    [House Hearing, 117 Congress]
    [From the U.S. Government Publishing Office]

                       THE CONGRESSIONAL BUDGET OFFICE'S
                          BUDGET AND ECONOMIC OUTLOOK

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

                                    HEARING

                                   BEFORE THE

                            COMMITTEE ON THE BUDGET
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                 HEARING HELD IN WASHINGTON, D.C., MAY 26, 2022

                                   __________

                               Serial No. 117-12

                                   __________

               Printed for the use of the Committee on the Budget

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                           Available on the Internet:
                                www.govinfo.gov

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    48-146 PDF                 WASHINGTON : 2022

    -----------------------------------------------------------------------------------

                            COMMITTEE ON THE BUDGET

                      JOHN A. YARMUTH, Kentucky, Chairman
    HAKEEM S. JEFFRIES, New York         JASON SMITH, Missouri,
    BRIAN HIGGINS, New York                Ranking Member
    BRENDAN F. BOYLE, Pennsylvania,      TRENT KELLY, Mississippi
      Vice Chairman                      TOM McCLINTOCK, California
    LLOYD DOGGETT, Texas                 GLENN GROTHMAN, Wisconsin
    DAVID E. PRICE, North Carolina       LLOYD SMUCKER, Pennsylvania
    JANICE D. SCHAKOWSKY, Illinois       CHRIS JACOBS, New York
    DANIEL T. KILDEE, Michigan           MICHAEL BURGESS, Texas
    JOSEPH D. MORELLE, New York          BUDDY CARTER, Georgia
    STEVEN HORSFORD, Nevada              BEN CLINE, Virginia
    BARBARA LEE, California              LAUREN BOEBERT, Colorado
    JUDY CHU, California                 BYRON DONALDS, Florida
    STACEY E. PLASKETT, Virgin Islands   RANDY FEENSTRA, Iowa
    JENNIFER WEXTON, Virginia            BOB GOOD, Virginia
    ROBERT C. ``BOBBY'' SCOTT, Virginia  ASHLEY HINSON, Iowa
    SHEILA JACKSON LEE, Texas            JAY OBERNOLTE, California
    JIM COOPER, Tennessee                MIKE CAREY, Ohio
    ALBIO SIRES, New Jersey
    SCOTT H. PETERS, California
    SETH MOULTON, Massachusetts
    PRAMILA JAYAPAL, Washington

                               Professional Staff

                         Diana Meredith, Staff Director
                      Mark Roman, Minority Staff Director

                                   CONTENTS

                                                                       Page
    Hearing held in Washington, D.C., May 26, 2022...................     1

        Hon. John A. Yarmuth, Chairman, Committee on the Budget......     1
            Prepared statement of....................................     4
        Hon. Jason Smith, Ranking Member, Committee on the Budget....     7
            Prepared statement of....................................     9
        Phillip Swagel, Ph.D., Director, Congressional Budget Office.    11
            Prepared statement of....................................    13
        Hon. Michael C. Burgess, Member, Committee on the Budget,
          statement submitted for the record.........................    52
        Questions submitted for the record...........................    55
        Answers submitted for the record.............................    56

