[Senate Hearing 115-22]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 115-22

                       THE EFFECT OF BORROWING ON
                            FEDERAL SPENDING

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

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON FEDERAL SPENDING
                   OVERSIGHT AND EMERGENCY MANAGEMENT

                                 OF THE

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 29, 2017

                               __________

                   Available via http://www.fdsys.gov

       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs
                        
                        

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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                    RON JOHNSON, Wisconsin, Chairman
JOHN McCAIN, Arizona                 CLAIRE McCASKILL, Missouri
ROB PORTMAN, Ohio                    THOMAS R. CARPER, Delaware
RAND PAUL, Kentucky                  JON TESTER, Montana
JAMES LANKFORD, Oklahoma             HEIDI HEITKAMP, North Dakota
MICHAEL B. ENZI, Wyoming             GARY C. PETERS, Michigan
JOHN HOEVEN, North Dakota            MAGGIE HASSAN, New Hampshire
STEVE DAINES, Montana                KAMALA D. HARRIS, California

                  Christopher R. Hixon, Staff Director
               Margaret E. Daum, Minority Staff Director
                     Laura W. Kilbride, Chief Clerk
                    Bonni Dinerstein, Hearing Clerk


  SUBCOMMITTEE ON FEDERAL SPENDING OVERSIGHT AND EMERGENCY MANAGEMENT

                     RAND PAUL, Kentucky, Chairman
JAMES LANKFORD, Oklahoma             GARY C. PETERS, Michigan
MICHAEL B. ENZI, Wyoming             MAGGIE HASSAN, New Hampshire
JOHN HOEVEN, Montana                 KAMALA D. HARRIS, California
                     Brandon Booker, Staff Director
                Zachary Schram, Minority Staff Director
                      Kate Kielceski, Chief Clerk
                           
                           
                           C O N T E N T S

                                 ------                                
Opening statement:
                                                                   Page
    Senator Paul.................................................     1
    Senator Peters...............................................     3
    Senator Hassan...............................................    18
    Senator Lankford.............................................    21
Prepared statement:
    Senator Paul.................................................    29
    Senator Peters...............................................    33
    Senator Daines...............................................    37

                               WITNESSES
                       Wednesday, March 29, 2017

Hon. David M. Walker, Former Comptroller General of the United 
  States, U.S. Accountability Office.............................     5
Veronique de Rugy, Ph.D., Senior Research Fellow, The Mercatus 
  Center, George Mason University................................     7
Mark M. Zandi, Ph.D., Chief Economist, Moody's Analytics.........     9

                     Alphabetical List of Witnesses

de Rugy, Veronique Ph.D.:
    Testimony....................................................     7
    Prepared statement...........................................    47
Walker, Hon. David M. Ph.D.:
    Testimony....................................................     5
    Prepared statement with attachments..........................    38
Zandi, Mark M. Ph.D.:
    Testimony....................................................     9
    Prepared statement...........................................    56

                                APPENDIX

Chart submitted by Senator Paul..................................    68

 
              THE EFFECT OF BORROWING ON FEDERAL SPENDING

                              ----------                              


                       WEDNESDAY, MARCH 29, 2017

                                 U.S. Senate,      
                        Subcommittee on Federal Spending,  
                    Oversight and Emergency Management,    
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:33 p.m., in 
room 342, Dirksen Senate Office Building, Hon. Rand Paul, 
Chairman of the Subcommittee, presiding.
    Present: Senators Paul, Lankford, Peters, and Hassan.

              OPENING STATEMENT OF SENATOR PAUL\1\

    Senator Paul. I call this hearing of the Federal Spending 
Oversight Subcommittee to order.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Paul appears in the Appendix 
on page 31.
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    Two weeks ago today, the Federal Government reached its 
credit limit. As a Nation, we owe almost $20 trillion, about 
$60,000 for each American alive now, including children. Yet we 
are told that $20 trillion is not that much, and that it may 
well grow, and that sometime soon we are going to have to ask 
again to raise the debt ceiling.
    This is what we want to explore here today: what is our 
debt situation, how does it impact our budget, and how should 
we respond?
    Some argue that raising the debt should just be automatic; 
we really should not debate about it; that any debate or 
amendments would suggest the possibility of default, and that 
that would be dangerous.
    I do not want to default, but I also think it is wrong for 
Congress to approve more borrowing without necessary reforms 
and without making it a point to try to find a chance to fix 
some of the situation we have.
    I think it is a mistake also, though, to scare the markets 
and to talk of default and say default will occur if we do not 
have this vote immediately.
    If you look at our monthly average cash-flow, the Federal 
Government is able to actually pay its interest on the debt, 
salaries for our troops, Social Security, and really much more, 
even if we did not raise the debt ceiling. In fact, on an 
annualized basis, we can fund 86 percent of government without 
net borrowing. So default is not necessarily an unavoidable 
occurrence if the debt limit is not raised.
    Now, some scholars would argue that we should not worry; we 
do not really need to ever pay back our debt. Keynes said not 
to worry about the long run because in the long run, we will 
all be dead.
    Others have argued, the debt can be stabilized or simply 
inflated away. I do not share these views, but even for those 
who do, the one thing we cannot outlive or inflate away is the 
interest on our debt. This year alone, we will pay $295 billion 
in interest. This is more than we spend this year on seven 
Cabinet Departments, the White House, Congress, and the courts 
combined. More concerning is how ongoing deficits mean interest 
will consume more and more of the budget.
    I want to draw attention to this chart\1\ we have over here 
on the screen. It shows our share of Federal spending that goes 
to interest on the debt, discretionary spending and mandatory 
spending over the last 30 years.
---------------------------------------------------------------------------
    \1\ The chart referenced by Senator Paul appears in the Appendix on 
page 70.
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    What we see is shocking. Today, the American worker sees 
roughly seven cents of their tax dollar going to interest and 
30 cents to discretionary spending. But by the time a recent 
graduate today is near retirement, interest and discretionary 
spending will be taking an equal share of the tax dollar, 
roughly 19 cents. So under the current course, interest will 
progressively squeeze out discretionary spending. So what do we 
get for interest? Really nothing, not one hour of work and not 
one sticky note.
    Now, we always hear that spending today is an investment 
and that cutting anything would be too devastating. We hear 
this really from both sides, both the right and the left. This 
is not a Republican/Democrat problem. This is a both-parties 
problem.
    We hear right and left. We are always told, ``You know 
what? We will be fiscally responsible tomorrow,'' but tomorrow 
never comes. We simply cannot continue to rack up the debt at 
the rate we are.
    So just two months ago, I proposed a budget that would 
balance in five years, without touching Social Security and 
without an actual spending cut. Simply by freezing spending 
over five years, we would balance the budget. Yet only 14 
Senators had the courage to vote for such a budget.
    So this brings me to my last point. Doing the right thing 
is hard and often not politically expedient. Congress rarely 
makes simple, unpleasant choices, which means we end up facing 
difficult and unavoidable catastrophic problems. We only act 
when circumstances force us to.
    This is why the debt limit is important. It is our internal 
credit limit, not that of our creditors. It is an opportunity 
to reassess our spending and ask, ``How did we get here, and 
how do we get out of this mess?'' Answering those questions as 
part of past debt limit debates has spawned most, if not all, 
major Federal process reforms. The most notable example is the 
1974 Budget Act, but Gramm-Rudman-Hollings, pay as you go, all 
of the sequester, all came out of the debt limit debates. So 
when people say, ``Oh, no, no. We should just hurry up, hurry 
up and raise the debt limit without any reforms,'' it is 
exactly wrong. It is historically wrong, and every time we have 
ever gotten any process reform to try to fix it, it has been 
with a debt limit debate. So I think we should not shy away 
from having a real debate when we raise the debt limit.
    The Budget Act of 1974 was supposed to be an improvement 
and fix problems, but big spenders have over 40 years to figure 
it out, and they largely have evaded it now.
    My hope is that, once again, as we debate raising the debt 
ceiling, though, that we can reform spending and have 
significant reforms that will put us on the right course.
    With that, I would like recognize Ranking Member Peters for 
his opening statement, but before I do that, I would just want 
to note that this is Senator Peter's first hearing as Ranking 
Member of this Subcommittee. I would like to welcome him and I 
look forward to working with you. Senator Peters.

