    [House Hearing, 116 Congress]
    [From the U.S. Government Publishing Office]

                       THE CONGRESSIONAL BUDGET OFFICE'S
                          BUDGET AND ECONOMIC OUTLOOK

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

                                    HEARING

                                   BEFORE THE

                            COMMITTEE ON THE BUDGET
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

               HEARING HELD IN WASHINGTON, D.C., JANUARY 29, 2019

                                   __________

                                Serial No. 116-1

                                   __________

               Printed for the use of the Committee on the Budget

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                            COMMITTEE ON THE BUDGET

                      JOHN A. YARMUTH, Kentucky, Chairman
    SETH MOULTON, Massachusetts,         STEVE WOMACK, Arkansas,
      Vice Chairman                        Ranking Minority Member
    HAKEEM JEFFRIES, New York            ROB WOODALL, Georgia
    BRIAN HIGGINS, New York              BILL JOHNSON, Ohio,
    BRENDAN BOYLE, Pennsylvania            Vice Ranking Minority Member
    RO KHANNA, California                JASON SMITH, Missouri
    ROSA L. DELAURO, Connecticut         BILL FLORES, Texas
    LLOYD DOGGETT, Texas                 GEORGE HOLDING, North Carolina
    DAVID PRICE, North Carolina          CHRIS STEWART, Utah
    JAN SCHAKOWSKY, Illinois             RALPH NORMAN, South Carolina
    DANIEL KILDEE, Michigan              CHIP ROY, Texas
    JIMMY PANETTA, California            DANIEL MEUSER, Pennsylvania
    JOSEPH MORELLE, New York             WILLIAM TIMMONS, South Carolina
    STEVEN HORSFORD, Nevada              DAN CRENSHAW, Texas
    ROBERT C. SCOTT, Virginia            KEVIN HERN, Oklahoma
    SHEILA JACKSON LEE, Texas            TIM BURCHETT, Tennessee
    BARBARA LEE, California
    PRAMILA JAYAPAL, Washington
    ILHAN OMAR, Minnesota
    ALBIO SIRES, New Jersey
    SCOTT PETERS, California
    JIM COOPER, Tennessee

                               Professional Staff

                          Ellen Balis, Staff Director
                      Dan Keniry, Minority Staff Director

                                    CONTENTS

                                                                       Page
    Hearing held in Washington D.C., January 29, 2019................     1

        Hon. John A. Yarmuth, Chairman, Committee on the Budget......     1
            Prepared statement of....................................     4
        Hon. Steve Womack, Ranking Member, Committee on the Budget...     8
            Prepared statement of....................................     9
        Keith Hall, Ph.D., Director, Congressional Budget Office.....    11
            Prepared statement of....................................    13
            Visual Summary submitted for the record..................    18
        Hon. Janice D. Schakowsky, Member, Committee on the Budget,
          letter and response submitted for the record...............    34
        Hon. Robert C. Scott, Member, Committee on the Budget, fact
          sheet submitted for the record.............................    66
        Hon. Chip Roy, Member, Committee on the Budget, question
          submitted for the record...................................    68
        Hon. Janice D. Schakowsky, Member, Committee on the Budget,
          questions submitted for the record.........................    69
        Answers to questions submitted for the record................    70

         THE CONGRESSIONAL BUDGET OFFICE'S BUDGET AND ECONOMIC OUTLOOK

                                  ----------

                           TUESDAY, JANUARY 29, 2019

                              House of Representatives,
                                       Committee on the Budget,
                                                       Washington, D.C.
        The committee met, pursuant to call, at 9:45 a.m., in Room
    1334, Longworth House Office Building, Hon. John Yarmuth
    [Chairman of the Committee] presiding.
        Present: Representatives Yarmuth, Higgins, Khanna, DeLauro,
    Doggett, Price, Schakowsky, Kildee, Morelle, Scott, Jayapal,
    Omar, Lee, Boyle, Horsford, Womack, Johnson, Holding, Stewart,
    Norman, Roy, Meuser, Timmons, Crenshaw, Hern, Burchett,
    Woodall, and Smith.
        Chairman Yarmuth. So we will now proceed immediately to the
    CBO budget. We are going to now proceed immediately to the CBO
    Budget and Economic Outlook hearing. We invite Dr. Hall to join
    us at the witness table. Welcome, Dr. Hall.
        I now yield myself 5 minutes for the opening statement. Oh,
    yes. I've gotten to use the gavel. The hearing will come to
    order. Once again, welcome, Director Hall. Thank you for
    joining us today and for all of the work you and everyone at
    CBO has done to update the baseline and economic outlook that
    will help guide our work this year. Since today was supposed to
    be the original day of the President's State of the Union
    address, let's start by acknowledging what should be obvious:
    The State of our Union is unsustainable. Deficit projections
    over the next decade are unrivaled by any time in our Nation's
    history, save for World War II and the immediate aftermath of
    the Great Recession. Only this time, we weren't responding to
    an emergency; we created one. We are not in this situation
    because we were forced to make a tough choice to save the
    American people.
        No, we are facing this bleak fiscal reality because this
    President, and the so-called fiscal conservatives in his party,
    chose to squander our Nation's wealth and solvency, to
    exacerbate record income inequality, to take resources from
    those in need so they could bolster the already wealthy with
    reckless tax cuts for millionaires and multinational
    corporations.
        Director Hall, you project a deficit this year that is $118
    billion higher than last year. Average deficits over the next
    decade are projected to rise. The national debt is expected to
    reach 93 percent of GDP by 2029 before rising to an
    unprecedented 150 percent of GDP in 2049. This is despite the
    fact that the economy is undergoing the second longest
    expansion on record, 114 months of economic growth since 2009.
        Beginning under President Obama, we have had 99 months of
    uninterrupted job creation with unemployment falling to
    historic lows. But despite all this good news, our fiscal
    future is getting darker, not brighter, and the reason is
    clear.
        Just over a year ago, Congress passed a tax bill that
    showered the bulk of its benefits on corporations and the
    wealthy. My Republican colleagues didn't mind that our economy
    was healthy and the wealthy were doing just fine. They promised
    these tax cuts would trickle down to everyone else, unleashing
    miraculous economic growth and long overdue raises for workers.
    Even better, we would get all of this for free. The reality: a
    burst of welcome, but very brief economic growth, followed by
    greater income inequality, and exploding deficits.
        This outcome was not a surprise. Republicans have cut taxes
    and sent deficits soaring time and time again. But this time
    around, they hit a new record. Corporations took the tax cuts
    handed to them and bought back more than $1 trillion worth of
    their own stock. Not $1 trillion worth of worker bonuses, or $1
    trillion for raises when wages have been stagnant for decades,
    not even $1 trillion of new investment to expand business
    operations.
        In last year's report, CBO put the cost of the tax law at
    $1.9 trillion over 10 years even after accounting for
    macroeconomic effects. Those numbers indicated that had we not
    passed it, the deficit outlook would have improved
    considerably, and the economy would likely be stronger. In
    fact, your report, Director Hall, confirmed that the tax cuts
    will reduce our economic growth rates by the end of the decade.
    This new forecast further confirms that inescapable reality.
        And we know how this story continues. My friends on the
    other side of the aisle will point to Social Security, Medicare
    and Medicaid as the culprits of the deficit. They will call for
    deep cuts to these and other vital programs in order to reduce
    the deficit they exploded. They will call for a balanced budget
    and ignore the role their tax cuts played in damaging the
    fiscal outlook.
        Make no mistake: as this and previous CBO reports have
    warned, we face serious challenges, serious fiscal challenges
    going forward. From caring for an aging population to
    mitigating the financial costs of a warming climate, to making
    the investments we need to compete in a global economy and help
    American families succeed, the Federal budget will be
    increasingly strained.
        These are the real problems that demand real solutions, and
    they will require a fair and responsible approach that includes
    revenue, that tackles the causes of high healthcare costs, and
    that improves efficiency of Federal spending without harming
    seniors' retirement security or imposing more burdens on
    struggling families.
        Returning us to a sustainable fiscal trajectory will
    require smarter use of the Nation's fiscal resources, and that
    is what I hope to do this year as Chairman of the Committee. I
    want our committee to help shine a bright spotlight on the
    reality of the situation we face, to fully vet the choices we
    have, and then set the stage to make the most responsible
    decisions as a Congress.
        Director Hall, thank you for helping us begin that
    conversation. I look forward to hearing your testimony, and I
    now yield to the Ranking Member for his opening statement.
        [The prepared statement of Chairman Yarmuth follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Womack. I thank the gentleman. Good morning, and thanks
    to everyone for being here as we discuss the CBO's annual
    budget and economic outlook report. The goal of today's hearing
    is to analyze the CBO's latest baseline projections. These
    findings shed light on our Nation's current fiscal challenges
    and guide us in mapping out a sustainable path for the future.
    This year's baseline brings daunting news with deficits
    projected to be $1.37 trillion by 2029 and debt reaching almost
    $34 trillion. While these numbers paint a sobering picture, it
    does not have to be America's future. Without question, we must
    create a new path forward.
        Mandatory spending is clearly driving up deficits and debt.
    Our Nation's fiscal trajectory will remain unchanged if we
    don't address this sobering fact. And this is not only my
    deduction. CBO has stated in the past that revenue alone will
    not solve this problem.
        In his testimony last year, Director Hall said that
    increases in entitlement spending are the largest drivers of
    the increase in the deficit going forward. Unfortunately, it
    seems that my colleagues on the other side of the aisle don't
    recognize the severity of this problem, or if they do, I
    haven't seen their plan to fix it.
        So my question is pretty simple: What is your plan? I am
    curious to learn how can you reconcile your desire for
    astronomical spending increases with a need to address the
    issue of our ballooning national debt. Medicare for all, free
    college, and other initiatives touted by my Democratic
    colleagues will exacerbate our Nation's fiscal problems.
        Rather than encouraging spending that will financially
    drive our country to the ground, Congress needs to face
    mandatory spending head on. Here is the reality: Our largest
    entitlement programs are facing insolvency. If we do nothing,
    they go under. Let me say that again. If we do nothing, if we
    maintain the status quo, they fail.
        Now instead of fixing these programs, the new majority
    wants to expand them. This is irresponsible. We are facing a
    sovereign debt crisis that we know is coming. So again I ask,
    what is your plan? I assume it is to raise taxes. I have heard
    some would like to raise individual rates to 70 percent,
    possibly increase the corporate rate from 21 to 28 percent. Is
    that the plan, to drastically increase taxes to pay for out-of-
    control spending? Let me be clear, we cannot tax our way out of
    this problem.
        Again, as CBO previously outlined, the biggest budget
    challenges lie in mandatory spending. If we don't address these
    drivers of debt, our march towards fiscal insolvency will not
    stop. My guess is that Director Hall will reiterate this point
    in this morning's hearing, as well as the fact that revenue
    isn't the solution. We need to work together to confront our
    growing debt burden and mandatory spending issues.
        So I ask one last time, do you think the deficit and debt
    projection released by the CBO is concerning? If you do, and I
    hope you do, what is your plan to address these issues?
        We have a moral obligation to future generations to get our
    fiscal house in order. I hope all committee members agree with
    that. I look forward to productive conversations today with Dr.
    Hall and my colleagues. Thank you, and with that, I yield back
    to the distinguished Chairman.
        [The prepared statement of Steve Womack follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Yarmuth. Thank you, Mr. Womack. And now it is my
    great honor to formally introduce, once again, Director Keith
    Hall of CBO. And, Director Hall, the floor is yours. You are
    recognized for 5 minutes.

