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









                                                        S. Hrg. 115-234

                  THE ECONOMIC REPORT OF THE PRESIDENT

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 7, 2018

                               __________

          Printed for the use of the Joint Economic Committee









[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]













                                             

                         U.S. GOVERNMENT PUBLISHING OFFICE 

29-401                         WASHINGTON : 2018 


























                        JOINT ECONOMIC COMMITTEE

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

HOUSE OF REPRESENTATIVES             SENATE
Erik Paulsen, Minnesota, Chairman    Mike Lee, Utah, Vice Chairman
David Schweikert, Arizona            Tom Cotton, Arkansas
Barbara Comstock, Virginia           Ben Sasse, Nebraska
Darin LaHood, Illinois               Rob Portman, Ohio
Francis Rooney, Florida              Ted Cruz, Texas
Karen Handel, Georgia                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

                   Colin Brainard, Executive Director
             Kimberly S. Corbin, Democratic Staff Director
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
             
                            C O N T E N T S

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                     Opening Statements of Members

Hon. Erik Paulsen, Chairman, a U.S. Representative from Minnesota     1
Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New 
  Mexico.........................................................     3

                                Witness

Hon. Kevin Hassett, Chairman, Council of Economic Advisers, 
  Washington, DC.................................................     5

                       Submissions for the Record

Prepared statement of Hon. Erik Paulsen, Chairman, a U.S. 
  Representative from Minnesota..................................    34
Prepared statement of Hon. Martin Heinrich, Ranking Member, a 
  U.S. Senator from New Mexico...................................    35
Prepared statement of Hon. Kevin Hassett, Chairman, Council of 
  Economic Advisers, Washington, DC..............................    37
Article titled ``One last time on who benefits from corporate 
  taxcuts'' submitted by Representative Maloney..................    44
Article titled ``No, the GPO Tax Plan Won't Give You a $9,000 
  Raise'' submitted by Representative Maloney....................    47
Response from Dr. Kevin Hassett to Questions for the Record 
  Submitted by Vice Chairman Lee.................................    49
Response from Dr. Kevin Hassett to Questions for the Record 
  Submitted by Senator Heinrich..................................    51
Response from Dr. Kevin Hassett to Questions for the Record 
  Submitted by Senator Klobuchar.................................    53
Response from Dr. Kevin Hassett to Questions for the Record 
  Submitted by Representative Maloney............................    53
Response from Dr. Kevin Hassett to Questions for the Record 
  Submitted by Representative LaHood.............................    55
Response from Dr. Kevin Hassett to Questions for the Record 
  Submitted by Representative Schweikert.........................    55

 
                  THE ECONOMIC REPORT OF THE PRESIDENT

                              ----------                              


                        WEDNESDAY, MARCH 7, 2018

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 2:00 p.m., in Room 
216, Hart Senate Office Building, the Honorable Erik Paulsen, 
Chairman, presiding.
    Representatives present: Paulsen, Beyer, Handel, LaHood, 
Maloney, Comstock, Adams, Schweikert, and Delaney.
    Senators present: Heinrich, Lee, Klobuchar, Cassidy, 
Hassan, Portman, and Peters.
    Staff present: Theodore Boll, Colin Brainard, Gerardo 
Bonilla, Daniel Bunn, Kim Corbin, Barry Dexter, Alaina 
Flannigan, Connie Foster, Natalie George, Colleen Healy, Matt 
Kaido, Allie Neill, and Alex Schibuola.

   OPENING STATEMENT OF HON. ERIK PAULSEN, CHAIRMAN, A U.S. 
                 REPRESENTATIVE FROM MINNESOTA

    Chairman Paulsen. We will call the hearing to order. Good 
afternoon, and welcome to the Joint Economic Committee's first 
hearing of 2018. This is my first hearing as Chairman. As 
Members know, I have worked with many of you before and, as you 
know, as Senator Klobuchar knows, I'm from Minnesota, where we 
work hard and we work together.
    In that spirit, I look forward to working with Ranking 
Member Heinrich and Vice Chairman Lee, as well as the other 
members of the Committee.
    I especially want to extend a very warm welcome to our 
newest member, Representative Karen Handel from the State of 
Georgia.
    And with that, we will begin. We are witnessing a sea 
change in the American economy, one that is boosting 
opportunities, supercharging growth, and restoring prosperity 
to our Nation. For eight years the last Administration 
struggled to find government-based solutions to a financial 
crisis that hit American workers hard. But now we have a new 
Administration with a very different approach, and I think few 
can deny that things have changed very rapidly.
    The job of this Committee is to understand what changed and 
why. We all want more workers to rejoin the labor force, more 
businesses to invest, and more wages to rise.
    I believe our work here, in gauging the economy's long-term 
potential, can inform us on the policies that foster that 
growth.
    Chairman Hassett, we welcome you here today. Some very good 
things have happened since you testified before this Committee 
in October of last year. We have passed historic tax reform 
legislation, the Tax Cuts and Jobs Act, and the response of 
businesses has been overwhelmingly positive, exceeding 
expectations.
    Consumer confidence is up. Americans are seeing more take-
home pay. Many will spend less time preparing their taxes next 
year, and businesses are paying special bonuses, giving their 
employees a raise, repatriating offshore earnings, and 
investing more in the United States again.
    The unemployment rate is 4.1 percent, the lowest since the 
year 2000, and the number of new unemployment claims is the 
lowest since 1969.
    Regulatory reform is cutting back on market-choking 
regulations, and is encouraging the private sector, and 
contributing to the surge in business optimism since November 
2016, especially for small businesses.
    Economic growth in each quarter of last year substantially 
exceeded growth of the corresponding quarter the year before 
reaching as high as 3.2 percent in the third quarter, a number 
that the last Administration had led us not to expect to happen 
again.
    We are in a better place every day, as this economy has 
moved upwards, and it is not because government fixed it; it's 
because government finally allowed the American people to fix 
it.
    We are trusting the American people to keep more of their 
money and to spend it as they see fit, rather than micro-
managing their lives. America's economy isn't getting 
overheated, it's just getting started.
    Figure one, which is on the screen, uses the phrase 
``Constrained Potential.'' The potential is everyone in the 
audience here in their capacity as productive members of 
American society, and the constraint part is, well, 
unfortunately potentially everyone here on the dais in our 
capacity as elected officials.
    This chart does show something very interesting. The color 
lines show how the Congressional Budget Office has lowered its 
projection of the economy's output potential each successive 
year since 2008.
    In other words, this is a graphic representation of the 
American Government lowering expectations year by year. The 
black line at the bottom, however, represents actual production 
as rising, closing in on the bottom potential line only after 
eight long years.
    Potential GDP should not change much from year to year, yet 
this chart shows constant revision. And why? The answer is: The 
continuous addition and tightening of policy constraints from 
2008 to 2016. Removal of these constraints is a return to 
normalcy, not an artificial boom.
    What happened for the last eight years was a regulatory 
crackdown that diverted and constrained Americans from their 
pursuits. And those expectations should never have been that 
low to start, because we should have had confidence in the 
American worker.
    I would be remiss if I did not mention the President's 
concerns about our trade policy and discussion in recent weeks 
about tariffs. We are all deeply concerned about unfair trade 
practices by bad actors in other countries, and I know American 
workers want to compete fairly. That is because--and I know the 
President knows this as well--our workers are the best in the 
world. And when they compete internationally, America wins.
    I look forward to hearing from you, Chairman Hassett, how 
these tariffs might be crafted so they address specific 
distortions caused by unfair trade practices and how we are 
going to avoid these tariffs simply becoming a tax increase on 
consumers and American manufacturers.
    Chairman Hassett, we thank you again for appearing before 
the Committee today and extend our thanks, as well, to the 
Council of Economic Advisers for preparing the Economic Report 
of the President.
    I will now yield to Ranking Member Heinrich for his opening 
statement.
    [The prepared statement of Chairman Paulsen appears in the 
Submissions for the Record on page 34.]

 OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING MEMBER, A 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Heinrich. Thank you, Chairman.
    Before I get started, I want to welcome our new Chairman, 
Chairman Paulsen. We have known each other for a few years now, 
and I am really looking forward to working with him this year.
    Chairman Hassett, thank you for being here today to discuss 
The Economic Report of The President and the State of the 
Economy. And I wish I were as optimistic as the Chairman about 
the policies put in place since you came before this Committee 
in October.
    I am going to be pretty direct. The Republican tax bill 
serves special interests and will cost our children dearly for 
generations to come. Rushed through with no bipartisan input, 
the GOP tax law jeopardizes our fiscal position and further 
tilts the scales in favor of large corporations, and especially 
wealthy individuals.
    While the law's impacts on economic growth are debatable, 
the impact on inequality is clear. Independent analysis shows 
that within 10 years more than half of working families will 
pay higher taxes than they would have before the new GOP tax 
law. And meanwhile, the wealthiest 5 percent walk away with an 
astonishing 99 percent of the tax benefits.
    Chairman Hassett, you and the President have promised again 
and again, most recently in The Economic Report of The 
President, that tax reform will increase average family income 
by at least $4,000. But that is simply not what we are seeing.
    If we wanted to reform the Tax Code to help the middle 
class, we could have simply cut taxes for the middle class. 
Pretty straightforward. And it would have directly given 
working people in New Mexico and around the country much-needed 
resources to pay the bills, put their kids through college, and 
save a little something for retirement.
    Instead, Republicans chose to cut taxes for large 
corporations and for the super-wealthy, and left Americans 
hoping that those cuts would somehow trickle down to workers.
    History has shown again and again that is not what happens. 
And the early evidence this year confirms who the big winners 
are. So far, corporations have announced more than $210 
billion, with a ``b,'' dollars in stock buybacks, benefiting 
executives and wealthy shareholders.
    While there have been some bonus and wage announcements, 
they total just $6 billion. Six billion to two hundred and ten 
billion. A fraction of the money going to executives and the 
investor class. It is not just the immediate impacts that are 
concerning. The whole strategy is misguided.
    The massive increase in deficits constrains our efforts to 
tackle the problems that we should have been focused on in the 
first place, like fixing our broken infrastructure and making 
more accessible and affordable a whole range of post-secondary 
education options, from apprenticeships and vocational 
education, to community college and four-year universities.
    Think about how we could have invested $1.5 trillion 
dollars spent on the tax bill. We could have erased every 
student loan in this country. Every single one. One recent 
study shows that canceling student debt for the 44 million 
Americans who hold it would boost economic output and create up 
to 1.5 million new jobs in a single year. Of course we could 
have invested that $1.5 trillion in infrastructure.
    The Administration's infrastructure plan commits barely any 
real money to the cause. They say they want to spend $200 
billion in Federal dollars, but its budget makes more than $200 
billion in cuts to existing infrastructure programs from 
transit to highways to water.
    In other words, the long-awaited plan invests no new net 
Federal dollars. The $1.5 trillion hole dug because of the tax 
bill could have actually funded our infrastructure plan.
    Instead, the Administration is hoping that somehow State 
and local governments and the private sector will pay for 
roads, for bridges, ports, schools, VA hospitals, and on and 
on. But the private sector has little interest in investing in 
sparsely populated low-traffic rural areas that desperately 
need infrastructure investment. And the tax law further limits 
already cash-strapped States' abilities to raise new revenues 
by capping State and local tax deductions.
    It is less a plan and more a hope. You often hear that 
budgets are a reflection of values. That is true. But the 
massive tax giveaway, maybe even more than the recent White 
House budget, reveals Republican priorities.
    My Republican colleagues could have joined with Democrats 
to invest in children, to invest in workers, education, our 
long-term economic success. Instead, they handed out goodies to 
large corporations and the uber wealthy, and risked our long-
term economic health.
    Chairman Hassett, my focus is on what we can do now, and 
moving into the future. I am interested to get your insight 
today on how the Administration plans to work with us in making 
the investments that will help families succeed in today's 
economy.
    I look forward to hearing your perspective.
    [The prepared statement of Senator Heinrich appears in the 
Submissions for the Record on page 35.]
    Chairman Paulsen. Thank you, Ranking Member Heinrich.
    I would now like to introduce our distinguished witness, 
Chairman of The President's Council of Economic Advisers, Dr. 
Kevin Hassett.
    Dr. Hassett earned his Ph.D. in Economics from the 
University of Pennsylvania. Prior to joining the 
Administration, Dr. Hassett was the Director of Research for 
Domestic Policy with the American Enterprise Institute. He has 
served as an economic adviser to multiple Presidential 
campaigns. In addition to prior experience working as a senior 
economist with the Federal Reserve Board of Governors, Dr. 
Hassett has been a visiting professor at New York University 
and as an Associate Professor at Columbia University.
    Chairman Hassett, we appreciate you joining us today, and 
you are now recognized for your testimony.

