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


                STRENGTHENING OUR FISCAL TOOLKIT: POLICY
                 OPTIONS TO IMPROVE ECONOMIC RESILIENCY

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

                                HEARING

                               BEFORE THE

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

           HEARING HELD IN WASHINGTON, D.C., OCTOBER 16, 2019

                               __________

                           Serial No. 116-16

                               __________

           Printed for the use of the Committee on the Budget

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


                       Available on the Internet:
                            www.govinfo.gov                           
                            
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                    U.S. GOVERNMENT PUBLISHING OFFICE                    
38-236                       WASHINGTON : 2020                     
          
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                        COMMITTEE ON THE BUDGET

                  JOHN A. YARMUTH, Kentucky, Chairman
SETH MOULTON, Massachusetts,         STEVE WOMACK, Arkansas,
  Vice Chairman                        Ranking Member
HAKEEM S. JEFFRIES, New York         ROB WOODALL, Georgia
BRIAN HIGGINS, New York              BILL JOHNSON, Ohio,
BRENDAN F. BOYLE, Pennsylvania         Vice Ranking Member
RO KHANNA, California                JASON SMITH, Missouri
ROSA L. DELAURO, Connecticut         BILL FLORES, Texas
LLOYD DOGGETT, Texas                 GEORGE HOLDING, North Carolina
DAVID E. PRICE, North Carolina       CHRIS STEWART, Utah
JANICE D. SCHAKOWSKY, Illinois       RALPH NORMAN, South Carolina
DANIEL T. KILDEE, Michigan           KEVIN HERN, Oklahoma
JIMMY PANETTA, California            CHIP ROY, Texas
JOSEPH D. MORELLE, New York          DANIEL MEUSER, Pennsylvania
STEVEN HORSFORD, Nevada              DAN CRENSHAW, Texas
ROBERT C. ``BOBBY'' SCOTT, Virginia  TIM BURCHETT, Tennessee
SHEILA JACKSON LEE, Texas
BARBARA LEE, California
PRAMILA JAYAPAL, Washington
ILHAN OMAR, Minnesota
ALBIO SIRES, New Jersey
SCOTT H. PETERS, California
JIM COOPER, Tennessee

                           Professional Staff

                      Ellen Balis, Staff Director
                  Dan Keniry, Minority Staff Director
                                
                                
                                CONTENTS

                                                                   Page
Hearing held in Washington D.C., October 16, 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...     6
        Prepared statement of....................................     8
    Douglas Elmendorf, Ph.D., Dean, Harvard Kennedy School.......    10
        Prepared statement of....................................    12
    Olugbenga Ajilore, Ph.D., Senior Economist, Center for 
      American Progress..........................................    15
        Prepared statement of....................................    18
    John Hicks, Executive Director, National Association of State 
      Budget Officers............................................    25
        Prepared statement of....................................    27
    Douglas Holtz-Eakin, Ph.D., President, American Action Forum.    39
        Prepared statement of....................................    41
    Hon. Sheila Jackson Lee, Member, Committee on the Budget, 
      statement submitted for the record.........................    85
    Hon. Ilhan Omar, Member, Committee on the Budget, questions 
      submitted for the record...................................    93
    Answers to questions submitted for the record................    95

 
                STRENGTHENING OUR FISCAL TOOLKIT: POLICY
                 OPTIONS TO IMPROVE ECONOMIC RESILIENCY

                              ----------                              


                      WEDNESDAY, OCTOBER 16, 2019

                          House of Representatives,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 10:00 a.m., in 
Room 210, Cannon House Office Building, Hon. John A. Yarmuth, 
[Chairman of the Committee] presiding.
    Present: Representatives Yarmuth, Moulton, Sires, Peters, 
Scott, Jackson Lee, Jayapal, Schakowsky, Horsford; Womack, 
Johnson, Hern, Meuser, Crenshaw, and Smith.
    Chairman Yarmuth. The hearing will come to order.
    Good morning and welcome to the Budget Committee's hearing 
on ``Strengthening our Fiscal Toolkit: Policy Options to 
Improve Economic Resiliency.''
    I want to welcome our witnesses here with us today. This 
morning we will be hearing from:
    Dr. Doug Elmendorf, Dean of the Harvard Kennedy School, and 
of course, former Director of the Congressional Budget Office. 
We have two of those here today.
    Dr. Olugbenga Ajilore, the Senior Economist at the Center 
for American Progress.
    Mr. John Hicks, Executive Director at the National 
Association of State Budget Officers.
    And Dr. Douglas Holtz-Eakin, President of the American 
Action Forum, and again, a former CBO Director.
    We look forward to your testimony.
    I will now yield myself five minutes for my opening 
statement.
    Over the last 10 years, our nation has experienced the 
longest uninterrupted period of economic expansion in U.S. 
history. However, we cannot afford to take it for granted.
    We know that business cycles are real, and eventually 
periods of economic expansion come to an end. Of course, no one 
hopes for a downturn, and no one can know when one will hit, 
how long it will last, or which sectors or families will be 
impacted the most.
    As Members of Congress, it is a responsibility of ours to 
make sure the federal government is ready to respond to a 
crisis before we are in one.
    Today, our expert witnesses will discuss policies that we 
can implement now to ensure a more secure future for our nation 
and our families tomorrow.
    As we all know, recessions damage our nation's fiscal 
health, put stress on local and state budgets, and, most 
importantly, are also costly and painful for American families.
    When the Great Recession hit, Americans across the country, 
regardless of background, education, career, or state of 
residence, felt its effects. Many families faced bankruptcies. 
Others were forced to make tough choices as they watched their 
savings shrink, their debt grow, and their opportunities 
diminish.
    In 2009, Congress passed the American Recovery and 
Reinvestment Act, increasing government investment, cutting 
taxes for working families and small businesses, and preventing 
bigger unemployment spikes.
    While the Recovery Act was critical, we could have and 
should have done more to prevent families from being left 
behind. The impact of the Great Recession is still being felt 
in communities across our country.
    The bottom 50 percent of households have only just now, 
more than a decade later, recovered the wealth they had in 
2007. Millennials, many of whom graduated college only to enter 
into the worst job market in a generation, have been saddled 
with high student loan debt, lower earnings and less wealth 
than generations before them, and they face increased barriers 
to economic opportunity.
    We see the legacy of the Great Recession in rising economic 
inequality and families still struggling to regain their 
footing.
    The American people expect and deserve a government that 
can utilize every tool needed to stabilize our economy and to 
soften the impact of recessions on our families. Our current 
economic automatic stabilizers, revenues that fall and spending 
that grows when the economy falters, are vital. They provide 
timely and targeted support during economic downturns and turn 
on and off when needed.
    When the economy is weak, working families rely even more 
on programs like Medicaid, SNAP, and unemployment insurance to 
help them meet their basic human needs. At the same time, 
payroll taxes and income tax withholding adjust to reflect what 
families are earning. And they are temporary. When the economy 
gains strength, fewer people rely on these programs, so 
spending falls.
    But the automatic stabilizers in current law can only do so 
much. Waiting for Congress to act to provide additional help in 
a time of crisis slows down response time, making it harder to 
target relief when and where it is needed most.
    It is time for us to consider new approaches. This is 
particularly important because when the next economic downturn 
comes, whenever that may be, it may not be as severe as the 
Great Recession. It may be more challenging to overcome.
    Interest rates today are significantly lower than they were 
before the last downturn. So we will not be able to rely on the 
Federal Reserve to play as large a role.
    While the world is moving at 100 miles per hour, Congress, 
at its optimum efficiency, moves at about 10 miles per hour. 
That is why it is crucial that we start the process of 
strengthening these programs now, before we hit a downturn.
    Families and communities should receive the support they 
need when they need it, not months later after the damage is 
done.
    Unfortunately, the Trump Administration is pursuing 
policies that will put more families in jeopardy when we face 
the next economic downturn. Changes to critical programs, such 
as implementing untested work requirements, making it harder to 
access SNAP benefits, and proposing changes to how the federal 
government measures poverty in a way that could cut or 
eliminate vital assistance for millions in need, will make 
programs less responsive to a slowing economy. If we want to 
minimize the damage caused by recessions, Congress must focus 
on strengthening the key programs families will rely on most.
    While we cannot predict when or if a recession might hit or 
how severe its impacts will be, it is our responsibility to 
ensure our government has all the tools it needs to respond 
when necessary. We cannot afford to leave our nation and our 
families unprotected.
    I look forward to hearing testimony from our witnesses on 
what Congress can do to best secure our fiscal future.
    I now yield five minutes to the gentleman from Arkansas and 
the Ranking Member.
    [The prepared statement of Chairman Yarmuth follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Womack. Thank you, Mr. Chairman, for holding this 
hearing.
    And my thanks to the gentlemen seated before us, our 
witnesses on the panel today. I look forward to your questions 
or to your answers to our questions.
    Whether some would like to admit it or not, there has been 
a resurgence of economic confidence within our country. Years 
of stagnation have been replaced with job and wage growth, as 
well as a prosperous American economy.
    The pro-growth policies our Republican majority enacted 
last Congress, including historic tax relief, unlocked 
extraordinary promise and opportunity for hardworking 
Americans. In fact, earlier this month, we saw a jobs report 
indicating the lowest unemployment rate our nation has seen in 
a half century: 3.5 percent.
    Since November 2016, employers have created nearly 6.5 
million new jobs across all sectors. Wages are also rising and 
showing sustainable, organic growth. The median average income 
increased by 3.4 percent in 2018, according to the latest data 
from the Census Bureau.
    This historic forward momentum certainly does not mean that 
we should ignore the possibility of an economic downturn. 
Rather, I believe it means we should be focused on policies 
that ensure continued economic strength.
    We should encourage an environment that supports America's 
job creators and allows workers to pursue greater 
opportunities.
    There are a number of actions Congress can take to guard 
against a recession and to help maintain our current economic 
growth. First and foremost, the House should take up and pass 
the USMCA. This important trade deal will provide much needed 
support for our nation's farmers and manufacturers, and it will 
modernize our policies to reflect the realities of a 21st 
century global economy.
    Secondly, we must protect the 2017 Tax Cuts and Jobs Act, 
which has benefitted American families. This point was 
reiterated earlier this year as the CBO testified before our 
Committee. The statement was clear. Repealing these important 
reforms would reverse the gains made and put nearly a million 
American jobs at risk.
    Those jobs represent real families who could lose their 
livelihoods if these tax cuts were eliminated.
    Third, we must continue to reduce burdensome regulatory 
barriers to economic growth. Redundant federal regulations and 
permitting requirements unnecessarily extend the timelines of 
major projects and add massive compliance costs to development 
budgets.
    One of our witnesses today will detail the enormous cost of 
complying with burdensome regulations imposed by the Obama 
Administration, $890 billion according to the agencies 
themselves. The relief from these mandates over the last two 
years has been an important component of the confidence we have 
seen in the economy among job creators.
    Lastly, this Congress has a responsibility to reduce the 
cost of living for America's middle class. Over the past few 
decades families have seen their largest price increases in 
some of the most heavily regulated and subsidized sectors of 
the economy, including health care, higher education, and 
housing.
    Free market policies could help lower these costs in these 
industries by increasing competition and enhancing consumer 
choice.
    As Ranking Member of this Committee, I am skeptical of 
proposals to create more automatic stabilizers beyond those 
that exist in current law. By creating more of these 
mechanisms, we would reduce oversight by elected officials at a 
time when our nation and our budget need the exact opposite.
    The root cause of our ever-growing debt is runaway 
mandatory spending, which currently accounts for about 70 
percent of all federal spending. We should be working to bring 
more of those expenditures back under our oversight, which is, 
in my opinion, where they belong.
    A final reason to be suspicious of proposals to create new 
automatic stabilizers is that these programs are not likely to 
be deficit neutral. I will be curious to see if offsets will be 
suggested today for any new increases in mandatory spending.
    Our focus should be on preventing a future crisis instead 
of just trying to react to one. We should implement policies 
that will help avoid a recession in the first place and reduce 
our long-term debt burden over time in a very responsible way.
    So, again, I thank you, Mr. Chairman, for the opportunity 
to have this hearing today, and I look forward to the 
witnesses, and I yield back my time.
    [The prepared statement of Steve Womack follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Yarmuth. I thank the Ranking Member for his 
opening statement.
    In the interest of time, if any other members have opening 
statements, you may submit those statements in writing for the 
record.
    I once again want to thank our witnesses for being here 
this morning. The Committee has received your written 
statements, and they will be made part of the formal hearing 
record. You will each have five minutes to give your oral 
remarks.
    Dr. Elmendorf, you may begin when you are ready.

 STATEMENT OF DOUGLAS ELMENDORF, PH.D., DEAN, HARVARD KENNEDY 
SCHOOL; OLUGBENGA AJILORE, PH.D., SENIOR ECONOMIST, CENTER FOR 
  AMERICAN PROGRESS; JOHN HICKS, EXECUTIVE DIRECTOR, NATIONAL 
ASSOCIATION OF STATE BUDGET OFFICERS; AND DOUGLAS HOLTZ-EAKIN, 
            PH.D., PRESIDENT, AMERICAN ACTION FORUM

             STATEMENT OF DOUGLAS ELMENDORF, PH.D.

