[Senate Hearing 116-186]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 116-186
 
    EXAMINING THE ROOT CAUSES OF AMERICA'S UNSUSTAINABLE FISCAL PATH

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

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
               
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS


                             SECOND SESSION
                               __________

                            JANUARY 28, 2020

                               __________

        Available via the World Wide Web: http://www.govinfo.gov

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs
        
        
        
        
        
        
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              U.S. GOVERNMENT PUBLISHING OFFICE 
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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                    RON JOHNSON, Wisconsin, Chairman
ROB PORTMAN, Ohio                    GARY C. PETERS, Michigan
RAND PAUL, Kentucky                  THOMAS R. CARPER, Delaware
JAMES LANKFORD, Oklahoma             MAGGIE HASSAN, New Hampshire
MITT ROMNEY, Utah                    KAMALA D. HARRIS, California
RICK SCOTT, Florida                  KYRSTEN SINEMA, Arizona
MICHAEL B. ENZI, Wyoming             JACKY ROSEN, Nevada
JOSH HAWLEY, Missouri

                Gabrielle D'Adamo Singer, Staff Director
                   Joseph C. Folio III, Chief Counsel
       Patrick J. Bailey, Chief Counsel for Governmental Affairs
           Joshua P. McLeod, Senior Professional Staff Member
               William W. Sacripanti, Research Assistant
               David M. Weinberg, Minority Staff Director
  Lena C. Chang, Minority Director of Governmental Affairs and Senior 
                                Counsel
       Annika W. Christensen, Minority Professional Staff Member
          Jackson G. Voss, Minority Professional Staff Member
                     Laura W. Kilbride, Chief Clerk
                     Thomas J. Spino, Hearing Clerk
                     

                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Johnson..............................................     1
    Senator Peters...............................................     4
    Senator Romney...............................................     5
    Senator Carper...............................................    22
    Senator Hassan...............................................    25
    Senator Sinema...............................................    26
Prepared statements:
    Senator Johnson..............................................    39
    Senator Peters...............................................    41

                               WITNESSES
                       Tuesday, January 28, 2020

Douglas Holtz-Eakin, Ph.D., President, American Action Forum.....     7
Charles P. Blahous, Ph.D., J. Fish and Lillian F. Smith Chair and 
  Senior Research Strategist, Mercatus Center, George Mason 
  University.....................................................     8
Brian Riedl, Senior Fellow in Budget, Tax, and Economic Policy, 
  Manhattan Institute for Policy Research........................    10
Henry J. Aaron, Ph.D., Bruce and Virginia MacLaury Senior Fellow, 
  The Brookings Institution......................................    12

                     Alphabetical List of Witnesses

Aaron, Henry J. Ph.D.:
    Testimony....................................................    12
    Prepared statement...........................................    80
Blahous, Charles P. Ph.D.:
    Testimony....................................................     8
    Prepared statement...........................................    50
Holtz-Eakin, Douglas Ph.D.:
    Testimony....................................................     7
    Prepared statement...........................................    43
Riedl, Brian:
    Testimony....................................................    10
    Prepared statement...........................................    62

                                APPENDIX

Liabilities and Assets Chart.....................................    85
30-Year Projected Deficits Chart.................................    86
Income Statement Chart...........................................    87
Tax Revenue vs. Rates Chart......................................    88
Average Interest Rate Chart......................................    89
Progress Towards Simpson-Bowles Goals Chart......................    90
Statements submitted for the Record from:
    American Federation of State, County and Municipal Employees.    91
    Nancy J. Altman, President, Social Security Works Chair, 
      Strengthen Social Security Coalition.......................    95
    Committee for a Responsible Federal Budget...................   107
    FreedomWorks.................................................   123
    National Committee to Preserve Social Security and Medicare..   137
Responses to post-hearing questions for the Record:
    Mr. Blahous..................................................   138


    EXAMINING THE ROOT CAUSES OF AMERICA'S UNSUSTAINABLE FISCAL PATH

                              ----------                              


                       TUESDAY, JANUARY 28, 2020

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:33 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Ron Johnson, 
Chairman of the Committee, presiding.
    Present: Senators Johnson, Romney, Hawley, Peters, Carper, 
Hassan, and Sinema.

             OPENING STATEMENT OF CHAIRMAN JOHNSON

    Chairman Johnson. Good morning. This hearing will come to 
order. I want to thank all of our witnesses for, first of all, 
your detailed testimony and your time today and your 
willingness to appear and provide verbal testimony and then 
answer our questions.
    From my standpoint, this is a perfect hearing. It involves 
numbers. I get to use charts, which I will use shortly.
    I will ask that my written statement be entered into the 
record,\1\ without objection.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Johnson appear in the 
Appendix on page 39.
---------------------------------------------------------------------------
    I also want to thank Senator Romney. It is really his Time 
to Restore United States Trusts (TRUST) Act that prompted this 
hearing, but this hearing is really not the first because we 
have done this in the past, but it will be another one in a 
continuing series.
    I was talking to Mr. Riedl a little earlier and talking to 
the panel. It is kind of amazing how this has sort of dropped 
off everybody's radar screen. Nobody really is talking about 
this. We are all whistling past a graveyard, basically. This is 
an important issue. I do not know at what point in time the 
debt bomb goes off, but it is not going to be pleasant. We have 
to start addressing these issues. And so, again, I appreciate 
everybody's expertise in this and your willingness to appear.
    I want to just quick go through five quick charts to kind 
of set this thing up. Then I will turn it over to Senator 
Peters, and then Senator Romney would like to say a few words 
as well. So why don't you put up our first chart\2\ just to put 
everything in perspective.
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    \2\ The chart referenced by Senator Johnson appears in the Appendix 
on page 85.
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    We are always talking about the $23 trillion gross Federal 
debt. I want to just talk about total debt in our economy 
combined with unfunded liabilities in terms of pensions. And 
when you take a look at this--and, again, all these numbers, 
for example, we have $21 trillion of government debt. I am sure 
that is probably owed to the public as opposed to gross debt. 
So I have not been able to, quite honestly, really take a look 
at all the definitions of these things, but there are all kinds 
of different definitions, so you have just got to sort of look 
at the macro issues we are dealing with.
    Basically what this chart shows is between business 
corporate debt, government debt, household debt, and State and 
local government debt, we have about $82.5 trillion of 
outstanding debt in this country, roughly.
    Then when you start taking a look at unfunded liabilities 
for pension and retirement plans, Medicare is about $80 
trillion; Social Security is 43.2; Federal pensions--that is 
Federal employees plus military--about $8 trillion; State and 
local pensions, about 4.3. And, actually, it surprised me how 
small a chunk private pensions are. Actually, private 
companies, because we have laws, actually have to fund their 
pension plans, and so we do not have such a huge unfunded 
liability there.
    I did want to just relate it to basically the private net 
worth of the United States. All private net assets is about 
$144 trillion, so that is assets minus debt owed on those 
assets. So it just kind of puts things in perspective. That is 
$218 trillion of debt and unfunded liabilities versus $144 
trillion of U.S. net worth, private net worth.
    The next chart,\1\ I like calling this ``the Johnson budget 
window,'' but this is something that early on, when I got to 
the Senate, working with Congressional Budget Office (CBO) in 
the budget process, I got CBO to start--because we always talk 
about unfunded liabilities. People really do not understand net 
present value. You start talking about $100 trillion, $200 
trillion. It is just not comprehensible. So I asked the CBO to 
start pulling together just a projection over 30 years. Most 
adults can actually conceptualize what a 30-year period is--
when you get to be 64 years old, you realize how short a time 
span that really is, how fast it goes--and just do some measure 
of estimates of dollars. People do not buy hamburgers with a 
percent of gross domestic product (GDP). They use dollars.
---------------------------------------------------------------------------
    \1\ The chart referenced by Senator Johnson appears in the Appendix 
on page 86.
---------------------------------------------------------------------------
    So just to kind of put that in perspective, the latest 30-
year projected deficit, according to CBO with their alternate 
fiscal scenario, $133 trillion projected deficit over the next 
30 years. Again, you compare that to $144 trillion of U.S. net 
worth.
    The next chart\2\--and, by the way, you all have this in 
front of you. I developed a one-page income statement for the 
Federal Government to just kind of lay this out. And so this 
one-page Federal income statement shows outlays, it shows 
revenue by categories, and then the accompanying deficit. And 
so of the $137 trillion projected 30-year deficit, you can see 
about $23 trillion is in Social Security. In other words, more 
benefits paid out than we bring in in terms of revenue. 
Medicare is about $42.6 trillion. Interest on the debt, in 
other words, the interest expense we are paying to our 
creditors, almost $60 trillion.
---------------------------------------------------------------------------
    \2\ The chart referenced by Senator Johnson appears in the Appendix 
on page 87.
---------------------------------------------------------------------------
    So of the $137 trillion projected 30-year deficit, $125 
trillion is in just those three categories: $23 trillion in 
Social Security, $43 trillion in Medicare, $60 trillion for 
interest on the debt. So it kind of shows you what we need to 
concentrate on, what Senator Romney is certainly talking about 
with his TRUST Act. We have to look at these long-term 
government-run entitlement programs.
    The next chart.\1\ We will always have debates over taxes. 
How much do you tax success? How much do you want to kill that 
golden goose? I thought this was a pretty interesting chart 
because going back to the late 1950s, when we had a top 
marginal tax rate of 91 percent--now, that is punishing 
success--to today's current top tax rate of 37 percent, it is 
remarkable how consistent what our revenue generation is in 
comparison to GDP. It has averaged about 17.3 percent, and 
there is not much variation from it.
---------------------------------------------------------------------------
    \1\ The chart referenced by Senator Johnson appears in the Appendix 
on page 88.
---------------------------------------------------------------------------
    So, again, you can do everything possible to tax and punish 
success. The bottom line in some way, shape, or form we are 
only able to collect around 17.3 percent of GDP in terms of 
government revenue. At some point in time we ought to recognize 
that. My own solution? Completely simplify and rationalize the 
Tax Code. This obviously reflects we have a lot of complexity. 
There are all kinds of loopholes. I hate that crap. OK? From my 
standpoint, I do not even like using the term ``tax reform.'' I 
would much rather talk about tax simplification, tax 
rationalization. The simpler, the better. It is not exactly 
what we did in 2017. Maybe moving forward we will take a look 
at this reality and act accordingly.
    The final chart\2\ I will talk about before I turn it over 
to Senator Peters is the average interest rate the Federal 
Government has paid on its debt, and this is the one that 
should concern us. You go back to the 1970s; average interest 
rate was about 4.5 percent. In the 1980s it was 6.8 percent. In 
the 1990s it was 4.9 percent. We have been living in an 
alternate universe right now with 2.7 over the first decade of 
this century, and only 1.5 percent over the last decade is the 
interest rate. Now, that interest rate gap over the average of 
5.3 percent is 3.8 percent. You apply that to our current 
Federal gross debt of $23 trillion. I think it is $874 billion. 
That is off the top of my head. I did the calculation earlier. 
I do not have it written down, but it is a massive number if we 
were to return to that.
---------------------------------------------------------------------------
    \2\ The chart referenced by Senator Johnson appears in the Appendix 
on page 89.
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    How do we return to that? Well, if the United States is no 
longer the world's reserve currency and we cannot print money 
and global creditors start looking at the U.S. and going, kind 
of a credit risk, I am going to demand a higher interest 
payment if I am going to loan you money, that is what causes 
that.
    I think we need to understand these realities. I am 
surprised that the debt bomb has not gone off already. I ran in 
2010 because of this issue. We continue to be able to whistle 
by the graveyard. I do not know how long that is going to 
continue, but at some point in time the debt bomb goes off. And 
the bottom line is it is just not smart to be running up 
trillion-dollar deficits and just basically ignore all these 
unfunded liabilities and $23 trillion in debt which is only 
going to grow.
    So, again, I thank everybody for being here. I will turn it 
over to Senator Peters and then Senator Romney.

