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


                  THE ECONOMIC AND FISCAL BENEFITS OF
                          PRO-GROWTH POLICIES

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

                                HEARING

                               BEFORE THE

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

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

                               __________

                            Serial No. 115-6

                               __________

           Printed for the use of the Committee on the Budget
           
           
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                        COMMITTEE ON THE BUDGET

                    DIANE BLACK, Tennessee, Chairman
TODD ROKITA, Indiana, Vice Chairman  JOHN A. YARMUTH, Kentucky,
MARIO DIAZ-BALART, Florida             Ranking Minority Member
TOM COLE, Oklahoma                   BARBARA LEE, California
TOM McCLINTOCK, California           MICHELLE LUJAN GRISHAM, New Mexico
ROB WOODALL, Georgia                 SETH MOULTON, Massachusetts
MARK SANFORD, South Carolina         HAKEEM S. JEFFRIES, New York
STEVE WOMACK, Arkansas               BRIAN HIGGINS, New York
DAVE BRAT, Virginia                  SUZAN K. DelBENE, Washington
GLENN GROTHMAN, Wisconsin            DEBBIE WASSERMAN SCHULTZ, Florida
GARY J. PALMER, Alabama              BRENDAN F. BOYLE, Pennsylvania
BRUCE WESTERMAN, Arkansas            RO KHANNA, California
JAMES B. RENACCI, Ohio               PRAMILA JAYAPAL, Washington,
BILL JOHNSON, Ohio                     Vice Ranking Minority Member
JASON SMITH, Missouri                SALUD O. CARBAJAL, California
JASON LEWIS, Minnesota               SHEILA JACKSON LEE, Texas
JACK BERGMAN, Michigan               JANICE D. SCHAKOWSKY, Illinois
JOHN J. FASO, New York
LLOYD SMUCKER, Pennsylvania
MATT GAETZ, Florida
JODEY C. ARRINGTON, Texas
A. DREW FERGUSON IV, Georgia

                           Professional Staff

                     Richard E. May, Staff Director
                  Ellen Balis, Minority Staff Director
                                
                                
                                CONTENTS

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

 
        THE ECONOMIC AND FISCAL BENEFITS OF PRO-GROWTH POLICIES

                              ----------                              


                        WEDNESDAY, JUNE 7, 2017

                          House of Representatives,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
1334 Longworth House Office Building, Hon. Diane Black 
[Chairman of the Committee] presiding.
    Present: Representatives Black, Rokita, McClintock, 
Sanford, Renacci, Lewis, Faso, Gaetz, Arrington, Smucker, Brat, 
Ferguson, Woodall, Palmer, Westerman, Grothman, Jeffries, 
DelBene, Khanna, Jayapal, Carbajal, Wasserman Schultz, 
Schakowsky, Jackson Lee, and Lujan Grisham.
    Chairman Black. The hearing will come to order. Welcome to 
the Committee on the Budget hearing, which will focus on the 
economic and fiscal benefits of pro-growth policies.
    Good morning, and thank you everyone for being here, and I 
especially want to thank our great panel that is here with us 
today, our witnesses, for being willing to come in this morning 
and provide their thoughts on this important topic. We are 
having this hearing today in preparation for the upcoming 
release of our 2018 budget resolution. An important component 
of that resolution is an analysis of our economic conditions 
and our projects of future economic growth.
    Over the last 8 years, we have seen stagnant economic 
growth, leading economists and the CBO to consistently 
downgrade their growth projections. As recently as 2012, the 
CBO projected our economy would average a 3 percent growth over 
a 10-year window.
    This year, the CBO is only projecting an average of 1.9 
percent growth over the next 10 years. However, it is important 
to point out that the CBO's projects are based on the 
assumption of continuing existing law with no changes in the 
economic policy. There is no question that the policies of the 
Obama years greatly contributed to the anemic economic growth 
and the downgraded growth projections. Higher taxes, the 
disaster that is ObamaCare, an expanded regulatory regime, and 
more federal spending and debt have held back the American 
entrepreneurs and small businesses.
    The Obama economy left millions of Americans behind. Over 
14 million Americans left the labor workforce during the Obama 
administration's 8 years in office. That is 14 million 
Americans. And in total, 95 million Americans are now out of 
the labor force: 95 million.
    That is more than one-third of the total working age 
population, and I think that it is important to emphasize that 
there are 95 million Americans that are now out of the labor 
workforce, more than one-third of the total working age 
population. It has been the working-class Americans in the coal 
mines of West Virginia or the factories of central Tennessee or 
the farming communities in Nebraska that have borne the brunt 
of the liberal agenda over the last 8 years.
    The ability and the opportunity to work is a fundamental 
pillar of the American Dream. Without the stability and self-
worth that comes from having a job and providing a better 
future for one's children, our culture, and our economy, and 
truly our national morale suffers. Plenty of our friends across 
the aisle and many in the media have said that a 1.9 percent 
growth is the new normal. They have a pessimistic view of our 
Nation's ability to create jobs and build a foundation of 
greater opportunity for all citizens, especially if the new 
President and the Congress are successful in enacting a series 
of pro-growth policies. While I am never surprised by the 
media's pessimism, I am surprised that our friends across the 
aisle have such a negative view of Congress' ability to affect 
real change and to set a new economic standard.
    So, I have got a message for everyone here today who thinks 
America is doomed to a future of less opportunity and 
potential: take your losing attitude elsewhere. We are the 
greatest country on Earth. We have got the best workers, the 
best innovators, and the best companies, and they are not the 
problem. Washington, D.C. is the problem. Government is getting 
in their way, and it is about time that we fix that problem.
    And that is why the Republicans are committed to reforming 
the Tax Code, reforming our healthcare system by repealing and 
replacing ObamaCare, by reducing the regulatory burden on 
American small businesses, and getting our fiscal house in 
order, which is our responsibility in this Committee. These 
policies will spur economic growth and unleash the potential of 
the American free-market economy.
    We would welcome our Democratic colleagues to join us in 
this effort, but it requires them to no longer be content with 
the status quo of the Obama years. We have got to put those 
years behind us, because there is no law that we have to 
forever accept President Obama's slow-growth policies. We can 
make changes to improve our economy, and we can start with 
adopting a budget resolution that puts our country on a sound 
fiscal path.
    Growing our economy is also a vital step to getting our 
fiscal house in order. Since World War II, 3 percent growth has 
been the historical average. In the late 1990s, our economy 
grew by a rate of 4.5 percent, more than twice the rate of our 
growth today. It is no coincidence that we also balanced the 
Federal budget during this time period. Strong economic growth 
combined with spending restraint is how we get our country on a 
path to balance and how we begin to pay down the national debt 
without raising taxes.
    I believe our economy is on the cusp of a great resurgence. 
The pro-growth policies of healthcare reform, tax reform, 
regulatory reform, and deficit reduction will provide the 
economic freedom and the certainty that our economy needs to 
grow to create jobs and create the type of opportunity that is 
the birthright of all Americans. I look forward to hearing from 
our witnesses today on how we can develop better policies to 
boost our economy, and it is time for optimism and new ideas, 
not pessimism and willingness to accept the status quo. And 
with that, I yield to my Ranking Member, Mr. Yarmuth.
    [The prepared statement of Diane Black follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Yarmuth. Thank you very much, Chairman Black, and I 
thank the witnesses for being here. We look forward to hearing 
from you.
    Obviously, economic growth is a critically important issue. 
Increased economic growth can benefit American families and the 
Federal budget outlook. But we cannot have a meaningful hearing 
about economic growth without acknowledging the fact that the 
level of economic growth projected in the President's budget is 
totally unrealistic, if not absurd. Any budget that includes 
that level of growth should not be taken seriously. Americans 
deserve more than faith-based economics.
    We need to be honest with them. Despite all the wishful 
thinking of the administration and some of my colleagues on the 
other side of the aisle, long-term economic growth of 3 percent 
is just not going to happen, particularly given the current 
economic and labor trends we face.
    There are good reasons why CBO is projecting the economy's 
long-term growth rate as 1.9 percent and why the Blue Chip 
consensus private sector forecast is only slightly better at 
2.0 percent. The entry of the baby boom generation and 
increasing numbers of women into the workforce helped support 
economic growth in the 1970s and 1980s. Those demographic 
trends have ended, and they are not going to return.
    But we can take steps to help strengthen our economy, and 
they are steps that the American people overwhelmingly support. 
We can raise the minimum wage. We can invest in state-of-the-
art infrastructure and innovation to create the next 
industries: research and science to make the next big 
discovery, and education and job training to develop a more 
skilled and productive workforce.
    We can end loopholes that allow companies to ship jobs and 
profits overseas. And we can enact comprehensive immigration 
reform to increase the size of our workforce and the size of 
our economy. Those are all things we can do now and should do 
now.
    Massive tax cuts are not the answer, even though we are 
likely to hear that claim a lot today. We have done that 
before, actually twice. Instead of sustained economic growth, 
our deficits exploded. Both of those tax cuts were accompanied 
by lax regulation that contributed to financial crises and 
recessions just a few years later. Regulatory reform is not a 
silver bullet either, but we will likely hear that today as 
well. Most regulations already must meet a cost-benefit test.
    Rescinding regulations without a very thorough 
understanding of the threat that rescission would cause to both 
direct economic benefits and non-economic benefits such as 
improved health, safety, and environmental conditions, would be 
irresponsible.
    Presumably, this is our last hearing before the release of 
my Republican colleagues' budget. Economic growth will 
obviously be a big part of their proposal, and it is my hope 
that it will be far different than the President's budget, that 
it will use responsible economic growth projections, that it 
will not rely on debunked claims that massive tax cuts pay for 
themselves, that it will increase funding for national 
priorities that will grow our economy, and that it will make 
investments in our Nation's greatest asset, the American 
people. We plan to talk about that and more today, and I hope 
to hear some helpful insights from our witnesses. I look 
forward to your testimony, and I yield back.
    [The prepared statement of John Yarmuth follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Black. Thank you, Mr. Yarmuth. And Dr. Holtz-
Eakin, Dr. Furman, and Dr. Diamond, thank you for being here 
today and taking time out of your schedule to join us. The 
Committee has received your written statements, and they will 
be part of the formal record. You will each have 5 minutes to 
deliver your oral remarks, and Dr. Holtz-Eakin, we will begin 
with you today for your 5 minutes.

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

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

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

                STATEMENT OF JASON FURMAN, Ph.D.

    Mr. Furman. Thank you, Chairman Black, Ranking Member 
Yarmuth, members of the Committee. It is a privilege to be here 
with my fellow economists, and I think you will see a lot of 
commonality in a lot of what we have to say in our testimony. I 
wanted to make five points.
    The first point is that the primary source of the slowdown 
in economic growth over the last decade has been our 
demographic situation. That going forward, those demographics 
will continue. But a secondary source has been a worldwide 
slowdown in productivity growth and the slim chance of 
partially reversing that.
    If we had tax cuts, regulatory reform, and everything else 
on the agenda that reproduced exactly the same productivity 
growth that we had during the 1980s under President Reagan with 
today's demography, that would only be sufficient to have a 1.7 
percent growth rate. Reagan's policies, Reagan's economy, 
today's demography would be a 1.7 percent growth rate.
    And the reason that is so dramatically different than the 
growth rate we actually had in the 1980s is shown in that first 
chart there, which is that the working-age population was 
growing at about 2 percent a year in the 1980s. Now it is 
growing at about zero percent a year. Two-thirds of the slower 
growth is due to this dramatic demographic change, which is the 
result of fertility decisions decades ago.
    My next slide shows the other source of slower growth, 
which is productivity growth has slowed down. It has slowed 
down in most of the major economies in the world. The United 
States has had faster productivity slowdown than other advanced 
economies, but not as fast as it used to be. My next slide 
shows the major economic forecasters are forecasting between 
1.7 and 2.4 percent growth, most of them clustered around 2 
percent. All of these forecasters are assuming that the 
demography continues, and they are assuming some rebound in 
productivity growth as well.
    The Trump administration's forecast is dramatically out of 
step with all of these, and as shown in the next slide, that 
one percentage point above the consensus forecast is the most 
optimistic that any administration forecast has been since at 
least the 1980s. In fact, under Presidents Clinton, George W. 
Bush, and Obama, the administrations never forecasted growth 
more than one-tenth of 1 percent above the consensus. Now it is 
1 percentage point above the consensus.
    My second point, which I can state in one sentence, is that 
more growth would be good. It would help family incomes rise; 
it would help deal with our fiscal situation. My third point is 
one Dr. Holtz-Eakin has already made, that that additional 
growth can come maybe a tiny bit from the demand side of the 
economy, putting people back to work. But mostly it is going to 
have to come from expanding supply, increasing productivity, 
increasing the underlying structural workforce.
    My fourth point is that a number of policies would help us 
increase supply. Those include revenue-neutral business tax 
reform, increased investments in public infrastructure and 
research, expanding the labor market through active labor 
market policies and efforts to make workplaces more flexible 
for workers, and finally, immigration reform and expanded 
educational opportunity would boost both productivity growth 
and the labor force.
    The last point I wanted to make is that a number of the 
policies advanced by President Trump would worsen economic 
growth. Outside of the fiscal arena, these include limitations 
on international trade and immigration, but I wanted to focus 
on three fiscal policies. My first slide shows estimates from 
the Tax Policy Center and the Penn Wharton Budget Model, a 
model run by a former economist from the Bush administration 
that shows that under the Trump campaign plan, the tax cuts 
initially would have a small benefit for the economy, but over 
time, they would cause such large deficits that they would 
overwhelm those benefits and reduce economic growth.
    My second point would be that President Trump's budget 
includes initial increases in infrastructure, but then over 
time would cut infrastructure spending, and those cuts to 
infrastructure spending would do more damage to the economy. 
And then, my third point not shown in a slide is that cutting 
low-income programs like Medicaid and SNAP, evidence shows, 
would reduce the mobility that low-income children have, reduce 
their income growth over time, cut state budgets, which would 
reduce their investment, and by increasing inequality harm 
overall economic growth. Thank you.
    [The prepared statement of Jason Furman follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Black. Dr. Diamond, you are recognized for 5 
minutes.

