[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
THE CONGRESSIONAL BUDGET OFFICE'S BUDGET AND ECONOMIC OUTLOOK:
CONSIDERING CBO'S ANNUAL BASELINE
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD IN WASHINGTON, D.C., APRIL 12, 2018
__________
Serial No. 115-13
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Printed for the use of the Committee on the Budget
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COMMITTEE ON THE BUDGET
STEVE WOMACK, Arkansas, Chairman
TODD ROKITA, Indiana, Vice Chairman JOHN A. YARMUTH, Kentucky,
DIANE BLACK, Tennessee Ranking Minority Member
MARIO DIAZ-BALART, Florida BARBARA LEE, California
TOM COLE, Oklahoma MICHELLE LUJAN GRISHAM, New Mexico
TOM McCLINTOCK, California SETH MOULTON, Massachusetts
ROB WOODALL, Georgia HAKEEM S. JEFFRIES, New York
MARK SANFORD, South Carolina 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
Dan Keniry, Staff Director
Ellen Balis, Minority Staff Director
CONTENTS
Page
Hearing held in Washington, D.C., April 12, 2018................. 1
Hon. Steve Womack, Chairman, Committee on the Budget......... 1
Prepared statement of.................................... 3
Hon. John A. Yarmuth, Ranking Member, Committee on the Budget 5
Prepared statement of.................................... 7
Keith Hall, Director, Congressional Budget Office............ 9
Prepared statement of.................................... 11
Hon. Gary Palmer, Member, Committee on the Budget, questions
submitted for the record................................... 53
Answers to questions submitted for the record................ 55
THE CONGRESSIONAL BUDGET OFFICE'S BUDGET AND ECONOMIC OUTLOOK:
CONSIDERING CBO'S ANNUAL BASELINE
----------
Thursday, April 12, 2018
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. Steve Womack
[Chairman of the Committee] presiding.
Present: Representatives Womack, Rokita, Black, McClintock,
Woodall, Sanford, Brat, Grothman, Palmer, Westerman, Renacci,
Johnson, Lewis, Bergman, Faso, Smucker, Yarmuth, Lujan Grisham,
Jeffries, Delbene, Boyle, Jayapal, Carbajal, Jackson Lee, and
Schakowsky.
Chairman Womack. The hearing will come to order. Welcome to
the Committee on the Budget hearing on the Congressional Budget
Office's Budget and Economic Outlook. Bear with me. In the
congressional budget process, we often refer to this annual
report as a baseline, because it provides a benchmark when
considering the effects of policy options and determining
funding levels. That being said, receipt of the baseline each
year means that the process of writing the budget resolution in
this committee can begin in earnest.
While the CBO's report is typically published earlier in
the calendar year, we knew that this year's would be delayed in
order to adjust for the recently enacted tax reform law.
However, regardless of when it is released and updated each
year, CBO's baseline is important because it sheds light on our
Nation's current fiscal challenges and guides us in mapping out
a sustainable path for the future.
Assuming the continuation of current law, CBO's baseline
offers projections of Federal spending, revenue surpluses or
deficits, and debt. CBO's baseline also includes a forecast of
key economic indicators, as well as detailed budget estimates
for specific programs and categories of spending.
We are joined today by Dr. Keith Hall, who is the Director
of the Congressional Budget Office, and we appreciate his
attendance at yet another hearing involving the CBO. And, Dr.
Hall, we appreciate you being here today.
Before we welcome his comments and then begin, in earnest,
our question and answer period, I would like to yield for some
opening statements from the Ranking Member, the gentleman from
the Commonwealth of Kentucky, Mr. Yarmuth.
[The prepared statement of Chairman Womack follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Yarmuth. Thank you, Mr. Chairman, and welcome, Director
Hall. Thank you for appearing before us once again. This year's
economic and budget outlook offers a contrasting story. CBO
presents us with an optimistic short-term economic forecast,
one that, you note, is more optimistic than that of the Federal
reserve and most private forecasters, along with a very
disturbing longer-term budget forecast that shows the deficit
reaching $1 trillion 2 or 3 years earlier than in your previous
estimates.
The two, of course, are not unrelated. Congress has
provided a large jolt of economic stimulus with tax and
spending bills this winter. We would be better off if the other
side had been as willing to support economic stimulus nine
years ago, when it was urgently needed, as they are today. But
we are where we are, and these bills are giving the economy
some juice today. But they are also increasing our current and
long-term deficits.
The tax bill focused its benefits on the wealthy and
corporations. The Treasury Secretary and many Congressional
Republicans kept insisting that the bill would pay for itself.
No credible source has ever agreed, and your report confirms
the obvious: the tax bill does not pay for itself. Indeed, its
economic feedback does not even quite pay for the additional
interest spending needed to finance it. The numbers in your
report indicate that, if we had not passed the tax bill, the
deficit outlook for 2018 to 27 would have actually improved
since your June estimate. Instead, it is $1.6 trillion worse.
We are getting some economic boost from the tax bill, and
while that will be welcome, it will also be short-lived. The
boost is very front-loaded. Indeed, your report indicates that
the tax bill will actually reduce our economic growth rate
beginning in 2025. I also worry that the benefits, as short as
they may be, will not be broadly shared; that they will
primarily help those who are already doing well at the expense
of everyone else, just like the tax cuts themselves.
I think it is important to point out that this picture
assumes we will not have a recession for a decade, that the fed
will be able to raise rates just enough to keep the economy
from overheating over the next four years, then drop them just
enough from 2022 to 2026 to engineer a soft landing. I hope you
are right about that, but I do not think we can count on having
the current expansion last nearly twice as long as the longest
previous one in our history, and a recession would surely mean
a weaker economy and larger deficits than you forecast.
That is a reality Congressional Republicans and President
Trump are pretending we do not live in. They have succeeded in
making the deficit worse. They are now trying to use the
deficit as an excuse to make massive cuts to programs vital to
American families, including Medicare, Medicaid, and Social
Security. The Balanced Budget Amendment we are debating on the
floor today would force those cuts. It will not pass, but I
think we can count on our colleagues to keep trying.
After all, it is what we have seen for decades. It happens
every time a Republican President replaces a Democratic one in
the White House. Ronald Reagan cut taxes, sent deficits
skyrocketing, and unsuccessfully sought to slash the safety
net. The second President Bush cut taxes, turned record
surpluses into record deficits, and unsuccessfully sought to
cut Social Security. Even President Nixon inherited a surplus
that immediately disappeared.
It is no surprise that we see the deficits soaring again
now that Republicans have taken full control over the Federal
budget. Some things never change. The only thing Republicans in
Washington like better than complaining about deficits and debt
is increasing deficits and debt. It is part of a three-step
process that we have seen time and time again.
First, they cut taxes primarily for the wealthy. Second,
they shed crocodile tears and raise the alarm about the rising
deficits that they just worsened. Third, they insist that the
deficit is purely a spending problem and push for extreme cuts
in programs that are vital to American families.
I suspect we will hear at least some of my colleagues
pursue steps two and three today, but before we get to that,
Director Hall, I look forward to hearing your testimony. I
yield back.
[The prepared statement of Mr. Yarmuth follows:]
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Chairman Womack. Thank you, Mr. Yarmuth. As noted earlier,
Dr. Keith Hall, Director of the Congressional Budget Office, is
in front of you today. The committee, sir, has received your
opening statement, and it will be made part of the formal
hearing record. You will have 5 minutes to deliver oral
remarks, and then, I am sure that the members that are gathered
here today, and those that will arrive at some point during
this hearing, will be anxious to engage you in a question and
answer period.
So, we are going to yield the floor to you for 5 minutes
for your opening remarks, and the floor is yours, sir.
STATEMENT OF DR. KEITH HALL, DIRECTOR, CONGRESSIONAL BUDGET
OFFICE
Mr. Hall. Thank you. Chairman Womack, Ranking Member
Yarmuth, and members of the committee, thank you for inviting
me to testify about the Congressional Budget Office's most
recent analysis of the outlook for the budget and the economy.
My statement summarizes CBO's new baseline budget projections
and economic forecast, which the agency released on Monday.
In the Congressional Budget Office's baseline projections,
we can incorporate the assumption that current laws governing
taxes and spending generally remain unchanged, the Federal
budget grows substantially over the next few years. Later on,
between 2023 and 2028, it stabilizes in relation to the size of
the economy, though at a high level. As a result, Federal debt
is projected to be on a steadily rising trajectory throughout
the coming decade, approaching 100 percent of gross domestic
product by 2028.
Projected deficits over the 2018 to 2027 period have
increased markedly since we issued our last budget and economic
projections in June of 2017. The increase stems primarily from
tax and spending legislation enacted since then, especially the
2017 tax act, the Bipartisan Budget Act of 2018, and the
Consolidated Appropriations Act of 2018.
In our economic projections, which underlie our budget
projections, inflation-adjusted GDP, or real GDP, expands by
3.3 percent this year, and by 2.4 percent in 2019. Most of this
growth is driven by consumer spending and business investment,
but Federal spending also contributes a significant amount this
year.
Growth of real GDP exceeds the growth of real potential GDP
over the next 2 years. This marked cyclical path in real GDP
will occur, in large part, because the recent legislation
provides significant fiscal stimulus at a time when there is
very little slack in the economy. Those effects, as well as the
larger Federal budget deficits resulting from the new laws,
exert upward pressure on interest rates and prices.
During the 2020 to 2026 period, those factors, along with
the slower growth and Federal outlays in the expiration of
reductions in personal income tax rates, dampen economic
growth.
After 2026, economic growth is projected to rise slightly,
matching the growth rate of potential output by 2028. Between
2018 and 2028, real actual output and real potential output
alike are projected to expand at an average annual rate of 1.9
percent. In our forecast, the growth of potential GDP is the
key determinant of the growth of actual GDP through 2028,
because actual output is very near its potential level now and
is projected to be near its potential level at the end the of
the period.
Potential output is projected to grow more quickly than it
has since the start of the 2007 and 2009 recession, as our
growth and productivity increases to nearly its average over
the next 25 years. Nonetheless, potential output is projected
to grow more slowly than it did in earlier decades, held down
by slower growth of the labor force.
In our projections, the effects of the 2017 tax act on
incentive to work, save, and invest raise real potential GDP
throughout the 2018 to 2028 period. Over the same period, the
tax act is projected to boost a level of real GDP by an average
of 0.7 percent and non-farm payroll employment by an average of
1.1 million jobs.
Our current economic projections differ from those that we
made in June 2017 in a number of ways. The most significant is
that potential and actual real GDP are projected to grow more
quickly over the next few years. Projected output is greater
because of the recently-enacted legislation, data that has
become available after our previous economic projections were
completed, and improvements in our analytical methods.
Over the next decade, the unemployment rate is lower in our
current projections that our previous ones, particularly during
the next few years, then, economic stimulus boosts demand for
labor. Also, both short and long-term interest rates are
projected to be higher, on average, from 2018 to 2023.
Turning to the budget projections, we estimate that the
2018 deficit will total $804 billion, $139 billion more than
the $665 billion shortfall recorded in 2017. In our
projections, budget deficits continue increasing after 2018. As
deficits accumulate, debt held by the public rises from 78
percent of GDP, or $16 trillion, at the end of 2018, to 96
percent of GDP, or $29 trillion, by 2018. That percentage would
be the largest since 1946, and well more than twice the average
over the next few decades.
For the 2018 to 2027 period, we now project a cumulative
deficit that is $1.6 trillion larger than the $10.1 trillion
that we anticipated in June. Projected revenues are lower by $1
trillion. Projected outlays are higher by half a trillion.
Laws enacted since June 2017, above all, the three
mentioned earlier, estimated to make the cumulative deficit
$2.7 trillion larger than previously projected between 2018 and
2017. However, revisions to our economic projections caused us
to reduce our estimate of the cumulative deficit by $1 trillion
over the same period, mainly because of our expectations of
faster growth in the economy.
I appreciate the invitation to testify today about CBO's
budget and economic outlook, and I would be happy to answer
questions.
[The prepared statement of Keith Hall follows:]
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Chairman Womack. Thank you, Dr. Hall, once again, for your
appearance and for your opening remarks. And now, we are going
to begin our Q-and-A with you.
Dr. Hall, this is the first hearing we are having with you
since the conclusion of the CBO Oversight Hearing series. In
the course of those five hearings, the committee expressed
concerns about the CBO's level of transparency in its
interactions with outside organizations in the course of
developing projections and analysis.
In what ways has CBO responded to those concerns in the
budget and economic outlook that you present today? And then, I
will follow up by asking, would you characterize the work that
you have done in this product fundamentally showing your work
on the baseline? So, help us understand where you are in the
area of transparency.
