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





                                                        S. Hrg. 115-142
 
          THE ECONOMIC OUTLOOK WITH CEA CHAIRMAN KEVIN HASSETT

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 25, 2017

                               __________

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                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

HOUSE OF REPRESENTATIVES             SENATE
Patrick J. Tiberi, Ohio, Chairman    Mike Lee, Utah, Vice Chairman
Erik Paulsen, Minnesota              Tom Cotton, Arkansas
David Schweikert, Arizona            Ben Sasse, Nebraska
Barbara Comstock, Virginia           Rob Portman, Ohio
Darin LaHood, Illinois               Ted Cruz, Texas
Francis Rooney, Florida              Bill Cassidy, M.D., Louisiana
Carolyn B. Maloney, New York         Martin Heinrich, New Mexico, 
John Delaney, Maryland                   Ranking
Alma S. Adams, Ph.D., North          Amy Klobuchar, Minnesota
    Carolina                         Gary C. Peters, Michigan
Donald S. Beyer, Jr., Virginia       Margaret Wood Hassan, New 
                                         Hampshire

                 Whitney K. Daffner, Executive Director
             Kimberly S. Corbin, Democratic Staff Director
             
                            C O N T E N T S

                              ----------                              

                     Opening Statements of Members

.................................................................
Hon. Patrick J. Tiberi, Chairman, a U.S. Representative from Ohio     1
Hon. Gary C. Peters, a U.S. Senator from Michigan................     3

                                Witness

Hon. Kevin Hassett, Chairman, Council of Economic Advisers, 
  Washington, DC.................................................     4

                       Submissions for the Record

Prepared statement of Hon. Patrick J. Tiberi, Chairman, a U.S. 
  Representative from Ohio.......................................    28
Prepared statement of Hon. Kevin Hassett, Chairman, Council of 
  Economic Advisers, Washington, DC..............................    29
Articles submitted by Representative Maloney
    Washington Post article titled ``Arthur Laffer's Theory on 
      Tax Cuts Comes to Life Once More''.........................    33
    Jared Bernstein blog ``Supply-side, trickle-down nonsense on 
      the NYT oped page''........................................    36
    Washington Post article titled ``Here's why we're still 
      arguing about trickle-down tax policy''....................    39
Response from Hon. Kevin Hassett to Questions for the Record 
  Submitted by Vice Chairman Mike Lee............................    41
Response from Hon. Kevin Hassett to Questions for the Record 
  Submitted by Senator Martin Heinrich...........................    42


          THE ECONOMIC OUTLOOK WITH CEA CHAIRMAN KEVIN HASSETT

                              ----------                              


                      WEDNESDAY, OCTOBER 25, 2017

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
1100, Longworth House Office Building, Honorable Pat Tiberi, 
Chairman, presiding.
    Representatives present: Tiberi, Paulsen, Comstock, 
Maloney, Delaney, and Beyer.
    Senators present: Lee, Peters, and Klobuchar.
    Staff present: Breann Almos, Theodore Boll, Whitney 
Daffner, Barry Dexter, Connie Foster, Colleen Healy, Matthew 
Kaido, Paul Lapointe, AJ McKeown, Allie Neil, and Alexander 
Schibuola.

 OPENING STATEMENT OF HON. PATRICK J. TIBERI, CHAIRMAN, A U.S. 
                    REPRESENTATIVE FROM OHIO

    Chairman Tiberi. Good morning, everybody. I want to welcome 
everyone to what I expect to be a most informative hearing on 
how we can accelerate economic growth in the United States.
    What is holding back economic growth in America has been of 
central interest to this committee from the onset of my term as 
chairman.
    Our hearings have produced useful information and insights. 
I am particularly pleased to have Chairman Hassett lend his 
insights today on the forces and constraints that are holding 
back private investment, labor force participation, and just as 
important as anything else, wages.
    We hope to get a clearer picture of how the right policies 
can help the economy recover its full potential.
    The economy is dealing with the aging of a population, 
slowing population growth, and technological changes that are 
altering the methods of production in America. But self-imposed 
constraints have also altered the way the economy performs, and 
not in a good way. I strongly believe we can do something about 
that here in the United States Congress.
    I would like to direct your attention to the graph showing 
how the Congressional Budget Office lowered its assessment of 
the economy's output potential every year since 2007 through 
2016. These are not projections of actual GDP, mind you, but of 
potential GDP, the economy's output capacity, normally a fairly 
stable concept.
    Back in 2007, the CBO estimated the U.S. output potential 
for 2016 to be over 12 percent higher than it actually is now. 
What happened? The aging of the population was predictable. Not 
anticipated was the U.S. business investment would be down from 
pre-recession rates, and that the rate at which Americans 
participate in the labor force would be drop so markedly.
    Despite the low unemployment rate, the labor's markets 
health has not been fully restored. Indeed, the labor force 
participation rate of people of prime working age remains 
substantially below where it was prior to the recession.
    I believe that economic policy, including the failure to 
act when other countries were improving their business climate 
is largely to blame.
    I would like to show you two graphs that illustrate the 
changes U.S. firms face on the international playing field. The 
first chart shows how 34 countries changed their corporate tax 
rate since 2000.
    All of these countries, save Chile, which had the lowest 
rate initially, reduced their corporate rates to make their 
economy more competitive while the United States rate remained 
the same.
    The next chart shows how 27 countries eased product market 
regulations from 1998 to 2013 based on an OECD index. All these 
countries, save Chile, reduced their taxes and regulations. 
This paints quite a startling picture and explains why U.S. 
corporations have been moving offshore.
    Other countries have purposefully improved their 
international competitiveness of their business sector while 
the United States has taken for granted the competitiveness of 
its businesses. As a result, we now have an economy that does 
not fully engage its resources, and entrepreneurial spirit.
    A JEC hearing earlier this year on declining economic 
opportunity revealed a dramatic decline of new business 
formations in this country since the last recession. From 2008 
to 2014, more businesses actually closed than opened. A JEC 
hearing earlier this month showed how detrimental the tax code 
can be to starting a new business, in terms of both its 
provisions and its shear complexity.
    As the challenges we face are more daunting as a result, 
the national debt is a bigger problem with a slow-growing 
economy. That is why we so urgently need both tax and 
regulatory reform. We must restore a more highly functioning 
market economy that offers hope and opportunity to investors, 
entrepreneurs, and workers, and that removes the article 
constraints on faster economic growth.
    Dr. Hassett's expertise is well-grounded in economic 
research. And one of his areas of specialization is taxation, 
which is especially useful at this time. I can't think of a 
better witness to explain to us just how taxes and regulatory 
reform can lift the economy and living standards across our 
country.
    Chairman Hassett, we appreciate your appearance before the 
committee today and I look forward to hearing your views. And I 
will now yield to our ranking member, Senator Peters, for his 
statement today.
    [The prepared statement of Chairman Tiberi appears in the 
Submissions for the Record on page 28.]

 OPENING STATEMENT OF HON. GARY C. PETERS, A U.S. SENATOR FROM 
                            MICHIGAN

    Senator Peters. Thank you, Chairman. And first, I want to 
thank Chairman Hassett for being with us at the committee 
today. I am looking forward to having a substantive discussion 
on the state of the economy and some prescriptions for the 
future.
    I also want to thank Chairman Tiberi for your presiding 
over this hearing. And I also want to wish you well in your 
future endeavors. I was sorry to hear the news. We are 
certainly going to miss you here in Congress, but we also know 
you are going to enjoy new challenges, and most importantly, 
have a little bit more time to acquaint yourself with the 
family, which is always a wonderful thing.
    Chairman Tiberi. Thank you. Thank you Senator.
    Senator Peters. Mr. Chairman, I also think this is a very 
timely hearing, given the ongoing push by the majority and the 
White House to enact tax legislation on an aggressive timeline. 
But before we get into specifics of tax policy, I would like to 
take a step back and take a broader look at the current state 
of our economy and the economic outlook for the coming years, 
as well as the coming decades.
    The Administration has certainly not shied away from 
highlighting some positive economic statistics. Unemployment 
remains low and the stock market continues to climb. But I 
think we all know that there is more to an economy than just 
raw monthly job numbers or the daily Dow Jones average. For 
working Michigan families, we are still seeing persistent, 
frustrating stagnation on wages.
    Americans are overwhelmingly still not seeing the growth in 
wages that normally accompany economic recoveries. Not only do 
stagnant wages have an immediate negative impact on the day-to-
day lives of American families, it is also contributing to 
another troubling economic trend, and that is a growing 
retirement saving crisis. Far too many Americans simply don't 
have the resources for a secure retirement.
    As Americans are living longer with less secure assets for 
retirement, like defined benefit plans, I believe this will 
have a serious consequence for our entire economy. When it 
comes to middle class American families, the state of the 
economy is mixed. And for policymakers, I believe there are 
other trends that we must address to ensure health and 
competitiveness for the American economy in the decades to 
come, and see the type of growth necessary.
    First, I believe it is of the utmost importance that 
Congress reject the idea that deferring, or for some, 
eliminating, investment in basic science and research has no 
consequences. It does. It has significant negative 
consequences. A lack of commitment to funding research that 
will lead to the next generation great American breakthroughs 
will have a devastating impact on our economy. And I can 
promise you, our competitors, including China, will not simply 
stand still and see the competitive advantage in innovation.
    Second, we must reverse an alarming trend of declining new 
business formation. New businesses are the driver of our 
economy and are responsible for most new job creation in the 
United States. But, alarmingly, we are not seeing the numbers 
of new businesses needed to increase the shared prosperity 
across the economic spectrum, and especially in the urban/rural 
divide.
    New business formations across presidential administrations 
in both parties have fallen by half since the late 1970s. And 
when new businesses are created, they are increasingly 
concentrated in just a few metropolitan areas like Los Angeles 
and New York.
    And, finally, I believe perhaps the critical question 
policymakers must be asking about the future of the economy, is 
how are we going to prepare our workforce for an increasingly 
autonomous world, driven by advances and artificial 
intelligence and machine learning. This is why we are facing 
together, I think as a Nation, some stagnant wages, massive 
retirement savings gap, a retreat from investment in 
innovation, decreasing business formation, except for a few 
major metropolitan areas, and fundamental shift toward 
automation that could dwarf the industrial revolution and 
global impact.
    These are problems that we can work together to solve in a 
bipartisan basis, and I think we must do this on a bipartisan 
basis. Unfortunately, I am concerned that we are going to be 
spending the coming weeks and months debating just how big a 
corporate tax cut to a multinational conglomerate should 
receive, and other policies that clearly benefit the very few 
and most wealthy individuals, while raising taxes for middle 
class Americans.
    Despite our differences, I look forward to a serious 
conversation today and hope we can find common ground on how to 
meaningfully support American workers and their families.
    So thank you, Chairman Hassett, for being here today.
    Chairman Tiberi. Thank you, Mr. Peters. Senator Peters, 
thank you for your kind words as well. We are now turning to 
our distinguished guest, Dr. Kevin Hassett. Dr. Hassett, 
welcome.
    I apologize that we have a Ways and Means Republican 
meeting going on on tax reform upstairs, so a few other Members 
are up there, and I will be departing before the hearing is 
over, unfortunately, to join them. But we are so excited to 
have you today. The Senate also has a vote, I think, at 10:30, 
so sorry for that interruption as well.
    Let me introduce Dr. Hassett. He is the Chairman of the 
President's Council of Economic Advisers. Prior to this he 
worked as a scholar with the American Enterprise Institute. He 
also has served as an economic adviser to the George W. Bush, 
John McCain, and Mitt Romney presidential campaigns. Dr. 
Hassett was also a senior economist with the Board of Governors 
of the Federal Reserve, and an associate professor at Columbia 
University. He earned his doctorate in economics from the 
University of Pennsylvania.
    Chairman Hassett, it is an honor to have you today. You are 
now recognized for your testimony.