              STATEMENT OF JOHN W. DIAMOND, Ph.D.

    Mr. Diamond. Chairman Black, Ranking Member Yarmuth, and 
members of the Committee, it is an honor to present my views on 
the benefits of economic growth. Growth is important in 
determining the future size of the economy and the standard of 
living. Small changes in growth can have a significant impact 
on the size of the economy.
    For example, increasing the growth rate from 2 to 2.5 
percent would increase the size of the economy by 28 percent 
after only 10 years. Accordingly, policies that increase the 
growth rate of the economy by a small amount can have 
significant impacts in the long run. Enacting pro-growth 
policies is particularly important at this point in time for 
two reasons.
    First, the U.S. faces a fiscal policy that is on an 
unsustainable path, with deficits and debts projected to 
continue to grow dramatically as the baby boom generation ages 
and transitions from work to retirement. Thus, this is going to 
decrease the ratio of workers to retirees, while increasing 
public expenditures on retirement and healthcare programs. 
Second, there is substantial uncertainty regarding the future 
growth-rate of the American economy.
    One view is that continued innovation will spur 
productivity growth in the coming decades as new technologies 
lead to significant increases in output per person. However, 
another view is that the recent advances in technology have not 
led to significant and lasting increases in productivity, and 
that, in addition, the U.S. economy is facing a number of 
impediments that may reduce the real growth rate of real GDP 
per person.
    Such as large Federal budget deficits and budget deficits 
on the state and local level, demographic changes such as an 
aging population, the growth and accumulation of regulatory 
policy, and slower gains in educational achievement. In 
addition, rising inequality, changes in family structure and 
other social indicators, as well as the effects of 
globalization including increased competition from abroad may 
also dampen future growth rates.
    The most apparent impediment is the current path of U.S. 
fiscal policy, which is unsustainable. CBO projects that total 
spending will increase as a shared GDP from 20.7 percent in 
2017 to 29.3 percent in 2047. Total revenue is already 
projected to increase from 17.8 to 19.6 percent of GDP over 
that period. Deficits are projected to increase from 77 percent 
to 150 percent. As noted, demographic changes are driving much 
of that increase, with the remaining increase related to rising 
interest payments on the national debt.
    The obvious conclusion is that projected expenditure 
increases in the United States are unsustainable, and fiscal 
restraint is imperative. The United States must reduce its 
projected level of expenditures and reform its tax system to 
reduce economic distortions and maximize economic growth.
    Tax reform should include a focus on limiting government 
expenditures that occur through the tax system; otherwise, the 
combination of a rising debt and a relatively distortionary tax 
system will significantly hamper economic growth. Demographic 
changes will also reduce economic growth in the future because 
the retirement of the baby boom generation will further reduce 
the labor force participation rate.
    Another important impediment is the accumulation of 
government regulations. Excessive regulation of the U.S. 
economy is likely slowing growth and limiting risk-taking 
behavior. Mulligan, in 2015, argues that the Affordable Care 
Act will reduce employment and hours worked by 3 percent, and 
labor income and GDP by 2 percent.
    Dawson and Seater, 2013, find that regulation added since 
1949 is responsible for decreasing the size of the U.S. economy 
by 28 percent as of 2005. They argue that their results explain 
much of the decline in productivity since the 1970s.
    Obviously, major reform of regulatory law is long overdue. 
The slowing growth in educational attainment is also likely to 
impede economic growth in the future relative to the past 50 
years, and we should be active on that front as well. 
Policymakers should focus on reducing the government debt 
through spending restraint, reforming and reducing entitlement 
programs, reprioritizing other expenditure items to fit within 
a sustainable budget, and minimizing marginal tax rates while 
reforming expenditures that occur through the tax system. Thank 
you.
    [The prepared statement of John W. Diamond follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Black. I thank the witnesses for their testimony. 
I want to begin with you, Mr. Holtz-Eakin, since you were once 
a director of CBO. CBO is expecting an annual economic growth 
average of about 1.9 percent over the next ten years, and, as 
you well know, CBO is obligated to base its forecast on current 
law and not on future economic policies that this 
administration or Congress will likely enact this year.
    So, what aspects of the current law economic policy, 
whether it is the tax policy, which you mentioned in your 
opening remarks, or regulations or rising debts and deficits do 
you think are contributing to such a dismal economic forecast?
    Mr. Holtz-Eakin. I think there is the net effect of a 
combination of things, and you have listed some of the most 
important. As I said, I think the number one concern in the 
projections is the fiscal outlook, which is genuinely 
unsustainable, which will lead inevitably to either a crisis 
which is not pro-growth, or a sharp increase in taxes which is 
not pro-growth, or the one possibility that is beneficial, 
reforms of the large entitlement programs that put us on a 
sustainable track. But only one of those three possibilities is 
beneficial, and CBO is obligated to simply say, ``Well, we will 
sail straight into the crisis.'' So, that would be at the top 
of my list.
    Second would be the tax policies. We have, especially as 
Dr. Furman mentioned, a corporation income tax which has sort 
of reached the ultimate trifecta of bad outcomes. It does not 
raise that much revenue; it increasingly drives production and 
headquarters overseas; and it is incredibly costly and 
difficult to comply and administer. A genuinely solid business 
tax reform is at the top of the list of things that would 
improve the capacity of the economy to grow more rapidly.
    CBO is also saddled with the current regulatory state, and 
over the past 8 years the agencies have reported that they have 
put in place new major regulations with a cumulative increase 
in the compliance costs of over $800 billion. And I think if we 
had had $100 billion tax increase every year for 8 years, most 
people would think, ``Jeez, that is a lot, and that is maybe 
not such a good idea.'' So, I think those three things together 
lead to a lot of the problems in the growth outlook.
    Chairman Black. Is it fair to say that not one of those is 
a silver bullet, but it is the combination thereof that would 
really result in our strong economic growth?
    Mr. Holtz-Eakin. I concur with that completely. As I said, 
the key here is faster growth than number of workers and 
productivity per worker. There is no single lever you can pull 
to make productivity growth come back and go faster, so I would 
encourage the Congress to think of everything they can to try 
to get better pro-growth policies.
    Chairman Black. Dr. Diamond, I want to ask you about there 
seems to be a discrepancy between the current low unemployment 
rate of 4.3 percent and a quite lackluster economic output, and 
you mentioned some of those factors in your opening comments. 
Is one of the factors causing the fact that we have 14 million 
people that have left the workforce since 2009? Is that 
impacting it? And if we could enact policies that would 
encourage some of these people to get back into the workforce, 
thereby increasing that labor supply, would that help to boost 
the growth potential as well, just getting these people back 
into the marketplace of productivity?
    Mr. Diamond. Absolutely. I think that, if you look at what 
has happened with labor force participation rate, the articles 
I read tend to imply that about half of the reduction has been 
because of aging of the population. The other half is because 
people are leaving the workforce voluntarily, and this is 
largely because we have implemented policies that are, in 
effect, implicit taxes on work. And so the Affordable Care Act 
is basically a very large implicit tax on working, and so 
people are choosing to not work as much. And if we could, 
instead, implement policies that promote work instead of 
discourage it, I think that would offset at least a large part 
of the labor force participation reduction that is not due to 
the aging of the population.
    Chairman Black. You mentioned ObamaCare, in particular, and 
the ruling on the 30 hours and employers. I know I have heard 
throughout my district about those that were working part-time 
that maybe occasionally would go over the 30 hours. Now, they 
were getting less than that, which meant they had to have two 
jobs, which is really difficult, especially on families.
    So, that is one of the policies. Do you have other thoughts 
on other policies that we might be able to put into place to 
encourage these 14 million people to get back in the workforce? 
Because I know, when we hear that there is a 4.3 percent 
unemployment rate, people think, ``Oh, everybody is working.''
    And if we did have a time where we did have everybody 
working, we saw more productivity, we actually saw more 
economic growth. But the true number on that is not the 
unemployment rate, it is the workforce participation rate where 
we have 14 million people out of the workforce, literally 
almost one-third of those who should be working. Fixing the 
healthcare piece is one of those, but do you have other ideas 
of some of the policies that we might need to fix in order to 
bring people back into the workforce?
    Mr. Diamond. Yes. Two other policies that would be, I 
think, most important would be regulatory reform. It is amazing 
that, you know, one of the benefits of innovation is it is a 
lot easier to reach people and to start businesses. The problem 
is, from a regulatory perspective, it has become a lot harder 
to start businesses.
    And so, we need regulatory reform to allow people to create 
businesses and create products that consumers want. I think 
that would be helpful. We also need tax reform. The tax system 
is complex and very distortionary. I think if we could simplify 
the system while maintaining the revenue needed to fund 
expenditures, that would have a positive benefit on people 
getting back to work.
    Chairman Black. Okay, thank you. My final question is, we 
can just go right across, and if we can start with you Dr. 
Holtz-Eakin, that we have now got this new normal of a 2 
percent GDP. We think that is the new normal. Yet if we look at 
history, we see that 3 percent really has been the average over 
a long period of time up until the last several years. And so, 
in other words, that is really an aberration, it is not really 
a trend.
    With the correct pro-growth policies in place, do you think 
that we can achieve those higher growth rates in future years 
other than just saying we are going to just say 2 percent is 
the normal and that is what we can expect? How much higher also 
do you think that we could reasonably go if we were to put 
these reforms that have already been talked about in place? So, 
I do not leave you all very much time, but let's start with Dr. 
Holtz-Eakin.
    Mr. Holtz-Eakin. So, if the Congress and the administration 
were to hit a home run and do all the things that I wanted 
exactly the way I wanted it, I think you could add a percentage 
point to the growth rate of the U.S. economy. I, certainly, 
think that a good tax reform and putting the fiscal path on a 
sustainable basis will get you half a percentage point or more 
by itself. So, I think those are the things to focus on.
    Chairman Black. Dr. Furman, if you could be brief, so we 
could get to Dr. Diamond, that would be great.
    Mr. Furman. Sure. I think we could certainly with the right 
policies do better than the 1.8 percent that the Congressional 
Budget Office is forecasting. To get all the way up to 3 
percent, the obstacle to that is the average woman used to have 
more than three-and-a-half children in the 1960s. That fell to 
two children by 1975, and so our population is growing more 
slowly in the working ages than it used to, and no policy is 
going to change that, which is why I think getting all the way 
to 3 percent is something that would be very unlikely, even 
with my version of a home run of policies.
    Chairman Black. Dr. Diamond?
    Mr. Diamond. I think a percentage point, as Dr. Holtz-Eakin 
predicts, is possible. I agree with Dr. Furman's point as well, 
though. I think what that would require is immigration reform 
that really focuses on bringing more high-skilled people to the 
U.S., not low-skilled people. Without that, I would say maybe 
around 2.6 percent.
    Chairman Black. Okay. Well, I appreciate your input on 
that. My own feeling that I am just going to insert here is 
that we need to get the 14 million people that are sitting 
wherever, whether it is in their parents' homes or whether they 
are just out of the workplace because they cannot find a job, I 
think education is a piece of that, and getting skilled workers 
because one of the things I hear in my district, especially 
with my manufacturers, is that if we had more skills at that 
level, not necessarily 4-year degrees, but more of the 
technical degrees, that we could actually be putting people 
into those very good jobs that are well-paying jobs.
    And so, I think the educational piece and then maybe 
shifting our focus from 4-year degrees to something that is 
more what the marketplace is needing in the job market might 
help us also to bring people back into the workforce. So, thank 
you. I now yield 5 minutes to the Ranking Member.
    Mr. Yarmuth. Thank you, Chairman Black.
    Chairman Black. Excuse me, 10 minutes. I apologize, I cut 
you by 5.
    Mr. Yarmuth. Thank you very much. I was not going to stop, 
do not worry.
    Chairman Black. And you should not. So, now your time 
starts.
    Mr. Yarmuth. Thanks very much. Thank you all for your 
testimony and your responses. First of all, I would like to 
just make a couple of comments regarding Chairman Black's 
opening, because I know it is nice to forget about the 
condition that the economy was in when President Obama took 
office, and the Chairman wants to blame all of this, what she 
would call lower growth rate, on President Obama's policies.
    But as you recall, when he took office in January of 2009, 
we were running a $1.4 trillion annual deficit. We had lost the 
month he took office 800,000 jobs, that was the trend at that 
point. We had the worst economic downturn since the 1930s, and 
we had a significant financial crisis that threatened to tank 
the economy.
    And as we got our feet on the ground as coming out of that 
very, very precarious situation, we have had now 70-something 
consecutive months of job growth. And while the percentage of 
growth would not be what we all would want, certainly, I think 
