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


                                                        S. Hrg. 115-270

                UNLEASHING AMERICA'S ECONOMIC POTENTIAL

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

                                 HEARING

                               BEFORE THE

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 11, 2018

                               __________

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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

                              ----------                              

                     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

                               Witnesses

Dr. Douglas Holtz-Eakin, President, American Action Forum, 
  Washington, DC.................................................     6
Dr. Chad Moutray, Chief Economist, National Association of 
  Manufacturers, Washington, DC..................................     8
Mr. Richard Hampton, Chairman of the Board, Circuit Interruption 
  Technology, Inc., Rogers, MN...................................    10
Hon. Mark Mazur, Ph.D., the Robert C. Pozen Director of the 
  Urban-Brookings Tax Policy Center, Washington, DC..............    11

                       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...................................    38
Prepared statement of Dr. Douglas Holtz-Eakin, President, 
  American Action Forum, Washington, DC..........................    40
Prepared statement of Dr. Chad Moutray, Chief Economist, National 
  Association of Manufacturers, Washington, DC...................    55
Prepared statement of Mr. Richard Hampton, Chairman of the Board, 
  Circuit Interruption Technology, Inc., Rogers, MN..............    63
Prepared statement of Hon. Mark Mazur, Ph.D., the Robert C. Pozen 
  Director of the Urban-Brookings Tax Policy Center, Washington, 
  DC.............................................................    67
Article titled ``A debt crisis is coming. But don't blame 
  entitlements.'' submitted by Representative Maloney............    76
Response from Dr. Holtz-Eakin to Questions for the Record 
  Submitted by Representative Maloney............................    77
Response from Dr. Holtz-Eakin to Questions for the Record 
  Submitted by Vice Chairman Lee.................................    77
Response from Dr. Moutray to Questions for the Record Submitted 
  by Vice Chairman Lee...........................................    78

 
                UNLEASHING AMERICA'S ECONOMIC POTENTIAL

                              ----------                              


                       WEDNESDAY, APRIL 11, 2018

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 2:17 p.m., in Room 
216, Hart Senate Office Building, the Honorable Erik Paulsen, 
Chairman, presiding.
    Representatives present: Paulsen, Handel, Delaney, LaHood, 
Maloney, and Beyer.
    Senators present: Heinrich, Peters, Cruz, Klobuchar, and 
Lee.
    Staff present: Theodore Boll, Colin Brainard, Gerardo 
Bonilla, Daniel Bunn, Kim Corbin, Barry Dexter, Alaina 
Flannigan, Connie Foster, Natalie George, Colleen Healy, Matt 
Kaido, Kwabena Nsiah, 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 hearing on ``Unleashing America's 
Economic Potential.''
    For the eight years prior to this new Administration we 
were told that America could never do better than two percent 
growth. We were told that such sluggish growth was the new 
normal, and that we had to lower our expectations. And this 
contradicted what we knew about America.
    We all know America is an economic powerhouse, and we are 
blessed with vast and bountiful land, massive energy resources, 
and most importantly the American people.
    Our dreams as a Nation do not rely on government fiat or 
foreign influence, but on the resourcefulness, the 
innovativeness, and the hard work of everyday working 
Americans. And the question is: Will we as elected officials of 
the U.S. Government allow them to work towards their dreams and 
fully contribute to our Nation's prosperity? And this hearing 
is just about that.
    How is it, for instance, that we have just seen a 
remarkably good job growth for the last few months? Listen to 
these numbers: We are averaging 214,000 more jobs for February 
and March, and the employment-to-population ratio has held 
steady.
    The unemployment rate has remained stable at 4.1 percent 
for six months, the lowest since 2000. And, meanwhile, average 
hourly earnings continue their upward trend. And it was not 
long ago we were told not to expect this. In fact, we were told 
to lower our expectations--and I will explain.
    As an example, when my daughters set goals, these goals are 
generally beyond where they are at the current time. Maybe they 
want to get better at math or science. Maybe they want to read 
more books than before. But the point is, they know their 
potential, and they set goals beyond where they are currently 
at because they want to grow. And it should be the exact same 
when we are thinking and talking about our own economy.
    The first graph that was displayed at our last hearing, the 
top line is what the Congressional Budget Office thought in 
2007 our economy was capable of producing. This is an economy 
of hope and growth. The bottom line, regrettably, is what our 
economy in fact produced, our actual real GDP.
    Now to be sure the financial crisis knocked us off our 
feet. The lines in between are the annual CBO forecasts of our 
economic potential over the course of the Obama administration. 
In each year, these forecasts were lowered year by year. This 
is what it looks like when a Nation is urged by its leaders to 
accept mediocrity and to let the government handle more.
    More taxes, more regulations, and more control meant that 
the American economy was being held back. This was a self-
fulfulling prophesy. These projections dragged under a growing 
weight of high tax rates and record-setting levels of 
regulation.
    Before 2017, economic growth was slow, employers were not 
willing to invest in their businesses or their employees. 
Productivity and take-home pay had stagnated. People in their 
prime working years stayed out of the workforce, and fewer 
people were willing to risk starting a business, so 
entrepreneurship fell.
    Businesses found it more attractive to invest and create 
jobs overseas, where other countries had learned to lower their 
corporate tax rates and reduce regulations. And at the same 
time, the Federal Government's power over nearly every aspect 
of our lives grew.
    And, yes, there are constructive things that the government 
does such as keeping us safe, enforcing civil and property 
rights, and setting rational ``rules of the road'' by which the 
economy could operate efficiently. However, government does not 
create prosperity. Our people create prosperity by having great 
ideas, working hard, and having the resources to take a risk on 
building a piece of the American Dream.
    Far too often government stands in the way of prosperity 
and opportunity by over-taxing and over-regulating. A country's 
GDP is based on its workforce, capital stock, and productivity 
determined by technology, innovation, and training.
    It is not based on how much the government succeeds in 
redirecting capital. And we are seeing a different course that 
lifts the artificial constraints that government has imposed on 
the economy.
    This graph is similar to the one in the Report the JEC 
published last week in response to The Economic Report of The 
President. If we lift the government constraints of high taxes 
and heavy regulation that weighed down our potential, our 
economic potential can rise.
    If it rises to what CBO projected as recently even as 2012, 
there would be plenty of room displayed as the output gap for 
our economy to grow faster. We have removed the government 
obstacles that prevented Americans from achieving their dreams.
    When growth is strong, businesses have the confidence to 
invest, jobs are plentiful, potential entrepreneurs become 
willing to risk starting a business, and American households 
become more prosperous. And we are already seeing results: 
every quarter of economic growth in 2017 outperformed the same 
quarter in 2016; business investment is strengthening, and 
small business confidence is high; production and investment 
are coming back to the United States; paychecks are growing 
because the government is taking a smaller cut and businesses 
are investing in their workers.
    In my home State of Minnesota, the good news about tax 
reform keeps pouring in as companies like BestBuy, Bio-Techne, 
CIT Relay & Switch, LORAM, Data Sales, DTN, Hormel, TCF, and 
U.S. Bank--and there are others--invest in their employees by 
giving them special bonuses, pay raises, or additional better 
benefits.
    But even with the tail winds of pro-growth tax and 
regulatory reform, there still are risks to the economy such as 
the newly announced tariffs. Trade is critical to our economic 
growth. A robust trade agenda is essential for the United 
States to grow jobs by selling American goods and services 
around the world, as 96 percent of the world's consumers live 
outside of the United States.
    The end goal of trade policy should be to eliminate 
artificial barriers for the free flow of our goods and our 
services, not cause new ones. And I look forward to hearing 
from our distinguished panelists who are here today as they 
advise us on other ways to unleash great opportunity in 
America.
    And before I introduce them, I now recognize our Ranking 
Member, Senator 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. I am pleased that we 
have this opportunity today to dig a little deeper into the 
Republican tax law.
    It was a complex bill, passed without Democratic input and 
very little debate. The result is a hastily written law that 
has caused confusion about how families and the broader economy 
will be impacted.
    So let me start with a couple of facts.
    As a result of the Republican tax law, working families 
will see what little relief they get disappear over time. 
Corporations will pocket massive permanent gains. The deficit 
will soar, and Republicans will point to spending as the 
problem. And the price tag seems to be growing.
    From $1.5 trillion in December, this week CBO increased the 
estimate to $1.9 trillion. By adding nearly $2 trillion to the 
national debt, the tax law gives Republicans a fresh rationale 
to target Social Security, Medicare, and Medicaid. Before the 
bill was even signed, Speaker Ryan said, quote, ``We're going 
to have to get back next year at entitlement reform, which is 
how you tackle the debt and the deficit.'' End quote.
    And other House Republican leaders, including Majority 
Leader McCarthy and Majority Whip Scalese, have made similar 
pledges to do the same. I thought a big part of tackling the 
debt and the deficit was not wasting nearly $2 trillion on tax 
breaks for large corporations and wealthy individuals. But that 
is not how my Republican colleagues see it.
    To pay for some of their tax giveaways, Republicans want to 
cut health care coverage that families receive through 
Medicaid, and go after Medicare and Social Security that 
seniors and their families count on.
    Let me be clear. Democrats will fight these cuts every step 
of the way. This week House Republicans are planning to vote on 
a so-called ``Balanced Budget Amendment'' that would have 
devastating consequences for seniors, children, and middle 
class families.
    It is all part of the same Republican script. Tax breaks 
for those who do not need them, followed by a belated call to 
address the national debt they keep adding to. As this 
Committee has discussed, Republicans also promised that their 
tax law would result in big yearly wage increases of $4,000 per 
family, to be precise.
    Now there is no question that families across the country 
desperately need a raise. After adjusting for inflation, the 
typical worker's wages have grown by only 6 percent over the 
past 35 years.
    It is especially tough in places like New Mexico where 
there are fewer jobs today than when the Recession began more 
than a decade ago. And the unemployment rate is at 5.8 percent, 
almost 50 percent higher than the national rate. But the ones 
who are getting most of the benefits from the tax law are 
corporate executives and wealthy shareholders.
    Companies are spending about 30 times as much on stock 
buybacks as on worker bonuses or wage increases. Why are large 
companies using their tax savings to lift their stock prices?
    Well, it is actually pretty simple. Executive compensation 
is tied directly to the price of company stock. One study found 
that more than 80 percent of compensation of the 500 highest-
paid executives in 2015 came from stock. That is a pretty big 
incentive for top executives to try to get their stock price 
higher.
    And there is another piece that is just as concerning. 
Large buybacks also mean that companies have less left over for 
investment in factories, in research and development, all of 
which drive productivity, job creation, and wage increases over 
the long term.
    Now I want to turn to the other focus of today's hearing: 
reversing critical Federal oversight.
    The Administration has rolled back protections for workers, 
for consumers, and for the environment. Reducing cost is often 
the stated motivation behind gutting protections, but a new OMB 
report shows that the regulations issued between 2006 and 2016 
resulted in annual benefits that far exceeded the costs, 
benefits of between $287 and $911 billion with annual costs of 
between $78 and $115 billion.
    Now there is no question that many recent actions taken by 
the Administration will harm workers and consumers. For 
example, the Trump Administration reversed an increase in the 
overtime threshold, costing 4 million workers a collective $1.2 
billion in additional wages per year.
    The Administration has given payday lenders a green light 
to engage in predatory lending practices that result in annual 
interest rates as high as 600 percent, and Republicans passed a 
law that reduced the effectiveness of the National Instant 
Criminal Background System and actually made it easier for 
people with serious mental illness to buy a firearm.
    The Administration has also gone after the environment and 
our public lands. And at the end of last year, President Trump 
took action to dramatically reduce the size of Bears Ears and 
Grand Staircase-Escalante National Monuments, pushing aside 
concerns voiced by Tribal communities that these sacred places 
should be protected and opening up our wildest lands to 
commercial development.
    The Organ Mountains-Desert Peaks and Rio Grande Del Norte 
National Monuments in New Mexico have also been under threat, 
despite widespread local support for their creation.
    Rather than working off a special-interest wish list, the 
Administration should work with Democrats to foster inclusive 
economic growth that helps families pay their bills, afford to 
go to college, and save for retirement.
    Thanks to each of you for your testimony today.
    [The prepared statement of Senator Heinrich appears in the 
Submissions for the Record on page 38.]
    Chairman Paulsen. With that, we will introduce our 
witnesses, and we will start--I will go through all four 
witnesses--Dr. Douglas Holtz-Eakin is the President of the 
American Action Forum. He also serves as a Commissioner on the 
Congressionally-chartered Financial Crisis Inquiry Commission, 
and an outside advisor to the U.S. Chamber of Commerce. During 
2007 and 2008 he was the Director of Domestic and Economic 
Policy for the John McCain Presidential campaign. From 2003 to 
2005, he was the sixth Director of the Congressional Budget 
Office, addressing the 2003 tax cuts, the Medicare Prescription 
Drug Bill, and Social Security reform.
    Dr. Holtz-Eakin was also the Chief Economist for the 
President's Council of Economic Advisers from 2001 to 2002. He 
holds a Ph.D. in Economics from Princeton University, and a 
Bachelor's in Economics and Math from Dennison University. 
Thanks for being with us today.
    Dr. Chad Moutray has served as Chief Economist for the 
National Association of Manufacturers since 2011. From 2002 to 
2010 he was the Chief Economist and Director of Economic 
Research for the Office of Advocacy at the U.S. Small Business 
Administration. Prior to working at the SBA, he was the Dean of 
the School of Business Administration at Robert Morris College 
in Chicago, now Robert Morris University of Illinois. Dr. 
Moutray is a former Board Member of the National Association 
for Business Economics, and he is the former President and 
Chairman of the National Economists Club. He holds a Ph.D. also 
in Economics from Southern Illinois University at Carbondale, 
and Bachelor's and Master's Degrees in Economics from Eastern 
Illinois University.
    And we also have a Minnesotan with us here today. Mr. 
Richard Hampton is the Chairman of the Board of Circuit 
Interruption Technology, Incorporated, CIT. It is a family 
owned business in Minnesota his son Jeffrey founded in 1999, as 
well, and manages now as CEO.
    Welcome to Washington. Mr. Hampton began his career as 
Materials Manager for Weatherford Company, a California-based 
electronic distributor, and later became President of Fisher 
Brownell, a leading switch distributor. He subsequently served 
as General Manager of Karoff Electronics, a leading electronic 
components parts distributor based in Minnesota. And prior to 
joining CIT, he was Vice President, National Sales Manager, and 
President of Electronic Components Group.
    And our fourth witness today is Dr. Jay Mazur, as Vice 
President for Tax Policy and the Robert C. Pozen Director of 
the Urban-Brookings Tax Policy Center. From 2012 until early 
2017, he was the Assistant Secretary for Tax Policy at the U.S. 
Department of the Treasury. Dr. Mazur served in the Federal 
Government for 27 years in various positions, including Senior 
Economist at the President's Council of Economic Advisers, 
Senior Director at the National Economic Council, Acting 
Administrator of the Energy Information Administration, and 
Deputy Assistant Secretary for Tax Analysis in the Office of 
Tax Policy. Before entering public service, Mazur was an 
Assistant Professor in Hines College at Carnegie Mellon 
University. He also holds a Ph.D. in Business from Stanford 
University.
    And with that, we will welcome each of you to the Committee 
today, and we will begin with Dr. Holtz-Eakin. And we'll just 
remind all witnesses to limit your testimony to five minutes, 
and we are looking forward to hearing from you.
    Dr. Holtz-Eakin.