             OPENING STATEMENT OF SENATOR PETERS\1\

    Senator Peters. Well, I thank you, Chairman Paul. Thank you 
for the welcome, and it is a pleasure to serve with you, and I 
look forward to having many productive hearings in the months 
and years ahead and for bringing us here today to discuss, 
certainly, this very critical topic of the national debt and 
the pressing matter of the debt ceiling.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Peters appears in the 
Appendix on page 35.
---------------------------------------------------------------------------
    I would also like to give a sincere thank-you to our 
distinguished panel of guests. Your perspectives on both the 
national debt and the debt ceiling is absolutely critical to us 
as policymakers.
    And today, we will consider what I think are two 
significant, distinct, and most importantly, solvable problems.
    Perhaps I am an optimist, but I am finding sustainable 
solutions for our Nation's debt as well as finding a path 
forward on the debt ceiling are both problems that can and 
should be solved in a responsible, bipartisan manner.
    To me, working in a bipartisan manner on these issues is 
the only path forward. It is what I believe we were sent here 
to do: to find the solutions that put America on a path toward 
a sustainable fiscal future.
    As 2017 progresses, we are going to hear many School House 
Rock explanations of the debt limit, the statutory and 
arbitrary constraint on the amount of money the U.S. Treasury 
can borrow.
    Much of the conversation will be focused on questions like: 
When is the right time to talk about solutions for the long-
term debt and deficits? We should be constantly working toward 
fiscal responsibility. This is not, and should not be, a 
seasonal debate, and I am sure the Chairman certainly shares 
that sentiment.
    But just as we should be constantly engaged in discussions 
about how to solve our long-term issues, it is wholly 
irresponsible to turn this debate into one that threatens the 
full faith and credit of the United States.
    The global economy relies on the fact that at the end of 
the day, no matter the chaos in the rest of the world, the U.S. 
Government will fulfill its obligations and pay its bills.
    On March 16, 2017, under the Bipartisan Budget Act of 2015, 
the previously suspended debt ceiling was reinstated at just 
over $18 trillion. Immediately on March 16, Treasury Secretary 
Mnuchin wrote to Congress to inform us that the United States 
Treasury was taking extraordinary measures to avoid a breach in 
the debt ceiling.
    According to analysis of the debt limit conducted by both 
the Congressional Budget Office (CBO) and the Bipartisan Policy 
Center, the Treasury Department's extraordinary measures may be 
able to extend the date to which the U.S. Government can 
fulfill its financial obligations into the fall of 2017, 
perhaps October or November.
    However, Congress can and should immediately begin 
discussions to address our obligations. After having been 
through numerous debates on the debt limit since 2011, it would 
be the height of irresponsibility to let this debate slip into 
the midnight hour.
    I remind my colleagues, while a breach of the debt ceiling 
would have unprecedented and potentially catastrophic, impact 
on the global economy, brinksmanship alone has the potential to 
hurt everyday working families.
    In 2011, as Congress struggled to reach an agreement at the 
last minute, the U.S. debt was downgraded, consumer confidence 
fell sharply, and the stock market and credit markets took 
months to fully stabilize.
    To some, though, the debate in Washington may seem 
abstract, but if we yet again engage in brinksmanship, we are 
jeopardizing the chance for a working-class family to purchase 
their first home or take out a loan to buy a much needed 
automobile. We are risking thousands of Americans' retirement 
savings that they have built up over a lifetime of hard work. 
This is simply not acceptable.
    If there is to be renegotiation on the debt ceiling, I ask 
my colleagues, let it happen now. We cannot afford to let our 
differences risk the financial future of everyday Americans. 
Failure to act is also not an option when it comes to long-term 
debt and deficit reduction.
    Solving this challenge will take bipartisan cooperation, 
and it will require a comprehensive approach that addresses all 
three fundamental factors of deficit reduction: cutting 
spending, reforming taxes, and investing in economic growth.
    Budget plans that shift the burden onto one group at the 
expense of another or that ignore any of these three basic 
factors will not solve the problem. We need to support economic 
growth. We need to find real solutions to curbing long-term 
health care costs. We need to reform our Tax Code into one that 
promotes job creation and investment here at home in America. 
We need to make government more efficient, and we need to find 
responsible ways to cut spending.
    I hope today serves as an open forum on these issues, both 
our long-term debt as well as the debt limit, and I know that 
each of our witnesses are very well informed and highly 
respected on these topics.
    So I hope you use this forum to give us a very honest 
assessment of these challenges. We may not agree on some of the 
proposals that we hear, but it is only by engaging in 
bipartisan, collaborative fashion that we are going to find the 
solutions that America deserves and the American people are 
expecting us to come up with.
    Thank you.
    Senator Paul. Thank you, Senator Peters.
    With that, I will begin by introducing our first witness, 
the Honorable David M. Walker. Mr. Walker is the former 
Comptroller General of the United States and head of the U.S. 
Government Accountability Office (GAO). He also served as 
president and Chief Executive Officer (CEO) of the Peter G. 
Peterson Foundation and founded the Comeback America 
initiative. Mr. Walker has written three books and is also the 
subject of the documentary ``I.O.U.S.A.,'' about government 
debt, the topic of today's hearing.
    So we are happy to have you here, and we would love to hear 
your thoughts on the issue. Mr. Walker.

     TESTIMONY OF THE HONORABLE DAVID M. WALKER,\1\ FORMER 
    COMPTROLLER GENERAL OF THE UNITED STATES, UNITED STATES 
                GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Walker. Thank you. Chairman Paul, Ranking Member 
Peters, Senator Hassan, thank you very much for the opportunity 
to testify today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Walker appears in the Appendix on 
page 40.
---------------------------------------------------------------------------
    The title for this hearing is ``The Effect of Borrowing on 
Federal Spending.'' The shorter answer is there are several 
implications of our current Federal spending and borrowing 
practices. They include, first, additional debt results and 
higher interest costs that can serve to crowd out other Federal 
spending, especially discretionary spending, and/or increase 
pressure for tax increases.
    The CBO has projected that interest cost will be the 
fastest growing expense in the Federal budget on a percentage 
basis over the next 10 years, and what do we get for interest? 
As the Chairman said, nothing.
    Excessive levels of debt as a percentage of the economy can 
serve to reduce economic growth and job opportunities. It can 
also cause a crisis of confidence in the U.S. dollar and much 
higher interest rates if the market ever decides that the 
Federal Government has lost control of its finances and is not 
willing to regain control of them.
    Additional debt serves to mortgage the future of our 
children, grandchildren, and future generations at a time when 
they will face increasing competition in a much more 
interconnected and competitive global marketplace.
    From a broader perspective, the United States has strayed 
from many of the key principles and values that it was founded 
on and which made us great. Since 1913, the Federal Government 
has grown from two percent of the Nation's economy to about 21 
percent and increasing.
    In addition, in 1913, the Congress controlled 97 percent of 
all Federal spending annually. The only thing they did not 
control was interest. Today, in fiscal 2016, 69 percent of 
Federal spending, including interest, was deemed to be 
mandatory spending. Shockingly, the 31 percent of Federal 
spending that was controlled included all of the express and 
enumerated responsibilities outlined for the Federal Government 
under the Constitution and all investments in our future.
    Discretionary spending is coming under increasing pressure 
since mandatory spending is increasing at rates faster than the 
economy due to known demographic trends and rising health care 
costs. The bottom line is that Congress has lost control of the 
budget. Our debt burdens have now escalated to imprudent 
levels, and our collective future is now at risk.
    The Federal Government is still adding debt faster than the 
growth rate of the economy, and interest rates have started to 
rise. The CBO now estimates that interest expense will be the 
fastest growing category of spending, as I mentioned before, 
all the more reason why the Treasury Department should consider 
issuing 50-plus-year bonds as the GAO and I recommended over 10 
years ago.
    Since the beginning of our Republic, there have only been 
two times in our history that Federal public debt as a 
percentage of the economy has exceeded 40 percent--at the end 
of World War II and the immediate aftermath and today. 
According to the GAO, the percentage of debt held by the public 
is on a path to rise to levels far in excess of the Nation's 
high, absent a major correction in course.
    Defusing our Nation's debt bomb will require an 
unprecedented public education and engagement effort as a 
prelude to major budget, tax, Social Security, Medicare/
Medicare, health care, defense, government organization 
operations, and yes, even political reforms.
    The primary mechanism that Congress has used to control the 
level of debt in the past is the debt ceiling limit. However, 
it has not proved to be effective in limiting the growth of 
Federal debt, forcing a reconsideration of the proper role of 
the Federal Government, including the need to reform mandatory 
spending programs and tax expenditures.
    In addition, the Federal debt, subject to the debt ceiling, 
will soon pass $20 trillion, which his 105 percent of gross 
domestic product (GDP) and 3.5 times higher than it was in the 
year 2000.
    In my view, given the recent history, the debt ceiling 
limit needs to be replaced ultimately with a stronger statutory 
set of budget controls and a constitutional amendment that 
would limit public debt to GDP with specific targets and 
automatic enforcement mechanisms if the targets are not met.
    As you Senators may be aware, there is currently an effort 
to achieve a State-led convention under Article V for a fiscal 
responsibility provision. My view is debt to GDP is vastly 
preferable to a balanced budget for a variety of reasons. 
Twenty-nine States have now ratified that out of the 34 that 
are required.
    Speaking of the States, ultimately when the Federal 
Government restructures, bad news flows downhill. A typical 
State relies upon the Federal Government for about a third of 
its finances, as Senator Hassan knows having been a Governor, 
and we have also started to look at the financial condition and 
relative competitive posture of the States.
    I provide in Exhibit C, the Members of this Subcommittee, 
their States' rank from a high of number two in relative 
financial position to a low of number 49. It is important that 
the States get their act together too.
    In summary, we live in a great nation, but we have strayed 
from the principles and values that made us great. We are 
currently on an imprudent and unsustainable fiscal path. We 
need to be honest with ourselves and with the American people. 
Tough choices are required on the spending and revenue side of 
the budget in order to restore fiscal responsibility, enhance 
growth, and create a better future. The sooner we start making 
those choices the better, so the miracle of compounding can 
start working for us rather than against us as it is now.
    I would be happy to answer questions after my colleagues 
have an opportunity to testify. Thank you again.
    Senator Paul. Thank you.
    Our next witness is Veronique de Rugy, who is a Senior 
Research Fellow at Mercatus Center at George Mason University 
and a nationally syndicated columnist. In 2015, she was named 
the Politico Magazine's Guide to the Top 50 thinkers, doers, 
and visionaries transforming American politics. That is just 
one of her many accomplishments.
    Dr. de Rugy has written extensively on the issues before 
this Committee today, including the dangers of our debt and the 
drivers of it. She has also put forward some ideas on how to 
get our budget in order, one of which is dear to me, the 
rooting out and eliminating waste.
    Dr. de Rugy, thank you for being here, and we look forward 
to your testimony.