                       THE CONGRESSIONAL BUDGET OFFICE'S
                          BUDGET AND ECONOMIC OUTLOOK

                                  ----------

                             THURSDAY, MAY 26, 2022

                               House of Representatives
                                        Committee on the Budget
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 11:01 a.m., via
    Zoom, Hon. John A. Yarmuth [Chairman of the Committee]
    presiding.
        Present: Representatives Yarmuth, Jeffries, Boyle, Lee,
    Chu, Plaskett, Scott, Jackson Lee, Peters; Smith, McClintock,
    Grothman, Smucker, Jacobs, Burgess, Carter, Cline, Feenstra,
    Good, Hinson, Obernolte, and Carey.
        Chairman Yarmuth. This hearing will come to order.
        Good morning and welcome to the Budget Committee's hearing
    on the Congressional Budget Office's Budget and Economic
    Outlook.
        At the outset, I ask unanimous consent that the Chair is
    authorized to declare recesses of the Committee at any time.
        Without objection, so ordered.
        Now, before I welcome our witness, I will go over few
    housekeeping matters. Today the Committee is meeting virtually.
    Before we begin, I would like to remind Members participating
    in this proceeding to keep your camera on at all times, even if
    you are not under recognition by the Chair. Members may not
    participate in more than one committee proceeding
    simultaneously. If you choose to participate in a different
    proceeding, please turn your camera off.
        Members are responsible for their own microphones. Please
    mute your microphones when you are not speaking. This will help
    prevent feedback and other technical issues. Please remember to
    unmute yourself when you seek recognition. Note that the Chair
    or staff designated by the Chair may mute participants'
    microphones when they are not under recognition for the
    purposes of eliminating inadvertent background noise. We are
    not permitted to unmute Members unless they explicitly request
    assistance. If I notice that you have not unmuted yourself I
    will ask if you would like staff to unmute you. If you indicate
    approval by nodding, staff will unmute your microphone. They
    will not unmute your microphone under any other conditions.
        I would like to remind Members that we have established an
    email inbox for submitting documents before and during
    committee proceedings. We have distributed that email address
    to your staff.
        Now, I will introduce our witness. This morning we will be
    hearing from Dr. Phillip Swagel, the Director of the
    Congressional Budget Office.
        I will now yield myself five minutes for an opening
    statement.
        Chairman Yarmuth. Good morning. I want to thank Dr. Phillip
    Swagel, Director of the Congressional Budget Office for
    appearing before our Committee today to testify on CBO's newly
    released budget and economic outlook, also known as the CBO
    baseline.
        Dr. Swagel, your agency is an indispensable partner to
    Congress and to the House Budget Committee in particular. And I
    want to thank all your dedicated staff for their hard work in
    putting out this report.
        We are holding this Committee hearing a little later in the
    year than usual since Congress did not complete the Fiscal Year
    2022 appropriations bills until March and CBO needed those
    final funding levels to finish the outlook. But today's hearing
    is still a great opportunity for us to examine CBO's new
    projections for the next decade as Congress begins the Fiscal
    Year 1923 budget and appropriations process.
        When comparing CBO's new outlook with the one published
    shortly after President Biden took office, one thing is
    abundantly clear. The American Rescue Plan delivered critical
    lifesaving and life-changing relief that changed the course of
    the pandemic, rescued our economy, and helped American families
    and small businesses stay afloat. The American Rescue Plan
    helped power a historic recovery, the most equitable in recent
    memory and contributed to the largest job growth ever in a
    calendar year. The percentage of people receiving unemployment
    insurance has now fallen below 1 percent for the first time in
    more than 50 years. The unemployment rate is currently down to
    3.6 percent, a level that prior to the Rescue Plan CBO
    projected we would not reach during the entire decade. Now, CBO
    is projecting that the unemployment rate will drop even further
    in 2023 to 3.5 percent, the lowest rate our country has seen in
    nearly 70 years.
        Small business, which account for nearly half of all
    American jobs, are booming. Americans submitted 5.4 million
    applications for new businesses in 2021, the most in recorded
    history. And small businesses are creating more jobs than ever
    before.
        The Rescue Plan nearly doubled our GDP growth in 2021. As a
    result, the U.S. was the first major advanced economy in the
    world to come back above pre-pandemic levels of GDP. Faster
    economic growth has boosted hiring and wages and powered record
    deficit reduction. CBO projects we are on track to see the
    deficit shrink by $1.7 trillion, from $2.8 trillion in 2021 to
    $1 trillion this year.
        All of these indications are evidence of the same truth:
    our economy is far outpacing what CBO projected without the
    Rescue Plan. The Rescue Plan laid the foundation for America's
    unprecedented recovery and economic resilience, and we are in a
    far better place because of it.
        We have made incredible progress, but inflation is our new
    challenge. I will reiterate what economic experts across the
    ideological spectrum have said over and over, international
    supply chain bottlenecks and higher energy costs due to
    Russia's war in Ukraine are the primary drivers of current
    inflation. These are global problems, which is why inflation is
    a global issue. In fact, inflation in the UK hit a 40 year high
    just last week. The 38 member countries of OECD are averaging
    an inflation rate of more than 9 percent. Clearly, this
    inflation is not unique to the United States, but the American
    Rescue Plan is.
        Because we enacted this legislation, American families,
    state and local governments, and our national economy are
    facing this new challenge from a position of economic strength.
