And that is a really important point to be
honest, because we are at a pretty low interest rate relative
to history and, in fact, if interest rates go up by more----
Mr. Lewis. Or back to their average.
Mr. Hall. Or back to their average. Let me give you an
example; if interest rates were one percentage point higher
over this 10-year period than our projection, we are talking
about adding $1.6 trillion to the debt over that time period.
And that is a lot of money for just one percentage point. So,
that is one of the more important things in our forecast.
Mr. Lewis. So, the debt interest payment of $768 billion in
10 years is based on historically low interest rates?
Mr. Hall. That is correct.
Mr. Lewis. Let's talk a little bit about Japan. I am not an
expert on their immigration policy, but I do not know that it
has changed remarkably. But I do know their economy has hit
this deflationary spiral. So I am not certain if you got the
same policy in one particular area but all of sudden you go
into a tailspin that you can blame that policy. But what you
might be able to look at is credit expansion. And we have had a
very similar experience here where we have monetized a lot of
debt, where we have let the credit expansion go, created asset
bubbles, as some would say, on the monetary side.
Is it your experience, or I do not want to ask your
opinion, but your analysis that Japan is suffering a debt lag?
That we have created so much debt that they cannot grow their
way out and is that a danger for America as far as a
hyperinflation scenario stuck in a debt spiral and stuck with
deflation and low growth?
Mr. Hall. I am afraid I do not know enough about Japan or
Japan's policies.
Mr. Lewis. That makes two of us.
Mr. Hall. Okay, so it would be hard. And we can follow up
with some description, if you like, on Japan and what has been
happening there.
Mr. Lewis. I mean, there is a reason for these low growth
rates. And, you know, we have created money, we have created
fiat money, we have certainly engaged in Federal spending. We
look at those figures I just cited, well above historical
means, so why the low growth rates?
Mr. Hall. Again, I do not know enough about Japan to offer
an opinion.
Mr. Lewis. I would suggest that the reason we have not hit
3 percent growth for 11 straight quarters, the reason that
during the Reagan robust recovery, even the Clinton robust
recovery where we had growth of 5, 6, 7 percent is the level of
debt today, that we are stuck. Our balance sheets do not look
so good, and when you are trying to service that kind of debt
it is very hard to grow out of it.
Mr. Hall. Yeah, I will just say one of the most remarkable
things that is going on now, and has since the end of the
recession, has been very low productivity growth of 0.8
percent. And we do not understand that very well. And that has
been a major head wind.
Mr. Lewis. One final point quickly, Dr. Hall, and thanks
again for coming. But, when we fund Federal investment, where
does that money come from? Some of it comes out of the private
sector, some of that which would be private investment correct?
Mr. Hall. That is correct.
Mr. Lewis. Thank you, sir, I yield back my time.
Interim Chair Black. The gentleman's time is expired. The
Gentleman from New York, Mr. Higgins is recognized for 5
minutes.
Mr. Higgins. Thank you, Madam Chair. I am listening to the
discussion here which is thoughtful, and I believe that people
truly are sincere in their beliefs about the performance of the
American economy and the policies that we in Congress are
responsible for enacting to help influence hopefully economic
growth. And I think there are two very different views of it.
You know, the good thing about the economy is, you know
policy either works or it does not. It is not ideological; it
is arithmetical. And if you look at the performance under
various administrations relative to the policies they advance,
the measure of their effectiveness or lack of effectiveness is
the performance of the economy.
Now, it has been referenced here that in the waning days of
the last Bush administration a decision was made to enact tax
cuts that disproportionately benefited higher wage earners,
people that make a lot of money. The theory is trickle down, it
is supply side, it is call it what you will it is because if
they save money because of tax policy, that money will find its
way back into the economy in new business investment and job
growth. That is the theory. That is indisputable. That is what
they say.
Job growth during the George W. Bush administration was the
lowest level in the past 75 years. In the waning days, the
economy went into a very severe contraction. In March of 2009,
the stock market was at 5,600. We were losing 600,000 jobs a
month. The auto industry was a disaster. The U.S. and world
financial markets were falling apart. Something had to be done.
So, new policies were put in place to allow those tax cuts
for the very, very wealthy to expire and continue tax cuts for
the middle class because higher wages, higher take home pay
increases aggregate demand in the economy, aggregate demand
creates economic growth. And as a result, since 2010, in the
past 6 years, we created in this economy almost 16 million
private sector jobs.
You know, the American economy we used to make things and
sell them to the rest of the world, now the things that we used
to make and sell to the rest of the world they make and sell to
us. As a consequence, 70 percent of the American economy is
consumption.
So, how do you create aggregate demand in the economy? You
put more money in the pockets of more Americans as humanly
possible because here is what you know, they are going to spend
it. And when they spend it, there is growth. I think, you know,
you are always looking for silver linings in these views of
economic policy. And I think the one real clear silver lining
here is infrastructure spending. And there is talk about a
trillion-dollar bill, and it does two things. In the immediate
sense, it creates jobs, I think 43 jobs for every million
dollars of investment in the construction trades and supply and
materials industry.
But the second economic benefit you get from that is, when
you invest in infrastructure, it unleashes the creativity and
the resources of the private sector. So, your views on a
trillion-dollar investments in infrastructure publicly
financed. And do not tell me about deficit financing because
this Nation spent $110 billion rebuilding the roads and bridges
of Afghanistan. This Government spent $76 billion rebuilding
the roads and bridges of Iraq, both of which were deficit
financed and did not create one American job. So, your views on
infrastructure investment and financed in a traditional way.