   TESTIMONY OF VERONIQUE DE RUGY, PH.D.,\1\ SENIOR RESEARCH 
      FELLOW, THE MERCATUS CENTER, GEORGE MASON UNIVERSITY

    Ms. de Rugy. Thank you, Senator. Chairman Paul, Ranking 
Member Peters, and Members of the Subcommittee, thank you for 
the opportunity to testify before you today.
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    \1\ The prepared statement of Ms. de Rugy appears in the Appendix 
on page 49.
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    I would like to make three points. First, since the debt 
ceiling showdowns of 2011 and 2013, we have actually come a 
long way in understanding what options are available to us when 
a debt ceiling crisis occurs.
    Second, we still need to recognize that the fights over the 
debt ceiling are only a symptom of a more problematic disease--
government overspending. The Federal Government spends too much 
money, which drives the need to increase its borrowing 
authority so much and so regularly.
    Third, the State of affairs is unsustainable. We must 
address the explosion and mandatory spending and, in 
particular, in entitlement spending. Thankfully, there are a 
number of institutional reforms and entitlement reforms that 
can be implemented to check the spending that drives the growth 
in our debt, and a debt ceiling debate is a good time to demand 
these changes.
    So let me start. First, during the 2011 debt ceiling 
debate, my colleague Jason Fichtner and I wrote a paper that 
explained that when the government reaches the debt ceiling and 
the Treasury can no longer issue Federal debt, it would still 
have a way to stage off a regrettable default while giving time 
to Congress to reach an agreement about implementing some 
reforms that would get us on a more sustainable fiscal path. At 
the time, we explained that the Treasury Department had several 
financial management options to continue paying the 
government's obligation, including prioritizing the debt, 
liquidating some assets to pay government bills, and using the 
Social Security trust fund to continue paying Social Security 
benefits.
    The previous administration, however, initially rejected 
these options, but now there are actually recognized acceptable 
procedures by Treasury, the Congressional Budget Office, and 
even the Federal Reserve of New York.
    Now, I would like to note that we never advocated for any 
particular measures, and we often lamented that this path had 
to be pursued because they have a cost. However, we also noted 
that it was much more responsible than defaulting on our debt 
or raising the debt ceiling without making any changes to the 
State of our finances.
    While there are several instances where Congress has used 
the debt ceiling as an opportunity, as you have said, Senator, 
to implement other reforms, for the most part, the debt ceiling 
was raised without any attempt to control spending, and the 
result has been a Federal debt that has ballooned from less 
than $5 trillion in 1993 to almost $20 trillion today and 
growing.
    Deficits are also going up. Over the coming decades, the 
deficit will double to almost five percent of GDP, and CBO 
predicts that cumulative deficits in the next 10 years will be 
a total of $10 trillion.
    Academic and international organizations have warned us 
against the negative consequences of not getting our long-term 
debt under control. Indeed, the consequences would be low 
economic growth, higher taxes, lower standard of living which 
would hurt the neediest of Americans, and the real threat of a 
debt crisis.
    Real institutional reforms as opposed to a one-time cut 
would change the trajectory of fiscal policy and put the United 
States on a more sustainable path. I believe we should adopt a 
constitutional amendment to limit spending, but there are 
reforms that could be implemented immediately such as adopting 
a strict cut-as-you-go system or creating a Base Realignment 
and Closure (BRAC)-like commission for discretionary spending. 
However, Congress must implement reforms to take control of 
mandatory spending. Without reform, the rate of spending under 
Medicare, Medicaid, and Social Security will have devastating 
effects on these programs, but also other government programs 
in our national economy.
    Again, without reforms today, vast tax increases will be 
needed to pay for the $75 trillion unfunded promises we have 
made to a steadily growing cohort of seniors.
    Fortunately, many workable solutions are available to 
lawmakers, like turning Medicaid into a true safety net or 
modernizing Medicare to address fiscal and structure 
challenges.
    Also, rather than focus just on insurance as the only 
solution to our country's health care challenges, we can pursue 
changes in regulatory policy that can generate the type of 
health care innovation and provider competition that can break 
the health care cost curve to bits rather than simply bend it 
temporarily.
    Thank you for the opportunity to testify before you today, 
and I am looking forward to your questions.
    Senator Paul. Thank you.
    Finally, I would like to introduce Mark Zandi. Dr. Zandi is 
the Chief Economist of Moody's Analytics, a well-known provider 
of economic research. He should be familiar to just about 
anyone who has followed fiscal and economic issues for any 
amount of time. He has testified numerous times before Congress 
on fiscal matters and is a regular on the financial networks.
    Thank you, Dr. Zandi, for coming.