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

    Chairman Hassett. Thank you, Chairman Paulsen, and Ranking 
Member Heinrich, Vice Chairman Lee, and members of the 
Committee, for inviting me to discuss the Economic Report of 
The President.
    Our Report outlines the economics of an agenda focused on 
improving growth by reforming the Tax Code, eliminating 
unnecessary regulations, investing in infrastructure, 
addressing cyber crime, and improving the conditions that made 
it hard for America's middle class to recover from the 
Recession.
    First, on taxes and growth. A review of the literature and 
our own modeling finds that the average household could get a 
$4,000 wage increase from the new law once the law's full 
effects get absorbed by the macro economy.
    We have already seen that 4.7 million workers have received 
raises, bonuses, or improved benefits as of today. By our 
calculations, companies have already announced investments of 
over $191 billion.
    We also have now modeled the effects on the individual 
side, finding they could increase GDP by 1.3 to 1.6 percent in 
10 years. I also want to mention share buybacks.
    Monies previously offshore are being sent back to the U.S., 
a one-time adjustment of the stock of trillions of dollars of 
old profits that were locked in foreign subsidiaries. One would 
expect this. No economist would make the case that the American 
economy would be better off if these monies were still locked 
offshore.
    Share buybacks today are not mutually exclusive to long-run 
wage gains that accompany American capital formation that will 
accumulate this year and in the future.
    Second, on deregulation and growth. There have been 
demonstrable harmful effects on the economy of over-regulation. 
For example, business dynamism has suffered a decline. 2009 
marked the first time that more firms died than were born in 
the United States since the Census Bureau began compiling its 
Business Dynamics Statistics. It is likely that regulatory zeal 
slowed both dynamism and overall growth. We find that if the 
U.S. had OECD product market regulation that was the same as 
Germany, we would increase annual growth by point one percent 
per year. If we deregulate further to the level of the 
Netherlands, we could get growth at 2.2 percent per year.
    Third, we examined why the middle class cannot seem to get 
ahead. The labor income of the typical household at the middle 
of the income distribution is still below where it was at the 
start of the 21st Century.
    The last Administration's tax and transfer policies 
worsened the wound through their effect on the labor market. 
The median American's inflation-adjusted household income from 
working took nine years to recover to its pre-Recession level 
after the Great Recession, the longest this type of recovery 
has taken since at least 1979.
    Government policies decrease the incentive to work, 
contributing to the historic decline in Americans participating 
in the workforce, and the continued stagnation of wages, along 
with the Baby Boom retirements.
    But in the end these government policies hampered the 
economic success of the very middle class households they are 
intended to help. Changing course can help address the low 
labor force participation rate, we believe.
    I would also like to touch on immigration. The President's 
immigration policies focus on a merit or skills-based approach, 
bringing in immigrants who are highly productive and skilled, 
as opposed to those who simply arrive through a family 
relationship and who may have low or no skills, shows why a 
head count is not the way to think about the impact of 
immigration on growth.
    Former CEA Chairman Eddie Lazear has written about the 
relationship between the education levels of prospective 
immigrants and the economic effects their admission could 
rationally be expected to have. I agree with this analysis.
    Looking at infrastructure, another of the President's 
priorities, in 2014 total congestion cost peaked at $160 
billion, wasting 6.9 billion hours in delays, and 3.1 billion 
gallons of fuel.
    A $1\1/2\ trillion investment in infrastructure could add 
.1 to .2 percentage points to economic growth over the next 
decade, and improve productivity and the quality of life.
    The President has focused on the high cost of drugs. Among 
members of the OECD, Americans pay more than 70 percent of 
patented biopharmaceutical profits that fund drug innovation. 
This is very asymmetric. There are also several factors that 
affect health and health care costs, such as smoking, obesity, 
and opioid abuse, which have contributed to the decline in 
American life expectancy for the second year in a row.
    We also looked at economic policy issues on the horizon 
like cyber, as we were charged to do in the Forty-Six 
Employment Act, Mr. Chairman. Our analysis finds that malicious 
cyber-attacks inflicted over $100 billion of damage on our 
economy in 2016, on top of the threat this poses to our 
national security.
    There is a market failure that leads private firms, which 
we document in the Economic Report, many of which face risks 
correlated with one another to invest less in cyber security 
than would be economically optimal, and to not report crimes 
that are targeted towards them.
    And perhaps the topic of the day, which I know that we will 
go into more in the question and answer period, trade. Trade 
has been beneficial, for sure, but it has left some American 
communities worse off.
    The Administration is seeking to improve America's position 
with respect to international trade. Other countries at times 
violate market principles and distort the functioning of global 
markets.
    American firms face higher barriers to selling their 
products abroad, and fewer barriers to selling their own 
products here in the United States than their peer firms in the 
group of high-income G-20 countries.
    For example, let's just look at cars. We put a 2\1/2\ 
percent tariff on our imports into the U.S. And for countries 
that we have free trade deals with it is even zero. Whereas, 
China puts a 25 percent tariff on our cars that we ship to 
China. And even the EU puts a 10 percent tariff on cars that we 
try to sell into the EU.
    Brazil puts 35 percent tariffs on U.S. cars. Or look at 
monitors. We have a 2 percent tariff on monitors. China has a 
24\1/2\ percent tariff, and the EU has a 14 percent tariff on 
our monitors.
    There are lots and lots of examples of these asymmetries 
that we document in The Economic Report, and I think that that 
is why the President is right when he emphasizes that our trade 
deals need to level the playing field.
    I would like to conclude with the overall economic 
outlook--2017 growth and real gross domestic product exceeded 
expectations and increased to 2\1/2\ percent, up from 1.8 
percent during the four quarters of 2016.
    We are the first Administration, I would add, to miss the 
forecasts in their first year by having an estimate that was 
too low in many years. The unemployment rate has fallen to 4.1 
percent, the lowest since 2000.
    Now our baseline forecast is that we will have 2.2 percent 
growth through 2028. But if all of the President's policies are 
enacted, the policy inclusive forecast is that we will have 
real GDP growth of about 3 percent a year, although it is less 
than that in the second five years.
    So we are conservative relative to previous Administrations 
that, on average, have had a median forecast of 3.1 percent. 
And as I have testified before, I believe in the importance of 
transparency about the forecasting methods. And I know that as 
we begin our conversation about The Economic Report that we 
will have plenty of points that we disagree about, but I hope 
you will agree that we have got a very transparent report; that 
we describe the model that we use to do the baseline; we 
describe how we get from the baseline to 3 percent with lots 
and lots of chapters on economic policies that review economic 
literatures with something like 60 pages of references, and 
give you a range of the balance of the predictions from the 
literature.
    With that, I know that there is a long, long history of 
this Committee and the Council of Economic Advisers working 
together, and I am pleased that I also have a personal history 
with this Committee that goes back more than a decade, and I 
look forward to taking questions from so many of my friends and 
acquaintances.
    Thank you, Mr. Chairman.
    [The prepared statement of Dr. Hassett appears in the 
Submissions for the Record on page 37.]
    Chairman Paulsen. Thank you, Chairman Hassett. We will now 
begin the questioning period. I would just remind members to 
keep their questions to five minutes.
    Chairman Hassett, the Tax Cuts and Jobs Act is the most 
important economic legislation that we have seen enacted in 
years. By lowering the corporate, pass-through, and individual 
rates we have created a more even-handed, simple, and pro-
growth tax system.
    Can you give a little bit of an expansion, or talk a little 
bit more about some of the improvements that you believe this 
legislation is actually bringing to our economy?
    Chairman Hassett. Yes, and thank you very much for that 
question. And it in part allows me to address comments made by 
Mr. Heinrich that I think that, as an economist, as I modeled 
the Tax Bill that we just looked at, I think of there being a 
corporate side and an individual side. And I know the 
individual side contains small businesses, and so on, too.
    But on the corporate side, we got the rate from 35 percent, 
which was the highest rate in the developed world, down to 21 
percent. But also, we introduced a whole bunch of rules, some 
of them quite technical like deemed tangible income, and I know 
the members of this Committee have studied them all and know 
them well, that make it so that firms can no longer reduce 
their U.S. tax burden easily by moving their activity abroad.
    An example that I find really stunning that I studied 
extensively before as we were debating the Tax Bill, is that if 
you and I, Chairman Paulsen, had a company that made say hockey 
pucks, because you're from Minnesota, then if we had been 
making hockey pucks in the U.S. forever and ever, then what we 
could do is we could say, hey, let's start making hockey pocks 
under the old code in Ireland. Then what we would do is we 
would make our hockey pucks in Ireland, and then sell them to 
the parent in the U.S. and say we sell a hockey puck for $10. 
We would pay our Irish sub $11 for the hockey puck. The U.S. 
parent would post a loss. There would be massive profits in 
Ireland not taxed by the U.S. And then we would take that loss 
and carry it back and get a refund on our past taxes from the 
Paulsen-Hassett hockey pucks.
    And so we had created this world where we were subsidizing 
with tax refunds the offshoring of jobs. And I think that we 
have fixed that. And I know that President Obama had a proposal 
that did many similar things in the tax bill that we did. On 
the individual side, that is the majority of the cost of the 
tax bill. And I think that about $700 billion of the cost on 
the individual side is from the refundable child credit.
    And I, as an economist, can say that, you know, we can 
disagree a lot about redistribution perhaps and what the top 
marginal rate should be and so on, but I think we all agree 
that our society should equalize opportunity. And I think that 
the refundable child credit was a very costly thing in the 
bill, but that it does--it is one of the things that is really 
targeted towards the best way to address opportunity. And that 
is to get money to families with kids.
    Chairman Paulsen. Chairman Hassett, let me also talk to you 
a little bit about free trade and tariffs, which are issues 
that have now dominated the discussion here on Capitol Hill 
since the President's remarks just last week on possible 
Section 232 action. Like many of my colleagues, I am concerned 
about the proposed tariffs on both steel and aluminum.
    I do believe that if these tariffs are implemented with a 
broad brush it will have the potential to backfire and cost us 
jobs at home, force consumers to pay higher prices for goods, 
and ultimately hurt our economy.
    Can you talk a little bit about the direct negative effects 
of these proposed 232 tariffs, as well as the possible 
downstream effects that could occur depending on how the 
international community reacts, should these tariffs be applied 
to all steel and aluminum imports?
    Chairman Hassett. You know, Mr. Chairman, you know that my 
solemn job as Chairman of the Council of Economic Advisers is 
to provide the President with objective advice about the 
economics of his decisions. And I can assure you that I take 
that responsibility extremely seriously, and that we do that.
    If we are going to analyze--and, these actions that have 
been in the news over the last week or so of course are still 
in development. There is discussion about how to treat Canada 
and Mexico that is an ongoing discussion.
    But looking back at the academic literature, President Bush 
had steel tariffs that I think the academic literature agreed 
was a big positive for the steel industry, and then caused some 
harm to downstream steel-using industries.
    I can say that the 232 is a national security matter. I am 
not a national security expert, but even if you were to take 
those relatively small net costs to society from the analysis 
of the Bush steel approach, then it would be easy to envision 
national security benefits that would exceed those costs. And 
more importantly, though, I think let's think again about cars.
    So we have a 2\1/2\ percent tariff on European cars shipped 
into the U.S. They charge a 10 percent tariff on our cars going 
over to Europe. That kind of asymmetry is something that has 
been the focus of I think every trade representative that I've 
ever known trying to fix it, and they've failed.
    President Trump is very, very serious when he says that he 
is a free-trader, and that he is pursuing symmetry and 
reciprocity. And, you know, I think that having--taking strong 
action is a good way to start negotiations and to try to move 
other countries towards a more free-trade equilibrium. If we 
could succeed at doing that, then the benefits of that for us 
and for the global economy could be enormous.
    Chairman Paulsen. Thank you. With that, I now recognize 
Senator Heinrich for a period of five minutes.
    Senator Heinrich. Thank you, Chairman.
    I am just going to jump off your question there. I am 
curious if the President is interested in reciprocity and 
proportionality, so much of our challenge there in terms of 
abuse has been with China not with Canada. Why make the first 
move with regard to Canada, instead of tackling the problems 
that we all have recognized exist in our trade relationship 
with China?
    Chairman Hassett. You know, I am not the person who sets 
the schedule for which moves that we make when. I can assure 
you, as you can see in The Economic Report, that the Council of 
Economic Advisers has taken very seriously our responsibility 
to measure things like the intellectual property theft from the 
U.S. by Chinese firms and the Chinese Government, and quantify 
it. So we've got numbers in there of more than $100 billion.
    And as you know----
    Senator Heinrich. Prioritize where we have seen the worst 
abuses. Going on to wages, the Council of Economic Advisers has 
estimated that the corporate tax cuts just passed by my 
Republican colleagues would lead to a $4,000 increase in 
average household income.
    We have seen a few companies that have announced one-time 
$1,000 bonuses, but we have not seen anything really 
approaching a $4,000 permanent wage increase that's been 
predicted. So, Chairman Hassett, if you want to guarantee 
families $4,000 in their income, why not just cut out the 
middle man and give them a $4,000 tax cut in their income 
taxes?
    Chairman Hassett. You know, I think that the problem from 
the point of view of modeling the economy is that ultimately 
you have to have a theory of where wages come from.
    If wages are being supported by high productivity, then we 
can give people a pay raise and sustain it for many, many 
years. Productivity basically only comes from two places. One 
is that we give workers more capital to use. Or, two, we give 
them training so that they have more human capital.
    And by chasing our hockey puck firm overseas to Ireland, 
what we basically did is we removed capital from the economy. 
And we mentioned in the report, by the way, that capital 
deepening's contribution to wage growth in the second four 
years of President Obama's term actually went negative for the 
first time in U.S. history, back to the Second World War. And 
it wasn't a policy that President Obama pursued. It was the 
absence of a tax reform that fixed this problem where everybody 
was moving everything offshore.
    And so I think if we want workers' wages to go up--and you 
know that I do--then we have to either train them better, or 
give them more capital to use. And what we were doing before we 
changed the tax law is we were chasing the capital offshore. 
And without capital there was no productivity growth. And 
without productivity growth, there was no wage growth.
    Senator Heinrich. So talking about tax reform, for years we 
heard the mantra of tax reform being about lowering corporate 
taxes, but broadening the base. This certainly lowered 
corporate taxes. It's why it comes with a $1.5 trillion price 
tag. Where was the broadening of the base?
    Chairman Hassett. Oh, on the corporate side, Mr. Heinrich, 
I think that the net cost after the international changes was 
about $300 billion. And so imagine if we started with a 35 
percent rate and moved it down to 21 percent, if we didn't have 
any base broadening then we would have lost a heck of a lot 
more revenue than $300 billion.
    Senator Heinrich. I am looking forward to seeing how this 
models out over time, or how the models match up to reality.
    As you know, shareholders are receiving about 30 times as 
much as workers through stock buyback. That is just from the 
public numbers of what has been released with regard to the 
ratio of bonuses, the ratio of raises to actual buyback 
announcements.
    Is there anything the Administration is planning to do to 
encourage that corporations use more of this new windfall to 
build that capital in their workers?
    Chairman Hassett. Yes, thank you very much for that 
question because this is a very, very important thing to have 
clear in all of our minds. There was a whole bunch of 
previously earned profits sitting offshore. Some estimates were 
as high as $3 trillion, but say $2- to $3 trillion that was 
offshore, and was offshore in December.
    And now that $3 trillion is coming home. And a lot of that 
money is for firms like Apple, and Microsoft that have enormous 
profitability. And, you know, they just had it parked in their 
foreign sub and they're bringing it home. The wage growth that 
the models put out, that we talk about in The Economic Report, 
comes over time from capital formation.
    Now some of that money coming home will be turned into 
investment. Some of it will be turned into bonuses. Some of it 
will be put in the bank. But there is a cumulative stock of 
about $3 trillion that is coming home right now. And it is 
better that it is home than we leave it over there.
    But the wage growth comes from the capital investment. But 
not just the firms that made profits in the past made, but the 
firms that are going to make profits in the future make as 
well.
    Senator Heinrich. I am over my time, Mr. Chairman, but I 
would just make the point that I think Apple is seeing that 
real money. My constituents are still waiting for their real 
increase in wages.
    Chairman Paulsen. Vice Chairman Lee, you are recognized for 
five minutes.
    Vice Chairman Lee. Thank you very much, Mr. Chairman. And 
thank you, Mr. Hassett, for being with us again today. It is 
always a pleasure to have you in front of the Committee.
    In your report, one of the many things that you discuss 
that I think is interesting and helpful is that a mounting body 
of academic and economic research indicates that excessive 
regulation negatively affects productivity growth by 
misallocating labor and creating restrictions on entry.
    These are things that weigh heavily on the economy. When I 
first started following this a couple of decades ago, the drain 
on the economy was about $300 billion annually. It is up to $2 
trillion annually now. So this has not simply grown with 
inflation. There has been a very significant uptick in the 
burden imposed on the economy by the Federal regulatory system.
    The Administration has made some significant strides to 
roll back ineffective, duplicative, and intrusive otherwise 
excessively burdensome regulations. In fact, Director Mulvaney 
has announced that OIRA accomplished a staggering ratio of 22 
regulations removed or rescinded for every new one promulgated, 
which I think is a fantastic development and one that I hope 
will continue throughout this Administration and moving forward 
into the future.
    Shrinking the regulatory footprint of our Federal 
Government, and encouraging agencies to spend their money more 
