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





                                                        S. Hrg. 116-101
 
          MEASURING ECONOMIC INEQUALITY IN THE UNITED STATES

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                        
                     CONGRESS OF THE UNITED STATES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 16, 2019

                               __________

          Printed for the use of the Joint Economic Committee
          
          
          
          
          
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                  U.S. GOVERNMENT PUBLISHING OFFICE 
 38-198                    WASHINGTON : 2020 
 
          
          


                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

SENATE                               HOUSE OF REPRESENTATIVES
Mike Lee, Utah, Chairman             Carolyn B. Maloney, New York, Vice 
Tom Cotton, Arkansas                     Chair
Ben Sasse, Nebraska                  Donald S. Beyer, Jr., Virginia
Rob Portman, Ohio                    Denny Heck, Washington
Bill Cassidy, M.D., Louisiana        David Trone, Maryland
Ted Cruz, Texas                      Joyce Beatty, Ohio
Martin Heinrich, New Mexico          Lois Frankel, Florida
Amy Klobuchar, Minnesota             David Schweikert, Arizona
Gary C. Peters, Michigan             Darin LaHood, Illinois
Margaret Wood Hassan, New Hampshire  Kenny Marchant, Texas
                                     Jaime Herrera Beutler, Washington

                Scott Winship, Ph.D., Executive Director
                 Harry Gural, Democratic Staff Director
                 
                            C O N T E N T S

                              ----------                              

                     Opening Statements of Members

Hon. Carolyn B. Maloney, Vice Chair, a U.S. Representative from 
  New York.......................................................     1
Hon. Mike Lee, Chairman, a U.S. Senator from Utah................     3

                               Witnesses

Dr. Gabriel Zucman, Associate Professor of Economics, University 
  of California, Berkeley, and Co-Director, World Inequality 
  Database, Berkeley, CA.........................................     5
Dr. Heather Boushey, President & CEO and Co-Founder, Washington 
  Center for Equitable Growth, Washington, DC....................     6
Dr. Douglas Holtz-Eakin, President, American Action Forum, 
  Washington, DC.................................................     8
Dr. Eric Zwick, Associate Professor of Finance and Fama Fellow, 
  University of Chicago Booth School of Business, University of 
  Chicago, Chicago, IL...........................................     9

                       Submissions for the Record

Prepared statement of Hon. Carolyn B. Maloney, Vice Chair, a U.S. 
  Representative from New York...................................    36
Prepared statement of Hon. Mike Lee, Chairman, a U.S. Senator 
  from Utah......................................................    37
Prepared statement of Dr. Gabriel Zucman, Associate Professor of 
  Economics, University of California, Berkeley, and Co-Director, 
  World Inequality Database, Berkeley, CA........................    38
Prepared statement of Dr. Heather Boushey, President & CEO and 
  Co-Founder, Washington Center for Equitable Growth, Washington, 
  DC.............................................................    42
Prepared statement of Dr. Douglas Holtz-Eakin, President, 
  American Action Forum, Washington, DC..........................    54
Prepared statement of Dr. Eric Zwick, Associate Professor of 
  Finance and Fama Fellow, University of Chicago Booth School of 
  Business, University of Chicago, Chicago, IL...................    61
Response from Dr. Zucman to Question for the Record Submitted by 
  Senator Klobuchar..............................................    79
Response from Dr. Boushey to Question for the Record Submitted by 
  Senator Klobuchar..............................................    79


           MEASURING ECONOMIC INEQUALITY IN THE UNITED STATES

                              ----------                              


                      WEDNESDAY, OCTOBER 16, 2019

                    United States Congress,
                          Joint Economic Committee,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:45 p.m., in 
Room 2020, Rayburn House Office Building, the Honorable Carolyn 
B. Maloney, Vice Chair, presiding.
    Representatives present: Maloney, Schweikert, Beyer, 
Beatty, and Heck.
    Senators present: Lee and Heinrich.
    Staff present: Melanie Ackerman, Robert Bellafiore, Alan 
Cole, Harry Gural, Owen Haaga, Amalia Halikias, Sema Hasan, 
Colleen Healy, Ziyuan Huang, Christina King, Kyle Moore, 
Michael Pearson, Hope Sheils, Kyle Treasure, Scott Winship, Jim 
Whitney, and Randy Woods.

  OPENING STATEMENT OF HON. CAROLYN B. MALONEY, VICE CHAIR, A 
               U.S. REPRESENTATIVE FROM NEW YORK

    Vice Chair Maloney. Thank you so much. I want to thank all 
my colleagues for being here and all our distinguished 
panelists. I am Congresswoman Carolyn Maloney.
    Last month, the Census Bureau reported that income 
inequality in the United States by one measure had reached its 
highest level since they began tracking it more than 50 years 
ago. For the typical worker, wages have been stagnant for 
decades, for four decades. On the other hand, those at the top 
are doing great. The top 1 percent of households in the United 
States now take home about 20 percent of the total income.
    The wealthiest 1 percent own nearly 40 percent of total 
wealth. Those at the very top, the top one-tenth of 1 percent, 
have seen their share of wealth double since 1990. That narrow 
sliver of the population, the top tenth of 1 percent, now own 
more than the bottom 80 percent of Americans.
    One of our witnesses today, Dr. Zucman, has done important 
work tracking these trends going back a century. His most 
recent work looks at the role played by our tax system. It is 
widely believed that our tax system is progressive, that the 
rich pay a larger percentage of their income in taxes. However, 
Dr. Zucman's recent work reveals that in 2018, the wealthiest 
400 Americans paid a lower total tax rate than any other income 
group. Sadly, this is not an accident. It is deliberate public 
policy.
    In 2017, the Republican Congress and President Trump 
slashed taxes on the rich, borrowing $1.9 trillion to do it. 
Inequality in America was already sky-high. The Republican tax 
cut made it far worse.
    Skyrocketing inequality undermines our middle-class society 
in which anyone who works hard has a chance to succeed. It 
means that for millions of Americans, the American dream may be 
a myth.
    Our second witness, economist Heather Boushey, argues that 
high levels of inequality undermine economic growth, because 
strong growth depends, in part, on a strong middle class. 
Consumer spending accounts for 70 percent of the U.S. economy. 
But as a larger and larger share of income and wealth go to 
those at the top, there is less left over for everyone else.
    As a result, most Americans have less money in their 
pockets, less to spend on what businesses sell. Therefore, when 
the bottom 50 percent, those who consume a much larger share of 
income compared to those at the top, see no income growth for 
40 years, that is a major problem.
    Extreme inequality also undermines our communities. The 
Chairman and I agree that healthy communities with strong 
social capital are critical to a high quality of life. But 
extreme inequality undermines that.
    When wealth is highly concentrated, and in a society where 
education is critical to success, families have extremely high 
incentives to live in towns with other wealthy families so they 
can put their children in the best school systems. So Americans 
increasingly become segregated by wealth, and their quality of 
life becomes dependent on their ZIP Code.
    Extreme inequality also undermines our democratic 
institutions. It enables the powerful to rig the rules to make 
themselves even more powerful. We see the erosion of antitrust 
laws, the breakdown of protections for small investors, the 
rejection of overtime protections for workers. We pay a very 
high price for extreme inequality.
    How bad is inequality in the United States? Economists 
disagree about the severity of the problem, but while they 
disagree about how much inequality has worsened in recent 
decades, there is little disagreement things are getting worse.
    One way that we measure the strength of our economy is by 
quarterly measures of gross domestic product. It is a good 
aggregate number. It tells us how fast the whole economic pie 
is growing. But the slices of the pie that go to the rich, 
middle class, and poor are extremely unequal.
    Unfortunately, we currently don't measure how economic 
growth is shared. For this reason, I have introduced the 
Measuring Real Income Growth Act of 2019, and I am pleased that 
Senator Heinrich is introducing a companion bill in the Senate. 
The bill would require the Bureau of Economic Analysis to 
report GDP growth by income decile and the top 1 percent 
alongside the top line number. It will help us understand not 
just how fast the economy is growing, but who is benefiting 
from the growth.
    Academic economists, such as Dr. Zucman, have produced 
estimates similar to those we are asking for from BEA, but we 
need the government to do this in a regular and timely manner.
    Inequality is one of the most pressing issues of our day. 
It is tearing our society apart and undermining much of what we 
stand for. In order to understand inequality, we must have 
better ways to measure it, ways that are accepted by those on 
both sides of the aisle. With that information in hand, we can 
begin to restore our economy to the land of opportunity.
    I would now like to call on Chairman Lee for his opening 
statement, and then we will go to the panelists.
    Thank you.
    [The prepared statement of Vice Chair Maloney appears in 
the Submissions for the Record on page 36.]

 OPENING STATEMENT OF HON. MIKE LEE, CHAIRMAN, A U.S. SENATOR 
                           FROM UTAH

    Chairman Lee. Thank you, Vice Chair Maloney, for holding 
this hearing. This is an interesting topic, and I look forward 
to our conversation this afternoon.
    Inequality has been a hinge of American politics. And 
indeed, something of a hinge in all democracies for as long as 
democracies have existed, and with some good reason. 
Concentration of economic power can be as dangerous as the 
concentration of political power.
    Unfortunately, the debate about inequality, like far too 
many debates these days, can easily be swept up into a partisan 
exercise of talking past each other. We could spend our entire 
time, and we could spend entire days for that matter, haggling 
over whether inequality is best understood as something that 
involves unequal opportunity or instead involves unequal 
outcomes. Or indeed, if the latter, we could argue for hours 
about whether and how much it is even a problem, given that 
almost every facet of modern life, from air conditioning to 
airplanes, can be counted among the blessings of intentionally 
unequal benefits, the unequal benefits of free enterprise.
    Inequality is such a large concept that it is very 
difficult to tackle in a single hearing. That is why I commend 
Vice Chair Maloney for organizing today's hearing on measuring 
inequality and for inviting such an excellent panel of 
witnesses to talk to us, people with a lot of expertise and 
insight.
    The subject of data measurement techniques is, at once, 
narrow enough to keep our discussion focused and, hopefully, 
technical enough that even Congress can set aside political 
temptations and simply drill down on some very important 
questions.
    For instance, how exactly should we define income for 
purposes of measuring inequality between rich, poor, and middle 
class? How should we count government transfers, like the 
earned income tax credit for lower income workers? As the 
scholarship on inequality measurement has progressed, which 
technical details have survived peer-reviewed scrutiny and 
which remain to be worked out before we can reach some type of 
academic consensus?
    These are not the questions that will necessarily lead 
cable news political talk shows. That is why they are exactly 
the kinds of questions the Joint Economic Committee should be 
taking up. Even the best policies involve tradeoffs.
    Our economy is growing. And today, our economy happens to 
employ more people than it ever has before. But it has, in 
fact, been a long slog out of the Great Recession, much longer 
for some, regrettably, than for others.
    If the data really can afford us a clearer view of how the 
costs and benefits of economic growth are being experienced as 
we move up and down the economic scales, as we move up and down 
the income spectrum, that is the type of analysis we should all 
insist on getting and insist on making sure that we get it 
right.
    So thank you, again, Madam Vice Chair, and to the witnesses 
that we are going to hear from today. I look forward to hearing 
from you.
    [The prepared statement of Chairman Lee appears in the 
Submissions for the Record on page 37.]
    Vice Chair Maloney. Thank you so much.
    And I am going to introduce our witnesses, and each will 
have 5 minutes, and then we will go to questions.
    Dr. Gabriel Zucman is associate professor of economics at 
the University of California, Berkeley. His research focuses on 
distribution and taxation of global wealth. Professor Zucman is 
the author of ``The Hidden Wealth of Nations,'' which found 
that 8 percent of the world's wealth is held in tax havens. He 
is coauthor of the just released ``The Triumph of Injustice: 
How the Rich Dodge Taxes and How to Make Them Pay.'' Dr. Zucman 
received his Ph.D. from the Paris School of Economics.
    Dr. Boushey is the president and CEO and cofounder of the 
Washington Center for Equitable Growth. Her research focuses on 
the intersection between economic inequality, growth, and 
public policy. Dr. Boushey is author of the just released 
``Unbound: How Inequality Constricts Our Economy and What We 
Can Do About It.''
    Previously, she worked as an economist in several 
organizations, including the Center for American Progress, the 
Economic Policy Institute, and the Joint Economic Committee. 
She received her Ph.D. in economics from The New School for 
Social Research.
    Dr. Holtz-Eakin is president of the American Action Forum, 
which he founded in 2009. Previously, he served as director of 
the nonpartisan Congressional Budget Office and as chief 
economist at the Council of Economic Advisers.
    Dr. Holtz-Eakin spent more than a decade at Syracuse 
University, where he was Trustee professor of economics at the 
Maxwell School. He has a Ph.D. in economics from Princeton 
University.
    Dr. Eric Zwick is associate professor of finance in the 
Booth School of Business at the University of Chicago. His 
research focuses on the impacts of public policy on corporate 
behavior, with a particular focus on the challenges facing 
small and medium-sized firms. He has a Ph.D. in business 
economics from Harvard University.
    Thank you all for coming on this really important subject.
    And, Dr. Zucman, you are recognized first, and we will go 
right down.
    Thank you.