Interim Chair Black. Mr. Hall, you have 10 seconds to
answer this. And I am afraid, Mr. Higgins, since you did not
leave him adequate time, I am going to let him give a very
brief comment, but if Members would remember if they are asking
a question and they need to leave a little time for our witness
to answer the question. Otherwise if you could briefly answer
and if there is more that you would like to do if you could do
it in writing.
Mr. Hall. Okay. A basic principle I think is all over our
work. You know whether you change spending or change taxes, if
you increase spending or lower tax, however. How you pay for
that makes a difference because the deficit has an impact on
that. So if you increase spending but you do not pay for it you
increase the deficit, that makes a difference, how you pay for
things. So that is something just to consider always with what
we are talking about.
Interim Chair Black. Thank you, Mr. Hall. The Gentleman
from Texas, Mr. Arrington, is recognized for 5 minutes.
Mr. Arrington. Thank you Madam Chair and Dr. Hall, I
appreciate your time and your service and I am happy to be on
this bi-partisan House Budget Committee, I say that a little
tongue and cheek based on some of the comments that are made.
The American people are tired of partisan bickering and tit-
for-tat. They want us to do like they do in their businesses
and in their homes and their daily lives and roll up our
sleeves and go to work and solve this problem.
The other thing they are tired of is Congress playing by a
different set of rules. And one of the rules that they have to
play by and live by is that they have to live within our means.
And so, we have to work together to solve this. I am excited to
be on this committee because I think it is the greatest threat
to the future of our country.
My commitment is not to the Republican Party or to the
leadership, my commitment is to my three children that they
will have a safe, strong and free America to live in. That they
will in fact have a future to grow up in the shining city on a
Hill, and this is the greatest threat to that future. And so, I
am grateful to be a part of the problem-solving venture that we
are about to undertake.
I think there is spending issues and cuts to be made across
the board, but I am very concerned about the elephant in the
room that was mentioned. That mandatory spending and the
entitlement programs that were mentioned are squeezing very
important investment that we need to make as a country if we
are going to have a prosperous Nation going forward. Now, I
think about agriculture.
AG is the lifeblood of economy in west Texas and if we do
not make the investment in risk management tools for our
farmers or the safety net, we will not have the capacity to
feed and clothe the American people. Dr. Hall, how much do we
spend on the AG risk management or the AG programs within the
farm bill as a percentage of our Federal budget?
Mr. Hall. I do not know, but it is not a large percentage.
Mr. Arrington. A quarter of 1 percent, so that we have a
safe and affordable and abundant supply of food for the
American people. We have cut billions of dollars in that
discretionary program. Whether it is transportation and making
sure that we meet the transportation needs or R&Ds so that we
are the laboratory of innovation for the world and we continue
to be on the cutting edge of technology in this country. Or it
is on National Defense.
I am concerned on the lack of investment in these important
areas all because we have squeezed I think just about all of
the blood out of the turnip on the discretionary side. At what
point Dr. Hall do we reach diminishing returns on the cuts on
the discretionary side, maybe in some of the programs I have
mentioned?
Mr. Hall. It is hard to say on any of this. You know the
growing deficit, any of these numbers, they look bad and we
have been on record to say that the debt is unsustainable if
you look out a lot of years, so it is hard to say too much.
Focus on discretionary spending, one of the things I think is a
little interesting sobering factoid here, is we expect in 10
years that just the payment on debt, the net interest on debt,
will exceed all non-defense discretionary spending in the
country. So, that will become a bigger item in all non-defense
discretionary spending, that is part of the problem. You have
this net interest becoming a major part in the budget going
forward.
Mr. Arrington. Quick response; of the risks to balancing
our budget and getting our arms around this deficit spending
and national debt, which one is the greatest risk, interest
rates, economic growth, domestic spending or the entitlement
programs and the runaway costs there?
Mr. Hall. It is hard to rank them, right, because obviously
you can look at any of those to address the deficit problem.
Mr. Arrington. Here is my last point and again, thank you
for your time. We cannot keep kicking the can down the road, we
do not have any more runway. We do not need more analysis; we
do not need more accountants or budgetary experts. We need
leaders with the courage to solve the problem. The problem is
mandatory spending. I look forward to getting after it, as we
say in West Texas. Madam Chair, I yield back.
Interim Chair Black. The gentleman's time is expired. The
gentleman from California, Mr. Khanna, is recognized for 5
minutes.
Mr. Khanna. Thank you, Madam Chair. I appreciate following
Congressman Arrington. We may not agree with much regarding
economics but he has shown a lot of graciousness in reaching
out to the freshman class across the aisle and trying to build
stability in the country first so I appreciate following him.
Dr. Hall, thank you for your service, and your service not just
in this role but at the Commerce Department and Treasury
Department and White House and I look forward to hearing some
of your expertise.
I represent a district at the heart of Silicon Valley with
Google, Apple, Yahoo, Intel, Cisco and Enrico Moretti,
economist at Berkeley, has written that there is a tech
multiplier of 4.5 jobs. For every one job created in tech, four
and a half jobs are created. Pastor Trieber and Pastor Burnell
who are in for the National Prayer Breakfast will tell you that
in our district not everyone who works for tech goes to their
church but there are folks that are baristas, and lawyers and
others who have those jobs partly because of the tech industry.
Now in Eastern Kentucky, thanks in part to Ranking Member
Yarmuth's work with the administration, there was this model
where 40 jobs were recently created for folks of coal-miners'
kids who were being trained on IOS software on the Apple phone
and android software with the Google phone, a four month class.
All of them have jobs. It was funded by the tech initiative
that the administration worked on with Congress and the
Regional Appalachian Economic Center. My issue, and I do not
think it is a partisan issue, is how do we get these tech jobs
across the country and what are your thoughts on what this
congress needs to do to make that possible?