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

        Mr. Hall. Thank you. Chairman Yarmuth, Ranking Member
    Womack, 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.
        I would like to draw your attention to important
    information in that report about the amount of debt that the
    Federal Government will incur if we continue on the current
    budgetary path. I want to focus on four questions.
        The first question: What does CBO project? Let me highlight
    a few key numbers. At the end of 2018, the amount of debt held
    by the public was equal to 78 percent of gross domestic
    product. In CBO's projections, debt equals 93 percent of GDP by
    2029, and about 150 percent of GDP in 30 years. Even at its
    highest point ever, just after World War II, debt was far less
    than that, at just 106 percent of GDP.
        Second question: Why does debt become so large in CBO's
    projections? I hopefully--we used something new this time. You
    can see the answer in the summary of the report. We have given
    you a handout that has a visual summary. Hopefully you have got
    that in front of you. I am going to refer to a couple of
    pictures. I apologize if you don't have it, or I apologize for
    it being difficult to see. This year, we summarized it in some
    charts to try to be helpful. The figure on the bottom of the
    first page indicates why debt is growing. Federal spending and
    revenues both grow through 2029, yet the gap between them
    persists.
        Third question: What would happen if the economy grew more
    quickly? If GDP grew more quickly than it does in CBO's
    projections, revenues will increase more than spending would,
    and deficits would be smaller than projected. If economic
    growth was fast enough, deficits could actually shrink and debt
    could stabilize, or even fall as a percentage of GDP rather
    than continuing to grow. But such an outcome is unlikely.
        In 2018, the real growth rate of the economy, that is
    growth with the effects of inflation removed, was 3.1 percent,
    the highest rate since 2005. Nevertheless, the deficit equaled
    3.8 percent of GDP, and debt increased as a percentage of GDP.
    Furthermore, this year, the boost that recent tax legislation
    gave to business investment wanes in CBO's projections. Also,
    Federal purchases dropped sharply under current law starting in
    the fourth quarter of the year. As a result, economic growth is
    projected to slow in 2019.
        Over the longer term, output growth is projected to be
    lower than its long-term historical average because the working
    age population is expected to grow more slowly than it did in
    the past. Real GDP grows by an average of 1.8 percent per year
    in CBO's 10-year projection. In short, the economy isn't likely
    to grow quickly enough to shrink the budget deficit.
        We have posted an interactive workbook on our website that
    lets you specify different economic scenarios and see the
    results. For example, if productivity growth turned out to be
    half a percentage point higher in every year than CBO projects,
    real GDP would grow by 2.4 percent per year over the coming
    decade instead of 1.8 percent. Deficits would average 3.7
    percent of GDP instead of 4.4 percent of GDP, and debt would
    stabilize at roughly 80 percent of GDP by 2029. Such economic
    growth is possible, but it is not likely under current law in
    our assessment.
        CBO aims for its projections to be in the middle of the
    potential outcomes, so there is about the same chance that
    productivity growth could turn out to be half a percentage
    point lower than our projection. If that happens, real GDP
    growth could average 1.1 percent over the decade and average
    deficits would be 5.2 percent of GDP. Debt would swell even
    more than it does in our current projections.
        Fourth question: What are the consequences of high and
    rising debt? If debt rose to the amounts that CBO projects,
    there would be troubling consequences.
        First, as interest rates continue to rise towards levels
    more typical than today's, Federal spending on interest
    payments would increase, surpassing the entire amount of
    defense spending by 2025 in our projections, for example.
        Second, because Federal borrowing reduces national savings
    over time, the Nation's capital stock would ultimately be
    smaller and productivity and total wages would be lower than
    would be the case if debt were smaller.
        Third, lawmakers would have less flexibility than otherwise
    to use tax-and-spend policies to respond to unexpected
    challenges.
        And fourth, the likelihood of a fiscal crisis in the United
    States would increase.
        In closing, I will emphasize that debt is on an
    unsustainable course in CBO's projections. To put it on a
    sustainable one, lawmakers will have to make significant
    changes to tax and spending policies.
        I am happy to answer your questions.
        [The prepared statement of Keith Hall follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Yarmuth. Thank you very much, Director Hall. I
    appreciate your testimony. Pursuant to the policy that the
    Ranking Member and I actually used in the last Congress, we are
    both going to defer our questioning until after all of our
    members have been recognized. So in light of that, I now
    recognize Mr. Khanna of California for 5 minutes.
        Mr. Khanna. Thank you, Chairman Yarmuth. Thank you,
    Director Hall, for your work and leadership. You are a
    distinguished economist, and I hope this Congress, everyone on
    both sides of the aisle will recognize that.
        Your report stated that the tax bill paid for about 30
    percent of itself rather than 100 percent of itself, the tax
    bill that the Republicans passed last Congress. Would that
    suggest that any person who claims that the tax bill was going
    to pay for itself is wrong?
        Mr. Hall. Well, obviously projecting the future you can be
    wrong, we can be wrong. We did a really careful analysis of the
    tax bill. We looked at research. We tried to base it on real
    data, real evidence. And our estimate did, in fact, show that
    the GDP benefits of the tax bill would increase revenues, but
    not enough to fully cover the bill. As you said, it covers
    about 30 percent of the tax bill with respect to the deficit.
        Mr. Khanna. Director Hall, I am not suggesting that you are
    wrong, I am suggesting that people around the President when
    they claim that this tax cut is going to pay for itself with
    the magical 4 percent or 5 percent growth, is it fair now that
    we can say they are just--that is economic nonsense?
        Mr. Hall. Well, that is certainly a much bigger effect than
    we would estimate. It is well outside our forecast for the
    effects of the tax bill.
        Mr. Khanna. And one of the things--I mean, you are
    obviously a distinguished economist. I don't have a Ph.D., but
    as I understand it, on the other side, they always talk about
    these deficits. Now, correct me if I'm wrong, this is a bit of
    a simplistic theory, but does this make economic sense?
        My understanding is that when Bill Clinton left the
    presidency, we had budget surpluses. And then three things
    happened: George Bush passed large tax cuts to the very
    wealthy; Trump passed large tax cuts to the very wealthy, and
    we got into a lot of foreign wars. If none of those three
    things had happened, would we still have budget surpluses?
        Mr. Hall. The answer, I think, is no. We had really
    unexpectedly strong productivity growth during that time
    period. Also, it was also a time period where the labor force
    was growing much quicker than in the past, and that was
    particularly because of women entering the labor force in
    greater numbers. So women's labor force participation sort of
    closed a gap at that time period. So we had much stronger labor
    force growth. We had unexpectedly big productivity. Neither of
    those things we are projecting going forward.
        Mr. Khanna. What do you think accounted for the strong
    labor force growth and productivity, other than you said women
    entering in the 1990s accounted for that?
        Mr. Hall. Well, it wasn't women entering the labor force,
    it was also the baby boomers were in sort of in their prime
    working ages during that time period. They still sort of are,
    but near the end. So the aging population, at some point, is
    going to start working against us. And so we see, for example,
    the labor force growing much slower now from this sort of
    demographic handicap going forward than happened in the late
    1990s.
        Productivity is harder to project. You know, we see
    productivity heading back to somewhere near its normal range.
    Productivity has been very low the last 7 or 8 years, the past
    decade, and it has been unexplained, unexplainable. So we sort
    of have hopes on the productivity. Also, it is really hard to
    forecast productivity going forward.
        Mr. Khanna. You said that it wouldn't have wiped out all of
    the debt. Do you have a rough estimate if we didn't have the
    Bush tax cuts and Trump tax cuts, and we didn't have a
    perpetual war in Afghanistan and Iraq, how much money we would
    have saved?
        Mr. Hall. We haven't done that sort of analysis.
        Mr. Khanna. Could we do that analysis?
        Mr. Hall. We could look at it to get a feel for what
    difference it would make. A lot of things have changed since
    then, as well, but we could take a look a little bit, give you
    some idea.
        Mr. Khanna. And my final question is about the shutdown.
    Your office estimated that it cost us about .2 percent the
    first year. We have the President going on television saying,
    well, we may have a shutdown again. And as someone who studied
    rational expectations knows that investors and people take into
    account what we can expect. Do you think when he does that, he
    is hurting confidence in the markets and hurting our economy
    because people don't know what to expect?
        Mr. Hall. Well, when we did our estimate of the shutdown,
    we essentially didn't take that into account, we just looked at
    the effect of having the labor force idle for a while, and then
    the add-on effects. But there is certainly other effects that
    you mentioned that we think were getting stronger as the
    shutdown continued, and we think if the shutdown were to recur
    and continue for a while, we would have some additional
    changes.
        You know, one of the things I think that is
    underappreciated is, we would have a higher risk for low
    probability/high cost events happening, at from security. We
    would also have a lack of economic data that would, over time,
    could possibly lead to households and businesses holding back
    because of business confidence and because of consumer
    confidence. Federal permits and certifications, at some point,
    that is going to start to have an effect perhaps on business
    investment.
        So there are these additional impacts that could occur if
    the shutdown recurs and it gets harder, not to mention it is
    really hard to measure, but the impact on the morale of the
    Federal workforce. The ability to hire high quality workers
    could be impacted--and contractors. Contractors could actually
    cost us more money going forward.
        Chairman Yarmuth. The gentleman's time has expired. I now
    recognize the gentleman from Ohio, Mr. Johnson, for 5 minutes.
        Mr. Johnson. Thank you, Mr. Chairman, and I, too, look
    forward to serving with you and our colleagues to address our
    Nation's spending and budget issues.
        Director Hall, you have previously told our committee here
    that tax increases will not come close to covering this
    Nation's ballooning deficits, and it is clear from your newly
    released report that that fact remains true even today. Yet
    even in light of our inability to cover existing deficits, my
    Democratic colleagues are proposing massive new spending
    programs, which would dramatically increase our future deficit.
        Take a look, if you would, at this series of charts behind
    me, which shows existing projected deficit down at the bottom
    in navy blue. Under your current baseline, if Congress was to
    do nothing for the next 10 years, that is, pass no laws, enact
    no new revenue or spending, the result would be a deficit of
    $1.43 trillion by fiscal year 2028. That is a lot of money. But
    it is dwarfed by the spending my Democratic colleagues would
    enact on top of it.
        For example, if we add expanded Federal housing, the
    deficit would be $1.48 trillion in 2028, an increase of $50
    billion from the baseline. Pile on the expanded opportunity
    credits, expansion of the earned income tax credit, and
    universal child care, and you are looking at a deficit of $1.92
    trillion in 2028. Then we get to the really expensive part of
    their proposals, free college for all, establishment of the
    LIFT credit and a guaranteed Federal job results in a deficit
    approximately $3 trillion by 2028.
        Finally, there is the pinnacle of budget busting proposals,
    Medicare for All, which, with an estimated 2028 deficit of
    $6.78 trillion required us to break the scale on the chart just
    to fit it all on one page.
        So my question to you, Director Hall, given that our
    revenues can't come close to covering our existing deficit, how
    then should we cover the deficit created by these new spending
    programs?
        Mr. Hall. Well, I will start with the track that CBO has
    always taken is we don't make policy recommendations, but I
    will say that some pretty big changes would need to be made in
    tax policy or spending policy or both things.
        Mr. Johnson. Like a good lawyer then, I will rephrase my
    question.
        Mr. Hall. Okay.
        Mr. Johnson. Under current law, can we cover these massive
    increases in spending with current law?
        Mr. Hall. Under current law----
        Mr. Johnson. Given the assumptions that you made----
        Mr. Hall. Right.
        Mr. Johnson.----in your proposal--I am sorry, in your
    report, would we come even close to covering these massive new
    spending programs and reduce the deficit?
        Mr. Hall. No, no. Under current law, without these programs
    we are heading towards 93 percent of GDP, almost 100 percent of
    GDP in just 10 years. That is a pretty big challenge.
        Mr. Johnson. And if I read your report correctly, I would
    have to pull it out to look at the exact number, but by 2028,
    we are looking at a deficit that exceeds the highest peak in
    American history, which was right after World War II, correct,
    if we keep going in the direction that we are going.
        Mr. Hall. Right. If we keep going, the highest peak was
    about 106 percent of GDP.
        Mr. Johnson. Right.
        Mr. Hall. So it is not far from the 93 percent.
        Mr. Johnson. And these are going to take them--these
    programs, if enacted, would take it so much higher than even
    that.
        Mr. Hall. That is likely correct, although we would have to
    look at the programs carefully to have an estimate.
        Mr. Johnson. Well, these are huge numbers, and they can,
    you know, sound very abstract if you don't study this stuff
    every day. What are the concrete impacts of unsustainably
    increasing deficits on average Americans?
        Mr. Hall. Well, one of the problems I would like to point
    out about the deficit is, I didn't highlight, is when it is
    occurring. Every time we go through a business cycle--I don't
    know if the graphs, if you all did get the graphs, but if you
    look at the debt the cycle of the debt going up and down, after
    every recession, deficits and the debt go way up. And for
    example, in the Great Recession debt was about 35 percent of
    GDP. When the Great Recession was over it doubled, the debt
    doubled to about 75 percent. Right now we are starting at 93
    percent, right, so one of the big impacts is the risk going
    forward.
        If you go through another business cycle, have another
    recession, debt is going to be piled up on top of 93 percent
    debt, and that is going to get to a very high level.
        Another thing is the deficit, the borrowing, raises the
    cost of capital to the private sector. So the cost of capital
    goes up, the cost of business investment goes up, and there is
    less in the private sector. So productivity is lower, which
    means wages are lower.
        So it is a drag on productivity, it is a drag on wages, and
    it is a drag on GDP growth going forward. Those are two of the
    effects that I think are very straightforward and very clear.
        Mr. Johnson. Mr. Chairman, it sounds like all the work that
    we have done to increase wages for the American people under
    these scenarios with this massive debt added on, we would be
    depressing wages for the American people, and thank you for
    indulging the extra time. I yield back.
        Chairman Yarmuth. Absolutely. The gentleman's time has
    expired. I now recognize the gentlelady from Connecticut, Ms.
    DeLauro, 5 minutes.
        Ms. DeLauro. Thank you very much, Mr. Chairman. I am
    delighted to be back on the Budget Committee, and welcome,
    Director Hall. It is always good to hear from you, and thank
    you for your thoughtfulness.
        My questions have to do with healthcare. New polling from