    STATEMENT OF DR. GABRIEL ZUCMAN, ASSOCIATE PROFESSOR OF 
ECONOMICS, UNIVERSITY OF CALIFORNIA, BERKELEY AND CO-DIRECTOR, 
            WORLD INEQUALITY DATABASE, BERKELEY, CA

    Dr. Zucman. Thank you, Chairman Lee and Vice Chair Maloney, 
for inviting me to speak today. It is an honor to be here.
    My name is Gabriel Zucman, and I am an associate professor 
of economics at the University of California, Berkeley. My work 
seeks to advance the measurement of inequality. With my 
colleagues, Facundo Alvaredo, Lucas Chancel, Thomas Piketty, 
and Emmanuel Saez, I am one of the co-directors of the World 
Inequality Database, an extensive database on the long-run 
evolution of income and wealth inequality.
    One of our goals is to contribute to the creation of 
comprehensive, standardized, and internationally comparable 
inequality statistics that capture all forms of income 
contributing to GDP. So concretely, when GDP grows 3 percent, 
let's say, in a given year, we want to be able to know how 
income is growing for each social group in a way that is 
consistent with the official rate of GDP growth. We call these 
statistics distributional national accounts.
    To understand the ultimate goal and the value of this 
project, the following analogy is helpful. According to the 
official national accounts of the United States, real GDP grew 
2.9 percent in 2018. This number involves some uncertainty. The 
measurement of GDP, after all, relies on many assumptions.
    There are projections based on preliminary reports that can 
only be confirmed months or years down the road. There are 
imputations, for example, of the rents that homeowners pay to 
themselves. There are assumptions about how much income is 
underreported by taxpayers to the IRS. But despite these 
uncertainties, most people trust official estimates of GDP.
    These estimates are based on methods that have been 
improved over several decades. They are based on 
internationally agreed and constantly refined concepts and 
methods. They are constructed by hundreds of highly qualified 
government statisticians.
    My hope is that, one day, we will reach the point where 
statistics of inequality are constructed and regarded like GDP 
statistics.
    With my colleagues, we try to contribute to this evolution. 
We have created prototype distributional national accounts, 
that is, statistics that distribute the national account 
aggregates--such as national income, household wealth, tax 
revenue, and government spending--across the population. These 
prototype distributional national accounts are based on the 
conceptual framework that we developed over several years. They 
are based on harmonized guidelines, concepts, and estimation 
techniques that we have applied and are applying to many 
countries. They are constantly updated when new data becomes 
available and refined estimation techniques are designed.
    All the data series are made available in a user-friendly 
manner on the World Inequality Database, wid.world. All 
programs, computer code, and technical appendices are publicly 
available. All our results can be replicated using publicly 
available data. Users are free to change our methodology, and 
we constantly refine our methods as we receive new feedback and 
new knowledge emerges.
    These prototype distributional national accounts show a 
large rise in income inequality. In 1980, the top 1 percent 
earned 10 percent of total pretax income. Today, it earns about 
20 percent of total pretax income.
    Although we have put a lot of effort in building this 
prototype, it remains a prototype. The methods underpinning our 
distributional national accounts are still in their infancy. 
Much more work needs to be done.
    Our hope is that these prototypes will eventually be taken 
over by government, improved, and published as part of the 
official toolkit of government statistics. This is what 
happened for the national accounts in the first place.
    It may take years, even decades, before this happens. But 
in the meantime, it is perfectly normal to have methodological 
discussions, debates, and disagreements. This does not mean 
that we cannot know what is happening to inequality today.
    A wide array of evidence shows high and rising inequality. 
Each of these sources has limitations. All economic statistics 
are constructions, whose limitations must be understood. But by 
working together, we can arrive at the best possible estimates 
and reach the stage where the publication of inequality 
statistics will be just like the publication of GDP.
    I look forward to your questions. Thank you.
    [The prepared statement of Dr. Zucman appears in the 
Submissions for the Record on page 38.]
    Vice Chair Maloney. Thank you.
    Dr. Boushey.

   STATEMENT OF DR. HEATHER BOUSHEY, PRESIDENT & CEO AND CO-
FOUNDER, WASHINGTON CENTER FOR EQUITABLE GROWTH, WASHINGTON, DC

    Dr. Boushey. Thank you, Vice Chair Maloney and Chairman 
Lee, for inviting me to speak today. It is an honor to be here.
    My name is Heather Boushey, and I am president and CEO of 
the Washington Center for Equitable Growth. We seek to advance 
evidence-backed ideas and policies in pursuit of growth that is 
strong, stable, and broadly shared.
    One of the most important things we can do to fight 
inequality in the United States right now is to start keeping 
track of it. Government statistics drive economic policymaking 
in Congress, the Federal Reserve, and the executive agencies. 
Inequality should be added to this pantheon.
    And the right way to incorporate inequality is to add 
measures of growth within income quantiles to the National 
Income and Product Accounts. This extension to our existing 
National Income Accounts updates them to better reflect the 
realities of the 21st century economy.
    Vice Chair Maloney has introduced a bill that would do just 
that, and I want to thank her for her attention to this 
important issue.
    The bill is called the Measuring Real Income Growth Act, 
and it will tell us what growth looks like for low-, middle-, 
and high-income Americans. The one number approach to growth we 
use now is no longer sufficient.
    In the 1960s and 1970s, growth in our economy was broad-
based. When the economy grew, most families saw their incomes 
rise in tandem. But that pattern fell apart starting sometime 
around 1980. Over the past 40 years, most growth has gone to a 
small group of people, those at the top of the income 
distribution.
    When growth is so unequally distributed, aggregate measures 
are misleading. Distributional measures of growth answer an 
increasingly important question: Who prospers when the economy 
grows? Measuring growth for Americans up and down the income 
ladder will have profound impacts on economic discourse and on 
policymaking.
    First, it will connect the idea of aggregate economic data 
with the real-life circumstances of families in the economy. 
When a worker sees politicians touting strong growth but looks 
around and sees no evidence of that in their community, they 
are right to feel that they are being left behind.
    Second, distributional accounts will focus our attention on 
the economic well-being of families, which is, after all, what 
growth is supposed to deliver.
    Third, distributional measures of growth will guide 
policymakers in designing policies that both raise output and 
do it in a way that everyone gains.
    Finally, these metrics will allow citizens to hold their 
elected representatives accountable to delivering an economy 
that works for all.
    Now is the time for the Bureau of Economic Analysis to 
incorporate distributional measures into our regularly released 
national accounts. The statistical science around this topic is 
increasingly mature. In addition to work by academics, the OECD 
has created an expert group to study a new standard for 
distributional measures of income. Some member countries have 
already adopted versions of these measures in their official 
statistics.
    Here in the United States, the Federal Reserve has started 
reporting a distributional breakdown of the financial accounts. 
Critically, these measurements fill in a significant gap in our 
understanding of the U.S. economy. For decades, our economic 
policy has been driven by the presumption that we must increase 
growth at all costs.
    Proponents of this view argue that, quote, ``growing the 
pie is the most important metric of success.'' This presumption 
is wrong. There is a large and growing body of empirical 
research that shows that we cannot create strong or broadly 
shared economic gains through a policy agenda that allows those 
at the top to reap the bulk of the gains.
    First, research shows that inequality obstructs the 
development of human capital. Children from low-income families 
have worse health outcomes and fewer educational opportunities, 
which has long-run effects on productivity and output.
    Second, research shows that inequality is subverting the 
proper function of the institutions that manage the market. A 
small number of citizens with immense wealth exercise outsized 
influence on policy entrenching their wealth by lowering taxes 
and weakening protections on labor.
    Third, inequality distorts both consumption and investment. 
Research confirms the intuition that the rich save more of 
their income. Rising income inequality puts more money in the 
hands of the rich and depresses overall economic demand, while 
simultaneously encouraging a greater reliance on credit rather 
than productive investment.
    Because rising inequality obstructs, subverts, and distorts 
our economy, we cannot be indifferent to how growth is 
distributed. The new measurements proposed by Vice Chair 
Maloney will help us chart a path to stable, broad-based growth 
that benefits all Americans.
    I look forward to your questions. Thank you.
    [The prepared statement of Dr. Boushey appears in the 
Submissions for the Record on page 42.]
    Vice Chair Maloney. Dr. Holtz-Eakin.

   STATEMENT OF DR. DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN 
                  ACTION FORUM, WASHINGTON, DC

    Dr. Holtz-Eakin. Vice Chair Maloney, Chairman Lee, members 
of the committee, thank you for the privilege of being here 
today to discuss this important research area and the policy 
implications of it.
    We are all by now quite familiar with the characterization 
of income inequality and its evolution over the past four 
decades, a characterization that includes the share going to 
the top 1 percent rising from roughly 10 to 20 percent and 
incomes for those in the bottom half of the distribution 
remaining essentially flat.
    So as someone who is a consumer of this research literature 
as much as anyone, it is disconcerting to read recent research 
by Gerry Auten and David Splinter that reexamines these 
patterns and finds, in fact, at the top, the rise was quite 
modest, perhaps 2 percent, and that in the bottom 50 percent, 
the income increased by about a third over that period. And 
that is a very different picture of the level and evolution of 
inequality in the United States.
    It is clear there is no consensus. And if you dig into 
this, it turns out that the results that you get are incredibly 
sensitive to the kinds of things that neither you nor I would 
know how to make a decision on. What is going to be the basic 
unit of observation? Are we going to look at households? Are we 
going to look at tax filing units? What is going to be the 
definition of income? What will be in it? Will we try to scale 
to get all national income or not? How do we impute the things 
that we don't actually directly observe?
    And it is quite striking how sensitive the results are to 
different choices of the measure of inflation over that time 
period. It makes a big difference for the results.
    And so I think it is fair to say, at this point, there is 
no real consensus about the level or evolution of income 
inequality, and that this is an ongoing and active area of 
research that, hopefully, some agreement will be reached by the 
various researchers.
    It does for me, at least, raise the question of how we want 
to think about the policy implications of the research. If we 
really don't know where we are, it is hard to figure out 
exactly what the policy design would be. And on top of that, it 
is not obvious what the goal is. What is the right level of 
inequality? And how would you actually identify it and 
institute policies to get to it?
    Surely, we are not trying to get to zero where everyone 
gets exactly the same thing. So that we have to stop somewhere 
in between. And I have yet to see anyone articulate a stopping 
point in a way for us to think about the objectives of this--of 
this policy.
    And so if you don't know where you are starting, you don't 
know where you are going, it is not much of a situation where 
you want to take aggressive policy action.
    The final thing I would emphasize that comes out quite 
clearly in this is, while there is casual talk of the top 1 
percent or the middle income or the lower income, as if they 
were monolithic entities, there is a huge amount of movement in 
and out of those.
    In research that Gerry Auten did, you find that something 
between 37 and 47 percent of those people in the 1 percent are 
gone a year later. So being a 1 percenter might be a one-time 
lifetime event. You sell a business, you are a 1 percenter. You 
weren't before, you never will be again. And how we think about 
policies toward any part of that income distribution, we should 
think hard about whether people are going to be there for any 
sustained period of time. It makes a difference in the policy 
design.
    So when I look at this literature and I recognize the sort 
of deep caring that has always been true in the United States 
about inequality, it leads me to the modest suggestion that 
perhaps the right thing to do until the research is settled is 
to focus on the piece of inequality about which we all agree, 
the lower tail, those people who are poor in America, have been 
poor, may remain poor. There, I think, is consensus that we 
ought to do something about that wherever possible and spend a 
little less time fighting about policies toward the rich and 
spend a lot more time thinking about strategies to reduce the 
level of poverty in the United States on a permanent basis.
    Thank you, and I look forward to your questions.
    [The prepared statement of Dr. Holtz-Eakin appears in the 
Submissions for the Record on page 54.]
    Vice Chair Maloney. Dr. Zwick.