STATEMENT OF HON. KEVIN HASSETT, CHAIRMAN, COUNCIL OF ECONOMIC 
                    ADVISERS, WASHINGTON, DC

    Chairman Hassett. Thank you, Chairman Tiberi. And what an 
honor it is to be back before the committee with the word 
Honorable before my name, which seems really inappropriate, but 
gosh, I am so thankful for the support of Senator Lee and 
Senator Peters in my confirmation in the Senate. And it is 
great to be back before Mrs. Maloney and Mr. Delaney.
    I think the Joint Economic Committee has a proud tradition 
of focusing on the problems facing Americans and the solutions 
that we can agree to on a bipartisan basis. And it is in that 
spirit that I appear before you today.
    In the testimony that follows, I will provide an overview 
and discuss the status of a number of sectors. I will emphasize 
some areas that need attention as well as recommended policy 
changes that will improve our citizens' economic well-being.
    If you read the 1946 Employment Act that created the 
Council of Economic Advisers, it is my somber responsibility to 
analyze the economy, to see what is going on, and to provide 
the President and Congress with objective advice about what we 
ought to do about it when we are falling short.
    The economy is buoyed by heightened expectations right now, 
and it is growing at a solid and sustainable pace with low 
unemployment and low inflation. Financial markets appear to 
recognize the likelihood of continued growth with low 
inflation, with the major stock price indices up substantially 
over the past year, and with expected inflation from the market 
for Treasury's inflation-protected securities remaining pretty 
low.
    That said, the Trump administration is not satisfied with 
business as usual nor with the pace of real output and income 
growth during the past several years. As a result, we put 
forward a program designed to boost the rate of real GDP 
growth. Now, I am happy to report that the economy is doing 
well so far in 2017. Real GDP growth during the first two 
quarters of the year averaged 2.1 percent at an annual rate. 
Real consumer spending grew 2.6 percent, only slightly below 
the 2.9 percent rate of growth during the preceding 2 years.
    Business investment grew at a 7 percent annual rate during 
the first half of 2017, and that is a notable acceleration from 
an essential flat pace during the preceding 2 years. That is 
very important because after translating this pattern of 
investment into the flow of capital services, it is apparent 
that capital deepening, the flow of capital services per hour 
worked, has made essentially no contribution to the growth of 
labor productivity in recent years, in contrast to a post-World 
War II average of .8 percentage points per year. Indeed, if you 
look at the contribution to productivity growth of capital 
deepening over the last 2 years, it became negative for the 
first time since the second World War.
    As I will discuss in a moment, this Administration thinks 
that tax policy could play a role in reviving the contribution 
of capital services to labor productivity growth, and most 
importantly, through that channel to the growth of real wages. 
But before I do that, let's look at a few other sectors.
    Real residential investment grew at a slow 1\1/2\ percent 
annual rate in the first half of 2017. The low and steady rate 
of core inflation is notable. Core CPI inflation, excluding 
food and energy prices, is only 1.7 percent for the 12 months 
through September. Looking back at the past few years, real 
potential GDP appears to be growing at about only a 2 percent 
annual rate, or perhaps even less, as Chairman Tiberi's chart 
indicated.
    Real wage growth in America has also stagnated. Over the 
past 8 years, the real median household income in the United 
States rose by an average of only six-tenths of a percent per 
year.
    The relationship between corporate profits and worker 
compensation broke down really in the late 1980s, before any of 
the recent policy had a chance to interrupt that. And that 
deteriorating relationship between the wages of American 
workers and U.S. corporate profits reflects the state of 
international tax competition more than anything else, I 
believe. Countries around the world, as Chairman Tiberi's chart 
indicated, have responded to the international outflow of 
capital by cutting their corporate tax rates to attract capital 
back.
    Now, a key feature of the joint proposal for taxes of this 
Administration together with congressional leadership is the 
proposed reduction of the statutory Federal corporate tax rate 
from 35 to 20 percent. This conclusion, that the incidence of 
the corporate tax falls partly but importantly on workers, is 
driven by empirical patterns that are highly visible, in 
addition to extensive peer-reviewed research, not to mention a 
number of follow-up studies to ours that have appeared during 
the past 10 days or so.
    For example, the covariation between real wage growth and 
statutory corporate tax rates between the most-taxed and the 
least-taxed countries over recent years, visible in Figure 1, 
which might go up over there, is indicative of this larger 
literature. Of course, simple time series correlations don't 
tell the whole story, but there is a big literature that shows 
that high corporate tax countries have low wage growth and 
that, low corporate tax countries have high wage growth.
    Indeed, between 2012 and 2016, the 10 lowest corporate tax 
countries of the OECD had corporate tax rates 13.9 percentage 
points lower than the 10 highest countries, and that is about 
the same scale as the reduction currently under consideration 
here in the United States. The average real wage growth in the 
low tax countries has been dramatically higher, as would have 
been predicted by the academic literature.
    Now, the U.S. economy has made great progress during the 
past years in reducing the jobless rate, but the rate of 
productivity growth, and therefore real wage growth, has been 
slow. It is time for all of us, in a bipartisan way, to turn 
our attention to building a plan for boosting the rate of 
growth in the long-run, and wage growth in particular. As I 
have discussed, the Administration's plan for tax reform will 
have an important role in improving the rate of productivity 
growth, in combination with its plan to stabilize the 
regulatory environment, and we look forward to working with 
you, the members of this committee, to help reach those goals.
    I will be happy now to respond to any questions you may 
have.
    [The prepared statement of Chairman Hassett appears in the 
Submissions for the Record on page 29.]
    Chairman Tiberi. Thank you, Dr. Hassett. As I mentioned in 
my testimony and showed in that graph, over the past decade the 
CBO has continually downgraded the estimate of what the economy 
is capable of producing, our output potential.
    Is it possible, in your opinion, that the Obama-era 
policies of higher taxes and heavier regulation actually 
constrained our economic potential? And how could we change 
that?
    Chairman Hassett. I think on regulation it is certainly 
possible. I think that your chart really captured what happened 
in recent years, which is that it was our actions on tax policy 
that necessarily harmed us, it was our inactions. And so what 
happened is that the rest of the world cut their corporate 
taxes, and that made their countries much more attractive for 
the location of multinational plants than our country, and we 
saw the activity move overseas in response to that. You know, 
one metric, Chairman Tiberi, is how big this effect is.
    There is a National Bureau of Economic Research paper that 
came out in the spring that looked at just U.S. multinationals. 
They transfer-priced their profits abroad to the foreign 
plants, but they transfer-priced the profits abroad by paying 
too much for the products that they buy, say, from the Irish 
plants. And this study estimated that 52 percent of our trade 
deficit right now is coming about because of this transfer-
pricing. We are paying too much for stuff from our foreign 
subsidiaries. We are moving that much activity offshore: so 
much activity that 52 percent of our trade deficit is 
attributable to it. And so, of course, that means lower demand 
for workers and lower wages as well.
    Chairman Tiberi. Thank you. You have written and spoken in 
recent years on the challenges of the uneven economic recovery, 
a topic we have explored in this committee, a topic that 
Senator Peters mentioned as well. Indeed, a wide array of 
research makes clear that this recovery has been the most 
graphically concentrated on record, leaving far too many 
communities, like in Ohio, and Michigan, for example, 
communities and the people who live in those communities--
behind.
    As you know, I have introduced legislation to provide a new 
market-driven way of getting private capital off the sidelines 
and into our communities, certainly to foster new business and 
create jobs, called the Investing in Opportunity Act, which has 
garnered broad bipartisan support and bicameral support, as 
Senator Tim Scott is the lead sponsor in the Senate. Two 
questions for you.
    First, can you briefly describe the dimensions and 
consequences of this trend that is occurring within our economy 
of increasingly concentrated job growth in places like Los 
Angeles and New York? And, secondly, can you speak to the 
Administration's commitment to ensuring tax reform ensures the 
challenge head-on of incorporating ideas like the Investment 
and Opportunity Act?
    Chairman Hassett. Thank you, Chairman Tiberi. Geographic 
inequality has been a focus of my academic work for many years, 
and it is really the reason why I am an economist. I mentioned 
in my confirmation hearing that I grew up in a town, 
Greenfield, Massachusetts, where the Greenfield Tap and Die, 
which was the main factory in town, closed. And across the way 
in Turners Falls there was a big paper mill that was the main 
employer there, and that closed, too. My dad and I, when I go 
home (my dad still lives in Greenfield), we walk next to the 
abandoned factories because they are right along the 
Connecticut River. It is a beautiful walk. But the factories 
are so fallen apart that the video game ``Fallout'' used it as 
a location for video shooting for post-Apocalyptic America.
    And so this is something that I care deeply about. And that 
is why my academic career has really focused a lot on 
geographic inequality, including, as you mentioned, States like 
Ohio and Michigan, where there are distressed communities where 
the plants closed and the jobs haven't come back.
    I think that tax reform, in general, will definitely 
encourage a lot of plant location back into the U.S. because, 
right now, again, if you locate in Ireland you are paying 
almost no tax. If you locate in the U.S., you are paying the 
highest tax of the developed world. But we also should pay 
close attention to where those plants are going to go. And as 
you said, if the plants were all located to the places that 
have very low unemployment rates right now, then they wouldn't 
necessarily be helping those distressed communities.
    Now, the Administration doesn't have an official position 
yet, it is not something that I discussed with the President on 
your specific proposal, but I can tell you that the 
geographical inequality is something that everybody is paying 
very close attention to.
    Chairman Tiberi. Thank you. Senator Peters, you are 
recognized for 5 minutes.
    Senator Peters. Thank you, Mr. Chairman. Mr. Hassett, you 
have certainly been engaged in a pretty high-profile debate of 
sorts over the impact of the Administration's tax proposal, and 
what it will have on the wages for working Americans.
    And I think there is certainly an awful lot of--a lot to 
dive into regarding that argument. But to be brief, I am 
somewhat skeptical of the numbers that you have put out. And I 
think I am in pretty good company in the fact that I think the 
majority of economists also are very skeptical of some of the 
numbers we have heard from the Administration.
    And certainly, I believe that many working families back 
home in Michigan are also very skeptical about that. For them, 
I don't think many Michiganders are holding their breath to see 
if their boss' boss' boss' tax cut somehow trickles down to 
them to see either in increased growth or in wage increase. 
Instead, they want to know how this tax proposal is going to 
impact them. How it is going to impact their pocketbook. They 
certainly have to worry about everyday challenges, like every 
family, like buying a car and paying for daycare and providing 
for a secure retirement.
    So I think we need the Administration to be a little bit 
more direct as to the consequences of the tax plan that is 
before us. Specifically, as it is tailored to individuals, so 
folks know exactly what this means for them. Certainly, some 
estimates that I have seen have shown that some middle-class 
families could see an $800 increase in this tax plan, because 
it is focused primarily on the folks at the very top of the 
income scale, and large corporations, and they will actually be 
paying for it in the form of higher taxes. So I think we need 
to make sure the American public and families know what that 
is.
    And given the fact that the median income for families in 
Michigan is a little of $52,000, an $800 tax increase is a big 
deal for those families, and we need to have full disclosure in 
this plan going forward. So I understand you may find some 
disagreement with some of these estimates that are being put 
out by various economists and other types of think tanks.
    But could you give this the committee today an estimate of 
the tax savings that a working family will get as a result of 
the tax plan that has been proposed?
    Chairman Hassett. Yes. Thank you, Senator. You know, the 
first part of your question relates to the tax savings 
discussion, that----
    Senator Lee [presiding]. So sorry to interrupt. Chairman 
Hassett, could you move a little closer to the mike. Thank you.
    Chairman Hassett. I am sorry. Thank you. You know, let's 
talk about what we agree about. In the CEA report that we just 
put out, we found that there has been a disconnect between the 
welfare of corporations and the welfare of workers. That 
corporate profits are soaring, but wages are not. And that is 
very unusual in U.S. history. I think we agreed that that 
disconnect has happened.
    I think we also agree that we are the highest corporate tax 
case of the developed world. That is a simple fact. So then the 
other thing that I think we agree about, because it is a fact, 
is that the capital deepening contribution to productivity 
growth in the U.S. has gone to the lowest level it has been 
since World War II.
    And so I think that it behooves all of us. It is our really 
somber responsibility to think, what is driving these factors? 
I think that the best explanation for those patterns in the 
data is that the corporate rates around the world have gone 
down a lot, they have encouraged U.S. multinationals to locate 
plants abroad instead of here, and that is why we see these 
effects.
    I know that if labor demand goes up in the U.S. that wages 
will go up, and there is a dispute about how much. But I don't 
think that there is anyone that thinks it is zero. Now as for 
the estimate of the tax effects. As you know, the 
Administration is committed to a process (that hopefully can be 
bipartisan), in which the committees work out where the 
brackets go. And the President has even mentioned that we are 
open to a higher top rate, if that is what it takes to get 
broad support for this tax plan.
    And I think that this process is designed optimally to 
create a bipartisan agreement about tax reform. And it is 
certainly everyone's hope that we head there. So if I were to 
say, well, this family is going to get this tax cut, then I 
would be stepping in front of that process, because where the 
brackets are located is being negotiated in the Ways and Means 
Committee upstairs and in the Finance Committee right at this 
moment.
    Senator Peters. Well, but you are going to be a very 
important part of that process. You are the principal adviser 
to the Administration as to where this policy should be and how 
it is going to impact growth. And so I am going to want--I want 
to pursue that just a little bit. But before I say that, we do 
agree on the disconnect between corporate profits and wage 
levels for most workers in those companies. In fact, corporate 
profits are at an all time high, so it is not that corporations 
are hurting right now. But we have seen certain individuals 
have benefited.
    Certainly, first and foremost, we know CEOs at those 
corporations have done very well. In fact, I think CEO pay has 
grown about 90 times faster than the typical worker since 1978. 
So the folks at the very top are reaping all of the rewards of 
that growth, it is not impacting everyday Americans. And we 
have a tax code now or a tax proposal that is going to say, 
those folks that are reaping all those benefits, they need to 
pay less taxes. I don't think the average worker thinks that is 
the case, they think they need that kind of relief.
    And so as we are talking about the particulars of an 
individual family, I want to know--and we have heard President 
Trump say that middle class families will not see a tax 
increase. Is that the position of the Administration?
    Chairman Hassett. Yes.
    Senator Peters. And will you use that influence that you 