that any objective look at the Obama administration's economic 
performance would be a positive one. But I want to return to 
this notion about historic rates of growth.
    And we had Director Mulvaney here a couple of weeks ago, 
and a lot of my Republican colleagues talked about the growth 
after World War II and the growth rate leading up to current 
times and the average of the growth over basically 60 or 70 
years. And I think you can infer from all of your testimony 
that the world is very different now than it was following 
World War II: demographics, certainly, the number one 
difference. We did not talk about life expectancy. It is not 
just that many people are retiring; it is that they are living 
a lot longer and, therefore, Social Security is paid out a lot 
longer, and medical care as well.
    Income disparity was mentioned; technology was mentioned 
and its effect on automation. Would all of you concede that 
talking about the growth rate in the 1950s and 1960s and 1970s 
and 1980s is pretty much irrelevant to dealing with the world 
we are in now? What possible relevance could post-World War II 
growth rates have to what we are facing now? Anybody want to 
make the case that it is relevant? Okay, nobody does. Well, no. 
We had that number of times brought up again with Director 
Mulvaney.
    So, another factor I would think is that the sheer size of 
the United States economy also makes historic growth rates more 
difficult. Is it not fundamentally true, and we are seeing it 
in China as well, that as economies age and grow that getting a 
growth rate as high as you have had in the past is just 
mathematically more difficult? Is that not a factor as well? 
Anybody can take it.
    Mr. Furman. There is some evidence that, certainly, as 
countries converge, like China, they do not have as much low-
hanging fruit, and there is a number of economists who have 
done research that you have to put more money into any amount 
of innovation and research to get a given amount of output from 
that.
    Mr. Yarmuth. All right. And let's talk about the labor 
participation rate; I saw just this morning there are now 6 
million jobs available in the United States. So, certainly 
there is the opportunity for people to go to work, those who 
may have left the workforce, there is certainly every chance 
for them to do it if they have the right skills and the right 
education. But would that not dictate that we invest more 
heavily in job training and education so that people who may be 
out of work, whether voluntarily or not, can better access the 
jobs that are available in the country?
    Mr. Furman. I agree with that, too. Also, if you look at 
the United States compared to other countries, some of our 
underperformance in this reflects the fact that we invest much 
less in training and helping our workers find jobs than a lot 
of other countries do.
    Mr. Yarmuth. I think tax reform has been mentioned as a 
possible way to stimulate economic growth both by Dr. Holtz-
Eakin and certainly by Dr. Diamond. Would you, too, give me 
your sense of what comprehensive tax reform would look like in 
your ideal version of the best way to promote economic growth 
through tax reform? Dr. Holtz-Eakin?
    Mr. Holtz-Eakin. I would point out as a specific example 
the House blueprint, which if executed is a comprehensive 
corporation plus past business reform of business taxation in 
the United States that moves us from a tax system that prefers 
foreign production to a tax system that is neutral, and that is 
a shift toward production in the United States.
    It has incentives for increasing the level of investment. 
It is neutral in its treatment of tangible versus intangible 
capital, so you can invest in ideas or physical capital. It is 
neutral with respect to how it is financed, debt versus equity. 
It is neutral with respect of the length of life of that 
investment. It takes the Tax Code out of the business of 
dictating investment choices, and lets capital markets find the 
most productive uses for America's saving and investment.
    I think that is exactly what is needed at this point in 
time. Those businesses that will hire workers, that will, if 
they are more productive, be able to pay them more. It is 
focused entirely on the place where we have the biggest 
problem, the rate of growth of capital, productivity, and as a 
result, the standard of living. We do not have legislation, but 
my understanding is it is intended to be revenue-neutral. I 
think that is very important. We have large fiscal problems, as 
I have said, and will repeatedly say. And I think that you do 
not want to contribute to making them worse.
    I also think that if you have a tax reform that is not 
revenue-neutral, you ultimately come to a situation where you 
have generated a fiscal problem through the tax reform. There 
is going to be a desire for more revenue, you will open up the 
Tax Code, and the integrity of the reform will disappear. That 
is what happened after 1986.
    And so, I do not want to see, when it is so hard to get tax 
reform done to begin with, sowing the seeds of its own 
destruction by not having it be revenue-neutral. Those are the 
things I am looking for in tax reform.
    Mr. Yarmuth. All right, I appreciate that. Dr. Diamond, 
would you like to respond to that?
    Mr. Diamond. I agree with Doug, that the blueprint has some 
very good qualities to it. I would also offer up proposals 
under President Bush's advisory panel on tax reform, as well as 
the proposal put forth by the fiscal commission created under 
President Obama. I think, really, we have had a lot of good 
examples of decent tax policy put forward over the last two 
decades. Unfortunately, none of them have been enacted.
    Mr. Yarmuth. Would you say that a consideration of economic 
disparity is important in any discussion of tax reform, since 
we now have some of the greatest economic disparity in this 
country, in our history?
    Mr. Diamond. I think any tax reform should be looked at in 
terms of its efficiency, its simplicity, how administrable it 
is, as well as how fair it is. And the fairness question is, 
ultimately, a decision that is left in your hands.
    Mr. Yarmuth. Right. What about the question of tax 
expenditures? We now have well over a trillion dollars annually 
in tax expenditures, and no Congress over the last 6 or 7 years 
has been willing to touch any of them. We have certainly talked 
about cuts in many other areas of investment that Democrats 
care very significantly about, but no talk about reducing tax 
expenditures.
    Dr. Furman, would you like to respond to that?
    Mr. Furman. Sure. In his testimony, I believe to this 
Committee, Director Mulvaney endorsed the standard that tax 
reform should be revenue-neutral on a static basis. He said the 
administration and its budget was not counting the economic 
growth due to taxes, towards tax reform.
    I think that could be a very prudent thing to do, because 
then you are cutting rates, you are eliminating tax 
expenditures. And if the theory works out that that adds to 
economic growth, that is great; we get extra deficit reduction; 
that is not a bad mistake to make. That the growth comes in 
more than you think, and the deficit goes down even more than 
you would think. But for that to work, you need to go after 
those tax expenditures rather than, you know, wishful thinking, 
assume that economic growth. And that is the standard that 
Director Mulvaney did explicitly endorse.
    Mr. Yarmuth. I think all three of you have talked about 
immigration reform and supported the need for immigration 
reform. This is directed to Dr. Furman. Would not comprehensive 
immigration reform also have a positive impact on our programs 
like Social Security and Medicare, where you would have 
presumably many more younger Americans paying into the system 
and not using benefits for a long time?
    Mr. Furman. That is exactly right. And part of our Social 
Security problem is the reduction in fertility. Immigration 
would help to offset that.
    Mr. Yarmuth. Thank you. Just a final comment, this relates 
to Chairman Black's opening comments when she said we should 
not be surprised if the Congress cannot take on these tasks. 
The evidence is there that Congress is not particularly capable 
right now of taking on very many difficult tasks, so I would 
like to think that we were capable of it, but I have not seen 
much evidence. So, thank you again for your responses, and I 
yield back.
    Chairman Black. I thank the gentleman. And now I would like 
to recognize the gentleman from Indiana, Mr. Rokita, the Vice 
Chair of the Committee.
    Mr. Rokita. I thank the Chairman, and I thank everyone for 
their testimony. And I would say to the Ranking Member, if we 
could just stop obstructing around here, maybe we can get some 
agenda moving and done, but every day we talk about Russia, 
Russia, Russia. It is less of a day that we are talking about 
tax reform, immigration reform, for that matter, healthcare 
reform, or anything else.
    Following up on where the Ranking Member left off regarding 
immigration reform, I note, Dr. Holtz-Eakin, that you talk 
about immigration reform in your laundry list, as you call it, 
of things you could do to help the supply side of the economy. 
Could you add to that discussion, please?
    Mr. Holtz-Eakin. Certainly. The fertility of the native-
born population of the United States is low enough that, 
without immigration, we would actually shrink; we would look 
like Japan. And we would shrink in population----
    Mr. Rokita. I want that to be repeated for the record. 
Without immigration reform, without getting an additional 
number of workers, skilled, unskilled, probably imagining that 
to mean at all levels, our work pool would actually shrink; we 
would be more like who?
    Mr. Holtz-Eakin. Japan. Japan has essentially no 
immigration and has an aging population. It has sub-replacement 
fertility. All of that is the characteristics of the native-
born population in the U.S. The flip side to that observation 
is that by choosing our immigration policies, we are dictating 
our economic future. It is a powerful tool for economic policy, 
for the potentials for economic growth.
    I do not think it means that you want to have exclusively, 
you know, immigrants with Ph.Ds. in STEM fields. We need skills 
across the spectrum. Markets will send those signals. And I 
think that a powerful sort of economically-based immigration 
reform is one of the things that could have a big impact on the 
future growth of the U.S.
    Mr. Rokita. Thank you, doctor. Dr. Furman talks about, in 
his testimony, the low labor participation rate, which I think 
is something we all acknowledge. However, he also mentions that 
we need to not only maintain but possibly increase social 
programs like food stamps and other things.
    I just spoke with, not 10 minutes ago, a gentleman who owns 
an RV supply company in northern Indiana, Jason Obendorf. And 
he tells me that he hires low-skilled workers, pays them about 
$13 to $15 an hour, which in fact is the average entitlement 
given to folks who do not work, about $33,000 a year. What 
effect do these programs that actually incentivize folks, in my 
opinion, to sit out the workforce, sit on their couch, in fact, 
have on the low labor participation rate?
    Mr. Holtz-Eakin. At the most basic--sorry.
    Mr. Rokita. No, that is to Dr. Holtz-Eakin.
    Mr. Holtz-Eakin. At the most basic level, you are making a 
decision between working and not working. You look at the 
returns to working and not working, and if you raise the 
returns to not working, you should expect people to not work 
too much.
    Mr. Rokita. In your opinion, what should the policy be? I 
mean, it seems to me that we have programs and safety nets that 
have become hammocks, and that go on for too many for too long.
    Mr. Holtz-Eakin. I think that at every point, we should 
look at the social safety net, and make sure that it is pro-
work.
    Mr. Rokita. Pro what?
    Mr. Holtz-Eakin. Pro-work. We know that in the data, the 
difference between poverty and non-poverty in the U.S. is work. 
Those who work are far less likely to end up in poverty, and we 
should support their desire and the satisfaction they get from 
work, and the standard of living.
    So, you know, the Affordable Care Act, as Dr. Diamond 
mentioned, is an example of a social safety net program that, 
whatever the desirability of providing health insurance to 
people, in the end had implicit taxes on labor supply, and 
rewarded people who did not work. So, we need to rethink that, 
and one of the things that the American Health Care Act does is 
take out those incentives. And I think it should be respected 
for that.
    Mr. Rokita. Your larger point, again, is more workers would 
add to the supply side of the economy, and, therefore, produce 
the growth that we need to get to 3 percent, again, which I do 
not think is a fairy tale. I know we were kind of negative 
starting out here, especially on the other side of the aisle, 
with things like 3 percent growth being, ``absurd,'' ``faith-
based.'' But I think we can get there again, with supply-side 
reforms.
    Dr. Diamond, do you have anything to add the conversation 
we just had? If not, I have some questions for you.
    Mr. Diamond. I agree with Dr. Holtz-Eakin's points. I did 
see in the news yesterday, there was an article about 13 
counties in Alabama that had implemented work requirements to 
get SNAP benefits, and SNAP benefits fell by, I cannot remember 
if it was 50 percent or 85 percent, but immediately, it made me 
think that maybe some more pro-growth safety net policies are 
needed.
    Mr. Rokita. Thank you. Dr. Furman, I am out of time. I 
apologize.
    Chairman Black. The gentleman's time has expired. And I 
just want to add here that we talk about this as productivity 
for our Nation. But I think even more important to that is 
dignity. There is a dignity to work, and I think we lose that 
here in our country, when we do not recognize and uphold that.
    I often say to people, the second question you ask them 
after you ask them their name is, ``What do you do?'' And if we 
cannot say what we do, we lose our dignity. And I think that is 
a stronger net than the safety net, is that net within our 
country of dignity.
    I now recognize the gentleman from New York, Mr. Jeffries, 
for 5 minutes.
    Mr. Jeffries. Thank you, Madam Chair. It was mentioned by 
the previous speaker, who I greatly respect, that if we on this 
side of the aisle just stop obstructing, we could get things 
done. I have heard a lot of things during my 4-plus years here 
in Congress, but the notion that Democrats, who are in the 
minority in the House, the Senate, do not have the White House, 
are somehow responsible for your inability to get things done, 
is itself a fantasy.
    And what is amazing to me is that the party that for 8 
years adopted the policy, ``Obstruction today, obstruction 
tomorrow, obstruction forever,'' as long as Barack Obama was 
President of the United States of America, now wants to lecture 
us about governmental etiquette. We will decide on our own, 
based on representing our constituents, what the rules of 
engagement should be. We are not taking advice on etiquette in 