STATEMENT OF DR. ERIC ZWICK, ASSOCIATE PROFESSOR OF FINANCE AND 
 FAMA FELLOW, UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS, 
               UNIVERSITY OF CHICAGO, CHICAGO, IL

    Dr. Zwick. Vice Chair Maloney, thanks to you, Chairman Lee, 
members of the committee, for the opportunity to appear today 
to discuss my research and lessons for measuring economic 
inequality.
    My name is Eric Zwick. I am an associate professor of 
finance at the University of Chicago Booth School of Business.
    I make three points in my testimony that I will summarize 
here. First, inequality is high and has risen. A meaningful 
scientific consensus supports this basic point. However, the 
academic community is still debating the size of this increase 
and learning about the composition of high-end inequality. For 
example, relative to what we previously thought, households at 
the top of the income distribution derive more of their income 
from work and from entrepreneurship and less from investment 
income like dividends and interest.
    Most top earners are private business owners, a group that 
includes lawyers, doctors, consultants, owners of mid-sized 
businesses, such as auto dealers and wholesale distributors. In 
both number and aggregate income, these groups far surpass that 
of high-tech billionaires and public company CEOs who have been 
the focus of much inequality commentary.
    In an early stage paper, I have found that wealth 
concentration has risen, but risen less, and depends more on 
private business ownership than previously thought. I do want 
to stress that our results do not imply that wealth 
concentration is low or irrelevant from a policymaker's 
perspective.
    Second, my second point, is that measuring broad inequality 
does require assumptions based on evolving data collection and 
methods. Therefore, conclusions from the research frontier are 
somewhat uncertain. The state-of-the-art on implementing 
distributional national accounts, or DINAs, which would provide 
statistics like GDP but broken out by income groups, remains a 
work in progress. The core issue is that DINA methods require 
many assumptions. The ultimate conclusions are sensitive to 
which assumptions we make.
    When data are missing on who gets what type of income, 
researchers make certain assumptions to fill in the gaps. For 
example, in the leading prototype of DINAs for the United 
States, there is a strong link between Saez and Zucman's--and 
Dr. Zucman's wealth estimates, Piketty, Saez, and Zucman's DINA 
estimates, and Saez and Zucman's recent work on tax 
progressivity. If we change the assumptions for estimated 
wealth inequality, that will change distributional income 
estimates, and changing distributional income estimates will 
change estimates of average tax rates at the top and bottom.
    In my view, these assumptions are, in most cases, well 
justified, but they necessarily rely on incomplete data and 
convenient simplification. Thus, alternative assumptions can be 
equally, and in some cases better justified, with significant 
implications for what stories we tell about how inequality has 
evolved and what lessons we draw for tax policy.
    It is also important to recall that what we observe in tax 
data is influenced by reporting responses to changing tax rules 
over time. So the same high-level statistics might be 
consistent with very different underlying stories of what is 
going on. This uncertainty is where the scholarship plays its 
role.
    So third, my third point is that I recommend several clear 
next steps for collecting new data to help implement DINAs and 
improve inequality measures.
    First, task the Bureau of Economic Analysis with developing 
a process to produce DINA estimates, to prepare a public 
technical report, and open up findings and methodological 
details to expert feedback. A recent effort by economists at 
the Federal Reserve to distribute the U.S. Financial Accounts 
demonstrates the value of such a process.
    Second, new tax laws that require partnerships and C 
corporations to trace and report their ultimate owners could 
help improve our DINA estimates.
    Third, expanding the IRS' random audit program could 
improve our understanding of underreported income and help 
improve our DINA estimates.
    And last, improving data collection and retirement account 
balances and the portfolio composition could improve our DINA 
estimates, because that data is currently not used.
    The academic literature remains somewhat divided on the 
technical specifics of distributional accounts. But these 
divisions largely reflect an evolving state of current 
knowledge that is changing as new data becomes available. This 
is not unusual in academic research; the glass is half full. I 
strongly believe that we will reconcile these differences and 
continue to build toward a consensus method over time.
    Some final remarks. To advance our learning, I think this 
committee could facilitate a substantive conversation about 
several outstanding questions. For example, what roles have 
population aging, changes in the pension system played in 
measuring these trends; second, how important is 
multigenerational wealth versus self-made wealth; third, what 
are the consequences of inequality for disparities in 
opportunity, especially for children.
    Let me also say that I greatly admire Dr. Zucman's work and 
that of his colleagues, Thomas Piketty and Emmanuel Saez, 
despite our occasional friendly disagreements over accounting 
methods. I have learned a lot from them, and my work would not 
have been possible without theirs.
    And last, I want to reiterate my reading of the evidence. 
It is not that inequality in America is low or that it has not 
increased at all. Rather, my reading is that the increase has 
been more modest, the nature of the increase skews away from 
the passive capital highlighted in Piketty's book and toward 
human capital, labor, and entrepreneurial activity.
    Thank you for your time. Look forward to questions.
    [The prepared statement of Dr. Zwick appears in the 
Submissions for the Record on page 61.]
    Vice Chair Maloney. Thank you.
    I am calling first on Senator Heinrich. He has got a 
conflict. He has got a challenge with his time.
    Senator Heinrich. Well, I will keep this short, in respect 
of all of my colleagues' time.
    Dr. Boushey, I just wanted to ask how important it would be 
to make sure that, as we implement these new statistics, that 
they actually be produced concurrently with when other 
statistics are produced. So, for example, most economic 
statistics come out quarterly. If we want to understand the 
relationships, how important is it to be on sort of the same 
calendar as everything else that we rely on when we try to 
manage the economy?
    Dr. Boushey. Thank you. Thank you, Senator. It is a really 
important question. You know, currently we release data on--
from the National Income and Product Accounts on GDP, gross 
domestic product, quarterly. And I think it would be very 
important that, as the BEA puts together this methodology, that 
the goal be for the distributional data to be released 
alongside the GDP. It is through doing that that we will learn 
how growth is distributed.
    I think actually what has happened at the Federal Reserve 
with their distributional accounts on the financial side shows 
that that is possible. That is what they have done. They have 
taken the Nation's financial accounts and they have appended 
them to survey data and are able to make extrapolations that 
allow that data to be released on a quarterly basis, which has 
just started this fall. So I think that shows a good roadmap 
for how BEA could do it.
    And I think it is not just possible, but it is imperative 
for the policy debate that, as we get that quarterly GDP, we 
understand who in America is benefiting, where it is happening. 
Ideally, I would like to be able to see that across place and 
ideally across race and to some extent gender, but probably 
that is a little bit more complicated. But I think that having 
people understand who growth is benefiting in that timely way 
is probably one of the most imperative new statistics that we 
need from Federal agencies.
    Vice Chair Maloney. Thank you.
    Chairman Lee is recognized.
    Chairman Lee. Thank you very much, Madam Vice Chair. And 
thanks to all of you for being here.
    Dr. Zwick, we are going to start with you, if that is all 
right. You have written that the data for different types of 
income are often sensitive to the types of tax regime that is 
at issue. Do I understand that correctly? And if a particular 
type of income receives favorable tax treatment, some income 
may be relabeled to take advantage of that treatment. In other 
words, you squish one end of the balloon, air is going to go 
somewhere else in that balloon.
    Does this suggest that we should be careful interpreting 
estimates of income inequality or taxes paid in the year 
immediately following a major tax reform package? For example, 
a year like 1987 or like 2018. And what is the most recent year 
for which you feel that we have sufficiently high quality and 
reliable data?
    Dr. Zwick. Yes. So thanks for the question. I think, yeah, 
the basic point is that if there is a different tax rate for 
types of income--I think we see this especially in 
entrepreneurial situations, where you have the ability to pay 
yourself either as labor or capital dependent and, you know, 
subject to the tax rules, of course. We have seen responses to 
tax regimes that include this relabeling response. And so the 
income that is reported as capital, for example, might actually 
reflect labor income sort of under the hood, if you actually 
thought about the economic nature. And we use a bunch of 
methods to try and estimate the extent to which capital income 
as reported actually reflects labor using, say, when an owner 
prematurely dies in a small business or an owner prematurely 
retires, thinking about how the business reacts to that. If it 
were just passive capital, the business would continue 
operating. But if it were more a mix of capital and labor, the 
business would change.
    So those kinds of issues show up--they are always present. 
And to the extent that there are different tax rates on 
different kinds of income, those issues can be larger. So as we 
move, you know, capital tax rates relative to labor tax rates, 
those issues can be larger.
    So, you know, over time we have had different tax changes. 
And come right around these reforms, the specific behavior 
labeling response is uncertain.
    Chairman Lee. Do we have a complete and reliable dataset 
yet for 2018, the first year following the----
    Dr. Zwick. I don't think so.
    Chairman Lee. Dr. Zucman, in your New York Times op-ed, you 
have consumption taxes at 12.3 percent of income for the lowest 
income group. And yet, to my knowledge, no state has sales 
taxes higher than around 9 percent. And many states, of course, 
have carve-outs designed to make the sales tax less regressive 
by carving out things like unprepared food.
    Your methods state that this is because they pay sales tax 
on goods purchased with transfer income. Is that correct? Am I 
stating that correctly? In other words, that the difference 
between the fact that no state has sales taxes higher than 9 
percent and your figure of 12.3 percent is made up for as a 
result of the fact that you figure that some of these transfer 
programs involve people paying for things using money that they 
get through one of the programs. Is that right?
    Dr. Zucman. So what we try to do in this book is very much 
what we try to do in this overall project of distributional 
national accounts, which is allocate the aggregate amount of 
tax revenue collected by the U.S. Just like we want to allocate 
total GDP. Total consumption taxes are broader than sales 
taxes, they include excise taxes or other indirect taxes. So 
that is a main explanation for the numbers that you mentioned.
    And what I want to say is that----
    Chairman Lee. Federal excise taxes aren't made up for in 
that difference between 9 percent and 12.3 percent, are they?
    Dr. Zucman. Yes--no----
    Chairman Lee. You maintain that they are?
    Dr. Zucman. State sales taxes are only a fraction of total 
consumption taxes in the U.S. You have Federal excise taxes. 
You have tariffs. You have other indirect taxes, such as 
business licenses.
    So what I want to say is, ultimately, I think it would be 
helpful also for the government to publish statistics of 
effective tax rates by income that are comprehensive, that take 
into account 100 percent of the official amount of tax revenue 
collected by the U.S. We try to provide a prototype of this. We 
are the first ones to distribute 100 percent of the total 
amount of tax revenue, 28 percent of national income. This is 
work in progress. These are methods that can be improved and 
that, hopefully, will be improved and taken over by government 
statisticians in the future.
    Chairman Lee. But do I have this right, though, that if 
some government transfer program expanded, the program itself 
expanded and poor people who benefited under that program, who 
received money under that program, were able to buy more things 
as a result of that expansion, that would show up in your 
estimates as higher tax rates for poor people, because they 
would pay more sales tax, but they would not be credited with 
having more income? Am I understanding that correctly?
    Dr. Zucman. This is an interesting methodological question, 
Mr. Chairman. And we took that into account by restricting the 
population to people who earn more than half the Federal 
minimum wage in income. So, typically, these are people who 
might receive some transfer income. That is not playing a big 
role in the specific statistics. So we have thought hard about 
this question----
    Chairman Lee. But the answer is yes, right? The answer is 
yes, isn't it?
    Dr. Zucman. The answer is yes, but quantitatively this is 
very minor.
    Chairman Lee. Understood.
    Dr. Zucman. Qualitatively you are correct.
    Chairman Lee. My time has expired. Thank you, Madam Vice 
Chair.
    Vice Chair Maloney. Thank you. I would like to ask each of 
the witnesses, what level of confidence do you have in evidence 
that inequality is rising?
    We are all here today because shared prosperity matters to 
the American people. GDP is the commonly used indicator to 
measure the growth of the economy, but it doesn't tell us how 
the growth is shared across the economy. We often have to wait 
years for researchers to get the data and report on key trends.
    So I would like to ask each of you, do you agree that 