    Gallup suggests that the U.S. uninsured rate has risen to a 4-
    year high. At the same time, the Trump administration has
    repeatedly taken steps to sabotage our Nation's healthcare
    system by weakening consumer protections and causing premiums
    to skyrocket.
        First question here is how does CBO estimate the effects of
    this Trump administration's sabotage on enrollment and spending
    in the marketplaces? I will ask the follow-up.
        Mr. Hall. Okay.
        Ms. DeLauro. CMS has also approved unlawful Medicaid work
    requirements in seven States, despite mounting evidence that
    they cause significant harm. Arkansas, the first State to
    implement the work requirements, and the State reports that
    more than 18,000 people have lost coverage since they were
    implemented last June. That is about 23 percent of those
    subject to the requirement.
        What have you learned from the Arkansas experience that
    informs CBO's estimates of the number of people who will lose
    coverage due to Medicaid work requirements?
        So enrollment--sabotage in enrollment and spending in the
    marketplace, the effects of your calculating those effects, and
    the Arkansas experience.
        Mr. Hall. Okay. Let me start with the rule changes. We, of
    course, have been studying the effects of the rule changes on
    healthcare coverage. As it turns out, some of the rule changes
    encourage enrollment, some discourage enrollment. So it is not
    really clear yet what the net effect is going to be. So we will
    continue to sort of watch that effect.
        The information that you mentioned, the Gallup poll, is
    maybe an indication that coverage is going down, but let me
    just say that that is a private poll, it doesn't meet the usual
    standards of a Federal Government poll. It doesn't have the
    sample size and et cetera, so we wait for a poll that is done
    by the CDC to get those numbers.
        We do expect enrollment to drop, though. We expect it to
    drop in 2019 because of the elimination of the penalty in the
    individual mandate. So we wouldn't be surprised to see the
    enrollment start to drop. It is just too early to tell if it is
    really dropping in 2018 yet.
        Ms. DeLauro. I would be very, very interested in following
    that up with you, because we look at the reduction and the
    cost-sharing payments in addition to looking at the cutback in
    navigators, in enrollment times, in periods of time, thereby
    circumscribing the effort to be able to enroll people to expand
    the opportunity, so I would love to have a continued dialogue,
    the Arkansas experience and Medicaid work requirements.
        Mr. Hall. That is another one we are watching the effect.
    We don't understand what the effect is going to be. So we will
    watch the Arkansas experience. Every year we change our
    forecast of enrollment, and it will be based in part on that
    experience to see how that affects things. But, of course, you
    are right in the sense that that could change enrollment over
    time.
        Ms. DeLauro. 18,000 people have lost coverage already, so.
    Thank you.
        Let me just, on the shutdown, we talked about $11 billion
    short term, $3 billion long term. The President has talked
    about another multiweek shutdown, and, you know, the question,
    I think, has been asked about what that effect would be, but
    people are very, very uncertain at the moment, and they will
    not be spending in the next 3 weeks, so it is not a 5-week
    shutdown, it is going forward. And we also have created a
    climate of instability, and there is caution, whether it is
    businesses, et cetera, but I am talking about individuals'
    caution about spending. Does that have an economic effect, in
    your view, and because it goes beyond the Federal workforce,
    and what kind of an economic effect, in your view, will that
    have? What is the economic effect?
        Mr. Hall. Sure. Well, we certainly do think that those
    things would have an economic effect, and would potentially
    slow down economic growth. We just weren't able to sort of
    measure that over just a 5-week period, but I do think that
    that is right that those things were getting to be more
    important, and those things might affect economic growth more
    in the future. This increased uncertainty, to the degree it
    impacts household and business decisions can slow down things.
    Reducing the efficiency of government is never a good thing. So
    I think all those things are things that have a potential
    impact. We just weren't able to really get our hands and
    measure those yet.
        Ms. DeLauro. Will you be doing that?
        Mr. Hall. If the shutdown recurs, we would be happy to take
    a look at that.
        Ms. DeLauro. Well, but you are looking at--it is beyond 5
    weeks.
        Mr. Hall. Oh, I see.
        Ms. DeLauro. You have a longer lasting period of
    uncertainty----
        Mr. Hall. Right.
        Ms. DeLauro.----and instability----
        Mr. Hall. Right.
        Ms. DeLauro.----that is really captured in the public, and
    the data shows that in terms of people who rely on their
    paychecks, it is paycheck to paycheck.
        Mr. Hall. We will certainly look at the data and look to
    see if there is more an effect there that is measurable.
        Ms. DeLauro. Okay, what I would love to do is to be able to
    follow up with you on measurability. Thank you very much.
        Chairman Yarmuth. The gentlelady's time has expired. I now
    recognize the gentleman from Utah, Mr. Stewart, for 5 minutes.
        Mr. Stewart. Thank you, Mr. Chairman, and to the Chairman
    and Ranking Member, as the new member of the committee
    representing Appropriations, I am honored to work with you and
    look forward to doing something productive, I hope. And, Mr.
    Hall, you and I have several things in common. You have a Ph.D.
    in economics. I took Econ 101 when I was a freshman. Actually,
    I have a degree in economics, as well, although not an advanced
    degree. I read your computational partial equilibrium modeling.
    I don't know what that is. It sounds very cool, though. And one
    other thing we have in common is I think you are serious about
    the deficit and recognize the problem. You must feel like a
    lone man in the wilderness, and I am sure that frustrates you
    because it is an enormous challenge. I would argue is, if not
    the most, it is one of the two most single greatest challenges
    facing our future. It is the reason I ran in 2012 was because
    of our debt and our spending.
        And just very quickly, because I want to ask you a question
    many of us have been kind of torn by this, because I also work
    on the Intel Committee. I am a former Air Force pilot. I
    recognize national security is a concern, but I try to balance
    these two all the time.
        And it is interesting to my colleagues on the committee as
    well to hear how, you know, in just a few minutes, we become
    tribal on this. You know, one side wants to blame tax cuts, the
    other side wants to blame spending, and at the end of the day,
    after all the politics and pontificating, the thing about
    economics is there is a number, and the number is pretty
    obvious, and you can also understand where that number came
    from. And I hope as a committee, we can make serious and
    sincere efforts to try to address it, because if we don't, then
    we are in a world of hurt, and we mess up our children's
    future, and there is just no question about that, which brings
    me to my question to you. And that is, I love the part of your
    written testimony here.
        What are the consequences of high debt, because most
    Americans, if they don't understand what are the consequences,
    then they go what difference does it make? I have been hearing
    about this for a long time, and my life seems to be okay. What
    difference does it make?
        To go through them quickly, I want you to emphasize the
    last one, increased interest payments. Obvious, you have talked
    about that. Decrease in national savings. Again, obvious how
    that impacts people. A decrease in flexibility of government,
    of Congress, to address those problems. That should be
    important to all of us here.
        And then the last, the fourth one is the likelihood of a
    fiscal crisis. I would like you, if you could, to give us kind
    of your worst-case scenario, because I know you have to work
    within the margins of we think it might be this, but tell us
    what happens, worst-case scenario, what does this mean to
    people so that maybe we can get their attention and why we need
    to address it?
        Mr. Hall. Well, sure. I think one of the things that we try
    to do is try to give you some feel for the uncertainty in our
    forecast, what a reasonable range is for the outcomes. You
    know, for example, in the near term over the next 10 years, we
    see deficits being at something over 4 percent. Not hard to
    imagine deficits becoming 6 \1/2\ percent, getting larger, and
    that is without a recession going forward. That sort of effect
    would raise the debt after 10 years from 93 percent of GDP to a
    record, could be 120 percent after just 10 years, something
    like that. I don't have the numbers right in front of me, but
    we try to do some of that, and again, that is without a fiscal
    crisis. We aren't forecasting a fiscal crisis, but the one
    thing we do know is the chances of that happening increase.
        Mr. Stewart. So I am going to narrow your response if I
    could, because seeing your clock, you only have a few minutes.
    Talk to me about the word you just said, a ``fiscal crisis.''
    Help people understand what that means. I know you are not
    projecting that.
        Mr. Hall. Right.
        Mr. Stewart. I know, you know, heaven help us, we all want
    to avoid that. But if it isn't avoided, what does that mean to
    people? Talk to me about what that means to people.
        Mr. Hall. The most important part of that is that the
    borrowing cost to the Federal Government goes up. Because of a
    lack of trust or whatever if people start asking for premium to
    lend the government money to run the government, interest rates
    could be much higher than we project at the moment.
        I will give you a--for example, if interest rates--we think
    interest rates will go up to around 3.7 percent, 10-year
    treasuries. That a pretty low historical level. If they went up
    a whole percentage point higher than that, we are talking about
    an extra $2 trillion in debt, if they go up an extra--you know,
    a debt crisis would be more than a percentage point. If it is 2
    percentage points higher, we are talking about $4 trillion in
    extra debt over the next 10 years. So the debt of the Federal
    Government gets to be really significant, and the basic punch
    line is, in that case, if you want to fix that, now you are
    talking about really draconian measures. You are talking about
    really decreasing spending or really increasing tax revenues or
    both things if you let this get out of hand.
        Mr. Stewart. And we are out of time, so I will just
    conclude with this: I appreciate your answer, although it
    frustrated me just a little because most Americans, once again,
    well, what does that mean to me? I remember at the end of Jimmy
    Carter, and I am not blaming Jimmy Carter, it just happens to
    be that was the time, but we were borrowing money at 20 percent
    at that time. And that is the thing I want to talk about. This
    is what it means to you. Borrowing money at 20 percent, a 20
    percent mortgage, an 18 percent mortgage, a 21 percent car
    loan, those are the numbers we need to be talking about with
    people so they understand this matters to me. Thank you, sir.
        Chairman Yarmuth. The gentleman's time has expired. I now
    recognize the gentleman from North Carolina, Mr. Price.
        Mr. Price. Thank you, Mr. Chairman. I also am happy to be
    back on the committee after a number of years away. I
    appreciate your leadership, Mr. Womack. I look forward to
    working with all of you. And thank you, Director, for a helpful
    report.
        I want to revisit your line of questioning with Mr. Khanna
    having to do with not so ancient history of the 1990s and those
    years when we saw budget surpluses and actually paid off
    something like $400 billion of the national debt, I believe.
    You talked about the factors that had produced a strong economy
    in those years, and, of course, that tends to address the
    budget deficit in a positive way, but those were also the years
    of comprehensive budget agreements. There were comprehensive
    agreements in 1990 and 1997 on a bipartisan basis. There was an
    important agreement in 1993 with democratic heavy lifting
    alone. And if Mr. Stewart is worried about tribalism, those
    were not tribal agreements, they were--in the sense that they
    offended everybody. Something in those agreements for everybody
    to hate because they did raise some taxes, they did restrain
    some mandatory spending, and they did impose some discipline on
    discretionary spending across the board.
        Yet, I think the consensus of economic opinion is that they
    are at least an important ingredient in the discipline that was
    achieved and the period of surpluses that we enjoyed.
        Now, we are far from that now. We are far from that
    economically, we are far from it politically. We have had, from
    our Republican friends, $1.5 trillion in tax cuts, mainly
    benefiting the wealthiest people, and groups in this society,
    totally unpaid for. Restraint, the only restraint that seems to
    be proposed these days is on domestic discretionary spending,
    leaving the rest of the budget aside. That strikes me as a
    lose-lose proposition. You are not really addressing the
    overall fiscal crisis with constraining only domestic
    discretionary spending, but at the same time, you are starving
    our country of needed investments.
        So, all that by way of asking you, what should we be
    looking for in the way of a comprehensive approach to this, is
    sometimes we call it a grand bargain. Is that still the best
    bet if our politics could ever come around to achieving that?
    Are there any different ingredients that would need to be
    achieved?
        So I am interested in the impact of such comprehensive
    budget policies in the past, and what the implications are for
    the dilemma that you very well outlined.
        Mr. Hall. Well, I want to steer a little clear of
    recommending policy changes, so I will try to talk generally
    about this. The debt problem now is really large, and under
    current laws we are going, it is going to be a bigger and
    bigger problem, so the longer we wait, the more draconian the
    measures would have to be to fix it.
        So one of the things that is an important thing is to think
    about something early. And second is, the debt is at a high
    level, so you need something big to change. You talked about
    discretionary spending. One of the reasons that I often make
    the point about just the net interest costs of the current debt
    is on its way to exceed all of defense spending, and it is on
    its way, after 30 years, of maybe exceeding all of
    discretionary spending, just the interest cost, that is not
    fixing the problem, that is just holding it still. So the
    problem is getting much bigger than discretionary spending, for
    example.
        So if you have to think about things, you need to think
    big, and you think in terms of revenues, you need to think in
    terms of spending. One or the other, or both things, are
    perfectly fine. I think it is helpful. This is--I don't want to
    make recommendations, but having some sort of plan, I think,
    would be a good signal.
        Mr. Price. Well, what quickly can you say about the history
    of this? Were those three agreements an important ingredient of
    the fiscal discipline achieved in the 1990s?
        Mr. Hall. Those things all contributed. I haven't done a
    detailed analysis of that, but I do want to point out that that
    was a different time than now. All right. There were a couple
    things we had going for us that we don't have going for us now.
    One was that productivity surge, and the other was a more
    quickly growing labor force.
        Heading forward, you know, unless we have an unexpected
    surge in productivity, or I don't know what would happen on the
    labor force side. We have an aging workforce. Those things are
    going to be big drags going forward, and it is going to make it
    more difficult to deal with this than perhaps was the time in
    the late 1990s.
        Mr. Price. Thank you. Thank you, Mr. Chairman.
        Chairman Yarmuth. The gentleman's time has expired. I now
    recognize the gentleman from Texas, Mr. Crenshaw, for 5
    minutes.
        Mr. Crenshaw. Thank you for being here. I appreciate what
    the CBO does. You have the most difficult job imaginable, which
    is giving apolitical advice to Congress. I can't even imagine
    that. The reason we are here, I believe, is because we have a
    fundamental difference in questions of why deficits exist,
    whether it is spending or too little taxes, and--but it is
    really a fundamental question of why government exists in the
    first place.
        If you believe government exists to sustain itself and fund
    pet projects for politicians, well, then it, therefore, makes
