[Senate Hearing 115-589]
[From the U.S. Government Publishing Office]


							S. Hrg. 115-589

          CONCURRENT RESOLUTION ON THE BUDGET FISCAL YEAR 2019

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

                                HEARINGS

                               BEFORE THE

                        COMMITTEE ON THE BUDGET
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

     JANUARY 24, 2018--OVERSIGHT OF THE CONGRESSIONAL BUDGET OFFICE

  FEBRUARY 13, 2018--THE PRESIDENT'S FISCAL YEAR 2019 BUDGET PROPOSAL

  MARCH 7, 2018--DEPARTMENT OF DEFENSE AUDIT AND BUSINESS OPERATIONS 
                         REFORM AT THE PENTAGON

          MARCH 21, 2018--THE ECONOMIC REPORT OF THE PRESIDENT

 APRIL 11, 2018--CBO'S BUDGET AND ECONOMIC OUTLOOK: FISCAL YEARS 2018-
                                  2028

MAY 23, 2018--GAO'S ANNUAL REPORT OF ADDITIONAL OPPORTUNITIES TO REDUCE 
    FRAGMENTATION, OVERLAP AND DUPLICATION IN THE FEDERAL GOVERNMENT

  SEPTEMBER 13, 2018--AN UPDATE ON TRANSPARENCY AT THE CONGRESSIONAL 
                             BUDGET OFFICE
                             
                             
                 [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 
                 
                               __________                 
                             
                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
35-700                     WASHINGTON : 2019

                        
                        
                        
                        COMMITTEE ON THE BUDGET

                   MICHAEL B. ENZI, Wyoming, Chairman
CHARLES E. GRASSLEY, Iowa            BERNARD SANDERS, Vermont
MIKE CRAPO, Idaho                    PATTY MURRAY, Washington
LINDSEY O. GRAHAM, South Carolina    RON WYDEN, Oregon
PATRICK TOOMEY, Pennsylvania         DEBBIE STABENOW, Michigan
RON JOHNSON, Wisconsin               SHELDON WHITEHOUSE, Rhode Island
BOB CORKER, Tennessee                MARK R. WARNER, Virginia
DAVID A. PERDUE, Georgia             JEFF MERKLEY, Oregon
CORY GARDNER, Colorado               TIM KAINE, Virginia
JOHN KENNEDY, Louisiana              ANGUS S. KING, Jr., Maine
JOHN BOOZMAN, Arkansas               CHRIS VAN HOLLEN, Maryland
TOM COTTON, Arkansas                 KAMALA D. HARRIS, California
             Elizabeth McDonnell, Republican Staff Director
                Warren Gunnels, Minority Staff Director
                
                
                
                
                
                            C O N T E N T S

                              ----------                              

                                HEARINGS

                                                                   Page

January 24, 2018--Oversight of the Congressional Budget Office...     1
February 13, 2019--The President's Fiscal Year 2019 Budget 
  Proposal.......................................................    45
March 7, 2018--Department of Defense Audit and Business 
  Operations Reform at the Pentagon..............................   193
March 21, 2018--The Economic Report of the President.............   245
April 11, 2018--CBO's Budget and Economic Outlook: Fiscal Years 
  2018-2028......................................................   297
May 23, 2018--GAO's Annual Report of Additional Opportunities to 
  Reduce Fragmentation, Overlap and Duplication in the Federal 
  Government.....................................................   343
September 13, 2018--An Update on Transparency at the 
  Congressional Budget Office....................................   411

                    STATEMENTS BY COMMITTEE MEMBERS

Chairman Michael B. Enzi ............... 1, 45, 193, 245, 297, 343, 411
Ranking Member Bernard Sanders ................... 3, 47, 195, 299, 346 
Senator Charles E. Grassley......................................   241
Senator Chris Van Hollen...................................... 247, 412 


                               WITNESSES

Dodaro, Hon. Gene L., Comptroller General of the United States, 
  U.S. Government Accountability Office..........................   348
    Prepared Statement of........................................   350
    Questions and Answers (Post-Hearing) from:
        Senator Patty Murray.....................................   403
        Senator Chris Van Hollen.................................   404
        Senator Mark R. Warner...................................   408

Gibson, Hon John H. II, Chief Management Officer, Department of 
  Defense........................................................   207
    Prepared Statement of........................................   210

Hall, Hon. Keith, Ph.D. Director, Congressional 
Budget Office...............................................5, 301, 414 
    Prepared Statement of.................................. 8, 304, 416 
    Questions and Answers (Post-Hearing) from:
        Chairman Michael B. Enzi.......................... 36, 330, 433 
        Ranking Member Bernard Sanders..............................332
        Senator Kamala D. Harris............................... 39, 334
        Senator Chris Van Hollen............................... 42, 337 
        Senator Bob Corker.......................................   333
        Senator Ron Johnson......................................   335
        Senator Tim Kaine........................................   337
        Senator Mark R. Warner...................................   338
        Senator Ron Wyden........................................   340
        Senator Mike Crapo.......................................   435

Hassett, Hon. Kevin, Chairman, Council of Economic Advisers......   248
    Prepared Statement of........................................   251
    Questions and Answers (Post-Hearing) from:
        Chairman Michael B. Enzi.................................   283
        Senator Kamala D. Harris.................................   284
        Senator Chris Van Hollen.................................   286
        Senator Ron Wyden........................................   289

Mulvaney, Hon. Mick, Director, Office of Management and Budget...    49
    Prepared Statement of........................................    52
    Questions and Answers (Post-Hearing) from:
        Chairman Michael B. Enzi.................................    95
        Ranking Member Bernard Sanders...........................   147
        Senator Charles E. Grassley..............................   100
        Senator Kamala D. Harris.................................   101
        Senator Jeff Merkley.....................................   108
        Senator Patty Murray.....................................   111
        Senator Debbie Stabenow..................................   168
        Senator Chris Van Hollen.................................   171
        Senator Mark R. Warner...................................   173
        Senator Ron Wyden .................................... 174, 192

Norquist, Hon. David L, Under Secretary of Defense (Comptroller) 
  and Chief Financial Officer, Department of Defense.............   197
    Prepared Statement of........................................   199
    Questions and Answers (Post-Hearing) from:
        Senator John Boozman.....................................   238
        Senator Charles E. Grassley..............................   239
        Senator Chris Van Hollen.................................   240

 
              OVERSIGHT OF THE CONGRESSIONAL BUDGET OFFICE

                              ----------                              


                      WEDNESDAY, JANUARY 24, 2018

                                       U.S. Senate,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:31 a.m., in 
room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Johnson, Perdue, Gardner, Kennedy, 
Boozman, Cotton, Sanders, Whitehouse, Kaine, Van Hollen, and 
Harris.
    Staff Present: Elizabeth McDonnell, Republican Staff 
Director; and Warren Gunnels, Minority Staff Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. I am going to gavel us in so that the 
Chairman of the Homeland Security Committee can be assured that 
he will be the second Republican to get to ask questions.
    Senator Johnson. I appreciate that.
    Chairman Enzi. We will be waiting just a few moments, 
though, for Senator Sanders' arrival.
    [Pause.]
    Good morning. Welcome to the Senate Budget Committee's 
oversight hearing of the Congressional Budget Office. I am 
proud to say that, after a 30-year drought, this is the third 
such installment of this Committee's continued oversight of CBO 
under my chairmanship. I am glad to see that the House Budget 
Committee will follow our lead with additional oversight 
hearings later this month.
    Section 102(a) of the Congressional Budget Act of 1974 
provides the Budget Committee with the authority to review on a 
continuing basis the conduct by the Congressional Budget Office 
of its functions and duties. These oversight hearings present 
the Committee with an opportunity to review CBO's performance 
and serve as a forum of discussing ways in which CBO can be 
more effective and attentive to the needs of Congress. 
Congressional oversight of an office like CBO should also work 
at clarifying the Office's mission while improving its 
operations.
    Alice Rivlin, the first Director of CBO, instructed staff 
in a 1976 memo when she said, ``Our work and our publications 
must always be balanced, thorough, and free of any partisan 
tinge.''
    More than 40 years later, Congress, other policymakers, and 
the public still depend on CBO to provide objective, accurate, 
transparent, and timely budgetary and economic analysis.
    Now, one of the difficulties with the Office, of course, is 
that they have to forecast, and that is especially difficult. 
We do want to have the best possible answers. Of course, we 
always want them phrased in our own way. I have been exploring 
the request for more transparency, for getting to see the 
models. I think that we are mostly asking for the main 
assumptions used to reach your conclusions. If the assumptions 
are good and pretty comprehensive, I think we will have more 
confidence in the results.
    This will be the first of many hearings this year. In 2016, 
we held many hearings to find a better way to budget.
    The ones I could do without legislation are done. The main 
one was to give the budget to the minority 5 days before the 
budget markup with amendments then to be submitted early so 
that side-by-sides could be developed, and better yet, ones 
that came from both sides of the aisle with similar amendments 
could get together for even better solutions. I still have a 
lot of hope for that, and I anticipate doing that again.
    Now, last year was a busy time for the Senate Budget 
Committee. We approved two budget resolutions and facilitated 
consideration of two budget reconciliation bills--one related 
to health care and one that resulted in the tax reform 
legislation. This legislative activity, in addition to all the 
other proposals considered by our authorizing and 
appropriations committees, put intense demands on CBO. In 2017, 
CBO produced more than 700 formal cost estimates, several 
thousands informal cost estimates, nearly 130 appropriations 
scorekeeping tabulations, and 86 analytical reports and working 
papers. That is a lot of work for an agency that is about one-
tenth the size of the Government Accountability Office. While I 
am appreciative of all of CBO's hard work, I also believe we 
must take the time to review these efforts. We need to look 
back at what went right, but also what may have gone wrong.
    It is crucial that CBO keep its mission firmly in mind.
    The Budget Act clearly lays out that mission in Section 202 
where we can read, ``It shall be the primary duty and function 
of the Office to provide to the Committees on the Budget of 
both Houses information which will assist such Committees in 
the discharge of all matters within their jurisdiction.''
    This important section refers to CBO's role in assisting 
and supporting the committees and members in the execution of 
their duties, and it is always helpful to remember that CBO 
exists for this purpose.
    Testifying before us today is CBO Director Keith Hall.
    Dr. Hall oversees all eight CBO divisions which are tasked 
with producing statutorily required budget and economic 
forecasts, thousands of cost estimates of proposed legislation, 
and special reports as requested by Congress.
    CBO's budget analysis is an integral part of the 
legislative process. Dr. Hall, when you last appeared before 
this Committee in September 2016 to discuss CBO's operations, 
you gave us an update on the agency's progress toward several 
important goals. In addition to reviewing CBO's work in support 
of recent legislative initiatives, we also remain interested in 
those goals to increase the transparency of agency analysis and 
operations and your agency's responsiveness to congressional 
needs.
    I am specifically interested in learning how CBO's views 
regarding modeling transparency and ways the agency can more 
clearly communicate the methods, assumptions, and data that 
underlie budget analysis. Dr. Hall, I also welcome your 
thoughts on how CBO can more efficiently allocate existing 
resources, including staff responsibilities, to satisfy these 
congressional requests and expectations.
    In 2018 and beyond, CBO will continue to play a key role in 
supporting Congress as we consider the budget and economic 
effects of proposed legislation. Its objectivity, accuracy, 
transparency, and timeliness is essential to help Congress make 
informed decisions. Just as CBO's role in the Federal budget 
process is crucial, so, too, is this Committee's statutory 
responsibility to oversee CBO.
    I would like to thank Dr. Hall for joining us today, and I 
look forward to our discussion.
    Senator Sanders.

              OPENING STATEMENT OF SENATOR SANDERS

    Senator Sanders. Thank you, Mr. Chairman. And, Dr. Hall, 
thanks for being here.
    I think before we do oversight over the CBO, it might be a 
good idea to do oversight over this Committee. It might be a 
good idea for the Budget Committee to actually produce a 
budget. I know that is kind of a radical idea, but maybe that 
is what we want to do. And maybe it might be a good idea for 
the Republican leadership, 116 days into the fiscal year, to 
actually do something more than giving us short-term continuing 
resolutions.
    The truth is, as any businessperson in America will tell 
you, you cannot run any kind of entity on a month-to-month 
basis. We are a $4 trillion entity. That is what the U.S. 
Government is. There are some agencies clearly that need more 
funding. There are some agencies that need less funding. And 
the idea that we are saying that every agency of Government 
every month is going to get exactly the same amount of money as 
they previously got because of a continuing resolution is 
insane. And I suspect if anyone looked at it, you would find 
that we are wasting tens and tens and tens of billions of 
dollars funding agencies that perhaps do not need that money or 
funding agencies that are clearly inefficient.
    So we are not addressing that, and we keep kicking the can 
down the road. That is the most important thing that we have 
got to do, and that is not Dr. Hall's responsibility. He is 
doing his job. His people are doing their job. It is our 
responsibility.
    So, Mr. Chairman, it seems to me that we have got to 
address--maybe this Committee can play a more active role in 
pushing our colleagues forward on this thing. We have got to 
address the budget crisis that we have. Let me just address 
some of the issues which I think we are all familiar with that 
have got to be addressed as we desperately try to come up with 
a 2018 annual budget.
    First of all, we have the moral issue of 800,000 young 
people in this country who were raised in this country, who 
only know the United States as their home, who are on the verge 
of facing deportation. And let me be very clear about this. If 
we do not address this issue, I think history will look back at 
this particular moment and see an incredible moral stain about 
doing this to these young people.
    What we have also got to do is create a budget which 
provides parity. Now, I know there is a great desire to see 
more money for defense, and we could argue about that. But the 
bottom line is for every dollar that we spend on defense, we 
have got to spend on the needs of working families. Five 
minutes ago, I just came from my office where I talked to 
parents and administrators in the Head Start program in 
Vermont, and they are telling me, as I am sure that they are 
telling you in your offices, that children all over this 
country, little kids, 3, 4 years of age, are being impacted by 
the opioid crisis. Kids are being taken out of their homes 
because their parents are addicted to opioids going into foster 
homes. We have got a crisis. We are not dealing with that 
crisis.
    Unbelievably--unbelievably, Mr. Chairman--we have 27 
million people in this country who utilize community health 
centers to get their health care, the dental care, the low-cost 
prescription drugs, the mental health counseling that they 
need, 27 million people, one out of four people in my own 
State. We have not reauthorized the Community Health Center 
Program. We have got 30,000 vacancies at the Veterans 
Administration. So instead of us giving speeches about how much 
we love veterans, why don't we make sure that the VA is 
adequately funded and adequately staffed?
    Some of you may have seen the piece in the Washington Post 
last month. Unbelievable. Ten thousand people with disabilities 
died last year while they were submitting claims to a Social 
Security Administration that does not have the staff or the 
funding to process those claims. Ten thousand Americans with 
disabilities died. Are we going to adequately fund the Social 
Security Administration? Or are we going to pass another 
continuing resolution leaving them grossly underfunded?
    In parts of my State and in parts of your State, Mr. 
Chairman, I am sure, there are communities that do not have 
adequate broadband. How do you bring businesses into those 
communities? How do kids do their homework if there is not 
adequate broadband? In other words, there are enormous needs 
facing the American people, and those needs are not just giving 
huge tax breaks to billionaires or trying to throw 30 million 
people off of health care. There are needs that we have got to 
address.
    So, Mr. Chairman, I would hope that we have a serious 
debate about the budget of the United States of America and we 
do it as soon as we can.
    Dr. Hall, thanks again for being with us.
    Chairman Enzi. Thank you, Senator Sanders. I appreciate 
your remarks and have made a number of notations here. We will 
have more hearings during this year, and I think that I would 
be interested in what different members of the Committee would 
be interested in particularly pursuing in some depth as kind of 
a task force for oversight for us so that we can do a better 
job of budgeting.
    Our witness this morning is Dr. Keith Hall, the ninth 
Director of the Congressional Budget Office. Director Hall is 
no stranger to this Committee, having served as CBO Director 
since April 2015. Since that time he has appeared before this 
Committee to discuss the CBO's work and its projections for the 
Nation's fiscal situation. He has more than 25 years of public 
service with the International Trade Commission, with George 
Mason University, with the Bureau of Labor Statistics, with the 
White House Council of Economic Advisers, with the Department 
of Commerce, and an international economist for the ITC. He was 
also an assistant professor at the University of Arkansas and 
an international economist at the Department of Treasury. In 
those positions he worked with a wide variety of topics, 
including labor market analysis and policy, economic conditions 
and measurement, macroeconomic analysis, and forecasting 
international economics and policy, and computational partial 
equilibrium modeling--which I hope he will not explain this 
morning.
    [Laughter.]
    Chairman Enzi. He has a Ph.D. and a master's in economics 
from Purdue University. This morning Dr. Hall will be talking 
with us about CBO's work over the last year and the goals he 
set out for this critically important agency. We look forward 
to receiving your testimony.
    For the information of colleagues, Director Hall will take 
up 7 minutes for his opening statement, followed by questions.
    Welcome, Dr. Hall. Please begin.

    STATEMENT OF THE HONORABLE KEITH HALL, PH.D., DIRECTOR, 
                  CONGRESSIONAL BUDGET OFFICE

    Dr. Hall. Chairman Enzi, Ranking Member Sanders, and 
members of the Committee, thank you for inviting me here to 
discuss the work of the Congressional Budget Office. As you 
know, CBO's mission is providing nonpartisan budgetary and 
economic analysis to support the work of this Committee and the 
Congress as a whole. My colleagues and I are devoted to that 
mission, and I appreciate the opportunity to discuss how CBO 
has executed it this year and how we plan to expand our work in 
the future.
    I also want to take this opportunity to thank you for your 
support and guidance. We at CBO have long relied on the Budget 
Committees to explain to others in the Congress what our role 
is, to provide constructive feedback on how we can best serve 
Congress, and to provide guidance on what legislative 
developments are occurring and what the Congress' priorities 
are. That work on your part has been key to our success over 
the years.
    In the past year, we have provided Congress with 740 formal 
cost estimates and mandate statements. We have also provided 
thousands of hours of technical assistance to committees, which 
have included thousands of informal cost estimates, probably 
more work than our formal cost estimates. We have provided 128 
scorekeeping tabulations, 86 analytical reports and working 
papers, dozens of files of data underlying budget and economic 
projections, and numerous other publications. Many of the cost 
estimates were produced under very tight time constraints and 
required extraordinary efforts by our staff to meet legislative 
deadlines.
    We also undertook new initiatives to enhance our 
responsiveness and transparency. We reorganized work processes 
and shifted resources to areas of high demand. We published 
more evaluations of our projections about the economy, 
spending, and health insurance subsidies. We documented more of 
our analytic methods--about flood insurance, pension benefit 
guarantees, and health care for the military, for example. And 
we gave more examples of changes in our estimates, addressing 
issues ranging from Social Security to options for changing 
Medicare.
    In the next 2 years, CBO plans to continue to support the 
Budget Committees and the Congress by producing budget and 
economic baseline projections, reports about those projections, 
and cost estimates for many proposals, including all 
legislation reported by committees. Other major products will 
include a volume of policy options that would reduce budget 
deficits, reports on the long-term budget outlook, analyses of 
the President's budget proposals, monthly budget reviews, and 
policy analyses on a broad array of topics of interest to 
congressional committees. CBO is reviewing and updating every 
aspect of its simulation model of health insurance coverage, 
which forms the backbone of its budget projections related to 
Federal health care spending for people younger than 65. In 
addition, CBO will further develop its capabilities to assess 
the macroeconomic effects of fiscal policies and the ways that 
changes in Federal regulations affect the agency's baseline 
budget projections.
    Responsiveness and transparency are top priorities of mine, 
and we have plans to bolster them further. We will make greater 
use of team approaches to handle surges in demand for analysis 
of particular issues. We will increase public documentation of 
our computer models. We will also do more to explain how 
analysts employ those tools as part of the process for 
producing estimates. I like to think of this as documenting our 
processes as well as our models.
    For a cost estimate, for example, an analyst identifies the 
ways in which a proposal might affect the budget and assesses 
which of them would probably have substantial effects. The 
analyst also consults experts and examines the most relevant 
data and research to form a basis for the estimate, which 
includes determining which models to use, if any, what 
information to put into those models, and how to use their 
output in combination with other available information. In 
short, CBO models do not produce estimates; CBO does. The 
models are just a few of the tools that we use in producing our 
estimates.
    We will be able to make significant progress on our plans 
to boost responsiveness and transparency if we receive funding 
for fiscal year 2018 within the range that the Senate and House 
Appropriations Committees have recommended. If we receive the 
funding available under the continuing resolution currently in 
effect for this year, we will make less progress. Moreover, 
CBO's ability to buy data and research and to pay for other 
standard activities would be severely limited under the funding 
specified in the continuing resolution, and the agency's 
performance of its mission would be degraded.
    Many initiatives of great interest to Congress could be 
undertaken only if CBO had more employees, so we have submitted 
a budget request to hire 8 new staff members in 2019 to bolster 
our responsiveness and transparency, as part of a plan to hire 
a total of 20 additional people by 2021. The new staff would 
help CBO respond to requests for information more quickly when 
there is a surge in demand. They would also allow CBO to supply 
more information about its analysis and models without reducing 
the valuable services it provides to Congress at its current 
staffing level. In the next 2 years, CBO also proposes to 
expand analytical capacity by adding new health care analysts 
and creating additional onsite capacity to use sensitive data 
securely.
    I am delighted to talk with you about our work today and 
would be at any time in the future as well. I am happy to meet 
with Members of Congress or to chat on the phone. In addition, 
our employees meet frequently with congressional staff to 
explain our analyses and to answer questions individually and 
in groups, and we have plans to be in still better contact.
    For instance, earlier this month, in collaboration with the 
Congressional Research Service, my colleagues gave 
presentations to 150 congressional staff members about how CBO 
develops estimates of health insurance costs and coverage. We 
are constantly looking for ways to serve your needs better, and 
I welcome your suggestions.
    [The prepared statement of Dr. Hall follows:] 
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Enzi. Thank you, Dr. Hall.
    Now we will turn to questions. Let me take a moment to 
explain the process. Each member will have 5 minutes for 
questions, beginning with myself and then Senator Sanders. 
Following the two of us, we will alternate questions between 
the Republicans and the minority. All members who were in 
attendance when the hearing started will be recognized in order 
of seniority on their side. For those who arrived after the 
hearing began, you are on the list in order of arrival. If it 
is your turn to be on the list to be recognized, but you are 
not available, you move to the bottom of the list and I turn to 
the next Senator to ask questions. With that, I have a few 
questions.
    A recent legislative proposal introduced in the House and 
Senate would require CBO to publicly disclose its models and 
data. You mentioned that in your testimony. The intent of this 
legislation is to increase transparency and allow for outside 
analysts to reproduce and replicate CBO projections. While you 
have made significant strides to open up CBO's work to the 
public, what efforts are currently underway at CBO to increase 
the transparency further, both to Congress and the public? Do 
you think that disclosing CBO models and data would improve the 
legislative process and the public confidence in the final 
products? And how would that vary from sharing more assumptions 
that are used?
    Dr. Hall. Well, thank you. We are committed to 
transparency, and we have certainly been trying to increase 
transparency. One of the things that we have tried to do is we 
have tried to do this intelligently, treat our decisions on 
transparency as good business decisions for us.
    There are lots of ways of being transparent. Different ways 
of being transparent have different benefits to Congress and 
have different costs. With respect to benefits, who we direct 
the transparency to, are we being more transparent to Members 
or staff? Are we being more transparent to outside experts who 
can evaluate what we are doing? And then, of course, costs. 
There can be significant time and resources used to become more 
transparent. So we have to make this sort of benefit-cost 
tradeoff analysis when we do this.
    Part of what we are doing, for example, is we have some 
ideas on being more transparent. We are calling them pilots in 
a sense because we want to try them and sort of see how that is 
received by Congress, see if that is the sort of transparency 
that you are most interested in.
    One of the things that we are doing, for example, is we are 
doing a complete rewrite of our main model for doing health 
care insurance estimates, the so-called HISIM model. That 
rewrite will happen over the next year, but to give you an 
idea, since I have been on board, we had plans to completely 
redo this model, and so it has been 3 years. We would have been 
finished by now if over the past year we had not gotten so many 
health care-related requests, so the same people who would be 
updating the model were busy doing cost estimates.
    Chairman Enzi. That fits in with my next question, which is 
one complaint that I often hear from colleagues, that they are 
unable to receive estimates on their legislation in a timely 
manner, but CBO has plenty of time to release a number of other 
products and reports. How would you respond to that complaint? 
Are these reports the result of congressional requests or are 
they agency--initiated? Can CBO provide a list of published 
reports that did not originate due to a specific congressional 
request or not directly attributed to a single requesting 
office?
    Dr. Hall. Well, thank you for asking that. As I recall, 
when I first came on board you expressed concern about that. We 
have not started a single analytical report since I have been 
the Director without having specific congressional interest 
from a congressional committee, expressed interest from a 
committee with jurisdiction. So we simply do not do analytical 
reports just on our own. We square that away first.
    And, second, of course, is we have lots of different areas 
of expertise, so when we are really busy on health care, we 
only have so many people we can pull into health care. So we 
have time for other people, people that work on other reports. 
We do our best to not let our analytical reports at all 
interfere with our work on cost estimates, for example, our 
work on developing models for cost estimates and that sort of 
thing.
    Chairman Enzi. How do you prioritize those requests for 
reports, though?
    Dr. Hall. Well, we look to committees. We try not to 
prioritize things ourselves. We get way more work that we could 
possibly handle, so what we do is we look to committees of 
jurisdiction and ask them what are their priorities, and we 
follow their priorities.
    One of the more frustrating things that I have to do is----
I get calls from Members sometimes who have a piece of 
legislation they would like CBO to look at, and if we are 
really busy with committee work, we have to ask the committee, 
``Can we make this a priority?'' And quite often the answer is, 
``No. Our work takes priority.'' So we have to put off work. 
And I know that is frustrating, but, again, we are trying to 
take direction from committees as to how to direct our 
resources.
    Chairman Enzi. We will be looking into whether there is a 
role for the Ranking Member and the Chairman of the Budget 
Committee to have more of a role in that ranking. My time has 
expired almost, so I will turn it over to Senator Sanders.
    Senator Sanders. Thank you, Mr. Chairman.
    Dr. Hall, as we contemplate maybe someday passing a budget 
here, could you help me refresh my memory here? My recollection 
is that in the Budget Control Act of 2011, one of the 
cornerstones of that bill was parity, equal funding for defense 
and nondefense. And if I am correct, the next three budget 
deals that were passed also had parity as a cornerstone. Is 
that correct?
    Dr. Hall. That sounds right, yes.
    Senator Sanders. Dr. Hall, my Republican colleagues have 
spent a lot of time this year on health care, and if my 
recollection is correct, your agency has been criticized a bit 
for the analyses that they provided us on various health care 
proposals. So let us go over it again because I think the 
consensus is that you were right in your analyses. But the 
bottom line is that on January 17, 2017, CBO scored the so-
called Restoring Americans' Health Care Freedom Reconciliation 
Act--Mr. Chairman, we have got to do something about these 
titles.
    [Laughter.]
    Senator Sanders. There should be truth in advertising, too. 
Which was vetoed by President Obama. CBO found that 32 million 
fewer people would have health insurance after 10 years and 
that average premiums in the non-group market would almost 
double by 2026. Does that sound correct?
    Dr. Hall. That is correct. The only thing I would say, that 
is also relative to a baseline, so an expected change in 
coverage and that sort of----
    Senator Sanders. Right.
    Dr. Hall. Yes.
    Senator Sanders. On May 24th CBO scored the American Health 
Care Act as passed by the House. CBO found that 23 million 
fewer people would have health insurance after 10 years. Does 
that sound about right?
    Dr. Hall. Yes, it does.
    Senator Sanders. Okay. So, in other words, what CBO did is 
made the obvious conclusion that when you substantially cut 
Federal funding on health care, lo and behold, people lose 
their health insurance. And I will not ask you to comment on 
this, but I think you came up with the obvious conclusion, but 
because you came up with that conclusion, which was not 
terribly palatable to some of my colleagues, you were 
criticized, and I think that is unfortunate. And I think we 
should let these guys do their jobs and come up with their 
objective conclusions without attacking them because we do not 
like the conclusions that they have.
    Let me go to another area. After trying to throw tens of 
millions of people off of health insurance, my Republican 
colleagues then took a look at taxes in the United States. Am I 
correct in saying that CBO's analysis said that the legislation 
that was finally passed would add more than $1.7 trillion to 
the deficit when interest costs are included? Does that sound 
about right?
    Dr. Hall. Yes, although I would have to give credit to our 
colleagues on the Joint Committee on Taxation who did the 
actual hard work.
    Senator Sanders. Right, I know that. But that sounds about 
right, yes?
    Dr. Hall. Yes.
    Senator Sanders. Am I correct in saying that the JCT's 
analysis determined the legislation would add more than $1 
trillion to the deficit even when we use dynamic scoring? Is 
that a fair representation?
    Dr. Hall. That is right.
    Senator Sanders. Now, I will not ask you to comment on 
this, but I will comment. But day after day, month after month, 
I have heard about the world collapsing when we add to the 
deficit and the national debt. That is not your issue. Some of 
my colleagues apparently forgot about the lectures that they 
gave us over and over again about deficit spending.
    Dr. Hall, on November 8th, CBO re-estimated the effects of 
repealing the Affordable Care Act's so-called individual 
mandate. CBO estimated that the change would increase the 
number of uninsured people by 13 million within 10 years and 
increase premiums by about 10 percent in any given year. Does 
that sound consistent with what you told us?
    Dr. Hall. It does.
    Senator Sanders. Okay. More recently, on January 11th, CBO 
estimated the cost of extending the Children's Health Insurance 
Program for 10 years, you projected that a 10-year extension 
would actually save the Government $6 billion. Does that sound 
about right?
    Dr. Hall. Yes, it does.
    Senator Sanders. Okay. All right. Let me just conclude by 
saying, you know, I think under a lot of pressure your agency 
is trying to do the objective work that is expected of you and 
that I hope that some of my colleagues would refrain from 
attacking the agency because the results that you produce are 
not something that they are comfortable with.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Johnson.
    Senator Johnson. Thank you, Mr. Chairman.
    Dr. Hall, I want to go to kind of the line of questioning 
the Chairman was engaged in terms of who decides what you score 
and, I guess who do you report to. The reason I am asking the 
question is that, after the election, knowing that we were 
going to be bringing up health care, I started through staff 
informally requesting scores on what would happen if we would 
repeal the market reforms. It did not get very far, so on March 
23, 2017, I sent a letter to you signed by the Chairman and 20 
of my other colleagues, 22 Republican Senators, requesting--
pretty simple. We requested the Congressional Budget Office, in 
consultation with the Joint Committee on Taxation, estimate the 
budgetary effects of repealing the Obamacare insurance 
regulations.
    Now, you are aware the reason we need that--well, first of 
all, just to understand what policy might cause, but also there 
is no way that we can even bring it in front of the Senate if 
we do not have a score to present to the Parliamentarian. So 
this is a basic piece of information we needed. I want to know 
why didn't we ever get that score. Again, this is 4 months 
before this really came to a head. The only response we got 
was, ``Cannot do it.''
    Now, you do all kinds of different things. You make all 
kinds of estimates, and I am going to talk next about the 
estimate of the number of people losing insurance. Just simple, 
why didn't we get an answer? Twenty-two Republican Senators 
asked for this analysis. What would it cost the Government if 
we repealed those market reforms?
    Dr. Hall. Well, I can tell you that our health group was 
just working flat out for months.
    Senator Johnson. This was in March.
    Dr. Hall. Even in March we were working flat out for 
months. One of the things that is underrated, one of the 
reasons I tried to make a point about it, is we do a tremendous 
amount of what I call ``technical assistance'' where we are 
getting draft legislation from a committee of jurisdiction 
and----
    Senator Johnson. Okay.
    Dr. Hall [continuing]. That is going to ultimately wind up 
being real legislation.
    Senator Johnson. Again, I will follow this in private with 
you. Okay. I want to find out exactly why we did not get this, 
Okay? I want to move on to the question of insurance coverage.
    Your scores under Obamacare used the March 2016 baseline, 
which, again, by law you had to do that. But it is also true 
that in January 2017 you created another baseline in terms of 
people in terms of insurance coverage. Correct?
    Dr. Hall. Right.
    Senator Johnson. Now, in your score--and, of course, this 
was the grenade that the CBO threw into the health care debate 
that pretty well poisoned the well. You said that in 2018, 15 
million Americans would lose health insurance because of the 
Senate bill. That is broken down 7 million in the individual 
market, 4 million Medicaid, 4 million employer.
    The problem with that is that it's comparing against the 
March baseline. If you compared it to your most recent 
baseline, January, the individual market, there had been no 
additional uninsureds. That 7 million would have gone away. We 
would have been left with 8 million--4 million dropping 
Medicaid coverage, 4 million on employer.
    Now, I can understand without a mandate why people might 
lose employer coverage. Why would people drop free Medicaid? 
Now, fast forward in terms of your estimate for 2026. The 15 
million grew to 22 million. But, again, 7 million of that 
should just be excluded because you already updated your 
estimate that there would be nobody losing coverage on the 
individual market based on your January 2017 baseline. So that 
leaves 15 million people--22 minus 7, 15 million people--all 
losing Medicaid.
    Now, again, you can say people are going to drop basically 
free coverage because there is not an individual mandate. It 
makes no sense whatsoever to me. It makes no sense.
    So I had a conversation, one of the most frustrating ones I 
have ever had, with Mark Hadley. Now, in that I asked for the 
CBO in our latest replacement piece of legislation to break out 
Medicaid expansion versus Medicaid, and you did that and I 
appreciate that. I think that was very helpful. It certainly 
helped my analysis of it.
    But I also asked a very simple thing. I said, fine, you 
know, compare your coverage estimates with your March 2016 
baseline. But because you also have a new baseline, why don't 
you just put that as an alternate scenario?
    Now, the response I got, ``Well, it was take 2 weeks.'' You 
have got the baseline right here showing 19 million people 
uninsured on the individual, 19 million under the Senate bill, 
19 minus 19 is zero. I could do that in seconds. Why did you 
refuse to provide the American people the information that 
would not have been freaking them out, where we could have 
really looked at this analysis and go, well, Okay, 8 million 
people losing, 4 on the employer, 4 Medicaid. Really we are 
probably looking at 4. Why didn't you provide that alternate 
scenario?
    Dr. Hall. Well, first of all, it is not clear that the 
alternate scenario would have gotten the different numbers that 
you suggest--let me just put it that way--because changing the 
baseline had sort of two effects, right? Because the premiums 
were higher while at the same time the coverage was lower.
    Also, when we talk about the 15--let us go back to the 15 
million drop in Medicaid. That is really--most of that is not a 
decline in Medicaid, but that is a--the legislation ended the 
expansion of Medicaid. So those were people primarily who do 
not have Medicaid, will not get it over the next 10 years, who 
would have under current law at the time. So we are not really 
talking about people dropping from Medicaid, but people from--
--
    Senator Johnson. Again, this is just simple math. You come 
up with an estimate. You compared it against a baseline, and 
you are not providing the American people with the information 
they need.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you, and there will be an opportunity 
at the end to submit additional questions, too, that we might 
want to have answered.
    So next would be Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. Dr. Hall, 
welcome. And Senator Sanders covered some of the issues I was 
going to ask you about, but I wanted to ask you about the 
impact of CRs, continuing CRs, on the work of the Congressional 
Budget Office. We heard from the Pentagon spokesperson a few 
weeks ago that going from CR to CR--we have now had four--
results in wasteful spending at the Defense Department and has 
negative consequences for our defense.
    Does going from CR to CR make your work at CBO harder? And 
what are the consequences of it?
    Dr. Hall. Well, it does make things harder. We have 
actually put off some things. We are tending to put off some 
computer work and some things like that. If we continue under a 
CR, right now I think we will have to curtail our hiring. We 
will have to move down a few slots. We will probably have to 
cancel some training and travel and that sort of thing. So it 
does have a consequence for us. It does sort of degrade our----
    Senator Van Hollen. In terms of your planning, does it make 
your planning harder? And does that lead to some inefficiencies 
in terms of your ability to hire when you need to hire?
    Dr. Hall. Yes, it does.
    Senator Van Hollen. Okay. Let me ask you about the CHIP 
program and the scoring, because the good news is the Congress 
reauthorized the Children's Health Insurance Program for 6 
years, and as was referenced, the Congressional Budget Office 
estimated that it would actually save money, I think you said 
$6 billion, compared to the earlier baseline. Is that right?
    Dr. Hall. Yes.
    Senator Van Hollen. Okay. And your analysis of savings was 
not as a result of the cost of providing health care services 
to these children going down, was it?
    Dr. Hall. No, it was not.
    Senator Van Hollen. It was the cost of the alternative 
going up, right?
    Dr. Hall. That is right.
    Senator Van Hollen. And the alternative is the health care 
provided in the Affordable Care Act exchanges primarily. Is 
that right?
    Dr. Hall. Yes.
    Senator Van Hollen. Okay. And the reason, the primary 
reason those costs went up was as a result of the fact that the 
elimination of the individual mandate resulted, according to 
CBO, in the cost of premiums going up by 10 percent. Is that 
right?
    Dr. Hall. Yes.
    Senator Van Hollen. All right. So I think this is an 
important point for people to understand. The reason the cost 
of providing services to CHIP went down is because those 
children, if they were denied that alternative through the 
Children's Health Insurance Program, would have gone into the 
Affordable Care Act exchanges, and as a result of the 
individual mandate removal being the primary cause, the cost to 
the taxpayer would go up because when those premiums go up, we 
all pay a higher tax credit to help meet the needs of those 
individuals. Is that right?
    Dr. Hall. That is correct.
    Senator Van Hollen. So that really is my--it just shows 
that when you do one thing to pull the rug out of the 
Affordable Care Act, when you get rid of the individual 
mandate, you increase the premiums by 10 percent, and so that 
meant that if you did not extend the Children's Health 
Insurance Program, those kids coming into the Affordable Care 
Act exchanges would have been paying higher premiums. As a 
result, the tax credits that we provide people to make sure 
that that health care in the exchanges is affordable would have 
gone up. So, yes, it is great we extended the Children's Health 
Insurance Program and we saved $6 billion, but the savings was 
relative to the baseline, and the baseline costs went up 
primarily because of the move in the tax bill to get rid of the 
individual mandate.
    So I just hope members will understand the consequences of 
their action with respect to actually saving taxpayers' money 
and providing an important benefit to our kids' health. And I 
really do appreciate the Congressional Budget Office because 
sometimes, you know, some of us agree with your analysis, 
sometimes we disagree with the analysis. But, my goodness, if 
we did not have some kind of referee here in the U.S. Congress, 
we would have even more of a free-for-all than we already have. 
And we already have a hell of a free-for-all.
    So I am grateful for somebody being able to take an 
objective look at this and provide an analysis that we can use. 
There are too many--we are already having a dispute nationally 
over what is fact and what is fiction. I am grateful that you 
provide us some baseline for what is fact, at least as it 
regards to the budget.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Perdue.
    Senator Perdue. Thank you, Mr. Chairman. Thank you,
    Dr. Hall, for being here.
    I want to talk about partisanship just a minute. I found 
three things this morning in a bipartisan way that I agree with 
the Ranking Member today, and I want to put that in the record.
    Number one, I agree with his first opening comment about we 
need to be serious about the budget process and recognize that 
it is broken.
    The second thing is we all want to find a way to solve the 
DACA issue.
    And, third, and maybe most important, we need to find a way 
to simplify our titles of bills around here.
    But I also want to agree with my colleague Senator Van 
Hollen. You know, thank you that you are attempting to be an 
objective source for information for modeling and anticipation 
and projecting the impact of potential legislation. But I want 
to talk about how to achieve that.
    First of all, this is one of the most partisan committees 
that I have seen. I was on Judiciary as well. It is very 
partisan as well. But this is a very partisan Committee, and 
unnecessarily so. But it is partisan because of the budget 
process. Members of the other side of the Committee, several 
members there, Senator Whitehouse, Senator Kaine, members of 
this side, I think we all agree the process is broken, and it 
creates a situation here because the budget is not a law, it is 
a resolution; therefore, the majority crams down the throat of 
the minority their political statement about what they think 
that they should do in spending. You get caught in the middle. 
One side likes your opinion; the other side does not like your 
opinion. This will change at some point in the future. They 
will be in the majority; we will be in the minority. Nobody is 
going to like it. This is a broken process. We have to fix it.
    But in the meantime, you play an important role, and I 
think it is absolutely critical that you be as nonpartisan as 
you can be. I have two questions for you very quickly.
    One is I agree with the Chairman and the Ranking Member 
that they should be involved in the priorities of what you are 
allocating time and resources to. You heard very important 
questions being asked during the health care debate as well as 
the tax debate that did not get answered. How do you respond to 
that? And then I want to talk about how you are assuring that 
we maintain a nonpartisan position in here? Very quickly. Just 
on hiring--I mean, I am sorry, on the priorities, would you 
address that very quickly?
    Dr. Hall. Sure, sure.
    Senator Perdue. Then I want to go to one more question real 
quick.
    Dr. Hall. One of the difficult things for us is we do so 
much technical assistance, which often leads to a formal cost 
estimate, but by technical assistance, we are looking at 
legislation, we are giving feedback and formal estimates. That 
is so often done by a committee or leadership, and they want it 
done confidentially because it is sort of technical assistance. 
So we wind up doing a lot of work over time where the Budget 
Committee would not know what we are working on and we cannot 
tell them that.
    And so what we have done is we have developed what we think 
is a pretty--the most effective thing we can do, and that is 
when we have--when we are jammed up on topics, we look to the 
committee of jurisdiction to tell them, hey, we have got these 
things going on, tell us what your priorities are.
    Senator Perdue. But the ultimate priority really exists in 
the--or resides in the Budget Committee, right?
    Dr. Hall. Yes, that is right.
    Senator Perdue. Okay. So let me go back to one other thing 
then. In terms of this partisanship--and this is before your 
time, so I think you can be objective to the response. The 
question is how to avoid this in the future. It is one thing to 
disagree with the projection. It is another to look at reality 
and compare it back to the projection, which is what we do in 
the real world in business.
    In 2013, CBO predicted that Obamacare enrollment in the 
individual market for the years 2015, 2016, and 2017 would be 
13 million people, 24 million people, and 26 million people, 
respectively. The actual enrollment was 11 million, 12 million, 
and 10 million.
    Now, when you see 100 percent error like that, it raises 
questions in my mind about impartiality, particularly when the 
author of those estimates, the head of the CBO's health 
analysis group, was formerly part of Hillary Clinton's 1993 
Health Care Task Force, I have to ask the question: How do you 
ensure--you were not there then. Going forward, how do we 
assure ourselves that we are getting a nonpartisan, objective 
viewpoint, to Senator Van Hollen's point earlier?
    Dr. Hall. Well, we do a lot to try to seek guidance and 
advice from experts on both sides. We try very hard. We 
actually do our best to go back and look at how we did. We went 
back and looked at how the estimates turned out there.
    The only thing I would say, you know, in defense, of 
course, is sometimes it is really hard to estimate these 
things.
    Senator Perdue. Sure.
    Dr. Hall. And I think one of the conclusions I would make 
in going back is certainly with the exchanges we were off. We 
were not as far off on things like the actual spending and some 
other things. But everybody else was as well. In fact, we were 
probably more accurate than most others.
    Senator Perdue. That does not give me a lot of comfort.
    Dr. Hall. I know it does not. But it goes to the issue of 
bias, right? We can be off and we can be wrong, but hopefully 
we are not consistently wrong. I am a little disturbed that we 
are consistently overestimating, for example, the exchange 
participation. We tried to fix it. We still overestimate. Try 
to fix it--you know, I have a background in economic data. When 
you are doing economic data, you do not want to have revisions 
all one way. You want to revise it up and down.
    Senator Perdue. Right.
    Dr. Hall. That is what we would like to have. But we try 
very hard to do that. We try it with the processes and try to 
do it that way. We try to be transparent. That is why I 
approved this transparency push.
    Senator Perdue. Thank you.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Whitehouse.
    Senator Whitehouse. Thank you, Chairman.
    First, let me echo what my friend Senator Perdue has just 
said. We have seen the Budget Committee become 100 percent 
partisan and zero percent meaningful. In fact, the most 
important work that we do here is not even budget work. It is 
simply the political task by the majority of opening the 
procedural gateway to another partisan political effort down 
the road in the Senate. Short of that, we do not need Dr. Hall; 
we do not need staff. We do not need anything because we do not 
do anything in this Committee. There is a reason that over and 
over again we have Committee hearings, even nominally on the 
budget of the United States, and nobody even bothers to show up 
in the audience, because people know perfectly well that what 
we do here has exactly zero effect. Once appropriators got 
accustomed to beating a 60-vote margin in the Senate on 
appropriations bills, the Budget Committee's penalty for 
breaking our budget, which is you have to get 60 votes, made us 
useless. The fact that we only look at appropriated funds, not 
the far larger amount of money that goes sloshing out through 
the back door of the Tax Code, not the health care expenditures 
of the country, just contributes to my sense that we have made 
ourselves a useless Committee, and it is something I am 
extremely eager to correct on a bipartisan basis.
    The issue that bedevils us, I think, the most here is the 
health care cost issue, and, Dr. Hall, I think you have seen me 
do these before. This is one of my least favorite graphs that 
has life expectancy in years among the leading developed 
countries and cost per capita in health care, and basically all 
of our major competitors are here in this kind of bolus of 
competition. We are way the heck out here. We cost a fortune 
more per capita than any other industrialized country, and we 
have life expectancy comparable to Chile and the Czech 
Republic. So it is not like we are gaining these massive health 
gains from that massive expenditure.
    So you guys do some really good work, and this is to me one 
of the more interesting things that I have seen. The red line 
on the top is the projection for Federal health care spending 
that was made back here. That was in August 2010. In January 
2017, this experience, the actual green line, then got baked 
into a new projection, and the new projection for this 10-year 
period is lower by the amount of this green block than what CBO 
had previously estimated. That reduction is $3.3 trillion in 
health care savings. If we could pass something in the Senate 
and in the House that gave us $3.3 trillion in health care 
savings, that would be one of the most significant things that 
we could do.
    The problem is we do not know exactly why that happened. 
That is a combination of early experience and then algorithms 
that you guys run to make your projections with that we do not 
have a lot of transparency into. So, to me, if you are looking 
at the possibility of multiple trillions of dollars in future 
health care savings, it ought to be an absolutely critical 
priority, a bipartisan priority of this Committee and of your 
office, to be trying to figure out and explain what are the 
things that can help make that happen. What are the things that 
might even dial it up a little bit? If you can get $3.3 
trillion, why not $6.6 trillion?
    So I hope if we are going to spend more money on staff, 
this becomes a really important priority, explaining why. 
Because if you can explain why, we can try to do more of it.
    Now, I will say that we have accountable care 
organizations, provider accountable care organizations in Rhode 
Island. It is basically doctors' offices that have agreed to 
sign up for placing a bet that they can give better care at 
lower cost to their patients. In return, they do not just get 
paid for doing procedures and prescriptions. They get a bonus 
from CMS for doing a good job.
    Some of the best ones in the country are in Rhode Island, 
and they are seeing their cost per patient actually go down 
year over year. And they are generating millions of dollars in 
savings just in their little local practices.
    So somehow there is a connection between being able to save 
$3.3 trillion just over 10 years in health care expense and 
these local experiences that we are all seeing in our provider 
and other ACOs. How to maximize that to me I think is a job 
worth doing in a Committee that otherwise appears to have no 
purpose.
    So I look forward to working with you on that, Dr. Hall.
    Dr. Hall. Let me say that falls right into our category of 
analytical reports that we do, and that is exactly the sort of 
thing that we like to look at that is really of interest 
budget-wise but explains things.
    Chairman Enzi. Thank you. And at the beginning of 2016, we 
said the budget process was broken, and we did 13 hearings and 
had a number of things that we had hoped that we would pass 
before the election so we would not know who the President was 
going to be or who the majority was going to be. But we did not 
have enough people involved in that process, so it got stopped 
before the election. I thought we----
    Senator Whitehouse. Do not give up hope, Mr. Chairman.
    Chairman Enzi. I will not, and I am planning on doing some 
hearings based on some task forces led by individuals on this 
Committee, bipartisan ones, and I suspect that you have an 
intense interest in health care.
    Senator Cotton, welcome to the Committee as our newest 
member.
    Senator Cotton. Thank you. It is good to be here. I am 
saddened to hear the Senator from Rhode Island and the Senator 
from Georgia agree that it has become very partisan. I suppose 
I was added to make it more bipartisan. And I want to start 
with a bipartisan conversation. I think it will matter to both 
sides of the aisle, because it is just about the way the CBO 
interacts with members of this Committee and Members of 
Congress as a whole, the way they respond to requests for 
information from us.
    I want to use as an example the analysis CBO did last fall 
about Medicaid coverage losses under one version of our health 
care bill. I am not sure which one it was. Some of your 
analysts came to a Republican conference meeting to explain, I 
think it was, a 5-million-person loss under Medicaid, and that 
analysis turns out to have assumed that some number of the 18 
non-expansion States would expand Medicaid despite their 
previous decisions not to since the 2010 law, and then if our 
bill had passed, those States would then decide to drop 
Medicaid.
    When asked which States would be doing that, and especially 
if Texas and Florida would be doing it, the two largest non-
expansion States, since if you did not have one of those two 
expand, you could not even get to 5 million in total 
population, the analysts told us they could not answer that, 
they do not make that kind of prediction. They were just going 
on past programs and so forth. I found that pretty astonishing. 
At root, that is more of a political judgment than it is an 
economic assessment. And there is just no good explanation for 
why they reached that conclusion. And I found that to be fairly 
consistent with my study of CBO reports, which are usually 
pretty good when it comes to Government revenues and outlays, 
but leave something to be desired when it comes to things like 
political judgments or market forces and incentives, or the 
incentives of private individuals. And I believe that those 
assumptions are rarely made adequately public or explained, and 
it makes it harder for us to do our job and certainly harder 
for the public to understand the kind of projections you are 
making.
    Let me stop there and see if you would like to respond to 
that.
    Dr. Hall. Sure. We are not particularly happy about having 
to make that sort of assumption, but it was absolutely key to 
understanding the proposal how many States will choose to 
expand or not expand. If we choose no more would expand, that 
is an assumption that would affect our numbers. If we chose 
that some would expand, we are trying to do that. We tried our 
best to look at past history, and what we did is we put States 
into buckets. We had different buckets, you know, more likely 
to expand, less likely, in the middle. And we actually really 
did put the States in there, but our thinking was we did not 
want to talk about particular States, because if you are wrong 
about a State in the wrong bucket here, it should be over here, 
there might be some State here that should be over there. So 
the errors can somewhat cancel out.
    Senator Cotton. If I could, Dr. Hall, I do not want to get 
into the details of that particular analysis. My point is, 
though, that was a very small universe of data.
    Dr. Hall. Sure.
    Senator Cotton. Eighteen data points. It is not millions of 
data points, as are often used.
    Dr. Hall. Right.
    Senator Cotton. The kind of analysis and assumptions you 
just made was not explicit in the reports we received. It took 
four of your analysts coming to explain that to us in detail 
for Senators to understand it and certainly for the American 
people to understand it. Why not just make that kind of thing 
public, you know, do something like different scenario 
analysis, making your assumptions more explicit, both for us 
and for the public?
    Dr. Hall. We are happy to start trying to do more of that. 
My only defense at this point is we only have so many people, 
so much times, and these are tradeoffs. But if Congress, if you 
all want more time spent on that sort of transparency, we will 
do it.
    Senator Cotton. How many people do you have?
    Dr. Hall. Well, on health care, let me just do health care 
first. Health care, complete health care, we have 40 people. So 
the people who are really engaged were probably less than 20 
people on all these estimates. So, you know, we have 230 people 
total. We have about 40 on health care. We have lots of other 
buckets we have to cover. So we are not huge. But we do have 
some people, and I tell you, they were working full out on 
things.
    Senator Cotton. Let me conclude with a story. In the summer 
of 2013, I was a new Congressman, and there was an immigration 
debate going on at the time. The CBO had produced an 
immigration estimate, and it was controversial I think on all 
quarters for the estimates it made about future immigrant 
flows, legal versus illegal, impact on population, impact on 
wages and so forth. I wanted to get a little more information 
about that. I spoke with your predecessor. After some time he 
offered to come by. I said, ``I do not want to just get the 
wave tops here. I want to get down into the details.'' He said 
they just do not have the resources to do that. I said, ``I 
will come to you. You do not have to come to my office.'' He 
said that it was not a finished product. I said, ``Look, 2 
years ago I was modeling complex economic and business problems 
at a private consulting firm. I understand how to work a spread 
sheet. I will sit with your analyst at her desk and go through 
everything.'' And that was refused to me. Is that an 
appropriate response to make to Congress?
    Dr. Hall. No, no. We would like do a lot better.
    Senator Cotton. So if I have a similar question about a 
future analysis, then I would be welcome to come and sit at 
someone's desk and walk through assumptions and modeling?
    Dr. Hall. Absolutely. I have never refused to go and talk 
with a Member and bring staff and talk about something.
    Senator Cotton. Thank you.
    Chairman Enzi. Thank you.
    Senator Kaine is not here, so Senator Kennedy.
    Senator Kennedy. Dr. Hall, thanks for coming today.
    Dr. Hall. Thank you.
    Senator Kennedy. CBO has a well-deserved reputation, I 
think, as being a neutral arbiter. And I understand you work 
under a lot of pressure. I get that. You and all your people 
are very, very, very bright. That much is clear to me.
    You are serving us, but you are also serving the American 
people. And I am going to make just a couple of suggestions 
about what we need but, more importantly, I think, the American 
people need.
    Number one, you have got to move more quickly. I know that 
is easy for me to say, but for a variety of reasons, I think 
the pace has quickened in many respects when we get in the 
middle of discussing an issue.
    Number two, you have got to be clearer. It does not do any 
good--and I do not want to overstate this, please. That is why 
I prefaced what I am saying here with how extraordinary I think 
the work you do is. But the analysis has to be thorough, but it 
has got to be written in non-Swahili so that the American 
people and the press can pick it up and say, Okay, here are the 
conclusions, here is why CBO reached the conclusions, and here 
are the assumptions that they are making, understanding that 
you are not clairvoyant and in predicting the future you have 
to make certain assumptions.
    Now, you can accompany that with a long, detailed Ph.D. 
dissertation type document, and I am not being critical, which 
I can assure you more Members of Congress than get credit for 
it will read. But what is important, it seems to me, is that we 
get it quickly and that the American people have an opportunity 
to understand it better.
    Now, that is not because the American people are stupid. 
They are not. I have said this before. Most Americans do not 
read Aristotle every day because they are too busy earning a 
living. But they will figure it out. I am just suggesting that 
we can all do a better job of helping them do that.
    That is my only comment. I know it is easy to criticize and 
Monday morning quarterback, and you work under a lot of 
pressure. But we have got to have it faster, and I think the 
American people, given your well-deserved reputation, deserve a 
little more clarity. And I say that gently and with a spirit of 
gratitude for the good work you do.
    Dr. Hall. Well, thank you. I think you have identified the 
two biggest problems I think that we have: the responsiveness 
and the transparency. And, unfortunately, they sometimes 
collide with fixed resources.
    Senator Kennedy. I know.
    Dr. Hall. And so we have been working hard to sort of think 
of some ways we can improve that process-wise. And it is also 
part of why we are asking for some more resources.
    Senator Kennedy. Thank you.
    Dr. Hall. But I appreciate the feedback. Thank you.
    Senator Kennedy. I am not leaving because--well, I am way 
over--no, I am not. I have got to go back to another committee, 
but I want to thank you for being here today.
    Dr. Hall. We appreciate any more ideas you have on how we 
can do our job better.
    Senator Kennedy. Will do. Thank you.
    Chairman Enzi. Thank you, Senator Kennedy.
    Senator Boozman.
    Senator Boozman. Thank you, Mr. Chairman. And thank you, 
Dr. Hall, for being here. I know that you all do work awful 
hard, and our purpose is to help you get the job done.
    You know, one of the things that--as you know better than 
anybody, you are kind of in the central position that we simply 
cannot do things many times without you all weighing into it. 
One of the things that somebody ought to look at, yourself or 
GAO or whatever, would be how much--not getting information, 
how much that adversely affects the ability of Congress to do 
its job. Again, that is a huge deal.
    The other thing that I do think is important--and I know 
that you have problems with resources and things like that, but 
we need to measure things. And you all weigh in on bunches of 
stuff. Many times that is accurate. Sometimes it is not as 
accurate. And sometimes it is not because of the fact that, you 
know, there is a mistake to be made. It is just very difficult 
to do these things. I think it would be helpful for us to know 
the areas that we can truly rely on the information versus it 
is a guess. But you can only do that through metrics. You know, 
you have to have the ability to check yourselves out, and I do 
not think that that is happening right now.
    Can you talk about that? And if you do not have the 
resources to do that, then, you know, what would it take for us 
to give you that ability? Because I do think, regardless of 
what we do, you know, you simply--you need to have that 
information; we need to have that information as we make really 
important decisions.
    Dr. Hall. Well, I can say one of the things that we do 
every year, we call it an ``analysis of actuals,'' where we sit 
down and look at all the budget categories and see what 
happened during the year and what we predicted during the year. 
How did we do? How far were we off? We actually sit down and go 
through that, and I have a meeting. How close are we? How far 
off? How are we going to adjust our view of this going forward?
    One of the things that we have been thinking about--it 
sounds like it may help with this--is we are going to maybe 
start publishing our analysis of actuals so you can actually 
see how we did in one of these budget categories.
    Senator Boozman. I think that would be helpful.
    Dr. Hall. The tricky part, of course, is sometimes the 
budget categories are larger than pieces of legislation, so it 
is hard to know about a small piece of legislation. But this 
will give you an idea of where we are being more accurate and 
less accurate.
    Senator Boozman. And I think at times, too, we run into 
disagreements. You know, there are areas where I think the 
Committee staff truly are experts in particular areas, have 
significant disagreements, and I would hope that, you know, 
there is dialog to try and work out the differences and at 
times maybe change your perspective as to what is going on.
    Dr. Hall. Yes, well, one of the things that we now do--we 
have always sort of done it, but we are now sure to do--is when 
we get pieces of legislation and a committee has some data that 
they have looked at, has some analysis that they have looked 
at, we ask for that and we be sure we look at that. We always 
go further to do an independent look.
    Senator Boozman. Sure.
    Dr. Hall. But we want to be sure that a committee feels 
like we have given them a fair look at what they have looked 
at. I think that is an important starting point for us to be 
sure that we are unbiased and objective.
    Senator Boozman. I very much agree. One of the things I 
think you talked about when you were talking when you were here 
last time, you talked about the problems of retaining qualified 
people, and then also I think you said in your testimony that 
over the past 3 years, back then, more than 60 percent of those 
to whom CBO had made offers had chosen to stay in academic 
positions. So, you know, it sounds like that is a huge problem, 
acknowledging the funding constraints that we are under and 
things like that. What do we do to help you get the people that 
you need and retain people?
    Dr. Hall. Well, one of the things----
    Senator Boozman. Be a more competitive employer.
    Dr. Hall. Sure. Actually, one of the things that has 
changed is we had been capped so that all the salaries had to 
be basically below a Member's salary, below my salary, while a 
lot of the people were competing for senior managers in the 
executive branch, they have a higher pay scale. They can make 
as much as $30,000 more than I make or anybody at CBO.
    We have now got a change, so we are allowed now--going 
forward, we are going to be allowed to start paying our senior 
managers as much as the executive scale. Not that we are going 
to do it, but I think that will make us more----
    Senator Boozman. But you have got that flexibility?
    Dr. Hall. We now have that flexibility. I think that is 
going to be an important thing for retaining our top people. So 
that actually was a really good move. We are trying to be 
careful on how we use it.
    Senator Boozman. So retaining and then also recruiting?
    Dr. Hall. That is right.
    Senator Boozman. Very good.
    Well, thank you, Mr. Chairman.
    Chairman Enzi. Thank you. I appreciate all the input from 
members today. I have got a lot of notes. There are a lot of 
things that we as well as CBO need to do to improve the 
process.
    One thing, though, that kind of is--you had it in your 
opening comments, and it kind of stuck with me, and I think it 
has been echoed a little bit here but not directly. Have you 
considered serving as kind of the aggregator collecting 
estimates from a number of outside think tanks and things and 
reporting that are part of the transparency, as well as the 
answer that you come up with? Is that a potential solution?
    Dr. Hall. I am not sure it is. We are happy to do what we 
are asked to do, but one of the things you get with CBO is you 
get consistent quality. We do high-quality work, and we work 
very hard to be unbiased. And this is one of the issues, for 
example, where we make models available. Part of the advantage 
of CBO is not just that we have these models, but we are the 
ones who run the models.
    If we want to get input from think tanks, et cetera, I 
think that is a good idea, and I think we do, in fact, go and 
talk to think tanks and get their views on this, get their 
feedback on how we do things. We are happy to try to do that 
more and see if that helps.
    As to whether think tanks will spend a lot of time 
producing competing estimates on so many of the small things we 
do, that is probably not realistic. But I do think that there 
is value in having us assure you at least that we go and talk 
to think tanks and spend some time getting their views on 
things.
    Chairman Enzi. Okay. I appreciate that. I have learned a 
lot today. I think there was kind of general agreement that we 
have a broken budget process. I have watched this for years now 
and chaired it for a while, and I know that most of the budgets 
never last more than 40 days before there is a waiver of the 
budget. And as Senator Whitehouse pointed out, it only takes 60 
votes to overcome it, which is usually the same amount that it 
takes to pass the legislation. So it is virtually 100 percent 
assured.
    One of the things we had from our hearings, the 13 hearings 
that we did while Senator Whitehouse was the Acting Ranking 
Member, was that there ought to be a higher threshold for 
higher numbers. And I think we should consider that if we are 
going to have any possibility of this making a difference.
    I will continue to hold some hearings, and we will go back 
and review the material from those hearings that we had. From 
today, some of the other things that I--I did hear that this is 
the most partisan Committee, and I want people to know that it 
has been the most partisan Committee since 1974 when it was 
first initiated. And the process has been for the majority 
party to hold opening statements so that the other side can 
comment on the budget and then let them see the budget. And I 
never considered that to be fair, so we have changed that 
process. They now get it 5 days in advance, and I think it 
helped to expedite the markup and the hearing.
    Of course, in exchange for giving it 5 days earlier, 
everybody has to turn in their amendments. And one of the 
things I learned working with Senator Kennedy when I chaired 
the Health, Education, Labor, and Pensions Committee was that 
when those amendments come in early, there is a seed of 
possibility in every one of those amendments. And sometimes you 
have got to let them grow, and more often what you need to do 
is look at the same seed being planted by both sides of the 
aisle and see if the people cannot get together and come up 
with the common one that will work. And that is what I am 
hoping will come out of this budget process and make it less 
partisan. When it does not exist, when the results do not exist 
more than 40 days, then reconciliation becomes the most 
important part. And reconciliation has its shortcomings, too, 
because every amendment has to have a budgetary impact of some 
significance. And so the rules that follow that make actual 
legislation very difficult. But if that is the only way to move 
forward, then that becomes the method of choice, and both sides 
have used it. I think there are better ways to legislate, and I 
hope that we can get to that.
    Now, on the things that we did today, I think one of the 
key messages was also that assumptions matter. And, you know, 
when we talk about transparency, there are not many people that 
are going to follow a model, you know, with all the different 
arrows and things that would be involved in that, which are 
even tougher to explain verbally. But assumptions, I think that 
they do have a pretty good ability to understand, and if they 
know what assumptions go into it, that might make the kind of 
transparency that we are talking about for particularly non-
economists, which I would assume is almost everybody on the 
Committee and almost everybody in the U.S. Senate.
    I also like the idea that everything should be written in 
plain English. And we should have some better titles for our 
bills that are not quite as biased as what they might be but 
tend to get people to not be able to vote against them based on 
how good they sound, whether the text that follows does that or 
not.
    And I appreciated your comment about allowing people to be 
able to sit down with the analysts and get a little better 
understanding of where the information came from. I think that 
particularly for people that have been an analyst, that would 
be very helpful.
    So thank you for being here today and for your comments, 
and we will continue to work with you, and I will be trying to 
engage the Committee in doing more oversight work in particular 
areas that we can--not that we would legislate in, but that we 
would pass the information on to the committees of 
jurisdiction.
    So thank you, and with that, this hearing is concluded. As 
a reminder people can turn in lists of questions if they wish, 
and we will send those over, and I am sure we will get a 
response. Thank you.
    Dr. Hall. Thank you.
    [Whereupon, at 11:51 a.m., the committee was adjourned.]