 TESTIMONY OF MARK M. ZANDI, PH.D.,\1\ CHIEF ECONOMIST MOODY'S 
                           ANALYTICS

    Mr. Zandi. Thank you, Chairman Paul, Senator Peters, 
Senator Hassan. It is very kind of you to give me the 
opportunity to participate today.
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    \1\ The prepared statement of Mr. Zandi appears in the Appendix on 
page 58.
---------------------------------------------------------------------------
    I should mention for sake of disclosure, I am not employed 
by the rating agency, Moody's Corporation is made of two 
entities Moody's Analytics and Moody's Investor Service. I am 
not part of Moody's Investor Service, the rating agency.
    I am also on the board of directors of the Mortgage 
Guaranty Insurance Company (MGIC), a large mortgage insurer, 
and vice chair of the board of a nonprofit community 
development financial institution that makes investments across 
the country in underserved communities.
    I would like to make three points as well. I think we have 
all learned that that is about as many as we can make and 
people can digest.
    Point No. 1, you have a lot of work to do, a lot of budget 
issues dead ahead, one coming up in a few weeks. You will have 
to extent authority, spending authority for the government by 
the end of April.
    But I think the biggest budget issue this year is the 
Treasury debt limit. It is very important that that is resolved 
in a timely way. By my calculation, this has to be done by 
October 5, give or take, but I do not think any longer than 
October 5.
    Not addressing the debt limit in a timely way will be very 
costly. Not for a while, because I think markets have become 
conditioned to believe that when push comes to shove, you are 
going to act and solve this problem. So it is not going to be 
an issue today, it is not going to be an issue a month from 
now, but as we get closer, at some point, this is going to 
become a very significant issue. And it will be very costly, 
even if we do not breach the debt limit.
    We did a study looking at the last time we went through 
this, back in late 2013. Interest rates did rise, as we came up 
to the limit. If you do a bit of work and calculation, we found 
that it cost taxpayers about a half a billion dollars, just 
that brinkmanship around the limit and the effect that it had 
on interest rates.
    Of course, the limit was increased. If we solve that 
problem, the issue is resolved, and we move forward, and 
everything was OK. But if we actually do not solve this issue 
and we have reached the debt limit, I do not agree. I do not 
think there is any way to prioritize here. Maybe you can do it 
in a technical sense, but effectively, I think financial 
markets will crater, and it will have very serious implications 
for economic growth, jobs, and the cost to taxpayers will be 
enormous, a very bad idea.
    Point No. 2, I would recommend that you do away with the 
statutory debt ceiling. It is a bad idea. It is anachronistic 
and can be very disruptive. I do not think it helps in terms of 
making good policy decisions.
    If that is a step too far, I would recommend perhaps 
adopting ability-to-pay rules. The idea would be that every 
time you have a bill for spending, taxes, annual appropriation 
bill, you have to make sure that you have sufficient tax, 
future tax revenue, and borrowing authority to be able to meet 
the deficit requirements as calculated by the Congressional 
Budget Office.
    I think this would impose some discipline. You would have a 
debate around this issue every time you voted for a spending 
bill or a tax bill that added to the future budget deficit, so 
still very important, but it does not lead to the situation 
where we have coming up now and we have this drop-dead date and 
a lot of havoc can be created by breaching it. So I would 
recommend eliminating the debt ceiling, but if barring that, 
ability to pay.
    Finally, a third point, we have very serious long-term 
fiscal issues. I think both of the other folks here testified 
and did a very nice job of explaining that, so we have to make 
some changes.
    And I do think that will require some entitlement reform, 
particularly around the growth in health care cost. That is the 
key to Medicare/Medicaid and really the budget going forward.
    But I do think the best thing we can do in the most 
immediate future is focus on things that can improve economic 
growth. Just to give you some numbers, for every .1 percentage 
point increase in GDP growth, that will reduce budget deficits 
over a 10-year period by $300 billion. So if we can enact 
policies, for example, that raises expected growth over the 
next 10 years from 2 percent per annum GDP to, let's say, 2.5 
percent, that will save $1.5 trillion off the 10-year budget, 
$150 billion a year.
    So the work you are doing now with regard to corporate tax 
reform, immigration reform will be very important, 
infrastructure. Those are the kinds of things, I think, we need 
to really focus on, get that done, get growth up, and that will 
help to address our long-term fiscal issues. They will not 
solve them, but that, I think, is the best approach at the 
current time, to focus on those things.
    Thank you very much for the opportunity.
    Senator Paul. Thank you. Thank you all for your testimony.
    I do not think anybody, Republican or Democrat, wants to 
approach default or approach the deadline, and I agree with 
Senator Peters. If we began working on this with advanced 
notice, which, we should--we are big boys and girls--we ought 
to be able to get it done in time.
    But if you get rid of deadlines, do you get rid of sort of 
the impetus to do anything? And there have been reforms that 
have come from having the debt ceiling debate, and, actually, 
the reforms, I think, most of the time have been good reforms. 
The problem has been the people. The people do not obey their 
own rules, meaning Congress does not obey their own rules.
    We have had five or six significant budgetary reforms--
Budget Act of 1974, Gramm-Rudman-Hollings, pay as you go. I 
remember when I first ran, pay as you go, I think they said 
they broke it 700 times in the first three years. It is sort of 
lack of resolve on our part, both parties, and both parties 
have their sacred cows they want to spend money on, so the 
blame, there is plenty of blame to go around.
    But I think if you had no limits, if you had no debt 
ceiling, we would have no impetus to sort of force the issue to 
say we have to do something about it?
    Everybody knows we have this exploding entitlement problem, 
and nobody is doing anything about it. The only thing that ever 
forces us to do anything about it is the debt ceiling deadline.
    In 2011, we had a big fight. The conservatives, we proposed 
cut cap and balance. We actually had a balanced budget that had 
a percentage of spending of GDP. We did not win the day, but 
actually, I think we forced the issue enough that we got the 
sequester, which I did not think was enough at the time, but 
turned out to probably be the best thing we did in the last 10 
years. And now it has been defeated by right and left, with 
both sides at fault. Military wants more money, the left wants 
more domestic spending, and lo and behold, the sequester has 
been evaded every time.
    I think Mr. Walker had the most important point that I 
heard. It is that at one time, Congress controlled 90 percent 
of the spending, and now nearly 70 percent of it is not under 
our control. The point is we have to do something about 
entitlements. My side is as guilty of this as the others, and 
some of these are simply mechanistic things.
    It is demographics. It is nobody's fault. We have more 
older folks now and fewer younger folks. We have to figure out 
how to do it. We are having fewer children. We have to do 
something about raising the age of eligibility, and Republicans 
and Democrats did it together in the 1980s.
    But I guess what I would like to hear from each of you is 
your comments on how we fix the situation, how we address the 
entitlement problem, or your comments on whether a process type 
of reform, like a Budget Control Act of 1974 or something like 
that, will work.
    We will start with Mr. Walker, and we will work our way 
down.
    Mr. Walker. Well, first, I think that we have to be honest 
how we keep score. We have this number up here, $19.854 
trillion. The real number is about $80 trillion, because when 
you end up looking at unfunded Social Security, Medicare, 
unfunded civilian/military pensions, retiree health care, 
environmental cleanup costs, et cetera, most of which are in 
the financial statements, but they are not on the balance 
sheet--and those numbers are bigger, and frankly, they are 
growing faster than this number. So we have to be honest about 
what the nature and scope and magnitude of the problem is.
    Second, I think we also have to work with our terminology. 
I think sometimes we cause our own problems because we call 
things, for example, ``entitlements.'' There is only two things 
guaranteed under the Constitution of the United States, only 
two: first, debt issued by the United States, which I would 
argue is both debt issued to the public and debt issued to the 
so-called trust funds; and second, Union Civil War pensions. 
And I think we have paid all of those. I am from Alabama. They 
did not guarantee our pensions. I think I know why, but those 
are the only things that are guaranteed.
    Now, what do we do? In 2012, I went on a 10,000-mile, 27-
State national fiscal responsibility bus tour, and in two 
States in particular--Ohio, which was a swing State in the 
North, and Virginia, a swing State in the South--Alice Rivlin 
and I addressed a demographically representative group of 
voters in those two States with the facts, the truth, and the 
tough choices, and after doing that asked them to give us 
electronic confidential feedback on reforms in the following 
areas--budget process and controls, Social Security, Medicare/
Medicaid, health care, defense, taxes, government organization 
operations, and political reforms, specific illustrative 
reforms designed to get debt to GDP down to 60 percent by then, 
at that time, 2030, now 2035, and to be able to do it with 
everything on the table.
    Senator Paul. And so you asked these groups like a focus 
group? What did they say?
    Mr. Walker. They were demographically representative.
    Senator Paul. What did they say about raising the age of 
eligibility for Social Security?
    Mr. Walker. Correct. And we got 77 percent to 90-plus 
percent support for packages of reforms in all the areas that I 
just talked to you about. OK?
    Senator Paul. Including even allowing the age of 
eligibility to rise?
    Mr. Walker. Correct. And we were able to do it because we 
got them to agree first on three things. Are we on an improved 
and unsustainable path? Ninety-seven percent said yes after 
they had the full story.
    Second, should our goal be to stabilize debt to GDP at a 
reasonable and sustainable level? That way, it is pro-growth 
but with fiscal responsibility. I think about 90 percent agreed 
on that.
    And then six principles and values to guide reform: pro-
growth, socially equitable, culturally acceptable, mathematical 
integrity, politically feasible, and meaningful bipartisan 
support. Now, there is details I can go into, if you want.
    But after doing that, after agreeing there is a problem, 
here is the goal, here is the principles and values, then we 
showed them a range of solutions designed to achieve that. And 
we got 77 to 90-plus percent support. That is not how things 
were done in this town. OK?
    Senator Paul. It does not seem to be working here. Dr. de 
Rugy.
    Ms. de Rugy. I agree. It is a difficult act to follow, and 
I agree entirely with what you were saying. It is interesting 
because it echoed a lot of polling that I have seen also that 
shows that when you actually present people with the tradeoffs, 
when you say, for instance, ``Do you want this government 
service?'' people will say, ``Oh, yes.'' ``Do you want more of 
it?'' ``Oh, yes.'' But when you say, ``At which price?'' then 
people are more willing to start actually talking about the 
kind of tradeoffs they would be willing, what they would be 
willing to sacrifice, whether they actually would want to see 
that program cut.
    So it is kind of interesting, and I think, unfortunately, 
in this town, there is not a lot of interest to talk about real 
tradeoffs.
    The other thing that is pretty clear is we know how to 
reduce debt-to-GDP ratio. First, we know there is an impact on 
growth, and I agree that we need to grow the economy, but we 
are not going to get our way. I agree that it is a priority, 
and it is a priority for everyone, but we cannot overstate how 
important it is for low-income Americans to see the economy 
grow.
    But if you want to reduce debt to GDP--we are not going to 
grow ourself out of this debt. We are going to have to address 
our spending, and we know how to reduce our debt-to-GDP ratio. 
If you do a review of the literature on fiscal adjustments, 
what you find is that the countries that have actually 
implemented fiscal adjustment packages, that are made mostly of 
spending cuts and particularly and not surprisingly of the 
social transfers, the so-called entitlement spending, which you 
are totally right--I mean, we know we are not entitled to them; 
that has been proven by the Supreme Court, and Congress can 
just change the law at any time--those countries actually 
manage to reduce their debt-to-GDP ratio.
    On the other hand, countries that try to do kind of a 
halfway thing of raising taxes and cutting spending did not 
succeed, and one of the reasons is because they would raise 
taxes and not really follow through on the spending. And they 
would not actually do the spending cuts where they needed to 
be, meaning do fundamental structural changes.
    And the thing that is important is that--so we know what to 
do. There is multiple ways to do it, multiple solutions, and 
what is important is also going back to economic growth. There 
is always a lot of people saying, ``Well, if you implement 
these type of packages''--right?--``it is going to have a 
depressive effect on the economy.'' Well, actually, economists 
agree. There is a consensus that in the long term, it is 
actually beneficial for the economy. And there is still a 
debate on the consequences in the short term.
    But the question is like--while I will agree also with Mr. 
Zandi that, yes, reaching the debt ceiling or even have some of 
these 
conversations or getting that close has a cost. In a sense, we 
are getting a taste of what is going to happen to the American 
people if we do nothing, and it is just like simply pushing 
back and kicking the can down the road--and the name that it 
has a cost today--is irresponsible, and we absolutely need to 
do something.
    And if I can say one more thing, reducing the cost of 
health care is important, and unfortunately, a lot of the 
conversation in this time is actually--places focus in the 