Mr. Hall. Sure. Well, one of the things we did, of course,
when we talked about our economic projection, we did put that
in context of other economic projections around. So, we
compared it to blue-chip. We compared it to the Federal
Reserve, and some of those things. And then, one thing that we
did that I thought has been particularly helpful already, is
when we estimated the impact of the tax act.
One of the things we focused on in appendix B was we
focused on how we formulated our economic impact of the tax
act, how we incorporated that. So, we spent a lot of time in
appendix B going through great detail of how we saw the
economic impact working out, and we produced a table comparing
our estimate of economic impact with estimates of the eight
other groups or individuals that did a comparable job of trying
to estimate the effect of the tax act.
Chairman Womack. In the CBO's budget outlook, you project
mandatory spending will reach 15 plus percent of GDP by the end
of the budget window in 2028. By that point, your budget
outlook projects mandatory spending, plus net interest
payments, will be 77 percent of the Federal budget. Talk a
little bit about the composition of the Federal budget in terms
of mandatory spending versus discretionary spending, and how it
has changed down through the last several decades. In other
words, how these proportions have basically flipped from, say,
50 years ago.
Mr. Hall. Right. Well, for example, in 1968, mandatory
outlays were something like 6 percent of GDP, and discretionary
outlays were something like 13 percent. Discretionary was much
larger. Right now, mandatory outlays total about, as you say,
12, 13 percent of GDP. Discretionary outlays are now only about
6 percent of GDP. So, mandatory outlays have completely
overtaken discretionary outlays.
And in our 10-year forecast, that trend is only going to
continue. Discretionary outlays are going to continue to fall
as a share of GDP, and mandatory outlays are going to grow
significantly.
So, we are getting to see a very, very different picture of
how the Federal Government spends money. And one aspect of that
I think is important is net interest is going to become a very
large share of Federal spending going forward, hitting a number
that is over 3 percent of GDP in the next 10 years, which is
going to be higher than total spending on either defense or
nondefense discretionary spending. Either one of those will now
be overtaken by net interest, going forward.
Chairman Womack. One of my takeaways in the outlook is the
fact that discretionary spending--and I am addressing what we
just talked about in a little different way, here--that
discretionary spending in the aggregate numbers goes up over
the 10-year window, as one would expect it might, but its
share, its percentage of GDP, actually goes down.
So, is that not another way of saying that the fiscal
challenges facing the United States right now is more
complicated on the mandatory side, the autopilot spending that
this Congress provides every year for big programs, and less to
do with what is happening on the discretionary budget?
Mr. Hall. Absolutely.
Chairman Womack. Okay. I think my Ranking Member is going
to defer his questions, as he traditionally does.
Mr. Yarmuth. I am going to defer.
Chairman Womack. So, we are going to go straight into
member questions, and I am going to yield first to the
gentlelady from Tennessee, Ms. Black, for 5 minutes.
Ms. Black. Thank you, Mr. Chairman, and again, welcome, Dr.
Hall, for being here to talk about the report. I want to ask
you if you can explain how CBO treats the cost-sharing
reduction payments in the baseline, and along with that, is CBO
doing this in full compliance with the section 257 of the
Balanced Budget and Emergency Deficit Control Act of 1985,
commonly known as the Gramm-Rudman?
Mr. Hall. Sure, sure. Well, the cost-sharing reductions
used to be paid for with direct payments, and that has now
ended. And in reality, what has happened is insurance companies
have had the ability to raise their premiums on silver plans to
compensate for the lack of direct payments for the CSRs. In
fact, I think we are projecting something like an increase in
premiums of about 10 percent.
And so, in our forecast, we have the CSRs paid for by these
higher premiums, which are then subsidized by the Federal
Government. And those subsidies are sort of taking the place of
the direct payments on the CSRs. And so, the CSR entitlement is
paid for in our forecast, it is just paid for a different way
that reflects the reality of what is going on.
Ms. Black. So, just to make sure that I understand
completely and to clarify, does this mean that the CBO
continues to treat CSRs as an entitlement obligation in the
baseline, in accordance with the law as stated before in this
committee?
Mr. Hall. It does. It is an entitlement in our baseline,
and we have it paid for in our baseline.
Ms. Black. And then, my final piece of this is, what is the
benefit of CBO reflecting the entitlement obligation through
the premium tax credit? And does this show the American public
a more realistic picture of our fiscal situation?
Mr. Hall. Well, absolutely. We are required to show that it
is paid for, and it is paid for, but in reality, it is being
paid for through increased subsidies from higher premiums. So,
it is reflecting the reality. And again, we are describing, I
think, accurately how the CSRs are operating and being paid
for.
Ms. Black. Thank you, Mr. Hall, and I yield back the
balance of my time.
Chairman Womack. Mr. Jeffries, New York.
Mr. Jeffries. Thank you, distinguished chairperson, as well
as the distinguished Ranking Member, for yielding. Good
morning, Dr. Hall. You were asked earlier today about mandatory
outlays, is that correct?
Mr. Hall. Yes.
Mr. Jeffries. And mandatory outlays primarily include
Social Security and Medicare, correct?
Mr. Hall. That is right.
Mr. Jeffries. So, when some folks in this town talk about
reducing mandatory outlays, that is ``Washington speak,'' as
Mick Mulvaney might say, for cutting Social Security and
Medicare. True?
Mr. Hall. Most of the increase in mandatory spending is
keeping up with the aging population and the scheduled payments
out of Social Security and Medicare.
Mr. Jeffries. Okay. Now, before becoming the Director of
the CBO, you served as the chief economist for President George
W. Bush, correct?
Mr. Hall. Yes.
Mr. Jeffries. And you were chosen for your current role by
congressional Republicans in 2015, is that right?
Mr. Hall. Yes.
Mr. Jeffries. Okay. So, according to CBO's new baseline
budget projections, remind me again, how large is the 2018
deficit projected to be?
Mr. Hall. It is projected to be $804 trillion this year.
Mr. Jeffries. Okay. That is under a Republican-controlled
House, Senate, and Presidency, correct?
Mr. Hall. Yes.
Mr. Jeffries. How does that estimate compare with last
year's level?
Mr. Hall. It is a significant increase over our estimate
last year for 2018. But it is a significant increase since last
year. It was, like, $655 trillion last year. It is now $804
billion [sic].
Mr. Jeffries. Okay. So, let me try to get an understanding
of what accounts for that significant increase. Now, I think in
your testimony you said that a $194 billion reduction in
projected revenues accounts for much of that difference. Is
that right?
Mr. Hall. Yes.
Mr. Jeffries. And that reduction in revenues is mainly
because of the effects of last year's so-called Republican tax
reform bill. Is that right?
Mr. Hall. That is correct.
Mr. Jeffries. And, according to the CBO's new budget and
economic outlook, the Republican tax bill increases the
projected deficit over the next 10 years by about $1.9
trillion. Is that right?
Mr. Hall. That is correct.
Mr. Jeffries. Now, we are going to hear a lot of talk on
the floor today about the notion of confronting this
existential $20 trillion debt that we face, and certainly, that
is enormous. I am trying to get an understanding of how we
arrived at that point. Is it fair to say that part of that debt
results from a failed war in Iraq that occurred under a
Republican administration?
Mr. Hall. I would not want to characterize the war, but
certainly, spending on the conflicts has been a part of the
budget.
Mr. Jeffries. Okay. And we also had what I would call an
unnecessarily prolonged conflict in Afghanistan. Several of us
were just there. Our troops are doing a phenomenal job. But 16,
17 years is an incredibly long period of time. Would part of
that $20 trillion debt be accounted for by the war in
Afghanistan?
Mr. Hall. Yes, it would.
Mr. Jeffries. Okay. And that war, of course, unnecessarily
prolonged by going into Iraq, occurring under a Republican
administration. Now, would the debt that confront now, in part,
be accounted for by the 2001 Bush tax cuts?
Mr. Hall. Yeah, I am not sure how that plays into it, but I
think it did have a negative impact on the deficit.
Mr. Jeffries. And a negative impact on the deficit could
also be attributed to the 2003 Bush tax cuts, is that correct?
Mr. Hall. I believe so. I have not looked at those numbers
lately.
Mr. Jeffries. It also seems to me that the economy, which
collapsed, in 2008--perhaps because of this theory of
Republican financial deregulation, but I know you will not
characterize that one way or the other--but the collapse of the
economy in 2008 contributed, in some measure, to the debt and
the financial situation that we find ourselves in right now. Is
that not correct?
Mr. Hall. Yeah. There is a nice statistic I can throw at
you, is the debt in 2007 was about 35 percent, the cumulated
debt of GDP. And in just 5 years, it doubled to about 75
percent of GDP over that time period.
Mr. Jeffries. Okay. And then, the icing on this cake that
has been given to us by my good friends on the other side of
the aisle seems to be the $2 trillion in additional debt to
subsidize the lifestyles of the rich and famous in a way that
was totally unnecessary, given the state of our economy at this
moment.
And so, I know my friends on the other side of the aisle,
in good conscience, have a different perspective, but it is
really hard to be lectured about fiscal and financial
restraint, given all of what we just detailed that has taken
place over the last 18 years. I yield back.
Chairman Womack. Mr. McClintock, California.
Mr. McClintock. Thank you, Mr. Chairman. I would remind my
colleague that the deficit annually exceeded $1 trillion in the
Obama-Pelosi era, and the national debt doubled under that
administration. But that does not excuse the deficit numbers
and projections that we are seeing today. I have also tried to
educate my friends over the years to the fact that debts and
taxes are really the same thing. A deficit and a tax are the
only two possible ways to pay for spending. This is driven by
spending. A deficit is simply a future tax. We borrow now and
pay it back out of future taxes. But it is all driven by
spending.
My greatest fear for our country is that our spending-
driven debt and our annual deficits are setting the stage for a
debt spiral that could well lead to a sovereign debt crisis. We
have already seen years of irresponsible fiscal policy having
cost Puerto Rico access to the credit market, which has left it
absolutely helpless to respond to emergencies when it was
struck by natural disasters.
Mr. Hall, are we setting the stage for a debt spiral, when
the capital market begins assessing higher interest rates to
compensate for higher risk?
Mr. Hall. Yeah, the difficulty in that is knowing how much
is too much, but I think that we have accumulated a lot of
debt. We have increased the risk of a debt spiral, of a
financial----
Mr. McClintock. Now, that 5 years ago, Standard and Poor's
downgraded our AAA credit rating for the first time in history,
did it not?
Mr. Hall. It did.
Mr. McClintock. How are credit markets assessing our
current situation?
Mr. Hall. Well, it is hard to know how to characterize
that, but that is, I think, the right thing to focus on,
because if the U.S. debt gets sufficiently higher and we seem
to show insufficient resolve to fix it, then it can affect the
willingness of credit markets to lend Federal Government money
without a premium.
Mr. McClintock. And we do not know when that is going to
occur, but we are quite certain, on the path that we are now
on, it will occur.
Mr. Hall. Yes. I think we have characterized, and I still
would characterize, the path as unsustainable.
Mr. McClintock. Now, if Treasury yields begin to rise due
to market concern over all level of debt and our inability and
unwillingness to manage that debt, what does that do to our
interest costs?
Mr. Hall. Well, it can raise our interest costs
significantly. Our forecast already has really high interest
costs. At some point in the future, that could raise it
significantly.
Mr. McClintock. Now, we are already paying, both Republican
and our governmental debt, about $475 billion just to rent the
money we have already spent, are we not?
Mr. Hall. That is right.
Mr. McClintock. What does a 1 percent increase in the
interest rate do to our interest costs annually?
Mr. Hall. We have not worked out that rule of thumb number,
but it raises it significantly.
Mr. McClintock. Is it roughly $200 billion a year?
Mr. Hall. Yeah, I think that is what we worked out last
year. It should probably be about the same.
Mr. McClintock. So, a 1 percent increase in interest rates
this year would add another $200 billion to our interest costs,
even if we balanced the budget this year?
Mr. Hall. That is right. And I would say, in terms of the
uncertainty in our forecast, that is one of the biggest ones.
Mr. McClintock. Now, a debt spiral occurs when the market
begins raising interest rates or interest costs balloon
accordingly. Since we have to borrow that money as well, the
risk goes up, the treasury yield goes up, and we enter a debt
spiral. Is that correct?
Mr. Hall. That would be the----
Mr. McClintock. What are our policy options, at that point?
Mr. Hall. They are pretty tough. They are much more
Draconian than anything we have faced, I think, maybe ever, if
that happened.
Mr. McClintock. Is Venezuela, right now, going through a
sovereign debt crisis?
Mr. Hall. I believe so. I do not know that much about
Venezuela's situation. But there are countries like Venezuela
who have gone through this.