having more detailed data produced by the Federal Government 
and shared on a regular basis on who is benefiting from 
economic growth will allow us to better evaluate the impact of 
policies?
    And I'd like to start with you, Dr. Zucman, and let's just 
have everyone's thought on it.
    Thank you.
    Dr. Zucman. Thank you very much for your question. As our 
discussion showed, there is a great demand in society for 
statistics that decompose GDP, National Income, other 
macroeconomic aggregates by income groups. And there would be a 
huge value in publishing those statistics.
    The way that I see this process unfolding is very much like 
what happens--what happened with the national accounts in the 
first place. You know, the national accounts were developed by 
economists such as Simon Kuznets in the 1930s in the U.S. And 
then they were taken over by official government statisticians 
and government agencies. And ever since, they are refined and 
improved year after year. And I think that is the path forward, 
and we hope to contribute to that process. That is how to build 
trust in these all-important statistics.
    Dr. Boushey. Thank you.
    I think it is very important that we have more detailed 
data on how growth is being distributed. One of the things that 
we see when we look at the way that policy is discussed, the 
way that the economy is talked about, we get data regularly on 
the aggregate economic output through GDP and other measures. 
But what we--we only get data irregularly, only once a year, on 
income inequality. And I think it is very important that we put 
those two conversations together.
    Because we used to be a country in the sixties and 
seventies where, when GDP grew, most Americans saw their 
incomes grow at the same rate. Since 1980, it is only for 
people in the top 10 percent of the income distribution that 
see their incomes grow at least at the average of GDP, if not 
above. So most people are not experiencing that average growth. 
Yet we are going out--the Federal Government is going out every 
quarter and saying the economy grew by 3.3 percent or the 
economy grew by 2 percent, when the vast majority of families 
are experiencing growth in their income, which is far below 
that.
    I think we have a responsibility to connect those dots, and 
we have the tools and the prototype and the skills within the 
inside of the Bureau of Economic Analysis to make this real.
    Dr. Holtz-Eakin. I certainly think if you want to have 
solid policies, you ought to measure better. I don't think that 
that should be an objectionable goal.
    We do get annual reports on inequality and on income 
growth. And they point out, quite vividly sometimes, the 
difference between the top line and what is going on.
    So in 2016, families who worked full time for the full year 
saw exactly zero increase in their real incomes. That is Census 
data. Nevertheless, we didn't have zero macroeconomic growth. 
And so we don't reconcile those in a deep way statistically. So 
I think we should not object to the fact that we need to 
understand this better, measure it better.
    And the thing that I would just repeat from my opening 
remarks is, it is important not to pretend that people are 
somehow stuck in a particular place. They are moving around a 
lot, and measuring that mobility would be comparably important, 
in my view.
    Vice Chair Maloney. Dr. Zwick.
    Dr. Zwick. Yeah, I think I generally--I mean, I am an 
empirical researcher, so I am always going to be supportive of 
more high-quality data. So I think this is a case where not 
only the empirical researchers, but I think a much broader 
community would really value this product. I think what we know 
about whether inequality is rising is--you know, we learn with 
a considerable lag currently.
    So I can say that the scientific consensus is that it has 
risen, but what is going on right now is much harder to say.
    Vice Chair Maloney. Thank you very much. My time is 
expired.
    I now call on Representative Schweikert, to be followed by 
Representative Beyer.
    Representative Schweikert. Mr. Chairman, Madam Vice Chair.
    Okay. This is like a kid in a candy store for some of us, 
which is why my staff, I think, is--has given up caffeine, 
because I make them nervous.
    Three of you, I have actually read a number of your things. 
Can I throw out first a couple of concepts? I am going to read 
something, and then let's do a couple of quick questions.
    I will argue in many ways the fixation, particularly on 
some of the tax reporting data from both our country and around 
the world, and the--I have a fixation on income inequality. But 
I believe you are missing a whole bunch of the way you would 
properly model it, everything from if you actually do proper 
overlays of where we are demographically. Some of the unusual 
things we have seen in the data of millennial males 
underperforming in the labor force participation, the fixation 
on what wealthy have compared to the thing I wish--Doctor, I 
know you have done some of this--velocity. What is my movement 
from someone being--and can I use the language quartiles? Just 
because when I was in school, that is what we called it and no 
one else here on the panel did that. So I don't want to be--I 
am so fearful of being offensive to anyone.
    But, you know, when we would talk about the two or three 
lower quartiles, we had a fixation of what was healthy in an 
economy was our brothers and sisters moving up and out of some 
of those lower quartiles. And a fixation by distribution 
difference is actually in many ways dishonest, because if my 
vast portion of my population, you know, my brothers and 
sisters who didn't graduate high school, and all of a sudden I 
see amazing movement, particularly in the last year, two years.
    So, look, I am looking at some data right here. Real median 
earnings for female households with no spouse present jumped 
7.6 percent last year. We should be giddy about those sorts of 
numbers. But the data you provide us, the data that are 
modeling, should be talking to us as policymakers of how do we 
do more of that.
    I mean, if I came to you and said a 7.6 movement in a time 
of almost no inflation in a quartile that had a brutal previous 
decade, we should be joyful and we should be figuring out how 
to do more of it.
    And my fear is the partisan rage that often here, as we are 
trying to make arguments on income distribution, instead of 
there are things that are stunning numbers. They are 
preliminary. And, you know, we have a couple authors out there 
in your field that are saying the last year may be the very 
first year in modern times where income inequality either was 
flat or shrunk because our lower quartiles, particularly the 
lower three, had such income movement. It is not done yet. 
Maybe I am being pathologically hopeful.
    And, Dr. Holtz-Eakin, I consider you a friend, because you 
tolerate some of my eccentricities.
    Dr. Holtz-Eakin. And I consider you pathologically hopeful.
    Representative Schweikert. Yeah, that too. Look, I am 57 
with a four year-old.
    That should have been funnier for the room.
    What do we do to understand the uniqueness of right now 
where all my economic studies--I have been on Joint Economic 
since I got here--from just a couple of years ago said the 
types of numbers I have seen in the last year were impossible, 
moving back well over 63 percent labor force participation was 
impossible.
    How do I understand--knowing the data, knowing the--it is 
great. How do I understand what has worked?
    Dr. Holtz-Eakin. Measure it. I mean, honestly, the--for 
those of us who care about the evolution of the economy, we are 
always really reading economic history. At best, we are getting 
data which are last month's; usually, they are older than that. 
We are guessing about what is going on right now. We never 
really know.
    And for me to give you--I think it is kind of a scientific 
answer to what is different in 2018-2019 in terms of labor 
market performance, we are going to have to measure better. We 
have lots of suspicions about it, but we don't know for sure. 
And that is the reality.
    Representative Schweikert. Do you all consider it 
statistically very significant that in a single year, a half 
point drop in the poverty rate in a single year?
    Dr. Holtz-Eakin. Yes.
    Representative Schweikert. So, A, you know, from the 
political world, we should be joyful. But, B, how do we find 
out datawise what was working, what drove that?
    Because I know in our modern politics, we fixate on the 
wealthy and say, look, what they have you don't have. But if we 
are going to be actually great for our society, we should be 
fixating what our brothers and sisters in those lower quartiles 
have and how we get them to have more.
    Dr. Zwick. I think including, you know, the kind of 
characteristics like you described, like more fixed 
characteristics and seeing what happens to those people from 
year to year, the data are available in the distributional 
accounts.
    Representative Schweikert. Well, in the last--because we 
also have the problem in the Joint Economic world where we are 
seeing here is Census data, here is BLS data, here is--and as 
we know, tax data has stunning amounts of noise in it. And then 
trying to normalize that and then trying to put all of what is 
happening in our State and local and trying to normalize each 
jurisdiction and their effects, it would be fascinating and you 
will spend a lifetime just doing adjustments. And you know when 
you do that many adjustments, your final outcome, the variance, 
is unacceptable.
    So, with that, I yield back, Madam Vice Chair.
    Vice Chair Maloney. Mr. Beyer.
    Representative Beyer. Thank you, Madam Vice Chair. And 
thank y'all very much for coming and being a part of this. 
First time we have ever had a panel with two people whose names 
begin with Z. This is really----
    Representative Schweikert. And they are bookends.
    Chairman Lee. And both doctors.
    Representative Beyer. Exactly. All doctors.
    You know, when the Tax Cut and Jobs Acts of 2017 was 
signed, I feared it would result in a significant 
redistribution of wealth towards the richest among us. But I 
was really struck by Dr. Zucman's figure published a lot last 
week that after the law went into effect, the 400 richest 
households now shoulder a lower overall tax burden, 23 percent, 
than the entire bottom 50 percent, which is 24 percent. It is 
the first time in a hundred years this has been true. So this 
is very relevant that you are here.
    Dr. Zwick, I struggled through all 800 pages of Thomas 
Piketty's book. And the main takeaway I had from it was that 
the return on capital is much greater than the return on labor. 
And yet you talk about that in your research, you found the top 
inequality is more human capital intensive. And it seems like 
you basically--the cut is that you look at passthrough income 
as more on the wealth side rather than the income side, whereas 
as a car dealer, whom you refer to in here, I note that it is 
often run very much on the labor side.
    Can you talk about your differences with Piketty on his 
central conclusion?
    Dr. Zwick. Sure. And I will be very brief. But thank you so 
much for the question, Congressman.
    The difference is basically about using--the difference 
between using aggregate statistics, the aggregate flows, you 
can compute in the interest rate. You can get--you can compare 
it to these aggregate returns on labor might tell one story. 
And what we do is use sort of microdata, so it is kind of from 
the bottom up trying to ask, of the top 1 percent, what share 
of them is in different industries, how big are their firms? 
How many firms do they own? Basic descriptive statistics that 
you don't need a Ph.D. to understand.
    And what we find is that--and it was surprising to us when 
we looked underneath, it was not what we were expecting. There 
are just a ton of doctors, there are a ton of dentists, there 
are auto dealers. There is like sort of a much broader, richer 
view of the economy than what you see if you read the 
newspaper. You know, all the journalists live in New York. 
There is a lot of finance in the newspaper. But it is a much 
broader economy. And that includes at the very top of the 
income distribution.
    Representative Beyer. Okay, great. Thank you very much.
    Dr. Zucman, one of the criticisms people are throwing back 
about your research, which I very much appreciate--the 
research, not the criticism--is that they leave out all the 
transfer payments. You know, the earned income tax credit and 
food stamps.
    And how do you--is that valid? And would the--would the 
income inequality not be nearly as great if you included the 
things that are not part of that AGI?
    Dr. Zucman. Thank you very much, Congressman, for this very 
important question.
    So we do look at all taxes and also all government 
spending. In our prototype distributional national accounts, we 
care about both, because we want to study what is the overall 
distributive effect of government intervention in the economy.
    So we have two sets of statistics. We have statistics on 
income distribution before taxes and transfers, and we have 
statistics on income distribution when you measure income after 
taxes and transfers. And in both cases, adding up to 100 
percent of national income or 100 percent of GDP.
    And when you do that, what you see is that there is less 
inequality after taxes and transfers. So, you know, the overall 
tax and transfer system is redistributive, and that is very 
important.
    But we also find that the rise in inequality is almost the 
same after taxes and transfers as compared to before taxes and 
transfers. In both cases, you had a big increase in income 
concentration.
    Representative Beyer. Okay. Thank you very much.
    Dr. Boushey, you--I have three millennial daughters, and 
they are very much affected by this income inequality, at least 
until they inherit the car dealer's money.
    From a policy standpoint, how do we address the 
millennials?
    Dr. Boushey. Oh, what a great question. You know, I mean, 
so what we are here to talk about today is how we measure 
economic progress. We know that the younger generations, from a 
lot of different datasets, are struggling in this economy. 
There are a lot of different ways that the concentration of 
wealth and income is making it harder for them to get their 
footing, to move their way up, if they are not lucky enough to 
have a parent that is, you know, bequeathing them a small 
business or the like.
    So I think starting by figuring out how we can increase 