wisely is something I have long cared a lot about, and it is 
something I have focused on ever since I came to the Senate 
over seven years ago.
    In the 114th Congress, I introduced the Regulatory Budget 
Bill that would have required the President to submit in his 
annual budget request an analysis of the cost of compliance 
with Federal regulations that each agency is in charge of 
implementing and enforcing. And also to do that with regard to 
proposed regulations.
    My bill also would have prevented agencies from issuing 
certain guidance documents setting out policies or 
interpretations of statutes unless they had provided adequate 
notice and opportunity for comment, as is required under 
existing law. And it would have required the GAO to provide 
reports and estimates for specified regulations.
    Tell me, Mr. Hassett, how could improved agency-wide cost/
benefit analysis help the economy to continue to grow? And how 
could it provide more opportunities for more business owners to 
invest in hiring new workers, rather than in spending so many 
resources on complying with existing regulations?
    Chairman Hassett. Thank you for the question, Mr. Lee. You 
know, I think that one of the surprising things for me about 
the movement in consumer and business sentiment last year was 
how quickly it went up really, really fast and enormously, even 
though it wasn't even clear that the tax bill would pass and so 
on.
    And digging around, I understood better than I have in the 
past, because I'm not a regulatory economist, how regulations 
squash innovation and entrepreneurship. And one of the main 
problems is that when you have new regulations, then firms have 
to sort of stop what they are doing and hire a bunch of lawyers 
and engineers to figure out how are we going to comply with 
this new regulation? And it can be really quite costly. One 
estimate from Doug Holtz-Eaken's think tank suggested that 
there were literally millions and millions of man-hours that 
were saved last year because people were not looking at all 
these new regulations and figuring out what to do.
    But old regulations, firms figure out how to deal with 
them. But then it becomes kind of a barrier to entry. And so if 
you are a big rich firm, then your guys figured out how to deal 
with the regulations; but somebody who might want to enter and 
compete with you has to navigate this really complicated thing 
where maybe there's 10 regulations in your space, and half of 
them disagree with one another. And so I think the benefit from 
deregulation are clear.
    And regulations were growing--it is really hard to measure 
regulations, but I would say over the last decade about 8 
percent a year. In other words, faster than the economy. And so 
if you are wondering why people were depressed about the future 
of the regulatory costs that they might be facing, it was 
because there were so many more regulations.
    Now of course many regulations are important, and they are 
good, and we want clean air and clean water, and so we have to 
expose them to, as you say, the cost/benefit analysis.
    Vice Chairman Lee. But they are not cost free, and the 
costs that they impose, as you point out, some regulation is 
appropriate and indeed necessary, but it is not as if those 
regulatory costs can simply be deemed to be borne by big, 
wealthy corporations.
    Chairman Hassett. It is the startups that don't happen very 
often that you can think of as bearing the costs of those.
    Vice Chairman Lee. The startups that don't happen. The jobs 
that do not arise, since we know that most if not all net job 
growth occurs within startups. But it also gets paid for by 
consumers. Disproportionately speaking, we are talking about 
poor and middle class consumers who pay higher prices on 
everything they buy.
    Thank you.
    Chairman Paulsen. Thank you. And now Representative Beyer, 
you are recognized for five minutes.
    Representative Beyer. Thank you, Mr. Chairman, very much. 
And, Chairman, thanks for being here.
    In both the CEA Report and in your testimony you stressed 
the benefits of deregulation for growth, per your conversation 
with Senator Lee. But I want to focus slightly different. 
Because we know from both historical and unfortunately recent 
events that very few factors can impact growth negatively more 
than a financial crisis. Hence, the downturn--that's upside 
down here, I've got to get it rightway up--that dark black line 
was the financial crisis.
    Is there any evidence that the deregulation of the 
financial sector improves the stability of the financial 
sector?
    Chairman Hassett. You know, you are right to point to the 
fact that there is a big academic literature on the history of 
financial crises. Rineheart and Rogoth looked at 700 years of 
that and found that it is typical for economies to grow slowly 
after that for up to a decade.
    If you dig into their data a little bit more, which I have 
done, then you see that a lot of big, negative growth comes in 
the first half. And that usually by, you know, seven or eight 
years in you start to go back to normal growth.
    That did not happen in the U.S. And we have to look at the 
causes for why growth started to disappoint, and we did not go 
back to the old normal. And I think that one of the factors 
is--and this is something that I think there is bipartisan 
support for, is that our financial regulations made it a little 
bit too hard on community banks. A lot of community bank 
closures, and the community banks tend to be the ones that are 
financing the entrepreneurship and so on.
    So I think that financial regulation to preserve stability 
is important to avoid the next financial crisis. But after we 
have done it, it is important to study the costs and benefits 
of those regulations. And again I think that there is, very 
much bipartisan support, for the current measures to try to 
help the community banks.
    Vice Chairman Lee. You talked a lot about buybacks already. 
It is increasingly clear that firms are using, as Senator 
Heinrich said, almost 30 to 1. And I confess, massive stock 
buybacks weren't part of the Administration's messaging on this 
tax cut bill. I appreciate your notion that it is better to 
have the $30 trillion home.
    But if it is not being used for R&D, and it is not being 
used for investment, and it is not being used for worker 
things, and in fact I think most of what we see is that they 
are used to artificially inflate the value of the shares, both 
by competing for share price and restricting the number of 
shares. And the person that helps the most are the CEOs whose 
pay plans are based on stock price and overall market value. 
Aren't we really in trouble here with a great leap of faith 
that somehow putting a lot more money in the share buybacks is 
going to lead to greater wage growth?
    Chairman Hassett. You know you and I agree about a lot of 
stuff, but on this buyback thing I just disagree. I wrote a 
paper with Alan Auerbach who has come as a Democratic witness I 
think before this Committee in the past, on what drives 
buybacks. And we have this very special one-time thing going on 
where there are at least trillions of dollars offshore that are 
suddenly--they're suddenly able to bring them home, and firms 
are investing them. They are giving bonuses. They are putting 
money in the bank, and they are buying back shares and 
increasing dividends. And that is how capital markets work.
    But imagine if I own a share, and then a firm buys it back. 
It says if they gave me a dividend, they're giving me some 
money and it's coming because I made an investment in their 
firm, well then I as an investor will presumably go out and buy 
some other equity in some other firm. And so what that will do 
is that if you have a big firm like Apple say that has already 
done all of the investment plans that it plans to, and does not 
need the money that it is sending home to build a new factory, 
then it might buy back the shares. And then the people who 
owned Apple will go out and buy equities in firms that are new 
and innovative. That is how capital markets work, but churn in 
capital markets is what drives growth.
    Vice Chairman Lee. Let me try one more question. The 
President keeps talking about, he has repeatedly recently 
claimed that there is a $17 billion trade deficit with Canada. 
And yet your report talks about actually a new trade surplus 
with Canada and with Singapore.
    So can you educate him on our Canadian trade surplus, 
please?
    Chairman Hassett. The President is very well educated on 
these matters. He, I think--I haven't looked at his specific 
reference that you're talking about, but some people for some 
purposes emphasize the goods trade deficit, and some people 
emphasize the goods and services trade deficit. And I think in 
The Economic Report to the President we looked at both.
    Vice Chairman Lee. Is a good surplus or deficit more 
important than the services surplus?
    Chairman Hassett. I think it depends on, you know, what the 
conversation is about; that it is pretty common for jobs 
producing goods to have higher salaries than jobs producing 
services. And so there are definitely many conversations where 
the goods surplus is the more relevant metric.
    Vice Chairman Lee. Mr. Chairman, I yield back.
    Chairman Paulsen. Thank you. Representative Handel, you are 
recognized for five minutes.
    Representative Handel. Thank you very much, Mr. Chairman. 
And thank you, Chairman Hassett, for being here.
    I would like to go back to the tax cut bill, if possible, 
because I think I need to get some clarity from you. I hear the 
critics saying that the lower tax rates are going to 
disproportionately benefit the most wealthy earners out there. 
Yet what I hear in my District in the Sixth District of Georgia 
is something quite different.
    Kim, a single mom who works for a construction company, she 
is actually seeing an additional $260 a month. That is more 
than $3,100 a year in her paycheck. And for a single mom with 
her daughter in college, that is really significant.
    So can you give some clarity around how the tax cuts really 
are affecting in a real-life scenario across the different 
income brackets, particularly for low- and middle-income 
earners?
    Chairman Hassett. Sure. I think that I have already 
addressed one thing that I think is very important, which is 
the big increase and refundability of the child credit. Also, 
the Treasury was really quite efficient at changing 
withholding, so that already in February people saw their take-
home pay go up.
    The individual side of the tax cuts affected almost every 
taxpayer, and there are many, many of them. And I think one 
reason why the polling about the tax cuts changed so much in 
February and March is that people began to see what is real 
money to them.
    I think that we have to remember that the tax bill just 
passed in December, and our estimate of the wage effect is 
really something that happens after the investment, the capital 
accumulation has occurred, and that is something that will be 
spread out over years.
    I think that if history is a guide, then as popular as the 
tax cuts are now because people saw their take-home pay go up, 
they are going to be even more popular in a few years because 
of all the new capital that has come online pushing up 
productivity and pushing up wages.
    Representative Handel. Great. Thank you. I want to move to 
something that you said in your testimony about the real need 
to educate and train better the U.S. workforce so that we will 
have enough people to fill these jobs.
    As you know, about 6 million jobs are left unfilled here in 
the U.S. and employers really are very concerned that 
applicants lack the necessary skill sets. So what is your 
perspective about the balance between the emphasis of a 
traditional four-year college degree versus vocational and 
technical education, and how we can better marry that up to 
meet the demands of this growing economy?
    Chairman Hassett. Well I know that this is something that 
is a big focus of many in the Administration, especially 
Secretary DeVos, and I think that as an economist what I would 
always side with, you know, markets should speak and people 
should choose the professions that they want to do, and that we 
should help them finance their investments in human capital. 
But that we shouldn't pick winners and losers.
    And, you know, I think that you might choose to have a low-
paying job because it is something that you love. And one of 
the beauties of America is that we don't assign people to this 
or to that. But I think that our education policy could do a 
much better job at helping people acquire specific technical 
skills. And, you know, there are ways that one could think of 
to help encourage that, by making more monies available for 
such investments.
    Representative Handel. Thank you. Let me move very quickly 
to the debt and get your quick thoughts about the impact of the 
pro-growth policies in the Tax Cuts and Jobs Bill to help us be 
on a better fiscal footing.
    Chairman Hassett. I think that the President prioritized 
the tax bill in the first year, understanding that the game 
that we played with our hypothetical hockey puck example was 
harming America's workers, and that they desperately needed 
their help, our help.
    Then, you know, in the fullness of time I think every 
economist will tell you that the entitlements are exploding and 
that we haven't, you know, in present value we haven't yet 
worked out a way to pay for them.
    I in my prior life even testified before this Committee on 
fiscal consolidation and the potential growth benefits of that. 
But I think the President and the team were right to prioritize 
the tax bill because we had this gaping wound that was harming 
American workers that we had to fix.
    Representative Handel. Alright, thank you so much, Mr. 
Chairman. I yield back.
    Chairman Paulsen. Thank you. Senator Klobuchar is 
recognized for five minutes.
    Senator Klobuchar. Thank you very much, and 
congratulations, Mr. Chairman, and welcome, Mr. Chairman.
    I wanted to follow up on the last questions from the 
Congresswoman. We have a relatively low unemployment rate in 
our State, in Minnesota, and the Economic Report shows that 
even with overall low rates across the country the prime age 
male participation rate remains still lower. But the Federal 
Reserve noted earlier this year that there was a shortage of 
qualified workers across job sectors, particularly in 
manufacturing.
    Last year, 68 percent of our manufacturers in Minnesota 
said they were having trouble finding workers. And I know you 
just responded that it would be good to try to encourage 
different education programs to do that so we have people going 
into these areas. But could you comment on that lower number 
with men, and then what you think we should do about it?
    Chairman Hassett. Sure. I think that one point that we try 
to emphasize in The Economic Report, Senator, is that the 
retirement of the Baby Boomers is not the whole story. There 
are many reasons why labor force participation, especially from 
prime-age males, has declined. Some of those involve higher 
marginal tax rates discouraging work especially among older 
people.
    We talk about the prevalence of substance abuse. I think 
you might have seen our reference in the report to our big 
study in the fall of the impact of opioids on the U.S. And I 
think that there are many, many things that we are going to 
have to do to improve labor force participation.
    But the thing that I thought was a good news part that was 
really bipartisan or nonpartisan good news in that part of The 
Economic Report was that labor force participation does respond 
some to policy. And so when we see potential GDP estimates that 
were sort of doomed for low growth for a really long time, they 
often come from the fact that the decline in labor force 
participation is expected to continue, and we in The Economic 
Report highlight a number of things that we think we can do to 
help with that.
    And I am not trying to filibuster you, I promise----
    Senator Klobuchar. We do that in the Senate----
    [Laughter.]
    Chairman Hassett [continuing]. But I think that the biggest 
thing that will do that is just the wage increases.
    Senator Klobuchar. Okay----
    Chairman Hassett. If they happen the way we say, then that 
will draw people back to the labor force.
    Senator Klobuchar. On the opioid side, I just hope--I was 
there when the President signed the Order, and Senator Portman 
and Whitehouse and a few others and I have introduced the CARA 
Bill, and I just hope that the Administration gets behind some 
of these solutions. Senator Manchin has an idea of funding 
treatment with a per milligram tax on opioids. We have issues 
with prescription drug monitoring and other things. So that 
would be helpful if we get action, in addition to the report.
    Chairman Hassett. We have all hands on deck on that 
problem.
    Senator Klobuchar. Okay, good. Okay, then a second topic I 
want to focus on was just immigration reform. Again as I look 
at this low unemployment rate, the Administration's decision to 
end DACA has created tremendous uncertainty for dreamers.
    In looking at states across our Nation, one recent study 
estimated that ending this policy would cost the country over 
$400 billion over the next 10 years. I was part of the Common 
Sense Caucus Group that came up with what we thought was a 
solution. I would prefer just to pass the Dream Act, get this 
done, and then we would not have the economic impact of having 
all of these hundreds of thousands of kids have to leave, 97 
percent of them who work or are in school.
    Could you talk about the economic repercussions of losing 
this part of our workforce?
    Chairman Hassett. Well, Senator, as you know my job is to 
objectively advise the White House on the economics of things. 
And I know that there is an ongoing negotiation now----
    Senator Klobuchar. There is, but there are still economic 
hard facts about dreamers holding jobs, or in school.
    Chairman Hassett. Right. And I think that the economic 
literature is clear that immigration has in many ways been a 
big benefit to the economy; that immigrants are often more 
likely to be entrepreneurs----
    Senator Klobuchar. Twenty-five percent of all U.S. Nobel 
Laureates were foreign born.
    Chairman Hassett. But I think that also--and this is 
something before I joined the Administration that I wrote 
extensively about--and yet because of perhaps the bad 
enforcement of existing laws, and the existing chain migration 
as opposed to skills-based migration, we're probably not 
getting the maximum bang for the buck out of immigration.
    Senator Klobuchar. I know but I was just specifically 
asking about dreamers and their economic impact, and the fact 
that they are here in a different category and have been 
working legally.
    Chairman Hassett. And I have not done a specific estimate 
of the economic impact of dreamers, but I would be happy if you 
would let me table it to get back to you----
    Senator Klobuchar. That would be wonderful.
    Chairman Hassett [continuing]. With specifics.
    Senator Klobuchar. I would really appreciate that. Thank 
you.
    Chairman Paulsen. Congressman LaHood, you are recognized 
for five minutes.
    Representative LaHood. Thank you, Chairman Paulsen, and 
congratulations on your Chairmanship.
    Chairman Hassett, thank you for being here today. I think 
you bring a valuable voice to this Administration when it comes 
to the free enterprise system, the support of capital markets 
and for free trade. I want to read a quote that you had last 
year regarding the economy of the U.S.:
    ``The success of the United States has come not from our 
natural resources or its large population, but from its free 
market system. Liberalized trade in broadly multilateral, 
regional, and bilateral agreements is a key ingredient in the 
recipe for prosperity.''
    How does pulling out of NAFTA coincide with that statement?
    Chairman Hassett. You know, I think--thank you for the 
question--and I think that the President has said over and over 
that he believes in free trade, and that he wants to negotiate 
better trade deals. I am not participating in the negotiations 
over NAFTA, but I know that there is a great deal of hope that 
NAFTA--that the negotiations will be successful. And I think 
that you would agree that if you look at like the asymmetries 
that I mentioned, for example, for autos, that it would be 
great if we could fix that.
    And the President is a very good negotiator, and he is 
intent on making the trade deals more symmetric than they are.
    Representative LaHood. And you mentioned earlier your job 
is to give advice. I mean do you think pulling out of NAFTA is 
a recipe for prosperity?
    Chairman Hassett. I think that there are a lot of benefits 
that can be had from improving the symmetry of the treatment of 
all of our--we have about the lowest, almost the lowest tariffs 
and nontariff barriers on earth, and our trading partners very 
often do not. And it would benefit American workers, and also 
the global economy if people would just move towards American 
policies. If they copied our policies, it would be a much 