have with the President, and the President stand by those 
comments to the Ways and Means Committee here, saying that 
middle income taxpayers--all middle income taxpayers will not 
see a tax increase?
    Chairman Hassett. The President is adamant on that point, 
that it is the one thing that is nonnegotiable, that there is 
not going to be a middle class tax hike in this tax bill. And 
as for the corporate profit point, I know we are running a 
little late, but this is very important, and I would hope that 
I could respond to that, too, because it is a very important 
point. Right now, U.S. multinational profits are, as you said, 
at an all-time high, and executive compensation is 
skyrocketing.
    The last I checked, and I could follow-up on this, that 
executive compensation in the U.S. was higher than dividends. 
Go figure. But the disconnect from wages is not because there 
is fundamental change in market power here in the U.S. The 
disconnect in wages occurs because the profits aren't in the 
U.S.: the profits are abroad.
    And so right now we have the highest tax on Earth, but 
those companies aren't paying it because they are locating the 
revenue in places like Ireland.
    So if we make our country more attractive for location of 
plants, then it is not that we are giving a big tax cut to 
companies that are already not paying it, it is just that they 
are not paying the tax because they are locating their activity 
abroad, and the profits that are sky high in the U.S. are 
driving up wages in places like Ireland.
    Senator Peters. And, if I may, Chairman Lee, just briefly, 
because I want to make sure I am clear about taxes for middle 
income families, because some of the numbers that I have seen, 
particularly with the elimination, for example, of State and 
local deductions for State and local taxes, there have been a 
number of studies that show that that with that deduction 
elimination, a lot of middle class families are going to see an 
increase, about 12 or 26 percent of families in Michigan claim 
that State and local deduction, and it is all over the country. 
And some studies have said the average increase for folks could 
be up to $1,800 a year because of loss of that deduction. And I 
think you will see a number of those figures.
    So, given what you said, I hope you will understand when 
those of us are pushing back on a proposal that may be put 
before us that is going to raise that, we are going to say, we 
can't support that. And we are going to say, we can't support 
that. And we are going to hope we will be aligned with the 
President that we can't support these increases on middle class 
families, and we will push back pretty aggressively on the 
Republican proposal.
    Chairman Hassett. That is understandable. And when the 
complete plan is available, I look forward to working through 
those numbers with you and your staff.
    Senator Peters. All right. Thank you.
    Senator Lee. Dr. Hassett, we are grateful to have you here 
and congratulation on your confirmation. I look forward to 
working closely with you in your new role over at CEA.
    We are in the middle of a significant debate, a debate that 
has been made clear, even so far this morning in our 
discussion. I want to pick up on something that Senator Peters 
was discussing because I think it is an important point, having 
to do with our corporate tax rate.
    At 35 percent, we have the highest corporate tax rate in 
the developed world. And there are problems with that, problems 
that I think that are acknowledged by most Republicans and most 
Democrats, but sometimes I don't think we look into it quite 
enough. Sometimes we tend to look at the corporate tax as being 
something that is paid, a burden that is borne solely by 
wealthy corporate fat cats, the likes of whom could be depicted 
with a Monopoly game piece or depicted sort of like Mr. Peanut 
with the monocle and a double-breasted suit.
    But when you take a really close look at who exactly pays 
corporate taxes, the picture is a little bit different. It 
taxes, effectively, both capital and labor, both the investor's 
dividends and the wages of the workers. Economists disagree a 
little bit on how this breaks down, but it is commonly 
understood that lost worker wages make up between one-quarter 
and one-half of corporate tax revenue, some actually put the 
figure higher than that. And so perhaps a quarter to a half, 
maybe more, borne by workers.
    On top of that, you have got everything that people buy, 
every good, every service in the economy, is made more 
expensive by a tax like that. And there is also diminished 
wages, unemployment, and underemployment that can sometimes 
stem from that. So, in the end, I tend to view this 35 percent 
corporate tax as having some very nasty regressive effects, 
meaning, that its least desirable qualities include the fact 
that it is borne disproportionately by America's poor and 
middle class.
    This is why, in January, I penned an op-ed in the 
Federalist that proposed eliminating the corporate tax 
altogether, and shifting that particular tax burden onto 
investors instead of workers by taxing capital gains and 
dividends at ordinary income rates, instead of having the 
corporate tax. Under this type of strategy, workers could be 
liberated from their share of the corporate tax burden, and 
America would, without a doubt, become the most popular place 
in the world to do business.
    So, Dr. Hassett, I would love to get your comments here, 
any thoughts you might have on that idea.
    Chairman Hassett. Thank you, Vice Chairman Lee. I think 
that, again, wage growth is low, profit growth is high, the 
profits are abroad. We have got the highest rate, and we see 
that countries around the world that are run by governments 
that don't have the commitment to the American system that 
every member of both parties here in Congress has, cutting 
their corporate rates.
    President Macron ran in France on reducing the corporate 
rate to 25 percent, and the French rate was already below ours 
when that election began. The political party governing Greece, 
whose name translates as ``The Coalition of the Radical Left,'' 
has a lower corporate tax rate than we do. This is not about 
right wing parties throwing money at rich corporations, it is 
about economically literate governments understanding that if 
we want wages to be higher, then we have to give workers 
capital to work with.
    If you look at the U.S. right now, again, the contribution 
to productivity growth from capital deepening is lower than it 
has been since the second World War. We have got a crisis in 
our country, and it is something that everybody on this 
committee needs to work together to solve.
    Senator Lee. And this idea of zeroing out the corporate tax 
altogether and replacing it with a tax on dividends and capital 
gains that would put it on par with the taxes we impose on 
income, what do you think of that idea specifically?
    Chairman Hassett. You know, I am focused like a laser right 
now as an adviser to the President on the proposals that are 
there. Your idea is something that is quite analogous to 
something that a lot of other countries have done. A few 
countries have eliminated it altogether. Many have integrated 
the corporate tax with the dividend and the capital gains tax 
so that they are basically charging tax once at one level, but 
in a progressive manner.
    If you throw it at the individual side, then if there is, 
for example, a retiree who is getting a dividend, and they are 
using that dividend to pay their utility bill, then maybe you 
don't want to tax the heck out of that dividend. But if there 
is a really rich person getting a dividend, maybe you do. And 
those are the kind of arguments that have motivated other 
countries to do that, but for me right now I am focused on the 
current proposal.
    Senator Lee. There is another issue that is closely related 
to this one. It deals with the burden of overregulation. I keep 
two stacks of documents in my office here in Washington. One 
stack is a few inches tall, it is a few thousand pages long. I 
think for last year it was 3,000 pages long. The laws passed by 
Congress last year. The other stack is 13 feet tall. For last 
year it was about 96,000 pages long, and it is last year's 
Federal Register, the annual cumulative indexes of Federal 
regulations as they are released and later finalized.
    Those regulations end up costing the American economy about 
$2 trillion a year. This is up from just $300 billion a year 20 
years ago when I first started tracking this problem. So it has 
increased roughly 7-fold. It is the product really of 
congressional delegation of power. Congress not wanting to make 
law itself and stand accountable for the difficult line drawing 
decisions that go along with setting public policy and having 
someone else do it. And yet, it is costing the economy $2 
trillion a year, and I believe those effects are borne 
disproportionately by America's poor and middle class.
    In your opinion, do you think an idea like the regulatory 
budgeting idea I have proposed or the REINS Act, which would 
require congressional approval of major regulations, would have 
a desirable impact on GDP and benefits for America's poor and 
middle class?
    Chairman Hassett. Thank you, Senator. In terms of the 
specific proposals, I would have to touch base with my 
colleagues at the White House. It is not something I discussed 
with them, and I wouldn't wish to signal an official White 
House position that I am not currently informed about. But 
certainly the topics that you have mentioned are incredibly 
important to the White House.
    And I think that one reason why sentiment in the U.S. is so 
much higher right now is there has been a lot of palpable 
deregulation so far this year, but also nearly a halt of costly 
new regulations. And one of the things that we at CEA have been 
studying is the impact on firms of new regulations. And it is 
really quite striking because if all of a sudden you run a 
business and then the U.S. Government has a new regulation, 
then you have to figure out what to do. You have to hire 
lawyers. You have to decide whether to put new things into your 
plan. And it is a really urgent problem.
    The regulation from, for example, 3 years ago has costs, 
too, because it has distorted your previous behavior. But the 
new regulations are incredibly costly. And one think tank in 
town has estimated that just by slowing new regulations, we 
have reduced the number of man hours spent complying with new 
regulations this year by more than 6 million. And I think that 
gives you an idea of the kind of effects of prudent regulatory 
reform.
    But we are also very mindful of how important many 
regulations are, like clean air and clean water and so on. So 
we are not talking about wiping away all regulations, just 
exposing the ones that exist and the new ones that we might 
think of, to really careful cost-benefit analysis.
    Senator Lee. Thank you very much, Mr. Hassett. I see my 
time has expired.
    Mr. Delaney.
    Representative Delaney. Thank you, Mr. Chairman. Thank you, 
Dr. Hassett, and congratulations on your appointment. You bring 
tremendous expertise and very good judgment to this important 
job. So it is great to have you in the seat. Just staying on 
the corporate tax question for a moment.
    It seems to me that across the last decade or two, a very 
large percentage of businesses, particularly large businesses, 
have moved from an incorporated status to a pass-through 
status, largely because of how the private equity industry has 
grown, and in every kind of private equity-backed transaction, 
those companies moved to an LLC status where they don't pay any 
corporate tax. In fact, many of them pay very little tax 
because they are leveraged and they can deduct the interest.
    And there is no evidence or data that I have seen to 
indicate that wages have grown any faster in those companies 
where there is no corporate tax than in incorporated businesses 
in this country. So does that to some extent mitigate this 
argument that the corporate tax rate is the reason that wages 
haven't grown in this country, because in fact a growing and 
large percentage of the businesses in this country in fact 
don't pay tax because of what I just discussed, and their wages 
have not grown any faster based on any analysis that has been 
done than wages in C corporations, which actually pay this tax?
    Chairman Hassett. Thank you for the question, Mr. Delaney. 
As always it is a very interesting one. And I am not sure there 
is literature on that question yet, but if there is, I will 
find it and send you a note about it. And it is a really great 
question, so I will have to speculate about whether that effect 
is there, which I won't dispute or concede because I would have 
to study the numbers a little bit more, why that might be.
    Representative Delaney. Sure.
    Chairman Hassett. Don't forget that the U.S. labor market 
is a place where firms show up and compete for workers, 
ideally, and that the wage is set by total labor demand in the 
country. If we have a big chunk of the firms in the country 
that are locating the jobs overseas, then that reduces overall 
demand.
    Representative Delaney. Right.
    Chairman Hassett. But in the end if, for example, Hassett, 
Incorporated, and Comstock, Incorporated, are competing for 
Delaney, then we are going to have to pay you about the same 
wage.
    Representative Delaney. And a quick point on corporate tax. 
The average corporate rate is fact about 23 or 24 percent. Is 
that about right?
    Chairman Hassett. Do you mean the taxes divided by total 
revenues----
    Representative Delaney. Yeah.
    Chairman Hassett. The average rate, the last I checked for 
multinationals, was a good deal lower than that.
    Representative Delaney. Got it. And is that more consistent 
with our competitors as opposed to our stated rate, which is 
the highest?
    Chairman Hassett. If revenue is low with our high tax rate, 
because people locate activity offshore----
    Representative Delaney. Right.
    Chairman Hassett. Then it doesn't mean that we have a low 
tax rate.
    Representative Delaney. Right, it means they are both----
    [Cross talk.]
    Chairman Hassett. Yeah----
    Representative Delaney. So I loved how you talked about 
focusing on things that we can agree on, because we need to do 
more of that here. We tend to focus on all the things we don't 
agree on. But two things that I think that there is broad 
agreement on, and I think you have opinions on these topics.
    The first is tying infrastructure with tax reform, which I 
have worked on extensively, as I think you know, around 
international tax reform. And it seems to me it is a missed 
opportunity not to do infrastructure as part of tax reform 
because it is really the only way to pay for infrastructure and 
everyone seems to agree we need more investment in 
infrastructure.
    And then the second question is a carbon tax, which would 
obviously generate an enormous number--amount of revenues, 
which could be used for broad-based tax reduction, individuals, 
small businesses, C corps, whatever the case may be, under the 
category of we would rather maybe tax pollution as opposed to 
income and profits.
    Can you comment on the wisdom of having infrastructure as 
part of tax reform and perhaps a carbon tax as part of tax 
reform?
    Chairman Hassett [joking]. Sure. You know, I am an 
economist, and if I look back at the times I have worked on 
presidential campaigns and advised people, then they tended to 
lose. So I don't give political advice because it is not very--
--
    Representative Delaney. More a matter of start tax policy.
    Chairman Hassett. Yeah. So infrastructure is really 
important. Tax reform is really important. Whether they go 
together is something that you folks are the experts in. And 
the second question----
    Representative Delaney. Okay. Carbon tax.
    Chairman Hassett. Carbon tax. Yeah, I have written 
extensively about a carbon tax, as you know, which may motivate 
the question----
    Representative Delaney. Yes.
    Chairman Hassett. And my job as CEA chair is to provide 
objective analysis of proposals. And if someone were to propose 
a carbon tax, then I am sure when I did that analysis I would 
be citing some of my own work----
    Representative Delaney. And what is your directional 
opinion on a carbon tax? Whether a carbon tax whose revenues 
would be effectively dividended back to the American people 
either directly or through other tax cuts. How would that 
affect economic growth, putting aside, you know, what I view is 
perhaps the most important benefit, which was to reduce 
greenhouse gases. But how would you view that as an economist 
related to economic growth?
    Chairman Hassett. Sure. Again, not speaking on 
Administration policy, but----
    Representative Delaney. Sure. I understand.
    Chairman Hassett. But as an economist who does study the 
literature. There is an economist at the Resources for the 
Future at the University of Maryland named Rob Williams, who 
has done a very careful modeling job of looking at carbon taxes 
and how they affect the overall economy. And depending which 
tax rates you reduce when you pair it with a carbon tax, you 
can get either really big negative effects on the economy or 
small positive effects.
    Representative Delaney. So you can get positive to 
negatives, if you--devil or God is in the details----
    Chairman Hassett. In his model that is what it says.