Mr. McClintock. Well, I think history is screaming this
warning at us that countries that bankrupt themselves simply
are not around very long. Now, a lot has been said about
mandatory spending, but does the Budget Act not give Congress
expedited powers, streamlined powers, to deal with mandatory
spending?
Mr. Hall. I am not an expert in that, so I am going to have
to pass on that one. I do not know.
Mr. McClintock. Well, the budget adopted by Congress has
discretionary and mandatory spending levels, and then triggers
a reconciliation bill, which gives us expedited, streamlined
powers to adjust any statutes to conform to those mandatory
budget levels. But that requires a budget to be in place. What
effect on our ability to deal with this looming crisis is our
failure to even produce a budget this year?
Mr. Hall. Well, certainly, the uncertainty is not efficient
for the Federal Government, and certainly for expectations
going forward. I think that one of your concerns is a valid
one, that a lot of our ability to function depends upon
people's confidence in our ability to handle the deficit.
Mr. McClintock. And we do not even have a plan to do so, at
this point, and certainly have shown no inclination.
Mr. Hall. None that I have heard.
Chairman Womack. Thank you. Mr. Boyle, Pennsylvania.
Mr. Boyle. Well, thank you to the Chairman, Ranking Member,
and thank you, Dr. Hall, and not just for testifying, but your
work. But I also want to say for everyone at the Congressional
Budget Office, it is incredibly important in any time that we
have a nonpartisan agency to simply call the balls and strikes
without partisan interference. But I think especially in these
times, the work that CBO does is vital. So, thank you, and to
everyone at CBO.
Last year, at a number of town halls I held in my district,
I predicted that the fiscal and budgetary plan of the majority
was in two parts. First was to push through a massive tax cut,
which they ultimately did, to the tune of $1.9 trillion.
And to put that into perspective, the Obama-era stimulus--
back when the worldwide economy was in the great recession that
some on the other side complained wildly about for its enormous
size--that was under $1 trillion. So, the tax cut that was just
planned was actually double the size of the Obama stimulus. And
bear in mind something that is often forgotten--half of the
Obama stimulus was a tax cut. Only half of it was, in fact,
spending.
Part two of the majority's plan, though, after spiking the
deficit and the debt to unsustainable rates, is to come back
and say, ``My God, we have a deficit problem. We have a debt
problem. It must be because of out-of-control spending.'' And
then, of course, the area to target are the two biggest drivers
of our spending, Social Security and Medicare. Part one of that
plan has already happened, and I fear that 2018 will be, as
Speaker Ryan put it, about ``entitlement reform,'' which is,
essentially, part two of that plan.
Now, on to this deficit and debt. There have been previous
periods, as one of the speakers on the other side pointed out,
where our deficit has exceeded $1 trillion. They did in the
great recession. You also saw, in the 2001, 2002, early part of
the George W. Bush era, a massive tax cut which spiked the
deficit and took us from a few straight years of surpluses to
deficits. But at least, in those last two examples, the economy
had fallen into recession.
We had, of course, the great recession beginning in
December of 2007, though no one knew at the time that recession
had started in December of 2007. Everyone knew it by the fall
of 2008. And, in 2001, the economy also went into recession.
What really concerns me is the fact that in an era of an
unemployment rate of almost 4 percent, in an era of growth, not
recession, that we are already exceeding, as we will next year,
$1 trillion in deficit. I ask you, what tools will be at our
disposal when the next recession hits?
Because sure enough, just as we know the sun will rise
tomorrow, we know that there will be another recession yet to
come, and that this economic growth cycle of approximately 8 to
9 years now will inevitably end, and we will enter into
recession. And if we already have a $1 trillion deficit when
that happens, what tools will be at our disposal in order to
inject stimulus into the economy?
Mr. Hall. You are focused on something that I think is
really important, is we have deficit and debt at this time
period when there is essentially no slack in the economy. There
is no recession going on. This would be a time where one could
run a surplus and try to pay for debt that has been accumulated
during the last recession. But we are not in that position, and
if you think about what happened with the great recession--I
think I mentioned this before but I will mention it again--debt
doubled from 35 percent of GDP, which was already considered to
be a high level, to 75 percent in just 5 years.
So, one of the real worries going forward is exactly what
you described. If we go into an economic downturn, the tools
available for Congress and everybody else to deal with it will
be much more limited than they have been in the past. And I
think that should be a real concern.
Mr. McClintock. Thank you. I yield back the remaining 25
seconds of my time. Thank you.
Chairman Womack. Mr. Woodall, Georgia.
Mr. Woodall. Thank you, Mr. Chairman, and thank you, Dr.
Hall for being here. Dr. Hall, I want to pick up where my
colleague left off. You said in these more robust economic
times, these are times where we could be running a surplus. I
have your economic outlook that you just published. I have the
one from last April. I have the one from last January. Which
one should I be looking at, where you were forecasting
America's economic future and you saw those surpluses in the
numbers?
Mr. Hall. Well, under current law, it has been quite a long
time since current law pointed toward surpluses.
Mr. Woodall. Well, let me make sure I understand, then. If
these are the times where we should be running surpluses, but
no look that you have taken in your tenure at CBO has us
running surpluses, what tools are there, then, to get us from
where we are to the surpluses that you think we should be
achieving?
Mr. Hall. Well, what I was trying to suggest is not that we
should be running a surplus. I do not want to offer advice like
that. But if you are going to run a surplus, and you are going
to run a surplus to deal with the debt, the time to do it would
be when your economy is in full force, it is functioning near
its potential.
Mr. Woodall. Undeniably, that is true. I am thinking about
what are the tools to make that happen? I heard one of my
friends on the other side talk about spending, and that we did
not have a spending problem. What I am looking at, at the CBO
reports, and I look at taxation as a percent of GDP--certainly,
we have just undergone a tax cut, but all of your previous
reports suggested to me that the level of taxation in America
was already higher than the historical norm. Have I been
reading your historical reports accurately?
Mr. Hall. Oh, yeah, you have. You have.
Mr. Woodall. Absolutely. I saw that in the appendix. But I
guess what I am trying to understand is, if the CBO is
reporting that we have been experiencing record high levels of
taxation in this country, way above the historical norm, that
we are experiencing a sound economy in ways, that you would
expect this to be the time to dig us out of any hole that we
have been in, I am just trying to think of what other tools are
available to us, and I cannot think of many. And I was hoping
you might, in your expertise, have some other ideas.
Mr. Hall. Well, in a sense, the tools are three, right? You
can reduce spending, you can increase revenues, you can try to
grow the economy, but I do not think growing the economy is
going to make enough of a difference on its own. And I think it
is such a big problem, you need to think about it broadly.
Mr. Woodall. Well, I appreciate your saying that. I
appreciate all the kind words that you have received for your
leadership and for your organization. I think you are exactly
right. If we are experiencing record high taxation,
experiencing more record high taxation is probably not the best
tool in the toolbox. Dealing with spending, on the other hand,
is an important thing to do. We can demonize it all we want to,
but you cannot demonize deficit spending and reducing spending
simultaneously.
What I also want to follow up on is folks applauded your
role as the nonpartisan scorekeeper, which I value. But I also
noticed in your response to the Chairman about transparency,
you made a note of other institutions that were also looking at
economic prognostication, and how you compared to them. If we
were to have the Federal Reserve economist sitting beside you
this morning, would you think that would be a partisan analysis
they were sharing with us, or would you put that in the
nonpartisan analysis, also?
Mr. Hall. My experience is that they are nonpartisan. They
are very solidly nonpartisan.
Mr. Woodall. Now, what if we brought in one of the big Wall
Street macroeconomic analysis groups. Would that, then, be a
partisan analysis, or would they also give us a nonpartisan
view?
Mr. Hall. Probably nonpartisan. It sort of depends.
Mr. Woodall. So, you would say that, while we might all
recognize the importance of a nonpartisan analysis, that
finding nonpartisan analysis is not a particularly difficult
thing to go? We do have institutions across this country,
including the CBO, perhaps even led by the CBO, but
institutions across this country that provide that same high-
quality analysis and effort to do it in a nonpartisan way.
Mr. Hall. Right, yeah. And certainly, we offer more than
just an economic forecast because we are doing the whole
baseline. But we do. There are other places, and we do look at
them, actually. We do compare our numbers to make sure that we
are not too out line and understand if we are a little out of
line that we are confident in what we are forecasting.
Mr. Woodall. Thank you very much for your work on this
product and for being here today. Mr. Chairman, I yield back.
Chairman Womack. Ms. Jayapal, Washington.
Ms. Jayapal. Thank you, Mr. Chairman. Director Hall, thank
you so much for being with us again, and thank you for all the
work that you and your staff do. I, too, wanted to echo some of
the comments that Mr. Boyle made. I am troubled by some of the
statements that we heard last year, as our Republican
colleagues attempted to push through--did push through--a tax
plan that really benefited only the wealthiest in the country
and tried to say that it actually paid for itself. And I just
want to read some of the quotes that we heard.
So, President Trump's top economic advisor, Gary Cohn,
said, ``We can pay for the entire tax cut through growth.''
Treasury Secretary Steve Mnuchin agreed; ``The plan will pay
for itself.'' Senator John Thune said that, ``Even a modest
amount of economic growth could cover the cost of this bill,''
and White House Budget Director Mick Mulvaney went so far as to
say that he thinks that it, ``actually generates money.''
Director Hall, does this bill--do the tax cuts pay for
themselves, in your analysis?
Mr. Hall. No. Our estimate is that they increase the
deficit by almost $1.9 trillion over the next 10 years.
Ms. Jayapal. So, the tax cuts increase the deficit by
almost $1.9 trillion over the next 10 years. And, do you think
that we will be in a position where there is any level of
sustained growth that, in your analysis, would somehow mitigate
that? Your analysis counts for that, obviously, but tell us
about the growth assumptions. Maybe that is a better way to
state the question.
Mr. Hall. Well, sure. And really, there are kind of two
different growth things going on. The tax act, in particular,
made some changes that encourage investment, encourage capital
deepening, and we think that that did, in fact, contribute to
potential GDP, which is sort of the supply side of view. And we
do have an increase in potential GDP throughout the 10-year
period, and probably some increase after that. But also, at the
same time, a lot of the tax act and actually the other two
bills, the Bipartisan Budget Act and the Consolidated
Appropriations Act, provided a lot of stimulus.
So, you have some increase in potential, but you have a lot
of stimulus, and that stimulus is going to push growth above
its potential for a while. And while that is good in the short
run, the fact that it is above potential is going to cause
pressure. It could increase pressure on inflation and interest
rates, and we think what is going to happen is the Fed is going
to react, raise interest rates faster, interest rates are going
to go up faster.
So, we are going to have to then go through a bit of a
cycle. After this strong growth from stimulus that is going to
come down, we are looking for a soft landing to get us back
toward potential. So, we go through this sort of cycle now, I
think.
Ms. Jayapal. So, for people who are listening who may not
be as familiar with the numbers as you are, that means that you
estimated, I think it was 3.4 or 3.5 percent for this year. Is
that correct?
Mr. Hall. That is right.
Ms. Jayapal. And then you brought it down to a much lower
level for the following year. So, in other words, it is not
generating sustained growth in the economy. And the result of
that is this $1.9 trillion deficit. So, let me ask you another
question sort of related to growth. Did you factor in any
effects of a restrictive immigration policy?
Mr. Hall. No. Our assumptions on the level of immigration
has been pretty much the same.
Ms. Jayapal. So, if we were to pass bills that the other
side has been pushing that would significantly restrict
immigration policy to this country, what would happen to
growth?
Mr. Hall. Well, it depends on what is done, exactly.
Ms. Jayapal. Let's say we cut legal immigration by 25
million over the next five decades.
Mr. Hall. Sure.
Ms. Jayapal. Which is the proposal that Chairman Goodlatte
has put on the floor.
Mr. Hall. Well, one of the concerns we would have on the
possible outcomes would be a lowering of the labor supply. And
it is part of why our near-term projection is pretty high now
because we have the labor supply increasing pretty
significantly, labor force participation going up. That would,
potentially, have the other effect, where it would lower the
labor supply, and it could restrict our ability to produce.
Ms. Jayapal. And so, it could significantly increase our
deficits, because it could significantly decrease our growth.
Let me ask you this. I said last year, as Mr. Boyle did, that
the plan here is to first, transfer trillions of dollars of
wealth to the wealthiest--you do not have to comment on that--
through the tax cut.
Second, balloon the deficit, which is what has happened;
$1.9 trillion deficit, the majority of which is because of this
tax cut. And then, third, to use that as an argument to cut
spending on programs that I consider earned benefit programs,
programs like Social Security, programs like Medicare. There
are other options besides that.
What would happen, for example, if we raised the cap on
Social Security? And you have just 8 seconds, and I know the
Chairman is very certain about these things.