better economy. And I think you would agree with that.
    But previous Presidents have tried to move foreign trading 
partners in that direction and failed, and I think the 
President is intent on trying to do that.
    Representative LaHood. And it seems to me there is 
obviously a strong debate going on on these issues, and we had 
Secretary Mnuchin before the Ways and Means Committee and asked 
him this, and he thought it was a good idea to renegotiate and 
not pull out.
    I know Secretary Purdue has said the same thing at the 
Department of Agriculture. Gary Cohn had said the same thing. 
Ambassador Branstad in Iowa. Do you have an opinion on that?
    Chairman Hassett. I think that the best possible outcome is 
a reciprocal symmetric trade deal that increases the freedom of 
trade. Yes, so I think that is correct.
    Representative LaHood. And then you mentioned earlier in 
your statement about the President supports free trade. When we 
look at the last 14 months here, what can we look at in terms 
of policies or things put forth that support free trade?
    Chairman Hassett. Well I think that what is happening now 
is that there is a massive amount of work negotiating trade 
deals and trying to improve them, and to make them more 
symmetric and reciprocal. If those deals are successful, then 
they would certainly improve free trade.
    Representative LaHood. Well again, with all due respect, I 
look back over the last 14 months. And when Ambassador 
Lighthizer came in he talked a lot about bilateral trade 
agreements. And I think we are all in agreement those are 
positive for the U.S.
    But as we sit here today, we have not seen a model or a 
format or a mechanism for bilateral trade agreements. And that 
is very frustrating as somebody that represents a strong 
agriculture district, where Caterpillar tractors are made, and 
John Deere equipment. And 40 percent of the corn and soybeans 
grown in my District go somewhere else around the world.
    And here we are with not one bilateral trade agreement put 
forth.
    Chairman Hassett. Well I think that if you and I were 
negotiating trade deals that we would have no difficulty 
writing a deal right away. We would have a two-sentence trade 
deal that says we are going to have free trade between our 
countries. The trade deals that are being negotiated have 
thousands and thousands of pages, and it takes a long time to 
fix them. But we are intent on doing so.
    Representative LaHood. And I guess two other points. I know 
you mentioned particularly on steel and aluminum that this is a 
national security issue, and that is what it has been 
categorized as. But I know Secretary Mattis has disagreed with 
that and said it's not national security, so I would just point 
that out.
    And I know you referenced President Bush and his steel 
tariffs that had gone on. But again, back when that happened, 
I'm quoting from an article here in Business Insider, 
``Manufacturers that depended on cheap steel during that era 
for their supply chain were hurt. The Institute for 
International Economics estimated that as many as 26,000 jobs 
were lost in this country after those were inputted.''
    And I guess my last comment would be: Who wins in a trade 
war?
    Chairman Hassett. I think that the global economy will 
function better if everybody--if our trading partners move 
their trade policies towards ours. And I think that American 
workers would be better off if the high tariffs on our 
products, like the 25 percent tariff on U.S. autos shipped into 
China, the 35 percent tariff on autos shipped into Brazil, if 
those are brought down. And the President is very serious about 
being a tough negotiator and putting America's workers first.
    Representative LaHood. Thank you for your service.
    Chairman Paulsen. Representative Maloney, you are 
recognized for five minutes.
    Representative Maloney. Thank you, Mr. Chairman, and 
congratulations on your appointment.
    And, Mr. Hassett, welcome back.
    Chairman Hassett. Thank you. It's great to be here.
    Representative Maloney. As Chairman of the Council of 
Economic Advisers, you have to straddle two very different 
worlds, the economic profession and the Trump Administration. 
And I would like to build on the question of my colleague on 
the other side of the aisle.
    You said in an interview that was published on January 
30th, and I quote, ``Everybody in the Trump Administration 
believes in free trade.'' End quote.
    As a free market conservative economist, do you agree with 
the President's policy of putting large tariffs on imported 
steel and aluminum? Yes or no?
    Chairman Hassett. My job in the White House has been to 
provide objective analysis to the President on those policies, 
and I have done so. In the end, the 232 judgment is one that's 
a national security judgment. I am not a national security 
expert. You mentioned that Secretary Mattis had disagreed, but 
ultimately the President was elected by the American people to 
protect them and to make judgments about national security, and 
I support the Constitution and his right to do that.
    Representative Maloney. What are the likely economic 
effects? Who pays the price?
    Chairman Hassett. I think that the likely economic effects 
of say a steel tariff would be that we would have more steel 
production in the U.S. that would benefit steelworkers and 
steel firms here in the U.S. And to the extent that steel 
prices are higher, then the steel-consuming industries might 
find that their costs and profits--costs have gone up and 
profits have gone down.
    Representative Maloney. And in your report you repeat a 
claim you made many times that was a major selling point for 
the tax cut legislation. You write that, and I quote, ``The 
corporate tax changes alone are expected to increase annual 
income for families by an average of $4,000.'' End quote.
    And in a September report, you call this a very 
conservative estimate. Now is this based on mainstream opinion 
in the field of economics about the incidence of the benefits 
of corporate tax cuts on labor?
    Chairman Hassett. Thank you very much for that question, 
because, yes, it is. And in fact in The Economic Report we have 
a chart, which I would completely be unable to find right now 
sitting here at this stage, but I would be happy to do so and 
send it to you, where we go over all of the academic literature 
in this area and provide estimates of the wage effects from 
corporate tax cuts from any number of papers, including some 
published in The American Economic Review, which is like The 
New England Journal of Medicine of economics.
    And so critics of our analysis have asserted, falsely, that 
this analysis is not mainstream. But it is mainstream. It is 
citing academic peer-reviewed research in the top economic 
journals, including one by myself.
    And the paper that I wrote had a much bigger effect than 
the one that the economic report honed in on. And I think that 
that also shows my commitment to letting the staff decide what 
they think the literature says. I didn't put my finger on the 
scale and tell them to use my opinion.
    Representative Maloney. I would like to request to place in 
the record alternative opinions from economist Paul Krugman who 
had an analysis where he called it ``boneheaded,'' and your 
predecessor economist Jason Furman said it was ``implausible'' 
and a little more than far-fetched. And Larry Summers wrote 
also a statement in opposition to this economic determination.
    Now if I could put it in? Thank you.
    [The information referred to appears in the Submissions for 
the Record on page 44.]
    And following the passage of the Republican tax cut 
legislation, major corporations have authorized an eye-popping 
$200 billion in stock buybacks. And of course this drives up 
stock prices, benefiting stockholders and CEOs, but how does 
this $200 billion figure compare to the total amount of wages 
and bonuses you believe are a result of the tax cut? What is 
the ratio? How does $200 billion in stock buybacks benefit the 
American worker?
    Chairman Hassett. I think again, Mrs. Maloney, to return to 
the buyback issue, the buybacks right now that are coming from 
the repatriated monies that were previously offshore are a one-
time thing.
    If the--the papers I cited, which are not boneheaded, are 
peer-reviewed in top journals are correct, which they might not 
be. It's economics, right? Economics is an imperfect science. 
Then after the capital formation happens, workers will get 
$4,000 in say about five years from now, and then the year 
after that they'll get even more.
    The buybacks, the $200 billion, are a one-time thing that's 
based on the trillions of dollars that were offshore in the 
past. In the future, if the capital formation happens then 
wages will go up and they will continue to go up over time. And 
again, in a question for the record I would be happy to run 
through some calculations to show you what the present value of 
those wage increases might be and how they would relate to 
these buybacks. But I can assure you that it is going to be 
many, many times the value of the buybacks.
    Representative Maloney. My time is up.
    Chairman Hassett. Thank you. Representative Comstock, you 
are recognized for five minutes.
    Representative Comstock. Thank you, Mr. Chairman. I 
appreciate the opportunity to be here today.
    I wanted to focus on--I was very pleased you included this 
in the report--cyber security and the economic cost of not 
having the top cyber security workforce, as well as being aware 
of the threats.
    So I am noting in The Report you talk about 75 percent of 
the cyber threat being from the outside coming in, hacking in; 
25 percent being on the inside, the people who are trying to 
get in and then are opportunists there.
    And then while we often hear a lot about the state actors--
and that is 18 percent or so--51 percent is organized crime. So 
The Report indicates that the government can create education 
programs to ensure a pipeline of domestic employees for the 
cyber security workforce. Could you address some of the things 
we are doing there? And do we need to maybe have some--given 
the need for that within the government to protect against 
this, how do we compete for the cyber security workforce that 
we need on the inside, given this very active growth area on 
the outside? So how do we make sure that we have these high-end 
workers to deal with this very, as you pointed out, big 
economic threat?
    Chairman Hassett. Thank you very much for the question. And 
I think that the cyber chapter in The Economic Report broke a 
lot of new ground. I was very proud of the economic team that 
did that analysis, because it allowed us to quantify the impact 
of cyber crime in the U.S. in a way that has not been done 
before, by doing things like looking at announcements of cyber 
attacks on firms, and then estimating the share price response 
to the cyber attack.
    And I think that The Economic Report of The President 
serves a useful function for policymakers like yourselves when 
we provide analysis that quantifies things and helps you 
understand the stakes. And I think that I was surprised to see 
that the cost of cyber crime annually in the U.S. is north of 
$100 billion. I was astonished to see that the cost of opioid 
abuse in the U.S. is north of $500 billion a year. These are 
extremely pressing problems.
    Some of the solutions will involve training cyber security 
professionals. But other solutions certainly are the topic of 
future discussion and research.
    Imagine if pirates were attacking port cities and stealing 
$100 billion a year, how we would respond. And it seems like 
this cyber cost that we discuss in the economic report has 
received a much smaller response than that. And our hope is 
that by quantifying the numbers that we help people prioritize 
their own thinking about future policies.
    Representative Comstock. Thank you. And then you actually 
mentioned my second question on the opioid abuse and that cost 
being so significant. And I know as I travel throughout my 
District, inevitably whether I am at a Rotary Club or a Chamber 
or a business talking about their needs, I hear certainly about 
workforce development that we have addressed here and I 
appreciate hearing, but part of the workforce development 
problem is the opioid abuse and the drug abuse, and not being 
able to get employees who can pass drug tests.
    So if you might address that, on some of the best ways that 
we can deal with this economic threat. I mean obviously we have 
task forces and we are working on this a lot, but maybe if you 
can just highlight the intersection of all the problems created 
by that on the economic side?
    Chairman Hassett. Right. I think that so far in The 
Economic Report what we have done on opioid abuse is to dig 
deeply into quantifying the problem.
    There is an ongoing effort I know on the Hill, but also in 
the White House, that is a massive effort to come up with 
solutions. On a personal level, I can say that my home town, 
Greenfield, Massachusetts, was the feature of one of those 
Anthony Bourdine's ``On The Road'' shows. And he was talking 
about how such a beautiful town could be a center of opioid 
abuse, where there was a massive amount of suffering and death 
because of it.
    This is very personal for me, and I can assure you that 
there are going to be focused solutions to the problem rolled 
out this year by a big task force that is working on this at 
the White House.
    Representative Comstock. Thank you. And I really appreciate 
on both of those fronts that you have incorporated that and put 
them on the economic costs, because I think it is very 
important for us to be incorporating into our thinking. Thank 
you.
    Chairman Paulsen. Thank you, Ms. Comstock. Representative 
Adams, you are recognized for five minutes.
    Representative Adams. Thank you, Mr. Chairman. And thank 
you, Chairman Hassett, for being here.
    The Trump Administration is allowing states to impose work 
requirements on Medicaid beneficiaries. Once again, in my 
opinion we are not showing a lot of support for our low-income 
citizens, assuming that they are not working and they are not 
working by choice.
    Most Medicaid recipients who can work already work. Sixty 
percent of adults on Medicaid are working, and nearly 80 
percent are in working families. Of those not working, more 
than half are family care givers, some in school who are 
already looking for work. All work requirements will accomplish 
is kick people out who need Medicaid the most.
    So my question is: What impact will taking Medicaid from 
America's working families have on our country's health, 
productivity, and economic growth?
    Chairman Hassett. Thank you for the question, and I think 
that we all agree that, that having a job and earning success 
is an objective that is worthy for every citizen, and that 
there are definitely citizens that have difficulty 
accomplishing that for many reasons, including the opioid abuse 
that we mentioned.
    I have not reviewed the literature on the impact of work 
requirements on job labor force participation, but I would be 
happy to do a technical analysis for you in a response.
    I think in The Economic Report of The President chapter on 
health we talk a lot about the focus of economic policy and 
thinking on health, and how we might not have done the best job 
of doing that. And that in recent years, for example, in the 
U.S. the mortality has increased. The expected lifespan has 
gone down. We have become less healthy I think mostly because 
of the opioid abuse.
    But having a policy that measures health and focuses on 
improving it is something that I think that we should all agree 
is a worthy objective of policy. And I think the chapter on 
health in The Economic Report should help us do that because we 
come up with and focus on measures of health.
    Representative Adams. There have been some evaluations of 
programs that impose work requirements on welfare recipients, 
and they found that, for example, within five years employment 
among recipients not subject to work requirements was the same 
as or higher than employment among recipients subject to work 
requirements in nearly all of the programs that were evaluated. 
So I will be happy to share some information with you, as well.
    You know, before I move on to my next question I want to 
just take a second to just express my concerns about the 
Administration's repeated attacks on State and local budgets. 
First, the GOP tax scam handicaps State and local budgets. I am 
a former member of the North Carolina House, so I understand 
when things are passed down. We call them ``unfunded 
mandates,'' but budgets that drastically reduce the State and 
local tax deductions.
    Then we have these work requirements and so forth. So the 
Administration is, in my opinion, hurting our working families 
by making our State and local governments pay for that.
    One thing I want to ask in terms of African American 
employment, unemployment, and I heard the President say at the 
State of the Union that African American unemployment rose to 
7.7, one of the largest increases in years.
    So what specific policies--first of all I've got to tell 
you that over the past few years the largest increases in 
African American unemployment, we can see that. But what 
specific policies is the President considering to address-- 
regarding the rise in African American unemployment? And it has 
risen.
    Chairman Hassett. In the last month, that's right. There 
was a reversal of an enormous amount of progress that had been 
made over the past couple of years.
    This is something that, going back to even the peak of the 
financial crisis I testified about. Because back then when I 
reviewed the literature it was clear that in good times the 
good news is that society has made an enormous amount of 
progress, and the odds of African Americans and Caucasians 
being hired are about the same. But that in bad times, there 
was still clear evidence that African Americans 
disproportionately bore the brunt of layoffs. And going back 
into during the financial crisis. I testified about policies 
that I would advise that we pursue back then because I saw this 
thing coming.
    And I think the fact that we made so much progress is 
basically the result of the boom, and it is normally what one 
would expect to see when the unemployment rate is low, that 
they would make a lot of progress. Because the asymmetry in the 
job market for African Americans, which is still a very big 
problem in the U.S., tends to be that when there is a downturn 
that they are the ones, the first to lose their jobs.
    Representative Adams. Thank you very much. I'm out of time.
    Chairman Paulsen. Senator Cassidy, you are recognized for 
five minutes.
    Senator Cassidy. Thank you for testifying. My understanding 
is that the aluminum and steel tariffs will not apply to 
finished products, rather just upon the sheets of steel and 
aluminum themselves, or the aluminum bars. Is that correct?
    Chairman Hassett. As far as I know on that, Dr. Cassidy, 
that everything is still being finalized. I have not read the 
final order on that, and so I would have to get back to you on 
that. I think it will all be visible shortly, but it is not 
something that--that specifically is not something I got 
briefed on.
    Senator Cassidy. And Senator Portman mentions to me piping, 
which is important in the oil and gas industry. In that case 
you may not be able to answer the rest of these, because my 
question was--or my series of questions are around the fact, 
has the Administration modeled the effect of these tariffs upon 
companies shifting manufacturing overseas so as to make a 
finished good, and then to bring it back across the border, 
raising their import price if you will, so therefore it is more 
profitable to construct overseas. Are they modeling that?
    Chairman Hassett. At the Council of Economic Advisers, and 
in the Commerce Department, and at the USTR's office there's an 
enormous amount of modeling capability that we provide 
analysis.
    Senator Cassidy. Do you know the results of that? What I 
would like to know really is if it has been modeled, what is 
the expected effect of businesses offshoring to use lower----
    Chairman Hassett. I am not aware of the CEA staff having 
modeled the offshoring part. We have modeled the impact on the 
steel industry.
    Senator Cassidy. Then let me ask--I don't mean to be rude, 
I just have a short period of time.
    Chairman Hassett. I understand.
    Senator Cassidy. Then I have a friend back home in Morgan 
City, Louisiana, who has a fabrication shop, and he is 
competing against Koreans who have lower labor costs, and 
probably subsidized steel from China. And they will just ship 
modular units into Southwest Louisiana to be put into a 
petrochemical plant.
    So he is competing directly with a foreign competitor. His 
labor costs are high, but he's closer and transportation costs 
are lower. But now with steel costs going up 25 percent. Has 
that been modeled? The effect upon our domestic fabricators and 
manufacturers who are directly competing with those who will 
not suffer from such a tariff?
    Chairman Hassett. You know, without referencing specific 