    But additional action is necessary to protect Americans from
    rising costs and keep our economy strong. The Federal Reserve
    is best positioned to tackle immediate inflation concerns and
    Congress can and must do everything it can to lower costs to
    American families overall. The cost of healthcare, housing,
    education, childcare, the basic needs of American families,
    have been rising for decades. That is why House Democrats have
    passed legislation to lower prescription drug prices, expand
    the supply of affordable housing, cut childcare costs, expand
    access to higher education, and ensure that big corporations
    cannot take advantage of American consumers with excessive
    price hikes. These actions would lower families' monthly costs
    substantially, and I look forward to discussing this today with
    Director Swagel.
        This is an important hearing and an important time for the
    future of our nation. I hope that today we can focus on the
    facts and on solutions that will deliver relief to American
    families and build a stronger, more equitable, and more
    resilient economy.
        Director Swagel, thank you again for appearing before our
    committee today and I look forward to your testimony.
        With that, I would like to yield to the Ranking Member, Mr.
    Smith, to unmute his microphone for five minutes for his
    opening statement.
        [The prepared statement of Chairman Yarmuth follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Smith. Thank you, Mr. Chairman. My opening statement
    probably couldn't be any more different than comments you had
    just made.
        The Budget and Economic Outlook released by the
    Congressional Budget Office yesterday shows the impact of one-
    party Democrat rule in Washington over the past year. And it is
    not a pretty picture. In short, America's fiscal health is
    getting worse. And when we compare it to CBO's February 2021
    baseline, you can see just how much the nation's budgetary and
    economic outlook has deteriorated since President Biden and the
    one-party Democrat rule has taken over.
        First, let's look at the data. When President Biden entered
    office, CBO predicted the government would spend $61 trillion
    over the next 10 years. Now they say it will be $72 trillion.
    When Biden entered office, CBO predicted the government would
    run up just over $12 trillion in deficits over the next 10
    years. Now they say it will be close to $16 trillion. When
    Biden entered office, CBO predicted the government would spend
    $4.6 trillion on interest payments over the next 10 years. Now
    they say it will be over $8 trillion. When Biden entered office
    CBO predicted the average interest to be 2.5 percent over the
    next 10 years, now they say it will be 3.5 percent. Their
    prediction for this year has nearly doubled from 1.3 percent to
    2.4 percent. The inflation forecast for 2022 and 2023 combined
    is 64 percent higher than what CBO predicted when Biden entered
    office. And that might be overly optimistic. After all, CBO
    projects inflation to be 4.7 percent this year but inflation
    has already increased by almost 4 percent in 2022. Also,
    perhaps overly optimist, CBO's economic growth predictions.
    Real GDP growth is projected to be 3.1 percent this year, but
    GDP declined by 1.4 percent in the first quarter of 2022.
        Under every metric, President Biden has worsened the
    balance sheet of the federal government, the economic outlook
    for our country and the fiscal health of American families.
        So, how did we get here? Democrats passed their $2 trillion
    American Rescue Plan even though the economy was well on its
    way to recovery. Democrats promised it would create 4 million
    jobs. Instead, job creation was smaller in 2021 than CBO had
    projected it would be before the passage of the $2 trillion
    plan. What it did create was the highest inflation in 40 years
    while spending federal tax dollars on such things as $17
    million on a golf course in Florida, $4 million to build beach
    parking lots in South Carolina, $2 million to plant trees in
    New York, and $400 billion to pay people to stay at home and
    not go to work. And yet things could have been even worse. The
    Washington Democrats' ``Build Back Broke'' agenda would have
    added $5 trillion in new spending and $3 trillion in new debt
    according to CBO.
        There is a silver lining in the CBO baseline, though.
    Thanks to the Republican passed Tax Cuts and Jobs Act, the tax
    burden on families and job creators fell while federal revenues
    have grown. This year revenue from corporations and individual
    taxpayers is up, far exceeding what CBO projected the federal
    government would collect. Revenues have surged 39 percent over
    last year and collections are on pace to be the largest share
    of GDP in American history. As a matter of fact, if current
    forecasts hold, revenues could very well end up being more than
    a trillion and a half above what CBO predicted the would be for
    2022, after passage of the Tax Cuts and Jobs Act.
        The story this baseline tells us is a story of one-party
    Democrat rule in Washington. After one year, we have trillions
    more in spending; an explosion of new debt; record inflation; a
    supply chain crisis; and the highest gas prices ever recorded;
    and now a baby formula shortage. This is the legacy of
    President Biden's first year in office.
        I yield back, Mr. Chairman.
        [The prepared statement of Jason Smith follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Yarmuth. I thank the gentleman for his opening
    statement.
        In the interest of time, I ask that any other Members who
    wish to make a statement submit their written statements for
    the record in the email box we established for receiving
    documents before and during Committee proceedings. We have
    distributed that email address to your staff.
        I will hold the record open until the end of the day to
    accommodate those Members who may not yet have prepared written
    statements.
        Now, once again I want to thank Dr. Swagel for being here
    this morning. The Committee has received your written record
    and it will be made part of the formal hearing record.
        You have five minutes to give your formal remarks. You may
    unmute your microphone and begin when you are ready.