    sense to simply tax the people in order to fund that. If you
    believe that government exists to protect inalienable rights
    and freedoms, well, then we have a difference of opinion. And
    so the question then becomes, okay, and as my colleagues have
    pointed out, you know, what has actually caused these deficits?
    So we are going to go through some numbers specifically on the
    tax cuts from last year. According to CBO's projections right
    now, the debt in 2029 is projected to be $33.7 trillion,
    correct?
        Mr. Hall. That sounds right.
        Mr. Crenshaw. The tax cuts cost $1.5 trillion, and was that
    with or without dynamic scoring?
        Mr. Hall. Well, it was $1.9 trillion with everything
    included with dynamic scoring.
        Mr. Crenshaw. Okay. Well, let's just leave it at 1.5 then.
    It is the----
        Mr. Hall. Yeah. That just doesn't include the extra
    interest cost of the debt.
        Mr. Crenshaw. Okay. So 33.7 minus 1.5 is 32.2. So without
    the tax cuts, our debt in 10 years would still be $32 trillion.
    With the tax cuts, it would be $33 trillion. It is not a huge
    difference.
        The tax cuts also did what they were designed to do. They
    have increased job growth. They have increased wages. And it is
    also worth highlighting, and according to the graph you gave
    us, revenues continue to increase every year. Do you know off
    the top of your head what they are projected to increase just
    next year? This is government revenue.
        Mr. Hall. Right. I don't off the top of my head.
        Mr. Crenshaw. Okay. It is over $100 billion increase from
    the year before.
        Also worth noting, according to this graph you gave us, as
    a percentage of GDP, meaning relative to the size of the
    economy, revenues have basically stayed around the same. In
    fact, they have been on an upward trajectory, again, with the
    tax cuts. The government continues to make more money as a
    percentage of GDP. Is that correct?
        Mr. Hall. That is right, although I will caution, a little
    bit of that is the expiration of the reduction in individual
    income taxes. So that----
        Mr. Crenshaw. Right. Yeah, if politicians decide to
    increase people's taxes,
        Mr. Hall. That is right.
        Mr. Crenshaw. Correct. So when my colleagues say that it is
    absolutely clear that tax cuts from last year are the only
    reason that we have these deficits, is that really true?
        Mr. Hall. Deficits are much larger.
        Mr. Crenshaw. Okay, that is what I figured. So it brings us
    to our next issue then, which is mandatory spending. It is true
    that 70 percent of our spending in government is mandatory
    side, right?
        Mr. Hall. Yes.
        Mr. Crenshaw. And it is also accurate that mandatory
    spending on health programs alone will double from $1.3
    trillion in 2019 to $2.4 trillion in 2029?
        Mr. Hall. Yes.
        Mr. Crenshaw. That is according to your estimates. So in
    the little time we have, the CBO does analysis on certain
    policy considerations. You are not recommending policies, but
    you do do analysis on certain policy recommendations. When it
    comes to mandatory spending programs like Medicare and Social
    Security, what are some of the top recommendations that you all
    analyze?
        Mr. Hall. Well, I will tell you, I will point you to a
    report that we recently finished, Options to Reduce the
    Deficit. It is a rather big volume. It is about 120 different
    options that Congress could take, all of which would reduce the
    deficit on the spending side, revenue side. We give you actual
    estimates. You get some idea of how much bang for the buck you
    would get.
        Mr. Crenshaw. My last question, how much would you have to
    raise taxes--without changing spending, how much would you have
    to raise taxes in order to not even balance our budget but get
    our deficits on par with our growth, meaning that debt-to-GDP
    ratio would actually stay the same?
        Mr. Hall. I think if you raised everybody's taxes, all the
    tax rates by about 10 percentage points, 10 percent, that would
    generate enough revenue to reduce the deficit down to about
    zero, not fixing the debt.
        Mr. Crenshaw. Okay. Ten percent, which would be a pretty
    enormous raise----
        Mr. Hall. It would.
        Mr. Crenshaw.----for quite a lot of people.
        And what is the main--what is the best indicator of your
    wealth in a group of people? Would you say it is age? Would age
    be a good indicator of wealth if you had a random group of
    people?
        Mr. Hall. Well, sure, age is definitely associated.
        Mr. Crenshaw. My last closing comment in this amount of
    time would be to say that what we are talking about when we are
    talking about expanding entitlement programs is taxing the poor
    to pay for the rich. That is what we are actually talking
    about, because you are taxing people of my generation to pay
    for people who have their entire lives to save, and we have to
    question whether that is fair.
        Chairman Yarmuth. The gentleman's time has expired.
        I now recognize the gentlelady from Illinois, Ms.
    Schakowsky.
        Ms. Schakowsky. Thank you, Mr. Chairman, Ranking Member,
    and Mr. Hall for being here.
        You know, one of the things that the shutdown I think
    illustrated, many people think about Federal jobs as middle-
    class jobs. And what we actually saw was that these are workers
    who live paycheck to paycheck, and a couple of them gone means
    that they are in serious sometimes crisis, going to food
    pantries. But it also reflects, I think, what the majority of
    workers face. We find out, there has been research that even a
    $500 accident or something happening, that most families can't
    afford that.
        One of the benefits that was promised in the tax cuts or
    projected in the tax cuts was that it would spur rapid wage
    growth for workers. But it actually appears that instead of
    delivering raises for workers, that corporations use their
    windfall to enrich their shareholders through stock buybacks.
    In fact, 2018 set a record, with companies spending more than
    $1 trillion on buybacks.
        And so my question to you is, how do these buybacks affect
    the economy? And do you see their effect in your most recent
    estimates of economic growth? And do those buybacks actually
    then interfere with wage growth?
        Mr. Hall. Well, let me first say we expected stock
    buybacks. It was part of our forecast. And what we have seen
    happen so far is not at all inconsistent with what we expected.
    So buybacks actually aren't bigger than we thought they would
    be.
        Ms. Schakowsky. No, I just want to say I am not surprised
    either about the buybacks.
        Mr. Hall. I am warming up here to get to your question.
        Ms. Schakowsky. Okay.
        Mr. Hall. The wage impact of that is less clear to us,
    whether the stock buybacks will impact wage growth or not. And
    we think the labor market is tightening up and we think wages
    are starting to rise and we think they will rise in the future.
    You know, it is hard to say what the effect of stock buybacks,
    if that has had or that is going to have an effect on wage
    growth.
        Ms. Schakowsky. Did you expect any higher wage growth as a
    result of the tax cuts?
        Mr. Hall. I think we did in the long run, because the tax
    cuts lowered the cost of capital, lowered the cost of work. So
    we did expect more people to reenter the labor market like has
    perhaps been happening. We expected higher investment. We
    thought that would raise wages some. We did forecast that. But
    we expect that over 10 years.
        Ms. Schakowsky. Another claim was that the Republican tax
    bill would increase investment, which in the case of an
    industry like Pharma, like the pharmaceutical companies, could,
    in theory, lead to lower costs for consumers. And we would all
    agree that that would be a good thing.
        But last summer, I wrote to the CEO of Eli Lilly, and
    actually of some other companies as well, asking him about the
    impact on consumers' out-of-pocket cost for different drugs.
    And their response left a lot to be desired.
        And, Mr. Chairman, I ask unanimous consent to submit for
    the record my letter as well as the response from Eli Lilly.
        Chairman Yarmuth. Without objection.
        [The information follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Ms. Schakowsky. So my question to you, Mr. Hall, is have
    you analyzed the impact of pharmaceutical companies' decision
    to invest in buybacks rather than lowering out-of-pocket costs
    for consumers on the trajectory of our out-of-pocket healthcare
    spending for middle class Americans?
        Mr. Hall. Well, we do keep track of pharmaceutical prices
    and we do try to monitor, and we have done some looking at
    that.
        Relying on my memory now is not very good, but we can
    follow up and talk to you about what we see with the
    pharmaceutical prices and talk about what we think could be an
    impact going forward, if you like.
        Ms. Schakowsky. In general, did you see that we had any
    lowering of consumer prices as a result of the tax cuts that
    many big industries enjoyed with the tax cut?
        Mr. Hall. I think that is something that right now would be
    impossible to tell in such a short time period. And it would
    require us to do a little more research than we have done.
        Ms. Schakowsky. I think I don't have time for a third
    question. Thank you, Mr. Hall.
        Chairman Yarmuth. The gentlelady's time has expired.
        I now recognize the gentleman from Oklahoma, Mr. Hern, 5
    minutes.
        Mr. Hern. Director Hall, it is great to be here. It is
    great to be a freshman, with all the challenges we have ahead
    of us here. As a small business owner for over 34 years in
    various industries, having the privilege of serving as the CFO
    for a large franchise group, all over the country I have seen
    the problems we have across the country and the various issues
    we have when intrusion in the job creators and trying to put
    people to work. So I have been on the other side of these
    policies that I am going to venture now to create or to unwind,
    if you will.
        You know, if I ran my businesses like we run the Federal
    Government, we would be out of business a long time ago. And so
    I would have to assume that in that realm, it is not like a
    business, but it is about how we get after growing and
    stimulating our economy and controlling spending. It is math.
    You are a math guy. I happened many years ago to get an MBA
    from the University of Arkansas, so I am familiar with that
    area, familiar with the economics. There is no other solution.
    No matter how much we try to color it up, we have to get after
    both.
        Much has been made about the 1996 welfare to work. Not much
    has been made about that, but a lot has been talked about the
    results of that act that President Clinton signed when we had a
    Republican House and Republican Senate. And the results of that
    were is that we encouraged people that were able-bodied to go
    back to work into a growing workforce, job market, and we saw
    budget surpluses in 1997, 1998, 1999 and 2000. We had a tech
    burst in 2000 that caused that to start unwinding a little bit,
    because we were focused on one industry.
        We did have labor participation hit 67 percent, the highest
    in recorded history that we know of. Today, we are at 4 percent
    less than that, roughly, 63 percent. We are pretty much maxed
    out on who can go to work in this economy. We have an aging
    population. We have employment rates that are considered beyond
    full, that I question whether they are looked at the same way
    as they were 50 years ago.
        The mandatory spending levels are growing at a rate that is
    unsustainable. The amount of money that we all appropriate and
    argue over and fuss over up here is diminishing quite rapidly
    as compared to the GDP, so that we are only after just a small
    portion of our budget that we are talking about. The rest of it
    is on auto pilot.
        The fertility rates in this country to maintain a
    population that will keep this country as we know it today is
    woefully low. It is below the 2.1 percent.
        So with all that said and the dire note that you made that
    the interest rate very quickly is going to--or the interest on
    our debt is going to surpass our ability to protect ourself or
    the money we spend to protect ourself, I am always looking at
    this is what we know. And you have the ability to look at
    various things, because at the end of the day, it is just math
    and behavior.
        What are some of the ideas--and you alluded to the 120
    different options we have to change some of our trajectory. But
    in my short period of time that is left here, could you share
    with us just a couple of things that are imminent or does that
    get into the policy side?
        Mr. Hall. Imminent as in which----
        Mr. Hern. What we could change. As an example----
        Mr. Hall. Sure.
        Mr. Hern.----what would be the impact--there has been much
    said about the $15 an hour minimum wage. What would that do to
    us both in the short term and long term? There has been much
    made about legal immigration. How much legal immigration do we
    need to get us back on--to make up for the 2.1 differential?
        Mr. Hall. Well, with respect to minimum wage, we would have
    to see a proposal. We have certainly been thinking about that.
    We did an analysis in 2014 of a 10 percent minimum wage. We are
    thinking about the 15 that has been talked about. So I don't
    want to guess as to what the numbers are going to look like in
    something like that.
        And I am sorry, the other thing was the----
        Mr. Hern. How much legal immigration do we need to add to
    replace our aging workforce so that we can sustain our
    mandatory spending levels?
        Mr. Hall. Yeah. I don't know the answer to that one. You
    know, generally, if you increase immigration, first of all, the
    impact depends upon what kind of immigration you are talking
    about. It is not just any immigration that it is all the same.
    It differs a little bit. If you talk about it broadly, if you
    increase the labor force, you increase GDP, because you have a
    bigger labor force. But it does matter what kind of immigration
    you have and that sort of thing. So it is hard for me to give
    you some idea of what would fix things.
        Mr. Hern. But as it relates to immigration, it would be
    some combination of skill versus wages for those skills across
    the entire spectrum, correct?
        Mr. Hall. Right. Yeah. The research suggests that the
    higher skilled immigrants actually can raise productivity in an
    economy. The lower skilled more basic ones probably don't as
    much, and they actually probably crowd out wage increases for
    the lower skilled folks who are here now.
        Mr. Hern. And also would crowd out the ability for younger
    Americans to get that first-time job to start learning the
    process of work?
        Mr. Hall. Right, right. That is actually one of the
    concerns if you look at labor force participation by age right
    now. Once you get the baby boomers, past the baby boomers, the
    rates are still pretty low even today, lower than they were for
    the baby boomers.
        Mr. Hern. Thank you. I could spend like 4 or 5 more days
    asking you questions, but thank you so much for your time, and
    thank you for the difficult job that you have.
        Chairman Yarmuth. The gentleman's time has expired.
        I now recognize the gentleman from New York, Mr. Morelle.
        Mr. Morelle. Thank you, Mr. Chairman. First of all,
    congratulations, and thank you for the opportunity to serve on
    this committee.
        Dr. Hall, thank you for your testimony. I appreciated the
    materials that were sent over. I only had a brief chance to
    look at them since you released them yesterday, but I am
    anxious to pore through them.
        But I had a couple of very basic questions. The first is--
    and I have asked a number of people this and I have a hard time
    getting an answer, maybe you could take a whack at it--what, in
    your opinion, should the optimal debt level be as a percentage
    of GDP?
        Mr. Hall. Well, CBO has very intentionally avoided making
    recommendations like that, what is the optimal debt level. We
    wouldn't offer an opinion on that. We can give you some idea of
    where the debt level is, what some changes, that if you
    suggested some changes being made, we could tell you what it
    would likely be as a result, but I wouldn't want to tell you
    what I think the optimal is.
        Mr. Morelle. It is hard to figure out from a policy point
    of view where you want to be when the folks that you rely on
    have a difficult time coming to it. Obviously, you are
    concerned about the increasing debt as a percentage of GDP, but
    it is curious just because it is hard to guide your thinking
    when you don't know where the target is. But I may want to
    pursue that line of questioning with you further offline.
        I did want to--first of all, thanks for the report, which
    was very helpful. And as I pored through it in the last day and
    a half, much like I think my colleague Mr. Hern expressed, I
