[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
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Serial No. 116-1
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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:]
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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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