    Dr. Elmendorf. Thank you, Mr. Chairman, Ranking Member 
Womack, and Members of the Committee.
    It is wonderful to be back in a place where I spent so many 
good hours as Director of the Congressional Budget Office and 
to be looking up at portraits of the two chairmen whom I 
served.
    Thank you for inviting me to testify today.
    I do not think a recession is imminent for the U.S. 
economy, but clearly, the economy has slowed a great deal over 
the past year, and economic forecasters surveyed by the Wall 
Street Journal now see the probability of a recession over the 
next 12 months at about one-third compared with about one-fifth 
a year ago.
    Predicting recessions is quite difficult, and we should not 
count on economists to correctly anticipate the timing of the 
next one. But as you said, Mr. Chairman, we know there will be 
a next one, and we should be ready for it. And I am pleased 
that the Committee has convened this hearing.
    I want to make three points about using fiscal policy to 
fight the next recession. First, vigorous use of 
countercyclical tax and spending policies will be crucially 
important for limiting the severity of the next recession.
    When the economy goes into recession, the Federal Reserve 
will presumably cut the federal funds rate to near zero, as it 
did in the last recession, but because interest rates are so 
low already, the Fed will have less room to cut than it did 
before.
    The Fed will try to compensate through quantitative easing 
and forward guidance. On balance though, I expect the Federal 
Reserve will be able to provide less stimulus than it has in 
past recessions. That will leave more for a fiscal policy to 
do.
    Suppose that when the economy goes into the next recession 
Congress and the President agree to a collection of tax cuts 
and spending increases twice as large as the 2009 Recovery Act. 
Such fiscal stimulus would make the recession less deep and 
less lengthy than it would otherwise be.
    Fewer people would lose their jobs, and those who did lose 
their jobs would find new jobs more quickly.
    My second point is that notwithstanding the historically 
large amount of federal debt outstanding, the government has 
plenty of budget capacity to use fiscal stimulus vigorously. 
The legislation I just described would have a direct budgetary 
impact of about $1.7 trillion.
    But higher GDP means higher taxable incomes. So the federal 
government would recoup some of the direct cost, leaving a net 
cost of around $1.1 trillion.
    That figure is very large by almost any standard, but it 
represents only about one year's worth of federal borrowing at 
our current pace. Holding off debt by a year would not be worth 
the lost national output and suffering that would come from a 
deeper or longer recession.
    Indeed, the Tax Act of 2017 is generating a larger 
budgetary cost and smaller increase in national income than the 
fiscal stimulus I just described. If your goal is to raise 
national income at a low budgetary cost, fiscal stimulus would 
be a more effective route to do that than the tax law.
    Moreover, the income gains from fiscal stimulus would be 
more widely shared across the income distribution than the 
income gains from the tax law, a consideration that I think 
should be central to your thinking.
    To be clear, federal debt cannot increase indefinitely 
relative to the size of the economy, and you or your successors 
will ultimately raise taxes and cut benefits and services.
    But market interest rates on federal debt are now at 
historically low levels and have been trending down for 
decades. Federal borrowing is thus less costly, less risky, and 
less harmful to the economy in the long run than most 
economists have expected. The urgency of putting federal debt 
on a sustainable path is, therefore, greatly lessened.
    My third point is that effective fiscal stimulus requires 
that spending increases and tax cuts be targeted appropriately. 
Effective stimulus requires that government spending increases 
occur quickly, which is easier for certain payments to people 
and state governments than for projects to build new 
infrastructure.
    Effective stimulus also requires that tax cuts be spent 
quickly by the recipients, which is much more likely for cuts 
aimed at lower- and middle-income households than higher income 
households.
    Moreover, both spending increases and tax cuts would have 
larger and more beneficial effects if they were focused on part 
of the country that have especially high unemployment in the 
next recession.
    In addition, because recessions are difficult to predict 
and the legislative process often works slowly, as the Chairman 
noted, it would be valuable to build more anti-recessionary 
policy into law today with a trigger for activation.
    In sum, the federal government can and should undertake 
vigorous fiscal stimulus to counteract the next recession and 
such stimulus can and should be built into law before the 
recession arrives.
    Thank you very much.
    [The prepared statement of Douglas Elmendorf follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Yarmuth. Thank you, Dr. Elmendorf.
    And I now recognize Dr. Ajilore for five minutes.

             STATEMENT OF OLUGBENGA AJILORE, PH.D.

    Dr. Ajilore. Thank you, Chairman Yarmuth, Ranking Member 
Womack, and Members of the Committee, for inviting me to 
testify on the steps that the federal government should 
undertake to ensure the U.S. economy is prepared in the event 
of recession.
    It is an honor and privilege to contribute to this 
Committee's work.
    The United States is currently experiencing one of the 
longest periods of economic expansion in its history. However, 
the expansion has not reached all households, and many continue 
to struggle with long unemployment spells.
    At the same time, economic growth appears to be slowing, 
and there are warning signs that a recession is possible in the 
near future.
    While downturns are difficult to predict, policy makers 
have a responsibility both to assess whether the country is 
prepared for the next recession and to implement approaches to 
protect America from the worst outcomes.
    The standard tools for combatting recession may prove less 
effective in the future, in part, because the Fed has less room 
to cut interest rates, and discretionary fiscal policy, while 
still potentially effective, relies on politicians' willingness 
to use it the right way, which is not always the case.
    A case in point, during the Great Recession, Congress 
engaged in austerity measures, reducing spending well before 
the economy fully recovered.
    Automatic stabilizers are a tool that can help mitigate the 
effects of recession. Enabled once the economy hits a downturn, 
these stabilizers, such as expansion of unemployment insurance, 
are effective in helping steady the economy.
    During the Great Recession, unemployment insurance kept 
more than 5 million people out of poverty and prevented 1.4 
million foreclosures. Unemployment insurance closed more than 
18 percent of the shortfall in GDP in the aftermath of the 
Great Recession.
    Unfortunately, since the last recession, states have 
reduced these UI benefits, thereby diminishing their positive 
effects.
    It is crucial that Congress update existing automatic 
stabilizers using both academic studies of previous efforts and 
policy professionals' experience in implementation gleaned from 
the Great Recession.
    Several guidelines should be implemented in existing 
policies to create an instant response that would bolster the 
United States' economic stability without the need for 
legislative action in a potentially gridlocked Congress. These 
principles should underlie almost any automatic stabilization 
policy.
    First, ensure that policy makers can increase and extend 
the benefits of automatic programs and that they are not 
tightened before all demographic groups and regions have 
recovered.
    Two, when appropriate, tie the triggers to activate 
automatic stabilizers to economic indicators, such as 
unemployment and GDP.
    Third, make federal fiscal release to states substantial, 
automatic, and prolonged so that states do not engage in 
austerity measures before the economy has recovered.
    And then, finally, require strong maintenance of effort 
provisions during downturns so that states do not use the 
federal funds simply just to replace their own.
    There are three programs that can be updated to either make 
them stronger automatic stabilizers or make to work better as 
an automatic stabilizer.
    First, the unemployment insurance system is a crucial 
automatic stabilizer that provides a soft landing for 
individuals who face layoffs or experience joblessness. Due to 
the severity of the Great Recession, states depleted their 
reserves and, therefore, had to borrow from the federal 
government to cover UI benefits.
    In response to the funding issues, many states have 
decreased UI payouts to dramatic and historically unprecedented 
reductions. These include reductions in the number of weeks of 
available benefits, stricter eligibility requirements, and new 
disqualifications.
    To reverse these trends, there are several steps that can 
be taken to make UI a strong and more effective automatic 
stabilizer.
    First, the federal tax base can be increased from its 
current level of $7,000 to $18,000, which is the level the base 
would have been had it matched inflation.
    Second, in response to several states reducing the maximum 
benefit duration level, the federal government should 
incentivize states to maintain the maximum benefit duration of 
26 weeks.
    Second, the Supplemental Nutrition Assistance Program, 
SNAP, provides a crucial role in reducing economic hardship and 
providing food assistance for low income citizens. In 2018, 
SNAP provided food assistance to one out of eight Americans, 
including the elderly, disabled, and children.
    SNAP can be made more effective as an automatic stabilizer 
by removing the work requirements and by increasing benefits by 
15 percent during a downturn. These provisions have the benefit 
of expanding eligibility for the program, which in turn 
improves the stimulus effect of spending by SNAP recipients.
    Third, one issue for states during a downturn is that 
almost all face balanced budget rules. This becomes difficult 
during a downturn because spending rises while revenues fall.
    Thus, states must make decisions about which programs to 
cut, which inevitably falls on programs like SNAP, Medicaid, 
and CHIP.
    In previous recessions, to ameliorate these issues, the 
federal government has provided funds to supplement these 
programs. This policy can be turned into an automatic 
stabilizer by linking federal disbursement to rising 
unemployment rates.
    This policy has the benefit of maintaining spending on the 
programs that are crucial for those affected by downturns while 
easing the burden on the states.
    In conclusion, everyone is asking when the next recession 
will be coming. I believe this is the wrong question to ask. 
The right question to ask is: are we ready?
    We are not ready because the tools at our disposal are less 
effective than they were during the Great Recession. We can 
rectify this by strengthening automatic stabilizers like 
unemployment insurance, SNAP, and Medicaid, especially since 
they take effect once the economy hits a downturn.
    But the time to update these programs is now. We cannot 
wait.
    [The prepared statement of Olugbenga Ajilore follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Yarmuth. Thank you for your testimony, Doctor.
    I now recognize Mr. Hicks for five minutes.

                    STATEMENT OF JOHN HICKS

    Mr. Hicks. Chairman Yarmuth, Ranking Member Womack, and 
Members of the Committee, thank you for inviting me today.
    My association's membership consists of the states' and 
territories' executive branch budget offices, and I am here 
today to talk about their perspectives of federal fiscal 
response during past recessions.
    States have balance budget requirements. State revenues are 
pro-cyclical with the economy. Over 80 percent of our revenues 
come from taxing income and consumption. These two factors 
cause states to cut spending and sometimes raise revenues 
during recessions, both of which can worsen the impact of 
declining economic conditions.
    In fiscal year 2008, prior to the Recovery Act, 20 states 
had revenue shortfalls, and most cut spending to balance that 
year. State general fund revenues declined by 11 percent in 
fiscal years 2009 and 2010. Almost one-third of the states had 
revenue declines in excess of 15 percent.
    States received federal fiscal relief in the last two 
recessions. In both the 2003 legislation and the Recovery Act, 
Congress highlighted the intent to provide fiscal relief to 
prevent more significant spending cuts and tax increases.
    The 2003 Act provided $20 billion to states for fiscal 
years 2003 and 2004. States received a flexible grant of $10 
billion and an increase in the federal Medicaid matching rate 
that resulted in a little over $10 billion.
    The 2009 Recovery Act had two primary state fiscal relief 
funding streams, an increase in the federal share of the 
Medicaid program and the state fiscal stabilization fund to 
relieve fiscal burdens on states and local educational 
agencies. They combined to provide about $148 billion, with 
Medicaid being $99 billion of that and covered portions of four 
state fiscal years.
    The scope of the relief provided by the Recovery Act was 
significant. The two relief programs covered 8.7 percent of 
state general fund spending in fiscal year 2010 and 7.4 percent 
in fiscal year 2011.
    The level of state spending cuts and tax increases that 
were mitigated by the federal relief was substantial. Even with 
this relief, states still had to impose multiple years of 
spending cuts, drew down most of their rainy-day fund reserves, 
and took both temporary and permanent actions to raise 
revenues.
    Without this relief, elementary and secondary education, 
higher education, and Medicaid would have incurred substantial 
spending cuts just so states could balance their budgets.
    After most of the federal relief expired in fiscal year 
2011, states faced a fiscal cliff. The economic recovery was 
inching forward slowly. State funding for Medicaid had to go up 
20 percent, and further spending cuts were made with higher 
education cuts of almost 10 percent.
    The last recession had lingering effects on state budgets. 
At the end of fiscal year 2018, half of the states are not 
spending at their fiscal year 2008 level when adjusted for 
inflation, and only about one-third of the 183,000 fewer state 
employees have been added back to the workforce.
    So what worked in the Recovery Act? It greatly helped to 
alleviate state fiscal troubles. Without the Recovery Act, 
state budget cuts, and tax increases would have been more 
substantial.
    The Recovery Act delivered the largest amount of federal 
relief to State governments through the Medicaid program. This 
served the dual purposes of targeting spending to the largest 
health safety net program when enrollments were increasing and 
the Act's intent of freeing up state dollars that prevented 
more severe budget cuts in other parts of state government.
    The timing of the start of the two main federal relief 
programs aligned fairly well with the most difficult state 
budget years of the recession. The majority of the Recovery Act 
funds were delivered to states through preexisting federal 
grant programs. This facilitated the speed of spending the 
funds.
    The Recovery Act flowed the stabilization fund through the 
governors of each state. This ensured that the entire state 
budget was taken into consideration when arraying the funds 
across multiple fiscal years.
    Federal-state communication during the implementation of 
the Recovery Act went well. The communication and cooperation 
among the administration, the GAO, and the states was well 
executed through multiple layers of participants.
    So what recommendations do budget officers have? The 
expiration of federal fiscal relief to states in the last 
recession did not match up with the lag in improvement in state 
revenues.
    The timing of the expiration of federal aid during 
recessionary periods could be improved by targeting based on 
specific economic or fiscal metrics rather than a fixed date.
    The Recovery Act included other goals for states which made 
it difficult to navigate. The new focus on counting jobs within 
the accountability provisions directed an important 
responsibility onto grant recipients rather than to a 
centralized entity with the capabilities to ensure uniformity 
of measurements.
    And a process for sustained institutional contact among 
federal, state, and local government partners is warranted. One 
action that would advance this idea is the proposed legislation 
by Representative Connolly, H.R. 3883, ``Restore the 
Partnership Act,'' which proposes to establish the Commission 
on Intergovernmental Relations of the United States.
    Mr. Chairman, I appreciate the opportunity to speak. 
Examining and considering the lessons learned ahead of the next 
economic downturn is a wise undertaking.
    [The prepared statement of John Hicks follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Yarmuth. Thank you for your testimony.
    Dr. Holtz-Eakin, I recognize you for five minutes. Welcome.

            STATEMENT OF DOUGLAS HOLTZ-EAKIN, PH.D.