Mr. Hall. It is a little hard to speak too specific to
that, I do not want to make specific recommendations, that is
not what CBO does. But I can put it in general terms, the long
run problems are, you know we talked a little bit about the
labor force participation. Getting the labor force growth
increase, working age people sort of back in the labor force
but also there is productivity side of things.
There are lots of things that government can consider that
will increase private sector productivity, right? Whether it is
looking at tax policy, where trying to find a more efficient
way of collecting taxes that is hopefully tax neutral. Whether
it is looking at the regulatory environment, whether it is
looking at increased Federal investment.
All those things are things that can impact private sector
productivity, and that is really an important part of the
recipe. One of the real difficulties we have, anybody has right
now, on being too specific, we do not understand productivity
growth really well and we do not understand how policies affect
productivity growth very well. So, it is very hard for almost
anybody to have too many solid recommendations about how to
achieve higher productivity because we just do not know that
much about it.
Mr. Khanna. I appreciate that, would you say that preparing
folks for these jobs though has to be a component of it?
Mr. Hall. Yes, absolutely.
Mr. Khanna. The other line of questioning I have is
slightly different and that is on Social Security and without
taking a particular view. If we were to scrap the cap, how much
revenue would that raise? And how much would that go towards
solving some of the structural deficits?
Mr. Hall. It would certainly have an impact. I do not have
the number in my head. But we actually did that calculation and
that options for reducing the deficit volume that we just
produced, that was one of the options that we put in there. If
you look at that, and we can follow up too, that will give you
an idea of how much of an impact that would have.
Mr. Khanna. I would appreciate that, I yield back the
balance of my time.
Interim Chair Black. The gentleman yields back, we
appreciate that balance of time. The gentleman from South
Carolina, Mr. Sanford, is recognized for 5 minutes.
Mr. Sanford. Thank you, and I appreciate the thoughtful
comments from my colleagues from New York and from California,
and we do see things differently. And I want to bore down
though on what my other colleague from California, Mr.
McClintock was getting at. In the danger of a sovereign debt
crisis, I think it is much more real than what people realize
and I think it is much closer than people realize. So, you
yourself have identified the debt as unsustainable, that we are
on a path that we cannot possibly continue. And I think the
numbers are compelling on that case.
But what I would like to flesh out is how this may be a
nearer term event that would have cataclysmic consequences with
regard to the value of our currency with regard to future
inflation with regard to the American standard of living. I
think it is interesting, I saw a McKinsey report the other day
and what it showed was, we are at about 250 percent debt to GDB
globally and in the wake of 2008 what we saw was a roughly $57
trillion increase in debt which was highly unusual because what
the report showed was that going back really over the last 50
plus years, actually no it was more than that, it went back to
1930. That in the wake of financial crisis or economic
slowdown, that historically there was a de-leveraging that
followed.
But in this instance, post-2008, what we have seen is a
reverse, is significant leveraging in the wake of a financial
crises. And therefore we lived in a time like no other, and you
can see the same numbers at the Federal level, you know our
debt to GDP numbers, I guess a post-World War II high, and they
are at a peace time high. So, I was looking at the numbers the
other day and I think this is a really interesting chart, that
again suggests how vulnerable we are and how a crisis could
come much sooner than people realize.
This is from the Fed, and it's net worth as a percentage of
disposable income, you could also do net worth as a percentage
of GDP. But basically, what it shows is over the last 75 years,
we have been fairly constant at an average of around 500
percent of net worth to disposable income. But in the early, I
guess late 1990s, we had a peak it represented the tech bubble,
we went above 600 percent and we did it again in the housing
crisis, or just pre-housing crisis went above 600 percent and
we have done it again now.
And what is interesting what followed the tech bubble we
know, what followed the housing bubble we know, but we are at
that same percentage in an overall inflated environment with
regard to debt both domestic and internationally. Is there a
much greater level of vulnerability than we realize? And let me
add one other thought to that. I pulled the numbers on economic
expansions, we are now living in the fourth longest economic
expansion in American history. So, we had the tech bubble, we
had the Reagan expansion, we had the Kennedy-Johnson expansions
but you know the average is 60 months we are about a third past
that which would suggest to me another layer of vulnerability.
And finally, we live in a zero interest rate policy. Which is a
policy that we have in essence never lived in.
You know, I guess it was Roosevelt's Treasury secretary
that at time of the Depression talked about pushing on a string
how there was just no more juice in terms of making things
happen. So, would you flush out in the minute and a half that I
guess you have, with a little bit of color with regard to, you
know, while we may be unsustainable in the long run, maybe this
can creep up on us much sooner than people realize?
Mr. Hall. Sure. Part of the trouble is that there just is
not research, and there is no way to know how much debt is too
much.
Mr. Sanford. Well, I think there is regression to the mean
for a reason. I mean, I think it is even dangerous when we talk
about interest policy and we say, Well, we are going back to
the average. Well that is not what has historically happened,
the reason you regress to the mean is typically you go far on
the other side so interest rates go up a bunch to give you that
average. So, I think that the law of averages and numbers
works.
Mr. Hall. Yeah, and the sort of comparison that we wind up
making and it probably should be a sobering comparison, 77
percent of GDP and debt is a really high number. You go up a
little bit more and you have the highest debt ratio since the
end of World War II. The end of World War II was a pretty
special time, so it is way above historical numbers.
Mr. Sanford. Well, and that was a case where we were
actually fighting for our survival as a republic. Right now,
that money is in essence going towards consumption and again
what many would argue to be sustainability. Oh, we are going to
have fun, come on.
Interim Chair Black. The gentleman's time is expired, I am
very sorry. The ranking member, Mr. Yarmuth, is recognized.