             OPENING STATEMENT OF SENATOR PETERS\1\

    Senator Peters. Thank you, Mr. Chairman, and certainly 
thanks to our expert panel of witnesses here today. We are 
looking forward to hearing your testimony.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Peters appear in the Appendix 
on page 41.
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    I think there is no question that our Nation's growing 
debts are unsustainable, and Congress has a very important 
responsibility to work together across party lines to reduce 
the national debt and to close our spending deficits.
    Providing our country with a strong financial foundation is 
critical to ensuring that our economy can continue to grow and 
families in Michigan as well as all across the country can 
prosper.
    Over the years I have been working to ensure that taxpayer 
dollars are used responsibly. I have been privileged to work 
with Members of both parties and folks on this Committee, which 
we do on a regular basis work together in a bipartisan way, to 
find some common-sense ways to cut wasteful spending and set 
our country on a sounder fiscal path.
    Eliminating waste and fraud builds public trust, frees up 
funds for our Nation's core priorities, including Social 
Security and Medicare.
    These programs were created to ensure that every American 
can retire with dignity and the certainty that their essential 
health care needs will be met.
    Medicare and Social Security are benefits that Americans 
have paid into through decades of hard work, and I am deeply 
committed to protecting Social Security and Medicare and 
ensuring that they are solvent for future generations.
    At a time when the Government Accountability Office (GAO) 
estimates that 48 percent of working Americans approaching 
retirement have no retirement savings--I will say that again: 
48 percent of working Americans approaching retirement have no 
retirement savings--and 29 percent of Americans over the age of 
55 have no retirement or benefits plan offered by their 
employer, hardworking families in Michigan and across the 
country are counting on these programs to be there for them in 
the years ahead.
    Congress must protect Social Security and Medicare by 
meeting our commitments, not by changing the rules of 
eligibility or slashing benefits to these folks.
    There are serious challenges facing these Federal trusts, 
but our primary focus must be on increasing solvency without 
cutting benefits or changing the rules on American workers who 
have literally spent their whole lives working toward these 
programs.
    We know, for example, that one of the most significant 
challenges facing Medicare is the rising cost of prescription 
drugs. Allowing Medicare to negotiate lower prescription drug 
prices would save tens of billions of dollars every year, 
according to the Congressional Budget Office.
    We must also aggressively root out fraud and waste and 
other issues of inefficiency.
    And, finally, we must address workers' limited economic 
mobility and stagnant wages which have both made it harder for 
families to save for the future but also for the trust funds to 
meet their commitments.
    Solving this challenge is going to take bipartisan 
cooperation, and it is going to take also a very comprehensive 
approach. You need to cut costs, but you need to reform the Tax 
Code, and you also have to invest in economic growth.
    These efforts can make our government more efficient, 
protecting Americans' hard-earned benefits, and honor our 
commitment to keep these programs strong for our children and 
for our grandchildren.
    I look forward to today's discussion and to our ongoing 
efforts to identify commonsense, bipartisan solutions that will 
preserve Medicare and Social Security for all Americans for 
generations to come.
    Thank you.
    Chairman Johnson. Thank you, Senator Peters.
    Now, Senator Romney.

              OPENING STATEMENT OF SENATOR ROMNEY

    Senator Romney. Thank you, Chairman Johnson and Committee 
Members, for convening this hearing.
    I had the occasion, as you know, of running for Senate very 
recently. The No. 1 issue in my State was the overspending by 
the Federal Government and the deficits we have and the amount 
of debt we have. You know the numbers. The government takes in 
about $3 trillion in tax revenue and spends about $4 trillion. 
We paid almost $300 billion in interest on the Federal debt. 
That number, as the Chairman has shown, is going to grow to be 
larger and larger and larger. And if interest rates were to 
rise for any host of reasons, why, it could become an 
overwhelming number. At some point we would be spending more in 
interest than we spend on our military.
    As you all know, two-thirds of our spending at the Federal 
level is automatic. We do not vote on it in the budget--
Medicare, Medicaid, Social Security, Highway Trust Fund and so 
forth. Last week, the GAO released a report confirming that the 
Highway Trust Fund will be insufficient to meet projected 
obligations within 2 years. The same trouble looms shortly 
thereafter for other major important funds. Medicare Part A in 
6 years runs out of money. The Social Security Trust Fund 
becomes insolvent in 2034, so that is 14 years.
    The question is: What are we going to do about it? A number 
of us--Senator Manchin, Senator Sinema, Senator Young, and 
I--have proposed, along with a number of other colleagues, five 
Republicans, five Democrats, something called the ``TRUST 
Act.'' It has been endorsed by Alan Simpson and Erskine Bowles. 
They made an effort and feel this is a good approach to pursue, 
and a number of organizations on both the right and left side 
of the aisle have made an effort in this regard.
    The idea is to establish for each one of these trust funds 
individually--so for the Highway Trust Fund, for Medicare, for 
Social Security Disability Insurance (SSDI), for Social 
Security Old Age--for each one of them to establish a 
bipartisan, bicameral, if you will, rescue committee and see if 
we cannot come up with a bipartisan approach for making sure 
these trust funds and these programs are made solvent.
    Let me note that I know there are people on the right who 
feel that any give on our part is a mistake, and there are 
people on the left who feel that any give on their part is a 
mistake. Let me note this: If we do nothing then we will at 
some point reach a crisis where at that point we will have to 
raise taxes like crazy, which would clearly impact the economy, 
or cut benefits that would hurt our seniors. That is 
unacceptable. Either one of those is unacceptable.
    The only other alternative is to work on a bipartisan 
basis, and if we just keep waiting and say we are not going to 
do anything until we actually run out of money in these funds--
Medicare, Social Security, the Highway Trust Fund--the 
consequences are very severe.
    So we are simply proposing that we get together, that we 
find a way to actually meet. We rarely have occasions to meet 
on a bipartisan basis in this chamber and across the Capitol 
with the House. So we are saying let us get the House 
Republicans and Democrats and Senate Republicans and Democrats 
together in small committees. If they can come up with a 
bipartisan solution, bring it to the floor in each chamber on a 
privilege basis for an up-or-down vote. And I believe that that 
is the only way we are going to prevent a circumstance where we 
face a crisis, a collapse in one of these funds, dramatic cuts 
in benefits or dramatic increases in taxes, either one of which 
would be unacceptable.
    I am delighted to be able to hear from our experts today 
and hope that I will be able to get all the Members of our 
Committee to say, yeah, let us get together, work as a group of 
committees to see if we cannot solve these looming challenges.
    So, with that, Mr. Chairman and Ranking Member, I 
appreciate your comments. I appreciate the chance to make some 
comments along with you in the opening here, and I hope to hear 
important information from our colleagues who join us on this 
panel.
    Chairman Johnson. Thank you, Senator Romney. I appreciate 
anybody who is willing to take a look at this, highlight the 
issue, and start working toward some bipartisan solutions.
    By the way, I did do a recalculation: $874 billion per year 
at our current debt level, tack that onto $300 billion, that is 
about $1.2 trillion of interest payments per year if we just 
return to a historical average interest rate. So, again, who 
knows what is going to happen with interest rates, but it is 
something we need to address.
    It is the tradition of this Committee to swear in 
witnesses, so if you will all stand and raise your right hand? 
Do you swear that the testimony you will give before this 
Committee will be the truth, the whole truth, and nothing but 
the truth, so help you, God?
    Mr. Holtz-Eakin. I do.
    Mr. Blahous. I do.
    Mr. Riedl. I do.
    Mr. Aaron. I do.
    Chairman Johnson. Please be seated.
    Our first witness is Dr. Douglas Holtz-Eakin. Dr. Holtz-
Eakin is the president of the American Action Forum. From 2003 
to 2005 Dr. Holtz-Eakin served as the Director of the 
Congressional Budget Office. Dr. Holtz-Eakin has previously 
served on the Financial Crisis Inquiry Commission and as Chief 
Economist of the President's Council of Economic Advisers. Dr. 
Holtz-Eakin.

 TESTIMONY OF DOUGLAS HOLTZ-EAKIN, PH.D., PRESIDENT, AMERICAN 
                          ACTION FORUM

    Mr. Holtz-Eakin. Mr. Chairman, Ranking Member Peters, and 
Members of the Committee, thank you for the privilege of being 
here today. I have a written statement that I have 
submitted.\1\ Let me briefly make four points, and then I look 
forward to answering your questions.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Holtz-Eakin appear in the 
Appendix on page 43.
---------------------------------------------------------------------------
    There are a lot of numbers associated with the budget 
outlook, but all of those numbers tell the same story, which is 
the U.S. Federal budget is on an unsustainable trajectory with 
spending exceeding revenue as far as the eye can see, and how 
we address that I think becomes the important question.
    First, sooner is better than later, for all the reasons 
that Senator Romney just laid out.
    Second, we will need to grow as fast as possible as a 
Nation, and I think a priority should be placed on pro-growth 
policies. We will have to raise more revenue at some point, and 
that will be an unpleasant, I think, discussion and task. But 
even if we do both of those things, it is inevitable that one 
must take on reforms of the large mandatory spending programs. 
There is no way to deal with this problem without doing that.
    I also think it is important to do that on behalf of the 
beneficiaries. Social Security, for example, was created to 
reduce income insecurity among the elderly. It is now the 
source of income insecurity among the elderly because in 14 
years benefits are threatened to be slashed by 25 percent. So 
on behalf of the fiscal outlook but also on behalf of the 
beneficiaries, it is important to get to work on these 
programs.
    There is nothing about the current low interest rate 
environment that should either say do not take action or defer 
taking action. There is a lot of talk about that right now. In 
my testimony I laid out some of the arguments that I think are 
very misleading and misplaced. This is something that is urgent 
and needs to be dealt with.
    And then the last point I would make is that the fact that 
there is not a crisis does not mean there is not a problem. 
Often people say, ``Oh, look at Japan. Japan has got a lot of 
debt. We do not need to worry about this.'' I do not want 
Japan's growth rate. I do not want the outlook for Japan. I 
think we can do much better than them.
    It is absolutely the case that this fiscal outlook takes a 
toll on the United States. That toll will increase over time. 
It will eat away at our productive capacity, the growth rate in 
the standard of living; and if we borrowed this money from 
abroad, whatever productive capacity we have, we will owe the 
return to it to people who do not live here, and the standard 
of living will diminish as a result.
    So I am thrilled that the Committee is having this hearing, 
that somebody is talking about this problem. This is a priority 
for the Nation, and I look forward to answering your questions.
    Chairman Johnson. Thank you, Doctor.
    Our next witness, is Dr. Charles Blahous. Dr. Blahous is 
the J. Fish and Lillian F. Smith Chair and senior research 
strategist at the Mercatus Center at George Mason University. 
Dr. Blahous has served as a trustee for the Social Security and 
Medicare programs and as Deputy Director of the National 
Economic Council under President George W. Bush and has worked 
for Senators Judd Gregg and Alan Simpson. Dr. Blahous.

TESTIMONY OF CHARLES P. BLAHOUS, PH.D., J.\1\ FISH AND LILLIAN 
F. SMITH CHAIR AND SENIOR RESEARCH STRATEGIST, MERCATUS CENTER, 
                    GEORGE MASON UNIVERSITY

    Mr. Blahous. Thank you, Mr. Chairman, Ranking Member 
Peters, and all the Members of the Committee. It is a great 
honor to appear before you to discuss the leading contributors 
to the Federal Government's long-term fiscal imbalance.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Blahous appear in the Appendix on 
page 50.
---------------------------------------------------------------------------
    My remarks today will focus on the Federal Government's 
largest two mandatory spending programs, Social Security and 
Medicare, and, obviously, these programs loom large in any 
discussion of Federal budgets, but they also, as Dr. Holtz-
Eakin indicated, require significant reforms for their own 
sakes to maintain the solvency of their trust funds and to 
protect program participants.
    Social Security and Medicare have two distinct trust funds 
each, or four trust funds in all, and whether these trust funds 
are kept financially sound is not merely an accounting issue. 
It is critical for program participants. Social Security and 
Medicare derive their unique political strengths from shared 
perceptions that participants' benefits were earned through 
previous contributions, and this perception spares participants 
the frequent renegotiations of benefit levels and eligibility 
rules to which beneficiaries of so-called welfare programs are 
often subjected.
    But if lawmakers ultimately prove unable to keep program 
revenues and benefits in balance, then Social Security and 
Medicare's historical financing frameworks will have to be 
abandoned in favor of an alternative financing method that 
offers far less protection to beneficiaries.
    Social Security's long-range shortfall has grown to equal 
roughly 20 percent of all future benefit claims. Now, 
obviously, we are not about to cut benefits for retirees next 
year and afterward by 20 percent, and any changes we do make 
will almost certainly affect participants much less in the 
short run, necessitating even larger changes in the long run.
    Those changes cannot wait until Social Security's trust 
funds are nearly running dry. By that time, in the early 2030s, 
even completely eliminating all new benefit claims would not 
produce enough savings then to avert trust fund depletion. And 
if those trust funds are ever depleted, benefit payments must 
under law stop until sufficient tax revenues arrive to finance 
them, cutting benefits through the mechanism of delay.
    Medicare's actuarial imbalance is not as large as Social 
Security's, but it faces an even more immediate projected 
insolvency in hospital insurance in 2026. We simply do not have 
much time left to address Social Security or Medicare.
    Now, in 1983, Social Security was rescued from insolvency 
at the last moment by delaying Cost of Living adjustments 
(COLAs) by 6 months, exposing benefits to taxation for the 
first time, bringing in newly hired Federal employees to 
contribute their taxes, increasing the full retirement age, and 
accelerating a previously enacted payroll tax increase, among 
other controversial provisions.
    A Social Security solution enacted today, let alone the 
more difficult one that further delays would necessitate, would 
require far more severe measures. To preserve Social Security 
and Medicare finances, elected officials on opposite sides must 
compromise to a degree far exceeding recent political norms.
    The total changes required to balance these programs' 
finances is not a policy choice. The gap between their 
projected revenues and benefit obligations is what it is. No 
lawmaker who offers a solution should be attacked on the false 
premise that they would inflict unnecessary pain, especially 
when failing to act would be far more painful. Moreover, there 
are many potential upsides to Social Security and Medicare 
reforms. If it is done properly, reform can achieve more 
equitable treatment of different generations, lessen the risk 
of old age poverty from premature retirement, more efficiently 
target net benefits on households of greatest need, increase 
workforce participation and saving, all while lowering costs. 
Fiscal considerations are powerful reasons to pursue Social 
Security and Medicare reforms, but they are by no means the 
only ones.
    Now, while restoring Social Security and Medicare finances 
to sound footing is critical for the programs and for their 
beneficiaries, it is also imperative for the larger Federal 
budget. As my written testimony documents, all recent and 
projected Federal spending growth relative to GDP in CBO's 
latest long-term budget outlook from 2005 to 2033 can be 
accounted for by Social Security and gross Medicare spending 
growth alone.
    Now, addressing these shortfalls requires many value 
judgments and tactical decisions of lawmakers. I would offer 
some principles for your consideration.
    First, as has been said already, act as rapidly as 
circumstances allow. Every year that we wait means that the 
eventual solution imposes additional hardship on affected 
participants.
    Second, do not make the problem worse. The only appropriate 
time to discuss any across-the-board increase in Social 
Security benefits or an expansion of Medicare is after and only 
after lawmakers have demonstrated, through enacted legislation, 
a willingness to fully fund these programs' current-law 
obligations.
    And, third, compromise. If, for example, one side says 
there cannot be any tax increases and the other side says there 
cannot be any deceleration of benefit growth, no solution will 
be possible, and program participants will suffer the 
consequences.
    In sum, Social Security and Medicare warrant reform for 
their own sakes to place both programs on a sound financial 
footing and to better serve program participants. Prudent 
reforms to eliminate their shortfalls, in addition to improving 
the Federal fiscal outlook, would also achieve a more equitable 
distribution of program benefits and financing burdens.
    Thank you.
    Chairman Johnson. Thank you, Dr. Blahous.
    Our next witness is Brian Riedl. Mr. Riedl is a senior 
fellow at the Manhattan Institute focusing on budget, tax, and 
economic policy. He previously served as chief economist to 
Senator Rob Portman and as staff director of the Senate Finance 
Subcommittee on Fiscal Responsibility and Economic Growth. Most 
importantly, Mr. Riedl is a University of Wisconsin grad where 
he studied economics and political science before earning a 
master's degree in public affairs from Princeton University. I 
found out before the hearing he is also from Appleton. I did 
not get a satisfactory answer to my question of why did you 
leave God's country, but needless to say, Mr. Riedl, you are 
next.