deliberative work that CEA has done for the President, I can 
say that the economics literature has looked at previous 
episodes like this and found that there are upstream or, you 
know, instream benefits to the steel industry, and downstream 
harm; that the downstream harm has been cited in some of the 
previous questions. But again, this 232 is a national security 
judgment by the President----
    Senator Cassidy. I accept that, and earlier it was 
commented that General Mattis suggests it's not the case, and 
that we actually have adequate domestic steel production for 
our defense industry should we ever have to have a problem like 
that. But I am also--you mentioned the previous effect. I am 
told that under--when George W. Bush put in such a tariff, that 
another effect was that dockworkers around the Nation, in the 
Port of New Orleans, by tonnage, a major product shipped is 
steel. And I was told that when George W. Bush put his tariffs 
in, that there was just loss of employment in our ports, 
specifically the Port of New Orleans, the one I am most 
familiar with.
    Can you comment on that? Is that something----
    Chairman Hassett. I can get back to you on that. I 
certainly have read the literature. Gary Hufbauer is an 
economist who worked on the Bush steel tariffs and has 
published papers. But the specific question of dockworkers and 
the experience back then is not something that I have studied.
    But it would take me just a moment and I would be happy to 
get back to you.
    Senator Cassidy. And then you mentioned that there is 
upstream benefit for the steelworkers, and then downstream 
benefit for many others. If you could reflect on when George W. 
Bush did this, the net effect upon employment in the United 
States, was it positive or negative? Were more jobs created 
because of the tariff? Or were more jobs lost downstream?
    Chairman Hassett. The academic literature found very small 
net negative effects back then. And, you know, I would say that 
if we were going to do a full economic analysis of this, we 
would--I'm not a national security expert and so how it affects 
national security is not something I have studied or 
necessarily could quantify--but I think that we should also 
recognize that American workers in just about every industry 
are disadvantaged by the broad asymmetries that we highlight in 
The Economic Report of The President where again if we try to 
sell a car in Europe, they charge a 10 percent tariff. And if 
we try to sell a car into China, they charge us 25 percent 
tariff.
    And if we can envision a world where our trade negotiators 
can do a better job negotiating reciprocal trade deals, then 
the benefit from that reciprocity would be enormous for 
American workers, and much bigger than any of the negative 
costs that would come----
    Senator Cassidy. I am out of time, but it would be nice if 
that were--I don't mean to be offensive when I say this--more 
than conjecture, but actually have been modeled. And in some of 
the stuff I am listing, it seems like it should be modeled 
before something so broad is put in place.
    I thank you very much and I yield back.
    Chairman Paulsen. Senator Hassan, you are recognized for 
five minutes.
    Senator Hassan. Well thank you, Chairman Paulsen. And thank 
you, Chairman Hassett, for being here this afternoon.
    Mr. Hassett, your report highlights the importance of 
training and retraining efforts to ensure that workers have the 
opportunity to gain skills and earn a living wage. We all know 
that the effectiveness of these kinds of programs is imperative 
to employers' success as they look to fill positions with 
qualified workers.
    In New Hampshire and around the country we often see that 
the individuals most in need of these kinds of programs face a 
number of additional barriers to success, like accessing child 
care, transportation, and mental health supports.
    In February I introduced the Gateways To Career Act. It 
would address this challenge by supporting individuals engaged 
in career pathway programs. Grants created in this bill would 
support workforce partnerships like those between community 
colleges and State workforce development boards by removing 
these types of barriers for students and, in turn, help 
individuals earn industry-recognized credentials.
    As you promote workforce training programs to help 
individuals upskill, do you think it is important that we 
address how to help students overcome these kind of barriers?
    Chairman Hassett. I very much--and apologize that I haven't 
in advance studied the Gateways proposal--but I very much look 
forward to reading it and giving a detailed analysis of it. I 
can say that since we finished The Economic Report and it gives 
me something of an appreciation for childbirth. This is a very 
big effort in a very short amount of time.
    [Laughter.]
    Senator Hassan. Be careful about saying that----
    Chairman Hassett. Yes. But as we--yes, I know--but I think 
that one thing that we have focused a lot of staff time on 
lately is studying these training issues and focusing on 
increasing labor force participation in communities that are 
most at risk, including prisoners, and so on. And so I very 
much look forward to studying the Gateways To Career Paths 
proposal and comparing it to what we have been learning on our 
work over the last few weeks.
    Senator Hassan. Well I would love to work with you on that. 
I also have another bill that I want to bring to your attention 
you also get at one of these issues in your Report. You mention 
in your Report that the number of young people starting 
businesses is down, which is something I have been hearing 
about in my State of New Hampshire.
    Many times these young adults have large amounts of student 
loan debt standing in their way from starting a new business, 
and at times from accessing capital that is already a challenge 
for new businesses to acquire.
    So the first bill I introduced in the Senate was the 
Reigniting Opportunity for Innovators Act, or the ROI Act. It 
would pause student loan interest and payments for 
entrepreneurs at the start of their businesses. And in cases 
where the business is started in a distressed area, allow for 
some cancellations. Would you agree that relieving the burden 
of student loan debt would help to encourage young 
entrepreneurs to start new businesses?
    Chairman Hassett. I think that you are correct to focus on 
this problem, the fact that the Millenials are the least 
entrepreneurial generation that we have ever measured and is a 
policy challenge that we need to take seriously. Because 
ultimately if we don't have entrepreneurs driving the economy 
forward, then what kind of an economy are we going to have 20, 
30 years from now?
    In that literature, it is certainly hypothetically possible 
that one reason why is that people are capital-starved, more 
capital-starved because of student debt. It is not something 
I'm aware--I haven't read a paper that has connected the two, 
but it is certainly economically sensible that if you are 
capital starved because of high student debt you would be less 
likely to start a business.
    Senator Hassan. I would be happy to introduce you to some 
of the students I have talked with who are studying business 
and want to start their own businesses, and then faced with the 
student debt they have. We used to say to people, ``Go into 
business early. You don't have a mortgage yet.'' Right? But if 
you have student debt at the level of a mortgage, you can't.
    I want to touch on one last thing that Representative 
Comstock talked about, and certainly you have talked about in 
terms of the economic impact of the opioid epidemic. I come 
from a State that has about the third highest mortality rate 
from this epidemic. And today over 100 Americans will die from 
a drug overdose, most of that from opioids.
    It is over a $500 billion epidemic impact in 2015 
nationally in my home State of New Hampshire of 1.3 million 
people. It was a $2 billion economic impact in 2014.
    So when I heard you say the White House is undertaking a 
massive effort, I have to tell you that to my constituents and 
to me we have not seen it. We saw a President's Commission on 
the opioid epidemic come up with recommendations that every 
governor in the United States is working on already through 
recommendations they developed at the National Governors 
Association.
    We do not need a task force to reinvent the wheel here. We 
need resources on the front lines for health care 
professionals, to law enforcement, to treatment and recovery 
providers, and we need this Administration to stop trying to 
undermine Medicaid, which is where most people get substance 
misuse treatment and behavioral health treatment right now who 
desperately need it. So I hope you will take that message back 
to the White House.
    Chairman Hassett. Thank you.
    Senator Hassan. Thank you, Mr. Chair.
    Senator Paulsen. Senator Portman, you are recognized for 
five minutes.
    Senator Portman. Thank you, Mr. Chairman. So much to ask 
you, Kevin, and thanks for being here and for your willingness 
to step up and serve in this capacity.
    On the Tax bill, I know you talked a little bit about that 
in The Economic Report, and your projections on growth. Two 
questions.
    One, there is concern about the deficit that might be 
created. And we had to use, as you know, an economic growth 
number of 1.9 percent. That is the Congressional Budget 
Office's official average over the next 10 years. And the one 
way to look at it is to say if you had .04 percent more growth 
than the 1.9 percent, then you would have enough revenue coming 
in because you're going to get about $2.7 trillion for every 
one point of economic growth.
    What is your projection on economic growth, specifically? 
And then more generally, how do you think the tax bill will end 
up in terms of its impact on the deficit?
    Chairman Hassett. Well thank you, Senator. And thank you 
also for agreeing to introduce me at my confirmation hearing. 
It seems like a long time ago. But that was very gracious of 
you.
    I think that you are right to think about it that if you go 
out to the 10th year and we have--on the baseline of a $28 
trillion economy, that if you imagine growth of half a percent 
a year higher, or one percent a year higher if you like to 
divide by 10, then you can see that it is very easy to envision 
this tax bill generating enough growth so that it doesn't have 
a negative effect on revenue.
    I think that the Joint Tax Committee gave a dynamic score 
of $1 trillion, but I think they really underestimated the 
growth effect. I think that if we get the growth that we 
project in The Economic Report to The President, and again I 
think in a very transparent way, then that will add almost $3 
trillion to the baseline level of GDP at the end.
    And that's, you know, American money, and some of it can be 
paid back in taxes, but all of it will contribute to welfare of 
the American citizens.
    Senator Portman. Which means the tax reform will actually 
end up reducing the deficit relative to what it would have 
been. And with regard to what is most important in the tax 
bill, you talk about productivity. When I talk to companies 
back home, of course we're talking about bonuses and increases 
and contributions to 401Ks, which is great, and of course 
individuals are getting more tax relief, and withholding tables 
have been changed. People are finding, you know, $40, $50 in 
their paycheck they didn't expect.
    What is the most important single thing in this tax bill 
for long-term growth in wages?
    Chairman Hassett. The most important single thing in this 
tax bill for long-term growth in wages is to make the corporate 
rate 21 percent. Because we have ended the kind of scam, the 
tax scam, where you could get a tax refund to locate a factory 
offshore and to increase demand for foreign workers and reduce 
demand for domestic workers. We fixed that really heinous 
policy error. And the signs of its damage to the economy are 
all around us and all throughout this Economic Report.
    And again, think about it. Capital formation's contribution 
to productivity growth went negative for the first time in U.S. 
history at a time when we were not in a recession, because we 
were chasing all of our capital offshore. And I think that we 
fixed that.
    Senator Portman. And that will result in more investment, 
which results in higher productivity, which results in higher 
wages. And to me that is the most exciting part of this bill, 
and we have yet to see all the benefits of that and won't for 
many years, but it ultimately will make the biggest difference 
for my constituents, I believe.
    With regard to opioids, we talked a lot about it today. I 
focused a lot on this notion that we don't really have 4.1 
percent unemployment, as good as that sounds, when we look at 
what the new numbers are on Friday, and they are probably going 
to be good for the month of February, and again we're seeing 
good economic growth. But if you go back to the labor force 
participation rate before the Great Recession, the unemployment 
number today would be 8.9 percent. Think about that.
    People are shocked to think about really we're living in 
kind of a 9 percent unemployment environment, even though we 
say it is closer to 4 percent, and who are these people who are 
outside of the workforce? And when you do those studies, as you 
know, you find out that opioids play an amazingly large role.
    I appreciate you raising that issue, and the Brookings 
study by you colleague, Mr. Kruger, is one of course, but also 
BLS has its own study out there that's very similar saying that 
roughly 47--43 to 47 percent of men who are currently of prime 
working age, able-bodied men, are taking pain medication on a 
daily basis. And his conclusion is that about 31 percent of 
those people who are out of the workforce are related to 
opioids based on his further questions on whether it's a 
prescription drug or not.
    This is shocking to people. And we look at the economic 
impact in many ways, but one we have to look at is this lack of 
opportunity for access to a workforce that we desperately need. 
Do you agree with that?
    Chairman Hassett. Yes, I agree with that. And you mentioned 
Alan Kruger, who was my predecessor as the Chairman of the 
Council of Economic Advisers. I have spoken at length with Dr. 
Kruger, Professor Kruger, about his study. It is filled with 
really interesting food for thought and helpful insights that 
will help us address this problem as we move forward.
    And so I think you are right to mention that work. It is 
extremely important work and very well done, and I have spoken 
with Dr. Kruger about it.
    Senator Portman. I hope it encourages us to do even more on 
the opioid crisis. We've got the funding now and we've got to 
make sure it is well spent. WeCare 2.0, my colleague, we talked 
earlier to sponsor that.
    I thank you, Mr. Chairman, and thank you, Dr. Hassett.
    Chairman Hassett. Thank you, Senator Portman.
    Chairman Paulsen. Thank you, Chairman Hassett. If you don't 
mind, we would like to just give members a second round of 
questions. This will be a lightening round, so we will limit 
members' questions to three minutes per member, if you will.
    I will just begin. You just mentioned, we just had a 
conversation about the lower unemployment rate. Job creation 
has actually been fairly strong recently. Economic growth has 
improved over the last year and was a lot better than expected 
not long ago.
    If the Administration is undertaking various initiatives to 
stimulate the economy even further, can you comment a little 
bit on the effectiveness of different approaches to stimulate 
the economy? And I am thinking purely of the supply side versus 
the demand side stimulus.
    Chairman Hassett. Yes, thank you. This is something that I 
have studied at length throughout my career. The one thing that 
I think we know from a massive amount of work both studying the 
U.S. economy and the variation across states and the variations 
across countries is that if we have an attractive corporate tax 
code, then it fosters higher growth, higher capital formation, 
and especially higher wage growth, which is something that has 
disappointed enormously in recent years.
    And so I would say that the growth from the tax bill is 
going to be front and center. It is going to be something that 
we are going to experience. It is the reason why, you know, 
many Wall Street firms are now forecasting what used to be 
impossible, that we would have growth above 3 percent this 
year. But moving forward, the President has a very aggressive 
agenda on infrastructure and other things that also have 
positive growth effects. And I think that if the agenda is 
adopted, that it is extremely defensible that we could turn 
away from the new normal of low growth to just normal.
    Chairman Paulsen. Thank you. Member Heinrich, you are 
recognized for three minutes.
    Senator Heinrich. Chairman, I am going to go back to this 
graph that the Chairman provided for us. You know, we've got 
two different groups of lines here. We've got lines that are 
just projections that are not real data, and then we have got 
the line that really concerns me.
    The part of this line that really concerns me is this part 
here [indicating], which is the financial crisis from a few 
years ago. And I think we probably do all agree that there is 
huge bipartisan support for a reduction in over-regulation to 
small community banks, to credit unions, small community credit 
unions. But this week the Senate is considering banking 
legislation that would also roll back some important safeguards 
that protect consumers and Main Street from risky behavior by 
large banks.
    Large banks are earning record profits. They just had their 
tax rate slashed, as you know. Why is now the right time to 
expose consumers again to the kinds of systemic risk that got 
us into this financial crisis in the first place?
    Chairman Hassett. I would have to study the specifics of 
the bill that you are talking about, and it is not something 
that I have done. So----
    Senator Heinrich. You haven't followed the bank 
deregulation bill that's on the floor?
    Chairman Hassett. I would have to read carefully where it 
is right now. I have not been updated on that. There's been a 
lot of other stuff going on.
    Senator Heinrich. If, God forbid, that--you know, I hope I 
am wrong--but if this banking bill were to lead us into another 
financial crisis, would this Administration want to oppose any 
public bank bailouts for banks that took on too much systemic 
risk?
    Chairman Hassett. I have not discussed that with the 
President.
    Senator Heinrich. Well the legislation is on the Floor this 
week. That is why I am asking these questions, because now is 
the time to get it right. If we wait until it is passed, then 
the words are what the words are on paper. So I would look 
forward to your input.
    Chairman Hassett. I would be happy to get that to you.
    Senator Heinrich. Thank you.
    Chairman Paulsen. Representative Handel, you are recognized 
for three minutes.
    Representative Handel. Thank you. I want to touch on 
infrastructure since we have not really heard from you on that. 
There are a lot of different viewpoints on the subject, that we 
should spend more and do so while the interest rates are low. 
The Administration isn't spending enough. The Federal 
Government shouldn't borrow more. It is no longer the right 
time, with near full unemployment.
    So can you share with us your thoughts and give us some 
clarity to the debate, and what you recommend, and what your 
thinking is on how we should move forward on infrastructure 
funding?
    Chairman Hassett. Right. And thank you for that, because we 
have a big chapter on infrastructure here, and the President 
has a very ambitious plan. And I think that we have not been 
able in the U.S. to attract much private capital into the 
infrastructure space in part because of the obstruction of 
government regulation and the fact that it can take, as the 
President has emphasized, up to 10 years to get a project 
approved.
    And I think there are many things we can do to draw more 
capital into the infrastructure space. Some of it is direct 
government spending, but some of it is also streamlining 
regulation and making it so that, you know, if you could get 
approval say in two years, and if there was one government 
agency that was a single point of contact, then it would be a 
lot easier to convince investors to invest in expanded 
infrastructure projects in the U.S. But right now I think the 
regulatory and government policy uncertainty around those 
investments is so high that it is just very, very hard to get 
investors to decide to participate in such projects.
    Representative Handel. Thank you.
    Chairman Paulsen. Well with that, I would like to thank 
Chairman Hassett again for testifying before the Committee 
today, and remind members that should they wish to submit 
questions for the record the hearing record will remain open 
for five business days.
    And with that, this hearing is adjourned.
    Chairman Hassett. Thank you, Mr. Chairman.
    [Whereupon, at 3:33 p.m., Wednesday, March 7, 2018, the 
hearing in the above-entitled matter was adjourned.]