Mr. Yarmuth. Thank you, Madam Chairman. Once again, thank
you, Director Hall. I look forward to reading your new
publication. I think that would be something mandatory reading
for all of us here. One thing we have not talked about yet
during this hearing is tax expenditures. And I think your
report shows that tax expenditures actually are on a path, if
not now, they are larger than the discretionary spending in
total, including defense spending. Somewhere going to $1.5
trillion. Is there any difference, in terms of the impact on
the budget, between a dollar of tax expenditure and a dollar of
discretionary spending?
Mr. Hall. No, the effect on the deficit is the same.
Mr. Yarmuth. And have you done an analysis of what types of
discretionary spending maybe have a more positive or negative
impact on the budget as on the deficit as you would have . . .
so, you would for instance, a charitable deduction versus R&D
tax credits versus mortgage deductions.
Mr. Hall. Not that comes to my mind so much. Our colleagues
at the Joint Committee on Taxation who have done a lot more of
that work they might have some numbers for you.
Mr. Yarmuth. And last year, this House renewed about $800
billion of tax expenditures as I recall with no offset
[inaudible].
Mr. Hall. The numbers, that could be correct.
Mr. Yarmuth. It was pretty substantial.
Mr. Hall. Yes it was.
Mr. Yarmuth. So, what we are talking about, and I hope you
dealt with this in the new publication, because clearly when
you are looking at over a trillion dollars of tax expenditures,
you are looking at another significant impact on the deficit.
And something that we do not spend nearly enough time looking
at in terms of which ones really pay off for the taxpayers. I
mean, most of the mortgage deduction benefit goes to wealthier
tax payers, is that not correct?
Mr. Hall. I think that is probably correct. Can I just say
something in general, I referred to it but one of the ways to
try to approve efficiency and productivity is to look at the
efficiency of taxes, of our tax system. Right? Because our tax
system has lots of things that encourage behavior that causes
distortions. And so there are things one can look at.
Reducing taxes on capital investment for example--it is a
really direct way of affecting productivity because capital
investment increases productivity. Worrying about our tax base,
right? There is some offshoring behavior that reduces our tax
base. Some of those things, especially if they are sort of tax
neutral, would have an impact potentially on long-term growth
without adding to the deficit.
Mr. Yarmuth. Well, presumably, we are going to have that
debate later this year as the House takes on tax reform. So
that will be an interesting forum. I know this will be totally
out of character for me. I am going to ask questions that have
no political point at all. I am just curious about them. In
your report, you project Medicare spending per beneficiary to
go up 4.3 percent through 2027, which is 3 percent higher than
it has been over the last 5 years. Why such a dramatic increase
in projection of the cost per beneficiary?
Mr. Hall. That one is actually pretty difficult for us to
forecast. Healthcare spending has been consistently growing
faster than GDP. And a lot of that for us is just continuing
the trend that we have seen in that. And it is actually part of
our forecast that will continue, per beneficiary growth of
health care generally, will grow faster than GDP. And that
actually is part of the growing deficit.
Mr. Yarmuth. But that has not been the case over the last 5
years.
Mr. Hall. Right.
Mr. Yarmuth. Part of it is the ACA, part of it is in the
economy and so forth. I know there are a lot of actors there.
My point being that could be a dramatic difference in your
long-term forecast for Medicare. If the growth rates per
beneficiary stayed at one third of what you are projecting.
Mr. Hall. Well, that is right that could have an impact.
And you are right that the growth has slowed down. And I do not
know if we have it in this report but somewhere we have got a
sensitivity analysis where we vary the cost of health care to
see what sort of impact that has on the budget deficit. We can
get back to you on that.
Mr. Yarmuth. Thanks. Another point you make is that the
subsidies on the exchanges, assuming that they are not
repealed, would double basically from this year until 10 years.
I was curious whether that was predicated on doubling the
number of insureds. A rise in the premiums so the subsidies
have to keep pace with the premiums under current law. Is that
the reason it would double in 10 years or is it a combination
of both?
Mr. Hall. It is probably both, but certainly, I would think
most of it is the increased use of the exchange and increased
use of the expansion so I think they are both in there.
Mr. Yarmuth. Okay, so now turn to Medicaid. This is now
regular Medicaid not the expanding Medicaid, you project
expenditures growing from $389 billion in 2017 to $650 billion
in 2027 which is a significant increase. I do not know what it
is, 70 percent growth over that period of time, but it's 5.5
percent a year growth.
Is that because you are projecting, again rising cost per
beneficiaries or because you expect that more people to be
involved and be eligible for Medicaid? Which would reflect a
really bad economy. Or would it be because such a huge
percentage of Medicaid is used for skilled nursing and you
expect the senior population to eat up a larger chunk of the
Medicaid budget?
Mr. Hall. Yeah, to get to that level of detail I have to
get back to you. I am pretty sure a big chunk of that is simply
the increased number of people but we can break that out for
you.
Mr. Yarmuth. Okay, but would that be on the skilled nursing
side because to say that the population eligible for Medicaid
is going to grow that much over the next 5 years, again
indicates an economy that is going in the tank which does not
comport with the rest of your forecast.
Mr. Hall. Right, I mean we have pretty modest growth, but
one of the things we do have is a continuing trend and faster
growth in income for high income folks so the distribution of
income, we have that continuing to change and that is a trend
going forward that is been there for a while.
Mr. Yarmuth. And now going to Medicaid expansion, your
projection is that between now and 2027, the number of people
and the expanded Medicaid would go from 12 million to 17
million people.
Mr. Hall. Right.
Mr. Yarmuth. And that the total expense of expanded
Medicaid would go from $70 billion to $142 billion, so that is
100 percent increase, 7 percent a year is what you are
projecting? Again, I am curious to why that is such a huge
increase.
Mr. Hall. That one I know.