      STATEMENT OF PHILLIP SWAGEL, PH.D., DIRECTOR, CONGRESSIONAL
                             BUDGET OFFICE

        Dr. Swagel. Thank you, Chairman Yarmuth, Ranking Member
    Smith, and Members of the Committee for inviting me to testify
    on the CBO's Budget and Economic Outlook.
        In CBO's projections released yesterday the federal budget
    deficit in 2022 is $1 trillion. That shortfall represents a
    substantial reduction from deficits in the past two years as
    federal spending in response to the Coronavirus pandemic wanes
    and as the current economic expansion continues.
        In our projections, which reflect the assumption that
    current laws governing federal taxes and spending generally
    remain unchanged, federal deficits nonetheless remain large by
    historical standards and generally increase over the next
    decade. From 2023 to 2032 the annual shortfall averages $1.6
    trillion. The projected deficit of more than $2 trillion in
    2032 at the end of the budget window would equal 6.1 percent of
    GDP. That is well above the average for the past 50 years.
        Outlays average 23 percent of GDP over the next 10 years
    and rising interest rates and accumulating debt cause net
    interest costs to double as a percentage of GDP by 2032. And at
    the same time, the aging population and the rising cost of
    healthcare contribute to increased mandatory spending.
        In 2022 revenues in our projections reached their highest
    levels as a share of GDP in more than two decades. They then
    decline over the next two years, but remain above their long-
    term average through 2032. Outlays grow faster than revenues
    over that period, which is why deficits increase.
        Federal debt held by the public initially dips to 96
    percent of GDP in 2023 and then rises after that. In our
    projections, the debt ratio reaches 110 percent of GDP in
    2032--that is the highest level ever--and then rises to 185
    percent of GDP in 2052 at the end of our 30-year long-term
    outlook.
        We aim for our projections to fall in the middle of the
    range of likely outcomes. Still, they are subject to
    considerable uncertainty in part because of the ongoing
    pandemic and because of other world events, such as the
    invasion of Ukraine and lockdowns in China, and so on. Our
    estimate of the deficit for 2022 is now $118 billion less than
    what we had projected last July in our most recent update
    before this one. In the current estimate for 2022 revenues are
    10 percent higher than we had previously projected and outlays
    are up by 6 percent.
        The cumulative deficit over the 2022 to 2031 period is $2.4
    trillion more than it was last summer. Newly enacted
    legislation since last July accounts for most of that increase.
    There are other changes that boost projected revenues and
    therefore reduce deficits. Those are mostly offset by economic
    changes that increase outlays, particularly for interest
    payments and Social Security payments.
        Let me now turn very briefly to the economy. The pace of
    inflation since the middle of last year has been the fastest in
    four decades. In CBO's projections, elevated inflation persists
    in 2022 because of the combination of strong demand and
    restrained supply in the markets for goods, services, and
    labor.
        In response, the Federal Reserve tightens monetary policy
    and interest rates rise rapidly. Real GDP, that is GDP adjusted
    to remove the effects of inflation, grows by 3.1 percent this
    year and the unemployment rate averages 3.8 percent in our
    projections. After 2022 economic growth slows and inflationary
    pressures ease. So CBO has published a great deal of
    information yesterday about our new projections. Those are
    online on the CBO website.
        And, with that, thank you again. I am happy to answer any
    questions.
        [The prepared statement of Phillip Swagel follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Yarmuth. Thank you, Director Swagel, for your
    opening remarks.
        We will now begin our question and answer session. As a
    reminder, Members can submit written questions to be answered
    later in writing. Those questions and responses will be made
    part of the formal hearing record. Any Members who wish to
    submit questions for the record may do so by sending them
    electronically to the email inbox we have established within
    seven days of the hearing.
        Now we will begin our questioning.
        I now recognize the gentleman from New York, Mr. Jeffries,
    for five minutes.
        Mr. Jeffries. I thank the distinguished Chair for your
    continued leadership and convening this hearing. And, Director
    Swagel, thank you for your presence and for the work that you
    do.
        I want to associate myself with the comments of Chairman
    Yarmuth when he made clear that the American Rescue Plan
    rescued the economy at a time when it was on the brink of
    collapse and put us into position to achieve some of the