TESTIMONY OF BRIAN RIEDL,\1\ SENIOR FELLOW IN BUDGET, TAX, AND 
    ECONOMIC POLICY, MANHATTAN INSTITUTE FOR POLICY RESEARCH

    Mr. Riedl. Thank you. Good morning, Chairman Johnson, 
Ranking Member Peters, and Members of the Committee. Thank you 
for inviting me to participate in today's hearing.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Riedl appear in the Appendix on 
page 62.
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    My purpose is to describe the policies that are driving the 
historic surge in long-term deficits. I will begin by asserting 
that few Americans fully comprehend the fiscal avalanche that 
has begun. The budget deficit is on pace to surpass $1 trillion 
this year and is on pace to surpass $2 trillion within a decade 
just if we continue current policies. And if interest rates 
return to 1990s levels, the projected budget deficit will be $3 
trillion within the next decade. This is according to data from 
the Congressional Budget Office.
    The long-term picture is even worse. CBO projects $80 
trillion in new red ink over the next 30 years, and even that 
assumes the tax cuts expire. That would leave the national debt 
at nearly 150 percent of GDP, and even that assumes peace, 
prosperity, and continued low interest rates.
    So what is driving the red ink? We can start by looking at 
the $250 billion annual cost of the tax cuts and the $150 
billion annual cost of the higher discretionary caps. That is 
$400 billion. But it is a steady $400 billion. It is not going 
to rise over the next decade. So it is not a contributor for 
the continued rise in the deficit from this point forward, and 
over the next decade, the definition is going to go from $900 
billion to $2.2 trillion. So if the tax cuts and the 
discretionary caps are not driving the additional $1.3 trillion 
increase in the deficit, what is?
    The CBO data points to Social Security and Medicare. 
Because payroll taxes and premiums do not fully cover the cost 
of benefits, Social Security and Medicare require a general 
revenue transfer each year to cover their shortfall. The cost 
of filling the Social Security and Medicare shortfall each year 
plus the resulting interest will rise from $440 billion in 2019 
to $1.7 trillion a decade from now. That $1.25 trillion annual 
cost increase of filling the Social Security and Medicare 
shortfall drives more than 90 percent of the projected increase 
in the budget deficit over the next decade, according to the 
current policy baseline.
    So if you just take a look at the total decade figures, 
basically within the next decade Social Security will require a 
total of $2.5 trillion in general revenue transfers. Medicare 
will require $5.9 trillion in general revenue transfers. When 
you add $1.8 trillion in interest costs directly associated 
with those two transfers, you get $10 trillion of the deficit 
over the next decade that is directly attributable to general 
revenue transfers for Social Security and Medicare.
    The long-term figures are even more dire. Remember I said 
earlier that CBO projects $80 trillion in red ink over the next 
30 years? CBO data shows that if you break that down, the 
Social Security and Medicare systems will run a $103 trillion 
cash shortfall over the next 30 years, and the rest of the 
budget will run a $23 trillion surplus.
    Specifically, Social Security will run a $19 trillion cash 
deficit, Medicare will run a $44 trillion cash deficit, and the 
interest costs of financing these shortfalls will add $40 
trillion more.
    Again, let me dig a little deeper into those numbers. Over 
the next 30 years, Medicare will take in $17 trillion and spend 
$61 trillion. Social Security will take in $56 trillion and 
spend $75 trillion. And, again, you get an additional $40 
trillion in interest. That is how you get $103 trillion 
shortfall in Social Security and Medicare and a $23 trillion 
surplus for the rest of the budget.
    This cost is not steady. It is growing rapidly. This year, 
the drag on Social Security and Medicare transfers is 2 percent 
of GDP. Thirty years from now, it will be 12.1 percent of GDP. 
In other words, the Social Security and Medicare annual deficit 
is going to rise by 10 percent of GDP over the next 30 years. 
You cannot raise taxes or cut other spending enough to close 
the 10 percent increase in the annual general revenue transfer 
cost for Social Security and Medicare. And, by the way, in 
2049, the rest of the budget will be running a 3.4 percent of 
GDP surplus.
    So, simply put, we basically have a Social Security and 
Medicare problem. The rest of the budget is going to run 
surpluses, but surpluses not big enough to close the Social 
Security and Medicare shortfall.
    I have many charts in my written testimony that dive more 
deeply into this, and so I hope you will take a look at those, 
and I am happy to take any questions.
    Chairman Johnson. Thank you, Mr. Riedl. And I did 
appreciate your charts. It is interesting. Our numbers are 
slightly different. Again, that is the whole definition 
projection, that type of thing. But they are basically point to 
the same problem.
    Our final witness is Dr. Henry Aaron. Dr. Aaron is 
currently the Bruce and Virginia MacLaury Senior Fellow in the 
Economic Studies Program at the Brookings Institution. Dr. 
Aaron is also a member and former Chair of the Social Security 
Advisory Board. Dr. Aaron.