Mr. Yarmuth. Okay, good.
Mr. Hall. Right now, there are 31 States and D.C. that have
expanded and that is about 50 percent of the eligible people.
We expect that the increase, the number of States that adopt
Medicaid expansion, that will increase about 70 percent of the
total people of all the States. So, it is from growing State
acceptance of that.
Mr. Yarmuth. Okay, good answer. Wish we could see that.
Policy does not look like it is going in that direction,
however. You know in my State we have, I think arguably the
most successful expansion of Medicaid in the country. We do
start insured by more than 60 percent and in my district now we
are at 3 percent on insured, 81,000 on expanded Medicaid.
And the projections if, not your projections, but other
projections, show that if we actually were to rescind the
Affordable Care Act, the Medicaid expansion or just the
Medicaid expansion we would lose an awful lot of jobs, 10s of
thousands of jobs in Kentucky; one estimate--44,000 jobs and
$30 billion worth of economic activity over the next 5 years.
Does your data, your analysis of the Affordable Care Act
reflect that kind of potential loss in economic activity and
employment in other areas of the country or across the country?
Mr. Hall. I am not sure if we have that level of detail.
The main impact of, for example ACA repeal, is a change in
labor supply. We think that would be an increase in labor
supply that would sort of increase the economic growth from and
that would sort of counter some of the effects. That level of
detail, I do not know offhand what we have thought about that.
Mr. Yarmuth. Well, thank you very much once again for your
testimony. I yield back.
Interim Chair Black. The gentleman's time has expired. The
gentleman from Pennsylvania, Mr. Smucker, is recognized for 5
minutes.
Mr. Smucker. Thank you, Madam Chair. Good morning, Dr.
Hall.
Mr. Hall. Good morning.
Mr. Smucker. Thanks for being here. As any other freshman
here, and probably other members as well, we have just come
through a campaign where, I know I have had many, many
conversations with people throughout my district and heard
concerns that they have expressed. And one of the top things
that we have heard is people believe that the economy is not
working for them as it should. They are concerned that their
kids, their grandkids, will not have the same opportunities to
live the American dream that we all have had. People are very
concerned about that. And they are concerned that we are asking
future generations to pay the bill. And is it not true, Dr.
Hall, that is what we are doing? If we cannot solve this
problem here, we are transferring that problem to future
generations.
Mr. Hall. I think that is a fair statement. We do have a
literature. It is a little research talking about the
intergenerational effects of the debt that we can get to you.
But I think that is a concern.
Mr. Smucker. So, that is one concern. People are also very
concerned; their perception is that their elected leaders are
not willing to make the tough decisions to solve the problems
that we are faced with. And I am hoping that we are about to
change that. And I am pleased to be on the Budget Committee to
work to try to solve some of these difficult issues.
And I agree with many of the other comments that have been
said here today; this is not a partisan issue. These are issues
that we should be looking to try to find solutions. It will
take us working across the aisle to move our country in the
right direction. So I am hoping that this is the beginning to
finding some of these solutions.
The other thing that I have heard and I am going to get
another question to you, you know I am Pennsylvania, Lancaster,
Pennsylvania, a lot of entrepreneurs, small companies that have
grown, developed in technology or whatever it might be and
created jobs.
And the business owners that I talked to today believe that
it is more difficult and as a business owner myself I have seen
this myself, it is more difficult, there is less incentive to
invest additional capital into new technologies, to hire people
because of the environment that we have created this economy.
They believe the regulatory environment holds them back, holds
individuals, holds businesses back. Prevents that kind of
economic growth that we have seen before. They believe the tax
policy is no longer working for them. Do you think we are
seeing that kind of impact?
Mr. Hall. I certainly think that that is a potential area
for improving the long-term growth, right? Because one of the
two big challenges is productivity. You need some regulation,
eliminating some regulation can actually hurt productivity but
having regulation that is unnecessary or goes too far can
impact productivity. Tax policies can impact productivity.
Mr. Smucker. We have talked about whether we need to tax
our way out of this--whether we need to cut spending. I think
we also need to look at establishing the right environment to
encourage capital investment, to encourage more hiring, to
encourage activities by individuals and business to create that
economic growth. I think it has been done before. But my
question to you in this regard is how much impact will that
have? Say for instance we are able to get to a 3 percent or 4
percent annual growth.
You know the numbers I am looking at look every bit as bad
and worse, they do not look any better from this side of the
table than they do before. But how much impact could we have if
we create an environment for much stronger economic growth?
Mr. Hall. The problem is so big, you cannot do it with just
economic growth, I think.
Mr. Smucker. Can you give a sense though on how much of a
difference that would make?
Mr. Hall. Well, right now, we think that productivity is
going to grow to about 1.3 percent a year by the end of our 10-
year period. In the 1990s it was as high as 2 percent, which is
very unusual. Well let's say we got another half percentage
point of productivity. In 10 years, we are talking about having
a deficit of about $50 billion lower. So, the deficit going
from 1.4 to .9, that is an impact but it is not balanced and we
still have the continuing worsening demographics going forward.
Mr. Smucker. Thank you, Madam Chair, my time has expired.
Interim Chair Black. The gentleman's time has expired. And
I now recognize Mr. Faso, from New York, for 5 minutes.
Mr. Faso. Thank you, Madam Chair. Dr. Hall, thank you. You
raise productivity, how much would making permanent the 179-tax
incentive for business investments or 100 percent expensing for
capital expenditures, how much have you factored that into or
done an analysis as to how much that could improve
productivity?
Mr. Hall. I do not know if we have done an analysis on
that. We assume that they expire when they expire. So, I would
have to see if we have done an exercise like that.
Mr. Faso. Could you get back to us on that?
