    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

                      THE ECONOMIC AND FISCAL BENEFITS OF
                              PRO-GROWTH POLICIES

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

                                    HEARING

                                   BEFORE THE

                            COMMITTEE ON THE BUDGET
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                 HEARING HELD IN WASHINGTON, D.C., JUNE 7, 2017

                                   __________

                                Serial No. 115-6

                                   __________

               Printed for the use of the Committee on the Budget

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                            COMMITTEE ON THE BUDGET

                        DIANE BLACK, Tennessee, 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

                                    CONTENTS

                                                                       Page
    Hearing held in Washington, D.C., June 7, 2017...................     1
        Hon. Diane Black, Chairman, Committee on the Budget..........     1
            Prepared statement of....................................     4
        Hon. John A. Yarmuth, Ranking Member, Committee on the Budget     7
            Prepared statement of....................................     9
        Douglas J. Holtz-Eakin, Ph.D., President, American Action
          Forum......................................................    11
            Prepared statement of....................................    13
        Jason Furman, Ph.D., Senior Fellow, Peterson Institute for
          International Economics....................................    28
            Prepared statement of....................................    30
        John W. Diamond, Ph.D., Edward A. and Hermen Hancock Kelly
          Fellow in Public Finance, Rice University's Baker Institute
          for Public Policy..........................................    43
            Prepared statement of....................................    45
        Hon. Lujan Grisham, Member, Committee on the Budget, article
          submitted for the record...................................    78
        Hon. Lloyd Smucker, Member, Committee on the Budget,
          questions submitted for the record.........................    87
        Douglas J. Holtz-Eakin responses to questions submitted for
          the record.................................................    88

            THE ECONOMIC AND FISCAL BENEFITS OF PRO-GROWTH POLICIES

                                  ----------

                            WEDNESDAY, JUNE 7, 2017

                              House of Representatives,
                                       Committee on the Budget,
                                                       Washington, D.C.
        The Committee met, pursuant to call, at 10:00 a.m., in Room
    1334 Longworth House Office Building, Hon. Diane Black
    [Chairman of the Committee] presiding.
        Present: Representatives Black, Rokita, McClintock,
    Sanford, Renacci, Lewis, Faso, Gaetz, Arrington, Smucker, Brat,
    Ferguson, Woodall, Palmer, Westerman, Grothman, Jeffries,
    DelBene, Khanna, Jayapal, Carbajal, Wasserman Schultz,
    Schakowsky, Jackson Lee, and Lujan Grisham.
        Chairman Black. The hearing will come to order. Welcome to
    the Committee on the Budget hearing, which will focus on the
    economic and fiscal benefits of pro-growth policies.
        Good morning, and thank you everyone for being here, and I
    especially want to thank our great panel that is here with us
    today, our witnesses, for being willing to come in this morning
    and provide their thoughts on this important topic. We are
    having this hearing today in preparation for the upcoming
    release of our 2018 budget resolution. An important component
    of that resolution is an analysis of our economic conditions
    and our projects of future economic growth.
        Over the last 8 years, we have seen stagnant economic
    growth, leading economists and the CBO to consistently
    downgrade their growth projections. As recently as 2012, the
    CBO projected our economy would average a 3 percent growth over
    a 10-year window.
        This year, the CBO is only projecting an average of 1.9
    percent growth over the next 10 years. However, it is important
    to point out that the CBO's projects are based on the
    assumption of continuing existing law with no changes in the
    economic policy. There is no question that the policies of the
    Obama years greatly contributed to the anemic economic growth
    and the downgraded growth projections. Higher taxes, the
    disaster that is ObamaCare, an expanded regulatory regime, and
    more federal spending and debt have held back the American
    entrepreneurs and small businesses.
        The Obama economy left millions of Americans behind. Over
    14 million Americans left the labor workforce during the Obama
    administration's 8 years in office. That is 14 million
    Americans. And in total, 95 million Americans are now out of
    the labor force: 95 million.
        That is more than one-third of the total working age
    population, and I think that it is important to emphasize that
    there are 95 million Americans that are now out of the labor
    workforce, more than one-third of the total working age
    population. It has been the working-class Americans in the coal
    mines of West Virginia or the factories of central Tennessee or
    the farming communities in Nebraska that have borne the brunt
    of the liberal agenda over the last 8 years.
        The ability and the opportunity to work is a fundamental
    pillar of the American Dream. Without the stability and self-
    worth that comes from having a job and providing a better
    future for one's children, our culture, and our economy, and
    truly our national morale suffers. Plenty of our friends across
    the aisle and many in the media have said that a 1.9 percent
    growth is the new normal. They have a pessimistic view of our
    Nation's ability to create jobs and build a foundation of
    greater opportunity for all citizens, especially if the new
    President and the Congress are successful in enacting a series
    of pro-growth policies. While I am never surprised by the
    media's pessimism, I am surprised that our friends across the
    aisle have such a negative view of Congress' ability to affect
    real change and to set a new economic standard.
        So, I have got a message for everyone here today who thinks
    America is doomed to a future of less opportunity and
    potential: take your losing attitude elsewhere. We are the
    greatest country on Earth. We have got the best workers, the
    best innovators, and the best companies, and they are not the
    problem. Washington, D.C. is the problem. Government is getting
    in their way, and it is about time that we fix that problem.
        And that is why the Republicans are committed to reforming
    the Tax Code, reforming our healthcare system by repealing and
    replacing ObamaCare, by reducing the regulatory burden on
    American small businesses, and getting our fiscal house in
    order, which is our responsibility in this Committee. These
    policies will spur economic growth and unleash the potential of
    the American free-market economy.
        We would welcome our Democratic colleagues to join us in
    this effort, but it requires them to no longer be content with
    the status quo of the Obama years. We have got to put those
    years behind us, because there is no law that we have to
    forever accept President Obama's slow-growth policies. We can
    make changes to improve our economy, and we can start with
    adopting a budget resolution that puts our country on a sound
    fiscal path.
        Growing our economy is also a vital step to getting our
    fiscal house in order. Since World War II, 3 percent growth has
    been the historical average. In the late 1990s, our economy
    grew by a rate of 4.5 percent, more than twice the rate of our
    growth today. It is no coincidence that we also balanced the
    Federal budget during this time period. Strong economic growth
    combined with spending restraint is how we get our country on a
    path to balance and how we begin to pay down the national debt
    without raising taxes.
        I believe our economy is on the cusp of a great resurgence.
    The pro-growth policies of healthcare reform, tax reform,
    regulatory reform, and deficit reduction will provide the
    economic freedom and the certainty that our economy needs to
    grow to create jobs and create the type of opportunity that is
    the birthright of all Americans. I look forward to hearing from
    our witnesses today on how we can develop better policies to
    boost our economy, and it is time for optimism and new ideas,
    not pessimism and willingness to accept the status quo. And
    with that, I yield to my Ranking Member, Mr. Yarmuth.
        [The prepared statement of Diane Black follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Yarmuth. Thank you very much, Chairman Black, and I
    thank the witnesses for being here. We look forward to hearing
    from you.
        Obviously, economic growth is a critically important issue.
    Increased economic growth can benefit American families and the
    Federal budget outlook. But we cannot have a meaningful hearing
    about economic growth without acknowledging the fact that the
    level of economic growth projected in the President's budget is
    totally unrealistic, if not absurd. Any budget that includes
    that level of growth should not be taken seriously. Americans
    deserve more than faith-based economics.
        We need to be honest with them. Despite all the wishful
    thinking of the administration and some of my colleagues on the
    other side of the aisle, long-term economic growth of 3 percent
    is just not going to happen, particularly given the current
    economic and labor trends we face.
        There are good reasons why CBO is projecting the economy's
    long-term growth rate as 1.9 percent and why the Blue Chip
    consensus private sector forecast is only slightly better at
    2.0 percent. The entry of the baby boom generation and
    increasing numbers of women into the workforce helped support
    economic growth in the 1970s and 1980s. Those demographic
    trends have ended, and they are not going to return.
        But we can take steps to help strengthen our economy, and
    they are steps that the American people overwhelmingly support.
    We can raise the minimum wage. We can invest in state-of-the-
    art infrastructure and innovation to create the next
    industries: research and science to make the next big
    discovery, and education and job training to develop a more
    skilled and productive workforce.
        We can end loopholes that allow companies to ship jobs and
    profits overseas. And we can enact comprehensive immigration
    reform to increase the size of our workforce and the size of
    our economy. Those are all things we can do now and should do
    now.
        Massive tax cuts are not the answer, even though we are
    likely to hear that claim a lot today. We have done that
    before, actually twice. Instead of sustained economic growth,
    our deficits exploded. Both of those tax cuts were accompanied
    by lax regulation that contributed to financial crises and
    recessions just a few years later. Regulatory reform is not a
    silver bullet either, but we will likely hear that today as
    well. Most regulations already must meet a cost-benefit test.
        Rescinding regulations without a very thorough
    understanding of the threat that rescission would cause to both
    direct economic benefits and non-economic benefits such as
    improved health, safety, and environmental conditions, would be
    irresponsible.
        Presumably, this is our last hearing before the release of
    my Republican colleagues' budget. Economic growth will
    obviously be a big part of their proposal, and it is my hope
    that it will be far different than the President's budget, that
    it will use responsible economic growth projections, that it
    will not rely on debunked claims that massive tax cuts pay for
    themselves, that it will increase funding for national
    priorities that will grow our economy, and that it will make
    investments in our Nation's greatest asset, the American
    people. We plan to talk about that and more today, and I hope
    to hear some helpful insights from our witnesses. I look
    forward to your testimony, and I yield back.
        [The prepared statement of John Yarmuth follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Black. Thank you, Mr. Yarmuth. And Dr. Holtz-
    Eakin, Dr. Furman, and Dr. Diamond, thank you for being here
    today and taking time out of your schedule to join us. The
    Committee has received your written statements, and they will
    be part of the formal record. You will each have 5 minutes to
    deliver your oral remarks, and Dr. Holtz-Eakin, we will begin
    with you today for your 5 minutes.

        STATEMENTS OF DOUGLAS J. HOLTZ-EAKIN, Ph.D., PRESIDENT,
     AMERICAN ACTION FORUM; JOHN W. DIAMOND, Ph.D., EDWARD A. AND
         HERMENA HANCOCK KELLY FELLOW IN PUBLIC FINANCE, RICE
       UNIVERSITY'S BAKER INSTITUTE FOR PUBLIC POLICY; AND JASON
         FURMAN, Ph.D., SENIOR FELLOW, PETERSON INSTITUTE FOR
                        INTERNATIONAL ECONOMICS

               STATEMENT OF DOUGLAS J. HOLTZ-EAKIN, Ph.D.

        Mr. Holtz-Eakin. Well, thank you, Chairman Blank, Ranking
    Member Yarmuth, and members of the Committee. It is a privilege
    to be here today. Is that better? Apologies. Let me make three
    points briefly, and then I look forward to answering your
    questions.
        Point number one is that this hearing is on exactly the
    right topic. Better long-term economic growth is the preeminent
    policy challenge of this era, and it can be seen by the sharp
    difference between the performance from the end of World War II
    to 2007, when GDP rose fast enough that even with the arrival
    of the baby boom generation GDP per capita rough measured the
    standard of living doubled roughly every 35 years.
        So, in 35 years, you could see the standard of living
    double, and that was the route to many people's version of the
    American Dream. Current projections would have GDP per capita
    doubling every 75 years, and so the capacity to reach dreams is
    fading over the horizon.
        Raising the rate of economic growth would be the single
    most beneficial policy for all Americans, and so I applaud the
    Committee for focusing on this. It would also benefit the
    Federal budget. The CBO estimates that every tenth of a
    percentage point of sustained increase in economic growth
    reduces budget deficits by about $270 billion. And so, while
    not a panacea, you cannot grow your way out of the problems; it
    is important to have faster economic growth, and it will
    benefit the fiscal outlook.
        The second point I would make is that the kind of economic
    growth that is needed is the hard kind to get. This is not
    stimulus, short-run recovery from a recession where there are
    workers and factories sitting idle that are easily put back
    into use. This is improving the genuine supply side of the
    economy, the capacity of workers to produce more. In the end,
    long-term growth is just growth in workers and growth in output
    per worker: productivity. And increasing productivity is going
    to require deep structural changes.
        The kinds of policies that are required are, in fact,
    permanent changes, structural reforms that improve incentive
    over the long-term, cause American businesses to invest in the
    United States, innovate in the United States, hire and pay
    people here, and those are the kinds of policies that are
    essential. In my written testimony, I highlight essentially a
    laundry list of the kinds of things that the Congress should be
    looking at.
        I would put at the top of that list something that this
    Committee should care deeply about, which is the fiscal outlook
    for the United States. The CBO's baseline, released in January,
    shows that left on autopilot, the Federal budget will grow to
    trillion-dollar deficits over the next 8 years. Those will be 5
    percent of GDP or greater, far above any safe line.
        Of those trillion-dollar deficits, over $600 billion will
    be interest on previous borrowing, and so the Federal
    Government is headed to a position where it is borrowing to pay
    off the interest on previous borrowing. Interest will be the
    second-largest program in the Federal budget, second only to
    Social Security. Larger than defense, Medicare, Medicaid, all
    of the things that we normally think of as what the government
    would do.
        So, if you are an investor on the global stage looking at a
    country that is running into what is a surefire sovereign debt
    crisis at some point, why would you want to invest there? Why
    would you want to hire there? Why would you want to grow there?
    It is an impediment to our outlook, and it ought to be fixed.
    That means fixing the entitlement programs. They are the heart
    of that growing deficit. Those programs deserve to be better on
    their merits. They should be a social safety net that is
    financially secure, provides good work incentives for both
    younger and older Americans, and are pro-growth in their
    design.
        The second thing I would put on your radar screen is tax
    reform. There is probably no single thing that can happen more
    quickly and have more durable impacts than fundamental changes
    to the U.S. corporation and individual income tax. Tax reform,
    as everyone on the screen knows, is hard. It has not happened
    for 31 years for a reason. But I would encourage everyone to
    take a very close look at getting over the finish line and
    having the kinds of structural changes to tax reform that will
    give permanently better incentives to firms and workers in the
    U.S.
        And then, I would also highlight the importance of long-
    term education reforms. There is no substitute for having
    workers with greater skills, education, and capacity to adapt
    to future economic conditions. And that is going to be one of
    the things that can, over the long-term, raise productivity the
    greatest. There are others on my list: regulatory reform,
    immigration reforms, infrastructure programs. I would be happy
    to discuss them, and I thank you again for the chance to be
    here today.
        [The prepared statement of Douglas J. Holtz-Eakin follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Black. Thank you Dr. Holtz-Eakin, and Dr. Furman,
    you are recognized for 5 minutes.