                     ADDITIONAL COMMITTEE QUESTIONS

    [The following submitted questions were not asked at the 
hearing but were answered by the witness subsequent to the 
hearing:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




            THE PRESIDENT'S FISCAL YEAR 2019 BUDGET PROPOSAL

                              ----------                               



                       TUESDAY, FEBRUARY 13, 2018

                                       U.S. Senate,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:01 a.m., in 
room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Grassley, Crapo, Graham, Toomey, 
Johnson, Corker, Perdue, Gardner, Kennedy, Boozman, Sanders, 
Murray, Stabenow, Whitehouse, Merkley, Kaine, King, Van Hollen, 
and Harris.
    Staff Present: Elizabeth McDonnell, Republican Staff 
Director; and Warren Gunnels, Minority Staff Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. Good morning. I will call to order this 
Senate Budget Committee hearing.
    Good morning and welcome to the Senate Budget Committee's 
hearing on the President's budget proposal for fiscal year 
2019. This budget submission comes to us on the heels of a very 
busy first year for President Trump. I am proud of all the hard 
work and leadership that went into passing the Tax Cuts and 
Jobs Act, a historic pro-growth tax bill that is already 
bringing investments back to America and boosting take-home pay 
for workers. With the President's new budget submission, I am 
interested in learning how the administration proposes to build 
on this momentum and further strengthen our economy.
    One of my greatest concerns as a United States Senator is 
our country's national debt, a figure that has now eclipsed $20 
trillion. To secure our economy long term for future 
generations, we must tackle this growing problem. While 
lowering taxes is proving to bolster our economy, which will 
bring in new revenue, we must more closely examine the spending 
priorities and habits of the Federal Government. We have a 
spending problem in America, and so I look forward to hearing 
from our witness which ways the administration believes we can 
use taxpayer dollars more efficiently.
    Today we have the opportunity to hear from Office of 
Management and Budget Director Mick Mulvaney. Director 
Mulvaney, thank you for coming this morning to discuss the 
President's fiscal year 2019 budget request. We look forward to 
your testimony and the opportunity to discuss possible 
solutions to the Nation's budgetary woes. I also want to 
congratulate you on the documents that came yesterday. I want 
to congratulate you on how concise they are, how explicit they 
are, and the difficulty that you went to to not only explain 
the budget but also to very specifically point out the major 
savings and reforms that are being suggested. It is one of the 
clearer presentations that I have seen, and I have seen a lot 
of them.
    The submission of the President's annual budget proposal 
marks an important first step in what should be an orderly 
budget process. Over the years, however, under successive 
Congresses and administrations, this process has broken down, 
leaving behind a confusing, illogical, wasteful maze of 
legislation and ad hoc governing, a perfect example of which 
was on display last week with the latest budget--busting 
spending deal. Instead of funding the Federal Government week 
by week or month by month, we must address the structural 
deficiencies of our budget process, returning to a system that 
actually works.
    Serving on the Budget Committee for 15 years, I have tried 
to work to solve our fiscal problems. In 2016, I devoted much 
of the year to working on bipartisan ideas to fix America's 
broken budget process. We were able to get a conversation 
started through hearings and meetings with experts. While we 
made some good progress at the Committee level, for a variety 
of reasons we did not succeed in advancing the kind of reforms 
we need. I am hopeful that, learning from our recent experience 
with continuing resolutions and caps deals, the time to really 
reform the budget process is now. To be successful, we have to 
have bipartisan support, which is why I am again extending my 
hand to the other side of the aisle looking for willing 
partners to join me.
    I hope this renewed call for budget reform receives support 
from my colleagues in the Senate and even from Director 
Mulvaney this morning. I welcome all my colleagues' ideas on 
budget process reform, even on budget, and on the programmatic 
proposals in the President's budget. While these issues often 
divide, I believe we can find common ground and make progress. 
This is the way the legislative process is supposed to work. 
The way to approach the task ahead for us is to focus on what I 
call the 80-percent rule, focusing on the 80 percent of issues 
that we have general agreement, rather than the 20 percent that 
not only lack consensus but we have been fighting over for 
years. That way we are not sidetracked and can achieve real 
results. That is the way that Ted Kennedy and this former shoe 
salesman from Wyoming were able to get things done on the 
Health, Education, Labor, and Pensions Committee in years past.
    The American people are counting on us to work together to 
fix the Nation's fiscal mess. We must start now because one 
thing is clear: Ignoring the tough problems today will not make 
them disappear, and the longer they persist, the more difficult 
they will be to fix.
    Every year, we spend $4 trillion--I do not think anybody 
really knows how much that is, but it is a lot of money, and we 
try to spend that amount, make the decisions on spending that 
amount every year. We really do not make changes. We just 
increase for inflation and what I call the ``panic factor.'' 
Well, that is not quite true. We do make changes. We add new 
programs. But we do it without eliminating or even 
consolidating existing programs or even updating the old 
programs.
    The spending deal has a provision for fixing the broken 
budget process. The budget is supposed to be our road map to 
the future. We talk about the need for infrastructure. The 
budget is one of those infrastructures that we better be 
working on if we are going to have a better budget process. It 
is a tough road ahead, but I am confident that we can find 
success together.
    Senator Sanders.

              OPENING STATEMENT OF SENATOR SANDERS

    Senator Sanders. Mr. Chairman, thanks very much for holding 
this hearing, and, Director Mulvaney, thanks very much for 
being with us this morning.
    I do not have to tell anybody that in America today there 
is a lot of political demoralization. Congress has held one of 
lowest favorable levels today than at any time in history. The 
vast majority of the people think we do a terrible job. 
President Trump's favorable ratings are the lowest, I believe, 
for any President who has served the length of time that he has 
served.
    So people look at Washington, and they do not see much that 
they feel very good about. And I think there are a couple of 
reasons for that which this budget really demonstrates.
    Number one, there are politicians who run for office, and 
they say one thing. President Trump, when he was a candidate, 
ran for office, and he said, ``I am a different type of 
Republican. I am not the Mick Mulvaney type of Republican. I am 
different. I am going to stand with working families. We are 
going to take on the establishment,'' and so forth and so on. 
Well, it turns out he did exactly the opposite, and this budget 
is a clear manifestation of him doing exactly the opposite.
    And, second of all, I think what the American people 
understand is their one vote, their one voice matters 
relatively little in a Congress which is dominated by big--
money, wealthy campaign contributors. The Koch brothers are 
going to spend some $400 million in the coming campaign. And 
you know what? This budget is the budget of the Koch brothers. 
It is the budget of the billionaire class. And the American 
people understand it.
    This is a budget which will make it harder from our 
children to get a decent education, harder for working families 
to get the health care they desperately need, harder to protect 
the air that we breathe and the water we drink, and harder for 
the elderly to live out their retirement years with dignity and 
respect.
    This is not a budget, as Candidate Donald Trump talked 
about, that takes on the political establishment. This is a 
budget of the political establishment. This is the Robin Hood 
principle in reverse. It is a budget that takes from the poor 
and gives to the very wealthy.
    During the campaign, as we will all recall, Donald Trump 
told us that ``the rich will not be gaining at all'' under his 
tax reform plan. ``The rich will not be gaining at all.'' But 
as President, the tax reform legislation Trump signed into law 
a few weeks ago provides 83 percent of the benefits to the top 
1 percent, raises taxes on millions of middle-class families, 
and drives up the deficit by $1.7 trillion by the end of the 
decade.
    And if you are wondering how President Trump plans to pay 
for his massive tax cuts to millionaires, billionaires, and 
large corporations, this budget answers that question for you--
by breaking his campaign pledge not to cut Medicare, Medicaid, 
and Social Security. In fact, President Trump's budget would 
slash Medicaid by over $1.3 trillion, cut Medicare by over $500 
billion, and reduce Social Security by nearly $25 billion.
    Mr. Chairman, as you know, Medicaid now pays for more than 
two-thirds of all nursing home care in our country. What 
happens to senior citizens who have their nursing home coverage 
paid for by Medicaid if that program is cut by $1.3 trillion? 
Think about it. People now in nursing homes with Alzheimer's, 
serious illnesses, massive cuts, what happens to them? What 
happens to their families?
    And it is not just seniors. Today Medicaid covers millions 
of children with special needs. We are the only major country 
on Earth not to guarantee health care to all people, and this 
budget would then throw millions more people off the health 
insurance they have.
    We have an opioid epidemic that every person up here talks 
about every day, but when you slash Medicaid by $1 trillion, 
you make it infinitely harder for communities, cities, and 
States to deal with this terrible crisis.
    During his campaign Donald Trump told the American people 
that he was going to provide, and I quote, ``health insurance 
for everybody'' with much lower deductibles. But President 
Trump's budget would throw an estimated 32 million people off 
the health care they currently have. Thirty-two million people. 
And at the same time, it would substantially raise premiums for 
older Americans.
    Mr. Chairman, what this budget is about is a massive 
transfer of wealth from working families, the elderly, the 
children, the sick and the poor, and the most vulnerable people 
in our country to the top 1 percent and large corporations. As 
a candidate, Trump said that he understood the pain that 
working families across the country were feeling. Well, Mr. 
President, you are not responding to that pain when you propose 
a budget that would throw over a million children off after-
school programs. You are not a champion of working families, 
you are not responding to pain when your budget would kick half 
a million families out of their homes by gutting affordable 
housing. We have a massive crisis in affordable housing from 
coast to coast. This budget would make it much, much worse.
    You do not help working families, Mr. President or Mr. 
Mulvaney, by throwing more than 100,000 children off of Head 
Start. We need to move to universal pre-K. Every family in 
America should know that their kids have good-quality child 
care. You do not throw 100,000 children off of Head Start.
    You do not help working families when your budget would 
eliminate financial aid to more than a million and a half low-
income college students. Kids are graduating school $30,000, 
$40,000, $100,000 in debt. This budget makes their problems 
even worse.
    You are not a ``different kind of Republican'' by proposing 
a budget that would eliminate heating assistance to nearly 7 
million families in this country. Let me tell the President, 
Mr. Mulvaney, it gets cold in Vermont and many other parts of 
this country, and many of our elderly people keep warm in the 
wintertime through the Low-Income Heating Assistance Program. 
Do not eliminate it.
    Mr. Chairman, while President Trump tells us we do not have 
enough money to help the working people of this country, he 
does believe that we have enough money to provide a massive, 
massive, massive increase in the Pentagon, an agency of 
Government that has not been able to do an audit and where 
study after study shows us that there are hundreds and hundreds 
of millions of dollars in waste.
    So, Mr. Chairman, the good news is this budget is going 
nowhere. Everybody knows that. But it does indicate where Trump 
and his friends are coming from, and the American people have 
got to understand that, and we have got to stand up and say no, 
these are not the priorities of this country.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you, Senator Sanders.
    I will now introduce the witness. Our witness this morning 
is Mick Mulvaney, the Director of the Office of Management and 
Budget. Director Mulvaney has held this office since February 
2017 and is charged with assisting the President to fulfill his 
vision through the production of the Federal budget and its 
implementation across the executive branch. Prior to his time 
as Director of the Office of Management and Budget, he served 
the people of the 5th District of South Carolina as their 
Congressman, where he was first elected in 2010. During his 
time in Congress, he has served on both the Budget Committee 
and the Joint Economic Committee.
    For the information of colleagues, Dr. Mulvaney will take 
less than 7 minutes for his opening statement, followed by 
questions.
    We look forward to receiving your testimony, Director 
Mulvaney. Please begin.

 STATEMENT OF THE HONORABLE MICK MULVANEY, DIRECTOR, OFFICE OF 
                     MANAGEMENT AND BUDGET

    Mr. Mulvaney. Thank you, Mr. Chairman, Ranking Member 
Sanders. Thank you for the promotion. My mother would be glad 
to know I finally did get that doctorate.
    [Laughter.]
    Mr. Mulvaney. I appreciate the opportunity to be here.
    Chairman, I have already submitted a formal opening 
statement for the record. I am going to depart from that 
substantially just to say a few things before I start taking 
your questions to explain really what we have sent you in the 
last 24 hours.
    Last year, when I sat here, I had sort of half a budget. We 
had what was called the ``skinny budget'' at the time, the very 
first time I came before you, which was just the discretionary 
side of spending, which is not unusual during a transition 
year.
    This year, I have sort of come down with two budgets. What 
we have sent you in the last couple of hours--actually, just 
since yesterday--takes our 2018 budget and makes an effort to 
bring that budget from last year sort of into compliance or at 
least into line with the caps deal that you all cut on Friday.
    In addition, we also have sort of two 2019 budgets. We have 
the 2019 budget that we have been working on at the Office of 
Management and Budget since last summer, which we have also 
tried to sort of bring up to speed in light of the caps deal.
    Let me make it very clear that the numbers that you get are 
extraordinarily good. They are solid numbers. There is no 
question about it. But it is impossible to do 6 months' worth 
of work in a weekend, especially when we also had a brief 
Government shutdown on top of that. So the numbers I will talk 
about today, they are solid numbers, there is no question, but 
still expect over the course of the next couple of weeks and 
months to see additional tweaks. The example that I give, 
gentlemen, is that the caps deal, for example, extends the 
mandatory sequester by 2 years. It will take us several weeks, 
if not months, to run that number through the system. Instead 
of, however, waiting until April or May to give you this 
budget, we decided to come forth with these numbers here today.
    What have we done with the 2018 and the 2019 budgets? We 
have tried to deliver two messages--two messages at the same 
time. And the message from the administration is this----and I 
recognize the fact that a budget is a messaging document. We 
can sort of beat you to the punch and ask the question whether 
or not it is dead on arrival. I will never forget Senator Leahy 
called me last year right after I sent down the first budget, 
and he said, ``Young man, do not feel bad. This budget is no 
more or less dead on arrival than the other 40 I have seen 
since I have been here.'' But it remains a messaging document.
    So what are those messages? There are two primary messages 
in what we bring to you today.
    Number one, you do not have to spend all of the money that 
you just allocated or provided for in the caps. But if you do, 
here is how the administration would prefer to spend it. You do 
not have to spend it all. And that is what we put in the 2019 
budget. Yes, we have added money back to the 2019 budget, money 
in addition to what we would have sent you if there was no caps 
deal. But we do not spend all the way up to the caps on the 
2019 budget.
    The second half of that first messages is but if you do 
spend it, here are the administration's priorities. That is the 
2018 budget. We have taken the 2018 budget and added back, I 
think, $117 billion worth of nondefense spending to 2018, to 
spend up to the caps in 2018 in addition to the $26 billion we 
add to our 2018 budget for defense spending. So that you have 
in front of you the administration's two positions. You do not 
have to spend it all, and if something happens between now and 
the appropriations bill that you pass in March or the 
appropriations bill that you pass for 2019 between the end of 
March and September of this year, if you decide not to spend 
all the way up to the caps, then you have the administration's 
guidance on how we would prefer to do that, and that is in our 
2019 budget.
    Conversely, if you decide in 2018 or 2019 or in both to 
spend all the way up to the caps and you are curious as to how 
the administration would prefer to spend that money, that is 
the 2018 budget. That is what we have sent to you, and we do 
believe that that message still has value even though you folks 
changed the numbers in the last 3 days. And we signed it. So it 
is not like you did it to us. We all did it together. We 
respect that.
    Also, interestingly--and I say this to my Democrat 
colleagues--folks have asked us if the 2019 budget is evidence 
of the administration reneging on the implied agreement 
regarding the caps deal. No. Again, I say that if you are 
interested in spending all the way up, which is what the caps 
deal contemplates, the 2018 budget is there.
    Keep in mind, the 2018 and 2019 caps numbers are only $10 
billion difference. The difference between--I think the 2018 
number is 80 for defense and 63 for nondefense; the 2019 
numbers were 85 and 68. So it is only a $10 billion difference 
in the caps deal between the 2 years. So the two things do 
stand as information from the administration as to how we would 
spend it.
    I will close by saying this: It does not balance. It does 
not balance within the 10-year window. I think I said to you 
folks, I know I said to my members in the House last year that 
I worried that when I came to you last year that it would be 
the last chance I would have to bring to you a budget that 
balanced in 10 years. And I said at that time that if Congress 
did not take steps last year and the administration did not 
take steps last year to change the trajectory of our spending, 
that I would not be able to balance the budget within 10 years 
this year, and that has been the case. I would contend to you 
that the numbers this year are even more solid. I know that my 
good friend Senator Van Hollen from Maryland and I like to go 
back and forth about the solidness of the numbers, and I can 
tell you, Senator, that I am even more comfortable this year 
that the numbers are more solid, that there are fewer plugs 
this year because we have had a chance to digest a year's worth 
of information, to put policies to numbers. And as the numbers 
firmed up, it would have been possible to probably bring you 
today a balanced budget if I had fudged the numbers. But I 
would rather bring you numbers that are true and honest, that 
set forth a better picture of our fiscal condition, than lie to 
you and tell you the budget would balance in 10 years. So it 
does not balance within 10 years, and we'll talk about that 
today as well.
    Anyway, Mr. Chairman, I appreciate the opportunity to make 
an opening statement. I look forward to answering questions 
from the members of the Committee.
    [The prepared statement of Mr. Mulvaney follows:]
    
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    Chairman Enzi. Thank you, Director.
    Now we will turn to questions. Let me take a moment to 
explain again the process. Each member will have 5 minutes for 
questions, beginning with myself and then Senator Sanders. 
Following the two of us, we will alternate questions between 
Republicans and the minority. All members who were in 
attendance when we started will be recognized in order of 
seniority. For those who arrived after the hearing began, it 
will be in order of arrival. And if you are not here at the 
time that you are called on, you will move to the bottom of the 
list. So, with that, I will begin my questions.
    The broken budget process that I discussed in my opening 
statement was on full display last week with the latest caps 
deal. This legislative action occurred too late to incorporate 
in the President's budget proposal. I appreciate your 
explanation. You did release an addendum with supplemental 
information on the administration's vision for spending in 
light of the Bipartisan Budget Act. Can you explain how the 
administration proposes to adjust spending levels as a result 
of the legislation passed last week and to what extent it is 
using this opportunity to address some of the more egregious 
budget gimmicks?
    Mr. Mulvaney. Thank you, Senator. I will deal with the 
gimmicks separately. We took advantage of the caps deals, 
ladies and gentlemen, in both 2018 and 2019 to do a couple 
things. We moved a tremendous amount of money off of the OCO 
budget and into the base. We did that in both defense and 
nondefense. I think it was $12 billion in nondefense for this 
year. I cannot remember what the total number was in 
nondefense, but we started transition off of OCO and into the 
base. As part of our longer-term projections, you will see in 
the budget that we actually dramatically reduce OCO beginning 
in 2020. I think we take the total OCO budget down to no more 
than $20 billion in our projections beginning in the out-years.
    We also got rid of a lot of the CHIMPs, which I know 
immediately puts everybody to sleep, the gimmicks, for lack of 
a better word, that both Houses and administrations have used 
in the past to justify additional spending. So we took as much 
opportunity as we could given the additional money that was 
available under the caps to try and give a more transparent 
view into our actual spending.
    As regards to the actual spending priorities, Mr. Chairman, 
as I mentioned, in the 2018 budget, when we went back to plus-
up the budget from last year to match the caps, we added $26 
billion for defense, $117 billion to nondefense; $34.5 billion 
of that was for infrastructure, of which roughly 20 
contemplates the President's infrastructure package that was 
introduced yesterday. An additional $15.7 billion went for 
border security. That would bring, gentlemen, the total for the 
border wall for 2018 and 2019 to about $18 billion, which is 
the actual cost of the physical structure. Keep in mind you may 
have heard the number of $25 billion for southern border 
security. The $18 billion is for the wall. The rest of it is 
for technology, personnel, and so forth.
    What does that mean? That means that the proposal that we 
have sent you actually contemplates a DACA immigration deal 
being done, because we recognize the fact that you have no 
interest in giving us money for the full border wall unless it 
is part of a larger comprehensive immigration bill. So we fully 
contemplate that that deal is reached.
    Yes, we have asked for small amounts in 2018, $1.6 billion 
in 2018, $1.6 billion in 2019, as part of the ordinary 
appropriations process. But we fully anticipate in these 
proposals that a DACA deal is reached and that we have full 
funding for the wall.
    We have $3 billion additional in opioid spending for 2018, 
an additional half a billion dollars for IT modernization, not 
very glamorous, not very sexy, but something that I think we 
all take very seriously. We spend about $80 billion a year--
that is $80 billion with a ``b''--on IT in this administration 
or in this Government. The overwhelming majority of it is for 
maintenance of outdated systems.
    We have an additional $9 billion for research and 
development, keeping in mind that in both the 2018 and the 2019 
budgets, R&D total spending increases. Do not be misled by some 
of the nondefense discretionary reductions. Overall, R&D is 
increased in both of the budgets.
    We have mentioned already the OCO to base shifts, and the 
budget gimmicks that I talked about represent almost $18 
billion for the changes.
    In the 2019 budget, Mr. Chairman, I will not take a lot of 
time to go down, but the biggest increases would include an 
add-back of almost $16 billion in Health and Human Services, of 
which over $9 billion is the NIH budget. I came to last year--I 
do not know if you are aware you did this or not, but I came to 
you last year with a proposal to reduce the NIH budget as an 
effort to try and get them to look at their administrative 
budgets. And I tried to make the case that if the NIH only 
allocated or only spent as much money on their administrative 
portion of their grants as they did from private grant money, 
we could actually reduce their spending by $9 billion but 
actually get the same amount of research. Not only did that not 
sway very many people in the legislature, but you all actually 
added something in the April omnibus that said that it is 
against the law for us to go in and look at the administrative 
costs. So I know when I am beaten, and we have actually added 
back the $9 billion to the NIH budget. But there is a long 
list, Senator, of the other add-backs to 2019 as we try and 
reprioritize, given the additional moneys that were made 
available during the caps.
    Chairman Enzi. Thank you for being that concise.
    Mr. Mulvaney. Sorry.
    Chairman Enzi. Well, that is fine. I appreciate the 
information.
    Senator Sanders.
    Senator Sanders. Thank you, Mr. Chairman. You know, budgets 
deal with trillions of dollars and thousands of pages and words 
after words after words and numbers after numbers after 
numbers. But the truth is, as I am sure Director Mulvaney 
knows, these numbers have real meaning to the lives of ordinary 
people.
    Mr. Chairman, I want to put into the record, if I might, an 
article from PolitiFact dated June 27, 2017.
    Chairman Enzi. Without objection.
    [The article follows:]
    
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    Senator Sanders. Without going into all of what the article 
says, it basically confirms that when you throw many millions 
of people off of the health insurance they have, thousands of 
them will die. This budget calls once again for the repeal of 
the Affordable Care Act. The estimate is that some 32 million 
Americans will lose their health insurance. And what study 
after study shows is that when you throw 32 million people off 
of their health insurance, tens of thousands of them will die. 
Will die.
    Director Mulvaney, tell me about the morality of a budget 
which supports tax breaks for billionaires, throws 32 million 
people off the health insurance they have, resulting in the 
deaths of tens of thousands of fellow Americans. Do you really 
think this is something that we should be doing in the year 
2018.
    Mr. Mulvaney. Actually, I do not think it is something that 
we are actually doing, Senator. Again, I am not familiar with 
the article that you have mentioned. My guess is that it 
references the CBO report regarding various Republican 
proposals to repeal and replace Obamacare. I do remember one of 
the major points of contention regarding the way the CBO scored 
the proposals was that it would assume that several tens of 
millions of people would be, to use your terminology, ``kicked 
off'' of health insurance by the repeal of the individual 
mandate. And when we drilled down into that, Senator, what we 
found was that the CBO assumed that if we got rid of the 
individual mandate, that millions of people would voluntarily 
give up Medicaid expansion, which is----
    Senator Sanders. Mr. Director, I apologize. We just do not 
have a whole lot of time. This is not----
    Mr. Mulvaney. Well, if you want me to answer your 
question--but go ahead.
    Senator Sanders. And I understand the individual mandate. 
This goes beyond. You are proposing a cut of over $1 trillion 
in Medicaid, and independent analyses have indicated--we can 
argue about nobody knows for sure, is it 25 million people who 
are going to be thrown off? Thirty million? I do not know to be 
honest with you. You do not know. But what we do know is when 
you throw tens of millions of people off, they will die. Some 
of them will die. Studies show that thousands of them will die. 
And I would just suggest that in the United States of America, 
the only major country not to guarantee health care to all 
people, we should not be making a very bad situation worse by 
throwing tens of millions of people off of health insurance.
    Let me ask you another question. Mr. Director, according to 
Americans for Tax Fairness, the Koch brothers, the third 
wealthiest family in America, worth $94 billion, and a family 
dedicated with a few of their billionaire friends to put 
hundreds of millions of dollars into the coming election, will 
receive a tax break of up to $1.4 billion a year from the Trump 
tax plan. Meanwhile, this budget eliminates funding, as I 
indicated earlier, for the LIHEAP program that keeps almost 7 
million families warm in the wintertime, and the vast majority 
of these families have children or they are senior citizens or 
they are people with disabilities.
    Explain to me the morality of a process by which we give 
the third wealthiest family in America--a major contributors, I 
might add, to the Republican Party--over $1 billion a year in 
tax breaks and yet we cut a program which keeps children and 
the elderly warm in the winter.
    Mr. Mulvaney. Here is the morality of the LIHEAP proposal, 
Senator. Eleven thousand dead people got that benefit the last 
time the GAO looked at it. That is not moral, to take your 
money, to take my money, to take the money from the people of--
--
    Senator Sanders. Eleven thousand people got it who should 
not have, correct that. But 7 million people get the program. 
To say that 11,000 out of 7 million--deal with that. I agree 
with you.
    Mr. Mulvaney. All 50 States now have individual programs 
designed to prevent the cutoff of utilities either during the 
summer in the South or the winter in the North, which is 
exactly what the LIHEAP program was originally designed to do. 
So the program----
    Senator Sanders. Mr. Mulvaney, when it gets 20 below zero--
I come from a State which tries to do its best. Vermont and 
other States around this country, including Wyoming, do not 
have the resources to keep people warm when it gets 20 below 
zero. You have just created a situation--not you; the President 
must take responsibility for this budget--created a situation 
where people will go cold, some may freeze to death, and that 
is not what we should be doing in America.
    Chairman Enzi. Senator Grassley.
    Senator Grassley. In all my years in the United States 
Senate, I have never seen such positive results just because we 
passed a tax bill so soon. I have seen positive results down 
the road a ways, but not within a month of the passage of the 
bill. So I want you to know that I appreciate the 
administration's focus on maximizing economic growth as part of 
its first two budgets. We simply cannot settle for the anemic 
growth of under 2 percent experienced under the last 
administration.
    The passage of the tax bill in December is a key component 
of this administration's effort to achieve annual average 
economic growth of about 3 percent, which is the average of the 
50 years before 2008. We have already started to see the 
positive effects. Many businesses have announced pay raises, 
employee bonuses, and increased investment in the U.S. 
Additionally, this month employees are beginning to see bigger 
paychecks as less tax is withheld.
    So, you know, under reconciliation we can only pass tax 
legislation for 10 years. So, Director Mulvaney, can you speak 
to the importance of tax permanence in achieving long--term 
sustainable growth envisioned in the President's budget?
    Mr. Mulvaney. I can. Thank you, Senator. And, in fact, we 
assume that for the largest portions of the tax bill, we assume 
that in our budget, even though the tax bill that passed ends 
the individual tax rate reduction after 5 years, we assume its 
permanence. In fact, you will see that there is a variation 
between the CBO baseline for revenues over the course of the 
next 10 years and our budget, fully half a trillion dollars of 
that is associated with that extension. We do not extend some 
of the smaller tax reductions. I think there were some specific 
1-and 2-year programs that are not extended. But under the 
proposals in this budget, the individual tax rates and the 
corporate tax rates would be permanent.
    Senator Grassley. I have heard the rule that the 
administration put out that for striking--or implementing 
regulations, two have to be repealed. I have heard the 
President speak about hundreds of regulations being reduced. I 
would like to have you give me some data that will show the 
benefits of such, because maybe you reduce--you are eliminating 
regulations that have not been enforced for the last 20 years. 
What good does that do? I am not bad--mouthing what the 
President is trying to accomplish here because I think less 
regulations has had a great deal to do with increasing the 
economic growth. But can you put some quantifiable terms so we 
can see what this is doing to benefit the economy?
    Mr. Mulvaney. I can. I can do it a couple different ways.
    First of all, I want to thank Congress for taking up under 
the CRA revision, I think it was 15, 16, or 17 different 
regulations, and I want to reinforce the fact that while the 
administration can take steps to undo regulations, it can be 
slow, it can be tedious, and it might not be permanent. When 
you all take it up under the CRA, you make sure that no future 
administration ever makes a similar rule. So I want to thank 
you on behalf of the administration for the work you have 
undertaken there.
    The actual ratio that we have achieved, Senator, this year 
instead of 2:1 was 22:1 on major regulations. We had 22 major 
rules and regs revoked versus, I think, only three or four 
brand-new ones total. The total number of rules, regulations, 
and other limitations that were either withdrawn, made 
inactive, or delayed is approaching 1,600.
    The net present value benefit of that to the economy last 
year was $8 billion, and that will go forward now. So we really 
do believe--in fact, I think if you go back--you talked about 
economic growth, Senator. We actually saw increases in economic 
growth, improvements in economic growth, before the tax bill 
was even actually fleshed out, let alone passed. And we 
absolutely believe the work the administration and Congress did 
to roll back the regulatory burden had an immediate impact on 
the economic health of this country, and that that is 
sustainable and structural. It is not stimulus. It is not a 
sugar high. It is something that fixes the economy long term, 
so it is something we look forward to continuing. The President 
continues to make it a priority for the administration, and we 
will continue to make it a priority as we move forward next 
year.
    Senator Grassley. I have got 3 seconds left. I do not 
expect you to answer this question, but I want to make sure 
that you know it is important to me, instead of putting it in 
an email to you. As you know, the Senate has been working to 
try to stabilize the durable medical equipment Medicare 
benefit. This benefit is important because it allows patients 
to remain in their homes, avoiding hospitalization. The Obama 
Administration put in place a rule that applied competitive 
bidding rates to rural and other areas that were expressly 
excluded from the competitive bidding program. In some cases 
these changes resulted in rates being below the cost suppliers 
incur for providing services and equipment. And I was 
encouraged in August last year when I saw that CMS sent an 
interim final rule to OMB that would mitigate these changes. 
However, this rule has been pending since then. So I want you 
to tell me in writing specific steps you are taking to make 
sure that the OMB reviews and releases that rule.
    Senator Grassley. Thank you.
    Mr. Mulvaney. Thank you, Senator.
    Chairman Enzi. Senator Stabenow.
    Senator Stabenow. Thank you very much, Mr. Chairman. And 
welcome.
    First, I have to start, Director Mulvaney, and say I cannot 
believe here you go again on the Great Lakes. I cannot believe 
this. Last year, the administration zeroed out the Great Lakes 
Restoration Initiative, which is a bipartisan initiative 
strongly supported in the House and the Senate to make sure 
that we have dollars available for emergencies as well as water 
quality issues and so on. And after you zeroed it out last 
year, we put the full funding back in, strong support from the 
entire region, and now you are back again with almost zeroing 
it out.
    And so I just do not understand it. I know that last year 
you said this was a local issue, but believe it or not, there 
is another country that cares about this right next to us 
called Canada. And we have a Great Lakes Initiative with eight 
States. It is funded Federal, State, local, and 
internationally. But the administration does not seem to 
understand that 20 percent of the world's fresh water 
surrounding the Great Lakes is important. So please explain 
this to me.
    Mr. Mulvaney. Thank you, Senator. And you are absolutely 
correct. We did zero that out last year. I believe that after 
the caps deal, one of the add-backs we made either to 2018 or 
2019--I cannot remember which one it was--was for $30 billion 
split between that and some of the work we are doing in the 
Chesapeake Bay.
    What our research indicated over the course of the last 
year--and you did raise this with our office, as did many 
members of the area, both the House and Senate from both 
parties--was that there is some Federal long-term monitoring 
programs ongoing, and we propose to continue to fund that, but 
also to send the message at the same time that it is just not 
something that we are interested in doing long term. We do 
consider it to be regional. We do consider it to be something 
that the States are capable of doing and that we would very 
much like to see us get out of that business in the long term.
    Senator Stabenow. This is a major resource for our country, 
I would just say. Have you seen the Great Lakes? Have you ever 
been?
    Mr. Mulvaney. Yes, ma'am.
    Senator Stabenow. So we are like the ocean without the 
salt. It is pretty big. One out of five jobs in Michigan comes 
from the water. It is a very big deal--a $16 billion boating 
industry, $7 billion fishing industry. I could go on and on. 
And that is just Michigan. And so the idea of taking what is a 
commitment every year of $300 million to be able to tackle 
things like Asian carp, which we are trying to keep out of the 
Lakes, and instead put in $30 million, again, we are going to 
go right back at it again and do our level best to make sure 
that this does not happen. But I do not understand why this 
major natural resource for our country, where 40 million people 
get their drinking water from the entire region, is something 
that this administration does not understand. So we are going 
to go back at it again and hopefully be able to keep the 
funding going.
    Something else I wanted to ask you about, and that relates 
to Michigan and Canada again. We trade everything across a 
bridge and tunnels and so on, except prescription drugs. We are 
not allowed, and we have probably the highest prices for 
prescription drugs in the world, and we can drive 10 minutes 
across a bridge and lower the prices oftentimes 40 percent to 
50 percent for seniors and others. So we are not talking about 
luxuries here. We are talking about in many cases whether or 
not people are going to get their cancer medicine, their 
insulin. It is life and death.
    So President Trump has made promises about lowering the 
cost of prescription drugs, and the administration could open 
the border right now to safe importation. And Senator Sanders 
is offering a bill that I am a cosponsor of. I have taken bus 
trips with seniors to Canada over the years, and I am 
wondering--we have not seen any action so far, so is it fair to 
say the President does not support opening up the border to 
reimport safe prescription drugs into the United States?
    Mr. Mulvaney. I will say this, Senator. I believe that it 
is a promise that the President has already started to keep. 
The things that we have done in the administration already this 
year, part of the changes at CMS, have actually already saved 
our seniors this year, 2018, over $300 million. And the 
budget----
    Senator Stabenow. Have prices been going down? I am sorry. 
I am just not aware of prices going down.
    Mr. Mulvaney. Prices went down either within Medicare or 
Medicaid in 2017 for the first time since 2012. So----
    Senator Stabenow. On reimportation, which would----
    Mr. Mulvaney. No, ma'am, not on reimportation. We do not 
address that in the budget, but there are other ways to get at 
this issue. I believe you may have heard that the President 
actually mentioned lowering drug prices in the State of the 
Union address. The budget contains a series of proposals, 
including a doubling of the funding for the FDA, an extra $100 
million this year in order to work on generics. We have had 
successes there already. We look forward to continuing those.
    Senator Stabenow. Yes, and I do support generic drugs and 
more competition in that area, and I think that that is very 
important. But I also know there are things that he could do 
right away. His own commission that looked at the opioid crisis 
recommended that there be immediate negotiation to bring down 
the price of naloxone, and that could be done and has not been 
done. Opening up the border to be able to bring lower-cost 
prescription drugs can come back. I am very concerned that at 
this point we have seen--and I will conclude, Mr. Chairman--
that when we look at what is actually happening in the 
marketplace for seniors--because folks are not talking to me 
about prices going down. They are talking about to me about 
prices going up. What I am concerned about is we have seen 
major windfalls from the tax cut. AbbVie now is going to have 
an effective tax rate cut to 9 percent, the corporate rate 35 
to 9, and others as well. And I would just say I have not seen 
anybody lowering prices because they got a big windfall in the 
tax cut. And that would be something that would be very nice 
for the President to focus on.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Corker.
    Senator Corker. Thank you, Mr. Chairman.
    Director Mulvaney, welcome back. I do want to applaud you 
for creating a more real budget. It seems that every year we 
have these fake budgets that balance in 10 years.
    It does not matter who the administration is or what side 
of the aisle they are on. We have these fictitious budgets that 
create imaginary things that are never going to occur. And you 
did not do that, so I want to thank you for that.
    I know that you and I are of the same ilk. We care deeply 
about the deficits that our Nation has. I know you were a 
strong proponent of balanced budgets when you were in the 
House, and now you are in this position, and we as a Nation, as 
you know, are on an unsustainable path. And I do not want to 
get into specifics right now, and I think we all understand 
where we are as a Nation. I was somewhat discouraged that the 
cap deal that was reached last week was really far above what 
even the President had asked for. So I think we have to say 
that Congress in this particular case went way beyond what the 
President was even requesting. As strong of a military 
supporter as he is and I am, Congress went way beyond that, 
both on military spending and on the non-military spending.
    So you have had to actually jack your budget up, so as 
people are giving you a hard time today about deficits, you 
actually requested less money and at the last moment had to 
elevate everything to take into account what Congress on its 
own accord did to create even bigger deficits.
    And so what I would like to ask you is, just 
philosophically, where do we go? By 2028, we are going to be at 
91 percent debt to GDP. I know that our military leaders would 
tell us that our deficits are the greatest threat to our 
Nation--not Russia, not ISIS, not the many things that we are 
dealing with in the Middle East and around the world, but our 
debt. I know that you care about that. So, just 
philosophically, tell me where we go from here.
    Mr. Mulvaney. Well, I think the budget gives some insight 
into that, Senator. Keep in mind even though it does not 
balance within the 10-year window, this budget still represents 
a $3 trillion reduction in spending over the course of the 10-
year window. That is the second largest reduction in proposed 
spending of any budget ever. The only one that is larger was 
the budget that we introduced last year. In fact, but for the 
caps deal, it probably would have been larger this year. That 
is a $1.7 trillion reduction of that 3 in mandatory spending.
    To Senator Sanders' point, I would contend to you that we 
absolutely keep our promises. We do not take a look at or make 
any reforms to Social Security retirement. We do not take a 
look at or make any reforms to Medicare recipients, services 
that they get. But there are other moneys that can be saved. We 
save $1.7 trillion in mandatory spending here by looking at 
things like the way drugs are priced within Medicare. We do 
some tremendous new ideas, I think, on things like food stamps 
and the farm bill, other mandatory spending. There are some 
good ideas out there in this budget that the legislature could 
take up to get real long-term savings and that could make a 
dent in that GDP ratio.
    In fact, I think you see by the end of our budget, even 
though we do not balance, we are getting very close, and we do 
bend the curve down in terms of debt to GDP. I think we are 
down below 1.5 percent debt to GDP by the end of this window. 
So that is a tremendous move in the right direction.
    Senator Corker. And so over the longer term--I think most 
of us realize that with the baby-boomer generation this is 
going to go on for some time. Over the longer term, based on 
the way you see Congress acting and you see the other pressures 
that we have to invest in things like infrastructure, you are 
actually more hopeful, because it does not feel that way to me, 
that we are heading in a hopeful direction as it relates to 
solving our Nation's deficits.
    Mr. Mulvaney. I consider myself to be an optimist. With no 
disrespect to my Democrat friends, I think one of the reasons I 
am a Republican is that I am an optimist. I will tell you, 
though, that there was a very interesting dynamic in going 
through the plussing up of the budgets. It is a lot more fun to 
spend money than it is to reduce. It is a lot harder to reduce 
spending in the long term than it is to spend. And I think that 
it is incumbent upon all of us to start making difficult 
decisions, to decide together as a legislature and as an 
administration are these deficits that we are really willing to 
tolerate. We are not as an administration, which is why we have 
a budget that bends that curve down in the appropriate 
direction. And we hope that the legislature takes us up on some 
of the ideas that we offer this year.
    Senator Corker. One last question. My time is expiring. 
There is a huge plus-up in several areas that take some of the 
agencies that are plussed up per this last cap deal--including 
the Pentagon, which, you know, I support making sure that our 
military has what it needs. But the plus-up is so large that 
you could have a situation where people are just rushing to get 
contracts out the door to take advantage of the moneys that are 
available that year. What are you all doing to ensure that we 
do not end up doing multiple wasteful things in light of these 
massive plus-ups in one year?
    Mr. Mulvaney. I will give you one example. I think one 
thing the administration is extraordinarily proud of, in 
addition to increasing the spending at the Defense Department, 
for the first time ever, as of September, the DoD now tells us 
they are ready to be audited. We are starting that process. In 
fact, we have already seen the first fruits of that. You saw a 
report last week about the Pentagon's inability to track about 
$800 million. That is a good thing because that was something 
that we have been able to expose and now we will be able to 
fix. So we absolutely take that risk seriously and hope to be 
able to do better with it now that we have made some 
improvements.
    Senator Corker. Thank you, Mr. Chairman.
    Chairman Enzi. Senator Whitehouse.
    Senator Whitehouse. Thank you, Chairman. I share Senator 
Corker's frustrations with where we are, and I think you, Mr. 
Chairman, have expressed similar frustrations. We have a 
ridiculous budget process, and as a result of that, we end up 
with ridiculous budgets. This budget is going no place. We all 
know that. It was cooked up in the laboratories of the Koch 
brothers and a bunch of other creepy billionaires who want to 
remake America in Ayn Rand's image. It was cooked up in the 
laboratories of polluters who want absolutely no regulation so 
they can despoil at will. It includes over $1 trillion in 
Medicaid cuts that are clearly going no place.
    It is completely out of step with the funding bill that the 
President just signed and touted. It is off by $58 billion just 
from the nondefense discretionary part of the funding bill that 
the President just signed.
    It knocks down HHS with a 21-percent cut as opposed to the 
funding bill that we just passed, which has $6 billion in 
opioid funding that I think Americans desperately need. The 
funding bill we just passed added $20 billion in 
infrastructure-related investments. This cuts it by $40 
billion, for a $60 billion delta going the wrong way on 
infrastructure. And part of the reason that these silly things 
are in here is because the process is so silly. It is 
completely partisan, which is why it ends up cooked up in 
extremist laboratories. And it is unrelated to the funding 
process because of its failures. We have a budget process over 
here that ends up producing nothing, and then we have a funding 
process that is led by leadership and the appropriators that 
ends up actually doing the work of putting the funding measures 
of Government together. And there is virtually no relationship 
between the two. The budget is like a firework that goes off 
with a big bang and everybody pays attention to it because it 
is noisy and bright, and it has zero effect on the people who 
actually make the decisions year in and year out on funding the 
Government. And I think it is a shame, and I think the signals 
that this is wrong are, first of all, that there is no 
bipartisanship whatsoever. That has been a problem for a long 
time. It is a vehicle for one party to express its political 
persuasion, to express its loyalty to its big funders, and to 
create a path for another purely partisan vote using the 
reconciliation measure. That is basically all it accomplishes.
    A budget process that worked would also look at tax 
expenditures. More money goes out the back door of the Tax Code 
than gets spent through most of these appropriations, and yet 
we do not look at that. The health care expenditure of the 
country, of the Federal Government, in the 10-year out-period 
has been estimated to have fallen by about $3 trillion. That is 
a big number, and we do not know why. I think it has something 
to do with ACOs and with payment reform and with changes in 
treatment by doctors at the local level that are actually 
driving down per patient year-over--year costs, but we do not 
know that. We ought to be vitally interested in trying to 
figure out why we got that $3 trillion and how we can make more 
of it if we are getting it by better patient care.
    My God, what could be more important than improving patient 
care and lowering costs at the same time instead of going after 
preposterous cuts?
    We have to have the budget have some parliamentary effect 
if it is going to be meaningful. Right now the budget has zero 
parliamentary effect because the 60-vote penalty is the 60-vote 
minimum for appropriations. So we are shooting blanks. We have 
absolutely no effect here. We are a null factor.
    And, finally, we have got to look at revenues. I know it is 
torture for our Republican friends to look at revenues 
sometimes, but for crying out loud, we cannot have passion 
about deficits and then at the same time abandon our passion 
about deficits as soon as it runs up against the carried 
interest exception that protects the biggest billionaires on 
Wall Street. We cannot maintain a passion for deficits that 
evaporates as soon as it bumps up against tax benefits for big 
oil, for crying out loud, the companies that need the least tax 
relief of any companies in the world. And yet there is this 
magic disappearing passion about deficits when they bump up 
against some very obvious ways to raise revenue.
    Now, we each have our own politics on either side to bring 
to this, and we can keep ricocheting back and forth from one 
extreme to the other, but until and unless we have a meaningful 
bipartisan process that actually looks at tax expenditures and 
takes a responsible look at what is going on in health care so 
that we can reduce costs without cutting benefits and looks at 
revenues and has some parliamentary effect, all we are doing 
here is noisemaking and firing off fireworks into the sky that 
people look at and think, ``Oh, that must be really 
interesting, look what this budget just did.'' And, in fact, 
everybody who is in on the scheme knows that it has no effect 
whatsoever, and the appropriators and the leaders are going to 
get together and make a deal like they just did, and that is 
how this is going to continue.
    We have got, Mr. Chairman, to fix our broken budget 
process, and one of the best things in the recent funding bill 
that we just passed was to set up a bicameral committee to take 
a look at how we solve a broken process. The way to a budget 
that works is the path of bipartisanship. We have to create 
such a road. And here endeth my statement. Thank you, Chairman.
    And, by the way, I sincerely appreciate your leadership on 
this particular question. You may not agree with every word 
that I said, but I think we have common cause in believing that 
the budget process needs reform and improvement. And I 
appreciate your leadership in moving us in that direction.
    Chairman Enzi. Thank you. Thank you for your comments.
    Senator Gardner.
    Senator Gardner. Thank you, Mr. Chairman, and thank you, 
Director Mulvaney, for your time and testimony today and your 
service to the country.
    I agree with my colleague Senator Whitehouse about the need 
for budget reform. In a process that has been in place since 
the 1970's, it has worked two or three times. My gosh, this is 
a disaster that is unfolding to the American people, and we 
have got to find a reform that can actual hold stick and work 
for the American people.
    But I want to talk about something that is working, and 
that is the tax cut bill. And I think today some more crumbs 
were announced for the American people: $1,500 in bonuses from 
a developer in Maryland; MetLife increasing minimum wages; 
bonuses and benefit packages around the country are increasing. 
And I think this is important to talk about, the fact that 
people are earning more dollars, their wages are going up, 
benefit packages are increasing. I think our colleague from 
Vermont talked about utility rates. We have seen now people 
reducing--we have seen utilities reducing their utility rates 
because of the tax cut bill.
    Director Mulvaney, what happened when people earn more 
money from a revenue standpoint?
    Mr. Mulvaney. It goes up. In fact, that is exactly what our 
projections have shown. Senator Whitehouse has stepped out, but 
one of the things he mentioned was to look at the revenues, and 
one of the beneficial impacts of the tax bill is that the 
revenues are actually up on our projections versus the CBO 
baseline. In fact, in 2027, we expect that the Government will 
take in almost $350 billion more than it otherwise would have.
    Senator Gardner. Well, surely these are just crumbs, right?
    Mr. Mulvaney. I have often wondered if $1,000 would be a 
crumb if it came in the form of a Government check.
    Senator Gardner. And so if you are looking at a utility 
rate that may average $120 for somebody, $120 a month I think 
is perhaps the Pepco region that we are in right here, 300,000 
customers, $1,000-plus could cover a year's worth of utility. 
Do you think that is crumbs?
    Mr. Mulvaney. I do not.
    Senator Gardner. Do you think a minimum wage boost is 
crumbs?
    Mr. Mulvaney. I do not.
    Senator Gardner. Do you think salary bonuses are crumbs?
    Mr. Mulvaney. Only a very wealthy person from San Francisco 
would think that was a crumb.
    Senator Gardner. Thank you, Director Mulvaney. And I am 
excited for what we have here because you anticipate making 
this permanent, correct?
    Mr. Mulvaney. We do. Yes, sir.
    Senator Gardner. I think that is important.
    Mr. Mulvaney. And our assumptions assume that.
    Senator Gardner. It is important to talk about.
    I want to shift to some of the other ideas that are in the 
legislation. One of the most important things for Colorado's 
economy is the outdoor economy. It is a huge economic driver. 
Last year, we passed a bipartisan bill to take a look at the 
outdoor economy, make sure that it is measured as a part of our 
overall economic activities, almost $1 trillion in terms of 
economic development that has taken place as a result every 
year of our outdoor recreation economy, consumer spending, et 
cetera, 7.6 million jobs, some $65 billion in taxes.
    The budget does zero out land acquisition under the Land 
and Water Conservation Fund. I am concerned about that. Land 
and water conservation funding does not come from tax dollars. 
It actually is funded through other revenue mechanisms within 
the budget, so these are not taxpayer dollars being spent in 
this program. I would just like to better understand the 
administration's thinking behind the budget request for 
something like the Land and Water Conservation Fund.
    Mr. Mulvaney. And, Senator, we have reached the point where 
I do not know that one off the top of my head. I apologize.
    Senator Gardner. Okay.
    Mr. Mulvaney. I would be happy to reach out to you. I know 
it is important to you and your district. We do a couple of 
other things that we think would be beneficial out West, 
including adding back some money for PILT, which I know is a 
big deal for Colorado. But I do not know the answer off the top 
of my head on that particular issue.
    Senator Gardner. And that is very important for Colorado, 
and I thank you for that. And we would also save you some rent 
money if you moved the BLM office out of Washington, DC, and 
you re-headquartered out in Colorado, perhaps Grand Junction, 
Colorado. That would save a little bit of money, too.
    Mr. Mulvaney. If only we knew the Director of the Office of 
Interior.
    [Laughter.]
    Senator Gardner. Thank you.
    Also, energy dominance, speaking of the Director of 
Interior. American energy dominance I think is a great, great 
thing to be proud of, to support, and to pursue. American 
energy dominance I think is a very strong and powerful 
diplomatic tool as well as economic driver. The budget does 
have about $1.3 billion cuts to the Energy Efficiency and 
Renewable Energy Office, and that could affect the National 
Renewable Energy Laboratory. I want to make sure that you view 
renewable energy as part of American energy dominance.
    Mr. Mulvaney. We do. A couple different things. I want to 
make very clear that we are absolutely satisfied that under the 
proposals we have, no labs will close, number one.
    Number two, what the budget does reflect, Senator Gardner, 
is a refocusing, a reprioritization of basic research, and 
there are places where we believe the Federal Government has 
moved out of the role of basic research into more applied 
research, stuff that is closer to market. And what we are 
simply doing is saying, ``Look, that is the stuff the private 
sector should be able to take care of. Let us refocus our 
efforts on basic research in those areas.''
    Senator Gardner. Thank you. I am going to run out of time 
here, but I want to summarize a couple of questions that I was 
going to ask.
    On DACA, this week we are debating DACA. We are debating a 
very important solution. There are hundreds of thousands of 
workers legally right now in Colorado that are going to be 
affected by the decisions this Senate makes, this Congress 
makes over the next several weeks. Just back--of-the-page math, 
we are looking at a population in jobs right now that could be 
responsible for as much 3.4 percent of GDP. And if that was a 
group of people that were to be eliminated out of the work 
force, I think that would have a detrimental effect on a budget 
projection of 3 percent growth or more, as we try to achieve 
that. So that is something to consider as we go forward, very 
important that we get this.
    NAFTA, critical to our economy, critical to growth, 
critical to that GDP assumption that we are building into our 
budgets. Obviously, trade overall is, and I think any kind of 
decision on NAFTA that could affect our trade dominance, so to 
speak, could negatively affect--if it is in a negative way, 
could negatively affect the GDP growth as well that we face.
    And, finally, a quick question that you can get back to me 
on. When we are talking about concerns over revenues, have you 
given any thought or has the administration given any thought 
to monetizing Fannie Mae and Freddie Mac, something like that, 
what it would mean?
    Mr. Mulvaney. Senator, that is a longer discussion for 
another day, but, yes, sir, there is considerable discussion 
going on within the administration, led in part by Treasury and 
HUD, as to what to do about the Government-sponsored 
enterprises.
    Senator Gardner. Thank you.
    Chairman Enzi. Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. Welcome, 
Director Mulvaney.
    First, and I cannot talk about this at length, but very, 
very disturbed that the Trump administration reneged on the 
longstanding plan to consolidate the FBI campus in a way that 
would provide a more secure setting. We can have that 
conversation later.
    Back in 2016, during the campaign, Candidate Trump called 
himself the ``King of Debt.'' It is pretty clear that this is 
one of the promises he has kept as President of the United 
States.
    To my friend Senator Corker, who said this is the first 
time we have seen an ``honest budget'' because it does not 
balance in 10 years, actually President Obama presented budgets 
that were very honest. They did not balance in 10 years, and 
you and our Republican colleagues raked him over the coals for 
that. But what we saw was borrowing, $1.5 trillion to give 
windfall tax breaks to corporations, and since Maryland was 
brought up, I would just point out our legislature is now 
having to try to pass laws to stop big tax increases on 
Marylanders; $350,000-plus Maryland households will see tax 
increases, including 123,000 Maryland households with incomes 
between $25,000 and $50,000. That is not a middle-class tax 
cut. That is a tax increase on hundreds of thousands of 
Marylanders.
    Now, I wanted to ask you about what you say in here about 
the Trump economy, because the more I look at these numbers, it 
looks like the Trump administration is simply benefiting from 
the continuation of the Obama economy.
    You say here that Trump economics is working. You cite the 
fact that 2 million jobs were added in calendar year 2017. That 
is on page 1 of your testimony. That is great that 2 million 
jobs were created. That is fewer jobs than were created the 
previous year in 2016, isn't it?
    Mr. Mulvaney. I do not have the numbers in front of me, 
Senator, but I believe you.
    Senator Van Hollen. It is somewhat fewer than the year 
before, and it is fewer than in 2015, isn't it?
    Mr. Mulvaney. Again, I do not have the historical data, but 
there is no reason for you to lie to me.
    Senator Van Hollen. Well, the reality is it is fewer than 
in any year since 2011. So I am glad we saw 2 million jobs 
created, but it is interesting to herald this as a great new 
result of the Trump economy when it is less than in any year 
since 2011.
    I want to look at the rate of economic growth. Economic 
growth last year was actually slower than it was in 2015 and 
2014. And I went back and I looked at what the CBO projected, 
what the CBO projected for economic growth in 2017. Do you know 
what they projected in 2017?
    Mr. Mulvaney. Again, I do not have the historical numbers. 
I know that we projected 2.3 in last year's budget, and you 
accused me of being way too optimistic.
    Senator Van Hollen. Actually, I did not accuse you of being 
way too optimistic with respect to that number. That was the 
same number CBO had.
    Mr. Mulvaney. Okay.
    Senator Van Hollen. I said what you did last year, and it 
sounded like you confessed a little bit to it, that last year's 
budget was very overly optimistic with respect to out-years. 
But let me--my question here, Director Mulvaney, is this----
    Mr. Mulvaney. I think we beat last year's numbers, but go 
ahead.
    Senator Van Hollen. Because I am just puzzled by these 
claims of how the first year of the Trump administration 
deregulation brought all this added economic growth. The CBO 
projected 2.3 percent growth in 2017. That was not based on any 
assumptions about Trump economics. That was just based on where 
they saw the economy going. And, in fact, the economy grew at 
2.25, a little lower than what CBO projected. So I am trying to 
figure out where your--the basis for your comment, you just 
made it again, that this first year, deregulation produced all 
this economic growth, when it was actually slightly lower than 
what CBO projected, and they did not take into account any of 
those claims.
    Mr. Mulvaney. Senator, I think if you look at the last 
three quarters, we had two quarters over 3 percent; the fourth 
quarter was just under 3 percent, including some tremendous 
financials. I think the Atlanta Fed just predicted first 
quarter someplace in the neighborhood of 5.4. So I think 
everybody, I mean left and right, has admitted that the economy 
grew faster last year than expected.
    Senator Van Hollen. Well, I do not think so. CBO projected 
2.3 percent. I never quarreled with that number, and, actually, 
it was slightly lower than that. So this sounds a lot more like 
puffery than reality.
    My last question, putting your other hat on, CFPB, as you 
know, your predecessor at CFPB filed a lawsuit against some 
scam artists in the payday lending area. One of them was Golden 
Valley, which charged like 950 percent interest rates. I mean, 
this is higher than Mafia loan sharks. It is reported that you 
dropped that lawsuit, and the spokesperson for CFPB first said 
that you were not part of the decision and then said you were. 
A simple question. Were you part of the decision to drop the 
case against Golden Valley?
    Mr. Mulvaney. Yes, sir.
    Senator Van Hollen. Okay. I will follow-up with that. I 
think it is an outrageous decision and an anti-consumer 
decision.
    Mr. Mulvaney. Keep in mind, Senator, because you and I are 
always very candid with each other, there is an ongoing 
investigation into Golden Valley, so it would be unlikely I 
would be able to answer many of your questions other than the 
one you have just asked.
    Senator Van Hollen. Well, it sounds like you dropped the 
lawsuit.
    Mr. Mulvaney. We dropped--again, let me be very clear in my 
wording because I have a lawyer sitting here behind me. There 
is an ongoing investigation against Golden Valley, and for that 
reason, it is not appropriate for me to comment on that work. I 
cannot answer the specific question that you asked me.
    Senator Van Hollen. All right. Thank you, Mr. Chairman.
    Chairman Enzi. Senator Boozman.
    Senator Boozman. Thank you, Mr. Chairman. Thank you for 
being here today, and we appreciate all of your hard work.
    The administration budget projects the debt-to-GDP ratio 
will begin to decline in 2023 and ultimately reduce below pre-
recession levels over the 25-year horizon. Presumably, economic 
growth plays a role in this change of trajectory as well as 
restraining spending. Can you explain some of the key policies 
that Congress should consider in order to put our country back 
on a fiscally sustainable path? And then, also, what is a 
healthy debt-to-GDP ratio in your estimation?
    Mr. Mulvaney. I will deal with the second question first. I 
think a lot of the academic literature would suggest to you 
that 80 percent really is sort of that danger zone, so if we 
can keep it below that, that would be great. I would love to 
see it below 60, which is, I think, back below the pre-
recession numbers. But we have too much now, I think is the 
short answer to your question.
    Regarding the policies that we would encourage the Congress 
to consider, on the revenue side, Senator, you may not have 
been here earlier when we mentioned that this budget assumes 
that the individual tax rates which expire, the reductions that 
expire 5 years into the current window, we assume those to be 
permanent. And I will tell you that our assumptions regarding 
long-term growth assume that they are permanent.
    So we encourage you to keep an eye on the revenues, and if 
the revenues do, in fact, turn out the way we expect them to 
be--and, again, we expect revenues to decline in the short 
term, as you and I discussed during the discussion of the tax 
bill, but start to increase, actually increase almost 
immediately and to turn positive compared to the baseline by 
2023, and are almost $350 billion to the positive by 2027. So 
let us continue to watch the revenue line and to continue to 
tweak the tax bill to make sure we can maintain that.
    On the spending side, Senator, we have offered $3 trillion 
in long-term savings over the course of the budget; $1.7 
trillion of that is on the mandatory side. I think you and I 
share a concern that the mandatory side of the budget continues 
to eat into a larger and larger share of our spending every 
single year. And while fiscal restraint in any form is to be 
encouraged, certainly taking a look at that mandatory spending 
would be helpful.
    Senator Boozman. What is a healthy GDP to deficits?
    Where are we at now?
    Mr. Mulvaney. Senator, right now--oh, deficits? I think we 
are approaching 5 in the next year or two. We get down to 1.1, 
1.2, I think, by the end of the 10-year window. That is better 
than zero. I would like to see a balanced budget in the long 
term. But if you are going to run a little bit of a deficit, 
keeping it as low as possible would be advisable.
    Senator Boozman. Okay.
    Mr. Mulvaney. Actually, let us put it to you this way: I 
would love to see revenues growing faster than expenses, and 
that allows us to shrink the size of the deficit as a 
percentage of GDP every single year. You run a business, and if 
your business' expenses are growing faster than your revenues, 
you are in trouble, and so is the Government.
    Senator Boozman. Right. That is a good point.
    Tell me, we are in the process now of the DACA voting and 
things, you know, trying to get that sorted out. One of the 
things that is very important to the President and very 
important to myself and so many others is securing the border. 
We would like to make it such that we have a significant amount 
of money, you know, going that way because it is going to take 
that. How do we do that in a way that we can get some money up 
front and yet protect that money into the future, but also very 
importantly, making sure that we have the oversight that we 
need going forward?
    Mr. Mulvaney. The good news, Senator, is that as we sat 
down to look at the caps deal that was just signed, it does 
provide considerable additional funding, and we actually take a 
big chunk of that and put that toward border wall security, 
border security including a wall, including the wall. In fact, 
I think you may have heard me say earlier that our budget 
assumes a DACA deal; it assumes an immigration agreement is 
reached. We want one to be reached. I want to make that very 
clear on behalf of the administration. And for that reason, we 
actually explicitly assume that a deal is reached and that the 
money for the wall is set aside.
    One of the early proposals that we sent down for you all to 
consider is to set up a trust fund so that while we have the 
money available with the caps being increased this year and 
next, that we set aside that money in that trust fund so that 
we do not have a situation like we had in 2006 where border 
security was authorized but was never appropriated.
    Senator Boozman. I agree with that totally. And, again, as 
far as the oversight, how do you oversee the trust fund? What 
would be your proposal to----
    Mr. Mulvaney. I do not know if we have gotten to the 
details yet on how to do that, Senator. All I can offer you is 
the examples that we have brought to some of the other 
agencies. I mentioned earlier that we have finally been able to 
bring the Defense Department to an auditable position after 
many years of trying. I give several administrations credit for 
doing that, but it was finished in September of this year. We 
would encourage at least that same level of oversight, if not 
more, on that trust fund.
    Senator Boozman. I think it is really important. We do not 
want the border wall to be the new CFPB.
    Mr. Mulvaney. I absolutely agree with that, Senator. I 
think one of the risks that you run if you put it in the 
ordinary appropriations is not only that it is not spent, but 
that it is misspent in order to get that appropriation out the 
door that year as opposed to taking a longer-term view that you 
might be able to take with a trust fund.
    Senator Boozman. I agree, and that is why, you know, we 
need to be creative and create some sort of a hybrid to make 
sure that both of those are accomplished with the money being 
there, but also with the good oversight that it is going to 
require.
    Mr. Mulvaney. I absolutely agree.
    Senator Boozman. Thank you.
    Chairman Enzi. Senator Merkley,
    Senator Merkley. Well, thank you, Mr. Chairman.
    So we have cuts in this budget, just to take four line 
items: health and Medicare and higher ed and food, that is, 
SNAP. There is $1.5 trillion right there. So, you know, a big 
outline for America. Let us give $1.5 trillion in the tax bill 
to the wealthiest Americans and proceed to cut our health, our 
commitment to our seniors on health as well; cut the 
affordability of college because, you know, the rich are Okay, 
they can pay their college, do not worry about the rest of 
Americans. And, oh, by the way, the hungry in America, too bad, 
let those children go hungry. They are from poor families; they 
do not matter.
    What kind of a message does this send about this 
administration? They say they are for working families. They 
are going to address the challenges, the challenges of living-
wage jobs and health and education. And right here health and 
education get hit enormously, the foundations for families to 
thrive.
    Or we can take some others. There are more cuts than that. 
How about the $3.4 billion to heating and the offset of a tax 
cut to Wells Fargo of the same amount? What is more important, 
Mr. Director: the heating program or the tax cut to Wells 
Fargo, which has defrauded so many hundreds of thousands of 
people across this country? Which one is more important to you?
    Mr. Mulvaney. Actually, Senator, I am familiar with the 
$3.39 billion in LIHEAP. I think I addressed that earlier with 
Senator Sanders. I am happy to review it, if you like. I am not 
at all familiar----
    Senator Merkley. I am just asking which one is more 
important to you: the cut to heating or the tax cut to Wells 
Fargo, which has defrauded so many people?
    Mr. Mulvaney. Senator, I would have to challenge the----
    Senator Merkley. Yes, I have noticed you never answer 
questions from Democrats, so I am not expecting you to answer. 
But I thought I would give you the chance.
    Or how about the $4.3 billion cut to rental assistance? We 
have people living on the streets in the cloverleafs and 
underpasses all across America because the cost of housing over 
the last four decades has gone up enormously compared to the 
living wage. But you want to do a $4.3 billion cut in rental 
assistance while giving $6 billion to Exxon Mobil. Which is 
more important to you: people having housing or $6 billion to 
Exxon Mobil? Which one?
    Mr. Mulvaney. One of the things I mentioned during my 
opening----
    Senator Merkley. It is a choice of the two----
    Mr. Mulvaney [continuing]. Statement, Senator----
    Senator Merkley [continuing]. You can answer one way or the 
other. I think the public would like to know.
    Mr. Mulvaney. It is, but also I do not like to answer 
loaded questions that are simply rhetorical and may not be 
correct. I am not even sure that $4.3 billion number is right. 
As I mentioned----
    Senator Merkley. That is the amount in your budget, and you 
should be aware of that when you testify here.
    Mr. Mulvaney. My opening statement----
    Senator Merkley. Let us turn to something about the after-
school programs, the STEM programs, our ability to undertake 
high-tech advancements in our economy. You have got about $1 
billion to $1.4 billion to the Koch brothers and a $1.2 billion 
reduction in after-school STEM programs. Which is more 
important: educating our children or more money for the Koch 
brothers?
    Mr. Mulvaney. Again, I cannot even see that part of your--
--
    Senator Merkley. Do you think the Koch brothers consider it 
a good investment that they say they will spend $400 million on 
the next election and then they get you to give them a $1.4 
billion reduction in their taxes? Is that a pretty good 
investment for the Koch brothers?
    Mr. Mulvaney. I have no clue where that $1.4 billion range 
comes from or if it is accurate.
    Senator Merkley. How about Chevron getting $2 billion while 
you cut development assistance by $2.8 billion? Everything we 
see in this budget is about help to the powerful and an assault 
on working Americans. And although I hear a whole lot of 
bragging about, ``Oh, we are going to help lower-income 
Americans with a tax cut,'' but you put a provision into the 
tax bill that will wipe out health care for 13 million people 
and raise health premiums more than 10 percent next year for 
the rest, that in itself wipes out any gains from the tax bill.
    I am really disappointed to see that the philosophy of this 
administration ran on of fighting for ordinary Americans became 
just this is an administration by and for the powerful and 
about undermining the opportunity of ordinary families to 
thrive.
    Now let us turn to your other role. You seem to take great 
pleasure in having wiped out the payday loan rule and allow 
interest rates of 500 to 1,000 percent, far more than the Mafia 
ever charged. Why is that a good thing for America?
    Mr. Mulvaney. Senator, I think it is inaccurate to say that 
we have wiped out the payday rule. We have simply given notice 
that we are going to take additional comments on additional 
rulemaking.
    Senator Merkley. Did you or did you not suspend 
implementation of the payday rule?
    Mr. Mulvaney. Again, we gave notice that--the payday rule, 
as far as I know, is still in effect. We have simply given 
notice that we were going to take additional comment for 
additional rulemaking.
    Senator Merkley. You delayed it. You can call it whatever 
you want, but you prevented it from going into effect. I am not 
sure why you are dancing around about it, because you seem 
pretty happy about having done so to help out these payday loan 
companies charging 500 to 1,000 percent.
    Mr. Mulvaney. I am sorry. Was there a question there, 
Senator?
    Senator Merkley. Yes. The question is: When you are so 
happy about having helped out the payday loan companies, why 
don't you own it now? Why do you want to dodge the question?
    Mr. Mulvaney. Again, Senator, we have given notice that we 
are going to take additional comments for additional 
rulemaking.
    Senator Merkley. How about Equifax? Millions of Americans, 
143 million Americans lost the integrity of their data, and you 
just let them off the hook.
    Mr. Mulvaney. I can----
    Senator Merkley. No accountability. How about 
accountability? How about that concept being embedded in the 
work of what was our consumer watchdog that now is our consumer 
``roll over and let the big companies scratch its belly'' 
organization?
    Mr. Mulvaney. On Equifax, I can tell you, Senator, that 
there has been no change in the position from the previous 
leadership of CFPB regarding Equifax.
    Senator Merkley. Yes, Okay. All right. If you are going to 
make these decisions, you might as well own them and defend 
them. Thanks.
    Chairman Enzi. Senator Graham.
    Senator Graham. Thank you. Good morning. About priorities, 
I want to thank you and the President for negotiating a budget 
agreement that gives long overdue relief to the military on 
behalf of the men and women who have been serving who have been 
asked to do a lot with a little bit. Thanks. I just cannot tell 
you how important it is that we set aside the sequestration 
cuts for the next 2 years and rebuild our military, and I want 
to thank you and the President. That was great leadership.
    Graham-Cassidy, you mentioned that in the budget. Is that 
correct?
    Mr. Mulvaney. Yes, sir. In fact, we assume it passes.
    Senator Graham. Well, I hope it will. Can you sort of 
explain to the Committee here very briefly why you think it is 
important that it does pass?
    Mr. Mulvaney. The way we do it, it does a couple of 
different things. Writ large, it transfers control of this 
issue, this very important issue of health care, to the States, 
and we just think that is a more efficient way to provide that 
service. You and I both served in the South Carolina State 
Legislature, and I absolutely believe in my heart of hearts 
that South Carolina knows better for South Carolinians on how 
to provide them with health care than we do in this chamber. 
And Graham-Cassidy goes to the very heart of that while 
providing importantly the funding necessary for States to do 
that. Oftentimes we hear folks say let us just give it to the 
States, but we do not give them the funds necessary to do it, 
the unfunded mandates we hear so much about at the State level. 
Graham-Cassidy does not do that, so we think in a bunch of 
different places, both fiscally and in terms of policy, it is 
by far the best idea we have seen come down the pipe in a long 
time.
    Senator Graham. If I could just build on what you said, 
four States receive 35 percent of the money under Obamacare 
funding as it is today: Maryland, Massachusetts, New York, and 
California--all great folks. They are 22 percent of the 
population. Under Graham-Cassidy, we try in a 10-year period to 
level out that funding, to have it per patient be the same no 
matter where you live. Then we will adjust for inflation based 
on region. Do you think that is a fair way to deliver health 
care?
    Mr. Mulvaney. No. Again, that is one of the reasons that we 
support the Graham-Cassidy bill and hope that you all see fit 
to pass it at some point.
    Senator Graham. Well, I think every State will benefit, and 
we will try to make it the least amount of pain as possible to 
the four States who get most of the money compared to the other 
States.
    MOX, I asked three questions 2 years ago about alternatives 
to MOX. Can I just send you these questions? Or should I sent 
them to DoE?
    Mr. Mulvaney. Copy us both, because as you and I know, we 
have met together with Secretary Perry. We are very much aware 
of your concerns and your interest in MOX. You are also 
concerned--I think you are aware of ours.
    Senator Graham. Yes.
    Mr. Mulvaney. Which is that there needs to be a more cost-
effective way to do what we are doing.
    Senator Graham. Right, so what I will do is I will send a 
copy of the questions, the basic questions about an 
alternative, to you and Secretary Perry, because from your 
person view do you think it is 70 percent complete, 30 percent 
complete, the MOX program? What do you think?
    Mr. Mulvaney. My concern, Senator, is that I have seen 
projections that say it may not be finished until the 2030's, 
and I think the last time they asked the people what it would 
cost to finish, they could not give an answer, and as the 
budget Director, that really, really worries me.
    Senator Graham. Well, I think it is 70 percent complete, 
and I think I am going to get you an answer on what it would 
cost to complete. I just do not think there is a viable 
alternative. But the State Department: ``If you do not fund the 
State Department fully, then I need to buy more ammunition 
ultimately.'' That was General Mattis when he was CENTCOM 
commander. Do you doubt that statement?
    Mr. Mulvaney. I do not, Senator. I would encourage folks to 
look at the State Department budget and realize that the 
President ran on saying we were going to give less money to 
other countries overseas, and the State Department budget does 
contain a lot of that foreign aid, and that is what represents 
a lot of those reductions.
    Senator Graham. So it is a 20-percent reduction in the 
State Department's budget.
    Mr. Mulvaney. It is, but I think we increase spending on 
humanitarian assistance. We do lower our commitments to some of 
the multilateral institutions to try and right-size our 
contributions to support what Secretary Haley--excuse me, 
Ambassador Haley is doing. But we are very much aware of your 
concerns and look forward to working with you on trying to make 
the State Department more effective.
    Senator Graham. Do you agree that the State Department is 
really national security in another form, as General Mattis 
indicated?
    Mr. Mulvaney. What do they say, that war is just diplomacy 
by other means? Yes, sir, the two are intricately entwined.
    Senator Graham. So I will look forward to working with you 
to make sure that we do not take off the table diplomatic 
options, not only to prevent war, to make sure that gains on 
the battlefield are not lost. And I think, again, General 
Mattis said it better than I could ever say that this is a 
steep cut in the State Department that will lead to 
instability, put our people at risk who are serving overseas, 
and I look forward to working with you. I think you are doing a 
very good job, and I really appreciate the steady hand you 
provided when it comes to budget matters and your willingness 
to negotiate and compromise. So thank you very much. We are all 
proud of you at home.
    Mr. Mulvaney. Thank you, Senator. I wish I got back there 
more often.
    Chairman Enzi. Senator Murray.
    Senator Murray. Thank you, Chairman Enzi. Before I turn to 
Director Mulvaney, I do want to comment on the new Joint Select 
Committee on Budget and Appropriations Process that was 
included in the budget caps deal. I expect we will be hearing a 
lot about that in the coming months, and I just want to make my 
views very clear.
    Republicans spent 2017 hijacking the budget process for two 
things: first of all, a partisan attempt to take health care 
away from millions of families, which, thankfully, crashed and 
burned; and, second, jamming through the massive tax cut for 
the wealthiest Americans and a permanent tax cut for the 
biggest corporations, without even trying to work with 
Democrats on ways we could help the middle class.
    Now, in 2018, things have been a little different. 
Republicans came to the table and worked with us on a 2-year 
budget deal that increased investments in education and health 
care and child care and other domestic and military priorities. 
Now, finally, the Appropriations Committee has clarity, and we 
are able to get to work and pass our bills by the March 
deadline.
    So, with all due respect to Chairman Enzi and my House and 
Senate Republican colleagues, we do not need a new select 
committee to tell us what the problem is. It is pretty obvious. 
This Budget Committee has been unable or unwilling to do its 
job. So we had to lurch into one crisis and then another before 
the rest of Congress could come together and cleanup a mess. I 
am hoping we can do our jobs on the Appropriations Committee, 
and I continue to hope that this Committee can do its job and 
not rely on new select committees that are intended to pass the 
buck instead of making the tough calls, and I just wanted to 
make that clear.
    Director Mulvaney, if this were a normal budget hearing, I 
would start off by commenting that budgets are statements of 
values and priorities, and I would dig into the various 
proposals, what they said about what kind of country we were, 
what kind of country we wanted to be.
    If this were a normal Budget Committee, I would point out 
that the so-called immigration proposals it includes are 
wasteful, divisive. I would point out that it is widely 
misguided and simply wrong to ask low-income families and the 
workers who need a hand up to bear the brunt of massive cuts 
while trillions are being spent on tax cuts for the rich and 
while austerity flies out the window when it comes to the 
military.
    If this were a normal Budget Committee hearing, I would 
point out how absurd it is to cut $200 billion in financial aid 
for college while students are struggling to afford college and 
keep their heads above water. And I would point out serious 
concerns about this administration's request for veterans' 
care.
    You know, if this were a normal Budget Committee, I may 
even praise some of the attention that is finally being paid to 
tackling the opioid crisis. But, Director Mulvaney, this is 
anything but a normal budget and Budget Committee hearing. 
President Trump just signed a 2-year budget agreement into law 
that makes this request irrelevant. Democrats and Republicans 
have ignored President Trump's budget request before in the 
interest of trying to get something done, and this one will be 
no different.
    So it seems this budget proposal is only good for one 
thing: reminding people across the country that President Trump 
cares more about giving tax cuts to the wealthiest Americans 
and biggest corporations than he does about investing in health 
care and education and child care and middle-class priorities.
    So, Director Mulvaney, for years I have heard you rail 
against deficit spending. You called yourself a ``deficit 
hawk.'' You claim to take our debt very seriously. You called 
for balanced budget amendments. You said our debt is ``so large 
as to defy description.'' Well, the debt has only grown since. 
The deficit has increased under this administration, 
approaching $1 trillion this year and next. And it cannot 
``defy description'' because you describe it in the pages of 
this budget proposal. And do not even try to hold yourself to 
the standard you held President Obama to when you were a Member 
of Congress.
    So I was prepared to come here today and call you out on 
the hypocrisy, but then I heard you on Sunday, that if you were 
in Congress, you would have voted against the budget 
legislation that President Trump just signed. So I wanted to 
give you a chance today to step back from the hypocrisy. If you 
were in Congress, would you have voted for this budget that you 
are presenting?
    Mr. Mulvaney. Sure, and I will give the same answer I gave 
on Sunday, which is that as a Member of Congress representing 
the 5th District of South Carolina, I probably would have found 
enough shortcomings in this to vote against it, as did many 
members of this Committee. But I am the Director of the Office 
of Management and Budget, and my job is to try and fund the 
President's priorities, which is exactly what we did.
    Senator Murray. So you would say this as a Member of 
Congress?
    Mr. Mulvaney. Yes, I think I have said that before.
    Senator Murray. Okay.
    Mr. Mulvaney. I do not think that reflects on my opinion of 
it as a member of the administration.
    Senator Murray. Okay. Well, let me ask you one more 
question.
    Mr. Mulvaney. I am just trying to give an honest question 
to an honest answer, Senator.
    Senator Murray. I appreciate it. I appreciate it. 
Republicans have busted our budget with trillions in tax cuts 
for the rich, and this budget starts asking the middle class to 
actually pay for that. You have said before that you would like 
to cut Social Security and Medicare. Can you commit to me today 
that you will not be asking for a penny of cuts to benefits 
from either of these critical programs in future budgets to pay 
for the President's tax cuts?
    Mr. Mulvaney. And that is exactly what this budget 
reflects. The proposals that you see that touch on Social 
Security do not deal with old-age retirement benefits, do not 
deal with core Social Security. As we discussed last year, we 
tried to address some reforms within Social Security Disability 
Insurance.
    Senator Murray. What do you propose?
    Mr. Mulvaney. I think, well, in Medicare, for example, let 
us talk about Medicare, because it was the other thing you--we 
do not propose any changes to any benefit, any benefits, any 
services to beneficiaries. We tried to focus on lowering drug 
prices within Medicare. The number I have heard, by the way, a 
couple times today and in the press is that we propose to cut 
Medicare by half a trillion dollars, $500 billion. That is just 
not right. The number is $236 billion, and most of that is tied 
up in drug reforms and some other proposals.
    For example, Senator Murray--and thank you for the time to 
do this. I do not know if you know this or not, but your 
Medicare money--Medicare money that you pay in FICA that goes 
into the Medicare Trust Fund--actually goes to pay for graduate 
medical school tuition. It goes to pay for bad debts from non-
Medicare patients at hospitals. And we propose to move that 
funding----
    Senator Murray. Are you eliminating that?
    Mr. Mulvaney. We do actually move that on to another part 
of the budget so that we actually still pay those, but we do 
not pay them out of the trust fund. And there are a lot of 
folks who said, ``Well, that is a cut to Medicare.'' No, it is 
not. It is actually improving the Medicare Trust fund, and I 
think the proposals----
    Senator Murray. And put it somewhere else where you can cut 
it. Okay. I got it. We are out of time.
    Mr. Mulvaney. Thanks.
    Senator Murray. Thank you.
    Chairman Enzi. Thank you.
    Senator Kennedy.
    Senator Kennedy. Thank you. Mr. Director, I am over here.
    Mr. Mulvaney. You are on my right. I know that, Senator 
Kennedy.
    Senator Kennedy. Yes. It is the correct place to be.
    Mr. Mulvaney. That is right.
    Senator Kennedy. This is America. We all are entitled to 
our opinion, but I think you are doing a great job.
    Mr. Mulvaney. Thank you, sir.
    Senator Kennedy. I know you to be a fiscal conservative. I 
think you share my, I do not know, concern, disbelief, 
curiosity. I do not understand why taking care of our 
generation requires robbing the next generation. I want to 
thank you and your budget for emphasizing our need to do 
something about improper payments. As you know better than I 
do, we have got $144 billion of improper payments being made 
every year. Now, we are not going to stop all of them, but if 
we can stop 20 percent, that is $30 billion.
    I have introduced a bill with Senator Carper to try--it is 
called the ``Stop Paying Dead People Act.'' I was just amazed. 
You cannot make this stuff up. We have got a death file at 
Social Security, but Social Security will not share it with its 
sister agencies. So people are being--dead people are getting 
checks, and they are being cashed. Obviously, there is fraud. 
In some States you can vote when you are dead, but cashing a 
Government check is just a bridge too far, as far as I am 
concerned. So I hope you will continue that.
    In the few minutes I have left, I want to get a little 
maybe metaphysical here. We talk about the need for a balanced 
budget, but sometimes--and I support a balanced budget. But 
sometimes I think we conflate balanced budget with Government 
spending, and here is what I mean. We have got a $20 trillion 
economy. That is all the goods and services we produce every 
year. If Government is spending $4 trillion--I know the 
President's budget comes in a little higher, but if Government 
is spending $4 trillion, the Government is taking $4 trillion 
out of that, let us say, $20 trillion. Are you with me so far? 
Okay. Do you think that America would be better off if we had a 
balanced budget of $4 trillion Government spending and $4 
trillion of taxes? Or would we be better off in terms of 
personal liberty if we had $2 trillion worth of spending and $1 
trillion of taxes and, therefore, we would have to borrow $1 
trillion?
    Mr. Mulvaney. Well, from an individual liberty side, if you 
assume for the sake of this discussion that the larger the 
Government is, the less individual freedom you have, then by 
definition you would be better off from an individual liberty 
standpoint by having that $2 trillion Government expenditure 
with only $1 trillion taken out of the economy. Plus I think I 
can make the argument to you, take individual liberties out of 
the equation and look at the allocation of capital. If I give 
$4 trillion to the Government, it is likely to misapply a lot 
of that, spend it inefficiently; whereas, if I let people keep 
more of their own money, they are by definition going to apply 
it very efficiently. In fact, that is efficient. That is the 
market. People spending their own money is the market, and 
nothing allocates capital more efficiently than the free 
market. So I think in many ways you would be better off by 
having that smaller footprint.
    Senator Kennedy. Well, I want to be clear. I support a 
balanced budget, and I know you do, too. But would one way to 
skin this cat be to approach legislation that would limit 
Government spending to a certain percentage of GDP?
    Mr. Mulvaney. Certainly, in theory, yes, sir.
    Senator Kennedy. Okay. Do you think the President would 
support something like that?
    Mr. Mulvaney. I have not talked to the President. I know 
that came up a couple times in the House, Senator. I know you 
and I have not talked about this before, so we are just sort of 
thinking off the top of our heads. But I think that actually 
came up in the past as part of a debate regarding a balanced 
budget amendment. Would we cap Government expenditures as a 
percentage of the overall economy? The theory being that it was 
Okay to grow the Government as long as you were growing the 
economy at the same time. Go back to my comments before about 
your revenues growing faster than your expenses. It is wrong to 
grow Government faster than the economy of the people that can 
pay for it.
    Senator Kennedy. I am out of time. Thank you, Mr. Director, 
for your service.
    Mr. Mulvaney. Thank you, Senator. I always enjoy it.
    Senator Kennedy. I am a big admirer.
    Chairman Enzi. Senator Perdue.
    Senator Perdue. Director, thank you for surviving another 
one. It is always interesting.
    Mr. Mulvaney. It was a lot easier the first time I was in 
this room, I can tell you.
    Senator Perdue. They do not get any easier, I am sure.
    I want to make a comment, Mr. Chairman, very quickly before 
I get to two questions quickly.
    One is I take a different view totally than the Senator 
from Washington. I respect her work over the years, and I know 
we can work together, but we have got to fix this budget 
process. Director, I know we have had this conversation. I 
think you agree with this. I am not asking for you on the 
record right now, but I want to make a comment. The budget 
process has only worked four times in 44 years. It has led to 
this debacle of $20 trillion. We are not going to solve our 
debt crisis over the next 20 or 30 years unless and until we 
fix this debt crisis.
    I applaud leadership on the House and Senate, and I applaud 
the White House's support of this select committee, and I look 
forward to its outcome later this year.
    Director, I want to comment--just a question on the debt. 
The size of this Government in 2000, the last year of Bill 
Clinton, was $2.4 trillion in current dollars. Last year, it 
was about $4 trillion directionally. There is our problem. The 
largest growth of that, though, was in the mandatory side. 
Today $4 trillion, 75 percent of that is mandatory. Only about 
25 percent is discretionary. That is what you have to work with 
primarily.
    I am concerned about over the last administration we 
borrowed about 35 percent. It looks like over the next 10 years 
in this budget we will borrow somewhere north of 20 percent. It 
is new debt.
    I know your heart. I know what you have done historically 
on this. Help us understand sort of the long--term investment 
return concept I know the White House has in terms of dealing 
with the debt. There are things that we have to invest in 
growing the economy. We have to build the infrastructure and 
all that. That will yield return, as I understand it, and I 
believe that.
    The question is: Are we moving toward a longer-term 
solution outside a 10-year window that is a directional pathway 
toward getting this debt down to some more meaningful 
percentage of GDP? We talk about spending. The problem with 
spending is, of the $1 trillion, only 350 is non-military. Of 
the $1.1 trillion discretionary, about 700 now is military, 
about 200 is VA, and the balance there of 300, 350, is all the 
domestic discretionary programs that we still have out there. 
And they have been cut dramatically as well over the last 
decade.
    So give me some comfort that we have at least a north eye 
on the long-term solution toward this mounting debt crisis.
    Mr. Mulvaney. We do. And, fortunately, Senator, we have got 
an example that works. We have actually balanced the budget 
during my adult lifetime, back in the late 1990's, and----
    Senator Perdue. On a per year basis.
    Mr. Mulvaney. On a per year basis. I recognize there was 
some funny accounting when it came to the Social Security 
receipts and so forth, but if you look generally to the 
concept, what happened was we figured out a way to grow the 
economy faster than we expected, and we had fiscal restraint. 
Democrats take credit for it, Republicans take credit for it. 
But the truth of the matter is the Government grew slower than 
the economy. And if you can do that long enough, revenues will 
catch up. And you and I have not talked about this either, but 
we have talked to the administration a lot of times about 
prioritizing deficits. There are actually different types of 
deficits. Deficits that allow people to keep more of their own 
money because of the allocation of capital is actually a fairly 
relative efficient deficit. In the middle you might have stuff 
on things like infrastructure where at least you might get some 
return on that. The least efficient type, from an economic 
standpoint, of deficit would be something for wealth transfer 
payments. So we do try and prioritize that as we look across 
our deficits going forward.
    But the big picture, writ large, is you have to figure out 
a way to grow your economy faster than you are growing your 
Government.
    Senator Perdue. Thank you for that. One last question, Mr. 
Chairman.
    With regard to infrastructure investment, again, as you 
just said, investments hopefully that will produce a return, 
unlike the $1 trillion that we threw toward investment in 
infrastructure back in 2011 that was not made with those 
priorities. I call out one type of investment, particularly 
when we talk about spending the money we are talking about in 
this budget on infrastructure. The question is: Are we 
prioritizing based on the return that we get in terms of 
economic growth and contribution then in turn to reducing this 
long-term debt? And I specifically call out an issue that I 
believe is caught between current authorizations and the future 
infrastructure investments. Those are in States like Texas, 
Louisiana, Florida, Georgia, your home State of South Carolina, 
Virginia, New Jersey. These are our ports, our eastern ports 
that are all trying to accommodate the new Panamax ships that 
would dramatically improve our ability to compete around the 
world.
    I believe those investments are caught up in the Army Corps 
of Engineers' budgets being cut, but are not being moved over 
to the infrastructure investments, and these port investments 
actually offer a higher rate of return than some of the 
infrastructure investments that I think were contemplated. Can 
you address that?
    Mr. Mulvaney. I would. At the risk of making a small 
correction, we absolutely anticipate that the deepwater ports 
be part of the infrastructure bill. In fact, the largest part 
of the infrastructure bill, the 50 percent of the $200 billion, 
$100 billion is sort of in our minds set aside for programs 
that can contribute their own portion of the funding. And as 
you know, the port of Savannah does exactly that. So we had 
specifically the deepwater ports in mind when we fashioned the 
infrastructure----
    Senator Perdue. That is comforting. Thank you.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you, and I want to thank the Director 
for his comments.
    I do want to ask an additional question here just from some 
confusion about GDP that we were talking about earlier. The 
President's budget projects a GDP growth average of 3 percent 
annually with a long-term trend line of 2.8 percent. This long-
term trend is nine-tenths percentage points higher than the 
CBO's 1.9 percent forecast, which was published last June prior 
to the passage of the Tax Cuts and Jobs Act. There has been 
downward pressure on the long-term projections due to 
demographic changes. How does the administration reach its 
growth projections? And how will the Tax Cuts and Jobs Act 
encourage labor force participation?
    Mr. Mulvaney. Thank you for the question. At the risk of 
getting deep down in the weeds and showing my inner geek, we 
were fairly disappointed in the GDP numbers in the fourth 
quarter. We expected them to be north of 3. They were not.
    But if you drill down into the details, one of the things 
you will see is that the capital investment and the durable 
good numbers were almost 4 times what we expected. We were 
expecting something about 0.8, 0.9, and they came in just south 
of 3 percent. That is how you do it, Senator, and that is why 
such a critical part of the tax bill, gentlemen, was that 
corporate tax rate and the depreciation rules, in order to get 
the type of GDP growth that we need long term, given the 
demographic challenges that we face, we need individual 
productivity to increase. That comes from capital investment. 
You invest in a new machine, you invest in new technology, you 
invest in education, and you get individual productivity up. 
And we think we have seen the seeds of that planted almost 
immediately. Someone mentioned earlier that we have seen 
benefits from the tax bill far quicker than we thought that we 
would. Everyone pays attention to the bonuses that were given 
and the wage increases that were given. But if you look even 
deeper into the numbers and you see the investments that people 
are making, companies are making in the United States of 
America, we think we see the seeds planted for long-term 
structural improvements to our productivity, and that is our 
economic health.
    Chairman Enzi. I am counting on that proving out. I did ask 
for a static score when we were working on taxes because during 
the health care debate we asked for a dynamic score, and I 
found out that that was going to require 6 weeks for every 
amendment to be evaluated. And we do not do legislation where 
we have 6 weeks between amendments. It may seem like that, but 
we do not have that.
    So I want thank you for your testimony today. Your full 
statement will be included in the record. I think you did an 
outstanding job of presenting the President's suggestions and 
priorities, and that is what the President's budget is, 
suggestions and priorities, because the Constitution actually 
specifies that we are the ones that are going to be doing the 
actual work on that. I do hope we find a better process for 
doing that actual work.
    Another little inconsistency that I heard this morning was 
saying that for preschool, there needs to be a program for 
preschool. I have been saying that all along since I got here. 
There were 119 when I started. We got it down to 45 preschool 
programs. It seems to me like one or two really good ones 
reviewed again and reauthorized might be better.
    There were also some comments about housing programs here. 
I checked. There are 160 housing programs administered by 20 
agencies. Nobody is in charge. Nobody is setting goals. Nobody 
is checking to see if they are being met. So how can we say 
that a decrease in the housing funding would put people out on 
the streets? We might actually come up with some better 
solutions.
    A little note that I found in reading through your 
documents was a suggestion that colleges have some risk 
accepted on student loans. That is kind of a novel concept. We 
kind of made the for-profit schools do that same thing, and we 
put them out of business. But there ought to be some kind of 
risk acceptance in it.
    I appreciate your comments about capital budgeting, and you 
used an example of the FBI building for that. I have been 
talking about capital budgeting since I got here. I think 
separating that out might make our job a little bit easier.
    I would mention that if anybody has any additional 
questions, the questions can be submitted for the record by 6 
p.m. today with a signed hard copy delivered to the clerk at 
Dirksen 624. And you will have up to 7 days to respond to those 
questions to get additional good information so that we can 
understand this budget as well as we can so that we can do our 
budget.
    Thank you very much for an outstanding presentation.
    Mr. Mulvaney. Thank you, Senator.
    Chairman Enzi. Adjourned.
    [Whereupon, at 11:51 a.m., the Committee was adjourned.]