Mr. Hall. Sure.
Mr. Faso. And I am also a member of the Agriculture
Committee and I was appointed to the Nutrition Sub-Committee,
and I have noted that despite the general improvement in the
economy in terms of employment, that we still have not seen a
decline in recipients under SNAP. And I am wondering if you
have factored in and looked at that factor as well?
Mr. Hall. That is sort of part of our forecast and we do
think there is still slack in the economy. But the underlying
forecast on SNAP I think does incorporate our economic
forecast. We think we are still about one and one half million
jobs short of full employment right now even though the
unemployment rate is very low, so that is still a significant
slack left.
Mr. Faso. And I would add some of the comments of my
colleagues, one of the things I heard frequently on the
campaign trail and speaking to business was that they have
jobs, they just cannot find qualified people to fill the jobs.
And often these are jobs that might have technical skills, they
might need some basic mechanical skills and training in
robotics etcetera.
I am thinking of one particular school, near my district,
Hudson Valley Community College where the guy who runs it, is a
robotic training facility, he has about 150 students in it
every year. Every single student has a job. He told me that you
could have literally 50 of his type centers around the country,
and you still would not meet the need for employment of those
kind of jobs. Any comment on that?
Mr. Hall. Two things come to mind, our issue with slowly
growing labor force, that is not going as quickly. Part of that
is, working age people are not entering the labor force like
they have in the past, so the participation rates of working
age rates are really lower now than they have been in the past.
That is a puzzle and we think a lot of that just does not look
like it is coming back, so that is something that maybe is
important here.
And the second is, you know, one of the things that we have
done a little work on is some Federal investment in things like
education and training. And, in fact we are coming out very
shortly on a blog on the affects about what we see is the
evidence on the effects of education and training that going
forward that might address that issue.
Mr. Faso. Okay, I would be interested in seeing that. I am
also interested in seeing that publication you referenced about
the 100 best ways we could use to reduce the deficit. Speaking
of the debt, what did you say our 10-year growth in national
debt is going to be?
Mr. Hall. We are going to hit about 89 percent of GDP.
Mr. Faso. And in terms of actual amount of debt, it is
going to go from, right now we are at about $19 trillion to?
Mr. Hall. I think it's $30 trillion.
Mr. Faso. Ten-trillion dollar increase in the debt over 10
years, does it get a little frustrating coming up here to
Congress and to tell us and the American people that their
national debt is going to be $30 trillion in 10 years, and no
one seems to pay attention?
Mr. Hall. One of things I notice every year when we put out
this report, we do a little press conference or we talk to
press and let them ask questions, and one of the question is
always ``What is new about this report?'' And the most notable
thing to me is well, it still has the same punch line and a
year ago, debt is large and it is growing and at some points it
is unsustainable. That is a continuing message from CBO and it
has been that message for quite a while.
Well Dr. Hall thank you for your service. I would not
recommend it but maybe you need to set your hair on fire when
you are giving that presentation, maybe they would pay
attention then. Thank you so much. I yield back to Madam
Chairman.
Interim Chair Black. The gentleman yields back time. Thank
you very much. The gentleman from Ohio, Mr. Johnson, is
recognized for 5 minutes.
Mr. Johnson. Thank you Madam Chair, and thank you Dr. Hall
for joining us today. Let me turn to direct spending or
mandatory spending. You know, when I was first elected in 2010,
the first phone call I got was from my nearly 80-year-old
mother, and it was not to say congratulations it was to say,
``All right, son, what are you going to do to make sure
Washington protects my Social Security benefits because if they
do not, I am coming to live with you.'' The next phone call I
got was from my wife who said ``You better do what your mother
said.''
For many years after the 1983 Social Security reforms, the
Social Security trust fund ran fairly large surpluses. This was
done deliberately to try to ensure the trust fund would have
resources to pay benefits for a long time. So, what is the
current cash flow situation with Social Security?
Mr. Hall. Right now, their outlays exceed the revenues,
even excluding interest by a fair amount. This year the outlays
will exceed revenues by about $55 billion.
Mr. Johnson. Wow. How long do you think Social Security
will last at that rate?
Mr. Hall. Right now, we have our exhaustion date at 2030.
Mr. Johnson. Okay. If Social Security continues to pay out
more in benefits than it collects in taxes, what, in your
opinion, will that mean for current beneficiaries if we do not
take any action here? I can guess what that is, I can kind of
put the two and two of what you just said together, but I would
like to hear it from you on the record.
Mr. Hall. Actually, our assumptions in this is that the
beneficiaries will still continue to get what they are
promised. So, even though, unless Congress acts, beneficiaries
will not get their full outlays, we assume that that happens.
If they did not, in 2030, benefits would just have to be
reduced by about 29 percent right away.
Mr. Johnson. All right. So, is it true the longer Congress
waits to reform Social Security, the harder it is to implement
the reforms without affecting current retirees?
Mr. Hall. It is.
Mr. Johnson. Okay. Let me go back and talk a little bit
about economic growth. You know in a 2015 study on repealing
the Affordable Care Act, the Congressional Budget Office
determined that repeal would increase GDP by about 0.7 percent
on average over the median term, that is 2021 through 2025.
Mostly, by repealing the provisions that are expected to reduce
the supply of labor in the economy. So, how would repealing the
Affordable Care Act affect the expected supply of labor in the
economy? Would it lead to an overall benefit in the economy in
your view?
Mr. Hall. Repealing it would likely increase the supply of
labor in the economy, not quite 1 percentage point and actually
would give a boost to GDP growth because of that increase in
labor supply, our latest estimate was about 0.7 percent on GDP.
Mr. Johnson. Okay so if we were to repeal, it would
increase the GDP by about 0.7 and the expected supply of labor,
tell me again what that would go to.