doing our duty from the other side of the aisle. That is 
absurd.
    Now, there is a difference between optimism and fantasy. 
Optimism is based on the notion of the power of American 
exceptionalism. We can all embrace that, Democrats and 
Republicans. Fantasy is based on alternate facts. And what we 
are trying to figure out is whether this projection of 3 
percent growth, $2 trillion increase in revenue projected over 
a 10-year period, is that just optimistic based on our belief 
in American exceptionalism, or as the President said, ``I am 
the only one who can fix it?'' Or is it just alternate facts?
    And maybe I can start with Dr. Diamond. You testified that 
we should implement policies that encourage work; is that 
correct?
    Mr. Diamond. Correct.
    Mr. Jeffries. And you also said that tax reform should 
include limiting expenditures as part of an approach to 
encourage work, true?
    Mr. Diamond. Correct. Well, not for work, just limit 
expenditures through the tax system.
    Mr. Jeffries. Okay. And one of the largest expenditures 
through the tax system would be the mortgage interest 
deduction; is that right?
    Mr. Diamond. Correct, and it should definitely be reformed.
    Mr. Jeffries. It should be reformed. Do you think it should 
be eliminated?
    Mr. Diamond. I would not argue for elimination of it. I 
would argue that the home mortgage interest deduction does not 
do what it is supposed to do, which is supposed to encourage 
low-income people to be able to buy houses. But, unfortunately, 
low-income people do not itemize their taxes, and they have 
relatively low rates, so really, all it does is encourage high-
income people to over-consume housing. And so, if we went to a 
system that actually encouraged low-income people to be able to 
afford houses, I would support that. And so, I think it needs 
to be reformed, not eliminated.
    Mr. Jeffries. Okay, so we have to substantially reform the 
mortgage interest tax reduction, widely viewed as helping 
middle-class Americans achieve the dream of home ownership. 
Would you also suggest that one of the policies we should adopt 
are tax cuts for the wealthy and the well-off, millionaires, 
billionaires, people who are at the highest income bracket in 
this country?
    Mr. Diamond. I would not state it that way. And I would 
actually say, in some sense, we could actually raise taxes on 
them, but you are talking about a comprehensive reform that, 
you know, the final effect is going to depend on how you 
structure the reform. So, if we go to full expensing, could we 
raise the rate on capital gains and dividends, and not reduce 
the corporate rate as much? Absolutely. Those are all trade-
offs.
    Mr. Jeffries. Setting aside the corporate rate, because I 
think there is widespread agreement amongst many of us that, 
you know, 33 percent is too high; the Obama administration 
proposed going to 28; Trump says 15, you know. Maybe there is 
some common ground that can be found there. But let us talk 
about the tax rate, because you support lowering the top tax 
rate on millionaires and billionaires; is that not right? I 
mean, I can restate it: 39.6 percent is the rate; you support 
lowering that. True?
    Mr. Diamond. I say we should minimize it. I do not think I 
gave a number as to how low it should be. That is going to 
depend on how much we want to spend, and trying to raise 
revenues that fund our expenditures.
    Mr. Jeffries. Now, we experienced approximately 4 percent 
growth during the 1990s; is that right?
    Mr. Diamond. Four percent growth in the 1990s, I do not 
believe so.
    Mr. Jeffries. Were there periods of time where we 
experienced substantial growth during the 1990s, which in part 
led to eliminating the deficit?
    Mr. Diamond. Post-1995, we experienced some innovation-
driven growth in the 1990s, as this new web technology and 
other things. The computer, which could, you know, allowed 
secretaries to have typings that were already done; they did 
not have to retype everything, made people more productive. 
There were a lot of productivity increases in the middle and 
late 1990s that increased growth, that have seemingly 
disappeared since, say, 2004.
    Mr. Jeffries. Thank you. My time has expired.
    Chairman Black. Thank you. I now recognize the gentleman 
from California, Mr. McClintock.
    Mr. McClintock. Well, we raised this point before, in the 
last hearing. I recall, after the drubbing you took in 1994, 
President Clinton came to Congress and announced the era of big 
government is over. And he made good on that, he reduced 
Federal spending by a miraculous 4 percent of GDP. He approved 
the biggest entitlement reform in history, in his words, 
``Ending welfare as we know it.''
    He approved what amounted to the biggest capital-gains tax 
cut in American history. Those were policies that worked. The 
problem is, we have been more recently engaged in policies that 
do not work, essentially, the opposite. Dr. Furman, I want to 
thank you for your advice and counsel today. Is that the same 
advice and counsel that you gave to the Obama administration?
    Mr. Furman. It is certainly very similar to the advice I 
gave President Obama.
    Mr. McClintock. Okay, and the result of that was the lowest 
economic growth rate in the post-war era. Dr. Holtz-Eakin, when 
Dr. Furman said, ``Oh, our economic problems are mainly 
demographic, and that if we had the same demographics under the 
Reagan administration, we would only have 1.7 percent growth,'' 
you looked rather puzzled. Now, 1.7 percent is still better 
than what we saw averaged under the Obama administration, but 
way low of what we are shooting for. What is the source of your 
puzzlement, or did I misread your expression?
    Mr. Holtz-Eakin. I do not fully understand the computation. 
So, is it top-line GDP growth of 1.7 percent? That is too low. 
We grew at an average of 1.9 in the recovery. He is saying 
that, if we did all that, we would do worse? That I do not 
understand.
    Mr. McClintock. I do not either. Well, let me go on; my 
time is limited. One of the sources of my puzzlement is the 
fact he seems to have completely ignored the fact that we have 
the lowest labor participation rate since the Carter 
administration. Is not a lot of our problem the fact that near-
record numbers of able-bodied workers have simply given up 
looking for work?
    Mr. Holtz-Eakin. That certainly harms the top line GDP 
growth.
    Mr. McClintock. And if they came back into the workforce, 
we would see an improvement in growth. What is causing that?
    Mr. Holtz-Eakin. I think Dr. Diamond summarized it pretty 
accurately. We know that about half of that is genuinely 
demographics, aging of the baby boom population, retirements. 
And about a half is some combination of discouragement in the 
economic environment, poor incentives from public policy.
    Mr. McClintock. Also, we talk about macroeconomic growth, 
growth of GDP. Essentially, that is population times 
productivity, correct? So, in that analysis, then, we could 
have a huge population increase and very low productivity 
increases, and that would be essentially the same as a very low 
population increase with very high productivity increases. Do I 
have that right?
    Mr. Holtz-Eakin. That would give you the same top line 
growth. But I would say the one you want is the one with high 
productivity growth.
    Mr. McClintock. Well, that is my point, is that when you 
get down to where the rubber meets the road, where the average 
family is actually struggling to get on, is not the 
productivity side of that pretty much everything? I mean, if 
you are stuck in a part-time job, because your employer cannot 
give you more than 30 hours a week because of government 
restrictions, if you have got little prospect of betterment in 
a stagnant economy, if your wages have been flat for the 8 
years of the Obama administration, productivity is really 
important to that family, is it not?
    Mr. Holtz-Eakin. Yes. I rarely quote Paul Krugman, but he 
did say it best, ``In the long run, productivity is not 
everything, but it is pretty close to everything.''
    Mr. McClintock. Wages stagnated under Obama; they 
skyrocketed under Reagan. That is not population-driven; that 
is productivity-driven. So, my question is, what are the 
policies we need to get off of the wage stagnation we have seen 
under the Obama administration?
    Mr. Holtz-Eakin. We know that labor productivity is aided 
by having more and better capital. And we have had a very weak 
investment performance recently, as a Nation. We know that it 
is aided.
    Mr. McClintock. And that is because of regulatory 
impositions that have made access to capital more difficult, in 
part?
    Mr. Holtz-Eakin. I think there is a regulatory story; I 
think there is a tax story, and I worry about the fiscal 
outlook.
    Mr. McClintock. And you also mentioned government 
borrowing. When government borrows money, it borrows from the 
same capital market that would otherwise be available for, 
among other things, consumer purchases and business expansion, 
correct?
    Mr. Holtz-Eakin. Yes. The other thing I really focus on, 
and Dr. Diamond mentioned this, is there has been a steady and 
recently sharper decline in the rate of business startups 
across the economy.
    Mr. McClintock. Well, it seems to me that the----
    Mr. Holtz-Eakin. That is where new business models and 
productivity come from.
    Mr. McClintock. I look at the Trump proposals, and they 
look very much like the Reagan proposals that gave us one of 
the most prolonged periods of economic expansion in our 
Nation's history, and huge improvements for working Americans.
    Chairman Black. The gentleman's time has expired. I now 
recognize the gentleman from California, Mr. Khanna.
    Mr. Khanna. Thank you, Madam Chair. Maybe it is from the 
vantage point of the district I represent, representing a 
district with Apple, Google, and having large presences, Intel, 
Facebook, I am less concerned about our country's long-term 
innovation and economic growth, and more concerned about issues 
of income inequality and income disparity, and who will gain 
and benefit from the economic growth. Whether it will just be 
entrepreneurs in certain parts of this country, or whether that 
growth will be distributed.
    And given that, I wanted to ask about a proposal which in 
the past has enjoyed bipartisan appeal, it was actually a 
Milton Friedman idea, which was the earned income tax credit. 
At a time where the investor class and capital already has an 
extraordinary return, it would seem to me that our tax policy 
should be more geared towards helping working families, and 
helping folks who have had wages stagnate. And I would be 
curious to all three economists' view of expanding the earned 
income tax credit, the benefit that would provide to working 
families, and the benefit it would provide to the labor market, 
given it would provide a subsidy, a supplement, for people to 
enter the workforce, and also some subsidy to the employer to 
increase recruitment. And all the studies I have shown suggest 
it actually helps employment. Maybe we could start with Dr. 
Furman, and I would love to have the other two economists weigh 
in as well.
    Mr. Furman. I very much agree with everything you said. The 
earned income tax credit is the type of policy that both helps 
our economic growth by bringing people into the workforce, and 
better rewards that growth making sure that people share in it. 
I think going forward, probably the number one priority would 
be households without children, or without qualifying children, 
getting more of an earned income tax credit. They get a very 
small one right now, but there is additional benefits for 
families with children as well.
    Mr. Diamond. I agree. I would support an increase in the 
earned income tax credit. It is a pro-work safety net 
provision, and I think it is generally productive. It does 
create certain issues, but overall, I support it. In fact, in 
my discussion of reducing tax expenditures, I think the tax 
expenditures we should not eliminate would be ones that 
incentivize people to work, such as the EITC, or that 
incentivize a larger stock of capital to make workers more 
productive.
    Mr. Holtz-Eakin. I think you will find a consensus in the 
profession on the past efficacy of the EITC in getting people 
into the labor force and to working. I think the place most 
people are concerned about is non-custodial males, and having a 
larger EITC for that population. And I hope there is a 
consensus that the one thing left on that is to worry about the 
error payment rate, which is about 25 percent. A more efficient 
EITC would be much, much better.
    Mr. Khanna. Great, consensus among the economists on 
expanding the earned income tax credit. My next question is 
just more philosophical, and it is this open question about 
what is technology going to do for the future of work. And what 
is your view? I think there is this overwrought sense of 
``Okay, people are just not going to have jobs,'' which in the 
past, you know, John Maynard Keynes had written this whole 
article how we were all going to work 15 hour workweeks, it has 
not turned out to be true. On the other hand, there is going to 
be a displacement of fact, and I wonder what your thoughts are 
on how we should prepare for this transition. Dr. Furman, and 
then the others. Go ahead.
    Mr. Diamond. I will just say, our profession earned the 
name, ``the dismal science,'' because we have often made wrong 
predictions on this front. And so, I would say that, yes, it is 
going to change the face of work. I think other jobs will crop 
up, just like, you know, moving from the typewriter to the 
computer did not put everybody out of work. I do not think the 
robots are going to put us all out of work, either.
    Mr. Furman. I think to a first approximation, that is 
correct. Machines do 90 percent of what humans could do in the 
year 1900, and yet lots of humans still have jobs. But I think 
what matters is less the technology and more the policies we 
use to address that technology. And you look at different 
countries, some have been more successful at handling these 
disruptions and changes than others, and the ones that have 
been successful have put an emphasis on programs like training 
that we were talking about earlier, not just assumed it would 
all work out.
    Mr. Holtz-Eakin. I would emphasize the basic need for a 
better-performing K-12 education system. There is now well-
documented failure throughout that system, and the future of 
work is about the future education of people that are going to 
go to work. I think that is the key.
    Mr. Khanna. Thank you for your thoughtful replies.
    Chairman Black. Gentleman yields back his 7 seconds, thank 
you. I now recognize the gentleman from South Carolina, Mr. 
Sanford.
    Mr. Sanford. My thanks, Chairwoman. I would say to my 
colleague from California, I saw a freaky movie over the 
weekend entitled ``Her,'' and it is about this guy that falls 
in love with his operating system. But the happy ending for all 
of us is at the end of the day, it does not work out, and he 
goes back to human form. Not every human is replaced on that 
front.
    And in deference to my Chairwoman, I made it very clear in 