                    STATEMENT OF JASON FURMAN, Ph.D.

        Mr. Furman. Thank you, Chairman Black, Ranking Member
    Yarmuth, members of the Committee. It is a privilege to be here
    with my fellow economists, and I think you will see a lot of
    commonality in a lot of what we have to say in our testimony. I
    wanted to make five points.
        The first point is that the primary source of the slowdown
    in economic growth over the last decade has been our
    demographic situation. That going forward, those demographics
    will continue. But a secondary source has been a worldwide
    slowdown in productivity growth and the slim chance of
    partially reversing that.
        If we had tax cuts, regulatory reform, and everything else
    on the agenda that reproduced exactly the same productivity
    growth that we had during the 1980s under President Reagan with
    today's demography, that would only be sufficient to have a 1.7
    percent growth rate. Reagan's policies, Reagan's economy,
    today's demography would be a 1.7 percent growth rate.
        And the reason that is so dramatically different than the
    growth rate we actually had in the 1980s is shown in that first
    chart there, which is that the working-age population was
    growing at about 2 percent a year in the 1980s. Now it is
    growing at about zero percent a year. Two-thirds of the slower
    growth is due to this dramatic demographic change, which is the
    result of fertility decisions decades ago.
        My next slide shows the other source of slower growth,
    which is productivity growth has slowed down. It has slowed
    down in most of the major economies in the world. The United
    States has had faster productivity slowdown than other advanced
    economies, but not as fast as it used to be. My next slide
    shows the major economic forecasters are forecasting between
    1.7 and 2.4 percent growth, most of them clustered around 2
    percent. All of these forecasters are assuming that the
    demography continues, and they are assuming some rebound in
    productivity growth as well.
        The Trump administration's forecast is dramatically out of
    step with all of these, and as shown in the next slide, that
    one percentage point above the consensus forecast is the most
    optimistic that any administration forecast has been since at
    least the 1980s. In fact, under Presidents Clinton, George W.
    Bush, and Obama, the administrations never forecasted growth
    more than one-tenth of 1 percent above the consensus. Now it is
    1 percentage point above the consensus.
        My second point, which I can state in one sentence, is that
    more growth would be good. It would help family incomes rise;
    it would help deal with our fiscal situation. My third point is
    one Dr. Holtz-Eakin has already made, that that additional
    growth can come maybe a tiny bit from the demand side of the
    economy, putting people back to work. But mostly it is going to
    have to come from expanding supply, increasing productivity,
    increasing the underlying structural workforce.
        My fourth point is that a number of policies would help us
    increase supply. Those include revenue-neutral business tax
    reform, increased investments in public infrastructure and
    research, expanding the labor market through active labor
    market policies and efforts to make workplaces more flexible
    for workers, and finally, immigration reform and expanded
    educational opportunity would boost both productivity growth
    and the labor force.
        The last point I wanted to make is that a number of the
    policies advanced by President Trump would worsen economic
    growth. Outside of the fiscal arena, these include limitations
    on international trade and immigration, but I wanted to focus
    on three fiscal policies. My first slide shows estimates from
    the Tax Policy Center and the Penn Wharton Budget Model, a
    model run by a former economist from the Bush administration
    that shows that under the Trump campaign plan, the tax cuts
    initially would have a small benefit for the economy, but over
    time, they would cause such large deficits that they would
    overwhelm those benefits and reduce economic growth.
        My second point would be that President Trump's budget
    includes initial increases in infrastructure, but then over
    time would cut infrastructure spending, and those cuts to
    infrastructure spending would do more damage to the economy.
    And then, my third point not shown in a slide is that cutting
    low-income programs like Medicaid and SNAP, evidence shows,
    would reduce the mobility that low-income children have, reduce
    their income growth over time, cut state budgets, which would
    reduce their investment, and by increasing inequality harm
    overall economic growth. Thank you.
        [The prepared statement of Jason Furman follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Black. Dr. Diamond, you are recognized for 5
    minutes.

                  STATEMENT OF JOHN W. DIAMOND, Ph.D.