                       SUBMISSIONS FOR THE RECORD

   Prepared Statement of Hon. Erik Paulsen, Chairman, Joint Economic 
                               Committee
    Good afternoon and welcome to the Joint Economic Committee's first 
hearing of 2018.
    This is my first hearing as Chairman. I have worked with many of 
you before, and as you know, I'm from Minnesota, where we work hard and 
we work together.
    In that spirit, I look forward to working with Ranking Member 
Heinrich and Vice Chairman Lee, as well as the other Members of the 
Committee. I especially want to extend a warm welcome to our new 
member, Representative Karen Handel, from the State of Georgia.
    We are witnessing a sea change in the American economy, one that is 
boosting opportunity, supercharging growth, and restoring prosperity to 
our Nation.
    For eight years, the last Administration struggled to find 
government-based solutions to a financial crisis that hit American 
workers hard. Now we have a new Administration with a very different 
approach, and I think few can deny that things have changed rapidly.
    The job of this Committee is to understand what changed, and why. 
We all want more workers to rejoin the labor force, more businesses to 
invest, and more wages to rise. I believe our work here, in gauging the 
economy's long-term potential, can inform us on the policies that 
foster that growth.
    Chairman Hassett, we welcome you here. Some very good things have 
happened since you testified before this Committee in October of last 
year. We have passed historic tax legislation--the Tax Cuts and Jobs 
Act--and the response of businesses has been overwhelmingly positive, 
exceeding expectations.
    Consumer confidence is up, Americans are seeing more take-home pay, 
many will spend less time preparing their taxes next year, and 
businesses are paying special bonuses, giving their employees a raise, 
repatriating offshore earnings, and investing more in the United States 
again.
    The unemployment rate is 4.1 percent, the lowest since the year 
2000, and the number of new unemployment claims is the lowest since 
1969.
    Regulatory reform is cutting back on market-choking regulations and 
is encouraging the private sector and contributing to the surge in 
business optimism since November 2016, especially for small businesses.
    Economic growth in each quarter of last year substantially exceeded 
growth of the corresponding quarter the year before reaching as high as 
3.2 percent in the 3rd quarter, a number the last Administration had 
led us not to expect again.
    We are in a better place every day as this economy has moved 
upwards, and it is not because ``government'' fixed it. It's because 
government finally allowed the American people to fix it.
    We are trusting the American people to keep more of their money, 
and to spend it as they see fit, rather than micromanaging their lives. 
America's economy isn't getting overheated. It's just getting started.
    Figure 1, which is on the screen, uses the phrase: ``Constrained 
potential.'' The potential is everyone in the audience here in their 
capacity as productive members of American society. The constrained 
part is, well, unfortunately, potentially everyone up here on the dais 
in our capacity as elected officials.
    This chart shows something interesting. The color lines show how 
the Congressional Budget Office lowered its projection of the economy's 
output potential each successive year since 2008. In other words, this 
is a graphic representation of the American government lowering 
expectations, year by year.
    The black line at the bottom, however, represents actual production 
as rising, closing in on the bottom potential line only after eight 
long years. 



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    Potential GDP should not change much from year-to-year, yet this 
chart shows constant revision. Why?
    The answer is: The continuous addition and tightening of policy 
constraints from 2008 to 2016.
    Removal of these constraints is a return to normalcy, not an 
artificial boom. What happened for the last eight years was a 
regulatory crackdown that diverted and constrained Americans from their 
pursuits. Those expectations should never have been that low to start 
with, because we should have had confidence in the American worker.
    I would be remiss if I did not mention the President's concerns 
about our trade policy, and discussion in recent weeks about tariffs. 
We are all deeply concerned about unfair trade practices by bad actors 
in other countries, and I know American workers want to compete fairly. 
That's because, and I know the President knows this, our workers are 
the best in the world, and when they compete internationally, America 
wins. I look forward to hearing from you, Chairman Hassett, how these 
tariffs might be crafted so they address specific distortions caused by 
unfair trade practices, and how we are going to avoid these tariffs 
simply becoming a tax increase on consumers.
    Chairman Hassett, we thank you again for appearing before the 
Committee today and extend our thanks as well to the Council of 
Economic Advisers for preparing the Economic Report of the President.
                               __________
   Prepared Statement of Hon. Martin Heinrich, Ranking Member, Joint 
                           Economic Committee
    Before I get started, I wanted to welcome our new chairman. 
Chairman Paulsen, I'm looking forward to working with you this year.
    Chairman Hassett, thank you for being here today to discuss the 
Economic Report of the President and the state of the economy.
    I wish I were more optimistic about the policies put in place since 
you came before this Committee in October.
    I'm going to be direct: the Republican tax bill serves special 
interests and will cost our children dearly for generations to come.
    Rushed through with no bipartisan input, the GOP tax law 
jeopardizes our fiscal position and further tilts the scales in favor 
of large corporations and wealthy individuals.
    While the law's impacts on economic growth are debatable, the 
impact on inequality is clear.
    Independent analysis shows that within 10 years, more than half of 
working families will pay higher taxes than they would have before the 
new GOP tax law.
    Meanwhile, the wealthiest 5 percent walk away with an astonishing 
99 percent of the tax benefits.
    Chairman Hassett, you and the President have promised again and 
again--most recently in the Economic Report of the President--that tax 
reform will increase average family income by at least $4,000. But, 
that is not what we are seeing.
    If we wanted to reform the tax code to help the middle class, we 
could have simply cut taxes for the middle class.
    Straightforward.
    And it would have directly given working people in New Mexico and 
around the country much needed resources to pay the bills, put their 
kids through college, and save a little something for retirement.
    Instead, Republicans chose to cut taxes for large corporations and 
the super wealthy, and left Americans hoping that those cuts would 
somehow trickle down to workers.
    History has proven--again and again--that's not what happens.
    And the early evidence this year confirms who the big winners are.
    So far, corporations have announced more than $210 billion in stock 
buybacks, benefiting executives and wealthy shareholders.
    While there have been some bonus and wage announcements, they total 
just $6 billion--a fraction of the money going to executives and the 
investor class.
    It's not just the immediate impacts that are concerning; the whole 
strategy was misguided.
    The massive increase in deficits constrains our efforts to tackle 
the problems we should have been focused on in the first place--like 
fixing our broken infrastructure and making more accessible and 
affordable a whole range of post-secondary education options--from 
apprenticeships and vocational education to community college and 4-
year colleges.
    Think about how we could have invested the $1.5 trillion spent on 
the tax bill. We could have erased every student loan in the country.
    Every single one.
    One recent study shows that canceling student debt for the 44 
million Americans who hold it would boost economic output and create up 
to 1.5 million new jobs in just one year.
    Of course, we could have invested that $1.5 trillion in 
infrastructure.
    The Administration's infrastructure plan commits barely any real 
money to the cause. They say they want to spend $200 billion in Federal 
dollars, but its budget makes more than $200 billion in cuts to 
existing infrastructure programs--from transit to highways to water.
    In other words, the long-awaited plan invests no new net Federal 
dollars. The $1.5 trillion hole dug because of the tax bill could have 
actually funded our infrastructure plans.
    Instead, the Administration is hoping that somehow State and local 
governments and the private sector will pay for roads, bridges, ports, 
schools, VA hospitals and on and on.
    But the private sector has little interest in investing in sparsely 
populated, low-traffic rural areas that desperately need infrastructure 
investment.
    And the tax law further limits already cash-strapped states' 
abilities to raise new revenues by capping SALT deductions.
    It's less a plan, and more a hope.
    You often hear that budgets are a reflection of values.
    That's true. But the massive tax giveaway--maybe even more than the 
recent White House budget--reveals Republican priorities.
    My Republicans colleagues could have joined with Democrats to 
invest in children, workers, education and our long-term economic 
success. Instead, they handed out goodies to large corporations and the 
uber-wealthy and risked our long-term economic health.
    Chairman Hassett, my focus is on what we can do now, and in the 
future. I'm interested to get your insight on how the Administration 
plans to work with us on making the investments that will help families 
succeed in today's economy. Thank you for your testimony. I look 
forward to your perspective. 