    significant economic growth measures that have occurred at this
    particular point in time, as well as the record unemployment.
        And so I just want to clarify some things that you have
    previously testified to. So we got a real understanding as to
    where things are at right now. And I believe you previously
    testified that revenues in the CBO's projections would reach
    their highest level as a share of GDP in more than two decades.
    Is that right?
        Dr. Swagel. Yes, sir, that is correct.
        Mr. Jeffries. And, in fact, they are projected to increase
    to 20 percent of GDP in 2022, which I believe is up about 17
    percent from the previous forecast?
        Dr. Swagel. That is right. The revenues will reach just
    slightly under 20 percent, which is up very substantially from
    our previous projections.
        Mr. Jeffries. And we are seeing approximately 8.3 million
    jobs created since President Biden first took office, is that
    right?
        Dr. Swagel. Yes, employment has grown, you know, very
    sharply as the U.S. has come out of the pandemic--as you said,
    since the beginning of 2021.
        Mr. Jeffries. And is it your understanding that that 8.3
    million jobs that were created, that is a record in American
    history for a similar point in time in terms of a president's
    new administration?
        Dr. Swagel. Yes--yes, that would be the most jobs created
    in a single year. So that is, you know, over the 2021, the
    first year of the administration.
        Mr. Jeffries. Am I correct that the number of people
    relying on unemployment benefits has dropped to the lowest
    level since 1970?
        Dr. Swagel. I am sorry, the number of people collecting
    unemployment benefits is--it has dropped very substantially. I
    don't know offhand if it is the lowest, but I suspect it is--it
    might well be. You know, with the rebound and the very strong
    very tight labor market, we have seen lots of good outcomes
    like you just mentioned.
        Mr. Jeffries. And last year, how many new businesses were
    created in the United States of America?
        Dr. Swagel. The rebound from the pandemic has led to a
    surge in business creation. You know, obviously we saw business
    go out when the economy locked down, and then a huge number
    have created. I don't know the number of millions of offhand,
    but it has been a--this is a historic increase in business
    formation and entrepreneurship.
        Mr. Jeffries. It is my understanding that approximately 5.4
    million new businesses were created in the last year. As you
    indicated, a substantial return of American entrepreneurship.
        In terms of deficit reduction--because my colleagues on the
    other side of the aisle I thought were deficit hawks and cared
    about the deficit. That is all we have heard about certainly
    during the Tea Party years. Am I correct that in President
    Biden's first year the deficit was reduced by more than $350
    billion? Is that correct?
        Dr. Swagel. Yes. The deficit has gone down very
    substantially both, you know, from last year to this year, and
    compared to what CBO had projected, leaving aside the new
    legislation that has been enacted.
        Mr. Jeffries. And what is the projected deficit reduction
    for this current year that we are in?
        Dr. Swagel. The deficit is falling by some--I am sorry--
    $1.8 trillion lower. It is going from--last year it was about
    $2.8 trillion to a deficit this year of $1 trillion. So that is
    a reduction of $1.8 trillion from 1921 to 1922.
        Mr. Jeffries. So thank you for your testimony.
        You know, for the life of me, we certainly have issues that
    we need to deal with in terms of inflationary pressures, which
    as you have indicated result from an increase in demand--that
    happens when you have a booming economy--and supply chain
    constraints--which happens when you have an economy that has to
    shut down as a result of a once in a century pandemic. These
    are challenges that of course we continue to work on.
        We also continue to work on the issue as it relates to the
    baby formula shortage. I was shocked that so many of my
    Republican colleagues chose to vote against the appropriations
    legislation that was brought to the floor.
        But for the life of me, I can't figure out the doom and
    gloom that is going to be painted by some of my Republican
    colleagues.
        Thank you for your testimony in presenting the facts in a
    straightforward fashion.
        I yield back.
        Chairman Yarmuth. The gentleman yields back.
        I now yield 10 minutes to the gentleman from Missouri, the
    Ranking Member, Mr. Smith.
        Mr. Smith. Thank you, Mr. Chairman.
        To start here for the record, Director, if you can give me
    these answers as quickly as possible. I want to try to get
    through as much as possible.
        But I want to hit on the deficit reduction that was just
    before you and the joke of the comments. And I want you to
    clarify. Is it true that the Fiscal Year 1921 deficit was $517