opportunity, remove the obstructions to opportunity, especially 
for kids, those millennials that are at the lower end of the 
income distribution. Personally, some of my favorites include 
things like thinking about how we are going to deal with 
education, especially early childhood education? How we are 
going to ensure that there are good jobs for them? Will they 
have the right to join a union? Will they have the right to 
have a job that has access to benefits like healthcare or paid 
family medical leave? Those are some of the places I would 
focus. But those really hinge on making sure that we address 
the concentration of wealth and particularly market 
concentration.
    Many of those millennials are looking at labor markets that 
what--economists are so great with our words--but are 
monopsony--monopsony labor markets, meaning that they don't 
have a lot of options where to work. And I think thinking about 
that side of the economy, we haven't done enough of. So I would 
start by focusing there.
    Representative Beyer. Okay, great. Thank you very much.
    Madam Vice Chair, I yield back.
    Vice Chair Maloney. Thank you.
    Representative Joyce Beatty.
    Representative Beatty. Thank you, Madam Vice Chair. And 
thank you to all of our scholarly witnesses here.
    Let me start by saying I am overwhelmed. I am just simply 
overwhelmed. And here is where I want to go with this. You 
know, this is like the new thing. You know, and for me coming 
to Congress when President Barack Obama was in office, he made 
statements that he observed that inequality was the defining 
issue of our time. Well, that has continued. Whether I am 
talking about the Congressional Black Caucus forums, when we do 
our scholarly work, it is the same titles that we have here. It 
is wealth creation, it is inequality, it is the gap, it is how 
we bring it through.
    Now, I am not going to say that I have read, but I have 
muddled through all of your scholarly work here. And I am 
having a hard time separating inequality and poverty, because I 
think they have an effect on each other directly and indirectly 
through their link with economic growth.
    But when I read this, and then I get resolved from you, 
making statements like there is no consensus in the research or 
the literature, bottom line, that will give us an answer. So I 
am here for some answers.
    I have read the theories. I read again--you will say, given 
these challenges to the policies, there is no scientific 
research that tells us.
    When I go home to the 3rd Congressional District, where I 
represent the wealthiest and the poorest, the number one thing 
that I get beaten up on is this topic here today, Madam Vice 
Chair. And they want answers.
    So when I think of the question of I want to pose to you--
and I will start with you, the female, Ms. Boushey--Dr. 
Boushey. This past July, you authored an article entitled, 
``Neither history nor research supports the supply-side of 
economics.'' In it you stated that the Reagan tax cuts did not 
pay for themselves and they ushered in a period of broad 
economic inequality. I am with you. A substantially similar 
phenomenon occurred with the Bush tax cuts.
    Well, we already know that the Republican tax cuts passed 
in Congress will not pay for themselves. I think mostly 
everyone agrees that it was a myth.
    But how do you think this will affect the income equality? 
Is the Tax Code the primary driver of this income inequality or 
what?
    Because I have to go back and tell people. They will say, 
how do you fix me? You know, we have got the Census data. And I 
agree with my colleague over there. I remember the quartiles 
and how growth----
    But is there a real bottom line answer that I go back--when 
people say, you serve on this powerful committee. What did the 
experts tell you of how we resolve this?
    Dr. Boushey. Well, let me--a couple of answers. First, I 
think that the people in your community, I would bet, would be 
really gratified to know that what their experience is in the 
economy was reflected in how we talked about economic progress. 
And that is the kind of data that we have been talking about, 
that we want the Bureau of Economic Analysis to do.
    So no longer would we just say the economy grew at 3.3 
percent, but we would be able to say, in the average it grew by 
3.3 percent, but for most people in the bottom quartile, growth 
was only 1 percent or growth was 5 percent, whatever that 
number is.
    Representative Beatty. How do we get to increase this 
growth?
    Dr. Boushey. So yes. So the first thing, though, is I think 
giving people the power of the data, really important. But 
then----
    Representative Beatty. I don't think the poor people--poor 
people don't--this is inside baseball. No offense to you. This 
is inside baseball.
    When you go out--it is not people like us that are asking 
the question. You go into a room with a thousand people, and 
what they are saying to me, how do we--they are the factors on 
the other end of that. So this works for us, because this is 
intellectual dialogue.
    But are there any answers--do we need higher paid jobs? You 
know, we have got disparities and discrimination. We have got 
women who don't make the same amount as their male 
counterparts. We have got--where is all of that in this for 
resolve? And anyone can answer that.
    One of the guys, jump in, somebody, because I only have 30 
seconds.
    Dr. Holtz-Eakin. As I said in the outset, I think it is 
appropriate, given all the uncertainty about what is going on 
at the upper end of distribution, to focus on the bottom end. 
Focus on poor people.
    Representative Beatty. Okay.
    Dr. Holtz-Eakin. And we know that there are things that 
really need to be done there. Education is a big problem, 
including early childhood education, where the evidence is 
there are very high returns.
    Representative Beatty. Okay.
    Dr. Holtz-Eakin. So, you know, start with getting Americans 
prepared to enter the labor force and compete effectively. Do 
that and the rest of their future will be brighter.
    And, you know, there is a big difference between inequality 
rising because people got poor and inequality rising because 
everyone stayed the same and the rich got richer. Let's worry 
about when people are poor. That should be a focus.
    Representative Beatty. Okay. Thank you. And my time is up. 
But thank you very much.
    Vice Chair Maloney. And Denny Heck, Representative Heck.
    Representative Heck. Thank you, Madam Vice Chair. And thank 
you for holding a hearing on such an incredibly important 
subject.
    In addition to the other factors that my colleague 
mentioned, we have also got the Federal Reserve. And it is 
pretty--Heather knows exactly where I am going on this.
    It is pretty clear that over the last 25 years, the Fed, in 
a well-intended effort to anticipate an overheating of the 
economy, has tapped the brakes before we reached full 
employment. We know this to be the case, because they rarely 
reach their inflation target. They are almost always below it.
    And as a consequence, inarguably, especially low-skilled or 
low-income workers, are having a harder time receiving wage 
growth. And that is not an insignificant part of the overall 
suppression of the wage growth over the last 30 years.
    So I guess my first question is, have any of you studied, 
in particular, the impact on wage growth for--as a consequence 
of the Fed's policy? No, not their policy, I would suggest, 
because they are not achieving their policy. Their practice. 
Have any of you studied the impact on wage growth of Federal 
policy?
    Dr. Boushey first, if you don't mind, sir, because she is 
from Washington State.
    Dr. Boushey. I have got the home court advantage here. I am 
not from Olympia, though.
    I mean, I think that--I am so glad you asked about the Fed. 
And I think it is connected with the Congresswoman's question 
about what we can do to help families all across the United 
States.
    You know, the Fed has a mandate to keep employment high and 
inflation low. And, of course, we think there is a tradeoff 
there. What we are seeing right now is that we have very low 
unemployment, and yet that hasn't led to the kinds of wage 
increases that we would have expected. If you would have told 
us a decade ago, oh, you would have seen unemployment this low 
for----
    Representative Heck. Let me stop you.
    Dr. Boushey. Yeah.
    Representative Heck. Are you going to argue that the 
Phillips curve is broken? Because we don't have enough--we 
don't have enough time for that argument. Because the truth is, 
Dr. Boushey, we are still adding jobs into the labor market at 
a rate in excess or at a number in excess of replacement. So we 
are clearly not at full employment yet.
    Dr. Boushey. Right, exactly. And so the Fed needs to keep 
doing its job. But here's the thing: I think what this moment 
shows us is that we need other policies around the Fed to 
ensure that communities, that people in those communities see 
the wage increases that they should be seeing with low 
unemployment.
    So last time that we saw unemployment this low, we had 
communities where more people were members of unions. So they 
had an institution where they could bargain for higher pay 
without having to threaten to quit their job, right? You had 
less market concentration, because the--because we were 
enforcing--you know, especially in the sixties, we were 
enforcing antitrust differently, which gave workers more 
opportunities to be able to switch jobs and to raise their pay.
    So my point is that the Fed is incredibly important. But I 
am not letting you off the hook, because there are other parts 
of the policy that we need to--the policy environment that we 
need to do to make sure that we----
    Representative Heck. Heather, I have never tried to wriggle 
off the hook. Let's be real clear about that.
    But it seems to me the great unspoken part of this 
discussion is the Fed is not actually doing what their 
statutory charge is. And we don't know what it would look like 
over the last 25 years, as they have continued to fight the 
last war, hyperinflation of the seventies, in order to squeeze 
out that incredibly destructive impact on the economy.
    Dr. Boushey. But you are in a pickle--you are in a pickle 
now, Congressman, because we have interest rates that are very 
low, and the Fed does have all of these new tools that they 
have been using.
    Representative Heck. They raised them four times last year.
    Dr. Boushey. That they did, but they----
    Representative Heck. And we were not at full employment and 
we are still not at full employment. Can we at least allow an 
experiment in realizing what their statutory mandates are?
    Dr. Boushey. I a hundred percent agree with you.
    Representative Heck. Okay. I am not wiggling off the hook. 
I want to go to Dr.----
    Dr. Boushey. I am 100 percent with you, but I just want to 
make sure that we take into account that they can't----
    Representative Heck. You have always made that abundantly 
clear, and it is gratefully received again today.
    Dr. Holtz-Eakin, I actually have a follow-up question.
    Is there a better way to measure full employment?
    Dr. Holtz-Eakin. No.
    Representative Heck. Well, that is depressing.
    Dr. Holtz-Eakin. Yeah, it is. But here is what I would say. 
I agree with Heather on using lots of policies, not relying so 
much on the Fed. I mean, I think Europe is a testament to 
overreliance on monetary policy, a big problem. Right now, I 
think the Fed is actually quite cognizant of the sort of 
dilemma they face in achieving their mandate.
    Representative Heck. Let me stop you there.
    Dr. Holtz-Eakin. If I could just finish.
    Representative Heck. No, let me stop you there, because I 
have got 18 seconds.
    Former Federal Reserve Chairs acknowledge this problem.
    Dr. Holtz-Eakin. But the current----
    Representative Heck. Ben did it; Janet did it, after they 
left.
    Dr. Holtz-Eakin. Sure, sure. I think to Chairman Powell's 
credit, I spent a day at the San Francisco Fed talking about 
the benefits and costs of running a hot economy. They are 
thinking hard about when it is that they say stop. They know 
that the benefits of continuing the expansion 
disproportionately benefit those who are marginally taxed labor 
force, have the weakest skills, lowest education.
    Representative Heck. Let me--because I am over time. 
Because I do want to acknowledge that Chairman Powell has been 
more explicit in his acknowledgment of this need. And Chair 
Yellen was implicitly, while she was chair, more willing to 
acknowledge it and explicitly since she's been--I think the 
trend line is good. But the fact is, under the current 
statutory construct, they didn't do what they were asked to do 
for 25 years, and they could do that again.
    And with that, I yield back. Thank you, Madam Vice Chair.
    Vice Chair Maloney. Thank you so much.
    And the Chair has requested a second round of questions. So 
we are going to do that for those who would like to.
    And I would like to ask Dr. Zucman, you have written 
extensively on how the wealthy hold trillions in assets in 
offshore accounts. As much as 8 percent of the global wealth is 
held in offshore havens. You estimate about $200 billion in 
global tax revenue is lost each year. And how do these offshore 
havens affect estimates of inequality, and are we getting a 
complete picture?
    And also, any of the panelists, how does the U.S. 
experience compare to that of other advanced economies over the 
last 30 to 40 years? What is the trend internationally? What 
should we learn from other high-income countries on their 
efforts to track and report on inequality?
    Starting with Dr. Zucman and anyone who wants to weigh in.
    Thank you.
    Dr. Zucman. Thank you. Thank you very much, Madam 
Chairwoman, for this question.
    Yes, in my work, I have estimated that about 8 percent of 
the world's household financial wealth is held in tax havens 
globally. And this has implications for inequality, you know, 
that wealth and the income it generates, because it is not 
captured by GDP statistics or national income statistics. So 
they are not even in the aggregates and so they are not in our 
distributional national accounts. So it is possible and perhaps 
likely that we are actually underestimating the rise of income 
and wealth concentration for that reason.
    Now, I am working with colleagues, including colleagues at 
the IRS, to improve statistics, drawing on data that has become 
available in recent years, about Americans with offshore bank 
accounts and better measuring high-end tax evasion, in 
particular, its implication for inequality. So that is a very 
