[Joint House and Senate Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 115-270
UNLEASHING AMERICA'S ECONOMIC POTENTIAL
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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
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Opening Statements of Members
Hon. Erik Paulsen, Chairman, a U.S. Representative from Minnesota 1
Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New
Mexico......................................................... 3
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
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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.
[all]