    Dr. Holtz-Eakin. Thank you, Chairman Yarmuth and Ranking 
Member Womack and Members of the Committee, for the privilege 
of coming here today to discuss economic resiliency.
    As has been noted, the U.S. economy has already 
demonstrated considerable resiliency, and there is not an 
imminent recession. I think it is important to recognize that 
we have essentially a two-part economy. One part, the household 
sector, is quite strong and has been growing at an average rate 
of about 2.7 percent year over year pretty steadily since 2016.
    It is bolstered by a very strong labor market with 
unemployment at historic lows, 3.5 percent.
    Rising wages, including the wages of the least skilled and 
least well off, and that is the good news part of the story.
    You often hear a lot of the bad news part of the story, 
which is a weak housing market. It has been that way for two 
years now.
    Diminished business fixed investment, which is a concern, 
and the obvious problems in the global economy and the U.S. 
trade sector which are a real headwind for the U.S. economy.
    But with 70 percent of the economy growing at above 2.5 
percent, it is hard to imagine getting into negative territory. 
So a recession really is not imminent.
    Having said that, I think the best way to think about 
maintaining and expanding the economic resiliency is to think 
hard about what we can do to raise the trend rate of economic 
growth. There is a lot of attention on the cycle, but how fast 
you grow on average is actually really important.
    Bad things happen all the time in economics. Fukushimas and 
other natural disasters happen. There are strikes as there is 
in the auto sector right now. You get a Boeing Max 737 
shutdown, and those are negative shocks to the economy.
    If you are drifting along at 1 percent or a half of a 
percent and not growing very rapidly, those negative shocks can 
quickly put you into negative territory. That scares people, 
and it snowballs, and you end up with a greater probability of 
recession.
    If you are growing at 2, 2 and a half percent, those same 
events do not drive you into negative territory, and the 
economy is more likely to survive without the necessity of some 
sort of response to a recession.
    So I think the Congress should now do the things they can 
to bolster the trend rate of economic growth, and the Chairman 
mentioned some of the ones that I would single out in my 
testimony.
    Certainly trade has been an important part of generating 
productivity and economic growth in the United States. The 
USMCA is something that the congress could do right now to 
solidify the long-term trend rate of growth.
    Tax reform is unfinished business in my view. Yes, there 
was a bill passed in 2017, but there are a lot of opportunities 
still to make the tax code permanently better, not to have 
provisions that sunset, which were never, in my view, good 
economic policy; to do some base broadening and improve the 
investment and innovation incentives. Those are things that the 
Congress could do now, put in place a stronger foundation.
    The Chairman mentioned the importance of the regulatory 
reforms that we have seen in recent years, and I really think 
this is one of the least well understood aspects of what has 
gone on in the past couple of years.
    We keep track of every regulation issued by the federal 
government. During the eight years the Obama Administration 
issued a major regulation at the average rate of 1.1 per day 
for eight years, a total self-reported cost for the private 
sector to comply of $890 billion.
    Since the Trump Administration entered, the net regulatory 
burden has been cut by about $10 billion. So we have stopped 
the expansion in the regulatory state. That could be made 
statutory, not leave it to the executive branch.
    Find a way to put budgets on the agencies in the same way 
we put budgets on taxpayer dollars and minimize the burden on 
the economy.
    And I think there are other things like immigration reform 
and, certainly for this Committee, putting the debt on a 
sustainable trajectory that would improve the long-term outlook 
in beneficial ways.
    Having said that, there will be a recession. I think we all 
acknowledge that, and the logic of automatic stabilizers is 
impeccable. I have no reason to worry about that.
    What I am concerned about is how do you operationalize the 
notion of bigger and better automatic stabilizers. I have not 
seen a case yet on why these ones are too small, and so how big 
the stabilizer should be, I think, is an open quantitative 
question, and how we make that decision is going to be hard.
    I worry, as the Ranking Member did, about expanding 
mandatory spending. This is the key budgetary problem, and 
these would be big expansions of mandatory spending.
    And I worry about doubling up. I think it is almost 
impossible for an elected Member of Congress in the face of 
recession to go back to a town hall and say, ``Hey, our 
predecessors took care of this. Do not worry about it. It will 
happen automatically.''
    So we will get both automatic stabilizers and discretionary 
countercyclical policy. That might be overdoing it, and so I am 
not convinced we need to do this.
    So I thank you for the chance to be here today. I look 
forward to answering your questions.
    [The prepared statement of Douglas Holtz-Eakin follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Yarmuth. I thank you.
    And just to clarify, you referred to things that he did as 
Chairman. He was Chairman and a very good one. So----
    Dr. Holtz-Eakin. My apologies, Mr. Chairman.
    Chairman Yarmuth. No, no, no. It is all right. I just do 
not want to take credit for what you are giving Mr. Womack 
credit for.
    Well, thank you all for your testimony. We will now begin 
the question and answer period. The Ranking Member and I will 
defer our questions until the end.
    So I now recognize the gentlewoman from Washington, Ms. 
Jayapal, for five minutes.
    Ms. Jayapal. Thank you, Mr. Chairman, and thank you for 
your incredible leadership and for these issues that you bring 
to the Budget Committee.
    Thank you all for your testimony.
    Although the Great Recession officially ended 10 years ago, 
the bottom 50 percent of households have only just retained 
their wealth, which I find appalling. We know from our studies 
of the last recession that certain programs, and you refer to 
these, including SNAP and TANF and unemployment insurance, are 
especially effective in stabilizing the economy during 
recessions, and they could be even more effective in dampening 
the harms of recession if they were available to more people 
with fewer barriers to entry.
    But we do hear a lot of criticism about how we cannot 
afford to pay for these programs because the programs increase 
federal debt, and these arguments are used to justify cutting 
flexible spending programs that help people in need, and they 
are used to justify the placement of high barriers, like 
onerous and discriminatory work requirements.
    We hear similar arguments against the creation of bold new 
programs that would address important problems like 
homelessness, our crumbling infrastructure, or climate change.
    And so today I would just like to investigate a little bit 
how strategic government spending, even government spending 
financed by debt, actually helps our economy.
    And, Dr. Elmendorf, I thought your testimony was incredibly 
insightful. There is widespread concern that the U.S. may 
experience a recession in the near future, and with interest 
rates already low, you refer to this in your testimony. The 
Federal Reserve is going to have even less space to intervene.
    Does that mean that we have to rely on fiscal policies, 
even if they include significant federal spending, to limit the 
severity of a recession?
    Dr. Elmendorf. Yes, Congresswoman. I think it does mean 
that. We are currently running budget deficits of a trillion 
dollars a year or so. The proposal I offered which was just 
illustrative. We do not know how much fiscal stimulus we will 
need in the next recession, but even a very large piece of 
fiscal stimulus would add as much to the debt as we add every 
year now in what people discussed as a strong economy.
    It would be a terrible mistake to run significant deficits 
when the economy is humming along and then to decide we cannot 
run deficits when the economy needs that support.
    So I think we are looking for more fiscal stimulus in the 
next recession than we had in the last one.
    Ms. Jayapal. Well, you are sort of getting at my next 
question, which is exactly that. You know, even during a 
recession, we hear that you cannot afford, we cannot afford to 
increase federal spending because it will increase debt.
    But in your testimony, you asserted that the Great 
Recession would have been less destructive and long had the 
government spent twice as much.
    Can you explain why key investments in federal programs and 
not austerity policies are actually more effective in heading 
off a recession?
    Dr. Elmendorf. So there are a few issues here, 
Congresswoman. One is that fiscal stimulus can come from tax 
cuts as well as spending increases, and I referred to both in 
complete parallel through my remarks.
    The choice of what sort of stimulus to use depends on your 
and your colleagues' judgments partly about the economic 
effects, and we can talk about the benefits of targeting and so 
on; partly in your assessments of what is most important to 
have in our country.
    Is it to have more consumer spending through tax cuts, or 
is it to have more support for people who need support? And is 
it to have more investments in the future?
    So one very important role of government spending is to 
provide investments in our future. Some of those are 
investments in research and development, are investments in 
infrastructure, and currently federal spending for those 
purposes is about the smallest percentage of our economic 
output it has been in my entire lifetime. That is not a 
forward-looking policy.
    But also, there is a growing body of evidence that some of 
the social programs that provide support for low-income 
families give the children in those families permanent 
advantages over their lives and the incomes that they can earn 
when they go to work.
    And so their investments in both the productivity enhancing 
R&D and infrastructure, but also in the productivity enhancing 
skills of children who can get better access to the education 
they need with the right sort of federal support.
    Ms. Jayapal. Thank you.
    That investment early on in kids is so important, and, Dr. 
Ajilore, you refer to this with your comments about SNAP, for 
example.
    Why is investment in programs for low income and middle-
class people crucial for preparing for and responding to 
recessions, again, even though that increase might increase 
federal debt, even though that spending might increase federal 
debt?
    Dr. Ajilore. Thank you for your question, Congresswoman.
    One of the things that we need to understand is that these 
programs have a stimulus effect, and so as was mentioned 
before, consumer spending is 70 percent of GDP. So that has 
been very good. Consumer confidence is still pretty good.
    And so what we need to do is emphasize further consumer 
spending, and the stimulus effect is larger for low-income and 
middle-class families.
    So when we think about these automatic stabilizers, one of 
the things that we have to focus on, one of the things that we 
miss is that people want to work, and so we want to have 
programs that help people stay attached to the labor force.
    So that means it is not just, you know, finding a job, but 
it is also putting food on the table, which SNAP helps with. It 
is also taking care of your health care, which Medicaid helps 
with.
    So we have all of these programs so that people can be 
better able to find a job when they lose their job, and so that 
is why we need to focus on that, because of that stimulus 
effect that would help consumer spending and, therefore, 
boosting GDP.
    Ms. Jayapal. Thank you so much.
    My time has expired. I yield back.
    Chairman Yarmuth. The gentlewoman's time has expired.
    I now recognize the gentleman from Missouri, Mr. Smith, for 
five minutes.
    Mr. Smith. Thank you, Mr. Chairman.
    Today marks 177 days since this Committee has failed to 
adopt a budget and pass a budget. It is the Budget Committee.
    Speaker Pelosi has said numerous times that a budget is a 
statement of your values, and every party should do a budget. 
Yet her party is in power, and they are not doing a budget.
    They do not care about the people's House right now, they 
care about making it a House of investigations. This is the 
Budget Committee, let us see your budget. It has been 177 days, 
and we still have not had it.
    Thanks to the policies championed by President Trump and 
the work of a Republican Congress in his first two years in 
office, we have a booming economy. GDP was 3.1 percent in 2018, 
last year. This was the highest in 13 years. Our GDP was the 
highest in 13 years last year at 3.1.
    First quarter of 2019, we were at 3.1 GDP.
    Just in the last couple weeks, we hit the lowest 
unemployment rate in 50 years, the lowest unemployment rate in 
50 years.
    Do you know who has benefitted from a very, very low 
unemployment rate? The low-wage workers. I represent one of the 
poorest congressional districts in the country. My people have 
benefitted the most under the policies of the first two years 
of a Republican Congress and a Trump Administration, with all 
of the deregulations, with the lower taxes, with the doubling 
of the child tax credit from 1,000 to 2,000, with lowering the 
tax rates for low-income families, doubling the standard 
deduction. This has helped the folks in Southeast Missouri.
    You know, there was a recent article that analyzed an 
economist's view of wage growth amongst low-income workers, 
low-income sectors. And in fact, it was comparing low income 
sectors that included retail, restaurants, clothing stores, 
casino workers, and in fact, those employees have seen the 
largest wage growth than any other sector.
    That is great news, but no one is talking about it.
    And the reason why they are benefitting with higher wage 
growth is because of the tight labor force. Like I just said, 
the lowest unemployment rate in the history of our country 
which was just announced, and that was created because of the 
policies of the Republican Congress, the last two years, and 
President Trump, with a booming economy that created a 3.1 
percent GDP.
    We need to champion the fact that those folks that work in 
restaurants and the retails, retail clothing stores, that they 
have seen the largest wage growth.
    Let me read this. Wage growth was truly stagnant only for 
workers in high-wage industry, such as lawyers, doctors, and 
broadcasters.
    Those broadcasters do not want the American people to know 
that their wages have not increased as much as someone who 
serves them in a restaurant because they care about their own 
pocketbook.
    Let me read something else to you. Earnings growth for low-
wage workers, such as those who work in retail and restaurants, 
like I said, has doubled in the last five years. Their wages 
have doubled in the last five years. That is phenomenal, and 
that is great because of the economy and the policies that were 
passed in the last two years.
    Also, wages for the poorest Americans were rising twice as 
fast as those hourly earnings for high-wage earners. Those are 
great things to talk about, and so we need to look at is what 
created that.
    Deregulation, which saved families $3,100 that President 
Trump initiated, and making permanent the Tax Cuts and Jobs 
Act, such as the doubling of the child tax credit and lowering 
tax rates for all Americans. That is how we can help continue 
this growth in the economy and the growth in wages for low-
income workers.
    Chairman Yarmuth. The gentleman's time has expired.
    I now recognize the gentleman from California, Mr. Peters, 
for five minutes.
    Mr. Peters. Thank you, Mr. Chairman.
    And thank you all for being here today.
    Mr. Holtz-Eakin, you talked about some of the factors 
having to do with the growth rate, and I am onboard with a lot 
of those. You did not mention immigration, which is another one 
I would add.
    The other thing I had a question for you though is: what is 
the effect of federal debt on the growth rate?
    Dr. Holtz-Eakin. So, first of all, I did mention 
immigration in my written testimony. I think it is a very 
important issue, and the U.S. has never really used immigration 
as a tool of economic policy and could, I think, reform its 
core visa granting programs to take better advantage of that. I 
would be happy to discuss that further if you want.
    In terms of the debt, the outlook for the debt really has, 
I think, significant impacts on the capacity for the economy to 
grow, and the mechanisms are the following:
    One, every time the federal government borrows a dollar, it 
takes a dollar that would otherwise be available for 
investments in skills, innovation, capital. That is an 
important channel by which the debt affects the economy.
    It is not too visible at any point in time, but it is sort 
of a slow, corrosive opportunity lost, and we are doing an 
enormous amount of that right now.
    The second thing is at some point, not today, you know, if 
you are a businessman looking at investing someplace in the 
globe and you look at the United States and it has a 
fundamental mismatch in its federal budget, you have to start 
asking yourself, well, how does this get resolved?
    Does it get resolved by a crisis? Certainly we hope not, 
but that is not a pro-growth strategy.
    We could just tax and close that gap. That is not a pro-
growth strategy.
    Or we could get the core spending programs under control 
and have a revenue stream that matches them.
    By the way, one of those three is good news, and that is a 
bad news thing.
    Mr. Peters. Well, let me ask you about that. But is it 
appropriate to cut taxes on high-income earners who are 
particularly wealthy individuals at a time when the economy is 
strong?
    That adds to the retardation of the growth rate, does it 
not?