wrong place. Constantly talking about how we can reform the way 
we provide health insurance is the wrong thing to talk about. I 
am not saying it is not important, but it kind of ignores the 
fact that third-party payer, whether it is the government or 
insurance, actually contributes to the problem.
    One of the things that would be better to do is, sure, the 
government provides for the neediest in terms of health 
coverage, but also bring as much innovation and free the supply 
side of health care in order to bring the kind of emulation 
that we have seen in other sectors like technology and many 
other sectors, which raises quality and reduces prices. And 
that is, unfortunately, a conversation we are not having 
enough.
    Senator Paul. Dr. Zandi.
    Mr. Zandi. I will give you four suggestions. This first 
suggestion is I do not think I would use the debt limit as a 
way to effectuate change. It is a matter of benefit and cost, 
and I think the costs are very significant, particularly if you 
breach the debt limit. We have obviously not gotten there yet, 
but the costs there are obviously uncertain, unknown. But a 
prudent planner would want to go down that path, and therefore, 
it is not really credible to think that is going to have a 
significant effect on the behavior in terms of solving these 
long-term fiscal issues. It is a judgment, but I think the 
costs there could be quite substantive and should not be 
discounted, particularly given the uncertainty around those 
costs.
    The second thing I would say is, at this point in time, I 
think, just to reiterate the point in my oral remarks, I would 
focus on growth. You are thinking about policies that could 
help promote growth. Corporate tax reform is a very good idea. 
I think immigration reform is the most obvious way. More highly 
skilled immigrants into the country is the most obvious way to 
lift growth and address our long-term fiscal issues, as you 
brought to your point about demographics. And infrastructure 
spending is also key.
    Third, if I were King for the Day and you are focusing on 
Social Security and how you would solve that and you are 
proposing raising the age of retirement, the path I would take 
would be different. I would say let's raise the payroll cap. It 
has eroded over time. When Social Security was put on the plan 
in the 1930s, it was 90 percent-plus of eligible earnings. Now 
we are down to 80. Let's just put it back to 90.
    And the second thing I would do is I would adopt a chain-
weighted Consumer Price Index (CPI). That would affect Social 
Security benefits. It would also affect the Tax Code and some 
of the parameters in the Tax Code.
    So if I were going to solve Social Security, if that is 
what you are focused on, those are the kinds of things I would 
do before raising the retirement age.
    Finally, the real solution in my view to solving our long-
term fiscal issues is really the growth in the cost of health 
care. That is the key thing, but that is not going to be 
something you are going to solve today, next year, or the year 
after, just given the situation that we are in and the politics 
of all this.
    So my advice would be let's do these other things. They are 
doable. They will have significant benefits. And let's come 
back to this when we are a few years down the road and take 
another crack at it because these long-term fiscal problems, 
they are not going away. They are here for 20, 30, 40 years. 
Let's do what we can do, not beat our heads against some of 
these other smaller things that are not going to really make a 
difference. It is really about the growth in health care cost.
    Senator Paul. Senator Peters.
    Senator Peters. Thank you, Mr. Chairman, and again, thank 
you to the panelists, your testimony, and the conversation that 
we are having here, it is refreshing to have a hearing like 
this where we can really just have a conversation back and 
forth, not as formal as these usually are. I appreciate the 
frankness of all of you.
    First off, Mr. Walker, I listened with great interest in 
the panels that you held around the country with a variety of 
groups. I listened to that with interest because I have done 
that myself in my district, not for a few years, but a few 
years ago, we had a number of sessions where we had cross-
sections of folks. A lot of this was a few years ago when I was 
in the House, the Tea Party movement was in full bloom, and the 
folks who were there were heavily represented. Tea Party folks 
were heavily represented, but it was all sorts of groups of 
people who came together.
    I will tell you my results were different than your results 
at each of those meetings, where there was not that sort of 
consensus that came out of it, as folks were saying we added 
the tax element, you talked about a little bit, Mr. Walker. But 
folks were all for tax cuts. They thought those were pretty 
good until they realized it was not solving their issue with 
the deficit, and they could not do that. Then when it talked 
about cuts, most of them were all in favor of cutting foreign 
aid. That was the top of their list, but they realized that did 
not have much impact whatsoever on the budget.
    They were not really excited about cutting Social Security 
or Medicare, and so in the end of it, we did not get that kind 
of consensus. I would love to talk with you more at some point 
in the future as to how we bring folks together because that is 
kind of the crux of the problem. How do we bring America 
together to have this kind of comprehensive adult conversation 
that we need to have and understand in order to deal with this? 
I always explain that this is a three-legged stool. We cannot 
talk about dealing with the deficit unless we are dealing with 
all three legs, which are tax policy, spending, and growth. 
None of those by themselves will work. You cannot raise taxes 
enough to deal with it. You cannot cut enough to deal with it, 
and you cannot grow yourself out of it. You have to do all 
three, and that is where you then run into the politics of 
people just wanting tax cuts. They do not want to have anything 
that is revenue-neutral or raises more revenue or they think we 
can grow our way out. I think that has been pretty clear by our 
panelists that this is a complex issue that we have to handle, 
particularly when you are dealing with entitlements.
    I have heard a couple of you say that we know that these 
are not entitlements. I will tell you, ask any person of my 
constituents--and I agree with them. These are entitlements. 
These are things that people have paid in their entire life, 
and if you tell them that they have paid into a system for 
their entire life, that they should get something back, like 
their pension plan. If they have been contributing to their 
pension plan and to say, ``Well, we have changed the rules. We 
know you have paid into this for the last 30 years, and we know 
you are counting on a dignified retirement, but, hey, we 
changed the rules,'' that is not something that is going to be 
palatable to nearly everybody. And I agree if you pay into the 
system, those are the rules, and you played by the rules, you 
should expect that it will actually be there for you.
    So these are things that we grapple with and why it is 
difficult to bring all of our colleagues together, but let me 
ask a more specific question on the debt limit to Dr. Zandi.
    You have talked about the costs associated with debt 
limit--because we have to figure out how to force this. I agree 
with all three of you. We have to force these kinds of 
decisions. I would agree with the Chairman. We have to force 
this, but the question is, is this tool the appropriate one? 
Because I am afraid we are heading toward another crisis, and 
the pattern has not been very good, that we have actually had 
these kinds of frank discussions.
    I agree. I do not think we are likely to eliminate the debt 
limit. That is probably not going to happen, but I think we 
should understand the costs associated with it.
    You talked about the impact of the markets and the cost of 
the last crisis--although I know in your testimony, you also 
talked about the fact that markets are now starting to realize 
Congress should just do this. This is all games that they play, 
and they go back and forth, and it is just another example of 
the dysfunction that exists in the U.S. Congress that we get to 
those crises, but they are going to just pass it as soon as it 
comes to that crisis point.
    So my question is, if that is the case, is this even losing 
its viability as a tool, and the fact that in the past, the 
markets would react negatively? My colleagues would say, ``Oh, 
my gosh, we better do something here because the markets are 
performing badly. This is having an impact on the economy.''
    Mr. Zandi. Yes.
    Senator Peters. ``We better get our act together.'' But now 
it is not like we are even getting that pressure until the very 
end, and then it is too late. And then it could be 
catastrophic, potentially. Is that a fair assessment of where 
we are and why this is kind of a dangerous thing to be thinking 
about right now?
    Mr. Zandi. Yes. That is an excellent point. I mean, if you 
think back to the 2011 experience, December 2011--you mentioned 
that in your opening remarks about the downgrading of the debt 
by Standard & Poor's (S&P)--as soon as the letter was written 
by--I believe it was Treasury Secretary Geithner--I cannot 
remember to whom Congresswoman Pelosi--the markets had already 
started to react. You could actually see it in the markets, and 
the tension in markets started to build pretty quickly.
    And that you would think started to put pressure on 
policymakers, ``Oh, we have to do something here, or otherwise 
markets are going to cave.''
    But now they have been conditioned. We have gone down this 
path a number of times, again in 2013, and the letter was sent. 
Secretary Mnuchin sent a letter to House Speaker Ryan, and no 
one is even talking about it. It is like, literally, no one is 
talking about it. This would have been news in 2013 and big 
news in 2011.
    So I think the markets are being conditioned here to expect 
that you finally solve this, and there is no pressure. The 
markets do not react. The stock prices are not going down. The 
credit spreads are not gapping out. The credit default swaps 
spread are not widening. Where is the pressure?
    But at some point--and there will be a point--everyone is 
going to wake up and say, ``Oh, my gosh, what is going on?'' 
Boom. And at that point, it is going to be very costly to 
taxpayers because we are all going to pay--we are talking about 
interest on the debt. Well, interest rates are going to spike, 
and it is going to cost us. All that short-term money that the 
Treasury issues is going to be issued at a much higher interest 
rate, and that is going to cost taxpayers. And to what end? We 
are going to do something with 
the Treasury debt limit, and everyone knows it. So I am not 
sure--again, it is a matter of judgment, but my sense is this 
is not the way to achieve the kinds of things you want to 
achieve here, and it could be very costly.
    Senator Peters. Just before I get to Mr. Walker, if I may, 
the complacency works, I think, two ways. One is that 
policymakers think, ``Well, we do not have the pressure because 
the markets are not reacting this way to do it,'' and then 
there is the complacency not to do anything. Then there is also 
the feeling, ``Well, then maybe it is OK if we breach the debt 
limit because the markets do not seem to be reacting to any of 
this.''
    Mr. Zandi. Right.
    Senator Peters. If we are not seeing any pressure and then 
it adds to the danger level as well--and we heard a lot of 
conversations, ``Well, the markets really are not reacting. 
Maybe we can find other ways to get through this and 
prioritize,'' which I think is potentially very problematic. 
Mr. Walker.
    Mr. Zandi. Can I make one other point? We actually did 
default on debt briefly because of a technical mistake, it was 
back in early 1970s, where the Treasury, because of a computer 
glitch, did not actually pay on time. And there has been 
academic research that shows that, in fact, that raised 
interest rates for a very long period of time, just that 
technical error.
    So if you actually get to a point where we do not pay, that 
would be very costly to us, and at the end of the day, the 
triple-A credit of the United States is the bedrock of the 
global financial system. We just should not mess around with 
that. That is a given, and messing around with that could be 
very significantly costly.
    Senator Peters. My time expired, but we want to hear from 
you.
    Mr. Walker. A couple things quickly. First, I used to be a 
trustee of Social Security and Medicare, one of the prior hats 
that I had. While Social Security, you are paying a payroll tax 
during your working life and while Part A under Medicare, you 
are paying a payroll tax during your working life and so is the 
employer, you are not for B and D. Part B and Part D under 
Medicare are the ones that are the most underfunded, and people 
do not pay for that until they are actually eligible for the 
program to begin with. And most of the costs of those programs 
are funded out of general revenues.
    Second, I think the big difference between the results that 
you got in your session and I got is that you did not have a 
representative group of voters. You basically had adverse 
selection, people who wanted to come, including the extremes 
tend to come disproportionately. And so having a representative 
group was important to try to get better results because, 
unfortunately, the extremes from both sides tend to be 
disproportionately represented in our political process.
    The last thing is the process matters, and I will give you 
one example. In 1998, President Clinton wanted to reform Social 
Security, and that was right before I was appointed as 
Comptroller General of the United States. And I had been a 
trustee of Social Security and Medicare. The American 
Association of Retired Persons (AARP) and the Concord Coalition 
came together, worked with the White House to try to do several 
forums, where experts like myself stated the facts, spoke the 
truth, talked about the options, engaged people with electronic 
confidential balloting, and the elected officials observed. 
They did not talk; they observed. That resulted in some 
dramatic evidence that people were willing to accept some 
tradeoffs, and I believe that we would have had Social Security 
reform before the beginning of this millennium had there not 
been a personal problem of the President, which caused him to 
lose political capital.
    Quite frankly, the kind of reforms that we would have done 
back then, because I was part of that, pretty much can be the 
same kind of reforms that ultimately we do. The question is, 
When are we going to do it?
    Senator Peters. Thank you.
    Mr. Walker. The process matters.
    Senator Peters. Right. Thank you, Mr. Walker. Thank you.
    Senator Paul. Senator Hassan.