the last hearing we held that I do not believe that 3 percent 
growth is realistic at this particular 10-year juncture, as 
much as I would like to see it. But I think in deference to my 
Chairwoman, I am going to leave that subject alone for the 
moment, and I am going to skip on to three points of economic 
growth that I do think are important.
    One is infrastructure. Would all of you agree, going back 
to the consensus that my colleague found, that infrastructure 
ought to be paid for, or do you say, ``No, you know, it is 
dynamic, and it does not need to be paid for?'' Where are each 
of you on that? Again, simple, quick, paid for or no?
    Mr. Holtz-Eakin. Pay for it, yeah. I think it is 
overstated, the productivity effects.
    Mr. Furman. I think it is better to pay for it, and then we 
would end up with higher growth, and it would bring our deficit 
down.
    Mr. Sanford. So, paid for, or no?
    Mr. Furman. Pay for it, and let the growth lower the 
deficit.
    Mr. Diamond. In a world with 77 percent debt-to-GDP ratio, 
it should be paid for.
    Mr. Sanford. Okay. And I think that that point is 
underscored by the fact that, if you look at Japan, which went 
on a tremendous infrastructure spending binge, if you want to 
call it that, in an effort to restart and reboot their economy, 
ultimately, ended up with a lot of debt but not that much in 
the way of economic growth, and I do think that demographics 
are a driver here.
    I appreciate Mr. Diamond's sobriety by which you approach 
the deficit issue. I do not think that it is emphasized enough 
in Washington, either from an administration standpoint or a 
congressional standpoint. I mean, I think you really hit hard 
how important that is and how it will ultimately be a driver 
with regard to economic growth in our country as well as 
budgetary impact.
    But I want to talk about one part of economic growth that 
really has been, I think, diminished of late. And that is David 
Ricardo's notion of competitive advantage, and the need, in 
fact, to trade with other parts of the world. We grow great 
moss and mosquitoes on the coast of South Carolina. We do not 
grow wheat that well. In Kansas, they grow wheat well. It is 
just natural to that area. And there are other areas that have 
competitive advantage with regard to certain products.
    I think it has been sort of underscored here lately, and so 
when you begin to look at ``Buy American'' or Davis Bacon, or 
go down a long list of things that begin to restrict one's 
ability to trade freely, or even the way in which some people 
are saying, ``Well, it is not that advantageous altogether.'' 
The notion of free trade, if you look at the port in 
Charleston, Charleston and South Carolina have been transformed 
as a result of open commerce and open investment and free 
trade.
    In the 1 minute and 50 seconds I have got left, if you all 
would each touch lightly on how important you believe free 
trade is to economic growth, and is budgetary impacts going 
forward.
    Mr. Holtz-Eakin. I think it is very important. We have 
examples. For example, semi-conductor tariffs, when we 
eliminated those through a trade agreement, the U.S., which was 
deemed to be unable to compete with Japan, turned around and 
has the most vibrant of technologies. And so, opening it up to 
the competition will be good for America, will raise 
productivity, and is something I endorse.
    Mr. Diamond. I also think it is critical. Most of the 
consumption growth in the world will occur outside of the U.S., 
and so if we want to sell to the most number of consumers, we 
are going to need to sell around the world.
    Mr. Furman. I also agree that it is critical, and think 
trade agreements can help create the type of level playing 
field that enables the United States to succeed on the global 
stage.
    Mr. Sanford. I hand back to you, Madam Chairwoman, my 54 
seconds.
    Chairman Black. You are going to yield back 51 seconds; 
boy, you are going to get a star. I now recognize the 
gentlelady from Washington, Ms. Jayapal.
    Ms. Jayapal. Thank you, Madam Chair. And thank you for your 
testimony, very thoughtful. I wanted to go back to the issue of 
immigration reform, which all three of you have touched on.
    Dr. Furman and Dr. Holtz-Eakin, you have wrote about it in 
your testimony more in-depth. Not only can we look at the 
impact on population growth and what would happen if we were to 
really stop immigration, but I wanted you to comment also on 
the effects to the economy of restrictive immigration policies 
that have been proposed. So, in the Judiciary Committee, we 
just passed on a party-line vote bills that would essentially 
criminalize all the undocumented immigrants in this country, 
and seek to deport 11 million.
    Can you speak, theoretically, if that were to happen, and I 
think there are many people across the country on both sides of 
the aisle that do not believe it is possible or desirable to do 
that. But since the rhetoric is out there, and the policies 
have continued to focus on that, can you comment on the 
economic impacts of those kinds of restrictive policies? And 
Dr. Furman, why do we not start with you, and then I would like 
Dr. Holtz-Eakin as well.
    Mr. Furman. Yeah. We are used to hearing businesses talk 
about what uncertainty does to their ability to invest and 
grow. The type of uncertainty that legislation like that would 
create for 11 million people already in our country would mean 
their ability to be in the right job, to get an education, to 
start a business, and to contribute to our economy, would go 
down. So, it would not just harm them, it would hurt all of us, 
and our economy overall.
    Ms. Jayapal. What would happen to the dairy industry, for 
example, in this country?
    Mr. Furman. Yeah, I think there are a lot of industries 
that are particularly dependent on those workers, and that 
would be one of a number of agricultural industries. And it 
would hurt our, you know, productivity growth and economy. So, 
just from a pure economic perspective, I would be opposed to 
it, and I think there is a broader human dimension that I am 
not a special expert in.
    Mr. Holtz-Eakin. My think tank, the American Action Forum, 
actually did a study of what it would do if we deported all 
those here illegally, whether over a 20-year period or even 
quickly, 2 years. I forget the numbers, but it is an 
overwhelming Federal budget expenditure. We have to hire 30,000 
lawyers, I am opposed to anything that hires 30,000 lawyers. 
You know, create 1,200 new administrative courts, detention 
facilities. You need to send people back to their country of 
origin, that takes buses and planes, and it costs, like, $300 
billion. You get rid of about 5 percent of the labor force, so 
you have yourself a pretty good-sized recession. But other than 
that, it is a good idea.
    Ms. Jayapal. Thank you. And can you speak to the effects on 
Social Security? And thank you for that study, by the way, it 
was very good. Can you speak to the effects on Social Security, 
something a lot of Americans do not think about? But you think 
about the billions of dollars that have gone into the Social 
Security suspense fund, that are actually paying for our older 
Americans now who are in retirement. What would happen if we 
were to get rid of undocumented immigrants in terms of Social 
Security fund, and that suspense fund?
    Mr. Furman. We would need to raise taxes or cut benefits to 
have the same solvency that we have today.
    Ms. Jayapal. Did you want to add anything? Okay, okay. The 
other question I wanted to go to on education. Actually, all 
three of you have spoken about the need to invest in education. 
In Washington State, my home state, we actually looked at the 
job gap. In 2020, we would have a 60 percent job gap in our 
state, with jobs that are available but we are not graduating 
enough people to actually fill those jobs.
    Can you speak, Dr. Furman, to how you would address the 
inequality in education? And Dr. Holtz-Eakin, you called it in 
your testimony, ``an embarrassingly persistent and worsening 
gap between the student performance and the rest of the 
industrialized world.'' Do you want to speak to what some of 
the prescriptions might be for that?
    Mr. Furman. Sure. It starts very young. We are relatively 
low in the OECD, in terms of the fraction of our 3- and 4-year-
old's that go to school. So, having universal preschool to help 
put students on a more equal footing before they even get to K-
12. There are a number of improvements that we could make to K-
12 as well. And then after that, making college more 
accessible. It is a great investment for most people, but it is 
a risky investment, and if that investment does not pay off, 
making sure that people are not saddled with all of the debt 
and costs of that investment.
    Ms. Jayapal. I know you talked about school choice in your 
testimony. It is not an area that we necessarily agree on, but 
can you speak about apprenticeships and investment in training 
programs to actually bring people back into the workforce as 
the chair had mentioned earlier?
    Mr. Holtz-Eakin. So, you know, I would just stipulate, I 
think the larger, more durable improvements will come from a K 
to 12 system that functions better. There are some legacy 
issues for those who are in the workforce now, do not have the 
skills to find the jobs that are available there.
    We have some examples of successful apprenticeship 
programs, so South Carolina, for example, stands out. We have 
some examples of successful community college programs. But we 
do not have what appears to be a playbook for doing a 
nationwide scale-up of these programs to be successful. So, 
that remains something that needs to be figured out.
    Ms. Jayapal. Oh, I am sorry. I did not realize my time had 
expired. Right back to you, Madam Chair.
    Chairman Black. The gentlelady's time has expired, and now 
I recognize the gentleman from Ohio, Mr. Renacci, for 5 
minutes.
    Mr. Renacci. Thank you, Madam Chair. And I want to thank 
the witnesses for being here. I do think there is something all 
three of you agree on, as well as the Comptroller General. But 
I want to ask, the Federal Government is on a fiscal path that 
is unsustainable. The Comptroller General was here, he said 
that. Do all three of you agree with that?
    Okay. So, let us talk about the revenue side. I am a 
business guy. There is either revenues or expenses. On the 
revenues side, let us start there first. If we do not reduce 
tax rates, both corporate and personal, since 67 percent of 
businesses pay as a pass through on to their personal tax 
return. So, if we do not reduce business taxes, do we risk more 
businesses leaving the U.S. to go to countries with lower tax 
rates? Agree or disagree?
    Mr. Furman. I think we should lower the tax rate, but not 
worsen the deficit in the process.
    Mr. Renacci. I agree with that, too. I am sticking to the 
income side. So, if more businesses leave, do we face lower tax 
revenues into the Treasury and a greater risk to our fiscal 
unsustainable path? Agreed, all three of you?
    Mr. Furman. If you lower tax rates, that will cost money, 
if you make no other changes.
    Mr. Renacci. Well, my question is, if more companies leave 
because we do not lower our rates, and we are lowering money 
into the Treasury, are we going to continue to grow this fiscal 
unsustainable situation? Okay, do any of you disagree that 
corporations do not pay taxes, and instead pass on their taxes 
to consumers as a cost of goods sold?
    Mr. Holtz-Eakin. Corporations do not pay taxes. People do, 
one way or another. It could be in the form of lower wages, 
lower returns to capital, or higher prices.
    Mr. Renacci. I look at it this way, I was a business guy. 
If I had a product, it cost me a dollar and I sold it for a 
$1.10, most of the reason I sold it for a $1.10 was to make 
money and cover the taxes that I had to pay.
    So, I always say we are passing it on, not only to 
consumers but in lower wages, so I agree with you. So, if we 
are able to reduce the business income tax rate to a much lower 
consumption tax, I am switching gears, and I know Dr. Diamond, 
you have talked about this in your testimony, would that be a 
pro-growth policy that could help grow the economy?
    Mr. Diamond. Yes, it would. I think it would grow the 
economy, and it is a policy that I have supported for several 
years.
    Mr. Holtz-Eakin. What he said.
    Mr. Furman. I think there are aspects of that that could 
help, but the details matter a lot.
    Mr. Renacci. Okay. So, if I am looking at a path of fiscal 
unsustainability, which I keep saying back home, and we know 
that we have to cut taxes to avoid companies from leaving, that 
is one thing. And I also assume that if we cut taxes, we will 
grow the economy at some rate. Would you agree or disagree?
    Mr. Diamond. I would argue that we need to lower the rate, 
and maybe we move to expensing, but we will need to offset some 
of that revenue loss by taking away other preferences. Some of 
the studies I have written have said that preferences you do 
not want to take away are the investment-related preferences.
    Mr. Renacci. I want to get to the expense side, though. We 
are on the revenue side now.
    Mr. Furman. I think if you cut tax rates and do nothing 
else, you will lower economic growth because it will result in 
higher deficits. That will reduce capital formation, reduce 
business investment, and we would ultimately be poorer as a 
result of that.
    Mr. Holtz-Eakin. As I said, I think reform should be 
revenue-neutral. But I would do that revenue-neutrality on a 
dynamic score, taking into account the growth that is 
generated.
    Mr. Renacci. Okay, so we have talked about the revenue 
side, and in the business world you look at the revenue side. 
And now I want to look at the expense side, because I would 
agree with you. We can do a couple things. We can reduce tax 
preference items. But in the business world, should we not be 
looking at the expense side, which is expenses of the Federal 
Government, which are Medicare, Medicaid, Social Security, 
interest, you know, and all the other expenses? Should we not 
be looking there as the other side of where we should be 
cutting expenses?
    Mr. Holtz-Eakin. I cannot emphasize that enough. That, in 
the end, is the key issue. Once you spend the money, you are 
going to have to pay it forward, one way or another, and there 
is too much on the books.
    Mr. Furman. I think we should use a combination of revenue 
increases and spending cuts along the lines of Bowles-Simpson, 
which----
    Mr. Renacci. Okay, but I was waiting for that one. Because 
how can we raise revenues without hurting? Because we all just 
agreed to that. We have to cut our tax rate, or we are going to 
lose more business. So, now you just ruined a curveball. How do 
you cut tax rates and raise revenue----
    Mr. Furman. For example, limiting tax expenditures for 
high-income households without raising the tax rate at all. We 
cannot only raise money, but have fewer distortions in our 
economy.
    Mr. Renacci. Okay, so that is a tax expenditure. See, we 
are all agreeing. Republicans, Democrats, we are all agreeing. 
We got to cut rates. We got to reduce our unsustainable path, 