   STATEMENT OF DR. DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN 
                  ACTION FORUM, WASHINGTON, DC

    Dr. Holtz-Eakin. Thank you, Mr. Chairman, Ranking Member 
Heinrich, and Members of the Committee. It is a privilege to be 
here today.
    In my oral remarks I will make three very straightforward 
points, and then I look forward to your questions.
    As of January first, 2017, poor economic growth was the top 
domestic problem facing the United States. Since then, the tax 
and regulatory changes I think will be quite beneficial for the 
growth environment, but my third point would be that there are 
challenges that remain and more work to be done. So let me 
elaborate on those.
    From the end of World War II to 2007, the U.S. economy grew 
rapidly enough that, even with the arrival of the Baby Boom 
population, income per person, GDP per capita, doubled roughly 
every 35 years. And so in one working career one could see the 
standard of living roughly double, and that was America's route 
to whatever their version of the American Dream.
    Since then, all projections were that the economy would 
grow roughly 2 percent, as the Chairman mentioned, and that 
with population growth this meant that the income per person 
would double roughly every 70 years. So access to the American 
Dream was twice as far away.
    In 2016 the American economy did not even do that well. The 
Census data revealed that for those households that worked 
full-time for the full year, they saw zero increase in their 
real income. So we entered 2017 with a severe growth problem, 
in my view.
    I think there have been some very beneficial changes on 
that front. During the eight years of the Obama administration 
the Federal Government finalized the costly regulation at a 
rate of roughly 1.1 per day every day, and the total self-
reported cost by the agencies of complying with those 
regulations was $890 billion. So every year for eight years 
over $100 billion in new regulatory costs were added to the 
economy.
    I think there is little doubt that that has harmed the 
growth potential. Since President Trump has been inaugurated to 
the end of Fiscal Year 2017, the addition to that total is 
exactly $5 billion. And the commitment in the President's 
budget is that in Fiscal 2018 there will be a reduction of $9 
billion in the overall regulatory costs.
    Now there is no real science on exactly what the magnitude 
of the impact that will be on economic growth, but I think 
directionally it has to be going in the right direction. I 
think it is going to contribute to the capacity to start up 
small businesses, and to have expansion of those businesses in 
the U.S. economy.
    The second major event in 2016 was the passage of the Tax 
Cuts and Jobs Act. And the business provisions of the U.S. Tax 
Code prior to that law sent the very straightforward message to 
our most successful global companies. They said, if you've got 
some valuable intellectual property, park it abroad. Maybe park 
the production over there as well. Certainly if you make any 
money, keep it over there. And if circumstances arise where you 
might be merging--merging with someone or acquiring a company, 
move the headquarters as well.
    And so all the messages were to invest and innovate outside 
the United States. The Tax Cuts and Jobs Act, with the 
reduction of the corporate 21 percent, the movement toward a 
more territorial system, the imposition of a patent box for the 
global returns to intellectual property, and the expensing 
provisions send a different message. It sends a message that 
says: Invest. Innovate. Hire. And expand in the United States. 
And I think that is an incredibly valuable improvement in the 
business climate on something that will benefit productivity 
growth, capital per worker, and ultimately real wages in the 
United States.
    But--and we have seen, for example, the CBO credit that in 
their most recent report where they talked about the improved 
incentives to save, invest, and grow in the U.S., and more 
beneficial growth in 2018 and 2019.
    The challenges that remain are I think really budgetary and 
the concerns I've shared with the Chairman about our trade and 
our immigration strategies at the moment.
    The budgetary ones, as a former CBO Director, trouble me 
the most. I think the CBO outlook should be a wake-up call to 
everybody. There is an enormous amount of red ink, not way out 
there but right in front of us, and it needs to be dealt with. 
It is not a pro-growth strategy to sail directly into a 
sovereign debt crisis. And the current trajectory is exactly 
that. It is not a matter of ``if,'' it is ``when'' does the 
U.S. get in trouble? And so we need to deal with the fact that 
these entitlement programs are growing at rates that are 
unsustainable. Medicare is 7.3 percent. Social Security is 6.3. 
Affordable Care Act is 6. Medicaid is 5.2. There is not a tax 
code that is going to deliver that kind of revenue growth year 
over year for the foreseeable future. So we need to reform 
those programs.
    We need to reform them for their beneficiaries, as well. 
Those are not financially sustainable. It is a tragic irony 
that our social insurance system is now delivering risk to its 
beneficiaries. And I would urge the Congress to fix that.
    So I will be happy to answer your questions or elaborate on 
my concerns with the other challenges that face us, but I 
believe progress has been made, but the job is far from done.
    [The prepared statement of Dr. Holtz-Eakin appears in the 
Submissions for the Record on page 40.]
    Chairman Paulsen. Thank you, Dr. Holtz-Eakin. And, Dr. 
Moutray, you are recognized for five minutes.

   STATEMENT OF DR. CHAD MOUTRAY, CHIEF ECONOMIST, NATIONAL 
          ASSOCIATION OF MANUFACTURERS, WASHINGTON, DC

    Dr. Moutray. Thank you. Chairman Paulsen, Vice Chairman 
Lee, Ranking Member Heinrich, and Members of the Joint Economic 
Committee, thank you for the opportunity to testify on The 
Economic Impacts of Tax Reform.
    Last fall, President Trump came to the NAM, the National 
Association of Manufacturers, the voice of 12.6 million men and 
women in America, and he referred to tax reform as rocket fuel 
for the economy.
    Our members could not have agreed more. The NAM's latest 
quarterly outlook survey released in December showed a 
manufacturing sector with optimism levels at unprecedented 
heights, 94.6 percent of respondents saying that they felt 
positive about their own company's outlook, the highest in the 
survey's 20-year history.
    And while I cannot get into specifics right now, we will be 
releasing the next quarterly survey very shortly--hopefully, 
very soon. Much of this is due to the fact that tax reform 
passed. And even in anticipation of the tax reform actually 
getting enacted, manufacturers were energized as we have not 
seen them in a long time.
    It is little wonder, then, given that tax reform achieved 
so many of the NAM's long-sought goals, that we are seeing such 
levels of optimism. Those goals are, as just a reminder:
    Lowering the marginal tax rate so U.S. manufacturers can 
compete globally; reducing the burden on many small businesses, 
small and medium sized manufacturing companies, which account 
for more than 90 percent of NAM members; moving us towards a 
territorial tax system, much like the rest of the world; 
encouraging more dollars to flow back into the United States; 
and expanding fixed investment and incentivizing more private-
sector R&D.
    Of course there are additional tax changes that could have 
supported the--will continue to support the manufacturing 
sector even further. And of course there are other factors 
underlying manufacturing optimism as well, such as a global 
economy and other regulatory policies.
    I will expand, obviously, on much of this in my written 
testimony, but let's not bury the lead. Washington delivered 
with pro-growth tax reform, and it is already starting to make 
private-sector businesses much more competitive. Private-sector 
businesses are already starting to deliver, as well. They are 
creating more well-paying jobs. They are putting more money in 
workers' pockets. They are investing more in their businesses, 
and the economy.
    Nearly every day we see more positive stories that 
underline these things anecdotally. Here are a few examples 
from NAM members:
    Thanks to tax reform, Miles Fiberglass of Oregon recently 
raised its entry-level wage by 9 percent, gave all of its 
employees a pay bump, and plans to nearly double the size of 
its workforce. It is also using tax reform savings to design a 
new facility that will cut back on waste and increase energy 
efficiency.
    Thanks to tax reform, Centennial Bolt in Denver will 
increase its workforce by nearly 50 percent, and open a new 
plant in the Midwest. The company already gave a Christmas 
bonus to all of its hourly workers, totaling about 5 percent of 
their annual pay, and is currently planning another mid-year 
bonus as well as increases to their employees' profit-sharing 
program.
    Thanks to tax reform, Wyndham Millwork in Wyndham, Maine, 
is planning to increase its workforce by 20 percent, and start 
a $1 million expansion of its facility. It also gave an 
immediate bonus of $1,000 to hourly workers, and across-the-
board pay increases that the company describes as a direct 
result of tax reform. The NAM of course continues to highlight 
this and many other stories on its blog site, Shopfloor.org, 
and will continue to do so in the coming weeks. The NAM is also 
in the process of surveying its membership on the impacts of 
tax reform, and we will release the findings of that analysis 
in the coming days. But for now, let me share with you my 
predictions as an economist about what we might be able to 
expect on the manufacturing sector.
    I believe tax reform should lead to manufacturing 
investments rising by $55 billion in 2018, an increase of 11 
percent compared to last year. I also believe that tax reform 
should lead to manufacturing employment rising by more than 
100,000 this year, also a substantial increase especially when 
you consider that the sector added 207,000 workers in 2017, and 
that was a banner year.
    We have already added 73,000 workers so far this year 
through the first three months. This is all based on a model 
that I have been working on to predict the impacts of tax 
reform. More broadly, I believe that the U.S. economy should 
expand this year at its fastest rate since 2005 at 3 percent.
    While manufacturers should benefit from stronger economic 
growth globally, it is clear that businesses are responding 
positively to the passage of pro-growth tax policies. The NAM 
will continue urging manufacturers to take further positive 
steps on jobs, benefits, and investments, just as we have 
continued urging the President and Congress to look for 
additional ways to enhance competitiveness and to lift up more 
Americans. That I know is also the goal of this Committee. 
Thank you.
    [The prepared statement of Dr. Moutray appears in the 
Submissions for the Record on page 55.]
    Chairman Paulsen. Thank you, Dr. Moutray.
    Mr. Hampton, welcome, and you are recognized for five 
minutes.