              OPENING STATEMENT OF SENATOR HASSAN

    Senator Hassan. Well, thank you, Chairman Paul and Ranking 
Member Peters. I am really glad to be here for my first Federal 
Spending Oversight and Emergency Management Subcommittee 
hearing. It is a privilege to join this Subcommittee, and thank 
you to the panelists. It is nice to see you again, Mr. Walker.
    I do have a couple of questions. First, starting with Dr. 
Zandi, I would like to talk about the cost of government 
defaults and shutdowns and how that impacts our national debt. 
In your testimony, you warn that if the Treasury were to 
default on its obligations, the economic impact would be 
devastating, potentially more severe than the Great Recession.
    In addition to the incredible damage that would cause to 
our families and businesses in New Hampshire and all around the 
country, it seems to me that the damage to our economy--you 
estimated a possible five percent decline in GDP--would also 
reduce tax revenues and then, therefore, increase the national 
debt considerably. Is that an assessment you agree with?
    Mr. Zandi. Yes. That is exactly right, and that was a 
scenario where we breached the limit. So October 5 is the 
limit.
    Senator Hassan. Right.
    Mr. Zandi. We breach it, and we go on for another month 
without resolving it, and we do not make Social Security 
payments. And that is the scenario that you are describing.
    And you are right. Just to give you a context, the 5 
percent decline in GDP that you cited for the scenario is equal 
to roughly the decline during the Great Recession. In the Great 
Recession, the debt-to-GDP ratio of the United States rose by 
35 to 40 percentage points, so that gives you a sense of the 
magnitude of that kind of a recession and what kind of impact 
it would have on the budget.
    Senator Hassan. OK. So that description is one of the 
reasons I am hopeful that both parties can come together to 
deal with the debt ceiling well before the deadline, without 
manufacturing a crisis by bringing in unrelated political 
issues that really force impossible choices. I think people in 
both parties would agree that they get put in a situation when 
political issues get added on.
    I am also concerned that government shutdowns can have much 
of the same effect. I lived through the shutdown in 2013 as the 
Governor of New Hampshire, watching the White Mountains 
National Forest shut on Columbus Day weekend, which is one of 
our prime tourist periods in the State.
    To that point, Dr. Zandi, you previously said that the 2013 
government shutdown resulted in a $20 billion hit to our 
Nation's GDP, as default shutdowns have a real impact on 
families and businesses and also reduced tax revenues, once 
again, increasing our national debt.
    So, Dr. Zandi, do you agree that costly shutdowns increase 
the Federal debt, and that if Congress is serious about cutting 
the deficit and reducing our debt, as I am, that we should be 
avoiding those kind of costly defaults and shutdowns that hurt 
our bottom line?
    Mr. Zandi. Yes, absolutely. Just to give you a rule of 
thumb, for every week that the government shuts down, it costs 
20 basis points of annualized GDP growth. So you can do the 
arithmetic.
    And here is another really good rule of thumb. For every 
lost dollar of GDP, the deficit will increase by 40 to 50 
cents. So the arithmetic here is pretty daunting.
    Senator Hassan. Well, thank you. I am truly hopeful that 
the threat of these kinds of consequences will help ensure that 
Senators from both sides of the aisle can come together and 
work out a clean budget deal without any poison pills.
    This is a question to the full panel, as it is a related 
point. Dr. Zandi notes in his testimony that political 
uncertainty in Washington is already very high and has been 
since the shutdown in 2013. As this uncertainty grows, 
businesses are more reluctant to invest or hire workers. 
Families become more cautious in their spending, and GDP growth 
slows.
    So if each of you could address how uncertainty can impact 
economic growth and long-term investment, and can you discuss 
how Congress creates uncertainty when it passes short-term 
continuing resolutions (CR) rather than annual appropriations 
or when it threatens defaults or shutdowns for political 
purposes?
    And, Mr. Walker, I would start with you.
    Mr. Walker. Believe it or not, I am 65 years old. Congress 
has passed timely budget and appropriation bills four times in 
65 years. That is an F minus. OK?
    Business relies upon some reasonable ability to predict 
what the future might be, and the absence of that reasonable 
ability to predict, there is a cost. There is clearly an 
economic cost. There is clearly an opportunity cost, et cetera, 
and so clearly, we need budget reforms.
    Frankly, the only thing under the Constitution of the 
United States that is express and enumerated for both houses of 
the Congress to do every year there is only one and that is 
appropriations. Yet it does not do it.
    At the same point in time, rules like pay-as-you-go rules 
are not adequate because that assumes that we are in a 
sustainable position, and all we need to do is pay for new 
stuff when, in fact, we cannot afford what we already have.
    So I think, yes, we need more certainty, but we also need 
to start treating the disease----
    Senator Hassan. Yes.
    Mr. Walker [continuing]. Rather than the symptoms, and that 
is part of what this hearing is all about.
    Senator Hassan. Thank you. Doctor.
    Ms. de Rugy. I mean, I agree. Uncertainty is a problem. 
Markets do not like uncertainty. It creates paralysis, but I 
will also say that, It is not the only way by adopting 
continuing resolution, time and time again, that Congress 
creates uncertainty.
    The Tax Code is replete with temporary tax provisions, 
which require to be extended or not. I mean, the drama every so 
often over the tax extenders--it was supposed to be a one-time 
thing in 1988, and it has been happening all the time ever 
since, creates uncertainty. Writing massive regulations that 
will take years to write all the regs create massive amount of 
uncertainty. So the government has this tendency of, yes, 
creating massive uncertainty, and it is not a good thing.
    That being said, I will say again there is no doubt, so 
default shutdowns are not--they are not desirable things at 
all. The waiting is not an option. The government is not going 
to meet its promises under any circumstances right now, and it 
is certainly not going to meet its promises with this level of 
debt.
    Take Social Security, for instance. When the trust funds 
are empty, we know what is going to happen. By law, benefits 
are going to be cut by 25 percent. We know this, and people, 
the lowest-income Americans, those who really truly depend on 
Social Security are going to be hurting. And the idea that we 
can push that can down the road because Congress is going to 
change the law, once again, I think is foolish because by then, 
the debt-to-GDP ratio will be 150 percent. It is going to be 
already $30 trillion gross debt in 2017, 140 percent. I do not 
think you guys will have the luxury of actually changing the 
law to say we keep everything.
    So I just think that I would rather for my children and 
future generations that we assume--I mean, that we are 
responsible today and start passing the reforms, and if we need 
to do it by using the debt ceiling, again, there are ways to 
not default. The idea of threatening of default all the time as 
if, and which is, by the way, the conversation in 2011 was one 
where there was no way to actually use extraordinary measures. 
There was no way to do prior writing--I mean, it is not that 
these are desirable things, but it is not true. We know it is 
not true, and if it allows us to not continue pushing this can 
down the road--in the name of my children, I would rather take 
that risk and rock the boat a little bit today.
    Senator Paul. Thank you. Senator Lankford.