and we got to look at what we are spending. Now, whether you 
would call it tax preferences or actual spending, it is the 
same thing. It is the other side of the aisle. Would you not 
agree?
    Mr. Diamond. I completely agree. And as I noted in my 
testimony, spendings are projected to increase from 27 percent 
of GDP to 29.3 percent. That is a staggering increase over the 
next----
    Mr. Renacci. Well, I guess I am out of time. I apologize. I 
yield back.
    Chairman Black. No, your time has expired. Good questions. 
I now recognize the gentleman from California, Mr. Carbajal, 
for 5 minutes.
    Mr. Carbajal. Thank you, Chairwoman Black, and Ranking 
Member Yarmuth. Dr. Holtz, after President Trump's budget was 
released, you indicated that 3 percent growth was at the outer 
bound of what was feasible. And you, Dr. Furman, indicated that 
the chances of achieving 3 percent growth was about one in 25. 
Obviously, 3 percent growth would be nice, if we could get it. 
But do you believe it is responsible for us to build the 
Federal budget on such an unlikely assumption?
    Mr. Holtz-Eakin. So, the President's budget, under every 
President, is put together under the assumption that all of the 
President's policies are enacted as proposed, and work as 
intended. And so, every President's budget is, effectively, a 
dynamic score of what they perceive to be the best set of 
policies. That is true for President Trump, President Obama, 
President Bush. So, I do not think that is how you, as a 
Congress, should set up your budget. You should do the budget 
process in a disciplined fashion, and decide what you believe 
will pass through legislation, go to the President's desk, and 
build it on that.
    Mr. Carbajal. Dynamic or not, do you think it is 
responsible?
    Mr. Furman. If I can answer that? First of all, Dr. Holtz-
Eakin was one of the people responsible for putting together 
the forecast under President Bush. And none of the forecasts 
that he helped put together was the growth rate more than one-
tenth of 1 percent higher than what the consensus forecast at 
the time was. The Trump administration's is 1 percentage point 
higher. I would be thrilled to get 3 percent growth, but the 
cost of being wrong is asymmetric.
    If the growth rate turns out higher than we expect, that is 
great news, and the deficit is lower than we thought. If we 
make a mistake, though, and the growth rate is lower than what 
we are counting on, then we will have higher deficits, higher 
debt, and that will compound and magnify our economic problems.
    So, I think it would be much better to build a budget on a 
conservative forecast, and then hope for the best. Maybe we 
will get 3 percent; I think there is a 4 percent chance we get 
it. And if we do, that would be a good thing. But if we come in 
below our expectations, that is a big problem.
    Mr. Carbajal. Thank you. Secondly, to all the witnesses, 
there has been a lot of discussion of the merits of tax cuts. 
Many of it on the other side think that the top marginal tax 
rate is the most powerful force in the universe, or at least in 
the economy. That seems, to me, a bit overstating the case. 
After all, we saw a relatively strong economy, economic growth, 
in the 1980s after President Reagan cut taxes on the wealthy. 
We similarly saw strong economic growth in the 1990s after 
President Clinton raised taxes on the wealthy. It seems pretty 
clear that other factors are at work here, and that tax rates 
are not the primary factor driving growth. Do you all agree?
    Mr. Furman. I think on the individual side, tax rates do 
not have a huge impact. I think on the business side, we are in 
a global economy. We are dealing with other countries that have 
lower tax rates than us, so I do think there is some importance 
to lowering those tax rates, and paying for them with a broader 
base.
    Mr. Holtz-Eakin. I would emphasize what Dr. Diamond said a 
number of times, which is there is an enormous amount to tax 
policy that is not in the wraiths. It is in the investment 
incentives and elimination of preferences, which do not lead to 
good economic decisions. And that is part of tax policy that is 
not in the wraiths.
    Mr. Carbajal. Dr. Diamond?
    Mr. Diamond. I think tax rates are important, but as Dr. 
Holtz-Eakin mentioned, I also think there is another side of 
the Tax Code that we need to look at. Overall, I mean, taxes 
are not the only factor, and you mentioned that. And I mean, 
obviously, there are a lot of factors. Regulation, deficits, 
and the negative effects of deficits that will also affect 
growth. So, they are a piece of the puzzle, but not the puzzle.
    Mr. Carbajal. hank you. Chairwoman Black, I yield back.
    Chairman Black. Wow, thank you. We have got a number of 
folks that are yielding back today. You are all going to get 
stars. I am now recognizing the gentleman from Minnesota, Mr. 
Lewis, for 5 minutes.
    Mr. Lewis. I would like to thank the Chair and the 
gentlemen for coming to testify today. You are right. Taxes are 
not the only thing that matter. We seem to be focused a lot on 
tax expenditures, and not actual budget expenditures. Last 
year, we had record revenues, $3.26 trillion, and yet, $600 
billion deficits. So, when we talk about, you know, what causes 
a deficit or the debt, we need to make certain we keep our eye 
on the prize.
    And it certainly has not been a lack of tax revenue. It has 
been increasing expenditures, which crowd out the capital 
markets, the same as deficits. In fact, one could argue, it is 
not the deficit that crowds out the capital markets; it is 
actually the expenditure, especially inefficient ones.
    But be that as it may, rarely do I get a chance to quiz 
three economists, so I am going to take the opportunity, 
probably all 5 minutes. Let me ask each of you, first of all, 
what the fundamental goal is, when you are formulating, whether 
it is tax policy or whether you are serving on the Budget 
Committee, for that matter. Is the goal of good policy economic 
growth or a balanced budget? Let's start with you, Dr. Eakin.
    Mr. Holtz-Eakin. Economic growth.
    Mr. Lewis. Dr. Furman?
    Mr. Furman. Economic growth that is shared.
    Mr. Diamond. I would say that economic growth, but an 
unbalanced budget is going to lead to lower economic growth, so 
in a sense, it is the same question.
    Mr. Lewis. It is really interesting because when you look 
at the question we have got, as those trying to formulate a 
budget, that seems to be the principal question. Can you have 
one without the other, or does one predate the other, or 
prerequisite for the other? In that regard, there is an 
elasticity of labor and investment I want to talk about a 
little bit.
    We all remember the late 1970s. We have been talking about 
that today, it seems to me, and the malaise, and we cannot 
grow. And we have gotten where, you know, turn down the 
thermostat and put on our cardigans. And yet, all of the 
sudden, we had an explosion of growth after the Carter 
administration and into the 1980s and the 1990s. The tax rates 
never got back to the Carter tax rate. That is one thing 
someone ought to point out, that we did, in fact, grow out of 
the deficits because even with the Clinton tax hikes, we never 
got back to anything close to 70 percent marginal income.
    But something happened in the 1970s that is very 
enlightening, and that was the Steiger Amendment and the cut 
and capital gains from 49 percent to 28 percent. At the time, 
the Treasury secretary said it would cost the government $2.2 
billion. And, in fact, the capital gains taxes went from $8 to 
$11, almost $12 billion.
    So, this clearly an elasticity at some particular rate on 
investment. Is there, at the top income tax rate, an elasticity 
for work, i.e., the people who have the greatest option, the 
greatest choice, the greatest elasticity for working are the 
wealthy? So, if you raise their rates even higher than what 
they are, will they quit working? Go ahead, Dr. Holtz-Eakin.
    Mr. Holtz-Eakin. So, I think the best evidence on this is 
something to take into account more than just the work/not work 
dimension. You can imagine working/not working, how long you 
work, how hard you work, what areas you work in. All of that 
gets bundled into the taxable income you report to the 
Treasury, and there is a sizable and well-established taxable 
income elasticity, with respect to the top marginal tax rate. 
Some of that, you know, if you raise the rate and taxable 
income goes down, it is going to be an avoidance activity. The 
wealthy are quite good at hiring smart folks to avoid paying 
taxes. Some of it will be genuine reductions in economic 
activity, and neither of those are good phenomena.
    Mr. Lewis. Dr. Furman?
    Mr. Furman. I think there is some responsiveness to tax 
rates for work, and all the dimensions that Dr. Holtz-Eakin 
talked about----
    Mr. Lewis. Is it higher at the top end?
    Mr. Furman. I think I am not aware of convincing evidence. 
There is, I think, capital gain realizations that are much, 
much, much more elastic than labor supply is because it is very 
easy to not sell a stock this year and, instead, and sell it 
next year. Much easier it is than it is to take off this year--
--
    Mr. Lewis. Yeah. But it is easier for the wealthy to stop 
working, too, correct, than those at the lower end?
    Mr. Furman. I think people have a lot of different 
motivations for work, for primary earners, there is not a lot 
of responsiveness of work to tax rates. For secondary earners, 
there is.
    Mr. Lewis. Let's move to income inequality, because I am 
fascinated by this topic. If we have got a rising economic 
growth, and every quintile is going up, but we have got Jeff 
Bezos, and we have got Steve Jobs or Bill Gates, and they go up 
a whole lot. My goodness, that is a rise in income inequality. 
Juxtapose that with the Great Depression.
    Everybody's income fell, but there is a bottom to that, so 
income inequality actually shrinks during the downturn. Why are 
we so focused on income inequality? And show me where changes 
in the marginal tax rates have any effect at all on income 
inequality that is primarily an education or socioeconomic 
issue? Let's start with Dr. Diamond there, quickly.
    Mr. Diamond. Well, we saw this after--during the Great 
Recession inequality, actually, reduced a little bit as the 
rich were hit. I mean, so, it is an important factor. I mean, I 
think it is important to be concerned about how everyone is 
doing. I do not think we should necessarily respond by raising 
marginal tax rates.
    Mr. Lewis. Can taxes make a difference?
    Mr. Diamond. Taxes can make a small difference, but they 
are not going to solve a problem that is caused by something 
other than taxes.
    Mr. Lewis. Unfortunately, my time is up. I could go on for 
another 10, 15 minutes if you would like, but I yield----
    Chairman Black. Your time is expired, the gentleman from 
Minnesota. I now yield 5 minutes to the gentlelady from Texas, 
Ms. Jackson Lee.
    Ms. Jackson Lee. I would be delighted for the gentleman to 
keep going because I am trying to, my dear friend, understand 
his line of reasoning. But let me refer ourselves, gentlemen 
and ladies, to the Tale of Two Cities. And that is why we are 
concerned about income inequality. I cannot imagine that we 
would sit here and talk about not being concerned whether 
Americans are dragging themselves through the streets with no 
jobs and maybe nothing to eat, since nutrition and lack thereof 
is one of the high elements of this country. Whether or not 
children can be educated, and young people can get a college 
education. That is income inequality.
    And this budget, from my perspective, as we indicated 
before, let me not try to paint the Rosie scenario program. I 
do not know if anyone knows her, but she is missing in action 
today. I would clearly say this is a dead-on arrival budget, 
and I do not know why we are so fearful of going back and 
comparing Reagan and Clinton in the years where under Reagan, 
we had a $1.4 trillion deficit. Clinton had a $63 billion 
surplus. Reagan had a 3.64 growth; Clinton, 3.82. Created 22 
million jobs. Monthly, Clinton created 242,000 jobs, with 166 
by Reagan, both of whom I certainly respect as presidents, 
because they handled themselves as presidents. President Obama 
was a good custodian of the work that Bill Clinton had done.
    But here we are today, traveling down a path that makes 
absolutely no sense. So, let me just quickly try to raise some 
points on the basis of history. September 25, 2008, I recall. I 
was here. I was here in 2007, Dr. Furman. That was the debacle 
when Lehman brothers was not bailed out, while others were. 
That was when we went home to Americans, and they could not 
believe it, and they said to us, ``Do not bail anyone out. Do 
not do anything. They were in shock.'' But we were on the verge 
of collapse. Wall Street did take a deep dive. The resilience 
of this Nation and the leadership of Democrats brought us to 
the fact that we are still standing.
    So, my question is, if you look at the budget overall, I 
want you to answer two questions. One, and I am going to ask 
the other panelists the value of the CBO analysis that we have 
always done. Is it important that Congress looks at an 
independent arbiter to deal with numbers? CBO has done that.
    Secondarily, with baby boomers, of which none of us are in. 
We are all millenniums at this point, are getting older; we are 
not infusing the workforce. We have an immigration policy that 
takes away hard working immigrants, young people, who want to 
be here, who are not dangerous. And so, we need a workforce. 
With this type of budget, does that suggest 3 percent growth? 
Does that say that we have a vision of growth? And the other 
part of it is: is it not valuable that government invest in its 
people? I am trying to get the right now. I remember I voted 
for it. The proposal we had under President Obama that we all 
voted for did a lot to energize the economy.
    My question to you, Dr. Furman, are those. Based on the 
back drop of the Clinton/Reagan analysis, the custodian work 
that Obama did, you are in administration and the vision of 
this budget.
    Mr. Furman. I think I agree with the premise of all of your 
questions. Congress should be relying on the Congressional 
Budget Office. No one can predict the future with certainty, 
but the CBO is not biased. Sometimes, they are too high. 
Sometimes, they are too low. On average, they are right. I 
think the policies in President Trump's budget are more likely 
to lower growth than they would be to raise it by cutting the 
type of investments in our people and in our infrastructure 
that we need for future economic growth.
    Ms. Jackson Lee. Dr. Holtz-Eakin, you were at the CBO. 
Would reliance, and does this overall budget have a vision of 
investment in the American people? Or are my premises 
incorrect, that we have a growth problem, with respect to human 
beings to be able to energize the workforce, and energize the 
economy?
    Mr. Holtz-Eakin. First of all, I have nothing but high 
praise for the CBO as an institution, and I believe Congress 
should continue to rely on it for its analysis. I think the 
administration budget is a mixed bag, from the point of view of 
economic growth.