   STATEMENT OF MR. RICHARD HAMPTON, CHAIRMAN OF THE BOARD, 
       CIRCUIT INTERRUPTION TECHNOLOGY, INC., ROGERS, MN

    Mr. Hampton. Chairman Paulsen, Ranking Member Heinrich, and 
Members of the Committee, thank you for this opportunity to 
testify on Unleashing America's Economic Potential through the 
perspective of one small Minnesota business.
    My name is Rick Hampton. I am Chairman of the Board of 
Circuit Interruption Technology, Incorporated. CIT was started 
in 1999 by my son after he had graduated from the Metropolitan 
State University Business School. Jeff is with me today. Jeff 
is President and CEO of the company. My wife, Sharon, is Chief 
Financial Officer; my daughter-in-law Jennifer Hampton handled 
CIT accounting since its inception and my daughter, Nicole, who 
is a businesswoman in her own right, handles international 
distribution and sales management.
    We now conduct business as CIT Relay and Switch. And in the 
past four years expanded from 12 to 22 employees. There are 
virtually no relay and switch manufacturers in the United 
States today, so we contract with manufacturing facilities in 
China and Korea.
    Many of our customers are household names, using our relays 
and switches in countless products. When, for example, you send 
your children off to school on a yellow bus, start your 
dishwasher, set your thermostat, drive a golf cart, even mix 
your favorite health drink at home, it's very likely you are 
using CIT product today.
    As earlier noted, Jeff launched the business in 1999 in our 
home using $50,000 he had saved from his college years' 
landscaping business. I cashed in my 401K. My wife and I 
borrowed $80,000 in credit cards, and mortgaged our home. For 
two years, none of us received an income.
    Over the years, we shared equally the profits from our work 
with State and Federal taxing authorities. Prior to the new 
December tax bill, the high average tax on CIT product led to a 
less-than-desirable business approach.
    To avoid double taxation where the value of one dollar 
might easily shrink to thirty-five cents, our CPA advised the 
best approach would be to take 100 percent of the profit out of 
the business, subject them to a one-time personal tax burden, 
roughly 50 percent State and Federal. The resultant reinvested 
dollars, however, were seen by bankers as a liability, not 
retained earnings, thus impairing CIT's credit standing.
    Tax reform has changed our business model. We immediately 
provided a bonus of one extra week's pay to all employees. This 
took place around Christmas. We provided raises to all of our 
employees. We funded our 401K program at a full 5 percent of 
their 2017 income with no employee match required.
    We launched a $140,000 lab and facilities' construction 
program which is in process as we are here today. We increased 
our employee base by 10 percent, with plans for another 10 
percent by year's end.
    Due to the new law, after-tax profit of the 79 percent 
remaining will now be retained directly in the business. That 
is a whopping 79 cents on every dollar after tax, jet fuel for 
a business like CIT.
    Tariffs. Let me insert a word or two about what we 
apprehend as possible unintended consequences in the proposed 
tariff on relays in particular. An exclusive China tariff will 
provide a corresponding 25 percent competitive advantage to 
manufacturers located in Mexico and in Canada. And, yes, even 
state-owned facilities in China who are often reimbursed for 
such expense, thus inadvertently punishing domestic companies 
like CIT.
    In conclusion, tax reform has been and will continue to be 
a tremendous help to our business and employees. We will hire 
added staff this year, expand new products, and explore the 
costs of reshoring manufacturing. However, we continue to be 
very apprehensive about regulations.
    I believe the lower tax will allow CIT Relay & Switch to 
position itself for even greater growth for the coming decade.
    More might be done, but this historic change has energized 
the entire CIT team, employees and management alike.
    Thank you again for this opportunity to testify, and I look 
forward to any questions.
    [The prepared statement of Mr. Hampton appears in the 
Submissions for the Record on page 63.]
    Chairman Paulsen. Thank you, Mr. Hampton.
    Mr. Mazur, you are recognized for five minutes.

   STATEMENT OF HON. MARK MAZUR, Ph.D., THE ROBERT C. POZEN 
DIRECTOR OF THE URBAN-BROOKINGS TAX POLICY CENTER, WASHINGTON, 
                               DC