Mr. Hall. It would generate some more income, and revenue
would go up. We have an exact estimate. I do not have it in my
mind, but we have a document called ``Options for Reducing the
Deficit,'' and we do go through that scenario.
Ms. Jayapal. So, there are lots of opportunities to do
things that do not involve cutting Social Security, even though
that is certainly what, sometimes, the majority seems to be
focused on, is cutting Social Security.
Mr. Hall. Right. Though I do say, just in general,
sometimes the effect of raising that limit gets exaggerated. It
does have an impact, but it is not a solution.
Ms. Jayapal. Fair enough. Thank you.
Chairman Womack. Let the record reflect that I did give her
a chance to throw one more question.
Ms. Jayapal. You are always very generous with me, Mr.
Chairman. I have to say that.
Chairman Womack. Thank you. Mr. Renacci, Ohio.
Mr. Renacci. Thank you, Mr. Chairman. I want to thank
Director Hall for being here. I was a business guy for 30
years. I used to love when the numbers guy came in and talked
to me, so I love your numbers. Let us talk about them. Let us
go to your numbers.
Mr. Hall. Okay.
Mr. Renacci. Total revenue over 10 years goes from $3.3
trillion to $5.5 trillion. That shows me an increase of 66
percent. You do not have to answer that. It is 3.3 to 5.5. You
can calculate it. It is 66 percent. That is great. In my
business world, if you came to me and told me revenues were
going to increase by 66 percent, I would say, ``We are going to
have some record good years.'' The problem is, mandatory
spending goes from $2.519 to $4.524 trillion.
That is an increase of 80 percent, and I would say to you,
``Wow. We have got some serious problems. Not on the revenue
side, because we are growing 60 percent. We have got problems
in the spending side because we are growing 80 percent over 10
years.'' Again, these are your numbers.
The other problem we talk about is growth, and I am going
to ask you a question, and I know you are going to have a long
answer about growth. We talk about growth, and of course, the
tax plan is going to get us some growth. I heard you say just
earlier, ``Growth is not that important, in many cases.'' But I
go back to 1996 to 2006, and the average growth rate was 5.52
percent. That is the reason we balanced the budget.
That is the reason we had surpluses. It had nothing to do
with anybody sitting around this room, or anybody in Congress.
We had growth because the economy was booming. It was the tech
age. It was the computer boom. I was living it. In fact,
government even budgeted for $2 trillion in expenses during
those periods and doubled their expenses. So, Congress just got
in the way half the time. It was the economy that was moving.
The problem is, we keep narrowing ourselves down to the tax
cuts. The other side wants to talk about the tax cuts. And let
us talk about that. According to table 4.4, page 47, the gross
Federal debt increases from $21.3 trillion in 2018 to $33.8
trillion in 2028. That equates to an increase in the national
debt in that time period of $12.5 trillion. While I disagree to
the extent the impact of the debt that H.R. 1 will provide, it
does say that H.R. 1 will provide $1.854 trillion to that debt.
That is your calculation.
Mr. Hall. Yes.
Mr. Renacci. That is 15 percent of the total problem. That
is 15 percent of the total deficit; $12.4 versus $1.854. There
is $10.564 in additional debt that is going to occur over the
next 10 years, and we keep talking about the tax bill. Tell me
what you believe is in that $10.564, because that is really the
problem. That is the 80 percent increase. Where are we at, and
what is going to cause that?
Mr. Hall. Well, this is something that we have actually
been saying for a long time, that the aging population is going
to raise spending on the entitlements pretty significantly. It
has been coming for a long time. That is the big driver of the
increase in the deficit, going forward. And part of why I
caution about not counting on economic growth is we also have,
for the same reason, we have some limitations on our ability to
grow the economy, because we have an aging population. We are
just not going to get that sort of growth in the labor supply
that we had at one point.
Mr. Renacci. But you do agree that the aging population,
which does contribute to mandatory spending--which does
contribute to your numbers going from $2.5 to $4.5 trillion
over 10 years, which is an 80 percent increase--that needs
dealing.
Look, it is not the fault of many people here. I call it
``demographics.'' We have an aging population bubble that is
coming through. Would you agree that that is our biggest
problem, with our debts and deficits?
Mr. Hall. Well, that is the biggest reason for why we have
a growing deficit, absolutely.
Mr. Renacci. That is the greatest answer I have heard, and
I appreciate that, because too many times, people on the other
side and even on this side, we talk about taxes. I just told
you, our taxes are going up. Our revenue is going up 66
percent. If I was in business, I would be slapping you on the
back, and I would say, ``Let us go have a beer today, because
our revenues are going up 66 percent over the next 10 years.''
But I really would be saying, ``What are we going to do to
cut this 80 percent increase in mandatory spending? What do we
have to do to cut those numbers?'' And you just answered it. It
is a demographic bubble that we, as people here in this budget,
better start talking about.
Now, there will be somebody on the other side that will
say, ``Renacci wants to cut Social Security.'' That is not
true. I think that is a program that has to be around, but I
think you would also agree that these programs have to be
looked at. They are not sustainable, and if we do not look at
these programs, we are going to have a massive debt problem. I
heard one of my colleagues talking about spiraling debt. God
help our children and grandchildren. I say it all the time. I
am concerned for them every day because we cannot make the
decisions that are necessary to fix this mandatory spending. I
thank you for your time, and I yield back.
Chairman Womack. Mr. Carbajal, California.
Mr. Carbajal. Thank you, Mr. Chairman, and certainly, I
appreciate my colleague, Mr. Renacci, on the other side's
comments. I was just hoping to see him at my Armed Services
Committee asking for an audit to finally be done of the
Department of Defense, which has never been accomplished to
date in the history of our Nation.
Dr. Hall, thank you for being here and for the nonpartisan
good work that the CBO does. CBO's new forecast shows a
worsening fiscal outlook for our Nation, with a large part due
to the recently passed Republican tax plan. The tax bill alone
increases our deficits over 10 years by about $1.9 trillion,
almost half of our national budget. Is that correct, Dr. Hall?
Mr. Hall. That is correct.
Mr. Carbajal. Dr. Hall, in your analysis of the economic
impact of the Republican tax bill, it looks like most of the
short-term benefits fade away over time, in particular, on page
115, on the last 4 years of the outlook window. Your table B2
shows that the tax bill will actually reduce our GDP growth
rate. Is that correct?
Mr. Hall. That is right. That is the cycle I mentioned from
the stimulus being thrown into an economy with near potential.
Mr. Carbajal. Thank you. It is troubling that my Republican
colleagues insist these tax cuts would pay for themselves, when
we can see it is just not true. Meanwhile, later today, the
majority plans to vote on a flawed balance budget amendment.
Now that we have thrown our finances out of whack, we want to
move forward with a balance budget amendment. That would lead
to deep cuts to Social Security--let me repeat, Social
Security--and Medicare, and Medicaid.
There is no question we need to address our growing debt,
and that requires painful tradeoffs. Unlike some of my
Republican colleagues, I believe that cuts to Social Security,
Medicare, and Medicaid to pay for tax benefits that mostly go
to multi-national corporations and the wealthiest 1 percent of
Americans is not the right priority for our country. Looking at
ways that we can grow our economy, Dr. Hall, as a general rule,
does immigration tend to increase or decrease our economic
growth?
Mr. Hall. Well, in general, immigration can raise the labor
supply and increase growth.
Mr. Carbajal. I want to remind my colleagues that a 2013
comprehensive immigration reform proposal would have reduced
Federal deficits by $850 billion over 20 years, and increased
GDP by 5.4 percent over 20 years. I hope we can consider
proposals like this one, that would actually make our economic
future better. Thank you, Mr. Chairman. I yield back.
Ms. Black. [Presiding.] The gentleman yields back the
balance of his time. The gentleman from Virginia, Mr. Brat, you
are recognized for 5 minutes.
Mr. Brat. Thank you, Chairman. Thank you for being with us
today. Let me ask you a couple of questions. In your view, all
else equal, what would generate more economic growth: if you
reduced taxes $2 trillion, or raised taxes $10 trillion?
Mr. Hall. Well, certainly, tax reduction would generate
more growth, and that is what we have reflected in our
forecast.
Mr. Brat. Great. And so, thank you for that thoughtful,
accurate answer. In response to the comments on immigration in
the labor force, I think people have not taken Econ 101. And
so, it is clearly true if you imported everyone in the world,
right, all 8 billion people into our country, what would happen
to economic growth? It would go through the roof. Would anyone
be better off?
Mr. Hall. Well, we would not necessarily have a rise in GDP
per capita, I think.
Mr. Brat. Correct, right? And so, this whole conversation
is totally misplaced on labor supply, right? What people care
about is income per capita, right; how they are doing. And so,
the immigration and labor supply, et cetera, is missing the
point.
I wish my Democrat friends would go back to their buddy and
my buddy, JFK, who got tremendous economic growth by focusing
on things that matter. Productivity is what matters. That
produces per capita growth. Adding more labor supply by itself,
it depends. So, immigration, if you are pulling in folks that
have, on average, a tenth-grade education, what, is your guess,
happens to productivity for the country?
Mr. Hall. Right. I am sorry, once more.
Mr. Brat. On average, the folks that are coming into the
country have about a tenth-grade education.
Mr. Hall. Oh, I see.
Mr. Brat. All children of God, they are all Catholic
brothers and sisters, but what does that do to national
productivity, on average?
Mr. Hall. It really kind of depends upon the mix. Less
skilled immigration does not add to productivity. More skilled
actually does, so that mix is important.
Mr. Brat. Right. And so, I want to get to this year on the
spending side. It has been abstracting from reality, in my
view. If you look at what happened this year on the Budget
Committee, the House did a budget and plussed up the military,
nothing else. And we did tax cuts, and I have asked the CBO to
score, right? The Chicago guy said the tax cut bill does not
pay for itself. I think that is true. It pays for maybe a third
of itself.
But the Republican agenda with deregulation, et cetera, has
produced economic growth that, for the past 10 years or so, we
have been growing at about 1.5 or 2 percent, and now we are
looking at 3 percent. Right after you do tax cuts and get rid
of regulation, I do not think there is anything shocking here.
The shocking thing is that we did the tax cuts, and the
mainstream press, the Democrats discovered this thing called
the deficit. But then, when we went over to the Senate and we
needed nine Democrat Senators, we had to plus up the budget by
$400 billion, and not a word on that $400 billion from the
colleagues. $400 billion is bigger than $150 billion. And just
to show you who we needed to negotiate with, the biggest block
of votes on the Democrat side--and this is why I asked you the
opening question--the Progressive Caucus got 107 votes for
their budget, the Progressive Caucus budget, that raised taxes
by $10 trillion, raised spending by $11 trillion, and had more
debt and deficit than the Republican agenda when we cut taxes.
Right? And so, I asked you the question, ``Which is better
for growth, raising taxes $10 trillion, as the other side
wanted, or cutting taxes by $1.5 or $2 trillion that we
wanted?'' And now you guys did not get the growth forecast
right. It would be pretty hard for you to forecast who is going
to be President a year out or whatever.
But now, it seems empirical evidence is coming in. And, in
your view, when consumer confidence is at historic highs and
when business capital investment and business future
expectations are at all-time highs, do those two variables
usually go along with economic growth in the future?
Mr. Hall. Yeah. There are signs that consumer spending is
going to be strong.
Mr. Brat. Yeah, and there are signs that consumer spending
is going to be strong, but consumer spending is passive, right?
It is kind of the Keynesian composition of demand, right? So,
consumption is 70 percent of demand, blah, blah, blah. Why do
consumers have money to spend? Because the business side did
capital investment. And what leads to capital investment? Do
you think the Republican tax cut policy, that allows for
immediate expensing, is good for capital investment?
Mr. Hall. Yes, I do, and in fact that is part of our
forecast, is that we think that part of the tax act encourages
capital deepening, and maybe reduce some distortions. So, it is
giving a boost to this potential GDP. It is one of the reasons
why I focused on that.
Mr. Brat. Right. And in the comments, I wish we had more on
the supply side. Some folks on the other side of the aisle like
to poo-poo the supply side. Another name for the supply side is
``business.'' Everybody in the country that goes to work in the
morning at a business is on the supply side, and that is the
cause of the growth that allows consumers to spend. In your
view, in the growth theory, what are the two or three major
variables that cause economic growth?
Mr. Hall. Well, in the long-term, it is almost kind of a
simple recipe, right? Labor supply, productivity, and then
productivity depends upon capital deepening. And then, you can
get things like regulation in there, that helps productivity,
and maybe helps the labor supply, too.
Ms. Black. Gentlemen, time has expired.
Mr. Brat. Right. I think I ran out of time. Thank you very
much.
Ms. Black. Gentlemen Mr. Sanford from South Carolina is now
recognized for 5 minutes.