                     ADDITIONAL COMMITTEE QUESTIONS

    [The following submitted questions were not asked at the 
hearing but were answered by the witness subsequent to the 
hearing:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




   DEPARTMENT OF DEFENSE AUDIT AND BUSINESS OPERATIONS REFORM AT THE 
                                PENTAGON

                              ----------                               



                        WEDNESDAY, MARCH 7, 2018

                                       U.S. Senate,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:33 a.m., in 
room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Crapo, Corker, Perdue, Gardner, 
Kennedy, Boozman, Cotton, Sanders, Wyden, Stabenow, Whitehouse, 
Kaine, Van Hollen, and Harris.
    Staff present: Elizabeth McDonnell, Republican Staff 
Director; and Warren Gunnels, Minority Staff Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. Good morning. I will call this hearing to 
order. Welcome to the Senate Budget Committee hearing on the 
ongoing Department of Defense audit and Pentagon business 
operations reform.
    Our Nation faces grave threats abroad and a challenging 
fiscal situation at home. Given these dual pressures, 
rebuilding the military and reforming the way the Pentagon does 
business must go hand in hand.
    As Defense Secretary James Mattis said, the heart of our 
competitive edge is reforming the Department and gaining full 
value from every taxpayer dollar. So I commend the Secretary 
for launching a bold reform effort.
    After almost 30 years, the Pentagon has finally begun its 
own Department-wide consolidated audit. I will reemphasize that 
the Pentagon began it, the Department-wide consolidated audit. 
This is good news. The bad news is that we have all followed 
the recently publicized Defense Logistics Agency audit finding 
of nearly $1 billion in inaccuracies. As the Department-wide 
audit continues, there will surely be some more painful 
findings, but this should not deter our efforts. That is the 
purpose of an audit--to find things that need to be corrected 
and to save money by correcting them.
    We know a successful Pentagon audit will take time. It will 
also require sustained congressional oversight and a renewed 
commitment to accountability at the Department. Checking the 
box by completing the audit is not enough. The goal must be 
improved financial management and business operations. The 
audit will empower managers to make better decisions with more 
accurate financial reporting systems and data.
    For our troops, it will be better decision making, and that 
will mean more money for critical equipment and training.
    For our part, Congress needs to step up its oversight of 
the consolidated audit and support its findings, but we need 
the Department's help to better understand the process. Many of 
my colleagues on the Senate Armed Services Committee share my 
view. Several of them also serve on the Budget Committee. And 
members of this Committee know that cost matters, too. The 
Defense Department audit will cost almost $1 billion this 
fiscal year alone.
    Now, I did ask some questions and I want to thank the 
Department, and particularly Mr. Norquist, for a speedy 
response. We are not used to that, but really appreciate it. 
And I was interested even in the costs of the audit and noticed 
in the explanation that of the $918 million that are being 
spent on it, $368 million is for remediation. So that is for 
solving the problems that are in it. There is also $135 million 
for financial system fixes and another $48 million for internal 
control, which is all important. So, actually, in my opinion, 
the audit is $367 million. The rest is benefits that we get out 
of it by doing the fixes that are necessary. But that is why 
Congress needed a full breakdown of the projected audit costs.
    The Department also should provide an explanation of how it 
is ensuring the independence of its contracted auditors, and we 
need to know how the Department plans to remedy any problems 
they find. Gaining insight into which problems the Pentagon is 
fixing and why will motivate Congress to continue supporting 
the audit. There may also be instances in which additional 
funding up front can avoid increased costs later on, and we 
need to plan accordingly.
    Ultimately, reforming the Pentagon requires more than an 
audit. Defense spending is now higher than at the height of 
Ronald Reagan's Presidency. But we are not seeing the same 
value for each defense dollar spent today. Ineffective business 
processes may be a big reason.
    The Pentagon will never operate like a business, but it 
still must reform its business operations. The Department's 
management culture, which has taken hold over the course of 
several decades, frustrates everyone, including its employees 
and many of its senior leaders. Notably, the Department has yet 
to implement a modern work force management system, and I share 
my colleague Senator John McCain's ongoing concern over the 
Department's inability to tell us how many contractors work 
there. Even more troubling, the Department does not possess 
adequate reporting systems to measure the impact of ongoing 
reforms from work force changes to the adoption of shared 
services and cloud-based IT systems.
    I am pleased, however, that the Deputy Secretary of Defense 
has built a reform management group to oversee the development 
of such issues. Mr. Gibson, as the Department's first Chief 
Management Officer, will have the unique opportunity to lead in 
this area. It is my hope that we can build a mutually 
beneficial working relationship to help you achieve your goals. 
Managing the Pentagon is a difficult task, but it is crucial to 
our Nation's defense and to ensuring that we spend America's 
tax dollars wisely.
    Mr. Gibson and Mr. Norquist, thank you for joining us today 
and for your service. I look forward to continuing the 
discussion.
    Senator Sanders.

              OPENING STATEMENT OF SENATOR SANDERS

    Senator Sanders. Thank you very much, Mr. Chairman, and we 
thank our guests for being with us.
    The Chairman and I do not agree on a whole lot of issues, 
but I think on this one we probably do. The Department of 
Defense receives far more money from the taxpayers than any 
other governmental agency. We now as a Nation, as you know, 
spend about--we spend more money than the next 12 nations in 
the world combined. And the Congress, against my vote, decided 
to add another $165 billion to the Pentagon over the next 2 
years. And yet alone among all agencies of Government, the 
Pentagon has not been able to perform an agency-wide audit.
    Interestingly enough, Mr. Chairman, you may recall this, 
that the day before 9/11--the day before 9/11--in 2001, 
Secretary of Defense Donald Rumsfeld remarked that the Pentagon 
could not properly account for some $2.3 trillion in 
transactions. Needless to say, his remarks did not get a lot of 
attention given what happened the following day. But that was 
back in 2001, Rumsfeld talking about $2.3 trillion in 
transactions that could not be properly accounted for.
    We have seen some recent audits that tell us interesting 
things. The Commission on Wartime Contracting in Iraq and 
Afghanistan concluded in 2011 that $31 to $60 billion spent in 
those two wars had been lost to fraud and waste. Similarly, in 
2015, the Special Inspector General for Afghanistan 
Reconstruction reported that the Pentagon could not account for 
$45 billion in funding for reconstruction projects. And, more 
recently, an audit conducted by Ernst & Young for the Defense 
Logistics Agency found that it could not properly account for 
some $800 million in construction projects.
    I want to thank Chairman Enzi for your letter to Secretary 
Mattis last month when you said, and I quote, ``Taxpayers must 
have trust and confidence that their hard-earned dollars are 
being spent wisely. If such trust and confidence cannot be 
built and justified, it will be incredibly difficult to achieve 
the 3 to 5 percent real growth in defense spending you have 
identified as necessary to meet mission requirements.''
    And I agree with the Chairman that it is essential that the 
Pentagon demonstrates that it is trustworthy and accountable 
with taxpayer dollars, and that has not been the case. And that 
is why I was disappointed to read that the Pentagon buried a 
Defense Business Board report from 2015 which recommended ways 
to eliminate some $125 billion in bureaucratic waste. I do not 
think there is any debate among anybody here that we want to be 
able to defend our country, that we want to make sure that the 
men and women in the armed forces have all of the equipment 
they need to protect their lives. But I would hope that nobody 
here believes that just because this is the Department of 
Defense, we will defend an enormous amount of bureaucratic 
waste.
    As I think the Chairman touched on, one-half of the 
Pentagon's budget goes directly into the hands of contractors. 
And of that amount, one-third, or about $100 billion, goes to 
the top five defense contractors in the United States, all of 
which, by the way, have been convicted or settled lawsuits 
relating to fraud or misconduct against the Federal Government. 
So, we are dealing with huge defense contractors who have been 
involved in fraud against the Federal Government.
    Also, I might add--and later on I am going to have to----
    I apologize, I am going to have to run out, but I will come 
back. I would like to get a response from our guests today 
about the fact that the CEOs of the top five defense 
contractors in the United States made a cumulative $96 million 
in compensation. Five CEOs whose agencies are significantly 
funded by the Federal Government, the CEOs of those defense 
companies made $96 million in compensation.
    Back in 2011, I requested a report from the Pentagon which 
detailed how the Department paid $573 billion over 10 years to 
more than 300 contractors involved in civil fraud causes 
against the Federal Government.
    There are a lot of issues here, and your job is not easy. 
The size of the Pentagon and the complexity of the budget is 
enormous, and nobody here thinks you are going to solve the 
problem immediately. But your job is to tell the American 
people how our tax dollars are being spent, to tell us, in 
fact, where the money is going--I am not quite sure that we 
know where the money is going--to tell us why it is that we 
continue to do business with defense contractors who give us 
cost overrun, cost overrun, cost overrun. Are we negotiating 
effectively, or are defense contractors simply coming in and 
saying, ``We will do it for X,'' and it ends up being 3X, and 
nobody particularly cares?
    So there is an enormous amount of work, and I look forward 
to the question period, but at this moment I have to run out. 
But thank you very much for being here.
    Chairman Enzi. Thank you, Senator Sanders. I will now 
introduce the witnesses.
    Our first witness this morning is David Norquist, the 
Department of Defense Comptroller and Chief Financial Officer. 
Under Secretary Norquist has been in office since May 2017 and 
leads the Department's efforts on budget and audit matters. Mr. 
Norquist has spent his career in budget--related national 
security positions, including leading the budget and audit 
process at DHS in the George W. Bush administration.
    Our second witness this morning is Mr. John Gibson, the 
Department of Defense Chief Management Officer, who was 
reconfirmed as Chief Management Officer only weeks ago after 
serving as Deputy Chief Management Officer since last November. 
Prior to his service at the Department of Defense, Mr. Gibson 
led several aerospace companies and previously served in a 
management reform position at the Pentagon during the George W. 
Bush Administration.
    For the information of our colleagues, each of the 
witnesses will take up to 5 minutes to consolidate his opening 
remarks, all of which will be a part of the record, followed by 
questions.
    We look forward to receiving your testimony. Mr. Norquist, 
you can begin first.

 STATEMENT OF THE HONORABLE DAVID L. NORQUIST, UNDER SECRETARY 
  OF DEFENSE (COMPTROLLER) AND CHIEF FINANCIAL OFFICER, U.S. 
                     DEPARTMENT OF DEFENSE

    Mr. Norquist. Thank you, Mr. Chairman.
    Chairman Enzi, Ranking Member Sanders, and members of the 
Committee, thank you for the opportunity to provide an overview 
of the Department's financial statement audit progress and 
plans.
    Before I begin, I would like to take a moment to thank you 
and the rest of the Congress for the Bipartisan Budget 
Agreement of 2018. The agreement raised the caps for fiscal 
years 2018 and 2019 on defense spending to a level that will 
support the National Defense Strategy and allow us to restore 
and rebuild our military. The agreement is a 2-year deal, so we 
will need Congress' support again, or sequestration will return 
in fiscal year 2020.
    When Secretary Mattis released the National Defense 
Strategy, he detailed three distinct lines of effort: building 
a more lethal, resilient, agile, and ready Joint Force; 
strengthening alliances as we attract new partners; and 
reforming the defense business practices for greater 
performance and accountability.
    The third line of effort relates directly to the audit. It 
is an important component in the improvement of our business 
operations.
    We anticipate auditor findings in many areas. That is why 
we are doing these audits--to find the problems and fix the 
root causes.
    I appreciate your interest in the audit of the Department 
of Defense. It is a long-term, meaningful, and necessary 
undertaking that encompasses the whole of the Department, and 
its success depends on sustained congressional support. The 
personal interest Chairman Enzi and others on this Committee 
have shown in this issue are part of the reason DoD has, at 
long last, begun the audit.
    Although audits are not new to the Department of Defense, 
this is the first time the Department has undergone a full 
financial statement audit. A financial statement audit is 
comprehensive. It occurs annually, and it covers more than 
financial management. Financial statement audits include 
verifying count, location, and condition of our military 
equipment, real property, and inventory. It involves testing 
security vulnerabilities in our business systems. It tests 
system compliance with accounting standards, and it validates 
the accuracy of our personnel records and actions such as 
promotions and separations.
    The Department anticipates having approximately 1,200 
financial statement auditors assessing whether our books and 
records present a true and accurate picture of our financial 
condition and results of our operations in accordance with 
accounting standards.
    Based on my experience at the Department of Homeland 
Security, it will take time to implement the changes necessary 
to pass the audit. It took Homeland Security, a relatively new 
and much smaller enterprise, about 10 years to get to its first 
clean opinion. However, we will not have to wait for a clean 
opinion to derive benefits from the audit. The financial 
statement audit helps drive enterprise-wide improvements to 
standardize our business processes and improve the quality of 
our data.
    DoD owes accountability to the American people. 
Transparency, accountability, and business process reform are 
some of the benefits from the financial statement audit.
    Regarding transparency, the audit improves the quality of 
our financial statements and underlying data available to the 
public, including a reliable picture of our assets, 
liabilities, and spending.
    The audit will highlight areas where we need to improve our 
accountability over assets and resources. By fixing property 
records, we can demonstrate full accountability of our assets. 
The combination of better data resulting from audit remediation 
and the use of modern data analytics directly supports DoD's 
effort to bring business reform to its operations. Audit is an 
enabler that will drive more opportunities for reform.
    The DoD consolidated audit is likely to be the largest 
audit ever undertaken and comprises more than 24 stand-alone 
audits and an overarching consolidated audit.
    During an audit, auditors will select line items on 
financial statements based on materiality and risk and will ask 
for a listing of items or transactions that make up the total 
amount on the financial statements. To put the scope of this 
task in perspective, the Army has over 15 billion transactions 
that the auditors will select from.
    The auditors will then pick samples from the listing for 
testing, which can include physically verifying that the 
property exists and is accurately recorded.
    Once the auditors have completed the testing, they will 
evaluate the results and report any problems they find and will 
re-evaluate the status of the corrective actions each year.
    Going forward, we measure and report progress toward 
achieving a positive opinion on the audit using the number of 
audit findings resolved.
    In closing, I want to thank this Committee for its interest 
in and focus on the Department of Defense's audit. I anticipate 
the audit process will uncover many problems, some of which 
will be frustratingly difficult to fix. But the alternative is 
to operate in ignorance of these problems and miss the 
opportunity to reform. We are committed to the audit and to 
implementing the necessary reforms to be good stewards of the 
taxpayers' dollars, and I appreciate your support.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Norquist follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Enzi. Thank you for that and for overseeing it.
    Mr. Gibson.

STATEMENT OF THE HONORABLE JOHN H. GIBSON, II, CHIEF MANAGEMENT 
              OFFICER, U.S. DEPARTMENT OF DEFENSE

    Mr. Gibson. Thank you, Chairman Enzi and other members of 
this Committee for the opportunity to testify today regarding 
the aggressive work we are doing to bring greater efficiencies 
to the business operations of the Department of Defense.
    Any organization which receives capital for its business 
has a fundamental responsibility to execute in the most 
effectual manner. Given the American taxpayer has provided the 
capital to fulfill our mission, we have the highest level of 
fiduciary responsibility to continuously execute our operations 
in the most effective and efficient manner.
    The 2-year budget deal this Committee worked hard to 
establish is great support to a predictable funding stream and 
very helpful with all our work in the reform area. Thank you 
for the Committee's hard work to establish this deal.
    Secretary Mattis has outlined three main lines of effort 
for the Department of Defense: build a more lethal force, 
strengthen traditional allies while building new partnerships, 
and reform the Department's business practices for performance 
and affordability.
    It is the responsibility of the Chief Management Officer of 
the Department of Defense to execute the third line of effort: 
reforming business operations for solvency and security, 
gaining full benefit from every dollar spent.
    Looking forward, the Department is not anticipating funding 
above the out-year levels in the fiscal year 2019 budget, and 
in order to fund incremental resources, the military needs to 
achieve its mission requirements. We must lower our cost of 
operations to yield these resources. The global challenges to 
our military remain significant, and to best equip our men and 
women in uniform to meet their mission, we must consider 
significant reforms in the Department.
    Foundational to our vision of success in this area is the 
establishment of a culture of performance and productivity on 
an enduring, institutionalized basis. The work we are all doing 
today becomes a benefit for the next generations of leadership 
and warfighters to come.
    We are generating additional resources through efficiencies 
by focusing on three main areas: shared or common services, 
enterprise-wide data and cost information, and the efficient 
and effective alignment of the enterprise.
    We have begun the effort in shared services by forming 
integrated, subject-specific teams to identify, vet, and 
implement immediate efficiency opportunities in their 
respective areas. Knowing the challenges to any significant 
reforms, we are constantly fostering a sense of urgency, 
maintaining leadership alignment at all levels, communicating a 
consistent message, proactively removing obstacles, driving 
immediate wins, and working to anchor all of this in long-term 
behavior and culture.
    As we implement the reform efforts, we are comfortable 
incorporating the ``fly, test, fly'' operational tempo to allow 
us to pilot, learn, and scale in each of these areas. 
Fundamental to institutionalizing this effort is governance and 
management. We have formed the Reform Management Group to guide 
these multiple efforts. This integrated, cross-functional group 
leads dedicated teams and fosters ongoing working 
relationships, aligning all the stakeholders involved in the 
reform efforts. As our processes mature, we will form an 
integrated management board. This board will utilize relevant, 
standard measures and goals, coupled with the authorities to 
manage, enforce, and institutionalize a culture of performance 
and productivity, all with the goal of continuous improvement 
in our business operations.
    The reward process is essential to success and the primary 
incentive to change behavior. Typically, in the Department 
efficiency efforts are stimulated by a need to backfill budget 
cuts. Our current approach is to drive and incentivize 
performance and operating financial efficiencies by measuring, 
tracking, and reporting performance and outcomes. We will then 
return the savings generated to the military departments to 
reinvest in higher priorities and hold those people and 
organizations accountable. We will need your input and 
assistance in refining, implementing, and executing as we 
further define the mechanics of the reward process.
    Quality data is essential to good decision making, and we 
are working to improve the infrastructure to host and make 
available timely, accurate, and relevant data across the 
enterprise. Additionally, we are constructing a consistent 
framework that reflects cost data and analytical tools to 
support efficiency-driven decisions throughout the Department. 
In both efforts, we are working closely with the Under 
Secretary of Defense and Comptroller to achieve success.
    The financial audit the Department is undertaking is a 
tremendous tool and serves as an invaluable piece of our reform 
efforts. The audit process will improve the quality of our 
organizational and financial data, which is essential to good 
business decision making. The audit will also reveal business 
systems and processes which need to be reformed and can be 
incorporated into our ongoing reform efforts. By improving 
these business processes, we drive improved operational 
measures such as timeliness, productivity, and simplification. 
Many of these processes will have direct, positive impacts on 
lethality.
    The third line of effort is alignment of the Department. 
Many of the defense agencies and field activities have been in 
place for decades, and we have the opportunity to look at the 
end-to-end processes in major areas of operation and align all 
of the participants in the most efficient manner. We intend to 
include and leverage leadership from the military departments 
and the major mission areas such as Acquisition, Information 
Technology, Intel, Personnel and Readiness, Financial 
Management, Research, and Policy all as part of this process.
    A basis for evaluation for all our projects is establishing 
benchmarked private sector measures, setting goals, tracking, 
and reporting.
    In addressing any of our reform projects, we are also 
looking outside of the Department for further economies by 
incorporating the whole-of-government.
    As our efforts progress, we will be looking to Congress as 
a source of support. Just as with any board of directors, we 
believe Congress is our partner, understanding the shared risk 
in this incredibly robust and aggressive work. We intend to 
keep an ongoing dialog with you on our plans and progress and 
will be seeking your input, feedback, and assistance as some of 
our objectives will require mutual actions to achieve our 
goals.
    As the Chief Management Officer of the Department of 
Defense, I consider Congress to be my board of directors. 
Therefore, I welcome the opportunity to begin our dialog on the 
substantial efficiency efforts we are making in the Department.
    Thank you.
    [The prepared statement of Mr. Gibson follows:]

 TESTIMONY OF HON. JOHN H. GIBSON, II, CHIEF MANAGEMENT OFFICER BEFORE 
                      THE SENATE BUDGET COMMITTEE

                HEARING ON DEPARTMENT OF DEFENSE REFORM

                             MARCH 7, 2018

    Thank you Chairman Enzi, Ranking Member Sanders, and other 
members of this committee for the opportunity to testify today 
regarding the aggressive work we are doing to bring greater 
efficiencies to the business operations of the Department of 
Defense.

    Any organization which receives capital for its business 
has a fundamental responsibility to execute in the most 
effectual manner. Given the American taxpayer has provided the 
capital to fulfill our mission, we have the highest level of 
fiduciary responsibility to continuously execute our operations 
in the most efficient and effective manner. Thank you for the 
Committee's hard work to establish the 2-year budget deal.

    Secretary Mattis has outlined the three main lines of 
effort for the Department of Defense. Build a more lethal 
force, strengthen traditional alliances while building new 
partnerships, and reform the Department's business practices 
for performance and affordability.

    It is the responsibility of the Chief Management Officer of 
the Department of Defense to execute the third line of effort: 
reforming business operations for solvency and security, 
gaining full benefit from every dollar spent.

    Looking forward, the Department is not anticipating funding 
above the outyear levels in the fiscal year budget and in order 
to fund incremental resources the military needs to achieve its 
mission requirements, we must lower our cost of operations to 
yield these resources. The global challenges to our military 
remain significant and to best equip our men and women in 
uniform to meet their mission we must consider significant 
reforms in the Department.

    Foundational to our vision of success in this area is the 
establishment of a culture of performance and productivity on 
an enduring, institutionalized basis. This work we are all 
doing today becomes a benefit for the next generations of 
leadership and warfighters to come.

    We are generating additional resources through efficiencies 
by focusing on three main areas: shared or common services; 
enterprise-wide data and cost information; and the efficient 
and effective alignment of the enterprise.

    We have begun the effort in shared services by forming 
integrated, subject-specific teams to identify, vet, and 
implement immediate efficiency opportunities in their 
respective areas. Knowing the challenges to any significant 
reforms, we are consistently fostering a sense of urgency, 
maintaining leadership alignment at all levels, communicating a 
consistent message, proactively removing obstacles, driving 
immediate wins, and working to anchor all of this in long-term 
behavior and culture.

    As we implement the reform efforts, we are comfortable 
incorporating the ``fly, test, fly'' operational tempo to allow 
us to pilot, learn, and scale in each of these areas.

    Fundamental to institutionalizing this effort is governance 
and management. We have formed the Reform Management Group to 
guide these multiple efforts. This integrated, cross-functional 
group leads dedicated teams and fosters ongoing working 
relationships, aligning all the stakeholders involved in the 
reform efforts. As our processes mature, we will form an 
integrated management board. This board will utilize relevant, 
standard measures and goals, coupled with the authorities to 
manage, enforce, and institutionalize a culture of performance 
and productivity with the goal of continuous improvement in our 
business operations.

    The reward process is essential to success and the primary 
incentive to change behavior. Typically, in the Department 
efficiency efforts are stimulated by need to backfill budget 
cuts. Our current approach is to drive and incentivize 
operating and financial efficiencies by measuring, tracking, 
and reporting performance and outcomes. We will then return the 
savings generated to the military departments to reinvest in 
higher priorities, and hold those people and organizations 
accountable. We will need your input and assistance in 
refining, implementing and executing as we further develop the 
mechanics of the reward process.

    Quality data is essential to good decision making and we 
are working to improve the infrastructure to host, and make 
available timely, accurate, and relevant data across the 
enterprise. Additionally, we are constructing a consistent 
framework that reflects cost data and analytical tools to 
support efficiency-driven decisions throughout the Department. 
In both efforts, we are working closely with the Under 
Secretary of Defense for Comptroller to achieve success.

    The financial audit the Department is undertaking is a 
tremendous tool and serves as an invaluable piece of our reform 
efforts. The audit process will improve the quality of our 
organizational and financial data, which is essential to making 
good business decisions. The audit will also reveal business 
systems and processes which need to be reformed and can be 
incorporated into our ongoing reform efforts. By improving 
these business processes we drive improved operational measures 
such as timeliness, productivity, and simplification. Many of 
these processes will have direct, positive impacts on 
lethality.

    The third line of effort is the efficient alignment of the 
Department. Many of the Defense agencies and Field Activities 
have been in place for decades and we have the opportunity to 
look at the end-to-end processes in major areas of operation 
and align all of the participants in the most efficient manner. 
We intend to include and leverage leadership from the military 
departments and the major mission areas such as Acquisition, 
Information Technology, Intel, Personnel and Readiness, 
Financial Management, Research, and Policy as part of this 
process.

    A basis for evaluation to all our projects is establishing 
benchmarked private sector measures, setting goals, and then 
tracking and reporting our performance.

    In addressing any of our reform projects, we are also 
looking outside of the Department for further value by 
incorporating the whole-of-government as a marketplace and 
seeking to leverage private sector sourcing at an even higher 
level.

    As our efforts progress, we will be looking to Congress as 
a source of support. Just as with a board of directors, we 
believe Congress can be our partner, understanding the shared 
risk in this incredibly robust and aggressive work. We intend 
to keep an ongoing dialog on our plans and progress and will be 
seeking your input, feedback and assistance as some of our 
objectives will require mutual actions to achieve our goals.

    As the Chief Management Officer of the Department of 
Defense, I consider Congress to be my board of Directors. 
Therefore, I welcome the opportunity to begin our dialog on the 
substantial efficiencies efforts in the Department, and I 
welcome your questions.

    With me is Comptroller David Norquist, who will speak to 
the Department of Defense Audit.

    Chairman Enzi. Thank you. As an accountant, I cannot tell 
you how exciting it is for me to have the numbers management 
team before us. Your testimony is music to my ears. I want to 
thank you particularly, Mr. Norquist, for your prompt letter. 
Had I gotten it a week from now, I would have considered it 
prompt.

    [Laughter.]

    Chairman Enzi. That is actually when I was expecting it, 
and I will be sharing that with the members of the Committee 
because there is a lot of good information in the answers that 
you gave me.

    We will now turn to questions, and I do not think I 
probably need to explain how the sound of the gavel and 
alternating back and forth works, but every member will have 5 
minutes for questions. I will begin with myself, and then we 
will begin the alternation process.

    I will begin with my first question for Mr. Norquist. The 
metrics used to measure the Department's readiness for an audit 
were often very difficult to understand, even for outside 
experts. Now that the consolidated audit has begun, how will 
the Department help Congress to understand how much progress is 
being made? Will the Pentagon provide regular interim updates 
on both the findings and your remediation efforts?

    Mr. Norquist. Yes, sir. Mr. Chairman, the way we will 
measure progress going forward is by looking at the number of 
NFRs closed. So when the auditor has a finding, they will write 
it up. We will track the number of findings. We will track who 
they have been assigned to for fixing them so that rather than 
simply say the Department of Defense did not pass, or the Army, 
we will be able to say this materiel command had been assigned 
to 20 findings of which they have closed 5. This organization 
has seven of which they closed seven. So you will be able to 
see at a much deeper level, and part of the interest in the 
audit is that level of accountability, so you can talk about 
specific challenges. Is the issue with the systems? Is the 
issue with fund balance with Treasury?

    From our perspective, what we will do is a couple things. 
One is the auditors will publish their statements on the 
traditional schedule which starts about November 15th. Those 
are available to the public. They will look like the same type 
of financial statement reports that go out for companies. We 
will twice a year, both in January and June, provide updates to 
the Committee, summarizing those in easy-to-understand formats 
as well as providing tracking on the NFRs.

    The advantage, I think, of this one is we will not be self-
reporting our progress. I will be telling you what the auditors 
have said. If they do not say we close it, then we did not 
close it. You know, the issue will be--I think that 
independence allows you a greater level of confidence in the 
data you receive on the status of the audit and allows us to 
track it. This is how we did it at Homeland Security, and it 
was a very effective way of measuring progress.

    Chairman Enzi. Thank you.

    Mr. Gibson, I want to ask you about metrics and baselines a 
little bit. Last year the GAO reported that billions of claimed 
savings from Department of Defense headquarters reductions were 
unsupportable. Similarly, the Department of Defense budget 
request this year claimed further billions in savings from the 
ongoing and new reforms, but does not provide much specificity.

    Can the Department provide a more detailed breakdown of 
these savings and what baselines are being used to construct 
them?

    Mr. Gibson. Senator, the way we intended to execute this is 
we begin at the very working level. We have teams that are 
subject matter experts in nine particular areas. Out of that, 
they will then pick specific projects to go out that we find 
are efficiency projects. Within each of those, there will be an 
intended outcome, operational and financial goals that will be 
based on real data. They will have a project schedule. We will 
be able to track and measure how they are doing on that. We can 
then compile all of those into groups and report those out.

    So we intend this to be very, very specifically driven by 
data that we are tracking and reporting on, and then all of 
that will build out to a total of what we can account for 
reform savings that we will be getting.

    Also, I think it is important to mention that, in addition 
to financial savings, it is very, very important that we 
discuss that we are going after operational improvements as 
well. Those will include, it could be, timeliness, 
productivity, simplification. Those do not always have a 
financial outcome, but certainly our beneficial outcome to the 
overall business operations, we will be measuring and tracking 
and reporting on those as well.

    Chairman Enzi. Thank you.

    A quick question to Mr. Norquist, because I have read a 
number of stories lately about how the Pentagon cannot 
responsibly spend the extra fiscal year 2018 funding from the 
recent budget deal before the end of the current fiscal year. 
Marine Corps General Walters said we have a year's worth of 
money in 2018 and 5 months to spend it. I understand that there 
are proposals to give more flexibility in spending this money, 
including changing fiscal year 2018 operations and maintenance 
funding from funding.

    Beyond this current issue, are there other changes in the 
budget process such as biennial appropriations for certain 
defense accounts that could result in greater stability and 
efficiency in military spending?

    Mr. Norquist. I think there are two types of challenges 
that we look at as you look over time, so let me do first the 
2018 and then the longer period, and we can come back to this.

    In 2018, there is a series of rules designed to encourage 
people to spend their money earlier in the year and not hold it 
until the end. One is called the 80/20 rule. You can only spend 
20 percent of your money in the last part of the year. When you 
get the bulk of the money or the increase late in the year, 
that makes it harder. So some relief from that 80/20 rule is 
certainly essential because then your deadline is not 1 
October. It is 2 months earlier. All of these, though, relate 
to wanting to spend the money where the highest priority is, 
and as you get closer to the end of the year, you do not have 
the time to go out for the contract with the competition and 
the award with the amount of time that is left; or if you put 
something into a shipyard for maintenance and the cost of 
actually fixing it is less than you thought, so they give you 
the money back, you may be too late in the year to put it 
against your next highest priority, so you put it against the 
next one that is available.

    We would like to discourage that sort of use-it-or--lose-it 
view and encourage people to put it on the highest priority 
and, where necessary, look at what type of flexibilities are 
required, either being able to move money between accounts with 
prior notification instead of prior approval. Some of those 
flexibilities help, and I think that was--and this is true 
whether you are in a year where there has been a significant 
increase or not. You just want to make sure people are able to 
put it against the highest priority.

    Chairman Enzi. Thank you. I am sure we will talk a lot more 
about that. My time has expired. Senator Whitehouse.

    Senator Whitehouse. Thank you very much.

    Mr. Gibson, GAO has reported that nearly a third of the 
roughly $1.5 trillion cost of current defense acquisition 
programs is a product of cost growth over initial estimates, 
which suggests that the Department has trouble either 
estimating costs or holding contractors to original estimates.

    Now we are looking at a proposal to spend something on the 
order of $1.7 trillion on nuclear modernization, including the 
development of new weapons platforms and warheads. There have 
been warnings issued that if we were to do that, those 
modernization plans would wipe out other defense programs, so I 
guess there are two problems that I would ask you to comment 
on.

    One, what is the plan for funding that without 
cannibalizing other programs? Is it just put it on the credit 
card? We seem to be getting expert on that around here. And, 
two, are there additional controls that we should put in place 
over this nuclear program to make sure that the $1.7 trillion 
does not have the same fate befall it that befell the other 
defense acquisition programs of these massive cost overruns?

    Mr. Gibson. Senator, in the area of contracting, the 
particulars we are focusing on is the common purchase of goods 
and services and doing that in a more efficient and effective 
manner. That is an area that I am specifically focusing on. And 
what this does is this takes a look at contracts from what is 
called a ``clean sheeting,'' a very common private sector 
practice to set the requirements and set the terms and 
conditions and then look across the market to best derive 
value.

    We are also looking at setting requirements in, again 
common services contracts so that it is the same across----

    Senator Whitehouse. I am sorry, but I think what I was 
trying to get at in my question is: Does a massive oncoming 
expenditure like $1.7 trillion for this nuclear modernization 
program give us an occasion to take a look at new and different 
checks and controls specific to that program to see if we can 
learn something from it and have it not fall to the same fate 
as the existing defense acquisitions of massive cost overruns?