             OPENING STATEMENT OF SENATOR LANKFORD

    Senator Lankford. Thank you.
    Can we set some context real quick? When we are talking 
about interest and debt issues, what do you anticipate the 
interest payments will be 10 years from now for the United 
States?
    Ms. de Rugy. Can I tell you?
    Senator Lankford. Go ahead.
    Ms. de Rugy. Right now, projected by CBO, it is going to be 
close to $800 billion. That assuming that the interest rates 
stay what it is projected to be modest.
    Senator Lankford. Right, modest growth. Modest growth in 
interest rates.
    Ms. de Rugy. So almost $800 billion.
    Senator Lankford. Mr. Walker, anything you want to mention?
    Mr. Walker. That sounds right. Right. That is modest growth 
in interest rates, not returning to the levels of the 1990s, by 
the way, but below that. Interest rate risk is arguably one of 
our highest risks. It is the fastest-growing expense on a 
percentage basis, and we get nothing for it.
    Senator Lankford. Right. It has been one of the areas that 
I try to push a lot of people that I talk to, to say it is the 
creeping element in the budget that no one can pay attention to 
because you assume it is never going to get that high, but it 
is coming. It actually squeezes out all discretionary spending 
just for interest, which we will do.
    So let me ask a question: How are other nations handling 
issues like debt limits?
    Mr. Walker. I do not know of any other nation that has a 
debt limit. There are nations that have what I advocated, which 
is a debt-to-GDP limit, with automatic targets and triggers and 
enforcement mechanisms if you violate it. Things have to 
happen. Right now, things do not happen, and so, as a result, 
we have gone from $5.7 trillion in total debt, subject to the 
debt ceiling limit, to almost $20 trillion since 2000. And we 
still have not done anything to deal with the structural driver 
of the fiscal imbalance.
    Mr. Zandi. Yes. Relative to other developed economies, we 
have a very anachronistic, unusual approach to this. There is 
no other country that has anything that comes close to a debt 
limit or even shuts the government down over these issues.
    Senator Lankford. Right. So I asked the same question to 
several other international leaders last year and I was aware 
there is no debt limit out there anywhere else in the world, 
that we do it very different. But I asked a question of another 
international leader and said, ``What happens if you get to the 
end, and then you tip over, and you have a government 
shutdown?'' He laughed. He said, ``We have a new election the 
next week, because all of us are out. Parliament dissolves, and 
everybody is out and done. This did not work, and we are all 
gone. That is how we handle it, to be able to make sure that we 
actually take advantage of our responsibility.''
    Mr. Zandi. And, of course, they do not. So if you look at 
the debt to GDP of almost every developed economy in the world, 
it is higher than the United States at this point in time.
    Senator Lankford. Right.
    Ms. de Rugy. I was going to say, I mean, it is hard to 
think of a country we should use as a model, so I think a debt 
ceiling or not is really----
    Senator Lankford. So the question is the combination of 
several things here. I have proposed several areas to be able 
to get on top of this. Several Members of this Committee have 
as well. One is we have to avoid the constant fear of a 
government shutdown. That does not help us. That does hurt our 
economy every single time. We have to have a way to be able to 
solve that, but we also have to be able to bring fiscal 
responsibility.
    I have a bill called the Government Shutdown Prevention 
Act, which puts the consequences on Congress and the executive 
branch, holds harmless every other agency, but puts the 
pressure where the pressure should be for us to get to 
appropriations, and so we can finally get to doing 
appropriations bills and to be able to move on.
    I have noticed in the short time that I have been here that 
Congress only acts when it has a deadline. If there is no 
deadline, we never seem to get to action items; hence, things 
like immigration reform and so many things we discuss year 
after year. But with no deadline, there is no time to do it. 
That is why a debt ceiling suddenly creates this false 
deadline. That is why you have all these other entities when 
you deal with budget times, that it creates a deadline. So it 
is important, I think, that we actually accomplish something 
with that to be able to move, to not have a shutdown, to be 
able to keep maintaining where we are, but to be able to solve 
some of the issues.
    I want to ask about the issue about a debt ceiling. I 
believe Congress will always expand the debt ceiling. We will 
find a way every time to do it for fear of default and what 
that means internationally to the international economies. The 
question is, Is it useful to us to be able to actually 
accomplish something with it and to be able to find a way to be 
able to say, how do we get hold of our interests and our debt 
payments at some point?
    So, Mr. Walker, you have mentioned several times debt to 
GDP or other mechanisms. Is there a way that we can deal with a 
debt-ceiling vote that also has a marker on it saying the debt 
ceiling increases if our deficit numbers decrease by a certain 
percentage? So let's say Congress were to say, at this point, 
two years from now, our deficit decreases 10 percent. Then the 
debt ceiling increases, and it sets specific targets for 
Congress to be able to work toward. When trying to work toward 
this, not just we have debt-ceiling votes, because I think we 
are always going to have debt-ceiling votes, and there will be 
a way that Congress finds to pass it every time, but to have a 
meaningful process that is a marker to say, ``We are failing to 
get on top of this. How do we get us back to balance and to 
start bringing this down?''
    Mr. Walker. If you are going to have metrics--and I am for 
metrics and mechanism--targets, triggers, and enforcement 
mechanisms--I really think you ought to change, rather than 
deficits and rather than total debt, to go to debt to GDP. And 
why do I say that? That is what really matters. That way, you 
could pursue pro-growth policies, and we have talked about a 
number, but you have to have fiscal constraint. And that fiscal 
constraint requires everything to be on the table. It requires 
discretionary spending to be on the table. It requires 
mandatory spending to be on the table, and it requires tax 
expenditures to be on the table, which is $1.2 trillion a year 
and largely not looked at, at all. So I think you need to move 
toward that approach.
    The other thing, there is a group that I am the national 
co-founder of. It is called No Labels, and one of the things 
that it advocated with regard to the budget and appropriations 
process is no budget, no pay. That if the Congress does not 
pass a budget and the appropriations bills by a certain date, 
that Congress does not get paid until it does.
    Now, there are States that have done that. I think 
California is one of them, and they have not had a problem 
since then. They have other problems.
    Senator Lankford. Lots.
    Mr. Walker. But they do not have that problem.
    Senator Lankford. I would not exactly pull California as a 
model on efficiency in spending.
    Mr. Walker. No, no, no. No, they are not, but they are 
ranked number 40 out of----
    Senator Lankford. But they have found way--and not to go 
pick on California because their folks are not here to be able 
to defend themselves. But what their legislators had done as a 
result of that is find a way to be able to hide their debt in 
other places and to be able to bury it in other ways.
    Mr. Walker. And we do that too.
    Senator Lankford. I agree. That has been the challenge that 
I have faced, and when you do a debt to GDP, every time you do 
debt to GDP, there is some way to be able to fudge the numbers 
and to be able to fudge exactly which GDP number that is and 
how you figure it and what you do. I am trying to find a way 
that you cannot fudge the numbers.
    So when I look at specific targets--I understand economic 
growth has got to be a major priority, but if you look at 
percentage, reduction of the deficit, that assumes you are 
going to find a way to have economic activity and growth. You 
are going to have to control spending. You are going to have to 
find a way to be able to do that. Whether it is revenue or 
whether that is cutting, you have to find a way to be able to 
do that, but that is a clean number. That if you set a date, 
you cannot fudge it.
    And in this town, everyone fudges the numbers. I am trying 
to find a clean way to say let's do a number no one can hide.
    Mr. Walker. It may have to be a transition. Yes. You may 
have to do something like that.
    Ms. de Rugy. Can I add something about fudging?
    Senator Lankford. Sure.
    Ms. de Rugy. You are so right. I mean, like debt-to-GDP 
limit has not worked for Europe very well.
    Mr. Walker. It is because they do not enforce it.
    Ms. de Rugy. Yes, they do not enforce it. But it ultimately 
boils down to this: implementation. And how do you tie the 
hands of Congress? That is a real--that is a $20 trillion, 
going on $40 trillion question, is how do you tie the hands of 
Congress? That is really hard.
    I just wanted to say something about tax expenditure. I do 
not entirely disagree with you, but we have to be very careful. 
Now those $1.2 trillion should be on the table because some of 
those tax expenditures are meant to mitigate the double 
taxation that exists in the Tax Code. So I think we have to be 
careful and not looking at them all as a potential source of 
revenue, unless we fundamentally reform our Tax Code and adopt 
a flat tax and get rid of double taxation of saving and----
    Senator Lankford. I am over time, but let me make one quick 
comment. Where we are right now in budgeting, I am not sure it 
is how do you tie the hands of Congress. It is how do you untie 
the hands of Congress because most everything is on autopilot 
around here, and if you get to the end of a budget year, you do 
a continuing resolution. Even discretionary spending ends up 
being on autopilot. So this is a matter of giving Congress a 
deadline when they have to act and do something and cannot just 
sit back and say status quo will work and status quo is driving 
us over the cliff.
    Mr. Zandi. I have a suggestion for it if you want to hear 
it.
    So the ability-to-pay rules in every piece of legislation, 
that adds to projected budget deficit. So ability to pay is 
equal to projected tax revenues plus borrowing authority must 
cover the deficits the CBO expects over the 10-year budget 
horizon, and that would be for every piece of legislation. That 
would add to future budget deficits. So every time you vote for 
a piece of legislation that will add to deficits, you have to 
also vote for the borrowing authority to achieve that.
    Senator Lankford. How is that different than the PAYGO 
rules that already exist that are waived by Congress routinely?
    Mr. Zandi. If you waive them, you waive them, but that 
would be a rule that instead of having a Treasury debt limit, 
where it is cataclysmic if you go over it and, therefore, it is 
not credible that you will go over it, then you have this is 
something that would impose discipline every single time you 
voted for something.
    Senator Paul. Thank you. I think that illustrates a lot of 
the problem, is it is not that we have not tried, not that we 
do not have processes in place. It is a people problem.
    Senator Lankford. Right.
    Senator Paul. We do not obey our own rules.
    But I think Mr. Walker made a good point earlier when he 
said that basically 70 percent of the budget is not controlled 
by us. We need to untie our hands. We need to have our hands in 
all of it, but we just let the mandatory spending go on and on 
and on.
    I actually think there are some things we could do. I mean, 
Democrats and Republicans did raise the age of eligibility back 
in 1983, and they raised taxes. Really, to my mind, as far as 
Social Security, we had a bill that I put forward six years 
ago. Two-thirds of the problem was fixed by raising the age 
over like a 20-or 30-year period. That fixed two-thirds of the 
shortfall. The remaining third, we did by means testing. You 
could argue whether you should raise the taxes or means-test 
it. They are still taking the bite from the wealthy more. The 
only reason I prefer means testing over taxes is means testing 
is on the tail end when you are not really creating jobs. You 