        Mr. Diamond. Chairman Black, Ranking Member Yarmuth, and
    members of the Committee, it is an honor to present my views on
    the benefits of economic growth. Growth is important in
    determining the future size of the economy and the standard of
    living. Small changes in growth can have a significant impact
    on the size of the economy.
        For example, increasing the growth rate from 2 to 2.5
    percent would increase the size of the economy by 28 percent
    after only 10 years. Accordingly, policies that increase the
    growth rate of the economy by a small amount can have
    significant impacts in the long run. Enacting pro-growth
    policies is particularly important at this point in time for
    two reasons.
        First, the U.S. faces a fiscal policy that is on an
    unsustainable path, with deficits and debts projected to
    continue to grow dramatically as the baby boom generation ages
    and transitions from work to retirement. Thus, this is going to
    decrease the ratio of workers to retirees, while increasing
    public expenditures on retirement and healthcare programs.
    Second, there is substantial uncertainty regarding the future
    growth-rate of the American economy.
        One view is that continued innovation will spur
    productivity growth in the coming decades as new technologies
    lead to significant increases in output per person. However,
    another view is that the recent advances in technology have not
    led to significant and lasting increases in productivity, and
    that, in addition, the U.S. economy is facing a number of
    impediments that may reduce the real growth rate of real GDP
    per person.
        Such as large Federal budget deficits and budget deficits
    on the state and local level, demographic changes such as an
    aging population, the growth and accumulation of regulatory
    policy, and slower gains in educational achievement. In
    addition, rising inequality, changes in family structure and
    other social indicators, as well as the effects of
    globalization including increased competition from abroad may
    also dampen future growth rates.
        The most apparent impediment is the current path of U.S.
    fiscal policy, which is unsustainable. CBO projects that total
    spending will increase as a shared GDP from 20.7 percent in
    2017 to 29.3 percent in 2047. Total revenue is already
    projected to increase from 17.8 to 19.6 percent of GDP over
    that period. Deficits are projected to increase from 77 percent
    to 150 percent. As noted, demographic changes are driving much
    of that increase, with the remaining increase related to rising
    interest payments on the national debt.
        The obvious conclusion is that projected expenditure
    increases in the United States are unsustainable, and fiscal
    restraint is imperative. The United States must reduce its
    projected level of expenditures and reform its tax system to
    reduce economic distortions and maximize economic growth.
        Tax reform should include a focus on limiting government
    expenditures that occur through the tax system; otherwise, the
    combination of a rising debt and a relatively distortionary tax
    system will significantly hamper economic growth. Demographic
    changes will also reduce economic growth in the future because
    the retirement of the baby boom generation will further reduce
    the labor force participation rate.
        Another important impediment is the accumulation of
    government regulations. Excessive regulation of the U.S.
    economy is likely slowing growth and limiting risk-taking
    behavior. Mulligan, in 2015, argues that the Affordable Care
    Act will reduce employment and hours worked by 3 percent, and
    labor income and GDP by 2 percent.
        Dawson and Seater, 2013, find that regulation added since
    1949 is responsible for decreasing the size of the U.S. economy
    by 28 percent as of 2005. They argue that their results explain
    much of the decline in productivity since the 1970s.
        Obviously, major reform of regulatory law is long overdue.
    The slowing growth in educational attainment is also likely to
    impede economic growth in the future relative to the past 50
    years, and we should be active on that front as well.
    Policymakers should focus on reducing the government debt
    through spending restraint, reforming and reducing entitlement
    programs, reprioritizing other expenditure items to fit within
    a sustainable budget, and minimizing marginal tax rates while
    reforming expenditures that occur through the tax system. Thank
    you.
        [The prepared statement of John W. Diamond follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Black. I thank the witnesses for their testimony.
    I want to begin with you, Mr. Holtz-Eakin, since you were once
    a director of CBO. CBO is expecting an annual economic growth
    average of about 1.9 percent over the next ten years, and, as
    you well know, CBO is obligated to base its forecast on current
    law and not on future economic policies that this
    administration or Congress will likely enact this year.
        So, what aspects of the current law economic policy,
    whether it is the tax policy, which you mentioned in your
    opening remarks, or regulations or rising debts and deficits do
    you think are contributing to such a dismal economic forecast?
        Mr. Holtz-Eakin. I think there is the net effect of a
    combination of things, and you have listed some of the most
    important. As I said, I think the number one concern in the
    projections is the fiscal outlook, which is genuinely
    unsustainable, which will lead inevitably to either a crisis
    which is not pro-growth, or a sharp increase in taxes which is
    not pro-growth, or the one possibility that is beneficial,
    reforms of the large entitlement programs that put us on a
    sustainable track. But only one of those three possibilities is
    beneficial, and CBO is obligated to simply say, ``Well, we will
    sail straight into the crisis.'' So, that would be at the top
    of my list.
        Second would be the tax policies. We have, especially as
    Dr. Furman mentioned, a corporation income tax which has sort
    of reached the ultimate trifecta of bad outcomes. It does not
    raise that much revenue; it increasingly drives production and
    headquarters overseas; and it is incredibly costly and
    difficult to comply and administer. A genuinely solid business
    tax reform is at the top of the list of things that would
    improve the capacity of the economy to grow more rapidly.
        CBO is also saddled with the current regulatory state, and
    over the past 8 years the agencies have reported that they have
    put in place new major regulations with a cumulative increase
    in the compliance costs of over $800 billion. And I think if we
    had had $100 billion tax increase every year for 8 years, most
    people would think, ``Jeez, that is a lot, and that is maybe
    not such a good idea.'' So, I think those three things together
    lead to a lot of the problems in the growth outlook.
        Chairman Black. Is it fair to say that not one of those is
    a silver bullet, but it is the combination thereof that would
    really result in our strong economic growth?
        Mr. Holtz-Eakin. I concur with that completely. As I said,
    the key here is faster growth than number of workers and
    productivity per worker. There is no single lever you can pull
    to make productivity growth come back and go faster, so I would
    encourage the Congress to think of everything they can to try
    to get better pro-growth policies.
        Chairman Black. Dr. Diamond, I want to ask you about there
    seems to be a discrepancy between the current low unemployment
    rate of 4.3 percent and a quite lackluster economic output, and
    you mentioned some of those factors in your opening comments.
    Is one of the factors causing the fact that we have 14 million
    people that have left the workforce since 2009? Is that
    impacting it? And if we could enact policies that would
    encourage some of these people to get back into the workforce,
    thereby increasing that labor supply, would that help to boost
    the growth potential as well, just getting these people back
    into the marketplace of productivity?
        Mr. Diamond. Absolutely. I think that, if you look at what
    has happened with labor force participation rate, the articles
    I read tend to imply that about half of the reduction has been
    because of aging of the population. The other half is because
    people are leaving the workforce voluntarily, and this is
    largely because we have implemented policies that are, in
    effect, implicit taxes on work. And so the Affordable Care Act
    is basically a very large implicit tax on working, and so
    people are choosing to not work as much. And if we could,
    instead, implement policies that promote work instead of
    discourage it, I think that would offset at least a large part
    of the labor force participation reduction that is not due to
    the aging of the population.
        Chairman Black. You mentioned ObamaCare, in particular, and
    the ruling on the 30 hours and employers. I know I have heard
    throughout my district about those that were working part-time
    that maybe occasionally would go over the 30 hours. Now, they
    were getting less than that, which meant they had to have two
    jobs, which is really difficult, especially on families.
        So, that is one of the policies. Do you have other thoughts
    on other policies that we might be able to put into place to
    encourage these 14 million people to get back in the workforce?
    Because I know, when we hear that there is a 4.3 percent
    unemployment rate, people think, ``Oh, everybody is working.''
        And if we did have a time where we did have everybody
    working, we saw more productivity, we actually saw more
    economic growth. But the true number on that is not the
    unemployment rate, it is the workforce participation rate where
    we have 14 million people out of the workforce, literally
    almost one-third of those who should be working. Fixing the
    healthcare piece is one of those, but do you have other ideas
    of some of the policies that we might need to fix in order to
    bring people back into the workforce?
        Mr. Diamond. Yes. Two other policies that would be, I
    think, most important would be regulatory reform. It is amazing
    that, you know, one of the benefits of innovation is it is a
    lot easier to reach people and to start businesses. The problem
    is, from a regulatory perspective, it has become a lot harder
    to start businesses.
        And so, we need regulatory reform to allow people to create
    businesses and create products that consumers want. I think
    that would be helpful. We also need tax reform. The tax system
    is complex and very distortionary. I think if we could simplify
    the system while maintaining the revenue needed to fund
    expenditures, that would have a positive benefit on people
    getting back to work.
        Chairman Black. Okay, thank you. My final question is, we
    can just go right across, and if we can start with you Dr.
    Holtz-Eakin, that we have now got this new normal of a 2
    percent GDP. We think that is the new normal. Yet if we look at
    history, we see that 3 percent really has been the average over
    a long period of time up until the last several years. And so,
    in other words, that is really an aberration, it is not really
    a trend.
        With the correct pro-growth policies in place, do you think
    that we can achieve those higher growth rates in future years
    other than just saying we are going to just say 2 percent is
    the normal and that is what we can expect? How much higher also
    do you think that we could reasonably go if we were to put
    these reforms that have already been talked about in place? So,
    I do not leave you all very much time, but let's start with Dr.
    Holtz-Eakin.
        Mr. Holtz-Eakin. So, if the Congress and the administration
    were to hit a home run and do all the things that I wanted
    exactly the way I wanted it, I think you could add a percentage
    point to the growth rate of the U.S. economy. I, certainly,
    think that a good tax reform and putting the fiscal path on a
    sustainable basis will get you half a percentage point or more
    by itself. So, I think those are the things to focus on.
        Chairman Black. Dr. Furman, if you could be brief, so we
    could get to Dr. Diamond, that would be great.
        Mr. Furman. Sure. I think we could certainly with the right
    policies do better than the 1.8 percent that the Congressional
    Budget Office is forecasting. To get all the way up to 3
    percent, the obstacle to that is the average woman used to have
    more than three-and-a-half children in the 1960s. That fell to
    two children by 1975, and so our population is growing more
    slowly in the working ages than it used to, and no policy is
    going to change that, which is why I think getting all the way
    to 3 percent is something that would be very unlikely, even
    with my version of a home run of policies.
        Chairman Black. Dr. Diamond?
        Mr. Diamond. I think a percentage point, as Dr. Holtz-Eakin
    predicts, is possible. I agree with Dr. Furman's point as well,
    though. I think what that would require is immigration reform
    that really focuses on bringing more high-skilled people to the
    U.S., not low-skilled people. Without that, I would say maybe
    around 2.6 percent.
        Chairman Black. Okay. Well, I appreciate your input on
    that. My own feeling that I am just going to insert here is
    that we need to get the 14 million people that are sitting
    wherever, whether it is in their parents' homes or whether they
    are just out of the workplace because they cannot find a job, I
    think education is a piece of that, and getting skilled workers
    because one of the things I hear in my district, especially
    with my manufacturers, is that if we had more skills at that
    level, not necessarily 4-year degrees, but more of the
    technical degrees, that we could actually be putting people
    into those very good jobs that are well-paying jobs.
        And so, I think the educational piece and then maybe
    shifting our focus from 4-year degrees to something that is
    more what the marketplace is needing in the job market might
    help us also to bring people back into the workforce. So, thank
    you. I now yield 5 minutes to the Ranking Member.
        Mr. Yarmuth. Thank you, Chairman Black.
        Chairman Black. Excuse me, 10 minutes. I apologize, I cut
    you by 5.
        Mr. Yarmuth. Thank you very much. I was not going to stop,
    do not worry.
        Chairman Black. And you should not. So, now your time
    starts.
        Mr. Yarmuth. Thanks very much. Thank you all for your
    testimony and your responses. First of all, I would like to
    just make a couple of comments regarding Chairman Black's
    opening, because I know it is nice to forget about the
    condition that the economy was in when President Obama took
    office, and the Chairman wants to blame all of this, what she
    would call lower growth rate, on President Obama's policies.
        But as you recall, when he took office in January of 2009,
    we were running a $1.4 trillion annual deficit. We had lost the
    month he took office 800,000 jobs, that was the trend at that
    point. We had the worst economic downturn since the 1930s, and
    we had a significant financial crisis that threatened to tank
    the economy.
        And as we got our feet on the ground as coming out of that
    very, very precarious situation, we have had now 70-something
    consecutive months of job growth. And while the percentage of
    growth would not be what we all would want, certainly, I think
    that any objective look at the Obama administration's economic
    performance would be a positive one. But I want to return to
    this notion about historic rates of growth.
        And we had Director Mulvaney here a couple of weeks ago,
    and a lot of my Republican colleagues talked about the growth
    after World War II and the growth rate leading up to current
    times and the average of the growth over basically 60 or 70
    years. And I think you can infer from all of your testimony
    that the world is very different now than it was following
    World War II: demographics, certainly, the number one
    difference. We did not talk about life expectancy. It is not
    just that many people are retiring; it is that they are living
    a lot longer and, therefore, Social Security is paid out a lot
    longer, and medical care as well.
        Income disparity was mentioned; technology was mentioned
    and its effect on automation. Would all of you concede that
    talking about the growth rate in the 1950s and 1960s and 1970s
    and 1980s is pretty much irrelevant to dealing with the world
    we are in now? What possible relevance could post-World War II
    growth rates have to what we are facing now? Anybody want to
    make the case that it is relevant? Okay, nobody does. Well, no.
    We had that number of times brought up again with Director
    Mulvaney.
        So, another factor I would think is that the sheer size of
    the United States economy also makes historic growth rates more
    difficult. Is it not fundamentally true, and we are seeing it
    in China as well, that as economies age and grow that getting a
    growth rate as high as you have had in the past is just
    mathematically more difficult? Is that not a factor as well?
    Anybody can take it.
        Mr. Furman. There is some evidence that, certainly, as
    countries converge, like China, they do not have as much low-
    hanging fruit, and there is a number of economists who have
    done research that you have to put more money into any amount
    of innovation and research to get a given amount of output from
    that.
        Mr. Yarmuth. All right. And let's talk about the labor
    participation rate; I saw just this morning there are now 6
    million jobs available in the United States. So, certainly
    there is the opportunity for people to go to work, those who
    may have left the workforce, there is certainly every chance
    for them to do it if they have the right skills and the right
    education. But would that not dictate that we invest more
    heavily in job training and education so that people who may be
    out of work, whether voluntarily or not, can better access the
    jobs that are available in the country?