    Mr. Gibson. Yes, sir, I believe the opportunity to look 
across all phases of acquisition, so the area that we are 
focused on, absolutely. We need to do it. It is good 
fundamentals and good business. I know----

    Senator Whitehouse. And you would not object if we looked 
forward to this nuclear modernization program and looked at 
additional ways to try to make sure that the estimation and 
accounting was done better than it has been through 
traditional----

    Mr. Gibson. Senator, I think that is foundational to doing 
things right.

    Senator Whitehouse. Okay.

    Mr. Gibson. I think that is how we need to do it, and I 
know Mr. Norquist----

    Senator Whitehouse. Let me ask one last question then.

    DoD contract management has been on GAO's high-risk report 
list for almost 25 years, and there are obvious concerns about 
the relationship between the Defense Department, the defense 
contractors, defense contractors' role in Congress. There is 
kind of a loop that can exist there. And, in addition, there is 
the revolving door problem between the Department of Defense 
and these contractors with a view that some of the contracts 
may not be managed as scrupulously as ideal.

    Are there things that we should be doing to improve the 
revolving door issue between the Department of Defense and 
these contractors to make sure that that relationship with 
these contractors remains healthy for the taxpayer?

    Mr. Gibson. Senator, my specific area of expertise is not 
contracting and acquisitions. However, I will say it is my 
understanding that between the policies in the FAR and within 
contracting, as well as our ethics, those are in place. I think 
it is always our responsibility to follow those to ensure that 
we truly get to the best place from a contracting standpoint 
and a conflicts-of-interest standpoint.

    Senator Whitehouse. Do you agree that it is vital that the 
contractors should be serving the Defense Department and not 
vice versa?

    Mr. Gibson. I think leveraging the private sector is 
absolutely invaluable to us, and that we are the customer and 
they are the supplier.

    Senator Whitehouse. My time is up.
    Chairman Enzi. Thank you.
    Senator Corker.
    Senator Corker. Yes, sir, Mr. Chairman. Thanks for having 
the hearing. And to the two of you, thank you for coming. I do 
not think any of us could respect our men and women in uniform, 
more than you, and I know you work on their behalf.
    The Department of Defense can kill people remotely in Mosul 
and other places, with people from far away commanding drones, 
and it is remarkable that we are able to do things like that. 
DoD has the capacity to turn entire countries into craters and 
has all kinds of cyber capabilities. Again, you are here; you 
are the messengers. We are not speaking necessarily to you at 
all, but how in the world is it that in 2018, with all the 
massive capabilities that the Pentagon has, this is the first 
time the Pentagon is able to conduct an audit? What is going on 
with the culture at the Pentagon? Mr. Norquist.
    Mr. Norquist. I share your concern. You know, when this 
administration came in, we made starting the audit right away 
critical, and so in the very first year we have begun it. When 
I was in the----
    Senator Corker. Just what is going on with the culture? How 
in the world could it be that the biggest, greatest fighting 
entity in the world cannot audit itself? What is wrong?
    Mr. Norquist. So I am speaking a little bit for those who 
came before me, but there is a sense on some of the mission 
focus is not as focused on the back office as you would see in 
a private company. I think that there is an essential value to 
the taxpayer in making sure the rest of these operations go 
well, and part of the messaging that the Secretary has made 
internally is to make sure folks understand that this is much 
broader than just financial management. If you want to make 
sure that your inventory of spare parts is correct, that your 
munitions is correct, this is part of what the audit covers. 
And part of that culture comes from change from two things:
    One is leadership at the top. Secretary Mattis and Deputy 
Secretary Shanahan have made this a top priority, and I think 
that has helped to turn the ship.
    And the other is, quite frankly, the emphasis from 
Congress. I have found it very helpful in meeting with folks 
and----
    Senator Corker. That is good, but I don't care about 
Congress. The fact is we have probably wasted hundreds of 
billions of dollars at the Pentagon through the years through 
poor management. Is that correct? That would be a low estimate, 
would it not?
    Mr. Norquist. I would not be able to speak to that number, 
sir.
    Senator Corker. Mr. Gibson, thank you for giving credit to 
this Committee for passing the increase in the caps. We 
actually had nothing to do with it. We had four people in a 
room that bid each other up. This cap deal is going to raise 
spending over the next 10 years by a minimum of $2 trillion. 
Two trillion dollars.
    What we are likely to see in this omnibus are some of the 
most God awful taxpayer abuses that we have ever seen. Things 
are being plussed up so quickly, and on the domestic non-
defense side, so much money is being pumped in that there is 
going to be some of, again, the most God awful taxpayer abuses 
we have ever seen.
    At the Pentagon, we are raising the cap by $80 billion. 
What the President requested was not good enough--we had to go 
$30, $35 billion above that. We are doing the same thing on the 
non-defense side, though not quite to that level. How is it 
possible with 6 months remaining in the year for the Pentagon 
to possibly spend the additional cap, the additional amount of 
money, the $80 billion you are getting, plus, I think, $71 
billion in OCO spending? How is it possible to spend that money 
wisely? Mr. Norquist.
    Mr. Norquist. I would be happy to answer that, Senator. So 
when you look at the increase, you will find that the vast 
majority of that occurs in procurement and R&D, which are 2-and 
3-year money. And so when you are talking about buying 
additional munitions, buying additional planes, buying 
additional ships, you have time to negotiate the prices with 
the contractors and make the awards.
    The challenge is going to be in the operation and 
maintenance account, and the difference between had we stayed 
under sequestration and under the number that the Congress is 
looking at is on the order of about $13 billion.
    Now, some of that increase the President had requests, we 
had plans for in the budget, and so the amount of adjustment 
that you are making is more modest than the larger number you 
are seeing because only the O&M piece has to be executed by 
year-end.
    Senator Corker. Well, again, we thank you and others for 
what you are doing. I am happy that in 2018 we are finally 
going to have an audit. That is good for taxpayers. I cherish 
the men and women in uniform, like Senator Kaine's son and 
others who serve. I am distressed that, for all these years, 
we've known there have been massive amounts of wasted money 
because you could not complete an audit. And I am glad that you 
are on a path to do something good about it.
    I hope we are going to have a chance, Mr. Chairman, to see 
this omnibus in advance because I have a feeling taxpayers are 
going to be shocked at what is in it with the massive increases 
taking place in 1 year. But thank you so much.
    Chairman Enzi. Thank you.
    Senator Sanders.
    Senator Sanders. Thanks very much. I agree with Senator 
Corker. This is an enormously important issue, and the DoD must 
be run cost-effectively and efficiently.
    Let me ask you, to start off with a simple question, about 
half of the DoD budget goes to defense contractors. Is that 
roughly right?
    Mr. Norquist. That sounds about right, yes.
    Senator Sanders. I think at the top of the list is Lockheed 
Martin.
    Mr. Norquist. That would be one of the top five, 
absolutely.
    Senator Sanders. Okay. Answer me this one: As I understand 
it--I am looking at the revenue, 2016 defense revenues that 
went to Lockheed Martin, roughly $43 billion. And I am just 
kind of curious. The CEO of that corporation received--what was 
it, $20 million? Over $20 million in compensation. And as I 
understand it, over 90 percent of the business was the 
Department of Defense. In other words, we are giving this woman 
roughly an $18 million salary from the taxpayers of this 
country. Does that sound right to you? Is that something that 
we might want to look at and say when we give--I do not know 
what the salary is of the Secretary of Defense. What is it, 
$150,000, $200,000?
    Mr. Norquist. Yes.
    Senator Sanders. Does it make sense to you that we pay the 
Secretary of Defense $200,000 or less and we give a contractor 
who gets 92 percent of her revenue from the taxpayers of this 
country $18 million of taxpayer money? Is that something that 
you might want to look at?
    Mr. Norquist. Sir, I cannot speak to how the companies 
compensate their executives. I know there may be rules on 
those, but they are outside my expertise. The one I can speak 
to, though, is that we do have--inside the office of the CFO, 
we have an organization that audits the contractors. So when 
they send us invoices and payments, we go through those in 
order to arm the contracting officers to make sure we are not 
being charged----
    Senator Sanders. But if I am right--I got that. But if I am 
right, that over 90 percent of the revenue for a company comes 
from the taxpayers of this country and this woman is making $20 
million a year when the Secretary of Defense makes less than 
$200,000, I think that might be an issue that you might want to 
raise. All right? Essentially, for all intents and purposes, 
Lockheed Martin is a Government agency, if you like--private, 
but a Government agency, virtually fully funded by the United 
States Government. Is it reasonable to say that they keep their 
CEO salaries in check? Or should the taxpayers be paying 
exorbitant salaries?
    Mr. Norquist. The taxpayers should be paying for the 
service that we receive, Senator, and if the----
    Senator Sanders. Do you think it is an issue worth looking 
at?
    Mr. Norquist. I do not know if the acquisition rules--
whether executive salaries falls within that scope.
    Senator Sanders. I think that they might.
    Now, let me ask kind of a dumb bunny question, if I might. 
The truth is everybody supports the Department of Defense. We 
all support the men and women in the armed forces. But as I 
mentioned earlier, we are now spending more than the next 12 
countries combined in defense. Against my vote, Congress just 
voted another $165 billion to go to the military. So here is 
the question: Who is our enemy? Who are we spending--we know 
that there are threats out there. We are all aware of 
terrorism. But I think the amount of money that we are spending 
fighting ISIS, for example, is relatively small. Who are we 
preparing to go to war against or defend ourselves from?
    Mr. Norquist. Senator, the Secretary of Defense outlined in 
the National Defense Strategy the challenges that we face. Part 
of the emphasis in the strategy was the shift from a focus on 
terrorism to great power of competition with a particular 
emphasis on the long-term challenges of China and Russia. It 
refers to both of those as opportunities for peaceful 
competition, deterrence, and then the ability to prevail in a 
conflict, should we have to. The strategy has both a classified 
and unclassified option, but it lays out and goes through the 
challenges that we face.
    Senator Sanders. So we are spending hundreds of billions of 
dollars defending ourselves from China while major corporation 
after major corporation is shutting down in the United States 
of America and moving to China. Anything incongruous about 
that?
    Mr. Norquist. So I think the White House and the President 
and others have talked about the competition expanding beyond 
defense. My expertise is more in the defense side.
    Senator Sanders. Okay. Thank you very much, Mr. Chairman.
    Chairman Enzi. Thank you, Senator Sanders.
    Senator Kennedy.
    Senator Kennedy. Thank you, Mr. Chairman.
    Has the audit begun?
    Mr. Norquist. Yes, Senator.
    Senator Kennedy. Okay. I want to thank both of you and I 
want to thank President Trump for doing what the law directs 
you to do.
    Under the 1990 statute, what position--not what person but 
what position at the Department of Defense was responsible for 
initiating the audit?
    Mr. Norquist. The audit, I am not sure how the language is 
phrased. The audit is conducted by the IG, and then----
    Senator Kennedy. No. Who is responsible at DoD under the 
1990 statute for saying, ``I have read the law; we are going to 
start this audit''? What position?
    Mr. Norquist. My belief would be, since it is called the 
``CFO Act,'' it would be the CFO or the Secretary, depending on 
how the language is written.
    Senator Kennedy. Okay. Would you get me the name of every 
CFO who has served at the Department of Defense since this 
statute was passed?
    Mr. Norquist. I can do that, Senator.
    Senator Kennedy. Okay.
    Senator Kennedy. I do not know where to begin. Senator 
Corker is kind of the conscience of the Senate on our deficits, 
and I first heard him speak about the fact that the Department 
of Defense had never been audited at a meeting and, frankly, I 
thought he misspoke. I could not believe it.
    I cannot explain this to my people back home, every single 
one of whom supports a strong defense. But when I tell them 
that every other agency in the Federal Government undergoes an 
audit but the Department of Defense, and it was required to do 
it 18 years ago and still has not done it, they think I belong 
in a straitjacket. I just found this--how did it go on 18 
years? Didn't somebody ever call the CFO and say, ``Have you 
started the audit yet?''
    Mr. Norquist. I will try and attempt to answer the 
question, though I come from your perspective, which is I 
viewed the audit as essential, as something we needed to start, 
and in my prior experience at DHS, that is exactly what we did. 
We had an audit from the moment DHS was created.
    I think the types of answers you will hear is: It is large, 
it is complex, it will take longer than the tenure of the 
person there.
    In my mind, those are arguments to start, not arguments to 
wait. There are some mechanical things you had to put in place 
to make it worth starting the audit. There are things that if 
you are not even able to answer the sample requirements of the 
auditor, they cannot even begin, and the Department, having not 
been set up that way, needed some time to do that.
    I say this not to explain it but because I recognize and my 
perspective is we ought to have started. And I am glad at least 
that in the transition of administrations, the contracts were 
set in place that allowed us to begin now rather than waiting, 
putting out contracts, and not getting the benefit of the audit 
for a few more years.
    Senator Kennedy. Well, let me put it another way. I have 
read that the Department of Defense has more Federal contracts 
than all the other agencies in the United States Federal 
Government put together. Is that right?
    Mr. Norquist. I do not know. I do not know if that includes 
grants or not, but it may be----
    Senator Kennedy. Well, what----
    Mr. Norquist [continuing]. Discretionary budget.
    Senator Kennedy. If I ask you for a list of all the 
contracts and the amount, could you give it to me?
    Mr. Norquist. So that is something that we are building 
called ``the universe of transactions.''
    Senator Kennedy. You could not give it to me?
    Mr. Norquist. Not easily. It was a very long list.
    Senator Kennedy. We do not even know how many contractors 
we have?
    Mr. Norquist. Let me back up. There is a requirement that 
the Congress has put on the Department and others to publish--
USAspending.gov--that type of information. And so you will be 
seeing that is part of the emphasis on the audit, is putting 
the accuracy of that data out there.
    Senator Kennedy. Let me interrupt you because I have only 
got a few more minutes. I see where you expect to spend $367 
million this year to conduct the audit and an additional $551 
million to fix the problems. Now, how do you know it is going 
to cost $551 million to fix the problems if you do not know 
what the problems are yet?
    Mr. Norquist. I do not know how much it will cost to fix 
the problems. I know how much the services have set aside to 
start to take the problem on, and so we have been able to break 
it out according to how much the Army, the Navy, and the others 
are going to be spending on fixing problems. How long it takes 
them remains to be seen.
    Senator Kennedy. Well, we have got clearly some people, 
some hogs who have all four feet and their snout in the trough. 
And we have got to find out who they are, gentlemen. And we 
need to pass legislation to require this to be done and say 
make it criminal, if it is not done somebody goes to jail, or 
at least somebody is fired. I would appreciate your advice on 
that. I cannot explain this to my people. I cannot.
    I am sorry I went over, Mr. Chairman.
    Chairman Enzi. Okay. Senator Kaine.
    Senator Kaine. Thank you, Mr. Chair. Thanks to the 
witnesses. I associate myself with most of the comments that 
have been made. Senator Corker's sense of what is wrong with 
the culture, I had the same feeling. I am an Armed Services 
Committee member. I joined the Committee in January 2013. 
Senator King joined with me. I think of the other Budget 
Committee members. I also think Senator Graham was on the 
Committee at the time. And I am a numbers geek. I was a mayor 
and Governor and was used to audits and financial statements. 
And we were stunned to get on the Committee and find, the 1990 
statute notwithstanding, that the Pentagon had not made greater 
progress. They were trying to become audit-ready at the time, 
but there was not really a meaningful calendar in terms of 
auditability.
    We passed as part of the defense authorizing act that 
year--it was the 2014 NDAA that we worked on in Committee--the 
timetable that you are now on to require the audit to be done 
under this timetable. We should not have had to do it. It 
should have been done long before. But it is good to see you 
making the progress that you are making.
    I think the written testimony is very helpful. You, Mr. 
Norquist, talked about the scope of this audit, and it is a 
beginning audit. It is going to find a lot of things wrong, and 
it is not as broad as subsequent audits may be. But the 24 
audits and then the single sort of consolidated audit, they are 
all underway right now.
    I would encourage--you did not do this in your verbal 
testimony, it would have been hard, but I would encourage 
colleagues to look at the chart on page 6 of Mr. Norquist's 
testimony which sets out the timeline of what is to be expected 
here over the next few months.
    There was one item on the timeline that I did not 
understand, and I am sure it has probably got a simple 
explanation, but it is forthcoming. On Page 6, ``March 2018, 
Submit NDAA Ranking Report to Congress.'' Obviously, on Armed 
Services we are working on the NDAA right now, so I am assuming 
it is some report that is coming out of the audit work that 
could be helpful to us as we are working on--fiscal year 2019 
NDAA? Is that what this report is?
    Mr. Norquist. What the Committee asked us to do was to rank 
the components by the progress they have made. So of those 24 
agencies, 8 of them already have a clean opinion. They went 
under audit early on and did it, so those would clearly be 
ranked at the top.
    Senator Kaine. I thought it was nine, but it is eight that 
have----
    Mr. Norquist. There may be nine total. Then there are some 
that have modified opinions.
    Senator Kaine. Right.
    Mr. Norquist. Then you have a got a range of them that have 
been audited for a couple of years, but do not have a clean 
opinion yet. And then the largest, Army, Navy, and Air Force, 
this is the year they start. So what we have been asked to do 
by the Committee is to rank progress, and we will do that every 
year so you can start to see--and the idea that the Chairman 
mentioned, an easy-to-see format, who is making the most 
progress on closing those open findings.
    Senator Kaine. And I think that is very, very important. 
This will be really the first NDAA where we will be able to 
take in this audit work that is being done functionally and 
really use them as part of the NDAA that we write, and that 
will be enormously helpful.
    The one point of disagreement I had with my colleague 
Senator Corker is when he quickly said, ``I do not care about 
Congress. I want to ask about the Pentagon.'' My sense is we 
are not here because Congress has not insisted on it. And we 
have not insisted on it with the Pentagon. You know, the 
Pentagon every year, under Presidents of both parties, will 
submit a budget request, and Congress will give them more than 
they ask for. And I think it is sort of the same phenomenon 
here. We have insisted upon it with others, but not until the 
NDAA really put it on the calendar in 2014, which was 24 years 
after the 1990 act, have we started to insist on it. And I 
think that is obviously important that we continue to insist, 
and I think you are hearing a bipartisan agreement around the 
table that we should.
    Just quickly, to conclude--but, again, I think that 
timeline is very helpful. Your conclusion is important. I 
anticipate the audit process will uncover many places where our 
controls or processes are broken. I think that is true. There 
will be unpleasant surprises. The DLA audit already showed 
some. Some of these problems may prove frustratingly difficult 
to fix. I think we have to be prepared for all of that. We are 
going to get a lot of bad news out of these audits if we do 
them right.
    Mr. Norquist. Right.
    Senator Kaine. If we do not do them right, maybe it will be 
nice news. But if we do them right, we are going to get a lot 
of bad news. But that is important for us to get the bad news 
so that we can then--you know, your answer to
    Senator Kennedy's question, How do you know the fixes will 
cost $530 million? You do not. You have no idea what the fixes 
will cost. That is just what is set aside. But there is 
enormous upside opportunity in here for us. If you spend money 
on the wrong things, then you may be underfunding the right 
things. Or you may be, you know, using tax dollars that you 
should not be using, that should go to some other purpose or to 
the taxpayer. So this is an important thing.
    I do want to close on this. You mentioned it is not just 
about cost, it is about operations. And if I might, Mr. Chair, 
just for like 30 seconds, an audit is not going to tell you--an 
audit is not the same thing as effectiveness. We had a hearing 
yesterday about air power on the Navy side in the Seapower 
Subcommittee of Armed Services, and we talked about lessons 
learned on the F-35. We asked Admiral Grosklags, who is the 
head of naval air power, ``Has it been worth it?'' And he said, 
``Fantastic capacity.'' But he just groaned. He said, ``We 
should have had it 10 years ago.'' And we said, ``What are the 
lessons learned?'' You know, the cost overrun and delay. And he 
said part of it was, you know, putting in new technological 
requirements on the software side of the F-35 has proven very 
difficult, but the other part is we tried to do something a 
little creative. Let us build a platform that can be used by 
the Air Force, Marines, Navy, and Army and take all of their 
specifications into account. And let us cost-spread by trying 
to build one that we can sell to NATO allies, too, so there 
will be interoperability.
    But what that ended up doing was create a decision making 
process that was a complete morass when you are trying to 
satisfy four service branches and allies as you are in design. 
It turned it into a decision making nightmare. And so did we 
get some economies of scale? Maybe. Did we get some 
interoperability? Yes. But the delay and the cost overrun as a 
result. The audit will not necessarily answer all of our 
effectiveness questions, and so we need to have a realistic 
expectation about what it will show and what it will not show. 
But it is necessary, and I appreciate it.
    Thank you, Mr. Chair.
    Chairman Enzi. Thank you.
    Senator Perdue.
    Senator Perdue. Thank you, Mr. Chairman. And thank you both 
for being here.
    I echo and support most of what has been discussed today. I 
am chagrined that it has taken this long to get us to this 
point. I just have a quick question, Mr. Norquist. How long 
will it take us to actually get a clean opinion and identify 
material weaknesses, deficiencies, significant deficiencies, et 
cetera? When will we get a clean opinion?
    Mr. Norquist. Senator, I do not know.
    Senator Perdue. What is the range of expectation?
    Mr. Norquist. So the benchmark I use is the last assignment 
I had at Department of Homeland Security, it took them 10 
years. The numbers of weaknesses came down steadily so you 
could see the progress, but there were typically one or two at 
the end that took some time.
    Senator Perdue. But it is your expectation that this year 
we will have an estimate of the number of material weaknesses, 
deficiencies, significant deficiencies, et cetera, that the 
remediation you are talking about could take 10 years. But how 
long will it take us to determine what work we have to do to 
remediate?
    Mr. Norquist. You will know the bulk of that this fall when 
the auditors finish their first audit, but I would anticipate 
that, in the second year, they will be able to go deeper and 
may uncover more things. So I think over the first 2 years we 
will have seen the vast majority of the findings that they will 
have.
    Senator Perdue. So I am just a dumb business guy, but the 
DoD is not that much bigger than our largest public 
corporations. I just cannot imagine Walmart calling the SEC or 
the IRS and saying, ``I am sorry. The quarterly statements are 
not going to be in this quarter.'' Ten years is outrageous. 
That is too long. We have got to find a way to close that down. 
There is no public corporation in the world that would be 
allowed by this Federal Government 10 years to remediate. It is 
just not--it would not happen. It is not necessary. And I want 
us to address that in a future conversation, Mr. Chairman.
    The second thing is I want to talk about Congress. There is 
one very easy reason to explain why it has taken 28 years. 
Congress did not do its job. It passed a law and then did not 
do anything to enforce it. And all the excuses that were used, 
from systems inadequacies to no chart of accounts, were just 
unacceptable and should never have been accepted. But that is 
water under the bridge. I want to talk about going forward.
    What have we learned--Senator Whitehouse talks about $1.7 
trillion being spent. The reality is in the last decade, about 
a third, just a little less than a third of what we have spent 
as a Federal Government has been borrowed money. That means in 
the next 10 years the current forecast, if we continue to add 
debt the way we have added it the last 10 years and the way the 
current budget says we will over the next decade, about a third 
of what we spend will be borrowed. That, by definition,--if the 
first dollar goes to mandatory expenses, which it does, that 
means that every dollar that we spend in discretionary 
spending--that is DoD, VA, and about $350 billion of total 
other discretionary domestic spending--is all borrowed money. 
That means that every dime we spend at the DoD, we have to go 
to China and borrow.
    So we have these situations around the world, these 
bilateral agreements, like Taiwan, to defend Taiwan against 
China, we have to go to China and borrow the money to go to 
Taiwan and do that. This is how serious this is and home time-
sensitive.
    My question is: When we talk about procurement--and a lot 
of these contracting relationships are dealing with 
procurement--I believe that the procurement process and the CR 
impact, the CR reality of a broken budget process, adds to 
that. When you do these audits, are you going to measure the 
impact of continuing resolutions on the procurement process and 
the billion dollars of waste that are found there or are to be 
found there?
    Mr. Norquist. So the audit itself does not directly do 
that, but what it allows us to do, because of the type of 
information we get out of the audit, is to drill down into 
exactly those types of questions, because you will have the 
transaction level data that will let you look at the effect. 
And when you----
    Senator Perdue. Right, I get that. So as I understand it, 
there is no common chart of account, so that will take a while 
to develop that as well, and even the system inadequacies that 
do not allow different parts of the DoD to talk to you is a 
hindrance. I get that, and that is part of the delay.
    We want to know, if you run into those problems or 
obstacles, we need to know those on the front end.
    Mr. Norquist. Absolutely.
    Senator Perdue. Because 10 years is just too long to get 
there.
    I want to talk about the sequester and also the fundamental 
measurement of the effect of not having a capital budget. We do 
not have a capital budget, Mr. Gibson. I know you answered the 
question earlier about normal operation procurement. I get 
that, ongoing replenishment of ammunition and supplies, et 
cetera, et cetera. But in these big-ticket--we are going to 
spend $26 billion a year for 10 years to basically recap just 
the Navy. That is the current estimate. And my concern is, if 
that $26 billion then goes to 4X or 5X like the past decade 
did, we are talking about numbers that are unattainable. And so 
my concern is: Are we in this audit looking at the procurement 
process and finding the inadequacies in there to recommend 
changes in the way Congress deals with funding of the 
Department of Defense? There is no capital budget; therefore, 
we do it on a cash-flow basis, which nobody else in the world 
does. And that adds billions and billions and billions of 
dollars to our procurement process, over and above overdesign 
and design creep. Those are all real. No question about it, and 
we have talked about that. But the one thing that I think as a 
business guy looking at this, I think the bigger contribution 
is to say we do not deal with this in the capital budget format 
and the limitations we put on the funding from the Federal 
Government create this tremendous opportunity to waste money on 
the procurement process.
    Would you respond to that, Mr. Norquist?
    Mr. Norquist. Sure. Senator, the way the information is 
currently stored, you do not have what you need for a capital 
budget. But when you look at what the audit standards require, 
valuing your assets, depreciating and so forth, that gives you 
the basis, and so one of the questions for Congress becomes: 
When you have that type of information, do you want to change 
the way that you manage the funds? But you would not have that 
to do today, but over the audit you will buildup exactly that 
type of information.
    Chairman Enzi. Thank you.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. And welcome to 
both witnesses. And I want to associate myself with a lot of 
the comments that have been made by my colleagues.
    My question relates to the overseas contingency operations 
account, OCO. As you know, we have funding in the base defense 
budget for ongoing operations, which we expect to go on, you 
know, for the indefinite future. And then we have the overseas 
contingency operations account, OCO.
    There has been great concern on a bipartisan basis that OCO 
over the years has been used as a slush fund because OCO has 
not been subject to the budget caps that have been placed on 
both defense spending and nondefense spending. In fact, when I 
was in the House of Representatives, I teamed up with Mick 
Mulvaney, a conservative Member of the House, now the Director 
of OMB, and we put language into the 2016 defense authorization 
bill asking the Defense Department to adopt OMB standards at 
that time for what constitutes OCO funding and what is overseas 
funding.
    Since then, in January 2017, GAO issued a report 
recommending that the Department of Defense work with OMB to 
develop criteria. And since then, in 2018, in fact, in the 
defense authorization bill we passed, the Congress instructed 
the Department of Defense to develop these criteria by 
September of this year.
    Are you on target for providing those criteria to the 
Congress?
    Mr. Norquist. We have developed criteria that we have 
worked with at OMB to go through the OCO. Consistent with your 
previous discussions with Director Mulvaney, you will not be 
surprised to know that in the out-years he would like us to 
shift those categories so even fewer of them count as OCO and 
more of it is in base, and only the most incremental of the 
costs show up, which would dramatically reduce the size of the 
OCO. But, yes, we have worked with OMB on those criteria.
    Senator Van Hollen. Great. And once you develop those 
criteria, would you have any objection to the Congress 
codifying those criteria so that we can avoid any sort of 
monkey business in slush funds in the future?
    Mr. Norquist. I would have to defer to OMB on the effect of 
trying to turn that into legislation.
    Senator Van Hollen. Okay. Let me just talk a little bit 
about the whole overseas funding effort, because we all wake up 
to tweets these days from the President of the United States, 
and a few weeks ago he tweeted this: ``This will be a big week 
for infrastructure. After so stupidly spending $7 trillion in 
the Middle East, it is now time to start investing in OUR 
Country!'' That was the President's tweet.
    Are you aware of how much the Trump budget calls for in 
overseas contingency account spending for the next 10 years, 
both on the defense side and the smaller portion of the State 
Department?
    Mr. Norquist. I am familiar with the defense numbers. They 
are around $71 billion in, I think, the 2018. Then there is a 
similar number in 2019. And then they shift to move the 
sustainable costs, the things that are really not incremental, 
into the base. And then I think it sits at about $20 billion a 
year for the next 5 years after that.
    Senator Van Hollen. All right. So----
    Mr. Norquist. Those are place holders, of course, because 
you do not know where the conflict is headed.
    Senator Van Hollen. Right. So a certain amount of that 
spending, as I read the budget, based on strategy over the next 
coming years----
    Mr. Norquist. Correct.
    Senator Van Hollen. I hope someone will point out to the 
President of the United States that when I add it up, it comes 
to $447 billion over those 10 years, which is more than twice 
as much as he asked for in his infrastructure plan. He asked 
for $200 billion a year for our country's infrastructure, as he 
put it. He is asking twice as much for what he referred to in 
the tweet as ``stupid'' overseas operations. I hope someone 
will bring that to the attention of the President next time he 
decides to tweet.
    Let me ask you about the out-years, because you have, as 
you indicated, the OCO funded at $66 billion through fiscal 
year 2022, I believe--fiscal year 2022, 2023. And then after 
that, as I see it, it goes to $20 billion a year----excuse me, 
$10 billion per year after that. As you say, it is a place 
holder.
    Is there any basis for choosing $10 billion? As Senator 
Corker said, these numbers quickly add up over time, much more 
than anticipated. You are dropping it from $66 billion in 
fiscal year 2023 to $10 billion in fiscal year 2024. Over a 10-
year budget window, that is a savings of $560 billion, right, 
if we drop back? My question is: What is the criteria you used 
to come up with the $10 billion as you look forward and 
mention, you know, the Strategic Plan with respect to China, 
Russia, and the other threats that may be out there?
    Mr. Norquist. So our budget looks out through 2023 and is 
based off more or less a static projection. So we will adjust 
as the combatant commanders' requirements change on what is 
required for those. I believe beyond the 5-year window is an 
OMB estimate based on where they think its direction is 
heading.
    Just to clarify, on the original submission we built for 
the budget, the expectation was around 65 going out. That is 
the next 5 years is the number OMB wants to shift more to base 
and only leave 20 in OCO so there is less of it that is in that 
contingency fund.
    Senator Van Hollen. Right. No, I think that is a good idea 
to put more in base if it is really base money. The net effect 
of that is to obviously reduce the overseas contingency--again, 
I just wondered if there was any strategic basis for that big 
drop, so we will follow-up with you.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Cotton.
    Senator Cotton. Thank you, Mr. Chairman.
    Thank you, gentlemen, for your appearance here today. A lot 
of the questions and answers today have focused on the past and 
what has happened in the past and why we are where we are today 
in 2018 without an audit. Both of you are relatively new to 
your positions, and we appreciate your commitment to completing 
that audit, so let us look forward.
    Can you tell us, Mr. Norquist, in just the simplest, 
briefest terms, what do you hope to accomplish with the 
completion of this audit?
    Mr. Norquist. I hope to accomplish three things:
    The first is to be able to put more relevant and timely 
information in front of senior decision makers so that when 
they are trying to make decisions about the organization, they 
have relevant data.
    The second is to provide insights to the reform efforts 
where we discover broken processes or things where we can save 
money by changing the way we operate.
    And the third is to be able to make great user of data 
analytics because we will be able to rely on the underlying 
data. And there is, of course, the underlying transparency 
requirement to the American people and Congress.
    Senator Cotton. Mr. Gibson.
    Mr. Gibson. Senator, I find the audit incredibly beneficial 
to what we are working. As Mr. Norquist said, the data is 
incredibly valuable. We are looking at putting in cost analysis 
tools so that once you have the good data, whatever the user 
and the operator is can have good cost assessments so they can 
then place assets where they need to be and manage those that 
do not fit within the zone.
    The second is the systems themselves. What we find is that 
often contributing to some of the weaknesses are poor systems. 
This fits right into one of our significant areas of reform, 
which is IT. I think we can contribute there, and, again, that 
contributes overall to good business processes.
    And last is the ability through this process to discover 
areas that the weaknesses translate into truly discovery of 
good information. Already we have had discussions about how the 
spares are managed in the Navy. You look at ammunition in the 
Army. Just two good examples of once we have better clarity 
there, we can then better manage each of those, both from a 
financial standpoint but then those directly contribute to 
readiness.
    Senator Cotton. So the final point of your answer there, is 
that what it means to a private who is out on the front lines 
today in Afghanistan or Iraq, that he is going to have maybe a 
little more training, maybe a little faster access to parts or 
ammunition, what have you? Mr. Gibson. I think the answer is 
definitely yes. All of this contributes really to the 
Secretary's first priority, which is lethality.
    Senator Cotton. Okay. And, Mr. Norquist, you were nodding 
your head in vigorous agreement, for the record.
    Mr. Norquist. Absolutely. Yes, you order a spare part, you 
know it is in inventory, you know when you are going to get it. 
You are able to keep your maintenance up when you need to and 
be ready.
    Senator Cotton. What do we think is the potential magnitude 
of the savings that this could ultimately yield for the 
Department?
    Mr. Norquist. I think you will see savings in three types, 
and for the middle section I will defer to Mr. Gibson.
    In the financial side, when we automate things that are 
currently manual, you streamline the accuracy, you reduce the 
cost. Those will not be enormous numbers, but they will be 
valuable and sustained numbers. There will be efforts that will 
drive reform. And then I think the third one, which is an 
unknown, understated value of the audit, is Congress passed a 
law on information security standards. The auditors check 
those. They do cybersecurity testing of each of our business 
systems. When they find weaknesses, that is not a dollar 
saving, but it is enormous cost avoidance if somebody is not 
able to break into your payroll system, your logistics system, 
and others. And I think there is an upside. But let me defer to 
Mr. Gibson on the reform.
    Senator Cotton. Before we go to Mr. Gibson, let me just put 
two numbers on the table.
    Mr. Norquist. Sure.
    Senator Cotton. The 2019 budget request suggested that 
internal business reforms could save a little over $6 billion. 
A 2015 Defense Business Board report, which essentially said if 
you ran the Department like a business--and that would mean 
eliminating virtually all of the civil service work rules, 
which I do not think many members of this Committee or this 
Congress would support. But if you eliminated all those legal 
requirements, you would save about $25 billion a year. So I 
will put those numbers on the table and, Mr. Gibson, turn to 
you. You can follow-up on what Mr. Norquist said. But I also 
would like to get a sense, could the results of this audit 
yield savings of that magnitude, or larger, $6 billion 
according to the Department's request, $25 billion according to 
the 2015 Defense Business Board?
    Mr. Gibson. Well, Senator, let me attack a couple pieces of 
those separately.
    One, I think we have laid in $6 billion, and then OMB has 
laid $46 billion across the FYDP. We are very comfortable that 
we will meet or exceed those numbers. And then directly, as to 
the audit, the audit is, as I mentioned earlier, a great tool 
to help us get there, but it is in addition to other reform 
initiatives.
    And then, last, on the DBB, I can tell you I fully embrace 
what they have suggested. We actually took some of the 
specifics there where they said focus on what is known shared 
services areas, put teams in place, and go after that. We have 
done just that. We actually added three additional areas to 
what they suggested.
    And then the last part of that, I think that while we go 
after shared and common corporate type services, we always have 
to remember our main mission is the lethality of who we are. We 
also have to incorporate the fact of security of what we do, 
and that impacts inventories and supply chain and logistics. 
And then, last, very simply, we are in a more regulated 
environment than the private sector. But it should not be lost 
that the spirit of what that report did we fully embrace, and I 
think it has great value to us.
    Senator Cotton. Thank you for those answers. Six billion 
dollars in a year, $46 billion over the 5-year defense plan 
would be great. I just have to point out that we just increased 
the defense budget by $85 billion, though, in 1 year, and that 
is the result of 7 years of living under the deeply flawed 
Budget Control Act. So I admire you for taking on a very, very 
big task, but it is really Congress' responsibility here to fix 
this problem.
    Chairman Enzi. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman.
    Let me ask you a question, if I could, Commissioner 
Norquist. This issue of auditing the Pentagon is the longest 
running battle since the Trojan War. It has gone on and on, and 
it comes now in the context, as Senator Cotton made, you know, 
$85 billion more for the Pentagon, and we have got a budget 
that is going to cut Medicare and Medicaid. So you have to put 
this in that perspective as you face these issues.
    When I was reviewing your testimony, one sentence really 
leaped out at me. You said in your testimony that it is going 
to take time--your words--to move from qualified audits to 
clean audits. So I would like to know, are you telling the 
American people with that statement that maybe it is going to 
take another 20 years to move from failed audits to clean 
audits? How would you explain this to the American people? How 
long is this going to take?
    Mr. Norquist. Not knowing the findings, I do not know how 
long it is going to take. I can give you some----
    Senator Wyden. How about an estimate? The public at least 
deserves some kind of estimate.
    Mr. Norquist. So the only benchmark I can use is Homeland 
Security took 10 years, and part of the reason that makes this 
a bit of a challenge is when you think about the money the 
auditors are talking about, they are not talking just about the 
money Congress appropriated in 2017. The procurement money that 
Congress awarded 8 years ago was available for the first 3 
years to obligate and 5 years to disburse. The auditors are 
welcome to pick any transaction going back over those 8 years 
and ask us to document and support those transactions. So when 
you look at old military equipment, the ability to provide 
valuation in historical records, my concern as the CFO is there 
are some of these choices that I do not know that the 
information that we will get is worth the expense I would 
spend, and so I would want to come back to you and say this 
piece of equipment is going to go out of inventory in 3 years. 
Do you want me to spend a lot of time valuing or, or do you 
just want to let it roll out of our inventory, its materiality 
is going to decline?
    Senator Wyden. At my town hall meetings this weekend, when 
people are going to ask about waste and compare, as I have 
done, various items in the budget, I think based on your answer 
I have to tell Oregonians that it is going to take more than 10 
years, based on the fact that you compared it to something 
else, to move from failed audits to clean audits. Is that 
correct? That is a yes or no answer.
    Mr. Norquist. To get all the way to the clean opinion, 
which requires fixing virtually everything, that may well be 
true. But the benefit of the audit we will start to get right 
away.
    Senator Wyden. I am going to take that as a yes, that it is 
going to take more than 10 years to get to a clean audit. And I 
would really like just a yes or no answer, because the public, 
it seems to me, deserves that at this point.
    Mr. Norquist. Absolutely, Senator.
    Senator Wyden. Is that right, over 10 years?
    Mr. Norquist. Yes, Senator.
    Senator Wyden. Okay. Let me ask you one other issue. We 
have had several policy analysts over the years tell us that 
they do not think the auditors are going to uncover new 
inefficiencies of a great magnitude. Now, what is striking 
about that is if an analyst says they are not going to find 
many things that are that inefficient, why is it going to take, 
by virtue of your last answer to me, more than 10 years to get 
a clean audit? I am kind of trying to reconcile these two. So 
do you agree that not very many inefficiencies are going to be 
found?
    Mr. Norquist. Again, we have not had the results of this 
first audit.
    Senator Wyden. But what is your opinion now based on the 
fact you have worked in this field for quite some time? What is 
your opinion today?
    Mr. Norquist. That you will find places for savings, that 
you will find things that you can automate to improve the 
accuracy of the data, that you will find chances to improve 
inventory that will save you money.
    Senator Wyden. A lot of inefficiencies or a small number?
    Mr. Norquist. I would not have a way of saying at this 
point, Senator.
    Senator Wyden. I am going to hold the record open because I 
would like your best estimate on that, because obviously that 
goes to the question of again trying to explain to people why 
this is taking so long. Everybody else in Government gets 
audited. Businesses get audited. It really is the longest 
running battle since the Trojan War.
    And, by the way, I want it understood, you are walking into 
this. This is not your doing.
    Mr. Norquist. Right.
    Senator Wyden. But you are going to be the point person on 
this, and that is why I have asked, I think, a little bit more 
pointed questions, because the public's frustration on this 
point is enormous.
    Thank you, Mr. Chairman.
    Chairman Enzi. Senator Boozman.
    Senator Boozman. Thank you, Mr. Chairman. And thank you all 
for being here. We do appreciate you all taking this on. This 
is a huge task. It is so, so very important. I appreciate the 
emphasis on the business practice reform approach that you are 
taking, and certainly your work on the audit is going to be so, 
so vitally important, the key enabler to ensure discipline 
metrics that we need to enact reform. And I appreciated the 
three things that you are going to get done.
    On the other hand, you know, you are going to hold people 
accountable, and I know our Chairman and Ranking Member very, 
very well, and I think I can speak for them and the Committee 
that we are going to hold you accountable in the sense that you 
have taken this on. It is a huge deal.
    As you have heard from the Committee, there is a lot of 
frustration in this area. There is a lot of frustration not 
only in this Committee but throughout Congress. And so we are 
going to get this done in a timely fashion.
    Now, the services had an audit, and I do not think they 
have been completed for various reasons or whatever. But the 
auditors got in there and made a lot of recommendations, 
hundreds of recommendations. What have you learned from the 
service audits, Air Force, Army, whatever, Navy? Was there 
anything to be gleaned there that you can use?
    Mr. Norquist. Yes, Senator, there were a couple of things. 
One of the overarching findings was that there is often a gap 
between what management believes is being done based on the 
policies that were issued, expecting that those policies are 
being followed. Then you go into the field and you discover 
either the field is not or cannot operate according to those. 
That information gap the audit closes and allows you to 
recognize either we have got to change the policy or we have 
got to change the way we operate. And so that is a valuable 
tool that lets you bring better controls in.
    There are some places we have seen where the----
    Senator Boozman. So are we able to go ahead, you know, and 
follow-up on that right now? Are we starting already?
    Or do we have to wait for a timeline to----
    Mr. Norquist. No, this is the point I wanted to try and 
follow-up with the Senator, which is we will get those findings 
each year. We will start the corrective action plans right 
away. What we need to do is prioritize those. There will be 
some things where the benefit to the taxpayer and the American 
people is quite high; you want to get to those sooner. There 
are the other ones where it is an accounting entry. I know it 
is important from an accounting point of view, but it will not 
save money, and you want to be cautious about how much effort 
and money you spend trying to achieve that goal. And so we will 
want to strike that balance.
    Senator Boozman. Okay. So go ahead. I interrupted you. Are 
there other things that you learned that----
    Mr. Norquist. So inventory records and making sure the 
accuracy of those. I think, you know, the Army found Black Hawk 
helicopters that had been delivered but had not been yet loaded 
in their property system. The person there may have known it, 
but if the Army did a search, it would not have shown up in the 
property. Air Force looked at 12 facilities and found 
approximately, I think it was, 400 buildings and structures. 
Again, the people in the building knew they were there, but if 
you did a look at how much do I need to do to do maintenance on 
my buildings, you would not have had that in the data call. So 
those types of issues and some of the inventory issues showed 
up at DLA. The accuracy of that effects a better operation and 
it enables reform.
    Senator Boozman. Good. Mr. Gibson, the fiscal year 2019 
defense budget submission indicates an expectation of saving 
$2.9 billion from ongoing reforms, including reforms in health 
care management. Can you give us some examples? Can you talk a 
little bit about health care management and some of the ways--I 
mean, that is such a huge issue for not only the Department of 
Defense but for the country in general. Do you have any ideas 
about efficiencies or savings in that regard?
    Mr. Gibson. Yes, Senator, we are looking at this in two 
ways. There is the larger--I believe it is driven by the 702 
requirement to look at health care. We have taken the 
opportunity to step back and work with the services and with 
DHA to say what is the optimal way to truly organize the 
relationships. The services are responsible for providing a 
ready medical force, and the DHA provides the facilities and 
support to get there. That is the easy part.
    The hard part is defining the roles and responsibilities 
and how we would roll that out. But we are in the middle of 
that right now. The goal is to end up truly with the services 
having the ability to provide a ready medical force in the most 
efficient and effective manner and be able to support the rest 
of the medical system also using the private sector and 
Government resources.
    Another way we are attacking this, sir, is we have a health 
care team, and that cross-functional team then looks at 
specific projects which are enterprise-wide. It could be 
management of pharmacy services. It could be reimbursement from 
third parties. Frankly, it could be common buying of 
professional services. And those we know are relevant across 
the enterprise. We are looking at those and implementing those 
immediately to effect savings.
    Senator Boozman. Good. Thank you very much. And we do 
appreciate you and your teams for their hard work.
    Thank you, Mr. Chairman and Senator Sanders, for holding a 
very, very important hearing.
    Chairman Enzi. Thank you.
    I think Senator Sanders and I have some additional 
questions. Senator Sanders?
    Senator Sanders. Thank you, Mr. Chairman.
    Mr. Chairman, I kind of thinking that the elephant in the 
room here is the relationship of the DoD to defense 
contractors. I think that is the area that needs most research. 
And in that regard, I want to touch on three subjects.
    Number one, I want to get back to this issue of CEOs' 
salaries. Two out of the top four defense contractors have CEOs 
that make at least $20 million a year, despite the fact that 
over 90 percent of their revenue comes from the Federal 
Government. Okay? I worked hard and successfully with others to 
make sure that workers who work with Federal contractors get at 
least a minimum wage above $7.25 an hour. We brought it all the 
way to a bit $10.10 an hour. But we said if you are working for 
a contractor who is being paid by the Federal Government, you 
should not get a starvation wage.
    I would like a report from you as to what you can do to say 
to CEOs of defense contractors that it does not make a lot of 
sense that they are making now 100 times more than the 
Secretary of Defense.
    Now, I am aware that $20 million is a small part of these 
multi-billion-dollar contracts. But I do think it sends a 
message. If a corporation gets the overwhelming percentage of 
its revenue from the Federal Government and gives its CEO a 
large salary, it tells me they are going to do a lot of other 
things to ignore the needs of taxpayers. I would like you to 
get back to me with some ideas as to how you can negotiate with 
these large defense contractors and tell them that they should 
not be paying their CEO 100 times more than the Secretary of 
Defense gets. That is number one.
    Number two, that leads me to the issue of defense 
contractor fraud. Since 1995, Lockheed Martin has paid over 
$767 million in fines or related settlements for 85 instances 
of fraud or misconduct, and since the year 2000, Lockheed 
Martin has taken in more than $550 billion in Federal 
contracts. Some of the fraud and misconduct that Lockheed 
Martin has engaged in over the past two decades includes unfair 
business practices, contractor kickbacks, defective pricing, 
emissions and groundwater cleanup violations, nuclear safety 
violations, Federal election law violations, procurement fraud, 
and the list goes on.
    In 2007, Lockheed agreed to repay the Federal Government 
$265 million for overbilling on the F-35 program. And Lockheed 
Martin, I should not just point them out. They are one of many. 
What are we going to do after giving CEOs of these defense 
companies huge salaries, tell them that they cannot continue to 
rip off the American people? What strategy do you have to 
prevent future fraud? Is this an issue that we should be 
concerned about? It seems to me we should.
    Mr. Gibson. Well, Senator, I think waste, fraud, and abuse 
is always something that should be front and center. It is my 
understanding in the acquisition process we have a number of 
policies that must be followed, and there are checks and 
balances along the way.
    It is my understanding Ms. Lord is focusing on this not 
only with specific contractors but across the Department.
    Senator Sanders. Mr. Gibson, would it be fair to say that 
we have not been terribly successful up to this point, that 
virtually every major defense contractor has had to reach 
settlements or has been fined for fraudulent activities?
    Mr. Gibson. Well, Senator, I really do not have anything to 
base an answer on, whether it is success or failure. I think--
--
    Senator Sanders. Are you concerned that virtually every 
major defense contractor----
    Mr. Gibson. Senator, I would say that anytime we have 
waste, fraud, and abuse, I am concerned.
    Senator Sanders. All right. And can you tell me that this 
will be a major priority, that if a defense contractor 
repeatedly engages in fraud--and I have just listed some of 
what one company did--that maybe they should know that they 
cannot continue to get away with that with impunity?
    Mr. Gibson. Well, Senator, I know this is a priority of Ms. 
Lord, and I fully support and am willing to do what we can on 
our side to help her in achieving this. And I will certainly 
pass this along, your passion for this issue.
    Senator Sanders. All right. Which takes me to the third 
issue. We talked about CEO salaries. We talked about fraud. Now 
I want to talk about cost overruns. Let me read from the GAO's 
Assessment of Selected Weapon Programs, 2017:
    ``DoD currently has an acquisition portfolio comprised of 
78 programs costing a total of $1.46 trillion. Of this total, 
roughly $484 billion is due to cost growth above the original 
procurement estimate; $259 billion of this cost growth occurred 
after programs had already begun production.``According to 
GAO," many DoD programs fall short of cost, schedule, and 
performance expectations, meaning DoD pays more than 
anticipated, can buy less than expected, and in some cases 
delivers less capability to the warfighter.''
    We have got a major crisis there. What are we doing about 
it? Mr. Norquist, cost overruns.
    Mr. Norquist. So I think one of the challenges that you 
have with any of those programs is the disruption to the 
budget. If you are expecting a program to cost a certain 
amount--I am taking this from the perspective of CFO 
Comptroller--and it goes up over time, you are disrupting other 
plans and expectations you had. So we have organizations whose 
expertise is cost estimating and trying to bring more accurate 
discipline to the budgeting process so we have the----
    Senator Sanders. No, I do not think----
    Mr. Norquist. Then you have----
    Senator Sanders. Excuse me. I do not mean to--you know, I 
do not think that is the major issue. The major issue, if I 
sign you--if I work out a contract with you, you are going to--
I used to be a mayor, so we went out with competitive bidding. 
We had a contractor come in, and we are going to do the streets 
of the city of Burlington for $3 million. Then 3 months later, 
the guy comes in and says, ``Well, it is going to be $5 
million.'' We do not say, ``Hey, that is fine. It is going to 
impact our budgeting.'' We say, ``Sorry, that is not going to 
happen.''
    What are we doing to deal with these outrageous cost 
overruns?
    Mr. Norquist. I was just going to point to the--I was going 
to break down the type of challenges into three parts.
    Senator Sanders. Okay.
    Mr. Norquist. So the first one is on the Government side 
you made a wrong estimate as to what the work was going to 
cost.
    Senator Sanders. Right.
    Mr. Norquist. We can fix that, and we have organizations 
with that expertise to try and do that.
    Senator Sanders. What do you mean, we can fix that? If I 
tell you I am going to do something for $1 billion and I come 
back to you a year later and I say it is a billion and a half, 
what is your response to me?
    Mr. Norquist. So this is where we have to end up--and, 
again, we are in the contracting world, which is outside of 
financial management, so I apologize. The question becomes: 
What changed? If the answer was on the Government side I 
changed the requirement, then we think of that as requirements 
creep, and the answer is----
    Senator Sanders. Yes, Okay.
    Mr. Norquist [continuing]. Have I started to ask the person 
to do different things?
    Senator Sanders. Right.
    Mr. Norquist. And then it is: Was it a necessary 
requirement change or have we----
    Senator Sanders. What happens if I do--what happens if I 
have changed my requirement?
    Mr. Norquist. Well, if it is a firm fixed-price contract, 
for example, in the level at which I deal with it, the answer 
is you bid a price, that is what you are going to perform it 
for.
    Senator Sanders. Has the DoD done that, or have they----
    Mr. Norquist. We use firm fixed-price contracts, and we 
hold the vendors--I have to defer to our lead for contracting 
when she gets to talking about cost-plus and other contracts 
which are particularly challenged by the type of issue you 
raise.
    Senator Sanders. Is your argument that most of these cost 
overruns are the responsibility of the DoD who has changed the 
nature of the contract?
    Mr. Norquist. No, but it is one of the contributing 
factors. And so when you say what can you do about it, you can 
do better estimates, you can control costs, and then you hold 
vendors accountable. I think those are sort of the three lanes 
of how to break the problem down.
    Senator Sanders. All right. And what happens, tell me what 
we do when somebody says, ``Hey, sorry, you are going to have 
to give me more money for the same contract that I agreed to''?
    Mr. Norquist. So that is the contracting officer community, 
and actually I cannot speak to that well. So I would defer to 
Under Secretary Lord.
    Senator Sanders. Is that an important issue?
    Mr. Norquist. It is a very important issue, and so in the 
types of contracts that I deal with in the financial community, 
which are smaller, you are ending up with it is a firm fixed-
price contract; this is what you said you were going to do; 
that is where we are. So unless it is an issue, an error we 
made on our side, you are held accountable.
    Senator Sanders. Okay. I apologize, Mr. Chairman, but what 
I would like to get back from you is your ideas of what we can 
do about excessive CEO salaries.
    Mr. Norquist. Yes.
    Chairman Enzi. Thank you. I want to thank everybody for 
their questions. I want to thank you for your testimony.
    I do want to note that this is the first time that anybody 
has made this effort to do this complete audit of the Defense 
Department, even though it has been a requirement for, I think, 
14 years. So congratulations on that.
    I appreciated the comments today about needing a capital 
budget. I think absolutely every department in the Federal 
Government needs a capital budget. I have kind of a pet peeve 
on National Parks as I grew up in some of the National Parks. 
Wyoming has Yellowstone, which was the first National Park. And 
I was always disconcerted that they were running out of money 
in August and talking about shutting down the park, which is 
the main season. So I asked them for their list of 
expenditures, which they could not give me. But I am pleased 
that with pressure, after just 20 years, I have a list of not 
only Yellowstone Park but every single park in the United 
States, the facilities they have got, the age of them, the cost 
to do them, the cost of maintenance, and I am hoping we can 
continue that and get that into every department of the 
Government and begin to manage what we have. Having an audit is 
a beginning part of that.
    I am also pushing for biennial budgeting. I think that 
every agency could spend their money more effectively if they 
knew in advance--that means before October 1st or whatever date 
gets set for the beginning of the fiscal year----how much money 
they had to spend over the next 2 years. And I think there is 
substantial savings just in not trying to spend up that last 
amount of money in the last portion of each year. And I am 
hopeful that if we break it down so that we only cover half of 
the appropriations each year but for a 2-year period, we can 
get a lot more scrutiny into what we are actually buying, as 
well as having the people be able to spend things more 
effectively.
    Now, you gave some examples about the improved financial 
management in terms of costs to Senator Boozman, and I 
appreciate that. Senator Wyden asked some questions about when 
this process would have a clean audit. Of course, we are hoping 
for a clean audit much before 10 years, but the public's 
understanding of a clean audit I think is a little bit 
misleading. What we are talking about is getting improvement to 
the point of perfection, and typically nobody gets to 
perfection. If they do, then our auditors maybe are not doing 
their job. There is always something that ought to be reviewed, 
and every business, including the military, has to keep 
reinventing itself and are because of changing conditions 
around the world. And that requires doing things differently, 
and when you start doing things differently, the audit is going 
to turn up some different things that maybe should not have 
happened, but that are correctable. And unless we do these 
audits--which the purpose of them is not to play ``gotcha'' 
with the Department. That is not what is supposed to be done 
with it. What it is supposed to do is reduce errors as much as 
possible and come up with better business plans so that the 
objectives for, you know, what we are funding actually get 
accomplished.
    I am the Chairman of the Budget Committee, and I am just 
floored by how much money it is that we spend. I really have no 
concept for trillions. I am still having trouble with billions, 
and I thought I had finally mastered millions, but I am not 
sure about that yet either. But we spend trillions, and that is 
so much money that there is not any business in America or in 
the world that handles that kind of dollars, especially every 
year.
    So our challenges are before us, and this is kind of a 
first step, and I want to congratulate you for taking the 
effort. And I want to thank the Committee for the interest that 
they have had in what you are doing. And I also want to again 
thank you for the promptness of your response to my questions.
    Now, the hearing record will stay open so that anybody that 
wants to submit some additional questions can until close of 
business tomorrow, and hopefully we will get a quick response 
from you on those as well.
    So thank you very much. This hearing is adjourned.
    [Whereupon, at 12:16 p.m., the Committee was adjourned.]

                     ADDITIONAL COMMITTEE QUESTIONS

    [The following submitted questions were not asked at the 
hearing but were answered by the witness subsequent to the 
hearing:]

 ANSWERS TO THE QUESTIONS FOR THE RECORD FROM: HON. BOOZMAN, GRASSLEY 
                             AND VAN HOLLEN

                       BUDGET COMMITTEE HEARING:

   DEPARTMENT OF DEFENSE AUDIT AND BUSINESS OPERATIONS REFORM AT THE 
                                PENTAGON

               DATE: MARCH 7, 2018; LOCATION: 608 DIRKSEN

                             TIME 10:33 AM

                                Boozman

    1. Mr. Norquist and Mr. Gibson, you are both well aware of 
the habit we have developed of appropriating money via 
Continuing resolution. How do CRs impact your ability to 
account for the funding we provide to the Department? Does it 
complicate the process of undergoing an audit?

    Operating under continuing resolutions (CRs) for extended 
periods of time complicates the execution of the Department's 
plan as the CR legislation limits funding to a daily rate of 
operation and prohibits starting new programs to include 
construction projects or increasing the rate of production for 
weapon systems. For fiscal year 8, the Department has 176 
investment-related new start efforts and 27 procurement rate 
increases that cannot be pursued under a CR given the 
restrictions of the legislation. Limiting available funding to 
a daily rate of operation and last year's funding levels 
creates inefficiencies in program execution and increased 
workload for the contracting and the financial communities.

    Operating under a Continuing Resolution does not stop the 
progress of the audit, but it creates a competing demand. Once 
funding becomes available, the compressed remaining timeline 
available for obligating funds increases the burden on Defense 
financial management and acquisition work force.

    Both the incremental nature of CR funding and the late 
appropriations increase the workload on the same work force 
that is working to support the audit and address findings.

    2. Mr. Gibson or Mr. Norquist, this audit will be a billion 
plus effort. Do you anticipate needing new or additional 
business IT systems to support the ongoing audit efforts? If 
so, have you already planned for those needs?

    We anticipate that we will get many findings around both 
our Enterprise Resource Planning (ERP) financial and legacy 
systems. These findings may range from implementing simple 
system change requests to deploying new tools that streamline 
processes. In some cases, expediting the retirement of legacy 
systems will be the most cost effective solution. We have 
planned and estimated the cost of legacy and ERP system fixes 
that we anticipate will be necessary over the next several 
years (2018-2022). However, as we are currently undergoing our 
first comprehensive audit, depending on the magnitude of audit 
findings, we will have to evaluate and adjust our resource 
needs accordingly.

    3. Mr. Gibson or Mr. Norquist, there has been a lot of 
discussion about how to provide more funding flexibility to 
programs within DoD. What impact would this have on 
auditability within the Department?

    The flexibilities being discussed should not have a direct 
impact on auditability within the Department as most of these 
proposals are modifications to authorities already being used 
by the Department. Such flexibilities include:

         Changing the obligation limitation on annual 
        accounts during the last 2 months of the fiscal year 
        from 20 percent to 25 percent if Congress does not 
        enact annual appropriations bills by January 1;
         Increasing the below threshold reprogramming 
        authority from $15 million to $25 million for the 
        Operation and Maintenance accounts; and

         Allowing the Department to carryover a small 
        percentage of its Operation and Maintenance funding 
        into the next fiscal year as is currently allowed for 
        the Defense Health Program

    Some of these flexibilities, however, may have a favorable 
indirect impact on the audit as they will allow the Military 
Departments and Agencies to do smarter execution, allow the 
Department to capture the savings from negotiating better 
prices that often occurs late in the fiscal year, and relieve 
some of the stress and backlog in the contracting and the 
financial communities.

                                Grassley

    1. Please give us a snapshot of audit progress against 
milestones as of March 1st. Are the milestones being met 
across-the board? Or are you running into roadblocks? What is 
the success rate? What is the prognosis?

    At this point in the process we are achieving our 
milestones. The consolidated audit has begun as planned and we 
have begun responding to auditor requests received from both 
the DoD Office of Inspector General and the Independent Public 
Accounting (IPA) firms. With the leadership support of the 
Secretary and the Deputy Secretary, we are receiving the 
support needed from stakeholders outside the financial 
management community. We are working with these communities to 
respond to audit requests.
    The next major milestone will occur as we begin receiving 
audit findings later this year. The auditors will be inputting 
their findings into our tracking tool, and we will review the 
status of service corrective action plans. We will use this 
tool to assign priorities and responsibilities and track 
progress. Senior leaders will be held accountable using the 
audit results and their progress addressing findings. Going 
forward, we will measure and report progress toward achieving a 
positive audit opinion using the number of audit findings 
resolved.

    2. Is it possible that the DoD accounting systems were 
designed to be un-auditable, or did Mr. Harrison (Todd 
Harrison, Center for Strategic and International Studies) 
simply make an inaccurate statement? If Mr. Harrison's 
assertion is inaccurate, then explain why DoD seems incapable 
of fixing its ailing accounting systems after so many years and 
billions of dollars?

    Mr. Harrison's comment is accurate in the sense that our 
legacy systems were not developed with audit in mind; rather, 
our legacy systems were developed to support DoD operations. As 
a result, we are focusing on retiring legacy systems and 
ensuring our target environment is auditable and compliant with 
Federal system requirements.
    As the Department invests in new business systems, we will 
be able to obtain independent auditor feedback on the system's 
compliance so we can better hold vendors accountable for their 
solutions. As the auditors report findings and share 
recommendations based on industry best practice, DoD will use 
that feedback to help ensure any system issues are identified 
early on and corrected before/as systems are fully deployed--
helping minimize rework and avoiding wasteful spending.

                               Van Hollen

    1. In the president's budget, proposed spending on overseas 
contingency operations (OCO) for defense falls from $20 billion 
in fiscal year to $10 billion from fiscal year to fiscal year 
8. You Stated during the hearing that the Department of Defense 
budget looks out until fiscal year 3, and the OCO funding 
levels that begin in fiscal year come from the Office of 
Management and Budget (OMB). You Stated that OMB based its 
estimate on the direction it anticipated for OCO spending over 
the long term.

    Given the sharp decline in proposed OCO funding after 
fiscal year 3, please explain how $10 billion was chosen as a 
placeholder starting in fiscal year 4, instead of a larger 
number more consistent with President Trump's national defense 
strategy. What input, if any, did the Department of Defense 
provide 0MB to substantiate this $10 billion per year estimate?

    You are correct that the Department's Future Years Defense 
Program (FYDP) only looks out until 2023. Numbers beyond that 
point are provided by OMB.