    Dr. Mazur. Great. Thank you, and good afternoon. I would 
like to start by thanking Chairman Paulsen, Ranking Member 
Heinrich, and Members of the Committee for inviting me here 
today.
    I think it is crucially important for the Congress to focus 
on the economic trajectory of the country. I want to emphasize 
that, while I am Director of the nonpartisan Urban-Brookings 
Tax Policy Center, I am here testifying on my own behalf. The 
views I discuss are my own and should not be attributed to the 
Tax Policy Center, Urban Institute, or Brookings Institution.
    Given my background, I am going to focus on the recently 
passed Tax Cuts and Jobs Act, the most significant tax overhaul 
in the last 30 years.
    The new law does a lot of things. It makes some major 
structural changes in the way that multinational firms are 
taxed, in the way that pass-through businesses are taxed. It 
contains dozens of less structural changes: removal of a number 
of tax expenditures and some income exclusions, cuts rates by a 
third for corporations and more modestly for individuals. And 
all of these changes will have implications for the economy.
    But as a starting point for evaluation, I would like to 
consider four basic tenets of good tax policy:
    First, revenue adequacy. That a tax system should raise 
enough revenue to pay for the goods and services that the 
public demands.
    Second, it should be an efficient tax system. There should 
be as little in the way of negative effects on resource 
allocation, economic behavior, economic growth prospects.
    Third, a tax system should be equitable. There should be 
horizontal equity in that similarly situated taxpayers get 
treated about the same. And there should be vertical equity in 
that taxpayers with the greater ability to pay should 
contribute a higher portion of their income to the country.
    And last, a tax system should be simple. There should be a 
simplicity component. It should be designed so individuals and 
businesses know what the consequence of their behavior are, and 
are able to take that into account ahead of time. And the tax 
system should be clear, comprehensible, and predictable.
    Now in the real world all these goals involve tradeoffs, 
but it is possible, though, to keep these goals in mind to at 
least evaluate what is going on with the tax system.
    There are some clear effects of the Tax Cuts and Jobs Act. 
First, the revenue effects. It is a big tax cut. It is a big 
economic stimulus in the short term, approximately $130 billion 
in this fiscal year, double that in the next year.
    Second, distributional effects are pretty clear. The tax 
benefits are tilted to higher income households. The bottom 20 
percent of the income distribution gets on average about $60 a 
year, four-tenths of a percent of their after-tax income. The 
top 20 percent gets benefits in excess of $7,600 a year, a 
little over 2 percent of their after-tax income.
    Third, there is a temporary nature of these tax cuts. 
Individual components generally are temporary. The investment 
incentive is generally temporary. The corporate tax cuts and 
the structure of the way multinational firms are taxed are 
permanent.
    The way multinational firms are taxed is quite different 
under the Tax Cuts and Jobs Act. It brings the U.S. much more 
in line with our trading partners, moving us more toward a 
territorial system and away from a worldwide system with 
deferral.
    There has been a lot of discussion about the economic 
effects of the Tax Cuts and Jobs Act. I think the conventional 
economic estimates seem to indicate that there should be a 
burst of economic activity, economic growth, in the short term 
but those effects dissipate over time as higher Federal budget 
deficits increase interest rates and provide a crowd-out for 
investment.
    The Tax Cuts and Jobs Act will have a big impact on the 
fiscal position of the United States. If you look at the last 
50 or 60 years of data, the U.S. has seen Federal revenues 
fluctuate between 15 and 20 percent of GDP. And in that time 
period, there have been two small periods of time when the 
Federal budget was balanced.
    The most recent one was late 1990s, early 2000s, when 
revenues were around 20 percent of GDP. Given demographic 
trends, retiring Baby Boomers, longer life spans, lower birth 
rates, we can expect that demands for Federal goods and 
services will be 20 percent or more of GDP going forward.
    And so the Tax Cuts and Jobs Act, by cutting revenues in 
the short and medium term, moves in the opposite direction of 
budget balance. And what this means is that the Tax Cuts and 
Jobs Act really is a large fiscal experiment. The economy is 
near full employment, and we are in a big fiscal stimulus at 
this point in time.
    Proponents of the Act say that there will be improved 
investment incentives that will lead to greater accumulation of 
capital, more productive workers, and eventually higher wages 
for the workers.
    It is too early to tell at this point whether all those 
linkages will be realized, and what the strength of those 
linkages will be. Really, it will be months or years before we 
can tell whether the Tax Cuts and Jobs Act has had the intended 
effect. So the jury is out.
    Congress will have opportunities to revisit this Act in the 
coming years as provisions expire or phase in our phase out, 
and there will be an opportunity to make any necessary changes.
    So thanks for your attention. I would be happy to answer 
any questions you may have.
    [The prepared statement of Dr. Mazur appears in the 
Submissions for the Record on page 67.]
    Chairman Paulsen. Thank you, Dr. Mazur. And with that we 
will begin the question opportunity for all Members. I would 
just remind Members to keep their questions to five minutes.
    I will begin. Dr. Holtz-Eakin, what are the most exciting 
parts of the Tax Cuts and Jobs Act in terms of boosting wages, 
jobs and investment in the United States? And what are the 
risks to the economy if major parts of the law are allowed to 
expire going forward?
    Dr. Holtz-Eakin. So I would say the most important thing 
for the middle class would be to get real wages rising again. 
And the key piece there, as Dr. Mazur outlined exactly right, 
which is to get better innovation and capital accumulation, 
higher and better capital per worker. That historically has 
been strongly linked with higher compensation for those 
workers.
    The key business tax reforms at the heart of the Tax Cuts 
and Jobs Act are the things that I think are most beneficial. 
They are the movement to a territorial system, a corporate rate 
that is now in line with our developed competitors; the 
expensing incentives. And the patent blocks, so that we no 
longer tell all of our corporations to park their most 
profitable inventions overseas. That I think is fantastic.
    The pass-through provisions are intended to mirror those. 
Nothing is perfect. Everyone has their own quibbles with these 
things, but those are the core of the things that I think are 
most important.
    I would just like to say, I think everyone who looks at 
this should have a little humility when they talk about the 
projected impacts. The United States has never before, and 
never again, will move from a worldwide to a territorial system 
of taxation. It is the largest, most successful economy on the 
globe. It is doing something unprecedented. And the idea that 
we have fantastic precision about the ultimate impacts I think 
really overstates the case.
    I agree with the jury-is-out sentiment. I am looking at the 
data every month, and we will just see how big those linkages 
are and how fast they happen.
    Chairman Paulsen. Dr. Moutray, we have seen some very 
encouraging signs in manufacturing, as you outlined. Can you 
please tell us a little bit more about some of the most 
important steps that we can take to sustain the growing 
recovery of manufacturing here in America?
    Dr. Moutray. Well I think number one we can continue to do 
what we have been doing, right? I think that the tax policy was 
a nice step in the right direction, but we need to continue to 
improve the tax policy, making some of those provisions 
permanent.
    On the regulatory side, I think we also have continued a 
policy of enacting smart, very business-friendly policies, 
making sure we are looking not just at the overall impacts but 
looking at the impacts on small businesses, in particular. And, 
from manufacturers I think we just need to continue to make 
sure that the economy continues to grow and flourish, and we 
are certainly seeing that in manufacturing not just with the 
examples I gave earlier, but the number one issue right now 
with most manufacturers is the ability to attract and retain 
workers.
    And this I think speaks to just how strong the economy is, 
and how strong the manufacturing sector is, and hopefully that 
leads to wage appreciation moving forward.
    Chairman Paulsen. Would you say one of those components to 
attracting and retaining workers is what Dr. Holtz-Eakin had 
mentioned in his written testimony mostly about some 
immigration components and the importance of having a workforce 
that is entering those markets for manufacturing?
    Dr. Moutray. I would definitely agree with that, and we 
certainly have supported that.
    Chairman Paulsen. Good. Mr. Hampton, again welcome. Let me 
ask you this: In spite of how it provided massive tax relief to 
middle class Americans, we sometimes hear people characterize 
the Tax Cuts and Jobs Act as only mostly benefiting, and as a 
giveaway to the wealthy. But how would you respond to that? I 
mean, you know, from your perspective in your personal story?
    Mr. Hampton. It is actually----
    Chairman Paulsen. If you would, just hit your microphone 
there.
    Mr. Hampton. It is actually somewhat the reverse of that. 
Before, we were forced into and to avoid double taxation, we 
were actually having to take money out of the business. As a 
result of the law, we are able to leave it in. We can leave in 
nearly 80 percent of the profit dollars because we are taxed at 
21 percent. Before, to avoid the potential for double taxation, 
we removed 100 percent of the money from the business, took a 
personal tax on that money, and then reinvested the 50 percent 
back into the business.
    So actually it is going to improve our situation, and that 
is why I say this year we will begin every year leaving the 
money in the business, into retained earnings. That allows us 
to make investments in additional personnel, and so forth, 
particularly in the engineering and technical side, for the 
exploration into possibly reshoring manufacturing, which this 
country desperately needs, particularly in the product that we 
supply, as we supply product even for aircraft carriers and it 
is made in China.
    It makes no sense. We need to build it here.
    Chairman Paulsen. So it sounds like with some of the 
retained earning provisions, or success of the new law you 
talked about, do you see the track record continuing on the 
same parallel of, you know, you gave some special bonuses, you 
gave pay raises, you contributed to the 401K, do you see that 
same path forward if there are no interruptions to sort of 
current tax policy?
    Mr. Hampton. Our current plan with the tax policy is that 
we indeed will be funding again this year a full 5 percent for 
our employees. And by the way, that is 100 percent their money. 
We don't say that you've got to serve so many years. As soon as 
we give it, they own it. And that means 100 percent of what we 
have in 401K, those people own. We do not own it.
    And we will continue with that. We also plan to do another 
bonus, full week's bonus, this year. We are adding additional 
employees. So I think most of these programs will definitely 
continue forward.
    Chairman Paulsen. Thank you.
    Ranking Member Heinrich, you are recognized for five 
minutes.
    Senator Heinrich. Thank you, Chairman. I appreciate it.
    Dr. Holtz-Eakin, you said that we need to reform 
entitlements. And one of the interesting things I find is that 
I have never had a constituent come up to me at a meeting and 
ask me about their ``entitlements,'' or talk to me about their 
``entitlements.'' They usually talk to me about Social Security 
and Medicare.
    And it makes me wonder if the difference isn't that it 
polls a lot better to say ``reform entitlements'' than it polls 
to say ``you should cut my Social Security.''
    So I want to ask you about that reform. When we talk about 
reforming Social Security, in your view should that include 
reducing benefits for some workers in their retirement years?
    Dr. Holtz-Eakin. My major concern with Social Security is 
that the Trust Fund that exhausts under current projections is 
roughly 13 years. And people in retirement will have their 
benefits cut by 25 percent across the board. And I think that 
is a disgraceful way to run a pension program.
    Senator Heinrich. You are assuming those cuts are going to 
happen, but you are saying----
    Dr. Holtz-Eakin. Under law, they would happen.
    Senator Heinrich [continuing]. We should cut benefits now 
under current----
    Dr. Holtz-Eakin. I didn't say that.
    Senator Heinrich [continuing]. In order to not get to the 
point where those----
    Dr. Holtz-Eakin. No, I didn't say any of that. I said the 
program needs to be addressed.
    Senator Heinrich. So how would you suggest we reform that 
program? Should we look at reducing the--or increasing the 
retirement age?
    Dr. Holtz-Eakin. I think that's sensible. That won't get 
you very much. That makes a small contribution to the fiscal 
sustainability of the program. There's going to be a 
combination of----
    Senator Heinrich. So we are back to benefits?
    Dr. Holtz-Eakin. I think there's no way that we can deal 
with Social Security, which is growing at 6.2 percent per year, 
and revenues which are going to grow at something that's 
roughly the rate of the economy----
    Senator Heinrich. What if we increase the cap----
    Dr. Holtz-Eakin. It is a one-time increase. You have a 
sustained, long-term problem of rapid growth in benefits that 
is faster than revenue.
    Senator Heinrich. I just find it ironic that, you know, we 
look back in 2001 and 2003, when you oversaw the CBO, the Bush 
administration added $1.5 trillion to the deficit. Now my 
Republican colleagues have added another $1.9 trillion to the 
deficit. And we always look to people on Social Security and 
Medicare to pay for this.
    I don't find that to be a credible solution.
    Dr. Mazur, I want to ask you--and I am not going through 
again the faults of the national debt being added through this 
tax code, but this week we have seen the House preparing now to 
vote on a so-called balance budget amendment.
    What impact would a balanced budget amendment have 
specifically on Social Security, on Medicare, and on Medicaid?
    Dr. Mazur. Well it's hard to say without seeing the details 
of how the amendment would be implemented. But it seems to me 
like a balanced budget amendment, it's kind of an abdication of 
responsibility from Members of Congress because really it's 
their job to be fiscally responsible. You shouldn't need a 
constitutional amendment to tell you to do your job.
    Senator Heinrich. People at home are shocked by what you 
have to say there.
    [Laughter.]
    Dr. Mazur. Sorry.
    Senator Heinrich. If you look at that specifically from how 
you are able to address an economy when you fall into a 
recession, how would it affect the Federal Government's ability 
to respond to a recession and get an economy moving again?
    Dr. Mazur. It would very much hamstring it. I think if you 
look at what happens at the State level where you have a 
balanced budget amendment, revenues go down during an economic 
downturn and you respond typically by cutting expenditures.
    In the Federal Government, we have automatic stabilizers, 
increased unemployment benefits and the like, that allow you to 
kind of cushion the downturn. And I think we saw in the Great 
Recession the value of having those automatic stabilizers. It 
really did put a floor under the economy.
    Senator Heinrich, You mentioned in your testimony that 
higher deficits can cause interest rates to increase, and 
certainly if we see a $2 trillion increase in the deficit that 
is not inconsequential.
    We saw higher rates in the CBO's projections released on 
Monday. How will higher interest rates affect the costs that 
consumers bear through things like car loans, and in particular 
home mortgages?
    Dr. Mazur. So higher interest rates affect people in 
several ways. There are a number of interest rates that are 
tied to market rates. Your car loan rates are typically tied to 
your market rate. Your mortgage rate is typically tied to the 
30-year bond rate. Your credit card rate is tied to a short-
term interest rate.
    All those things would bump up if you see interest rates 
across the board going up.
    Senator Heinrich. Mr. Chair, I have only got a few seconds 
left, so I am going to yield them back.
    Chairman Paulsen. Thank you. I now recognize Vice Chairman 
Lee for five minutes.
    Vice Chairman Lee. Thank you very much. I appreciate each 
of you being willing to come and talk to us about these issues 
today.
    We measure a lot of things in this town, and appropriately 
so. We talk a lot about GDP, about GDP growth, and what 
government might be doing to affect it.
    I think it is difficult to talk about our economic 
situation and our true economic potential, however, without 
addressing a number of other issues, things that are more 
difficult sometimes to quantify, things that are a little bit 
less obvious, things that account for the social and cultural 
state of American life. And I tend to think that these other 
less well measured, or at least less frequently measured and 
discussed topics, are as important for economic growth and for 
the health of our economy and our country as anything else.
    So I have got a question for all of you. We will start with 
Mr. Holtz-Eakin and move our way across the table. In measuring 
our country's long-term viability, how important is the 
flourishing of America's associational life, or the social 
capital that is the strength of families, the strength of 
communities, community cohesion, trust, and collective 
efficacy? What can you tell me about that?
    Dr. Holtz-Eakin. I think it is incredibly important. We 
know from the data that there is a best practice in America, 
which is that a young person should go to school, graduate, get 
a job, get married, and then have children. And if one does it 
in any other order, it is a ticket one way to poverty. And so 
those things are at the foundation of economic success in the 
United States.
    We know also from the data, many studies done by a group 
led by a Harvard University professor, that mobility in the 
United States, broadly measured, has not changed much in the 
past 50 years--social mobility, economic mobility. You might 
think it is not high enough, or you might think it is fine, but 
it has not changed much. But the geography of it has.
    There are places in the United States where mobility has 
diminished, and diminished sharply. There are places associated 
with less of those kinds of capital. So I think it is something 
that is very important although, as you say, very hard to 
measure.
    Dr. Moutray. So last night I was at the STEP Awards, the 
Science, Technology, Engineering and Production Awards, that 
honors the 130 women in manufacturing. And you get really a 
first-hand view of just how important manufacturing is to the 
lives of these ladies, and to their families, how proud they 
are of their accomplishments, and just how different it is.
    I took my 13-year-old daughter to be able to see just how 
you can be successful. How, again, manufacturing is that 
pathway to the middle class. And I think that we need to have 
more of that emphasis of stressing that women can be 
successful. Manufacturing can be that engine for growth not 
just for the economy but for your family and for your 
community.
    And I think that we certainly have done that, and I think 
certainly timingwise it was good that I was just there last 
night.
    Vice Chairman Lee. Wonderful. Thank you.
    Mr. Hampton.
    Mr. Hampton. For me, I can just boil it down to personal 
type stories. A young lady came to us from Chicago who had 
three children, and she had no job and a husband in prison. And 
she had little if any education.
    We started her out in the assembly area of the company, and 
she had such a wonderful personality that we brought her into 
the front office, and my daughter Nicole took her under her 
wing and started training her how to use email and the like. 
And now she does all of our order processing, and so forth, and 
makes in the area of $45,000 per year. And her family is now 
much more successful. Her husband has gotten out of prison, and 
the two of them have been reunited, and the program is working 
very, very good.
    But it is social--when you talk about social engineering, I 
think there is a lot manufacturing and companies can do by 
looking at people in a whole different way. And that is, what 
they can contribute as opposed to what they cannot contribute. 
And we look at it in terms of what capabilities a person has, 
not what they don't have.
    Dr. Mazur. I agree. I think the civic associations and the 
informal connections are important. It provides for networks. 
It's social capital that provides informal mentorships.
    In addition, businesses also have invested in their 
communities. And it seems to me, at least today, less so than 
at times in the past. And that is an area where you can see 
situations in older industrial communities where there is not 
that civic engagement, and not that civic capital.
    Vice Chairman Lee. Thank you. Thanks to each of you. I am 
out of time, so I will forego my other questions. I did want to 
let you know, I released a report today titled ``The Geography 
of Social Capital In America,'' and it presents a breakdown of 