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 Response from Dr. Kevin Hassett to Questions for the Record Submitted 
                          by Vice Chairman Lee
    James Madison said in Federalist No. 10 that different economic 
interests arise in every society and often have sharply conflicting 
views on government policy. History has shown that reciprocal 
international trade promotes prosperity for American consumers and 
producers. In the ``Economic Report of the President,'' you point to 
the fact that the manufacturing and mining sectors lost 9,000 and 
98,000 jobs, respectively, in 2016. These statistics, no doubt, have 
influenced the President's intention to levy tariffs on steel and 
aluminum imports under Section 232. However, research published by the 
Trade Partnership Worldwide finds that these proposed tariffs could 
result in net job losses of nearly 146,000 jobs, notwithstanding any 
employment increases in the steel and aluminum industries. Meanwhile, 
the Tax Foundation estimates that implementation of these tariffs could 
cost U.S. firms nearly $9 billion--a cost which will undoubtedly be 
paid for by American consumers. In your opinion, Dr. Hassett, do the 
benefits of these proposed tariffs outweigh the costs to the broader 
economy? Could these new taxes actually counter the positive effects of 
the historical tax cut we just passed in December?
    CEA provides objective economic analysis based on the best 
available evidence, and assists with the evaluation of the economic 
tradeoffs implied by a set of current or prospective policy decisions. 
The purpose of the present Section 232 actions is to prevent imports 
from impairing U.S. national security [by ``weakening our internal 
economy'']. That determination by its nature requires, in addition to 
the economic costs and benefits intimated in the question, the 
consideration of national security concerns. But national security 
consideration are not CEA's core expertise, and it is ultimately up to 
the President to weigh both the economic and national security 
implications of policy choices as he formulates policy.
    In the long-run, however, the distinction between national security 
and economic concerns can blur more than in the short-run. It is tough 
to understand the history of the U.S. economy since World War II, for 
instance, without some reference to the Cold War and its aftermath. But 
CEA is not well-positioned to assess impacts of the Section 232 that 
accrue through national security driven channels at this point in time.
    The Opioid crisis has taken not just a social and medical toll on 
the country but has been an economic drain as well. In November 2017, 
the Council of Economic Advisers calculated the cost of opioid 
overdose, abuse, and dependence in 2015 at $504 billion. A nonprofit 
group estimated that the Opioid Crisis has cost the United States more 
than $1 trillion since 2001. That number is likely to increase by $500 
billion in 2020. The crisis continues to grow unabated across the 
country. How has this crisis affected labor-force participation, 
productivity, and overall economic output?
    The likely direction of the effect of the opioid crisis on economic 
activity seems unambiguous: it is likely to be negative, and drag down 
labor-force participation and economic output. Its effect on 
productivity is less easy to develop an intuition for, but also likely 
to be negative.
    That said, the paucity of high-quality data on the subject 
complicates attempts to discern the magnitudes as well as the direction 
of this effect. But one empirical analysis on this subject comes from 
Alan Krueger of Princeton University and former CEA Chair under 
President Obama. Using data from 2010, 2012 and 2013, Krueger estimates 
the number of Americans aged 25-54 who took pain medication on the 
previous day, separately by gender. Pain medication includes opioids, 
but is not limited to opioids as it also includes over-the-counter pain 
medications. These rates are far higher than that for illicit drugs. 
(Pain medication also is not an illicit drug if it is accompanied by a 
valid prescription.) These numbers show less variation across labor 
market status. Nearly 50 percent of men who were not in the labor force 
took pain medication on the previous day over these years and nearly 20 
percent of employed and unemployed men did the same. For women, the 
rates are higher among the employed and unemployed, but lower for those 
not in the labor force. Krueger's estimates imply that 862,000 prime-
aged persons (aged 25 to 54) were out of the labor force in 2015 as a 
result of opioid dependence growth. We note that these estimates should 
be considered as first approximations with a large standard deviation.
    In the chapter of the Report that focuses on the labor market, the 
Council of Economic Advisers notes a shift in the way that teens and 
young adults are spending their time outside of work and school--
notably, a reduction in time teens spent on ``organizational, social, 
and religious activities'' and an increase in time spent on activities 
less important to human capital development, such as ``personal care 
activities, which include sleeping and grooming.'' Even though the data 
cannot specifically answer whether time spent on social media and the 
internet might play a factor, would you infer that this shift in teen 
time use over the past decade is connected to the rise of smartphone 
and social media use, and what implications might that have on how 
adolescents form connections and relationships pertinent to developing 
social capital and engaging in associational life?
    As noted in the question, one cannot infer the effect of 
smartphones or social media from the data we have. Nor does there seem 
to be research that allows one to make a causal inference about the 
effect of the use of smartphones or social media on labor market 
outcomes. The intuition that the increasing attraction of activities 
like smartphones and social media competes for limited time and 
attention with activities that increase engagement in associational 
life does seem fair. And there is interesting research on the effects 
of social media in disciplines beyond economics, which are beyond CEA's 
area of expertise.
    Evidence on the effect of increasing time spent on smartphones and 
social media that meets the standards of the economics profession for 
causal inferences about its effect on outcomes like those in the labor 
market, then, does not yet exist. But CEA will continue to follow the 
cutting-edge of research on this and other topics in order to provide 
the best possible analysis of this important topic.
    In the chapter focusing on the labor market, the Council of 
Economic Advisers notes geographic immobility as a factor in labor 
force participation rates, whereby workers are unable to move to 
stronger job markets due to issues like occupational licensing 
requirements, land use regulations, or inability to sell a home. For 
those mired in high unemployment areas and lower levels of labor force 
participation, do you believe that there may be a ``brain drain'' 
effect taking place as well, whereby those going on to receive higher 
education aren't coming back?
    There is some evidence for a ``brain drain'' of the type described. 
The data do suggest that Americans with more education are more likely 
to move. This relationship between education and probability of moving 
manifests in the data both between 2001-2010 and between 1981-1990, 
even as the overall rate of migration for all education groups has 
fallen over time.
    But the relationship between geographic mobility and economic 
prospects is one for which it is easy to imagine many possibilities. 
For instance, one would also imagine that those who are most-distressed 
in a given area would be the most-motivated to want to move.
    There is some evidence for the ``brain drain'' described, and CEA 
looks forward to continuing to analyze the important issue of 
geographic variation in economic outcomes as well as geographic 
mobility in particular.
    In the chapter focusing on health, the Council of Economic Advisers 
identified five ``determinants of health in industrialized countries: 
health behaviors, genetics, social circumstances, environmental and 
physical influences, and medical care'' in the context of poor health 
and premature death. Scholars Anne Case and Angus Deaton note in their 
research on ``deaths of despair'' that premature deaths such as these 
are ``about much more than economic circumstances'' focusing on `` . . 
. the decline in labor force participation, the decline in marriage 
rates, the rise of cohabitation, the rise in out of wedlock births, and 
of parents living apart from children that they barely know. We discuss 
the decline in the quality of jobs, the increasing lack of opportunity 
for people without a bachelor's degree, as well as changing religious 
practices.'' Would you agree that social factors and shifts in work and 
family life among more vulnerable Americans have played a significant 
role in their declining health trends?
    The economics literature documents that economic factors, like 
unemployment, can have non-trivial effects on health outcomes. Sullivan 
and Von Wachter (2009), for instance, is just one of the economics 
papers that employs a methodology with the econometric rigor you need 
to make causal inferences about the effect of economic fluctuations on 
health outcomes at the individual level. And they document that such 
effects can exist: for instance, one of the effects documented is the 
effect of job displacement on the probability of suicide. Though job 
displacement may seem like an economic rather than social factor, job 
displacement's consequences (including the probability of suicide) are 
such that the effects documented in the paper are plausibly also 
interpretable as relevant to the relationship between social factors 
and suicide as well.
    But, unlike Sullivan and von Wachter (2009), the seminal Case and 
Deaton research on the increase in ``deaths of despair'' does not come 
from any attempt at causal inference. Instead, Case and Deaton have 
identified and described a trend that previously was not documented. 
The social value of the documentation in trends in ``deaths of 
despair'' by Case and Deaton is difficult to overstate. But the task of 
documenting a trend in society is different in nature from the task of 
identifying its underlying causes through a methodology that allows 
causal, rather than only descriptive, inference. And Case and Deaton 
have documented the trend rather than identified its cause.
    That said, the type of causal econometric analysis epitomized by 
Sullivan and von Wachter (2009) suggests the possibility that the 
social and economic causes identified can explain some nonzero fraction 
of the trend identified by Case and Deaton. But Case and Deaton's 
findings are fairly new, and research has so far failed to identify 
explanations for the trends in mortality in a particular place (the 
United States) across particular moments in history (the last few 
decades) that have been so meticulously documented by their path-
breaking work. Given the gravity of the issue, it is important that 
research correctly identify the causes of the trend rather than proceed 
on the assumption that the types of social and economic mortality 
effects identified in other contexts is necessarily what explains the 
particular phenomenon Case and Deaton documented.
                               __________
 Response from Dr. Kevin Hassett to Questions for the Record Submitted 
                          by Senator Heinrich
    1.) As discussed in the final minutes of the hearing, the Economic 
Growth, Regulatory Relief, and Consumer Protection Act (S.2155) is 
making its way through the Senate and is expected to be taken up by the 
House soon. The bill would exempt many banks with $250 billion or less 
in assets from stricter regulations, even though many banks in this 
asset range received taxpayer bailout money during the financial crisis 
and some, such as Countrywide and IndyMac, were even at the center of 
the crisis.
    As a senior economic advisor to the President, do you believe there 
is no risk in unwinding these regulations that have kept our financial 
system safe?
    As an economist evaluating a prospective change in regulation, it 
seems unwise to reduce the question of whether the costs outweigh the 
benefits on a net (rather than gross) basis to the question of whether 
any particular gross cost or benefit is zero. As an economist, there is 
no reason to think S.2155 would be an exception to this framework. Even 
in a world with risks to repealing regulations that exceeded zero, the 
benefits to repeal could still very plausibly outweigh the costs.
    In the context of banking regulation, the tradeoff tends to be 
between compliance and other costs of regulation on the cost side and 
financial stability and other intended goals of risk-reducing 
legislation on the benefit side. It is important to get this tradeoff 
right. As the Treasury Department wrote in their recent report ``A 
Financial System That Creates Economic Opportunities: Banks and Credit 
Unions,'' financial regulations should be tailored to accomplish the 
objectives of clear and transparent standards that do not impose undue 
burdens and that are based on the size and complexity of the bank's 
balance sheet and businesses. Insufficient tailoring results in bank 
regulators misallocating staff time and resources by focusing on firms 
that do not present the greatest risks to the financial system. 
Further, the magnitude of regulatory requirements applicable to 
regional, mid-sized, and community banks that do not present risks to 
the financial system requires such banks to expend resources on 
building and maintaining a costly compliance infrastructure, when such 
resources would be better spent on lending and serving customers.
    2.) In 2007, banks with less than $250 billion in assets 
collectively held more than $1.6 trillion in assets. Collectively, 
these small and medium sized banks were larger than all but one bank at 
the time, and received more than $46 billion in bailout funds.
    In your opinion, what sort of risk does $1.6 trillion in assets 
pose to the financial system and the economy if those assets suddenly 
become junk?
    The failure of smaller banks, while potentially having an impact on 
local economies, typically does not pose a risk to the financial 
system. The focus of banking regulations for many decades has focused 
on such institutions applying proper prudential standards to their 
business. The proposed legislation does not change this focus. In 
addition, the proposed legislation contains measures that would attempt 
to target regulation such that only banks which pose a risk to the 
financial system bear the additional costs of additional regulatory 
compliance. And as an economist, targeting regulation such that the 
incidence of any additional costs correspond with an increase in 
expected benefits is difficult to oppose.
    3.) You recently acknowledged that corporations are using 
repatriated earnings to buy back more of their stock and increase 
dividends to shareholders, not investing in their workers as you had 
previously predicted would occur right away. While testifying before 
the Joint Economic Committee you suggested this is a one-time buy back 
that will eventually translate to downstream wage increases. However, 
history has confirmed that this is not the case. Moreover, in a recent 
survey, only two percent of workers surveyed have received a raise, 
bonus, or additional benefits attributed to the tax bill.
    How do you reconcile what history has confirmed and what workers 
are saying with what you have promised working families?
    First, tax cuts are being used for wage increases and investments 
in the workforce. As of April 3, 2018, employee bonus announcements 
attributable to the TCJA affected almost 5.5 million workers, according 
to Administration tabulations.
    Second, the TCJA passed only months ago. As the economy adjusts to 
the new long-run equilibrium, then, you'd expect the benefits to grow.
    To the extent that you would expect to observe the effects of the 
TCJA in a new long-run economic equilibrium within a few months--and 
there is no economic reason to think this would be the case--you would 
expect only a fraction of the effect to yet be visible in the data. The 
developments since the TCJA's passage, if anything, are what you would 
expect to see if the long-run equilibrium was what CEA described: the 
effects appear to be in the expected direction, and their full 
magnitudes will take more than a few months to appear in the data.
    Third, it is a mistake to think of the wage and investment effects 
of the TCJA as mutually exclusive: investment effects complement wages, 
as increased investment today is a harbinger of higher wages in the 
future. Chapter 1 of the Economic Report of the President (2018), along 
with other research from CEA, documents the mechanism that relates 
investment to wages: productivity. Testifying to the relationship 
between capital and wages, the link that runs through productivity, the 
Report also documents the historic slowdown in capital deepening that 
has accompanied the historic slowdown in wage growth observed in recent 
years. In the light of the complementary relationship between 
investment and wages, the $201 billion in new corporate investments 
announced since the passage of the TCJA attributed to the legislation 
seems like a harbinger of TCJA-induced wage gains in the future--not 
evidence of their absence.
    Finally, I would note that it is not clear that there is much of a 
historical analogue for the Tax Cuts and Jobs Acts (TCJA). There were 
other instances of changes to tax legislation enacted under George W. 
Bush that are sometimes invoked as parallels similar to this question 
but that differ economically from the TCJA
    4.) In the hearing, you mentioned that immigration and immigrants 
play a significant role in growing the economy, emphasizing the 
importance of immigration on entrepreneurship in America. Yet, the 2018 
Economic Report of the President remains completely silent on the 
matter.
    As Chairman of the Council of Economic Advisers, and as an 
objective source to the President, please outline the economic benefits 
of both high and low skilled immigration and its importance to the 
economy in great detail.
    There are as many ways to discuss the effects of immigration on 
economic activity as there are ways to measure economic activity.
    In the U.S., the debate about immigration has tended to focus on 
the volume of immigration rather than the skill-level of prospective 
immigrants. But a look at immigration systems around the world suggests 
that the skill levels of prospective immigrants are one topic that 
could, from the perspective of the U.S., appear as an interesting area 
for analysis.
    In comparison to other countries, the U.S. does not maintain a 
skills-based immigration system. DHS data show that, of the 1.2 million 
green cards issued in 2016, 60,000 (5 percent) were ``employment-
based'' and granted on the basis of the recipient's future labor market 
contributions. Foreign-born U.S. residents contribute less, on average, 
to U.S. GDP than the average for native-born Americans, although the 
gap has been shrinking over time. In contrast, Australia maintains a 
skills-based immigration system in which more than two-thirds of visas 
were awarded based on recipient skills and their potential contribution 
to the Australian economy. A shift in U.S. immigration policy towards a 
more skill-based approach would provide a boost to U.S. GDP and reduce 
any pressure incoming, lower-skilled migrants might place on the 
incomes of lower wage Americans.
                               __________
 Response from Dr. Kevin Hassett to Questions for the Record Submitted 
                          by Senator Klobuchar
    Over 97% of all Deferred Action for Childhood Arrivals (DACA) 
recipients are currently working or attending school. One recent study 
from the Center for American Progress estimated that ending DACA would 
cost the United States over $400 billion over the next 10 years. At 
your hearing, you stated that you have not conducted an estimate of the 
economic impact of ending DACA but would be happy to conduct such a 
study and report the results.
    Please provide an analysis of the likely economic impact of ending 
DACA and terminating work authorization for DACA recipients.
    The net economic effect of any change to the status quo with 
regards to DACA and work authorizations depends on the policy that 
follows the change to the status quo. It is all but impossible, then, 
to forecast the effects of a scenario that entails the end of a 
specific policy but offers no information on the policy regime that 
follows the end of the status quo.
    Nonetheless, any analysis involving DACA illustrates the complexity 
of the economic analysis of immigration, and the importance of the 
composition as well as the volume of immigration in determining the 
expected economic effects of immigration.
                               __________
 Response from Dr. Kevin Hassett to Questions for the Record Submitted 
                       by Representative Maloney
    1) In the Economic Report of the President, you project real GDP 
growth over 3.1 percent in 2018 and above 3 percent annually through 
2020. In contrast, the President has said many times that he expects 
GDP growth over 4 percent, and on Dec. 6, 2017, he said at a Cabinet 
meeting that ``I see no reason why we don't go to 4, 5, even 6 
percent.'' Do you think this is realistic? You said at the hearing that 
your job is to give the President objective advice. What objective 
advice did you provide or would you provide to the President about his 
statement?
    Historically, when the economy achieves growth of 3.0 percent over 
the four quarters of a calendar year, very rarely does that occur 
through repeated quarterly observations of 3.0 percent annualized 
growth. Rather, in any given quarter, we tend to observe growth rates 
that are higher or lower than 3 percent in a given quarter. If growth 
rises to 3.0 percent at an annualized rate, then, it seems very likely 
growth in some quarters will exceed 3 percent. There is no reason to 
doubt that growth in such a year could rise to the values the President 
mentioned in at least one quarter. That said, however, growth would 
have to be lower than 3 percent in at least one other quarter of the 
year if it were higher than 3 percent in at least one quarter in order 
for it to average to 3 percent for the year as a whole.
    2) During the campaign last year, Donald Trump said that the U-3 
unemployment rate published by the Bureau of Labor Statistics is 
``phony,'' ``false,'' ``fake,'' ``a complete fraud,'' and ``total 
fiction.'' Do you agree with him that the U-3 is a bogus indicator of 
unemployment in the United States? A year later, he now takes credit 
for the same U-3 unemployment rate--pointing to the fact that it 
continued to drop during his Administration to 4.1 percent. Which time 
was he wrong about whether the U-3 is a reliable indicator?
    Reasonable people can disagree on when the U-3 is an appropriate 
measure of labor market performance. There are good arguments in favor 
of using it in some circumstances, and good arguments against U-3's 
relevance in other circumstances. It is not the case, then, that there 
is any contradiction of logic that necessarily arises by doubting the 
U-3's relevance as a metric of labor market health at one point in time 
but not at another. No labor market statistic is a perfect measure in 
every set of circumstances.
    To dive into the weeds: the U-3 measure of unemployment is defined 
as (number of unemployed) divided by (the number of unemployed plus the 
number of employed). This measure misses a potentially important part 
of the population who are ``not currently looking for work'' but, under 
certain conditions, could and would work. So in that sense it has some 
limitations in measuring tightness in the labor market--during 
recessions it fails to show the importance of movements out of the 
labor force from employment by discouraged workers. And, during 
recoveries, it fails to acknowledge the potential movement back in the 
labor force of these discouraged workers to employment. Looking solely 
at U-3 unemployment rates, then, misses these ``discouraged workers'' 
and the true impact of the Great Recession on employment. Likewise, the 
low current unemployment rates that have resulted from our long but 
slow recovery may understate the number of ``potential workers'' who 
are currently on the sidelines but who are likely to come back in the 
labor force by ``looking for work'' and/or finding it and becoming 
employed.
    3) In the Economic Report the President, you write extensively 
about the economic benefits of deregulation. I'd like to consider the 
case of the Consumer Financial Protection Bureau, which has written new 
rules concerning predatory payday lenders, established new mortgage 
standards, banned forced arbitration, written rules to protect users of 
pre-paid cards, and proposed regulations to protect consumers against 
other predatory practices. Is there an economic rationale for such 
regulations? What is the cost to consumers and to businesses that don't 
prey on their customers when there is a lack of such regulation? How do 
fair and strong regulations help markets and the economy as a whole? 
Which of the regulations listed above would you roll back?
    There can be a rationale for regulation in most sectors of the 
economy, including consumer financial regulation. But the possibility 
of a rationale for regulation does not preclude the possibility that 
the costs of a regulation exceed its benefits. As an economist, the 
task at hand when it comes to any specific regulation promulgated by 
the CFPB or another agency is figuring out whether the benefits in fact 
outweigh the costs in practice, rather than to imagine circumstances in 
which the benefits in principle could outweigh the costs.
    The economic rationale for any regulation depends on whether the 
benefits, in aggregate, outweigh the costs, in aggregate. CEA would 
demur from commenting on specific CFPB regulations. But CEA would point 
out that, even abstracting away from the distinction between producers 
and consumers, even a regulation that harms some consumers could 
benefit other consumers. Regulations, in consumer finance as elsewhere, 
have unintended costs in addition to the intended benefits intimated in 
the questions. And, from an economic perspective, as the Economic 
Report of the President explains, the challenge is to weigh the 
totality of these costs and benefits in order to ensure only those 
regulations for which the intended and unintended benefits exceed the 
intended and unintended costs remain in place.
    4) Nearly years ago, we experienced what former Federal Reserve 
Chair Ben Bernanke called the ``the worst financial crisis in global 
history, including the Great Depression.'' This led to a devastating 
recession that Barack Obama inherited from his predecessor.
    From the worst of that recession until the end of the Obama 
administration:

      Unemployment dropped almost in half from its recession 
peak of about 10 percent to under 5 percent.
      African-American unemployment was cut nearly in half, 
from over 16 percent to approximately 8 percent.
      Hispanic and Latino unemployment was cut more than in 
half, from approximately 13 percent to under 6 percent.
      We experienced 80 consecutive months of private-sector 
job growth, and saw the creation of over 15 million jobs.
      Household wealth increased by more than $35 trillion
      Housing prices recovered overall, and
      The Dow rose 12,000 points.

    How would you compare the economy Donald Trump inherited from his 
predecessor to the economy Barack Obama inherited from his predecessor? 
Do you agree with President Trump's claim that the economy was a 
disaster at the end of the Obama administration?
    One reasonable way to benchmark the performance of the economy 
under any President is to look at how their policies influenced the 
performance of the economy relative to a counterfactual in which the 
President's policies did not happen. Invoking statistics that show 
declines from recession peaks to make an inference about the positive 
the impact of President Obama's policies, however, does not seem to be 
an exercise that is grounded in the economics literature. The economics 
literature shows that deeper recessions tend to be followed by faster 
recoveries. And so statistics documenting the upturn in the economy 
relative to recession troughs, it seems, do not necessarily show that 
Obama's policies had a positive impact on the recovery. In fact, in the 
Economic Report of the President (2018), we find that Obama's policies 
in fact slowed growth in the recovery years relative to what it would 
otherwise have been.
    Chapter 3 of the Economic Report of the President (2018) focuses on 
two indicators of macroeconomic performance and their trajectory during 
the course of the recovery period under Obama: GDP per capita, and 
median income. More importantly, in measuring longer-term trends in 
economic growth, the economics profession focuses on a peak to peak 
measure of a given business cycle rather than fluctuations (peak to 
trough to peak) within it. Doing so, the growth rate of real GDP from 
the beginning of this business cycle until President Trump took office 
(2007-2016) averaged 1.4 percent per year, the slowest growth of any 
post-World War II business cycle. The same is the case for GDP per 
capita. Moreover, the post-recession recovery in the median American's 
total household income after the 2008 downturn was the slowest on 
record. It is this slowness in the economic growth of this business 
cycle and the lack of progress of the ``middle class'' as measured by 
median income that includes years when both President Bush and 
President Obama held office which motivated President Trump's economic 
policies in his first year.
    It is worth noting that the evidence that Obama's policies slowed 
growth appears the strongest for the years towards the end of President 
Obama's second term.
                               __________
 Response from Dr. Kevin Hassett to Questions for the Record Submitted 
                        by Representative LaHood
    According to NOAA, the 2017 Atlantic hurricane season was the first 
time that three Category 4 hurricanes--Harvey, Irma, and Maria--made 
landfall in the United States and its territories in one year. It was 
estimated earlier this year that the insured losses from these three 
hurricanes came in at $100 billion.
    In terms of the tragic California wildfires from last fall, Aon 
Benfield estimated insured losses at $8 billion late last year.
    While it is not discussed a lot, our property and casualty 
insurance sector and our State-based insurance regulatory regime has 
been very effective in terms of having solvent insurance companies pay 
out the promises made via their insurance contracts with their 
policyholders. We all remember the 2007-2008 housing bubble burst and 
the negative impact of that bubble bursting on homeowners and the 
Federal Government's response through creation of TARP and enactment of 
Dodd-Frank. The conservative solvency-based regulatory regime here in 
the U.S. does a pretty good job in terms of ensuring that property and 
casualty insurance companies have the wherewithal to pay out claims as 
a result of a hurricane, wildfire, or other covered loss.
    Chairman Hassett, would you care to comment on the importance our 
domestic property & casualty insurance sector plays in terms of playing 
the role of an economic ``shock absorber'' in a post-natural disaster 
scenario and any suggestions for improving our insurance regulatory 
regime?
    The U.S. insurance industry is the largest, most competitive, and 
most diverse in the world. The industry provides important retirement 
planning tools for individuals, and its products allow both commercial 
and individual policyholders to obtain protection for a range of risks. 
Relying on the financial security provided by this risk transfer, 
policyholders are able to direct resources that they otherwise would 
have to reserve for such uncertainties to productive economic activity, 
such as capital investment.
    The complexity of the tradeoffs involved in insurance policy seem 
difficult to overstate, and property & casualty insurance seems to be 
no exception to this rule. Regulations to increase the ability of 
insurers to withstand ``extreme'' scenarios, for instance, may have the 
unintended consequence of harming consumers who are among the most-
vulnerable and least able to withstanding property damage by raising 
premiums to levels they would find difficult to afford.
    As you point out, the domestic property & casualty insurance 
markets in the U.S. appear to have withstood recent events without 
experiencing distress at the industry level. Policyholders received 
what they were promised in exchange for their premium payments. Given 
the implications that the affordability of property and casualty 
insurance can have for households, and the nonrandom distribution of 
households' ability to absorb financial shocks, an assessment of 
expected costs and benefits that does justice to the complexity of the 
subject at hand would be required before--as an economist--it would 
make sense to offer recommendations to improve a system that appears to 
be functioning well in the status quo.
                               __________
 Response from Dr. Kevin Hassett to Questions for the Record Submitted 
                      by Representative Schweikert
    How will uncertainty in the access to foreign markets affect the 
ability for U.S. companies to plan long term, specifically in the 
circumstance of NAFTA, where companies are having to build and plan for 
complicated capital investment intensive cross border supply chains? 
Given the environment of uncertainty surrounding the NAFTA 
renegotiations, what are the short-term consequences to the economy of 
companies being unable to plan for the future? With major portions of 
the economy unable to plan long term, what is the potential for this 
instability to freeze up capital investments domestically?
    The economics literature documents that, holding everything else 
constant, policy uncertainty decreased economic activity across a range 
of margins of adjustment. One of these margins is capital investment. 
But, in a historic trade negotiation, focusing on the short-term 
effects of the negotiation itself is tantamount to focusing on a 
transaction cost while ignoring the intended long-run consequences of 
the transaction itself.
    While I cannot comment on any specific ongoing trade negotiation, 
the President intends to deliver long-term benefits by reducing the 
asymmetries between U.S. trade barriers and those of our foreign 
counterparts. And the economics literature would certainly support the 
notion that there would be long-run benefits to the U.S. economy if 
foreign counterparts lowered their barriers to U.S. exports. It would 
be difficult to make much sense of the net effects of any ongoing trade 
policy issue, however, without situating the short-term costs in the 
context of the long-term benefits the trade policy in question is 
intended to deliver.
    Tariffs on aluminum and steel based on Section 232 of the Trade 
Expansion Act of 1962 (19 U.S.C. 186c) could lead to the protection of 
several thousand jobs, at the expense of tens of thousands of jobs 
being lost. How would a trade dispute that cost tens of thousands of 
American jobs affect the U.S. economy and economic growth?
    CEA provides objective economic analysis based on the best 
available evidence, and assists with the evaluation of the economic 
tradeoffs implied by a set of current or prospective policy decisions. 
The purpose of the present Section 232 actions is to prevent imports 
from impairing U.S. national security [by ``weakening our internal 
economy'']. That determination by its nature requires, in addition to 
the economic costs and benefits intimated in the question, the 
consideration of national security concerns. But national security 
considerations are not CEA's core expertise, and it is ultimately up to 
the President to weigh both the economic and national security 
implications of policy choices as he formulates policy.
    In the long-run, however, the distinction between national security 
and economic concerns can blur more than in the short-run. It is tough 
to understand the history of the U.S. economy since World War II, for 
instance, without some reference to the Cold War and its aftermath. But 
CEA is not well-positioned to assess impacts of the Section 232 that 
accrue through national security driven channels at this point in time.
  

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