    While the OCO placeholder amounts do not reflect specific 
decisions about OCO requirements in any particular year, the 
estimate that future OCO costs will decline is consistent with 
the change in emphasis in the National Defense Strategy.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




                  THE ECONOMIC REPORT OF THE PRESIDENT

                              ----------                               



                       WEDNESDAY, MARCH 21, 2018

                                       U.S. Senate,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:31 a.m., in 
room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Grassley, Toomey, Johnson, Gardner, 
Kennedy, Boozman, Cotton, Whitehouse, Merkley, Kaine, Van 
Hollen, and Harris.
    Staff present: Elizabeth McDonnell, Republican Staff 
Director; and Joshua Smith, Minority Budget Policy Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. I will go ahead and call to order this 
meeting of the Budget Committee for the purpose of hearing an 
economic report of the President. Good morning and welcome to 
the hearing.
    I want to thank Chairman Hassett for agreeing to testify 
today on the Council of Economic Advisers' contribution to the 
President's report. The Council's analysis of the 
administration's domestic and international economic policy 
priorities is particularly relevant as Congress grapples with 
the challenging fiscal outlook.
    To keep our economy moving in the right direction, we need 
to continue working together on a pro-growth policy. These 
efforts are helping American workers, small businesses, and 
families. Most notably the Tax Cuts and Jobs Act we passed last 
year is producing higher wages, more dollars in workers' 
paychecks, and increased domestic investment, not to mention a 
new sense of community.
    Returning investment to America is key to continued 
economic growth. Not only does it create jobs in the short 
term, but capital formation also raises productivity and 
exponentially increases the amount workers make. A more 
productive work force raises the standard of living for all 
Americans. The results of such growth are better wages, 
improved profits, and more reinvestment in America's businesses 
and workers. It invigorates the communities.
    In the first few months of 2018, more than 300 companies 
have announced salary increases, bonuses, and/or higher 401(k) 
matching, benefiting more than 4.2 million workers. The Council 
already counted $190 billion in planned corporate investment 
attributable to the Tax Cuts and Jobs Act. Clearly, this 
investment will continue to pay dividends for all Americans.
    While the tax cuts have jump-started our economic growth, 
we must continue to make other policy changes that can 
contribute to the Nation's expansion. We know that regulation 
and structural unemployment reduce productivity. For this 
reason, Congress has sought to roll back many of the 
ineffective regulations issued by the previous administration, 
and President Trump has set a goal of eliminating two 
regulations for every new one created. So far it has been 22:1.
    Last year's deregulatory actions are estimated to produce 
$8 billion of savings. That is $8 billion companies can 
reinvest in America's businesses and workforce. It is an $8 
billion boost to productivity carried through our economy, and 
that is just the beginning. This coming year's effort will be 
even more effective. As we move forward, it is Congress' 
responsibility to ensure that we continue to support and 
advance effective policies to accelerate growth. Important pro-
growth legislative proposals include infrastructure investment, 
health care innovations, and enhanced cybersecurity.
    But as we consider new legislation, we cannot forget our 
Government's continued overspending problem and the crowding-
out effect of our massive Federal debt. Accordingly, Government 
investment in pro-growth policies must produce substantial 
increases in output.
    I appreciate your thorough analysis, Chairman Hassett, on 
how each of these policies is projected to affect the economy. 
That will be very useful as Congress debates the merits of such 
proposals and their effects on our balance sheet.
    Congress also must ensure that none of the policies put 
forward slows or reverses the Nation's economic expansion. For 
example, a number of members, myself included, have serious 
concerns about punitive tariffs, especially given the threat of 
foreign retaliation. We also believe efforts to renegotiate 
large trade deals must be done with our economy's best interest 
in mind and with congressional consultation.
    I look forward to discussing the positive effects of free 
and fair trade and how we can create economic growth through 
trade. My home State of Wyoming exports across the natural 
resources and agricultural sectors, and access to foreign 
markets is vital to our economy.
    Here in Congress, the Budget Committee is working to set a 
pro-growth legislative path. Large policy proposals are often 
integrated into our work in order to accommodate implementation 
throughout the year. We will begin this discussion with how 
these policies affect the balance sheet, which is highly 
dependent on how they support or hinder economic growth.
    I look forward today to a discussion on how we can promote 
the economy, how we can create jobs, and how we can tackle our 
national debt. Above all, we must continue to invest in our 
economy and workers in order to address our fiscal issues.
    Chairman Hassett, I look forward to hearing your 
perspectives on proposals to strengthen the Nation's economy.
    Senator Sanders has sent word that he will not be here. 
Senator Van Hollen, would you like to make an opening 
statement?

            OPENING STATEMENT OF SENATOR VAN HOLLEN

    Senator Van Hollen. Thank you, Chairman Enzi. I will just 
make a short statement. I appreciate the opportunity. And, Mr. 
Hassett, good to see you. Congratulations on your appointment 
to this position.
    I just want to start with one of the comments the Chairman 
made regarding the deficit and debt. We passed a tax proposal 
that is estimated to increase our national debt well over $1 
trillion, and that is taking the growth numbers into account. 
Many of us believe it will be far north of that. And the 
question is: What do we get for it? And I heard the Chairman 
talk about some of the changes we have seen.
    As I look at all the graphs in your report, Mr. Chairman, 
we are pretty much on a straight-line trajectory from the 
economic growth we saw during the final 4 years of the Obama 
Administration, pretty much on a straight-line trajectory when 
it comes to job growth. In fact, job growth has actually 
declined a little bit, as your chart shows, as we get closer to 
what we believe is full employment. But the point is that this 
administration inherited an economy that was growing. They 
inherited an economy where jobs were growing. And as I look at 
the early reviews on the tax cut, what I see primarily is a 
huge benefit going to big corporations and their stockholders, 
over $220 billion in stock buybacks just this year, 2018; 35 
percent of that stock is owned by foreign stockholders, so a 
lot of that money is going directly into the pockets of foreign 
stockholders.
    In my State of Maryland, over 350,000 families will 
actually see a tax increase, including mostly middle-class 
families, because of the elimination of the ability to take the 
SALT deduction, the cap on the SALT deduction.
    So as I look out at the landscape right now, it appears 
that, you know, stockholders are doing very well; workers in 
some instances are getting primarily one-time bonuses. But the 
amount of cash that is flowing to stockholders is far higher 
than the investment we are seeing in both workers and new 
investment, which certainly does not meet with the predictions 
that we were told about.
    So I am looking forward to the conversation, but if you 
look at the budget that came out of this Committee, it included 
not only the plan for the tax cuts, but it also included very 
deep cuts to Medicaid, over $1 trillion over 10 years, and a 
$473 billion cut to Medicare. So I have got to figure a lot of 
families who are out there looking at the overall picture are 
recognizing that at the end of the day they are going to get 
the short end of the stick, unless they are a big corporation. 
But I look forward to the conversation.
    Thank you, Mr. Chairman, for the opportunity to say a few 
words.
    Chairman Enzi. Thank you, Senator Van Hollen. I think you 
did an outstanding job of filling in for Senator Sanders. I 
will now introduce the witness.
    Our witness this morning is Kevin Hassett, the Chairman of 
the Council of Economic Advisers. Chairman Hassett has held his 
office since September 2017 and is charged with providing 
objective economic advice to the President during the formation 
of the administration's domestic and international policy. 
Prior to his time as the Chairman of the CEA, he was an 
economist and scholar at the American Enterprise Institute. Dr. 
Hassett holds a Ph.D. in economics from the University of 
Pennsylvania.
    For the information of colleagues, Chairman Hassett will 
take up to 7 minutes for his opening statement, followed by 
questions.
    We look forward to receiving your testimony. Please begin.

 STATEMENT OF THE HONORABLE KEVIN HASSETT, CHAIRMAN COUNCIL OF 
                       ECONOMIC ADVISERS

    Mr. Hassett. Thank you very much, Chairman Enzi and other 
members of the Committee, including Senator Van Hollen, for 
your opening statement. Thank you for coming out on a snowy 
day. I know that there is a lot of snow expertise on this 
Committee. I guess the one dark side is that this might forever 
be known as the ``hat hair hearing.'' But having hat hair is 
probably better than not having hair at all. I guess I will 
just have to live with it.
    I took over the job as Chairman of the CEA with a really 
somber responsibility going back to 1946 of building an 
organization in the White House that provides objective advice 
to the President. The CEA is about facts and about analysis and 
providing people with the balance of the read of the literature 
when we are exploring economic policy issues.
    We are also charged in the CEA with the Economic Report of 
the President--looking at things that maybe people did not 
appreciate were as big a problem as they have become in the 
modern economy--and I would like to focus on a few of those in 
my spoken statement. My written statement, of course, is in the 
record.
    I want to start with cybersecurity, the costly issue that 
has become more and more crucial to address. In the Economic 
Report, we find that in 2016 malicious actors inflicted over 
$100 billion worth of damage to the U.S. economy. This $100 
billion estimate that we came up with is pretty conservative, 
actually, to my mind. Cybersecurity issues have far-reaching 
effects. Their seriousness merits a great deal of attention 
from policymakers.
    The administration is focused on ways to combat cyber crime 
and is encouraging public-private cooperation to reduce the 
risks and costs of such attacks. But I think there is also--we 
identify in the chapter a market failure that leads private 
firms, which tend to face risks correlated with one another, to 
invest less in cybersecurity than would be economically 
optimal.
    Turning to the health chapter, we focus on the cost of 
health care, the economic implication of persistent public 
health problems, and drug pricing. We emphasize that several 
factors affect health and health care costs, such as smoking, 
obesity, and opioid abuse, which have contributed to the 
unusual decline of American life expectancy for the second year 
in a row. I will repeat that: a decline in life expectancy.
    Competition and choice could improve health insurance as 
well as lower American drug prices, without undermining 
American pharmaceutical innovation. The Federal Government can 
also pursue policies that lead to other countries paying their 
fair share for innovations--for example, among OECD countries. 
Americans pay more than 70 percent of patented 
biopharmaceutical profits that fund drug innovation. Seventy 
percent. The administration is focused on policies that would 
improve health care outcomes that lower health care costs for 
all Americans.
    The report also examines the economic conditions of 
something I know every member of this Committee cares 
desperately about: the welfare of the middle class, analyzing 
the recent history of policies that have helped and hurt them. 
While the new tax law's wage effects can partially reverse the 
stagnation of the middle class, we must pay close attention to 
the policies that contributed to the stagnation. The inflation-
adjusted labor income of the typical household at the middle of 
the income distribution fell below what it was at the start of 
the 21st century. Compounded by past tax and transfer policies, 
the median American inflation-adjusted total household income 
from working took 9 years--9 years--to recover to its pre--
recession level after the Great Recession. These policies 
decreased the incentive to work and worsened labor force 
participation and wage stagnation. We list a number of them in 
the Economic Report, including high corporate taxes, 
undermining the very middle-class households that they were 
intended to help. Reduced work disincentives and rising wages 
are bringing people off the sidelines and improving labor force 
participation now.
    I believe that the cyber, health, and middle-class chapters 
of the 2018 report contain some of the most eye-opening new 
insights on contemporary economic issues, and I will summarize 
the rest of the chapters here. Then I look forward to taking 
your questions.
    The tax chapter discusses how the administration has 
delivered a policy that increases growth now and improves the 
well-being of Americans in the future. Developed countries have 
competed to attract business by lowering corporate taxes for 
years, while ours stayed at a standstill. The Tax Act lowered 
the corporate tax rate and reformed the Tax Code, improving 
America's ability to attract businesses that create good jobs 
for our workers. Our review of the literature and our own 
modeling finds that the average household could get a $4,000 
pay increase from the new law once the law's full effects get 
absorbed by the macro economy. And already--we are keeping 
constant, steady track of this--over 4.9 million workers have 
received wages, bonuses, or improved benefits as of last week 
because of the tax bill. Companies have already announced 
investments of over $200 billion, investments like the 
increased growth in wages.
    We also modeled the effects of the individual side of the 
Tax Code, finding that it could increase GDP by 1.3 to 1.6 
percent after 10 years. If made permanent, this will add 
another $4.7 trillion to $7.4 trillion to the economy over the 
next decade.
    I also want to mention share buybacks. Moneys previously 
offshore are being sent back to the U.S., so a one-time 
adjustment of the stock of trillions of dollars of old profits 
that were locked in foreign subsidiaries. No economist would 
make the case that the American economy would be better off if 
these moneys were still locked offshore. Share buybacks today 
are not mutually exclusive to long-run wage gains that will 
accompany the capital formation that will come from the lower 
marginal tax rates.
    The deregulation chapter documents the ways in which 
regulations stifle productivity and prevent the creation of new 
businesses. The year 2009 marked the first time that more firms 
died than were born in the United States since the Census 
Bureau began compiling data in 1978, and recent research shows 
that fewer younger Americans are becoming entrepreneurs than 
ever before. It is likely that regulatory zeal slowed both 
dynamism and overall growth.
    To put our overregulation into perspective, the CEA finds 
that if the U.S. regulatory environment were the same for OECD 
product market regulation as in Germany, we would increase 
annual growth by 0.1 percent per year. And so we are not 
talking about having a terrible environment or anything. We are 
just talking about moving toward modern standards of 
regulation. If we deregulate further to the level of the 
Netherlands--that does not seem like a really terrible idea--we 
could get growth at twice that rate, 0.2 percent per year, and 
this is based on peer-reviewed literature. Liberating the 
economy from the burdens of regulation can unleash economic 
activity and create jobs.
    The infrastructure chapter highlights the inefficiencies of 
both our existing transportation infrastructure and the red 
tape that prevents crucial projects from getting started. 
Improving infrastructure should have wide bipartisan support. 
Polls find it has the support of 84 percent of Americans, with 
76 percent believing it should be funded as the President has 
suggested: a combination of public funds, bonds, and public-
private partnerships. In 2014, total congestion costs peaked at 
$160 billion, wasting 6.9 billion hours in delays that could 
have been spent doing jobs.
    Finally, the trade chapter discusses the ways in which the 
administration is seeking to improve America's position. Trade 
has been beneficial but left some American communities worse 
off.
    I should add we have one more chapter, and I am out of 
time, and so I am skipping over some of my bullet points.
    But the outlook chapter examines the year in review and 
offers our forecast for the decade ahead. 2017 growth and real 
gross domestic product exceeded expectations and increased to 
2.5 percent, up from 1.8 percent during the four quarters of 
2016, and so it is not exactly a flat line.
    The unemployment rate has fallen to 4.1 percent, the lowest 
since 2000. Our baseline forecast is that we will have 2.2 
percent growth between now and 2028, but that that will 
increase to an average of about 3 percent if all of the 
administration policies are adopted.
    With that, I thank you so much for your attention and for 
inviting me. It is great to be back before this Committee, and 
thank you again for inviting me. I am looking forward to your 
questions.
    [The prepared statement of Mr. Hassett follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Enzi. Thank you for your testimony and for being 
here. We will now turn to questions. I think everybody knows 
the way that we do those, except that I am going to make a 
deviation this morning and call on my fellow Chairman Senator 
Johnson to see if he has any questions that he wants to ask.
    Senator Johnson. Well, thank you, Mr. Chairman.
    Chairman Hassett, welcome. I appreciate you braving the 
snow and putting a hat on.
    I want to talk about overregulation. From my standpoint it 
is the most significant thing this administration has done. We 
stopped adding to the regulatory burden.
    Now, in our Committee we have heard from experts and there 
are a number of studies that put the overall regulatory burden 
of Federal regulations at close to $2 trillion per year. Where 
do you put that burden? Again, by the way, if you divide that 
by the number of households, it is about $15,000 per year per 
household. I call it the ``silent killer.'' Most people do not 
really understand it, and so you are not getting a whole lot of 
credit for it. But what does the CEA put the regulatory burden 
at?
    Mr. Hassett. You know, I would----
    Senator Johnson. Is your microphone----
    Mr. Hassett. Stupid me. In order to give you a precise 
number, I would have to get back to you because we have 
reviewed the literature, and there are some estimates as high 
as $2 trillion. There are some that are about half that. And it 
is one of the frustrations that we go into in the regulation 
chapter, that regulation is really, really hard to measure 
because, for example, if we withdraw a regulation, the number 
of pages in the Federal Register can go up because we have to 
write the regulations withdrawing the regulations and so on.
    And so I think that there is a great deal of uncertainty of 
the cost of regulation, but there is no uncertainty, I think, 
about the fact that business optimism, especially small 
business optimism, has skyrocketed since the administration has 
put new regulations on hold. And that is something we have 
thought hard about. We think that new regulations have an 
unusually high cost, a disproportionate cost, because you know 
as a businessman that if we give you a new reg, you have got to 
hire lawyers and engineers to figure out what to do with it. 
The existing reg you have kind of figured out before. And so I 
think the fact that we have stopped the new regs is one reason 
why sentiment and growth picked up even before the tax bill.
    Senator Johnson. I will second that. You know, prior to 
this administration, it is about all I heard from the business 
community, is the new regulations, you know, specific ones or 
just generalized. And now they can actually concentrate on 
growing their business as opposed to looking over their 
shoulder, wondering which new regulation----you know, how much 
it is going to cost for a compliance officer or how something 
could put them out of business. So I think that is the most 
significant thing, as important as making American businesses 
more competitive tax-wise was as well.
    I do want to go back, though, because I think rather than 
really taking a look at specific numbers and data, which I 
like, being an accountant, can you just give a little economic 
lesson? What do shareholders do with dividends? What do they do 
when their shares are purchased back by--I mean, what do they 
do with that money? Do they stuff it in a mattress?
    Mr. Hassett. Well, there is not a lot of evidence--it is 
actually one of the first academic papers I ever wrote--that 
dividends increase consumption. So what it means is that when 
someone gets a dividend, then they tend to reinvest it in 
something else. And so a way to think about the economic 
effects of unlocking all of that capital that was locked 
offshore is that firms can send it home, and they are investing 
it. You know, we have seen that already, announcements north of 
a couple hundred billion, they are giving pay raises to people, 
but they are also doing share buybacks. Those share buybacks 
will likely be reinvested in other equities. It is a way to 
move capital maybe from older firms that are less dynamic 
toward newer firms that are more.
    Senator Johnson. So it more efficiently reallocates the 
capital. Rather than having it locked up in these C 
corporations, now it is actually being reallocated as millions 
of investors are literally making those reallocation decisions.
    Mr. Hassett. That is correct.
    Senator Johnson. What about foreign investors? I have 
always viewed--you know, rather than foreigners buying America, 
I viewed that as, you know, foreign investors investing in 
America. Isn't that a good thing?
    Mr. Hassett. Yes, and thank you for that. And I think the 
way to think about it is that if the U.S. firm is repurchasing 
a share, which is a way that they do special dividends 
basically, that if they are repurchasing a share, then they are 
returning cash to their shareholders, who then reinvest. If the 
shareholder is a foreign shareholder who owns U.S. equities, he 
has presumably done a portfolio analysis that suggests some 
share of his portfolio should be invested in the U.S. And the 
share buyback probably does not change that, and so I think it 
is highly likely that share buybacks will be reinvested in U.S. 
equities.
    Senator Johnson. And, by the way, when we do run a trade 
deficit, isn't the whole capital balance somewhat made up by 
the fact that foreigners then take and invest in America?
    Mr. Hassett. Sure, the current account and the capital 
account balance, and one of the things that we talk about in 
the Economic Report is that we had set up a system where firms 
moved jobs offshore, moved wage increases offshore by putting 
their production over there and selling it back in here to 
avoid our really high tax rate. And so we estimate that that 
increased the trade deficit by about 50 percent because of the 
transfer pricing, inflated imports----
    Senator Johnson. So one final very quick question. I just 
want you to confirm numbers, because the more I look at this--I 
know Wisconsin actually has a trade surplus with both Mexico 
and Canada. But when I look at overall total NAFTA numbers, in 
1985, prior to NAFTA, we were exporting $136 billion to Canada 
and Mexico with a deficit of about $61 billion. Now we are 
exporting $476 billion with a $68 billion trade deficit. So, in 
other words, we increased exports, I would say because of 
NAFTA, or certainly after NAFTA was passed, by $340 billion, 
and our trade deficit only increased by seven. Are those 
largely accurate figures?
    Mr. Hassett. Yes, those sound like the correct numbers to 
me.
    Senator Johnson. It sounds like a pretty good deal to me.
    Mr. Chairman, thank you.
    Chairman Enzi. Thank you.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. And again, Mr. 
Chairman, thank you for your testimony today.
    Back in October of last year in remarks at the Heritage 
Foundation, President Trump said, ``If we pass this tax cut 
bill, the typical American household is going to get a $4,000 
pay raise.'' Now, I have seen a sprinkling of one--time 
bonuses. I have seen some pay increases. Walmart went from, I 
think, $10 to $11. But your own report on page 50, in the box, 
says that only 43 employers in the country have, in fact, 
raised their wages at all.
    So as we sit here today, can you name for me one U.S. 
company that has raised the wage of their workers by $4,000? 
Because we all know there is a big difference between getting a 
one-time bonus and something in your base pay. Four thousand 
dollars this year would be $40,000 over 10 years. So can you 
give me one U.S. company or corporation that has raised their 
worker pay by $4,000?
    Mr. Hassett. I would have to go through our list and get 
back to you to see if there is one that is that high, but I 
would doubt it. If you look at page 49, there is a chart that 
shows the likely wage increases that come from corporate tax 
reductions, and these estimates are often based on cross-
country variation, which means that it is a long-run estimate, 
maybe 3 to 5 years or something. And the way the wage increase 
happens is that the firms build factories here in the U.S. 
instead of over there; that increases the demand for labor 
here; and then----
    Senator Van Hollen. I appreciate that, Mr. Chairman, but I 
am looking at the chart, and I am looking at President Trump's 
statement. I did not see a little asterisk there saying it is 
going to be down the road. So this is going to be after the 
next Presidential election, is that right? That is your 
prediction? We are going to start seeing these $4,000----
    Mr. Hassett. We are seeing wage increases now, but the 
entire effect does not happen in the first----
    Senator Van Hollen. But I remember a lot of our colleagues, 
I mean, I can roll back the video on the floor of the Senate. I 
mean, this was a huge talking point, $4,000 wage increases. And 
today we cannot mention--identify one company that has actually 
done that. And the reality is your own report says only 43 
employers around the country have actually given wage 
increases, which is far short of what was advertised.
    Let us talk about stock buybacks for a second, because back 
in December 19th 2017, the incoming Director of the National 
Economic Council, Larry Kudlow, tweeted out--this is just as 
the tax plan was passed--``Companies will invest in equipment, 
technology, plants, et cetera. Stock buybacks are not smart.'' 
That is what he tweeted out. Do you agree with that assessment?
    Mr. Hassett. No, I do not. I do not. I think that firms--in 
fact, I have academic papers I can send you about this where we 
try to look at where buybacks come from. Buybacks tend to 
happen with firms that are older firms and that already have 
the plant that they want, they do not have an expanding market, 
and so they are returning the capital----
    Senator Van Hollen. So it is interesting. Larry Kudlow 
converted, too, after that December tweet. On March 16, 2018, 
he tweeted out, ``Stock buybacks are proof of the tax reform's 
success.'' So in December, he said they were stupid. In March, 
these were great proof of the plan's success.
    I want to ask you about something in your report. It goes 
to this whole question about stock buybacks and whether or not 
they are really benefiting the economy. And what you say here 
in the report on page 398 is, ``Although it may be admirable 
for individual firms to thus return funds to their 
shareholders, the rising share of paybacks to shareholders 
suggests that investable funds are not being adequately 
recycled to young and dynamic firms.''
    Is this a rising concern of yours, the fact that we do 
not--we see a lot of money parked there that is actually not 
being recycled in these younger firms?
    Mr. Hassett. The chart on that page refers to old data, and 
I think that the tax bill has only been there for a few months. 
And so the hope is that--so in the past, people did not really 
want to locate their new factories here because we had the 
highest tax rate in the developed world. Now they do. The 
people who have lots of cash offshore can fund the new 
factories with that, but many of them do not want to do that 
because they already have their full capacity, in which case 
they will return the capital to investors, and they will go to 
innovative----
    Senator Van Hollen. Mr. Chairman, as I look at that data--I 
mean, I am looking at it. You are right. Actually, in 2017 
stock buybacks went down, and in the first 3 months of this 
year they have gone through the roof. So, in fact, you have a 
lot more stock buybacks now. We can debate this for a long 
time, but as of today--as of today, all the data you have got--
who is benefiting more from this: stockholders or workers?
    Mr. Hassett. You know, I think that the buybacks have gone 
up because the money was locked offshore. If you think about 
the economic consequences of locking the money offshore, then 
that hurts workers and it hurts the capital markets of the U.S. 
both.
    Senator Van Hollen. But in terms of the dollar value of the 
tax cut, how much has gone to workers versus how much has gone 
to stock buybacks?
    Mr. Hassett. The worker effect comes from capital 
formation, which happens over time. The buybacks are going to 
be front-loaded.
    Senator Van Hollen. I would just point out again, when 
President Trump and lots of other folks talked about it, they 
did not have a big asterisk next to the $4,000 pay raise saying 
it is going to be after the next election.
    Thank you.
    Mr. Hassett. Could I just respond to the asterisk point, 
Mr. Chairman? Only for 1 second. I think that nobody asserted 
that the full effect of the tax bill would be there by March. I 
do not think anyone----
    Senator Van Hollen. If I was a typical American household, 
I would have read the President's remarks as saying I am going 
to get a $4,000 pay increase.
    Chairman Enzi. To answer the Senator's question, one 
company, Walmart, has given a $2-an-hour pay increase. If you 
are working 40 hours a week for 50 weeks of the year, it comes 
to $4,000 in increase.
    Senator Van Hollen. Walmart is the example people are 
using, but I go back, Mr. Chairman, to the statement in the 
report, which says 43 employers. In the entire country, 43 
employers have given a pay increase.
    Chairman Enzi. In the first month, that is nice.
    Mr. Hassett. It is now much higher.
    Chairman Enzi. Senator Gardner.
    Senator Van Hollen. Mr. Chairman----
    Chairman Enzi. Senator Gardner.
    Senator Van Hollen. Polling shows about 2 percent.
    Chairman Enzi. Senator Gardner.
    Senator Gardner. What I am surprised about this argument is 
it is as if the Government is now run by a bunch of Eeyores who 
are complaining about pay increases, complaining about minimum 
wage increases, complaining about increases to pension funds, 
complaining about deregulation that is resulting in new 
investments coming back to the United States. It is as if 
people believe tax cuts resulting in bonuses, minimum wage 
increases, and pension benefits are nothing but a bunch of 
crumbs. In fact, that has been used.
    Mr. Hassett, Chairman Hassett, do you believe that a $1,000 
bonus amounts to crumbs?
    Mr. Hassett. No.
    Senator Gardner. Do you believe that a pension increase, an 
increase in people's pension benefits, does that amount to 
crumbs?
    Mr. Hassett. No.
    Senator Gardner. Do you believe that minimum wage 
increases, salary increases, and deregulation allowing billions 
of dollars to come into this economy amount to crumbs?
    Mr. Hassett. No.
    Senator Gardner. And so what we hear is this 
dissatisfaction with the American people making more money. We 
have seen wage increases. We are going to see more. In fact, 
there was an article in the Denver Post yesterday by the 
Associated Press that talked about the fact that the tax cuts 
are working to bring new investments, hundreds of millions of 
dollars into States around the country and into Colorado, 
resulting in more employment. In fact, we saw for the first 
time in a very long time the unemployment rate actually 
affected because more people are leaving--they are getting into 
the work force. The labor participation rate is actually 
increasing. Is that correct?
    Mr. Hassett. Yes, it----
    Senator Gardner. Is that correct? Because people are ticked 
off that they got a bonus because it is just a bunch of crumbs?
    Mr. Hassett. Well, the labor force participation rate is 
going up, that is correct.
    Senator Gardner. Because more people are working, right? 
And why are more people working?
    Mr. Hassett. Well, to give you data on what you were just 
talking about--we keep, again, careful track of this----85 
firms have offered a minimum wage increase; 46 companies have 
raised another wage, which would be like a permanent increase--
--
    Senator Gardner. But I guarantee----
    Mr. Hassett. Three hundred and thirty have given bonuses, 
and 52 have increased their 401(k) contributions. That is a lot 
of firms.
    Senator Gardner. You know, and, again, I had a conversation 
yesterday with a group of lumber dealers in Colorado, and 
Lemoine Dowd, a great family owned business in Boulder, 
Colorado, they have given their employees dollars back as a 
result of the tax cuts. That is probably not included in a 
report like this, is it?
    Mr. Hassett. I would have to ask my staff.
    Senator Gardner. Yes, and so, I mean, there are businesses 
around----
    Mr. Hassett. We are scraping the news for----
    Senator Gardner. But instead what we see right now, 
Chairman Hassett--let me ask you this, because what we have 
seen the Democrats unveil is legislation or at least a 
legislative proposal that would increase taxes by 19 percent. 
They want to increase taxes by 19 percent, corporate rate to 25 
percent. What would that do to the economy if this massive tax 
increase were to be passed?
    Mr. Hassett. Well, it would probably be better than what we 
had with the 35 percent rate, but it would at the margin chase 
capital away from the U.S., which would reduce the demand for 
workers and reduce wages. It is simple Econ. 101. If you want--
--
    Senator Gardner. So the tax increase that we have seen from 
our colleagues on the other side of the aisle would result in 
fewer workers, lower wages?
    Mr. Hassett. That is correct.
    Senator Gardner. And do you----
    Mr. Hassett. And fewer factories here in the U.S. Senator 
Gardner. Do you think that they would see the new tax dollars 
they are paying to the Federal Government, would that be crumbs 
to people around the country? Would they see that as economic 
pain that they are suffering as a result of a significant tax 
increase?
    Mr. Hassett. It would not be crumbs.
    Senator Gardner. Thank you. Thank you, Mr. Chairman.
    I understand that people are bitter that we cut taxes and 
that people are upset that we actually reduced the burden on 
the American people. And I understand that some people believe 
it is in their best interest to increase taxes. I just do not 
understand an economic policy that would actually take away 
bonuses, take away wage hikes, and slow American growth as a 
result. It just makes no sense to me.
    Would we be less competitive if we repealed and reversed 
the tax cuts that passed?
    Mr. Hassett. Yes, we would.
    Senator Gardner. And would we see capital no longer 
returning back to the United States as a result of that?
    Mr. Hassett. Yes, it would----
    Senator Gardner. Do workers--you know, workers around this 
country, do they benefit from pension plans that may hold 
stock?
    Mr. Hassett. Yes.
    Senator Gardner. And do those pension plans then benefit 
from dollars that go to them as a result?
    Mr. Hassett. They do, and from the increase in market value 
of firms because the corporate tax has been reduced.
    Senator Gardner. And so we are seeing benefits to the 
American people, to American workers, through rising wages, and 
I do not understand why people can be bitter about that.
    You note in your testimony that the most significant 
component of the bill was lowering our business taxes to make 
them competitive again. The Council has estimated that lowering 
the corporate tax rate alone would boost average household 
salary, as you have talked about. We are already starting to 
see these benefits in higher wages, lower utility bills. That 
has not been talked about, people with fixed incomes seeing 
lower utility bills and more jobs. We have heard opponents talk 
about this as crumbs. You have clearly said that it is not a 
crumb. So, obviously, the American people continue to benefit 
from this.
    You talked about regulations and the decrease in 
regulations. What would a 0.2 percent--like you mentioned the 
Netherlands, a 0.2 percent in GDP mean if we were to reduce--
continue our regulatory path?
    Mr. Hassett. Well, it would be 2 percent over 10 years, 
which would give you 2 percent of $28 trillion, which is the 
level of GDP in----
    Senator Gardner. And so could you just--what would that----
    Mr. Hassett. It is a lot of money.
    Senator Gardner [continuing]. Mean this year in jobs? What 
would that mean?
    Mr. Hassett. Yes, so it would be an enormous amount. I 
guess I would have to have my calculator out to give you an 
exact number, but, $2.8 trillion divided by----
    Senator Gardner. Thank you, Mr. Chairman. Again, I do think 
we need to be concerned about this tax increase proposal, as 
you mentioned, because of the impact it would have on wage cuts 
and certainly more people paying taxes.
    Mr. Hassett. Thank you, Senator.
    Chairman Enzi. Thank you.
    Senator Merkley.
    Senator Merkley. Thank you, Mr. Chairman.
    You have talked a lot about how wonderful these buybacks 
are, and so I am curious. What percent of the stock in America 
is owned by people, working-class families, who earn less than 
$80,000 a year?
    Mr. Hassett. I would have to get back to you with the exact 
number, but it is a small percent.
    Senator Merkley. Small, like 3 percent?
    Mr. Hassett. It could be, yes. I would have to----
    Senator Merkley. In that vicinity? So if there are $227 
billion in buybacks and it is 3 percent, then how much is that 
that is going to working-class America?
    Mr. Hassett. The direct effect of the buyback is small for 
working----
    Senator Merkley. Yes, what is 3 percent of 227?
    Mr. Hassett. The indirect effect is larger.
    Senator Merkley. Can you do that basic math, 3 percent of 
227?
    Mr. Hassett. Yes.
    Senator Merkley. How much is that?
    Mr. Hassett. It is a small number.
    Senator Merkley. Small, a little over 6 billion, I think.
    Mr. Hassett. Six billion, seven.
    Senator Merkley. You can do that in your head probably.
    Mr. Hassett. Yes.
    Senator Merkley. Okay So a little bit over $6 billion goes 
to working America from those buybacks, and if there is $227 
billion in buybacks, that means--can you subtract 6 billion 
from 227? How much is left?
    Mr. Hassett. Okay so it is 221.
    Senator Merkley. Okay so $221 billion goes to the richest 
Americans, and $6 billion goes to workers. Now, wouldn't it 
make more sense for working America to reverse those numbers 
and have $221 billion go to working America and only have $6 
billion go to the already richest Americans?
    Mr. Hassett. So as the cost of capital is now lower, 
capital formation will increase. It is something that we 
already see in the data, that higher capital formation will 
increase workers' wages. There is a big literature that looks--
--
    Senator Merkley. Okay wait, wait. We are talking stock 
buybacks here. We will get to wages in a moment. But I think--
--
    Mr. Hassett. But it seems like you're charactering----
    Senator Merkley. Please do not interrupt me.
    Mr. Hassett. Okay, sorry.
    Senator Merkley. I think most Americans would feel that if 
you have a plan designed for working America, the vast bulk of 
the benefits would go to working America, not to the richest 
Americans. Three percent is a very small fraction.
    Now, this tax plan borrowed $1.5 trillion from our 
children, and then when the benefits flow out through these 
buybacks, only 3 percent goes to working America and $221 
billion, as you say, goes to the richest Americans. And so that 
seems like a big price tag to put on our children to the 
already richest Americans, don't you think?
    Mr. Hassett. I think that it is better for America that 
that capital came home.
    Senator Merkley. Okay. Well, let us proceed to take a look 
at the bonuses that have been paid, because my colleagues like 
to talk about how much in bonuses is being paid. Well, let us 
take a look at it. I have got the chart right behind me here. 
Wow, Okay $227 billion in corporate stock buybacks, which goes, 
as you say, more than $200 billion, maybe $220 billion of it 
goes to the richest Americans. Let us see down here. What do we 
get for workers? Five billion dollars.
    Do you think working America would be better off if working 
America got this chart, this column of $227 billion and the 
richest already--they do not need more money, they get this 
little fraction over here? Wouldn't America be better off?
    Mr. Hassett. We had trillions of dollars locked offshore. 
Those trillions of dollars are now coming----
    Senator Merkley. I am just saying, wouldn't the design----
    Mr. Hassett [continuing]. Home, and they are----
    Senator Merkley. Wouldn't working America be better off if 
you design a tax decrease that actually helped working 
Americans?
    Mr. Hassett. Well, on the individual side, you know, that 
did happen. But on the corporate side----
    Senator Merkley. Okay So we clearly see that very little of 
the buyback wealth is going to working America. We are seeing 
very little of the bonuses going back to working America. And 
we have seen that very little wage increases occurred, and you 
have just indicated that you cannot identify a single company 
in the country that reached that $4,000 per worker increase 
that you were bragging about just a few months ago, and all my 
colleagues were echoing on the floor of the Senate. You cannot 
find one company in America that has done that. So that really 
is a significant problem when you design a plan for the richest 
Americans, try to sell it for workers, but workers get the 
short end on the buybacks; they get the short end on the wage 
increases; they get the short end on the bonuses. And it is all 
borrowed from our children. Isn't that kind of a shameful thing 
to do to the next generation of Americans?
    Mr. Hassett. Senator, I think that you have misstated what 
I said, and I certainly was not bragging. I was providing 
analysis. But, you know, I have got----
    Senator Merkley. So it is just your analysis was that far 
off.
    Mr. Hassett. My analysis was not off at all, Senator. My 
analysis----
    Senator Merkley. $4,000----
    Mr. Hassett. Could I please finish my sentence?
    Senator Merkley. Please do.
    Mr. Hassett. My analysis was that the $4,000 would come 
over 3 to 5 years. I said that on television a zillion times. 
That is what our analysis in the Economic Report says. No one 
said that the full phased-in capital formation would happen by 
March of this year.
    Senator Merkley. Well, actually, a lot of people went to 
the floor, my colleagues went to the floor and said we would 
see this right away in January. In January we would see these 
vast wage increases. And we have not seen it, and we are well 
into the year.
    But let us turn to the infrastructure plan. So the 
President has put forward a budget that says we are going to 
reduce infrastructure spending by $240 billion, and then we are 
going to have a $200 billion infrastructure plan.
    Now, if I take away 240 and I put 200 back in, is that a 
plus or minus overall in terms of investment in infrastructure?
    Mr. Hassett. The President's infrastructure plan is to 
accelerate permit approval and to make it easier for private 
capital to come in and invest in infrastructure, something 
private capital----
    Senator Merkley. But you acknowledge that the budget has a 
decrease of $240 billion in infrastructure?
    Mr. Hassett. We expect that overall infrastructure spending 
would skyrocket----
    Senator Merkley. No, but I am just asking about the basic 
budget.
    Mr. Hassett. Within the budget, you are correct.
    Senator Merkley. Okay Thank you. I am correct. It is a 
minus. That is not infrastructure plan. Thank you very much.
    Chairman Enzi. The Senator's time has expired.
    Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. Where to begin?
    For the record, I may be guilty of having been the Senator 
who spent more time on the Senate floor advocating this tax 
reform than anyone else. I did not measure it. It may not be 
true, but I would be up there. I can assure all of my 
colleagues that I never once said nor do I recall ever once 
hearing any of my colleagues say that the result of our tax 
reform would be $4,000 pay raises for Americans by March of 
2018.
    Now, of course, I was wrong. In the case of Walmart, that 
exact thing did happen, in fact. But I did not anticipate it, 
did not project it. And part of the reason why is the way I 
view the mechanism that takes tax policy and over time results 
in higher wages. So I wonder if we could explore that a little 
bit, Chairman Hassett. Thanks for being with us today. But one 
of the mechanisms is a very straightforward mechanism that we 
saw that did kick in early, which is just the additional free 
cash-flow of a lot of companies that resulted from a lower tax 
rate was something that they decided made sense to share with 
their workers, and so we saw this wave of bonuses and pay 
raises and pension contributions.
    But it seems to me there is a more profound dynamic that I 
think we have encouraged, and that is, by lowering the cost of 
capital, which we have done in a variety of ways through this 
tax reform, especially fully expensing all capital 
expenditures, that is going to lead to not just increasing 
demand for workers to deploy that capital, to use that capital, 
but it is also going to make workers more productive, which is 
a necessary precondition for higher wages. But you are the 
Chairman and you are the expert. Could you tell us a little bit 
about how you think about the mechanism that takes us from the 
tax reform that we passed to higher wages for workers over 
time? Why does that happen?
    Mr. Hassett. So, you know, it is very important to think 
about where wages can come from sustainably. One is increased 
productivity of workers from higher human capital. We could 
sure do a better job at training people and retraining people 
and get that human capital component up. But the second is that 
you give workers more physical capital to work with. And 
capital deepening's contribution to productivity growth and 
wage growth in the last few years actually turned negative for 
the first time in U.S. history, and it turned negative for the 
simple reason that we were, with our high tax rate, chasing the 
capital offshore. And so now that the capital is coming back, 
if you think about it, the share buyback data are evidence that 
the capital is coming back. It is not just sitting in the 
subsidiary in Ireland anymore, it is going to come back, and it 
is going to feed either capital formation in the firms that had 
the money offshore or in the new entrepreneurial firms that 
will issue equity and then invest in America----
    Senator Toomey. Just to interrupt for one quick second, and 
then I would like for you to continue. But if a company 
repatriates money that had been trapped offshore and returns 
that to shareholders, does that harm any worker? Is a worker 
hurt by that process?
    Mr. Hassett. No. No, it helps because what will happen is a 
shareholder will reinvest it in some other firm, which will bid 
up the demand for workers and increase wages. And that is why 
there is such strong, striking data that we talk about in the 
Economic Report linking cross-country variation in corporate 
tax rates to worker wages, because capital formation is where 
wages come from.
    Senator Toomey. So the data actually shows a correlation 
there?
    Mr. Hassett. Sure.
    Senator Toomey. Yes.
    Mr. Hassett. And that is where the $4,000 number comes 
from. It is a very modest read of the literature. I would say 
the average estimate in the literature is much larger than 
that. And $4,000, to put in perspective, Senator, in present 
value, it is not like you get $4,000 in 1 year. It is that the 
wages are going up, and they grow off the higher base.
    Senator Toomey. Right.
    Mr. Hassett. So the present value is something like $8 
trillion of that $4,000.
    Senator Toomey. My colleague from Oregon several times 
alluded to this idea that this is all being borrowed from our 
children. Now, as you know, the static score on the tax reform 
was about $1.5 trillion. That is compared to a current law 
baseline which is unrealistic in several respects. But compared 
to a current policy, which is a more realistic baseline, the 
static score was about $1 trillion. My understanding is if our 
economy grows by three-or four--tenths of 1 percent faster than 
it would have in the absence of the tax reform, Federal revenue 
will actually be greater than the current policy baseline. Is 
that your view, that we are----
    Mr. Hassett. Yes.
    Senator Toomey [continuing]. Actually going to have a 
smaller deficit, not a larger deficit? Or I should say we will 
have more revenue, not less revenue, as a result of the tax 
reform?
    Mr. Hassett. And also the debate is a little bit unfocused 
to an economist in the sense that the corporate side, as you 
know, once you net out all the international tax increases, 
because we made it harder to transfer price profit offshore, 
ended up netting $300 or $400 billion, so the $1 trillion 
dynamic score is, you know, mostly coming from the individual 
side. I think that the final score for the refundable child 
credit, which I think many people on both sides in this 
Committee supported, was $700 billion. So, again, are you 
robbing from children to give them a $700 billion child credit? 
It seems like it is an unfocused argument to me.
    Senator Toomey. Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    Senator Kaine.
    Senator Kaine. Thank you, Mr. Chair, and I am going to 
continue some of the discussion, Mr. Hassett, about taxes. I am 
going to go to my good colleague from Colorado. Do not 
associate me with those who you are saying are bitter about the 
passage. Disappointed, yes. Many of us wanted to participate. 
Many of us I think could have made it better. Instead of doing 
tax reform like President Reagan did in 1986 where he took 10 
months and got 97 votes in the Senate because it was 
bipartisan, we did 41 days and there was really no opportunity 
for those of us who have done a lot of tax reform to 
participate and make it better.
    We got a chance--Mr. Hassett, I do not know if you paid 
attention to this. We did get a chance to make 1-minute 
amendments on the reorganization of the American economy. And 
my disappointment is largely this: that it was deep and 
permanent tax cuts for corporations and modest and temporary 
tax cuts for individuals. And I think that is a fundamental 
mismatch.
    I had a 1-minute amendment that I did make on the floor, 
and I basically said this: Hey, guys, I got an idea. Let us 
reduce the corporate tax rate not to 20 but to 25--or 21 at 
that point, but to 25. But let us make all the individual tax 
cuts permanent. And if you basically do that, drop the rate to 
25, not 21, you can make all the individual tax cuts permanent, 
and it will reduce the deficit effect by about $1 trillion. And 
34 Democrats voted for it. We wanted to reduce the corporate 
tax rate. We wanted to make the individual tax cuts permanent. 
We wanted to reduce the deficit effect. But we could not get a 
single Republican vote.
    It is tax time now, so, you know, Virginians are doing 
their tax returns, just like everybody. Now Virginians doing 
their tax returns cannot completely deduct State and local 
taxation, their tax payments. There is a limit to it. 
Corporations can deduct the full amount. They are not limited 
in the deductibility of State and local taxation. But now for 
the first time, we have limited individuals, and corporations 
can do it all. I just think it was a really poor balancing of 
relief, that we could have given significant relief to American 
companies versus relief that we should have given to the 
American taxpayer.
    I want to ask you this, Mr. Hassett: Did the CEA recommend 
to the President the tariffs that were announced on steel and 
aluminum?
    Mr. Hassett. Senator, my job is to provide objective 
advice. I can tell you that as CEA Chair I am a principal in 
trade meetings in the Roosevelt Room, and, you know, those 
meetings are confidential. But----
    Senator Kaine. Let me----
    Mr. Hassett. Could I just finish one sentence? Because I am 
not dodging.
    Senator Kaine. Yes, but I do not want to ask you what you 
said----
    Mr. Hassett. I provide economic analysis. Yes, I cannot 
talk about what I said.
    Senator Kaine. Right.
    Mr. Hassett. But economic analysis of, for example, steel 
or aluminum tariffs, there has been a pretty big literature 
that shows that in the industries themselves, there is a little 
bit of an increase in employment and output, and in the 
downstream steel-consuming and aluminum--consuming industries, 
there tends to be a little bit of a loss. Those two things in 
the literature have been a small net negative. But the 232 
announcement is a national security announcement, and I think 
that the President was elected Commander in Chief. I am not a 
national security expert----
    Senator Kaine. So you basically say----
    Mr. Hassett. He thinks it is important to have----
    Senator Kaine. Let me ask you a question.
    Mr. Hassett. Sure.
    Senator Kaine. So you basically say the literature would 
say net negative, but it might be justified by the
    President's national security experts. Let me read----
    Mr. Hassett. That is correct.
    Senator Kaine [continuing]. You some quotes about this, 
what the experts have said about the proposed tariffs. ``More 
than five jobs will be lost for every one gained.'' That is the 
Trade Partnership.
    Council on Foreign Relations: ``Trump's steel tariffs could 
kill up to 40,000 auto jobs, equal to nearly one-third of the 
entire steel work force.''
    Harbor Intelligence: ``Tariffs would boost production jobs 
by about 1,900, but 23,000 to 90,000 U.S. manufacturing jobs 
will be lost.''
    MillerCoors: ``Like most brewers, we are selling an 
increasing amount of our beers in aluminum cans, and this 
action will cause aluminum prices to rise. It is likely to lead 
to job losses across the beer industry.''
    Our home builders: ``These tariffs will translate into 
higher costs for consumers and U.S. businesses that use these 
products, including home builders.''
    Auto dealers: ``Auto sales have flattened in recent months, 
and manufacturers are not prepared to absorb a sharp increase 
in the cost to build cars and trucks in America. The burden of 
these tariffs, as always, will be passed on to the American 
consumer.''
    Retailers: ``Make no mistake, this is a tax on American 
families. When costs of raw materials like steel and aluminum 
are artificially driven up, all Americans ultimately foot the 
bill in the form of higher prices for everything from canned 
goods to electronics and automobiles.''
    The Business Roundtable: ``Business Roundtable strongly 
disagrees with today's announcement because it will hurt the 
U.S. economy and American companies.''
    And the U.S. Chamber: ``These new tariffs would directly 
harm American manufacturers.''
    The President basically tweeted out and said it is easy, we 
should--trade wars are good, and when we have trade wars, we 
win big. Do you think trade wars are good?
    Mr. Hassett. In the Economic Report of the President, we 
have a big trade chapter that documents stuff that to me was 
kind of surprising. As you know, I have been before this 
Committee before but not as a trade economist. And our trade 
deals really are quite asymmetric. Even Europe charges high 
tariffs on our stuff, much higher than we charge on their 
stuff, and China----
    Senator Kaine. And they are announcing retaliatory tariffs 
last week.
    Mr. Hassett. And China is stealing our intellectual 
property, and every President--you know, I have been in DC 20 
years, and it seems like every President has talked about 
wanting to improve that situation and then failed. And 
President Trump is serious about----
    Senator Kaine. So you think this is a good move?
    Mr. Hassett. Which?
    Senator Kaine. The tariffs that were just announced that I 
am asking you about.
    Mr. Hassett. I am a team member. I support the President, 
and the 232 tariff is a national security judgment, which I am 
not an expert in, national security.
    Senator Kaine. Thanks, Mr. Chair.
    Chairman Enzi. Thank you.
    Senator Kennedy.
    Senator Kennedy. Thank you, Mr. Chairman. Doctor, welcome. 
I am sorry I was late.
    Mr. Hassett. Thank you.
    Senator Kennedy. You did your graduate work at 
Pennsylvania?
    Mr. Hassett. That is correct, sir.
    Senator Kennedy. Great. Let me just ask you a couple of 
questions as an economist. All things being equal, do you 
think--who can spend money better: the people who earned it or 
a well-intentioned Government worker?
    Mr. Hassett. The people that earned it. Usually--in fact, 
that even applies to Christmas presents. I wrote an article in 
the Washington Post about this once, that you should give 
people the money instead of picking a present because they will 
know better how to use it.
    Senator Kennedy. Let me ask you some questions about a 
small business in America. Can we agree that taxes for a small 
business--this is true for a large business, too, but let us 
talk about a small business. Can we agree that taxes for a 
small business constitutes a cost of doing business?
    Mr. Hassett. Yes.
    Senator Kennedy. So it is sort of like insurance and labor 
and paying the utility bill. Is that right?
    Mr. Hassett. That is correct.
    Senator Kennedy. Okay If we were to increase the costs to a 
small business, would that help them to expand?
    Mr. Hassett. No.
    Senator Kennedy. When you tax something, you get less of 
it. Is that right?
    Mr. Hassett. That is correct, usually.
    Senator Kennedy. So if we wanted small business women and 
small business men to expand their business, we ought to help 
them control costs, preferably lower them. Is that correct?
    Mr. Hassett. That is correct, sir.
    Senator Kennedy. Okay. That is sort of Economics 101?
    Mr. Hassett. And if you look at the NFIB Survey of Small 
Businesses, which is really a rich data source, you can see 
that small businesses have celebrated the passage of this bill 
and that their sentiment has increased dramatically over that 
time.
    Senator Kennedy. Right, but, I mean, that is kind of basic 
economics, right?
    Mr. Hassett. It is economics, but it is also visible in the 
data as well. Sometimes basic economics turns out to be wrong. 
But it is nice to see it confirmed----
    Senator Kennedy. But is that a principle that most people 
would agree is part of just basic free enterprise economics?
    Mr. Hassett. Yes.
    Senator Kennedy. Okay. So unless you were in the quad 
throwing the frisbee during Econ. 101, you would agree with 
that?
    Mr. Hassett. I think that that is correct, unless it is a 
Giffen good, which is a technical thing.
    Senator Kennedy. Okay.
    Mr. Hassett. But we do not have to talk about that in a 
Senate hearing.
    Senator Kennedy. Okay. I mean, obviously, one of the 
purposes of our tax cut bill was to attract foreign direct 
investment, and I think a lot of investors looked at America 
and said, ``God, we would love to do business there. They have 
got a stable court system, free society. You know, it looks 
like a wonderful place to live. There is just one problem. We 
do not want to pay 35 percent in taxes.'' That is kind of a 
deterrent, isn't it?
    Mr. Hassett. Yes.
    Senator Kennedy. Okay. Let us talk about infrastructure for 
a second. We moved in our Tax Code bill to a territorial system 
of taxation. Is that correct?
    Mr. Hassett. That is correct, sir.
    Senator Kennedy. We used to be non-territorial, correct?
    Mr. Hassett. ``Worldwide,'' we called it, yes.
    Senator Kennedy. Yes, We had a lot of American companies 
with business overseas that made a lot of money. They 
stockpiled it. They did not want to bring it back because they 
would have to pay 35 percent in taxes, right?
    Mr. Hassett. Yes, that is right.
    Senator Kennedy. So we made them a swell deal. They can 
bring it back now if they are liquid, if they are liquid 
overseas profits. They are going to have to pay 15 percent. Is 
that correct?
    Mr. Hassett. Yes, and it was actually even a sweeter deal 
than that in the sense that if a firm located a new operation 
offshore, then they could transfer-price their profits say to 
Ireland and post a loss in the U.S. and then get a refund on 
past taxes in the U.S. So we were basically using tax refunds 
to build foreign factories under the old code.
    Senator Kennedy. Okay How much tax money, tax revenue is 
going to be generated--roughly, just give me an answer, because 
I am going to run out of time here in a second. How much in tax 
revenue do you think will be generated by the repatriation?
    Mr. Hassett. By the repatriation of the couple of trillion? 
I would have to pull out the line item on that.
    Senator Kennedy. Give me a ballpark guess.
    Mr. Hassett. 150 billion.
    Senator Kennedy. Okay. That is a non-recurring source of 
revenue, isn't it?
    Mr. Hassett. Yes, it is.
    Senator Kennedy. Okay. And classic budgeting says you match 
up a non-recurring source of revenue with a non--recurring 
expense, right? Unless you want to create a structural deficit. 
Is that correct?
    Mr. Hassett. If you are looking at the present value, then 
you have to consider both.
    Senator Kennedy. But that is basically correct?
    Mr. Hassett. Yes.
    Senator Kennedy. Okay So why don't we spend that money on 
infrastructure instead of dumping it into the big old black 
hole of the general fund from the Federal Government where it 
is spent on God knows what?
    Mr. Hassett. You know, Senator, the tax bill passed with 
the support of everybody in the White House, and I respect the 
legislative process. They decided to do the thing exactly----
    Senator Kennedy. Well, we can change that, can't we?
    Mr. Hassett. I think moving forward, you know, especially 
in the medium and long run, as this Committee knows and as 
Senator Enzi has been a leader----
    Senator Kennedy. I get all that. I have not been here long, 
but I figured that part out. But, I mean, unless we----I am 
sorry, Mr. Chairman. I am going to wrap it up in a second. But 
unless we want a structural deficit, you do not put non-
recurring revenue into your budget, for God's sakes. My 22-
year-old knows that. You spend it on a non-recurring expense. 
Infrastructure. Would there be something better non-recurring 
than infrastructure to spend it on?
    Mr. Hassett. Again, if you generate economic growth with a 
lower cost of capital, then that is going to give you revenue, 
and then that revenue is recurring----
    Senator Kennedy. Yes, but it is not going to equal the $150 
billion. We are not----
    Mr. Hassett. It could in present value, yes. I would be 
happy in QFRs to do some math on this.
    Senator Kennedy. I mean, I am not trying to get you in 
trouble, but you need to talk to Secretary Mnuchin, because he 
keeps wanting to match up--sorry, Mr. Chairman.
    Mr. Hassett. And I got the precise estimate of the revenue 
from repatriation. It is $338 billion, so I guessed a little 
bit low.
    Senator Kennedy. All right. I heard the gavel. Man, this is 
like ``The Gong Show.''
    Mr. Hassett. He is tough.
    Senator Kennedy. I have got to stop.
    Chairman Enzi. I only let people run over by a minute.
    [Laughter.]
    Chairman Enzi. Senator Whitehouse.
    Senator Whitehouse. It is when you said it was like ``The 
Gong Show'' that the gavel really came down.
    Senator Kennedy. I know.
    Senator Whitehouse. Mr. Hassett, what is a negative 
externality?
    Mr. Hassett. A negative externality would be something like 
pollution, that if there was a factory--the classic example, 
textbook, is a factory next to a laundry that puts out dark 
fumes.
    Senator Whitehouse. And a negative externality as viewed by 
economists is a bad thing?
    Mr. Hassett. Yes.
    Senator Whitehouse. And the customary way we respond to 
that is with regulations?
    Mr. Hassett. Or with taxes. You could tax----
    Senator Whitehouse. Exactly. You could do a pollution fee--
--
    Mr. Hassett. It is called a ``green tax.'' That is correct.
    Senator Whitehouse. I want to just make a record here that 
the 2017 Draft Report to Congress on the Benefits and Costs of 
Federal Regulations that came out under the Trump 
administration says this: ``The principal findings of this 
Report are as follows:"
    Number one, ``The estimated annual benefits of major 
Federal regulations reviewed by OMB from October 1, 2006, to 
September 30, 2016, for which agencies estimated and monetized 
both benefits and costs, are in the aggregate between $219 
billion and $695 billion, while the estimated annual costs are 
in the aggregate between $59 billion and $88 billion, reported 
in 2001 dollars. In 2015 dollars, aggregate annual benefits are 
estimated to be between $287 and $911 billion and costs between 
$78 and $115 billion.''
    So those show very, very significant annual net benefits to 
those major Federal regulations, which I suspect has a lot to 
do with this problem of negative externalities.
    Mr. Hassett, I want to take you into health care. I do not 
know how weedsy you get on this, but I want to talk about 
accountable care organizations--does that ring a bell?--or the 
Medicare Shared Savings Program.
    Mr. Hassett. Yes, you are getting into the weeds----
    Senator Whitehouse. Okay. This is going to be a little 
weedsy, but I want to----
    Mr. Hassett. Okay.
    Senator Whitehouse. I want to focus on it for a reason, 
because your Economic Report criticized the accountable care 
organization effort that was a part of the Affordable Care Act, 
saying the ACA's signature cost control provisions were 
ineffective and had unintended consequences, and then went on 
about accountable care organizations.
    So I want to make a plug for these accountable care 
organizations. We have one in Rhode Island. It is called 
``Coastal Medical.'' It is a primary care provider practice. It 
is the family doctors, basically. It is one of the biggest 
providers in Rhode Island. They, before this, were trapped, as 
other providers were, in fee-for-service. You do not get any 
money unless you do something to somebody or prescribe 
something to somebody or call somebody in for a session with 
the doctor.
    Because of the ACO program, they were able to find ways to 
get reimbursed, to share the savings of driving the costs down 
for their patients. It has required changing the way that they 
provide care. They have hired people who do things like social 
work and case management. They make home visits to appropriate 
patients for various things. They have nurses on call 24/7 so 
if you wake up in the middle of the night and you feel badly, 
you can call their nurse and get a little bit of an educated 
decision about whether you need to go to the emergency room or 
not.
    They have hired pharmacists who are helping with 
pharmaceutical management, particularly of patients who take 
considerable numbers of pharmaceuticals. They have even hired 
an actuary. The head of the practice, Dr. Kurose said ``Five 
years ago, I barely knew what an actuary was. Now I have one.''
    And all of those things have improved the care for their 
patients. Patient enthusiasm for the care that they are getting 
is through the roof. They absolutely love it. The doctors love 
it. And what is interesting is that their per patient cost has 
fallen $700 since 2011. This is not a question of the rate of 
increase declining. This is an actual drop.
    Now, I think that is an important model, and we can perhaps 
argue about how much of the savings that have been generated 
Medicare should get versus what the doctors should get. But I 
hope that you would agree that where a change in the way 
doctors are compensated has enabled them to improve the way 
they treat their patients, and to do so in a way that has saved 
$700 per patient, that is a good indicator for cost of health 
care and for the direction of cost in health care.
    So I do not know if you have a reaction to that, but I do 
think----
    Mr. Hassett. Well, thank you for the plug----
    Senator Whitehouse [continuing]. If you just look at the 
Medicare billing piece of that and you are not looking at the 
endpoint, which is where did the actual cost of care go, you 
are missing the story. The real story is follow Coastal, drive 
care down by $700 per patient, and then we can worry about what 
to do with those savings.
    Mr. Hassett. So thank you. We did, in the report, review 
the academic literature and the data, but your tip about 
looking closely at Coastal Medical is a good one. As you know, 
I have noticed over time that Rhode Island has been pretty 
innovative in many areas of public policy, and it could be that 
there is variation in the effectiveness of organizations and 
that that is a particularly good one.
    Senator Whitehouse. Come visit. We will show you.
    Mr. Hassett. But we will look carefully at it, sir, and I 
look forward to working with you on that.
    Senator Whitehouse. Thank you.
    Chairman Enzi. Senator Cotton.
    Senator Cotton. Thank you. Thank you, Mr. Hassett, for your 
testimony today.
    I want to discuss wage growth over the last 40 years, also 
going forward. I have a chart that my trusty sidekick here will 
post in a moment, but it relates to a piece from the Harvard 
Business Review last October that found that since the 1970's, 
wage gains have primarily accrued to the top earners, the 
richest and those with the highest levels of education in our 
country, while wages for the bottom half have been stagnant and 
declining. So here is our trusty chart.
    You can see now what I am talking about. If you have an 
advanced degree, over the last 40 years your wages have gone up 
in real dollars by 36 percent; college degree, 30 percent; only 
a high school diploma, it has basically been stagnant, it has 
declined by 2 percent, not great; obviously, less than a high 
school diploma, it has been catastrophically bad, declined by 
17 percent.
    I specifically want to discuss the input of immigration on 
this. If the supply of labor exceeds the demand of labor, does 
that not put downward pressure on wages, especially for the 
kinds of wages for labor that we tend to import in the form of 
immigrants or non-immigrant guest workers?
    Mr. Hassett. The economics of that is accurate, yes.
    Senator Cotton. Okay So the law of supply and demand is not 
repealed magically in the labor market, as some people in 
Congress seem to imply.
    Mr. Hassett. Correct.
    Senator Cotton. Today we have about a million new 
immigrants in our country with a Green Card. The vast majority 
of those come not through employment or education based but 
through family reunification, mostly extended family 
reunification and other programs. That is one reason why the 
vast majority are unskilled and low-skilled.
    To what extent do you think the fact that the vast majority 
of our immigrants in this country are unskilled and low-skilled 
has helped explain what you see on the chart here, that we are 
bringing in people with--immigrants who have less than a high 
school degree or a high school degree as opposed to immigrants 
that have Stanford Business School and MIT Ph.D.s?
    Mr. Hassett. It is certainly a factor, Senator, and there 
is literature on this that, you know, I would be happy to, in 
written correspondence with you, review. George Borjas at 
Harvard University has studied the impact of immigration on 
low-skilled wages and found pretty big negative effects. There 
are some other papers that argue with his methodology and so 
on.
    Senator Cotton. Yes, so what do you think about--I mean, I 
tend to admire Professor Borjas' work, and I think he has done 
a good job of correcting a lot of the record on somewhat--what 
I would consider less rigorous academic research. What do you 
think of Professor Borjas' work in this area?
    Mr. Hassett. He is a great economist. But, you know, all 
work should be subject to careful scrutiny, and I would have to 
get back to you about the criticisms of the work that is----
    Senator Cotton. Let us say if we took those million 
immigrants per year, and rather than being unskilled and low-
skilled workers, if we had a million immigrants a year who 
were, say, MIT Ph.D.s or Stanford Business School graduates, 
would it relieve some of the pressure that Americans in this 
part of the income scale face?
    Mr. Hassett. It would. It would also add to economic 
growth, and the capital formation from the tax bill, though, 
should very much help that minus 17 percent number as well.
    Interestingly, in the first taxes and wages literature that 
leads to the $4,000 number, Aparna Mathur and I used blue-
collar wages, so it is actually the blue-collar wages that 
respond to corporate taxes because they are the ones that are 
using the better machines. And I think that we are about to see 
an investment explosion in the U.S. that is going to also help 
very much with that number.
    Senator Cotton. Why is that?
    Mr. Hassett. Because the capital is going to come back to 
the U.S., people are going to build plants here, and the people 
running the machines tend to be blue-collar workers that do not 
have college degrees.
    Senator Cotton. I agree with that belief. But a smarter and 
better immigration policy that is more focused on high-skilled 
workers with higher levels of educational attainment who are 
going to receive higher-than-average wages or bring higher-
than-average investment capital in this country would also work 
in tandem with that tax policy, correct, that help get these 
men and women higher wages? Which they get to keep more of now 
because of the tax bill. I know you all talked a lot about the 
tax bill this morning.
    Mr. Hassett. That is correct, sir.
    Senator Cotton. And then, finally, since we talked mostly 
about permanent immigration, Green Card holders, I want to talk 
briefly about non-immigrant visa holders, some of the 
controversial programs like the H-1B program or the H-2B 
program. Those have the same--it would have the same impact on 
wages for people who are in H-2B--let us take the H-2B program, 
so, you know, a lot of landscaping, a lot of resort work, a lot 
of ski instructors, that kind of thing. Again, if you are 
importing more of those workers, it is going to put downward 
pressure on the wages for that kind of work, correct?
    Mr. Hassett. That is correct, yes.
    Senator Cotton. In your opinion, how big is the regional or 
local effect on that? Obviously, ski instructors are not 
running around Arkansas. They are in Colorado. And resort 
workers tend to be in places on the coasts or the Great Lakes 
or the Rocky Mountains. How big an impact is the regional 
effect on those wages?
    Mr. Hassett. The regional effect can be enormous, 
especially close to an unsecured border, but also because of 
the variation in the tightness of labor markets. The last I 
checked, for example, in Colorado, there is about half an 
unemployed worker per job listing, and so that No. 1 problem 
for firms is finding workers. But there are other places where 
that is not true.
    Senator Cotton. So that is one reason why we have so many 
H-2B workers in places like ski resorts in Colorado or beach 
resorts in North Carolina or Florida, or what have you. That is 
one reason why when you go there, you hear and meet so many 
people from Eastern European countries like Poland and Czechia 
and Slovakia and Austria and so forth who come and hand out 
towels as lifeguards in the summer or work on the ski lifts in 
the wintertime. Those people could also come in from Izard 
County or Jefferson County, Arkansas, couldn't they?
    Mr. Hassett. In principle. But one of the things that has 
been a puzzle to us as we study the current job market is that 
mobility from places that need jobs to places that have jobs is 
very, very low right now, and I think that might be related to 
the variation of real estate prices and a number of other 
factors.
    Senator Cotton. I know a bunch of 18-year-olds in Arkansas 
who would love to hand out towels at Palm Beach in the 
wintertime.
    Mr. Hassett. It looks pretty good today as well with all 
the snow outside.
    Senator Cotton. Okay. Thank you, Mr. Hassett.
    Mr. Hassett. Thank you, Senator.
    Chairman Enzi. I have not taken a turn yet, but I will call 
on Senator Johnson.
    Senator Johnson. Thank you, Mr. Chairman.
    Can you leave that up for a minute? Can you leave up the 
chart?
    Senator Cotton. I am going to leave the chart up.
    Senator Johnson. Okay. I appreciate that.
    So I do not run out of time, I want to first ask a question 
that Senator Kaine raised about the lack of permanence in terms 
of individual and passthrough entity tax cuts. I obviously 
fought pretty hard for the approximately 95 percent of American 
businesses that pass through their income to the individual 
owner. Is that something--first of all, making those tax cuts 
permanent, is that something the administration would support?
    Mr. Hassett. Yes, of course. In fact, it is a key 
assumption in the President's budget.
    Senator Johnson. So it would probably be a pretty good idea 
maybe if the House and the Senate were to propose that and 
hopefully get Democrat support to make those tax cuts 
permanent. We obviously ran out of the static score that we 
were operating under with the budget resolution, correct?
    Mr. Hassett. I am very grateful that it passed the Senate, 
and I understand that is difficult and depends on complicated 
budget rules. But if it was permanent, the economic effect 
would be higher.
    Senator Johnson. And the administration would absolutely 
support making those tax cuts for individuals and passthrough 
entities permanent?
    Mr. Hassett. Yes. Director Mulvaney said that in this 
Committee room a few weeks ago as well.
    Senator Johnson. Good. Is there any caveat to the 
information that Senator Cotton put up on that chart?
    Mr. Hassett. Sure. You know, even in articles that I have 
written that it is not clear that price indices are always 
measured well, and so I think that, for example, if you were to 
ask a typical person with less than a high school diploma in 
2016 would they trade their consumption bundle with the 
consumption bundle from 1979, then they would say no.
    Senator Johnson. But, again, in terms of----
    Mr. Hassett. So I think the basic point is correct, but 
whether people are truly worse off than they were in 1979, I 
think that that could be related to problems in price index----
    Senator Johnson. But those are accurate numbers in terms of 
wage growth?
    Mr. Hassett. They are accurate numbers.
    Senator Johnson. Okay. So here is the conundrum. Like you 
mentioned in Colorado and Wisconsin, in the 7 years I have been 
a United States Senator, there is not one manufacturing plant I 
have visited--and I come from manufacturing; I have this 
experience myself--that can hire enough people, not even close. 
We developed this project taking folks from the inner city, 
busing them up to Sheboygan County, where there were 4,000 jobs 
just in that one economic zone that were going unfilled. So 
what is causing the labor shortage?
    Mr. Hassett. Well, we believe that labor force 
participation is going to recover. The previous administration 
preached that it was all the retirement of the baby boomers, 
and we think that there are a number of other factors, 
including opioid abuse, that have reduced labor force 
participation. So I think that that is one of the things that 
is a near-term opportunity. I think that if you are in a tight 
labor market area, then one thing that you should do as an 
employer is probably advertise with, you know, targeted 
messages for people in groups that have left the labor force, 
like people above 55 and so on, to get workers back.
    Senator Johnson. I came under a fair amount of criticism 
for work our Committee did talking about the opioid crisis 
somewhat being funded by Medicaid where individuals use their 
Medicaid card, you know, the people that are permanently out of 
the work force in the 25-to-54 age cohort. They are using their 
Medicaid card obtaining opioids and selling those on the open 
market to supplement their income. Isn't part of our problems 
our welfare system that pays people not to work, that creates 
the lack of mobility?
    Mr. Hassett. There are two waves in the opioid crisis. The 
first one was really from 2000 to 2010 and was based on 
prescriptions, while the price of prescriptions was dropping a 
lot in part because of generics, but also because of Medicare 
Part D and expanded coverage. After 2010, it seems like the 
dominant factor or one of the dominant factors is the switch 
toward illegal opioids, like fentanyl, that are very, very 
cheap. So I think that there are multiple factors, but 
Government policy certainly is one of the contributing factors.
    Senator Johnson. I mean, we have really limited the number 
of work requirements in transfer payment programs, correct?
    Mr. Hassett. Yes.
    Senator Johnson. Isn't that a big problem, we literally pay 
people not to work? We require no work requirement?
    Mr. Hassett. I think that work requirements that are easy 
to understand as well and apply across lots of programs, a 
universal type work requirement would be something that I think 
would be consistent with the discussions I have seen in the 
administration.
    Senator Johnson. Certainly Senator Cotton and Senator 
Perdue have been suggesting a far more merit-based immigration 
system, legal immigration system I completely support. But I 
would consider part of high skills, people who want to work 
hard as well.
    Anyway, that is all I have, Mr. Chairman. Thank you.
    Mr. Hassett. Thank you, Senator.
    Chairman Enzi. Thank you. Thanks for being here through 
almost all of the hearing. I am going to have some questions 
now. Quite a few things, a few that I have to clear up some 
possible misunderstandings on before I get into my questions.
    There were some comments about the deductibility of taxes 
being limited. The deductibility of taxes for 2017 is not 
affected.
    Mr. Hassett. It is next year, yes.
    Chairman Enzi. Everybody that is paying their 2017 taxes 
are still filing under the old laws using the old forms and do 
not have the same limitations that there will be when they file 
on their 2018 taxes.
    I would also comment that there is this comment about the 
tax cuts being temporary for individuals and then permanent for 
companies. When we were making the decisions on that, there was 
a definite reason for that, the biggest reason being that 
companies prepare a lot longer into the future in making their 
economic decisions than individuals do. In fact, individuals 
are pretty much on a year-to-year basis, except with some of 
their investments, which might get into the higher income.
    Is there a definition for ``rich''? We keep talking about 
what we are doing for the rich and against the poor. Can you 
tell me exactly where that level is?
    Mr. Hassett. I could not, Senator.
    Chairman Enzi. I cannot either. I thought that one of the 
benchmarks was established at $80,000 as being--if you are 
below $80,000 you are not rich, and if you are above $80,000 
you are rich based on some of the comments here.
    And then there were the comments about people not realizing 
these benefits yet that have been projected. Should it take a 
while? How long did you anticipate that it would be before we 
really saw differences from the Tax Cuts and Jobs Act?
    Mr. Hassett. Yes, again, I think that the literature on 
taxes and wages that allows us to look at timing suggests that 
it is 3 to 5 years. But many of the papers are long-run, which 
means that the full effect could be a little bit larger but 
take longer, so that there are papers in the chart that I waved 
a while ago that say there is $10,000, but maybe that is the 
full long-term effect. Say you get to $4,000 in the fifth year, 
and then you grow from there. Then you could imagine that--it 
depends on how far out you look, how big the effect would be. 
But, again, I was very clear throughout the debate about where 
that estimate came from and how long it would take, and it 
should not--I guess at Walmart it already did, but the full 
effect should not be there yet because it depends on the 
capital formation. And as you said, that is why the corporate 
tax is permanent. Capital formation is kind of a 20-year 
decision for a firm. They are deciding to locate a new plant 
someplace, and that takes a little bit of a while. A lot of the 
capital goods that firms would want to order in order to 
increase productivity take 6 months to get delivered. And so it 
is not something that even if they, like January 1, went crazy 
ordering stuff, then the odds of it being in place and 
affecting wages right now are pretty low.
    Chairman Enzi. So you did not feel compelled to do an 
analysis over what would happen because of the tax cuts in the 
first 2 months?
    Mr. Hassett. I did not, sir.
    Chairman Enzi. Thank you.
    The Economic Report describes the central infrastructure 
problem that we are looking at. It is clear that demand for 
that spending is not going to subside anytime soon. There seem 
to be two general options for the Committee to consider. One is 
reducing the spending to match incoming revenue or increasing 
revenue to match desired spending. Is there a better option for 
the economy? What distinctions would you make between user 
charges and taxes?
    Mr. Hassett. I think that there are pluses and minuses from 
every approach, and we go into that in great detail in the 
Economic Report of the President. I think that the headline is 
that if folks up here get it right, then it can be a big 
positive for economic growth. And then the question is, you 
know, how does one get it right, and there are lots of 
different attempts to finance infrastructure across the world 
and across the U.S. We mention things like user fees and tolls 
in addition to the gas tax if funding is one of the ways--
increased funding is one of the ways you want to go. And I 
think that that is something that inevitably Congress is going 
to have to address because as we move toward higher fuel 
economy and electric cars and so on, then the gas tax is not 
going to be able to fund all the potholes that we have to fix.
    Chairman Enzi. I always note that the Simpson-Bowles plan 
was to raise the gas tax a nickel at a time for 3 years, and 
that would have put us in pretty good shape. Now I think the 
President is proposing a nickel a year for 5 years to get us to 
the same point we would have been at had we done that, and I 
have made several speeches on that over the period of time. But 
is that a specific revenue option that the administration is 
supporting?
    Mr. Hassett. I know that it is something that I think is on 
the table. I think the administration--the President has spoken 
about the gas tax. That is, you know, a public record. But I 
think that in the Economic Report we explore all the options 
and try to present economic analysis that helps you decision 
maker decide what the best path is.
    Chairman Enzi. Of course, I keep referring to that as the 
``gas user fee.''
    Mr. Hassett. Yes.
    Chairman Enzi. You do not drive, you do not need to pay it. 
But last week 67 Senators voted to pass a bipartisan piece of 
legislation that would help out community banks across America, 
and we have not gotten into that today. Can you tell us about 
the benefits the Council believes will come from relieving the 
overly burdensome regulations that have been placed on the 
Nation's smaller banks over the last 8 years? And could you 
speak to the Council's projection for benefits of increased 
financial stability, particularly in rural communities, when 
they have that greater access to credit?
    Mr. Hassett. Right, the administration has issued a SAP in 
favor of the bill. I understand that, you know, there is 
ongoing negotiations with the House, and I think that, you 
know, respecting the legislative process is important.
    As for the economics, I think that one of the most striking 
things, in addition to the low wage growth, that I see in the 
data is the sharp decline in entrepreneurship in the U.S. and 
an especially sharp decline in rural areas that a Harvard 
professor has written a study that suggests it is related to 
the decline in community banks associated with big increases in 
regulatory costs. But I think that entrepreneurship in rural 
areas, really if you are outside of the top 20 big cities, it 
is really, really hard to be an entrepreneur now because you 
just do not have access to the relationships and the finance 
that you used to. So I think that there is a big economic 
growth upside, which is mentioned, I think, in the SAP from the 
bill like the one that is being considered in the Senate.
    Chairman Enzi. So if something like that passes, do you 
think that will have an effect on the GDP?
    Mr. Hassett. It certainly would, and I have not done a 
precise estimate. I cannot say it is 0.1 versus 0.3 or 
something like that, but the literature suggests that the 
decline in community banks has really harmed entrepreneurship, 
and entrepreneurship is one of the factors that especially 
contributes to total factor productivity growth, which has been 
especially disappointing. And so I would guess that once we did 
the full entrepreneurship estimate that we would potentially 
increase our total factor productivity growth estimate.
    Chairman Enzi. Thank you. And thank you for your testimony 
and answering the questions. We do leave the ability to ask 
questions open a little bit. I do not see my instructions here 
on how quickly that has to be in. Today? So by close of 
business today, we need to have any questions that anybody 
wants to submit to have answered, and we would appreciate a 
speedy response on that.
    Mr. Hassett. Thank you so much for inviting me. It is a 
great honor to be here.
    Chairman Enzi. We appreciate your vast knowledge on this 
and also the concise answers you gave to the questions, which 
is very helpful, too.
    Mr. Hassett. Thank you, sir.
    Chairman Enzi. So thank you for your testimony. The hearing 
is closed.
    [Whereupon, at 11:59 a.m., the Committee was adjourned.]