    Dr. Holtz-Eakin. I think that you ought to think about tax 
policy not in terms of just high-income individuals, but what 
will be the incentives for saving investment growth over the 
long term?
    Mr. Peters. Right.
    Dr. Holtz-Eakin. And tax policy should be designed to 
heighten those to the extent possible.
    Mr. Peters. It also has to be designed to cover your 
expenses at some level.
    Dr. Holtz-Eakin. Yes, and we are not close at the moment.
    Mr. Peters. And, Mr. Elmendorf, I ask you. I keep hearing 
that debt is a long-term issue, but it does seem to me that, 
you know, we hear that we are going to be spending more on 
interest payments than children in three years and more on 
interest payments than defense in five years.
    Is this not something that is with us right now?
    Dr. Elmendorf. Well, as you know, Congressman, federal debt 
is now at an historically high level relative to GDP. As I 
noted, that is a problem that you or your successors will 
ultimately confront.
    I think the question is when and how. And so you talk about 
when to confront that. It is good to do when the economy is 
strong, bad to do when the economy is on the edge of recession 
or in a recession or in the first part of a recovery.
    And then you come to the question of how, and you have to 
decide on behalf of citizens like me what we want the society 
to be about.
    And so when you think about tax policy, it is about raising 
revenue. It is about the incentive effects, as Doug said. It is 
also about who is bearing the burden.
    And given the great divergence of incomes in this country 
over the last several decades and, in particular, the slow 
growth of incomes for people in the bottom half of the income 
distribution, I think it is appropriate to have the burden 
borne more by people who are higher up in the income 
distribution.
    And I would also just emphasize that when federal dollars 
reduce private investment and innovation and so on, that can be 
a cost, but also budget stringency reduces federal investments 
in R&D and in education and so on. That also has a cost for the 
future growth of the economy.
    Mr. Peters. No, 100 percent. I do not mind the idea of 
investing. I think we should be investing in that sort of 
thing. I do not like the idea of accruing interest payments, 
you know, which are becoming a bigger and bigger part of the 
pie.
    And in the course of this economy, which is very strong, 
the majority in the last Congress cut taxes in a way that 
seemed to me it was unresponsive to the need to fill the gap in 
the debt and also ignored the effect of the slowing of growth 
that happens from this debt over time.
    And I think we have to recover from that and what you call 
the next tax policy.
    But really just quickly, Mr. Elmendorf, broadly speaking, 
with respect to housing, in the last recession we responded to 
the crisis by providing 7 to 9 million homeowners consumer's 
relief, enabling them to restructure their mortgage.
    But the worth for the typical household plunged by about 40 
percent, and economic inequality was exacerbated. Can you in a 
few seconds tell me how you think our response for homeowners 
did and whether we could do better next time?
    Dr. Elmendorf. A lot of smart people worked really hard to 
develop policies to help homeowners in the last downturn. I do 
not think we were terribly successful in the end, but I think 
that importantly reflects the difficulty of that challenge.
    Too many people bought houses they could not really afford 
on the hope that house prices would keep rising, and they did 
not keep rising. It was very hard to solve that problem. So I 
wish more had been done, but I do not think it was so 
straightforward.
    I think it is important going forward that we have the 
right sorts of regulation to help people avoid avoidable risks 
like that.
    Chairman Yarmuth. The gentleman's time has expired.
    I now recognize the gentleman from Oklahoma, Mr. Hern, for 
five minutes.
    Mr. Hern. Thank you, Mr. Chairman and Ranking Member.
    I appreciate the opportunity. It is really an honor to be 
here because this is something I would love to talk on for 
about the rest of my time in Congress.
    Being a businessman for 35 years before I came here, I have 
only been in Congress not quite a year now. I do find it quite 
humorous on the conversation here that if somehow we did not 
have the tax increase, that somehow we would automatically 
start paying down debt.
    This never happens. It only happened really four years in a 
row in our lifetime, and that was under President Clinton, and 
then the House was Republican led and the Senate was Republican 
led when everybody got together and had a thing called welfare 
work reform.
    And it is an interesting thing because the only way we are 
going to work it out in our economy, the way it is structured 
is that we have more people working, paying in taxes, and less 
dependent on the federal government. That is really what 
happened.
    We had 9/11 come along. I remind us our history. It changed 
the world economy forever, and now we are right back to where 
we were, running gigantic deficits and enormous debt that has 
really got to be troubling to all of us regardless of the side 
you are on, which really demands that we have a budget, one 
that really determines how we are going to spend those 
revenues.
    In fact, if you look at the next 10 years of the budget 
window, it is incredibly devastating, once many of us are gone, 
what we are going to be leaving our kids and grandkids in the 
future. Somebody is going to have to pay the piper at some 
point in the future.
    So to say that we are just going to all of a sudden, if we 
got those tax reforms back, that we were going to change our 
direction, with all due respect, I just think it is a joke. I 
have not seen that in my time here. It is how can we spend 
more, and nobody has the intestinal fortitude to want to cut 
anything.
    I do think it is irresponsible though to not cut spending 
with the revenues we have, and so it is interesting. I do find 
it interesting, Mr. Elmendorf, that you said the wealthy ought 
to pay more of their fair share.
    They are paying well over half of the American taxes. The 
upper 2 or 3 percent are paying well over half of taxes. So, I 
do not know what you define or describe as ``fair.'' Maybe it 
is all of what they earn, and it still would not be enough.
    In fact, we could take almost all of the revenue generated 
in the United States and have a difficult time paying off our 
debt, and so I do not know exactly where we are going with this 
other than we have got to figure out how we get our arms around 
increasing our participation rate.
    As a person who was in the welfare system as a young child 
for a number of years, it was not because of a person who could 
not work. It was because they did not want to work. There were 
plenty of jobs, and at least I did not go hungry, I guess, but 
his hardest job was to run to the mailbox and get a food stamp 
check when it was still going to the mailbox.
    Now we make it real easy today. We just send it to your 
checking account.
    I do find it interesting also that we do not want to have 
people who are able-bodied adults without dependents actually 
have to work or get an education to get a job that might be 
available. There are over 7 million jobs in America today, and 
we have got 6 million-plus that are looking for jobs, and 
obviously their skills or their geographics do not match up 
with where those jobs are. So they should get a training that 
would allow them to go to work and be less dependent on the 
federal government, not more.
    To the height of about 17 million people on food stamps in 
2008 to the height of about 46 million people in 2015, now back 
down to about 38 million people on food stamps today, we should 
design a system, I would hope, that would not just be a fiscal 
cliff for them, but they would actually encourage them to move 
on to a job, not be fearful of getting a raise or getting a 
better job for losing their benefits.
    So with all of that said, could we talk about, and we can 
start with you, sir, regarding the participation rate?
    What kind of policies could we put in place that would help 
us grow our participation rate with our job seekers?
    Dr. Holtz-Eakin. I think the prime age male and prime age 
female participation rates are the things that are most 
troubling right now. We have not regained some past levels on 
those.
    With the retirement of the Baby Boom generation, the 
overall participation rate has a lot of downward pressure on 
it. That is inevitable.
    You want to have, I think, a strong foundation, and to be 
honest, the thing I am most troubled about right now is the 
fact that in our K-12 education system, we do annual testing, 
and those tests, the National Assessment of Educational 
Progress, indicate that a quarter to a third of fourth and 
eighth graders are seriously deficient in math and reading. So 
a quarter to a third of future workers are going to come into 
the labor force unable to compete effectively and probably 
unable to participate.
    And that, I think, is an enormous mistake for the United 
States and something that is not being focused on.
    So getting people to enter the labor force equipped to 
compete is very important, and then having a very work-friendly 
social safety net so that there are not barriers to work is the 
second piece.
    Mr. Hern. Dr. Holtz-Eakin, is it fair to say that our 
systems were designed to have more people working to support 
those who need?
    And so we have less people working today. Then we have got 
a real problem that is a structural problem, not necessarily a 
fiscal problem, but a structural problem. We just do not have 
enough workers in America to feed the opportunities we have to 
take care of folks when they need the safety net programs, 
whether it be Social Security, Medicare, SNAP. The list goes on 
and on.
    We need more workers in America.
    Dr. Holtz-Eakin. Yes.
    Mr. Hern. And if we fill these jobs, we could have a better 
GDP, change the trend that you talked about, have an 
immigration policy. You mentioned visas, so we could bring 
workers in to fill these jobs and grow our economy.
    Dr. Holtz-Eakin. And importantly, not just have people to 
work, but have people with skills and have equipment to raise 
productivity.
    One of the beneficial things we have seen in the past 
couple of years is a resurgence in productivity growth was 
under 1 percent. It is now up at about 2.5. I do not know if 
that is going to continue, but if it does, that is the single 
most important piece of good news that we have seen.
    In the long run, productivity growth is everything. It is 
how the standard of living goes up. It is how you manage to 
support a higher number of seniors, given the labor force.
    Mr. Hern. Mr. Chairman, thank you.
    Chairman Yarmuth. I promised you some extra time.
    Mr. Hern. You did. Thank you, sir.
    Chairman Yarmuth. If you want to ask another question, you 
are welcome to.
    Mr. Hern. Well, let's talk about participation rate just a 
second. When we look back in 1997 through 2001, our 
participation rate was just short of 68 percent. Today it is at 
63.
    Do you feel today at a 68 participation rate, if that were 
achievable, that we would be in a different direction, or is 
this a different time for a different set of numbers?
    Dr. Holtz-Eakin. I am always nervous about comparisons to 
the late 1990s. You know, in the late 1990s, the world was a 
safer place. The Soviet Union had fallen apart. It is not a 
safer place right now.
    In the late 1990s, discretionary spending was the dominant 
part of the budget. It was easier to deal with. That is not 
true right now.
    The late 1990s gave us a dot-com bubble and a productivity 
boom. It turned out that that was illusory. We do not want to 
have another bubble as the key to economic and other successes.
    And in the late 1990s, the retirement of the Baby Boom 
generation was two decades away. It is here.
    And so we are in a different place right now, and we need 
to acknowledge that and deal with the problems we have right 
now using new solutions, not the things we did in the 1990s.
    Mr. Hern. Thank you, Mr. Chairman.
    Chairman Yarmuth. The gentleman's time has expired.
    I now yield five minutes to the gentleman from New Jersey, 
Mr. Sires.
    Mr. Sires. Thank you, Mr. Chairman.
    You know, I have been here now 13 years, and I came here 
when Paulsen was here. I was in Financial Services, and Paulsen 
came in before the Committee. I thought he was going to cry as 
he was describing the financial situation in this country.
    And it really made an impact on me. You know, we had 
difficult roads to take. We were able to save the auto 
industry. We were able to save basically this country with all 
of the things with the Recovery Act that we put together.
    So as things came along, one of the things that I was upset 
about and it is one of the things I want to talk to you about, 
is investment in infrastructure. I did not feel that we did 
enough investment doing the Recovery Act on infrastructure.
    And here we are now looking to see what we can do to 
prevent any kind of recession in the future, and we do not seem 
to be making the investment that we need in infrastructure.
    I was just wondering how do you feel about investment in 
infrastructure as a way of hedging off any kind of recessions 
or what part of it is it?
    Dr. Elmendorf. So, Congressman, I think infrastructure 
investment is very important for the long-term growth of the 
economy, and my judgment agrees with yours that we should be 
doing more infrastructure investment in this country.
    But its role in fighting recessions is hindered by the fact 
that many forms of infrastructure have long set-up times. If we 
are trying to fix the airports around New York City, that is 
not a thing that really is shovel ready. That is a thing that 
takes time to prepare.
    So throwing a lot of money at infrastructure during a 
period of economic weakness may or may not lead to extra 
spending when the economy needs it.
    As it turned out in the last recession, it was long enough 
and deep enough that even the slow payout of infrastructure 
spending turned out to provide important stimulus as that went 
on. But for many recessions in this country that have been 
shorter, infrastructure spending can come late.
    It is important for long-term growth, but I would say less 
central to addressing recession when recession hits, which is 
why some of the comments here have been more about payments to 
individuals and payments to states.
    Mr. Sires. So rather than having a larger stimulus in 
infrastructure, do I understand that you favor a strong amount 
of money if leaving----
    Dr. Elmendorf. Yes.
    Mr. Sires.----in order to head off any kind of recessions?
    Dr. Elmendorf. Well, I think we should have a higher level 
of infrastructure investment funded by the federal government 
to ensure the long-term growth of the country. I do not think 
that will particularly forestall the recession or is the best 
way to address the recession when it hits.
    Mr. Sires. I was wondering when you were talking about 
immigration, can you tell me how immigration would help? 
Because it seems that it has become a bad word around here, 
``immigration.''
    Dr. Holtz-Eakin. So let me first just say that there is 
complete agreement across the ideological spectrum on every 
word that Doug Elmendorf just said on the infrastructure. It is 
not a cyclical issue. It should be dealt with as a proactive 
policy for raising the trend growth rate. That is a good idea.
    Immigration. The reality is that native born Americans do 
not have enough kids. So in the absence of immigration, the 
size of the population will shrink. It will become increasingly 
old. The size of the economy will shrink, and we will be a less 
vital and less important presence on the world stage.
    The flip side to that is all of our choices about the 
future reside in how we want to run our immigration system. Who 
are we going to admit? And what are we going to value?
    Traditionally, the United States has focused on 
humanitarian issues in immigration. The last reforms were done 
in the 1960s, and the primary criteria were family unification 
and refugee and asylum status, I think indicative of the 
character of this country.
    But many other of our competitor developed countries use 
immigration as a tool of economic policy, and I think it would 
be a good idea for us to do that, too. Under 5 percent of our 
permanent visas are granted for economic reasons. We could 
establish criteria by which we wanted people to come in who are 
going to be able to bring their productivity to the United 
States, bring their entrepreneurial vigor.
    Immigrants traditionally work more, work longer, start 
businesses, create jobs. We can take advantage of that going 
forward in a more systemic fashion.
    Mr. Sires. So, in other words, we used to think in terms of 
immigration on a humanitarian basis, but they still worked and 
they still contribute.
    Dr. Holtz-Eakin. They did, and so without trying, they have 
contributed enormously. If we tried, we could do better.
    Mr. Sires. It was still a stimulus for the economy.
    Dr. Holtz-Eakin. Yes, it is essential.
    Mr. Sires. It is essential.
    Dr. Holtz-Eakin. Yes.
    Mr. Sires. And here we are today somehow thinking that 
immigration is bad in coming to this country because there are 
jobs in this country that even though you get 5 percent of 
well-educated people coming into the country, there are jobs 
they are not going to do, and we need that immigration of 
people that those start-up jobs that come on a humanitarian 
basis to become part of the American economy.
    I mean, I see it in my district. I see it in myself. I was 
an immigrant. I came here when I was 11 years old. I saw my 
parents, no education, worked in a factory. Yet they 
contribute.
    So I just think we have to rethink this issue of 
immigration that we want selective immigration. You know, there 
has got to be a way that we can bring immigration so people can 
add to the economy like they have done in the past.
    This country was built on immigration, and most of them 
came as humanitarian necessities.