have all your wealth, and you just take a little bit less 
Social Security. Taxes on the early side, I think, can have a 
disruptive effect on the market if we tax everybody on the full 
extent of their wealth.
    I would rather have rich people get a lot less Social 
Security to pay for it, but you can fix it. I do not think 
those are emotional things, but we just keep putting it off.
    But how come we do not fix it? Senator Peters, tell us how 
to fix it and why we do not fix it.
    Senator Peters. So now that I am a member of the panel. 
[Laughter.]
    Senator Paul. It is a friendly question.
    Senator Peters. It is a friendly question.
    Well, I think when you talked about some of the things 
related to Social Security reform, one of the increasing the 
age limit, the problem with that is that not everybody can work 
longer. It is a situation for those of us who are blessed to be 
able to sit at a desk in an air-conditioned environment and 
engage in our profession. I think many of us will probably work 
beyond 70 years old for obvious reasons.
    A lot of the folks I represent lift heavy objects for a 
living, and their body does not necessarily last until 70 
years. They are outside in the cold and the extremes, and so it 
does have a disproportionate impact based on what people's jobs 
are. So I find there is generally more acceptance for raising 
the retirement age for folks who are in office jobs and who are 
usually very well paid versus everyday folks who are struggling 
and are concerned about that.
    The problem is the underlying premise, and Dr. Zandi 
mentioned this fact. When Ronald Reagan and that group figured 
they would solve Social Security for the future, they came 
together bipartisan. It was a great compromise. They came 
together. But as you mentioned, roughly 90 percent of all 
income was captured by that Social Security tax that paid in. 
It was based on the premise that everybody pays in, everybody 
gets it back. It captures most of the revenue.
    But what has happened since those Reagan years, as we all 
know, is that there has been an acceleration of income 
inequality at an accelerating rate. So it is the fact that the 
folks at the very top have now--I do not have the numbers in 
front of me here, but a very large percentage of total income 
goes to the folks at the very top. If you really want to 
solve--the ideal way to solve Social Security in my mind is you 
raise everybody's income up--we get back to the 90 percent so 
we do not have this great gulf of not only income inequality 
but of wealth inequality, which is even greater than the income 
inequality, which causes the problem.
    So to have a means test would generate revenue, but you 
would need to generate an awful lot from that means test. It 
would not be just not getting your Social Security. That would 
not be enough, in my mind. I would have to run the numbers. You 
probably have run the numbers. It is not going to make up the 
difference, given the fact that you have had such a drop in the 
amount of income that is covered because of growing inequality. 
So that is why it has to be more comprehensive.
    Let me ask a question of the panel, after I have answered 
the question from the Chair. Mr. Walker, you wanted to make a 
comment. Do that as well, please. But as I mentioned in my 
opening question, this is a three-legged stool. We have not 
talked a lot about taxes, and yet that is actually what is 
pending before us here or likely to be pending before us in 
Congress very shortly as we look at tax reform. There are folks 
who would like to see if there is tax reform, and there are 
certainly ways that we should make this Tax Code a lot more 
efficient. We should get rid of this thick document and 
simplify it--I am all about that. We should bring more 
certainty and deal with some of the uncertainties associated 
with that.
    I do not know how we deal with this if we are not dealing 
with at least deficit-neutral. We probably need to do more than 
deficit-neutral as long as we are also cutting spending and 
growing the economy, but we will probably need to raise some 
revenue, ideally. But at a minimum, we should be deficit-
neutral, and we will only make this problem worse.
    If you look at President Trump's proposal, it was in the 
trillions of dollars, at least during the campaign, which does 
not seem like it fixed the problem. Folks around here love to 
give tax cuts. That is a fun thing to go back home, but it is 
increasing the deficit dramatically, and that is more abstract. 
But we know it is very real. It is not abstract in terms of the 
everyday world that we live in.
    So to kind of get your sense on this tax proposal, are you 
concerned if it is something other than at least deficit-
neutral?
    Dr. Zandi, you are shaking your head, but I would like all 
of you to respond to it. Dr. Zandi.
    Mr. Zandi. Sure. I would be supportive of revenue-neutral 
corporate tax reform. I think the House Republican plan, the 
proposal that has been put forward by Congressman Brady, is a 
pretty good plan. There are things to be worried about, 
particularly with regard to the border adjustment tax and some 
of the issues around transition and whether it violates WTO 
rules. But broadly speaking, on a reasonably dynamically scored 
basis, that would be a reasonable proposal. It is revenue-
neutral, roughly.
    Other than that, I would not be supportive of cuts in 
personal income taxes at that point, unless you could do 
revenue-neutral kind of taxation to lower marginal rates and 
broaden the base. But I think that should be the key criteria 
that this--when it is all said and done, currently Federal 
revenue to GDP is 19 percent. That is where it should be. I 
think we should work toward that and try to make the Tax Code 
more efficient, work for us in a better way, promote growth, 
but I do not think we should reduce it. That has been the 
average amount of revenue raised, and as a percent of GDP for 
35 or 40 years, I do not think that should at this point in 
time.
    Ms. de Rugy. I agree with you that tax cuts should be 
deficit-neutral, not revenue-neutral, and there is just a lot 
of things we could cut, especially if we are talking about 10 
years. The House Republican bill is a good bill, especially the 
growth, the part that grows the economy, but the border 
adjustment tax is actually a terrible idea. It is something 
that is completely untested, with extremely large amount of 
risks. And I could go on and on and on about this.
    But I think the goal--and outside the border adjustment, 
there is other ways in the bill, other provisions to raise 
revenue. I think a proper tax reform will do a little bit. If 
you cut some rates, you expand the base, so you do some revenue 
increase too. But I think deficit neutrality should be the 
goal, not revenue neutrality.
    Senator Peters. If I may just briefly.
    Ms. de Rugy. Yes.
    Senator Peters. Your opposition to the border tax, if that 
is taken out, the math does not work real well for the tax 
plan. Do you agree or----
    Ms. de Rugy. Yes. It does not work. It does not work 
really. That is true.
    Senator Peters. At all, in fact.
    Ms. de Rugy. But you could do a smaller package too. This 
discussion right now is as if this is the only--we need that--I 
mean, yes, the part outside of the border adjustment tax is 
great. If we cannot pass this, we go to something smaller. We 
will get a lot of growth from it, especially on the corporation 
tax. I mean, I would love to see reforms on the individuals' 
side and reduction of rates, but this is not a priority. The 
corporation tax side--I mean, our system is absolutely awful. 
It is anti-competition. We have the highest rate of all the 
Organisation for Economic Co-operation and Development (OECD) 
countries. We have a worldwide tax system. This needs to 
happen, and a lot of growth will come from this. But, yes, the 
math does not work.
    On this, you also bring some spending cuts to the table, 
which the plan does not address at all.
    Senator Peters. Thank you. Mr. Walker.
    Mr. Walker. It should be deficit-neutral, and one of the 
real questions would be is whether and to what extent you 
consider economic growth in calculating that as to whether or 
not it is deficit-neutral.
    With regard to Social Security, coming back to that real 
quick, keep in mind two things about 1983. They had no choice 
but to reach an agreement in 1983 because the trust fund was 
going to zero within a matter of months. If it went to zero, 
tens of millions of people would have their checks cut. That 
was not politically feasible or acceptable. They had no choice.
    But second, when they made the reforms in 1983, they did 
not consider known demographic trends. They only achieved 
actuarial balance over 75 years. They forgot that we have gone 
from 16 to 1 people working to retired to three to one, going 
to two to one by 2035. Next time you reform Social Security, 
you have to recognize demographic realities, demographics or 
destiny.
    And last, what we tested for Social Security reform--again, 
not advocating that this is necessarily the right answer, but 
what got 77 percent support for Social Security reform of a 
demographically representative group of voters was the 
following: Raise but not eliminate the cap, considering 90 
percent of taxable wages, which is what Reagan did back in the 
80s.
    Mr. Zandi. Seventy percent, did you say?
    Mr. Walker. Ninety percent of taxable----
    Mr. Zandi. No, but the support was 70 percent?
    Mr. Walker. Seventy-seven percent for a package. Now, you 
have to keep in mind--and that is how you have to do it. If you 
do individual things, forget it. You are not going to get 
people to come together. You have to vote on packages. All 
right?
    Raise the cap. Gradually raise the retirement age two years 
over 20 to 30 years, but provide an exception for certain 
occupations where they are not white collar occupations. You 
have to do that. You have to recognize that reality. Make the 
benefits more progressive. So give a higher replacement rate to 
people near the poverty level, a somewhat lower replacement 
rate for people that are higher income, but do not fully means-
test it to make it a welfare program, and then consider going 
to an alternative form of CPI. Those got 77 percent support, 
which is even good enough in the Senate, I think.
    Mr. Zandi. Can I make one point about corporate tax reform 
that is going to be relevant to the debate, I think? I think it 
would be a mistake to try to get around the budget rules by 
sunsetting any tax proposal after a 10-year budget window, that 
particularly with regard to growth, if we go to corporate tax 
reform and the idea here is to promote growth, if in fact you 
sunset it after 10 years just to make it work from a 
reconciliation perspective, that will--because back to the 
policy uncertainty--significantly reduce the economic value of 
that kind of proposal. You are not accomplishing what you need 
to approach. In my view, that would be an error to go down that 
path. If you are going to do it, you have to do it in an honest 
way.
    Senator Paul. Well, I want to thank the panel for coming. I 
think we have had a good discussion, and I hope this is a 
beginning. I wish we had sort of a standing committee that was 
actually looking at entitlements. If I were in charge, there 
would be a committee looking at Social Security and Medicare 
and saying, ``How do we come together?'' And it would be a 
permanent committee, and it would be the most important 
committee around here. And we would devote time and resources 
day in and day out. And I think we could. I think we eventually 
could come to some arrangement. The idea that it is harder for 
people to do physical work, that there may be some 
accommodation, sure. I am sure we could find an agreement 
there. Does the age have to go up, though? The age has to go 
up. It is an enormous part of how you fix cost.
    Two-thirds of the Social Security shortfall can be wiped 
out by raising the age. Can you have some exceptions for people 
who are not able to work as long? You could. But there are all 
kinds of things.
    Which is worse? Raising taxes on everybody or means 
testing, or are they kind of the same thing? They are kind of 
the same thing. We could figure out how to do this, but we are 
not having the discussion.
    So I was pleased with the discussion today. This is a 
beginning. I appreciate you taking your time to come in, and 
thank you, Senator Peters, for being part of it.
    [Whereupon, at 3:59 p.m., the Subcommittee was adjourned.]

                            A P P E N D I X

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