        Mr. Furman. I agree with that, too. Also, if you look at
    the United States compared to other countries, some of our
    underperformance in this reflects the fact that we invest much
    less in training and helping our workers find jobs than a lot
    of other countries do.
        Mr. Yarmuth. I think tax reform has been mentioned as a
    possible way to stimulate economic growth both by Dr. Holtz-
    Eakin and certainly by Dr. Diamond. Would you, too, give me
    your sense of what comprehensive tax reform would look like in
    your ideal version of the best way to promote economic growth
    through tax reform? Dr. Holtz-Eakin?
        Mr. Holtz-Eakin. I would point out as a specific example
    the House blueprint, which if executed is a comprehensive
    corporation plus past business reform of business taxation in
    the United States that moves us from a tax system that prefers
    foreign production to a tax system that is neutral, and that is
    a shift toward production in the United States.
        It has incentives for increasing the level of investment.
    It is neutral in its treatment of tangible versus intangible
    capital, so you can invest in ideas or physical capital. It is
    neutral with respect to how it is financed, debt versus equity.
    It is neutral with respect of the length of life of that
    investment. It takes the Tax Code out of the business of
    dictating investment choices, and lets capital markets find the
    most productive uses for America's saving and investment.
        I think that is exactly what is needed at this point in
    time. Those businesses that will hire workers, that will, if
    they are more productive, be able to pay them more. It is
    focused entirely on the place where we have the biggest
    problem, the rate of growth of capital, productivity, and as a
    result, the standard of living. We do not have legislation, but
    my understanding is it is intended to be revenue-neutral. I
    think that is very important. We have large fiscal problems, as
    I have said, and will repeatedly say. And I think that you do
    not want to contribute to making them worse.
        I also think that if you have a tax reform that is not
    revenue-neutral, you ultimately come to a situation where you
    have generated a fiscal problem through the tax reform. There
    is going to be a desire for more revenue, you will open up the
    Tax Code, and the integrity of the reform will disappear. That
    is what happened after 1986.
        And so, I do not want to see, when it is so hard to get tax
    reform done to begin with, sowing the seeds of its own
    destruction by not having it be revenue-neutral. Those are the
    things I am looking for in tax reform.
        Mr. Yarmuth. All right, I appreciate that. Dr. Diamond,
    would you like to respond to that?
        Mr. Diamond. I agree with Doug, that the blueprint has some
    very good qualities to it. I would also offer up proposals
    under President Bush's advisory panel on tax reform, as well as
    the proposal put forth by the fiscal commission created under
    President Obama. I think, really, we have had a lot of good
    examples of decent tax policy put forward over the last two
    decades. Unfortunately, none of them have been enacted.
        Mr. Yarmuth. Would you say that a consideration of economic
    disparity is important in any discussion of tax reform, since
    we now have some of the greatest economic disparity in this
    country, in our history?
        Mr. Diamond. I think any tax reform should be looked at in
    terms of its efficiency, its simplicity, how administrable it
    is, as well as how fair it is. And the fairness question is,
    ultimately, a decision that is left in your hands.
        Mr. Yarmuth. Right. What about the question of tax
    expenditures? We now have well over a trillion dollars annually
    in tax expenditures, and no Congress over the last 6 or 7 years
    has been willing to touch any of them. We have certainly talked
    about cuts in many other areas of investment that Democrats
    care very significantly about, but no talk about reducing tax
    expenditures.
        Dr. Furman, would you like to respond to that?
        Mr. Furman. Sure. In his testimony, I believe to this
    Committee, Director Mulvaney endorsed the standard that tax
    reform should be revenue-neutral on a static basis. He said the
    administration and its budget was not counting the economic
    growth due to taxes, towards tax reform.
        I think that could be a very prudent thing to do, because
    then you are cutting rates, you are eliminating tax
    expenditures. And if the theory works out that that adds to
    economic growth, that is great; we get extra deficit reduction;
    that is not a bad mistake to make. That the growth comes in
    more than you think, and the deficit goes down even more than
    you would think. But for that to work, you need to go after
    those tax expenditures rather than, you know, wishful thinking,
    assume that economic growth. And that is the standard that
    Director Mulvaney did explicitly endorse.
        Mr. Yarmuth. I think all three of you have talked about
    immigration reform and supported the need for immigration
    reform. This is directed to Dr. Furman. Would not comprehensive
    immigration reform also have a positive impact on our programs
    like Social Security and Medicare, where you would have
    presumably many more younger Americans paying into the system
    and not using benefits for a long time?
        Mr. Furman. That is exactly right. And part of our Social
    Security problem is the reduction in fertility. Immigration
    would help to offset that.
        Mr. Yarmuth. Thank you. Just a final comment, this relates
    to Chairman Black's opening comments when she said we should
    not be surprised if the Congress cannot take on these tasks.
    The evidence is there that Congress is not particularly capable
    right now of taking on very many difficult tasks, so I would
    like to think that we were capable of it, but I have not seen
    much evidence. So, thank you again for your responses, and I
    yield back.
        Chairman Black. I thank the gentleman. And now I would like
    to recognize the gentleman from Indiana, Mr. Rokita, the Vice
    Chair of the Committee.
        Mr. Rokita. I thank the Chairman, and I thank everyone for
    their testimony. And I would say to the Ranking Member, if we
    could just stop obstructing around here, maybe we can get some
    agenda moving and done, but every day we talk about Russia,
    Russia, Russia. It is less of a day that we are talking about
    tax reform, immigration reform, for that matter, healthcare
    reform, or anything else.
        Following up on where the Ranking Member left off regarding
    immigration reform, I note, Dr. Holtz-Eakin, that you talk
    about immigration reform in your laundry list, as you call it,
    of things you could do to help the supply side of the economy.
    Could you add to that discussion, please?
        Mr. Holtz-Eakin. Certainly. The fertility of the native-
    born population of the United States is low enough that,
    without immigration, we would actually shrink; we would look
    like Japan. And we would shrink in population----
        Mr. Rokita. I want that to be repeated for the record.
    Without immigration reform, without getting an additional
    number of workers, skilled, unskilled, probably imagining that
    to mean at all levels, our work pool would actually shrink; we
    would be more like who?
        Mr. Holtz-Eakin. Japan. Japan has essentially no
    immigration and has an aging population. It has sub-replacement
    fertility. All of that is the characteristics of the native-
    born population in the U.S. The flip side to that observation
    is that by choosing our immigration policies, we are dictating
    our economic future. It is a powerful tool for economic policy,
    for the potentials for economic growth.
        I do not think it means that you want to have exclusively,
    you know, immigrants with Ph.Ds. in STEM fields. We need skills
    across the spectrum. Markets will send those signals. And I
    think that a powerful sort of economically-based immigration
    reform is one of the things that could have a big impact on the
    future growth of the U.S.
        Mr. Rokita. Thank you, doctor. Dr. Furman talks about, in
    his testimony, the low labor participation rate, which I think
    is something we all acknowledge. However, he also mentions that
    we need to not only maintain but possibly increase social
    programs like food stamps and other things.
        I just spoke with, not 10 minutes ago, a gentleman who owns
    an RV supply company in northern Indiana, Jason Obendorf. And
    he tells me that he hires low-skilled workers, pays them about
    $13 to $15 an hour, which in fact is the average entitlement
    given to folks who do not work, about $33,000 a year. What
    effect do these programs that actually incentivize folks, in my
    opinion, to sit out the workforce, sit on their couch, in fact,
    have on the low labor participation rate?
        Mr. Holtz-Eakin. At the most basic--sorry.
        Mr. Rokita. No, that is to Dr. Holtz-Eakin.
        Mr. Holtz-Eakin. At the most basic level, you are making a
    decision between working and not working. You look at the
    returns to working and not working, and if you raise the
    returns to not working, you should expect people to not work
    too much.
        Mr. Rokita. In your opinion, what should the policy be? I
    mean, it seems to me that we have programs and safety nets that
    have become hammocks, and that go on for too many for too long.
        Mr. Holtz-Eakin. I think that at every point, we should
    look at the social safety net, and make sure that it is pro-
    work.
        Mr. Rokita. Pro what?
        Mr. Holtz-Eakin. Pro-work. We know that in the data, the
    difference between poverty and non-poverty in the U.S. is work.
    Those who work are far less likely to end up in poverty, and we
    should support their desire and the satisfaction they get from
    work, and the standard of living.
        So, you know, the Affordable Care Act, as Dr. Diamond
    mentioned, is an example of a social safety net program that,
    whatever the desirability of providing health insurance to
    people, in the end had implicit taxes on labor supply, and
    rewarded people who did not work. So, we need to rethink that,
    and one of the things that the American Health Care Act does is
    take out those incentives. And I think it should be respected
    for that.
        Mr. Rokita. Your larger point, again, is more workers would
    add to the supply side of the economy, and, therefore, produce
    the growth that we need to get to 3 percent, again, which I do
    not think is a fairy tale. I know we were kind of negative
    starting out here, especially on the other side of the aisle,
    with things like 3 percent growth being, ``absurd,'' ``faith-
    based.'' But I think we can get there again, with supply-side
    reforms.
        Dr. Diamond, do you have anything to add the conversation
    we just had? If not, I have some questions for you.
        Mr. Diamond. I agree with Dr. Holtz-Eakin's points. I did
    see in the news yesterday, there was an article about 13
    counties in Alabama that had implemented work requirements to
    get SNAP benefits, and SNAP benefits fell by, I cannot remember
    if it was 50 percent or 85 percent, but immediately, it made me
    think that maybe some more pro-growth safety net policies are
    needed.
        Mr. Rokita. Thank you. Dr. Furman, I am out of time. I
    apologize.
        Chairman Black. The gentleman's time has expired. And I
    just want to add here that we talk about this as productivity
    for our Nation. But I think even more important to that is
    dignity. There is a dignity to work, and I think we lose that
    here in our country, when we do not recognize and uphold that.
        I often say to people, the second question you ask them
    after you ask them their name is, ``What do you do?'' And if we
    cannot say what we do, we lose our dignity. And I think that is
    a stronger net than the safety net, is that net within our
    country of dignity.
        I now recognize the gentleman from New York, Mr. Jeffries,
    for 5 minutes.
        Mr. Jeffries. Thank you, Madam Chair. It was mentioned by
    the previous speaker, who I greatly respect, that if we on this
    side of the aisle just stop obstructing, we could get things
    done. I have heard a lot of things during my 4-plus years here
    in Congress, but the notion that Democrats, who are in the
    minority in the House, the Senate, do not have the White House,
    are somehow responsible for your inability to get things done,
    is itself a fantasy.
        And what is amazing to me is that the party that for 8
    years adopted the policy, ``Obstruction today, obstruction
    tomorrow, obstruction forever,'' as long as Barack Obama was
    President of the United States of America, now wants to lecture
    us about governmental etiquette. We will decide on our own,
    based on representing our constituents, what the rules of
    engagement should be. We are not taking advice on etiquette in
    doing our duty from the other side of the aisle. That is
    absurd.
        Now, there is a difference between optimism and fantasy.
    Optimism is based on the notion of the power of American
    exceptionalism. We can all embrace that, Democrats and
    Republicans. Fantasy is based on alternate facts. And what we
    are trying to figure out is whether this projection of 3
    percent growth, $2 trillion increase in revenue projected over
    a 10-year period, is that just optimistic based on our belief
    in American exceptionalism, or as the President said, ``I am
    the only one who can fix it?'' Or is it just alternate facts?
        And maybe I can start with Dr. Diamond. You testified that
    we should implement policies that encourage work; is that
    correct?
        Mr. Diamond. Correct.
        Mr. Jeffries. And you also said that tax reform should
    include limiting expenditures as part of an approach to
    encourage work, true?
        Mr. Diamond. Correct. Well, not for work, just limit
    expenditures through the tax system.
        Mr. Jeffries. Okay. And one of the largest expenditures
    through the tax system would be the mortgage interest
    deduction; is that right?
        Mr. Diamond. Correct, and it should definitely be reformed.
        Mr. Jeffries. It should be reformed. Do you think it should
    be eliminated?
        Mr. Diamond. I would not argue for elimination of it. I
    would argue that the home mortgage interest deduction does not
    do what it is supposed to do, which is supposed to encourage
    low-income people to be able to buy houses. But, unfortunately,
    low-income people do not itemize their taxes, and they have
    relatively low rates, so really, all it does is encourage high-
    income people to over-consume housing. And so, if we went to a
    system that actually encouraged low-income people to be able to
    afford houses, I would support that. And so, I think it needs
    to be reformed, not eliminated.
        Mr. Jeffries. Okay, so we have to substantially reform the
    mortgage interest tax reduction, widely viewed as helping
    middle-class Americans achieve the dream of home ownership.
    Would you also suggest that one of the policies we should adopt
    are tax cuts for the wealthy and the well-off, millionaires,
    billionaires, people who are at the highest income bracket in
    this country?
        Mr. Diamond. I would not state it that way. And I would
    actually say, in some sense, we could actually raise taxes on
    them, but you are talking about a comprehensive reform that,
    you know, the final effect is going to depend on how you
    structure the reform. So, if we go to full expensing, could we
    raise the rate on capital gains and dividends, and not reduce
    the corporate rate as much? Absolutely. Those are all trade-
    offs.
        Mr. Jeffries. Setting aside the corporate rate, because I
    think there is widespread agreement amongst many of us that,
    you know, 33 percent is too high; the Obama administration
    proposed going to 28; Trump says 15, you know. Maybe there is
    some common ground that can be found there. But let us talk
    about the tax rate, because you support lowering the top tax
    rate on millionaires and billionaires; is that not right? I
    mean, I can restate it: 39.6 percent is the rate; you support
    lowering that. True?
        Mr. Diamond. I say we should minimize it. I do not think I
    gave a number as to how low it should be. That is going to
    depend on how much we want to spend, and trying to raise
    revenues that fund our expenditures.
        Mr. Jeffries. Now, we experienced approximately 4 percent
    growth during the 1990s; is that right?
        Mr. Diamond. Four percent growth in the 1990s, I do not
    believe so.
        Mr. Jeffries. Were there periods of time where we
    experienced substantial growth during the 1990s, which in part
    led to eliminating the deficit?
        Mr. Diamond. Post-1995, we experienced some innovation-
    driven growth in the 1990s, as this new web technology and
    other things. The computer, which could, you know, allowed
    secretaries to have typings that were already done; they did
    not have to retype everything, made people more productive.
    There were a lot of productivity increases in the middle and
    late 1990s that increased growth, that have seemingly
    disappeared since, say, 2004.
        Mr. Jeffries. Thank you. My time has expired.
        Chairman Black. Thank you. I now recognize the gentleman
    from California, Mr. McClintock.
        Mr. McClintock. Well, we raised this point before, in the
    last hearing. I recall, after the drubbing you took in 1994,
    President Clinton came to Congress and announced the era of big
    government is over. And he made good on that, he reduced
    Federal spending by a miraculous 4 percent of GDP. He approved
    the biggest entitlement reform in history, in his words,
    ``Ending welfare as we know it.''
        He approved what amounted to the biggest capital-gains tax
    cut in American history. Those were policies that worked. The
    problem is, we have been more recently engaged in policies that
    do not work, essentially, the opposite. Dr. Furman, I want to
    thank you for your advice and counsel today. Is that the same
    advice and counsel that you gave to the Obama administration?
        Mr. Furman. It is certainly very similar to the advice I
    gave President Obama.