                     ADDITIONAL COMMITTEE QUESTIONS

    [The following submitted questions were not asked at the 
hearing but were answered by the witness subsequent to the 
hearing:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




       CBO'S BUDGET AND ECONOMIC OUTLOOK: FISCAL YEARS 2018-2028

                              ----------                               



                       WEDNESDAY, APRIL 11, 2018

                                       U.S. Senate,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:32 a.m., in 
room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Grassley, Crapo, Toomey, Corker, 
Gardner, Boozman, Cotton, Sanders, Wyden, Whitehouse, Merkley, 
Kaine, Van Hollen, and Harris.
    Staff present: Elizabeth McDonnell, Republican Staff 
Director; and Warren Gunnels, Minority Staff Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. Good morning, and welcome to our hearing on 
CBO's budget and economic outlook for fiscal years 2018 through 
2028.
    Dr. Hall, thank you for this report. As you know, this 
update was delayed from its normal release in January due to 
congressional activity at the end of last year. I appreciate 
CBO's dedication to integrating into the final product analysis 
of last December's Tax Cuts and Jobs Act as well as the 2018 
Bipartisan Budget Act and the omnibus appropriations bill. It 
is vital that this Committee have the most up-to-date 
information in order to understand the fiscal impact of the 
policies being implemented.
    This year's report, like so many before it, shines a 
spotlight on our country's unsustainable fiscal outlook. 
Automatic spending programs like Social Security and Medicare 
are growing disproportionately to the revenue and outpacing the 
economy.
    Consider this: Automatic spending will soon consume all the 
taxes and revenues the Federal Government collects, and that is 
before one dollar goes to providing for our national defense 
and other priorities funded through so--called discretionary 
spending as part of the annual appropriations process. And 70 
percent of the total increase in outlays over the next 10 years 
is from Social Security, Medicare, and net interest on 
America's debt.
    Congress must come to terms with this overspending. Our 
Government makes promises to pay for those programs without 
identifying a source of funding to ensure their sustainability. 
Dedicated taxes and fees are currently paying for less than 
half of the total mandatory spending.
    To really address this fiscal imbalance, we can either 
reduce spending or increase our projected economic growth, but 
preferably some combination of the two. The Tax Cuts and Jobs 
Act passed last year was a good first step toward growing our 
economy. It is already producing higher wages, more dollars in 
workers' paychecks, and increased domestic investment. And 
while we may have disagreements over the extent of its impact 
on the economy, both the Joint Committee on Taxation and CBO 
have confirmed that the tax cuts will have a positive impact on 
GDP growth.
    The Budget Committee continues to work toward setting a 
pro-growth legislative path for the upcoming year. Part of that 
has to be the process by which Congress budgets. We cannot 
continue to make last-minute deals that only add to our debt 
and ignore the structural policy changes needed for long-term 
sustainability or to spend money from the end of the 10-year 
period in the first year.
    The threat of a Government shutdown should not be used to 
increase spending, but, unfortunately, since the 2011 failure 
of the Joint Select Committee on Deficit Reduction that was 
created by the Budget Control Act, we have seen this outcome 
time and again, most recently culminating in the Bipartisan 
Budget Act of 2018. This new law raised the caps on regular 
discretionary spending by $296 billion over fiscal years 2018 
and 2019. CBO estimates that if appropriations were to grow at 
the rate of inflation after 2018 rather than returning to the 
Budget Control Act's lower caps, discretionary spending would 
be $1.7 trillion higher over the next 10 years than it is under 
CBO's baseline.
    Many members of this Committee have supported reforms to 
the budget and appropriations process, including automatic 
continuing resolutions and biennial budgeting. Senator Cotton 
has proposed eliminating the Budget Control Act's discretionary 
caps to end what he called the ``bust--and-boom budget cycle.'' 
We need to reform our budget and appropriations process to end 
the specter of Government shutdowns that lead to overspending. 
The truth is, however, that annual appropriations make up just 
a fraction of our total spending. To really address underlying 
problems, we need more time and effort put toward oversight and 
reducing the rate of growth of mandatory spending.
    Congress needs to focus more on addressing these autopilot 
programs in order to make them more effective and eliminate 
duplication. We need to set long-term goals to ensure a 
sustainable debt-to-GDP ratio so our overspending does not 
ultimately bankrupt the country. The continued growth of our 
national debt is something this Committee and Congress needs to 
address. A balanced budget is the best outcome, but as the 
President's fiscal year 2019 budget shows, it is getting harder 
and harder to produce. While the correct debt-to-GDP goal is 
debatable, I think we can all agree this report's projected 
path approaching 100 percent over the next 10 years is not a 
good outcome.
    Dr. Hall, I look forward to your thoughts on what actions 
Congress could take to foster a stronger U.S. economy and 
reduce spending.
    Senator Sanders.

          OPENING STATEMENT OF SENATOR BERNARD SANDERS

    Senator Sanders. Thank you very much, Mr. Chairman. And, 
Dr. Hall, thanks very much for being with us again.
    Mr. Chairman, over and over again, President Trump, his 
administration, and many of my Republican colleagues have made 
the claim that the tax plan that was passed that gave massive 
tax breaks to the richest people in this country would 
magically pay for itself.
    On September 28th, Secretary Mnuchin, the Treasury 
Secretary, said, ``Not only will this tax plan pay for itself, 
but it will pay down debt.''
    On October 22d, President Trump said this about his tax 
plan: ``If we pick up one point on GDP, that is $2.5 trillion. 
It more than pays for everything.''
    On December 4th, Senate Majority Leader McConnell said, ``I 
not only do not think the tax bill will increase the deficit, I 
think it will be beyond revenue neutral. In other words, I 
think it will produce more than enough to fill that gap.''
    And, Mr. Chairman, on December 19th, you said, Mr. 
Chairman--see, I am quoting you.
    Chairman Enzi. Thank you.
    Senator Sanders. That is how much I respect your work here. 
``I am tired of the accusations the Republican budget hawks--
and that definitely includes me''--i.e., you--``are willing to 
throw in the towel and accept a trillion and a half dollar 
deficit over the next 10 years. I am still a deficit hawk. And 
here is why: Claims to the contrary that this tax bill will go 
unpaid for are based on an incomplete analysis of the tax 
bill.''
    Fair quote?
    Chairman Enzi. Fair quote.
    Senator Sanders. Okay. Well, Mr. Chairman, the results are 
in, and the nonpartisan experts at CBO tell us that not only 
will the Trump tax plan not pay for itself, it will add nearly 
$1.9 trillion to the Federal deficit over the next 11 years, 
even after taking economic growth into account. And the Trump 
tax cut is not the only Republican policy that has increased 
the deficit and the national debt over the past 17 years. There 
are wars, there are massive increases in military spending that 
have added to the problems.
    So here we are, and this is a point, Mr. Chairman, that I 
want to make. When we talk about the Government, we have got to 
talk about the American people, not just the Government. We 
have got to talk about a declining middle class. We have got to 
talk about 40 million people living in poverty. We have to talk 
about the massive level of income and wealth inequality that 
exists in America.
    You just talked about it, if I may say, really about the 
necessity, in your view, about cutting Social Security and 
Medicare. And I think that that is a very, very wrong idea. 
When you have got millions of seniors in Vermont, Wyoming, and 
all over this country trying to get by on $12,000, $13,000, 
$14,000 a year, what we should not be doing as a Nation is 
giving unbelievable tax breaks to billionaires, and then say, 
``Oh, we have got to cut Social Security or take away health 
care benefits from the elderly in this country.'' That is a 
warped sense of priorities, in my view.
    So I think when we talk about the budget, we have to talk 
about it in the broader context of what is happening in 
America. And what is happening in America is we are seeing a 
massive increase in income and wealth inequality. Does anybody 
here want to defend the fact that three people in America now 
own more wealth than the bottom half of the American people? Do 
we want to defend the reality that a very significant amount of 
new income today is going to the top 1 percent?
    So our job is to create an economy that works for all of 
us, and you do not do that, as the President proposed, by a $1 
trillion cut in Medicaid, $500 billion in Medicare. You do not 
do that by cutting Social Security. What you do do is say to 
the wealthiest people in this country, who in many ways have 
never had it so good, you recognize the fact that income and 
wealth inequality is worse today than at any time since the 
1920's, you say to those people, ``Start paying your fair share 
of taxes.'' And maybe we also may want to think about why we 
are expanding, increasing military spending by $165 billion 
over the next 2 years when you have veterans in this country 
sleeping out on the street.
    So the bottom line is, Mr. Chairman, the President's tax 
plan is not going to lower the deficit. According to the CBO, 
it is going to increase the deficit. And the time is long 
overdue for us to get our priorities right, start protecting 
working families and the middle class, not just wealthy 
campaign contributors.
    Thank you.
    Chairman Enzi. Thank you, and I appreciate you quoting me. 
But later, when you said that I said cut Medicare and Social 
Security, I have never said cut them.
    Senator Sanders. Okay. Then what did you mean when you 
talked about entitlement programs, when you talked about those 
programs? What do you mean by that?
    Chairman Enzi. I think you missed the part about some of 
the duplication and effectiveness of making those programs, and 
I did not rule out an increase in the revenues for them. 
Something has to be done, and it needs to be a combination, is 
what I said.
    Senator Sanders. All right. If I misquoted you, then I am 
sorry. But some of your colleagues, especially in the House, 
have talked about cuts to Social Security and Medicare.
    Chairman Enzi. Thank you.
    Our witness this morning is Dr. Keith Hall, the Director of 
the Congressional Budget Office. Earlier this year he appeared 
before this Committee to discuss CBO's work and his efforts to 
increase responsiveness and transparency at the agency. This 
morning Dr. Hall will be talking to us about CBO's latest 
projections and the challenges we face as a Nation. We look 
forward to receiving your testimony.
    For the information of colleagues, Dr. Hall will take up to 
about 7 minutes for his opening statement, followed by 
questions.
    Welcome, Dr. Hall. Please begin.

    STATEMENT OF THE HONORABLE KEITH HALL, PH.D., DIRECTOR, 
                  CONGRESSIONAL BUDGET OFFICE

    Dr. Hall. Chairman Enzi, Ranking Member Sanders, and 
members of the Committee, thank you for inviting me to testify 
about the Congressional Budget Office's most recent analysis of 
the outlook for the budget and the economy. My statement 
summarizes CBO's new baseline budget projections and economic 
forecast, which the agency released on Monday.
    In the Congressional Budget Office's baseline projections, 
which incorporate the assumption that current laws governing 
taxes and spending generally remain unchanged, the Federal 
budget deficit grows substantially over the next few years. 
Later on, between 2023 and 2028, it stabilizes in relation to 
the size of the economy, though at a high level.
    As a result, Federal debt is projected to be on a steadily 
rising trajectory throughout the coming decade, approaching 100 
percent of gross domestic product by 2028.
    Projected deficits over the 2018-2027 period have increased 
markedly since we issued our last budget and economic 
projections in June 2017. The increase stems primarily from tax 
and spending legislation enacted since then, especially the 
2017 tax act, the Bipartisan Budget Act of 2018, and the 
Consolidated Appropriations Act of 2018.
    In our economic projections, which underlie our budget 
projections, inflation-adjusted GDP or real GDP expands by 3.3 
percent this year and by 2.4 percent in 2019. Most of this 
growth is driven by consumer spending and business investment, 
but Federal spending also contributes a significant amount this 
year.
    Growth of real GDP exceeds the growth of real potential GDP 
over the next 2 years. This marked cyclical path in real GDP 
will occur in large part because the recent legislation 
provides significant fiscal stimulus at a time when there is 
very little slack in the economy. Those effects, as well as the 
larger Federal budget deficits resulting from the new laws, 
exert upward pressure on interest rates and prices. During the 
2020-2026 period, those factors, along with slower growth in 
Federal outlays and the expiration of reductions in personal 
income tax rates, dampen economic growth. After 2026, economic 
growth is projected to rise slightly, matching the growth rate 
of potential output by 2028.
    Between 2018 and 2028, real actual output and real 
potential output alike are projected to expand at an average 
annual rate of 1.9 percent. In our forecast, the growth of 
potential GDP is the key determinant of the growth of actual 
GDP through 2028 because actual output is very near its 
potential level right now and is projected to be near its 
potential level at the end of the period.
    Potential output is projected to grow more quickly than it 
has since the start of the 2007-2009 recession, as the growth 
of productivity increases to nearly its average over the past 
25 years. Nonetheless, potential output is projected to grow 
more slowly than it did in earlier decades, held down by slower 
growth of the labor force, which results partly from the 
ongoing retirement of baby boomers.
    In our projections, the effects of the 2017 tax act on 
incentives to work, save, and invest raise real potential GDP 
through the 2018-2028 period. Over the same period, the tax act 
is projected to boost the level of real GDP by an average of 
0.7 percent and nonfarm payroll employment by an average of 1.1 
million jobs.
    Our current economic projections differ from those that we 
made in June 2017 in a number of ways. The most significant is 
that potential and actual real GDP are projected to grow more 
quickly over the next few years. Projected output is greater 
because of recently enacted legislation, data that has become 
available after our previous economic projections were 
completed, and improvements in our analytical methods.
    Over the next decade, the unemployment rate is lower in our 
current projections than in our previous ones, particularly 
during the next few years, when economic stimulus boosts demand 
for labor. Also, both short-and long-term interest rates are 
projected to be higher, on average, from 2018 to 2023.
    Turning to the budget projections, we estimate that the 
2018 budget deficit will total $804 billion, $139 billion more 
than the $665 billion shortfall recorded in 2017. In our 
projections, budget deficits continue increasing after 2018. As 
deficits accumulate, debt held by the public rises from 78 
percent of GDP, or $16 trillion, at the end of this year to 96 
percent of GDP, or $29 trillion, by 2028. That percentage would 
be the largest since 1946 and well more than twice the average 
over the past five decades.
    For the next few years, revenues hover near their 2018 
level of 16.6 percent of GDP in our projections. Then they rise 
steadily, reaching 17.5 percent of GDP by 2025. At the end of 
that year, many provisions of the 2017 tax act expire, causing 
receipts to rise sharply--to 18.1 percent of GDP in 2026 and 
18.5 percent in 2027 and 2028. They have averaged 17.4 percent 
of GDP over the past 50 years.
    In our projections, outlays for the next 3 years remain 
near 21 percent of GDP, which is higher than their average of 
20.3 percent over the past 50 years. After that, outlays grow 
more quickly than the economy does. That increase reflects 
significant growth in mandatory spending, mainly because the 
aging of the population and rising health care costs per 
beneficiary are projected to increase spending for Social 
Security and Medicare, among other programs. It also reflects 
significant growth in interest costs, which are projected to 
grow more quickly than any other major component of the budget, 
the result of rising interest rates and mounting debt. By 2028, 
net outlays for interest are projected to be roughly triple 
what they are in dollar terms this year, roughly double when 
measured as a percent of GDP. In contrast, discretionary 
spending is expected to decline in relation to the size of the 
economy.
    For the 2018-2027 period, we now project a cumulative 
deficit that is $1.6 trillion larger than the $10.1 trillion 
deficit that we anticipated in June. Projected revenues are 
lower by $1 trillion, and projected outlays are higher by half 
a trillion.
    Laws enacted since June 2017--above all, the three 
mentioned earlier--are estimated to make the cumulative deficit 
$2.7 trillion larger than previously projected between 2018 and 
2027. However, revisions to our economic projections caused us 
to reduce our estimate of the cumulative deficit by $1 trillion 
over the same period, mainly because of the expectations of 
faster growth in the economy and in wages and corporate 
profits. Other changes had relatively small effects on the 
projections.
    CBO also analyzed an alternative scenario in which current 
law was altered to maintain major policies that are now in 
place, so that substantial tax increases and spending cuts 
would not take place as scheduled under current law, and to 
provide more typical amounts of emergency funding than the sums 
provided for in 2018. In that scenario, far larger deficits and 
much greater debt would result than in CBO's current baseline 
projections. Debt held by the public would reach about 105 
percent of GDP by the end of 2028, an amount that has been 
exceeded only once in the Nation's history. Moreover, the 
pressures contributing to that rise would accelerate and push 
debt up even more sharply in subsequent decades. Such high and 
rising debt would have serious negative consequences for the 
budget and the Nation; in particular, the likelihood of a 
fiscal crisis in the United States would increase.
    I appreciate the invitation to testify today about CBO's 
budget and economic outlook. I would be happy to answer 
questions.
    [The prepared statement of Dr. Hall follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Enzi. Thank you for your testimony and even more 
for the expanded documents that you do to help us to know where 
things are going.
    We will now begin a round of questions, and I think 
everybody knows how we alternate back and forth, and it is 
based on being here at the sound of the gavel or arrival since 
that time. So I will begin my questions.
    The Tax Cuts and Jobs Act has already stimulated the 
economy, putting more dollars in the hands of hardworking 
Americans and businesses for investments. As we look forward to 
the reduction in the business tax rates, they are incentivizing 
more work and higher investment. And I noticed in your chart on 
Table 2 that revenues grow every single year. I noticed that 
outlays grow every single year, too, and more substantially 
than revenues do, which is the problem that we need to solve.
    Can you expand on the expected individual and business 
response to the tax bill in the medium term?
    Dr. Hall. Sure. We have forecasted that the tax act will 
encourage savings, investment, and work. The reduction in the 
lower tax rates and the bonus expensing we think will lower the 
user cost of capital, increase investment in the economy, and 
boost GDP growth. We also see that the effective marginal tax 
rates on labor income is also down. We think that will increase 
labor force participation, hours worked, and increase 
employment throughout the 10-year period.
    We also think that the reduction in effective marginal tax 
rates on both capital and labor will have a significant effect, 
and I think our average boost to GDP over the 10--year period 
is 0.7 percentage points higher over the 10-year period because 
of the tax act.
    Chairman Enzi. Excluding intergovernmental transfers and 
counting only income from sources outside the Government, such 
as Social Security payroll taxes and Medicare premiums, you 
estimate that the trust fund programs will add to the deficits 
through the 2019-2028 period by amounts that grow from $655 
billion in 2019 to $1.5 trillion in 2028. These trust fund 
programs will add a total of $10.2 trillion to the deficit over 
the 10-year budget window.
    Is the current trajectory of these programs fiscally 
sustainable? And without legislative action, which year do you 
project that the Social Security Disability Trust Fund and 
Medicare's Hospital Insurance Trust Fund will be exhausted? Not 
that I am suggesting cuts in those. I am suggesting solutions.
    Dr. Hall. Well, the aging of the population and the rise in 
health care costs we think will--are the major forces driving 
the big increase in the deficit over the next 10 years and 
beyond. That is exactly right. The Health Insurance Fund, for 
example, we think is going to run out of money in 2026. We have 
not re-estimated the Old Age and Survivors Insurance Program, 
but our last estimate was that that will be exhausted in 2031.
    Chairman Enzi. Thank you. The latest baseline includes more 
than $14 trillion in discretionary spending over the next 10 
years. While the Armed Services Committee is able to authorize 
its spending each year, many of the nondefense programs remain 
unauthorized, a problem that persists. I know that CBO prepares 
a report each year on unauthorized appropriations, but this 
year it was released prior to final appropriations being 
enacted.
    Assuming defense continues to be authorized on an annual 
basis, do you have an estimate of what portion of this $14 
trillion in your current baseline is unauthorized?
    Dr. Hall. We really do not. The last estimate we did was 
2016, and it was a pretty large number. It was about $310 
billion. We have not updated the estimate. We do not really 
want to forecast too much because, obviously, Congress decides 
what to authorize going forward, so that number could change.
    Chairman Enzi. Okay. I think we will be interested in 
getting that number, anyway.
    Dr. Hall. Okay.
    Chairman Enzi. The Tax Cuts and Jobs Act made the corporate 
rate permanent to ensure long-term investment decisions that 
businesses have to make over the show the U.S. as a competitive 
market.
    Dr. Hall, does the lower statutory corporate rate encourage 
firms to locate their establishments domestically?
    Dr. Hall. Yes, we do believe that the overall effect of the 
tax act is to make the U.S. a more appealing location for 
business activity. So we actually do see that the reduction in 
corporate rates and some of the changes in the international 
tax system will boost investment and actually increase 
investment in the United States from abroad.
    Chairman Enzi. Thank you. My time has expired.
    Dr. Sanders.
    Senator Sanders. Thank you for the doctorate.
    Chairman Enzi. Sure.
    [Laughter.]
    Senator Sanders. I barely made it through college, though.
    Dr. Hall, as you know, President Trump and some of my 
Republican colleagues said over and over again that the tax cut 
bill would pay for itself. On page 128 of your report on the 
budget and the economy, however, the CBO projects that the 
Trump tax plan will increase the deficit by nearly $1.9 
trillion over the next 11 years. Is that correct?
    Dr. Hall. That is correct.
    Senator Sanders. Okay. So, my friends, at the end of how 
many hours we have sat in this room hearing about the benefits 
of trickle-down economics that magically, if you give tax 
breaks to billionaires, it is going to create all the growth, 
and tax revenues will increase to overcome the deficit, turns 
out not to be true.
    Dr. Hall, President Trump, among others, has claimed that--
this is a quote from Trump--``The rich will not be gaining at 
all with this tax plan.'' But according to the Tax Policy 
Center, by the end of the decade, 83 percent of the benefits of 
the Trump tax plan go to the top 1 percent and 60 percent of 
the benefits go to the top one-tenth of 1 percent. Is that 
roughly accurate?
    Dr. Hall. I think that is their estimate. We have not done 
a similar calculation, though.
    Senator Sanders. So, in other words, what we are talking 
about is a tax plan that significantly grows the deficit and 
almost all of the benefits go to the very, very wealthiest 
people in this country.
    One of the issues that concerns me is that what we are 
seeing happening to working families all across this country--
and, Dr. Hall, I do not know if you have even seen it, but a 
report came out literally today from the Bureau of Labor 
Statistics, and the report tells us that the average worker in 
America has seen zero wage growth over the past year after 
adjusting for inflation.
    In March 2017, the typical non-manager in America made 
about $22.60 an hour. In March 2018, that same worker made the 
same $22.60 an hour. Does that sound roughly right to you.
    Dr. Hall. It does sound roughly right, yes.
    Senator Sanders. So what I would say--and, Dr. Hall, while 
we are at it, talk a little bit about income and wealth 
inequality. Is it true, based on your understanding, that the 
three wealthiest people in this country now own more wealth 
than the bottom half of the American people?
    Dr. Hall. That I do not know. We did just release a report. 
I do not have the numbers in my head. We did just release a 
report in the past few weeks, actually, about income inequality 
that is worth looking at.
    Senator Sanders. Okay. Well, we will do that.
    My colleague from Wyoming, the Chairman, talked about 
Social Security and Medicare. I introduced legislation that 
would lift the cap on taxable Social Security income for people 
making $250,000 a year or more. Now, everybody is concerned 
about the financial future of Social Security. That is a 
legitimate concern.
    Correct me if I am wrong here, but according to the Social 
Security Administration, if you lift the cap on income of 
$250,000 or more, which is just the very highest income earners 
in this country, Social Security will be solvent for the next 
60 years, and we can increase benefits for lower-income Social 
Security beneficiaries. Does that sound right to you?
    Dr. Hall. I do not know if that is true or not. I have not 
looked at----
    Senator Sanders. According to the Social Security 
Administration. So for all people who are concerned about the 
solvency in Social Security, the answer is not to cut benefits, 
but at a time of massive income and wealth inequality, to ask 
the people on top to start paying their fair share of taxes so 
that we can protect the many, many millions of people today who 
are struggling to keep their heads above water in my State, and 
I am sure in every State represented in this room. And we do 
not talk about this enough. Mr. Chairman, it might be worth a 
hearing on this. You have got a lot of elderly people who are 
cutting their prescription drugs in half, cannot afford the 
medicine that they need, cannot afford to keep warm in the 
wintertime. We have a real crisis in terms of poverty among 
elderly people in this country, and the answer is not to be 
talking about cutting Social Security or Medicare. The answer 
is to be strengthening those programs through a fairer tax 
system.
    Thank you very much, Dr. Hall, and thank you, Mr. Chairman.
    Chairman Enzi. Senator Grassley.
    Senator Grassley. Thank you for your work, Director Hall. 
Sorry that there is such a bleak picture painted. Having the 
public debt go from 78 percent to 96 percent of gross national 
product is not very good news. I hope Congress thinks about the 
impact on our children and grandchildren with that debt and 
deficit.
    My colleagues on the other side of the aisle want to make 
this all about revenue and the historic tax cuts that we 
enacted. I think that that completely disregards the positive 
economic effects of these reforms that I think you pointed out 
in your exchange with the Chairman.
    So my first question is kind of carrying on where the 
Chairman left off: Is it not accurate, based on your analysis, 
that the tax reforms enacted last year will increase economic 
growth, lead to lower unemployment, increase hours worked, 
increase capital investment, and increase wages?
    Dr. Hall. Yes, those are all true.
    Senator Grassley. So then I have to conclude that when 
Democrats say that they want to repeal tax reforms, they are 
really telling the American people that they want fewer jobs 
and lower wages, and no American is going to think that is 
acceptable.
    Based on your analysis, how would allowing the individual 
tax reforms to expire after 2025 impact the economy?
    Dr. Hall. Well, we think that would be sort of the opposite 
of stimulus. We actually do think it will help slow growth. One 
of the reasons we did the alternative scenario was to assume 
that some of those things like the tax rates do not expire and 
they continue, to give you an idea of that.
    Senator Grassley. Okay. Instead of asking a question, 
unless you disagree with this percentage, I am going to say 
that revenue as a percentage of GDP has averaged 17.4 percent 
over the last 50 years. According to your analysis, what will 
revenue as a percentage of GDP be in 2025, which is prior to 
the expiration of the individual tax reforms?
    Dr. Hall. I forget the number. I think it is somewhere 
north of 18 percent of GDP, so it is a bit higher.
    Senator Grassley. Well, if you are saying north of 18 
percent, then that is even better than what I thought it was 
going to be, 17.5. So even with the tax cuts enacted last year 
fully in effect, revenue as a percentage of GDP will exceed the 
historic average.
    Dr. Hall. That is right, and I did misspeak. I got the year 
wrong. You are right, it is 17.5 percent in 2025. I was looking 
at the next year.
    Senator Grassley. Now, turning to spending, is it correct 
that over the past 50 years spending has averaged about 20.3 
percent of GDP?
    Dr. Hall. Yes.
    Senator Grassley. And what do you project spending to 
average over the next 10 years as a percentage of GDP?
    Dr. Hall. I do not have the number right in front of me, I 
am sorry, but it is something north of 21 percent.
    Senator Grassley. Yes, I think quite a bit north.
    Dr. Hall. Okay.
    Senator Grassley. I do not know whether these figures come 
from you, but I have down here 22.4, reaching 23.6 in 2028.
    Dr. Hall. That sounds right. I am sure that is----
    Senator Grassley. And what are the primary drivers of 
spending growth?
    Dr. Hall. Well, the primary drivers are things related to 
the aging population and health care costs. So it is things 
like Medicare, Medicaid, and the entitlements because of the 
aging population.
    Senator Grassley. And I think I agree with that. I do not 
know whether these percentages are accurate, but they take up 
12.9 percent of GDP today, and that is going to go up to 14.9, 
while discretionary spending, that part that we appropriate 
every year, is projected to fall 1 percentage point.
    So, in sum, revenues, even with tax cuts, will remain on a 
par with historic averages, but spending is set to increase 
significantly over historic norms. It seems to me that if we 
are going to get control of our growing debt and deficits, our 
focus needs to be on the spending side, particularly mandatory 
spending programs.
    I yield.
    Chairman Enzi. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman. Dr. Hall, good to 
see you again, and your professionalism is always appreciated.
    Here in this room, a bipartisan tax reform bill was 
produced by then-Chairman Judd Gregg, and I was proud to be one 
of the sponsors of it. Our approach would have put the bulk of 
the tax relief into the pockets of the middle class rather than 
the multinational corporations. Unfortunately, our colleagues 
on the other side rejected that bipartisan approach, and 
others, and decided to put the massive tax cuts for the 
multinational corporations on the national credit card. So let 
me keep you clear of politics and let us just walk through a 
couple of numbers so we can be clear about this.
    In the updated outlook, you all estimate that the Trump tax 
law is going to increase the deficit by almost $1.9 trillion 
over the budget window, even after taking economic feedback, 
economic possibilities into account. Nearly $600 billion of 
that cost is due just to bigger interest payments on all this 
new debt.
    So here is my question, and just apropos of the numbers: 
Besides slashing Social Security, Medicare, and Medicaid, I do 
not know where else Republicans could possibly go to pay for 
this $1.9 trillion in debt largely going to the multinational 
corporations. In fact, when I sort of strip the budget down, it 
would seem to me that cutting the defense budget would be the 
only other realistic option.
    What is missing here with that analysis?
    Dr. Hall. Well, you know, I do not want to make 
recommendations, I suppose, on how to fix the problem.
    Senator Wyden. I do not want you to. I just want to hear--I 
mean, I guess when I looked at it last night, I said maybe they 
could cut everything discretionary like NIH, and we would lose 
the prospects of research. But, basically, other than the 
Defense Department and cutting that, where else would they go 
or could they go other than Social Security, Medicare, and 
Medicaid?
    Dr. Hall. I actually have one of my favorite figures here 
that gives you a little bit of insight from the report, Figure 
4.3. Right now net interest alone is about 1.6 percent of GDP, 
and that number is going to triple, just the net interest 
payments is going to triple over the next 10 years, and that 
will become about 3.1 percent of GDP. That is bigger than all 
of defense spending, discretionary spending. It is bigger than 
all of nondefense discretionary spending. So my point is that 
the interest cost is starting to just swamp things like defense 
spending and nondefense spending. So whatever the fix is going 
to be, it needs to be something that is pretty big.
    Senator Wyden. So you cannot just wave your hands and sort 
of throw up fairy dust and say you are going to drive down the 
debt. I am just looking at three ranges of kind of numbers. One 
of them, when you have that amount of debt, is--and this is 
where I think they are going, is Social Security, Medicare, and 
Medicaid, and I base that on their budget proposal for this 
year. Then I think you could wipe out the discretionary budget, 
NIH and parks and the like. But I cannot see any other 
budgetary real estate.
    I know my time is almost up. Can you give me some examples 
for other possibilities than what I mentioned?
    Dr. Hall. Well, I think looking at that figure, it gives 
you some idea of sort of where the buckets are. But even that 
is sort of underestimating the problem because that is just the 
interest cost. That is just getting a deficit down toward zero. 
We then would have a huge amount of debt sitting out there. So 
I think the problem is even more extreme than that.
    Senator Wyden. Well, I am not going to pummel this any 
longer, and you have certainly made a very good point with 
respect to the debt. But when the growth projections are 
nowhere near what was promised, No. 1, the middle class are not 
seeing what they were told they were going to get, which was a 
$4,000 pay raise, and the middle class drives 70 percent of the 
American economy, I do not see how growth is going to get you 
close to paying for that $1.9 trillion that was put on the 
credit card, and it still leaves us with a safety net and 
defense, unless you want to cut the discretionary programs, and 
I do not see that being proposed either. So I will look forward 
to talking with you about this more, and I certainly share your 
view about the debt.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    Senator Corker.
    Senator Corker. Mr. Chairman, thank you. And, Dr. Hall, 
thank you for being here. I have several committee assignments, 
like most people here, and this has nothing to do with our 
leadership. I find this to be the least serious Committee that 
I serve on, but we thank you for being here today. And it seems 
like it is always sort of a partisan, whoever is in charge, tit 
for tat. None of us have covered ourselves in glory. This 
Congress and this administration likely will go down as one of 
the most fiscally irresponsible administrations and Congresses 
that we have had.
    My best vote, one of the best votes I have made here was 
the Budget Control Act of 2011, and we did not finish the work 
by leaving in the sequester, by making the cuts that needed to 
be made. I was not on the special committee. I do not know if 
anybody here was. But we did not finish our work, and so we 
ended up with a sequester. But it was the best vote that I have 
made in that we at least capped domestic spending for a period 
of time. It would have been better if we did our work.
    You have talked about the cost of this tax bill, and if it 
ends up costing what has been laid out here, it could well be 
one of the worst votes I have made. I hope that is not the 
case, and I hope there is other data to assist, whether it is 
jobs or growth or whatever, but I want to get back to that in a 
moment.
    But the thing that is never talked about here is we--the 
bipartisan budget--Maya MacGuineas' group just did an analysis 
on the bipartisan budget agreement that we just passed. You did 
not do that in your papers because it had just happened. But I 
think you are saying that the tax bill could add $1.9 trillion 
in debt over the next 10 years. The spending bill that we just 
passed, if policy continued, would be $2.1 trillion. Would you 
say that what we did in fairness, passing the spending bill we 
just passed, would add about the same order of magnitude of 
indebtedness over a 10--year period as the tax bill?
    Dr. Hall. Yes, actually, we do have a bit of an estimate. I 
think the add to discretionary spending from those two bills is 
about $650 billion over 10 years.
    Senator Corker. The what?
    Dr. Hall. The Bipartisan Budget Act and the omnibus, they 
combine to add about $650 billion to the deficit over 10 years.
    Senator Corker. Not under current policy.
    Dr. Hall. That is under----
    Senator Corker. Surely do not tell me that, or you are 
going to lose all credibility. $650 billion in debt, current 
policy over what we just passed?
    Dr. Hall. Yes. About $305 billion of that is from exceeding 
the caps, and then another $330 billion to spending not subject 
to the caps.
    Senator Corker. So if you add $150 billion a year in 
spending over 10--we added $150 billion to the baseline, did we 
not?
    Dr. Hall. You mean in----
    Senator Corker. We just added $150 billion to the baseline. 
How could you multiply that by 10 and come up with $650 
billion? I mean, with any growth at all, it is going to be in 
the $2 trillion range when you include debt service.
    Dr. Hall. Right, right. If you look at Table A-1, we have 
got the change, changes in our budget forecast since June 2017. 
If you look under discretionary outlays, you will see that we 
have a forecast here of discretionary outlays adding around 
$650 billion to the deficit over the 10 years that did not 
exist before.
    Senator Corker. If you keep current policy in place?
    Dr. Hall. Right. That is right.
    Senator Corker. I want to followup with you on that.
    Dr. Hall. OK, sure.
    Senator Corker. That cannot be accurate. I mean, you just 
do the math, you add $150 billion to the baseline, you multiple 
it by 10, it cannot be accurate.
    But, anyway, the point is that we have had both spending 
that has increased the deficit and tax reform that has 
increased the deficit. Is that correct?
    Dr. Hall. That is right.
    Senator Corker. So, really, we have had both sides of the 
aisle--the only three people on this Committee that have not 
been involved in increasing the deficit over the last 15 months 
are Senator Harris, Senator Sanders, and Senator Merkley. And I 
do not think it is because they are fiscal conservatives. I 
think it is because they did not agree with the priorities that 
were in these bills. But they are the only three that have not 
participated in increasing the deficit. We all have 
participated. I voted against the spending. Some of you voted 
against the tax bill. But let us face it, I mean, both sides of 
the aisle are totally remiss as it relates to deficits. And, I 
mean, I listen to this partisan bickering over blaming people. 
It is ridiculous. We are absolutely not capable of dealing with 
our country's finances. And, of course, a big part of it is the 
American people do not really want it to be controlled.
    I want to get back with you on the numbers, and I know my 
time is up. The thing that is confusing to me, I noticed that--
and I will close with this--On page 117, you have got the 
growth at 0.7 percent, an average increase growth of 0.7 
percent over the 10-year period. And we were looking at an 
average growth increase of 0.4 percent paying for this bill 
that was passed, the tax reform bill. And I am just confused as 
to whether that is just a seven-tenths increase in the baseline 
and there really is not that much growth. I am confused over 
that, so I want to get back to you on that. I know my time is 
up.
    Dr. Hall. One thing that might be confusing you, that is a 
level. So we think GDP on average the level would be seven-
tenths higher over 10 years on average.
    Chairman Enzi. Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. And, Dr. Hall, 
I want to start by thanking you and your team for your 
nonpartisan, professional work. And as your report clearly 
indicates, the claims that the recent tax cut would pay for 
itself were pure fantasy. You indicate here that even with 
additional economic growth, the debt will increase by close to 
$2 trillion over 10 years.
    I want to dig down a little bit into the different impact 
this tax bill has on gross domestic product versus gross 
national product, because both are measures of our economy, but 
am I correct in saying that gross national product is a better 
measure of the income that comes to the people of the United 
States?
    Dr. Hall. That is right. Gross domestic product focuses on 
where things are made, and gross national product focuses on 
who gets the income from what is made.
    Senator Van Hollen. Right. So to the extent that the 
Republican tax law boosts gross domestic product more than 
gross national product, it is because some of that income from 
increased economic activity is flowing to foreigners instead of 
Americans, right?
    Dr. Hall. Right, and one of the big reasons is the big 
increase in borrowing that we are having to do, both privately 
and publicly. It is coming from abroad, so when you borrow 
money, you owe interest payments, and those interest payments 
are income that flow out of the country.
    Senator Van Hollen. Right. And it is also a fact that if 
you look at the stock of American companies, 35 percent of that 
stock is currently owned by foreigners, so when there is a 
stock buyback, that is money that flows directly into the 
pockets of somebody overseas, non-Americans.
    In fact, if you dig into your report, you find that by 
2028, CBO concludes that the Republican tax law boosts gross 
domestic product by 0.5 percent but boosts gross national 
product by only 0.1 percent. Is that right?
    Dr. Hall. That is correct.
    Senator Van Hollen. All right. So doesn't this mean that 
roughly 80 percent of the income from the increased activity of 
the tax plan in the final year when it has fully kicked in is 
going to foreigners?
    Dr. Hall. I am not sure I would characterize it that way, 
but I get your point about----
    Senator Van Hollen. Well, Dr. Hall, you just said that GDP 
is a measure of the total economy, and the difference between 
GNP and GDP is the amount that is going to foreigners.
    Dr. Hall. Sure.
    Senator Van Hollen. So you are finding that GDP is growing 
a lot faster in year 10 than GNP, right?
    Dr. Hall. That is right.
    Senator Van Hollen. And, in fact, it is five times faster, 
right?
    Dr. Hall. Right.
    Senator Van Hollen. All right. So I just want to be clear, 
Mr. Chairman: 80 percent of the benefit of increased economic 
activity from the tax law is going into the pockets of 
foreigners. So every dollar of increased economic activity in 
2028, 80 cents of that is not going into the pockets of 
hardworking Americans that the Chairman referred to. It is 
going into the pockets of foreigners. Right?
    Dr. Hall. Well, you know, I think--your calculation is 
right. I am just not sure that is exactly how I would look at 
the benefits of or the impact of the tax act by just----
    Senator Van Hollen. Well, as you said, it is in your 
report. Let me ask you about----
    Dr. Hall. I am not trying to argue with you. I am just----
    Senator Van Hollen. Let me ask you about two parts of the 
plan that I tried to spend a lot of time on the floor warning 
my colleagues about, and this has to do with the foreign 
minimum tax. Here it is called the ``global intangible low-tax 
income,'' GILTI for short.
    Dr. Hall. Right.
    Senator Van Hollen. You are familiar with that piece?
    Dr. Hall. Yes.
    Senator Van Hollen. And then there is another part that is 
a deduction for profits from foreign sales, which they call the 
``FDII,'' or ``fiddy,'' right?
    Dr. Hall. That is right.
    Senator Van Hollen. Okay. And on page 109 of your report, 
you state, ``By locating more tangible assets abroad, a 
corporation is able to reduce the amount of foreign income that 
is categorized as GILTI. Similarly, by locating fewer tangible 
assets in the United States, a corporation can increase the 
amount of U.S. income that can be deducted as FDII.'' And you 
conclude, ``Together, the provisions may increase corporations' 
incentive to locate tangible assets abroad.''
    Just to translate into English, when we talk about moving 
tangible assets abroad, we are talking about things like plant 
and equipment and that kind of thing, right?
    Dr. Hall. Right, although I do not want to exaggerate that. 
Part of what we were doing there is pointing out that it is 
pretty complicated, and it----
    Senator Van Hollen. Dr. Hall, I am just reading from your 
report----
    Dr. Hall. I understand.
    Senator Van Hollen.--and your findings here are consistent 
with that of lots of economists, as you know, that this 
provision, the way this provision was written creates this 
perverse incentive to shift jobs overseas. And if a corporation 
does succeed in lowering its tax bill by moving its factory 
overseas along with the jobs, then they are effectively getting 
a tax break by moving plant and equipment overseas, aren't 
they?
    Dr. Hall. Yes, I just want to put it into context, though. 
We think overall the tax act is going to encourage investment 
in the United States on the whole, not abroad.
    Senator Van Hollen. But part of that investment, as we 
talked in the earlier question, is from foreigners, and 
foreigners----
    Dr. Hall. That is right.
    Senator Van Hollen.--in the year 2028 are getting 80 cents 
of every dollar of increased income from economic activity.
    Dr. Hall. Part of that money will be foreign----
    Senator Van Hollen. So, yes, more foreign investment and 
more profits for foreigners in a bill that was sold as 
something that was going to help the American worker.
    The final question relates to the other half of the GILTI, 
which is the FDII. Would you agree that is a tax expenditure?
    Dr. Hall. Well, it is not our call. It will be the Joint 
Committee on Taxation. They will followup with that.
    Senator Van Hollen. Is that the kind of thing that you in 
the past have said is sort of a tax break that some people get 
but others do not?
    Dr. Hall. Actually, we have not. We rely on the JCT to make 
that determination.
    Senator Van Hollen. I just find it ironic, Mr. Chairman, 
that we have got now what is a Government program that 
encourages the people to move plants and equipment overseas. I 
thank you.
    Chairman Enzi. Senator Cotton.
    Senator Cotton. Thank you, Director Hall, for your 
appearance and your testimony. There has been a lot of talk so 
far about the macroeconomic picture, about budget, debt and 
deficits, and economic growth and so forth. Let us bring it 
down to the micro picture, what this means for families.
    The CBO outlook projects an unemployment rate in 2019 of 
3.3 percent, historically low, so that is good news. Maybe even 
better news, CBO projects an increase in hourly wages and 
attributes that to increased competition for labor among 
businesses because the bidding up of wages is necessary to 
attract new employees and retain existing workers.
    Director Hall, what are the policies fostering that 
competition and leading to the increase in hourly wages?
    Dr. Hall. Well, we are ending the slack in our economy, but 
we have a lot of stimulus from the tax act and the other two 
bills, so that stimulus really is pushing GDP growth above 
potential and so we are getting this very low unemployment 
rate, we think, and higher employment.
    Senator Cotton. And does that mean that some of the gains 
from that growth, whatever it may be--we have our differences 
between the two parties, but some of the gains from that growth 
will accrue to a greater degree to labor than it will to 
capital since you are seeing wage increases for people's labor?
    Dr. Hall. Well, yes, there will be benefit for labor, and 
we do see actually a decline in the marginal tax on labor as a 
result.
    Senator Cotton. Well, I think that is a good thing given 
that labor for many decades now, especially unskilled, low-
skilled laborers, people who are getting out of high school and 
going straight into the work force or maybe not getting a high 
school degree have not seen their wages increase.
    I also think one important policy that we need to continue 
is immigration enforcement, and I think that we need to take a 
look at our immigration levels, because obviously we could 
increase our abstract GDP simply by bringing in millions of 
more workers. The way you increase your GDP is more 
productivity or more workers. But that would not necessarily be 
good for America's families. It would not necessarily be good 
for GDP on a per capita or a per household basis.
    I want to turn now to something that I did not see in your 
report. I looked at your report; I looked at your testimony. I 
did not see much, if anything, about national defense and 
military spending. Did I overlook that, or did you not put much 
focus there?
    Dr. Hall. You know, I think we did not put a ton of focus. 
We did our usual.
    Senator Cotton. And I raise that because I want to make the 
point that I do not think our military is responsible for 
driving much of these deficits and the debt we face now, and I 
think your report makes that clear, in part by not discussing 
the increase in military spending. There is no doubt that we 
increase military spending substantially this year and next 
year, but as your report makes clear, the long-term debt 
picture is driven primarily by retirement, especially health 
care spending. Is that right?
    Dr. Hall. That is right.
    Senator Cotton. And I would even make the case that in the 
long term, military spending is essential for controlling our 
deficits and ultimately our national debt because it creates 
the international system in which our economy operates. I have 
a few figures here from the end of World War II about 
international trade and investment, that trade expansion in the 
United States has produced roughly $2.1 trillion in economic 
gains. That translates into more than $7,000 per person and 
more than $18,000 per household, and that our economy is about 
13 percent larger than it would have been absent that increase.
    It is hard to imagine that kind of increase in trade 
happening if we had had a conflict on the scale of World War II 
again. No doubt there has been many wars, and our Nation has 
participated in many of those wars. But certainly we have not 
had the kind of great power conflict in this world that we saw 
from 1939 to 1945. The Federal Reserve Bank studied the effects 
of war on trade and concluded that it not only severely 
diminished trade in the long term for countries directly 
involved, but even for neutral countries, you saw declines in 
trade of up to 10 percent. And it is the United States military 
that has been creating that environment, that has been 
patrolling the seas, securing critical choke points, forcing 
our allies to conciliate or mediate their differences so their 
small conflicts do not rise into big conflicts, as well as 
deterring first the Soviet Union and now some other peer 
competitors from the kind of adventurism that launched us into 
World War II and before that World War I.
    So we spend a lot on our military, and we spend a lot more 
than every other nation, many of the closest nations combined, 
but that is in part because military competition is so 
destructive of economic growth and prosperity and, therefore, 
we cannot afford to skimp on it. I took that to be the message 
of the absence of much discussion of military spending in your 
most recent report in your testimony, that the military is one 
of the most fundamental things our Government spends taxpayer 
dollars on and that we have to continue to do so if we have any 
hope of achieving the prosperity that we all hope for our 
country.
    Thank you.
    Chairman Enzi. Senator Harris.
    Senator Harris. Thank you, Mr. Chairman. Good morning.
    Dr. Hall. Good morning.
    Senator Harris. I reviewed the CBO's outlook for the next 
decade, and I am deeply concerned about the increase to the 
deficit, as many members of this Committee have expressed. I am 
especially troubled that much of the deficit increase can be 
attributed to the Republican tax plan that was passed a few 
months ago which will add nearly 1$1.9 trillion to the deficit.
    According to the CBO's analysis, the debt will exceed the 
size of the entire United States economy in just over a decade, 
2 years sooner than you forecasted in June, the debt problem 
created by a massive giveaway to the wealthy and corporations 
and by making the individual tax cuts expire in 2025 while 
making the corporate tax cuts permanent. This was a pure 
giveaway to the corporations and the top 1 percent of the 
United States. And when Congress talks about how we fix this 
deficit increase from the tax plan, some of my colleagues on 
the other side of the aisle discuss the need for entitlement 
cuts. Entitlement cuts really mean cutting Medicare, Medicaid, 
and Social Security. It means cutting the main programs 4.3 
million seniors in my home State of California rely on, seniors 
who deserve to retire with dignity.
    For my constituents, retiring with dignity means being able 
to afford their prescription drugs. It means not living 
paycheck to paycheck and having the peace of mind that 
Government will not take away the benefits promised to them. At 
a time when so many seniors cannot afford their life-saving 
medications, we need a budget that allows Medicare to negotiate 
drug prices. What we do not need is a budget that cuts $500 
billion from the program over the next decade. When trying to 
repeal the Affordable Care Act this past year, congressional 
members proposed cutting Medicaid by $700 billion, the same 
program that cut six out of ten seniors' nursing home uses.
    Nearly two-thirds of California seniors depend on Social 
Security for at least half of their annual income, an average 
of $21,300. With cuts to Social Security, millions of seniors 
would struggle to make ends meet. So when we discuss balancing 
the budget, we need to speak the truth: that this tax plan has 
ballooned the deficit for the purpose of delivering billions of 
dollars to the top 1 percent while putting access to affordable 
health care and a shot at a decent retirement at risk for 
anyone else.
    So, Dr. Hall, my question is: Based on your updated budget 
outlook, can you tell me whether the effects of this tax bill, 
either directly or indirectly, impact the future solvency of 
Medicare and Social Security?
    Dr. Hall. Well, certainly anything that adds to the deficit 
and the debt is going to have an impact on things going 
forward. If we get a little boost in economic growth, that 
might extend the exhaustion dates. But the basic problem is 
still there, and the basic issue of the debt getting to an 
unsustainable level is maybe more intense than it was before.
    Senator Harris. And will you agree that it is going to have 
a disproportionate impact on senior Americans?
    Dr. Hall. I mean, certainly changes in Medicare and that 
sort of thing would have a disproportionate effect. I guess it 
depends upon how Congress decides to deal with the problem.
    Senator Harris. All right. Thank you.
    Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    Senator Merkley.
    Senator Merkley. Thank you very much for coming and 
bringing your expertise to bear on our economic situation.
    I was looking at numbers from the Joint Committee on 
Taxation, which laid out that $17 out of every $20 in the 
benefits from the tax reductions goes to richer Americans, or 
roughly 84 percent. That did not include the estate tax, by the 
way, which was specifically excluded, which goes 100 percent to 
the very richest Americans.
    What is your analysis of the percent of the tax benefits 
that go to those who earn more than $100,000?
    Dr. Hall. We have not updated those numbers. In this 
baseline we have not sort of tried to reproduce that. So I 
could not tell you anything different than what JCT has on the 
topic.
    Senator Merkley. Do you have any reason to think JCT is far 
off the mark?
    Dr. Hall. No, I do not.
    Senator Merkley. And would you agree that if you include 
the estate tax, the numbers would be even worse?
    Dr. Hall. That sounds right.
    Senator Merkley. Well, I think that is an important point 
because something that was sold as beneficial to the middle 
class is actually beneficial to the best-off. And that brings 
me to the second point, which is your analysis shows that from 
10 months ago until now, the annual deficit has grown from an 
estimated $563 billion to an estimated $804 billion, or roughly 
a $241 billion increase from 10 months ago.
    Dr. Hall. That is correct.
    Senator Merkley. Okay. And if it extends it over 10 years, 
I think your numbers were about $1.6 trillion?
    Dr. Hall. Yes.
    Senator Merkley. Of just additional on top of the baseline 
that existed 10 months ago.
    Dr. Hall. That is right.
    Senator Merkley. And how much of that is the tax bill and 
how much of that is the spending bill?
    Dr. Hall. That is a good question. The tax bill is a big 
part of that. I think the tax bill is--I am sorry. Let me look 
it up quickly.
    Senator Merkley. You bet.
    Dr. Hall. I can tell you the spending part of it. The 
spending part actually is 40 to 45 percent of that increase, so 
it actually is a pretty significant part. But the remainder 
is--and probably more than the remainder is the tax bill.
    Senator Merkley. So a great share of the tax bill, even if 
you include some growth projections, is funded through 
borrowing?
    Dr. Hall. Correct.
    Senator Merkley. Okay. So essentially we have a bill that 
has borrowed from our children, because they are the ones that 
inherit the debt, to deliver the vast bulk of the benefits to 
the richest Americans.
    Dr. Hall. That is a way of looking at it.
    Senator Merkley. Well, not just a way of looking at it, but 
that is a fair reading of the numbers?
    Dr. Hall. Well, obviously, it depends upon who winds up 
fixing the deficit, I suppose, as to who bears the burden about 
how Congress decides to deal with it. But delay is certainly 
pushing the burden back in time.
    Senator Merkley. I want to point out a pattern that I found 
quite interesting. Under President Carter, we had essentially 
him closing out with the same deficit that existed the year 
before he took office despite the oil shocks, about $73 
billion. Under President Reagan, the deficit increased from 73 
to 149, or roughly doubling. Under President Bush, the first 
President Bush, we had another near doubling, going from 149 to 
290. Under President Clinton, we had a reduction from 290 to a 
surplus of 236, so obviously a vast decrease in the deficit--in 
fact, a surplus. And so we were reducing our national debt. 
Under Bush the 2nd, we had an increase from 236 to 458, so 
another rough doubling. And under President Obama, the results 
of the recession his first year in office, $1.4 trillion in 
deficit reduced down to 584 when he left office.
    Why is it that the deficit decreases under Democratic 
leadership and increases under Republican leadership?
    Dr. Hall. I would not want to offer an opinion on that.
    Senator Merkley. Have I read the numbers accurately?
    Dr. Hall. That sounds right.
    Senator Merkley. Well, I do think it is an important point 
to make because what we have seen for a pattern that has 
increased our debt vastly has been Republican leadership has 
repeatedly taken us deep into the red, Democratic leadership 
has reduced that damage, and yet all we hear from our 
Republican colleagues is how they are fiscally responsible. How 
can one square the rhetoric with the reality?
    Dr. Hall. I would not want to offer an opinion.
    Senator Merkley. It is not your responsibility to offer 
that, but I am glad you confirmed that my numbers were 
accurate.
    I will just close by saying that our children are now 
financing the biggest theft of money delivered to the wealthy 
in America, and this is what you normally see in corrupt, 
irresponsible, Third World governments, not the United States 
of America.
    Chairman Enzi. Senator Kaine.
    Senator Kaine. Thank you, Mr. Chair. Dr. Hall, good to be 
with you.
    I want to just draw your attention to page 33 of the 
report, and I will just read a quote. I want to ask you about 
trade. Changes to trade agreements or tariff policies on the 
part of the United States and its trading partners that impede 
trade could have significant adverse effects on aggregate 
economic activity; whereas, the removal of trade barriers 
between the United States and its trading partners could 
improve aggregate economic conditions.
    We had a hearing recently where the head of the Council on 
Economic Advisers Kevin Hassett appeared before us. It was 
immediately after President Trump had indicated he was going to 
impose tariffs on imported aluminum and steel. It was before 
any of the subsequent potential retaliation discussion back and 
forth.
    I asked Kevin Hassett at the time, based on my 
understanding that the number of workers in American industries 
that make aluminum and steel is dramatically smaller than the 
number of workers that work in American industries that make 
things with aluminum and steel, I asked his economic opinion 
about whether the imposition of these tariffs would be a plus 
or minus for American workers, and he said that the economic 
literature would suggest that just looking at it that way, 
before you get into a retaliation discussion, it would likely 
have a negative effect on jobs. Do you agree with that?
    Dr. Hall. I do.
    Senator Kaine. And then if we get into the subsequent 
retaliation issues, the aluminum and steel issues matter at lot 
to Virginians because I have got, you know, Coors beer and 
Anheuser Busch, you know, big breweries that are buying 
aluminum for cans. And I also have a Dublin truck plant in 
Pulaski that is--it is the only manufacturer of, I am sorry, 
Volvo trucks in Dublin. Pulaski County, Virginia, is the only 
manufacturer. It is going to raise their costs, raise costs to 
consumers. So there is some effect just on the aluminum and 
steel issue in Virginia. But over the course of the last couple 
of weeks, I have been on recess traveling around, a lot of 
concern in Virginia on the ag side, the announcement by China 
that they would retaliate, especially with respect to things 
like soybeans and pork and some other agricultural products are 
very challenging to Virginians.
    Talk a little bit about--and I do not know, have you at the 
CBO started to do any analysis of what either the tariff on 
aluminum and steel or more broadly, if retaliation were to 
occur, what would the effect on American workers and American 
farmers?
    Dr. Hall. We have not, and, in fact, our economic forecast 
closed about mid-February, so we really have not taken any of 
that on board. Certainly that is the sort of thing we would pay 
attention to and see how things turn out and would be something 
we would include in our baseline economic forecast at a later 
date next time we do it or whenever significant changes are 
made.
    Senator Kaine. You did generally agree with the Hassett 
conclusion that the import tariffs on aluminum and steel are 
likely to be more negative than positive on American workers. 
Do you have an opinion about if there are retaliatory tariffs 
against the United States in the ag sector, you know, is that 
going to be a net good or a net bad in terms of the workforce?
    Dr. Hall. Well, to be fair, you know, the real solution, 
how it winds up is sort of how it winds up, you know, rather 
than just this one act like that. I do think a lot of the 
concerns--I find them interesting because they are the inverse 
of the benefits of freer trade. Having trade negotiations or 
trade agreements, the idea is that you can have lower prices, 
you can have lower cost of production, you can have access to 
the foreign markets with good trade agreements. So undoing 
those can have the reverse effect. But, again, to be fair, we 
have to sort of see where we wind up.
    Senator Kaine. Some of the retaliation discussion is still 
kind of at the rhetorical level.
    Dr. Hall. Right.
    Senator Kaine. I guess the actual tariffs have been imposed 
on aluminum and steel, so that is real. But the retaliation 
discussion is a little bit rhetorical right now.
    Dr. Hall. Right, right, and we do not really know what sort 
of tariff changes the U.S. is likely to make or may make going 
forward.
    Senator Kaine. Well, I am just going to conclude and say I 
think it is interesting that the Constitution gives Congress 
really plenary power over trade in the Commerce Clause. We 
delegate to the President through fast-track, which I support, 
the ability to negotiate trade deals and then set up a process 
for bringing those back for a congressional up or down vote.
    I think it is interesting that we want the say over a trade 
deal, but we allow Presidents to start trade wars without a 
vote of Congress, even though the Constitution suggests that 
trade is ultimately for Congress. I do not think a President 
should be able to do a trade deal or start a trade war without 
Congress giving it an imprimatur. And I hope to work with my 
colleagues to maybe come up with some improvements in the 
process so that there cannot be a unilateral executive decision 
to start a trade war when the Constitution reserves trade 
powers to Congress. But that is just my opinion. You need not 
comment.
    Thank you, Mr. Chair.
    Chairman Enzi. Thank you.
    Senator Whitehouse.
    Senator Whitehouse. Well, Mr. Chairman, it looks like I am 
bringing up the rear here. It is just down to us and Dr. Hall.
    Dr. Hall, you and I have talked before about the health 
care spending projections graph.
    Dr. Hall. Right.
    Senator Whitehouse. And this is the one that I have used 
before. But guess what? We have a new one. A new year has gone 
by, and just for the record, back here when the Affordable Care 
Act passed, CBO did the yellow-line estimate of what mandatory, 
Federal health care spending was expected to look like. Then as 
time went on and we had the experience of the Affordable Care 
Act and we had whatever else took place, we got this actual 
result, which came in below what was expected. And then here 
there has been a new projection that is made going forward. So 
this is the old projection. This is the actual through this 
period. And this is the new projection.
    Now, in the graph that I used to use all the time, this 
savings delta was $3.3 trillion in savings between the expected 
spending and the new projection. In this, the number goes up to 
$4.2 trillion. Now, I believe that about $300 billion of that 
relates to the repeal of the individual mandate, so you could 
back that out, but that still leaves $3.9 trillion in savings 
up from $3.3 trillion in savings just in the intervening year. 
And I think it is important to try to do whatever we can to 
figure out what is going on here.
    So I ask you to keep working with us on that. This has a 
particular emphasis now because, as you know, there is a 
bicameral select committee working on trying to reform our 
budget process, and nobody has been more eloquent than Chairman 
Enzi in understanding how broken our existing budget process 
is. It is one of the areas where he and I have considerable 
common cause.
    I think that one of the ways that we need to fix our 
existing broken budget process is that we need to have all of 
the elements that mathematically add to the debt to be 
considered in our budget process, so not just appropriated 
spending but also health care spending, also tax expenditures 
and also revenue. That is what mathematically leads to debt and 
deficit.
    As a general proposition, do you agree with me that those 
are the four key elements that mathematically lead to our debt 
and deficits?
    Dr. Hall. Yes.
    Senator Whitehouse. So if we are going to look at health 
care, we really need to start looking at ways to address this. 
And I completely disapprove of and will fight to my last breath 
to prevent attacking Medicare and Medicaid and other Federal 
programs and taking benefits away from people in order to 
achieve savings, because I think there are better ways to 
achieve savings. I think there are efficiencies that can be 
gained. We are seeing some remarkable results out of some of 
the accountable care organizations, and it is very hard to 
extrapolate from Coastal Medical in the State of Rhode Island, 
a provider practice that has now reduced its per patient per 
year cost by $700, while dramatically improving the experience 
and the care that their patients get, to $3.9 trillion in 
savings. But I suspect that there is something going on out 
there as we improve the payment system for the health care 
enterprise so that it is diverted less toward doing things to 
people and prescribing things for people and seeing people than 
it is to doing the things that keep people healthy so they do 
not need those things in the first place. And I just want to, 
first of all, ask if you concur with that as a general thought. 
And, second, will you keep working with us, and if there are 
any ways that we can be helpful, to try to figure out what is 
behind--you know, $3.9 trillion, that is a lot of money.
    Dr. Hall. Right.
    Senator Whitehouse. And it ought to be a matter of real 
priority to try to figure out what is working that has made 
that difference in this period.
    Dr. Hall. We are interested in that topic. We are 
interested. We are trying to do some work on that. I know you 
are interested beyond this, but if for no other reason, we keep 
getting the forecast wrong. We keep having to lower our 
estimate of health care cost growth, and if we understood that 
better, we could give you a better forecast of future costs.
    So we are working on that. We would be happy to follow up 
and talk to you a little bit about what we are doing.
    Senator Whitehouse. I know my time has expired, but may I 
ask an additional question, Chairman?
    Chairman Enzi. Sure.
    Senator Whitehouse. Does your work to look at that look at 
any--can you look kind of in any way down through to the 
experience of, say, a Coastal Medical or a Rhode Island Primary 
Care Physicians or a provider group where they are actually 
seeing that cost not just not go up so fast, they are actually 
driving the cost down for their patients. And maybe that is too 
big of an extrapolation, but what does that look like from your 
perspective?
    Dr. Hall. We will have to do that. I think that is 
certainly where we start working on this, is talking with 
providers and their experiences to get an understanding of what 
is happening at individual providers and see if we can find 
some common factors in there. So that is certainly going to be 
part of our methodology.
    Senator Whitehouse. Great. Well, thank you, because, 
surely, Mr. Chairman, if we could save $700 per person per year 
on health care expense while providing better care for people, 
that would be a pretty serious win-win.
    Chairman Enzi. Yes, it would, and I thank you for your 
comments at the last hearing regarding that and then sharing 
the information that you did with me. I will have to get 
together with you and ask a few questions about that, though, 
to get more detail on how it actually works. And I thank you 
for your work on the special budget task force as well. We are 
really relying on you. as you did working bipartisan before, to 
come up with some solutions that maybe we can fix that process 
and make this----
    Senator Whitehouse. Well, we are much inspired by you, Mr. 
Chairman, and Senator Perdue and I, who are both on this 
Committee, are doing our best to channel your concerns and your 
wishes into that process.
    Chairman Enzi. I appreciate that. And I want to thank you, 
Dr. Hall, for your testimony today and for all of the documents 
that you oversee the preparation of, and your full statement 
will be included in the record.
    As information to all Senators, questions for the record 
are due by 6 p.m. today, with a signed hard copy delivered to 
the Committee clerk in Dirksen 624. Under our rules, our 
witness has 7 days from receipt of the questions to respond 
with answers.
    With no further business to come before the Committee, the 
hearing is adjourned.
    [Whereupon, at 11:54 a.m., the Committee was adjourned.]