   TESTIMONY OF HENRY J. AARON, PH.D.,\1\ BRUCE AND VIRGINIA 
       MACLAURY SENIOR FELLOW, THE BROOKINGS INSTITUTION

    Mr. Aaron. Thank you. I know you have some other things to 
do a little later, so I will try to be brief.
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    \1\ The prepared statement of Mr. Aaron appear in the Appendix on 
page 80.
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    I appreciate the invitation to appear today. I divided my 
testimony into several sections. The first one, I want to point 
out that the Nation faces other problems in addition to the 
fiscal ones. Among those are upgrading and restoring our 
infrastructure, improving scientific education and training and 
investment in science, increases in early childhood development 
to develop a more productive citizenry, finding better ways to 
provide and pay for the explosive increase in long-term care 
that the Nation is going to face, fulfilling the commitments to 
the elderly and people with disabilities through Social 
Security and Medicare that we have made as a Nation, and not 
least, but last, taking effective steps to curb emissions of 
greenhouse gases and combat global warming.
    That menu together with the fiscal challenges that we face 
underscore that the decision to cut taxes by Congress was and 
remains not just unwise but foolhardy and, perforce, any 
further cuts would be as well. In saying that, let me stress 
that tax reform is needed; tax cut are not.
    The second part of my testimony addresses the issue of 
deficit reduction. The onset of low interest rates has not 
eliminated but it has reduced the urgency of deficit reduction. 
It has created additional fiscal elbow room for the government 
to operate. What that means is that the Nation today is able to 
carry more debt than it could have done in the past without 
harm. Deficits do create debt, and deficits do create harm. The 
reduction in interest rates ameliorates that problem. So in 
thinking about the problem of deficit reduction, it is vital to 
weigh it against the additional spending that is going to be 
necessary to deal with the other urgent problems that this 
Nation faces, and the relative importance of deficit reduction 
has been reduced by the reduction in interest rates--not 
eliminated but reduced.
    The third part of my statement addresses Social Security. 
There is really no news here about the situation on Social 
Security. We have known for three decades that Social Security 
was going to cost more than the revenues it generates. There is 
nothing new here. We have known that there would be enough 
money to pay for all benefits through the middle of the fourth 
decade of this century. And we have known that we could, if we 
wished, pay for every nickel of scheduled benefits at a cost of 
about 1 percent of GDP. One percent of GDP. That is a smaller 
additional cost than the Nation has incurred for Social 
Security on a number of previous occasions. So it is doable if 
you want to do it. I am not suggesting that it is the only way 
to proceed.
    We have all known that it was desirable to act sooner 
rather than later to close the projected gap in Social Security 
funding, and I think it is clear Senator Romney and his 
sponsors deserve credit for suggesting a step that would raise 
the salience of that issue. In my testimony I have some 
comments about the bill itself, which I will come back to.
    Health care is the fourth section of my testimony, and that 
problem is one that is far larger than Medicare or Medicaid. 
The problem of rising health care spending is a general problem 
for those programs but also for private payers as well.
    It is the case that the rise in Medicare spending and 
Medicaid spending is the principal source of projected 
increases in government budget deficits. But we should take 
note of the fact that much of that increase is desirable of the 
increased spending and that the Nation has committed to 
providing the elderly and disabled health care commensurate to 
that enjoyed by the rest of the population. I hope that is a 
commitment that the Nation will sustain and that no Member of 
Congress would urge us to back away from.
    So I think that it is particularly important, as Senator 
Peters suggested in his opening remarks, that where there are 
opportunities to take steps to curb the growth of health care 
spending we not back away from them. That includes surprise 
billing, an issue now before Congress. It includes efforts to 
curb the growth of pharmaceuticals as well.
    Finally, I have some comments on the TRUST Act. The 
objective of heightening attention to budget problems is 
worthy. I believe the way in which the TRUST Act would address 
the major trust fund programs would not be the best way to 
proceed. In the case of Social Security, as Chuck Blahous 
mentioned, we know that a lot of circumstances in this country 
have changed in the roughly 40 years since there was last major 
legislation. It is time to take a look at Social Security in a 
thorough way, not merely, not only from the standpoint of trust 
fund balance. Social Security is a particularly difficult 
program and complicated one, and a rescue committee acting 
under expedited procedures is not the venue in which the 
various considerations that need to be taking place, for 
example, about how to provide long-term low-wage workers with 
better benefits, what to do about long-term beneficiaries whose 
assets are depleted, what to do about the fact that life 
expectancy has increased for some but decreased for others, 
affecting people very differently. These and other issues need 
to be considered.
    In the case of Medicare, I believe that the rescue 
committee would push decisionmaking in the wrong direction. 
What happens 75 years hence, what is assumed to happen to 
Medicare costs 75 years hence is a matter of speculation based 
on almost total ignorance. We cannot know what the State of 
medical science will be 75 years hence, yet we have to make 
assumptions about that in any long-term projection. The result 
of making decisions within that context would be to base 
decisions about current health care benefits for current 
retirees and those soon to retire on assumptions regarding 
future events. Congress has never used long-term projections to 
shape Medicare legislation. It has taken steps to assure that 
it is adequately funded for a number of years into the future; 
10 to 15 has been the typical range. And I think it is very 
important that it do that. But to use events 50 to 75 years in 
the future as an influence on current benefits would be, I 
think, a mistake and, therefore, the venue that one needs for 
addressing Medicare's structure, something that is badly 
needed, is different from the one described in this bill.
    Chairman Johnson. Thank you, Dr. Aaron.
    As long as you started talking a little bit about Medicare, 
I think the Urban Institute right now, one of the reasons it is 
so popular is that for every dollar that Americans pay into the 
Medicare system--and I hear it all the time. ``Well, that is my 
money.'' Well, a dollar of it is, but you are currently getting 
about $3 out in benefits. I think it is not too far in the 
future that turns into 4:1 and then 5:1. Is that roughly 
correct? Dr. Aaron, do you want to respond to that?
    Mr. Aaron. Well, people are receiving through Medicare 
typically more than they paid in in benefits if they are low 
earners. Higher earners can look forward to a future in which 
they will be paying for much or most of their benefits.
    Chairman Johnson. I know there is no cap on the Medicare 
tax, so very high earners, you could argue, are way overpaying 
in terms of just a self-funded type system.
    Mr. Aaron. Also, they pay extra premiums under Part B.
    Chairman Johnson. Let me lay out a couple realities here. I 
cannot remember which one of you in your testimony talked about 
the trust funds. One chart I have always shown in the past is a 
picture of a four-drawer file--I think it is in Parkersburg, 
West Virginia, or Parkersville, something like that--that holds 
the trust fund, and it is just U.S. Government bonds. I think 
it is important people realize the Federal Government did not 
take in those payroll tax dollars and then invest that in an 
asset that the Federal Government can actually make a claim on. 
Congress has spent that money, and in its place they just put 
U.S. Government bonds in that four-drawer file. And a U.S. 
Government bond in the hands of the Federal Government is not a 
valuable asset. It is just an accounting convention, as one of 
you pointed out in your testimony.
    Anybody want to confirm that basic reality?
    Mr. Holtz-Eakin. I am the guilty party. It is in my 
testimony.
    Chairman Johnson. OK, good. I appreciate your pointing that 
out. My question is: What will happen when that accounting 
convention runs out? Because we already are at the point where 
we are paying out more benefits, so the Treasury is having to 
start calling on those bonds. And when those bonds run out--it 
is just an accounting convention--what do we think actually 
happens if we do nothing?
    By the way, I also talk to young people and say, ``What do 
you think you are going to get out of Social Security?'' They 
say, ``Nothing.'' Well, that is not true, because you are 
talking about a 20 percent shortfall. So what do we think 
actually happens in 2035 or whenever that accounting convention 
runs out?
    Mr. Blahous. This is a subject of some debate, so I would 
not want to say that it is absolutely settled. I will say I 
think the prevailing interpretation is that the trust funds 
cannot spend on benefits where there are not resources in the 
trust funds to finance them; ergo, what would have to happen 
would be the benefit payments would be interrupted and 
effectively reduced through the process of delay until 
sufficient revenues came in from taxes to finance payments. So 
in the Social Security case, you would have a reduction in 
payments of about 20 percent in 2034.
    Chairman Johnson. But you would not stop paying the 
benefits. You would literally just somehow--and I agree with 
you. Nobody really knows for sure, but the best guess would be 
benefits would be reduced by about 20 percent.
    Mr. Blahous. I think that is the prevailing interpretation.
    Chairman Johnson. So, again, when young people are looking 
at that and saying, ``Well, I am not going to get anything,'' 
no, you will probably get about 80 percent if we do nothing. 
That is largely true.
    Taking a look at those interest rates right there, is 
anybody knowledgeable--maybe Dr. Holtz-Eakin will be 
knowledgeable. To what extent are we taking advantage of these 
low interest rates in terms of our maturity profile? Are we 
refinancing our debt and locking in long-term interest rates 
on----
    Mr. Holtz-Eakin. Not in a dramatic fashion. There has been 
a modest increase in maturities in the past 3 years, but it is 
still relatively short-term debt.
    Chairman Johnson. So why are we not doing that?
    Mr. Holtz-Eakin. That is a good question for the Secretary 
of the Treasury.
    Chairman Johnson. I mean, is there a capacity in the 
marketplace to be able to lock these things? And is that one of 
the problems? Or when you go longer, it is going to increase 
interest rates, because right now they are borrowing very short 
term and those are really low rates versus the--what is the 
differential?
    Mr. Holtz-Eakin. So some of the other countries have moved 
in the past 20 years to 30 and even a 50-year maturity has been 
floated internationally. Those markets are not very liquid at 
the moment, so they are not outstanding places to borrow. But 
it is something that I am sure the Treasury Advisory Committee 
is looking at when they look at the term structure of the U.S. 
debt.
    Chairman Johnson. What is the differential right now from a 
very short-term government bond to, let us say, a 30-year bond?
    Mr. Holtz-Eakin. You are looking at some of these about a 
percentage point.
    Chairman Johnson. So it is not even 1 percent. So if you 
were--and I am not sure that you have the capacity for this, 
but if you were able to totally refinance it, let us say just 1 
percent for easy calculation, it would cost you $230 billion a 
year in interest, but you have locked that in for 30 years, and 
you avoid that $874 billion hit per year.
    Mr. Holtz-Eakin. I guess the reason I have reservations 
about going down this path is if you take out the interest 
payments and just simply look at the primary deficit, the 
difference between spending and revenues, we have a deep fiscal 
problem on the fundamentals, and there will be no financial 
engineering that will avoid that. And I would encourage people 
to look at the fundamental problem.
    Mr. Aaron. There is another reason why the Treasury has not 
moved more aggressively. Were they to do so, they would be 
directly countering the policy of the Federal Reserve at the 
present time. The Federal Reserve has been trying to support 
low interest rates, low long-term interest rates, and one of 
the ways they do it is by taking long-term bonds out of the 
market by buying them. If the Treasury is now dumping them back 
in, there is a war going on inside the government, and I think 
there is an awareness that there are other considerations.
    Chairman Johnson. So you are basically sanitizing the 
actions of the Fed in doing that.
    Mr. Aaron. Yes, correct.
    Chairman Johnson. But, again, the bottom line is if we were 
to do that, it would increase short-term interest payments, 
locking in lower long-term interest payments. To me, it still 
would make a lot of sense. Mr. Riedl, you are kind of shaking 
your head.
    Mr. Riedl. I am nodding my head because, I mean, just to 
put a finer point on the interest rate risk we face, for every 
point interest rates rise--and let us say they do not even 
start to rise for a decade. For every point interest rates 
rise, you get 16 percent of GDP in the debt in 30 years. So let 
us say we have rates go up by three points. You have just added 
48 percent of GDP to the debt in 30 years.
    Now, as bad as the interest rate risk is, I also agree with 
Dr. Holtz-Eakin that we do not want to assume that if we just 
fix interest rates, we are out of the water, because one of 
the--I think there have been a lot of economists who have 
written that interest rates are fine so we are OK. And it is 
important to note that even with low interest rates, we are 
still in deep trouble. When the underlying deficit gets so big, 
low interest rates will not bail you out. But rising interest 
rates, 16 percent of GDP gets added to the debt over 30 years 
for every point.
    Chairman Johnson. Again, I completely agree with that, and 
my point in laying this out is we are suffering from short-term 
thinking. And right now government policy across the board is 
all dedicated to keeping interest rates low so that we are not 
paying the burden of our fiscal mismanagement. But that can 
blow up in our face, and it would be smart to take a little bit 
longer term view, try and take advantage of these low interest 
rates and change that debt maturity level. But we are not doing 
it because nobody wants to take the hit and have a short-term 
increase in interest costs. That is basically a correct 
statement, right? OK. Everybody is nodding their heads yes. 
Senator Peters.
    Senator Peters. Thank you, Mr. Chairman. Thank you again to 
our witnesses.
    To outline the complexity of what we are dealing with, and, 
Mr. Holtz-Eakin, I agree with you totally that you have to look 
at this as a three-legged stool; and if you do not look at it 
as a three-legged stool, we are never going to finish this 
problem. We cannot grow ourselves out of it. We cannot cut our 
way out of it. We cannot raise revenue our way out of it. We 
have to be doing all three of those things. And, unfortunately, 
the politics that we see at this place tends to want to focus 
on one, maybe two, but never all three. And all three have to 
be done in a thoughtful way. And while we are looking at 
cutting costs wherever we can and raising revenue, we also 
cannot forget, as Dr. Aaron mentioned, we have to be investing 
in our economy as well, because you have to grow the economy as 
well. That can help us a great deal. But if you are not doing 
all three, we are not going to come to the end.
    I want to take a look at just probably what is the most 
immediate problem, and it is illustrated by this wonderful 
chart of yours, Mr. Chairman, and that is the Medicare 
liabilities. If you look at where we are on health care costs 
around Medicare, that is a more looming problem. That is a lot 
quick problem than Social Security. We have to talk about 
Social Security, and hopefully I will have a chance to get to 
that and ask you. But if you are not fixing Medicare first, 
that is going to make it even more difficult to fix Social 
Security later. And that is looking at the underlying cost. It 
is not just putting in the money, but how are we dealing with 
the health care system? We are back to health care and the 
rising cost of health care that continues to go up at an 
unsustainable rate.
    If you just look at what we spend in health care in this 
country, it is about over 17 percent of GDP, roughly. And if 
you look at other developed nations who oftentimes have--if you 
look at objective measures of health outcomes, they are equal 
to or surpass the United States, and they do it on average of 
less than 9 percent of GDP. So we are spending nearly twice as 
much as other countries that have equal or better outcomes when 
it comes to health care.
    Dr. Aaron, my question to you, why are we such an outlier? 
How do we look at the structural problems of why we are 
spending so much on health care and yet getting outcomes equal 
to what other folks are getting at half the cost? What is 
happening?
    Mr. Aaron. That is a very complicated question.
    Senator Peters. Right. I realize that.
    Mr. Aaron. There are a lot of answers.
    Senator Peters. You have 4 minutes and 49 seconds to do it, 
to be clear. [Laughter.]
    Chairman Johnson. So be concise.
    Senator Peters. Give me a top big factor or two.
    Mr. Aaron. We have a system in which there is effectively 
no budget constraint on expenditures for health care for most 
people, and that is, I think, the underlying factor.
    I want to note that a lack of budget constraint is 
something in a way we all yearn for. We call it ``insurance.'' 
The essence of insurance is to protect us at the time of 
illness from being exposed to difficult financial choices. So 
that means if there is to be budgetary control, it needs to 
come from some other source. That can come in some countries 
from setting budgets for hospitals. That is what is done in 
Britain. I am not recommending this. I am just describing it. 
Virtually every other country has some kind of centralized 
negotiation for pharmaceutical prices and, therefore, pays less 
than we do.
    I am not saying this is the solution to everything, but I 
am saying that these kinds of things, if you are to have lower 
spending than we do in the United States, these are the kinds 
of things that as a Nation we are going to need to consider in 
the future. And we are in a process, I think, of working this 
through. The debate about whether to have Federal policy with 
respect to the purchase of drugs is illustrating our efforts to 
find a way into this.
    Senator Peters. Can I just pick up on that?
    Mr. Aaron. Yes.
    Senator Peters. Because Medicare cannot negotiate drug 
prices now, and yet the CBO has estimated that it will save 
$440 billion over the next decade. That is just negotiating. We 
let the VA negotiate for drug prices, but we do not let 
Medicare. That seems to me a pretty common-sense thing to be 
thinking about. That is not the total solution to the big 
problem we have, but it is the kind of meaningful steps that we 
should take?
    Mr. Aaron. That is exactly where I was dancing around, and 
you---- [Laughter.]
    Senator Peters. So those are the kinds of common-sense 
things.
    Mr. Aaron. Yes.
    Senator Peters. The other thing that I think is important, 
and to get your sense, is the way we have our health care 
system now, we have--the biggest expenses in the health care 
system long term are chronic diseases, and chronic diseases 
that take place over many years, diabetes, for example, which 
has a huge cost associated with it. And yet people who are in 
private insurance, let us say, in their younger years, there 
are things that they could be doing that would help deal with 
some of these chronic illnesses and reduce the cost plus make a 
better life for them. But there is not necessarily incentive 
for private insurance to do that because they figure they are 
going to pass these folks over to Medicare when they are old 
and will let Medicare worry about those chronic diseases that 
we probably could have been dealing with earlier. So I am 
thinking about treatments for pre-diabetes patients, for 