        Mr. McClintock. Okay, and the result of that was the lowest
    economic growth rate in the post-war era. Dr. Holtz-Eakin, when
    Dr. Furman said, ``Oh, our economic problems are mainly
    demographic, and that if we had the same demographics under the
    Reagan administration, we would only have 1.7 percent growth,''
    you looked rather puzzled. Now, 1.7 percent is still better
    than what we saw averaged under the Obama administration, but
    way low of what we are shooting for. What is the source of your
    puzzlement, or did I misread your expression?
        Mr. Holtz-Eakin. I do not fully understand the computation.
    So, is it top-line GDP growth of 1.7 percent? That is too low.
    We grew at an average of 1.9 in the recovery. He is saying
    that, if we did all that, we would do worse? That I do not
    understand.
        Mr. McClintock. I do not either. Well, let me go on; my
    time is limited. One of the sources of my puzzlement is the
    fact he seems to have completely ignored the fact that we have
    the lowest labor participation rate since the Carter
    administration. Is not a lot of our problem the fact that near-
    record numbers of able-bodied workers have simply given up
    looking for work?
        Mr. Holtz-Eakin. That certainly harms the top line GDP
    growth.
        Mr. McClintock. And if they came back into the workforce,
    we would see an improvement in growth. What is causing that?
        Mr. Holtz-Eakin. I think Dr. Diamond summarized it pretty
    accurately. We know that about half of that is genuinely
    demographics, aging of the baby boom population, retirements.
    And about a half is some combination of discouragement in the
    economic environment, poor incentives from public policy.
        Mr. McClintock. Also, we talk about macroeconomic growth,
    growth of GDP. Essentially, that is population times
    productivity, correct? So, in that analysis, then, we could
    have a huge population increase and very low productivity
    increases, and that would be essentially the same as a very low
    population increase with very high productivity increases. Do I
    have that right?
        Mr. Holtz-Eakin. That would give you the same top line
    growth. But I would say the one you want is the one with high
    productivity growth.
        Mr. McClintock. Well, that is my point, is that when you
    get down to where the rubber meets the road, where the average
    family is actually struggling to get on, is not the
    productivity side of that pretty much everything? I mean, if
    you are stuck in a part-time job, because your employer cannot
    give you more than 30 hours a week because of government
    restrictions, if you have got little prospect of betterment in
    a stagnant economy, if your wages have been flat for the 8
    years of the Obama administration, productivity is really
    important to that family, is it not?
        Mr. Holtz-Eakin. Yes. I rarely quote Paul Krugman, but he
    did say it best, ``In the long run, productivity is not
    everything, but it is pretty close to everything.''
        Mr. McClintock. Wages stagnated under Obama; they
    skyrocketed under Reagan. That is not population-driven; that
    is productivity-driven. So, my question is, what are the
    policies we need to get off of the wage stagnation we have seen
    under the Obama administration?
        Mr. Holtz-Eakin. We know that labor productivity is aided
    by having more and better capital. And we have had a very weak
    investment performance recently, as a Nation. We know that it
    is aided.
        Mr. McClintock. And that is because of regulatory
    impositions that have made access to capital more difficult, in
    part?
        Mr. Holtz-Eakin. I think there is a regulatory story; I
    think there is a tax story, and I worry about the fiscal
    outlook.
        Mr. McClintock. And you also mentioned government
    borrowing. When government borrows money, it borrows from the
    same capital market that would otherwise be available for,
    among other things, consumer purchases and business expansion,
    correct?
        Mr. Holtz-Eakin. Yes. The other thing I really focus on,
    and Dr. Diamond mentioned this, is there has been a steady and
    recently sharper decline in the rate of business startups
    across the economy.
        Mr. McClintock. Well, it seems to me that the----
        Mr. Holtz-Eakin. That is where new business models and
    productivity come from.
        Mr. McClintock. I look at the Trump proposals, and they
    look very much like the Reagan proposals that gave us one of
    the most prolonged periods of economic expansion in our
    Nation's history, and huge improvements for working Americans.
        Chairman Black. The gentleman's time has expired. I now
    recognize the gentleman from California, Mr. Khanna.
        Mr. Khanna. Thank you, Madam Chair. Maybe it is from the
    vantage point of the district I represent, representing a
    district with Apple, Google, and having large presences, Intel,
    Facebook, I am less concerned about our country's long-term
    innovation and economic growth, and more concerned about issues
    of income inequality and income disparity, and who will gain
    and benefit from the economic growth. Whether it will just be
    entrepreneurs in certain parts of this country, or whether that
    growth will be distributed.
        And given that, I wanted to ask about a proposal which in
    the past has enjoyed bipartisan appeal, it was actually a
    Milton Friedman idea, which was the earned income tax credit.
    At a time where the investor class and capital already has an
    extraordinary return, it would seem to me that our tax policy
    should be more geared towards helping working families, and
    helping folks who have had wages stagnate. And I would be
    curious to all three economists' view of expanding the earned
    income tax credit, the benefit that would provide to working
    families, and the benefit it would provide to the labor market,
    given it would provide a subsidy, a supplement, for people to
    enter the workforce, and also some subsidy to the employer to
    increase recruitment. And all the studies I have shown suggest
    it actually helps employment. Maybe we could start with Dr.
    Furman, and I would love to have the other two economists weigh
    in as well.
        Mr. Furman. I very much agree with everything you said. The
    earned income tax credit is the type of policy that both helps
    our economic growth by bringing people into the workforce, and
    better rewards that growth making sure that people share in it.
    I think going forward, probably the number one priority would
    be households without children, or without qualifying children,
    getting more of an earned income tax credit. They get a very
    small one right now, but there is additional benefits for
    families with children as well.
        Mr. Diamond. I agree. I would support an increase in the
    earned income tax credit. It is a pro-work safety net
    provision, and I think it is generally productive. It does
    create certain issues, but overall, I support it. In fact, in
    my discussion of reducing tax expenditures, I think the tax
    expenditures we should not eliminate would be ones that
    incentivize people to work, such as the EITC, or that
    incentivize a larger stock of capital to make workers more
    productive.
        Mr. Holtz-Eakin. I think you will find a consensus in the
    profession on the past efficacy of the EITC in getting people
    into the labor force and to working. I think the place most
    people are concerned about is non-custodial males, and having a
    larger EITC for that population. And I hope there is a
    consensus that the one thing left on that is to worry about the
    error payment rate, which is about 25 percent. A more efficient
    EITC would be much, much better.
        Mr. Khanna. Great, consensus among the economists on
    expanding the earned income tax credit. My next question is
    just more philosophical, and it is this open question about
    what is technology going to do for the future of work. And what
    is your view? I think there is this overwrought sense of
    ``Okay, people are just not going to have jobs,'' which in the
    past, you know, John Maynard Keynes had written this whole
    article how we were all going to work 15 hour workweeks, it has
    not turned out to be true. On the other hand, there is going to
    be a displacement of fact, and I wonder what your thoughts are
    on how we should prepare for this transition. Dr. Furman, and
    then the others. Go ahead.
        Mr. Diamond. I will just say, our profession earned the
    name, ``the dismal science,'' because we have often made wrong
    predictions on this front. And so, I would say that, yes, it is
    going to change the face of work. I think other jobs will crop
    up, just like, you know, moving from the typewriter to the
    computer did not put everybody out of work. I do not think the
    robots are going to put us all out of work, either.
        Mr. Furman. I think to a first approximation, that is
    correct. Machines do 90 percent of what humans could do in the
    year 1900, and yet lots of humans still have jobs. But I think
    what matters is less the technology and more the policies we
    use to address that technology. And you look at different
    countries, some have been more successful at handling these
    disruptions and changes than others, and the ones that have
    been successful have put an emphasis on programs like training
    that we were talking about earlier, not just assumed it would
    all work out.
        Mr. Holtz-Eakin. I would emphasize the basic need for a
    better-performing K-12 education system. There is now well-
    documented failure throughout that system, and the future of
    work is about the future education of people that are going to
    go to work. I think that is the key.
        Mr. Khanna. Thank you for your thoughtful replies.
        Chairman Black. Gentleman yields back his 7 seconds, thank
    you. I now recognize the gentleman from South Carolina, Mr.
    Sanford.
        Mr. Sanford. My thanks, Chairwoman. I would say to my
    colleague from California, I saw a freaky movie over the
    weekend entitled ``Her,'' and it is about this guy that falls
    in love with his operating system. But the happy ending for all
    of us is at the end of the day, it does not work out, and he
    goes back to human form. Not every human is replaced on that
    front.
        And in deference to my Chairwoman, I made it very clear in
    the last hearing we held that I do not believe that 3 percent
    growth is realistic at this particular 10-year juncture, as
    much as I would like to see it. But I think in deference to my
    Chairwoman, I am going to leave that subject alone for the
    moment, and I am going to skip on to three points of economic
    growth that I do think are important.
        One is infrastructure. Would all of you agree, going back
    to the consensus that my colleague found, that infrastructure
    ought to be paid for, or do you say, ``No, you know, it is
    dynamic, and it does not need to be paid for?'' Where are each
    of you on that? Again, simple, quick, paid for or no?
        Mr. Holtz-Eakin. Pay for it, yeah. I think it is
    overstated, the productivity effects.
        Mr. Furman. I think it is better to pay for it, and then we
    would end up with higher growth, and it would bring our deficit
    down.
        Mr. Sanford. So, paid for, or no?
        Mr. Furman. Pay for it, and let the growth lower the
    deficit.
        Mr. Diamond. In a world with 77 percent debt-to-GDP ratio,
    it should be paid for.
        Mr. Sanford. Okay. And I think that that point is
    underscored by the fact that, if you look at Japan, which went
    on a tremendous infrastructure spending binge, if you want to
    call it that, in an effort to restart and reboot their economy,
    ultimately, ended up with a lot of debt but not that much in
    the way of economic growth, and I do think that demographics
    are a driver here.
        I appreciate Mr. Diamond's sobriety by which you approach
    the deficit issue. I do not think that it is emphasized enough
    in Washington, either from an administration standpoint or a
    congressional standpoint. I mean, I think you really hit hard
    how important that is and how it will ultimately be a driver
    with regard to economic growth in our country as well as
    budgetary impact.
        But I want to talk about one part of economic growth that
    really has been, I think, diminished of late. And that is David
    Ricardo's notion of competitive advantage, and the need, in
    fact, to trade with other parts of the world. We grow great
    moss and mosquitoes on the coast of South Carolina. We do not
    grow wheat that well. In Kansas, they grow wheat well. It is
    just natural to that area. And there are other areas that have
    competitive advantage with regard to certain products.
        I think it has been sort of underscored here lately, and so
    when you begin to look at ``Buy American'' or Davis Bacon, or
    go down a long list of things that begin to restrict one's
    ability to trade freely, or even the way in which some people
    are saying, ``Well, it is not that advantageous altogether.''
    The notion of free trade, if you look at the port in
    Charleston, Charleston and South Carolina have been transformed
    as a result of open commerce and open investment and free
    trade.
        In the 1 minute and 50 seconds I have got left, if you all
    would each touch lightly on how important you believe free
    trade is to economic growth, and is budgetary impacts going
    forward.
        Mr. Holtz-Eakin. I think it is very important. We have
    examples. For example, semi-conductor tariffs, when we
    eliminated those through a trade agreement, the U.S., which was
    deemed to be unable to compete with Japan, turned around and
    has the most vibrant of technologies. And so, opening it up to
    the competition will be good for America, will raise
    productivity, and is something I endorse.
        Mr. Diamond. I also think it is critical. Most of the
    consumption growth in the world will occur outside of the U.S.,
    and so if we want to sell to the most number of consumers, we
    are going to need to sell around the world.
        Mr. Furman. I also agree that it is critical, and think
    trade agreements can help create the type of level playing
    field that enables the United States to succeed on the global
    stage.
        Mr. Sanford. I hand back to you, Madam Chairwoman, my 54
    seconds.
        Chairman Black. You are going to yield back 51 seconds;
    boy, you are going to get a star. I now recognize the
    gentlelady from Washington, Ms. Jayapal.
        Ms. Jayapal. Thank you, Madam Chair. And thank you for your
    testimony, very thoughtful. I wanted to go back to the issue of
    immigration reform, which all three of you have touched on.
        Dr. Furman and Dr. Holtz-Eakin, you have wrote about it in
    your testimony more in-depth. Not only can we look at the
    impact on population growth and what would happen if we were to
    really stop immigration, but I wanted you to comment also on
    the effects to the economy of restrictive immigration policies
    that have been proposed. So, in the Judiciary Committee, we
    just passed on a party-line vote bills that would essentially
    criminalize all the undocumented immigrants in this country,
    and seek to deport 11 million.
        Can you speak, theoretically, if that were to happen, and I
    think there are many people across the country on both sides of
    the aisle that do not believe it is possible or desirable to do
    that. But since the rhetoric is out there, and the policies
    have continued to focus on that, can you comment on the
    economic impacts of those kinds of restrictive policies? And
    Dr. Furman, why do we not start with you, and then I would like
    Dr. Holtz-Eakin as well.
        Mr. Furman. Yeah. We are used to hearing businesses talk
    about what uncertainty does to their ability to invest and
    grow. The type of uncertainty that legislation like that would
    create for 11 million people already in our country would mean
    their ability to be in the right job, to get an education, to
    start a business, and to contribute to our economy, would go
    down. So, it would not just harm them, it would hurt all of us,
    and our economy overall.
        Ms. Jayapal. What would happen to the dairy industry, for
    example, in this country?
        Mr. Furman. Yeah, I think there are a lot of industries
    that are particularly dependent on those workers, and that
    would be one of a number of agricultural industries. And it
    would hurt our, you know, productivity growth and economy. So,
    just from a pure economic perspective, I would be opposed to
    it, and I think there is a broader human dimension that I am
    not a special expert in.
        Mr. Holtz-Eakin. My think tank, the American Action Forum,
    actually did a study of what it would do if we deported all
    those here illegally, whether over a 20-year period or even
    quickly, 2 years. I forget the numbers, but it is an
    overwhelming Federal budget expenditure. We have to hire 30,000
    lawyers, I am opposed to anything that hires 30,000 lawyers.
    You know, create 1,200 new administrative courts, detention
    facilities. You need to send people back to their country of
    origin, that takes buses and planes, and it costs, like, $300
    billion. You get rid of about 5 percent of the labor force, so
    you have yourself a pretty good-sized recession. But other than
    that, it is a good idea.
        Ms. Jayapal. Thank you. And can you speak to the effects on
    Social Security? And thank you for that study, by the way, it
    was very good. Can you speak to the effects on Social Security,
    something a lot of Americans do not think about? But you think
    about the billions of dollars that have gone into the Social
    Security suspense fund, that are actually paying for our older
    Americans now who are in retirement. What would happen if we
    were to get rid of undocumented immigrants in terms of Social
    Security fund, and that suspense fund?
        Mr. Furman. We would need to raise taxes or cut benefits to
    have the same solvency that we have today.
        Ms. Jayapal. Did you want to add anything? Okay, okay. The
    other question I wanted to go to on education. Actually, all
    three of you have spoken about the need to invest in education.
    In Washington State, my home state, we actually looked at the