social capital statistics broken down at the State and county 
level. I highly recommend it to each of you and to my fellow 
Members of the Committee.
    Chairman Paulsen. Senator Peters, you are recognized for 
five minutes.
    Senator Peters. Thank you, Mr. Chairman, and each of our 
panelists. I appreciate your testimony here today, as well.
    Dr. Mazur, I was interested when you talked about the jury 
is out on this tax bill. We have got to see this experiment. 
Dr. Holtz-Eakin, you mentioned that as well, that this is a 
pretty grand experiment. We don't know what the results are.
    But when I think--and tell me your thoughts--when I think 
of fiscal policy and how a government should responsibly deal 
with its spending, it is typically when an economy is strong 
and when an economy is at full employment or nearly full 
employment which we are at, normally that is a time when you 
should start paying down debt, because things can turn the 
other way.
    And as we saw with the Great Recession, it was essential to 
be able to prime the pump, so to speak, to get the economy 
going, which was very successful. We have had robust growth and 
job creation since what was close to a Great Depression that we 
were faced with when Martin and I and others, and Eric, I think 
we all came into Congress about that time.
    So just your thoughts. Is this an appropriate time to be 
going into deep deficit spending, when the economy is 
recovering? I guess I get the kind of sense that we are kind of 
on a sugar high right now, and sugar highs are a whole lot of 
fun but unfortunately they do not last that long.
    Dr. Mazur. Yeah, I think President Kennedy once talked 
about the time to repair the roof is when the sun is shining, 
right? That is like the good times are when you should be 
taking those steps in order to shore things up.
    And so that is one of the aspects that makes this a big 
fiscal experiment; that this is a set of policies that is 
different than what the United States has typically undertaken. 
Typically we have done stimulus activities during times of 
economic downturn. Here we are doing a very stimulative fiscal 
bill during a generally pretty good economic time.
    Senator Peters. Dr. Holtz-Eakin, do you agree with that?
    Dr. Holtz-Eakin. In part. I think it is important to 
remember that the baseline budget outlook when President Trump 
took office had $10 trillion of deficits in it over the next 10 
years. So we were going to do deficit spending, regardless.
    The Tax Cuts and Jobs Act added to the deficit, no question 
about that.
    Senator Peters. So we have expanded the bill. Was that a 
good idea, just to put the pedal to the metal and keep going?
    Dr. Holtz-Eakin. The core things that I talked about in the 
Tax Cuts and Jobs Act are not stimulus. They are permanent, 
structural changes to the tax code to permanently alter the 
incentives for our businesses in terms of both the location and 
the scale of their innovation and investment. I think that was 
crucial.
    Senator Peters. Well, we----
    Dr. Holtz-Eakin. We were losing companies at a remarkable 
rate. We had run the experiment about whether the existing tax 
code was working, and it wasn't. So it had to change. Had I had 
my druthers--I didn't mean to interrupt--but it would have been 
revenue neutral. But no one gets everything they want in tax 
reform, and I didn't, either.
    Senator Peters. And I think that is the important thing 
about revenue neutral. When you say these are long-term 
structural changes, but they are putting us on a long-term 
structural deficit, is----
    Dr. Holtz-Eakin. We were already on one, is what I would 
emphasize.
    Senator Peters. I wouldn't disagree, but now we have 
increased it. So if you didn't like the other deficit, you 
certainly can't like a bigger deficit? Is that true?
    Dr. Holtz-Eakin. I don't like either one. I don't like any 
of them.
    Senator Peters. Right. Exactly. So that is what the course 
we are on that is now increasing that, which is a pretty 
dangerous course. You know, we do need to have some 
responsibility here. And I know the short-term impact, as good 
of a sugar high that we're on right now, but even the jury is 
out on that. We are not sure exactly what is going to happen 
with that.
    You have talked about the changes in the entitlements, and 
I appreciated your response to Senator Heinrich, but, you know, 
specifically--because you mentioned Social Security. What would 
you do for Social Security?
    Dr. Holtz-Eakin. Personally?
    Senator Peters. Yes.
    Dr. Holtz-Eakin. I think a combination of raise the minimum 
benefit, raise the benefit for the most elderly because that is 
a place of risk right now. Change the indexing in retirement to 
match the changed CPI. Change the initial awards of Social 
Security benefits so they are less generous for life-time 
affluent people, people like me. And index the cap to be 90 
percent of the wage base. That is roughly what every bipartisan 
commission has suggested. I would take the last five 
conditions, toss them in a hat, pull one out and do it.
    What I would emphasize is, doing something. To have that 
program right now creating cash flow deficits and promising to 
disrupt retirement lives in 13 years is I think disgraceful. 
And it is at the core of our social safety net, and it is not 
the only one. There are many others, as well.
    So if you go down the list, each of our social insurance 
programs, the ones that are supposed to make people's lives 
safer, are making their lives more dangerous.
    Senator Peters. But if I may ask your response, too, on 
Social Security, part of what happened--and I think of the last 
major change in Social Security reform was back when President 
Reagan was here, and there were fixed to the system that 
everybody said this would last forever, as far as you could see 
we're going to put Social Security on a sustainable course.
    And if I recall--and you can correct me on some of these 
numbers, roughly about ninety----
    Dr. Holtz-Eakin. I don't think that is quite right, but----
    Senator Peters. Well as far as I could see at that time, 
and maybe Ronald Reagan----
    [Simultaneous comments.]
    But it was for a long time. But what we were doing is 
basically it was being funded by roughly I think it was in the 
90 percent range of the amount of revenue coming into the 
economy. But what we have seen since that time is growing 
income inequality in this country in a dramatic way, and now 
that has shrunk considerably because we have more and more of 
the income at the very high levels. Their contribution to 
social security is capped, and middle income folks have 
actually seen stagnant wages over those years.
    So this is a longer term structural problem really I think 
linked to growing income inequality. I know we don't have time 
for that answer, but I would love to have that discussion.
    Chairman Paulsen. Representative Handel, you are recognized 
for five minutes.
    Representative Handel. Thank you, Mr. Chairman, and thank 
you to each of you for being here.
    Staying along the lines of our social safety net, it is 
very, very clear that as a country we are extraordinarily 
compassionate and generous in that arena. And we are helping 
millions of struggling Americans.
    However, as each of you--several of your have referenced, 
we really are struggling in terms of the structure of some of 
these programs in terms of the spending. But also, although 
well intended, they seem to have in some cases created 
inadvertently a disincentive to return to the workplace. And 
then that exacerbates the workforce issues that we have.
    What suggestions--and I will start with Dr. Holtz-Eakin--
would you have around how can we move more people from being on 
these social safety net programs and out of the workplace back 
into the workplace so that we give back that dignity of work 
and improve the standard of living?
    Dr. Holtz-Eakin. That is an enormously complicated question 
but, you know, I think it is important to just take a look at 
the entire social safety net and try to make it more pro-work. 
And to recognize that in many cases the phase-out of benefits, 
which is intended to be fiscally responsible and things, 
provides work disincentives for many low-income individuals.
    So that those have been some well-documented problems 
there.
    Representative Handel. So dealing with that so-called cliff 
at the top?
    Dr. Holtz-Eakin. Yes, you know there are some program-by-
program structural issues, but I think the notion that we 
should expect people who can work to work is a simple and 
straightforward one that ought to be embedded all through what 
we do.
    Representative Handel. What are your thoughts on some 
minimum work requirements for some of these programs?
    Dr. Holtz-Eakin. For those who are----
    Representative Handel [continuing]. Able-bodied.
    Dr. Holtz-Eakin [continuing]. Able-bodied and capable, I 
think that is an entirely sensible thing.
    Representative Handel. Okay. Thank you.
    Dr. Moutray, I wanted to talk about a little bit on the 
regulatory front. What are you seeing in terms of specific 
regulatory hurdles and the impacts within the manufacturing 
sector?
    I hear a lot from companies in my district, just about one 
company, 100 employees, 8 of whom are specifically 100 percent 
dedicated to regulatory compliance. What more can we do as 
Congress and across the regulatory agencies to start to draw 
that down?
    Dr. Moutray. So thank you. We listened early on at the 
beginning of the Trump Administration. We asked all of our 
member companies, all of our manufacturers to submit their 
ideas for--again, we're in a different environment when it 
comes to the regulatory space. Keeping in mind that we all 
recognize we want clean air, clean water, et cetera, but what 
would you improve if we were to get rid of old regulations? 
What would you streamline? What are the real burdens that are 
out there?
    We prepared some actual written examples of that and gave 
it to the Commerce Department at the beginning of last year. So 
I would start there as examples of places where we could----
    Representative Handel. I will give you a card afterwards. I 
would love to have a copy of that. I am the new kid on the 
block here, so----
    Dr. Moutray. I will definitely get that to you. But I think 
the bottom line is, we recognize that cumulative burdens 
continue to get larger and larger.
    Last year was a unique year in that there was essentially a 
moratorium on regulation. But we also want to make sure that, 
as I said earlier, businesses and manufacturers, especially 
small manufacturers, voices are being heard.
    Representative Handel. Great. Thank you so much. Mr. 
Chairman, I yield back.
    Chairman Paulsen. Thank you. Representative Delaney, you 
are recognized for five minutes.
    Representative Delaney. Thank you, Mr. Chairman.
    I want to start by just congratulating Mr. Hampton on the 
success and growth of your business, and I would also add you 
are a very effective witness here. So I don't know if you did 
this in your prior life, but you are very good at this.
    But seriously, congratulations on the business.
    Dr. Holtz-Eakin, just a couple of questions for you. One of 
the things that I have been frustrated with is the debate 
around the deficit where some people say deficits don't matter, 
and other people say that we shouldn't spend more than we take 
in.
    It has always seemed to me that if we could target deficits 
at say minus two percent, which is something that is 
potentially doable even though that is incredibly hard to do, 
that that would be a more realistic goal, and that would 
actually be the kind of sensible goal we should have in terms 
of the long-term fiscal health of the country, because if the 
economy can grow more than 2 percent a year, our debt as a 
percentage of our economy will stabilize, which is really the 
only metric that matters as it relates to these things.
    So I am interested in your views on that.
    Dr. Holtz-Eakin. I think I roughly concur. I am a little 
more aggressive. I would like to have the debt as a share of 
the economy go down a negative downward trajectory. It doesn't 
have to be sharp, but put us in a position where we're sending 
the message to world capital markets that we've got our fiscal 
house in order; that we are not going to end up in a position 
where we're going to have a sharp disruption of the government, 
rapid hikes in either interest rates or taxes to deal with 
things. And that is what you need to do, is to send that clear 
message to capital markets, and the economic threat of the 
fiscal outlook would diminish rapidly.
    Representative Delaney. So how do you feel about balanced 
budget acts?
    Dr. Holtz-Eakin. Balanced budget amendments through the 
Constitution are of the class of things called ``fiscal 
rules.'' And around the globe, there have been countries that 
have resorted to fiscal rules when they're elected 
representatives who were unable to get the job done.
    Representative Delaney. Right.
    Dr. Holtz-Eakin. So they are a recognition of failure. They 
tend to work.
    Representative Delaney. But do you think zero deficits is 
the right target? Because that is really what it does.
    Dr. Holtz-Eakin. Zero deficits? Realistically?
    Representative Delaney. Like if you could set economic 
policy, would you set minus one-and-a-half, which is sounds 
like you are saying, or would you set zero?
    Dr. Holtz-Eakin. I wouldn't set for zero. But I've now been 
in this town and watched this operation for quite some time. No 
one has threatened me with zero, or even close.
    Representative Delaney. But that is what that law would do.
    Dr. Holtz-Eakin. And that is why people are looking to 
things like the Balanced Budget Amendment. I think they are 
basically an admission that we are on track for the next ten 
years----
    Representative Delaney. No, I get that. So do you think 
zero across time would be bad economic policy? Like zero every 
year?
    Dr. Holtz-Eakin. No----
    Representative Delaney. No?
    Dr. Holtz-Eakin. I think if you look at those Balanced 
Budget Amendments, the ones that have been considered recently, 
they have correct-out clauses for major recession, war, 
circumstances where it would be sensible to run deficits.
    Representative Delaney. So do you think the Tax Bill, 
recognizing that fixing the international system was something 
that desperately had to be done, so we are in agreement on 
that, but do you think the Tax Bill would have been a better 
tax bill if, rather than cutting the corporate rate to 21 we 
would have cut it to 25 or 26 or 27, and used the additional 
revenues for something like infrastructure, or to make the bill 
more deficit appropriate?
    Dr. Holtz-Eakin. So I am going to dodge the question at the 
outset, and then I will answer it. But I will say this----
    Representative Delaney. Dodge quickly so we can get to the 
answer.
    Dr. Holtz-Eakin. Okay, as a general matter you never get to 
choose between the tax reform and the tax reform with the 
provision you would like.
    Representative Delaney. I get all that, yeah. I'm just 
asking you if you actually could do this.
    Dr. Holtz-Eakin. I think getting it to 20 was the right 
target.
    Representative Delaney. You do.
    Dr. Holtz-Eakin. We've got to be internationally 
competitive. Other countries are going to move. It's not like 
they're going to stay.
    Representative Delaney. How do you think a carbon tax could 
fit in across time?
    Dr. Holtz-Eakin. A carbon tax as a consumption tax? I'm a 
big fan of consumption taxes. As part of a thoughtful strategy 
for tax policy, you could certainly think about that. As an 
add-on for the sake of doing it, I'm not a big fan.
    Representative Delaney. What do you mean? Explain your 
answer there more. On what context would you do it?
    Dr. Holtz-Eakin. So, for example, the House Task Force came 
up with what was really a destination-based cash flow tax, it 
was a consumption of style tax.
    Representative Delaney. Right. So you wouldn't do carbon 
tax on its own?
    Dr. Holtz-Eakin. So you could do that in the context of 
something like that.
    Representative Delaney. But you don't think carbon tax on 
its own?
    Dr. Holtz-Eakin. No, not just as a pure revenue approach. I 
think if we're going to do something as major as that, fix the 
code you have.
    Representative Delaney. Got it. I yield back. Thank you.
    Chairman Paulsen. Thank you. Representative LaHood, you are 
recognized for five minutes.
    Representative LaHood. Thank you, Mr. Chairman. And I want 
to thank all of the witnesses here today for your valuable 
testimony.
    I want to start off with Dr. Moutray. You mention in your 
testimony how effective the tax reform bill has been and 
regulatory relief on the manufacturing sector of our country. 
We have created well over 200,000 new jobs in manufacturing, 
which people I don't think thought was possible, and it is 
positive for a healthy and robust economy.
    I want to get your thoughts just in the last month here, 
the last few weeks, on potential trade war as it relates to 
steel and aluminum tariffs, and how that collaterally will 
affect manufacturing jobs.
    I just looked at a statistic here that, according to the 
Federal Reserve of Philadelphia, the futures for capital 
expenditures over the last two months is down [from February to 
March], dropped 11 percent.
    I'm wondering if you can describe the level of fear that a 
trade war, what that could do to manufacturing?
    Dr. Moutray. Well I think first off, let's say that 
certainly the President is trying to address some real 
unfairnesses that are out there in terms of what China has been 
doing in terms of intellectual property, and in terms of 
overall trade. And so I think that there is that recognition, 
just kind of putting that out there.
    Manufacturers in general don't like tariffs. The NAM itself 
was founded as a free-trade organization in 1895. And there is 
a lot of anxiety out there about what could happen on the 
tariff side.
    We actually have been calling, as you know, for hopefully 
what all of this trade talk really leads to is some more 
extended conversations with China. Earlier this week, last 
week, our president and CO asked for a bilateral trade 
agreement with China, and hopefully this leads to that.
    In the meantime, you're right. Certainly our members are 
very upbeat, but the trade talk and the tariff talk is 
certainly an uncertainty that is not helpful.
    Representative LaHood. And if we do have a full trade war, 
do you have concerns that this wipes away some of the gains 
that we've made in tax reform and regulatory relief?
    Dr. Moutray. I think it certainly affects the overall level 
of optimism, yes.
    Representative LaHood. Thank you. And, Dr. Holtz-Eakin, can 
you comment on the level of fear that you have with a trade war 
and the potential road we're headed down?
    Dr. Holtz-Eakin. I'm very concerned. I was in the White 
House when President Bush imposed steel tariffs. Those tariffs 
harmed steel consumers more than they helped steel producers.
    They bought us nothing on the international front, and they 
were ultimately disallowed by the WTO. All cost, no benefit. I 
think these are the same, and I wouldn't have done them. I 
would echo what Mr. Moutray said about identifying China, but I 
am unclear on what the strategy is. What is it that we are 
asking China to do? At what pace? When will we know when we 
have had a success?
    And to get into this kind of tariff war without a strategy 
and an end game strikes me as dangerous.
    Representative LaHood. Do you have any thoughts on the 
reasoning for the tariffs as it relates to national security, 
and whether that holds up with WTO?
    Dr. Holtz-Eakin. I see little chance the WTO will uphold 
those tariffs. The Defense Department itself issued a memo that 
said steel is not a national security issue. We have enough 
domestically. Aluminum we can get it from reliable partners. 
So, you know, when the country that imposed the tariff says we 
really didn't need them, that is not going to help the case.
    Representative LaHood. And in terms of suggestions on how 
we ought to go about this differently in a precision way in 
going after the Chinese, what is your recommendation on that?
    Dr. Holtz-Eakin. I think the lesson of history is that it 
is very difficult to win a bilateral showdown with the Chinese. 
And they have the negotiating advantage--and that is the only 
thing it is--of not having a democracy, and President Xi can 
just wait us out.
    So I think that strategy is not going to be very 
successful. I would have preferred a multilateral strategy. You 
know, get a coalition of countries, agree on pressuring China, 
and move it that way.
    Representative LaHood. Gotcha. Switching subjects, we 
talked a little bit about debt and what that does to our 
economy. Obviously no matter how fast the economy grows, if 
spending continues to outpace growth our economy is only going 
to get worse.
    You have referenced that a little bit, Dr. Holtz-Eakin. In 
terms of reforms to make to our budget process, appropriations 
process, and spending processes to reverse this, what 
suggestions do you have for us?
    Dr. Holtz-Eakin. Well the good news on that front, there is 
a Joint Select Committee that is going to take this issue up, 
and I applaud Congress for that.
    I think there are two problems, and one is the near-term 
problem and the appropriations process, which has led to lots 
of threats of government shutdown, and threats on raising the 
debt limit, both of which I view as dangerous.
    The longer term problem is mandatory spending. This country 
balanced its budget on the whole for centuries, and then we 
invented mandatory spending and we have not balanced it since.
    So dealing with how you do oversight and assessment of 
mandatory spending so that it does not get out of line with the 
resources is the key issue.