    Representative Delaney. Thank you, Dr. Hassett.
    Representative Comstock [presiding]. Thank you. I now 
recognize myself for 5 minutes. And thank you, Mr. Hassett, 
good to be with you, Chairman, and welcome you here to this 
committee and to your new position here.
    I wanted to follow up a little bit on the growth rates, and 
as we look at growth in what we are doing in taxes, and how 
that relates to our international competition, and the 
potential for growth in economies. When you look at India and 
the growing middle class there and the potential we have to 
benefit from that, whether it is trade or other, but also in 
the growing competition that we are going to have.
    What are the best policies that you think in terms of 
getting our growth rate up, because when you go to other 
countries and hear they are having 8 percent or 9 percent. When 
I look at a lot of the potential--I am in Virginia with a lot 
of technology sector in my district, and I often hear from them 
about they are just sort of waiting whether they can invest 
here or invest somewhere else. Should I go to India? Should I 
go, you know, to some other country, or should I invest here?
    What policies can we put in place that will then sort of 
unleash it to both grow here, but then interact with the 
growing economy around the world?
    Chairman Hassett. You know, I think that there are three 
components to economic growth. To grow output, you need to grow 
inputs. And you can have more labor input either because you 
have more workers or because the workers are more talented. You 
can have more capital because we are an attractive location 
for, the capital--or both of them can get better because of 
technological change.
    Now, when you look around the world and you see countries 
growing at 9 or even 15 or 20 percent, which happens sometimes, 
very often that happens because they are starting out from a 
place where they are not at the technological frontier. 
Therefore, they can copy existing practice since the 
skyrocketing growth indicates they are just going to do it as 
well as, or half as well as, a major developed county.
    The problem for us being really the class of the world in 
terms of the technological frontier or very close to it, is 
that the innovation part of growth is a lot harder because we 
can't just copy what somebody else is doing. We have to 
actually innovate and discover something that no one ever knew 
existed.
    There are also things that we can correct with policies, 
and we can affect labor supply and capital supply. I think that 
the tax reform that has been negotiated with the White House 
and Congress is designed optimally to help both on the 
individual side by reducing marginal tax rates, and encouraging 
higher labor supply, and on the corporate side by making the 
U.S. a place where plants want to locate again, we would 
increase capital formation as well.
    Representative Comstock. Now, are there ways we can, you 
know, with the workforce development, and I know that is an 
issue that we will be dealing with also subsequent to tax 
reform. How can we best invest in our workers and grow, because 
with the information economy, with this expanding economy and 
middle class around the world, our workers, if we are going to 
continue to lead, need to be the most talented, and we need to 
continually invest. I know we always talk about life-long 
education.
    What policies can we then put in place to develop and 
constantly upgrade our employees so that their wages are 
growing, you know, substantially, and we don't have the 
stagnation that we have now?
    Chairman Hassett. Well, sure. One key factor is human 
capital formation and educating our workers and helping them 
keep up with the rapid technological changes in society. And 
there are a number of initiatives that are being studied and 
enacted now by Secretary DeVos and the rest of the education 
team to help workers keep up.
    I think that one of the things, looking back at our policy 
failures collectively as a Nation over the last few years, is 
that we have not necessarily done a good job of that. If you 
look at the people who have received training because they lost 
their job because of trade, for example, then that training 
doesn't always look like it has been that helpful. Therefore, 
it is something that we need to study very carefully and 
improve upon.
    Representative Comstock. In terms of having, you know, look 
at all these training programs that we have across numerous 
agencies, kind of consolidating them, really having them 
directed towards the work shortages. And in Virginia we have 
lots of cyber jobs open, and you can--we have programs--I will 
give a plug for Capital One has done some great outreach with 
communities where kids aren't necessarily going to college, but 
they will get them in and they have gone out and recruited kids 
in lower income areas, but with real potential, bring them in 
for a 6-month to a year program. And they are having huge 
success getting them into that cyber pipeline. Then if they 
want to go back to business school, they want to go to college, 
they now have a job where they also will get tuition assistance 
and things like that.
    So maybe as we are looking at these training programs, but 
also maybe tax policy--how we can encourage companies to invest 
in their workers like that, and match the education efforts to 
the jobs that are open and that we are deficient in filling.
    Chairman Hassett. That is certainly an important objective.
    Representative Comstock. Great. Thank you. Thank you. And I 
will now yield to my colleague, Mrs. Maloney for 5 minutes.
    Representative Maloney. Thank you. Thank you. And 
congratulations on your appointment.
    Chairman Hassett. Thank you, Congresswoman.
    Representative Maloney. It is wonderful to have you here 
today. Now, in the words of a famous and immortal New Yorker, 
Yogi Berra, this hearing and topic sounds a great deal like 
deja vu.
    This country has heard again and again about how huge tax 
cuts for the most fortunate will pay for themselves, and that 
the benefits will somehow trickle down to benefit working 
families. And again and again that has not been the case. Just 
last April this committee had a hearing where we debated the 
virtues of trickle down economics and featured the inventor of 
the Laffer Curve, Arthur Laffer, and Dr. Jared Bernstein, who 
was the chief economist to former Vice President Joe Biden.
    Mr. Laffer made a number of the same claims being made here 
today about the benefits of giant tax cuts. And after the 
hearing he published a number of articles that pointed out that 
that is not what happened. And I would like--and it is not 
likely to happen again, I would say, based on the past 
performance. So, without objection, I would like to submit 
copies of these articles into the record.
    Representative Comstock. No objection.
    [The articles appear in the Submissions for the Record on 
page 33.]
    Representative Maloney. Now, according to your prepared 
testimony, you estimate that the Administration's proposed tax 
cut to the corporate tax rate would increase the level of 
average household income in the United States by at least 
$4,000 annually, after the effects have taken place. That is on 
page four of your testimony.
    Chairman Hassett. Correct.
    Representative Maloney. Well, I must say that that sounds 
absolutely wonderful, but it sounds a little bit to me like you 
can lose all this weight, but you don't have to exercise and 
you don't have to go on a diet. And past performance doesn't 
show that.
    Now, the New York times pointed out in one of their 
articles that a 2012 Treasury Department study found that less 
than a fifth of the corporate tax falls on workers. So it does 
not trickle down to them. And a Congressional Research report 
last month concluded that the effects of corporate taxes fell 
largely on high-income Americans, not average workers.
    So I would like to, without objection, to place into the 
record these two reports also. Without objection.
    Representative Comstock. Without objection.
    [The information was not received by the printing 
deadline.]
    Representative Maloney. Thank you. Now, FactCheck.org, you 
might have seen the report that they did on your numbers. They 
also took a look at the underlying math and found that there 
were roughly 125 million households in the U.S. last year, and 
an average increase of 4,000 for each of these households would 
equal more than 503 billion annually. But according to the U.S. 
Treasury, the total amount that U.S. collected in corporate 
taxes in fiscal year 2017 was just $297 billion.
    So even if you somehow transferred all the money previously 
collected in corporate taxes directly to American households, 
you would still be about 200 billion short. And that doesn't 
add up to me. So to support the Administration's proposal, you 
further testified today, and you give the example in your 
testimony, that between 2012 and 2016, the ten lowest corporate 
tax countries of the OECD had a corporate tax rate 13.9 
percentage points lower than the 10 highest corporate tax 
countries, about the same scale as the reduction currently 
under consideration in the United States. But you don't list 
those countries. But I assume that they must include low-tax 
countries like Switzerland and Latvia. And I would like, for 
the record, for you to submit who these countries are.
    Chairman Hassett. Right.
    Representative Maloney. I looked at Latvia and it is a 
great country. They have emerged in a noble fashion from 
communism and Soviet oppression. But last year the GDP of 
Latvia was $27.68 billion, and that is not quite as good as 
Vermont. And Vermont, they came in at number 50 in GDP among 
our States.
    So are you seriously suggesting that the U.S., a country 
with huge complex dynamic economy, and a GDP last year of over 
$18 trillion, can and should model its tax policy after that of 
an eastern European country still emerging from the yoke of 
communism. Actually, Switzerland also has a very low tax rate, 
with a GDP that is less than that of one of our great States, 
Vermont?
    And if I can use Latvia as a model, then we should also use 
the tragic example, I would say, of Kansas, as a cautionary 
tale--a tale about the economic chaos that happened if your 
brand of trickle down economics is put into place. Kansas is 
not a pretty picture.
    So your comment really on the 10 compared to the 10 
highest--and to me it doesn't make a normal or accurate 
comparison, and the numbers that were really refuted by 
FactCheck.com on the 4,000 benefits.
    One of the items that Senator Peters mentioned is the 
concern that many of us have that outside organizations and 
analysis are saying that 80 percent of the tax cut goes to the 
most fortunate, which is not the stated claim or purpose or 
goal of the Administration. But in its current form, numbers 
don't lie. And the numbers are coming in in a way that does not 
benefit the working man and woman in our country.
    Chairman Hassett. Thank you very much. It is always a 
pleasure to appear before you, Mrs. Maloney.
    Representative Maloney. Always a pleasure to see you. 
Congratulations.
    Chairman Hassett. I will respond to two points directly. 
The point about Latvia: there is a very large literature that 
looks at corporate tax rates and how wages respond. And in 
order to estimate that effect, you need variation in the tax 
rates. There is variation over time within countries, and there 
are studies that look at that. There is variation across 
countries. There is variation within----
    Representative Maloney. Excuse me a second. But when you 
make a presentation, if you could give us the 10 countries that 
you are looking at.
    Chairman Hassett. I will do that. I will follow up and send 
them. I can't think of them off the top of my head, in part, 
because it changes each year because countries are cutting 
their taxes. But this evidence has been found and people who 
look across U.S. States, for example, you mentioned Vermont. 
There is--a Federal Reserve paper that looks at when states 
change their corporate taxes, what happens to wages. There are 
papers that look at Canada, across Canadian provinces, and 
papers that look at Germany.
    And so the chart was meant to summarize what is basically a 
result that appears over and over in the literature in an easy 
to digest forum, and I think it serves that purpose. I think 
that the FactCheck.org point, which has been emphasized also 
publicly by a few economists, is really something of a classic 
economic blunder.
    The fact is that, if--right now we have a corporate tax 
system that encourages firms to locate their activity in 
Ireland in order to avoid U.S. tax, and they do that by 
creating jobs in Ireland instead of here, then we are barely 
getting any revenue at all from the corporate tax here because 
they moved the money to Ireland. I think we agreed that U.S. 
multinationals aren't paying that tax.
    And so to look at the change in revenue and the change in 
wages, and to say that that is a meaningful ratio is something 
that has been disproven by careful analysis by John Cochrane at 
the University of Chicago, Casey Mulligan at the University of 
Chicago, and Greg Mankiw at Harvard University. So the 
FactCheck.org numbers are just not correct. Thank you.
    Representative Maloney. Well, if you would send me the 
reports that you mentioned.
    Chairman Hassett. Sure will.
    Representative Maloney. And I will send you the Treasury 
Department report and the Congressional Research Service.
    Chairman Hassett. I have read both of those.
    Representative Maloney. That refute that. So as we go 
forward in this debate, it is important that we get our numbers 
straight. And I would like to see the numbers that you rejected 
with the foreign countries. And this is important. I would like 
to see money brought back to America and invested in our 
economy and in our infrastructure. I agree with you on that. 
And this is a work in progress.
    We do need to simplify our tax code, but we certainly need 
to do it in a way that is fair to working men and women. And I 
do not believe that the current forum that is before us--of 
course, it is going to be debated and changed as we go forward, 
as you pointed out, does that.
    Thank you so much for your service.
    Chairman Hassett. Thank you.
    Representative Maloney. And I guess I yield to Senator Lee, 
right?
    Senator Lee [presiding]. Thank you. Senator Klobuchar.
    Senator Klobuchar. Thank you very much. And thank you so 
much for being here, and I would share the Representative's 
concern about the current proposal. But I want to start out 
with something I know that you have done some work in the rural 
economic area, and I am still seeing a lot of challenges. I was 
just up on the Canadian border with Representative Peterson. We 
obviously talked about the current estate tax proposal, and it 
only helps I think two people in his district.
    But last year we saw large layoffs in the iron range due to 
steel dumping. People are now just getting back to work. We 
have a shortage of workforce housing. So while we have that 
going on in a lot of our rural areas, we actually have housing 
issues because we have some successful companies. And we have 
job openings, but not enough trained workers, and I know you 
have been asked about this.
    You have written about the challenges facing our rural 
communities. What policies or programs do you think we should 
implement to help?
    Chairman Hassett. Thank you, Senator. And thank you for 
your support in my nomination to my confirmation. I am very 
grateful for that and humbled by it.
    I think that the geographic inequality around our country 
right now is very palpable in many different ways, and that 
there are places that are booming at the State level. For 
example, right now, Colorado has about half an unemployed 
worker per job listing. And if you survey firms, then the 
biggest, number one, problem they have is that they can't find 
the workers for the job openings that they have. And then, as 
you know, that there are many parts of your State and every 
State that have the exact opposite circumstance, where the 
unemployment rate is way north of 10 percent and it has been 
for more than a decade and doesn't seem like it is budging, 
even though the economy is doing great.
    I, as an economist, am hopeful that the corporate tax 
reform that is currently being considered could do quite a bit 
to help that, because with a tight labor market in lots of 
parts of the country, then, if you are a firm and you want to 
locate a plant here instead of Ireland, then you have got to 
find a place where there are a lot of workers, because if you 
locate there, then you will actually be able to fill up the 
plant. And so I think that that big picture effect is probably 
the biggest thing that we can do.
    Earlier, we talked with Chairman Tiberi about a proposal 
that he has put forward, which the White House has no current 
position on, about how to address geographic inequality, more 
specifically with a bipartisan proposal that Mr. Tiberi is a 
co-sponsor of. But I think that ideas like that--or a cosponsor 
of, excuse me--ideas like that are things that we need to 
explore as well.
    Senator Klobuchar. You mentioned the tax and other 
countries, locating overseas. Certainly, one of the biggest 
goals here we have is to have jobs in America. And I was just 