Mr. Sanford. I suspect that both sides could point plenty
of fingers at the other side in aligning blame, but I guess my
bigger question is, ``Are we set up for a disaster, in
financial terms?'' And so, I was jotting down, here, some
notes. If I am not mistaken, this is an all-time peacetime
high, in terms of debt, to GDP numbers. That we have never, in
our country's existence, seen a higher number.
We are in a benign interest rate environment relative to
historic patterns. We have an aging population. To a degree, we
still have at least a remnant of Pax Americana, maybe not the
1950s or 1960s, in terms of America's percentage of GDP
relative to the rest of the world, but still, well over robust.
But it is still a shrinking role, relative to the GDP of the
world.
We have asset inflation, and you can look at that in real
estate values. You can look at it in PEs, you can look at it in
dividend yield, which I think, in part, drives consumers
spending, which is the wealth effect. We have economic
longevity. I think we have the third longest economic recovery
in American history going. It has been anemic; had not had wide
distribution. Maybe it has been more concentrated than light.
But it has had the duration.
You add all those things up, and you say, ``Wow. If
something went wrong, it could go really wrong.'' I guess going
back to my colleague from California's point on debt spiral.
Are we set up for a disaster?
Mr. Hall. Well, part of my concern--I alluded to it
before--is we have such a high debt and deficit level right now
when the economy is operating near potential. So, the concern
is, of course, is we want to be operating near potential
forever. And when we go through business cycle, we will be
going through business cycle where the debt deficit's starting
at a very high level. So, if you go through normal sort of
cycle, those numbers could get much worse than we had forecast.
Mr. Sanford. Give me odds
Mr. Hall. Sorry?
Mr. Sanford. Odds.
Mr. Hall. We try not to do that. A timeframe, I would be a
little worried right now as we are going through a cyclical
period with GDP. Right? GDP is now going to be above potential.
We are looking for a soft landing, so.
Mr. Sanford. When I look at the kind of ingredients that I
looked at here, I do not know of a civilization that has seen a
soft landing from this kind of economic unraveling. I mean, if
you combine all of these different things in with the aging
population, with, you know, interest rates possibly clicking
up. Tell me how many other civilizations have seen soft
landings.
Mr. Hall. I am not an expert in that, but we are certainly
having a lot of faith, I think, in the Federal Reserve's
ability to sort of deal with the cyclical aspect.
Mr. Sanford. Yet if I remember right, back in the 1930s the
Fed's comment at the end of the day was they likened it to
``pushing on a string.'' That there was, in fact, limited
effect as to what they could do. If I am not mistaken, the
Fed's balance sheet has quadrupled over, you know, basically
since 2008. We have gone from about $1 trillion in asset base
to about $4 trillion in asset base. Are they not quite limited
in what they could do going forward?
Mr. Hall. Well, I would say to me one of the most
encouraging things is expectations on inflation have just
remained very calm, around 2 percent. And really what that is
is that is investor confidence that the Federal Reserve is
going to be able to handle things.
Mr. Sanford. I cannot remember the name of the gentleman.
He may have been head of the New York Stock Exchange or maybe
the head of the Fed. But his point was stocks had reached a
permanent new plateau. And this was 1929, just prior to the
crash. Again, these things have a way of unraveling, and I will
come back to that. But I do want to ask one question going back
to the point that was made earlier on the tax and spending
front. Our rough back of the envelope number for the last 50
years on spending as a percentage of GDP has been what?
Mr. Hall. It has been a little over 20 percent.
Mr. Sanford. Revenue as a percent of GDP roughly has been
about what?
Mr. Hall. Seventeen-something percent.
Mr. Sanford. At the end of the tax cut, at the end of the
10-year mark, we will be about what?
Mr. Hall. Will be at about 18.5 on revenue.
Mr. Sanford. We will be about where we have always been for
the last 50 years.
Mr. Hall. And 23.6 percent.
Mr. Sanford. So, spending is the part that is projected to
unravel the budget going forward. Is that correct?
Mr. Hall. Right. And both numbers are above the 50-year
average. Both numbers are going up. Spending is going up by
more.
Mr. Sanford. Thank you.
Ms. Black. The gentleman's time has expired. The gentlelady
from Texas, Ms. Jackson Lee, is now recognized for 5 minutes.
Ms. Jackson Lee. Mr. Hall, let me thank you for your
presence here, and your repeated presence before the Budget
Committee, and to the Chairman and Ranking Member. Mr. Hall, is
this your testimony? You put it in a nice package for us. It
looks like it says, ``Keith Hall, Director.'' Is this the
testimony that you submitted?
Mr. Hall. Yes.
Ms. Jackson Lee. So, if I hold this in my hand and begin to
read, you would surmise that I am not making it up as I read it
from your testimony.
Mr. Hall. Yes.
Ms. Jackson Lee. And I thank you very much. I think the
responsibility of the American people is to be diligent. But
those of us who represent the American people, our
responsibility is to be truthful. And as Members of the United
States Congress, which I tell the children in my district, the
most powerful lawmaking body in the world, it is to provide the
detailed oversight that is necessary. So, let me first of all
read this, and you just simply say that is my testimony.
``As a result, Federal debt is projected to be on a
steadily rising trajectory through the coming decade. Debt held
by the public, which has doubled in the past 10 years, as a
percentage of gross domestic product approaches 100 percent of
GDP by 2028.'' Is that your testimony, sir?
Mr. Hall. It is.
Ms. Jackson Lee. As I also reflect, so that my good friends
on the other side of the aisle, you do have something that
says, ``GDP is projected to be greater than CBO.'' That is a
headline. And then, you say, ``It is projected to grow more
quickly over the next few years. As a result, the levels of
those measures are 1.6 percent higher than CBO previously
estimated.'' So, you have got a little bit more growth. And you
wanted to make sure that we knew that you knew that, and the
CBO wanted to make that statement. Is that correct?
Mr. Hall. That is right. In the near term, yes.
Ms. Jackson Lee. And in the near term. Very important
point. In the near term. It does not say 10 years, 20 years; it
says in the near term. You have got a headline, but this is in
your statement. ``Deficits are projected to be large by
historical standards.'' Is that correct?
Mr. Hall. That is correct.
Ms. Jackson Lee. And my surmising is--this is in his
testimony--that the tax cut as have been given as a dupe to the
American people will be about a $800 billion deficit in 2018. I
am so glad I voted against it. A trillion-dollar deficit in
2019; a trillion dollars in 2020 and keep on growing. Now, have
you had a chance to look at the tax cut?
Mr. Hall. Yes. We did an analysis of it.
Ms. Jackson Lee. Do you recall the corporate tax rate at
this time?
Mr. Hall. Twenty-one percent.
Ms. Jackson Lee. 21 percent, down from?
Mr. Hall. It used to be a scale, but it was as high as 35
percent.
Ms. Jackson Lee. Correct. But let me just say my
understanding, my factual understanding is that corporate
America said give us 25 percent, but it might have been able to
work with 28 percent. This tax bill wanted to overdo it on
behalf of the American people, screw them out of, in essence,
Medicare, destroy Social Security. They gave 21 percent. So,
let me ask you this question. And what that means is that is
less income coming into the Treasury. Is that correct?
Mr. Hall. That is right.
Ms. Jackson Lee. And so, working Americans, but poor
Americans, poor Americans have a devastating impact by a
growing deficit. Do you think so, Mr. Hall?
Mr. Hall. Well, I think it raises the risk of economic
downturns. Economic downturns are very hard on everybody, but
it is particularly hard on lower income folks.
Ms. Jackson Lee. Do economic downturns possibly generate
loss of jobs?
Mr. Hall. Yes.
Ms. Jackson Lee. And that would be loss of jobs of
individuals who may be hourly workers, or temporary workers, or
just workers in positions that might be considered expendable?
Mr. Hall. Yes.
Ms. Jackson Lee. And say restaurants close because of the
lack of business or the lack of the ability to carry the
overhead. Is that correct?
Mr. Hall. That is right.
Ms. Jackson Lee. All right. Let me also ask you this
question. What have you learned about per capita spending for
the Medicaid expansion population, and how have you revised
your 10-year estimates for the program since June, which by the
way go beyond poor people, but are elderly in nursing homes,
are children with programs that we have touted, but they depend
upon Medicaid spending. What have you determined there?
Mr. Hall. Well, we recently just lowered our forecast on
Medicaid spending since June of 2017, particularly on the
expansion stage. Spending has been lower than we projected, so
we have lowered our forecast going forward.
Ms. Jackson Lee. You mean you lowered it in terms of it not
being available for those individuals who need it?
Mr. Hall. No. No. It is just that the cost to the Federal
Government has been less than we expected.
Ms. Jackson Lee. And what do you attribute to that?
Mr. Hall. Just costs are lower. I do not think it is
anything particularly with the number of people.
Ms. Jackson Lee. Well, what do you project long-term about
the viability of Medicaid in being able to pay for those
individuals who might need it?
Mr. Hall. Yeah. I do not recall offhand what exactly our
forecast is. But we do have a forecast going forward on that.
Ms. Jackson Lee. Let me ask for the record, Madam Chair----
Ms. Black. The gentlelady's time is expired.
Ms. Jackson Lee. Well, let me ask for the record to be able
to have that from the Director, and just say that the frivolity
of a balanced budget amendment should have been discussed when
my friends passed the frivolous tax cut bill. With that, Madam
Chair, I yield back.
Ms. Black. The gentlelady's time has expired. The gentleman
from Arkansas, Mr. Westerman, is recognized for 5 minutes.
Mr. Westerman. Thank you, Madam Chair. Thank you, Dr. Hall,
for being here today. The fiscal year 2018 deficit projections
went from $563 billion to $804 billion from the June 2017 CBO
report to the April 2018 one. How would you assign liability
for this deficit growth among specific legislative, economic,
and technical changes?
Mr. Hall. Most of the increase was the Tax Act. A pretty
big part of the increase was also an increase in discretionary
spending from the Bipartisan Budget Act and Consolidated
Appropriations Act. In fact, the number would have--the deficit
would have actually improved a little bit if it were not for
those three pieces of legislation.
Mr. Westerman. So, the CBO report shows that under current
law, the debt held by the public will be 96 percent of GDP by
2028.
Mr. Hall. Yes.
Mr. Westerman. And if you add the other debt, we are
already over 1-to-1 ratio on debt to GDP, are not we?
Mr. Hall. That is right.
Mr. Westerman. Right. So, when was the last time in our
Nation's history where a debt has been that large?
Mr. Hall. It was immediately after World War II. Just one
brief period, about 1946. And that is it. And that is the only
time. And one of the things I want to caution is that was a
really different time than now. All right? We are at a very
different time. And I think going forward, it is looking to get
larger going forward, I think. And the trend is upward.
Mr. Westerman. So, what would be some of the potential
consequences of having a debt that is equal or above our
Nation's GDP?
Mr. Hall. Well, number one is if we have an economic
downturn, we will have much fewer tools in dealing with it. It
could be much more severe because we just do not have the tools
because we have got so much debt. Second, the chances of a
financial market collapse, or a financial market problem is
higher now than it was before. And it really relies on the
Federal Government is going to continue to borrow.
We really rely on people having confidence that the Federal
Government is going to pay them back. Right? So, this is the
part that makes it difficult to forecast because who knows when
people are going to start asking for a premium from the United
States? And then, of course it restricts the ability of
Congress to do things. Right? Discretionary spending is going
to be a smaller and smaller part of the budget.
Mr. Westerman. And you may have already covered this, but
what is the current interest on the debt payment?
Mr. Hall. I do not know offhand. I should know that, but
the number is evading me. But we do think the long-term
interest rates are going to go up significantly.
Mr. Westerman. Can you give an approximate interest on the
debt?
Mr. Hall. Okay. Our 10-year interest rate right now is
about 2.4 percent. And we think it is going to go up to about
3.7 percent by the end of the decade.
Mr. Westerman. But in dollar value, what is the interest on
the debt payment?
Mr. Hall. I do not know in dollar value. One thing I do
have is we have interest payments being about 1.6 percent of
GDP. That gives you a little perspective of how easy it will be
to pay it back.
Mr. Westerman. So, 1 percent of GDP.
Mr. Hall. One-point-six percent, yes.
Mr. Westerman. But I am saying for every 1 percent, that is
about $200 billion.
Mr. Hall. Yeah.
Mr. Westerman. And 1.6, we are over $300 billion in
interest on the debt payment currently.
Mr. Hall. That sounds right. Yeah. And in 10 years,
actually that interest payment is going to get very close to a
trillion dollars.
Mr. Westerman. And how will that affect our ability to fund
other government services and the economic outlook of the
country if we are paying a trillion dollars per year in
interest on the debt?