example, to have those kinds of things covered.
    Could you talk a little bit about how we have to be 
thinking about this whole-life approach when it comes to health 
care and having a health care system--not just a sick care 
system but a health care system--where we invest more in 
preventative types of activities rather than waiting until they 
manifest themselves in very serious diseases? That would have a 
pretty significant impact on bringing costs down for Medicare, 
I believe. Is that accurate?
    Mr. Aaron. Investing more in preventive care will make us 
healthier. I hate to be the skunk at the picnic on this one, 
but over the last three, four decades, numerous people with the 
best of intentions have studied the likely impact of a wide 
range of preventive interventions, and the conclusions have 
been some will save money, some will cost money; if well done, 
all will improve our health.
    I think the way I would put it on this is preventive health 
care deserves a lot of attention and emphasis, but it is not 
going to be overall a powerful instrument for holding down 
long-term costs. Preventive interventions means giving people 
tests, which are expensive; identifying conditions that would 
not have been treated in the past and will now be treated, and 
that costs money. It also means stopping the progress of 
illnesses earlier so that one can save money over the long haul 
with particular patients.
    There are all of these crisscrossing effects going on. The 
effects are we are better off for having it. But our wallets 
may or may not be better off.
    Senator Peters. Thank you.
    Chairman Johnson. Two quick comments. Government-paid 
health care, low-deductible insurance basically separates the 
consumer of the product from the payment of the product, and we 
have driven as a result free market discipline competition out 
of the health care market, which helps restrain prices.
    Second, out of a $3.7 trillion a year health care spend, it 
is about $500 billion on drugs. Even at a 20 percent profit 
rate, that is about $100 billion. If we can remove all profits, 
all incentives for drug innovation, we have removed $100 
billion from a $3,700 billion spend. So, again, I just want to 
try and put things in perspective. Those things can be helpful, 
I suppose, but we need to be very careful that we do not remove 
incentives to create new drugs that are life-saving and in the 
end can also bring down health care costs. We have a health 
care financing problem, primarily, and it is totally screwed 
up, because we have removed the free market discipline out of 
it. Senator Romney.
    Senator Romney. Thank you, Mr. Chairman. I do agree with 
your comments on health care, although we are probably not 
going to resolve that in this Committee today. And there are a 
number of people who have written a lot about this and studied 
it, and a lot is going to go on, but it is clearly at the 
center of our Medicare issue and our Medicaid issue as well.
    Dr. Aaron will not be surprised that I am mostly going to 
ask questions and direct comments to his comment. First, I 
would note that people in both parties are insistent that there 
is no change in benefits in Medicare, Medicare or Social 
Security for current retirees or near-retirees. There is no 
one--I have heard no one in either party which finds reducing 
benefits for current retirees or those that are nearing 
retiring as being acceptable. So every time there is a 
suggestion that we ought to look at these programs and see if 
we cannot get them financially solvent, the answer always comes 
back from the opponents: ``You are going to cut benefits for 
seniors. You are going to throw Grandma off the cliff.'' And I 
think that is unfortunate that that becomes the argument, 
rather.
    Second, I think you make a good point about 75 years, and, 
by the way, the nature of legislation is that it is discussed 
and debated, and so whether it is 75 years or 25 years or 50 
years or what is the period of time we are looking at is 
certainly open for discussion and improvement.
    You also note that there is a need in some of these cases, 
in some of these programs, for understanding how to make the 
programs better. And there is nothing about the TRUST Act that 
says that other parts of Congress cannot work on making the 
programs better. As a matter of fact, I very much applaud that.
    I would note at the same time that the process of this 
place is kind of bogged down and making significant 
improvements to some of these programs is very difficult to do. 
You mentioned, for instance, surprise billing. We are all in 
agreement; we have to solve this problem of surprise billing. 
We have been going at this now for a long time, well over a 
year, and even though we all agree, Republicans and Democrats--
this is not a divided issue on a partisan basis--we still 
cannot get something out. And so if you look at something where 
there is such division amongst our parties, why, it is almost 
impossible.
    I would note in terms of is there a better way than the 
TRUST Act approach, I have not been here terribly long, but 
those that have, like Senator Manchin, Senator Alexander, 
Senator King, Senator Warner, Senator Portman, they are saying, 
``Look, this is the right approach.'' Simpson and Bowles who 
have looked at this said, ``You know, this is the right 
approach.'' Is it perfect? No. Is it a good approach? Is it a 
good way to have people start talking about these things and 
working on things? I certainly believe so.
    I would note one more thing you mentioned, and that is that 
we are the beneficiary of low interest rates right now, and 
that has given us some breathing room. I think we all agree 
with that. And I think my own view is that we are likely to 
have low interest rates for a long period of time, that 
structurally what has happened in the world has changed and 
that we are not going to go back to the interest rates of the 
1990s.
    At the same time, I recognize that Black Swan events in the 
world could change that and that we are unwise as the U.S. 
Congress to say, well, we are going to count on nothing really 
bad 
happening. I mean, this coronavirus thing, if it became a 
pandemic--which I am not predicting by any means, but if we had 
a pandemic of some kind, that could change things quickly and 
dramatically. I do not need to tell you the number of things 
that could cause us to have an interest rate spike of some 
kind, and we would have a real problem if that were to be the 
case. And as the Chairman indicated, if we were to lose our 
reserve currency status, that is not going to happen anytime 
soon, but at some point China is going to want to replace us or 
find way to get around us. They do not like these sanctions we 
are able to put on people because of our reserve currency. So 
there are a number of things that could change all that.
    So I would suggest it is important for us, as has been 
suggested, to deal with these things for two reasons: one, to 
protect these programs so that down the road we do not have to 
cause some kind of cut of 20 percent or so in benefits. I would 
hate for that to happen. And, by the way, I do not it ever 
would. I do not think politically we would ever allow that to 
occur. But that would mean we would have to have a dramatic 
increase either in debt, shooting interest rates up, or raising 
taxes a lot, which would have an impact on growth.
    So we are now at a point where we are able to deal with 
these things. Hopefully we have a little breathing room given 
low interest rates. But we have to deal with them now. So I 
would look to each of you if you want to make any comments 
about that. I have not got a lot of time left. Yes, Mr. Riedl, 
please.
    Mr. Riedl. I agree with your comments. I want to make one 
warning to those of you who are going to be voting on tough 
reforms at some point. You mentioned that we do not want to hit 
current retirees, and I think that that is a very sensible 
view. The warning is that nearly half of all Baby Boomers have 
already retired, and by the end of 2024, more than two-thirds 
of Baby Boomers will have already retired. And so if you want 
to grandfather out the Baby Boomers, you are going to have to 
move quickly. You are also going to grandfather them all out. 
And then you grandfather out the entire bulge. And so the more 
you want to protect current retirees, you have to move quickly, 
because if you wait until they have all retired, you have 
grandfathered out the whole bulge. So while it is political 
perilous, get moving.
    Senator Romney. Thank you.
    Mr. Aaron. On the reserve currency point, it is certainly 
the case that having the dollar as the reserve currency is a 
good thing for the United States. I am not questioning that. 
But I would point out that interest rates are as low in Germany 
and the rest of the European Union as in the United States, and 
the euro is not the major reserve currency. Interest rates are 
very low in Japan, with more debt than we have, and the yen is 
not a reserve currency.
    I think you are correct, Senator Romney, to point out that 
there are deeper forces at work holding down interest rates 
than temporary events and also correct to note that we do need 
to beware of surprise events which have a habit of surprising 
us all too often.
    Senator Romney. Yes, thank you. Please?
    Mr. Blahous. Just a couple of quick comments. One is that 
your point that there is not an appetite for reducing benefits 
for people already receiving them is absolutely true. I also 
think it is a constraint that people need to bear in mind as we 
consider when we have to act. It underscores why you cannot 
wait until the early 2030s. Then it is too late to hold 
previous recipients harmless. There just are not enough savings 
there.
    And I cannot tell you what sort of process will work, 
whether it is the TRUST Act or anything else. I can tell you 
what will not work, and that is continuing to do what we have 
been doing. We do not have the luxury of doing what we have 
done in the past, waiting until we get to the brink of trust 
fund depletion. By the early 2030s, the income and outlay lines 
are going to be so far apart--the long-term deficit in Social 
Security might be about 1 percent of GDP now, but by then it is 
going to be about 1\1/2\ percent of GDP----
    Mr. Aaron. No, it is not. The projections are 1 percent of 
GDP into the indefinite future.
    Mr. Blahous. The infinite horizon shortfall in the latest 
trustees' report is 1.4 percent.
    Mr. Aaron. When the sun cools, things may change.
    Mr. Blahous. But that is the projection if you wait until 
the 2030s. It is about 1 percent of GDP now. I am happy to have 
the trustees' reports checked on this point, because I just 
checked them before this hearing.
    Mr. Aaron. So did I.
    Mr. Blahous. But, more importantly, however, the amount of 
short-term--I mean, there might be some comparability in terms 
of the long-term change, but the short-term savings that you 
have to get within just a few years from the 2030s is much 
bigger than we have done in the past. In the early 1980s, they 
had to make changes equal to about 1 percent of payroll to get 
through the next few years, and they were already looking at 
surpluses in the decades that followed. So the changes they had 
to make, the immediate pain they had to inflict was closer to 
about half a percent of GDP. It was not nearly as large. So we 
are going in uncharted waters in the 2030s.
    The last point I would associate--despite our little 
disagreement here, I actually would associate myself with many 
of Dr. Aaron's comments about long-term forecasting and the 
relative certainty in Social Security versus Medicare. As a 
former Medicare trustee, I am painfully aware of the 
uncertainty bands around the Medicare cost estimates. I think 
the case to be made for a 75-year outlook on Social Security is 
much stronger. The estimates are much more certain in Social 
Security over long periods of time, and there are a number of 
reasons why you do want long-term solvency in Social Security 
if you can get it. You wind up with not optimal policies from a 
number of other perspectives if you just take the path of least 
resistance on Social Security 10, 20, or 30 years at a time.
    So I agree that the uncertainty bands in the Medicare 
projections are very high. I would not let that deter you from 
long-term solvency on Social Security.
    Chairman Johnson. Thank you, Senator Romney.
    I hope at some point in time we can discuss obviously low 
inflation rates are very good for seniors; low interest rates 
are not real good for seniors. Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Dr. Aaron, take my first 30 seconds and 
rebut his comments. Just take 30 seconds real quick. You tried 
to say something? Say it. Thirty seconds.
    Mr. Aaron. I actually agreed generally with what Chuck just 
said. I think it is important to try to do long-run planning 
for Social Security for a couple of reasons, one of which is 
political. It is important to have sufficient funds to cover 
benefits that are going to be paid in the next few years. It is 
also important to have what the actuaries now call 
``sustainable solvency,'' so that as time goes by, the system 
does not automatically slide out of balance because of events 
that are now coming into the projection window as time passes. 
So I think it is highly desirable to do that on Social 
Security.
    Let me inject one fact----
    Senator Carper. Very quick.
    Mr. Aaron. Yes, very quick, to illustrate the problem of 
the emergence of deficits over time. If you go back to 1983, 
when the last major legislation was enacted on Social Security, 
the system was in complete balance. It now has a projected 
imbalance of 2.8 percent of payroll. If every single assumption 
they had made was correct in doing their projections then, the 
imbalance today would be 2.1 percent of payroll, for purely 
mechanical reasons, that there were a lot of surpluses in the 
early years, and as time went by, you took into a projection 
period the bad years. The projections then were actually pretty 
good, and I would hope that they will be good in the future. 
But I would hope that when Congress acts, it assures near-term 
balance and takes step to assure that the system stays in 
balance.
    Senator Carper. Thank you. That was 30 seconds well used.
    Mr. Aaron. Thank you.
    Senator Carper. I was a freshman Congressman in 1983 who 
voted for that plan. I felt good about it then and feel good 
about it today.
    It is interesting. We have three recovering Governors here 
today--Governor Romney, Governor Hassan, and myself. And I am a 
recovering State treasurer. When I was elected State treasurer 
at 29, I had been a naval flight officer (NFO) in the Vietnam 
War and came back to the United States, moved to Delaware, got 
an Master's of Business Administration (MBA), got to run for 
State treasurer when I was 29. We had the worst credit rating 
in the country. We could not balance our budgets for nothing. 
We had no trust fund for our pensions. We were a mess. It was a 
terrible economy and not much economic growth. And you know 
what happened? We elected a great Governor whose name was Pete 
DuPont. I am a Democrat. He is a Republican. But he is a 
Republican of the kind that we could use more of these days. 
And I learned a lot from him, and I learned a lot about 
leadership from him and, frankly, from Joe Biden, who was 
serving us as a recently elected 29-year-old Senator.
    But one of the things we are not talking about: To address 
this problem, we need leadership. We need principled 
leadership, people who are not afraid to provide courage, not 
afraid to provide leadership, even if it looks dangerous.
    I am always one of those who believes in bipartisan 
solutions. Rob Wallace, who is the head of the National Park 
System over at the Department of Commerce, he testified 
recently that bipartisan solutions are lasting solutions. And 
as we approach this issue yet again, that is what we need to 
focus on.
    It was not that long ago we had balanced budgets. We had 
four in a row. We had not balanced our budget since 1968, and 
in the last 4 years of the Clinton Administration we ended up 
with balanced budgets. And Erskine Bowles was Chief of Staff at 
the time for Bill Clinton, I think. Sylvia Mathews Burwell was 
there in the mix, too. And over in the House, we had a really 
good Budget Committee team: a guy named John Spratt, a Democrat 
from South Carolina; and a guy named John Kasich, a Republican 
from Ohio. We were all in the same freshman class, elected in 
1982 to the House of Representatives. They provided terrific 
leadership to get us on the right course. Those 4 years where 
we had balanced budgets, spending as a percentage of GDP was 
about 20 percent those 4 years. Revenues as a percentage of GDP 
was about 20 percent. Today revenue as a percentage of GDP is 
about 16 percent. Spending as a percentage of GDP is just a tad 
over 20 percent. And what we have done is we have reduced our 
revenue base; we have pretty much kept spending where it was in 
those years we had a balanced budget. And when I look at that, 
I am always one who--I want to go after wasteful spending. I 
hate wasteful spending. I am sure you do, too; my colleagues do 
as well. But I also think we need to raise some revenues.
    I will give you a couple of quick ideas, and I want you to 
react to these just very briefly. We are going to run out of 
money in the Transportation Trust Fund sometime next year. 
After that, 5 years after that, we are looking at about another 
$100 billion hole. George Voinovich and I suggested we do 
something like Bowles-Simpson to restore the purchasing power 
of the gas and diesel tax in the near term and be prepared 
maybe over the next 10 years to move toward a vehicle miles 
traveled approach where we actually pay revenues that reflect 
the amount of miles we put on our vehicles, because we will 
have electric vehicles and hydrogen-powered vehicles. But that 
is the future. There needs to be a bridge to the future. And 
the idea that George and I suggested was raise the gas and 
diesel tax about 4 cents a gallon for 4 years, indexed going 
forward, and be prepared to transfer to a vehicle miles 
traveled approach.
    Would you all react to that quickly? Doug, please.
    Mr. Holtz-Eakin. Two things. One, I like the fact that the 
Highway Trust Fund is included in the TRUST Act because it does 
not get the consideration that other trust funds do, and we 
have backed into a policy of general revenue transfers into the 
Highway Trust Fund without an explicit discussion of it.
    If you do not want to do that--and I would encourage you 
not to--I would go to the vehicle miles traveled approach as 
quickly as possible.
    Senator Carper. About seven or eight States are doing a 
pilot right now. In our transportation reauthorization bill, we 
call for in the next 5 years a 50-State pilot with the idea of 
moving toward that. Chuck?
    Mr. Blahous. It is not something I have looked at. I am 
happy to take a look and follow up with you on it.
    Senator Carper. Thanks so much. I like to say if things are 
worth having, they are worth paying for, including roads, 
highways, and bridges.
    Please, Brian.
    Mr. Riedl. I totally agree that if it is worth having, it 
is worth paying for. I have long advocated an approach of 
pushing more of it to State governments. I would rather State 
governments do more on this than the Federal Government to 
close the hole.
    Senator Carper. Thirty-one of them have raised gas and 
diesel taxes in the last 5 or 6 years.
    Mr. Riedl. I think States can do more. To the extent that 
the Federal Government is going to continue in its current 
role, I agree with Doug that vehicle mile taxes is a fine way 
to do it.
    Senator Carper. Thank you. Doctor?
    Mr. Aaron. If one looks at the damage done to roads by 
vehicles, automobiles do negligible damage. Heavy trucks do 
virtually all of the damage. I do not think charges based on 
axle weight are given sufficient weight.
    One of my colleagues is a transportation expert on this and 
has done work over the years, and the clear implication of his 
work is that if what you want to do is pay for damage done to 
roads, you want to have an axle weight tax, and we do not to 
the necessary degree at this time.
    Senator Carper. Interestingly enough, the trucking industry 
is ready and willing to pay more money. They do not want to pay 
all of it, but they are ready and willing to pay some.
    Mr. Holtz-Eakin. I will just note that you can build that 
into the VMTs that I have looked at. There is no reason why 
that----
    Senator Carper. That is a good point. All right. My time 
has expired. Mr. Chairman, I could do this all day. This is a 
great hearing, and thanks for pulling this together.
    Chairman Johnson. You went over time.
    Senator Carper. It did not seem like it, did it? 
[Laughter.]
    Chairman Johnson. Not at all. Senator Hassan.