    So there you are. I have run over. I am sorry. I apologize.
    Chairman Yarmuth. That is all right. The gentleman's time 
has expired.
    Now, I recognize the gentleman from Ohio, Mr. Johnson, for 
five minutes.
    Mr. Johnson. Well, thank you, Mr. Chairman.
    Is it not interesting? We are talking about the need for 
infrastructure. We are talking about the need for an 
immigration system that works.
    How do we fund those? My gosh, it sounds like we are 
talking about the need for a budget. Is that not a novel idea?
    I do not know why we are here today talking about a policy 
on how to improve economic resiliency. I am deeply concerned by 
the premise of today's hearing that an economic recession is 
imminent and that Congress needs to enact new automatic 
economic stabilizers to ease the effects of an impending 
economic downturn.
    This is a false premise. The economy is strong. In fact, 
the United States economy is undergoing the longest, largest 
economic expansion in American history. The unemployment rate 
is at a 50-year low. Six point four million new jobs have been 
created since November of 2016.
    And under the new Tax Cuts and Jobs Act, American families 
are keeping more of their hard-earned money. As the Federal 
Reserve Vice Chairman Richard Clarida stated, the economy 
continues to be in a good place.
    So instead of trying to mitigate the damage from a 
nonexistent recession or to advance a false narrative of an 
inevitable recession, like many of our colleagues on the left 
and the national media are doing, solely for the purpose of 
throttling America's economic surge and striking fear across 
the nation, all to advance a political agenda, Congress should 
instead focus on extending our current economic expansion by 
enacting the USMCA, the U.S. Mexico-Canadian Agreement, and 
reducing burdensome regulations that add billions of dollars in 
cost to our economy.
    So Dr. Holtz-Eakin, the Trump Administration has made 
efforts to reduce the amount of burdensome regulations that 
hurt American taxpayers and disproportionately affect 
industries that play an important role in the economies of my 
district, the Eastern and Southeastern Ohio, such as coal and 
natural gas.
    Can you tell me how the reduction in regulatory costs have 
helped create a more competitive and productive economy?
    Dr. Holtz-Eakin. I think what the Administration has done 
through executive authority is actually quite remarkable. They 
have instituted regulatory budgets in all the agencies, and I 
think that is the right way to do this. You let the agencies 
develop the regulation they need, but they have a budget, and 
they cannot just do something without an offset someplace.
    You get a smarter regulatory system as a result. I think 
this should be a statutory regime. I think Congress should pass 
this as a permanent feature.
    In doing so, you get the same impacts you get from tax 
policy. Regulations are an overall reduction in resources 
available to do other things, and they distort the activities 
of businesses. They have to focus their capital investments not 
only on what is most productive, but on what meets the 
regulatory requirements.
    And so minimizing to the extent possible those burdens is 
something that is very beneficial for growth.
    We have less in the way of quantitative estimates of the 
impact of regulation than we do of tax policy, and obviously, 
there are big disagreements on tax policy. No doubt we would 
get big disagreements about the impact of the regulatory 
policy.
    But given the magnitudes involved, going from over $100 
billion a year to zero, I have little question that it has 
contributed significantly to the post-2016 acceleration.
    Mr. Johnson. Okay. So this hearing is discussing potential 
automatic stabilizers that could be used to minimize the 
adverse effects of, in my view, a false claim of an economic 
recession. Several ideas have been proposed that involve higher 
federal spending.
    In your opinion, could regulatory reform be utilized to 
mitigate these adverse effects?
    For example, since federal regulations impose burdensome 
compliance costs which would reduce economic growth, could you 
design a stabilizer in the regulatory space?
    Dr. Holtz-Eakin. You could. As I said in my opening 
remarks, I would prefer to first focus on raising the trend 
rate of growth so that you have less need for stabilizers and 
less probability of going into a negative GDP growth territory.
    So there is a lot that could be done in that front, and the 
regulatory reforms can contribute to it.
    Mr. Johnson. Yes. You know, I find it interesting because 
we do not learn from history in our country very well, and I 
think we tend to forget the successes of our past and our 
legacy.
    I mean, we discovered powered flight. We put a man on the 
moon. We discovered nuclear energy. We discovered internal 
organ transplants. We built the Internet. We brought marvels to 
the world prior to 1970 when big government came on the scene. 
We are pretty smart people.
    If we would just get the government out of the way and 
spend the money that we take from the taxpayers more 
effectively and efficiently, we would be making a lot more 
progress.
    Mr. Chairman, thanks for the indulgence. I yield back.
    Chairman Yarmuth. I thank the gentleman. His time has 
expired.
    I now recognize the gentleman from Virginia, Mr. Scott, for 
five minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    You know, listening to the other side about fiscal 
responsibility, I have got to congratulate them on being able 
to message fiscal responsibility better than we do, but let's 
get some facts on the table.
    Dr. Elmendorf, is it not a fact that since Nixon every 
Republican President has ended up with a worse deficit than 
they came in with, and since Carter, every Democratic President 
has ended up with a better deficit or even a surplus than they 
came in with, and that this Administration is on track to keep 
that pattern going?
    Dr. Elmendorf. Yes, Congressman, I think that is a fair 
description of your very interesting chart.
    Mr. Scott. Thank you.
    And the next chart is on jobs. You can tell where President 
Obama's initiative went into effect. That is at the bottom, 
when you are bouncing off the bottom of the chart, and his 
about $700 billion initiative went into effect, and you can see 
jobs coming in pretty much flat since then.
    Can you tell where, without looking at the chart, President 
Trump was elected or when his stimulus package twice as big as 
President Obama's economic package went into effect?
    Dr. Elmendorf. No, Congressman. The continued economic 
expansion over the past few years is a straight extension of 
the economic expansion that was started years ago under 
President Obama.
    Mr. Scott. So with a package twice as big, there is no 
upward trajectory in jobs?
    Dr. Elmendorf. No, Congressman.
    Mr. Scott. Thank you.
    You mentioned triggers. We have unemployment compensation, 
which is automatic; SNAP benefits, automatic; Medicaid. And you 
talked about infrastructure. If we required states to have on 
the shelf, shovel ready projects, school constructions, stuff 
like that, and provided low cost or low interest loans, would 
that be something that we should have on the shelf in cases of 
economic decline?
    Dr. Elmendorf. I think, Congressmen, there are some 
infrastructure projects that can be launched fairly readily if 
the money is available, but not many others, and that is why I, 
and I think many of my colleagues on this panel, would 
encourage you and your colleagues to focus on other ways of 
fighting recessions and to think about infrastructure 
investment as a longer term strategy.
    Mr. Scott. Okay. Well, you mentioned there are tax cuts and 
there are other tax cuts, and you said that all tax cuts do not 
stimulate the economy equally. What did you mean by that?
    Dr. Elmendorf. To stimulate the economy, we need to have 
tax cuts that encourage households or businesses to spend. So 
when you think about individual tax cuts, tax cuts that go 
primarily to higher-income individuals are much more likely to 
be saved than tax cuts that go to lower- and middle-income 
individuals and will, therefore, have less stimulative effect 
on the economy.
    Mr. Scott. One problem you have with tax cuts is once you 
get them into effect, they are kind of hard to eliminate. So 
that a temporary tax cut is difficult.
    Infrastructure spending you can cut off without as much 
aggravation. Can you make a comment about if you put these tax 
cuts in can you ever get them out?
    Dr. Elmendorf. Well, you put in a two-year payroll tax cut 
to help fight the last recession, and one piece of advice I 
would offer to you in this Committee is to construct a version 
of that sort of payroll tax cut that would be triggered on by a 
slowing of the economy and would be triggered off when, but 
only when, the economy has recovered sufficiently.
    I think if you build a tax cut as an explicit recession 
fighting tool, then I think it is clearer to the American 
people, as well as to Members of Congress, that this is meant 
to be temporary.
    Mr. Scott. The gentleman from Missouri went to great 
lengths to talk about how the lower incomes had increased 
significantly. Did Missouri not have an increase in the minimum 
wage in the last couple of years?
    Dr. Elmendorf. That may be, Congressman. I am afraid I 
actually do not know.
    Mr. Scott. Yes.
    Would an increase in the minimum wage stimulate the 
economy, particularly on the low end?
    Dr. Elmendorf. Yes, Congressman, I think it would. The 
analysis that CBO did when I was Director and the analysis in 
the version they have updated more recently shows that raising 
the minimum wage can reduce employment, but it also provides a 
great deal of additional income primarily toward people who are 
lower down in the income distribution.
    Mr. Scott. And about half of the analyses in the CBO report 
show that there would actually be an increase in jobs; is that 
right?
    Dr. Elmendorf. It is a possibility as well, Congressman.
    Mr. Scott. Thank you.
    Thank you, Mr. Chairman.
    Chairman Yarmuth. The gentleman's time has expired.
    I now recognize the gentleman from Texas, Mr. Crenshaw, for 
five minutes.
    Mr. Crenshaw. Thank you, Mr. Chairman.
    Since we are in the method of debunking myths, let's talk 
about that graph where fiscal responsibility was the main focus 
and which President from which party was in power at the time.
    Mr. Elmendorf, it is good to see you again, by the way.
    Dr. Elmendorf. Good to see you, too, Congressman.
    Mr. Crenshaw. Since that question was directed at you, I 
will direct this one at you as well.
    Where does the budget start? Does it start with the 
President or does it start in Congress?
    Dr. Elmendorf. Congressman, I always put the Congress first 
in my own thinking.
    Mr. Crenshaw. Right, and when we look at that graph, what 
we would also note if we cared about the facts was that a 
Republican Congress was in power both during the Budget Control 
Act of 2011 and under the Clinton Administration when we 
actually did not have deficits for a couple of years. I mean, 
quite amazing stuff there.
    So the facts do matter.
    On the CBO analysis, I would point out on the minimum wage 
that at the upper end we risk having 3.7 million jobs lost if 
we went to a $15 minimum wage. So it is just good to know.
    This next question is for Dr. Holtz-Eakin.
    Since this is about recession, I want to get to the core of 
that really quick. The Federal Reserve and other financial 
institutions monitor the signs of a potential recession. What 
are the common indicators that a recession is imminent, and 
should we be worried about this?
    Dr. Holtz-Eakin. People have their different favorite 
leading indicators. Traditionally, building permits, housing 
starts have been good indicators of the business cycle.
    Orders for durable goods, so on non-defense capital goods, 
excluding aircraft, is my preferred measure.
    All of these are, and monthly retail sales, are ways to 
monitor the confidence and the spending habits of different 
pieces of the real economy.
    The other ones that you hear a lot about are financial 
market indicators like inversions in the yield curve and the 
like. I am less a fan of those. I pay less attention to 
financial markets on a near term basis because they fluctuate a 
lot in the way that has nothing to do with the trends, but 
others like those more.
    Mr. Crenshaw. Okay. How much do you think expectations 
affect economic outcomes?
    So if in the public eye we keep talking about a recession, 
and this is very difficult to measure, I imagine, but do you 
think that affects economic outcomes?
    Dr. Holtz-Eakin. Yes, and there is a lot of evidence of 
this from the efforts of the Federal Reserve to set and 
maintain inflation expectations, and we have seen that.
    Doug Elmendorf mentioned forward guidance, expectations 
about the future of policy. These are all important channels 
for improving the performance of the economy.
    I am spending a lot of time looking at consumer confidence 
right now because the household sector is the bulwark of the 
economy right now, and continued bad news can dent that 
confidence, and that is something I would be concerned about.
    Mr. Crenshaw. Dr. Elmendorf, did you want to comment on 
that as well?
    Dr. Elmendorf. I would just add a comment. I agree that 
expectations can be important, but I also think that the 
American people expect the Congress to be realistic about 
future possibilities and risks, and to try to enhance the 
possibilities and guard against the risks.
    Mr. Crenshaw. Of course. So let's talk about those risks, 
and if we wanted to be as pessimistic as possible, you know, 
what risk should we be worried about?
    More importantly, what would we do to alleviate those 
risks?
    I will start with you, Mr. Elmendorf. Go ahead.
    Dr. Elmendorf. Well, I sympathize with Doug Holtz-Eakin's 
exhortations to try to raise trend growth, but I think that is 
a complementary policy to policies that would help bolster the 
economy if it falls into recession.
    And I disagree with Doug about the automatic stabilizers. 
We have a set of stabilizers today whose strength is basically 
a byproduct, an accidental byproduct, of tax rules and spending 
programs that we have built for other purposes.
    And so there is no reason to think we have the optimal 
level of automatic stabilizers today, and in fact, if you look 
back at the past set of recessions in this country, we have had 
bit run-ups in unemployment that have caused a lot of 
suffering, and stronger automatic stabilizers would have helped 
to reduce that.
    And in particular now, with monetary policy having less 
room to maneuver in the future because market interest rates 
are already so low, there are clear reasons to think we will 
need stronger fiscal measures in the future, and that is why I 
think building strong automatic stabilizers is important.
    Mr. Crenshaw. Dr. Holtz-Eakin, is it stronger stabilizers 
or is it more efficient stabilizers that we need? Can you 
comment on that?
    Dr. Holtz-Eakin. I think efficiency of a stabilizer really 
comes down to the issue of how well targeted they are. Are they 
targeted on the problem?
    And one of the issues in design I see right now is that in 
the 20th century, recessions were essentially industrial, 
inventory driven, investment driven events, and in the 21st 
century, 2000, 2001, dot-com bubble bursts. We get a minor 
recession. In the mid-2000s, we get a credit bubble burst. The 
housing bubble bursts, and we get the Great Recession.
    These are bubble-driven recessions. Their onset is 
different and sort of targeting effectively to offset the 
initial downturn is an important issue. I do not know exactly 
how to do that in this day and age.
    Chairman Yarmuth. The gentleman's time has expired.
    I now recognize the gentleman from Massachusetts, the Vice 
Chairman of the Committee, Mr. Moulton, for five minutes.
    Mr. Moulton. Thank you, Mr. Chairman.
    Dr. Elmendorf, good to see you. Thank you very much for 
joining us here today.
    Dr. Elmendorf. Thank you, Congressman.
    Mr. Moulton. And all of the panelists for participating in 
this discussion.
    Dr. Elmendorf, I would like to start with you. To 
paraphrase your testimony, in the event of a new recession our 
monetary policy is limited by low interest rates. Our fiscal 
policy can be limited by our timeliness in response and I would 
add political considerations.
    You also outline a stimulus package in your testimony that 
doubles the ARRA under President Obama.
    Why have you chosen a value double what was enacted 
previously?
    And how did limiting our stimulus as we climbed out of the 
Great Recession impact our recovery?
    Dr. Elmendorf. So I picked an illustrative stimulus package 
that was deliberately large because the stimulus that we 
enacted in 2009 was not sufficiently strong, given the nature 
of that downturn, the severity of that downturn, and because 
with monetary policy having less room to cut the federal funds 
rate than it had in any of the past recessions, fiscal policy 
will be more important.
    So I think there is a reasonable chance that we will need 
quite a large fiscal stimulus to effectively counter the next 
recession.
    And I wanted to discuss the fact that we can afford that, 
despite the large amount of outstanding federal debt. Even a 
stimulus package that was twice the size of what was the 
previous largest stimulus package is something for which this 
country has fiscal capacity.
    Mr. Moulton. I think it is worth just pointing out that as 
you say, it was not big enough. It was the Republican Congress 
that cut that stimulus short, and I think we could have had a 
much stronger recovery if we had not done that.
    Dr. Elmendorf. There was a survey of economists done at the 
time of the Recovery Act. It showed overwhelming support for 
the view that the Recovery Act boosted output and employment.
    And the slew of research about that Recovery Act and other 
forms of fiscal stimulus over time that we have seen in the 
last decade has strongly confirmed the views at the time that 
fiscal stimulus is an effective way to put people back to work.