    see this, in part, as something of a function of demographics.
    And I have been thinking about the U.S. population.
        So the percentage of people over the next 10, 20 years and
    beyond that are in the workforce as a percentage of all
    Americans versus the number of retirees is clearly changing,
    and that is driving a fair amount of this. Am I reading that
    effectively the right way?
        Mr. Hall. That is right. Yes.
        Mr. Morelle. And also, Mr. Hern mentioned fertility rates
    and the replacement of workers. So as I think about this, if
    you have enough people in the workforce who are working as a
    percentage of the number of people retired, then essentially
    part of your problem goes away. Even the mandatory spending
    just becomes a fixed number. If you could maintain the
    percentages that had been in force 30 years ago, you would have
    a much different picture, wouldn't you?
        Mr. Hall. Yes.
        Mr. Morelle. And that is what is driving a lot of this.
        Mr. Hall. Yes.
        Mr. Morelle. Which does lead us to have the conversation
    about immigration, because it is clear that, given the
    incumbent population, we don't have enough people and the
    fertility rate is not enough, as I understand it from reading.
        So that does--in terms of the imperatives around debt and
    debt burden in the out years, immigration policy will play a
    very significant role in how we address debt. Is that correct?
        Mr. Hall. That is right, to the degree it affects the labor
    force. And labor force is an important sort of part of the
    recipe for growth and revenues and budget spending.
        Mr. Morelle. I do want to come back to you at some point
    about that. I am also inclined to be concerned about the impact
    that climate change is having on debt loads.
        And one of the things that I thought about a couple months
    ago when we were doing an orientation for freshmen members and
    we were talking about debt, it occurs to me that unanticipated
    international engagements, unanticipated natural disasters,
    which are certainly occurring at a higher rate with concerns by
    the scientific community and many of us about climate impacts,
    that those will have a much greater impact, and we are going to
    be in a much more precarious position related to how much we
    can address those through debt because of the situation we find
    ourselves in. And to me, those are two very, very grave dangers
    looking forward.
        Do you factor that in here?
        Mr. Hall. Yes, it is implicitly in there. That is right.
    And I can give an add. We have done some work, for example, of
    we do have a nice piece on the impact of increased hurricane
    frequency because of climate change. It will give you some idea
    of how much we think that will impact the economy and the
    budget going forward.
        Mr. Morelle. Yeah. And the last point, I just wanted, I
    think I am reading this right in terms of the charts. I looked
    at 1969 and 2029, and it is hard to tell exactly on the charts
    with these numbers, but it looks to me, though, outlays in 1969
    were about 18 \3/4\ percent of GDP. In 2029, they are expected
    to be 23 percent, whereas revenue has actually dropped as a
    percent of GDP over that period of time.
        But even if you look at just today, those outlays have gone
    from 18 \3/4\ to about 20 percent, in looking at your line;
    whereas, on the revenue side, 18 \3/4\ to about 17 percent. So
    I want to come back at some point to talk about the immigration
    policy and having more people in the workforce, and appreciate
    all your great work, sir.
        Mr. Hall. Sure.
        Chairman Yarmuth. The gentleman's time has expired.
        I now recognize the gentleman from Tennessee, Mr. Burchett.
        Mr. Burchett. Thank you, Mr. Chairman. It is Burchett,
    Birch like the tree and et like I just et lunch. Thank you so
    much. I appreciate that. Thank you, Ranking Member, for your
    indulgence.
        Chairman Yarmuth. Thank you very much for you so graciously
    were willing to defer to your senior colleagues, and they said
    they wanted me to----
        Mr. Burchett. Yes, sir. Well, thank you. I appreciate that.
        As a freshman, I would like to say I still don't have a
    door on my bathroom, but I understand that Mr. Hall has little
    or nothing to do with that, so I will not bring that up during
    our conversation. Although my daughter did say I could put a
    curtain across there, and I told her, I said, baby, this isn't
    church camp, we got to have a little more prestige here in the
    United States Congress.
        Dr. Hall, I want to thank you so much for indulging us with
    your questions, and I want to ask you a question about tariffs.
    It seems the President mentioned tariffs and, you know, the
    dark clouds are looming. But I remembered I think it was either
    my first or second sophomore year in college in the eighties
    that we were one of the--well, the only American motorcycle
    manufacturer was about to go out of business because the
    Japanese were, in fact, dumping motorcycles, and it was
    primarily 1,000 cc bikes and above, onto the market for cheaper
    than they could actually produce them. And then they would
    drive everybody else out of business and then they would jack
    the prices up.
        And I have noticed that we are now exporting to China rice
    now. It seems that some of these talks of tariffs have brought
    some of our sometimes friends and sometimes enemies to the
    table. And I wonder if you could comment on that and the
    effects that that has on our economy.
        Mr. Hall. Sure. Sure. Let me say how tariffs are working
    into our forecast here. Right now, tariffs imposed are
    impacting about 11 percent of imports. We think that that is
    reducing GDP by maybe a tenth of a percent, on average, over
    the next 10 years. But it is generating about $34 billion in
    customs duties next year.
        So we have assumed that those stay in place forever or they
    stay in place for the time period. We have not assumed the
    scheduled tariff increases, that those occur yet, because the
    President seems to have a lot of discretion on that. So we are
    going to wait to see if actually that, in fact, gets done.
        The effect of just tariffs themselves are kind of like any
    other tax. It is a tax on imports. It is a tax paid by domestic
    importers. And then they burden, the price can be borne by
    foreign producers, U.S. businesses, U.S. consumers, that sort
    of thing. And then you have the retaliations probably affecting
    exports.
        So those are all sort of the direct effects. It is not the
    strategic aspects of the tariffs, which I think is a bit of
    what you are talking about. But we have talked about that, and
    I would say the effects are--the kinds of effects are well-
    known. The actual numbers are a little bit hard to come by,
    because it is hard to know how much will be passed forward and
    not passed forward.
        Mr. Burchett. Sort of an aftereffect. I mean, you see it
    after it is already done and then you come back and tell us,
    and then----
        Mr. Hall. That is right. That is right.
        Mr. Burchett. All right. Another question I had is, at
    least in Tennessee, the tax cuts are working. Revenue is
    growing. If you want a job, you can find a job in Tennessee.
    And it seems obvious that the increased mandatory spending is
    the problem. In fact, our Ranking Member speaks very eloquently
    on this. I am not quite at that level.
        But, in your opinion, what is the source of that problem?
        Mr. Hall. The mandatory spending I think is relatively
    clear. We have an aging population, and there is no way around
    that. That is driving a lot of, including the healthcare costs.
    And even the aging population aside, we have rising healthcare
    costs that rise faster than GDP. They have for a long time. We
    think they are going to continue to rise faster. It is those
    two things that are really driving this big increase in the
    deficit in spending going forward.
        Mr. Burchett. All right. I have one more question, if that
    would be all right. Mandatory spending programs, it seems like
    they are approaching unsustainable levels. And could you share
    your thoughts on being a little more fiscally responsible with
    those programs? I realize you have to be careful about
    opinions. I understand that.
        Mr. Hall. Yeah. Sorry if it sounds--but read our book, our
    Options to Reduce the Deficit. We really do have a number of
    options there.
        Mr. Burchett. Is this like in college where I have to buy
    the professor's book that actually is teaching the class?
        Mr. Hall. That is right. And we are happy to follow up and
    talk about any of those things and how, you know, the scale and
    that sort of thing.
        Mr. Burchett. I will warn you about that. My buddy Sheddy
    Ward found a bunch of those at the used book store, and he went
    and bought them and sold them back to the University of
    Tennessee at the full cost. So just remember that.
        Thank you, Mr. Chairman.
        Chairman Yarmuth. The gentleman's time has expired.
        I now recognize the gentlelady from California, Ms. Lee, 5
    minutes.
        Ms. Lee. Thank you very much. Thank you, Mr. Chairman, for
    this hearing. Thank you, Ranking Member Womack, and good to be
    back on the committee.
        Thank you, Director Hall, for being here. Let me ask a
    couple questions and following up, really, from Mr. Hern's line
    of questioning from a different perspective.
        First of all, we know that Americans not only need jobs,
    but they need to be paid a living wage to lift themselves and
    their families out of poverty. Unfortunately, wages have
    remained very stagnant, with the Federal minimum wage still at
    $7.25 an hour. Yet the cost of living has increased, on
    average, I think it is by about 12 percent. Now, at the same
    time, the value of the minimum wage has fallen by 20 percent
    and there is not a single county in the country where a minimum
    wage matches the local cost of living.
        And so let me ask you, in terms of just economic impacts,
    what would raising the Federal minimum wage to a living wage,
    so people can take care of their families, what type of impact
    would that have on economic growth and the budget outlook?
        Secondly, let me just ask you--I want to ask my questions
    in one block--in terms of just strong wage gains. I don't see
    any predicament--or prediction, excuse me, for unemployment in
    communities of color, which at least, and I just have to say in
    the African American community is still double that of White
    unemployment. It is 6.6 percent in the Black community. In my
    home State, the unemployment rate among African Americans is at
    10.7 percent.
        So how do you address this disparity in unemployment rates,
    which are very large in the African American community, as well
    as the impact of a living wage on economic growth and the
    outlook for our budget?
        Mr. Hall. Sure. I need to be a little careful in talking
    about minimum wage, because, you know, we would need to see
    exactly what the minimum wage was if there was a proposal and
    work through the impacts.
        On the most basic level, right, raising the minimum wage
    raises the cost of hiring somebody. So one of the really key
    things is, does that discourage employment or not? So a
    relatively modest increase in minimum wage will have less
    likelihood of that if a very large one could have a labor
    market impact like that. But if it does not discourage
    employment, then, of course, wages go up and you have----
        Ms. Lee. So we don't know historically if it has or has not
    encouraged or discouraged employment?
        Mr. Hall. Well, I think we did a report on raising the
    minimum wage 10 percent in 2014, and we did talk about the
    effect, especially on low-skill workers, as having an effect on
    lowering employment in some places. A lot of that depends upon
    local cost of living, local wages, that sort of thing.
        So the result is almost mixed by part of the country,
    because, you know, if local wages are already pretty close to
    minimum wage, then that is much less of an impact, both good
    and bad. If it is well off that, then the impact really depends
    a lot on the labor market.
        We really do look carefully at the literature and see what
    sort of reaction in the past has happened. For example, if we
    were to look at minimum wages now, we would look at the recent
    experience at the State level, sort of see how those impacted
    employment and et cetera.
        But the concern on it would be the low-skilled end of
    things, because those would be the people who would be most
    likely to be adversely affected, but also they are the ones you
    are looking to help at the same time. I am trying to give you--
    I am trying to give you a bit of a wishy-washy answer on
    purpose.
        Ms. Lee. Yes, I understand that, but also I do understand
    that the 12 percent cost of living increase, you would look at
    that as compared to the Federal minimum wage. We have got to
    figure out how to address that, because people shouldn't have
    to live at $7.25 per hour with a 12 percent cost of living
    increase throughout the country.
        Mr. Hall. Yeah. And with the differential unemployment
    rates, you know, that is a tough one that has been around for a
    long time. One of the things that really has always jumped out
    at me is when we go into recession, the people who are most
    hurt are people who already have high unemployment rates. So
    you actually see, for example, the African American
    unemployment rate really increasing during recessions, more so
    than for other groups.
        Ms. Lee. But, Director Hall, I want to know, though, how
    you see this gap being closed because, again, 6.6, 7 percent
    unemployment rate in the African American community, in my
    State 10.7 percent in the golden State of California, that is
    unacceptable. And so we have got to come up with a specific
    strategy as it relates to communities of color, the African
    American and Latino community, in terms of how to begin to
    close that gap.
        Mr. Hall. I will beg off, because we don't make policy
    recommendations.
        Ms. Lee. I understand that. But you can tell us what some
    of the economic assumptions are and how we could begin to look
    at policy recommendations.
        Mr. Hall. We are happy to talk about what we think would be
    the effect of particular policy proposals. That is sort of what
    we do.
        Ms. Lee. But you couldn't tell us what----
        Chairman Yarmuth. The gentlelady's time has expired.
        Ms. Lee.----policy proposals make sense or not?
        Mr. Hall. No, I would back off from doing that. Happy to
    follow up and talk about some of the proposals, if you like.
        Ms. Lee. Okay. Thank you very much.
        Thank you, Mr. Chairman.
        Chairman Yarmuth. Absolutely. The gentlelady's time has
    expired.
        I now recognize the gentleman from Pennsylvania, Mr.
    Meuser.
        Mr. Meuser. Thank you, Chairman. Thank you, Ranking Member
    Womack.
        Chairman Yarmuth. Microphone.
        Mr. Meuser. Maybe I am not the only one making a rookie
    mistake. All right. My first hearing with the Budget Committee,
    I am very happy to be here. I hope our work on this committee
    results in a more balanced, effective budget for the people and
    the taxpayers that are counting on us to bring accountability
    and return on investment of their money.
        Dr. Hall, you have undoubtedly heard the saying, we don't
    have a revenue problem, we have a spending problem. I served as
    secretary of Department of Revenue in Pennsylvania, and I
    always felt that the statement beared a lot of truth, and I
    also know that job creation and wage increases was the best
    revenue generator.
        Currently, our national unemployment rate is 3.9 percent.
    Two years ago, it was 4.7 percent. This is an increase of 4.8
    million jobs across the country. Can you provide an estimate of
    the revenue increase of a .8 percent decrease in the
    unemployment rate?
        Mr. Hall. We would have to think about that. We could
    probably work through something with that.
        Mr. Meuser. And on wages as well. Do you have an estimate
    of what the wages increase were over the last 2 years or just
    over the last year?
        Mr. Hall. Well, wages have been surprisingly unexplainably
    flat, and they are starting to rise now. The labor market is
    generally getting tight, and we do forecast that wage growth is
    actually going to continue and strengthen going forward. We
    don't have sort of a budgetary impact of that sort.
        Mr. Meuser. That is what I expect as well. And was it in
    the neighborhood of about 4 percent over the last 6 to 8 months
    or two or three quarters?
        Mr. Hall. I would have to check. That number is not----
        Mr. Meuser. And I would also be curious as to what your
    revenue numbers show for new revenue coming from wages, if that
    was something that we could get.
        Mr. Hall. Yes, we can follow up and probably give you a
    feel for that.
        Mr. Meuser. Great. I mean, that certainly provides some