    Representative LaHood. Thank you.
    Chairman Paulsen. Thank you. Representative Maloney, you 
are recognized for five minutes.
    Representative Maloney. Thank you. And I thank all of the 
panelists for your testimony.
    And, Mr. Hampton, I was very impressed with your business 
and your testimony. One of the challenges, though, is that most 
of the business owners that I am reading about, they are not 
plowing it back into wages. It's usually a one-time bonus. 
Maybe they will make it permanent later, but a lot of bonuses 
but not permanent wages that I've been reading. And many are 
using this tax bonus as paying out to shareholders, as opposed 
to plowing it back and growing the business like you are. But I 
hope more people make the same decisions that you've made.
    But I would like to ask Dr. Holtz-Eakin about an op-ed that 
appeared recently in The Washington Post, and I would like 
permission to place the op-ed in the record.
    Chairman Paulsen. Without objection.
    [The Washington Post article appears in the Submissions for 
the Record on page 76.]
    Representative Maloney. It was written by five very 
prominent former Chairs of the White House Council of Economic 
Advisers, Jason Furman, Alan Kruger, Laura Tyson, Martin Neil 
Bailey, and Janet Yellen. The economists argued that in the 
future the United States will face a large debt crisis, as 
we've all been talking about, but they argue that 
entitlements--Social Security, Medicare, and Medicaid--are not 
to blame. And they make three points that I find interesting, 
and I would like to hear your response.
    Number one, they write that the large tax cuts and unfunded 
wars have been huge contributors to our current deficit 
problem, and the primary reason the deficit in coming years 
will now be higher than it had been expected is the reduction 
in tax revenue from last year's tax cuts, not an increase in 
spending.
    Do you agree with their assessment? Would you begin with a 
``yes'' or ``no'' and give your explanation to that first 
point?
    Dr. Holtz-Eakin. I do not agree with them. Again, I would 
go back to----
    Representative Maloney. It's $1.7 trillion, by all 
accounts.
    Dr. Holtz-Eakin. I would go back to the baseline budget 
outlook of January 2017, prior to any tax legislation, which 
showed that there would be an additional $10 trillion in 
deficits over the next ten years, and that did not come from 
the discretionary accounts. It came from the mandatory 
accounts. So it wasn't wars. And it came because all of the 
mandatory spending grows at rates faster than the economy, 
faster than any plausible revenue gain. Those are the 
entitlement programs.
    So arithmetically, I think they are simply incorrect.
    Representative Maloney. Okay, secondly, the five economists 
further write that the tax cuts passed last year added an 
amount to America's long-term fiscal challenge that is roughly 
the same size as the preexisting shortfalls in Social Security 
and Medicare. Do you agree, ``yes'' or ``no'' with that, and 
your explanation?
    Dr. Holtz-Eakin. I disagree, but I think it is a misleading 
statement by them, quite frankly. They compared it to Medicare 
Part A, which is a subset of the entire Medicare program. The 
entire Medicare program is three-quarter financed out of 
general revenue. Parts B and D were structured that way, and 
they run enormous cash flow deficits, over $300 billion a year. 
And to throw them out of that calculation and compare it only 
to Part A is to really mischaracterize the situation.
    Representative Maloney. Thirdly--and Mr. Peters brought 
this up, too, and others on the panel--the economists write 
that decreasing our debt-to-GDP ratio will require running 
smaller deficits in strong economic periods such as the present 
to offset the larger deficits that are needed in recessions to 
restore demand and avoid deeper prices. Do you agree, ``yes'' 
or ``no''?
    Dr. Holtz-Eakin. That is a beautiful theory in textbook. No 
government, Republican or Democrat, in my lifetime has done it.
    Representative Maloney. Okay. And lastly, or is my time up, 
four years ago the consensus estimate at the Fed of the NARU, 
the nonaccelerating rate of unemployment, was 5.4 percent. And 
what likely would have happened if the rate dropped further, as 
it has, and in response the Fed has raised interest rates, 
which they are saying they are going to do?
    Dr. Holtz-Eakin. I think it is a good news story if the Fed 
is worried about the economy growing too fast. That has been 
the least of our concerns for a long time. It celebrates what 
they admitted were unusually low, and were labeled 
extraordinary monetary policy because they became very ordinary 
as we got used to them, so I think it's a good news thing that 
they are normalizing the stance on monetary policy.
    I think it has been surprising the degree to which the 
employment rate has been able to fall, and we've seen labor 
participation rise more than I think a lot of people expected. 
We see no particular evidence of current inflation as a result 
of this, and we do see some acceleration in average hourly 
earnings. That is all a good news story, and I hope it 
continues.
    Representative Maloney. My time has expired. Thank you.
    Chairman Paulsen. Thank you. Representative Beyer, you are 
recognized for five minutes.
    Representative Beyer. Thank you, Mr. Chairman, very much.
    Dr. Mazur, tomorrow we have the House taking a doomed-to-
fail messaging vote on the Balanced Budget Amendment, probably 
to provide cover for Members who are feeling buyer's remorse 
after their deficit-increasing votes, and faced with the new 
CBO deficit figures.
    But now, as it seems like we have built a house of cards 
with more than trillion-dollar deficits for the foreseeable 
future, how do we possibly consider long-term sustainable 
growth? How are we unlocking America's economic prospects when 
our debt levels will quickly equal GDP, with ever increasing 
pressure on interest rates? What is the smart way to address 
the debt and deficit we have?
    Dr. Mazur. So I think the point that Douglas Holtz-Eakin 
and I both made is that in good times you should be running 
smaller deficits, to kind of be on a downward trajectory, so 
that it becomes--the debt becomes a smaller fraction of your 
economy over time.
    And I think you saw that in the late 1990s, where the 
budget was actually in balance for the late 1990s, early 2000s. 
And then we embarked on a series of tax cuts and unpaid-for 
war, and Medicare benefits expansion, and we moved into a 
situation where we had larger deficits.
    So kind of to harken back to what I mentioned earlier about 
President Kennedy, that the time to really work on repairing 
your fiscal situation is when things are going good, during the 
good economic times. And it seems to me we are having a missed 
opportunity. We have an opportunity to do it now during 
relatively good times, and we are not taking advantage of that.
    Representative Beyer. I would like to compliment Mr. 
Hampton on sharing so much of the benefits to his business of 
the tax cuts with your employees. But as many predicted, we 
have seen that as opposed to fueling wage increases, or even 
investment in the recipient businesses, the lion's share of the 
corporate tax cuts, some say greater than 80 percent, is going 
to stock buybacks and dividends.
    Dr. Mazur, do you see limiting the use of buybacks, which 
we used to do until regulatory changes in the early 1980s, as a 
worthwhile public policy response that would promote a natural 
focus on wages and investment in research and development, 
rather than all of it going to the people who own the assets 
that we have?
    Dr. Mazur. I view a stock buyback as more of a financial 
transaction which keeps the value of the company the same. It's 
just dollars of cash goes out and shares get retired. So the 
company stays about the same size.
    Now there may be concerns about earnings-per-share being 
driven up because there are fewer shares out there, but that is 
really the responsibility of the board of directors of the 
company to look at that, not--I don't really think it is a 
Federal Government responsibility.
    Representative Beyer. Isn't part of the issue, if you look 
at Dr. Holtz-Eakin--again, Dr. Mazur--where early on he points 
out that the growing gap between the productivity rate of 
increase and the wage rate of increase, that--and we have had 
year after year of record corporate profits, that businesses 
haven't been sharing the increases in productivity gains with 
their people?
    Dr. Mazur. There may be some truth to that. I think that, 
you know, we have had a stagnant minimum wage over the last 
number of years. We have not increased the minimum wage. We 
have had a reduction in unionization over decades now. Both of 
those would have been ways to get more dollars into the pockets 
of the workers, and we have not done either of those things.
    Representative Beyer. Finally, Dr. Mazur, we have seen that 
the pass-through provision seems to fail to meet all four of 
the standards of good tax policy that you laid out in your 
testimony.
    We are already seeing in The Wall Street Journal that this 
sets the bill so that the most tortured gaming has occurred 
since the passage of the new tax law. The tax law Professor Dan 
Shaviro called it, quote, ``the worst provision ever even to be 
seriously proposed in the history of the Federal income tax.''
    Is there any way to fix this?
    Dr. Mazur. That is a hard question. I think that you are 
setting up a situation where it is relatively easy, through 
paper transactions, to change the form of income from one level 
of tax to a different, to a lower level of tax. And you would 
expect to see gaming on that front.
    One of my law friends also quipped, similar to Dan Shaviro, 
that the jobs part of the Tax Cuts and Jobs Act was the tax 
planners' jobs. That there will be many tax planner jobs as a 
result of this, and that is an example in the flow-through area 
where you could see that be the case.
    Representative Beyer. Thank you very much. Mr. Chair, I 
yield back.
    Chairman Paulsen. Thank you. And I was going to say we are 
going to start with a Minnesotan and end with a Minnesotan, but 
Senator Cruz just got here, but we will go with Senator 
Klobuchar and you are recognized for five minutes.
    Senator Klobuchar. Well very good. I had my moment a few 
years ago, speaking of unleashing the economy, where Minnesota 
beat out Texas as the best State to do business in in the CNBC 
survey. And I completely enjoyed telling Senator Cruz about it.
    But I do welcome Mr. Hampton. He is a real success story 
right out of Rogers, Minnesota, which is on the western part of 
the metropolitan area, and I grew up not far from there, 
employing 22 Minnesotans and Americans. I thank you for that.
    And I note that your business is--Senator Heinrich and I 
were thinking that you are in the business of circuit 
interruption technology and that we need a little circuit 
interruption around Washington right now, so maybe you can 
bring us some.
    So thank you for that. I thought I would start with you, 
Dr. Holtz-Eakin, and talk to you about--I was just around our 
State in a lot of the rural areas last week, and there is just 
a huge problem with workforce shortages everywhere. I heard it 
from medium-sized companies manufacturing to peat mines, to the 
just regular farming.
    And we have done a lot of work with apprenticeships, and I 
think we should be doing more nationally. Senator Collins and I 
have a bill on this, and maybe loosening up some of the rules 
about how old kids are when they can start doing 
apprenticeships while they are in school, because it is a 
patchwork of State and Federal laws. And I am going to talk to 
the Labor Secretary about that. Doing more on STEM, obviously. 
And just some very cool things going on with our high schools 
around Minnesota where kids in 9th grade are getting exposed to 
a class with tech, or the traditional shop, which it no longer 
is, robotics. And then having kids choose a traditional track, 
or health care, or manufacturing.
    And those are all good things and are incredibly important. 
I still don't think it is going to fill the short-term need 
that I am seeing in our State.
    So I just wondered if you would comment about immigration 
reform. And right now we are going backwards. I had a turkey 
producer who, the new rule is he can't get his part-time 
seasonal workers, he can't get them from the same country 
anymore. He has to rotate countries, and he had the same crew 
coming in for 17 years, and we just are seeing with the 
Dreamers not getting on a path to citizenship. Liberians in our 
State, we have the biggest population, they only have a year 
left who are on the Temporary Status. They all came in legally.
    And I just see this as sort of coming right up against our 
potential for unleashing our economy because we are going to 
start having workforce shortages. And there are two ways to do 
this: training the kids who are growing up, and retraining some 
workers; and then of course immigration reform.
    And could you comment on those two things?
    Dr. Holtz-Eakin. Well first of all, congratulations on the 
apprenticeship work. I am a big fan of those sorts of efforts. 
I would like to know more about it.
    I remind everyone who asks me about the immigration issue 
that the native-born U.S. population has fertility low enough 
that in the absence of immigration the United States shrinks. 
We become Japan. We become smaller in population, smaller in 
economic size, smaller in our ability to protect our values and 
spread them around the globe.
    And so the flip side to that is that immigration reforms 
and policies are a huge economic opportunity, and one that I 
think we should pursue vigorously.
    I am not a big fan of what I see going on right now. I 
think we are going in the wrong direction, and we ought to 
think hard about legislation that would in fact put this more 
on an economic foundation both in terms of the long-term visa-
granting, but also in terms of the need for seasonal workers 
and sensible temporary worker programs that have a real effort 
at enforcement.
    Senator Klobuchar. Well and as you know in the 
comprehensive bill that passed the Senate with strong 
bipartisan support we actually had worked out the ag issue with 
migrant groups, and the Farm Bureau, and the Farmers Union, and 
that was something that was in there which we would love to see 
today.
    And I just look at it. I like that we had--I did a hearing 
here once on immigration reform, and we actually had Grover 
Norquist testify in favor of immigration reform because he saw 
it as reducing the debt, because you have more people paying in 
by billions of dollars. So I just think it is a really 
important point to make as we go through.
    I don't know if anyone else wants to comment on any of 
that?
    Dr. Holtz-Eakin. It is just one of those issues that unites 
bearded right-wing crazies, and we thank you.
    [Laughter.]
    Senator Klobuchar. Dr. Moutray.
    Dr. Moutray. Well we have The Manufacturing Institute at 
the NAM, as you know, Senator, which has really been 
specializing in trying to address that skill shortage. And as I 
noted earlier, it is our number one issue, and we go out and 
ask our members. As I travel around the country, I hear it 
everywhere, small, medium, and large, in every State.
    And so we have been trying to do a number of things, 
including encouraging more women, as well as trying to change 
perceptions.
    Senator Klobuchar. Any others? Mr. Hampton, do you want to 
get the last word maybe, our Minnesotan?
    Mr. Hampton. We have found opportunities to employ people 
from all walks of life, by just keeping our eyes open. And that 
may mean the local waitress who is showing something going to 
school, and we give her an opportunity. As a matter of fact, 
that is a case-in-point. Recently we did hire somebody like 
that, and are bringing her along in an office environment where 
she wasn't going to get an opportunity because she was a 40-
year-old waitress.
    And just by going that direction and paying her a little 
more money, we now have an excellent employee.
    Senator Klobuchar. Good point. Thank you.
    Chairman Paulsen. Thank you. Senator Cruz, you are 
recognized for five minutes.
    Senator Cruz. Thank you, Mr. Chairman. And I would note to 
the Senator from Minnesota, talking about Texas and Minnesota 
rivalries, that it appears likely now, or at least a good 
chance, that starting this weekend the Houston Rockets will be 
facing the Minnesota Timber Wolves in the NBA playoffs.
    Senator Klobuchar. We hope that is true, yes.
    Senator Cruz. You all are--but perhaps we may have a side 
wager on the outcome----
    Senator Klobuchar. Alright, okay.
    Senator Cruz. Good afternoon, gentlemen. Welcome. Thank you 
for being here.
    As you guys know, on the tax reform bill, because it was 
passed on Reconciliation, some elements of it are scheduled to 
expire. Notably, the individual tax cuts and the expensing 
provisions.
    In your judgment, what impact does the expiration of those 
tax cuts have on likely future economic growth? And how would 
those projections be different if those elements of the tax cut 
were permanent instead?
    Dr. Holtz-Eakin. I think you see those impacts in the CBO 
analysis where there are strong near-term impacts, and they 
diminish over the 10-year window. Permanent tax policy is 
always more powerful and better than temporary tax policy. And 
that, had it been possible, would have been a preferable route 
to go.
    Dr. Moutray. I agree with that. Certainly I think when you 
look at, from a manufacturing standpoint, the expensing 
provision is what really allows so much of the growth that we 
are seeing in this year and kind of moving forward. But we 
would like to have seen those made permanent. We hope that they 
are made permanent at some point.
    Mr. Hampton. A typical approach would be for a company like 
ours, which is privately owned, for the proprietors to increase 
their own wages in order to offset the increase in taxation.
    So if we want to maintain the benefit of the tax cuts to 
our corporation and retain money in that corporation, which is 
what we want to do, then the way to achieve it is certainly not 
to increase the personal tax.
    Dr. Mazur. Senator Cruz, I think making the investment and 
incentives permanent would make them more effective. However, 
it should be paid for. It shouldn't be just run up on the 
credit card of the Nation.
    And I disagree a little bit with your point about 
Reconciliation requiring that. I think that was basically a 
statement of priorities, that you had one-and-a-half trillion 
dollars, and you spend X on corporate stuff, Y on individual 
stuff, and the Y only lasts for seven years.
    Senator Cruz. So if Congress in 2018 were to revisit tax 
reform and make expensing and make the individual tax cuts 
permanent, what would you expect the impact to be in terms of 
economic growth and jobs going forward?
    Dr. Holtz-Eakin. I think in and of itself it would be 
beneficial. Probably not large in the near-term, but you would 
get better out-year projections. I think it would be even 
better if those were paired with reforms to the mandatory 
spending program so that you didn't increase the deficit. That 
would be the strongest economic impact.
    Dr. Moutray. Manufacturers are very long-term in their 
thinking. They are looking about investments that are going to 
be paying out many years down the line. And so I agree with 
Doug. I think you're going to see, especially in those out-
lying years, you are going to see similarly positive impacts 
from that.
    Mr. Hampton. Our programs are, as we look at it presently, 
we are looking towards a longer term future as a result of the 
tax cuts for aggressive investment in the company. So if we 
look down the road and we're saying that there's going to be a 
reversal of these kind of things, it makes it more problematic 
for us to set our plans.
    Dr. Mazur. And I just think that there are going to be 
plenty of opportunities for Congress to revisit this tax law, 
that you have things that expire in 2019, 2022, 2025. There 
will be plenty of opportunities to take a look at it and look 
at what our fiscal situation is and make the necessary 
adjustments.
    Senator Cruz. Shifting topics to regulatory reform, if 
Congress were to pass structural regulatory reform--something 
like the REINS Act which provides that any economic regulation 
that imposes over $100 million of cost on the economy can't go 
into effect without an affirmative up/down vote from Congress--
what would each of you expect to be the impact on the economy 
on economic growth and jobs if the REINS Act were enacted?
    Dr. Holtz-Eakin. As I said in my opening remarks, the 
burden of regulation of over $100 billion a year for eight 
years I think has an important impact on the economy. And to 
have a statutory check on that would be an enormous benefit.
    I wish we had better sort of empirical estimates from the 
research literature. We don't. But it is certainly 
directionally an important thing to do.
    Dr. Moutray. The manufacturers certainly are responding to 
the changed environment, and recognizing that the rulemaking 
process is different. You know, two out for every one coming in 
I think is a completely different ball game. And certainly I 
think they would react very favorably to continued changes in 
the positive direction for regulation.
    Dr. Mazur. I don't know enough about the REINS Act to have 
a well-formed opinion on that, so I think I will pass.
    Senator Cruz. Very good. Thank you, gentlemen.
    Chairman Paulsen. Thank you. And with that I want to thank 
all of our witnesses for taking the time to be with us here 
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, our Committee is adjourned. Thank you.
    [Whereupon, at 3:50 p.m., Wednesday, April 11, 2018, the 
hearing was adjourned.]

