[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
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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:]
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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:]
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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:]
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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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