    Mr. Moulton. Dr. Ajilore, automatic stabilizers, such as 
unemployment insurance, can also help reduce the impact of a 
recession. In fact, according to your recent article, 
unemployment insurance kept more than 5 million people out of 
poverty and prevented more than 1.4 million foreclosures.
    If states have reduced unemployment insurance benefits 
since the Great Depression, how will reduced UI benefits slow 
recovery during the next recession, whenever it occurs?
    Dr. Ajilore. Thank you for the question, Congressman.
    It is really important to understand that UI benefits are 
not just about the individual who is laid off and they are able 
to spend. It has a stimulus impact on the economy.
    So if you have lower benefits, that is less they can spend. 
So, for example, there are nine states that reduced the maximum 
benefit duration from 26 weeks down to 20, even down to 14, and 
they also made stricter eligibility requirements.
    And so, you have some states that if someone was unemployed 
in 2007, they would end up with that first paycheck of, say, 
like $3,000. Then in 2017, if that same person would be 
unemployed, they would end up with like $2,000.
    That $1,000 from that first payment, that is a loss to the 
economy, not just to the individual but to the economy, and so 
we have had that.
    So we have had a lot to talk about, ``We may not need 
this'' or ``we should not be worried about the recession,'' and 
that is fine, but we retrench back on unemployment insurance, 
which is the first kind of line of defense when we have a 
recession.
    You know, as has been mentioned, the monetary policy is 
going to be weaker. Fiscal policy is going to be helpful, but 
once we hit that recession, we need that first kind of, you 
know, return, that first kind of like punch to like, okay, 
let's get the economy back going again. And that is what 
unemployment insurance is.
    And we have gone back worse than the Great Recession, and 
so that is why we need to even just get back to par where we 
were in 2008.
    Mr. Moulton. So, I mean, to sort of paraphrase what you are 
saying and to put it in layman's terms, there is no real 
downside to having strong unemployment insurance because it is 
something that not only helps people who need the help. It just 
helps the broader economy.
    Dr. Ajilore. Exactly. And the other thing is that we do not 
have to worry too much about the debt burden of it because when 
you have a job, you do not get un-insurance benefits, and so 
when you lose your job, you get benefits, but then you get a 
job again. Then it is not mandatory spending that is constant. 
It is just once you lose a job.
    And then when you get a job again, it goes away.
    Mr. Moulton. But by definition, it is an automatic 
stabilizer.
    Dr. Ajilore. Right.
    Mr. Moulton. Dr. Elmendorf, we could address the reduction 
in UI among states by extending the length of benefits when 
unemployment grows, offering more to states with higher 
unemployment rates.
    The Committee for a Responsible Federal Budget estimates 
that this would cost approximately $25 billion during a normal 
recession.
    How might this expansion reduce the length and severity of 
the next recession and how else might we amend automatic 
stabilizers before a recession arises?
    Dr. Elmendorf. Strengthening the role of unemployment----
    Mr. Moulton. I apologize. I do not have much time left.
    Chairman Yarmuth. You can have some more.
    Mr. Moulton. Okay.
    Dr. Elmendorf. Strengthening the role of the unemployment 
insurance system, as has been suggested, I think would have two 
very important advantages. One is that it would alleviate the 
harm suffered by people who lose jobs when the economy slows 
down.
    Also it would provide continued spending that would help 
maintain some momentum in the economy.
    But on the second piece, maintaining momentum in the 
economy, you all will need to do more than that because we have 
a very large economy at $20 trillion of annual output now.
    In a slowdown to be effectively countered, you will need to 
bring some real force to bear, and that is why I think you and 
your colleagues should think about a collection of policies, a 
collection of ways to strengthen automatic stabilizers, in 
order to reduce the damage that will occur to the economy and 
individual families whenever the economy next goes into 
recession.
    Mr. Moulton. Gentlemen, thank you.
    Thank you, Mr. Chairman.
    Chairman Yarmuth. The gentleman's time has expired.
    I now recognize the gentleman from Pennsylvania, Mr. 
Meuser, for five minutes.
    Mr. Meuser. Thank you, Mr. Chairman.
    Thank you to you all very much for being here with us. It 
is terrific having former CBO Directors. As a former revenue 
secretary from the Commonwealth of Pennsylvania, Dr. Elmendorf, 
good to see you again.
    Dr. Elmendorf. Thank you, Congressman.
    Mr. Meuser. So a couple of questions. Clearly, our public 
debt is a bipartisan issue. We have averaged 42 percent of our 
debt to GDP over the last 50 years; 79 percent versus GDP 
today, projected to continue to grow, as we all know.
    So the first question is the tax cuts versus stimulus 
discussion. We have had a large tax reform a couple of years 
ago, and in my numbers it shows that at this point the idea of 
gaining tax revenue neutrality, we are not quite there yet.
    It has added approximately $160 billion, my numbers, to the 
current deficit yet out of $900 billion, but it has done 
wonders to the economy. There is really no denying that.
    I mean, we have a very robust economy, wages, unemployment, 
and every demographic, manufacturing, new business starts. A 
lot of great things are happening versus the stimulus one could 
argue did not have the same sort of returns and yet could 
arguably say cost more.
    So what is your response--and, Dr. Elmendorf, I will ask 
you--to tax cuts versus stimulus package?
    Dr. Elmendorf. Well, Congressman, as I read the evidence 
from CBO and from outside analysts, the 2017 Tax Act was 
expected to boost economic output by a little bit, and given 
everything else going on in the economy, it is always hard to 
tell whether something has had the effect one predicted.
    But I think as analysts look at what has transpired since 
that Tax Act took effect, it is quite consistent at least with 
the view that it was of a notable short-term boost in growth 
rates in 2018, but now the economy has slowed to the growth 
rates of GDP and employment it had before that boost.
    And so I think the evidence is consistent with the view 
that there will be a small positive effect on GDP of the tax 
law.
    If you look at stimulus legislation, that would occur 
during a recession. So, if you just tried to do that now with 
the unemployment rate already at 3.5 percent, you would not get 
so much.
    But my analysis here was or my suggestion drawing on 
serious analyses was in a recession when there are people 
unemployed and if the Federal Reserve has already cut the 
federal funds rate close to zero, which seems quite likely, 
then under those conditions, you get quite a large short-term 
boost to GDP from a short-term increase in the budget deficit 
through either tax cuts or spending increases.
    It is not just about spending increases. There is stimulus 
from tax cuts of the right sort, but you get a pretty big boost 
in GDP, and thus, you get a larger dynamic effect on tax 
revenue, which I believe and have argued should be included in 
estimates you see for important pieces of legislation. You get 
a pretty big feedback effect.
    And that is why the numbers I think make sense, given the 
uncertainties are bigger boost for smaller cost for stimulus 
under the conditions that we have been talking about.
    Mr. Meuser. Now you are not in an official capacity at CBO 
and, Dr. Eakin, you as well. Do you work some dynamic figures 
in, such as better trade agreements and perhaps more 
competitive Fed. interest rates, competitive versus the rest of 
the world?
    Would that add to GDP in your view?
    Dr. Holtz-Eakin. So I certainly spend a lot of time 
worrying about the quality of economic policy, and I think 
starting with the Fed. that the Fed. has done a remarkably good 
job of exiting from extraordinary monetary policy.
    I do not think we could have anticipated it would go as 
well as it did. And that has been an enormous benefit to the 
U.S. economy.
    Interest rates in other countries are noticeably lower 
because those economies are more broken, and I do not want to 
get lower interest rates from a broken economy. I would prefer 
to have a strong economy which would display higher 
productivity and interest rates. I think that is where we are.
    In terms of the Tax Act, I think the focus is too much on 
the individuals' side and the cut and the stimulus that comes 
from that and not enough attention is focused on the bipartisan 
agreement that the U.S. corporation income tax was broken, was 
damaging our international competitiveness, was harming our 
capacity for economic growth.
    And the most important reforms in there are structural 
reforms that will last that are permanent and should improve 
the incentives to invest, innovate, and have higher 
productivity in the United States, and those are key parts of 
policy. We can enhance them even further.
    Mr. Meuser. Thank you.
    Mr. Chairman, I yield back.
    Chairman Yarmuth. The gentleman's time has expired.
    I now recognize the gentleman from Nevada, Mr. Horsford, 
for five minutes.
    Mr. Horsford. Thank you very much, Mr. Chairman, for 
holding this hearing today.
    And I just really want to build off of the last points that 
were being made because I come from Nevada, and we were a state 
that faced really some of the hardest hit circumstances from 
the Great Recession, and I saw, directly, the impacts not only 
to my neighbors and folks in my community, but I was serving in 
the state legislature at the time and so had to deal with the 
impact of losing about a third of our state's economy during 
that recession.
    Nevada lost more jobs to our workforce than any other state 
during that period, with more than 70 percent of those losses 
in the Greater Las Vegas Metro Area.
    So one of the points that was just being made about the 
Jobs and Tax Cuts Act is that while the corporate tax rate was 
permanent, the middle-class tax cuts and tax cuts for small 
businesses were temporary, and that shows just the inequity in 
the tax policy that was set by this Administration and 
Republicans in Congress.
    But today I would like to focus on how we can strengthen 
the unemployment insurance program as an automatic stabilizer. 
I am a Member of the Ways and Means Committee as well, which 
has jurisdiction over the unemployment insurance program which 
serves as a lifeline for many Nevada families, and without the 
unemployment insurance program during the recession, I do not 
know what many families would have done to keep the living 
standards that they were able to maintain.
    Earlier this Congress, Ways and Means, and subsequently the 
full House passed H.R. 1759, the ``Bridge for Workers Act,'' 
which would ensure that states have flexibility to provide 
reemployment services to workers receiving earned unemployment 
benefits who need them.
    UI is one of the many tools we have at our disposal to help 
keep people and families afloat when they experience job loss 
during an economic downturn.
    Not everyone though is eligible for unemployment insurance, 
such as independent contractors, because they do not pay into 
the program. That is particularly true today because we have so 
many workers who make a living off of the informal gig economy.
    But one of the positive aspects of unemployment insurance 
is the fact that it functions as a federal-state partnership.
    So, Dr. Ajilore--if I said that wrong, I apologize--what 
options with respect to unemployment insurance can policy 
makers consider to meet the needs of those who are increasingly 
working in the gig economy during times of high unemployment?
    Dr. Ajilore. Thank you for your question, Congressman, and 
you got the pronunciation correct. Thank you.
    One of the things you look at is as the proposal has been 
talked about called the job seeker's allowance, which would 
work to kind of fill in the gaps beyond those for unemployment 
insurance, as you mentioned, independent contractors.
    Also you have to be employed for about a year to get 
unemployment insurance, and there are people, especially like 
new entrants, new labor entrants that are not eligible.
    And what you would do is you actually would come up with 
kind of what a weekly benefit, about $170, which relates to 
kind of the low-income people, and so you would expand 
eligibility.
    You provide this weekly benefit, and then also have the 
reemployment services, things called RESEA, where you would 
help people kind of stay attached to the labor force.
    And so the key is as you have talked about and as was 
mentioned before, the context of where we are now in terms of 
the economy is much different than it was 20 years ago, 30 
years ago, and so we have to have our programs to adjust for 
that.
    And so having a simple program like what is called the job 
seeker's allowance where you just get that weekly benefit and 
provide employment services would help address that issue.
    Mr. Horsford. Thank you.
    And, Mr. Hicks, again, from the state perspective on what 
more can be done to help them ensure that they are prepared to 
respond in a recession, what should states be doing now with 
their rainy-day funds and other tools in order to be ready to 
utilize those tools when necessary?
    Mr. Hicks. Yes, thank you, Congressman.
    The first thing you mentioned was rainy-day funds. States 
have been adding to their rainy-day funds after the last 
recession to a level that has never been seen before, and so 
the lessons were learned from the last two recessions that the 
sufficiency of their reserves were not there.
    And so states have been active in this area, raising the 
caps of their rainy-day funds, tying some of the deposit rules 
to volatility of revenues. A number of states are taking the 
extra revenue they get from certain volatile taxes and putting 
those in the reserves rather than budgeting them and increasing 
their base.
    The other thing that has happened in the last couple of 
years, particularly, is a return to a structural balance. A 
number of states through the slow recovery had structural 
imbalances in their budgets, and so more and more governors and 
legislatures now have budgets that are recurring revenues and 
equal and current recurring expenses and paying attention to 
the nonrecurring uses thing.
    So settled into a lower risk expenditure profile is one of 
the things they are doing, and then other things they are doing 
is planning better, stress testing both their revenue and 
expenditure growth under various scenarios, a mild recession, a 
moderate recession, a severe recession, at least informing the 
legislature and governors about, well, what would it look like 
if, you know, a downturn occurs and being a little more 
knowledgeable ahead of time about doing those things.
    And some of the things that we did during the Great 
Recession, we had all kinds of tricks that we needed to do to 
avoid severe cuts and to balance the budget. We are rolling 
some of those back into the toolbox and setting ourselves up 
to, you know, if we had to use those things again, not good 
budget policy, but sometimes the necessary actions.
    The states are preparing in that way.
    Mr. Horsford. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Yarmuth. The gentleman's time has expired.
    I now recognize the gentlewoman from Texas, Ms. Jackson 
Lee, for five minutes.
    Ms. Jackson Lee. Mr. Chairman and Ranking Member, thank you 
for your courtesies. I was in a mark-up, but this is such an 
important hearing that I wanted to make sure that I was able to 
get here.
    My questions will be in the backdrop of the most deadly or 
devastating tax cut that has now generated debt that I do not 
think we have experienced in the last three presidencies.
    I was here with the presidency of Bill Clinton, George W. 
Bush, and Barack Obama. I was also here, and, Dr. Elmendorf, I 
will have to get my numbers straight. I think it was 2007-2008 
when we got the word from Secretary Paulsen that we were not 
going to be the country that we thought we were in the matter 
of a weekend.
    So I want to have it in the backdrop of this trillion 
dollar-plus tax cut, and then a news item that I have heard 
that we do have unemployment, but hiring has slowed down, and I 
do not know whether that is an indicator that we should 
certainly be looking at.
    But let me then pose these questions first to Dr. 
Elmendorf. Since I lived through this, what is your assessment 
of what would have happened without the Recovery Act?
    If you can just answer these two questions, and why are 
automatic stabilizers fiscally responsible?
    Dr. Elmendorf. Thank you, Congresswoman.
    Without the Recovery Act, the previous recession would have 
been longer and----
    Ms. Jackson Lee. Can you give me the year so it will be in 
the record?
    Dr. Elmendorf. Right. So you and your colleagues enacted 
the Recovery Act in 2009, and without that action the terribly 
deep recession would have been even deeper, longer, more severe 
than it was.
    Automatic stabilizers are important because it is difficult 
for the Congress to always act very quickly when economies fall 
into recession. Economists are bad at predicting recessions, 
but quick responses from fiscal policy are important.
    And the way to do that with quick responses is to build 
them in ahead of time. Automatic stabilizers in our current 
fiscal systems have arisen by accident essentially by having 
certain sorts of tax provisions and spending programs that were 
designed to achieve other ends.
    If we strengthen the automatic stabilizers in a deliberate 
way, that would then provide stronger anti-recessionary policy 
when the economy needs it.
    Ms. Jackson Lee. Give us an example of one that we could 
strengthen.
    Dr. Elmendorf. So, for example, Congresswoman, you and your 
colleagues could enhance the unemployment insurance system in a 
way that would provide benefits for a longer period of time, 