                     ADDITIONAL COMMITTEE QUESTIONS

    [The following submitted questions were not asked at the 
hearing but were answered by the witness subsequent to the 
hearing:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





       GAO'S ANNUAL REPORT ON ADDITIONAL OPPORTUNITIES TO REDUCE 
   FRAGMENTATION, OVERLAP, AND DUPLICATION IN THE FEDERAL GOVERNMENT

                              ----------                              
                              


                        WEDNESDAY, MAY 23, 2018

                                       U.S. Senate,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:33 a.m., in 
room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Grassley, Boozman, Sanders, Van 
Hollen, and Harris.
    Staff present: Elizabeth McDonnell, Republican Staff 
Director; and Warren Gunnels, Minority Staff Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. I will go ahead and call to order this 
hearing of the Senate Budget Committee. Good morning and 
welcome. I call this hearing to order so that we can focus on 
the Government Accountability Office's annual report to 
Congress on reducing Government fragmentation and redundancy. I 
like that word ``fragmentation.''
    By acting on the recommendations in this report, Congress 
and Federal agencies have the potential to improve Government 
performance and stewardship of taxpayer dollars. This is a goal 
I believe both parties share, and I hope we can work together 
to advance solutions to the problems identified in this report.
    It is no secret that the Federal Government spends beyond 
its means. Our national debt has eclipsed $21 trillion, and the 
Congressional Budget Office projects annual deficits will soon 
return to more than $1 trillion.
    Key to addressing this chronic overspending is diligent 
oversight of the programs, agencies, and activities currently 
being funded. That means routinely reviewing programs and 
reauthorizing, reforming, and eliminating them as appropriate. 
It also means getting appropriations bills done on time and not 
resigning ourselves to massive catch--all spending bills that 
are subject to little review from the body.
    GAO's annual report on fragmentation, overlap, and 
duplication is one tool on which Congress can and should rely 
as we undertake this work. Each year GAO calls attention to the 
numerous examples of inefficiency and redundancy across 
Government. One example is the graduate science, technology 
engineering, and math, or STEM, education. GAO began 
highlighting the duplication in these programs in its 2012 
report and does so again this year. In 2016, 13 Federal 
agencies spent approximately $3 billion on 163 different STEM 
education programs. You can see how many agencies are engaged 
in STEM education on this chart that is on the screens.

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    psGAO noted that nearly all of these programs overlap to 
some degree with at least one other program. A key feature of 
GAO's report is that it does not just highlight problems; it 
identifies solutions. Since GAO began issuing this report in 
2011, it has identified more than 700 actions across 278 
programs that Congress and the executive branch could take to 
make the Federal Government more efficient and effective. Of 
those recommendations, 551 have been partially or fully 
addressed by executive or legislative action. GAO estimates 
these transactions have saved the Federal Government $178 
billion.
    But as GAO's 2018 report indicates, more work can be done, 
and I would direct your attention to this chart, which is 
probably too small to read, but it is duplicated in the 
testimony that we have, too. It provides a breakdown of 
partially addressed and unaddressed agency-specific actions 
since GAO began producing this report. The light blue color 
represents those that have been partially addressed while dark 
blue represents those that have been unaddressed.
    As the chart shows, the Department of Defense leads the 
pack with the most pending recommendations followed by the 
Department of Health and Human Services, the Internal Revenue 
Service, and so on down the list. I wanted to highlight this 
chart as a reminder that Congress must be diligent in its 
oversight efforts.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    As I have said before, I want to work with members of this 
Committee to make our Government more efficient and responsive 
to all Americans. If there are issues in this report you would 
like to address, let us work together. Tackling Government 
inefficiency and overspending is not an easy task. I believe 
the issues identified in the GAO's report, which we will talk 
about this morning, represent a good place to start.
    Our witness, the U.S. Comptroller General, will provide 
additional information about the report and GAO's 
recommendations. Additionally, GAO's subject matter experts are 
in attendance this morning, prepared to answer any specific 
questions from Committee members.
    I might mention, though, that the National Defense 
Authorization Act is also being marked up at this same time 
this morning, and a number of members of the Committee are on 
that, so we will make sure that they pay some special attention 
to this report and this testimony.
    Welcome to all of you, and I look forward to the 
discussion.
    Senator Sanders.

              OPENING STATEMENT OF SENATOR SANDERS

    Senator Sanders. Thank you, Mr. Chairman, for holding this 
hearing and thank you, Mr. Dodaro, for being with us today.
    I know that my friend, the Chairman, has long been 
concerned about the deficits and the national debt facing this 
country, and I would just remind folks that the recent tax bill 
that was passed, supported, I believe, by almost every 
Republican, will increase the national debt by $1.9 trillion, 
and that at a time of massive income and wealth inequality, 83 
percent of those tax benefits by the end of the 10-year period 
go to the top 1 percent. So some of us do not take my 
Republican colleagues all that seriously now when they talk 
about the need to deal with the national debt.
    But, Mr. Chairman, the point of this discussion today, this 
hearing, is a very important one, and that is that a budget as 
large as the Federal Government's, there is no question but 
there is an enormous amount of waste, fraud, abuse, 
duplication, and I think it is a good idea that we take a look 
at how we can deal with those issues.
    One of the agencies that I think--and I suspect you, Mr. 
Chairman, will agree with me--deserves to have people take a 
hard look at is, in fact, the Pentagon where over half of our 
discretionary spending goes. That is kind of the elephant in 
the room. And this year we are spending $700 billion on the 
military, more than the next ten countries combined. I mean, it 
is a good debate that we do not have enough of, how much we 
should be spending on the Defense Department. Everybody 
believes in a strong defense, but when is enough enough?
    Meanwhile, while we spend so much on defense, we have tens 
of millions of people in this country with no health insurance, 
parents cannot find affordable child care, hundreds of 
thousands of kids cannot afford to go to college, and we have 
people talking about making cuts in programs for working people 
but expanding military spending by $165 billion over 2 years.
    But I think--I appreciate very much, Mr. Chairman, the 
hearing that you held in March on the need for an audit of the 
Department of Defense, and I think there is widespread 
agreement that there is something wrong when the Pentagon is 
the only Federal agency in the country that has not been able 
to pass an independent audit 28 years after Congress required 
it to do so. And I appreciate you holding a hearing and 
focusing attention on that.
    Twenty-eight years does seem to be enough time for the 
Pentagon under Democratic and Republican leadership to maybe 
get its act together and give us an audit, and we hope that we 
will have some success in seeing that soon.
    Further, Mr. Chairman, as the GAO has told us, there are 
massive cost overruns in the Defense Department's acquisition 
budget that we have got to address. According to GAO, the 
Pentagon's $1.66 trillion acquisition portfolio currently 
suffers from more than $537 billion in cost overruns, with much 
of the cost of the cost growth taking place after production. 
So this is a huge issue that I think requires bipartisan 
analysis. I do not think anybody thinks it is a great idea to 
see these huge cost overruns.
    GAO tells us that ``many DoD programs fall short of cost, 
schedule, and performance expectations, meaning DoD pays more 
than anticipated, can buy less than expected, and in some cases 
delivers less capability to the warfighter.'' You are a former 
mayor, I am a former mayor, and I think, you know, when we let 
out contracts, we held the contractors accountable. I would 
presume it is the same thing in Wyoming as it is in Vermont. If 
somebody says they are going to do something for $2 million and 
then they say, ``Oh, it is going to end up costing $4 
million,'' that is not acceptable. But I think there has not 
been that type of oversight over the Department of Defense that 
needs to take place.
    Another major subject that we should be looking at today is 
defense contractor fraud. Today, Mr. Chairman, about half of 
the Pentagon's $700 billion annual budget goes directly into 
the hands of private contractors. It is a whole huge issue. I 
think many people think when we spend money on defense, it goes 
to the soldiers and the planes. But a lot of that money goes to 
private contractors. Meanwhile, over the past two decades, 
virtually every major defense contractor in the United States 
has paid millions of dollars in fines and settlements for 
misconduct and fraud, at the same time while making huge 
profits on these Government contracts.
    In 2011, I requested a report from the Pentagon on this 
very issue. Incredibly, that report showed that hundreds of 
defense contractors and their parent corporations that had 
defrauded the United States military or settled allegations of 
fraud received more than $1.1 trillion in Pentagon contracts 
over the previous decade.
    For example, since 1995, Boeing, Lockheed Martin, and 
United Technologies have paid nearly $3 billion in fines or 
related settlements for fraud or misconduct. Three billion 
dollars, collectively. Yet those three companies received about 
$800 billion in defense contracts over the past 18 years.
    Finally, Mr. Chairman, we need to take a serious look at 
the excessive and obscene executive compensation of defense 
contractors. It is an issue I raised at that hearing on the 
need for an audit. You have defense contractors which, for all 
intents and purposes, they are private companies, profit-making 
companies, but they are really agencies of the U.S. Government 
because almost all their funding comes from the United States 
Government.
    Last year the CEOs of Lockheed Martin and Raytheon, two of 
the top four U.S. defense contractors, were each paid over $20 
million in total compensation. Moreover, more than 90 percent 
of the revenue from those companies came from worldwide defense 
spending. So you have companies in which 70 percent of their 
revenue comes from the U.S. Government, at least from the 
Department of Defense, and then they pay CEOs 400 times what 
the Secretary of Defense makes. I do think that is an issue 
that we may want to look at, because it is not only the money 
that goes to the CEOs, it sets a pattern. If you can have a 
company paying its CEO 400 times, or whatever it is, what the 
Secretary of Defense gets, it tells you or it should tell us 
that these guys are not terribly serious about taxpayer 
dollars.
    So those are some of my concerns that I will be raising, 
Mr. Dodaro. Thanks for being here. Mr. Chairman, thanks for 
holding the hearing.
    Chairman Enzi. Thank you, Senator Sanders. When you 
mentioned the mayor thing, I was recalling my mayor days when 
we worked on cost overruns, because I told my project engineers 
that if the bid came in above their estimate, they would have 
to do the job for what they said it would cost.
    Senator Sanders. Right. And we did something similar, and I 
think mayors all over this country look at it, and we should 
ask why the DoD does not.
    Chairman Enzi. There is no extra fund to dip into if you do 
not have the money. Hopefully the people that are not here that 
are at that markup are making note of that anyway.
    Our witness today is Gene Dodaro. He is the Government 
Accountability Office--and actually holds the title of 
Comptroller General of the United States. Mr. Dodaro testifies 
frequently before Congress. I am pleased to welcome him back to 
this Committee. GAO has done great work over the years 
identifying waste, fraud, and abuse in Federal spending and has 
been a great service to this Committee in its oversight of 
Federal spending and the budget. He is the eighth Comptroller 
General of the United States. He was confirmed in December 2010 
after serving as Acting Comptroller General since March 2008. 
He has been with the GAO for more than 40 years. He served for 
9 years as the Chief Operating Officer, the No. 2 leadership 
position at the agency. Prior to that, he headed GAO's 
Accounting and Information Management Division, which 
specialized in financial management, computer technology, and 
budget issues.
    Comptroller General, please begin.

STATEMENT OF THE HONORABLE GENE L. DODARO, COMPTROLLER GENERAL, 
 U.S. GOVERNMENT ACCOUNTABILITY OFFICE; ACCOMPANIED BY MICHAEL 
     SULLIVAN, DIRECTOR, DEFENSE WEAPON SYSTEM ACQUISITIONS

    Mr. Dodaro. Thank you very much, Mr. Chairman. Good morning 
to you, Ranking Member Senator Sanders. Good to see both of you 
again. I appreciate the opportunity to be here today to discuss 
our eighth annual report on this topic of overlap, 
fragmentation, and duplication in the Federal Government. We 
also add our ideas for cost savings and revenue enhancements, 
which we think the Congress should consider as well.
    In the first 7 years on this effort, we identified 724 
recommendations in this area. So far, as of March, 52 percent 
were fully implemented, 24 percent were partially implemented, 
and as a result of the actions by Congress and by the executive 
branch, financial benefits have either occurred or will accrue 
of $178 billion. And I believe much more savings could be 
realized by addressing our open recommendations.
    This year, we identified 68 new recommendations for 
congressional consideration in addition to the 724 we already 
identified.
    For example, the Department of Defense could save over $500 
million over 5 years by eliminating unnecessary overlap and 
duplication among U.S. distribution centers that provide goods 
to servicemembers.
    The Department of Energy could potentially reduce risk and 
save potentially tens of billions of dollars by testing and 
using alternative approaches for low-level treatmenting nuclear 
waste at the Hanford site in Washington.
    The Department of Veterans Affairs could save tens of 
millions of dollars in purchasing medical and surgical supplies 
by using best practices that private sector hospitals use in 
that area.
    Also, the Coast Guard could save millions of dollars by 
closing unnecessary overlapping and duplicative search and 
rescue stations. They have already identified ways that they 
could do that.
    So there are many opportunities yet to provide savings. We 
have 365 open recommendations of where savings could be still 
yet realized. And many of these, I would point out, are in both 
the Defense Department and the Department of Health and Human 
Services, Mr. Chairman, which you identified in your opening 
statement. One of the reasons there are so many recommendations 
open in those two areas is that is where the money is. 
Medicare, Medicaid, and other programs are over $1 trillion a 
year right now, and we have a number of recommendations that we 
think could save tens of billions of dollars in Medicare and 
Medicaid expenditures; and also at the Defense Department; and 
we think there are also opportunities for IRS to take actions 
that could result in additional revenue collections that should 
be implemented as well.
    So I appreciate very much you holding this hearing and 
providing a platform for discussing these issues, which are 
very important, and I look forward to responding to your 
questions. Thank you.
    [The prepared statement of Mr. Dodaro follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Enzi. Thank you. Particularly, thank you for the 
testimony, which is a summary of the full report, which we will 
be encouraging people to read.
    We will now do rounds of questions, 5 minutes for 
questions--although that is not very strict for the two of us.
    [Laughter.]
    Chairman Enzi. And it will be in the order that people 
came. That will be easy to keep track of, too.
    Before I start my questions, I would like to thank you 
again for the report, and, of course, what we need is action on 
the report. That is what you have been suggesting, and there is 
some action on it, but we will have to figure out if we can 
come up with some ways to accelerate that.
    I am going to ask about the 160 housing programs, some 
health care improper payments, inefficient VA purchasing, the 
163 STEM programs, identifying theft, duplication, disability 
claims, redundant reviews, and I know that instead of 
Washington, DC, bureaucracy, we need to get the money out to 
where the people are with the programs that they are designed 
to help. And your report is outstanding at that.
    I will start with the housing one. You found that there are 
160 housing-related programs that overlap, and the money could 
be saved by combining them. It is an area ripe for reform. As I 
said to HUD Secretary Carson when we met to discuss the issue, 
reform done right would mean less money going to overhead and 
more directed to providing assistance. What benefits can be 
recognized by streamlining duplicative, overlapping, and 
fragmented housing assistance programs? Has the GAO estimated 
how much could be saved by such streamlining?
    Mr. Dodaro. The benefits could be both cost savings and 
greater efficiencies as well as reducing the burden on both 
property holders and tenants. For example, the Department of 
Housing and Urban Development and the U.S. Agriculture 
Department both operate multi-family programs, housing programs 
in that area, but they set different requirements for both the 
property and tenant eligibility for those programs, and they 
manage the programs very differently. So if you are a property 
owner and you want to use a multi-family dwelling and 
arrangements with HUD or USDA, you end up dealing with two 
different sets of requirements. You also could have multiple 
inspections with different inspection standards, and this 
creates a lot of inefficiencies in those program activities.
    In the single-family housing area, there are opportunities 
for their loan guarantee programs. A lot of them operate in 
similar markets, so they could be consolidated or at least 
improve the coordination among the programs, and this would 
provide further streamlining opportunities.
    Now, we have not made estimates because there have not been 
specific proposals put forward by the executive branch. We have 
encouraged the executive branch agencies to come up with 
streamlining and consolidation options. In recent discussions I 
have had with OMB, they have said that they are using our prior 
work on overlap and duplication as input to the President's 
reorganization proposals that are due to be submitted sometime 
soon. So we will see if they have addressed these areas. I will 
continue my discussions with them.
    Chairman Enzi. Thank you. Your report also states that the 
Centers for Medicare & Medicaid and the Internal Revenue 
Service can save money by strengthening controls related to 
improper payments for the premium tax credit. The Congressional 
Budget Office estimates that that cost is $605 billion over a 
10-year period or about $60.5 billion a year. Why is it a 
challenge for these agencies to detect improper payments? What 
can the Federal Government do to achieve cost savings for 
improper payments?
    Mr. Dodaro. Well, first of all, we found that the Centers 
for Medicare & Medicaid Services as well as the IRS, who are 
both charged with different responsibilities under the 
Affordable Care Act for the premium tax credit, really did not 
design internal controls effectively in order to make sure they 
were only paying subsidies for eligible people, that people who 
are receiving the benefits of the advance premium tax credit 
were filing their tax returns as required and doing the 
necessary reconciliations between the two figures. And so we 
made several recommendations, eight to CMS and three to IRS, to 
design better internal controls so that they would operate 
their programs more effectively.
    The only internal controls that we found effective at CMS, 
for example, were the controls they put in to make sure that 
the payments went out to the insurance companies. But in terms 
of reviewing eligibility and doing the reconciliations that 
were required, they were not effective.
    Now, CMS has done a risk assessment that said that its 
advance premium tax credit program is at high risk of improper 
payments, but they need to follow-up. They have said they are 
not going to begin making estimates until 2022. I mean, that is 
not acceptable. That is too late. They need to move on that 
area, and I would encourage the Congress to weigh in there and 
provide support for that as well. IRS really did not do a good 
assessment. We have made suggestions to them to improve that 
effort.
    Now, from a broad standpoint of improper payments across 
Government, what we found in 2017, 27 programs did not even 
report improper payment estimates even though they had 
determined that their programs were highly susceptible to 
problems or were required by law to report estimates, including 
the Temporary Assistance for Needy Families Program and the 
Supplemental Nutrition Assistance Program, SNAP. And both of 
those programs are large programs, and so the Congress needs to 
make sure agencies follow the process, make the estimates, have 
good corrective action plans.
    One suggestion I have for the Congress that has not been 
acted upon yet that I would encourage Congress to consider is 
there is a Do Not Pay list that the Department of Treasury 
operates, and they are to check against several other databases 
before they make payments, one of which is the Death Master 
File from the Social Security Administration, because we and 
others have found in the past payments keep going even though 
people have been deceased, and that causes all sorts of 
problems. But the Social Security Administration does not 
provide the full Death Master File to the Treasury. They 
believe they are not permitted by law to do that. And I would 
encourage Congress to clarify that and to make that file 
available to the Treasury Department. It does not serve 
anybody's interest to send out improper payments when we know 
that they should not go out.
    Chairman Enzi. Thank you. Excellent. My time has expired in 
the first round, so I will defer to Senator Sanders.
    Senator Sanders. Thank you, Mr. Chairman.
    Given the fact that DoD spending is well more than half of 
discretionary spending, I think it is important that we focus 
on the elephant in the room, which is the Pentagon. You are 
talking to two ex-mayors, and when we would let out a contract 
for the streets to get repaved in Burlington, Vermont, and 
somebody said, ``Well, we can do so many miles for $3 
million,'' and they came back and said, ``Well, actually it 
cost us $6 million, you owe us another $3 million,'' neither I 
nor the city council would have given them the light of day. 
``You said you could do it for $3 million. That is what you are 
going to get paid.''
    Mr. Chairman, similar in Wyoming?
    Chairman Enzi. Absolutely.
    Senator Sanders. All right. So I want to know why it is 
that a handful of defense contractors--and we have relatively 
few of them--are able to run up over $537 billion in cost 
overruns. If somebody says if you go out to whatever degree we 
have competitive bidding--and I understand not everybody on the 
block builds F-35s, right? It is a little bit different than 
paving roads. I got that. But, nonetheless, if somebody says, 
``I am going to build you this weapons system for $5 billion,'' 
and then they come back and say, ``Oh, I am sorry, it cost $10 
billion,'' is there somebody at the Department of Defense that 
says, ``Well, you are going to have to eat it, guys, because 
you told us you could do it for $5 billion''? Why do we run up 
$537 billion in cost overruns?
    Mr. Chairman, is that a fair question?
    Chairman Enzi. I think so.
    Senator Sanders. Okay. It is a bipartisan question then.
    [Laughter.]
    Mr. Dodaro. All right. I will give you a bipartisan answer 
to the question. Then I will ask our expert in weapons 
acquisition issues to elaborate.
    Senator Sanders. Okay.
    Mr. Dodaro. Because he has studied all these programs over 
time.
    Senator Sanders. Good.
    Mr. Dodaro. Now, part of the problem is that the 
requirements are not set. If you were a mayor you would have 
exactly how many streets you want paved and what kind of 
material you want to use. This information would foster 
competitive bids.
    Senator Sanders. Yes.
    Mr. Dodaro. That does not happen in a lot of these 
contracts because the requirements keep changing, they are not 
set up front. The other thing is defense----
    Senator Sanders. Well, requirements keep changing. I 
understand that.
    Mr. Dodaro. Yes.
    Senator Sanders. I am not minimizing the complexity of 
weapons systems.
    Mr. Dodaro. Right.
    Senator Sanders. But, you know, I presume the DoD tells the 
contractor what they require, what they need. I mean, it is not 
quite a good enough answer to say requirements keep changing.
    Mr. Dodaro. Well, no----
    Senator Sanders. Is that a problem or is that the nature of 
the world there?
    Mr. Dodaro. Well, it is the way they operate.
    Senator Sanders. But should they be operating that way?
    Mr. Dodaro. Well, we have made suggestions on how they 
could improve their process for setting requirements and 
approving technologies to go into production. You know, you 
mentioned, as we did, a lot of the cost increases after 
production. What we have found is that a lot of times they will 
send things into production, even though the technologies are 
not mature enough, and so you discover new problems when you go 
into production that then have to be corrected, and then that 
requires a lot of additional money later, and----
    Senator Sanders. But, presumably, Mr. Dodaro, doesn't 
somebody at the DoD know that, know what you are talking about?
    Mr. Dodaro. They know it, but they have to make sure that 
they follow the process. We have made many recommendations for 
best practices----
    Senator Sanders. Let me interrupt you here just to ask you 
a simple question. Is this issue that we are focusing on--it 
seems to me to be a major issue when we talk about unnecessary 
expenditure of Federal funds. Am I right in saying that or not?
    Mr. Dodaro. It is a significant issue. It has been on our 
High-Risk List since 1990. So we have been focused on it. We 
have made recommendations. Congress passed major reform 
legislation in 2009 implementing many of our recommendations. 
We have seen improvements in weapons systems going into 
production post-2009 reforms that Congress passed and better 
performance in those areas. So there are a lot of systems that 
are still in the area, but I will let Mike explain.
    It is an important issue. We have been focused on it. There 
have been some improvements, but more needs to be done.
    Senator Sanders. Okay.
    Mr. Dodaro. Mike.
    Mr. Sullivan. Yes, Senator. So just to go back a little 
bit, it is a matter of, as the Comptroller General said, 
weapons systems are very complex, cutting edge, oftentimes 
bleeding edge kind of technologies. And in order to get the 
contracting world and the industrial base to sign up to do 
things, like a B-2 bomber when it was done or currently a Joint 
Strike fighter or the satellites. The federal government uses 
contracting methods that more or less open the door to a lot of 
cost inefficiency. It is called ``cost-plus contracting'' for 
development. And it more or less became the way to do business 
in the late 1970's----
    Senator Sanders. Does cost-plus, for the laymen here, mean 
I am going to give you a $2 billion estimate, but if it costs 
me more, I am going to bill you more? Is that what cost-plus--
--
    Mr. Sullivan. Yes. Basically, it's ``I will send you the 
bills.''
    [Laughter.]
    Mr. Sullivan. And the plus part of that is actually an 
award fee. They put criteria in the contract, if they do this 
faster, they get extra money on top of that. It was a cultural 
issue--still is, basically the way that they do business----
    Senator Sanders. Did you say ``cultural''?
    Mr. Sullivan. Yes. It really----
    Senator Sanders. All right. Let me stop you.
    A couple of years ago, Mr. Chairman, I had somebody from 
the DoD in the office, and he said--this is what he said. He 
said, ``Look, the truth is''--this is 5 years ago----``we have 
a whole lot of money, and people were not watching that money 
very, very carefully.'' And when you talk about cost-plus, you 
and I are going to do business, I am going to tell you I am 
doing it for X, but, by the way, I am going to charge you more, 
and that is not a problem. That seems not a particularly 
efficient way to do business. Yes? Am I missing something?
    Mr. Sullivan. It is--obviously if you have a urgent, urgent 
need and nobody knows how to do it, that is when you do this.
    Senator Sanders. Yes.
    Mr. Sullivan. And that is how the Department operated when 
some of the Cold War weapons that the government bought that 
were not urgent needs, it did it that way. And so, for example, 
if you look at the B-2 bomber, the F-22, F-35, any of these 
big--I do Air Force work, so I look at that, but ships, same 
thing. They would go in with an--take the estimate that would 
call for--I think in the F-22 case, they probably estimated 
about $10 billion for the development cost, and it turned out 
to be over $20 billion. One of the reasons for that is, as 
complex as it was, when they wrote the requirements, they did 
not really do the due diligence that they need to do, the 
systems engineering, the prototyping you have to do ahead of 
time.
    Senator Sanders. Who, the contractor?
    Mr. Sullivan. The contractor and the Government both. But, 
yes, the contractor accepted requirements that it did not 
really know how to do, and they do not do a lot of trading--you 
know, there is space before you start a program where you can 
look at cost----
    Senator Sanders. Let me interrupt you. You said this 
cultural thing. You know, the Chairman made a point. Again, you 
are talking to two ex-mayors. What you are really suggesting is 
they did not fully understand what they were getting into.
    Mr. Sullivan. That is right.
    Senator Sanders. And, unfortunately, it was the taxpayer 
who had to pick up the difference.
    Mr. Sullivan. That is right. The taxpayer----
    Senator Sanders. But in the world that we lived in, it 
would be the contractor would have to pick up--``Sorry you 
screwed up, guys. You have to eat it.'' Yes?
    Mr. Sullivan. Yes.
    Mr. Dodaro. You might want to mention the tanker.
    Mr. Sullivan. Okay, yes.
    Mr. Dodaro. There is one program that they are doing that 
now. I would ask Mike to explain that, where the contractor is 
picking up the tab for it.
    Mr. Sullivan. Yes, it is the KC-46 tanker, which the 
Government really scrubbed the requirements, did a lot of cost 
and performance trade analysis before they let the bid for the 
contract. Boeing made the bid, and it was a fixed--price 
contract, which means anything over the bid, is Boeing's. As a 
matter of fact, right now the program is a little bit behind 
schedule. No real issues performance-wise, and it has gone 
above Boeing's cost estimate. It hit the ceiling, and Boeing is 
paying I think as much as $1 billion for that now.
    Senator Sanders. But isn't that a sensible way to proceed?
    Mr. Sullivan. Yes. We think that is the way to do product 
development. We are talking about what procurement should be 
and it usually is fixed price. They sign fixed-price contracts 
for lots of the F-35s right now. It is in development where 
they use these contracting methods that really places all the 
cost risk on the Government.
    Senator Sanders. Yes, Okay. Thank you, Mr. Chairman.
    Mr. Sullivan. But the tanker is an example of a direction 
they are moving in now.
    Senator Sanders. Good.
    Chairman Enzi. To follow-up on that a little bit, I 
remember running into a guy that built office buildings, and he 
told me that what he really relied on, he did a nice tight bid, 
but then he always tried to encourage them to do some changes 
to their plans after the bid, and then he could charge extra 
for the changes. And, evidently, on the KC-46 we are not making 
a lot of changes then, so they cannot----
    Mr. Sullivan. One of the keys was that the Government knew 
exactly what it wanted, did its homework up front, and there 
have been no increased requirements, so the contractor has not 
been able to reopen their contract.
    Chairman Enzi. Thanks. I am going to switch to the 
Department of Veterans Affairs, the VA. They launched a new 
program to streamline the way its medical centers buy supplies 
for treating 7 million veterans. The GAO found that the VA 
lacked any overarching strategy, and the rollout of the program 
ran counter to practices of leading hospitals. As a result, the 
list of available products did not meet medical center needs, 
and the program has yet to achieve the key goals of cost 
savings and greater efficiency.
    Can you tell me a little bit about if the VA is making any 
progress on establishing a formulary that meets veterans' needs 
and follows the practices of hospitals, for example?
    Mr. Dodaro. In the short term, what VA is trying to do now, 
from what we understand, is increase the number of items on the 
formulary from 8,000 to about 37,000 items, so to put more 
items available there. Now, one of the problems we found 
earlier is they had not selected all the proper items to put on 
the list, so hopefully they are doing a better job of doing 
that.
    In the longer term, they are trying to come up with a whole 
new strategy, and part of that longer-term strategy will 
involve the clinicians, the people with the clinical skills who 
know what items they really need. This is one of the 
recommendations that we have made to them. My understanding is 
this week the House has passed legislation that would require 
VA to ensure that the clinicians are involved in deciding what 
items are needed.
    What we found is because they were not involved earlier, 
even though they had this central formulary that was supposed 
to drive down cost, it did not include all the items that they 
needed, so they were using purchase cards and emergency 
purchasing services at the medical centers to get the supplies 
they needed, because it was not coming through this central 
purchasing authority.
    So I would say they are in the very early stages of trying 
to address our recommendations and improve this process, but 
they still do not have a good long-term strategy.
    Chairman Enzi. They are increasing it from 8,000 to 30,000 
or--are they eliminating any?
    Mr. Dodaro. Yes, well, what I understand is they are 
focusing initially on items they know they need every month for 
surgical supplies and medical supplies. So these are known 
needs.
    Now, the question is whether or not the data that they are 
drawing from is accurately showing what those needs are, 
because there are a lot of different purchasing vehicles. So we 
will go in, and we are going to follow-up, we are going to work 
with them and hopefully move them in the proper direction in 
this area. They are trying new approaches, and they just need 
to address the recommendations that we have made, and we are 
going to follow up.
    Chairman Enzi. Okay. I appreciate that. Some helpful 
outside research.
    Your report also states in regard to the Federal STEM 
education in 2016 that spending totaled almost $3 billion for 
163 programs in 13 agencies and nearly all of those programs 
overlapped with at least one other program. We do need strong 
STEM programs in order to move forward as a country. What kind 
of checking are they doing to see if the programs are effective 
and to reassign them so that there is more direct oversight?
    Mr. Dodaro. They are not doing what was expected of them. 
There is a Committee on STEM Education that was created by the 
Congress and the Office of Science, Technology, and Policy in 
the White House that is required to review program evaluations 
that were supposed to be done on the STEM education programs 
and to document them and to evaluate how well they are 
performing in this portfolio of programs. And that has not been 
done, and we recommended that they go forward and do that.
    Now, the Congress also passed additional legislation last 
year to require them to report on this analysis and to go 
forward. As a result, while some individual STEM programs have 
been evaluated, many have not, and there has not been this 
portfolio review done where it is documented and then there 
could be action taken to consolidate programs that may not be 
working effectively or eliminate some of the programs. So 
without that fundamental performance information on how well 
the programs are doing, they cannot make informed decisions on 
how to change the portfolio.
    So they have agreed to implement all our recommendations, 
which should put them in a better position to be able to know 
which programs are working effectively or not, and then take 
appropriate action, which could include consolidating or 
eliminating some of the programs or redesigning them if they 
know what the design flaws would be.
    Chairman Enzi. For over 25 years, I think we have had some 
requirements on the Government Performance and Results Act. Is 
anybody actually doing that?
    Mr. Dodaro. Some people are, but what we find in some cases 
where they are doing the evaluations, they are not using it to 
make decisions going forward. In this case, Congress set 
specific requirements for this Committee on STEM Education, and 
they have not fulfilled those responsibilities yet, and that is 
what we have recommended that they do. This is separate and 
apart from the Government Performance and Results Act. But it 
is consistent with that, Mr. Chairman, as you point out.
    So there have been strides where there has been greater use 
of performance measures or greater development of performance 
measures, but what we find when we do surveys periodically of 
Government managers is that the results of those evaluations 
and studies are not being used as effectively as possible.
    Chairman Enzi. Thank you.
    Senator Sanders.
    Senator Sanders. Thanks.
    The Chairman talked about VA, which is a huge $200 billion 
operation. The VA negotiates drug prices with the 
pharmaceutical industry, and if I am not mistaken, I think they 
pay the lowest prices in this country for prescription drugs, 
much lower than Medicaid or Medicare. Have you guys done any 
studies about how much savings would accrue to the taxpayers if 
all Government agencies paid the same amount of money as the VA 
did for prescription drugs?
    Mr. Dodaro. We have been asked to look at that issue and 
compare VA, Medicaid, Medicare. I do not have the information--
--
    Senator Sanders. By the way, the drug companies tried to 
keep this--what do you call it?--confidential, what is the--
proprietary.
    Mr. Dodaro. Yes.
    Senator Sanders. And what you will find is they are all 
different prices. The same drug, the VA pays X dollars for it, 
Medicaid pays Y dollars for it.
    Mr. Dodaro. Yes, and DoD.
    Senator Sanders. DoD pays----
    Mr. Dodaro. Same thing. I would be happy to provide a 
summary of our work.
    Senator Sanders. All right. Let us work on that. Will you 
do me a favor?
    Mr. Dodaro. Sure.
    Senator Sanders. Let us talk about how we can go forward.
    Mr. Dodaro. Okay.
    Senator Sanders. I am curious about that.
    Let me ask you just a question. My understanding is that 
since 1995 Boeing, Lockheed Martin, and United Technologies 
have paid nearly $3 billion in fines or related settlements for 
fraud or misconduct. That is a lot of money, and that is 
above--we are not talking about cost overruns here. This is 
illegal behavior. Do we have an epidemic of fraud and illegal 
behavior within the defense contractors industry?
    Mr. Dodaro. That is not an area we have looked into. I 
would be happy to consider what we could do to look at the 
information that you provided.
    Senator Sanders. You know, I am not aware that we have the 
most vigorous fraud enforcement--you know, people looking at 
these issues. But $3 billion from major contractors, it seems 
to me that we may have a serious problem above and beyond cost 
overruns.
    Mr. Dodaro. We will consider how we could take a look at 
that.
    Senator Sanders. Okay.
    Mr. Dodaro. And, also, you know, to look at that in 
perspective to other industries as well, too.
    Senator Sanders. Okay. Could we drop into your office and 
maybe chat about this?
    Mr. Dodaro. Sure.
    Senator Sanders. Okay. Let me get back to an issue that I 
raised a moment ago. You have major contractors like Lockheed 
Martin and Raytheon. They receive 90 percent of their revenue 
from national defense, 70 percent from the U.S. Government, 20 
percent from other governments buying military equipment, and 
they pay their CEOs over $20 million in total compensation. I 
asked the DoD about that, and they wrote back and they said 
basically with regard to what companies decide to pay their 
executives and employees is within the purview of the owners or 
boards of directors and shareholders.
    Do you think that if the U.S. Government provides 70 
percent of the revenue for Lockheed Martin or Raytheon and they 
provide their CEO with 100 times more salary than the Secretary 
of Defense, is that a proper issue for the U.S. Government to 
look into?
    Mr. Dodaro. We were asked to look at this issue a few years 
ago, and based on our report, the Congress decided to set a cap 
on how much executive compensation could be charged to the 
Federal Government, and it was initially set at $487,000, and 
it is to be indexed over time. Currently, the current cap for 
2017 was $1.1 million. Clarification: This limit, which was set 
by the Office of Federal Procurement Policy officially at 
$1,144,888, is the amount that contractors may charge the 
government for compensation costs--not only for executives but 
for all employees--incurred during 2018 for contracts that were 
awarded before June 24, 2014. The limit that contractors may 
charge the government for compensation costs incurred during 
2018 for contracts awarded on or after June 2014 is $525,000. 
So, whatever they decide to pay their top executives, they can 
only charge the Federal Government about $1 million for 
contracts awarded prior to June 24, 2014 for compensation costs 
incurred during 2018; if the contract was awarded on or after 
June 24, 2014, however, contractors may only charge the 
government $525,000 for compensation costs incurred during 
2018.
    Senator Sanders. They could add the other $19 million to 
the cost of their F-35s, can't they, pretty easily?
    Mr. Dodaro. Well, it is up to the Defense Department to 
scrub their analysis of the costs that they charge the 
Government and to be audited by the Defense Contract Agency and 
make sure they have proper cost accounting systems. But I am 
just saying what the requirement is.
    Senator Sanders. Okay. All right. Those are my questions, 
Mr. Chairman. And, Mr. Dodaro, we will give you a ring, and if 
you can come in, we can go over some of these things.
    Mr. Dodaro. Sure. I would be happy to discuss those issues.
    Senator Sanders. Okay. Thank you very much.
    Mr. Dodaro. You are welcome.
    Senator Sanders. Thanks for your good work.
    Mr. Dodaro. Sure. Thank you.
    Chairman Enzi. Senator Boozman.
    Senator Boozman. Thank you, Mr. Chairman. And thank you 
very much for being here.
    In your testimony, you discuss many of the challenges of 
the Veterans Health Administration that they face. 
Specifically, you mention issues with human capital, medical 
supplies procurement, IT operations, maintenance, and the list 
goes on and on. As a member of the Veterans' Affairs Committee, 
I noticed that the Department of Veterans Affairs was rather 
high on the list of agencies with not addressed or partially 
addressed actions.
    Have you identified road blocks at the VA that have 
prohibited them from implementing your recommendations?
    Mr. Dodaro. No, Senator. I have made it a priority to meet 
with each Secretary of Veterans Affairs since I have been in 
this job. I met with Secretary Shinseki----
    Senator Boozman. You met with a bunch of them lately.
    Mr. Dodaro. Yes, McDonald and Shulkin, and I plan to meet 
with the new Secretary once there is one in place. And each 
time I met with them, I encouraged them to implement our 
recommendations. In many cases they agreed with the 
recommendation, but then it was not implemented. And I told 
them they are not getting the benefit of implementing the 
recommendations.
    So with the last Secretary, Secretary Shulkin, we set up 
quarterly meetings. We were meeting with their staff to try to 
encourage them to implement the recommendations. So they are 
making some progress, and there is no real barrier. I am very 
concerned about the VA. I think it needs leadership. It has 
some of the most serious management problems in the Federal 
Government, and I look across the whole Federal Government. So 
I have made it a high priority. In 2015, added veterans' health 
care to the High-Risk List that we keep for Congress of the 
highest risks. The disability portion was already on the High-
Risk List for many years. And we are looking now at veterans' 
health care and focused on contracting activities.
    So they need some leadership. They need follow-through and 
some fundamental management reform.
    Senator Boozman. One of the issues is that not only--and, 
again, I am excited about the prospect of us confirming the 
President's nominee. I think he is going to do a very, very 
good job. But one of the problems I have got now is just the 
fact that there is just so many open spots, you know, in key 
leadership positions.
    Mr. Dodaro. That is an issue. They have somebody now 
finally at the VBA, and I am going to be meeting with Paul 
Lawrence and talking about our recommendations there. But they 
do not have somebody at the VHA and in other areas, the CIO. 
They have a big contract for the electronic health care 
records. So that is an issue. When I say leadership, I do not 
just mean the Secretary. I mean throughout the Department.
    Senator Boozman. Right, very much. In a related situation, 
according to GAO's report, Congress and the executive branch 
have not addressed or resolved approximately 25 percent of 
identified items. Why do so many items remain open? And 
approximately how much money could be saved by--what do you 
estimate are the dollars that could be saved by implementing 
GAO's open recommendations?
    Mr. Dodaro. These are recommendations across the board. We 
were talking about the open ones. For those Senator, I believe 
there are tens of billions of dollars that could be saved by 
implementing our recommendations. It depends on specifically 
what needs to be done, but easily tens of billions of dollars. 
And these would be savings that would generally not adversely 
affect the provision of services. Some of them are revenue 
enhancements that would bring in additional revenue that 
Congress could decide how to use. So there are lots of 
additional opportunities to save money.
    Senator Boozman. Very good. Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    It will be my turn again. Mr. Dodaro, the GAO report 
highlights millions of dollars in duplication of Federal 
agencies' provisions for identity theft services in response to 
the data breaches that we have had. The report notes that the 
Office of Management and Budget, OMB, is responsible for 
coordinating these services across agencies. What steps should 
OMB take to better coordinate the provision of identity theft 
services to ensure that agencies do not waste the taxpayers' 
dollars by offering duplicative theft help?
    Mr. Dodaro. Well, first, OMB should track and keep a 
central repository of all the Federal agencies' efforts to 
offer identity theft services to make sure that before an 
agency goes forward with a new decision, that they know to what 
extent the Federal Government has already provided services to 
specific populations.
    Second, OMB should issue some guidance that should go to 
agencies about identifying alternatives to identity theft 
services such as credit freezes and fraud alerts that may be 
cheaper and more effective over time. What we found is that 
some of these identity theft services will cover some out-of-
pocket costs. They will not actually cover, material losses if 
something happens where the information is inappropriately 
used. So there are typically only reimbursements--so far from 
what we have seen, a few thousand dollars that they are getting 
reimbursed, where it is costing millions of dollars to provide 
these services to the Government. So there may be a better 
cost-benefit analysis, and OMB should require agencies to 
conduct a cost-benefit analysis of alternatives before deciding 
how to move forward.
    Now, OMB mentioned some concerns about keeping central data 
bases in terms of secrecy or privacy concerns, but we think 
that this could be overcome properly. This would be a better 
value to the Government.
    Chairman Enzi. You are a wealth of information on this, and 
I have got another question or two, but Senator Grassley has 
joined us, and as head of Judiciary alone, he has got a really 
busy job, but he is also on a number of other committees, and 
he is probably one of the best attendees at any of them, so if 
you have got some questions.
    Senator Grassley. Thank you. We just finished five nominees 
just now, so I am glad to be able to get here. Thank you, and 
thank you for the good work you do.
    You have identified ways to reduce fragmentation, overlap, 
and duplication. You report Congress and the executive branch 
have partially or fully addressed 76 percent of the action 
items identified in the 6 years of your report. That is 551 
altogether. So that leaves 122. I hope this is not too 
difficult a question. Let us say you are not going to get all 
122 items done. Could you tell me two or three that are the 
most important or urgent for Congress to take action on that 
you would suggest?
    Mr. Dodaro. Yes, Senator. To address that question, as an 
appendix to my testimony, there are 50 open matters for 
congressional consideration that I consider high priority, so 
they are spelled out in the appendix. For example, we have just 
one area alone we think could potentially save tens of billions 
of dollars, and that is to provide the Department of Energy the 
ability to consider alternative methods for treating nuclear 
waste at the Hanford site. Congress has already provided this 
authority for the Savannah River site, and we think these 
alternative methods can treat the waste faster--and this is 
low-activity waste. We are not talking about high-level waste, 
which Congress and Federal law requires to be vitrified or 
turned into glass before disposal. There is a cheaper method 
called ``grouting'' that can use a concrete-like mixture for 
low-activity waste. And if they are allowed to switch to this 
treatment method they could potentially save tens of billions 
of dollars. Environmental liabilities right now are estimated 
in the Federal Government to be almost half a trillion dollars. 
And we are spending tens of billions every year, and the 
liability keeps going up.
    Then we have a number in the Medicare-Medicaid area. For 
example, there have been demonstration projects approved over 
the years where about one-third of total Medicaid spending 
right now has been provided through these demonstration 
projects, they were supposed to be budget--neutral. They are 
not, based on our analysis. So we think tens of billions of 
dollars could be saved by bringing them into a budget-neutral 
position.
    On Medicare, for example, we think giving equal treatment 
to these cancer hospitals that they were initially developed in 
the 1980's when cancer therapies were first being developed. 
They are reimbursed at a different rate than if you go into a 
teaching hospital and receive the same cancer therapy. If you 
equalize the rates, you would save $500 million a year.
    Also under Medicare, if you go in and see a doctor and if 
the doctor's practice is owned by a hospital, they get 
reimbursed at a higher rate than a doctor in a private practice 
not owned by a hospital. If you equalize those rates, you would 
save $1 billion to $2 billion a year.
    So those are some of the areas, but we have many others.
    Senator Grassley. Okay. My last question. Since 2014, your 
organization has recommended that Congress enact legislation to 
better coordinate Social Security disability with unemployment. 
While proposals have been offered to address this issue over 
the years, enacting such a proposal has been met with 
resistance by some. Could you elaborate on why GAO sees this as 
a duplication meriting correction?
    Mr. Dodaro. Yes. Our work identified people that were 
receiving both benefits. Now, both benefits try to compensate 
you for not working, whether it is unemployment or disability 
insurance, and we believe that, people should have support if 
they have lost their income for a legitimate reason. But they 
should not receive both benefits at the same time. And so we 
think the Congress ought to consider rectifying that situation.
    Senator Grassley. Okay. Thank you, Mr. Chairman.
    Chairman Enzi. Thank you.
    I want to ask a question, too, on the Social Security 
Administration because in your testimony it mentions that there 
are five quality assurance reviews of decisions on appealed 
disability claims and that it spent $11 million on those 
reviews in fiscal year 2016 alone. In December 2017, you found 
that some of these reviews may overlap and that the Social 
Security Administration has not evaluated the efficiency and 
effectiveness of the reviews.
    Why does SSA have five different quality assurance reviews? 
And what is the agency doing, if anything, to streamline those 
reviews?
    Mr. Dodaro. This is a classic case of what we find when we 
find overlap and duplication, that these quality reviews were 
added for different purposes over time. The first quality 
reviews were done in 1940, so they have added these other 
programs to deal with different issues, and they have never 
really gone back and done a systematic look to see whether some 
of them could be consolidated.
    They have agreed with our recommendations. They have 
already started taking some action to consolidate some of the 
reviews within a certain program office, and they are looking 
at how they can consolidate the reviews further over time. But 
this is a pattern we have seen. That is why you have 160 
housing programs, why you have, 160-some STEM programs. They 
get added over time, and it is very rare something gets taken 
off the table. And that is the benefit of our recommendations.
    Chairman Enzi. Nothing has quite as much longevity as a 
Federal government program.
    [Laughter.]
    Chairman Enzi. Well, I want to thank you for your 
outstanding answers. I remember when this was called the 
``Government Accounting Office,'' and I thought that it should 
have stayed that as an accountant.
    [Laughter.]
    Chairman Enzi. But after hearing your answers, I am glad 
that it went to ``accountability.'' I think that is going to be 
much more effective than the other. I am fascinated with your 
vast knowledge. Your experience and years of doing this really 
show. I appreciated the comment you made earlier about 
prioritizing the suggestions that you have in order of dollars 
of savings. That shows that you are doing at your agency what 
you are requiring the others to do as well, and I appreciate 
that you meet with the different agencies, but that you also 
meet with the appropriators. I hope everybody is taking 
advantage of that.
    You have some other expertise with you there as well, and I 
appreciate that. If you could supply the record with the full 
names of your experts for a part of the record today, too, that 
would be appreciated and helpful.
    Mr. Dodaro. I would be happy to do that, Mr. Chairman. We 
have terrific people at GAO.
    Chairman Enzi. You must to produce these reports that you 
are putting out.
    Mr. Dodaro. And we still do all the accounting work.
    [Laughter.]
    Chairman Enzi. Yes. Your full statement, of course, will be 
included in the record, and my staff will be working to see if 
there are other contacts that we can make to get that 
information out to more people that can suggest to the decision 
maker the answers that you have suggested.
    As information for all Senators, questions for the record 
are due by 6 p.m. today with a signed hard copy delivered to 
the Committee clerk in Dirksen 624. And under our rules, GAO 
has 7 days from the receipt of the questions to respond to the 
answers.
    If there is no further business to come before the 
Committee, the hearing is adjourned.
    [Whereupon, at 11:36 a.m., the Committee was adjourned.]

                     ADDITIONAL COMMITTEE QUESTIONS

    [The following submitted questions were not asked at the 
hearing but were answered by the witness subsequent to the 
hearing:]

              QUESTION FOR THE RECORD FROM SENATOR MURRAY

QUESTION 1

    One area where cross-agency collaboration has been lacking 
is improving the data collected on medical implants to both 
reduce patient harm and costs. While medical claims submitted 
to health plans-including Medicare-are increasingly used as a 
key pillar to create a learning healthcare system, claims lack 
information on the brand and model of medical implants, 
including artificial hips and cardiac stents. A new tool 
created by the Food and Drug Administration (FDA)--called the 
unique device identifier-indicates the brand and model of 
implants, and could be integrated in to claims data to support 
analyses on the long term safety of those products. The Office 
of the Inspector General of the Department of Health and Human 
Services (HHS OIG) has recommended adding device identifiers to 
claims after finding that the failure of just seven types of 
cardiac implants cost the Medicare program $1.5 billion and 
beneficiaries an additional $140 million in out-of-pocket costs 
to get care associated with those faulty products. The Medicare 
Payment Advisory Commission (MedPAC) has also recommended 
adding device identifiers to claims, as have dozens of health 
plans, hospital systems, clinical societies and other key 
organizations. While the FDA has indicated that adding device 
identifiers to claims is a key element of its device safety 
strategy, the Centers for Medicare & Medicaid Services-which 
supported this policy in the previous administration-has 
recently stated that it is still reviewing this proposed 
change. As part of GAO's forthcoming report on cross-agency 
collaboration, have you evaluated whether to join HHS OIG, 
MedPAC, FDA and many other organizations in recommending this 
common sense policy that can improve patient safety while 
reducing costs?