talking before I came over here with some tax experts about the 
difference of someone that would like to bring money back from 
overseas that is over there, between a global minimum tax idea, 
where you have the average among countries, versus the previous 
administration had proposed a territorial tax idea, where you 
would have a minimum tax per country as opposed to having this 
average, and what would the average do. Could you talk about 
the difference between those two proposals? I am not talking 
about specific rates. I am talking about the mechanics of how 
that would work and the effect that could have on companies' 
incentives to keep jobs in America.
    Chairman Hassett. I know that this issue is something that 
is currently being studied carefully by the committees. I think 
that everybody involved who has studied it, including President 
Obama, thinks that we should move towards a territorial system. 
The frustrating part for people who do taxes is that there 
really isn't just a territorial system and a worldwide system, 
but there are degrees of territoriality and worldwide. And I 
look forward to seeing what the committee has come up with 
specifically on this issue. And I think it is a very important 
one for understanding the international tax implications of the 
corporate tax. But I think we have to let the committees decide 
where they are going to go on that.
    Senator Klobuchar. Okay. Last question I have is just on 
the economic opportunities that we could have with immigration 
reform. And Grover Norquist, when I was the ranking on this 
committee, came in and gave his full-throated support for 
immigration comprehensive reform with the basis that we could 
bring the debt. And there have been many studies, CBO studies, 
on that, and also that we could actually bring in more talent 
and create more jobs, and I think the 2013 figure back then, it 
would reduce the deficit by $158 billion over 10 years, $685 
billion over the following--include the following decade. 
Twenty-five percent of our U.S. Nobel laureates were born in 
other countries. Seventy of our Fortune 500 companies are 
headed up by immigrants. Could you tell me where you are on 
this?
    Chairman Hassett. Sure. You know, I think that, as an 
economist, we talked earlier in the hearing about how, if you 
want more output, you need more input, and one of the inputs is 
labor. And so, for sure, in any economy, immigration is an 
important source of labor. And also we have borders, and they 
need to be protected. I am not an expert on border security. 
But I think it is also that there is bipartisan agreement that 
we----
    Senator Klobuchar. We had a bill like this out of the 
Senate that did both things.
    Chairman Hassett. Excuse me?
    Senator Klobuchar. We had a bill that passed the Senate 
that had significant funding for order at the border but also 
allowed this kind of legal immigration that I am talking about.
    Chairman Hassett. I would be happy to discuss that specific 
bill with you----
    Senator Klobuchar. Okay. Very good.
    Chairman Hassett [continuing]. And that specific study.
    Senator Klobuchar. Time is of the essence here. We have 
been waiting a decade.
    Chairman Hassett. And I could add that I am very grateful 
that my Irish ancestors came here, and I am pretty sure they 
weren't allowed here because they had computer degrees.
    Senator Klobuchar. Exactly. Good point. Same with mine, 
came as a chef or a chef's assistant, not a chef. Thank you.
    Chairman Hassett. Thank you.
    Senator Lee. Congressman Beyer.
    Representative Beyer. Thank you, Senator.
    Mr. Chairman, reports out of the recent fourth round of the 
NAFTA renegotiations have not been positive, particularly 
regarding the reactions in Ottawa and in Mexico City to certain 
U.S. proposals. And the successful conclusion of the 
negotiations was always going to be difficult, and now we seem 
to be further away from that goal than ever before. If those 
renegotiations don't produce an outcome that is acceptable to 
the Administration or to Congress, would the economy be better 
off if the U.S. pulled out of NAFTA rather than the status quo?
    Chairman Hassett. Thank you for the question. I am not 
involved in the negotiations, and I think that the President's 
position on trade is that our trade deals could be made better. 
And I think that, as an economist, I can say that, if an 
economist wrote a free trade deal, then it would be one 
sentence. We would say: We got free trade. If you look at the 
free trade deals, then they take months and months to 
negotiate, and they have got thousands and thousands of pages. 
And so I don't think that one could dispute the observation 
that we could make those deals better. I am also hopeful to see 
where the negotiations lead and hope that the trade deals could 
be made better.
    Representative Beyer. I am glad to hear it. Implicit in 
your remarks is that you are very much a free trader.
    Chairman Hassett. I am an economist----
    Representative Beyer [continuing]. Put those together.
    You have written in the past about the stock market. And 
based on public statements by senior administration, including 
our Treasury Secretary, who described government, quote, as a 
mark-to-market business. Many market participants believe that 
this Administration views higher stock prices as a validation 
of its economic policies. But, as you know, stock prices go up 
and down. What are the risks, in your view, of guiding policy 
based on the whims of the equity markets?
    Chairman Hassett. You know, I don't think that there is 
anyone, that I know of, in the White House that is guiding 
policy based on what happened yesterday in the stock market. I 
think that our economic proposals are based on sound economic 
reasoning and objective analysis. I think that you are right, 
that the market goes up and down. And the market has gone up a 
lot lately, and I think that if I were going to write down an 
economic model that predicted a couple of reasons why, the most 
important would be that there is an anticipated tax reform. And 
if the statutory corporate tax rate were to drop as 
significantly as is proposed, then that would certainly have a 
positive impact on the market. And so exactly how big that 
effect is and what the probability is that the markets factored 
in of the tax reform is unclear to me. There is not really a 
good estimate of that. But I think that one could be quite 
confident that, if the tax reform were to fail, that that would 
be a big negative for the market.
    Representative Beyer. Okay. You know, Mr. Chairman, several 
Fed presidents have recently noted that cutting taxes at this 
point in the business cycle would be highly procyclical.
    Robert Kaplan of Dallas Fed said, quote: My concern is you 
would create a bump in gross domestic product that would be 
short term. It would then decline back down to trend growth, 
except that when you decline back down, you would be more 
leveraged than when you started.
    And San Francisco Fed President John Williams said: Unless 
targeted to raise productivity and underlying potential, the 
tax cut could feed unsustainable growth that could ultimately 
be undone by asset price bubbles, inflation, and possible 
recession.
    So why is now the time for added stimulus? I know you have 
been concerned in the past about inflation risks and fiscal 
risks in the past. Were those concerns unfounded in the past? 
Why are we being so procyclical right now?
    Chairman Hassett. I would share those concerns if the tax 
proposal right now were a demand stimulus, but the tax proposal 
is to stimulate supply. And so, if we stimulate supply, then 
there is more capital, there is higher labor productivity, and 
you are actually making even the workers that are already 
employed more productive because they have better machines to 
work with. And so that doesn't create a kind of Keynesian 
demand inflation spiral at all, but rather the increase in 
capital supply puts downward pressure at the margin given the 
positive GDP growth because you are increasing supply.
    Representative Beyer. But we already have--corporate 
profits are at an all-time high right now. There is more 
capital sitting on the sidelines than there has ever been. Why 
do we think that changing the corporate tax structure is going 
to put more of that money to work?
    Chairman Hassett. The money is on the sidelines, and it is 
on the sidelines, across the ocean. And the fact is that the 
corporate money isn't turning into factories here in the U.S. 
because we have the highest corporate taxes on Earth. It is not 
rocket science. And if we were to reduce the corporate tax 
rate, then companies would come back, and the money would come 
off the sidelines because the U.S., again, would be an 
attractive location for investment.
    Representative Beyer. If 25 percent of those corporations 
pay no taxes, and the 35 percent is the statutory rate, and the 
actual rate is closer to 14, wouldn't we be better off finding 
a way to get it much lower, 20, 22, 25, whatever the target 
rate is, by eliminating the preferences and the exceptions that 
allow 25 percent to pay nothing?
    Chairman Hassett. They paid nothing mostly because they 
have located the money in Ireland or some other country 
offshore, and, therefore, avoid the U.S. tax. And so that is 
precisely the offshoring model that we are trying to sever with 
this proposal.
    Representative Beyer. Mr. Chairman, thank you. I yield 
back.
    Senator Lee. Mr. Hassett, I wanted to ask you, generally 
speaking, what you believe the bright spots are in our economy. 
We talk a lot, understandably and with good necessity, about 
some of the things that scare us, that worry us. But I am 
curious to know, as an economist, not only what you think are 
the bright spots but also what has surprised you about our 
economy over the last few years.
    Chairman Hassett. Sure. I think that there are a number of 
bright spots, and we are really starting to see it in the data, 
that with GDP growth going up north of 3 percent, we will get 
another release this week. It will probably be hurricane-
affected, but be a little bit below 2 percent would be my 
guess. But the expectation of the professional staff at the CEA 
is that we are currently looking at a second half of the year 
that, on average, will be north of 3 percent growth. So that 
would be, on average, three-quarters in a row. And I think that 
going from the new normal of 1.9 to 3 percent, that that bright 
spot, which is really a nice headline for America's workers, is 
mostly attributable to a surge in capital formation that I 
think is there because of increased optimism about deregulation 
and lower taxes. And so I think that right now it is incumbent 
on us to see that bright spot and to make sure that it stays 
bright by delivering on the policies that we promised but, 
especially on taxes, haven't been delivered yet. But I think 
that firms are optimistic because they expect that we are going 
to succeed.
    Senator Lee. Thank you. That is good insight.
    As you are aware, some of the tax reform proposals that we 
have been looking at have included a discussion of a separate 
rate for pass-through entities. The idea is that there would be 
separate rules that would go along with the separate pass-
through rate that would be there to thwart opportunistic, 
manipulative tax avoidance. What, in your opinion, would those 
rules look like? And how would this work?
    Chairman Hassett. Yeah. We absolutely believe that the 
corporate rate reduction to 20 percent requires some kind of 
commensurate rate reduction for pass-through businesses, 
America's small businesses, but we also recognize that the 
guardrails around that 25 percent rate need to be very good 
because, otherwise, for example, if LeBron James is going to be 
getting the 25 percent because he is a small business. And, you 
know, I love him. He may be the greatest basketball player of 
all time, but I think he should pay the top marginal tax rate 
because it is labor income. You see how hard he works on the 
court.
    I am not a lawyer. I hear the lawyers talk about 
guardrails, and I know that there is a lot of optimism that 
this can be constructed in a prudent way. But I have to wait 
and see what the final outcome is before I can do an economic 
analysis of it.
    Senator Lee. Thank you.
    Representative Comstock.
    Representative Comstock. Thank you.
    You know, I think this morning we did hear a lot of the 
same critiques that we have heard in the past from 1980s, you 
know, really for the past 30 years. You know, all the 
disparaging remarks that you heard today. But we are really in 
a different economy now, this information economy and the 
international economy that we have. And as you pointed out 
numerous times, you know, if people can leave and go to Ireland 
and find a talent pool there that allows them, you know, 
Microsoft, or a lot of our tech companies to go there, that is 
what we are competing with. So what kind of new thinking maybe 
gets past some of the same partisan language that you have--
that, you know, has kind of been renewed. I thought we had all 
sort of agreed our corporate rate was too high, but now we are 
kind of--we are seeing that reversion on the partisan front to 
the same old tired critiques. What kind of new thinking can we 
do with this new economy so that we can get past some of those 
partisan divides? And if you can just--kind of following up on 
some of the bright spots but also that we can't really thrive 
and have 3, 4 percent growth if we stick with those old models.
    Chairman Hassett. I think that there is so much that the 
members of this committee agree about: the fact that there is a 
disconnect between profits and wages; the fact that we have got 
the highest statutory rate on Earth, but there is a whole bunch 
of companies that don't pay it; the fact that wage growth has 
been completely unacceptable. And it is really the 
responsibility of the Members of Congress to think about why 
those patterns exist in the data and then to come up with 
something that we are going to do about it.
    And I understand that partisanship is part of what we do 
here in Washington. It is inevitable. But I have not seen an 
alternative theory for this set of facts that is in any way 
moving for me. And I just honestly hope that the responsibility 
that we all have for America's workers, for the people that are 
working harder every day and not getting more money, can help 
us work together on this bipartisan tax reform. I think it is 
designed to be the same kind of process we had in 1986 where a 
great tax reform passed that was a big positive for the 
economy, and I am still hopeful that that can be achieved if 
people will start to focus on the actual analysis. For example, 
why have wages been growing so slowly even though profits have 
not? What is your story for that if it is not the one that we 
are talking about? I don't think that there is a good 
alternative.
    Representative Comstock. And Larry Lindsey had an article 
where he was talking about the difference between the 3.1 or 
3.2 percent growth and the 2.1 that we have had from 2011 to 
2016, that average of 2.1. What is the difference between a 2.1 
and a 3.1 to the economy and to long-term things like Social 
Security and our entitlements?
    Chairman Hassett. Sure. You know, these are going to be 
slightly incorrect, but they are useful rules of thumb because 
they are round numbers and they are easy to remember: If we get 
an extra percent of GDP growth, then that is about a million 
jobs. That is about a thousand dollars per household.
    And so, if we can come up with a tax plan that adds--you 
know, pick your favorite number--3 or 4 percent over 10 years, 
then multiply those out. It is a lot of money. It is a lot of 
jobs. And so that is how I think about it.
    Representative Comstock. And then, as we were talking 
earlier, if we also have that skill upgrade, you are really 
talking about wage growth of a lot more than a thousand. If you 
go from being somebody who maybe loses your coal job--although, 
those very high income, $80,000, $90,000, $100,000 in coal 
country--but if you move into some of these technology jobs, 
engineering, construction, a lot of these things also have very 
high pay, we need to be supporting, you know, through the tax 
structures, through the business process, supporting that 
relocation and that reassignment of jobs and labor, too, also. 
So you would be talking about a lot more than $1,000 increase 
when you get them into that higher information economy, right?
    Chairman Hassett. Sure. You are exactly right. It is 
something that we have talked a lot about in the White House. 
The President even tweeted about people needing to move if they 
are having a hard time finding a job to the labor markets that 
are hot.
    Representative Comstock. Great. Well, thank you.
    Chairman Hassett. Thank you.
    Representative Comstock. Thank you. I really appreciate the 
opportunity to visit this morning.
    Chairman Hassett. Thank you.
    Senator Lee. Mr. Hassett, we thank you for coming.
    Chairman Hassett. Thank you for having me.
    Senator Lee. And your insight today has been very helpful. 
We are grateful, also, for the service you provide for the 
country and the Administration.
    Should members wish to submit questions for the record, the 
hearing record will remain open for 5 business days.
    And, with that, we will be adjourned.
    Chairman Hassett. Thank you.
    [Whereupon, at 11:18 a.m., the committee was adjourned.]