    guidance as to what needs to be focused on in order to best
    raise revenues, of course.
        The GDP has improved over the last 2 years. 2017, we were
    at 2.3 percent. 2018, we were at 3.1, 3.2. What is projected
    for 2019, GDP?
        Mr. Hall. We have it slowing a bit to 2.3 percent.
        Mr. Meuser. Okay. So what would you estimate--and it may be
    in your summary here--the level of revenue increase for a 1
    percent increase in GDP?
        Mr. Hall. We would have to look that up. You know, we have
    some--those interactions we have got, you can vary
    productivity, and that is pretty close to varying GDP and that
    will give you some idea of the budgetary impact of that.
        Mr. Meuser. All right. Well, it is fair to say we have a
    strong economy, we are growing jobs, and we are increasing
    revenue. What was the percentage of revenue increase over the
    past 2 years or even just the past year, in 2018 or 2017?
        Mr. Hall. Yeah, I don't know offhand. I am sorry.
        Mr. Meuser. All right. What I have what is projected for
    2019 is 5.6 percent. That is very high. When I was revenue
    secretary a 4-year period, we grew revenues by about 10.5
    percent in the Commonwealth of Pennsylvania. That is 2.5, 2.6
    percent a year. So we are projected to grow revenues next year
    by $186 billion or 5.6 percent. That is strong. Would you
    agree?
        Mr. Hall. Yes. Is that from our numbers?
        Mr. Meuser. It is.
        Mr. Hall. Oh, okay. Then I will stand by those.
        Mr. Meuser. Now, the percentage of spending increases over
    the past 2 years was my next question, but we will forego that.
    And we do have a projected revenue in 2019 of 7.4 percent or
    $304 billion. That is extraordinarily high, 7.4 percent
    increase in spending. In fact, I was surprised to see that. The
    most that we ever had when I served as revenue secretary for
    the sixth largest State and the 19th largest economy in the
    world was about 4 percent, which, frankly, was about a point
    and a half too high, since we had to have a balanced budget.
        So I would just add, based upon these numbers, and if you
    go back 5 years, where our spending levels were in 2013, in
    2013, our spending levels were equivalent to where they were in
    2018. So I look at that--and not to mention the fact that prior
    to 2013, we had 4 years of the largest unprecedented level of
    spending, as you are well aware, $5.4 trillion over a 4-year
    period. And yet, even that, even with that prior, the 2013
    levels of spending are equivalent now to where our revenue
    levels were.
        And it is data like this that tells me that--look, we
    always want to try to increase revenues. We want the strongest
    economy and the most competitive tax rates that has the largest
    max/min possible, but we really have continue to have a huge
    spending problem.
        So clearly, these numbers show that. And what we are
    hearing today, I am looking at things like this with enormous
    levels of spending, with no chance that a higher rate of taxes
    unless it was near 100 percent would cure. Would you agree that
    we largely have a--one side of the ledger is more of a problem
    than the other, meaning spending?
        Mr. Hall. I would try to avoid, in a sense, taking sides.
    You know, obviously, one needs either less spending or more
    revenue or both to fix this problem.
        Chairman Yarmuth. The gentleman's time has expired.
        I now recognize the gentleman from Virginia, Mr. Scott.
        Mr. Scott. Thank you. Thank you, Mr. Chairman.
        Mr. Hall, I appreciate your presence. And I remember in the
    opening comments we were challenged to state what our plan was.
    And I can tell you that our plan is to resort to PAYGO, where
    you don't have $1.5 trillion in unpaid-for tax cuts. In fact,
    if you go back, as Mr. Connor was asking, to 2000, when we had
    a significant surplus--I remember in 2001, after President
    Clinton left office, Chairman Greenspan was peppered with
    questions at a hearing as to what would happen when there is no
    government debt, because we were projected at that time to pay
    off the entire debt held by the public by 2008 and by 2013
    return all the money to the trust funds. But we had massive tax
    cuts, fought two wars without paying for it, passed a
    prescription drug benefit without paying for it, violating the
    PAYGO principle, and all of a sudden we are back heavily in the
    ditch.
        If we had paid for everything we have done since 2000 and
    hadn't cut taxes without paying for them, we would be in a lot
    better shape than we are now.
        One question I had, have you been following the multi-
    pension employer crisis?
        Mr. Hall. Yes. We do have some work on that, yes.
        Mr. Scott. We have noticed that if these pension funds--
    well, there is an old saying, if you don't change directions,
    you are going to end up where you are headed. We are headed to
    many of these funds going bankrupt, taking down people's
    pensions and taking down a lot of businesses.
        Have you calculated what impact that would have on the
    Federal budget, in terms of increased food stamps, Medicaid,
    lower taxes?
        Mr. Hall. I am not sure. We have a report on it. I would
    have to take a look at that. We can get you that report. I am
    not sure if that would be in there or not. I think we do talk
    about some proposals to help fix the problem, at least.
        Mr. Scott. The proposals to fix the problem, best we can
    determine are actually cheaper than letting the problem occur.
    So that doing nothing is about the stupidest thing that we can
    do, because the effect on the budget would be profound. And
    there are a lot of suggested proposals that are cheaper than to
    the hit on the Federal budget ignoring all of the pain and
    suffering.
        Can you tell me a little bit about what the effect
    immigration has on Social Security, immigration policy?
        Mr. Hall. Sure. Sure. We would have to--changes in policy,
    we would have to know what the change is and do an evaluation
    of that, that sort of thing. Immigration, I think right now we
    have settled into something like a little under 1 million legal
    immigrants a year coming in. That contributes to the labor
    force growth. I don't know that we have done anything in
    particular about what if that immigration didn't happen.
        Mr. Scott. If you have people coming in working, they would
    be contributing to Social Security.
        Mr. Hall. Right.
        Mr. Scott. And that would actually help the Social Security
    crisis. Is that right?
        Mr. Hall. Yes, I think we have done some work on that. I am
    not remembering exactly what we found. If I could follow up
    with you, I could give you some idea of what we found with the
    effects of that.
        Mr. Scott. You indicated that the tax cut was helping to
    pay for itself. I understand that the later years in this
    decade, the tax cut actually is a drain on revenues. Is that
    right?
        Mr. Hall. Well, our analysis is that the tax bill does
    leave GDP over 10 years at a higher level, on average. It is
    about seven-tenths higher, the level, on average, through the
    decade. So there is that going forward. I am not sure about the
    pay-for aspect at the end. I would have to take a look.
        Mr. Scott. I thought in your testimony you said it actually
    had a drag on the economy in the last few years.
        Mr. Hall. Well, no, no. The lower taxes on investment in
    particular probably is helping economic growth in the near
    term. I think perhaps the part that I referred to was the end
    of the stimulus from the tax bill going away is going to leave
    us with slower growth in the next couple of years. So that is
    the drag, I think.
        Mr. Scott. Right. Slower growth because of the tax cut?
        Mr. Hall. Right. The stimulus effects will wear off.
        Mr. Scott. And there will be slower growth because of the
    tax cut?
        Mr. Hall. Right.
        Mr. Scott. Thank you, Mr. Chairman.
        Chairman Yarmuth. The gentleman's time has expired.
        I now recognize the gentleman from Georgia, Mr. Woodall.
        Mr. Woodall. Thank you, Mr. Chairman. Thank you for holding
    the hearing. You have always been one of my top two choices to
    chair this committee, and I am glad to see you in that chair
    today.
        Mr. Hall, you were talking about inexplicably flat wage
    growth. I am not an economist; I am a lawyer. Help me to
    understand what we call wage growth. I think about when we went
    into the Great Recession and folks who would have been working
    in a top financial institution in my community were now working
    the customer service desk at Macy's. They were making the top
    wage there at the Macy's customer service desk, but they were
    making substantially less than they were making in the
    financial services industry.
        Does that count as a wage drop? Is that reflected in wage
    growth statistics when you move from one job type to another?
        Mr. Hall. It does. It depends a little bit on which measure
    you are talking about. Something simple like just wages, it
    doesn't capture that very well. One of the things that we look
    at is something called the Employment Cost Index, which sort of
    holds the composition of the labor force constant and look at
    how wages drop.
        So different wage measures tell you different things. Some
    of them include full compensation. Some don't include all the
    compensation. So there are a lot of measures that sort of can
    tell you sometimes a little bit different pictures of things.
        Mr. Woodall. Because when we look at the who is quitting
    their job index, more Americans leaving the job they had to
    pursue new opportunities, it just stands to reason to me that
    if more Americans are taking advantage of a superior
    opportunity, more Americans are acting in their own economic
    self-interest, we should see a positive bump in those
    remuneration measurements somewhere, but we are not, as you
    pointed out, in wage growth. Help me to understand why.
        Mr. Hall. Sure. Well, we are not really sure, because we
    didn't expect this. And I think the profession didn't expect
    wages to take quite so long to get going. But they are starting
    to get going now. We have seen some growth.
        The ECI in particular, I mentioned, was one that we look
    at. And we think that it is going to continue going forward,
    because the labor market is still pretty tight. We still think
    the unemployment rate, even though it is very low, we still
    think it can go down from here. So we do think it is going to
    increase going forward.
        Mr. Woodall. Thinking about Mr. Scott's question about
    long-term economic growth, as long as I have been on this
    committee and as long as you've been in your position, you have
    come and made that same testimony. There are things we can do
    early that will benefit us early, but they will cost us later,
    or there are things we can do that will cost us early that will
    benefit us later. We are always in that tradeoff.
        I look at the long-term growth numbers, your projections
    this year from the 2017 projections 2 years ago, and we are
    about one-tenth of a percentage point off in long-term growth
    from your projections 2 years ago in the out years, but we are
    a trillion dollars higher in GDP 10 years out from there. We
    have had growth in these near-term years 50 percent higher than
    what you would have anticipated 2 years ago.
        What is the long-term measure that we look at to say, yes,
    there is a tradeoff between what we do early and what we do
    late, but it is worth it? What do the economists look at to say
    it is worth it?
        Mr. Hall. Well, one of the ways to think about it is we
    have really kind of two distinct models that we use to forecast
    growth. One is a demand side model. It sort of looks in detail
    about where we are now and where we are going that has all the
    detail about, you know, consumer behavior and investment and
    that sort of thing. But we also have a second model, which is
    our long-term model, which is a supply side model. And it
    generates something we call potential GDP, potential growth,
    which is that supply side. And that is the one that tells you
    where we are going, we think, in the long run. So we then focus
    on things like labor force growth and productivity and capital
    investment and that sort of thing. And those are the things
    that are going to be the big determinants of long-run growth
    and long-run prosperity.
        Mr. Woodall. And you use the term ``long-run'' to describe
    what time window?
        Mr. Hall. Yeah, by long-run, I really kind of mean--I kind
    of mean once the economy reaches its potential. You know, what
    is--by potential, I mean the supply side constraint on where we
    can go. We only have so many workers. We only have so much
    capital. That is sort of what I mean by the long-run, when that
    constraint becomes binding.
        Mr. Woodall. So as I look at the projections you have made
    this year versus those you have made prior to the tax cuts, I
    see a larger GDP than you had expected in the 10-year window--
    --
        Mr. Hall. Right.
        Mr. Woodall.----suggesting cumulative growth greater than
    you had expected in the 10-year window.
        I recognize the concerns that folks have about we are
    trading away prosperity tomorrow for prosperity today, but it
    seems like we have increased prosperity relative to your
    expectations just 2 years ago over the entire 10-year window.
        Mr. Hall. Well, when we looked at the effect of the tax
    cut, we expected the tax cut raised GDP last year by about
    three-tenths of a percentage point. So it did have an impact on
    growth there. We think the impact continues going forward so
    that, on average over 10 years, we think the GDP level will be
    seven-tenths of a percentage point higher. So we do think we
    have a bigger economy this next 10 years because of the tax
    cut.
        Chairman Yarmuth. The gentleman's time has expired.
        Mr. Woodall. Thank you, Mr. Chairman.
        Chairman Yarmuth. I now recognize the gentleman from
    Pennsylvania, Mr. Boyle.
        Mr. Boyle. Thank you. And congratulations, Mr. Chairman.
        Thank you, first and foremost, for the work that the CBO
    does. Especially at this point in history of this institution,
    the history of our country, to have public servants who are
    attempting to call the balls and strikes is an incredibly
    important public service. I want to say thank you to you and
    everyone who works at CBO.
        With respect to the deficits, it appears that the latest
    projection is that the deficit will reach just under $1
    trillion in this fiscal year and then exceed $1 trillion for a
    number of years to come. The deficit has spiked dramatically
    this past year, specifically because of a GOP tax cut that
    wasn't paid for.
        Can you cite for me--and I should add, we are approximately
    9 years into this economic expansion. Can you cite for me any
    other time in American history during an economic expansion
    where you have seen such a dramatic increase in the deficit?
        Mr. Hall. No, not really. And, in fact, the visual summary
    that I handed out, if you sort of look at that visual summary,
    you sort of get to see deficits historically.
        And one of the interesting things to me is if you look at
    this and look at, gee, 1980 was a recession, we saw a deficit
    spike. 1990, they spiked. 2001, they spiked. 2008, they spiked.
    And now they are not spiking, but they are at a really high
    level for such a low unemployment rate and for such strong
    growth. That is different.
        Mr. Boyle. Yes. And given the previous examples you cited,
    and you can go back even before 1980 and it would show the same
    thing----
        Mr. Hall. Right.
        Mr. Boyle.----typically, budget deficits dramatically
    increase when there is a recession.
        Mr. Hall. Yes.
        Mr. Boyle. So when inevitably this economic expansion ends
    and there is another recession, what would you expect to happen
    to this already large budget deficit?
        Mr. Hall. We think the deficit would likely increase. Now,
    we do, in the long run when we do forecast, we do have a little
    bit lower growth in there because we think, okay, there might
    be a recession in there. And so growth, on average, is lower
    than we would forecast without a recession. So there is a
    recession sort of in there over 10 years, but it is not
    actually visible. But you are absolutely right, if we did hit a
    recession, we would expect the deficits to spike more than
    where they are now, which is already a high level.
        Mr. Boyle. Let me just shift quickly to the longest
    government shutdown in American history. I was struck by the
    fact that the equity markets reacted almost not at all to this
    and to the effect on first quarter growth, presumably under the
    belief that anything we lost in the first quarter will then
    just be added back on in the second quarter. It is hard for me
    to understand how that squares with so many contractors who now
    will permanently lose the pay that they lost over the last
    month.
        Can you help me try to understand that? And do you agree
    with what seems to be the perception out there that this