    job gap. In 2020, we would have a 60 percent job gap in our
    state, with jobs that are available but we are not graduating
    enough people to actually fill those jobs.
        Can you speak, Dr. Furman, to how you would address the
    inequality in education? And Dr. Holtz-Eakin, you called it in
    your testimony, ``an embarrassingly persistent and worsening
    gap between the student performance and the rest of the
    industrialized world.'' Do you want to speak to what some of
    the prescriptions might be for that?
        Mr. Furman. Sure. It starts very young. We are relatively
    low in the OECD, in terms of the fraction of our 3- and 4-year-
    old's that go to school. So, having universal preschool to help
    put students on a more equal footing before they even get to K-
    12. There are a number of improvements that we could make to K-
    12 as well. And then after that, making college more
    accessible. It is a great investment for most people, but it is
    a risky investment, and if that investment does not pay off,
    making sure that people are not saddled with all of the debt
    and costs of that investment.
        Ms. Jayapal. I know you talked about school choice in your
    testimony. It is not an area that we necessarily agree on, but
    can you speak about apprenticeships and investment in training
    programs to actually bring people back into the workforce as
    the chair had mentioned earlier?
        Mr. Holtz-Eakin. So, you know, I would just stipulate, I
    think the larger, more durable improvements will come from a K
    to 12 system that functions better. There are some legacy
    issues for those who are in the workforce now, do not have the
    skills to find the jobs that are available there.
        We have some examples of successful apprenticeship
    programs, so South Carolina, for example, stands out. We have
    some examples of successful community college programs. But we
    do not have what appears to be a playbook for doing a
    nationwide scale-up of these programs to be successful. So,
    that remains something that needs to be figured out.
        Ms. Jayapal. Oh, I am sorry. I did not realize my time had
    expired. Right back to you, Madam Chair.
        Chairman Black. The gentlelady's time has expired, and now
    I recognize the gentleman from Ohio, Mr. Renacci, for 5
    minutes.
        Mr. Renacci. Thank you, Madam Chair. And I want to thank
    the witnesses for being here. I do think there is something all
    three of you agree on, as well as the Comptroller General. But
    I want to ask, the Federal Government is on a fiscal path that
    is unsustainable. The Comptroller General was here, he said
    that. Do all three of you agree with that?
        Okay. So, let us talk about the revenue side. I am a
    business guy. There is either revenues or expenses. On the
    revenues side, let us start there first. If we do not reduce
    tax rates, both corporate and personal, since 67 percent of
    businesses pay as a pass through on to their personal tax
    return. So, if we do not reduce business taxes, do we risk more
    businesses leaving the U.S. to go to countries with lower tax
    rates? Agree or disagree?
        Mr. Furman. I think we should lower the tax rate, but not
    worsen the deficit in the process.
        Mr. Renacci. I agree with that, too. I am sticking to the
    income side. So, if more businesses leave, do we face lower tax
    revenues into the Treasury and a greater risk to our fiscal
    unsustainable path? Agreed, all three of you?
        Mr. Furman. If you lower tax rates, that will cost money,
    if you make no other changes.
        Mr. Renacci. Well, my question is, if more companies leave
    because we do not lower our rates, and we are lowering money
    into the Treasury, are we going to continue to grow this fiscal
    unsustainable situation? Okay, do any of you disagree that
    corporations do not pay taxes, and instead pass on their taxes
    to consumers as a cost of goods sold?
        Mr. Holtz-Eakin. Corporations do not pay taxes. People do,
    one way or another. It could be in the form of lower wages,
    lower returns to capital, or higher prices.
        Mr. Renacci. I look at it this way, I was a business guy.
    If I had a product, it cost me a dollar and I sold it for a
    $1.10, most of the reason I sold it for a $1.10 was to make
    money and cover the taxes that I had to pay.
        So, I always say we are passing it on, not only to
    consumers but in lower wages, so I agree with you. So, if we
    are able to reduce the business income tax rate to a much lower
    consumption tax, I am switching gears, and I know Dr. Diamond,
    you have talked about this in your testimony, would that be a
    pro-growth policy that could help grow the economy?
        Mr. Diamond. Yes, it would. I think it would grow the
    economy, and it is a policy that I have supported for several
    years.
        Mr. Holtz-Eakin. What he said.
        Mr. Furman. I think there are aspects of that that could
    help, but the details matter a lot.
        Mr. Renacci. Okay. So, if I am looking at a path of fiscal
    unsustainability, which I keep saying back home, and we know
    that we have to cut taxes to avoid companies from leaving, that
    is one thing. And I also assume that if we cut taxes, we will
    grow the economy at some rate. Would you agree or disagree?
        Mr. Diamond. I would argue that we need to lower the rate,
    and maybe we move to expensing, but we will need to offset some
    of that revenue loss by taking away other preferences. Some of
    the studies I have written have said that preferences you do
    not want to take away are the investment-related preferences.
        Mr. Renacci. I want to get to the expense side, though. We
    are on the revenue side now.
        Mr. Furman. I think if you cut tax rates and do nothing
    else, you will lower economic growth because it will result in
    higher deficits. That will reduce capital formation, reduce
    business investment, and we would ultimately be poorer as a
    result of that.
        Mr. Holtz-Eakin. As I said, I think reform should be
    revenue-neutral. But I would do that revenue-neutrality on a
    dynamic score, taking into account the growth that is
    generated.
        Mr. Renacci. Okay, so we have talked about the revenue
    side, and in the business world you look at the revenue side.
    And now I want to look at the expense side, because I would
    agree with you. We can do a couple things. We can reduce tax
    preference items. But in the business world, should we not be
    looking at the expense side, which is expenses of the Federal
    Government, which are Medicare, Medicaid, Social Security,
    interest, you know, and all the other expenses? Should we not
    be looking there as the other side of where we should be
    cutting expenses?
        Mr. Holtz-Eakin. I cannot emphasize that enough. That, in
    the end, is the key issue. Once you spend the money, you are
    going to have to pay it forward, one way or another, and there
    is too much on the books.
        Mr. Furman. I think we should use a combination of revenue
    increases and spending cuts along the lines of Bowles-Simpson,
    which----
        Mr. Renacci. Okay, but I was waiting for that one. Because
    how can we raise revenues without hurting? Because we all just
    agreed to that. We have to cut our tax rate, or we are going to
    lose more business. So, now you just ruined a curveball. How do
    you cut tax rates and raise revenue----
        Mr. Furman. For example, limiting tax expenditures for
    high-income households without raising the tax rate at all. We
    cannot only raise money, but have fewer distortions in our
    economy.
        Mr. Renacci. Okay, so that is a tax expenditure. See, we
    are all agreeing. Republicans, Democrats, we are all agreeing.
    We got to cut rates. We got to reduce our unsustainable path,
    and we got to look at what we are spending. Now, whether you
    would call it tax preferences or actual spending, it is the
    same thing. It is the other side of the aisle. Would you not
    agree?
        Mr. Diamond. I completely agree. And as I noted in my
    testimony, spendings are projected to increase from 27 percent
    of GDP to 29.3 percent. That is a staggering increase over the
    next----
        Mr. Renacci. Well, I guess I am out of time. I apologize. I
    yield back.
        Chairman Black. No, your time has expired. Good questions.
    I now recognize the gentleman from California, Mr. Carbajal,
    for 5 minutes.
        Mr. Carbajal. Thank you, Chairwoman Black, and Ranking
    Member Yarmuth. Dr. Holtz, after President Trump's budget was
    released, you indicated that 3 percent growth was at the outer
    bound of what was feasible. And you, Dr. Furman, indicated that
    the chances of achieving 3 percent growth was about one in 25.
    Obviously, 3 percent growth would be nice, if we could get it.
    But do you believe it is responsible for us to build the
    Federal budget on such an unlikely assumption?
        Mr. Holtz-Eakin. So, the President's budget, under every
    President, is put together under the assumption that all of the
    President's policies are enacted as proposed, and work as
    intended. And so, every President's budget is, effectively, a
    dynamic score of what they perceive to be the best set of
    policies. That is true for President Trump, President Obama,
    President Bush. So, I do not think that is how you, as a
    Congress, should set up your budget. You should do the budget
    process in a disciplined fashion, and decide what you believe
    will pass through legislation, go to the President's desk, and
    build it on that.
        Mr. Carbajal. Dynamic or not, do you think it is
    responsible?
        Mr. Furman. If I can answer that? First of all, Dr. Holtz-
    Eakin was one of the people responsible for putting together
    the forecast under President Bush. And none of the forecasts
    that he helped put together was the growth rate more than one-
    tenth of 1 percent higher than what the consensus forecast at
    the time was. The Trump administration's is 1 percentage point
    higher. I would be thrilled to get 3 percent growth, but the
    cost of being wrong is asymmetric.
        If the growth rate turns out higher than we expect, that is
    great news, and the deficit is lower than we thought. If we
    make a mistake, though, and the growth rate is lower than what
    we are counting on, then we will have higher deficits, higher
    debt, and that will compound and magnify our economic problems.
        So, I think it would be much better to build a budget on a
    conservative forecast, and then hope for the best. Maybe we
    will get 3 percent; I think there is a 4 percent chance we get
    it. And if we do, that would be a good thing. But if we come in
    below our expectations, that is a big problem.
        Mr. Carbajal. Thank you. Secondly, to all the witnesses,
    there has been a lot of discussion of the merits of tax cuts.
    Many of it on the other side think that the top marginal tax
    rate is the most powerful force in the universe, or at least in
    the economy. That seems, to me, a bit overstating the case.
    After all, we saw a relatively strong economy, economic growth,
    in the 1980s after President Reagan cut taxes on the wealthy.
    We similarly saw strong economic growth in the 1990s after
    President Clinton raised taxes on the wealthy. It seems pretty
    clear that other factors are at work here, and that tax rates
    are not the primary factor driving growth. Do you all agree?
        Mr. Furman. I think on the individual side, tax rates do
    not have a huge impact. I think on the business side, we are in
    a global economy. We are dealing with other countries that have
    lower tax rates than us, so I do think there is some importance
    to lowering those tax rates, and paying for them with a broader
    base.
        Mr. Holtz-Eakin. I would emphasize what Dr. Diamond said a
    number of times, which is there is an enormous amount to tax
    policy that is not in the wraiths. It is in the investment
    incentives and elimination of preferences, which do not lead to
    good economic decisions. And that is part of tax policy that is
    not in the wraiths.
        Mr. Carbajal. Dr. Diamond?
        Mr. Diamond. I think tax rates are important, but as Dr.
    Holtz-Eakin mentioned, I also think there is another side of
    the Tax Code that we need to look at. Overall, I mean, taxes
    are not the only factor, and you mentioned that. And I mean,
    obviously, there are a lot of factors. Regulation, deficits,
    and the negative effects of deficits that will also affect
    growth. So, they are a piece of the puzzle, but not the puzzle.
        Mr. Carbajal. hank you. Chairwoman Black, I yield back.
        Chairman Black. Wow, thank you. We have got a number of
    folks that are yielding back today. You are all going to get
    stars. I am now recognizing the gentleman from Minnesota, Mr.
    Lewis, for 5 minutes.
        Mr. Lewis. I would like to thank the Chair and the
    gentlemen for coming to testify today. You are right. Taxes are
    not the only thing that matter. We seem to be focused a lot on
    tax expenditures, and not actual budget expenditures. Last
    year, we had record revenues, $3.26 trillion, and yet, $600
    billion deficits. So, when we talk about, you know, what causes
    a deficit or the debt, we need to make certain we keep our eye
    on the prize.
        And it certainly has not been a lack of tax revenue. It has
    been increasing expenditures, which crowd out the capital
    markets, the same as deficits. In fact, one could argue, it is
    not the deficit that crowds out the capital markets; it is
    actually the expenditure, especially inefficient ones.
        But be that as it may, rarely do I get a chance to quiz
    three economists, so I am going to take the opportunity,
    probably all 5 minutes. Let me ask each of you, first of all,
    what the fundamental goal is, when you are formulating, whether
    it is tax policy or whether you are serving on the Budget
    Committee, for that matter. Is the goal of good policy economic
    growth or a balanced budget? Let's start with you, Dr. Eakin.
        Mr. Holtz-Eakin. Economic growth.
        Mr. Lewis. Dr. Furman?
        Mr. Furman. Economic growth that is shared.
        Mr. Diamond. I would say that economic growth, but an
    unbalanced budget is going to lead to lower economic growth, so
    in a sense, it is the same question.
        Mr. Lewis. It is really interesting because when you look
    at the question we have got, as those trying to formulate a
    budget, that seems to be the principal question. Can you have
    one without the other, or does one predate the other, or
    prerequisite for the other? In that regard, there is an
    elasticity of labor and investment I want to talk about a
    little bit.
        We all remember the late 1970s. We have been talking about
    that today, it seems to me, and the malaise, and we cannot
    grow. And we have gotten where, you know, turn down the
    thermostat and put on our cardigans. And yet, all of the
    sudden, we had an explosion of growth after the Carter
    administration and into the 1980s and the 1990s. The tax rates
    never got back to the Carter tax rate. That is one thing
    someone ought to point out, that we did, in fact, grow out of
    the deficits because even with the Clinton tax hikes, we never
    got back to anything close to 70 percent marginal income.
        But something happened in the 1970s that is very
    enlightening, and that was the Steiger Amendment and the cut
    and capital gains from 49 percent to 28 percent. At the time,
    the Treasury secretary said it would cost the government $2.2
    billion. And, in fact, the capital gains taxes went from $8 to
    $11, almost $12 billion.
        So, this clearly an elasticity at some particular rate on
    investment. Is there, at the top income tax rate, an elasticity
    for work, i.e., the people who have the greatest option, the
    greatest choice, the greatest elasticity for working are the
    wealthy? So, if you raise their rates even higher than what
    they are, will they quit working? Go ahead, Dr. Holtz-Eakin.
        Mr. Holtz-Eakin. So, I think the best evidence on this is
    something to take into account more than just the work/not work
    dimension. You can imagine working/not working, how long you
    work, how hard you work, what areas you work in. All of that
    gets bundled into the taxable income you report to the
    Treasury, and there is a sizable and well-established taxable
    income elasticity, with respect to the top marginal tax rate.
    Some of that, you know, if you raise the rate and taxable
    income goes down, it is going to be an avoidance activity. The
    wealthy are quite good at hiring smart folks to avoid paying
    taxes. Some of it will be genuine reductions in economic
    activity, and neither of those are good phenomena.
        Mr. Lewis. Dr. Furman?
        Mr. Furman. I think there is some responsiveness to tax
    rates for work, and all the dimensions that Dr. Holtz-Eakin
    talked about----
        Mr. Lewis. Is it higher at the top end?
        Mr. Furman. I think I am not aware of convincing evidence.
    There is, I think, capital gain realizations that are much,
    much, much more elastic than labor supply is because it is very
    easy to not sell a stock this year and, instead, and sell it
    next year. Much easier it is than it is to take off this year--
    --
        Mr. Lewis. Yeah. But it is easier for the wealthy to stop
    working, too, correct, than those at the lower end?
        Mr. Furman. I think people have a lot of different
    motivations for work, for primary earners, there is not a lot
    of responsiveness of work to tax rates. For secondary earners,
    there is.
        Mr. Lewis. Let's move to income inequality, because I am
    fascinated by this topic. If we have got a rising economic
    growth, and every quintile is going up, but we have got Jeff
    Bezos, and we have got Steve Jobs or Bill Gates, and they go up
    a whole lot. My goodness, that is a rise in income inequality.
    Juxtapose that with the Great Depression.
        Everybody's income fell, but there is a bottom to that, so
    income inequality actually shrinks during the downturn. Why are
    we so focused on income inequality? And show me where changes
    in the marginal tax rates have any effect at all on income
    inequality that is primarily an education or socioeconomic
    issue? Let's start with Dr. Diamond there, quickly.