                       SUBMISSIONS FOR THE RECORD

Prepared Statement of Hon. Patrick J. Tiberi, Chairman, Joint Economic 
                               Committee
    Good morning and welcome. I want to welcome Senator Peters and Vice 
Chairman Senator Lee as well as the other Members of the Committee to 
what I expect will be a most informative hearing on how we can 
accelerate economic growth in the United States.
    What is holding back economic growth in America has been of central 
interest to this Committee from the onset of my term as chairman. Our 
hearings have produced useful information and insights. I am 
particularly pleased to have Chairman Hassett lend his insights today 
on the forces and constraints that are holding back private investment, 
labor force participation, and wages. We hope to get a clearer picture 
of how the right policies can help the economy recover its full 
potential.
    The economy is dealing with the aging of the population, slowing 
population growth, and technological changes that are altering the 
methods of production. But self-imposed constraints also have altered 
the way the economy performs and not in a good way. I strongly believe 
we can do something about that.
    I would like to direct your attention to the graph showing how the 
Congressional Budget Office (CBO) lowered its assessment of the 
economy's output potential every year since 2007 until 2016. These are 
not projections of actual GDP, mind you, but of potential GDP--the 
economy's output capacity--normally, a fairly stable concept. Back in 
2007, CBO estimated the U.S. output potential for 2016 to be over 12 
percent higher than it is now.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    What happened? The aging of the population was predictable. Not 
anticipated was that U.S. business investment would be down from 
prerecession rates and that the rate at which Americans participate in 
the labor force would drop so markedly. Despite the low unemployment 
rate, the labor market's health has not been fully restored. Indeed, 
the labor force participation rate of people of prime working age 
remains substantially below where it was prior to the recession.
    I believe that economic policy, including the failure to act when 
other countries were improving their business climate, is largely to 
blame.
    I would like to show you two graphs that illustrate the changes 
U.S. firms face on the international playing field. The first chart 
shows how 34 countries changed their corporate tax rates since 2000. 
All these countries, save Chile, which had the lowest rate initially, 
reduced their corporate tax rates to make their economies more 
competitive while the U.S. rate remained the same.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    The next chart shows how 27 countries eased product market 
regulations from 1998 to 2013, based on an OECD index. All these 
countries save Chile reduced taxation and regulation.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    This paints quite a startling picture. It explains why U.S. 
corporations have been moving offshore.
    Other countries have purposefully improved the international 
competitiveness of their business sector while the United States has 
taken the competitiveness of its businesses for granted. As a result, 
we now have an economy that does not fully engage its resources and 
entrepreneurial spirit.
    A JEC hearing earlier this year on declining economic opportunity 
revealed a dramatic decline of new business formation in this country 
since the last recession. From 2008 to 2014, more businesses actually 
closed than opened. A JEC hearing earlier this month showed how 
detrimental the tax code can be to starting a new business--in terms of 
both its provisions and its sheer complexity.
    All the challenges we face are more daunting as a result. The 
national debt is a bigger problem with a slow-growing economy. This is 
why we so urgently need both tax and regulatory reform. We must restore 
a more highly functioning market economy that offers hope and 
opportunity for entrepreneurs, investors, and workers and that removes 
the artificial constraints on faster economic growth.
    Dr. Hassett's expertise is well grounded in economic research, and 
one of his areas of specialization is taxation, which is especially 
useful at the present time. I cannot think of a better witness to 
explain just how tax and regulatory reform can lift the economy and 
living standards. Chairman Hassett, we appreciate your appearance 
before the Committee and look forward to hearing your views today.
    I will now yield to Senator Peters for his statement.
                               __________
   Prepared Statement of Chairman Kevin Hassett, Council of Economic 
                                Advisers
    Chairman Tiberi, Ranking Member Heinrich, Vice Chairman Lee, and 
Members of the Committee, thank you for inviting me to discuss the 
state of the economy with you today. In the testimony that follows, I 
will provide an overview and discuss the status of a number of sectors. 
I will emphasize some areas that need attention, as well as recommend 
policy changes that will improve our citizens' economic well-being.
    Overview: the economy, which is buoyed by heightened expectations, 
is now growing at a solid and sustainable pace with low unemployment 
and low inflation. Financial markets appear to recognize the likelihood 
of continued growth with low inflation, with the major stock price 
indexes up substantially over the past year, and with expected 
inflation (from the market for Treasury's inflation-protected 
securities) remaining low.
    That said, the Trump Administration is not satisfied with business 
as usual nor with the pace of real output and income growth during the 
past several years. As a result, we have put forward a program designed 
to boost the rate of real GDP growth. That program includes tax cuts 
designed to boost the rate of investment, raise productivity, and boost 
real wages. The Administration also plans to improve the regulatory 
landscape, and thereby to keep the flow of new regulations from further 
reducing the pace of economic growth. We recently put out a report that 
looked specifically at the burden of regulation on our economy, and 
there is no doubt that overly burdensome regulation hurts GDP growth.
    I am happy to report that the economy is doing well so far in 2017. 
Real GDP growth during the first two quarters of the year averaged 2.1 
percent at an annual rate, and the range currently being estimated for 
third-quarter growth (2-to-3\1/2\ percent) despite the negative effects 
of Hurricanes Harvey and Irma. As a result, some snap-back can be 
expected in the fourth quarter, especially in the petroleum-producing 
sectors whose Texas operations were shut down by Hurricane Harvey. 
Since January, the unemployment rate fell 0.6 percentage points to 4.2 
percent in September, the lowest rate since 2001, and overall growth is 
poised to average about 3 percent over the second half of the year.
    Financial Markets: Since the election, stock market values have 
climbed steeply, with a value of large companies in the Standard and 
Poor's 500 index increasing [20] percent and the values of the small 
companies in the Russell 2000 climbing even more, [26] percent. The 
joint Administration-Congressional tax proposal, the ``Unified 
Framework for Fixing our Broken Tax Code,'' likely boosted the overall 
stock market, which has priced in an increased chance of a major tax 
cut. Also, the President's program to stabilize the regulatory 
environment may be partly responsible for the relatively strong 
performance of small company stocks because regulation is an 
approximately fixed cost and is therefore more of an impediment for 
small firms than for large firms. The rise in the stock market--
together with the increase in home prices--has generally positive 
implications for the rest of the economy, such as its role in 
supporting consumer spending.
    Real consumer spending grew 2.6 percent at an annual rate during 
the first two quarters of 2017, only slightly below the 2.9 percent 
rate of growth during the preceding two years. Consumer spending has 
outpaced disposable income growth during the past four quarters (1.2 
percent). As a result the saving rate fell to 3.8 percent in the second 
quarter from a 2016 average of 4.9 percent. High levels of consumer 
sentiment and the recent gains in housing values and stock-market 
wealth have supported growth in consumer spending and the accompanying 
decline in the saving rate.
    Business investment grew at a 7 percent annual rate during the 
first half of 2017, a notable acceleration from an essentially flat 
pace during the preceding two years. The acceleration was in the 
equipment and structures components while the intellectual property 
component continued to grow at a healthy (5 percent annual) rate. 
Looking back over the whole of this past business-cycle, business 
investment fell more during 2008-09 than during any previous recession, 
but then recovered in line with a normal recovery--at least through 
about 2014. During the past two years (2015-16), however, it plateaued. 
Because of the deep dive during the recession, however, the level of 
investment did not rebound to the level of the previous (2007) peak 
until four years into the recovery.
    After translating this pattern of investment into the flow of 
capital services, it is apparent that capital deepening--the flow of 
capital services per hour worked--has made essentially no contribution 
to the growth of labor productivity in contrast to a post-WWII average 
of 0.8 percentage point per year. As I will discuss in a moment, this 
Administration thinks that tax policy could play a role in reviving the 
contribution of capital services to labor productivity growth, and 
through that channel to the growth of real wages.
    Real residential investment grew at a slow (1.5 percent) annual 
rate in the first half of 2017. Growth was also slow during the four 
quarters of 2016, after five years of rapid growth. We have reason to 
expect somewhat faster growth during the next year in view of tight 
housing-market conditions, rising home prices, and a shortage of 
existing homes for sale. Building permits have exceeded housing starts 
for the past [7] months and the level of permits authorized but not yet 
started is near its business-cycle high, suggesting solid near-term 
prospects for an increase in housing starts.
    Consistent with tight supply, nominal national home prices 
increased 6.3 percent during the 12-months ended in July (according to 
the FHFA Purchase-Only Index). Nominal national home prices were 10 
percent above their 2007 peak. However, after adjusting for inflation 
with the Consumer Price Index, real home prices in July were still 8 
percent below their peak. The changes in home prices varied 
considerably across states. Over the four quarters that ended in 
2017:Q2, home prices rose in 48 states and the District of Columbia. 
West Virginia experienced the largest decrease (-1.2 percent), while 
Washington State experienced the largest increase (12.4 percent). A 
consensus of housing-price experts expects that home prices will 
continue to increase, albeit at a moderating rate over time. The median 
forecast from Zillow's survey of house price experts is for home prices 
to increase 5.0 percent in 2017 and 4.0 percent in 2018.
    The low-and-steady rate of core inflation is notable. Core CPI 
inflation (that is, excluding food and energy prices) was only 1.7 
percent for the 12 months through September, down from 2.2 percent 
during the year-earlier period. Low prices on goods imported from our 
trading partners have been one force holding down domestic inflation. 
The low and roughly stable rate of core inflation suggests that the 
U.S. economy has not yet bumped up against a capacity constraint and 
that it still has room to grow.
    Looking back at the past few years, it appears that real potential 
GDP appears to be growing at about only a 2 percent annual rate, or 
perhaps less. After all, the unemployment rate has fallen 0.5 
percentage points per year during the past two second-quarter to 
second-quarter intervals with only 1.7 percent per year real GDP 
growth. Looking back at this recent history, I can understand why the 
Congressional Budget Office projects growth of potential GDP of 1.8 
percent during the next 10 years in their current-law forecast, 
although I am not endorsing that CBO forecast. If economic policy can 
do anything to elevate this growth rate, it should . . . because of the 
importance of potential growth for the soundness of our Budget and the 
welfare of our Nation. This recent disappointing growth is the key 
motivation behind this Administration's growth agenda.
    Real wage growth in America has stagnated. Over the past eight 
years, the real median household income in the United States rose by an 
average of six-tenths of a percent per year. But even as Americans' 
real wages stagnated, real corporate profits soared, increasing by an 
average of 11 percent per year. The relationship between corporate 
profits and worker compensation broke down in the late 1980s. Prior to 
1990, labor compensation rose by more than 1 percent for every 1 
percent increase in corporate profits. From 1990-2016, the pass-through 
from corporate profits to labor compensation was only 0.6 percent, and 
looking most recently, from 2008-2016, only 0.3 percent.\1\ The profits 
of U.S. multinationals are still American profits, but, increasingly, 
the benefits of those profits do not accrue to U.S. workers.
---------------------------------------------------------------------------
    \1\ Results from a regression of total labor compensation in the 
U.S. on corporate profits from BEA data covering 1966-2016. A Wald test 
supremum trend break occurs in Q4 1989.
---------------------------------------------------------------------------
    The deteriorating relationship between the wages of American 
workers and U.S. corporate profits reflects the state of international 
tax competition. Countries around the world have responded to the 
international outflow of capital by cutting their corporate tax rates 
to attract capital back. They have doubled down on such policies as 
they have seen business-friendly policies benefit workers.
    A key feature of the joint proposal for taxes of this 
Administration together with Congressional leadership is the proposed 
reduction of the statutory Federal corporate tax rate from 35 to 20 
percent. An analysis by the Council of Economic Advisers suggests that 
this tax rate cut would increase the level of average household income 
(relative to a no-tax-cut baseline) in the United States by, 
conservatively, $4,000 annually after the effects have taken hold.
    It may sound counter-intuitive to some that a cut in the tax on 
profits might boost wages, but the chain of causality is 
straightforward. Real wages reflect output per hour (labor 
productivity) of American workers. The productivity of workers in an 
economy depends, in part, on tools and machinery in the hands of the 
workers. The services of these tools, known technically as the flow of 
capital services--in the right hands--enables production. Even in an 
economy without international capital flows, reductions in the 
corporate tax rates and the associated capital deepening may imply a 
higher marginal product of labor and higher wages. The issue becomes 
more dramatic when the international dimensions are considered. The 
ability of domestic U.S. firms to invest foreign profits overseas 
magnifies the implications of corporate tax policy for domestic workers 
because an uncompetitive domestic corporate tax rate reduces the demand 
for U.S. workers by encouraging capital formation abroad. Indeed, when 
viewed in this way, the incidence of the corporate tax could 
theoretically fall entirely on U.S. workers, so long as workers are 
immobile and capital moves freely across borders. And wage changes of 
the scale we have modeled happen in just a few years simply if capital 
deepening returns to normal.
    This conclusion--that the incidence of the corporate tax falls 
partly but importantly on workers--is driven by empirical patterns that 
are highly visible, in addition to extensive peer-reviewed research, 
not to mention a number of follow-up studies to ours that have appeared 
during the past 10 days or so. For example, the covariation between 
real wage growth and statutory corporate tax rates between the most-
taxed and least-taxed developed countries (OECD) over recent years, 
visible in Figure 1 (attached), is indicative of this larger 
literature. Between 2012 and 2016, the 10 lowest corporate tax 
countries of the OECD had corporate tax rates 13.9 percentage points 
lower than the 10 highest corporate tax countries, about the same scale 
as the reduction currently under consideration in the United States. 
The average real wage growth in the low-tax countries has been 
dramatically higher, as would have been predicted by a consumer of the 
recent academic literature, which looks at much longer time periods and 
explores the relationship with modern econometric techniques.