    government shutdown, as awful as it was, somehow we would make
    back up the revenue and growth that was lost?
        Mr. Hall. Well, first of all, when we did our estimate, we
    do think that Federal spending--that Federal agencies will
    spend their appropriations. So their spending stopped, but they
    will continue and they will spend all the money. And we think
    that people who were not paid for a while, they will get back
    maybe to normal patterns.
        Part of what is not captured by that is the distributional
    effects, right. So we are looking at the effect over in the
    context of the entire economy, which is really huge; but if you
    look at the impact on just Federal workers, it is much higher.
    If you look at the impact on private contractors, it is higher.
    And some of that effect is going to be permanent for those
    contractors. Even if the Federal Government goes ahead and
    spends the money, they aren't necessarily going to spend it the
    same way that they did before.
        So there is that distributional effect. And we also don't
    see it entirely recovering. We think that, on the whole, we
    will see some recovery over the next three quarters, but we
    will still be--GDP output will still be short about $3 billion.
    You won't make up for that government output.
        Mr. Boyle. So just to underscore that point, we won't be,
    as you put it, entirely whole, and that is $3 billion that we
    lost because of this government shutdown?
        Mr. Hall. That is our estimate, yes.
        Mr. Boyle. Thank you.
        Thank you, Mr. Chairman.
        Chairman Yarmuth. Thank you. The gentleman's time has
    expired.
        I now recognize the gentleman from Missouri, Mr. Smith.
        Mr. Smith. Thank you, Mr. Chair. Mr. Hall, great to have
    you today. In 2016, I believe the yearly GDP was 1.5 percent.
    In 2017, it was 2.3 percent. And it is estimated 2018 is going
    to be 3.3 percent. So definitely, why would you say that it
    went from 1.5 in 2016, 2.3 in 2017, and now 3.3 in 2018?
        Mr. Hall. Well, part of it is the continued recovery from
    the Great Recession. The recovery was really quite slow. But we
    do think a lot of it was the stimulus from the Tax Act. We do
    think that that has had an impact and there has been a bit of
    stimulus out there.
        Mr. Smith. So what happened in 2003--I mean 2017? Because
    the Tax Act was passed in December of 2017.
        Mr. Hall. Right. We just sort of had a strengthening
    economy. You know, it is quite possible----
        Mr. Smith. Could it have been President Trump's regulatory
    relief?
        Mr. Hall. That may have had an impact. You know, it may
    have been--I do think there were probably some signs that
    people anticipated a Tax Act coming up.
        Mr. Smith. Or optimism by consumers?
        Mr. Hall. That is quite possible, yes.
        Mr. Smith. Because of President Trump's policies?
        Mr. Hall. Well, I would say anticipation of a Tax Act.
        Mr. Smith. Of his policies, because he pushed tax reform,
    right?
        Mr. Hall. Right.
        Mr. Smith. Okay. Also, we have heard some discussion in
    here earlier that said that tax revenues are up for last year.
    Is that correct?
        Mr. Hall. I believe that is true, yes.
        Mr. Smith. So after passage of the Tax Cut and Jobs Act,
    what did we lose in revenue? Because the prior discussion from
    the gentleman from Pennsylvania said we have the highest
    deficit now because of the tax cut. So how much did we lose
    last year because of the tax cuts?
        Mr. Hall. I would have to look. I would have to look that
    up.
        Mr. Smith. I think that is a pretty important issue. You
    made that--you know, you didn't counter that statement.
        Mr. Hall. Right.
        Mr. Smith. So I would like that number of how much revenue
    we lost.
        Mr. Hall. Okay. I can give you some idea. We will follow
    up. But if you look at the second graph on the visual summary,
    you will see that the revenues as a share of GDP sort of fell
    below 50-year averages. That is, in part, because of the Tax
    Act.
        Mr. Smith. What your report did say--and correct me if I am
    wrong--that because of the Tax Cut and Jobs Act, we added
    900,000 new jobs. Is that correct?
        Mr. Hall. That is right, over a 10-year period----
        Mr. Smith. Over a 10-year period.
        Mr. Hall. That is right.
        Mr. Smith. And also, your report says that wages raised by
    $1.2 trillion over 10 years?
        Mr. Hall. I don't know that number in my head, but if it is
    our estimate.
        Mr. Smith. Those were the numbers that you gave us in
    spring of last year, and they also are in this report.
        Mr. Hall. Well, we still stand by those numbers. We are
    still happy with the estimate.
        Mr. Smith. So that is good, because that is a highlight.
    And I think that we need to talk about wages increasing instead
    of your statement just earlier saying that they have been flat.
        Also, in your report in spring, and you just highlighted
    again, you said that the Tax Cut and Jobs Act will create $1.7
    trillion in GDP. Is that correct?
        Mr. Hall. What's that?
        Mr. Smith. Over 10 years.
        Mr. Hall. Over 10 years? I am not sure of that raw number.
    I have got the seven-tenths of a percent higher, on average,
    over 10 years. That may work out to be that number.
        Mr. Smith. Yes, seven-tenths over 10 years. Those were the
    numbers you gave us on the Ways and Means Committee, so I just
    wanted to highlight it. It shows the successes of the Tax Cut
    and Jobs Act, of how it is growing the economy and how we are
    affected.
        I clearly believe that your report highlights that the
    policy that was pushed by President Trump and the Republican
    House and Senate for tax cuts clearly has showed a growth in
    the economy.
        And also, you made a statement earlier that you said that
    the economy would slow down at the expiration of the Tax Cut
    and Jobs Act, correct?
        Mr. Hall. Of the individual income tax rates, if they go
    back up.
        Mr. Smith. When they expire in a couple years?
        Mr. Hall. Yes.
        Mr. Smith. So you are basically testifying that by
    increasing taxes will slow the economy, correct?
        Mr. Hall. That is right.
        Mr. Smith. No further questions.
        Chairman Yarmuth. The gentleman's time has expired.
        I now recognize the gentleman from Nevada, Mr. Horsford.
        Mr. Horsford. Thank you very much, Mr. Chairman. I am
    looking forward to serving with you and the other members of
    the committee.
        Dr. Hall, I would like to ask you to expand on your
    office's report on the economic effects of the recent partial
    government shutdown. I would specifically like to focus on the
    economic impact of missed pay by Federal workers. There are
    3,520 Federal employees in Nevada who were furloughed or forced
    to work without pay during the 35-day government shutdown. That
    is 35 days of money that they could not buy groceries, repair
    their cars, pay for childcare, or other contributions to
    Nevada's economy.
        In total, Nevada has 19,117 Federal employees, and those
    are employees who are impacted by President Trump's recent
    executive order, which will prohibit them from receiving their
    scheduled pay increases this year.
        Mr. Hall. Let me give you just a little context. There were
    12 departments or agencies affected by the partial shutdown,
    which is not trivial. It impacted about 800,000 people, which
    is about 40 percent of the Federal workforce.
        And you are right, the lack of pay was something to the
    tune of $9 billion that those workers didn't get for that time
    period. And we think the effects, of course, are really strong
    on those workers. It is also there is an indirect effect of
    their spending patterns change for a while. So you have impact
    on the rest of the economy as well.
        Mr. Horsford. So in addition to the impact from the
    shutdown, will the CBO release any kind of estimate on the
    public and private sector revenue loss as a result of the
    freeze in pay for these workers, both in Nevada and across the
    country?
        Mr. Hall. Yeah. We haven't looked at the freeze in pay
    part, and I don't know that we have any plans to look at that.
        Mr. Horsford. Can I ask why not, since that is such a big
    part of the economic stimulus, both in the public and private
    sector?
        Mr. Hall. Sure. It is not something we would normally--in a
    sense, we will take it on board when we look at our forecast,
    budget forecast going forward. You know, we will update this in
    the spring. So we will take that into account.
        It is a little different for us to actually get down and do
    sort of a real detailed analysis on the impact of just that,
    but that is something that we will take on board and look at
    when we look at Federal spending and then the economic growth
    aspects.
        Mr. Horsford. I think it is incredibly important. As you
    note, $9 billion of lost economic activity just in 35 days from
    people being furloughed.
        Mr. Hall. Right.
        Mr. Horsford. The impact of people not receiving, you know,
    a pay increase of 2.9 percent in their pay is quite a
    significant loss, both in the public and the private sector.
    And that has lost again an ability for people to meet their
    individual needs, family needs, community needs. And I think
    that, for whatever reason, there has not been enough discussion
    about the fact that Congress appropriated those funds for that
    pay increase and that the President unilaterally froze those
    pay increases. So I would like to request your office to
    provide that information once it is available.
        Mr. Hall. Okay. We will circle around and talk about it, if
    you like.
        Mr. Horsford. Thank you, Mr. Chairman. I yield back.
        Chairman Yarmuth. The gentleman's time has expired.
        It is now my honor to yield for the first time to the
    Ranking Member, Mr. Womack, for 10 minutes.
        Mr. Womack. Thank you very much to the chair, and thank
    you, Director Hall, for your continued work at CBO. And I think
    we have had a pretty good discussion today on your economic
    outlook, and there have been a lot of, I think, really
    substantive questions raised here. I will try to amplify on
    some of those.
        It is obvious to--my friends on the other side have
    targeted the corporate tax rate. They believe cutting the
    corporate tax rate down to 21 percent was ill-advised, and I
    think the plan right now is to move it to 28 percent. Can you
    give me a quick assessment as to what CBO thinks would happen
    in the event that the corporate rate went from 21 to 28
    percent?
        Mr. Hall. Sure. I suppose without doing the estimate, I
    suppose we would see sort of the inverse of what we saw from
    having it lowered to begin with. It would likely have an impact
    on investment and lower levels investment, meaning lower
    capital stock. So we might take a hit on--GDP might take a hit
    actually in wage growth a little bit from having that increase.
        Mr. Womack. Without a model in front of you, what kind of a
    hit on GDP?
        Mr. Hall. It is hard--it is hard to know. I don't want to
    sort of guess on that. We would have to do some thinking on it.
    You know, I don't know that we separated out the effect of
    lowering the corporate tax rate to begin with really separated
    that out really carefully. I would have to take look and see
    what we have done.
        Mr. Womack. Well, I know the Tax Cuts & Jobs Act has been
    assailed by my friends on the other side quite frequently.
    Economic growth of 3.1 percent in 2018, best since 2005.
    Unemployment projected to be 3 \1/2\ percent in 2019, the
    lowest since the 1960s. I think it would be a stretch to say
    that the effects of the Tax Cuts & Jobs Act did not have an
    impact on those two statistics. Would that be correct?
        Mr. Hall. Well, that is right, and I think that was
    actually in our original forecast. I really do think we
    suggested that GDP was going to be at three-tenths higher in
    2018, so some of that we think is from the Tax Act and the same
    with the wage growth.
        Mr. Womack. So assuming that is correct that the growth
    rate and the unemployment rate coming down are--have been
    impacted by the Tax Cuts & Jobs Act, then is it fair to say
    that the Tax Cuts & Jobs Act from that standpoint, growth in
    the economy, lower unemployment is, in fact, working?
        Mr. Hall. Well, I think--let me put it this way, I don't
    want to sort of take sides, but I think it is----
        Mr. Womack. Well, I am not asking you to take sides. I am
    just simply asking the CBO director to opine whether the
    effects--based on your modeling, whether the effects of the Tax
    Cuts & Jobs Act--we can set aside the argument of does it pay
    for itself. I mean, that is an entirely different subject,
    because you have to look at tax rates instead of in a vacuum as
    a total package. I mean, we have got deregulation that is
    happening. That is having an impact on the confidence of the
    job creator out here. That is just one example of many. We have
    got portfolios that are going up on the stock exchange where a
    whole lot of people have their 401(k)'s, et cetera, invested,
    and so that is a consideration. We have some companies that are
    investing in healthcare now for their employees as a result of
    the Tax Cuts & Jobs Act that had not been previously provided.
        So using the metrics CBO has given us growth in the
    economy, low unemployment. Again I ask, is it fair to say that
    from those standpoints the Tax Cuts & Jobs Act is working?
        Mr. Hall. I think we stand by our estimate, and I think our
    estimate is consistent with that, that there would be stimulus
    effect, there would be higher growth. There would be an
    increase in labor force participation from the Tax Act. And so
    far after a year, I think our estimate is looking pretty good.
        Mr. Womack. So then would the inverse be true that if you
    raise the corporate rate from 21 to 28 percent and allow the
    individual rates to expire in whatever that eighth year is from
    the inception of the Tax Cuts & Jobs Act, that it would have an
    impact?
        Mr. Hall. I think it would have an impact, and some of that
    would be on investment and capital stock and growth.
        Mr. Womack. I want to pivot now to mandatory spending. We
    have talked a lot about it. It is one of my chief concerns,
    because as you have already said today in your testimony and
    has been covered in your economic outlook, as a percentage of
    GDP, as a percentage of GDP, mandatory spending in your 10-year
    window in your analysis goes higher and discretionary spending
    as a percentage of GDP goes lower.
        In your opinion as a director, is there a better argument
    or a better example of what the--on the spending side; we can
    set revenues aside, but on the spending side is there a better
    example to illustrate the point that this country has a
    spending problem and it is not discretionary, it is mandatory?
        Mr. Hall. Well, I won't offer an opinion on what the
    biggest problem is, but it is certainly true I think
    discretionary spending right now is at a low level
    historically. You know, the lowest level I think ever
    historically is about 6 percent of GDP. We are at 6.3 percent,
    and we are heading for only 5 percent. So discretionary
    spending is heading towards its lowest level ever. Mandatory
    spending is growing, and it is growing towards its highest
    level. I don't think we are going to hit it in 10 years, but we
    are going to get pretty close. We are talking about having it
    get up to about 15 percent of GDP. So that is making a big
    contribution to the deficit.
        Mr. Womack. In my opening, I asked my friends on the other
    side what is your plan based on the notion that deficits and
    debt just continue to be piled on to future generations, and
    that given what I just said about the percentage of GDP tied up
    in mandatory versus the declining side on the discretionary, I
    am not real--I am not real confident that there is a plan out
    there, except maybe to try to tax our way out of it. By itself,
    are taxes going to solve the problem?
        Mr. Hall. Taxes or spending or both. Obviously----
        Mr. Womack. Now, wait a minute, Director Hall. The question
    is can we reasonably--you are an economist. Can we reasonably
    tax our way out of this problem?
        Mr. Hall. Well, the problem is what is reasonable. We can
    give you some idea of the effect of raising taxes, how much
    revenue that would generate. You know, in our options we have
    the effect of raising--this is something that is worth looking
    at a little bit--of raising all tax rates 1 percent and give
    you some idea. So if you put in maybe a 10 percent raise in all
    tax rates, you get something where the deficit starts to close,
    it gets pretty much to being closed. I am not sure that solves
    the problem, because closing the deficit problem means, okay,
    now you have got the hold over debt problem to solve. So the
    tax change would have to be pretty large to overall fix the
    problem by itself.
        Mr. Womack. We have been beat up on our side of the aisle