Mr. Hall. Sure, we think that the number of people that
would increase their hours or re-enter the labor force that
would increase by 0.8, 0.9 percent of the labor force. That
would be the boost to the labor force.
Mr. Johnson. I am asking you to do some mental math here, I
know that, but at the current labor rate that we are
experiencing, you got any idea of how many millions of people
that would be that would be back in the labor force.
Mr. Hall. Right. I do not off hand. I do not want to guess.
Mr. Johnson. Can you take that as a question please?
Mr. Hall. We can do that pretty quickly, somebody just
needs to look it up for me.
Mr. Johnson. Yeah, I need a calculator too, I am sorry. So,
thanks a lot, I appreciate you answering my questions. Madam
Chair, I yield back.
Interim Chair Black. The gentleman yields back. I do want
to reference the report that did come from CBO, Budgetary and
Economic Effects of Repealing the Affordable Care Act and I
will read a line from this, in addition to the questioning by
the Gentleman from Ohio. And the paragraph begins with ``The
Macroeconomic feedback effects of repealing the ACA would lower
the Federal Deficit by $216 billion on the period from 2016 to
2025.'' So, it would have a significant economic affect in
lowering. The gentleman from Georgia, Mr. Ferguson is
recognized for 5 minutes.
Mr. Ferguson. Thank you, Madam Chairman. Dr. Hall, thank
you for coming today. I guess one of the joys of being a
freshman and going late in this game is I have gotten to hear a
lot of these comments and have learned an awful lot.
So, a couple questions for you. First of all, do you
believe that the rules set by Congress that you have to follow
for scoring the budget and the policy changes do they allow us
to accurately look in the future. Just a yes, or no.
Mr. Hall. I do not have an opinion on that, we will do
whatever you like.
Mr. Ferguson. I would suggest that we are $20 trillion in
debt. I will let the answer stand for itself there. Next, can
you accurately talk about how the proposed reforms, tax reform
policy, the rolling back of the regulatory cost, possible trade
policy changes, spending in defense, infrastructure and poverty
initiations simultaneously affect the budget?
Mr. Hall. No, we would have to do a lot of specifics and do
a lot more work.
Mr. Ferguson. It just seems, you know, it is awfully tough
for us to have an honest conversation if we do not accurately
know where we are going with these numbers and how they are
actually going to affect us. Do you think that we should be
using more dynamic scoring models based on predictive analytics
to give your office and those around you more tools to
accurately reflect what the policy changes are going to
suggest?
Mr. Hall. I think the policy right now is working well, the
dynamic scoring we believe makes for a more accurate forecast.
And it really makes a difference on the large pieces of
legislation and that is when we are required to use it, so that
seems appropriate. We are going to continue to get better at it
and quicker at it but I think it does probably help improve the
accuracy.
Mr. Ferguson. You know, as we sit around and we talk about
this, the [inaudible] mandatory spending and I think we are
going to have to be honest with ourselves and the American
people about the promises that have been made and our ability
to continue to keep those promises. We are going to have tough
decisions to make and it is you know, I kind of look at it and
we talk about where we are in the budget process, are we going
to have a budget that balances in 10 years, are we going to
have one that balances in 5 years, is it going to be one that
balances in 12 years.
Are we not going to vote for a balanced budget because it
ruins the political purity of a particular representative? I
just get the sense until we are willing to fundamentally
address and honestly address the mandatory spending crisis that
we are not doing anything more than rearranging the deck chairs
on the Titanic. Is that a fair statement?
Mr. Hall. I want to be fair and say that there are a lot of
ways you can address it, you do not have to just focus on
mandatories. The broader way.
Mr. Ferguson. Dr. Hall you said earlier, the question I
might be paraphrasing, all of the mandatory spending is going
to outstrip all of the discretionary spending.
Mr. Hall. That is right, and the spending is mandatory.
Mr. Ferguson. Thank you.
Mr. Hall. That is right.
Mr. Ferguson. So, I mean it is coming, at some point it is
going to eat up every single resource we've got so we have to
address that. You know, the other thing and I will close with
this. You know it is interesting, I kind of feel we are a
political version of Thelma and Louise right now. We have been,
just in this here, and we have been talking about who has been
the better driver for the last 50 miles. And now we are fussing
about who is driving and the car is about to go over the cliff
and it does not matter who is right or who is wrong if we do
not stop that car from going over the cliff.
The American people expect us to stop this car from going
over the cliff and I think it is a real challenge that we have
as a Congress and as an American people to have those very
honest conversations that we have got to have. We have to get
better at scoring the budget, I believe we have to get better
at scoring the proposed changes. I think we have to able to
strip the emotion and the politics out of our decision and use
better analytics to make these tough decision and with that
Madam Chair I yield back.
Interim Chair Black. The gentleman yields back. The
gentleman from Wisconsin, Mr. Grotham, is recognized for 5
minutes.
Mr. Grotham. Thank you. I want to take up again a little
bit looking into why the economy is doing so poorly, you know
this 1.6 percent growth is kind of pathetic with all of the new
technology that is out there. Labor participation rate is 62.7
percent and I want talk a little bit more about these
entitlements because in the last decade, means tested spending
has gone up from about $670 billion to $740 billion, so more
than double. When you look at so many of these programs it is
like they were designed by politicians who intentionally either
wanted to keep people out of the labor force or not making a
lot of money.
And I want you to comment a little bit on whether, say if
we did something about low income housing, where we kind of
give people free housing as long as you do not work. Or the
earned income tax credit where we like punish people if they
make more than $19,000 a year.