which makes sense if you end up in an economy in which jobs are 
harder to find.
    You could also write into law increases in federal payments 
to states for the Medicaid program, which would help state 
governments get through recessions without having to cut other 
sorts of benefits or raise taxes, which would be exactly the 
wrong thing to do.
    You could write into law a cut in the payroll tax of the 
sort that you and your colleagues enacted to help fight the 
last recession, but that could be written into law with a 
trigger to take effect if unemployment rises and then a trigger 
to be turned off when unemployment falls back down again.
    Those are the sorts of policies I have in mind.
    Ms. Jackson Lee. I appreciate it.
    The question is we should have more than an umbrella on a 
rainy day. We need to really get prepared.
    For the last two gentlemen, I am going to ask my question 
so that you can be answering it. Let me just indicate to Mr. 
Hicks I think some of the questions may have been asked that we 
are concerned about, but I would be interested in Kentucky's 
experience with the Recovery Act.
    And I would also be interested in whether you think a 
recession is inevitable.
    And let me then pose my question, too, which means that we 
should be getting all of our emergency ducks in order to be 
prepared. Either Boy Scout, Girl Scout, Red Cross, however you 
will be prepared, we need to be prepared.
    Dr. Ajilore, I heard you talk about unemployment, but I am 
interested in a question. Are there steps that we should be 
taking to make sure that Medicaid, SNAP, and I did think I 
heard you were talking about unemployment insurance, are ready 
for the next recession?
    We get colds and others in impoverished conditions have 
pneumonia and have to be hospitalized, and I am really 
concerned. I just have an unreadiness about this enormous debt 
because of this tax cut, among other things, that are existing 
right now.
    So I would ask first if Mr. Hicks would answer and then 
Doctor.
    Mr. Hicks. Thank you, Congresswoman.
    Ms. Jackson Lee. Have you got my questions?
    Mr. Hicks. Yes, I did.
    I spent 32 years in the Commonwealth of Kentucky and 25 in 
the Budget office.
    So, the Great Recession was a series of continuous 
budgeting for states. States typically will cut first as 
revenues fall short of the estimates, and in fiscal year 2008, 
the recession had already started.
    We had a brand new governor in transition. The first 
briefing I had with that governor was how much he was going to 
have to cut spending, you know, for when he was walking in the 
door.
    And so, then we put the budgets together in fiscal year 
2009 before the Recovery Act. So that was done in the 2008 
legislative session. Again, we were planning for a downturn 
without any expectation of assistance from the federal 
government.
    And so what had happened- states quickly pivoted to try to 
array that assistance they had across this multiple years. The 
flexibility that was in the Recovery Act for use of some of 
those funds was very helpful. States could choose how much to 
use one of those streams of funding over Year A or Year B.
    It was really important to measure that against their 
drawdown to reserves because we had a number of states that did 
three consecutive years of drawdown of reserves, exhibiting 
kind of the planning of do not empty it out until we know it is 
really bad.
    And so states struggled but, I think, weathered a lot of 
those issues, and then the ability or the requirement to 
maintain spending on education that was part of the State 
Fiscal Stabilization Fund really assisted states in preventing 
from significant reductions in our primary spending item, which 
is K-12.
    And in terms of inevitability of recessions, they are 
always inevitable. We just do not know when they are, and so my 
membership this year is taking up this project to kind of just 
talk about, like this Committee hearing is, just what can we do 
to be ready when and what were the lessons that we learned from 
past occurrences.
    It really is just an educational and informative process to 
just be thinking ahead and state budget officials are typically 
very good planners.
    Ms. Jackson Lee. Thank you.
    Doctor?
    Dr. Ajilore. Thank you for your question, Congresswoman.
    So we talked a lot about unemployment insurance because 
that is kind of like the first stage, but other programs like 
SNAP and Medicaid are very helpful, too. And one of the reasons 
why it is helpful is because when people look for a job, they 
still have to eat. They still have issues with health care.
    And so these programs can help with those things that will 
make it easier then to get back to work.
    And so one of the things we can do with SNAP, we already 
have an existing program. One of the things that could happen 
is they could do a trigger where if there is a downturn, you 
immediately boost benefits by 15 percent. So now you give 
people more money to spend on food and things like that so that 
they do not have to worry about that, and you are able to hit 
more people.
    The other thing you could do is, you know, there has been a 
big push for work requirements, as if people do not want to 
work. And the gentleman before had mentioned that, you know, he 
knew of people like that.
    There are a lot of people who do want to work, and so 
adding work requirements that make it difficult; even if you do 
work requirements, you have to put in the infrastructure. So a 
lot of times, you know, we are moving to automation, and there 
are a lot of things you have to do online.
    Now, one, it is difficult for people to learn how to use 
these things online, but then you have to think about certain 
areas, like rural areas and rural communities that do not even 
have broadband. How are they going to, you know, satisfy these 
work requirements?
    Or you have work requirements that say, oh, well, you need 
to apply to five jobs a week. If you are in a rural community 
with three employers, how can you meet those?
    And so because you have these work requirements and people 
getting kicked off, now you are making it even worse for them.
    So you can remove work requirements. You can boost spending 
with SNAP, and as the gentleman was talking about, you know, 
sometimes you cannot rely on the federal government, but the 
federal government can do a lot to do that to help them out.
    When there was, you know, lack of spending by the states 
because they had the balanced budget rules, the federal 
government had a program where they supplemented them. Now, 
that could be made automatic so that in a downturn, the federal 
government already, you know, automatically provides 
supplemental funding so that you are not cutting Medicaid, you 
are not cutting SNAP, you are not cutting CHIP.
    So there are a number of things in these other programs 
that are very helpful, that are very important during a 
downturn that the federal government can do.
    Chairman Yarmuth. I thank the gentleman.
    Ms. Jackson Lee. Thank you. I yield back.
    Chairman Yarmuth. The gentlewoman's time has expired.
    I now recognize the gentlewoman from Illinois, Ms. 
Schakowsky, for five minutes.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    You know, I am so sorry that I missed your statements. I 
wish we would not schedule hearings all at the same time, and I 
am such a proud Member of this Committee. So I am glad.
    If everything I ask has already been talked about, I am 
going to apologize up front.
    But I do want to get an answer to these questions. So who 
exactly was left behind in the Great Recession and the recovery 
that followed?
    And who is still really being left behind, and maybe how we 
could address that?
    I am going to leave that open to whomever wants to answer 
that. Doctor?
    Dr. Elmendorf. Congresswoman, in recessions traditionally, 
and in the last recession, people with less education lose jobs 
at a higher rate than people with more education and end up 
with higher unemployment rates.
    And members of racial and ethnic minority groups, black 
Americans, Hispanic Americans tend to and did in the last 
recession end up with higher unemployment rates.
    So it was the people who have worst economic experiences in 
general between recessions also end up having the worst 
experiences in recessions on average, and you and your 
colleagues can do more to help these people both in the regular 
year and when recessions hit.
    Your tools, your budget tools, of course, are tax policy 
that supports working people and spending programs that support 
people when they cannot find jobs. And those programs are 
particularly important when jobs are harder to find in 
recessions.
    Ms. Schakowsky. Thank you.
    Let me ask Dr. Ajilore.
    Dr. Ajilore. Ajilore.
    Ms. Schakowsky. Ajilore?
    Dr. Ajilore. Yes.
    Ms. Schakowsky. Okay. Say it a little faster. I will get 
it.
    We in the House of Representatives voted to raise the 
minimum wage, gradually, and we also in that same bill got rid 
of the tip wage, $2.13 an hour, and went to one fair wage.
    So is not raising the minimum wage really important for 
protecting those people that are vulnerable during recessions 
and in between recessions?
    Dr. Ajilore. Thank you for your question, Congresswoman.
    It is very important because there are so many issues. It 
not just an economic issue, but even almost like a job quality 
issue.
    So a lot of problems with, you know, tip wage, you have a 
lot of issues of sexual harassment or other types of harassment 
that when you have that minimum wage and you get rid of the tip 
minimum wage, that goes away because you are not working so 
much for that.
    The other thing is that it was mentioned earlier that low-
income workers have done really well in the last two years. A 
lot of that has coincided with state level increases in the 
minimum wage.
    And so if we had a national minimum wage, a federal minimum 
wage, that would boost incomes for a lot of low-income workers, 
and then it is going to have that stimulus effect to help out.
    So one of the things is that consumer spending is 70 
percent of GDP, and that is what has been keeping this economy 
afloat, and so you boost the incomes especially of low-income 
people. That is going to help continue this economic growth and 
so we do not have to worry about a recession as much.
    So it is very important to have that minimum wage.
    Ms. Schakowsky. I want to ask you though, I am all for 
raising the minimum wage in the way that we did it. It gets to 
$15 an hour by 2025, is what we have done.
    I am wondering what you think in terms of is that 
meaningful enough by 2025 or are we going to look at $15 an 
hour as inadequate by those five-plus years.
    Dr. Ajilore. I would say for right now, in 2025 as it 
stands, the minimum wage is going to be $7.25. So if it is $15, 
that is going to be important.
    And so I think the key is that we have to worry about let's 
try to increase it, and if it turns out by 2022, 2023 we find 
that maybe it needs to be higher, we can do that because we do 
that with tax cuts.
    You know, we pass a tax cut, and then two years later we 
say, oh, well, we need to make it permanent. We can do the same 
thing with the minimum wage. We can say, okay, let's pass the 
minimum wage. It is going to $15 in 2025, but in 2021, if we 
find it inadequate, then we could pass a bill to boost it up 
again.
    Ms. Schakowsky. I appreciate that advice, and that we 
should watch carefully and make sure that we are serious about 
moving closer to a living wage in our country.
    Thank you.
    Chairman Yarmuth. The gentlewoman's time has expired.
    I now recognize the Ranking Member, Mr. Womack for 10 
minutes.
    Mr. Womack. I thank you, Mr. Chairman, and a good 
discussion today.
    I appreciate our witnesses today.
    I said in my opening remarks that--and this is kind of a 
prayer that I have for our country--that we would spend as much 
time trying to use lessons learned in history to better protect 
ourselves against a recession, a potential recession, by 
preventing it than we do spending time on how to figure out how 
to build all of these automatic stabilizers into the formula so 
that we can guarantee something to happen, and I will come back 
to that in just a minute.
    Here we are in the Budget Committee, and I agree with my 
colleagues that talk about the need to do a budget because I do 
think, as Speaker Pelosi indicated, that it is a statement of 
your values.
    We do not really know what those values are because we did 
not do a budget, and we did not lay this out for the American 
people and have that adult level discussion about it.
    But here we are today talking about how can we add to more 
mandatory spending in this country when any person with half a 
brain and decent in eighth grade math can figure out that when 
70 percent of your federal spending is on the mandatory side of 
the ledger and you are going to run a trillion dollar deficit, 
which is going to come really close to equaling the amount of 
money we are going to spend on the discretionary side of the 
ledger, a significant portion thereof.
    Here we are talking about adding to it, when I think the 
conversation would be better spent talking about issues of how 
do we better prevent a recession from happening through our 
policy discussions and get off of this desire or this 
insatiable appetite to talk about relitigating the 2016 
election with impeachments and investigations.
    I mean that has consumed the Congress of the United States 
right now, but yet here in these Committee hearings we are 
talking about things that actually have the chance to move the 
needle for the American public.
    So, Dr. Holtz-Eakin, thanks for indulging me in my soapbox 
speech.
    You have already talked about things we could do. I made a 
couple of notes here. We could influence some resistance to 
future recessions through education policy, could we not?
    Dr. Holtz-Eakin. Yes.
    Mr. Womack. How?
    Dr. Holtz-Eakin. As I mentioned in an answer to another 
question, I am deeply concerned, beginning in the K-12 area, 
that our education system is badly underperforming, and it is 
not just an economic issue. It is a great social injustice.
    We are going to create an underclass if we do not educate 
those individuals better.
    If you want to find the single biggest indicator that 
someone is going to get into student debt problems, find 
someone who comes out of high school and needs remedial help 
entering college.
    Those individuals are less likely to graduate. If they do 
graduate, they are likely to take longer, and they are going to 
end up with more student debt.
    So this starts at the beginning, and in the end what we 
care about is capacity to participate and productivity or 
participants in the labor force. That is at the core of it.
    Mr. Womack. And let us remind ourselves we have a student 
loan debt bubble right now of one point--pick a number--$6 
trillion. In my understanding it is about $400 billion of that, 
25 percent of the amount, has been accrued to people who never 
received a college degree.
    How has that helped us protect ourselves against a future 
recession?
    Dr. Holtz-Eakin. That is heading in the wrong direction, 
quite frankly. I think the student loan program that is 
something that needs deep review by the Congress.
    Mr. Womack. Dr. Elmendorf, I see your eyes lit up a little 
bit over there. So I want to give you a chance to comment on 
the same assertion that I made that policy discussions, good 
policy discussions about how to protect ourselves against a 
future recession.
    And let me just give you an example of what drives my 
thinking on it. We know there is going to be another recession, 
just like we know there is going to be another hurricane. We 
just do not know where and when.
    But there are things we can do to protect ourselves against 
that next future hurricane if we just use our heads a little 
bit and use some of the lessons learned in history like raising 
the base flood elevation or building from materials that are 
more wind resistant and that sort of thing.
    So why could we not do the same thing about recessions?
    Dr. Elmendorf. So I think we can and should, Congressman. 
So I sympathize very much with Doug's concern about the 
educational system in this country, and I agree that you and 
your colleagues should work to build a stronger trend growth of 
our economy. I think that is a complement to, not a substitute 
for also thinking about what will happen when a recession hits.
    So to use your analogy, we should build buildings out of 
flood plains, but we still need FEMA to turn up when the 
hurricanes hit.
    And what I am saying here, my view of economic policy fits 
that. We should build a stronger economy for the medium term 
and long term. We should also be prepared for the consequences 
of recession.
    Mr. Womack. But we already have automatic stabilizers in 
place. Why are they not sufficient?
    Dr. Elmendorf. That is an important question, Congressman. 
I think the answer is that the strength of those stabilizers 
was not by design by you and your colleagues. You built tax 
provisions and spending programs to achieve other ends, and out 
of those decisions, we end up with a certain amount of 
automatic stabilization.
    But it is not by design. We have not picked the current 
amount, and if you look at the past recessions we have had in 
this country, we have had a lot of people lose jobs and not be 
able to get back to work as quickly as we all would like them 
to in ways that I think stronger stabilizers would have helped.
    And that is even worse going forward because with market 
interest rates in the 2 percent range, not the 5, 6, 7 percent 
range of the past, the Federal Reserve will have less room to 
cut the federal funds rate.
    So I think we will need even stronger fiscal policy to 
fight recessions in the future.
    But can I say one more thing, Congressman? It does not have 
to be spending. It can be tax cuts. So I have referred every 
time these questions have come up there could be cuts in 
payroll taxes of the sort that people here did in the Congress 
a decade ago.
    So you should not think about it as there are spending ways 
to do it, and I personally think there are important spending 