Mr. Hall. I think I said this before, but I will repeat it.
It is going to be larger than all of defense spending; it will
be larger than all of nondefense discretionary spending.
Mr. Westerman. It will be the largest single expenditure in
the Federal Government will be interest on the debt?
Mr. Hall. Well, mandatory outlays will still be larger.
Mr. Westerman. Is not Social Security the largest one now,
just over $900 billion?
Mr. Hall. Yes.
Mr. Westerman. So, we are talking about interest on the
debt at over a trillion. I was looking at the outlays in 2017,
3.982 trillion; 2027, 6.615 trillion. That is 2.633 trillion in
10 years, or 66 percent increase if you average that 6.6
percent per year. Is that what you consider the baseline, and
if we reduce that growth, would that be considered a cut?
Mr. Hall. That is right. That is right. We compare things
to the baselines. So, we are comparing things to a growing
baseline. That is right.
Ms. Black. The gentleman's time has expired.
Mr. Westerman. Madam Chair.
Ms. Black. The gentleman from New York, Mr. Faso, is
recognized for 5 minutes.
Mr. Faso. Thank you, Madam Chairman.
Dr. Hall, thank you for your service, and thank you for the
sobering analysis that you and your staff have provided for us
today. CBO is projecting that mandatory outlays for major
healthcare programs, including Medicare, Medicaid, health
insurance subsidies, and SCHIP will total a little over a
trillion dollars in fiscal year 2018, and almost doubled to two
trillion by fiscal year 2028. What are the biggest or largest
factors that CBO is attributing this large increase in Federal
healthcare spending?
Mr. Hall. Well, the number one thing is the aging
population. We are just going to have more people who are 65
and older, and of the people 65 and older, more will be older.
Mr. Faso. And that is not a Democrat or Republican, a
Liberal or Conservative factor; that is just plain simple
demographics, is not it?
Mr. Hall. It is demographics, and it is demographics that
we have seen coming for a long time.
Mr. Faso. And so, other than demographics, what do you
attribute that increase in expenditure to?
Mr. Hall. Well, the second biggest thing is the cost of
healthcare. For decades now, the per beneficiary cost of
healthcare has been growing faster than GDP. And I am not sure
that we understand that well, but it has been, and so we
forecast it will continue to grow faster than GDP going
forward.
Mr. Faso. Could you attribute a portion of that growth in
healthcare expenditures to the fact that we have created, since
World War II, a third-party payment system through insurers
where consumers and providers actually do not have an economic
relationship to each other?
Mr. Hall. I mean, that is certainly one of the changes. I
am not an expert in the field, so I do not want to talk too
much about what is causing that.
Mr. Faso. But you are more expert than most.
Mr. Hall. There certainly has been an increasing Federal
role in healthcare. And that has become a bigger and bigger
part of the budget as a result.
Mr. Faso. And so, when we are looking at the means testing
programs for mandatory spending, the CBO last year told us that
this spending grew substantially over the prior decade,
doubling from 385 billion in fiscal year 2007, to about 745
billion in fiscal year 2017. What accounts in this area for the
most significant growth in mandatory means tested spending?
Mr. Hall. I suppose a lot of it still is the aging
population part of that. I am not sure I can answer that really
well. I have not looked at that lately. We did a report last
year on it. We have not updated that. But certainly, part of it
is still the aging population. Some of it is simply that
healthcare costs are rising fast.
Mr. Faso. Now, we just had the budget agreement that I
supported in the House. It was 6 months late. We had passed all
the appropriations bills in the House. None of them passed the
Senate. We wound up in a continuing resolution situation. And
that budget that we passed, those spending bills, defense and
nondefense discretionary spending, represents about 28 percent
of the Federal spending. The mandatory Social Security,
Medicare, Medicaid, and interest, and other mandatory items I
guess as well in that, represents about 72 percent of Federal
spending.
How can we get better public recognition of the fact that,
yes, our friends on the other side will blame the tax bill, but
so much of the growth in spending is on automatic pilot in
Washington? And when Congress is considering and goes through
long, extended discussions and continuing resolutions about
budgets, we are talking about 28 percent of spending.
Mr. Hall. We have been talking about this for a long time.
Every year we put out the report; we talk about the role that
mandatory spending is playing not only up to now, but also
going forward, having a larger and larger share of the Federal
budget.
Mr. Faso. And the major factor in this, as you said at the
outset, are demographic factors----
Mr. Hall. That is right.
Mr. Faso.----which have no left or right, Democrat,
Republican, Liberal, Conservative slant to them. The facts are
what they are. The demography of our country is that we are all
living longer, and that is great. But the demography is that
there are not enough young people coming in behind us to help
sustain the mandatory spending. And that, it seems to me, is
the major challenge that we face on both sides of the aisle in
getting the public to understand what truly is driving these
expenditures.
Mr. Hall. I think that is correct.
Mr. Faso. Thank you, Madam Chairman. I yield back.
Ms. Black. The gentleman's time has expired. The gentlelady
from Illinois, Ms. Schakowsky, is recognized for 5 minutes.
Ms. Schakowsky. Just to follow up on the line Mr. Faso was
talking about. What about prescription drug prices? Is not that
driving a lot of an increase? We have seen a dramatic increase
in prescription drug cost as well.
Mr. Hall. Right. That is part of the growing healthcare
cost per beneficiary just continues to grow faster than GDP.
Ms. Schakowsky. So, the CBO cast doubt on what the GOP tax
bill does to support American workers. For corporations, the
bill included a tax on global and tangible low tax income.
GILTI, G-I-L-T-I; I do not know. And the deduction for foreign
derived intangible income, FDII. So, I am going to read a part
of the outlook, and then I would like your help in
understanding it.
Mr. Hall. Sure.
Ms. Schakowsky. ``By locating more tangible assets abroad,
a corporation is able to reduce the amount of foreign income
that is categorized as GILT. Similarly, by locating fewer
tangible assets in the United States, a corporation can
increase the amount of U.S. income that can be deducted as
FDII. Together the provisions may increase corporation's
incentive to locate tangible assets abroad.'' So, what are
tangible assets, and would that be things like manufacturing
equipment and physical factories actually moving?
Mr. Hall. That is right. Then let me be clear, though. One
of the things we are pointing out there is that that particular
aspect of the Tax Act is complicated. Right? It encourages
companies to locate in the United States, but there is also
this other aspect where it can encourage companies to also
locate abroad.
So, our point there is that that is sort of complicated. We
think on the whole, the Tax Act does encourage locating
production in the United States on the whole. But on that
particular one, like I say, that one is an example of how
sometimes this is more complicated than simply looking at the
Tax Act as intended.
Ms. Schakowsky. But that is a factor, you are saying.
Mr. Hall. Right.
Ms. Schakowsky. So, when CBO says corporations may ``locate
tangible assets abroad,'' that could be moving manufacturing,
and of course the manufacturing jobs with them, overseas. Is
that a fair characterization?
Mr. Hall. Yeah. We do say that it may be possible that some
companies will do that. We are not saying that that is going to
be the rule. But that is a possibility.
Ms. Schakowsky. Let me see if I have got any more. Maybe I
will yield back. I did want to follow up on some of the
questions I have asked previously in other hearings about how
the tax bill and changes in agency implementation affects
healthcare costs and coverage. So, how does CBO's analysis
reflect the Trump administration's decision to stop making
cost-sharing reductions? If that has been asked already, I can
yield. But cost-sharing reduction payments that help keep down
health insurance costs?
Mr. Hall. We did talk about that. But what has happened is
insurance companies have raised their premiums for silver
plans. And by raising their premiums, it has increased the
subsidies they receive from the Federal Government. And those
increased subsidies, tax credits for people, is sort of
replacing the direct payment. So, the point is that we are
still spending money for the CSR even though we are not making
the same direct payments.
Ms. Schakowsky. I think I am going to yield back. And I
think all those questions have been answered. I appreciate it.
Chairman Womack. The gentlelady yields back. Mr. Lewis,
Minnesota.
Mr. Lewis. Thank you, Mr. Chairman. Thank you, Dr. Hall.
There seems to be some mixed messages here I want to try to
drill down on a little bit. I believe in your report you cite
that revenues over the 10-year period will be about $44.1
trillion. Is that correct?
Mr. Hall. Yes.
Mr. Lewis. And that is about a trillion dollars more than
your previous estimate?
Mr. Hall. Let me check.
Mr. Lewis. Before the Tax Cut and Jobs Act?
Mr. Hall. Yeah. The change is in revenues.
Mr. Lewis. Yes.
Mr. Hall. Yeah.
Mr. Lewis. That is all right.
Mr. Hall. Yeah. I think revenues are down about a trillion.
Mr. Lewis. It is about a trillion.
Mr. Hall. Yes. Catching up to you, sorry.
Mr. Lewis. So, to what do you attribute the increase in
revenues after we passed the tax cut bill to?
Mr. Hall. Well, it is a decline in revenues, not an
increase in revenues.
Mr. Lewis. But the previous estimate was below $44
trillion. So, are you saying we are getting the $44.1 trillion
because of growth?
Mr. Hall. Yeah. We have a number of things going on. That
is right. We have stronger growth. And stronger growth has
added over one half trillion dollars----
Mr. Lewis. I got you.
Mr. Hall.----reducing the deficit. And that stronger growth
than we earlier forecast has meant we have higher revenues.
Mr. Lewis. All right.
Mr. Hall. The revenue collection has been higher.
Mr. Lewis. Growth and revenues are actually higher post the
Tax Cut and Jobs Act than you had previously estimated.
Mr. Hall. Well, not in our forecast, but in our current
level.
Mr. Lewis. Your current level.
Mr. Hall. Right.
Mr. Lewis. So, what do you attribute that to? What was the
change from June 2017 to June 2018 for revenues going to 44.1
trillion, and growth going higher?
Mr. Hall. Well, some of the growth being higher was from
the Tax Act. Overall, the Tax Act had lowered revenues.
Mr. Lewis. Well, you say ``than otherwise would be.'' But
if you take a look at the actual revenue tables, they go up
every year to $44.1 trillion, which is a trillion dollars
higher than the previous estimate. And so, was growth. And I am
just wondering why you made that change from a year ago?
Mr. Hall. Yeah. I am not tracking that we have got an
increase in revenue.
Mr. Lewis. We should check on that.
Mr. Hall. I am sorry.
Mr. Lewis. It is quite all right. But you do say there is
more growth in the near term.
Mr. Hall. Yes.
Mr. Lewis. All right. So, there is more growth in the near-
term, but you say it is slower later on.
Mr. Hall. Right.
Mr. Lewis. To what do you attribute that to?
Mr. Hall. It slows down because we think real GDP is going
to get out ahead of potential. So, in other words, we are
nearing to where we are at full employment, basically. And we
have a lot of stimulus coming in. And so, we are going to see
an increase in labor force participation; we are going to see
more employment, unemployment rates going down. All this is
leading to growth above potential. So, what then will happen is
eventually that will increase pressure on prices and then
interest rates.
Mr. Lewis. So, if increased growth was a result, at least
in the near-term, and we have an increase in the deficit of 1.6
to 1.9 trillion--there seems to be some dispute there, but
regardless, an increase in deficit--what would the deficit look
like if we did not have the increase in growth?
Mr. Hall. Well, overall our change in our economic forecast
added a trillion dollars to reducing the deficit. So, it would
be a trillion dollars worse.
Mr. Lewis. So, because we have got higher growth, we have
got a lower deficit.
Mr. Hall. That is right.
Mr. Lewis. Right. I guess where I am going with this is I
am not quite certain why growth is always considered, well,
underestimated in my view, but always considered inflationary.
You mentioned the bottlenecks, which is the traditional
economic view, when you get a spike in interest rates and a
shortage of capital.
But you are old enough to remember, I certainly am, when
Ronald Reagan took office, the prime rate was 21.5 percent,
inflation was running 13 percent; came in with Kemp-Roth,
delayed for a year, but then kicked in. And what happened to
interest rates? They were cut in half. How is that possible?
You are saying because of this tax cut, interest rates are
going up. How did we miss that?
Mr. Hall. Well, we have had two effects from this tax cut.
Part of our forecast, we do have an impact of potential GDP. We
do think potential GDP is going to be higher. That is the
supply side as a result of the Tax Act. And that will be higher
throughout the period.
Mr. Lewis. More capital, more productivity.
Mr. Hall. Exactly. So, we have that happening as well. It
is just that there is more stimulus pushing GDP above that
outweighs that.
Mr. Lewis. I certainly agree with you to the degree that we
think we can prime the pump in consumer spending. That is not
pro-growth. What is pro-growth is getting that truck to the
truck driver. And that requires capital.
Mr. Hall. Correct.