              OPENING STATEMENT OF SENATOR HASSAN

    Senator Hassan. Senator Carper, it just flew by.
    Look, I want to thank the Chairman and the Ranking Member 
for having this very important hearing. I want to thank Senator 
Romney for introducing the TRUST Act, and I know there are some 
cosponsors sitting here at the table, too. And I also want to 
thank the witnesses for your attendance and your willingness to 
provide such thoughtful testimony today.
    Dr. Aaron, I wanted to follow up a little bit about the 
2017 tax law, which provided massive tax giveaways to 
multinational corporations and the ultra-wealthy. Official 
budget estimates project that the 2017 tax law will add nearly 
$2 trillion to the national debt through 2028.
    Dr. Aaron, you wrote in 2017 that these massive tax breaks 
would not pay for themselves and that there is no such thing 
as, to quote you, a ``free lunch.'' Over 2 years after the 
passage of this partisan tax law, does the evidence so far 
suggest that these giveaways indeed worsened our fiscal outlook 
rather than paying for themselves?
    Mr. Aaron. Yes.
    Senator Hassan. Thank you. By my estimate and given what 
your testimony is, the Federal budget deficit is projected to 
break $1 trillion in 2020. Can you explain to the Committee how 
the partisan 2017 tax giveaways worsened our fiscal outlook by 
how much?
    Mr. Aaron. The evidence is that the growth effects under 
various analytical models, the growth effects from the tax cut 
are negligible over the long haul, and that means that if you 
look at the actual rate changes and simply multiply them out 
times the tax base, that is a close approximation to the impact 
on the fiscal situation.
    Now, let me say at this point I do think that tax reform 
does have the capacity to improve the efficiency with which the 
economy operates, and like a lot of public finance economists--
and I suspect Doug is among them--we could agree on a number of 
changes in the tax system that would have that effect. Alas, 
some of them would gore particularly sensitive political oxen.
    Senator Hassan. Well, that is fair, but can I just--in 
terms of the way to think about this quantitatively, without 
the tax giveaways in the 2017 act--which I will note I support 
tax reform, too, but it needs to be done in a bipartisan way 
and a transparent way--would the 2020 deficit have stayed under 
$1 trillion?
    Mr. Aaron. Yes.
    Senator Hassan. Thank you.
    I want to move on and follow up on Senator Peters' 
questions about Medicare, and this is a question for Dr. Aaron 
as well. My colleagues and I on the Senate Finance Committee 
moved legislation to increase transparency of the Medicare 
program and provide some measure of cost controls, including 
capping drug prices at the rate of inflation under Medicare 
Part D and taking steps to control the prices of inpatient 
drugs under Medicare Part B.
    Under current law the government has no ability to control 
prices of drugs or some related services provided under 
Medicare, so taxpayers generally pay whatever price drug 
companies and hospitals charge, no questions asked. While our 
Finance Committee bill would start to address this issue, there 
is surely more that we can do to control costs, increase 
transparency, and leverage the purchasing power of the Federal 
Government in order to get a better deal for Medicare 
beneficiaries and taxpayers. And I appreciate as well, Dr. 
Aaron, that as we consider what we might do in these regards, 
that you focused in your testimony on our commitment to people 
with disabilities and with long-term chronic illness. I happen 
to be the mother of a 31-year-old young man who has very severe 
cerebral palsy. A generation or two ago, probably neither he 
nor I would have survived his birth. We should be celebrating 
the advances in medical science that allow him to be part of 
his community and part of our household and be a very cognizant 
and full participant in his community.
    But that also means that for many families even earning 
strong middle-class incomes, the cost of even a regular 
procedure under our health care system without insurance or 
Medicaid or Medicare can simply be out of reach. It is not an 
elastic demand situation, I guess is one of the issues.
    So can you discuss how the government could improve the 
efficiency and transparency of the Medicare program in ways 
that may lower government spending without cutting off patients 
from the care that they need?
    Mr. Aaron. I think Congress is now in the process of 
debating different proposals in the House and in the Senate 
that hold out the promise to do just what you are saying. There 
is still not settled agreement. There are partisan differences 
as well as chamber differences in the approaches now under 
consideration. But I think it is essential that as a Nation we 
begin to inject a degree of bargaining by the public sector, 
aware of the issue that the Chairman raised regarding the need 
to preserve financial incentives for drug companies to continue 
to do the final stage development. But it is long overdue for 
some form of limitation of what have become outrageous 
behaviors by pharmaceutical companies.
    Senator Hassan. Well, thank you very much for your 
testimony. I greatly appreciate it. I greatly appreciate all of 
you here, and I will yield the rest of my time. Thank you.
    Chairman Johnson. Senator Sinema.