    One of the things that I do not like about it is that it 
perpetuates the current budgetary mismatch between mandatories 
and discretionaries by taking off the table serious mandatory 
reforms. It continues to crowd out the discretionary accounts, 
which are national security, basic research, infrastructure, 
education; indeed, all things the Founders saw as the role of 
government. I think that is a fundamental budgetary problem 
that needs to be addressed.
    Ms. Jackson Lee. Dr. Diamond, in my last seconds here, let 
me add a little caveat. We have got a lot of people 
incarcerated. We have been trying to pull back on mass 
incarceration. And it has been bipartisan, the Koch Brothers 
and others. Does that not undermine the workforce? And are my 
premises not right about how the economy is energized by people 
working? And if you have thousands completely constantly locked 
up, does that not have an impact as well?
    Mr. Diamond. I definitely think incarceration has a 
negative impact on people and the economy. I think the CBO is 
important, and we need to continue to rely on them. And I think 
budget goes in, at least, I do not agree with the budget in 
total, but my point in my testimony is we are spending too much 
money. We are projected to spend too much money. At some point, 
we are going to have to slow the growth of spending.
    Chairman Black. The gentlelady's time has expired. The 
gentleman from Arkansas, Mr. Westerman, is recognized for 5 
minutes.
    Mr. Westerman. Thank you, Madam Chair, and thank you to the 
witnesses for being here today. Just want to go down the line, 
and ask for just a brief comment on the relationship between 
growth and growth productivity. Are the curves similar? As you 
get more growth, you naturally get more productivity? Would you 
all agree to that?
    Mr. Diamond. I guess I would make a distinction between 
leveling up. So, an increase in GDP that is just like a one-
time change in the level, which may come from some policies, 
versus a small change in a growth rate, which endures over 
time, and which builds on itself so that you get growth on top 
of growth. I think that is more important in a long run sense 
than just a level-up approach.
    Mr. Furman. I think faster productivity growth is one for 
one into faster economic growth, everything else equal.
    Mr. Westerman. All right. So, the consensus is that growth 
and productivity are correlated; they are not inversely related 
by any means. But if we look at the chart that was probably 
shown earlier that shows our growth since 2012, we went from 3 
percent in 2012 on GDP down to 1.9 percent is what is projected 
for 2017. So, we have seen a decrease in growth, which, if 
growth and productivity are correlated, you would think you 
would also see a decrease in productivity.
    However, we also see a low labor participation rate. So, I 
would argue that over that same time period, if we look at 
productivity on a per capita basis, we have actually seen an 
increase per capita productivity. Would anybody care to comment 
on that?
    Mr. Holtz-Eakin. So, I think the key is that, looking 
forward, it is too difficult to anticipate anything like a 
business cycle. So, we have gone through this deep recession 
recovery. Take that piece out of it, and you are left just two 
pieces. Piece number one is how fast does the labor force, and 
thus the workers, grow? And public policies should make sure 
that we do not stop people from working, and we do get the 
growth that we want. And then, the second is productivity 
growth for everyone who is working. And those are the two 
objectives, and each should be independently the focus of 
public policy.
    Mr. Furman. I think as a growth accounting framework, I 
would agree with that.
    Mr. Westerman. So, you know, if you look at the actual 
numbers of people in the labor force in 2012, it was about 
159.5 million in the United States, and now, it is about 162.8. 
So, with population growth, we have seen the labor 
participation rate drop from 63.7 to 62.7. When I talked to 
people in my district, I know of people who are working second 
jobs. They are working longer hours.
    So, there is information there that leads me to believe 
that per capita productivity has increased, and I think if we 
see more technology, we will continue to see per capita 
productivity increase, which gives me hope that if we can get 
more people into the job market that we could actually see 
greater GDP growth than what we have actually seen in the past. 
And maybe, even get above 3 percent growth if we get these more 
highly productive workers employed. Any comments on that 
theory?
    Mr. Furman. You still have this mathematical problem that 
the prime aged population, 25 to 54, some of the key workers, 
that population is going at 2 percent a year. Now, it is 
growing at close to zero percent a year. I think we can do 
better on labor force participation. That will be a challenge 
because the labor force participation rate for prime aged men 
has fallen every year from the 1950s through the present. Under 
President Reagan, it fell. The labor rate for men fell under 
President Reagan. So, I think this is going to be a hard thing 
to reverse. But if we did, it would add to our economic growth.
    Mr. Westerman. So, does that mean that we actually have to 
get more productivity out of the labor force that we have if we 
expect to see any kind of increase in growth in GDP?
    Mr. Holtz-Eakin. I think that is very important. For 
example, they just released the data for the first quarter of 
this year, and there was no productivity growth. And so, if you 
combine that with Dr. Furman's observation that the labor 
force, the prime aged labor force is not growing; that is not a 
particularly good set of results that we got a flat economy in 
that kind of world.
    Mr. Westerman. So, how can you mathematically not have 
productivity growth if you have any kind of economic growth?
    Mr. Holtz-Eakin. You can have more workers producing the 
same amount per worker and get more in total, but productivity 
will not be rising.
    Mr. Westerman. But back to the other point, you would have 
higher per capita productivity.
    Mr. Holtz-Eakin. My concern is that you want to have much 
more rapid growth in productivity per worker, so essentially, a 
per-capita measure, and you want to raise the number of workers 
per capita, which is essentially, have greater labor force 
participation from those who are currently not participating.
    Mr. Westerman. Thank you, Madam Chair, and I am out of 
time.
    Chairman Black. The gentleman's time has expired. I now 
recognize the gentlelady from New Mexico, Ms. Lujan Grisham for 
5 minutes.
    Ms. Lujan Grisham. Thank you, Madam Chairwoman, and thanks 
to the Committee members. I want to do two things, because 
certainly interested in a return on any investment and growing 
the economy. And I am sure this Committee gets tired of me 
reminding them, but I am always happy to do that for a new 
group, that New Mexico has the highest unemployment in the 
country, and we are not, now, the worst economy in the country, 
but by no means are we in a position where we are seeing real, 
or any quite frankly, economic growth.
    And the strategy that we have taken in New Mexico, 
particularly over the last 8 years, but even before then, under 
both Democratic and now Republican leadership, is to invest in 
huge tax breaks at the top 1 percent and corporate tax breaks, 
which has left the state without any sufficient or viable 
resources. And the end result has been zero economic growth. No 
trickle down investments. No effort that has given us any 
aspect of a strategy.
    So, for me, living that in my current state and situation, 
I do not see how these strategies are going to work at a 
national level. And if we are looking for something where there 
is bipartisan agreement on clear economic growth, I am 
interested in your opinions about comprehensive immigration 
reform, which, particularly in a state like mine, provides an 
immediate return into the pocketbooks of every New Mexican, as 
well as stabilizing and moving growth for a variety of 
industries, not just A.G., and for us, health care and long-
term care, but entrepreneurship, in fact, which we lead in the 
nation. Or, I need to be careful, because I have not checked 
that data, at least in an hour.
    So, it changes that quickly. But we have been one of the 
leading states in entrepreneurship, particularly in minority 
women in the state.
    So, I would be interested in the panel's reaction on, I am 
living in a state that is seeing benefit from any of the 
strategies that continue to be presented, not only here today, 
but in previous budget hearings, but in addition, what you 
think about economic growth under comprehensive immigration 
reform. Anyone? All of you?
    Mr. Holtz-Eakin. So, as I mentioned earlier in the hearing, 
as in my written testimony, I think immigration reform is a 
powerful tool for economic policy. The data on the immigrant 
populations speak quite clearly to the fact that they tend to 
work more, higher labor force participation. They retire later. 
They have a disproportionate number of entrepreneurs who start 
businesses, hire people, bring capital to the United States. 
All of those are economic benefits from immigration that we can 
take greater advantage of if we choose to. So, I think the data 
are real clear on that.
    In terms of other strategies, the thing I tried to 
emphasize in my opening is that there should not be a strategy. 
We have a deep need to grow more rapidly, and the public 
policies that can affect it: the tax reforms, the fiscal 
reforms, the regulatory reforms, education reforms, immigration 
reforms, trade policies. I think all of them have to come into 
play. And a reliance on any single one would probably be a 
mistake.
    Mr. Furman. I agree with a wide range of policies. If you 
quantify everything on Dr. Holtz-Eakin's list, on my list, the 
number one, in terms of the largest impact on growth, would be 
comprehensive immigration reform. That would do more for our 
economy than any other single policy that we could do.
    Mr. Diamond. I agree that immigration reform is an 
important pro-growth policy.
    Ms. Lujan Grisham. So, and not that I am disagreeing that 
you should not have a variety of strategies, and in fact, in 
our economy, I find it difficult to weigh in and say that one 
set of policies by one policymaker, whether that is the 
legislative body or the governor or local elected policymakers, 
the reality is in New Mexico, they did not create the 2008 
recession.
    They did not ask to have oil and gas commodity prices and 
related ad commodity prices drop. They, certainly, did not call 
Congress and say, ``We ought to do a sequester. We are a 
defense industry state.'' So, it is all those things combined, 
certainly, tell you that you need to have a diversified economy 
with several strategies that allow you to more meaningfully 
react to economic changes.
    However, in addition to all of those factors, you know, as 
I said, we are a state that also provided massive tax efforts 
in an effort to create job growth. It has created zero job 
growth. And again, we are, not only as I described earlier in 
this hearing, having such economic woes, but in fact, we are 
the only state in the nation that is losing population which 
means we have a brain drain.
    We do not have any young people, and we do not have a 
qualified workforce. So, even if these trickle down strategies 
work, and they do not, in my opinion, there is not anybody to 
trickle to because we have lost the opportunity to do job 
creation, and train a qualified workforce.
    And Mr. Chairman, I did not have it when I started, but I 
would love to have unanimous consent to enter the article into 
the record from our main newsprint media source that talks 
about the problems with the tax cuts and tax cut policy in our 
state.
    Mr. Woodall. Without objection, that will be included in 
the record.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Ms. Lujan Grisham. Thank you very much. I really do not 
have any further questions, unless maybe one----
    Mr. Woodall. And the good news is the gentlelady's time is 
expired.
    Ms. Lujan Grisham. Oh, man, I was just getting started. I 
changed my mind, Mr. Chairman.
    Mr. Woodall. As soon as Mr. Yarmuth recognizes round two, I 
hear we will come right back, but----
    Ms. Lujan Grisham. Thank you very much to the panel.
    Mr. Woodall.----we are standing between you and our 
resident in-house economist, the gentleman from Virginia, Mr. 
Brat.
    Mr. Brat. Oh, thank you very much. All right. You all on 
this panel are in jeopardy of failing Econ 101 a bit here. When 
consumers, individuals, want to maximize utility, we do not 
talk about growing the economy, right? The language coming out 
here is for our economy. So, of course, immigration, if you 
import another worker, will increase the size of your economy.
    But to show the fatal flaw in the logic coming out on this 
immigration issue is fairly easy. Let's just import the whole 
world. Right? Let's just have 7 billion people move to the 
United States of America, right? So, that would be the biggest 
economy you have ever seen, right? It will increase our GDP by 
400 percent or whatever, right? Global. And not one person 
would be better off. Right? So, Econ 101 says what do people 
care about? They care about GDP per capita, after transfers and 
taxes. Right? That is how you maximize utility.
    I do not think you can show me any papers that show, right, 
the average of folks coming across the border from Mexico, 
South America. Tenth grade education. All children of God, 
right? No issue there. We are just talking economics. They will 
come in. They will make $20,000. If you got two kids in 
education, that is $26,000. You are upside down. And we are 
only $100 trillion light on unfunded liabilities right now, and 
$20 trillion light on debt, right? Because we screwed up the 
logic and had not paid any attention to productivity growth.
    So, we are stuck in a bind. And so, you are offer us the 
little ray of hope you can. Well, in the short run, right, 
there is a pig stuck in a python, called the demographic thing. 
Gee, I wish we would have known about that 10 years ago. Well, 
we did. It is just total political failure on all fronts. 
Right, to plan for the Medicare system, and Social Security are 
insolvent in 2034. It is upside down. And so, you are saying, 
bring in folks in order to solve a temporary problem, which it 
will, right?
    You might get a little bit more tax revenue, short range; 
you grow the economy, but I do not know where to start on that 
one. If you can show me any papers that show immigration helps 
increase productivity and GDP per capita after taxes and 
transfers, I am wide open to that.
    Second, my colleague Mr. Jeffries over there talked about 
well, we had $1.4 trillion deficits coming out of the Bush 
years. And so, you know, the Obama economy, we had to fix that. 
Again, just a colossal error in Econ 101.
    What caused the financial crisis? And there is no debate. 
Everyone agrees: the financial crisis started in the housing 
sector. Do you know any private sector bank that would give 