        Mr. Diamond. Well, we saw this after--during the Great
    Recession inequality, actually, reduced a little bit as the
    rich were hit. I mean, so, it is an important factor. I mean, I
    think it is important to be concerned about how everyone is
    doing. I do not think we should necessarily respond by raising
    marginal tax rates.
        Mr. Lewis. Can taxes make a difference?
        Mr. Diamond. Taxes can make a small difference, but they
    are not going to solve a problem that is caused by something
    other than taxes.
        Mr. Lewis. Unfortunately, my time is up. I could go on for
    another 10, 15 minutes if you would like, but I yield----
        Chairman Black. Your time is expired, the gentleman from
    Minnesota. I now yield 5 minutes to the gentlelady from Texas,
    Ms. Jackson Lee.
        Ms. Jackson Lee. I would be delighted for the gentleman to
    keep going because I am trying to, my dear friend, understand
    his line of reasoning. But let me refer ourselves, gentlemen
    and ladies, to the Tale of Two Cities. And that is why we are
    concerned about income inequality. I cannot imagine that we
    would sit here and talk about not being concerned whether
    Americans are dragging themselves through the streets with no
    jobs and maybe nothing to eat, since nutrition and lack thereof
    is one of the high elements of this country. Whether or not
    children can be educated, and young people can get a college
    education. That is income inequality.
        And this budget, from my perspective, as we indicated
    before, let me not try to paint the Rosie scenario program. I
    do not know if anyone knows her, but she is missing in action
    today. I would clearly say this is a dead-on arrival budget,
    and I do not know why we are so fearful of going back and
    comparing Reagan and Clinton in the years where under Reagan,
    we had a $1.4 trillion deficit. Clinton had a $63 billion
    surplus. Reagan had a 3.64 growth; Clinton, 3.82. Created 22
    million jobs. Monthly, Clinton created 242,000 jobs, with 166
    by Reagan, both of whom I certainly respect as presidents,
    because they handled themselves as presidents. President Obama
    was a good custodian of the work that Bill Clinton had done.
        But here we are today, traveling down a path that makes
    absolutely no sense. So, let me just quickly try to raise some
    points on the basis of history. September 25, 2008, I recall. I
    was here. I was here in 2007, Dr. Furman. That was the debacle
    when Lehman brothers was not bailed out, while others were.
    That was when we went home to Americans, and they could not
    believe it, and they said to us, ``Do not bail anyone out. Do
    not do anything. They were in shock.'' But we were on the verge
    of collapse. Wall Street did take a deep dive. The resilience
    of this Nation and the leadership of Democrats brought us to
    the fact that we are still standing.
        So, my question is, if you look at the budget overall, I
    want you to answer two questions. One, and I am going to ask
    the other panelists the value of the CBO analysis that we have
    always done. Is it important that Congress looks at an
    independent arbiter to deal with numbers? CBO has done that.
        Secondarily, with baby boomers, of which none of us are in.
    We are all millenniums at this point, are getting older; we are
    not infusing the workforce. We have an immigration policy that
    takes away hard working immigrants, young people, who want to
    be here, who are not dangerous. And so, we need a workforce.
    With this type of budget, does that suggest 3 percent growth?
    Does that say that we have a vision of growth? And the other
    part of it is: is it not valuable that government invest in its
    people? I am trying to get the right now. I remember I voted
    for it. The proposal we had under President Obama that we all
    voted for did a lot to energize the economy.
        My question to you, Dr. Furman, are those. Based on the
    back drop of the Clinton/Reagan analysis, the custodian work
    that Obama did, you are in administration and the vision of
    this budget.
        Mr. Furman. I think I agree with the premise of all of your
    questions. Congress should be relying on the Congressional
    Budget Office. No one can predict the future with certainty,
    but the CBO is not biased. Sometimes, they are too high.
    Sometimes, they are too low. On average, they are right. I
    think the policies in President Trump's budget are more likely
    to lower growth than they would be to raise it by cutting the
    type of investments in our people and in our infrastructure
    that we need for future economic growth.
        Ms. Jackson Lee. Dr. Holtz-Eakin, you were at the CBO.
    Would reliance, and does this overall budget have a vision of
    investment in the American people? Or are my premises
    incorrect, that we have a growth problem, with respect to human
    beings to be able to energize the workforce, and energize the
    economy?
        Mr. Holtz-Eakin. First of all, I have nothing but high
    praise for the CBO as an institution, and I believe Congress
    should continue to rely on it for its analysis. I think the
    administration budget is a mixed bag, from the point of view of
    economic growth.
        One of the things that I do not like about it is that it
    perpetuates the current budgetary mismatch between mandatories
    and discretionaries by taking off the table serious mandatory
    reforms. It continues to crowd out the discretionary accounts,
    which are national security, basic research, infrastructure,
    education; indeed, all things the Founders saw as the role of
    government. I think that is a fundamental budgetary problem
    that needs to be addressed.
        Ms. Jackson Lee. Dr. Diamond, in my last seconds here, let
    me add a little caveat. We have got a lot of people
    incarcerated. We have been trying to pull back on mass
    incarceration. And it has been bipartisan, the Koch Brothers
    and others. Does that not undermine the workforce? And are my
    premises not right about how the economy is energized by people
    working? And if you have thousands completely constantly locked
    up, does that not have an impact as well?
        Mr. Diamond. I definitely think incarceration has a
    negative impact on people and the economy. I think the CBO is
    important, and we need to continue to rely on them. And I think
    budget goes in, at least, I do not agree with the budget in
    total, but my point in my testimony is we are spending too much
    money. We are projected to spend too much money. At some point,
    we are going to have to slow the growth of spending.
        Chairman Black. The gentlelady's time has expired. The
    gentleman from Arkansas, Mr. Westerman, is recognized for 5
    minutes.
        Mr. Westerman. Thank you, Madam Chair, and thank you to the
    witnesses for being here today. Just want to go down the line,
    and ask for just a brief comment on the relationship between
    growth and growth productivity. Are the curves similar? As you
    get more growth, you naturally get more productivity? Would you
    all agree to that?
        Mr. Diamond. I guess I would make a distinction between
    leveling up. So, an increase in GDP that is just like a one-
    time change in the level, which may come from some policies,
    versus a small change in a growth rate, which endures over
    time, and which builds on itself so that you get growth on top
    of growth. I think that is more important in a long run sense
    than just a level-up approach.
        Mr. Furman. I think faster productivity growth is one for
    one into faster economic growth, everything else equal.
        Mr. Westerman. All right. So, the consensus is that growth
    and productivity are correlated; they are not inversely related
    by any means. But if we look at the chart that was probably
    shown earlier that shows our growth since 2012, we went from 3
    percent in 2012 on GDP down to 1.9 percent is what is projected
    for 2017. So, we have seen a decrease in growth, which, if
    growth and productivity are correlated, you would think you
    would also see a decrease in productivity.
        However, we also see a low labor participation rate. So, I
    would argue that over that same time period, if we look at
    productivity on a per capita basis, we have actually seen an
    increase per capita productivity. Would anybody care to comment
    on that?
        Mr. Holtz-Eakin. So, I think the key is that, looking
    forward, it is too difficult to anticipate anything like a
    business cycle. So, we have gone through this deep recession
    recovery. Take that piece out of it, and you are left just two
    pieces. Piece number one is how fast does the labor force, and
    thus the workers, grow? And public policies should make sure
    that we do not stop people from working, and we do get the
    growth that we want. And then, the second is productivity
    growth for everyone who is working. And those are the two
    objectives, and each should be independently the focus of
    public policy.
        Mr. Furman. I think as a growth accounting framework, I
    would agree with that.
        Mr. Westerman. So, you know, if you look at the actual
    numbers of people in the labor force in 2012, it was about
    159.5 million in the United States, and now, it is about 162.8.
    So, with population growth, we have seen the labor
    participation rate drop from 63.7 to 62.7. When I talked to
    people in my district, I know of people who are working second
    jobs. They are working longer hours.
        So, there is information there that leads me to believe
    that per capita productivity has increased, and I think if we
    see more technology, we will continue to see per capita
    productivity increase, which gives me hope that if we can get
    more people into the job market that we could actually see
    greater GDP growth than what we have actually seen in the past.
    And maybe, even get above 3 percent growth if we get these more
    highly productive workers employed. Any comments on that
    theory?
        Mr. Furman. You still have this mathematical problem that
    the prime aged population, 25 to 54, some of the key workers,
    that population is going at 2 percent a year. Now, it is
    growing at close to zero percent a year. I think we can do
    better on labor force participation. That will be a challenge
    because the labor force participation rate for prime aged men
    has fallen every year from the 1950s through the present. Under
    President Reagan, it fell. The labor rate for men fell under
    President Reagan. So, I think this is going to be a hard thing
    to reverse. But if we did, it would add to our economic growth.
        Mr. Westerman. So, does that mean that we actually have to
    get more productivity out of the labor force that we have if we
    expect to see any kind of increase in growth in GDP?
        Mr. Holtz-Eakin. I think that is very important. For
    example, they just released the data for the first quarter of
    this year, and there was no productivity growth. And so, if you
    combine that with Dr. Furman's observation that the labor
    force, the prime aged labor force is not growing; that is not a
    particularly good set of results that we got a flat economy in
    that kind of world.
        Mr. Westerman. So, how can you mathematically not have
    productivity growth if you have any kind of economic growth?
        Mr. Holtz-Eakin. You can have more workers producing the
    same amount per worker and get more in total, but productivity
    will not be rising.
        Mr. Westerman. But back to the other point, you would have
    higher per capita productivity.
        Mr. Holtz-Eakin. My concern is that you want to have much
    more rapid growth in productivity per worker, so essentially, a
    per-capita measure, and you want to raise the number of workers
    per capita, which is essentially, have greater labor force
    participation from those who are currently not participating.
        Mr. Westerman. Thank you, Madam Chair, and I am out of
    time.
        Chairman Black. The gentleman's time has expired. I now
    recognize the gentlelady from New Mexico, Ms. Lujan Grisham for
    5 minutes.
        Ms. Lujan Grisham. Thank you, Madam Chairwoman, and thanks
    to the Committee members. I want to do two things, because
    certainly interested in a return on any investment and growing
    the economy. And I am sure this Committee gets tired of me
    reminding them, but I am always happy to do that for a new
    group, that New Mexico has the highest unemployment in the
    country, and we are not, now, the worst economy in the country,
    but by no means are we in a position where we are seeing real,
    or any quite frankly, economic growth.
        And the strategy that we have taken in New Mexico,
    particularly over the last 8 years, but even before then, under
    both Democratic and now Republican leadership, is to invest in
    huge tax breaks at the top 1 percent and corporate tax breaks,
    which has left the state without any sufficient or viable
    resources. And the end result has been zero economic growth. No
    trickle down investments. No effort that has given us any
    aspect of a strategy.
        So, for me, living that in my current state and situation,
    I do not see how these strategies are going to work at a
    national level. And if we are looking for something where there
    is bipartisan agreement on clear economic growth, I am
    interested in your opinions about comprehensive immigration
    reform, which, particularly in a state like mine, provides an
    immediate return into the pocketbooks of every New Mexican, as
    well as stabilizing and moving growth for a variety of
    industries, not just A.G., and for us, health care and long-
    term care, but entrepreneurship, in fact, which we lead in the
    nation. Or, I need to be careful, because I have not checked
    that data, at least in an hour.
        So, it changes that quickly. But we have been one of the
    leading states in entrepreneurship, particularly in minority
    women in the state.
        So, I would be interested in the panel's reaction on, I am
    living in a state that is seeing benefit from any of the
    strategies that continue to be presented, not only here today,
    but in previous budget hearings, but in addition, what you
    think about economic growth under comprehensive immigration
    reform. Anyone? All of you?
        Mr. Holtz-Eakin. So, as I mentioned earlier in the hearing,
    as in my written testimony, I think immigration reform is a
    powerful tool for economic policy. The data on the immigrant
    populations speak quite clearly to the fact that they tend to
    work more, higher labor force participation. They retire later.
    They have a disproportionate number of entrepreneurs who start
    businesses, hire people, bring capital to the United States.
    All of those are economic benefits from immigration that we can
    take greater advantage of if we choose to. So, I think the data
    are real clear on that.
        In terms of other strategies, the thing I tried to
    emphasize in my opening is that there should not be a strategy.
    We have a deep need to grow more rapidly, and the public
    policies that can affect it: the tax reforms, the fiscal
    reforms, the regulatory reforms, education reforms, immigration
    reforms, trade policies. I think all of them have to come into
    play. And a reliance on any single one would probably be a
    mistake.
        Mr. Furman. I agree with a wide range of policies. If you
    quantify everything on Dr. Holtz-Eakin's list, on my list, the
    number one, in terms of the largest impact on growth, would be
    comprehensive immigration reform. That would do more for our
    economy than any other single policy that we could do.
        Mr. Diamond. I agree that immigration reform is an
    important pro-growth policy.
        Ms. Lujan Grisham. So, and not that I am disagreeing that
    you should not have a variety of strategies, and in fact, in
    our economy, I find it difficult to weigh in and say that one
    set of policies by one policymaker, whether that is the
    legislative body or the governor or local elected policymakers,
    the reality is in New Mexico, they did not create the 2008
    recession.
        They did not ask to have oil and gas commodity prices and
    related ad commodity prices drop. They, certainly, did not call
    Congress and say, ``We ought to do a sequester. We are a
    defense industry state.'' So, it is all those things combined,
    certainly, tell you that you need to have a diversified economy
    with several strategies that allow you to more meaningfully
    react to economic changes.
        However, in addition to all of those factors, you know, as
    I said, we are a state that also provided massive tax efforts
    in an effort to create job growth. It has created zero job
    growth. And again, we are, not only as I described earlier in
    this hearing, having such economic woes, but in fact, we are
    the only state in the nation that is losing population which
    means we have a brain drain.
        We do not have any young people, and we do not have a
    qualified workforce. So, even if these trickle down strategies
    work, and they do not, in my opinion, there is not anybody to
    trickle to because we have lost the opportunity to do job
    creation, and train a qualified workforce.
        And Mr. Chairman, I did not have it when I started, but I
    would love to have unanimous consent to enter the article into
    the record from our main newsprint media source that talks
    about the problems with the tax cuts and tax cut policy in our
    state.
        Mr. Woodall. Without objection, that will be included in
    the record.
        [The information follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Ms. Lujan Grisham. Thank you very much. I really do not
    have any further questions, unless maybe one----
        Mr. Woodall. And the good news is the gentlelady's time is
    expired.
        Ms. Lujan Grisham. Oh, man, I was just getting started. I
    changed my mind, Mr. Chairman.
        Mr. Woodall. As soon as Mr. Yarmuth recognizes round two, I
    hear we will come right back, but----
        Ms. Lujan Grisham. Thank you very much to the panel.
        Mr. Woodall.----we are standing between you and our
    resident in-house economist, the gentleman from Virginia, Mr.
    Brat.
        Mr. Brat. Oh, thank you very much. All right. You all on
    this panel are in jeopardy of failing Econ 101 a bit here. When