aspects of that, but if you and some of your colleagues prefer 
to fight recessions with tax-based countercyclical policy, that 
can have some of the same, not all of the same, but some of the 
same positive effects I have been talking about.
    Mr. Womack. In this resiliency discussion that we are 
having, sometimes I believe we can talk ourselves into 
believing that we are going to have a recession, and when you 
turn on the nightly news and all these economists who are like 
TV weathermen, they still keep their job even though they are 
wrong.
    We sometimes say it enough that the average Joe out here 
believes that it is about to happen.
    And every metric that I look at, even inverted yield 
curves, are not long term. There is no evidence that it is 
going to happen.
    And even if and when it does happen, every recession is 
going to be different than the previous one. The time frames 
are different. The conditions are different.
    For example, in the 1970s, it was about energy. In the 
early 2000s, it was a dot-com, and then we all know the housing 
bubble. I believe we are going to have some kind of, you know, 
a hiccup with student loan debt, but that is just me, and we 
have got to figure out a way to fix that.
    So, Dr. Holtz-Eakin, should we be tailoring automatic 
stabilizers if, in fact, we do not have a sufficient number?
    I believe we do, but if we are going to do those, should we 
not tailor those to the situation rather than just try to do a 
one size fits all approach?
    Dr. Holtz-Eakin. As I said, I understand the logic, and I 
think it makes sense, for example, to think hard about whether 
the real value of unemployment insurance is at the appropriate 
level. It has diminished over time. That is a stabilizer we 
have. Make sure that it is sufficient and it is working well.
    What I do not know how to operationalize, you know. You 
would have to write law, and this is the Budget Committee. So 
magnitudes matter.
    What is the trigger? Is it the level of unemployment? Is it 
the increase in unemployment?
    How much do you cut the payroll tax if that is something 
that is going to be a trigger? Two percentage points, 3 
percent, 5?
    We do not know what the recession looks like. So how in 
advance are you going to write down the actual metrics which 
are we are going to spend this money, and this is how much we 
are going to spend in an unknown future?
    So I just do not know how to operationalize this idea. It 
sounds great, but I do not know how to do it, and I am not sure 
anyone has enough science to do it well.
    And my concern that I will repeat is I think that it will 
be impossible for a future Congress, in the face of a 
recession, to do nothing. And the idea that you are going to 
rely on automatic stabilizers and it is all going to be good, I 
think, is not realistic.
    A future Congress is going to do things, and so given that 
you are going to do discretionary things, do not set yourself 
up to spend the money twice or cut the taxes twice.
    Mr. Womack. Well, I know I am about out of time. I do not 
want the moment to pass though without referring to a 
conversation you had with Mr. Sires here about immigration 
because, again, here is another policy that the Congress of the 
United States is, I think, required to address because we have 
a broken immigration policy.
    And within the last couple of years, we have had policy on 
the floor, legislation on the floor that would, in fact, do 
exactly what Mr. Sires was talking about in terms of visas and 
this sort of thing and how we can build a system that provides 
something that would contribute strongly to the economy if it 
were done properly.
    And not lost on me was the fact that he voted against that 
particular policy when it came on the floor, and I am sure it 
was more over political reasons and the political consequences 
of trying to support something like that rather than one on 
merit. And I am just going to leave it there.
    If I have got one more moment?
    Chairman Yarmuth. Go right ahead.
    Mr. Womack. Since Ms. Jackson Lee took four extra minutes, 
I do not mind taking an extra minute.
    I never let these moments pass without asking our panelists 
because I believe that $22.5 trillion of debt is way too much, 
and we are going to spend $400-plus billion this year on 
servicing that debt. That $400 billion would pay for a lot of 
really cool stuff if we had the money with which to do it 
across the spectrum of discretionary spending.
    Dr. Elmendorf, when is it time for us to do our jobs?
    Dr. Elmendorf. Every day, Congressman.
    I think you are right, Congressman, to note that we have a 
level of debt and, even more importantly, a trajectory of that 
debt under current policies that is not sustainable, and 
ultimately you or your successors will raise taxes and cut 
benefits and services to reduce the rate of borrowing.
    But, it is also true that we have interest rates today that 
are lower on Treasury debt than have been at essentially any 
point in my professional lifetime. They have been trending down 
for decades, and not just in this country, but in other 
countries as well.
    And there is a signal in that about how much damage the 
outstanding debt is doing. And with low interest rates, that is 
a signal that the crowding out of investments is not so costly 
because one of the ways we have always tracked the cost of that 
crowding out is interest rates get pushed up.
    Interest rates are very low today. So that makes the 
problem less urgent, less urgent than I said when I came here 
as the Director of the Congressional Budget Office half a dozen 
years ago because we have seen something happen in the world, 
which is a further decline in the interest rates.
    It does not mean we can go on like this indefinitely, but 
it does mean there is a less urgent problem.
    Mr. Womack. So maybe a less urgent, but urgent nonetheless, 
right?
    Dr. Holtz-Eakin. It is out of fashion to worry about this. 
I do not mind being out of fashion.
    I think that the heavy focus of the economics profession on 
interest rates has missed the fact that the primary deficit, 
the mismatch between spending and revenue is large and growing 
and needs to be dealt with, and that is the Budget Committee's 
job.
    Mr. Womack. Yes. You know, Mr. Chairman, it is indisputable 
that as a percentage of our economy, discretionary spending, 
that which the appropriators of the Congress have to deal with 
and are currently wrangling with, is going down, and that as a 
percentage of the economy, mandatory spending is continuing to 
skyrocket.
    And I would hope that our Committee will eventually come to 
terms with that and be willing to deal with it no matter how 
tough the political world may be.
    And I yield back.
    Chairman Yarmuth. I thank the gentleman.
    I now yield myself 10 minutes, or however much time I can 
take.
    Mr. Womack. Or 15.
    Chairman Yarmuth. Yes.
    [Laughter.]
    Chairman Yarmuth. Thanks, again, to all of the witnesses. I 
think it has been a very useful discussion.
    I thought it was getting way off the tracks for a time 
being, not from the witnesses, but from some of the members who 
wanted to talk about how great things were, and the whole point 
is to say whatever you think of the current state of the 
economy, as the Ranking Member said, we know that the hurricane 
is coming at some point, and is there something we should be 
doing now to get ready for it? That is a pretty simple 
question.
    I know we do not usually think too far ahead in this body, 
but it is useful to at least have that discussion.
    Mr. Hicks, I am sorry that I did not mention your 25 years 
of service to the Commonwealth of Kentucky, our beloved state, 
earlier in the hearing, and I thought you were going to get 
ignored for the whole hearing as I was prepared to spend most 
of my time talking to you, but fortunately people did turn 
attention to you.
    Getting back to the Recovery Act and Kentucky's experience, 
I know when we debated the Recovery Act, we on the Democratic 
side said we want more infrastructure. We want to spend more, 
and we want more infrastructure, and Republicans said they 
wanted to spend less, and they wanted to get it under $900 
billion, and they wanted a larger share to go to tax cuts than 
we did.
    I do not know who was right or wrong, but in the Kentucky 
experience, if you were writing it today, and granted that we 
are different now than we were in 2009 and 2010, but if you 
were to write it today, how would you have done it differently?
    Mr. Hicks. Well, as it relates to infrastructure, I think 
one of the things that Departments of Transportation across 
state governments will tell you, they have plenty of projects 
they can do resurfacing bridge repair. The infrastructure 
deficit has been well documented. There is plenty of that kind 
of spending that is not transformative, that is not 
reinvestment, but is truly spending.
    There is more of that supply of projects available than 
there are on the long-term projects, the construction of a 
brand new bridge. That is, as Mr. Elmendorf said, you know, a 
longer term issue.
    So in one sense there is plenty of spending that takes 
place there. States in the last six fiscal years, over 33 
states have raised their gas taxes. It did not matter what 
party, you know, the states were. They have done that.
    And so that is the area of some of the largest spending 
increase that states have done because they recognize that 
infrastructure deficit. So that is one area that I think is 
good.
    The other probably I would say is the use of Medicaid as a 
means of both, you know, incorporating the fact that 
enrollments rise and that safety net element, you know, needs 
attention, also combined with the fungibility of the dollars 
that the last two recessionary fiscal responses we have had are 
very effective.
    If you want to get spending done quickly and you want to 
keep states from raising taxes or really reducing education 
spending because that is where most of our big dollars go to, 
that is a very effective tool, and it has proved effective in 
the last two recessions.
    So we looked at that very closely, you know, when we were 
contending with the Great Recession, and it really was a rescue 
effort aimed at really K-12 spending and higher education 
spending at the time.
    I will say the fiscal cliff that we ran into, we did not 
know how long the recession was going to last, and on state 
revenues, it lasted longer than anyone expected. And so when 
the relief dropped off, we had to do what we had to do, which 
is we had to backfill the Medicaid with state dollars and we 
cut the heck out of everything else.
    We tried to keep K-12 spending from being cut, but higher 
education took uniformly across the country the biggest single 
year spending cut, you know, that we have seen in years and 
years because that is the largest discretionary element of 
state government spending.
    And then the last thing I say in my remarks, this kind of 
conversation and an institutional type of conversation between 
and among the federal government, state governments, and the 
local governments we used to have done in a better way back 
when the ACIR, Advisory Commission on Intergovernmental 
Relations, was okay.
    So one of the things in terms of your theme here, preparing 
and getting ready for that next contingency, is to pay some 
attention to that.
    Speaker Ryan had a task force, you know, on that issue a 
couple of years ago, and I still think it is important because 
when such a large amount of the Recovery Act flowed through 
state governments on domestic spending, and I will say it was a 
shock in terms of the amount of effort that needed to be done, 
but we are all willing to do it, and I think states worked 
really hard.
    But the federal government did a really good job of 
communicating during the time of implementation, and GAO did an 
excellent job in terms of getting out ahead of these things so 
they could identify problems and get to resolution before 
enforcement had to take place and later has.
    So I think some of that preparation are the lessons 
learned, and I would love to see some of that 
institutionalized.
    Chairman Yarmuth. Some of my Republican colleagues were 
talking about how great the economy is and minimized the risk 
here, but just for a review of history, Dr. Elmendorf, and by 
the way, I apologize. I am not sure I introduced you as the 
Dean of the Harvard Kennedy School at the beginning. I 
introduced you as a former CBO, but you have got to give a 
shout-out to the Kennedy School.
    But was there not growth, the economy growing at a fairly 
reasonable rate back in 2007, right before it was not?
    Dr. Elmendorf. So, Congressman, Mr. Chairman, I will say 
first that as some of the alumni of the Harvard Kennedy School 
are here and Members of your Committee, we are very proud of 
that.
    Economists are very bad at predicting recessions. In fact, 
it is quite common for economists, once the recession is known 
to have started, to look back and see economists leading policy 
makers, saying things like, ``Well, we are not in recession 
now.''
    It turns out the economy had already slowed because the 
data become available with a lag, and there are jolts that are 
reversed, and then jolts that are not reversed.
    So it is hard to know, and that is why it is important to 
be prepared.
    Chairman Yarmuth. The quarter before we went into a 
negative growth rate, we had a 2.5 percent growth rate in GDP.
    Dr. Elmendorf. Yes, Mr. Chairman.
    Chairman Yarmuth. Essentially where we are right now.
    You said something, Dr. Holtz-Eakin, that I think is really 
important when you talked about the differences between the 
1990s and today. Some of my colleagues have heard me say this. 
I repeat it all the time.
    We had a Chief Technology Officer from Microsoft in my 
district several months ago, and she said that over the next 
ten years we would experience 250 years' worth of change.
    Even if she is 50 percent wrong, that is an awful lot of 
change.
    Then, one of the top people at IBM told me that in the next 
three years alone, artificial intelligence was going to change, 
significantly change or eliminate, 150 million jobs around the 
world. That is just in the next three years.
    So we are in a period of rapid change, and it is going to 
get more and more rapid. So I think the idea that we could face 
and almost a certainty that we will face some really 
significant disruptive changes in society that are going to 
make significant difference and without question will 
disadvantage certain categories of the population, as we know, 
is something I think makes this discussion much more important.
    One of the things that you talk about enhancing economic 
growth and the chance is that I become more and more focused on 
is early childhood education in that we know that very soon we 
are going to be a majority non-white population, which means 
that a generation or two from now, the tax base is going to be 
majority non-white.
    And we have a lot of people in vulnerable situations whose 
children are going to make up a lion's share of the tax base a 
generation or two from now.
    Is that one of those things that you think we could do, 
along with immigration and other things?
    Dr. Holtz-Eakin. There is a lot of evidence that early 
childhood education has high returns over the course of 
people's lives. That is in the economics literature pretty 
clearly.
    From the Budget Committee's perspective, I think like the 
key is this is yet another piece of evidence that we have two 
budget problems. One is the mismatch on revenues and spending, 
and the other is the composition of the spending.
    Discretionary accounts are the place where you do all the 
genuine investments, basic research, infrastructure, education, 
and the mandatory programs, which are largely legacy programs 
and aimed at the elderly, are pushing out the discretionary 
accounts, and the kids get shortchanged as a result.
    And how you deal with that I think is one of the 
fundamental challenges of the budget going forward.
    Chairman Yarmuth. I thank you for that.
    And going back to immigration, I do not know. I will let 
Mr. Sires speak for himself about why he voted against it, but 
you are not talking about back in 2013, are you?
    Mr. Womack. No.
    Chairman Yarmuth. Because the reason that a lot of 
Democrats, and I am sure I was one of them, voted against that 
was because it was the easy stuff to do, and one of the 
problems we have always faced in doing immigration reform, at 
least since I have been here is everybody wants to do the easy 
stuff, H-1B visas, yes, simple.
    Border security? Yes, we can do border security.
    DACA, half of the citizenship, those are the tougher 
things, and I think that, as one of the Gang of Eight in 2013, 
I worked for seven months to bring comprehensive immigration 
reform to the floor when the Senate had already passed it, and 
we were not able to get it to the floor, even though seven of 
the eight of us had signed off on a proposal that we thought 
could pass.
    Mr. Womack. The bill I am talking about did have a six-year 
DACA fix in it.
    Chairman Yarmuth. A temporary DACA fix, yes.
    Mr. Womack. Yes.
    Chairman Yarmuth. Got you, but I totally agree that 
immigration reform--I agree with you, the Ranking Member, and 
everybody else--is something that is not optional. It is 
mandatory.
    In my district, over the last 10 years, 100 percent of the 
population growth has been from immigration. None has come from 
native born growth.
    We had a hearing on immigration and its future impact on 
the budget, and one of the witnesses said that it is estimated 
in about 2045, 87 percent of the population growth of the 
country would be from immigration. So it is something that, 
again, looking down the road we definitely have to do.
    So anyway, once again, thank you all for your testimony. I 
found the discussion extremely interesting and valuable. And I 
do not think I have anything else to do except to say once 
again thank you, and I thank the Ranking Member.
    And without objection, the hearing is adjourned.
    [Whereupon, at 12:19 p.m., the Committee was adjourned.]
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