important field of research. And again, that is an area where 
the series will be improved, will be revised, will have--we 
will always have better estimates in the future.
    Vice Chair Maloney. Thank you.
    And does anyone want to comment on the U.S. experience 
compared to other advanced economies over the past 30 to 40 
years?
    Dr. Zwick. I will just say a couple of quick things. I 
think Dr. Zucman and his colleagues have done a lot of work 
studying other countries. And the issues I raised--back to 
Chairman Lee's original question about the rules being quite 
important for what we measure in those series, in Europe where 
we have seen relatively low increases in inequality, in their 
reported series, there is also a lot of important closely held 
private business, retained earnings are not distributed 
necessarily. And so I think there is additional new research, 
looking at Scandinavia in Europe, that has raised again this 
issue that like measurement, a fully distributional account 
would be quite helpful. So that is one point I just wanted to 
raise.
    Dr. Holtz-Eakin. I think there are two interesting things 
that we are thinking about. One is that the rising inequality 
over the past four decades is a global phenomenon. It is not 
unique to the United States. Labor markets have higher returns 
to skill across the globe. And, you know, it is important to 
think about that and think about the common factors.
    The second is--and this is particularly important now in 
the aftermath of the 2017 Act, that reform moved the taxation 
of business from global to territorial and changed the 
incentives to invest, innovate, and do it in the United States.
    Our developed country competitors have all done that, 
basically one a year for decades. And so in the data will be 
the implications for that reform on the way things get 
reported, including the more than half of business income that 
shows up on individual returns. And that is an important part 
of this debate.
    Vice Chair Maloney. And, Dr. Boushey, could you--what is 
going to happen--what is the risk to our economy and our 
society if we as a Nation continue down the path we are on now 
with economic inequality continuing to worsen?
    I will start with you and anyone else who would like to 
comment.
    Dr. Boushey. Well, if we----
    Vice Chair Maloney. Not a good trend.
    Dr. Boushey. No, it is not a good trend.
    You know, if we believe Thomas Piketty's book, if we allow 
income inequality to continue unabated, it leads to greater 
wealth concentration. And, you know, it will only--it will take 
a seemingly heroic political effort to change that.
    I think that the evidence is also that that kind of wealth 
concentration is constricting of our economy more generally. It 
obstructs people's ability to move up. It is making it harder 
for people to start new businesses and to have the kind of 
innovation economy that we want in many sectors because of the 
concentration. And it is having real distortionary effects on 
both consumption and investment.
    There is new research out that talks about the ways that, 
because of the rise in the concentration of savings, one would 
expect that that leads to investment. But, in fact, it has been 
leading to an expansion in household credit, which as we all 
learned during the Great Recession, can be destabilizing.
    I want to add on the international comparisons that our 
level of income inequality and wealth inequality here in the 
United States, when you look across countries, appears to be 
very much a choice that we have made. Other countries, 
according to the data we have, have not experienced the same 
kind of inequality that we have, but they have been subject to 
the same trends in terms of globalization and technology. And 
so I think really looking deep inside the kinds of institutions 
that we are putting in place to constrain inequality is 
important.
    Vice Chair Maloney. Thank you. And my time has expired.
    Chairman, Chairman Lee.
    Chairman Lee. Thank you, Madam Vice Chair.
    Dr. Zucman, I would like to get back with you for a minute. 
For purposes of determining tax rates, you group people, as I 
understand it, by the income that they receive. And my 
understanding is also that you include Social Security benefits 
and unemployment insurance income when you create those 
groupings. Is that right?
    So someone receiving unemployment benefits would end up 
looking a lot poorer and does have a higher tax rate if you 
didn't count those benefits as income. Is that correct?
    Dr. Zucman. That is correct, but we do count these benefits 
as income.
    Chairman Lee. Got it. And yet you don't count other 
government transfers as income when you group people. So 
doesn't that make them look a lot poorer and thus have higher 
tax rates than if you counted those benefits in that category?
    Dr. Zucman. Yes. Thank you, Mr. Chairman. We have thought a 
lot about these methodological questions, which are extremely 
important. There are many ways to compute income, many ways. 
And government agencies use a variety of ways and research 
papers use different definitions.
    Chairman Lee. No, I get it. And I don't want to 
oversimplify the task. I don't want to describe it as overly 
simple. I just want to make sure I am understanding correctly. 
You do make this classification?
    Dr. Zucman. What we do--specifically what we do is we 
distribute 100 percent of national income, you know, which is 
GDP minus capital depreciation, plus net income received from 
abroad, 100 percent. If you want to include transfers in your 
measure of income to compute tax rates, then you are allocating 
more than 100 percent of national income.
    And so by construction, if you give people more income than 
the total amount of income that there is in the economy, you 
are going to underestimate the tax rates of certain groups of 
the population. So that is the reason why we do things the way 
we do.
    But what I want to emphasize, which is very important, is, 
again, what we are doing is a prototype to be improved and to 
be better done by government statisticians than by researchers. 
We hope the work we put out will be taken over, will be 
improved, will be refined, and will be published by government 
statistical agencies, including, you know, covering the entire 
distribution from the bottom to the very, very top.
    Chairman Lee. I totally get that, and I respect the effort. 
And that is one of the reasons we are having this conversation 
today, is because we have got to figure out effective, agreed-
upon ways of measuring these things.
    I guess my question to you is, why is your treatment of 
Social Security income and unemployment insurance income 
different than the other categories of government transfers? 
How is that--how is it consistent ideologically?
    Dr. Zucman. We have two measures of income. One measure is 
pretax income after the operation of the pension system, so 
including Social Security benefits and unemployment insurance 
benefits. And another measure of income that we have is post-
tax income, subtracting all taxes and adding all other forms of 
government spending.
    These are the two consistent measures of income that you 
can compute in the sense that they distribute 100 percent of 
national income. You can construct other measures--and we do 
both. And you can compute tax rates as a fraction of pretax 
income or post-tax income, and we do both. You can construct 
other measures of income, but they won't add up to 100 percent 
of national income. So they won't make it possible to decompose 
economic growth by social group. They will capture either less 
or more than 100 percent of national income, which then raises 
lots of technical problems when computing tax rates and so on.
    Chairman Lee. Yeah, I get it. I get it.
    I still--as long as we are having the conversation about, 
you know, making sure that we have effective measures, I don't 
think that really responds to the underlying concern about how 
you differentiate that. I understand that if you plus certain 
things up, if you leave them out, you are going to have less 
than 100 percent. If you count other things twice, that would 
be bad too. But that doesn't answer this central concern.
    I got one more question in the small amount of time I have 
got remaining. In--your peer-reviewed 2018 paper indicated that 
the top 1 percent of the top 1 percent saw its tax rate fall 
between 1964 and 2014 by 1 percentage point. Your book, if I 
understand it correctly, now shows a drop of 20 points.
    Am I reading those wrong or is there an inconsistency? If 
there is, which one is right?
    Dr. Zucman. So we constantly refine and improve our methods 
to incorporate new data and better techniques. So for that 
particular question, we changed the way that we allocate the 
corporate tax, because now we have a better understanding of 
how to do that conceptually.
    Chairman Lee. Thank you.
    Vice Chair Maloney. Congressman Beyer.
    Representative Beyer. Thank you very much.
    One of the--when we talk about income inequality, I 
occasionally get the question ``so what?'' You know, Jeff Bezos 
makes $110 billion, and my daughter makes $48,000, but she is 
not hungry and she is maybe happier than he is.
    Dr. Boushey, you talked about why income inequality is bad 
for the economy. I would love for you to expand on the first 
point, which is that it obstructs the supply of talent, ideas, 
and capital. I had an economics professor who spent the last 10 
years of his career trying to figure out why kids in the lowest 
quartile never applied to my alma mater, even though they are 
obviously--IQ is fairly randomly distributed. And you would 
point out that far more important than a child's aptitude score 
is their parental income.
    Dr. Boushey. Yeah. There is a lot of great--there are a lot 
of great pieces of research that answer that ``so what'' 
question. One of the ones that I keep coming back to is work by 
Raj Chetty and a long list of coauthors that looks at the 
distribution of patents. There is fascinating data on who gets 
a patent, who applies for a patent and who gets one, and the 
person's income as an adult. And they also have data on that 
person's third grade math test scores and their parents' income 
when they were in third grade.
    So they find--you know, on the first cut, they find the 
obvious, kids that do really good on those third grade math 
tests are much more likely to grow up and get a patent, become 
an inventor. But they also find that children from the top 
quartile who are the children who get the top math scores, who 
are in the top income quartile are four times as likely to grow 
up and get a patent than other children.
    So income inequality has this really important effect on 
whether or not smart kids who, you know--who otherwise could be 
innovators in our economy, or contributing in a variety of 
ways, are moving their way up.
    Now, there are a lot of different hypotheses and research 
on why those kids aren't moving up. Is it because they are 
living in different communities and they don't see opportunity? 
Is it because they can't get a student loan? Is it because they 
don't graduate from high school, again, because of a bad 
neighborhood?
    So there are a lot of different policy interventions. But 
what is important to note is that there is something peculiar 
about a society where you have, you know, the rungs of the 
income ladder further and further apart that makes it really 
difficult for people to move up.
    And so where the research keeps coming back to is that that 
indicator of inequality is something in and of itself that we 
need to address above and beyond all of the kinds of 
micropolicy interventions that we might take to help that one 
child succeed.
    Representative Beyer. I want to keep building on your 
second point. Because one of the things that we struggle with 
all the time is how incredibly polarized the American public 
is, especially over politics. And as a Democrat, I am always 
trying to understand the core 40 percent that is very, very 
loyal to our President. And there are some interesting essays 
in the last couple of weeks about people who have felt so left 
out of the economy, they just want to burn the house down, the 
notion of the chaos theory.
    And your second point is, you talked about the fundamental 
institutions being distorted by this; you know, that economic 
inequality gives people disproportionate political influence; 
laws, regulations, things like that.
    Dr. Boushey. Yeah. I mean, I think that this is--this 
question is actually why I am so passionate about this data 
that we are talking about here today. Because we have not 
connected the dots that so many communities have been left 
behind. And because we aren't faced with that information every 
quarter, we are not searching for solutions to get at it.
    I fear that it has been 40 years where--you know, we know 
that it has been 40 years where income inequality has been 
rising, but we haven't focused on making sure that we are 
bringing all those people forward.
    And so now, in 2019, you have got communities where people 
are like, yeah, we haven't seen economic growth, we haven't 
seen vitality, people are ignoring us. And I think--and being 
in this town for 20 years, it is because we haven't seen it.
    So, I mean, just to sort of bring it back to today's 
hearing, seeing that I think can help us open up the doors to 
all of the different solutions that we need to take to make 
sure that we are including people in our economy. Because the 
reality is, is that the data available shows that we aren't.
    And it is everything from the lack of jobs available to 
what we are doing in terms of investments in education, and, 
you know, everything in between. But that reality that some 
communities are being left behind and policymakers haven't 
taken the steps to forge that comprehensive agenda seems to be 
at the core of a lot of this polarization. But I am an 
economist, so I am always going to read economics into 
politics.
    Representative Beyer. But I, too, I sometimes wonder if I 
lived in a very disadvantaged rural community that had seen no 
growth whatsoever, that I might be drawn to a ``Make America 
Great'' message also.
    Dr. Boushey. Yeah.
    Representative Beyer. I yield back.
    Vice Chair Maloney. Congressman Schweikert.
    Representative Schweikert. Thank you. And I will try to 
stay off the hook this time.
    Dr. Zwick, a question I have had in--and I have actually 
hunted for credible information on it. What is the size of the 
underground economy?
    Dr. Zwick. In the United States?