Mr. Lewis. And that is what we tried to do with the Tax Cut
and Jobs Act in my view. Final quick point; spending growth
between 2017 and 2019 is driven in large part by, in fact, the
increase in discretionary spending. Is there a danger of us
just saying everything the problem is mandatory, and we can
keep pumping up discretionary?
Mr. Hall. Well, sure. Discretionary spending is
contributing.
Mr. Lewis. Thirty percent.
Mr. Hall. Yeah. You know, it has gone not noticed, but I
can tell you that discretionary spending, from the three pieces
of legislation, increased the deficit by $650 billion.
Mr. Lewis. I yield back. Thank you.
Chairman Womack. Mr. Smucker, Pennsylvania.
Mr. Smucker. Thank you, Mr. Chairman. Good afternoon,
Director Hall. As someone who voted for the Tax Cuts and Jobs
Act, I am very proud of the work that was done and pleased with
the impact on individuals that I represent in my district in
Pennsylvania. I have heard from countless constituents back in
my district about the benefits that they have seen. For
instance, using just the first name, Gage, from Lancaster
County, shared, ``We are a family of four, and we will use the
savings that we have seen towards purchasing our first house.''
Ken, from Chester County, shared, ``My daughter has special
educational needs. Although she is only in second grade, my
wife and I recognize the value of a strong educational
foundation and have enrolled her into a private school where
any and all of our savings are going.'' And what I am hearing
from folks across the district, that they are seeing the impact
of more money in their pockets. And it is beneficial to them.
I have also seen the optimism among businesses. And a quote
from your report says that the recent enacted tax law, and I
quote, ``Will encourage workers to work more hours, businesses
to increase investment in productive capital, thereby raising
employment and raising income.'' We are seeing an impact on
wages today?
Mr. Hall. Yes.
Mr. Smucker. And how much do you expect we will see wages
be impacted?
Mr. Hall. Yeah. You know, I do not have an estimate on the
wages, but I can tell you about employment. We think employment
is going to be an average of 1.1 million higher over the 10-
year period because of the Tax Act.
Mr. Smucker. So, we are not only seeing more money in
individual's pockets today, but we are seeing wages rising for
the first time in a while, more than we have seen in the past.
Mr. Hall. Yes.
Mr. Smucker. 1.1 million. That is what you just said, 1.1
million more jobs created over the next 10 years as a direct
result of the Tax Cuts and Jobs Act?
Mr. Hall. Yes.
Mr. Smucker. One of the things I am now hearing, and I just
recently met with a group of large staffing companies. So,
these are companies that are working with businesses to fill
available spots. And the availability of individuals to fill
that spots has reached almost a crisis point for a lot of
businesses. And I guess I would like to hear from you whether
you are seeing that as well? Going down, what are you
projecting the unemployment will go down to?
Mr. Hall. You know, I do not have it in front of me, but it
will go down. It is already very low. Do have it going down a
bit lower.
Mr. Smucker. To about 3.3 percent?
Mr. Hall. That sounds about right. Yeah.
Mr. Smucker. Yeah.
Mr. Hall. Yeah.
Mr. Smucker. Which is historically very low. Right?
Mr. Hall. Right, which are already historically low.
Mr. Smucker. Right.
Mr. Hall. Three-point-three percent would be very low.
Mr. Smucker. So, what I have heard from these individuals--
and this is anecdotal, but I want to get your thoughts on
this--businesses are ready to reinvest back into building
factories and creating jobs here. But literally today still are
forced to make decisions about where they will locate a new
plant, or where to locate their operations based on available
workforce. Do you think your report bears that out?
Mr. Hall. Yeah. It does, and it should. I mean, we have
started to see some modest increases in wages. And we think
that is going to accelerate. We are going to get much stronger
wage growth in the next few years. So, that is absolutely true,
and that is a big part of getting the slack out of the economy.
Mr. Smucker. So, do you think that lack of labor
availability will impact economic growth over the next 10
years?
Mr. Hall. I think it will.
Mr. Smucker. I would like to get to that, but I have run
out of time. So, 62 percent labor force, or 63 percent is the
current labor force participation rate. Can you give us some
historical perspective on that?
Mr. Hall. It is already a little bit of a low level, and it
is a low level because we have an aging population. And the
long-term trend actually for that is it is going to go down as
people age out. But what will happen from the tax bill is we
will get some stimulus; we will have that not decline so fast
as it was before. And it will hold up, we think, as a result.
Mr. Smucker. I felt, you know, businesses are saying this
is a very real problem. They cannot find available spots. Is
there an opportunity to build more participation in the labor
workforce? I have always felt like we have not made that
connection very well, providing the skills, training, and so on
to connect people with the jobs that are available. Is there an
opportunity for us?
Mr. Hall. Well, I think that is true, yes. Because I do
think that the aging population means that if we can focus on
the non-aging population and get their participation rates up,
that can make a difference. Historically, for some reason, the
cohorts below the baby boomers have not participated in the
labor force like baby boomers have. And that is a little
puzzling.
Mr. Smucker. Thank you.
Chairman Womack. The gentleman from Michigan, Mr. Bergman.
Mr. Bergman. Thank you, Mr. Chairman. And thank you, Dr.
Hall. It is always good to see you here. If I was not
unquestionably positive about life in general, I may have a
darker view of just listening. But let me ask you a question.
Considering all the factors that have been discussed today, are
we as a country, to use an old quote, damned if we do and
damned if we do not?
Mr. Hall. I think there are some important trade-offs that
need to be made. I think the debt, the rising debt, is going to
be a challenge if it is not dealt with. And in a sense, there
is going to be a price to pay in dealing with that.
Mr. Bergman. Okay. So, the old saying, life is a series of
trade-offs from beginning to end. And kind of rhetorically
speaking here for a second, you know, how do we, as the
elected, you know, officials, if you will, elected by the
people to come here, how do we, in our deliberations and our
performance, build confidence in the American people that their
government will do the right thing if left to its own devices?
Kind of again, you know, rhetorically speaking, you know, T.S.
Eliot has got a lot of quotes. But one is that only those who
will risk going too far can possibly find out how far one can
go.
So, when we talk about the future, we predict to an extent.
You just mentioned a second ago about the post-baby boomer
generations being less motivated to participate in the
workforce. I find that interesting. I was not given an option
as a kid of participation. My parents explained to me what my
participation would be. They left it up to me to the level and
the quality, which they watched very closely. But the future of
jobs and careers, who do you think is better at predicting and
adapting to the future; government or business, or public
versus private sector?
Mr. Hall. In my personal opinion, private sector.
Mr. Bergman. Okay. So, when you take something like the Tax
Cuts and Jobs Act, and put more money into the private sector
hands, how should the government then evaluate that that money
that goes back into, if you will? You know, corporate coffers
is just one thing. But that small business coffer, how does
government then evaluate what they did; what we did?
Mr. Hall. You know, I am not sure I can tell you how to
evaluate it. I can tell you that we will do our best to sort of
describe what we think is going to happen and what the trade-
offs are.
Mr. Bergman. And I agree with you, by the way. We cannot
really evaluate. But if we have an idea of metrics and
milestones that then as we go forward, we go, okay, we were
close on this; we were off on that; here was a positive; here
was a negative. That is a way for government to, if you will,
evaluate its laws and its policies. Because when you make a
law, it is for 100 percent. When you make a policy it is for,
at best, 84.6 percent on the statistical average, because you
have got a bell curve. And that is policy.
You know, the CBO report shows that mandatory spending
continues to escalate due to demographic changes and other
factors. And in fact, spending on Social Security, Medicare,
Medicaid, and debt interest is due to double between now and
fiscal year 2028. Can any serious effort to reduce our growing
deficit and debt problems exclude reforms to Social Security,
Medicare, and Medicaid?
Mr. Hall. Well, that is getting a little dangerously close
to recommendations for us. I can tell you, you do need to look
at the size of changes you could make. You need pretty
significant change. You kind of need to go where the money is.
Mr. Bergman. Thank you. I see my time is about to run out.
But is it fair to say that everyone needs to have skin in the
game in order for us to make the tough decisions? The answer is
yes, because anybody who does not have skin in the game is not
fully invested. I yield back, sir.
Chairman Womack. I will take that. The gentleman from
Alabama has reappeared, and he is recognized for 5 minutes. Mr.
Palmer?
Mr. Palmer. Can I have 15 minutes? I am kidding. Thank you,
Mr. Chairman. A couple of questions, Mr. Hall. I think earlier
Congresswomen Black asked about the new baseline being altered
with CSR payments.
Mr. Hall. Right.
Mr. Palmer. And I have asked that this be handed out. In
June 2017, you were projecting $44 billion savings. You were
anticipating that these payments would be made. When did you
change that?
Mr. Hall. I am sorry?
Mr. Palmer. Baseline? You raised the baseline.
Mr. Hall. And this is the direct payments for the CSRs?
Mr. Palmer. Right.
Mr. Hall. Well, that is not the baseline now, because there
are no direct payments being made. What we have adjusted is we
have adjusted the tax credits that people get because insurance
companies, in response to not getting the direct payments, have
raised premiums. And now people are receiving increased tax
credits. So, that is how the Federal Government is paying for
it now.
Mr. Palmer. Section 257 B1 of the Gramm-Rudman-Hollings Act
requires budget scorekeeping decisions to assume that funding
for entitlements already is adequate to make all payments
required by those laws.
Mr. Hall. Right.
Mr. Palmer. In other words, you would have had to of gotten
instructions to do that. I do not think you had the authority
to do that.
Mr. Hall. Well, we do. Funding for CSR is in our baseline.
It is just in a different spot. It is not the direct payments.
It is through the higher premiums of the subsidies for those.
Mr. Palmer. All right. I am sorry I have had to miss most
of this. I have been trying to keep up with what is going on.
And I just got a little bit of Mr. Bergman's questions, your
answer to that about skin in the game and where we are in terms
of getting to a balanced budget. That is kind of a hot topic
today with the balanced budget amendment coming up.
One of the questions I would like to ask you is does the
CBO anticipate a reduction in uncollected tax revenues as a
result of the tax reform bill that we passed? Because I believe
the projection for uncollected taxes last year, or this year.
Last year was, like, $450 billion. I will emphasize $450
billion, with a B.
Mr. Hall. You know, I do not know offhand. I would have to
talk to our tax folks, and maybe I can get back to you about
it.
Mr. Palmer. Well, considering that is almost half the
deficit, would not that be relevant?
Mr. Hall. Sure. And I am pretty sure it is in our forecast.
I just do not know the number offhand.
Mr. Palmer. I would be interested to know if that is in the
forecast.
Mr. Hall. Right.
Mr. Palmer. That was one of the objectives of the tax
reform was to simplify the tax code; that would substantially
eliminate the failure to collect all the taxes that are owed
the Federal Government. I just left the hearing in the
Oversight Committee on improper payments. That is $140 billion-
plus. It is going up every year. This committee last year
included in our budget reducing that by half. That is 700
billion.
The point I want to make is really that we can get to a
balanced budget. The issue is do we have the courage to tell
the American people the truth about where we are in terms of
our fiscal condition and make recommendations that will get us
back where we need to be to get our fiscal house in order. That
includes collecting all the taxes. That means taking advantage
of our energy resources. That means eliminating improper
payments.
I pointed out that in 2015 we collected $516 billion just
in fees. If we could have collected another $16 or $17 billion
in fines, if we captured just 10 percent of that, that is 50-
plus billion per year. Do you believe that we could get to a
balanced budget?
Mr. Hall. I think it would take some very difficult
decisions and take some planning. But of course, I think it is
possible. It is certainly above my pay grade as to how to do
that.
Mr. Palmer. If it is above your pay grade, that is kind of
depressing. With that, Mr. Chairman, I will yield back.
Chairman Womack. Not recognizing anyone that has not had a
chance to grill the CBO Director, or at least question him, I
am going to yield the remaining time to the gentleman from the
Commonwealth of Kentucky, the Ranking Member, Mr. Yarmuth.
Mr. Yarmuth. Thank you very much, Mr. Chairman. Thank you
very much, again, Dr. Hall. And you spent a lot of time, you
and your team here before this committee over the last few
months. We appreciate all of your time and your responses.
I want to talk about your unemployment projections for a
minute. The unemployment rate has been steady at 4.1 percent
for several months now, which is pretty remarkable stability
during a time when we have had strong job creation. And it is a
level that not too long ago was thought to be unachievably low.
And most people are characterizing us as being at full
employment at this level.
But your report forecasts a dramatic reduction to an
average of 3.8 percent this year, and 3.3 percent next year.
Since we already have one quarter at 4.1 percent, getting to
3.8 percent for the year would require we have about 3.5
percent average for the rest of the year. And one reason we
have seen the unemployment rate hold steady, even through
strong job creation, is through growth in the job force, the
labor force. Your projections also call for a higher labor
force participation rate than you have projected in the past.