              OPENING STATEMENT OF SENATOR SINEMA

    Senator Sinema. Thank you, Chairman Johnson and Ranking 
Member Peters, for holding today's hearing examining the fiscal 
state of our Nation and bipartisan solutions.
    In August 2019, the Congressional Budget Office, updated 
its 10-year budget and economic outlook to project that the 
Federal deficit would average $1.2 trillion between 2020 and 
2029. The Federal debt would increase from 79 percent of GDP in 
2019 to 95 percent of GDP in 2029. These numbers should alarm 
everyone because this picture of the United States' fiscal 
health is bleak.
    CBO projects the Social Security Trust Fund will be 
exhausted by 2032 and the Medicare Trust Fund will be exhausted 
by 2026.
    I support the TRUST Act because Congress must take action 
now to protect Social Security and Medicare and protect the 
benefits American workers and Arizona retirees have earned 
through a lifetime of work. The bipartisan nature of these 
rescue committees will produce recommended actions to protect 
the benefits our seniors have earned and ensure the long-term 
fiscal health of these programs so that today's workers can 
depend on them when they retire.
    Today I am also introducing the bipartisan Fiscal State of 
the National Resolution that requires the Comptroller General 
to prepare and present the Financial Report of the United 
States before a joint hearing of the House and Senate Budget 
Committees. All Members of Congress would be invited to attend 
in order to better understand our Nation's financial health. 
Members would then be better equipped to make informed 
decisions on policy, relying on the most current and unbiased 
data.
    I am joined in this effort by leaders like Senators Joni 
Ernst of Iowa, Senator Jacky Rosen of Nevada, and Senator Angus 
King of Maine, and I look forward to speaking with other 
interested members.
    I ask that Members of this Committee and our witnesses work 
together to support bipartisan solutions like my Fiscal State 
of the Nation resolution and other proposals that have been 
discussed today so that Congress can get serious about fixing 
the fiscal State of our Nation.
    I want to thank our witnesses for being here and the 
Committee, particularly the Chairman, for hosting this 
important discussion. And, Mr. Chairman, I yield back.
    Senator Carper. Before you yield back, would you yield me 
just 15 seconds?
    Senator Sinema. Mr. Chairman, I yield the balance of my 
time to Senator Carper.
    Chairman Johnson. Well, not the whole 4\1/2\ minutes.
    Senator Sinema. Maybe just 1 minute then.
    Senator Carper. Thank you. It was not quite 4\1/2\.
    Something that you said bears repeating. You talked about 
the Congress providing the leadership that is needed on this, 
and that is a big part of this. But every organization I have 
ever been a part of needs leadership, and States need 
leadership. If you have a Governor who does not care about this 
stuff, does not care about economic development, does not care 
about transportation, does not care about fiscal policy, that 
is a State that is in a mess. And I have seen that as a very 
young State treasurer. We need the same kind of leadership here 
from the Executive Branch, from the President.
    And I will use transportation infrastructure as an example. 
If I have a meeting at the White House that has been reported 
on, he asked me what--it was like 6 or 7 months ago. ``What 
should we do in order to help pay for transportation 
infrastructure improvements over the years to come?'' I gave 
him the Bowles-Simpson idea that George Voinovich and I shared 
with the Bowles-Simpson Commission years ago. He cut me off 
right in the middle of it. He said, ``That is not enough.'' He 
said it ought to be 25 cents a gallon. It ought to be right now 
for gas and diesel.
    Later on, a couple months later, when we were coming back 
to this to see what should we do to fund transportation 
infrastructure improvements, I reminded him of that. And 
basically he said he wanted us to kind of get out in front and 
provide the leadership. I said, ``Mr. President, that is why we 
get elected''--``that is what you get elected as President to 
do. And if you provide the 
leadership, we will join you.'' And I expect Democrats and 
Republicans--we need that kind of leadership. And it may have 
to wait until after this year's election, but it needs to 
happen really soon, hopefully sooner than that.
    Thank you so much.
    Chairman Johnson. In a side conversation Senator Carper and 
I had, Senator Carper said, ``Let us have a hearing like this 
every week.'' And, of course, in my opening, I said this is 
going to be another in a series of these. And what I have tried 
to do in this Committee is, no matter what the issue, whether 
it is immigration, whether it is the budget deficit, let us go 
through the problem-solving process. Let us gather the 
information; let us lay out the reality.
    As we have laid out this reality, there are different 
projections. There is a dispute in terms of how we talk about 
this. The more we can agree on the basic facts, the basic 
presentation, how we lay out that reality, we are going to set 
ourselves up, first of all, in properly defining the problem, 
start identifying the root causes. You have to go through all 
that. Then set achievable goals. Then start designing 
solutions.
    What I have found frustrating in Washington, DC, is 
everybody has their solution. It is not really directed toward 
an achievable goal. It is often divorced from reality. So, I 
will dedicate certainly my additional time in whatever capacity 
to keep driving this. This is why I ran.
    I do want in a second round here talk about what Douglas 
Holtz-Eakin raised, the imperative for growth versus the 
imperative to raise additional revenue. Now, from my 
standpoint, growth, which is why I supported the tax plan--
which I was not overly fond 
of--but I think the best, the painless way of raising revenue 
is through economic growth. I think what I would give this 
administration credit for, far from perfect policies, but, we 
stopped adding to the regulatory burden. That gives relief to 
businesses. They can concentrate on their business. It creates 
optimism, animal spirits. We have a more competitive tax 
system. Again, I argued tax simplification, tax 
rationalization. I have continued to reject tax reform, all 
change is not progress, all movement is not forward.
    We are going to have an opportunity, because we did not 
make permanent the changes, for example, to pass-through 
business. That is where I really objected. We are doing 
everything on 5 percent of the businesses, corporations, and we 
are going to leave behind the real engines of job creation and 
innovation in our economy, the pass-throughs. And I just 
objected to that.
    My solution, by the way--again, rationalization and 
simplification--why not tax all business income at the 
ownership level at individual rates? Again, why do we have 
different tax rates for different forms of income? It makes no 
sense. It is not rational. It is not simple.
    So I would love to engage this group in a conversation, a 
problem-solving process of a more rational tax system outside 
of all the interests that are going to come. Talk about drug 
pricing. There is the problem. You just have massive interests.
    But what I tried to bring into that conversation--I realize 
this little tirade or this little rant is disjointed--is, yes, 
we can talk about drug prices, but understand it is $500 
billion out of a $3.7 billion spent. Profitability is maybe 
$100 billion. These are rough numbers. You can wipe out the 
profit. Yes, you have made some progress, but you are still 
missing the big picture here. So I want to talk really about 
the big picture.
    By the way, the reason I also do not think we have achieved 
the growth rates that I had hoped to achieve is readjustment in 
our trade policies. I am not in total agreement with the way 
this President has approached that, but I think most people 
agree that we have a problem with China. And if we are ever 
going to address that problem, if we are ever going to engage 
in that kind of trade war, it is better to do it when we have a 
strong economy and a low unemployment rate.
    So these issues are incredibly complex, but I will just 
throw it open to the panel here in terms of you do not want to 
kill the golden goose. You do not want to disincentivize people 
from working. So that is why I have that one tax chart. Maybe 
you can put that thing back up. If you try and punish success, 
people evade it. They do not work as hard. They put income in 
areas that are not taxed. Let us simplify the system. I think 
that is a far better way of raising more revenue, if you have 
very low tax rates, get rid of all the deductions. I do not 
like either social or economic engineering through the Tax 
Code. The Tax Code ought to raise revenue in as simple and most 
rational way as possible. That is not our Tax Code. It is not 
what our tax reform did in 2017.
    So we are going to have to have another bite at this apple 
in about 2025 or 2026, whenever the individual rates, whenever 
the pass-through rates. Let us start talking about it now.
    So, again, I will just throw it open to anybody. Doug, you 
mentioned this. Do you want to comment on this?
    Mr. Holtz-Eakin. Yes, I think you have framed this exactly 
right. Whether you use the word ``reform'' or 
``simplification,'' the recipe has always been low rate, broad 
base. The 2017 act lowered corporate rates, lowered effective 
tax rates on pass-throughs, did very little base broadening. 
And if there is a need for more revenue, that is the very first 
place to look.
    So, there is a lot of work left to make the U.S. Code more 
efficient and more rational. The notion of integrating the 
corporate and the individual side has been around for a long 
time, never quite gotten there. All of those things should be 
on the table. That is very important.
    Chairman Johnson. Not to disrespect anybody, but part of 
the problem, that rationalization, it is like taxing unrealized 
gains. There are just certain things that just have not made 
sense to me.
    Mr. Holtz-Eakin. I just want to emphasize something that 
Henry Aaron said, which is that every time you do that thing 
which I endorse, which is broaden the base, you are picking a 
fight with a very powerful interest. That loophole is there for 
a reason. It is not an accident. So, for example, I am a big 
fan of the expensing provisions that are in the Tax Cuts and 
Jobs Act (TCJA), but there is no way you should combine them 
with interest deductibility, like zero tax rate is enough. 
Negative? No. Because that is what we have, because getting rid 
of the interest deduction at the corporate level is a sacred 
cow.
    Chairman Johnson. And there is the lost opportunity. The 
time to get rid of those deductions is when you lower people's 
rates. You have to trade that. We have already done the rate 
lowering. Now where do we go?
    Again, that is why I will keep talking about let us use the 
words ``simplification,'' ``rationalization,'' because I agree 
with you, Dr. Aaron, we cannot afford tax cuts. But we are well 
past the time where we have to rationalize and simplify our Tax 
Code.
    Anybody else want to make a comment on this? Dr. Blahous.
    Mr. Blahous. Not to sound like the proverbial carpenter 
who, when you have a hammer, everything looks like a nail, 
but--and I do tend to see the world from within the prism of 
Social Security and Medicare because of my experience as a 
trustee. But I am reminded as you are speaking, as I was 
reminded during Dr. Aaron's remarks and others here, that we 
tend to think about mandatory program reforms as a very 
unpleasant business. But there are a lot of upsides to 
considering reforms. There are a lot of things that these 
programs can do better and more efficiently, more 
progressively, removing pockets of regressivity, improving 
incentives for saving, workforce participation, a lot of 
upsides.
    But apart from that, we also have to remember that there is 
a range of policy priorities, some of which you have just 
alluded to and which were alluded to earlier, which is that no 
matter whether you are of the bent that we need to have a tax 
system where marginal rates are low and it is efficient and 
pro-growth or whether your policy priorities are environmental 
protection and investments in infrastructure and investments in 
education, none of that happens if we do not get mandatory 
spending under control. There is a shared stake from left to 
right that none of us are going to get our policy objectives 
met if we do not deal with the mandatory spending issue. And so 
we have a lot of common ground and a lot of common motivation.
    Chairman Johnson. But, again, when you start talking about 
the structural deficit where we are spending over 20 percent 
and we are raising 17, you have to address that. And I guess 
the 
point of that, my one chart\1\ there--I do not think they have 
it up yet--is that you try and punish success, and it just does 
not work. So I think we have to have that--where is the sweet 
spot where we have as low tax rates, the most efficient and 
simple tax system that raises the revenue we need, without 
doing economic harm? Again, I just do not want to do economic 
harm. Doctor?
---------------------------------------------------------------------------
    \1\ The chart referenced by Senator Johnson appears in the Appendix 
on page 87.
---------------------------------------------------------------------------
    Mr. Holtz-Eakin. I just want to emphasize what Chuck just 
said because I think it gets lost in this. There are two 
related and important budget problems right now. There is the 
mismatch between revenue and spending. There is also the 
composition of spending. And what has happened over time is 
that as the mandatory programs have expanded, they have pushed 
out of annual budgets the discretionary spending that is where 
we do national security, basic research, infrastructure, 
education, all the places where you could invest in the future 
of this country. We have to fix the mandatories for their own 
sake. Social Security should be better. We have to do it to 
deal with the structural mismatch, but also to allow for room 
in the budget for these other priorities. They are essential as 
well.
    Mr. Aaron. I would like to go back to the numbers that 
Senator Carper mentioned earlier. To the extent we have a 
deficit today, which is now in some quarters used as 
justification for cutting benefits to the aged and disabled, it 
is because we have cut taxes. There is something that strikes 
some of us, at least, as undesirable about using the 
curtailment of taxes which disproportionately benefit people 
who pay taxes, namely, those with relatively high incomes, as 
an excuse or establishing the necessary conditions for cutting 
benefits on people in the population who are vulnerable. There 
is something wrong with that. And for that reason, it seems to 
me the first step in this process is to recognize we have made 
commitments to the elderly and disabled. Those populations are 
increasing. The logical implication of those commitments is 
that spending as a share of GDP should rise, and that suggests 
that rather than cutting taxes, we should be talking about some 
increase in them as the first step, not cutting benefits on the 
vulnerable in our population.
    Chairman Johnson. Senator Peters.
    Senator Peters. Thank you, Mr. Chairman. I am going to pick 
up on this conversation in a moment, but first a little 
housekeeping, if I may. I would request unanimous consent (UC) 
to enter the following documents into the record: first, the 
statement of Nancy Altman,\1\ president of Social Security 
Works and Chair of the Strengthen Social Security Coalition. I 
would also like to thank Ms. Altman for submitting her 
statement so quickly given the short notice and the Martin 
Luther King weekend.
---------------------------------------------------------------------------
    \1\ The statement referenced by Senator Peters appears in the 
Appendix on page 95.
---------------------------------------------------------------------------
    And, second, a letter addressed to the Committee Members by 
Max Richtman,\2\ president and CEO of the National Committee to 
Preserve Social Security and Medicare.
---------------------------------------------------------------------------
    \2\ The statement referenced by Senator Peters appears in the 
Appendix on page 137.
---------------------------------------------------------------------------
    Chairman Johnson. Without objection.
    Senator Peters. Thank you.
    I want to pick up on what I think is an important 
conversation about how we are looking at revenues and looking 
at this in a holistic way that we talked about in the 
beginning, a three-legged stool. But one thing that I think I 
would like to get your thoughts on, all of your thoughts on, is 
that when we last did a major overhaul of Social Security in 
1983, which I think many of you mentioned, and projected these 
very long rates, a lot of assumptions obviously had to be made 
in 1983 that did not necessarily turn out going forward.
    One thing that has happened since that time is that you 
have seen most of the growth in income over that time has been 
concentrated primarily at folks, as Dr. Aaron mentioned, at the 
very top. We have seen a growing inequality in our country. The 
Social Security tax base was roughly--I think it was set at 90 
percent in 1983. That tax base then has been adjusted 
accordingly, but what has happened with that tax base is that 
almost all new income increases have gone to a small slice of 
America. Everybody else has been pretty stagnant over that 
period. So now the amount of compensation that is actually 
being taxed in the economy is a lot less. I think it is 
somewhere in the 80 percent range.
    Is that something we should be looking at? Should we be 
looking at the assumptions that folks looked at in 1983 and 
said that the system should have--90 percent of compensation 
should be subjected to tax? They certainly did not anticipate 
the growing and dramatic increase of inequality over these last 
few years. Dr. Aaron, do you want to mention anything related 
to that?
    Mr. Aaron. I think there is a strong case for increasing 
the wage base in order to partially take account of the fact 
that the wage increases have been skewed toward higher-income 
Americans. This has a modest effect, doing so would have a 
modest effect in improving the projected long-term balance of 
the system for the simple reason that the benefits that will 
ultimately be paid to those people will be somewhat lower than 
the taxes that will be collected from them.
    Given the fact that longevity has increased substantially 
among high earners, that means that under current rules they 
are going to be collecting Social Security for a longer period 