    Representative Schweikert. Just the United States.
    Dr. Zwick. So it is a little bit outside my lanes. My 
understanding is it is smaller than it is in other developing 
countries, but----
    Representative Schweikert. Understood. And where I go with 
that is, many years ago when I was a much younger man, one of 
the projects we were assigned is try to take individuals in our 
community and model, not their income, but their consumption, 
what they had.
    And, look, this was undergraduate, so it wasn't 
particularly brilliant math. But we had consumption double what 
we believed the very households we looked at's income. And that 
was just really hard to say were they just brilliant in their 
consumption? Were there things we didn't understand? Were 
there--because just--if that is--in two or three of the lowest 
quartiles, that sort of distortion, it lets you start to 
understand what is wrong in our sample data, what are we not 
understanding.
    And I had some--many years later, some experiences when I 
was the treasurer for a very, very large county and doing the 
taxes, collections, and all those things, and realizing some of 
the things didn't seem to line up where, you know, the value of 
the home, this and that, didn't match what we thought we knew 
about the household.
    Dr. Zwick. If I may, Congressman, briefly. One of the open 
questions in this measuring inequality literature is how we 
distribute the underreported or unreported income. So one of my 
suggestions on expanding an audit program that would help us 
measure the underground economy and think about its 
distribution, how it is distributed relative to the income we 
do observe, actually, I think could be quite helpful and speak 
directly to your question.
    Representative Schweikert. Wouldn't a more elegant, at 
least, test from your income inequality would be a consumption 
model, just to sort of--because that would let you know that 
there is something distortive, and see if that same distortion 
from 30 years ago still exists, because--and also--and help you 
understand, because it would really give you some great 
targeting information of why are some communities--and this is 
where I was heading, and it would be for Doug Holtz-Eakin--we 
see entrepreneurial--you know, some of our ethnic population, 
some of our communities, some of the education and those 
things, have clusters of entrepreneurship, that seems to be 
what creates tremendous amount of that velocity. And I have 
always wondered how I could sort of identify why and where. It 
is--I mean, we often see that the fastest movement for really 
moving out of lower quartiles is actually some type of 
entrepreneurship.
    Dr. Holtz-Eakin. So before we leave the observation on 
consumption, there has been lots of very good work. And I would 
point to Bruce Meyer and his various coauthors, looking at 
consumption-based measures of poverty. And they do, in fact, 
paint a different picture than the conventional income-based 
measures of poverty; the level of poverty is lower, there has 
been diminished poverty. But it doesn't change the fact that we 
still have some pressing poverty problems. But I would suggest 
that to you.
    On the entrepreneurship, this is fascinating. So one of 
the--one of the best test cases and interesting phenomenons is 
immigrants. Immigrants to the United States are 
disproportionately entrepreneurial. They start businesses at a 
higher rate than the native-born population. And in some cases, 
they have sort of pooled finance as an immigrant community. 
They will sort of develop the financing mechanisms. And you can 
take countries in Asia, in particular, Southeast Asia, and look 
at their performance in the U.S., and there are dramatically 
different rates of native entrepreneurship when they arrive in 
the U.S. Very small differences in culture. So it is not just 
the economic circumstances that determine this.
    Representative Schweikert. But does that make an argument, 
if we desperately wanted to help a community that has suffered, 
that some of what is in there is better education, better this, 
but also an entrepreneurship of starting the plumbing or the 
food truck or whatever, you know, even if it is a level of 
microfinance?
    Dr. Holtz-Eakin. It is Professor Zwick's job to grow new 
entrepreneurs. I would argue we should just have as few 
barriers to them as possible.
    Representative Schweikert. Well, in many ways, that is one 
of the discussions we have a lot, particularly in Arizona, is 
can you make it not scary. A single stop to get a permit, to 
get a license, to get this, to get that. So--because in many 
ways, it is a knowledge barrier that keeps these things from 
actually happening.
    So, Madam Vice Chair, thank you.
    Vice Chair Maloney. Congressman Heck.
    Representative Heck. Thank you.
    Maybe next to Fed policy that revs my motor is housing 
policy. So I want to begin by asking if any of you have either 
studied the issue of the relationship between homeownership and 
wealth inequality or have a working knowledge of other people's 
work in this regard?
    Dr. Holtz-Eakin. I have studied homeownership over a number 
of years, especially tax policy toward homeownership.
    Representative Heck. So--good. Thank you.
    Let me lay out my construct and then just have you react to 
it. Homeownership is falling, especially among millennials. It 
is fully 15 percent lower than the generation of 30 and 60 
years ago, even when excluding those who are still living 
upstairs or downstairs.
    And what we know about homeownership is that while consumer 
preferences are changing, it is still a commonly held 
aspiration of this country. We know that it is, on average, the 
number one net worth building tool for Americans, and we know 
that to defer homeownership is to squeeze down the value at the 
end of that journey.
    My favorite expression, when I am not citing another 
favorite expression, is the two most powerful forces on the 
face of the Earth are the status quo and compound interest. And 
with long term--the longer term homeownership you have, the 
more compounded interest you have, as it were, which obviously 
affects people's retirement security. It affects what it is 
they are able to bequeath to their--to their offspring. 
Obviously, it also disproportionately affects those who are 
unable to capture that first rung on the ladder.
    So like everything else, low-income people are 
disproportionately impacted by deferred homeownership or lack 
of access to homeownership.
    So, I guess, there is my construct. There are a lot of 
reasons to explain what is happening. That is not our purpose 
here today. But I would appreciate some reflection on just this 
general construct.
    Dr. Holtz-Eakin. I think it is a complicated area. It is a 
really good question. The first thing I would just politely 
disagree with a little bit is I was----
    Representative Heck. Careful.
    Dr. Holtz-Eakin. I am aware, sir.
    You know, I was in the White House in 2001, 2002, and there 
was a heavy emphasis on getting minority homeownership up, 
pushing, pushing, pushing. The instruments by which we 
typically push are subsidies to the debt portion of the 
homeownership acquisition. That continued on a relatively 
bipartisan basis right into the Great Recession, and we wiped 
out the wealth of a lot of minority America.
    So I am more skeptical than some about the automatic 
wealth-building aspects of homeownership. We have some history 
that suggests people might want to be cautious about, 
especially people who are young who just looked at that. They 
are concerned about it. So that is sort of number one.
    Number two, there are----
    Representative Heck. Stop. That is an argument about how 
you go--what is the best way to go about solving the problem 
statement.
    Dr. Holtz-Eakin. I also agree with that, yes.
    Representative Heck. It is not an argument about any of the 
things I laid out in my construct, because I didn't offer a 
solution. In fact, if I would offer a solution, I would go back 
to the last discussion we had, which is the best way to 
increase homeownership overall is get people's incomes up so 
they can afford it. But there are a lot of----
    Dr. Holtz-Eakin. That is what I was going to say next. So I 
agree with that.
    Representative Heck. Okay. But is it a material factor in 
wealth inequality or is it becoming one?
    Dr. Holtz-Eakin. It was a very material factor in the rise 
in wealth inequality in the Great Recession, because the bottom 
disappeared. They lost their wealth. There is no question about 
it.
    It has consequences--knock-on consequences. So, for 
example, lots of entrepreneurs use the equity in their home as 
the way to finance things. So, you know, how--how big is that 
right now? I don't know, but it is a phenomenon.
    In terms of things that can be done, probably most of the 
important levers are at the State and local level where land 
use restrictions, zoning and things like that, are making some 
things just too expensive, and the restrictions on the supply 
are a big concern. And that is something that could be dealt 
with by States and localities.
    Representative Heck. And you say that as somebody who has 
actually studied the relationship between tax policy and 
homeownership.
    I--our purpose here today is not to argue--well, maybe it 
is--the specific solutions to the problem statement I laid out. 
But I would push back very considerably on your notion that the 
Federal Government does not have a significant role to play in 
this, be it tax policy or how--you said the major----
    Dr. Holtz-Eakin. To be clear, it has a major role. I just 
don't like the way it has executed that. I would rather see, 
for example----
    Representative Heck. Okay. Come up with something better.
    Dr. Holtz-Eakin [continuing]. Have a new--a new homeowner 
tax credit instead of, hey, get a big mortgage. That is not a 
good message.
    Representative Heck. Something that enables more people.
    All right. We are good. I yield back. Thank you, Madam Vice 
Chair.
    Vice Chair Maloney. Thank you. This has been a very 
spirited conversation.
    And I want to go back to how you were measuring wealth. I 
am a former teacher and a former social worker. And I worked in 
incredibly poor neighborhoods in New York. And I have worked 
with families that had significant social transfers from the 
State, living on welfare, subsidized housing and public 
housing. We have 700,000 families in public housing, subsidized 
housing in New York. The WIC program, which is food for 
children. Fuel, they had--we have these programs where the fuel 
is subsidized, and many, many food programs. And even before 
ObamaCare, in New York City, the healthcare of the poor is 
taken care of. Anybody who is sick is taken care of in our 
public hospitals.
    So that is a significant amount of support that is going to 
a family. Are you measuring that in your--in your numbers?
    Dr. Zucman. Yes. Thank you very much, Madam Chairwoman.
    Yes, we do, in our work, distributional national accounts, 
we do allocate all government spending, including monetary 
transfers, in-kind transfers, such as health spending, 
Medicare, Medicaid, and also spending on public goods like 
education, like police, like defense, everything. We take all 
forms of government spending that we distribute to the--that we 
allocate to the entire population. Just like we do for taxes, 
we do the same--the exact same thing, comprehensively for 
government transfers.
    And when you do that, what you see is that U.S. Government 
does redistribute resources. It is overall, you know, 
redistributive, of course.
    And what I want to stress, again, is that, you know, it is 
hard to allocate many forms of government spending. Who 
benefits from defense spending?
    Vice Chair Maloney. Everyone.
    Dr. Zucman. Some people believe that wealthy benefit more 
from defense spending. That is arguable. It is hard. It is not 
for us to say.
    Vice Chair Maloney. 9/11 attacked everyone in the vicinity. 
It didn't benefit anyone.
    Dr. Zucman. I totally agree that--and that is the way we do 
it. You know, the way we allocate it is we allocate it to 
everyone. But what I want to say is that these are difficult 
questions--or difficult choices to make, and these choices are 
better made by government statisticians----
    Vice Chair Maloney. I need to read your book. Then we can 
have another hearing.
    Dr. Zucman [continuing]. By government agencies than by 
academics. We hope that our little prototype is going to be 
taken over, is going to be done by government statisticians and 
improved. It can be improved in many ways.
    Vice Chair Maloney. I would now like to yield to--call on 
Mr. Lee and----
    Chairman Lee. I didn't want to end this hearing without 
giving you a chance to talk to us about the concept of tax 
competition and whether or not you think we are in a vulnerable 
position as a result of it. What worries you about tax 
competition?
    Dr. Holtz-Eakin. Tax competition is very real. And it drove 
the structure of the corporate reforms in the Tax Cuts and Jobs 
Act, because those mimic what has happened across the OECD and 
the movement away from worldwide systems.
    The reality is that it is impossible to identify where and 
when a dollar is earned around the globe. And to try to tax it 
in the U.S. at that moment is a virtually impossible job.
    So we have moved toward, I think, a realistic positioning 
of ourselves in the competitive world for the moment. The rates 
in the middle of the developed country world, 21 percent. The 
base is more like one we would have. And it better positions 
our companies to compete internationally, and that is good for 
the workers. And that ultimately is the objective.
    I don't think that will--that will stay still. Like when we 
did the 1986 reforms, we had the lowest corporate rate in the 
developed world, and we were way behind by the time 2017 rolled 
around. I expect the rest of the world to keep moving. We will 
have to just see where we are competitively.
    Vice Chair Maloney. I thank everybody. It really has been 
incredibly interesting. Economic inequality is a major 
challenge facing this country. It is not good for the rich. It 
is not good for the poor. It is not good for the country 
overall. And we need to do a better job measuring inequality, 
tracking it, and most importantly, addressing it.
    So I am really very grateful to all of you for your 
research and for what you shared with us today. You gave us a 
lot of good insights on a very critical issue. Thank you so 
much.
    We are adjourned.
    [Whereupon, at 4:25 p.m., the committee was adjourned.]