GAO RESPONSE

    In our 2012 report on certain implantable medical devices, 
we noted several shortcomings that arose from Medicare not 
having information on the specific devices implanted in 
patients. \1\ We stated that CMS generally intended to link 
payment to the quality and efficiency of care provided--a move 
toward value-based purchasing in Medicare--but that one of the 
principles of value-based purchasing is having good data on 
performance and that such data generally were lacking for 
specific brands of implantable medical devices. We reported 
that there were registries of postoperative outcomes for some 
cardiac devices, but none for orthopedic or spinal devices 
outside of specific organizations such as Kaiser Permanente. 
Furthermore, we stated that because hospital data currently 
were embedded in multiple data systems--such as medical 
records, operating room logs, purchasing department records, 
and billing systems--it could be difficult to match which 
device brand was used with a particular patient. Finally, we 
noted that efforts to improve information about patient safety 
and medical devices would be supported by the implementation of 
unique device identifiers and that the Food and Drug 
Administration Amendments Act of 2007 required the promulgation 
of regulations establishing a unique device identification 
system.
---------------------------------------------------------------------------
    \1\ GAO, Medicare: Lack of Price Transparency May Hamper Hospitals' 
Ability to Be Prudent Purchasers of Implantable Medical Devices, GAO-
12-126 (Washington, DC.: Jan. 13, 2012).
---------------------------------------------------------------------------

          QUESTION 1-6 FOR THE RECORD FROM SENATOR VAN HOLLEN

QUESTION 1

    According to press reports, the Executive Branch may be 
withholding some of the funding that Congress has appropriated 
to the National Labor Relations Board (NLRB), which is the 
agency responsible for protecting the rights of workers in the 
private sector. At a hearing of the Senate Appropriations 
Subcommittee on the Legislative Branch on April 25, you 
indicated to me that the Government Accountability Office was 
looking into this as a potential impoundment of funding at the 
NLRB, which could be in violation of the Impoundment Control 
Act. Is GAO still examining whether there is an impoundment 
taking place at NLRB, and if so, when do you expect to report 
to Congress on this question?

GAO RESPONSE

    Our work on the potential impoundment of funds at NLRB is 
ongoing. We expect to provide your staff with an update by the 
end of June 2018.

QUESTION 2

    In 2015, GAO recommended that Congress take action to limit 
the extent to which wealthy individuals could accumulate 
massive amounts of money in tax-advantaged retirement accounts 
such as IRA and 401(k) plans. These accounts are critical tools 
that help millions of middle-class families save for 
retirement, but some very wealthy individuals are abusing the 
rules for these accounts to turn them into a tax shelter with 
account balances that can reportedly exceed $100 million. Would 
President Obama's proposal to ``Limit the total accrual of tax-
favored retirement benefits'' have addressed GAO's 
recommendation for this issue? \2\ And did the recently enacted 
tax overhaul (Public Law 115-97) take any action to address 
this recommendation from GAO?
---------------------------------------------------------------------------
    \2\ Department of the Treasury, ``General Explanations of the 
Administration's fiscal year 2017 Revenue Proposals,'' February 2016, 
available at https://www.treasury.gov/resource-center/tax-policy/
Documents/GeneralExplanations-FY2017.pdf.
---------------------------------------------------------------------------

GAO RESPONSE

    The Obama Administration proposal would have addressed one 
option that we suggested in that it would introduce an overall 
cap on retirement contributions and savings in tax-preferred 
accounts. \3\ The Administration's Fiscal Year 2017 proposal 
was to limit additional contributions beyond the amount 
necessary to provide the maximum annual annuity permitted for a 
tax-qualified defined benefit plan. If a taxpayer reached the 
maximum permitted accumulation, no further contributions or 
accruals would be permitted, but the taxpayer's account balance 
could continue to grow with investment earnings and gains. At 
the time of proposal, the maximum annual benefit was $210,000, 
and the Administration stated that the maximum permitted 
accumulation for an individual age 62 was approximately $3.4 
million.
---------------------------------------------------------------------------
    \3\ To promote retirement savings without creating permanent tax-
favored accounts for a small segment of the population, GAO suggested 
that Congress should consider revisiting the use of IRAs to accumulate 
large balances and consider ways to improve the equity of the existing 
tax expenditure on IRAs. Other options could include limits on (1) the 
types of assets permitted in IRAs or (2) the minimum valuation for an 
asset purchased by an IRA. See GAO, Individual Retirement Accounts: IRS 
Could Bolster Enforcement on Multimillion Dollar Accounts, but More 
Direction from Congress Is Needed, GAO-15-16 (Washington, DC.: Oct. 20, 
2014).
---------------------------------------------------------------------------
    We have not assessed an approach for limiting contributions 
to defined contribution plans and individual retirement 
accounts (IRA) based on the actuarial equivalence calculations 
used for defined benefit plan accumulations. \4\ However, 
according to Department of the Treasury's February 2016 
estimates, the Administration's fiscal year 2017 proposal 
limiting the total accrual for tax-favored retirement benefits 
would have generated an estimated $30 billion from 2017 through 
2026. In July 2016 using Congressional Budget Office economic 
assumptions, the Joint Committee on Taxation estimated that the 
Administration's 2017 proposal would have generated about $4.4 
billion over the period.
---------------------------------------------------------------------------
    \4\ GAO, Tax Expenditures: Background and Evaluation Criteria and 
Questions, GAO-13-167SP (Washington, DC.: Nov. 29, 2012) outlines a 
series of questions and criteria--economic efficiency, equity, 
simplicity, transparency, and administrability--that can be used to 
evaluate the performance of a tax expenditure or a proposal to modify 
an existing tax expenditure.
---------------------------------------------------------------------------
    In December 2017, Congress enacted and the president signed 
Public Law 115-97 which included significant changes to 
corporate and individual tax law. \5\ In February 2018, the 
Internal Revenue Service announced that the recent tax 
legislation made no changes to the section of the tax law 
limiting benefits and contributions for retirement plans. 
Although the new law made changes to how cost of living 
adjustments are made, after taking the applicable rounding 
rules into account, the 2018 limit amounts remained unchanged. 
\6\ For employer-sponsored defined benefit plans, benefits are 
limited to amounts needed to provide an annual benefit no 
larger than the lesser of a specific dollar amount or 100 
percent of the participant's average compensation for the 
highest 3 consecutive calendar years. \7\ Employer-sponsored 
defined contribution plans have annual contributions limits, 
and similar contribution limits exist for IRAs. \8\ However, 
there is no total statutory limit on IRA accumulations or 
rollovers from employer-sponsored defined contribution plans.
---------------------------------------------------------------------------
    \5\ Pub. L. No. 115-97, 131 Stat. 2054 (Dec. 22, 2017).
    \6\ IRS Notice 2017-64.
    \7\ For 2018, the limit for an annual benefit from a defined 
benefit plan is $220,000.
    \8\ For 2018, the contribution limit on an employee's elective 
deferral is $18,500, and the overall defined contribution limit, which 
includes the total of all employer contributions and employee elective 
deferrals, is $55,000. For 2018, the maximum contribution for all 
traditional and Roth IRAs in total is $5,500.
---------------------------------------------------------------------------

QUESTION 3

    One of the issues this report examined is the Social 
Security Administration's lack of coordination with the 
Department of Education to monitor the extent to which 
individualized education programs (IEP) are being used to 
connect transition-age youth with disabilities with vocational 
rehabilitation services. Leveraging a student's IEP to link 
them with vocational rehabilitation transition services--as 
well as work incentives and benefits planning--could help 
create a continuum of services into adulthood to bolster 
employment and higher education outcomes in the long-term. But 
of course, in order for that to be a successful model, children 
on SSI need to have IEPs in the first place. According to a 
2005 National Survey of SSI Children and Families from SSA, 32 
percent of children on SSI did not have an IEP. As part of this 
review, did GAO examine how many children receiving SSI do not 
have IEPs at all? If so, does GAO have more recent data that 
you can share?

GAO RESPONSE

    As part of our work, we made inquiries to determine whether 
we could match Social Security Administration (SSA) data on SSI 
recipients aged 14 to 17 with data on students with IEPs. \9\ 
Because student files do not always include Social Security 
numbers, we were unable to identify a reliable source of IEP 
data to match with SSI recipient data to determine the extent 
to which youth receiving SSI have IEPs. Further, we learned 
that SSA only collects IEP information in certain cases--for 
example, when it is reviewing an SSI recipient for continued 
eligibility--and therefore lacks complete information to 
systematically determine whether youth receiving SSI have IEPs. 
As a result, we could not determine the proportion of youth on 
SSI who lacked an IEP.
---------------------------------------------------------------------------
    \9\ GAO, Supplemental Security Income: SSA Could Strengthen Its 
Efforts to Encourage Employment for Transition-Age Youth, GAO-17-485 
(Washington, DC.: May 17, 2017).
---------------------------------------------------------------------------

QUESTION 4

    Once children on SSI have an IEP in place, I agree that we 
need to understand the extent to which IEPs are not being used 
to connect students with these services. From GAO's 
perspective, what value would this data provide?

GAO RESPONSE

    While data on connections to vocational rehabilitation 
services made through IEPs may be useful for evaluating the 
effectiveness of IEPs, our work did not focus on this issue; 
rather we examined whether or not youth on SSI had IEPs that 
could connect them to vocational rehabilitation and found that 
data to make such determinations are unavailable. We 
recommended that SSA work with the Department of Education to 
determine the extent to which youth on SSI are not receiving 
transition services through schools that can connect them to 
vocational rehabilitation agencies and services. SSA partially 
agreed with this recommendation, noting some on-going 
collaborative efforts with Education and expressing concerns 
about the legality of sharing privacy data. However, SSA's 
current collaborative efforts with Education are not designed 
to determine the extent to which youth on SSI are receiving 
transition services through schools or being connected to 
vocational rehabilitation services. While we acknowledge that 
legal and privacy issues can present challenges to 
collaboration, we believe that SSA can explore approaches that 
take into account such legal issues.

QUESTION 5

    In its response to GAO's recommendation on IEPs and 
transition services, SSA stated that sharing the data necessary 
to identify students with SSI who are not receiving transition 
services in schools may raise privacy concerns. However, GAO 
noted that SSA has overcome privacy concerns and found work-
arounds to share similar data in the past. Can you provide an 
overview of some of those situations and how those work-arounds 
could be applied to take action on this recommendation? In your 
view, is there anything that Congress can do--or should be 
doing--to help facilitate SSA and the Department of Education's 
coordination and implementation of this recommendation?

GAO RESPONSE

    SSA has addressed privacy concerns related to data sharing 
in the past through several methods. For example, as part of 
the Promoting the Readiness of Minors in Supplemental Security 
Income (PROMISE) initiative, SSA obtained consent from the 
youth and his or her parent or guardian to participate and 
assigned each youth a separate unique identification number for 
use instead of his or her Social Security number. In addition, 
at the time of our report, SSA was conducting an initiative to 
share encrypted data on SSA beneficiaries eligible for 
employment services with employment networks via secure 
messaging. \10\ Such data could then be used by the employment 
network to conduct outreach to these beneficiaries.
---------------------------------------------------------------------------
    \10\ GAO, Supplemental Security Income: SSA Could Strengthen Its 
Efforts to Encourage Employment for Transition-Age Youth, GAO-17-485 
(Washington, DC.: May 17, 2017).
---------------------------------------------------------------------------
    SSA has the authority to implement our recommendations and 
Congress could help by highlighting our recommendation to SSA 
and the Department of Education.

QUESTION 6

    GAO's recommendation to SSA focused on better coordination 
on vocational rehabilitation services for transition-age 
children on SSI. Did GAO also examine the extent to which IEPs 
are integrating other goals around transition that are crucial 
for SSI beneficiaries, including work incentives and benefit 
planning?

GAO RESPONSE

    Our work was mainly focused on SSA's efforts to encourage 
employment for youth on SSI, rather than on the effectiveness 
of the IEP transition process. We did review SSA efforts to 
administer work incentives with respect to youth on SSI, and 
its efforts to provide related information to youth on SSI and 
their families. Based on this work, we made two 
recommendations:
         We recommended that SSA determine why a large 
        proportion of transition-age youth on SSI with reported 
        earnings did not benefit from the Student Earned Income 
        Exclusion (SEIE), SSA's primary work incentive for this 
        population. SSA agreed with this recommendation, but as 
        of June 15, 2018 has not reported taking any actions.
         We recommended that SSA analyze options for 
        improving its communications with transition-age youth 
        and their families about available SSA-administered 
        work incentives and the implications that work earnings 
        may have on the receipt of SSI benefits. SSA disagreed 
        with our recommendation stating, in part, that it found 
        no indication that staff are not providing youth with 
        appropriate information, despite our findings that such 
        information is not consistently provided. SSA also 
        noted that a newly developed brochure provides 
        information on work incentives. We acknowledged that 
        the brochure is a positive step, but that it could 
        contain additional information and that written 
        communication may not be sufficient to convey such 
        complex information.

    GAO has conducted other work related to transition services 
for students with disabilities, for example,

         GAO-17-352--Youth with Autism: Federal 
        Agencies Should Take Additional Action to Support 
        Transition-Age Youth, and

         GAO-12-594--Students with Disabilities: Better 
        Federal Coordination Could Lessen Challenges in the 
        Transition from High School.

              QUESTION FOR THE RECORD FROM SENATOR WARNER

QUESTION 1

    As you know, over the past few years agencies have been 
working to implement the DATA Act, a bill I authored back in 
2011 and was signed into law in 2014. GAO has a critical role 
in overseeing implementation of that law as agencies seek to 
fully integrate their systems with the statutory requirements 
of the law. I have appreciated GAO's continued vigilance.
    (a) Once fully implemented, how will the DATA Act help in 
addressing the issue at the core of this hearing--finding ways 
to make the Federal Government work more efficiently?

GAO RESPONSE

    The DATA Act holds great promise for improving the 
efficiency and effectiveness of the Federal Government, and for 
addressing persistent government management challenges. 
Expanding the quality and availability of Federal spending data 
will better enable Federal program managers to make data-driven 
decisions about how they use government resources to meet 
agency goals. Reliable, detailed budget information is critical 
to estimate the cost savings that could be achieved should 
Congress or agencies take certain actions to address identified 
fragmentation, overlap, and duplication. Absent this 
information, Congress and agencies cannot make fully informed 
decisions on how Federal resources should be allocated and the 
potential budget trade-offs.
    Moreover, implementation of the program inventory 
provisions of the GPRA Modernization Act of 2010, in tandem 
with DATA Act implementation, could also provide vital 
information to assist federal decision makers by enabling 
program managers to crosswalk spending data to individual 
programs. \11\ A comprehensive list of federal programs along 
with related funding and performance information is necessary 
for improving the effectiveness of federal decision making, as 
well as for identifying potential fragmentation, overlap, or 
duplication among federal programs. Currently, there is not a 
comprehensive list of all federal programs and agencies often 
lack reliable budgetary and performance information about their 
programs. Without knowing the scope, cost, or performance of 
programs, it is difficult for executive branch agencies or 
Congress to gauge the magnitude of the federal commitment to a 
particular area of activity, or the extent to which associated 
federal programs are effectively and efficiently achieving 
shared goals.
---------------------------------------------------------------------------
    \11\ Pub. L. No. 111-352, Sec.  7, 124 Stat. 3866, 3876 (Jan. 4, 
2011) codified at 31 U.S.C. Sec.  1122(a)(2). GPRAMA updated the 
Government Performance and Results Act of 1993 (GPRA), Pub. L. No. 103-
62, 107 Stat. 285 (Aug. 3, 1993).
---------------------------------------------------------------------------
    (b) How will the DATA Act assist policymakers, watchdogs, 
and others identify duplication, and waste, fraud, and abuse?

GAO RESPONSE

    Our work examining fragmentation, overlap and duplication 
in federal government programs has demonstrated the need for 
more reliable and consistent federal data, which the successful 
implementation of the DATA Act should produce. As we have 
reported, better data and a greater focus on expenditures and 
outcomes are essential to improving the efficiency and 
effectiveness of federal efforts. The open data provisions of 
the DATA Act should also enhance the federal Government's 
emerging use of data analytics capabilities to conduct incisive 
analysis to support oversight, improve decision making by 
federal program managers, and foster innovation by making more 
federal data available to the public. This oversight will 
include, but not be limited to, the detection and prevention of 
fraud, waste and abuse, as well as analysis of improper 
payments.
    Improper payments--payments that should not have been made 
or were made in incorrect amounts--remain a significant and 
pervasive government-wide issue. From fiscal years 2003 through 
2017, improper payments have been estimated to total about $1.4 
trillion government-wide. \12\ For example, the size and 
diversity of the Medicaid program make it particularly 
vulnerable to improper payments. In fiscal year 2017, improper 
payments were an estimated $37 billion of federal Medicaid 
expenditures. As we have previously reported, a fundamental 
challenge to the oversight of the Medicaid program is the lack 
of complete, accurate, and timely data. This challenge has 
hindered the ability of the Centers for Medicare & Medicaid 
Services (CMS) to ensure the appropriate use of federal and 
state dollars for beneficiary care. Without reliable data, CMS 
is unable to effectively monitor who is providing services, or 
the type of services provided. \13\
---------------------------------------------------------------------------
    \12\ GAO, Improper Payments: Most Selected Agencies Improved 
Procedures to Help Ensure Risk Assessments of All Programs and 
Activities, GAO-18-36 (Washington, DC. Nov. 16, 2017) and Financial 
Audit: fiscal years 2017 and 2016 Consolidated Financial statements of 
the U.S. Government, GAO-18-316R (Washington, DC.: Feb. 15, 2018).
    \13\ GAO, Medicaid: Opportunities for Improving Program Oversight, 
GAO-18-444T (Washington, DC.: April 12, 2018).



      AN UPDATE ON TRANSPARENCY AT THE CONGRESSIONAL BUDGET OFFICE

                              ----------                               



                      THURSDAY, SEPTEMBER 13, 2018

                                       U.S. Senate,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:30 a.m., in 
room SD-608, Dirksen Senate Office Building, Hon. Michael B. 
Enzi, Chairman of the Committee, presiding.
    Present: Senators Enzi, Toomey, Gardner, Van Hollen, 
Merkley, Kaine, and Harris.
    Staff Present: Elizabeth McDonnell, Republican Staff 
Director; and Joshua Smith, Minority Budget Director.

               OPENING STATEMENT OF CHAIRMAN ENZI

    Chairman Enzi. Good morning, and welcome to the Senate 
Budget Committee hearing on the transparency efforts of the 
Congressional Budget Office. In many ways, this hearing is a 
follow-up to our January CBO oversight hearing at which Dr. 
Hall highlighted many new and expanded transparency initiatives 
at the agency.
    More than 40 years since CBO's inception, Congress and the 
public have come to depend on CBO for its budget and economic 
analysis--analysis that we all agree must be timely, objective, 
accurate, and transparent. That means ensuring the agency's 
work is accessible and well understood.
    While this Committee has conducted oversight of CBO's past 
performance, today is an opportunity to discuss what the agency 
is doing to improve congressional and public understanding of 
the processes and products moving forward. Testifying before 
the Committee today is CBO Director Keith Hall. In his role as 
Director, Dr. Hall is responsible for managing the operations 
of the Budget Office and its more than 200 full-time staff. 
Since taking the helm of CBO in April 2015, Dr. Hall has been 
committed to cultivating a culture there that, among other 
competing demands, prioritizes greater transparency.
    Last month, the agency released a report that provided an 
update on the work it has undertaken as part of this effort, 
which we will be examining this morning. This report includes 
updates on CBO's numerous efforts to better explain analytical 
methods, to release relevant data, to compare agency estimates 
to actuals, to visualize data, and to conduct outreach.
    Dr. Hall, thank you for being here. As you know, 
transparency of your office's analysis and operations has long 
been a priority of mine. I have raised the issue with you in 
previous hearings and in private meetings throughout your 
tenure. I am encouraged by the progress in this area that is 
detailed in the recent report and, in particular, the work CBO 
performed at my request. These items include an analysis 
comparing the agency's spending projections with the actual 
outcomes and the supplemental data CBO now releases on more 
than 1,000 appropriations with expired and expiring 
authorizations.
    I was also pleased to see the release of the new 
interactive tools including one that allows the public to 
estimate the cost of customized plans for different military 
force structures, building upon a report the Committee 
requested several years ago. I look forward to hearing more 
about specific plans to bolster transparency at CBO and how the 
agency will track and evaluate the progress of its efforts 
going forward.
    In addition to learning more about developments like these 
over the last year, I am especially interested in learning 
about CBO's plans for the future. In particular, I would like 
to know more about any plans for making CBO's models more 
available to the public, specifically in the area of health 
care. I am aware of the major work the agency is currently 
undertaking to develop a new health insurance simulation model. 
Certainly, there is no better area to focus on transparency 
than one as complicated and controversial as health care. And I 
would be interested in hearing about CBO plans to release 
details of this new model to the public to facilitate a broad 
peer review process prior to its implementation next spring.
    Dr. Hall, I welcome your remarks about CBO's recent report 
on transparency as well as any thoughts you have on other 
issues I have raised. I have no doubt that CBO will continue to 
play a critical role in the support of the congressional budget 
process. In my view, efforts to increase transparency at CBO, 
where possible, will only help to protect and buildup on the 
agency's strong reputation and the credibility it has already 
established over the years.
    I thank Dr. Hall for joining us today, and I look forward 
to our discussion following his testimony. But now I will give 
the floor to Senator Van Hollen for some comments from that 
side.

            OPENING STATEMENT OF SENATOR VAN HOLLEN

    Senator Van Hollen. Thank you, Chairman Enzi, and thank you 
for holding this hearing. Today Ranking Member Sanders cannot 
be here, but he wanted me to extend his best wishes to you, Dr. 
Hall, and I want to thank you because I know that focusing on 
transparency was also one of your own initiatives, and I want 
to congratulate you on the progress that you have made in this 
area.
    I do think that in the interest of transparency, it is 
worth highlighting some of the recent reports that CBO has come 
out with, including within the last 2 weeks, finding, Mr. 
Chairman, that for the first 11 months of fiscal year 2018 we 
are going to expect close to a $1 trillion deficit, 
specifically $895 billion just in the first 11 months of this 
fiscal year.
    As we know, these soaring deficits are highly unusual given 
the fact that the economy has been growing for more than 9 
years. Now, typically we see deficits shrink during strong 
economic times as the need for Government services decreases 
and tax revenues rise. In fact, in the year 2000, which is the 
last time the unemployment rate was at its current level of 3.9 
percent, the Government ran a surplus, meaning tax revenue 
exceeded all Government spending. When you look under this, you 
find a number of elements, but one thing that jumped out in 
this most recent report is that corporate tax receipts have 
fallen by 30 percent in the aftermath of the passage of the 
Republican tax bill.
    Now, I remember, Mr. Chairman, when lots of our Republican 
colleagues criticized the analysis and scoring from CBO and JCT 
with respect to the Republican tax plan because our Republican 
friends said that those corporate tax cuts were going to pay 
for themselves. And, in fact, just this week the Chairman of 
President Trump's Council of Economic Advisers, Kevin Hassett, 
made the bizarre claim that somehow the corporate tax cuts were 
paying for themselves, despite the obvious data, which is no 
longer a projection but real-world data, showing corporate tax 
payments have dropped by 30 percent.
    I hope, Mr. Chairman, we will ask the OMB as well as some 
of the President's economists to present us with some of the 
background on their methodology, because that was sorely 
lacking during the discussion of the tax cut debate. We demand 
excellence from CBO, as we should, but it seems to me we should 
be getting more than one-page papers from the administration 
when they are talking about major tax changes. And now we know 
that CBO is right, and, in fact, if you look at the deficits 
that we are seeing today in real time, just last May the CBO 
projected pretty much the deficits that we are seeing right 
here in month 11 of this fiscal year.
    The final point I would make, Mr. Chairman, is that while 
CBO clearly has a role to play in transparency, so do we as the 
Congress. The Congressional Budget Office needs both the time 
and the resources to do comprehensive analyses in a quick and 
transparent way. In fact, Director Hall testified before this 
Committee in January, and I quote, ``There can be significant 
time and resources used to become more transparent.''
    CBO works as quickly as possible to produce scores while 
bill are being written and rewritten, and Congress often does 
not want to wait for the Congressional Budget Office to write 
out a full explanation before we rush to action and rush to 
vote. In fact, during the debate over repeal of the Affordable 
Care Act, several CBO scores for the Affordable Care Act repeal 
were simply tables with no narrative because--so we knew 
millions of Americans were going to lose coverage, but Congress 
did not give CBO the time to provide the full and transparent 
explanation about how those bills were going to impact the 
American people.
    During the tax debate, we heard claims from our Republican 
friends that tax cuts for big corporations and wealthy 
households would pay for themselves with additional economic 
growth. In fact, I remember a big deal being made about the 
need for so-called dynamic scoring that takes into account 
economic growth when you do a tax analysis. But the House and 
the Senate both rushed to pass final legislation before the 
Joint Tax Committee could do a dynamic score that would analyze 
whether that claim was plausible. And, in fact, it was only 
after Congress passed the bill--because we rushed before the 
public could get the benefit of that analysis--only after 
Congress passed the bill that JCT published a dynamic score 
that found that the bill was nowhere close to paying for itself 
with economic growth, and later the Congressional Budget Office 
published a report finding that the tax bill would cost nearly 
$2 trillion even after taking into account the economic impact. 
That, of course, includes interest payments on the borrowing.
    So I am really glad to see CBO do its job in working to 
increase transparency. But, Mr. Chairman, what we need is for 
Congress to increase our transparency and give CBO the time and 
the resources to do their job for the American people, and I 
look forward to this hearing.
    Thank you.
    Chairman Enzi. Thank you, Senator Van Hollen.
    Our witness this morning is Dr. Keith Hall, the ninth 
Director of the Congressional Budget Office. He is no stranger 
to this Committee, having served as CBO Director since April 
2015. Since that time, he has appeared before this Committee to 
discuss CBO's work and its projections of the Nation's fiscal 
situation many times. This morning, Dr. Hall will be talking 
with us about CBO's work over the last year and the goals he 
set for his critical, important agency. We look forward to 
receiving your testimony.
    For the information of colleagues, Dr. Hall will take 
whatever time he needs, and then we will go to opening 
statements for questions.
    So, Dr. Hall, please begin.

    STATEMENT OF THE HONORABLE KEITH HALL, PH.D., DIRECTOR, 
                  CONGRESSIONAL BUDGET OFFICE

    Dr. Hall. Thank you. Chairman Enzi, Ranking Member Sanders, 
and members of the Committee, I am delighted to be here today 
to discuss transparency at the Congressional Budget Office. The 
transparency of our work has always been a priority of ours, 
and this year we have added and shifted resources to redouble 
our efforts in that area.
    Transparency can mean many different things, so let me 
begin by highlighting CBO's three goals in being transparent:
    First, we aim to enhance the credibility of our work by 
showing how it relies on data, professional research, and 
expert feedback.
    Second, we seek to promote a thorough understanding of our 
analyses by sharing information in an accessible, clear, and 
detailed manner.
    Third, we want to help people gauge how our estimates might 
change if policies or circumstances were different.
    Over the past year, we undertook many activities supporting 
progress toward those three overarching goals. Almost all of 
CBO's employees spent part of their time on those activities, 
and last month, we published a report summarizing them. I would 
like to highlight a few, and I think there is a handout. I have 
got a little summary here--hopefully you have got them at your 
tables--of the accomplishments on transparency.
    First, we created several interactive tools: one that lets 
users add or subtract brigades, ships, aircraft squadrons, or 
other units to see the effects on the squadrons, or other units 
to see the effects on the Department of Defense's total 
operation and support costs and the size of the military; one 
that shows how we project spending on discretionary programs; 
and one that allows users to enter alternative economic 
scenarios and see the budgetary results.
    Second, we published information about important models 
that we use, including our microsimulation tax model, our long-
term projections model, and our health insurance simulation 
model.
    Third, we posted computer code to help analysts understand 
and replicate parts of our analyses in papers about the 
distribution of household income and about macroeconomic 
output.
    Fourth, we published analyses of the accuracy of our 
spending estimates for fiscal year 2017 and of our projections 
of subsidies for health insurance under the Affordable Care 
Act.
    And, fifth, we published a report on how we produce cost 
estimates, as well as a detailed description of our formal cost 
estimates and the information that they contain.
    We also reached out to provide information about our work 
to congressional staff. Last week, for example, we answered 
questions at an ``open house'' for House staff convened by the 
House Budget Committee. Tomorrow, we are making a presentation 
to congressional staff--jointly with the Congressional Research 
Service--about CBO's baseline budget projections and how they 
are produced.
    In addition, we have reached out to many experts for 
feedback on our analyses. For example, last week we announced 
the formation of a technical review panel to advise us on the 
development and testing of the next generation of our health 
insurance simulation model.
    In response to interest expressed by the Congress, we plan 
during the next year to publish more overviews and 
documentation of some of CBO's major models and more detailed 
information, including computer code, about key aspects of 
those models. The models are used to simulate choices about 
health insurance, project long-term budget outcomes, forecast 
business investment, and estimate Medicare beneficiaries' 
costs. We also plan to update our template for cost estimates 
to make important information easier to find and read. And we 
will continue to evaluate previous estimates in order to 
improve future ones.
    For example, we are currently examining how our estimate of 
the effects of the effects of the American Recovery and 
Reinvestment Act of 2009 on spending for the Supplemental 
Nutrition Assistance Program compares with what actually 
happened.
    As we undertake these efforts, it will be important to 
understand which ones are particularly valuable and informative 
to Congress and which ones have less value. Being transparent 
has costs, and CBO must, in essence, make business decisions 
weighing the benefits and costs of devoting resources to 
different activities. We welcome your feedback about what you 
find most useful and your suggestions about other ways in which 
we can provide more information about our work.
    Let me close by thanking you for your support and guidance. 
We have long relied on the budget committees to explain our 
role to Congress, to provide constructive feedback on how we 
can best serve Congress, and to provide us with guidance about 
legislative developments and congressional priorities.
    Thank you.

                   The prepared statement of Dr. Hall

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman Enzi. Thank you, Dr. Hall.
    Now we will turn to question. I think all the members of 
the Committee understand the process that we do with each 
member having 5 minutes for questions, beginning with myself 
and then Senator Van Hollen, unless you are replaced by Senator 
Sanders, and then alternating back and forth in order of 
arrival and seniority. If you have any questions, you can ask 
me about that. I will go ahead and begin the questions.
    I appreciate the effort that you have gone to and the work 
that you have done. I know you are currently building a new 
health insurance simulation model that the agency plans to 
begin to use in early 2019. Can you discuss the most important 
differences between CBO's existing health care model and the 
new health care model the agency is building?
    Dr. Hall. Well, sure. The model itself is going to be an 
upgrade and is going to be an update. We have changed some 
features of it that will allow us to actually assess some 
different health care changes. One of the most important things 
about it is that we are going to be able to use actual data in 
the model.
    The previous health insurance model--in fact, even now--it 
does not really rely on a current data basis, so it actually 
has this interesting situation where it takes us from current 
situation back to pre-ACA and then forward back to our 
replacement, if we are looking at repeal and replace.
    The new model will actually use--we start using 2015 data, 
actual data from the ACA operations, and so we think that will 
really help things, and we think that will make things more 
efficient going forward.
    The other thing that is going to be really different is how 
we are creating it. We are doing it in a very transparent way. 
We are writing detailed documentation as we go, and we are 
doing something that is rather rare. We are actually making 
presentations on the model as we are producing it and getting 
feedback. We have done that a few times now, once publicly at 
the Bipartisan Policy Center, and then we have our technical 
advisory group, panel, and we are going to make a presentation 
to them and get some feedback from them. And, again, we are 
doing it while we are developing the model so that, one, we can 
incorporate comments into the model as we are producing it; 
but, two, it will add transparency. People will actually 
understand what we have done even before we start using the 
model. That is a really important feature for us.
    Chairman Enzi. You mentioned soliciting feedback. Are there 
specific groups that you are working with to solicit that 
feedback? Or do you plan to release the model to the public 
prior to putting it to use? How does that part of the process 
work?
    Dr. Hall. Well, we have already talked with the Bipartisan 
Policy Center. We have talked to a couple of other groups--the 
Urban Institute and the Rand folks, who have themselves done a 
lot of work on health care and health care modeling. It is a 
technical exercise, so we are looking for people who have 
actual modeling experience. And then we just released a list of 
names. If anyone takes a look on our web site, you see a list 
of names that we have added to our Technical Advisory 
Committee. You will see a very diverse group of people there, 
all of which have particular technical skills in the modeling. 
So we are pretty confident that we are going to have people who 
can make useful comments to us and give us real advice going 
forward.
    When we first use the model, we will have some pretty 
detailed documentation out. And I think when we first use the 
model, we are going to use it next year for the baseline 
estimate. We are going to try to make--we are planning on 
making the code that is used to produce the baseline available 
as sort of a ``show your work'' sort of aspect to it. And in 
between the increased documentation and making some of that 
code available, I think we will already take a big step 
forward. Then we will sort of see what the feedback is like and 
see if we can provide other information on the model.
    Chairman Enzi. Do you envision this getting like the 
military program where people can go in and add and subtract 
and have some instance feedback that way? I know it is more 
complicated than the military acquisitions.
    Dr. Hall. No, I think for some models we can actually do 
that, and we do have plans on trying to become--change our 
modeling style that will encourage that.
    The health care model itself may not be a good candidate 
for that. We can talk about it, but part of the trouble with 
the health care model is that it is just a piece of any 
analysis. There is so much individual input into it, and the 
output of the model is used in other models. That may not be as 
good a candidate for that. But we have other models which are 
pretty straightforward where the output of the model is what 
we, in fact, use in estimates, that we are going to try to do 
that with.
    Chairman Enzi. Thank you. I will reserve the balance of my 
time. Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. And, Mr. 
Director, again, thank you for your testimony.
    I appreciate the analyses that CBO has done over the years. 
It is a fact that, you know, we do not always agree on the 
result, but I always appreciate the integrity of the process at 
CBO. And I am interested in making sure the public understands 
what your findings are.
    We have a President that likes to tweet a lot about the 
most recent economic indicators. I do not think it surprised 
anybody that, after you do a $2 trillion tax cut, you are going 
to see some kind of sugar high reaction in the economy. The 
unusual thing about that tax cut is we usually reserve those 
stimulus efforts for times when the economy is really in bad 
shape, like we did in a positive way with the economic recovery 
bill and not when the economy is already on the upswing as it 
was when the President took office.
    We all would like to see our economy continue to grow, and 
we know there are lots of elements to that, including the size 
of the work force and the number of people who are working, 
productivity. And I think we should focus on investments in 
things like infrastructure and education. But just providing 
sugar highs will not do it. And, in fact, I think if you could 
tell us, Director Hall, as the CBO looks forward in your 
projections, starting in the year 2020, is there any year in 
which the Congressional Budget Office projects that real 
economic growth will exceed 2 percent?
    Dr. Hall. No, there is not. And the situation as we see it 
is that we have, in fact--we are, in fact, receiving quite a 
lot of stimulus in an economy that has got zero slack. And 
while we are going to see some significant growth for a couple 
of years, the pressure on interest rates and inflation and a 
number of things is going to cause the Fed to act and going to 
cause us to go through, frankly, a mini cycle. Not a business 
cycle, but a bit of a slowdown in growth. So we do, in fact, 
see growth slowing pretty significantly for 2 or 3 years as we 
sort of work through this extra stimulus and get back to a more 
sustainable, long-run growth rate.
    Senator Van Hollen. And I think that is the sober analysis. 
You know, economists I think across the spectrum agree that we 
are seeing a sugar high right now put on top of an economy that 
was already doing very well coming out of the deep recession in 
2008 and had a steady climb. And, in fact, I know the President 
likes to talk a lot about economic growth during certain 
quarters. If you look from the period of 2009 to 2016, when 
President Obama was in the White House, did we see a lot of 
quarters where the growth exceeded 3 percent?
    Dr. Hall. Yes, we did see a few.
    Senator Van Hollen. Yes. In fact, by my count there were 
eight quarters under President Obama. So looking from quarter 
to quarter is just a snapshot, isn't it?
    Dr. Hall. That is right. That is right. And also at that 
time you have us coming out of a pretty severe recession, so 
you, in fact, expect to see above-trend growth, you know, as 
you do away with slack in the economy.
    Senator Van Hollen. Yes. The other thing I noticed was just 
today that the Bureau of Labor Statistics came out with their 
most recent report. One of the things we were told was that 
with the tax cut, as it accelerated, the economy gave a sugar 
high that all of a sudden regular folks were going to get an 
increase in their real wages, their purchasing power. But just 
today the Bureau of Labor Statistics has released its latest 
numbers showing that for production and supervisory workers, 
which represent eight out of ten workers in America, they have 
actually seen a slight decrease in their real wages over the 
last year, and that is a trend we have been seeing month after 
month.
    Can you just talk a little bit about the difference between 
nominal wage increases and real wage increases? And when you 
are looking at your own pocketbook and your purchasing power, 
what is the most relevant figure for an American family?
    Dr. Hall. Sure. One of the reasons that we look at real 
data is, of course, if you want nominal wages, you want them to 
grow at least as fast as inflation does. And so the real data 
does a nice comparison of how fast our--for example, with the 
wages, how fast are wages growing relative to prices. So it 
gives you a truer picture of whether you are having an increase 
in buying power going forward.
    Senator Van Hollen. And what these numbers tell us is that 
when it comes to real buying power, people are actually 
slightly worse off this month compared to this time last year, 
and that has been a continuing trend, at least for supervisory 
and non-production--production and supervisory workers.
    Mr. Chairman, I thank you for the opportunity. Director 
Hall, thank you for your testimony. And, again, I think having 
CBO as the referee is really important. Thank you for your good 
work.
    Chairman Enzi. Senator Kaine.
    Senator Kaine. Thank you, Mr. Chair, and thanks, Director 
Hall. I echo the comments from Senator Van Hollen. It is 
important to have you as the referee. I remember once sitting 
with President Obama at the White House and having him kind of 
muse, ``I wonder why we have let CBO be the master arbiter of 
the economic effectiveness.'' And as Democrats, we often do not 
like the numbers you come up with and find cause to complain, 
but I am not aware of President Obama ever saying that we 
should get rid of the CBO, that we should not allow it to 
continue to operate or not at least take into account CBO 
analysis. I have noted a number of individuals, especially the 
OMB Director, describe CBO scoring of the House Republican 
health care bill as ``absurd''; ``the days of relying on some 
nonpartisan Congressional Budget Office to do that work for us 
has probably come and gone.'' And former Speaker Gingrich 
called for dismantling the CBO because ``the Congressional 
Budget Office is simply incompatible with the Trump era.''
    I am very glad you are doing what you are doing, and thanks 
for grappling with the transparency issue.
    On transparency, I just want to put some facts on the table 
about the current U.S. economy. The private sector has added 
private sector jobs for 102 straight months. That is the 
longest streak of private sector job growth in the history of 
this country, at least as we have measured it. Eighty percent 
of that streak occurred under the Obama administration; 20 
percent has occurred under the Trump administration. President 
Trump has commented accurately that more people are working 
today than at any point in the history of our Nation, but that 
comment has been true since May 2014. Each month sets a new 
record for the number of people working in the country.
    Job creation: In the first 19 months of the Trump 
administration, we have averaged created 189,000 jobs per 
month. The 19 months of the Obama Administration that preceded 
these months of the Trump administration, we averaged 208,000 
jobs per month. The number of jobs being created per month has 
slowed under this administration.
    Hourly earnings growth: In the first 18 months of the Trump 
administration, hourly earnings growth has increased by 1.1 
percent. The relevant period, the last 18 months of the Obama 
Administration, it was 1.3 percent. Wage growth, hourly 
earnings growth has slowed under the Trump administration.
    And so if you look at these facts--and I think in the 
interest of transparency it is good to--job creation and wage 
growth have actually slowed under this President for many 
causes, but it is interesting to see that they have slowed even 
with the tax cut that you were discussing with Senator Van 
Hollen, which has had a significant deficit effect. And as you 
indicated, Dr. Hall, in your testimony, I think we have to be 
aware of this. As we look out, the projections are that growth 
would slow even more if the Fed takes various action with an 
economy near to full employment. We would potentially see that 
is slower.
    I want to ask you this--Will Rogers used to say, ``I only 
know what I read in the newspapers,'' and I have been reading 
newspapers recently, and there have been discussions of two 
potentially late-breaking election eve additional tax 
adjustments that might be contemplated. The House Ways and 
Means Committee unveiled three bills this week that say that 
they indicate compromise tax--comprise tax reform 2.0. That 
would be an additional tax cut bill for some. In addition, the 
White House has reported in the last 2 weeks that it is 
considering undertaking a tax law change through executive 
action that would index capital gains to inflation, basically 
allowing the basis that somebody claims when calculating 
capital gains to adjust upward by inflation. That was actually 
announced the same day as the President indicated he wanted to 
take away the cost-of-living adjustment for Federal employees 
in their salaries.
    Has the CBO been asked yet to do scoring of either of those 
proposals that I have been reading about, either the tax reform 
2.0 that the House Republicans are talking about or the capital 
gains indexing that the Trump administration is reportedly 
considering?
    Dr. Hall. We have not, but I believe on the tax proposal 
the Joint Committee on Taxation--they are the ones who do the 
estimation on revenue legislation. I believe they did just 
complete an analysis of it.
    Senator Kaine. According to that analysis--and I think it 
is preliminary one--extending the expiring Trump tax cuts on 
the individual side of the Tax Code through 2028 would increase 
the deficit by about $627 billion. I think that is the 
preliminary analysis they have done. I do not believe the JCT 
has costed the potential for indexing capital gains in the way 
that I have described.
    Dr. Hall. No.
    Senator Kaine. But Penn Wharton did an indication 
suggesting that it would cost between $100 and $200 billion 
over a decade, with 86 percent of the gains going to the top 1 
percent. Have you looked at that Penn Wharton analysis of the 
capital gains indexing proposal?
    Dr. Hall. No, I have not.
    Senator Kaine. All right. Thank you, Dr. Hall.
    Thanks, Mr. Chair.
    Chairman Enzi. Thank you.
    Senator Merkley.
    Senator Merkley. Well, thank you, Mr. Chairman, and thank 
you, Director, for being with us.
     I wanted to understand the impact of the 2017 tax bill and 
estimates that were made at the time. The Joint Committee on 
Taxation estimated $1 trillion of cost added to the deficit. 
Penn Wharton estimated $1.4 trillion. The Tax Foundation 
estimated $516 billion, so half a trillion. What did CBO 
estimate?
    Dr. Hall. I believe our number came out to be pretty high: 
$1.8 trillion, I believe, something like that. Is that what you 
have?
    Senator Merkley. I have $1.4 trillion, the same as the Penn 
Wharton study, but based from an article, not from a CBO 
report.
    Dr. Hall. Okay.
    Senator Merkley. But perhaps the 1.4 was after you took 
into account the impact of dynamic scoring.
    Dr. Hall. Right, right.
    Senator Merkley. So as you stand now, as we look this many 
months in, what is your revised estimate of how much it is 
going to cost?
    Dr. Hall. Actually, so far--and I am not sure we have 
changed much at all. In fact, our forecast for the deficit this 
year is pretty much on target. We will probably do a re-
estimate--certainly a re-estimate of the baseline in January 
just to see how that works. But I do not think we are seeing 
anything surprising that is going to make us change things.
    Senator Merkley. So within the analysis CBO did to get to 
their estimate, be it 1.8 or 1.4----
    Dr. Hall. Yes--I am sorry.
    Senator Merkley. There were different lines, different tax 
provisions.
    Dr. Hall. Right.
    Senator Merkley. I had difficulty getting the numbers on 
the individual tax provisions, what they would have costed, to 
better understand individual policies. Are you now taking a 
look at those individual policies that were in that tax bill 
and analyzing, well, here is what we thought that piece, say 
the expansion of the estate tax exemption.
    Mr. Hall. Right.
    Senator Merkley. That is what we thought it would cost. Now 
we see it is different--or another provision. Are you looking 
at the individual provisions to see and are you planning to 
give us a report showing kind of in general what you estimated 
on these individual policy pieces and then what it looks like 
now a year later?
    Dr. Hall. Well, the answer is yes. That is sort of part of 
our normal process. Every time we do a baseline, we go back and 
look and see how our previous baseline is doing. I do not know 
how much detail we will have, but that is especially important 
in tax bills because implementation can be one of the harder 
things to forecast how Treasury actually does things.
    Senator Merkley. Yes, and that is my point, that it is 
particularly important in a tax bill to have the individual 
provisions and understand what each one costs as we look to 
future tax changes or revisions. And so when you started to 
answer, you said yes. Does that mean we can expect a report 
that will look at those different provisions, what they are 
costing within that $1.4 to $1.8 trillion?
    Dr. Hall. I am not sure you will have it very quickly. We 
will adapt our baseline in January. There will be some changes 
there that----
    Senator Merkley. So here is my frustration.
    Mr. Hall. Okay.
    Senator Merkley. As you may know, I used to work for CBO. I 
did analyses for Congress. The modeling that I did, I knew 
every provision within that model, what it cost. You cannot get 
to an overall score without adding up the impact of the 
individual tax change provisions. So the analysis at CBO has 
that information. Why should Congress not have that information 
on what the individual policy's impact is?
    Dr. Hall. Well, if you would like, we can certainly look 
and see what sort of detail we can provide from our forecast of 
things. The reason I am slowing down a little bit on a look at 
sort of how it is actually working out is tax data is very slow 
to come out, and so it literally will be a couple years down 
the road before we get enough data to really understand what is 
happening now with the tax data.
    Senator Merkley. Okay. Well, that is a fair point. But my 
point is that initial analysis, be it $1.4 trillion or $1.8 
trillion, to get to that analysis CBO had to look at each 
individual tax provision and what it would cost, and that is 
the type of information that you already have, CBO already has, 
because it was necessary, and we want it and we should have it. 
And I am asking you for it.
    Dr. Hall. Okay. Well, I will tell you, I am happy to 
follow-up with you and see what we have got and see what we can 
provide. If we have got it, we are happy to provide it.
    Senator Merkley. Thank you. And if you do not have it, how 
did you possibly get to an overall score if you did not cost 
out the individual provisions, right?
    Dr. Hall. Right.
    Senator Merkley. Okay.
    Dr. Hall. Understood.
    Senator Merkley. So at this point, if one looks at 2027 
when this tax bill is completed, what is your sense of the 
percentage of the benefits that goes to the top 1 percent?
    Dr. Hall. I do not know that. There was some work done by 
JCT in the original bill. They did do a distributional analysis 
of that. We did not do that for our outlook report, so I cannot 
tell you. But I think if you go back and look at the JCT work, 
you will get a picture of that. I am sorry, I do not----
    Senator Merkley. I have gotten the picture from other 
organizations. I wanted it from yours.
    Dr. Hall. Okay.
    Senator Merkley. The Tax Policy Center looked at it, and 
107 percent of the benefits goes to the top 1 percent by 2017. 
A hundred and seven percent. In other words, the entire cost of 
the bill plus another seven percent goes to the richest 
Americans. And, meanwhile, more than half of Americans would 
pay more than they would have under existing law. It is just 
shocking that when we look around the world and we see 
countries where the legislature and the executive branch work 
with an elite to essentially raid the national treasury and 
distribute that money to the richest among them, we call those 
``corrupt countries.'' And yet the very same thing happened 
right here in America, one of the biggest tax heists or bank 
heists inflicted on the United States of America, on the 
citizens of the United States of America, in that 2017 tax 
bill, raiding the treasury for the benefit of the very 
wealthiest Americans.
    Thank you.
    Chairman Enzi. Some interesting math, 107 percent of the 
benefit.
    Senator Harris.
    Senator Harris. Thank you.
    Dr. Hall, I share your belief and agree that we need more 
transparency across the board in our Federal Government and, 
frankly, government at all levels. So on that point, children 
make up 24 percent of the population of the United States, yet 
in fiscal year 2017, Federal spending dedicated to children 
reached an all-time low of 7.75 percent, and total spending on 
children's programs decreased by 5.5 percent between 2014 and 
2017. To me this trend indicates a critical need for a clear 
and accessible tool so that we can monitor and measure on a 
frequent basis Federal decisions around spending on children in 
the United States.
    So I hope we can agree that CBO is well equipped to be that 
agency that would actually create and implement such a tool, 
and, in fact, I introduced a bill that would require the CBO to 
provide estimates of legislation's expected impact on children. 
It would also require that you would produce reports on Federal 
spending for children and develop a public web site on Federal 
spending for children.
    So my question to you is: Do you believe that these 
measures will complement your goal and CBO's goal of bolstering 
transparency not only of CBO's analyses and processes but also 
of the economic impacts associated with Federal policy 
decisions?
    Dr. Hall. Sure. If there is sufficient interest, we could 
put resources into that. You know, we want to----
    Senator Harris. Well, the children are certainly interested 
in it, but, unfortunately, they do not vote and they do not----
    Dr. Hall. I am talking about congressional interest. I am 
talking about in particular congressional committee interest.
    Senator Harris. Do you need congressional committee 
interest to do it, or can you do it----
    Dr. Hall. We need congressional committee interest in 
particular. We do not take on--certainly do not take on 
analytical work unless we have a clear customer for it. I can 
look into the idea and sort of see--get some feel for what we 
could do and see if there is some interest.
    Senator Harris. Well, as a point of information, Mr. Chair, 
does the Committee need to vote on something like this? How do 
we express Committee interest? Because as a member of the 
Committee, I am certainly expressing an interest. Is there 
something more that is required?
    Chairman Enzi. Yes, the committee of jurisdiction has to 
have the interest in it and request to CBO. I believe that is 
the way it works.
    Dr. Hall. That is right. Right, and there are two sides to 
every committee, though. There is the majority and then there 
is the minority, and the minority side has standing to ask us 
to do work.
    Senator Harris. Okay. So I will follow through on that. And 
then are there other ways that you believe that the CBO could 
enhance Congress' and the public's understanding of how Federal 
spending impacts children?
    Dr. Hall. Well, this sort of report sounds like it is 
something that we could undertake, it is something we could 
look at. We always start with how much data is there and that 
sort of thing. I think it would be hard to do anything too 
real-time. You know, if we looked at a piece of legislation, it 
would be really hard to separate out the effects like that. But 
as sort of an analytical piece, that seems to me like topic-
wise, that is in our ballpark, I think.
    Senator Harris. That would be great. Well, let us plan to 
do a follow-up with my staff and yours, and then I can present 
something to the Committee as a follow-up.
    Chairman Enzi. As a follow-up on your question, it usually 
has to be based on some kind of legislation as well, not just--
--
    Dr. Hall. Right.
    Chairman Enzi [continuing]. A general thing of how----
    Senator Harris. And I have a piece of legislation.
    Chairman Enzi. Okay.
    Senator Harris. Thank you.
    Senator Enzi. We will do a second round of questions if 
people are interested. I am interested, so I will do another 
one.
    Director Hall, I would like to ask you about CBO's latest 
monthly budget review for August 2018, which was brought up 
earlier in this hearing. For the first 11 months of the fiscal 
year, revenues are $19 billion higher than for the same period 
last year. Is that correct?
    Dr. Hall. That is right.
    Chairman Enzi. But spending is up $240 billion. Can you 
tell me what is contributing to that increase in spending.
    Dr. Hall. Sure. Actually, it is quite a number of things. 
It is almost across the board. Net interest payments are up 
quite a bit over last year. The military spending is up. Social 
Security benefits are up; Medicare and Medicaid are all up. So 
you are right that a lot of that increase or that change over 
last year is from the spending side, outlay side.
    Chairman Enzi. But there is an increase in revenues.
    Dr. Hall. That is right.
    Chairman Enzi. I have been traveling Wyoming and was 
listening to a number of people. I tried to get into some 
businesses to see how they work because any business that I 
have not been in looks pretty simple. And I know that people 
that have not been in any business, it looks even simpler. So I 
have been trying to find out what kind of effects these things 
have had, and I had one fellow who said, ``You know, I have 
been doing a bunch of construction now, and I have given my 
employees more wages, and I am going to have to pay a million 
more in taxes this year than I did last year.'' But he said, 
``That is because I am making more money.''
    So that is how the tax thing is working, and I think we 
will get September--September normally is a big time for tax 
payments on estimates, and we have not gotten that yet, 
obviously, because it is still September.
    Dr. Hall. Right. And, in fact, September usually reduces 
the deficit for the year because revenues are very high in 
September.
    Chairman Enzi. Thank you.
    Now, CBO and the Joint Committee on Taxation, JCT, are the 
two entities Congress relies on for estimating the budgetary 
impact of legislation. Comparisons are often made between the 
time it takes for the two agencies to provide technical 
assistance and produce cost estimates.
    Can you discuss any differences between CBO and JCT models 
and the types of analysis that they produce that might explain 
this discrepancy?
    Dr. Hall. Sure. In a lot of ways we are very similar. The 
big difference is that the JCT focuses on tax issues, so they 
really work for a couple of committees. We work for almost 
everybody. We wind up working for a lot of committees, and our 
coverage areas are much, much larger. So we have a much broader 
waterfront of things. That is one of the biggest differences. 
And then, of course, in that big waterfront are things that are 
fairly complicated. It can be anything from ag bills to the DoD 
to lots of things. So we have a big variety of things, and that 
is really one of the biggest differences.
    We have hundreds of models that we use on these different 
topics, so we have a very diverse set of models. We have a very 
diverse set of data. But I think we share the same sort of 
challenges, though, when there is a major piece of legislation. 
I think JCT has to work very, very hard to get it done, and I 
think we have to work very, very hard to get it done 
oftentimes.
    Chairman Enzi. So are you saying that JCT can just stick to 
the code, but you have to stick to all of the other 
legislation? Did I get that right?
    Dr. Hall. Yes, that is right. It is the breadth of work 
that is fairly different. So at any point in time, we have 
quite a large number of estimates that we are producing. We 
produced 740 estimates last year on a huge variety of topics. 
JCT I am sure was nowhere near that because they are focusing 
on the tax issues.
    Chairman Enzi. Yes, thank you.
    In your report you discuss how CBO often attempts to 
compare its estimates to those of other entities. In some cases 
those comparisons are to the administration's estimates, and in 
other cases it is comparison to private entities. Can you 
please explain some of the challenges that are inherent in such 
comparisons?
    Dr. Hall. Sure, sure. Well, we do comparisons, and we do 
our best to do them. The biggest single thing--for example, in 
our economic forecasts, we compare economic forecasts to OMB 
and we compare it to private sector--is we operate under 
current law. And so our forecast is the current law compromise 
only. Other folks are different than that.
    For example, that was really relevant in the buildup to the 
tax bill. We literally had to ignore the fact that tax 
legislation was possible or likely and had to pretend it was 
not going to happen. And so in our forecast, none of that 
happened while in the private sector forecast that did happen. 
And that is mostly it. You know, we have our revenue and 
spending forecasts. We do compare those to OMB. We compare very 
favorably, I think, to everybody in our forecasting.
    For individual pieces of legislation, that gets even 
trickier because we have to read the legislation very carefully 
and try to model all aspects of it. The private sector folks 
can sometimes give you a quick number. We sometimes give quick 
numbers. But to actually do the work carefully and get all the 
detail and put it into a format that we can model the budgetary 
impact is generally a heavier lift certainly than the private 
sector has.
    Chairman Enzi. Thank you. My time plus the time that I 
reserved has expired.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman.
    Who has a more transparent open process with respect to 
what the public knows about how they go about their work, CBO 
or OMB?
    Dr. Hall. I am trying to be diplomatic.
    [Laughter.]
    Senator Van Hollen. Please. We are trying to be transparent 
here, Dr. Hall.
    Dr. Hall. We try to be very transparent. For example, when 
we do an analysis of the President's budget, we tell you what 
our picture is of the economy before and after so you know what 
our baseline is. That does not typically happen at OMB, even 
though they probably have to do the work. It is that sort of 
thing.
    Part of the issue, at least a little bit, is that we report 
to all of Congress.
    Senator Van Hollen. Yes. No, I understand. I mean, I think 
it is pretty clear that is the case. How about with respect to 
the tax plan? Did you ever get a detailed analysis from the 
Trump administration with respect to the impact of their tax 
plan?
    Dr. Hall. No.
    Senator Van Hollen. No. Neither did the public. If I 
recall, we got like two pages, Mr. Chairman. And so it is not 
surprising that the projections that this administration made 
could not be justified. If they could have justified them, they 
would have presented them to the public. Your data you present 
to the public, and so far your projections are right on track 
with respect to the impact of the tax cuts.
    So, yes, the economy is doing well. We talked about the 
fact it has been growing strongly for over 9 years now. So it 
is not at all surprising that, even with some tax cut with that 
kind of economic growth, there is some revenue coming into the 
Treasury.
    What percent of--revenue represents what percent of GDP in 
2018, according to CBO? Do you know?
    Dr. Hall. I can look it up in 1 second here. I think I 
brought the right----
    Senator Van Hollen. My number--I do not know if this----is 
16.6 percent.
    Dr. Hall. I can now verify that.
    Senator Van Hollen. Got it. Thank you. And the last time we 
had a balanced budget, do you recall what the revenues were as 
a percent of GDP?
    Dr. Hall. I do not offhand. I suspect it was higher because 
it was at a time of very strong economic growth.
    Senator Van Hollen. I think it was in the range of 20 
percent of GDP. And we had a balanced budget for about a 3-year 
period, and then we had the Bush tax cuts and a number of other 
things happened. We had the Iraq war and other things.
    Dr. Hall. Right.
    Senator Van Hollen. And if you are looking at the long 
term, I mean, what does CBO look at mostly--the percentage of 
revenue? When you are looking at whether we are balancing the 
budget as a percent of revenue, of GDP?
    Dr. Hall. Yes, that is right. That is certainly part of our 
forecast, and we do a lot of comparing where we are and where 
we are going to be relative to historical levels and that sort 
of the thing.
    Senator Van Hollen. And what is your calculation of 11 the 
loss in revenue over the next 10 years as a result of the tax 
cut, right? I mean, you have the number, right?
    Dr. Hall. It was $1.8 trillion.
    Senator Van Hollen. $1.8 trillion. And that, if I recall--
did that include the interest on the debt?
    Dr. Hall. Yes.
    Senator Van Hollen. That included it, Okay. So close to $2 
trillion with interest on the debt.
    Mr. Chairman, I do not think it is surprising that there is 
additional revenue coming in. The reality is, though, we will 
have $2 trillion, $1.8 trillion less in revenue coming in as a 
direct result of the tax cut, and that takes into account any 
additional economic activity.
    I wanted to ask you, Director Hall, because I asked you at 
one of the earlier hearings, about what share of that increased 
economic growth would actually go to benefit foreign accounts 
compared to our fellow Americans? And it was really shocking. 
You determined that on average between the years 2018 and 2028, 
43 percent of the income from increased economic activity 
linked to these tax cuts flowed into foreign accounts, right?
    Dr. Hall. That is right.
    Senator Van Hollen. And by 2028, an astounding 71 percent 
of the increased economic benefit went into foreign accounts, 
right?
    Dr. Hall. Yes.
    Senator Van Hollen. Mr. Chairman, I think that the public 
needs to know that, and in the interest of transparency, we 
will do our best to let them know. And part of that is the 
benefit of these huge stock buybacks, right?
    Dr. Hall. I think so. I am not sure that we got a lot in 
there about the stock buybacks yet because we are not sure of 
what actually is going to happen.
    Senator Van Hollen. Right. Well, as of our count right now, 
there has been about $700 billion of funds that we were told 
were going to be used for greater investment in plant and 
equipment and higher wages, you know, like $4,000 a-year wage 
increases. Instead of going to that purpose, they are going to 
stock buybacks, and foreigners own a 35-percent share of the 
value of U.S. corporate stocks, so they are getting a lot of 
that.
    The last thing I would just ask, Mr. Chairman, is you 
mentioned the projected increased deficits on top of the $1.8 
trillion we would see if we extended some of the other tax cuts 
as has been proposed by House Republicans. I believe you said 
the JCT number was $657 billion. Now, that is only additional 
for the 3-year window. Is that right?
    Dr. Hall. I believe that is right.
    Senator Van Hollen. Right. And I would like to put in the 
record, Mr. Chairman--it was referenced earlier--the Penn 
Wharton budget model, which estimates that if you do what the 
House Republicans want to do, you would increase the Government 
debt by over $5 trillion over the next 20 years, and actually 
reduce GDP because of the drag on the economy.
    Senator Van Hollen. My final question, with your 
indulgence, would just be if the Director could talk a little 
bit about how large debts like that can actually be a drag on 
the economy and reduce economic growth?
    Dr. Hall. Sure, absolutely. One of the issues clearly is 
debts and deficit are a drag. Part of it is that with the 
Federal Government borrowing, there is crowding out because 
they are borrowing, and they are borrowing on rising interest 
rates over what they normally would be, and that raises the 
cost of capital to the private sector and can reduce investment 
over what it would be otherwise. So in a sense, this is sort of 
working against something like a tax bill, which gives 
incentives for companies to invest. But if you finance it 
through deficits, you undo some of that.
    Senator Van Hollen. That is even more true when the economy 
is doing well, right? Because there is less slack in the 
economy.
    Dr. Hall. That is right.
    Senator Van Hollen. Thank you, Mr. Chairman.
    Chairman Enzi. Thank you. And since we have gotten pretty 
far away from looking at transparency of the CBO, I will not do 
another round. I appreciate all the participation on the 
Democratic side and the interest that they have shown and some 
of the spectacular things that you have mentioned.
    Senator Van Hollen. I am just citing CBO.
    Chairman Enzi. There are a lot of comments about the last 
time that the budget balanced, and that is the one that really 
bothers me because most of the revenue from that came from 
Social Security payments. We had an excess of Social Security 
coming in compared to the people that were retired. And there 
is no way in the Federal Government to save that money. We 
tried talking about lock boxes and stuff, but you cannot do 
that. And, consequently, we spent that Social Security money, 
and we put bonds in a drawer over in Maryland that say that we 
owe that Social Security money. But that is where the revenues 
came from that shows this magnificent balancing of budgets. And 
that is why before 9/11 they decided they needed to reduce some 
taxes so that things could be a little more honest. I do not 
know that they would have been. But we had 9/11, and that did 
cause a lot of expenses that we had not anticipated.
    Senator Van Hollen. Mr. Chairman, with all respect, we have 
just heard that we are going to face close to a $2 trillion 
revenue shortfall as a direct result of what was passed.
    Chairman Enzi. Well, we will see if that happens or not.
    Senator Van Hollen. We will.
    Chairman Enzi. The economists that did some alternate 
evaluations on it came up with some different numbers, and we 
had that statically scored.
    Senator Van Hollen. I would like to see the same 
transparency in their methodology that we are requiring of CBO 
in theirs, and JCT.
    Chairman Enzi. Well, I think they would be willing to do 
that.
    Senator Van Hollen. I would love to see it. I know the 
White House has not shown us a thing.
    Chairman Enzi. So anybody who has additional questions--and 
I do have additional questions--they can be submitted by 6 p.m. 
today. We hope that you will answer those expeditiously, and 
those will be a part of the record as well.
    Chairman Enzi. With no further business to come before the 
Committee, we will adjourn.
    [Whereupon, at 11:28 a.m., the Committee was adjourned.]

                     ADDITIONAL COMMITTEE QUESTIONS

    [The following submitted questions were not asked at the 
hearing but were answered by the witness subsequent to the 
hearing:]

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