                       SUBMISSIONS FOR THE RECORD

   Prepared Statement of Hon. Erik Paulsen, Chairman, Joint Economic 
                               Committee
    I call this hearing to order.
    Good afternoon, and welcome to this hearing on ``Unleashing 
America's Economic Potential.''
    For the eight years prior to this new Administration, we were told 
America could never do better than 2 percent growth. We were told that 
such sluggish growth was the new normal, and that we had to lower our 
expectations.
    This contradicted what we knew to be true about America.
    We all know America is an economic powerhouse. We are blessed with 
vast and bountiful land, massive energy resources, and most 
importantly, the American people. Our dreams, as a nation, don't rely 
on government fiat or foreign influence, but on the resourcefulness, 
the innovativeness, and the hard work of everyday Americans.
    The question is: Will we, elected officials of the U.S. government, 
allow them to work towards their dreams and fully contribute to our 
nation's prosperity?
    This hearing is about just that. How is it, for instance, that we 
have just seen a remarkably good job growth for the last few months?
    Listen to these numbers:
    We are averaging 214,000 more jobs for February and March and the 
employment-to-population ratio held steady.
    The unemployment rate has remained stable at 4.1% for 6 months, the 
lowest since 2000.
    Meanwhile average hourly earnings continue their upward trend.
    It wasn't long ago, we were told not to expect this. In fact, we 
were told to lower our expectations. I'll explain.
    When my daughters set goals, these goals are generally beyond where 
they are at the time. Maybe they want to get better at math or science. 
Maybe they want to read more books than before. But the point is, they 
know their potential, and set goals beyond where they are currently at 
because they want to grow.
    It should be the same when thinking about our economy.
    The first graph was displayed at our last hearing. The top line is 
what the Congressional Budget Office thought in 2007 our economy was 
capable of producing. This is an economy of hope and growth.
    The bottom line, regrettably, is what our economy in fact 
produced--our actual real GDP. To be sure, the financial crisis knocked 
us off our feet.
    The lines in between are annual CBO forecasts of our economic 
potential over the course of the Obama Administration. Each year, these 
forecasts were lowered.
    This is what it looks like when a nation is urged by its leaders to 
accept mediocrity and to let the government handle more. More taxes, 
more regulations, and more control meant that the American economy was 
held back.
    This was a self-fulfilling prophecy.
    These projections dragged under growing weight of high tax rates 
and record-setting levels of regulation.
    Before 2017, economic growth was slow, employers weren't willing to 
invest in their businesses or their employees.
    Productivity and take-home pay stagnated.
    People in their prime working years stayed out of the workforce.
    Fewer people were willing to risk starting a business so 
entrepreneurship fell.
    Businesses found it more attractive to invest and create jobs 
overseas, where other countries had learned to lower their corporate 
tax rates and reduce regulations.
    At the same time, the federal government's power over nearly every 
aspect of our lives grew.
    Yes, there are constructive things that government does, such as by 
keeping us safe, enforcing civil and property rights, and setting 
rational ``rules of the road'' by which the economy can operate 
efficiently.
    However, government does not create prosperity.
    Our people create prosperity--by having great ideas, working hard, 
and having the resources to take a risk on building a piece of the 
American dream.
    Far too often government stands in the way of prosperity and 
opportunity by overtaxing and overregulating.
    A country's GDP is based on its workforce, capital stock, and 
productivity--determined by technology, innovation, and training. It 
isn't based on how much the government succeeds in redirecting capital.
    We're seeing a different course that lifts the artificial 
restraints government imposed on the economy.
    This graph is similar to one in the report the JEC published last 
week in response to the Economic Report of the President.
    If we lift the government constraints of high taxes and heavy 
regulation that weighed down our potential, our economic potential can 
rise. If it rises to what CBO projected as recently as 2012, there 
would be plenty of room, displayed as the output gap, for our economy 
to grow faster.
    We've removed the government obstacles that prevented Americans 
from achieving their dreams.
    When growth is strong, businesses have the confidence to invest, 
jobs are plentiful, potential entrepreneurs become willing to risk 
starting a business, and American households become more prosperous. 
We're already seeing results:
        Every quarter of economic growth in 2017 outperformed the same 
        quarter in 2016;
        Business investment is strengthening and small business 
        confidence is high;
        Production and investment are coming back to the United States;
        Paychecks are growing because (1) the government is taking a 
        smaller cut and (2) businesses are investing in their workers.
    In my home State of Minnesota, the good news about tax reform keeps 
pouring in as companies like Best Buy, Bio-Techne (BIO-TECH-KNEE), CIT 
Relay & Switch, LORAM, Data Sales, DTN, Hormel, TCF, and US Bank invest 
in their employees by giving them special bonuses, pay raises and 
better benefits.
    But even with the tailwinds of pro-growth tax and regulatory 
reform, there are still risks to the economy, such as the newly 
announced tariffs. Trade is critical to our economic growth. A robust 
trade agenda is essential for the United States to grow jobs by selling 
American goods and services around the world as 96% of world's 
consumers live outside the United States.
    The end goal of trade policy should be to eliminate artificial 
barriers to the free flow of our goods and services, not cause new 
ones.
    I look forward to hearing from our distinguished panel of witnesses 
today as they advise us on ways to unleash greater opportunity in 
America.
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                               __________
                               
   Prepared Statement of Hon. Martin Heinrich, Ranking Member, Joint 
                           Economic Committee
    Thank you for calling today's hearing on promoting innovation and 
accelerating economic growth.
    Innovation drives economic growth and boosts wages. We need more of 
it and we need innovation to be more broadly shared across regions.
    Other countries are moving forward aggressively to promote 
innovation, to support advanced manufacturing, and to boost the 
productivity of their workers.
    To lead in the 21st century economy, the United States must remain 
at the forefront of game-changing discoveries and create an ecosystem 
that supports innovation across the economy.
    The Federal Government plays a key role in this--funding and 
conducting R&D, investing in the human capital of our people, and 
ensuring that we are making the necessary investments in STEM.
    STEM education and R&D are two innovation anchors.
    We need to ensure that students everywhere have access to STEM 
pathways, and that starts with making sure that schools have the 
resources they need to recruit, train, and retain talented science and 
math teachers.
    We need to expand middle-skills pathways into emerging sectors, and 
make a college education accessible and affordable for all Americans, 
so that every student has the opportunity to benefit from tomorrow's 
innovations.
    The Federal Government remains the largest funder of basic 
research--that research which adds to our fundamental stock of 
knowledge, yet often would not be conducted without public investment.
    This is the research that can help us solve the problems we don't 
yet know we have.
    Basic research has driven major leaps forward--including mapping of 
the human genome, vaccines, breakthroughs in cancer research, and 
energy storage technology and the creation of the internet, laser, MRI 
and GPS.
    The knowledge gained through this research has significant 
spillover economic benefits--increasing productivity, creating jobs, 
and accelerating economic growth.
    That's why it's encouraging that the recent Omnibus agreement made 
significant investments in R&D.
    Investments in basic research increased by almost 10 percent over 
the previous year, its largest annual increase since the Recovery Act 
in 2009.
    Promoting innovation also means extending already developed 
technologies, like broadband, to communities currently without access.
    Today, years after high-speed internet was first made available, 19 
million rural Americans still lack access. The private sector doesn't 
have the incentive to extend broadband to remote, hard-to-reach 
communities.
    The Federal Government must step in and fill the gap.
    We also need smart policies that can help emerging industries grow. 
Targeted tax credits, competitive grants, and prize competitions are 
all levers Congress can pull.
    The multi-year extension of the wind production tax credit is a 
good example. It is driving investment in wind farms in New Mexico and 
across the country.
    Earlier this month, I toured the future site of the $1.6 billion 
Sagamore Wind Project in eastern New Mexico, which will be the largest 
wind farm in our State's history and create up to 300 construction jobs 
and 30 full-time operations jobs.
    Programs like Laboratory Directed Research and Development (LDRD) 
authorizing a portion of a lab's Federal funding for cutting-edge R&D 
are also vital.
    At Los Alamos National Laboratory in New Mexico, LDRD researchers 
generally account for one-quarter of the lab's patents and peer-
reviewed publications.
    Efforts to help commercialize technology developed at our national 
labs and research universities help to take a good idea and get it into 
production and out into the market place.
    In New Mexico, we've seen how commercializing the R&D that takes 
place in national labs can generate significant economic opportunities.
    I'll share one example.
    Descartes Labs is a New Mexico start up that uses artificial 
intelligence technology developed at Los Alamos National Laboratory to 
provide analysis and predictions based on satellite images of the 
earth.
    Early applications are in delivering crop yield forecasts and 
analyzing trends in energy, construction and the environment.
    Today, the company has its headquarters in Santa Fe, has raised 
close to $40 million in venture money, employs about 70 people, and is 
a recognized leader in analyzing satellite images.
    We need to help more research turn into innovative startups.
    Access to capital is key for entrepreneurs. Too many promising 
young companies fall to the Valley of Death, or get absorbed by 
behemoths where their innovations stall, because they cannot find the 
financing they need.
    This is especially tough for innovators in rural areas and smaller 
cities. Good ideas and innovations occur everywhere. But more than 
three-quarters of venture capital go to companies in San Francisco, Los 
Angeles, New York and Boston.
    Expanding access to capital can help us to tap into the next 
generation of innovators creating new startups and new opportunities.
    Lastly, immigrants are a key source of innovation and 
entrepreneurship. We cannot jeopardize these enormous contributions 
through short-sighted immigration policies or by kicking out talented 
young people.
    I'm an engineer by training. I could talk all day about innovation, 
R&D and tech transfer.
    But, now I look forward to hearing from our witnesses.
                               __________
                               