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    The U.S. economy has made great progress during the past years in 
reducing the jobless rate, but the rate of productivity growth and 
therefore real wage growth has been slow. It is time to turn our 
attention to building a plan for boosting the rate of growth in the 
long-run. As I have discussed, the Administration's plan for tax reform 
will have an important role in improving the rate of productivity 
growth, in combination with its plan to stabilize the regulatory 
environment, and we look forward to working with you to reach these 
goals.
    I will be happy to respond to any questions the committee may have. 
Thank you.

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Response from Hon. Kevin Hassett to Questions for the Record Submitted 
                       by Vice Chairman Mike Lee
    During the hearing, you identified geographic inequality as not 
only an important issue, but also one that is central to the reason you 
chose to become an economist. My Joint Economic Committee staff, who 
have spearheaded the ``Social Capital Project,'' are exploring a number 
of topics including how the decline in marriage, participation in 
community institutions, and religious adherence might be connected with 
the economic challenges faced in some of these struggling areas. What 
role do you see these social and cultural shifts playing, at the local 
level, in driving or exacerbating declines in economic outcomes in some 
communities?
    Thank you for this thought-provoking question.
    As you note, I have had an interest in geographic inequality 
starting from watching my hometown of Greenfield, Massachusetts, 
decline once our mill closed. It is an interest that I was proud to 
pursue through the nonprofit Economic Innovation Group, EIG, even aside 
from any research that I performed as an economist at AEI, up until I 
became the Chairman of the Council of Economic Advisers (CEA). And it 
is a privilege to answer this question for you and your Committee as 
the Chairman of the CEA.
    The economics profession has yet to converge toward any kind of 
consensus about how economic activity and social and cultural shifts 
relate to one another. The philosopher of science Karl Popper once 
characterized science as a process of ``conjecture'' of hypothesis and 
``refutation'' by evidence. I will outline three main sets of 
conjectures about your question.
    I should advise as I begin that the citations below do not purport 
to be anything close to exhaustive: the research in this field is 
enormous and continues to expand.
    The first set of conjectures attempts to estimate the causal 
effects of economic challenges on variables that proxy for social or 
cultural outcomes. One approach looks at what happens to mortality 
after an individual loses a job when a firm-level layoff that an 
individual could not plausibly have caused--an ``exogenous'' job loss--
causes an individual to lose a job. The results are disheartening to 
say the least: mortality increases by up to 50 to 100 percent (Sullivan 
and von Wachter 2009), including the risk of death from suicide 
(Classen and Dunn 2012). Another approach looks at the experience of a 
community rather than an individual after it loses its sources of jobs 
and income, finding similar results. As a local government loses its 
economic tax base, property values decline, crimping the community's 
capacity to invest in local public services like public schools; in 
addition, property crime rises (Feler and Senses 2017). Rates of 
marriage decrease even rates of out of wedlock births increase (Autor, 
Dorn, and Hanson 2017). And deaths from suicide and drug overdoses rise 
(Pierce and Schott 2017).
    In spite of the rigor their methodology, however, these estimates 
are far from the last word on how economic challenges may interact with 
social and cultural outcomes. Even the most ironclad evidence of an 
effect that runs from the economic to the social and cultural does not 
rule out the possibility that other causal channels affect this same 
set of outcomes. And nothing in this evidence explains why some 
individuals or some communities may respond better to economic 
challenges than others. In principle, the effect of any economic shock 
on mortality estimated in any study could, say, double if some set of 
social and cultural factors that helps individuals or communities adapt 
to economic challenges were to cease to exist. Yet such an effect could 
virtually never be detected by any of the standard statistical 
techniques economists use to estimate the causal effect of economic 
challenges on social and cultural factors.
    A second school of thought posits, citing the apparent explanatory 
failure of economic variables alone to explain variation in social and 
cultural outcomes, that variation in social ``norms'' of some variety 
must themselves be exerting a distinct causal influence on the outcomes 
in question. Kearney and Riley (2017), for instance, find that the 
Appalachian coal boom of the 1970s and 1980s induced increases in 
family formation and marital births--but that the fracking boom post-
2005 induced an increase in marital and non-marital births, but no 
increase in marriage. Kearney and Riley (2017) interpret this evidence 
as consistent with the idea that economic forces influence social and 
cultural outcomes through their interaction with social norms rather 
than through a causal mechanism constituted by economic forces alone. 
Other analyses, however, interpret evidence of a similar nature to 
suggest that variation in social norms alone do not need to have any 
interaction with economic factors to explain the social and cultural 
outcomes of interest. An example of analysis that marshals quantitative 
data to make an argument to this effect is Murray (2013).
    However, from the perspective of insisting that all conjectures in 
science be vulnerable to refutations by evidence, many explanations 
that rely on variation in norms to explain social and cultural outcomes 
seem to leave something to be desired. An explanation of how social 
norms explain social and cultural trends would seem to require, to be 
fully useful to policy makers, a theory of how the norm arose in the 
first place. Lacking such an explanation, it would seem difficult to 
refute any specific conjecture about how the rise and fall of a social 
norm explained a social or cultural trend.
    A third set of explanations, however, does make reference to deep-
seated historical factors that can plausibly explain both geographic 
variation in social norms and economic outcomes. Inspired in their 
hypothesis by Frederick Jackson Turner's 1893 essay The Significance of 
the Frontier in American History, a new strand of research integrates 
historic data from the U.S. Census and GIS data from additional 
historical sources on the frontier experience. In spite of the time 
elapsed since the closing of the frontier, constructing a variable for 
plausibly exogenous ``frontier experience'' within a local area, the 
authors find that the legacy of the frontier indeed persists into the 
present. They find, for instance, that the greater the ``frontier 
exposure'' of a community, the less its current residents favor 
redistribution. The authors attribute this attitude to the greater 
reward of effort in the historical frontier environment.
    To be sure, this research program of attempting to identify deep-
seated historical factors that explain both social norms and economic 
variables--at least as applied to the United States--remains in its 
infancy.
                               references
    Autor, D., David Dorn, and Gordon Hanson. 2017. When Work 
disappears: Manufacturing Decline and the Falling Marriage-Market Value 
of Men. National Bureau of Economic Research, Working Paper No. w23173.
    Bazzi, S. Martin Fiszbein, and Mesay Gebresilasse. 2017. Frontier 
Culture: The Roots and Persistence of ``Rugged Individualism'' in the 
United States. National Bureau of Economic Research, Working Paper No. 
w23997.
    Classen, T. and Richard A. Dunn. 2012. The Effect of Job Loss and 
Unemployment Duration on Suicide Risk in the United States: A New Look 
Using Mass Layoffs and Unemployment Duration. Health Economics 21(3): 
338-350.
    Feler, L. and Mine Z. Senses. 2017. Trade Shocks and the Provision 
of Local Public Goods. American Economic Journal: Economic Policy, 
9(4): 101-43.
    Kearney, M.S. and Riley Wilson. 2017. Male Earnings, Marriageable 
Men, and Nonmarital Fertility: Evidence from the Fracking Boom. 
National Bureau of Economic Research, Working Paper No. w23408.
    Murray, Charles. 2013. Coming Apart. Three Rivers Press.
    Pierce, J., and Peter Schott. 2017. Trade Liberalization and 
Mortality: Evidence from U.S. Counties
    Sullivan, D., and Till von Wachter. 2009. Job Displacement and 
Mortality: An Analysis Using Administrative Data. The Quarterly Journal 
of Economics, 124(3), 1265-1306.
                               __________
Response from Hon. Kevin Hassett to Questions for the Record Submitted 
                       by Senator Martin Heinrich
    1.) The Joint Committee on Taxation, Congressional Research 
Service, Congressional Budget Office and the Treasury Department have 
all recently reviewed the literature regarding how the corporate tax is 
split between capital and labor. Each reached different conclusions 
from the CEA's recent report that finds that average household income 
would increase by at least $4,000 following a cut in the corporate tax 
rate from 35 to 20 percent. For example, the 2012 Treasury Paper, 
``Distributing the Corporate Income Tax: Revised U.S. Treasury 
Methodology,'' which recently was removed from the Treasury website, 
finds that less than one-fifth of the corporate tax is borne by labor.