                       SUBMISSIONS FOR THE RECORD

   Prepared Statement of Hon. Carolyn B. Maloney, Vice Chair, Joint 
                           Economic Committee
    Last month, the Census Bureau reported that income inequality in 
the United States, by one measure, had reached its highest level since 
they began tracking it more than 50 years ago.
    For the typical worker, wages have been stagnant for four decades.
    On the other hand, those at the top are doing great.
    The top 1 percent of households in the United States now take home 
about 20 percent of the total income.
    The wealthiest 1 percent own nearly 40 percent of total wealth.
    Those at the very top--the top one-tenth of 1 percent--have seen 
their share of wealth double since 1990.
    That narrow sliver of the population--the top tenth of 1 percent--
now own more than the bottom 80 percent of Americans.
    One of our witnesses today, Dr. Gabriel Zucman, has done important 
work tracking these trends going back a century.
    His most recent work looks at the role played by our tax system.
    It is widely believed that our tax system is progressive--that the 
rich pay a larger percentage of their income in taxes.
    However, Dr. Zucman's recent work reveals that in 2018 the 
wealthiest 400 Americans paid a lower tax rate than any other income 
group.
    Sadly, this is not an accident--it is deliberate public policy.
    In 2017, the Republican Congress and President Trump slashed taxes 
on the rich . . . Borrowing $1.9 trillion to do it.
    Inequality in America was already sky high.
    The Republican tax cuts made it far worse.
    Skyrocketing inequality undermines our middle-class society, in 
which anyone who works hard has a chance to succeed.
    It means that for millions of Americans, the American dream may be 
a myth.
    Our second witness, economist Heather Boushey, argues that high 
levels of inequality undermine economic growth . . .
     . . . because strong growth depends in part on a strong middle 
class.
    Consumer spending accounts for 70 percent of the U.S. economy.
    But as a larger and larger share of income and wealth go to those 
at the top, there is less left over for everyone else.
    As a result, most Americans have less money in their pockets, less 
to spend on what businesses sell.
    Therefore, when the bottom 50 percent--those who consume a much 
larger share of income compared to those at the top--see no income 
growth for 40 years, that's a major problem.
    Extreme inequality also undermines our communities.
    The Chairman and I agree that healthy communities with strong 
``social capital'' are critical to a high quality of life.
    But extreme inequality undermines that.
    When wealth is highly concentrated and in a society where education 
is critical to success, families have extremely high incentives to live 
in towns with other wealthy families, so they can put their children in 
the best school systems.
    So, Americans increasingly become segregated by wealth and their 
quality of life becomes dependent on their zip code.
    Extreme inequality also undermines our democratic institutions.
    It enables the powerful to rig the rules--to make themselves even 
more powerful.
    We see the erosion of antitrust laws, the breakdown of protections 
for small investors, the rejection of overtime protections for workers.
    We pay a very high price for extreme inequality.
    How bad is inequality in the United States?
    Economists disagree about the severity of the problem.
    But while they disagree about how much inequality has worsened in 
recent decades, there is little disagreement . . .
     . . . things are getting worse.
    One way that we measure the strength of our economy is by quarterly 
measures of gross domestic product. It is a good, aggregate number--it 
tells us how fast the whole economic ``pie'' is growing.
    But the ``slices'' of the pie that go to the rich, middle class and 
poor are extremely unequal.
    Unfortunately, we currently don't measure how economic growth is 
shared.
    For this reason, I have introduced the Measuring Real Income Growth 
Act. And I'm pleased that Senator Heinrich is again introducing a 
companion bill in the Senate.
    The bill would require the Bureau of Economic Analysis to report 
GDP growth by income decile and the top 1 percent alongside the top 
line number.
    It will help us understand not just how fast the economy is growing 
but who is benefiting from that growth.
    Academic economists, such as Dr. Zucman, have produced estimates 
similar to those we are asking for from BEA. But we need the government 
to do this is in a regular and timely manner.
    Inequality is one of the most pressing issues of our day. It is 
tearing our society apart and undermining much of what we stand for.
    In order to understand inequality, we must have better ways to 
measure it--ways that are accepted by those on both sides of the aisle.
    With that information in hand, we can begin to restore our country 
to the land of opportunity.
                               __________
Prepared Statement of Hon. Mike Lee, Chairman, Joint Economic Committee
    Thank you, Vice Chair Maloney, for calling this hearing.
    Inequality has been a hinge of American politics, and indeed in all 
democracies, for as long as there have been democracies. And with good 
reason. The concentration of economic power can be as dangerous as the 
concentration of political power.
    Unfortunately, the debate about inequality--like many debates these 
days--can be easily swept up into a partisan exercise of talking past 
each other.
    We could spend our entire time today haggling over whether 
``inequality'' is best understood as unequal opportunity, or unequal 
outcomes.
    Or indeed, if the latter, we could argue for hours about whether 
and how much it is even a problem, given that almost every facet of 
modern life--from air conditioning to airplanes--can be counted among 
the blessings of the intentionally unequal benefits of free enterprise.
    Inequality is such a large concept that it is impossible to tackle 
in a single hearing. That is why I commend the Vice Chair for 
organizing today's hearing on ``measuring'' inequality. And for 
inviting an excellent panel of witnesses who can help us navigate the 
issue.
    The subject of data measurement techniques is at once narrow enough 
to keep our discussion focused, and--hopefully--technical enough that 
even Congress can set aside political temptations and simply drill down 
on some important questions.
    For instance:

      How should we define ``income'' for purposes of measuring 
inequality between rich, poor, and middle class?
      How should we count government transfers--like the Earned 
Income Tax Credit--for lower-income workers?
      As the scholarship on inequality measurement has 
progressed, which technical details have survived peer-review scrutiny, 
and which remain to be worked out before we can reach academic 
consensus?

    These are not the questions that will lead cable news political 
talk shows. That's why they are exactly the kind the Joint Economic 
Committee should be taking up. Even the best policies involve 
tradeoffs.
    Our economy is growing, and today employs more people than ever 
before. But it has been a long slog out of the Great Recession, much 
longer for some than others.
    If the data really can afford us a clearer view of how the costs 
and benefits of economic growth are being experienced up and down the 
income scale, that is analysis we should all insist on getting . . . 
and insist on getting right.
    Thank you again Madam Vice Chair, and to the witnesses for being 
here today. I look forward to your testimony and our discussion.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

   Response from Dr. Zucman to Question for the Record Submitted by 
                           Senator Klobuchar
    You have extensively researched how wealthy taxpayers and 
corporations take advantage of offshore tax havens to evade payment of 
U.S. taxes.

      In your opinion, how has the 2017 Tax Cuts and Jobs Act 
affected the amount of wealth stored in these offshore tax havens, and 
what impact has this had on economic inequality?

    Thank you for your question, Senator. The Tax Cuts and Jobs Act 
reduced the Federal corporate income tax rate from 35% to 21% and moved 
the U.S. towards a so-called ``territorial'' tax system, whereby 
profits booked outside of the United States are not taxable in the U.S. 
Such a system gives corporations incentive to book profits in foreign 
tax havens. Although the Act contains a number of anti-abuse 
provisions, it is thus possible that the amount of profits booked by 
U.S. companies in offshore havens will grow as a consequence of the Tax 
Cuts and Jobs Act. It is too soon, however, to make precise 
quantitative statements about this phenomenon at this stage. In my 
opinion the main effect of the Tax Cuts and Jobs Act was to 
dramatically reduce Federal corporate income tax revenue, increasing 
income for shareholders. Because equity ownership is highly 
concentrated in the United States, this is likely to increase 
inequality.
                               __________
   Response from Dr. Boushey to Question for the Record Submitted by 
                           Senator Klobuchar
    Our antitrust enforcement agencies need adequate tools and 
resources to address the threat of economic concentration, promote 
competition, and protect consumers. In recent decades we have seen 
weakened antitrust enforcement coupled with rising economic inequality. 
I have introduced legislation to modernize antitrust enforcement--
including by updating merger filing fees to reflect the 21st century 
economy.

      What role does vigorous antitrust enforcement play in 
promoting innovation and reducing economic inequality?

    Vigorous antitrust enforcement protects competition and helps 
address inequality. Modern studies show that growing monopoly power is 
a problem for consumers and innovators. A recently released antitrust 
literature review summarizes modern antitrust and competition research, 
much of which shows us that more competition is good for innovation.\1\ 
Over the last decade, we have seen the role rising monopoly power has 
on stifling innovation, especially in the drug manufacturing and tech 
industries.\2\ Monopoly power also exacerbates inequality because those 
who benefit from higher monopoly rents (stockholders and senior 
executives) are wealthier than the consumers, who pay higher prices, 
and the workers, who earn lower wages, harmed by market power.\3\
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    \1\ Fiona Scott Morton, ``Modern U.S. antitrust theory and evidence 
amid rising concerns of market power and its effects'' (Washington: 
Washington Center for Equitable Growth, 2019), available at https://
equitablegrowth.org/research-paper/modern-u-s-antitrust-theory-and-
evidence-amid-rising-concerns-of-market-power-and-its-effects/.
    \2\ Colleen Cunningham, Florian Ederer, and Song Ma, ``Killer 
Acquisitions'' Working Paper (Washington Center for Equitable Growth, 
2019), available at https://equitablegrowth.org/working-papers/killer-
acquisitions; Ryan A. Decker and others, ``Declining Dynamism, 
Allocative Efficiency, and the Productivity Slowdown,'' The American 
Economic Review 107 (5) (2017).; Gauti B. Eggertsson, Jacob A. Robbins, 
and Ella Getz Wold, ``Kaldor and Piketty's Facts: The Rise of Monopoly 
Power in the United States.'' Working Paper No. 24287 (National Bureau 
of Economic Research, 2018).
    \3\ Joshua Gans, Andrew Leigh, Martin Schmalz and Adam Trigs, 
``Inequality and Market Concentration, When Shareholding is More Skewed 
than Consumption.'' Working Paper No. w25395 (National Bureau of 
Economic Research, 2018), available at https://ssrn.com/
abstract=3306105. Mordecau Kruz, ``ON the Formation of Capital and 
Wealth: IT, Monopoly Power and Rising Inequality''), available at 
https://ssrn.com/abstract=3014361. Einer Elhauge, ``Horizontal 
Shareholding,'' Harvard Law Review 129 (2016): 1267-1317. See 
generally, Bonnie Kavoussi, ``How market power has increased U.S. 
Inequality,'' https://equitablegrowth.org/how-market-power-has-
increased-u-s-inequality/.
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    However, the agencies charged with enforcing these laws need 
adequate resources to take appropriate action. Today, the Federal Trade 
Commission (FTC) and the Department of Justice's (DOJ) Antitrust 
Division are under-resourced, with annual appropriations on a steady 
decline since 2010 and now 18 percent lower in real terms than in 
2010.\4\ Enforcement has fallen to historic lows as funding has 
dropped. Merger enforcement actions have stagnated as merger filings 
have risen over the past decade and fewer corporations are being fined 
for antitrust violations since 2012-2014, and especially since the 
1990s. As our economy grows, the need for resources to regulate it 
grows in unison.
---------------------------------------------------------------------------
    \4\ Michael Kades, ``The state of U.S. federal antitrust 
enforcement'' (Washington: Washington Center for Equitable Growth, 
2019), available at https://equitablegrowth.org/research-paper/the-
state-of-u-s-federal-antitrust-enforcement/?longform=true.
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