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         A debt crisis is coming. But don't blame entitlements.
  by martin neil baily, jason furman, alan b. krueger, laura d'andrea 
                       tyson, and janet l. yellen
                             april 8, 2018
    Martin Neil Baily, Jason Furman, Alan B. Krueger, Laura D'Andrea 
Tyson and Janet L. Yellen are all former chairs of the White House 
Council of Economic Advisers.
    The U.S. unemployment rate is down to 4.1 percent, and economic 
growth could well increase in 2018. Consumer and business confidence is 
high. What could go wrong?
    A group of distinguished economists from the Hoover Institution, a 
public-policy think tank at Stanford University, identifies a serious 
problem. The Federal budget deficit is on track to exceed $1 trillion 
next year and get worse over time. Eventually, ever-rising debt and 
deficits will cause interest rates to rise, and the portion of tax 
revenue needed to service the growing debt will take an increasing toll 
on the ability of government to provide for its citizens and to respond 
to recessions and emergencies.
    None of that is in dispute. But the Hoover economists then go wrong 
by arguing that entitlements are the sole cause of the problem, while 
the budget-busting tax bill that was passed last year is described as a 
``good first step.''
    Entitlement programs support older Americans and those with low 
incomes or disabilities. Program costs are growing largely because of 
the aging of the population. This demographic problem is faced by 
almost all advanced economies and cannot be solved by a vague call to 
cut ``entitlements''--terminology that dehumanizes the value of these 
programs to millions of Americans.
    The deficit, of course, reflects the gap between spending and 
revenue. It is dishonest to single out entitlements for blame. The 
Federal budget was in surplus from 1998 through 2001, but large tax 
cuts and unfunded wars have been huge contributors to our current 
deficit problem. The primary reason the deficit in coming years will 
now be higher than had been expected is the reduction in tax revenue 
from last year's tax cuts, not an increase in spending. This year, 
revenue is expected to fall below 17 percent of gross domestic 
product--the lowest it has been in the past 50 years with the exception 
of the aftermath of the past two recessions.
    All of us have supported corporate tax reform. The statutory tax 
rate was too high, much higher than in other Organization for Economic 
Cooperation and Development economies. However, because of deductions 
and breaks in the tax code, the effective marginal tax rate was similar 
to the average among competitor economies. The right way to do reform 
was to follow the model of the bipartisan tax reform of 1986, when 
rates were lowered while deductions were eliminated.
    Instead, the tax cuts passed last year actually added an amount to 
America's long-run fiscal challenge that is roughly the same size as 
the preexisting shortfalls in Social Security and Medicare. The tax 
cuts are reducing revenue by an average of 1.1 percent of GDP over the 
next four years. The Hoover authors minimized the cost of the tax cuts 
by noting that if major provisions are allowed to expire on schedule--
certainly an open question, given political realities--they would 
amount to ``only'' 0.4 percent of GDP. Even this magnitude exceeds the 
Medicare Trustees' projections of a 0.3 percent of GDP shortfall in 
Medicare hospital insurance over the next 75 years.
    Just as entitlements are not the primary cause of the recent jump 
in the deficit, they also should not be the sole solution. It is 
important to use the right wording: The main entitlement programs are 
Social Security, Medicare, veterans benefits, and Medicaid. These 
widely popular programs are indeed large and projected to grow as a 
share of the economy, not because of increased generosity of benefits 
but because of the aging of the population and the increase in 
economywide health costs.
    There is some room for additional spending reductions in these 
programs, but not to an extent large enough to solve the long-run debt 
problem. The Social Security program needs only modest reforms to 
restore its 75-year solvency, and these should include adjustments in 
both spending and revenue. Additional revenue is critical because 
Social Security has become even more vital as fewer and fewer people 
have defined-benefit pensions. Medicare has been a leader in bending 
the health-care cost curve. Reforms to payments and reformed benefit 
structures in Medicare could do more to hold down its future costs.
    As we focus on the long-run fiscal situation, our goal should be to 
put the debt on a declining path as a share of the economy. That will 
require running smaller deficits in strong economic periods--such as 
the present--to offset the larger deficits that are needed in 
recessions to restore demand and avoid deeper crises. Last year's Tax 
Cuts and Jobs Act turned that economic logic on its head. The economy 
was already at or close to full employment and did not need a boost. 
This year's bipartisan spending agreement contributed further to the 
ill-timed stimulus. The Federal Reserve will have to act to make sure 
the economy does not overheat.
    Several years ago, there was broad agreement that responding to the 
looming fiscal challenge required a balanced approach that combined 
increased revenue with reduced spending. Two bipartisan commissions, 
Simpson-Bowles and Domenici-Rivlin, proposed such approaches that 
called for tax reform to raise revenue as a percent of GDP and 
judicious spending cuts. Without necessarily agreeing with these 
specific plans, we believe a balanced approach is the correct one. 
Start with spending goals based on the priorities of the American 
people and then set tax policy to realize adequate revenue. The Hoover 
economists' advocacy of paying for large tax cuts with entitlement 
reductions would take the United States in the wrong direction.
                               __________
       Questions for the Record for Dr. Holtz-Eakin Submitted by 
                   Representative Carolyn B. Maloney
    1) Four years ago, the consensus estimate at the Federal Reserve of 
the NAIRU was 5.4 percent. This should have meant that a further drop 
in the unemployment rate likely would put upward pressure on wages. In 
response, the Federal Reserve in theory should have soon raised 
interest rates. What would have happened if the Federal Reserve raised 
interest rates at that time? How should that experience inform our 
understanding of the NAIRU, wages and interest rates now?
    Prematurely normalizing monetary policy would have slowed the pace 
of growth, diminished employment growth, and harmed wage growth. At 
present, there appears to be considerable uncertainty regarding the 
point at which the labor market will tighten. Job creation in the 
payroll survey has averaged just over 200,000 per month so far this 
year, much above what one would have expected in a full employment 
economy. The Fed should be vigilant to evidence of an uptick in supply-
chain price pressures (especially for goods; services inflation is 
already at the Fed target), but not rely on the unemployment rate as 
the primary indicator of the stance of monetary policy.
    2) In your testimony, you note that in its April Budget and 
Economic Outlook, the Congressional Budget Office projects that 
economic growth will average 1.9 percent over the period 2018-2028. Yet 
the 2018 Economic Report of the President estimates that it will be 3.0 
percent over that period--a very large difference. Which estimate do 
you think is more realistic?
    I believe that CBO number is a bit low. Because it relies on 
current law, it cannot anticipate future actions that will likely 
diminish the crowding out and thus magnify the impact of the business 
tax reforms. The Economic Report of the President has a different bias. 
It assumes that every one of the President's proposals is implemented 
in a timely fashion and works exactly as planned. That is also unlikely 
to happen and leads to an upward bias in the growth projections. I 
anticipate that reality will be in between.
                               __________
Questions for the Record for Dr. Holtz-Eakin Submitted by Vice Chairman 
                                  Lee
    How long do you think we have before our luck runs out--that is, 
when this current period of economic growth and viability will be 
overshadowed by the grim fiscal situation we find ourselves in?
    If left literally unchanged, I cannot imagine completing the 10-
year budget window without detrimental impacts. However, I would very 
much prefer not to run the experiment and see if I am right or wrong. 
It is always better to move earlier and phase-in large changes and I 
would prefer that strategy.
    In my mind, a conversation about ``unleashing America's economic 
potential'' cannot happen without discussing how we are preparing the 
next generation of workers--teachers, doctors, scientists, welders, 
manufacturers, and so on. This conversation must include serious 
reforms to higher education that would provide for more access to 
degrees and certifications that may or may not be driven by a 
traditional four-year institution. Innovation in this arena is 
critical, and we should be thinking about how we are--or how we are 
not--empowering states, local institutions, and private entities in 
finding these solutions. Do you think higher education reform plays a 
role in the ability of future generations to sustain our current 
pattern of strong economic growth? Could you expand on your 
recommendations for higher education reform?
    Education and the skills of the labor force are central to the 
future of the U.S. economy. Broadly, I believe that better performance 
in higher education begins with improving the K-12 education system. As 
I noted (here) progress has stalled on this front. Students that arrive 
to college needing any remedial education are far more likely to 
graduate slower, not graduate, and suffer from student loan debt. This 
can be avoided.
    Higher education itself needs to compete on the basis of price and 
quality. The reforms closest to the Federal Government are student 
loans and grants. Currently these are focused on paying for students to 
attend college. Instead, they should be tied to outcomes (staying on 
schedule, graduating, being employed, etc.) and not merely showing up. 
These outcomes can be measured independent of specific institutions 
(e.g., 4-year public university), allowing for new entry, innovation, 
and competition.
                               __________
Questions for the Record for Dr. Moutray Submitted by Vice Chairman Lee
    Are you concerned with the job losses that will likely result for a 
number of manufacturers in other industries besides steel and aluminum 
as a result of the Sec. 232 tariffs implemented by the president? Would 
you advocate for a congressional approval process for the imposition of 
such measures?
    The NAM has been actively engaged with our members on this issue. 
At this point, there is still a lot of uncertainty given that several 
countries have been temporarily suspended while negotiations are 
ongoing and companies are now seeking product exclusions for products 
not made or available in the United States or needed for national 
security reasons. Different parts of the manufacturing sector are 
reporting differential effects on their production and competitiveness.
    The NAM is working with the Administration and others throughout 
the U.S. and international business communities to address the 
underlying issues that have given rise to distortions in these markets, 
most notably subsidies and distortive practices out of China that are 
impacting several other industries as well, from semiconductors to 
cement and fertilizers.
    Under the U.S. Constitution, Congress retains the authority to 
``regulate trade with foreign nations'' but has chosen to delegate 
certain authorities to the executive branch, including through section 
232 of the Trade Expansion Act of 1962, as amended. Manufacturers 
strongly support a strong congressional-executive partnership on trade 
issues that will eliminate foreign barriers and market-distorting 
practices, raise standards to improve U.S. competitiveness, and hold 
all countries accountable in a rules-based trade system.
    In my mind, a conversation about ``unleashing America's economic 
potential'' cannot happen without discussing how we are preparing the 
next generation of workers--teachers, doctors, scientists, welders, 
manufacturers, and so on. This conversation must include serious 
reforms to higher education that would provide for more access to 
degrees and certifications that may or may not be driven by a 
traditional four-year institution. Innovation in this arena is 
critical, and we should be thinking about how we are--or how we are 
not--empowering states, local institutions, and private entities in 
finding these solutions. What types of continuing education does the 
manufacturing sector pursue? Do you have any ideas for specific types 
of programs, outside the traditional four-year model, that might be 
useful for continued development in the manufacturing industry? If 
there was more flexibility from the Federal Government on what 
educational opportunities Federal student loan dollars could support, 
do you think your industry would explore these opportunities?
    Manufacturers have been outspoken and persistent in efforts to gain 
new tools and new opportunities to address the skills gap. It is common 
for the manufacturing sector to promote a wide range of continuing 
education options for its employees. These include customized training 
programs designed to meet specific company needs, certification 
programs for specialty occupations, and tuition reimbursement programs 
common in many other industries. Manufacturers are hiring and promoting 
based on skills and competencies. That trend will only accelerate in 
the new economy. Increasingly, we are also seeing manufacturers use 
earn-and-learn models such as internships, apprenticeships, and 
cooperative work-study programs to attract and retain employees.
    As I noted in my testimony, manufacturers cite the inability to 
attract and retain a quality workforce as their top concern in the 
latest NAM survey. This means that manufacturing leaders need to get 
creative to proactively address the workforce shortage facing the 
industry.
    The Manufacturing Institute, which is the non-profit affiliate of 
the NAM, continues to work with industry leaders to address these 
workforce challenges. This includes initiatives designed to change 
perceptions about the sector, including youth programs and 
Manufacturing Day promotions, and programs to encourage more women and 
military veterans to pursue a career in manufacturing. On the latter, 
the Institute has launched a full-time career skills program called 
Heroes MAKE America, with its inaugural class just graduating at Fort 
Riley in Kansas, and with additional installations beginning at Fort 
Hood in Texas starting this summer.
    Regarding the flexibility of student loan dollars, yes, the 
manufacturing industry would support these efforts. The Manufacturing 
Institute recently published a paper titled Quality Pathways: Employer 
Leadership in Earn and Learn Opportunities that discussed how to expand 
the role of companies in education and assure quality outcomes for 
those programs. If earn and learn models can demonstrate results as 
good as, if not better than, traditional postsecondary pathways, then 
they should have access to the Federal resources that support 
traditional postsecondary education options.
  

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