And finally, you have the unemployment rate climbing from
3.3 percent to 4.6 percent in 2022, which is a rather unusual
rate, it seems like, while the economy continues to expand. So,
I am interested, again, not to try to make any point, I am just
curious, is if you would walk us through your unemployment
projections and explain how and why you would expect the
changes that you have projected.
Mr. Hall. Sure. It is the cyclical pattern from the
stimulus. We have had a lot a stimulus into an economy near
potential. What we are essentially forecasting is that growth
will get above potential. And what that means then is
employment will actually get above potential. The unemployment
rate will get below potential. And by potential we mean
sustainable.
So, while the unemployment rate may get to a lower level as
we think it will, we do not think that is sustainable. So, we
think that will lead to inflationary pressures, pressures to
raise interest rates, and that will lower economic growth, slow
down wage growth, and make the unemployment rate go back up
towards its sort of more permanent sustainable level.
Mr. Yarmuth. Okay. I think you just said a few minutes ago
that you are projecting about 1 million new jobs because of the
tax cuts.
Mr. Hall. Right.
Mr. Yarmuth. One million new jobs because of the tax cuts.
I am curious about the model, because most of the analyses so
far done studies of corporate America and so forth, is that the
vast majority of the tax cuts given to corporations are going
to be spent on dividends, stock buybacks, and mergers and
acquisitions, none of which result in additional capital
formation. I guess you could argue that dividends might, but
probably not. And a very small percentage, about 20-something
percent, of all of the corporate tax cuts, the business tax
cuts, went to actually go to reinvestment and to employees.
So, I am just curious as to whether those are similar to
the way you viewed the way tax cuts are going to be used, or if
you had a different analysis of that?
Mr. Hall. Well, we do think that the tax act will lower the
user cost of capital, and it will essentially lower the
marginal tax on capital. And that will encourage companies to
increase their investment. Similarly, we think that the
marginal tax on labor will be lower going forward, making it
easier for companies to bring labor on. And those are the
things that affect our view of potential GDP.
But then, we also have this stimulus coming in. We have a
lot of aggregate demand coming in, pushing the economy above
its potential for a while. So, for example, if you look at our
estimate that employment will be 1.1 million higher over a 10-
year period, that is on average over the 10-year period. In
fact, the employment level will probably be higher in the
middle before the inflationary pressures kick in and interest
rates go up. And so, it takes some of that stimulus away.
Mr. Yarmuth. Turning to another subject. Your report
includes extensive analysis of the economic impact of the tax
bill. And as we just discussed, predicts strong economic growth
this year and next year. Of course, we have been experiencing
one economic expansion, soon to be the second longest in our
history. But too many parts of the country, particularly in
rural areas and older industrial cities, have not shared in the
benefits of the expansion so far. I think it is a concern that
that trend may continue over the next few years.
So, my question is have you done any analysis of whether
the near-term economic boost from the tax law will be broadly
shared across the country? Is there any reason to think that
the laws benefits will make a significant and transformative
difference in communities with weaker economies, or is it more
likely that the benefits will be concentrated in areas that
already have healthy economies?
Mr. Hall. We just have not been able to think about that at
all. We have been so focused on the big budgetary impact, the
economic impact, that that is significant extra analysis to try
to look at that.
Mr. Yarmuth. Got you. Thank you for that. So, as you know,
we are going to be debating and voting on the balanced-budget
act amendment this afternoon. And one of the things that
concerns me about that whole idea is--there are a lot of
things--but one of the things that concerns me most is that if
you had that proposal in effect right now, we would be looking
at figuring out how to cut roughly $800 billion worth of
Federal spending in the next year; roughly 20 percent cuts in
all Federal spending. I am curious as to whether you can make
an estimate as to what impact on the economy a loss of $800
billion in Federal spending, and whether it is in jobs or so
forth, what would be the impact of that kind of a cut?
Mr. Hall. Well, of course it depends a lot on the details.
You know, how much time and that sort of thing. But certainly,
a drop in revenue would be the opposite of stimulus. A drop in
Federal spending would slow down the economy; just something
that large.
Mr. Yarmuth. And since, you know, in my state, Federal
contributions to our state budget amount to about 37 percent. A
cut of that magnitude in Federal spending, or anything
approaching that, in your opinion, would that have a
significant impact on state budgets throughout the country and
local budgets as well?
Mr. Hall. Sure. But of course, it depends on how it is
done. You know, one of the things that certainly happens with
Federal budgets is there is a cyclical aspect to it. So, when
you go into recession, revenues go down, spending goes up. And
that has an impact on helping stabilize the economy going
forward.
Mr. Yarmuth. Yeah. And just to go back to one of the prior
questions, you were asked about basically the income-based
spending, why it spiked from 2007 for those 10 years. A good
portion of that growth in income-based spending would have had
to do with the recession, would it not have?
Mr. Hall. Yes.
Mr. Yarmuth. Right. Thank you. I just wanted to clarify
that. I have no further questions. Once again, I thank you very
much for your efforts and your responses, and I yield back.
Chairman Womack. Thank the gentlemen. And we have one other
member that has arrived here toward the end of our meeting that
I will yield to; Mr. Grothman of Wisconsin.
Mr. Grothman. Okay. Well, thanks for coming over here. A
goal of this committee is to propose of discretionary spending.
And I believe originally President Trump, last year, proposed
about a 5 and one-half percent increase in defense
discretionary spending, and a cut in nondefense discretionary
spending. Is that accurate?
Mr. Hall. I believe that is right.
Mr. Grothman. Considerable. Instead what happened, in part
because of this committee's action, and in part because of
pressure from Democrats in the Senate, there was a significant
increase in nondefense discretionary spending. Is that
accurate?
Mr. Hall. It is.
Mr. Grothman. Significant. Do you know how much more we
spent in nondefense discretionary than President Trump
originally wanted?
Mr. Hall. I can tell you on our 10-year forecast, because
of the three bills, discretionary spending is up by about $650
billion.
Mr. Grothman. Yeah. And can you tell us what the difference
in nondefense discretionary is considered to be now, compared
to what President Trump originally proposed a year ago?
Mr. Hall. Yeah. I do not know. I just do not remember what
that proposal was that well.
Mr. Grothman. It is a significant cut. Right? About 6
percent. I should not say 6 percent. It is significant. I think
all sorts of people have gotten 6 percent cuts all the time. It
was about 6 and one-half percent. Right? Could you comment on
the, what I think is rather bizarre policy that has grown in
Congress that if we needed an increase in defense spending, we
have to spend more in nondefense spending to be fair?
Mr. Hall. Well, CBO, we would not want to comment on what
is or is not fair.
Mr. Grothman. Well, what do you think is the long-term
fiscal effect of the idea that if somehow this body believes
that we need to spend more on defense, we have to go up in
nondefense as well? Could you tell us what the difference is
between what your deficit looks like 5 or 8 years out now,
compared to if this body would have gone along with President
Trump's recommendation a year ago?
Mr. Hall. I cannot so much. And one of the things that is
important about our forecast here is we follow Budget Committee
direction on discretionary spending. Because it is
discretionary, it is Congress's choice. We make a very mild
assumption that discretionary spending grows by inflation,
except, of course, with the caps. So, we are really not even
forecasting what is going to happen with discretionary
spending. We are just making a very----
Mr. Grothman. Are you basing it on, though, the current
omnibus, then, plus inflation for the next few years. Is that
what you are basing it on?
Mr. Hall. That is right. The current omnibus changes the
caps.
Mr. Grothman. Right.
Mr. Hall. And once the change in the caps, once they go
back in place, and the caps are holding things back. And once
the caps are gone, then we have inflation driving discretionary
spending.
Mr. Grothman. So, in other words right now you are
anticipating a cut in nondefense discretionary 2 years out?
Mr. Hall. Yes.
Mr. Grothman. Okay.
Mr. Hall. It is one of the reasons why we have an
alternative fiscal scenario in here, where we assume roughly
rather than constant current law, we have current policy. So,
we sort of assume that the caps do not readjust. We assume that
the drop in the individual income tax rate does not go back up
and give you an idea of what that looks like going forward.
Mr. Grothman. I do not know if you have the numbers in
front of you. Let's take a number; 4 years out or whatever. Can
you tell us what you are anticipating in both defense and
nondefense discretionary compared to the current year? Pick,
say, 5 years out.
Mr. Hall. Yeah. Yeah. We have a nice chart that does not
put it in dollar numbers, but we have it in terms of percent of
GDP. So, right now, for example, defense spending is about 3.1
percent of GDP. And under current law, that is going to go down
to 2.6 percent of GDP in 10 years. That is in our forecast. And
then, for a nondefense, it goes from 3.3 percent to 2.8
percent. So, we have discretionary spending growing slower than
GDP.
Mr. Grothman. I suppose you could if I gave you the time,
but you cannot translate that into a nominal dollar amount?
Mr. Hall. No. We can follow up, though, and give you the
dollar amounts.
Mr. Grothman. I would like to know that, so we know what we
are shooting at. I think President Trump, before he, maybe,
listened to the Congress too much, what he would have liked
those numbers to be say 5 and 10 years out in nominal terms.
Okay. Thank you very much, Mr. Chairman.
Chairman Womack. Thank you very much, Mr. Grothman. Because
I did not use all of my time in the beginning, I just want to
close with a couple of observations. There has been a lot of
discussion in here about various impacts of what the Congress
does, taxes and so forth. And its implication for the long-term
fiscal condition of the country; i.e., deficits continue to
rise, debt continues to rise to unsustainable levels as a
percentage of GDP.
And there have been attempts made to make the villain in
this whole thing the Tax Cut and Jobs Act. And then,
occasionally other things, like increases in defense spending,
or increases in nondefense discretionary spending. So, I just
have a couple of questions for you, Dr. Hall. Is it fair to
just basically single out one part of the economic condition
and paint with a broad brush on that; i.e., put another way,
should not the Congress look at economic output as a whole;
i.e. lower taxes, maybe a lower regulatory framework that
businesses and industry have to live under?
I mean, it goes without saying that a business or an
industry that thinks there is going to be a hyper-regulatory
environment is probably not going to want to expand and
introduce new products and those kinds of things because of the
fear of the unknown, the regulatory pressures that may be
coming. Mandates on healthcare certainly impact decisions made
about whether to grow or expand an economy. I think that all
those things go right to the heart of consumer confidence. And
consumer confidence is a big piece of whether people spend
money and live their lives in a little different way.
I also believe that the policies of this Congress,
particularly those on means tested programs, have an impact
overall on the budget. So, I guess the point I am making is
this--and some of these things you can score, and some of these
things are difficult to score at best--that can we not just say
that an economy that is built around a lower tax framework, a
lower regulatory environment, fewer mandates from the Federal
Government, maybe a little more empowerment to our States to be
able to solve some of the problems that we try to solve at the
Federal level?
Would that not have a real nice impact on the economic
productivity of this country in such a way that it could one
day help us rid ourselves of the deficits, particularly if we
were able to do things like my friend Gary Palmer suggests; you
know, go after a lot of these improper payments, and make
people more accountable again?
The unknown about the Tax Cuts Jobs Act that we know that
when we simplify that, people then are more predisposed to
doing their taxes accurately, so that we do not have taxes that
should be due and payable certainly unaccounted for. Should we
not look at that as a whole? Should the Congress not consider
that as a whole?
Mr. Hall. Well, I am first going to start by not making a
recommendation. But I will say that all of those things do in
fact impact the budget outlook and the economic outlook. Those
are all important factors that do affect, I think, the outcomes
going forward.
Chairman Womack. And I think the last thing I want to say
is this. And I said this earlier in my remarks. There has been
a lot of discussion on both sides of the aisle about the
omnibus package, and a lot of comments about discretionary
spending. We hear it back in our districts. And sure, they do
impact. But overall, as I said earlier, when you see the
aggregate numbers on discretionary spending tracking higher,
but its percentage of GDP tracking lower, it sends, I think, a
very loud and strong message to the Congress that if you are
going to get your arms around the deficits and the debt, you
are not going to be able to ignore in the process what is going
on on the side of the ledger that is by law, that is autopilot,
that we call mandatory.
And with that, I will yield back the balance of my time.
And thank you, Mr. Hall, Dr. Hall, for your attendance not only
here, but for the previous 5 hearings that you and your staff
have been available to answer our questions and stand in front
of that mic or sit in front of that microphone.
With that, please be advised, members, you can submit
written questions to be answered later in writing. Those
questions and your answers will be made part of the formal
hearing. Any members who wish to submit questions or any
extraneous material for the record may do so within 7 days.
With that, this committee stands adjourned.
[Whereupon, at 2:05 p.m., the committee was adjourned.]
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