liar loans and no income loans for mortgages? No. Only the 
Federal Government is capable of that genius move. Right? And 
so, just go look up Fanny and Freddy and Mr. Johnson, and that 
empire he set up across the country, and you will find out why 
we had $1.4 trillion deficits.
    Now, let me get to the whole point here on productivity. 
Immigration, pre-K, education, et cetera. No literature, 
nothing, has been presented that that will increase GDP growth. 
Right? Per capita, et cetera. Right? I was in education for 20 
years. So, it sounds great. How much do you need, right? How 
many more thousands? We spend $14,000 per kid right now, per 
year. And I teach freshman economics, and the kids do not know 
what a business is after 13 years in K-12. They do not what a 
price is. They do not know what a cost is. They do not know 
what a profit is. Great. And in higher ed, it is widely taught 
that business on the supply side is morally corrupt, right? K-
12 is neutral. Higher ed is not neutral. Right? So, gee whiz, I 
wonder why productivity growth is not great when we teach 
people that the supply side is a pejorative nasty work.
    So, demand curve. Supply curve. Right? Demand curve is your 
consumers. Supply curve is all business. And the supply curve 
is the supply side of the economy is bad. Really? Everybody 
that produces goods and services is bad? So, what we do not 
hear from the other side, we have had demand's side stuff 
forever, right? Bailouts and non-ending demand stuff. There is 
no productivity growth, right? It is flatter than a pancake. 
Capital investment is flatter than a pancake.
    And so, I am dying to hear something from the other side 
that will enhance productivity growth. And they did have, 
President Obama, a majority of the House, Senate, and whatever. 
So, if you want to do productivity enhancements, why did they 
not do it?
    So, I just see a collapsing argument on the other side. I 
do not see anything they have proposed over 8 years that 
enhances productivity growth, and on the contrary, they are 
saying supply's side incentives are bad, right? It is trickled 
down or some pejorative term like that. And so, I have already 
blown through my time. But you all said productivity is the 
whole story, right?
    And so, if you can present this panel and both sides with 
some economic papers on how immigration will enhance GDP growth 
per capita after taxes and transfers, I would love to see that. 
If you can give me any arguments on pre-K education, or 
enhancements in K-12, or higher ed that will enhance GDP growth 
significantly in any range, I am wide open to seeing it. If 
they do, I am all on board, right? And so, thank you very much 
for being here today, and appreciate it.
    Mr. Woodall. The gentleman's time has expired. I will 
recognize myself for 5 minutes. I want to pick up where my 
colleague left off.
    It is true. I am not an economist; I am a lawyer, and so, I 
rely on you all. And you come together with a lot of good 
maxims that I try to apply. One of those maxims, and Dr. Furman 
used it in his opening statement, is infrastructure spending is 
good for GDP. But it is not good in the same way to build a 
sidewalk out in front of my house as it is to build a rail line 
that runs coast to coast. And so, you supply me with the 
maxims, but then, the conversation tends to end there. For 
example, immigration. Do I need folks to pick carrots in south 
Georgia? Absolutely do. Am I running out of families who are 
having three and a half kids who are raising them all to pick 
carrots? I absolutely am. But I also need more nuclear 
physicists and more entrepreneurs, on and on.
    So, can we start with you, Dr. Holtz-Eakin? You mentioned 
that 35 years used to be the time period for doubling our 
standard of living. Now, that is almost doubled. Is your 
analysis that that is systemic to the American economy, or that 
is because we are participant in the world economy?
    Mr. Holtz-Eakin. It is a set of facts about the U.S. 
economy. They are driven by decline and productivity growth. 
That is the key element. And as Dr. Furman pointed out, we are 
not the only country that has seen a decline in productivity 
and growth. I would hesitate to draw any causal errors. You 
know, our productivity is worse because theirs is worse. You 
know, I am a big believer that we should set our public 
policies to focus on the U.S. economy and its capacity to grow.
    Mr. Woodall. Though to Mr. Brat's point, we do set public 
policy. I am not sure it is focused on the economy as much as 
it is focused on the realization of the individual. We will 
give you a college loan to go get any liberal arts degree you 
want in the country. I would love to see the paperwork that 
says getting a liberal arts degree helps the economy more than 
learning an applicable skill on day one. And those papers may 
be there as well.
    Where is the data on how we are investing in human capital 
in this country? I can only spend each dollar once. What big 
change would you make in the way the Federal Government is 
investing in human capital to move the needle the fastest and 
in the most dramatic fashion on GDP?
    Mr. Holtz-Eakin. So, I think the biggest change I would 
make is where the big Federal dollars are in higher education. 
Most of the K-12 systems outside, with one exemption, title 1. 
On the higher part, I would focus more on having programs for 
low income individuals be ordered on the basis of time to 
completion, staying on schedule, outcome measures. Not just 
take the money and go. I would try to keep them out of loans 
because they are not going to repay, and target the loans more 
toward the middle class. And there, again, I think you want to 
have the loans be loans. This notion that loan forgiveness, it 
should be the top priority just strikes me as mixing terms. 
They are not loans, then. They are grants.
    Mr. Woodall. It is true. If I have asked you to invest in 
something that is not giving you a good ROI, then I have asked 
you to do the wrong thing. And Dr. Furman, is it obvious to you 
what needle you would move on investments in human capital in 
this country to get better outcomes?
    Mr. Furman. I would invest more on preschool. I would 
invest more on community college and training. I think other 
investments might be welcome, but there is a lot of things we 
could do for quality outside of just spending additional 
dollars elsewhere in the educational system.
    Mr. Woodall. Dr. Diamond?
    Mr. Diamond. I agree. There is a lot we could do outside of 
spending additional dollars that would make us more productive. 
I agree with trying to reach kids sooner, especially low-income 
kids. And I think a lot of that is on a state-level issue. Just 
more of, you know, re-prioritizing where we want to spend the 
money each year more so than spending more money.
    Mr. Woodall. I would ask you all to continue that kind of 
intellectual investment before Mr. Grothman walked in. Mr. 
Yarmuth and I were prepared to stage a coup here. We might 
disagree on how much to spend on infrastructure, but spending 
those dollars in a way that moves the needle in the largest 
fashion, we would come to some sort of agreement on. We might 
disagree about how much to spend on education, but spending 
those dollars in a way to maximize the utility would be 
something we would agree on.
    And my final question is this. Irrespective of growth rates 
and president's budgets, President Obama sent me eight budgets 
that never balanced but invested a great deal in the American 
economy. President Trump has sent me a budget that is purported 
to balance that reduces a great deal of spending in the 
American economy. From an economic perspective, is it obvious 
what grows a GDP going out in the future? Budgets that balance, 
or budgets that do not? Or is the question not that simple? 
Doctor?
    Mr. Holtz-Eakin. I like the idea of aspiring to balance the 
budget because the level of debt to GDP is already too high, 
and it is on a trajectory to go even higher. We got to reverse 
that.
    Mr. Woodall. Doctor?
    Mr. Furman. I think the proper goal is debt as a declining 
chair of GDP, President Obama never sent you a budget with a 
double count, with an overly rosy scenario. And in fact, the 
deficit consistently came in below what the Obama 
administration was expecting.
    Mr. Woodall. Dr. Diamond?
    Mr. Diamond. You know, I think that what is important in 
the latest budget is not so much, and we focused a lot on the 3 
percent, but we have proposed to reduce the growth rate and 
spending for the first time I cannot remember when. So, that is 
at least one good thing.
    Mr. Woodall. I thank you all for your many, many years of 
service. The gentleman from Wisconsin, Mr. Grothman.
    Mr. Grothman. First of all, thanks for keeping things going 
so I got a chance to answer your questions. I just point out 
that I think the amount spent per people in our schools and the 
number of people going to college, and the amount we spend on 
college, I am sure the amount per person or per pupil in K-12 
has gone up well in excess of the rate of inflation the last 50 
years.
    I, personally, do not feel that that spending still more 
money there is the key to success. I think maybe how they spend 
it is relevant. I think the same thing is true of a college 
education. At least, right now, I think we have maybe people 
graduating from college that cannot get jobs in their field; 
whereas if they would have stuck in tax school or would have 
been trained by their businesses, they would be much better 
off.
    So, I am not sure, you know, more government spending on 
education is the answer. But I want to get back to why our 
economy is not growing more, and I do happen to represent the 
district with more manufacturing jobs than any other in the 
district in my country. And as I tour my district, be it 
manufacturing or being in other things, the number one that 
seems to be holding my businesses back is they cannot find 
people to work. Okay?
    They really have a hard time finding people to work out 
there. And I am trying to think what we can do to find more 
people to fill those jobs so our economy can grow. Now, right 
here, I noticed that people on disability has grown over the 
last 14 years by about 60 percent. And that is despite the fact 
that I think, over time, our farms, certainly our 
manufacturers, certainly, have gotten safer and safer.
    So, normally, common sense would say, given how much safer 
things are going, you would figure the number of people on 
SSDIs is dropping. I realize the population is getting a little 
older. But when I look at this chart I see, you know, if we had 
the same percentage of people on disability overall that we did 
14 years ago, maybe we would have another two and a half, 3 
million people going to work. And you know, the economic 
figures should be going up all the quicker.
    Does anybody care to comment as to whether they feel that, 
you know, if we were a little bit more careful who we are 
putting on disability--and I realize there are people who are 
generally disabled need the help; I do not have a problem 
there--but if we were a little bit more careful, maybe we would 
be able to jump start the economy, as these people would fill 
all the jobs out there that are going wanting.
    Mr. Holtz-Eakin. So I think there should be a genuine 
concern about disability roles being disguised unemployment in 
deep recessions. That is a concern that has been voiced by a 
lot of economists. In looking at the program memo, I think a 
second thing gets less attention, and that is the fact that 
very people ever exit the disability roles. And there are, I 
think, there is a good reason to look at that, in particular, 
with young Americans who get classified as disabled. They are 
on SSDI. They are capable of working, and finding routes to get 
people off those roles and into the labor force would be a good 
thing.
    Mr. Furman. I, actually, do not think the evidence is very 
compelling that the decline of labor force participation is due 
to disability. Since the 1960s, the disabilities roles have 
increased 1.5 percentage points for prime-aged men. The 
fraction of prime-aged men not working has increased by 7.5 
percentage points, well in excess of that.
    If you look, actually, since the early 1990s, on an age-
adjusted basis, there has not been an increase in disability 
for men. The increase that we have seen is because of aging, 
and the factor you cited that more people are on SSDI instead 
of OASI because of the increase in the normal retirement age, 
and then an increased number of women in the workforce who are 
now qualified for disability who did not used to qualify for 
it.
    Those are the factors that explain the increase, not some 
increased generosity. So, I think we can look to reform the 
disability program. There are improvements we could make. I 
would not start from a premise that that is the primary source 
of our work problems, or would be a major solution to them.
    Mr. Grothman. Another question. When I talk to my 
employers, particularly on the lower end of the wage scale, 
they find people are not wanting raises, do not want to work 
full-time because it digs into their benefits, be it affects 
their low-income housing, their health insurance benefits, 
their food share.
    I know the number of people on food share has gone up from 
17 million in 2001 to 43 million last year, which is kind of 
dramatic. We have another program, the Earned Income Tax 
Credit, which was apparently designed by people who do not want 
anybody making more than $19,000 a year because that is another 
benefit you lose. To what degree do you think the economy is 
stagnating because of what I am told by my employers that 
people are intentionally not making as they can to get the 
government benefits?
    Mr. Woodall. Want to take a shot at it, Dr. Diamond?
    Mr. Diamond. I think it is a legitimate issue. I think we 
have seen, with unemployment compensation, with ObamaCare, with 
other spending programs, you can put in implicit tax on work, 
and that can discourage people from working.
    Mr. Grothman. Yeah, you have 43 million on food share. I 
know some people are always going to be on food share, but 43 
million? I mean, that is a lot of people, when you shoot up 
from 17 million 15 years ago to 43 million now. I mean, you 
wonder how many of those people would work harder if we did not 
take away their benefits if they did work harder.
    Mr. Diamond. I think that is a reasonable concern. We need 
to structure our policies so that we are as pro-work as 
possible.
    Mr. Grothman. Thank you much. Thank you for hanging around 
in my two Committees, but we will be forever grateful that you 
waited for me.
    Mr. Woodall. Thank you, gentlemen, for spending the morning 
with us, Dr. Holtz-Eakin and Dr. Furman and Dr. Diamond. Thank 
you very much for your testimony. Please be advised that 
members may submit questions in writing for you, and those 
answers will be placed in the record as well. Any member who 
wishes to submit questions or any extraneous material may have 
7 days to do so. With that, the Committee stands adjourned.
    [Whereupon, at 12:15 p.m., the Committee was adjourned.]
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