Do you think we could begin to lift these numbers up, lift
up the GDP as well as lift up our tax collections if we were to
get rid of some of these programs and free people from the
incentives not to work? I mean in my district my employers
again and again I feel, ``Glenn it is tough competition out
there to find workers and the toughest competition is from the
Federal Government that is paying people not to work for me.''
Could you comment on what would happen if we would scale back
some of these programs?
Mr. Hall. Well, sure, obviously, we would need some
specifics to actually do a real score and do it carefully. And
of course, repealing some of these programs would have some
other effects that you might want to consider. But we do a
number of things, and we make a point of putting it out
occasionally, which are implicit taxes on working that if
people work more and earn more they lose benefits or if they
begin to work they lose benefits. So, that is part of our
calculation when we look at something we look and see what
impact it has on supply of labor, willingness of people to
work, and that is consideration.
Mr. Grotham. Could you easily come up with a hypothetical
in which people, say if they work and make another $10,000,
lose $10,000 in benefits between their Pell Grants and their
earned income tax credit and their food stamps and low income
housing.
Mr. Hall. Well I mean those are all reasonable versions of
that. For example, we have been talking a little bit about the
ACA, that is part of the issue about the ACA the decline in the
labor supply is essentially an implicit tax on working where
you lose your health benefits.
Mr. Grotham. And it is not just a decline on labor supply,
I think a lot of these programs will encourage you to work but
not very hard. You know the earned income tax credit was
clearly designed to discourage somebody to make more than
$20,000 a year. Right?
I mean that is what it appears it was designed to do. There
are various different cliffs in the Affordable Care Act. I was
in a different hearing yesterday in which an accountant talked
about people holding down their income to get their subsidies.
So, in other words again the Affordable Care Act was designed
by somebody who wanted to discourage Americans from working
hard, correct?
Mr. Hall. Well, I do not know that was the reason for it,
but certainly looking at the possible side effects of programs,
at what affects they may have on incentives is an important
part of any public policy analysis I think.
Mr. Grotham. We can do both a great step towards reducing
things on the spend side and getting a big increase on income
collection if we paired back some of these programs and allowed
people to work. When, you know, you run into people back in the
district that have stories, some of you do not talk to these
people but you talk to their parents, you talk to their
siblings and they will tell you, you know. My brother, my
sister, my daughter, they are not working because of the
benefits. You think we could make a big step towards balancing
the budget if we pared some of these things back?
Mr. Hall. It would undoubtedly have an impact. I do not
know if it would get us towards balancing the budget because
this is such a big problem. But that could have some
significant impact if one looked at some of the programs and
worried about the incentives.
Mr. Grotham. Well, means tested spending, according to what
I have here, went up about $370 billion in the last 10 years, I
mean that by itself would be almost half way towards balancing
our budget. And you turn around and look at the huge degree in
which we discourage people from working and also you get that
income tax coming in. I suppose you would just be afraid to
take a ballpark estimate on what would happen.
Mr. Hall. And that is right and there is an element too of
a onetime change and then apart of what we are looking for is
the more permanent change. What happens to not just labor
supply, but the growth of the labor supply going forward.
Mr. Grotham. Well, thanks for coming over here its
enjoyable listening to you.
Interim Chair Black. The gentleman's time is expired. As we
conclude today, I just want to clip off a few things to help us
recognize what a situation we are in as a country right now,
and how desperate we are to change the current trajectory that
we are on.
And so, let me just clip off a few reminders. Real GDP grew
only by 1.6 percent last year, a 5 year low and half the long-
term average growth rate in this U.S. Since the recession ended
in 2009 the economy has grown by an average of 2.1 percent
making this the weakest economic recovery of the modern era.
The headline on unemployment rate has declined sharply in the
recent years and currently stands at 4.7 percent and that all
sounds good but the other aspects of the labor market remain
weak. The broader unemployment rate, which includes those,
working part-time because they cannot find full-time work and
discourage workers who have stopped looking for work is 9.2
percent nearly double the headline rate.
The labor workforce participation rate, which I continue to
remind people in my district as they hear the low rate that is
only unemployment rate, that really is the only the rate that
matters, 62.7 percent. That means that of able-bodied workers,
only 62.7 percent of them are actually employed in a full-time
employment. Close to a 40-year low and CBO expects this rate to
continue to decline in the future. CBO maintains that the
Affordable Care Act is contributing to this decline in the
overall labor supply in the economy.
The average hourly earnings have increased by about 2.5
percent over the latest year, but that is well below the
previous session level when earnings were growing by about 4
percent a year. Real median household income is finally on its
upswing but at $56,500, is still $900 or 1.6 percent below its
pre-recession peak in 2007. So, as we can see by all of its
statistics and these numbers, this is affecting our economy and
more importantly this is affecting the people of this country.
So, thank you Mr. Hall for appearing before us today.
Please be advised that members may submit questions to be
answered later in writing. Those questions and answers will be
made part of the formal hearing. Any members who wish to submit
questions or any extraneous materials for the record may do so
within 7 days.
Mr. Yarmuth. Madam Chair, may I make just a brief comment
in response to your comments?
Interim Chair Black. Absolutely.
Mr. Yarmuth. In listening to both sides and to Director
Hall during this hearing we heard very few ideas for
stimulating growth in the economy or specifics about what we
would cut or how we would fix some of the mandatory spending
programs.
So, I think if it would be possible maybe to have another
session in the next few months to discuss the actual
recommendations that are in the new publication from Director
Hall and maybe get some other people in here who can talk about
how we can actually grow the economy. Because I am not exactly
sure we know how to do that, either side of us.
Interim Chair Black. Point well taken, Mr. Yarmuth. With
that the committee stands adjourned.
[Whereupon, at 12:11 p.m., the committee adjourned subject
to the call of the chair.]
[The following questions and responses were submitted for
the record.]
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