      As policymakers try to understand the impacts of 
different tax cut proposals, do you intend to encourage Treasury to 
repost the study?

    Assessing how the Treasury Department should manage the research 
produced by its previous staff is not within the purview of my role as 
Chairman of the Council of Economic Advisers.
    I would recommend that individuals who want to read analyses of the 
share of the corporate tax burden that falls on labor read more-recent 
estimates of this parameter in recent peer-reviewed literature. That 
literature estimates that the labor share is significantly higher than 
20 percent. Our most recent paper on the impact of corporate tax reform 
on both growth and wages did an exhaustive literature review of this 
topic. It was common for models used in the 1960s and 1970s to assume 
that international capital mobility is not an important factor to 
consider when model ling the U.S. but such an assumption is 
inconsistent with the modern world.

      Why did CEA choose to ignore the experience of the United 
Kingdom, which cut the corporate tax rate from 30 to 19 percent and saw 
wages fall? What can we learn from the U.K. experience?

    The CEA did not ignore the experience of the United Kingdom. The 
United Kingdom, in fact, is within the sample of OECD countries that 
CEA analyzed. But, like any one country included in a statistical 
analysis of many countries, the United Kingdom alone does not alone 
determine the conclusions of the analysis.
    As a historical example, however, the United Kingdom does offer 
some suggestions for how U.S. policymakers can design corporate tax 
reform in such a way as to ensure that America's workers get as much of 
the benefit from corporate tax reform as possible. And I am pleased to 
report that the tax legislation now under consideration does take these 
suggestions from the United Kingdom's historical experience into 
account.
    As the U.K. lowered its headline corporate tax rate over the 
period, as a recent Tax Foundation analysis pointed out, it also 
concurrently changed other provisions in the tax code that had the 
effect of increasing the marginal tax rate on new investment. According 
to economic theory, then, one should not have expected any wage 
increase from capital deepening from the U.K. corporate tax changes--
the U.K. changed other provisions in the business tax code that had the 
effects of offsetting the reduction in the statutory rate. The 
corporate tax changes now under consideration in the U.S., however, 
reduce the headline corporate tax rate and include additional reforms 
(e.g., changes to the tax treatment of new investment expenditures) 
that serve to decrease rather than to increase the effective marginal 
tax rate on new investment.
    An examination of the other changes to the U.K.'s corporate tax 
code that accompanied its reduction of its statutory rate suggests that 
one would be mistaken to expect the effect of the U.K.'s corporate tax 
changes on wages to necessarily speak to the anticipated effects of the 
corporate tax reforms now under consideration in the United States.
    2.) Recently we've seen a disturbing trend of attacking nonpartisan 
scorekeepers when analysis comes out that disproves administration and 
GOP leadership talking points.

      In your opinion, do the Congressional Budget Office and 
Joint Committee on Taxation undergo rigorous processes in developing 
their models and releasing legislative analysis?

    The staffs of the Congressional Budget Office (CBO) and the Joint 
Committee on Taxation (JCT) have a level of technical expertise that is 
difficult for any institution to match. At the same time, however, as a 
tax economist I am aware of how many judgment calls must be made in 
order to perform analysis at the complexity and level of detail that 
the CBO and JCT are required to perform. And reasonable people can 
disagree about the judgment calls that must inevitably be made when 
conducting tasks involving the magnitude of the complexity of those 
performed by CBO and JCT.
    So, yes, I think CBO and JCT have processes that meet standards of 
rigor. But I would note that the existence of processes that meet 
standards of rigor does not mean a reasonable person cannot disagree 
with the conclusions derived from assumptions made in those analyses. 
For example, we cite in our CEA report on the growth effects of tax 
reform empirical papers that are published in top journals that find 
that exogenous tax changes, like this one, have large growth effects. 
Should the JCT or CBO provide an analysis that suggests that the tax 
bill will not have large growth effects, then one would be correct to 
inquire whether the position of the staff is that this literature 
should be ignored, and to follow up and ask why that is their position. 
The IMF, for example, has a talented staff as well, and a recent paper 
that we cite in our report explicitly discusses, as is scientifically 
appropriate, the modeling assumptions required to generate results from 
their equilibrium models that are consistent with the broader 
macroeconometric results emerging in the latest literature.

      Do you believe that they have become partisan?

    As before, I would emphasize that the depth and breadth of 
expertise at CBO and JCT are virtually unmatched. They are important 
institutions. At the same time, I think that reasonable people can 
disagree even with expert judgments that meet high standards of rigor 
without having disagreements be viewed as ``partisan.'' This is what 
professional tax economists spend most of their time doing: engaging in 
debates in which they disagree about calculations and the 
interpretation of them, even though they believe the person who 
performed the calculation is an expert acting in good faith whose 
calculation possessed no shortage of rigor.

      When JCT and CBO release their analysis of the tax reform 
plan, would you recommend that Congress use it to inform their actions?

    I believe that members of Congress and citizens more generally 
should base their views on a wide variety of rigorous analyses, 
including those produced by the JCT and CBO. But the value of that 
analysis of a tax policy or any other policy provides to the consumer 
of that information depends at least in part on the transparency of the 
assumptions used to generate that analysis, and the ability of the 
models being relied upon to reproduce accepted patterns in the data.
    3.) The International Trade Commission just recommended that the 
Administration levy tariffs on imported solar cells. While tariffs may 
help a few domestic manufacturers, they could lead to tens of thousands 
losing their jobs distributing, selling, and installing solar panels.

      How would you advise the President about the 
effectiveness of protective tariffs?

    As you know, through Section 201 of the Trade Act of 1974, Congress 
created a technocratic process for providing domestic industry relief 
in the event that a large amount of increased imports is causing or 
threatens to cause serious injury to firms producing in the United 
States. On October 31, the International Trade Commission (ITC) issued 
a series of recommendations to the President after determining that 
crystalline silicon photovoltaic cells are being imported at such 
quantitates as to cause serious injury to the domestic industry.
    On November 13, the ITC forwarded its report and recommendations to 
the President. As this is a matter currently subject to an 
administrative proceeding, it would be inappropriate for me to comment 
further at this time. However, I can assure you that the Office of the 
United States Trade Representative, which is tasked with developing 
recommendations for the President, will adequately consult with the 
various agencies that have equities in this matter, including the 
Council of Economic Advisers.

      Based on your knowledge of the economic research on 
tariffs, do protective tariffs like the one proposed for solar panels 
help American workers and consumers in the long run?

    Given that this is subject to an ongoing administrative proceeding 
and a matter before the President, it would be inappropriate for me to 
elaborate on my conversations with the President at this time. As you 
know, the ITC forwarded its report and recommendations to the President 
on November 13th. I can assure you that the Administration is carefully 
considering the pros and cons of these recommendations and in the 
process of determining the most appropriate path forward.
    4.) The President has said many times in the past that he will not 
support cuts to Medicare or Medicaid. But the budget Congress just 
passed cuts nearly half a trillion dollars from Medicare and $1 
trillion from Medicaid in order to partially pay for tax cuts. This is 
the budget the President has lauded on twitter.

      Would you advise the President that cuts to Medicare and 
Medicaid are acceptable if they are necessary to pass tax reform?

    The Employment Act of 1946 created the Council of Economic 
Advisers, and it reads that ``It shall be the duty and function of the 
Council . . . to gather timely and authoritative information concerning 
economic developments and economic trends, both current and 
prospective.'' Consistent with that mandate, I view providing the 
President economic analysis of the costs and benefits of the policies 
under consideration as part of my role as Chairman of the Council of 
Economic Advisers.
    But I do not necessarily think that the ``timely and authoritative 
information concerning economic developments and trends'' would 
necessarily be the only set of information relevant to a decision about 
the specific tradeoffs involved in a specific legislative decision. Nor 
can I, as Chairman of the Council of Economic Advisers, commit to 
providing anything but objective economic analysis to the President.
    5.) You've spoken, written, and testified in the past about the 
economic benefits of immigration. In the hearing, you mentioned that 
immigrants help grow the economy, but that immigration policy must also 
factor in border security concerns. In regards to Americans protected 
under the Deferred Action for Childhood Arrivals (DACA) program, border 
security is unlikely to be a main concern.

      What would the economic impact be of deporting these 
800,000 young, hardworking Americans?

    As I have mentioned, the Employment Act of 1946, which created the 
Council of Economic Advisers, declares that ``It shall be the duty and 
function of the Council . . . to gather timely and authoritative 
information concerning economic developments and economic trends, both 
current and prospective.'' Consistent with that mandate, I provide the 
President with objective economic analysis of the costs and benefits of 
the policies under consideration.
    The complexities involved in the economic analysis of immigration 
are, to say the least, significant: there are few subjects that 
generate as much debate between economists as immigration. But CEA has 
not yet evaluated any specific policies involving DACA. The enormity of 
the effort that would be required to complete an analysis on this 
subject is, as an economist, hard to overstate. As Chairman of the CEA, 
I would not regard myself as in a position to comment about a specific 
proposal involving DACA.

      How will you make the case to the President that keeping 
protections in place for these young Americans is important for the 
economy?

    I view a key task of the CEA that I chair as the provision of 
``timely and authoritative information concerning economic developments 
and economic trends, both current and prospective.'' Rather than 
recommending a specific course of action, as Chairman of the Council of 
Economic Advisers, I commit only to providing the President with 
objective economic analysis.
    6.) The Republican tax plan proposes eliminating ``special 
interest'' deductions such as the Medical Expense deduction, a 
deduction that reduced tax burdens for 8.7 million households in 2015, 
and the student interest deduction, which was taken by more than 12 
million households in 2015.
        a. What would be the impact on families facing tens of 
        thousands of dollars in medical expenses be if they are forced 
        to trade this deduction for the CEA's theoretical future wage 
        gains?
    The impact of any tax legislation on a specific subset of families 
depends on the interaction of many provisions of the final legislation. 
However, many of the specifics that will determine how this bill 
affects the millions of American households affected by our tax code 
have not yet been determined. Thus, it would be premature to comment 
about the effect of the tax legislation on the well being of a subset 
of households as specific as the subsets of families you describe. 
However, while I would demur from speculating about the impact of a 
still-in-progress bill on specific sets of households, I disagree with 
a characterization as ``theoretical'' for CEA's estimate of the wage 
effects. Indeed, the estimate is based on a very large and successfully 
peer-reviewed empirical literature, and a wide range of estimates has 
been provided.
        b. What would the impact of this tradeoff be on families if 
        they are also paying down tens of thousands in students loans?
    As I noted earlier, the impact of any tax legislation on a specific 
subset of families depends on the interaction of many provisions of the 
final legislation--and many of the specifics that will determine how 
this bill affects the millions of American households affected by our 
tax code have not yet been determined.