    consumers, individuals, want to maximize utility, we do not
    talk about growing the economy, right? The language coming out
    here is for our economy. So, of course, immigration, if you
    import another worker, will increase the size of your economy.
        But to show the fatal flaw in the logic coming out on this
    immigration issue is fairly easy. Let's just import the whole
    world. Right? Let's just have 7 billion people move to the
    United States of America, right? So, that would be the biggest
    economy you have ever seen, right? It will increase our GDP by
    400 percent or whatever, right? Global. And not one person
    would be better off. Right? So, Econ 101 says what do people
    care about? They care about GDP per capita, after transfers and
    taxes. Right? That is how you maximize utility.
        I do not think you can show me any papers that show, right,
    the average of folks coming across the border from Mexico,
    South America. Tenth grade education. All children of God,
    right? No issue there. We are just talking economics. They will
    come in. They will make $20,000. If you got two kids in
    education, that is $26,000. You are upside down. And we are
    only $100 trillion light on unfunded liabilities right now, and
    $20 trillion light on debt, right? Because we screwed up the
    logic and had not paid any attention to productivity growth.
        So, we are stuck in a bind. And so, you are offer us the
    little ray of hope you can. Well, in the short run, right,
    there is a pig stuck in a python, called the demographic thing.
    Gee, I wish we would have known about that 10 years ago. Well,
    we did. It is just total political failure on all fronts.
    Right, to plan for the Medicare system, and Social Security are
    insolvent in 2034. It is upside down. And so, you are saying,
    bring in folks in order to solve a temporary problem, which it
    will, right?
        You might get a little bit more tax revenue, short range;
    you grow the economy, but I do not know where to start on that
    one. If you can show me any papers that show immigration helps
    increase productivity and GDP per capita after taxes and
    transfers, I am wide open to that.
        Second, my colleague Mr. Jeffries over there talked about
    well, we had $1.4 trillion deficits coming out of the Bush
    years. And so, you know, the Obama economy, we had to fix that.
    Again, just a colossal error in Econ 101.
        What caused the financial crisis? And there is no debate.
    Everyone agrees: the financial crisis started in the housing
    sector. Do you know any private sector bank that would give
    liar loans and no income loans for mortgages? No. Only the
    Federal Government is capable of that genius move. Right? And
    so, just go look up Fanny and Freddy and Mr. Johnson, and that
    empire he set up across the country, and you will find out why
    we had $1.4 trillion deficits.
        Now, let me get to the whole point here on productivity.
    Immigration, pre-K, education, et cetera. No literature,
    nothing, has been presented that that will increase GDP growth.
    Right? Per capita, et cetera. Right? I was in education for 20
    years. So, it sounds great. How much do you need, right? How
    many more thousands? We spend $14,000 per kid right now, per
    year. And I teach freshman economics, and the kids do not know
    what a business is after 13 years in K-12. They do not what a
    price is. They do not know what a cost is. They do not know
    what a profit is. Great. And in higher ed, it is widely taught
    that business on the supply side is morally corrupt, right? K-
    12 is neutral. Higher ed is not neutral. Right? So, gee whiz, I
    wonder why productivity growth is not great when we teach
    people that the supply side is a pejorative nasty work.
        So, demand curve. Supply curve. Right? Demand curve is your
    consumers. Supply curve is all business. And the supply curve
    is the supply side of the economy is bad. Really? Everybody
    that produces goods and services is bad? So, what we do not
    hear from the other side, we have had demand's side stuff
    forever, right? Bailouts and non-ending demand stuff. There is
    no productivity growth, right? It is flatter than a pancake.
    Capital investment is flatter than a pancake.
        And so, I am dying to hear something from the other side
    that will enhance productivity growth. And they did have,
    President Obama, a majority of the House, Senate, and whatever.
    So, if you want to do productivity enhancements, why did they
    not do it?
        So, I just see a collapsing argument on the other side. I
    do not see anything they have proposed over 8 years that
    enhances productivity growth, and on the contrary, they are
    saying supply's side incentives are bad, right? It is trickled
    down or some pejorative term like that. And so, I have already
    blown through my time. But you all said productivity is the
    whole story, right?
        And so, if you can present this panel and both sides with
    some economic papers on how immigration will enhance GDP growth
    per capita after taxes and transfers, I would love to see that.
    If you can give me any arguments on pre-K education, or
    enhancements in K-12, or higher ed that will enhance GDP growth
    significantly in any range, I am wide open to seeing it. If
    they do, I am all on board, right? And so, thank you very much
    for being here today, and appreciate it.
        Mr. Woodall. The gentleman's time has expired. I will
    recognize myself for 5 minutes. I want to pick up where my
    colleague left off.
        It is true. I am not an economist; I am a lawyer, and so, I
    rely on you all. And you come together with a lot of good
    maxims that I try to apply. One of those maxims, and Dr. Furman
    used it in his opening statement, is infrastructure spending is
    good for GDP. But it is not good in the same way to build a
    sidewalk out in front of my house as it is to build a rail line
    that runs coast to coast. And so, you supply me with the
    maxims, but then, the conversation tends to end there. For
    example, immigration. Do I need folks to pick carrots in south
    Georgia? Absolutely do. Am I running out of families who are
    having three and a half kids who are raising them all to pick
    carrots? I absolutely am. But I also need more nuclear
    physicists and more entrepreneurs, on and on.
        So, can we start with you, Dr. Holtz-Eakin? You mentioned
    that 35 years used to be the time period for doubling our
    standard of living. Now, that is almost doubled. Is your
    analysis that that is systemic to the American economy, or that
    is because we are participant in the world economy?
        Mr. Holtz-Eakin. It is a set of facts about the U.S.
    economy. They are driven by decline and productivity growth.
    That is the key element. And as Dr. Furman pointed out, we are
    not the only country that has seen a decline in productivity
    and growth. I would hesitate to draw any causal errors. You
    know, our productivity is worse because theirs is worse. You
    know, I am a big believer that we should set our public
    policies to focus on the U.S. economy and its capacity to grow.
        Mr. Woodall. Though to Mr. Brat's point, we do set public
    policy. I am not sure it is focused on the economy as much as
    it is focused on the realization of the individual. We will
    give you a college loan to go get any liberal arts degree you
    want in the country. I would love to see the paperwork that
    says getting a liberal arts degree helps the economy more than
    learning an applicable skill on day one. And those papers may
    be there as well.
        Where is the data on how we are investing in human capital
    in this country? I can only spend each dollar once. What big
    change would you make in the way the Federal Government is
    investing in human capital to move the needle the fastest and
    in the most dramatic fashion on GDP?
        Mr. Holtz-Eakin. So, I think the biggest change I would
    make is where the big Federal dollars are in higher education.
    Most of the K-12 systems outside, with one exemption, title 1.
    On the higher part, I would focus more on having programs for
    low income individuals be ordered on the basis of time to
    completion, staying on schedule, outcome measures. Not just
    take the money and go. I would try to keep them out of loans
    because they are not going to repay, and target the loans more
    toward the middle class. And there, again, I think you want to
    have the loans be loans. This notion that loan forgiveness, it
    should be the top priority just strikes me as mixing terms.
    They are not loans, then. They are grants.
        Mr. Woodall. It is true. If I have asked you to invest in
    something that is not giving you a good ROI, then I have asked
    you to do the wrong thing. And Dr. Furman, is it obvious to you
    what needle you would move on investments in human capital in
    this country to get better outcomes?
        Mr. Furman. I would invest more on preschool. I would
    invest more on community college and training. I think other
    investments might be welcome, but there is a lot of things we
    could do for quality outside of just spending additional
    dollars elsewhere in the educational system.
        Mr. Woodall. Dr. Diamond?
        Mr. Diamond. I agree. There is a lot we could do outside of
    spending additional dollars that would make us more productive.
    I agree with trying to reach kids sooner, especially low-income
    kids. And I think a lot of that is on a state-level issue. Just
    more of, you know, re-prioritizing where we want to spend the
    money each year more so than spending more money.
        Mr. Woodall. I would ask you all to continue that kind of
    intellectual investment before Mr. Grothman walked in. Mr.
    Yarmuth and I were prepared to stage a coup here. We might
    disagree on how much to spend on infrastructure, but spending
    those dollars in a way that moves the needle in the largest
    fashion, we would come to some sort of agreement on. We might
    disagree about how much to spend on education, but spending
    those dollars in a way to maximize the utility would be
    something we would agree on.
        And my final question is this. Irrespective of growth rates
    and president's budgets, President Obama sent me eight budgets
    that never balanced but invested a great deal in the American
    economy. President Trump has sent me a budget that is purported
    to balance that reduces a great deal of spending in the
    American economy. From an economic perspective, is it obvious
    what grows a GDP going out in the future? Budgets that balance,
    or budgets that do not? Or is the question not that simple?
    Doctor?
        Mr. Holtz-Eakin. I like the idea of aspiring to balance the
    budget because the level of debt to GDP is already too high,
    and it is on a trajectory to go even higher. We got to reverse
    that.
        Mr. Woodall. Doctor?
        Mr. Furman. I think the proper goal is debt as a declining
    chair of GDP, President Obama never sent you a budget with a
    double count, with an overly rosy scenario. And in fact, the
    deficit consistently came in below what the Obama
    administration was expecting.
        Mr. Woodall. Dr. Diamond?
        Mr. Diamond. You know, I think that what is important in
    the latest budget is not so much, and we focused a lot on the 3
    percent, but we have proposed to reduce the growth rate and
    spending for the first time I cannot remember when. So, that is
    at least one good thing.
        Mr. Woodall. I thank you all for your many, many years of
    service. The gentleman from Wisconsin, Mr. Grothman.
        Mr. Grothman. First of all, thanks for keeping things going
    so I got a chance to answer your questions. I just point out
    that I think the amount spent per people in our schools and the
    number of people going to college, and the amount we spend on
    college, I am sure the amount per person or per pupil in K-12
    has gone up well in excess of the rate of inflation the last 50
    years.
        I, personally, do not feel that that spending still more
    money there is the key to success. I think maybe how they spend
    it is relevant. I think the same thing is true of a college
    education. At least, right now, I think we have maybe people
    graduating from college that cannot get jobs in their field;
    whereas if they would have stuck in tax school or would have
    been trained by their businesses, they would be much better
    off.
        So, I am not sure, you know, more government spending on
    education is the answer. But I want to get back to why our
    economy is not growing more, and I do happen to represent the
    district with more manufacturing jobs than any other in the
    district in my country. And as I tour my district, be it
    manufacturing or being in other things, the number one that
    seems to be holding my businesses back is they cannot find
    people to work. Okay?
        They really have a hard time finding people to work out
    there. And I am trying to think what we can do to find more
    people to fill those jobs so our economy can grow. Now, right
    here, I noticed that people on disability has grown over the
    last 14 years by about 60 percent. And that is despite the fact
    that I think, over time, our farms, certainly our
    manufacturers, certainly, have gotten safer and safer.
        So, normally, common sense would say, given how much safer
    things are going, you would figure the number of people on
    SSDIs is dropping. I realize the population is getting a little
    older. But when I look at this chart I see, you know, if we had
    the same percentage of people on disability overall that we did
    14 years ago, maybe we would have another two and a half, 3
    million people going to work. And you know, the economic
    figures should be going up all the quicker.
        Does anybody care to comment as to whether they feel that,
    you know, if we were a little bit more careful who we are
    putting on disability--and I realize there are people who are
    generally disabled need the help; I do not have a problem
    there--but if we were a little bit more careful, maybe we would
    be able to jump start the economy, as these people would fill
    all the jobs out there that are going wanting.
        Mr. Holtz-Eakin. So I think there should be a genuine
    concern about disability roles being disguised unemployment in
    deep recessions. That is a concern that has been voiced by a
    lot of economists. In looking at the program memo, I think a
    second thing gets less attention, and that is the fact that
    very people ever exit the disability roles. And there are, I
    think, there is a good reason to look at that, in particular,
    with young Americans who get classified as disabled. They are
    on SSDI. They are capable of working, and finding routes to get
    people off those roles and into the labor force would be a good
    thing.
        Mr. Furman. I, actually, do not think the evidence is very
    compelling that the decline of labor force participation is due
    to disability. Since the 1960s, the disabilities roles have
    increased 1.5 percentage points for prime-aged men. The
    fraction of prime-aged men not working has increased by 7.5
    percentage points, well in excess of that.
        If you look, actually, since the early 1990s, on an age-
    adjusted basis, there has not been an increase in disability
    for men. The increase that we have seen is because of aging,
    and the factor you cited that more people are on SSDI instead
    of OASI because of the increase in the normal retirement age,
    and then an increased number of women in the workforce who are
    now qualified for disability who did not used to qualify for
    it.
        Those are the factors that explain the increase, not some
    increased generosity. So, I think we can look to reform the
    disability program. There are improvements we could make. I
    would not start from a premise that that is the primary source
    of our work problems, or would be a major solution to them.
        Mr. Grothman. Another question. When I talk to my
    employers, particularly on the lower end of the wage scale,
    they find people are not wanting raises, do not want to work
    full-time because it digs into their benefits, be it affects
    their low-income housing, their health insurance benefits,
    their food share.
        I know the number of people on food share has gone up from
    17 million in 2001 to 43 million last year, which is kind of
    dramatic. We have another program, the Earned Income Tax
    Credit, which was apparently designed by people who do not want
    anybody making more than $19,000 a year because that is another
    benefit you lose. To what degree do you think the economy is
    stagnating because of what I am told by my employers that
    people are intentionally not making as they can to get the
    government benefits?
        Mr. Woodall. Want to take a shot at it, Dr. Diamond?
        Mr. Diamond. I think it is a legitimate issue. I think we
    have seen, with unemployment compensation, with ObamaCare, with
    other spending programs, you can put in implicit tax on work,
    and that can discourage people from working.
        Mr. Grothman. Yeah, you have 43 million on food share. I
    know some people are always going to be on food share, but 43
    million? I mean, that is a lot of people, when you shoot up
    from 17 million 15 years ago to 43 million now. I mean, you
    wonder how many of those people would work harder if we did not
    take away their benefits if they did work harder.
        Mr. Diamond. I think that is a reasonable concern. We need
    to structure our policies so that we are as pro-work as
    possible.
        Mr. Grothman. Thank you much. Thank you for hanging around
    in my two Committees, but we will be forever grateful that you
    waited for me.
        Mr. Woodall. Thank you, gentlemen, for spending the morning
    with us, Dr. Holtz-Eakin and Dr. Furman and Dr. Diamond. Thank
    you very much for your testimony. Please be advised that
    members may submit questions in writing for you, and those
    answers will be placed in the record as well. Any member who
    wishes to submit questions or any extraneous material may have
    7 days to do so. With that, the Committee stands adjourned.
        [Whereupon, at 12:15 p.m., the Committee was adjourned.]
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