of time. So it seems to me this is not a bad trade. It is 
something that should be undertaken as part of a program to 
restore long-term balance in Social Security.
    Senator Peters. Anybody else? Yes, Dr. Blahous.
    Mr. Blahous. I agree with most of that. I served on a 
Bipartisan Policy Center commission that looked at retirement 
security solutions, including a Social Security solution. As 
bipartisan commissions often do, we wound up splitting it 
roughly 50-50, a little bit more on the revenue side, a little 
bit less on the benefit side, but mostly 50-50. That commission 
wound up having to include both a base increase and a rate 
increase in order to meet that target of a package composed of 
50 percent revenue increases.
    A couple of caveats that I would issue, though. One is that 
while it is certainly true that increasing wage inequality is 
one of the reasons that the percentage of earnings subject to 
the Social Security tax has declined since 1983, most of that 
increase in inequality has been in the stratosphere. It has not 
been just over where the current law cap is. So when you raise 
the cap, you are going to be taxing people more who have not 
necessarily participated in the enormous gains that have been 
made by people at the very top.
    Now, what we did is, in order to try to capture more 
savings from the people on the highest end, we lowered the rate 
of accrual in the benefit formula associated with raising the 
tax above its current law base so that we were not 
inefficiently paying so much of the proceeds back out to people 
in the high-income end. So I think that does have to be part of 
the conversation. If it is done, I think it is best structured 
with a reduction in the benefit formula factor that benefits 
people on the top end.
    Senator Peters. Anybody else wish to comment?
    Mr. Holtz-Eakin. I will just take this opportunity to note 
that one of the reasons we have seen slow growth in cash wages 
has been the fact that there has been very rapid growth in the 
cost of health insurance and other untaxed fringes. The 
Congress recently chose to repeal the Cadillac tax, which was a 
truly poorly designed tax, but they did it without replacing it 
with any form of tax on the compensation provided by employer-
sponsored insurance, and I think that is a misstep, and that is 
something you should look at.
    Senator Peters. Yes, and I think that it goes back to 
Medicare and health care, where we started this hearing, too, 
that as important as Social Security is as a stabilizer, we 
must do that. The cost of health care in this country is 
driving a lot of this, more than anything else. It is the most 
critical problem we have with Medicare, prior to Social 
Security, the cost of health care generally going up. If we are 
not dealing with that, it is going to be hard to fix all of 
these other problems, including the fact that you can deduct 
health care insurance from the Social Security base as well, 
which I think has increased--as those premiums go up, it also 
impacts Social Security as well. So they are all interrelated 
in a pretty intricate way.
    In the remaining time here, Mr. Chairman, I just want to 
get back to Dr. Aaron when you mentioned about preventative 
costs and the impact that that may have on the bottom line. I 
agree with your assessment that we do not want to incentivize 
somebody going through all sorts of tests and having all of 
those additional costs. But there are also some common-sense 
changes in there, I think, like having nutrition therapy for 
folks who are in pre-diabetes. That does not require expensive 
testing. Empirically, I think it is shown to dramatically 
reduce the incidence of diabetes later in life. There are 
things that we can definitely do that are not that expensive 
but have a significant bottom-line impact on reducing the costs 
to Medicare. We should be cherry-picking those really great 
things that are good for human health, too. The patient is 
better off not developing full-blown diabetes if they are in 
therapy when they are younger to prevent that from happening if 
it is diagnosed, if you could comment on that.
    The other question is CBO currently considers a 10-year 
window when scoring budgetary impacts, but we are talking about 
a lot more than 10 years when you are looking at these chronic 
diseases and people living longer as well. Should we be 
thinking about that as well?
    Mr. Aaron. On the last question, choosing the appropriate 
budgetary window is a tricky issue because whatever the window 
is, it creates some perverse incentives. You just get different 
ones depending on the length of the window. Making projections 
beyond 10 years about the impacts of actions taken today is 
very difficult, and it just increases the arbitrary element in 
those projections.
    With respect to your comment on preventive measures, I 
agree with you absolutely. There is a whole roster of 
interventions such as the ones you listed that can both improve 
health and help our wallets. We should look for those first. My 
comments about health improvements being what you can really 
count on referred to a broad agenda of increases in preventive 
health interventions. Some save money, some do not. I frankly 
would like to see that whole agenda addressed because of the 
improvements in health. I consider those the primary objectives 
of measures to invest in preventive health.
    Senator Peters. Right. We want to accomplish both, lower 
cost and improve health, and there are options out there. We 
need to aggressively seek them.
    Thank you so much.
    Chairman Johnson. So I do not forget, real quick, because 
we have experts, when Social Security was first established, 
what percent of wages were they targeting in terms of 
subjecting it to the payroll tax?
    Mr. Aaron. It was about 90 then.
    Chairman Johnson. 90 percent. What is it now?
    Mr. Aaron. About 83.
    Chairman Johnson. So, again, there is a solution that is 
actually targeted toward something in terms of the program 
design. Senator Carper.
    Senator Carper. Let me say thanks again to each of you for 
showing up today and to our Chairman and Ranking Member for 
pulling this together.
    It is unfortunate that more of our colleagues are not here, 
but I am glad they are not in a way because that way we get to 
ask more questions. You guys get to answer those questions.
    Sometimes people ask me, ``What kind of Democrat are you?'' 
And I say, ``Well, I am a Democrat who has actually read and 
believes in Matthew 25.'' And they say, ``What is that?'' And I 
say, ``It is something like this: When I was hungry, did you 
feed me? When I was thirsty, did you give me a drink? When I 
was naked, did you clothe me? When I was sick and in prison, 
did you visit me? When I was a stranger in your land, did you 
welcome me?'' And I say I think that we have a moral 
obligation, regardless what our faith is, to the spirit of 
Matthew 25. But since we do not have unlimited resources, as we 
know, we have a fiscal imperative to meet that moral obligation 
in fiscally sustainable ways. That is what kind of Democrat I 
am.
    And they say, ``Well, tell me more.'' And I say, ``I am a 
Democrat who believes if you give a person a fish, you feed 
them for a day. If you teach a person to fish, they can feed 
themselves hopefully for a lifetime. That is the kind of 
Democrat I am.''
    I think Republicans are like that, too, and somehow we have 
to be able to take those things where we agree and have that 
consensus and build policies around those core values.
    I am a senior Democrat on the Environment and Public Works 
(EPW) Committee, and I was telling my wife and our sons the 
other night--we connect on the phone. One is on the West Coast, 
one of our sons is on the East Coast, and we connect on the 
phone every Sunday night and talk. One of the things I 
mentioned to them not long ago was one of my overriding goals 
for this Congress and the Congresses that lie ahead is how do 
we seriously address climate change, the fact that our planet 
is getting warmer, creating these crazy weather patterns? Not 
far from where we are, I was in a town where they had a 1,000-
year flood in Ellicott City like every 2 years. I mean, really? 
Houston, the same thing. This really crazy, bizarre weather. 
And rather than just say, ``Oh, this is terrible. Woe is me,'' 
why do we not do something about it, and why do we not do 
something about it in ways that can create economic opportunity 
for us?
    One of the elements in our surface transportation bill that 
we have reported unanimously out of committee, with the 
sponsorship of Senator Barrasso and myself and others, is 5-
year reauthorization of roads, highways, and bridges, and we do 
so in a way that calls for some additional monies. We also 
believe that we have to pay for that. Those who use these 
roads, highways, and bridges need to find ways to pay for them.
    But included for the first time ever in our surface 
transportation bill is a climate title. One of the provisions 
in the climate title is creating a corridor of charging 
stations and fueling stations across the country so that people 
who buy electric-powered vehicles or hydrogen-powered vehicles 
can find places to get them charged. The auto industry tells us 
they are coming. I am going to be at the Detroit Auto Show 
again this June. They moved it to summer in Detroit instead of 
January, thank you very much. But one of the things we will see 
when they open the Detroit Auto Show in June is a whole new 
generation of electric-powered vehicles and hydrogen-powered 
vehicles, hybrid-powered vehicles. We want to make sure that as 
they build them, they will have folks go out and actually buy 
them because they will be able to use them.
    I want you just to think out loud, any of you, for maybe 30 
seconds or 45 seconds apiece, on how do we look at this huge 
challenge to our planet, climate change. How do we do it in a 
way that we address that challenge but actually create economic 
opportunity? And I think there are plenty of ways to do that. 
Go ahead, Doug.
    Mr. Holtz-Eakin. So I think there are two important 
considerations that go into the design. The first is that my 
personal opinion is that this will not be addressed without 
U.S. leadership. The United States will, in fact, not have the 
luxury of waiting. It will have to move first and bring other 
people along with it. That suggests that whatever is done 
should have as little economic threat to the United States as 
possible because people will not endorse it if it does.
    Second is you want to harness the creative capacity of the 
private sector. Capitalism will solve this problem. Nothing 
else will. And to me that says that you want to have something 
that looks like an upstream carbon tax and get the regulatory 
State out of point source emissions of greenhouse gases. That 
to me is a fairly straightforward policy design. It is a tough 
political thing to get done.
    Senator Carper. All right. Chuck?
    Mr. Blahous. This question is just outside my expertise.
    Senator Carper. That does not stop us. [Laughter.]
    We will give you a pass. All right. Brian.
    Mr. Riedl. I do not pretend to be a deep expert on this, 
but my understanding of the issue reflects a lot of what Dr. 
Holtz-Eakin said, which is that I think one of the first things 
you need is the United States has to have global leadership. 
The United States cannot stop global warming by itself, 
especially when you have emissions that are growing so quickly 
from China and India. So you really need global leadership by 
America, but you need a lot of cooperation of other countries. 
I think some of that has been a challenge.
    And I also believe that innovation is ultimately what will 
solve this. I think carbon taxes are a workable solution. I 
read a carbon tax would reduce temperatures in the year 2100 by 
about one one-hundredth of 1 percent Celsius. You need a lot 
more innovation to get out of this. And so I think that has to 
be a lot of the thrust of it. So I think there is kind of an 
all-of-the-above strategy.
    Senator Carper. One of the easier ways we can reduce the 
threat of climate change is something called hydrofluorocarbons 
(HFCs). We use them in air conditioners or as refrigerants and 
so forth. If we would phase them out with a follow-on product 
over the next 15 years, we can reduce the increase in Celsius 
by about half a degree. Just one thing we need to do. I would 
invite the cosponsorship of our colleagues on this Committee to 
do that. It is actually led by a Republican from Louisiana.
    Dr. Aaron, hit a home run here. Go ahead, bases loaded.
    Mr. Aaron. A carbon tax. You want innovation? That is the 
way to encourage it. It will become profitable to develop 
alternatives to using fossil fuels.
    You want to reduce the degree to which you need to rely on 
regulations? A carbon tax will create the incentives for people 
to move in that direction. I understand the political 
controversies involved, but----
    Senator Carper. How can we somehow tamp those down a little 
bit by the way we use the monies----
    Mr. Aaron. To some degree, you are going to end up spending 
some of the revenue to protect those who will be injured, and 
there will be those injured by a carbon tax. But the nice thing 
about this is there is an emerging consensus, at least among 
economists, for what that is worth, that cuts right across 
party lines. Republican and Democrat alike, if you talk to 
economists, they start with carbon taxes, and we can argue 
about the rest. The bills founder on the uses of the revenues, 
and that is where the real problems arise.
    Senator Carper. All right. Thank you. That might be an 
interesting hearing. Maybe we can do a joint hearing with EPW 
and this Committee.
    Can I just have another minute, Mr. Chairman? I know there 
are people waiting with bated breath to close, but if I could.
    I used to hold about every year--in one of my townhall 
meetings, we would have a session where we would do a budget 
exercise, and we would ask people--you have probably done these 
before. But we actually have just regular ordinary people come 
in and help us balance the budget. That was when the deficits 
were under $100 billion. And I remember one of these budget 
workshops, I said to the folks who were there, I said, 
``Spending is part of it. Entitlements, making sure we do not 
harm people, but spending is part of it. But revenues are part 
of it as well.''
    I will never forget this one lady in the room, Mr. 
Chairman, she said, ``I do not mind paying more taxes. I just 
do not want you to waste my money.'' That is what she said: ``I 
do not mind paying more taxes.'' I do not like to waste money 
either. The Chrysler Town & Country minivan that I drove to 
work this morning in Delaware to catch a train has 522,000 
miles on it, so I do not waste my own money. And I do not like 
to waste taxpayers' money either. And as it turns out, GAO is 
right here ready to help us, and every 2 years, what do they 
come up with? Their High-Risk List. We got one 12 months ago. 
We will get another one 12 months from now.
    One of the items they highlight every year on the High-Risk 
List is improper payments, and we just got an update on 
improper payments not that long ago, which was about $40 or $50 
billion, I think. Brian, what is the latest number what it is 
going to be? $151 billion in improper payments. We have passed 
legislation, the Chairman and I are, I think, prime cosponsors 
of the legislation. It is over in the House. I met with 
Chairman Maloney who is the Chairman of the oversight committee 
there. I explained what we are doing to seek her cooperation, 
and I think we are going to get that.
    Mr. Aaron. Would you please add some revenues to that bill 
so that you can hire more people at the Internal Revenue 
Service (IRS) to do tax audits as well?
    Senator Carper. That is on of the High-Risk List. I am on 
the Finance Committee, too, and roughly for every dollar we 
provide the IRS for compliance, they generate about $10 more, 
something like that. It is a huge payoff. And I second that 
emotion.
    All right. Mr. Chairman, I do one of these every week. Just 
save my seat, OK? Thank you.
    Chairman Johnson. Thank you, Senator Carper. Again, what 
was going through my mind throughout this hearing are hearings 
we can hold in the future. I fear no hearing. Just laying out 
the reality and taking a look at what the different options 
are. So I am happy to take a look at the tax structure, 
consider all kinds of alternatives, what makes sense. What is 
the most efficient system to raise the revenue we need?
    I thought it was interesting you pointed out the $100 
billion deficits. I remember, I am old enough to remember when 
the public was outraged by a deficit that was a couple hundred 
billion dollars. Now we are a trillion dollars, and nobody is 
even talking about it, which is why we held this hearing today.
    One thing I would love to hold a hearing on is something I 
developed in another one of my charts, which was just a 
solution menu for Social Security. You hear all the time, ``Oh, 
just increase the age by 3 years,'' the retirement age. That 
does not solve the problem. But we need to have the facts. If 
you start means-testing, what does that mean? If we try and 
capture 90 percent of wages, what does that mean?
    So I would love to work with this panel. I think this is a 
fabulous expert panel, a pretty broad spectrum of opinion. To 
the extent that you want to be deputized and offer your hard-
earned labor and ideas, I would love to tap into those. It does 
not always have to be in a hearing setting. We can do it in 
roundtables. We can do it in private meetings. But we need to 
develop the reality. One of the hearings was on income 
inequality. A very thoughtful piece written by Senator Phil 
Gramm where he was talking about, OK, you can see that it is 
something like a 60:1 differential when you just look at 
income. But if you then reduce the top income by taxes and 
increase the bottom income by benefits received, all of a 
sudden I think it is a 3:1 differential.
    So, again, you have to look at the entire reality. I am 
happy to use this Committee to do that. We will do that. And I 
certainly want to tap into this panel's expertise. I do note 
that we are not in a Hart hearing room to accommodate the 
oversized crowd, the overflow crowd. We did not even fill this 
hearing room. So in some way, shape, or form, maybe the TRUST 
Act will help generate some of the interest in starting to 
focus on these significant issues. But, again, thank you all 
for your participation now and hopefully in the future as well.
    The hearing record will remain open for 15 days until 
February 2nd at 5 o'clock p.m. for the submission of statements 
and questions for the record. This hearing is adjourned.
    [Whereupon, at 11:30 a.m., the Committee was adjourned.]

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