    because in our budget resolution last year, we did some
    reconciliation numbers and we had some proposals that we were
    ready to present to deal with mandatory spending, particularly
    on the Medicare side, which is growing, as you have already
    said, faster--healthcare costs, growing faster than the growth
    of the economy and that that program is exceedingly expensive.
    If we don't do anything, if we just let things go as they are
    present, status quo, what happens to part A?
        Mr. Hall. It becomes a bigger and bigger part of our
    budget.
        Mr. Womack. Is there an insolvency date?
        Mr. Hall. Certainly the trust fund dates, we estimate
    those. I don't happen to have that in front of me, but it would
    come up.
        Mr. Womack. 2026?
        Mr. Hall. Yes, that sounds right.
        Mr. Womack. What about Social Security?
        Mr. Hall. Same deal.
        Mr. Womack. 2033 maybe, 2032, 2033, 2034. DI, faster than
    that, but on--but at the end of the day, the point I am trying
    to make is that if we do nothing, if we just allow status quo,
    that these programs become insolvent on their own. So I think
    it begs that we do something, and that is where I think we are
    getting not necessarily crickets, but we just don't have a plan
    from the other side that is purposed in addressing the true
    drivers of the deficit and the debt, and it is not that we tax
    too little, it is that we have promised way too much, and these
    programs are running out of control and becoming so expensive
    that they are unsustainable in the long term.
        And I know my time is out. I am not going to take any more
    time than my 10 minutes, and I yield back to the distinguished
    Chairman.
        Chairman Yarmuth. Thank you very much, Ranking Member.
        I now yield 5 minutes to the gentlelady from Washington,
    Ms. Jayapal.
        Ms. Jayapal. Thank you so much, Mr. Chairman. It feels good
    to say that.
        Welcome back, Mr. Hall. We appreciate your being here. If
    we are concerned about deficits, then let me just remind my
    colleagues that the Republican majority passed a $1.9 trillion
    tax giveaway to giant corporations and the wealthiest
    Americans. It included provisions that slashed the corporate
    rates, so the largest companies got giant windfalls; cut the
    top marginal tax rate for the richest Americans so that 83
    percent of the benefits of the cuts went to the top 1 percent
    of taxpayers; and there were additional handouts for the
    wealthiest Americans, like the $40 billion that were showered
    on the owners of so-called passthrough businesses.
        Let's start with Treasury Secretary Steve Mnuchin's
    promises, because there were a lot of promises made about how
    the tax plan was going to benefit workers. And so, Mr. Hall, as
    the director of the CBO, you studied the tax plan and the
    budgetary effects of the legislation. Steve Mnuchin said that,
    quote, not only will this tax plan pay for itself, it will also
    pay down debt. So let me just ask you if the tax bill lived up
    to Steve Mnuchin's promise. Did the tax bill pay for itself?
    Just a yes or no is perfectly fine.
        Mr. Hall. No.
        Ms. Jayapal. It did not pay for itself.
        Now, let's look at whether the tax plan delivered for
    workers. Shortly after he signed the bill, President Trump said
    that corporations were, quote, already giving billions and
    billions of dollars away to their workers. He was referring to
    the bonus pay that some companies announced shortly after the
    bill became law.
        Mr. Hall, based on your understanding of how bonus
    compensation has changed since the bill passed, how much did
    the average American make in bonus pay as a result of the tax
    bill?
        Mr. Hall. I don't know.
        Ms. Jayapal. Well, I happened to do a little research into
    this topic for this hearing, and according to a recent study
    from the Economic Policy Institute based on 2018 data from the
    Bureau of Labor Statistics, after adjusting for inflation, the
    average worker got an increase of only 2 cents per hour.
    Workers literally got pennies.
        So Republicans passed a $1.9 trillion tax plan, the money
    didn't go to workers, and it didn't go to paying down the debt.
    So where did it go?
        For one, companies spent $1 trillion on corporate stock
    buybacks last year alone. That is companies using their profits
    to buy back their own stock, rather than paying their workers,
    investing in research and development, or making capital
    investments. And I think that is just a very important backdrop
    to have as we look at the economy and the effects of the
    Republicans deficit spending that simply benefited the
    wealthiest individuals.
        You spent some time in your summary talking about
    immigration, and I believe that you looked at current
    immigration policy and you calculated that net immigration
    flows would grow by an average of 2 percent per year. Is that
    correct?
        Mr. Hall. Yes.
        Ms. Jayapal. And so when you look at current immigration
    policy, did you not factor in the President's proposal and
    Republicans proposal last year that would dramatically restrict
    legal immigration to this country?
        Mr. Hall. We did a current law estimate, so when we talk
    about it, we talk about it in terms of current law.
        Ms. Jayapal. Right. So if the President's proposal were to
    go through or Republicans proposal restricting legal
    immigration, it would have dramatic effects on our economy and
    on our ability to continue to grow and our labor flows being
    supported.
        Mr. Hall. We would have to look at that specific proposal
    and do an analysis of it. I wouldn't want to offer an opinion
    now.
        Ms. Jayapal. And, Mr. Hall, do you know that we have a near
    stagnant native born population if you look at our economy?
        Mr. Hall. I haven't looked at that, but I am not surprised.
        Ms. Jayapal. You trust me. Thank you. I appreciate that
    very much.
        Let me ask you about one of my favorite topics, which is
    the Social Security contributions of undocumented immigrants.
    Do you know, if all undocumented immigrants were deported
    today, how much next year's Social Security trust funds would
    be reduced for benefit payments?
        Mr. Hall. Yeah, I don't offhand.
        Ms. Jayapal. Let me tell you how much that is according to
    a marketplace report that just came out. Approximately $13
    billion less for benefit payments for existing Social Security
    recipients. And in 2016 alone, there were $13 billion paid into
    the retirement trust fund and $3 billion to Medicare. And so I
    just would like the American people to understand the
    tremendous contributions that immigrants, both documented and
    undocumented, make to our economy.
        Mr. Hall, thank you so much for your presence, and I yield
    back, Mr. Chairman.
        Chairman Yarmuth. The gentlelady's time is expired.
        I now yield 5 minutes to the gentleman from Texas, Mr. Roy.
        Mr. Roy. Thank you, Mr. Chairman. I appreciate it.
        Thank you for being here and testifying with us here today.
    I just have got one quick question. As a Texan, as a former
    first assistant attorney general in Texas, you are aware that
    there is a large case pending, Texas v. The United States,
    involving ObamaCare regarding the constitutionality of that
    act, which would have huge implications for Medicaid for future
    mandatory spending. Did this case affect the development of the
    baseline or any projections with regard to the economy in
    future mandatory spending in you all's calculations?
        Mr. Hall. It did not. Our practice is on something like
    this is you wait till the appeals court deals with it before we
    think about taking it on board.
        Mr. Roy. Okay. Thank you.
        No further questions, Mr. Chairman.
        Chairman Yarmuth. I thank the gentleman.
        I now yield myself 10 minutes. Director Hall, thanks once
    again for taking all of our questions and your statement and
    your work.
        I want to return to the issue of tax cuts for a second.
    Your report says and your testimony said that you estimate that
    about 30 percent of the tax cuts in the 2017 act were paid for.
    They paid for--30 percent of it paid for itself, but left 70
    percent. Would you actually define what that means if only 30
    percent of the tax cuts were paid for, explain what that means?
        Mr. Hall. Sure, sure. I am not doing anything really
    sophisticated. We made an estimate of the tax cuts without
    taking the economic growth aspects into account, and we found
    that the tax bill would increase the revenue--the deficit by
    about $2.3 trillion. Then we took the growth effects into
    account, which are generally positive, you have higher growth,
    higher employment, and we found that the net effect would be
    $1.9 trillion. So that difference between those two things sort
    of gives you an idea of how much it pays for itself.
        If it had gone down to zero, for example, from $2.3
    trillion down to zero, that would have been 100 percent paid
    for. If it went down to 1.9, that is about 30 percent of the
    cost. That is how I got that number.
        Chairman Yarmuth. All right. And you said earlier, I
    believe you said that you did not break out those percentages
    for corporate tax cuts versus individual tax cuts. Is that
    correct?
        Mr. Hall. That is right.
        Chairman Yarmuth. Just an overall figure.
        Do you have any sense of whether individual tax cuts paid
    back a higher percentage or a lower percentage of corporate
    rates did one or the other?
        Mr. Hall. I don't know offhand. We might be able to look at
    it later and give you an idea of what we think and what we did.
        Chairman Yarmuth. But the bottom line is that of the $1.9
    trillion over 10 years, most of that was a cost to the
    taxpayers in terms of reduced revenue and increased deficits
    and not an increase to the taxpayers benefit.
        Mr. Hall. That is right. And by the way, after a year after
    that estimate, we are still comfortable with that estimate.
    Things have come in about as we expected, so we would still say
    that it is about a $1.9 trillion increase in the deficit over
    the next decade.
        Chairman Yarmuth. All right. So is it not logical to say
    that increasing the corporate tax rate, if only 30 percent of
    it was paid for, would improve the deficit situation by some
    percentage?
        Mr. Hall. We would have to look at that. I don't want to--I
    don't want to kind of try to guess on something like that.
        Chairman Yarmuth. What factors would make that not logical?
        Mr. Hall. Well, on the plus side, of course, is to the
    degree it increases investment, you have an increase in the
    capital stock when you lower corporate taxes. That is sort of
    on the positive side, the marginal costs. But the question is
    does it increase it enough that it stimulates enough growth
    that it pays for itself? So in the reverse, you have kind of
    got raising corporate taxes, will it discourage enough
    investment and lower the capital stock enough that it doesn't
    increase revenue. We would have to work that through.
        Chairman Yarmuth. Okay. I would like to see that, that
    analysis.
        We have a date approaching, I believe it is in March, when
    the statutory debt ceiling arrives, and while we may have some
    fudge room in terms of being able to pay debt--pay obligations
    of the government past that, we still face that crisis once
    again. What would be the consequences of not addressing the
    debt ceiling in a timely manner?
        Mr. Hall. I guess the thing we would worry about is
    ultimately you worry about the believability of Federal debt,
    whether or not you affect the rating of the U.S. as a borrower,
    that sort of thing, I suppose. I don't know that we have ever
    really projected what the impact would be if you missed that
    deadline.
        Chairman Yarmuth. All right. Well, I hope we don't have to.
        Going to healthcare for a second. We saw the projections in
    your report. I think in Medicare you are projecting about a 7
    percent growth over the window, the 10 years. And that is based
    on current law, right? So if we were to--and I don't know, I
    can't remember exactly what the 120 suggestions were from last
    year, but if we were, for instance, able to, through policy, to
    change the law and reduce prescription drug prices by 20
    percent, you could have a considerable impact on that growth
    rate. Is that not correct?
        Mr. Hall. That is probably correct. We would have--again,
    we would have to sort of look at that and try to noodle it
    through.
        Chairman Yarmuth. But current law does not--I mean, were
    there any suggestions, by the way, in terms of healthcare
    policy that you made in that 120 that would help reduce the
    growth rate? I mean, I understand part of it is demographics.
        Mr. Hall. Right, right. You know, I haven't refreshed my
    memory on that. Odds are we have got some things in there,
    because we made an effort to use proposals from committees, the
    things that they thought were interesting, so we tried to find
    interesting things.
        Chairman Yarmuth. Right. When I read through your report
    and your testimony, one of the things that I thought was
    particularly frightening was all the different ways in which
    the situation could get worse, and not just through policy but
    through economic factors, through all sorts of things. Would
    you say that the odds of the situation getting worse are
    higher, lower, or you can't tell, than that they might get
    better?
        Mr. Hall. We actually really tried really hard to make
    those equal, that we are in the middle. We think there is
    likely things are worse, and it is just as likely things are
    better, to give you some idea as part of our effort to sort of
    be objective on this. So we think we are in the middle.
        Chairman Yarmuth. And what are the possibilities--what are
    the worst possibilities that might occur over the next 10
    years, either policy wise--I know we are talking about the
    expiration of the tax cuts in a few years. I know that is a big
    factor. What would be the worst scenarios?
        Mr. Hall. Well, I would focus on nonpolicy things. I think
    our forecast with the interest rates included. Interest rates
    are really hard to forecast and interest rates have a really
    big impact on this. And because we have a large debt and the
    cost of borrowing is a big part of the Federal budget now, and
    so higher or lower interest rates makes a pretty big impact on
    this. So I would say that is one of the big important items.
        Chairman Yarmuth. Again, one final question, and that is we
    have talked about this innumerable times over the years, but
    how much does uncertainty as to probabilities grow the farther
    we go into the budget window, and obviously past that you have
    got a 2049 projection as to overall debt?
        Mr. Hall. The uncertainty clearly in our forecast clearly
    increases pretty significantly the further we go into the
    future. You know, we have done some analysis of how accurate we
    are in projecting, and as you might expect, we are generally
    more accurate a year or two than we are 5 years down the line,
    so that is an important thing. We try to give you a feel for
    that sometimes in our uncertainty chapter of how much that
    grows, you know, 10 years out.
        Chairman Yarmuth. Has uncertainty increased over the last
    few decades or is it about the same? It seems to me there is a
    lot--the world is changing a lot more quickly than it used to.
        Mr. Hall. I am not so sure it is in our report so much, but
    it really does seem like that the level of policy uncertainty
    these days is higher than it has been, and that adds to, I
    think, to the uncertainty that we may not have captured.
        Chairman Yarmuth. All right. Well, I have no further
    questions. Once again, thank you so much.
        Mr. Scott. Mr. Chairman?
        Chairman Yarmuth. Oh, I am sorry.
        Mr. Scott. Unanimous consent request.
        Chairman Yarmuth. Go right ahead. The gentleman is
    recognized.
        Mr. Scott. Mr. Chairman, I ask unanimous consent that a
    fact sheet prepared by the Committee on Education and Labor on
    the multiemployer crisis, the cost and consequences of inaction
    pointing out that the PBGC may collapse and the revenues will
    go down, increased safety net spending will go up, costs as
    much as $275 billion over 10 years if we do nothing. I would
    like this entered for the record.
        Chairman Yarmuth. Without objection. So done.
        [The information follows:]
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        Chairman Yarmuth. I want to thank Director Hall once again
    for being with us today. Please be advised members can submit
    written questions to be answered later in writing. Those
    questions and your answers will be made part of the formal
    hearing record. Any members that wish to submit questions for
    the record may do so within 7 days.
        Without objection, this hearing is adjourned.
        [Whereupon, at 11:59 a.m., the committee was adjourned.]
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