    billion higher than where the Congressional Budget Office
    projected for the 2021 year?
        Dr. Swagel. Right, our----
        Mr. Smith. Yes or no.
        Dr. Swagel. The deficit projection from last July to to
    this one, yes, is higher.
        Mr. Smith. So that is not a deficit reduction. And Biden's
    $2.78 trillion deficit in 2021 was the second highest in the
    history of America, driven in large part by his unpaid for $2
    trillion American Rescue Plan. Is that correct?
        Dr. Swagel. Yes, the emergency spending during the
    pandemic, including the American Rescue Plan, drove the deficit
    last year. That is correct.
        Mr. Smith. And so Biden's claimed Fiscal Year 1922 of $1.5
    trillion in deficit reduction is only because last year his
    inflationary $2 trillion ARP, American Rescue Plan, drove
    government spending to 30.5 percent of GDP, 10 percent higher
    than the historic average. His latest Fiscal Year 1923 budget
    proposes annual deficits averaging $1.6 trillion a year.
        Director, in February 2021 your baseline showed $61
    trillion in government spending over the next 10 years. You now
    say it will be $72 trillion, correct?
        Dr. Swagel. Yes, that is correct over the next 10 years.
        Mr. Smith. OK. So that is $11 trillion higher, correct?
        Dr. Swagel. Yes.
        Mr. Smith. So in February 2021 your baseline showed just
    over $12 trillion in deficits over the next 10 years. You now
    say it will be close to $16 trillion in deficits, correct?
        Dr. Swagel. Yes, that is correct. Yes.
        Mr. Smith. Got it. So, $3.5 trillion more in deficits. And
    in February 2021 you said the first interest rate hikes
    wouldn't come until 2024, correct?
        Dr. Swagel. In our economic projections--a year ago, that
    is correct.
        Mr. Smith. Yes. OK. Got it. Of course, now we have seen the
    Fed already increase rates twice in the last six months. And in
    February 2021 you said the government would spend $4.6 trillion
    on interest payments over the next 10 years. You now say it
    will be over $8 trillion, correct?
        Dr. Swagel. That is correct. It is both interest rates are
    higher and the amount of debt has gone up as well.
        Mr. Smith. So based on every indicator we are looking at
    here, the Administration is failing the American people. Your
    baseline projects inflation to be 4.7 percent this year, but
    inflation has already increased by almost 4 percent in 2022,
    making it highly likely we exceed 4.7 percent. To hit 4.7
    percent inflation, we could not exceed 1 percent total for the
    remainder of the year. When were the GDP and inflation
    projections included in this baseline made?
        Dr. Swagel. So we locked our economic forecast at the very
    beginning of March. So the work was mainly done in February
    then. And, as you said, inflation has turned out to be higher
    even immediately than we had forecast. And we see that
    especially in food prices and energy prices. I think all of us
    see that in gasoline prices. Some of that relates to the
    Russian invasion of Ukraine, which we had--we had the beginning
    of it, but----
        Mr. Smith. But it----
        Dr. Swagel [continuing]. it impacts it much more.
        Mr. Smith. Yes. Director, before the Russian invasion of
    Ukraine inflation was up 7.5 percent, correct?
        Dr. Swagel. Yes, inflation last year was up very sharply.
    Absolutely.
        Mr. Smith. Yes. So given that inflation continues to hover
    around a 40-year high, not to mention that inflation has gone
    up 11 percent since President Biden came into office, if you
    were writing this baseline today, knowing what you know now,
    how would that affect your projections and assumptions.
        Dr. Swagel. OK, as I said, it is--inflation in the first
    couple months of the year has turned out to be higher than we
    anticipated. It looks like the--you know, the current quarter
    that we are in is coming in around our projections. The Fed has
    raised interest rates by more, you know, whereas it has had an
    impact on financial markets.
        So it is as um of each, that inflation has been higher than
    we anticipated, the Fed's hiking, you know, probably as a
    result, has been higher, and, of course, we have seen the
    impact of that on financial markets.
        Mr. Smith. So do you expect that 4.7 percent to be much
    lower than where actually end up for the year?
        Dr. Swagel. You know, we don't redo our forecasts just
    because the way we do our budget----
        Mr. Smith. OK. So, you are saying rest of the year we are
    going to be at 1 percent? To be able to get the 4.7 percent?
        Dr. Swagel. To meet our forecast, which, you know--as you--
    --
        Mr. Smith. Wow.
        Dr. Swagel. There is a risk there. Absolutely.
        Mr. Smith. So, we are clearly--I mean I will tell you right
    now, if you all think we are going to be at 1 percent the rest
    of the year, I got some ocean front property in Arizona to sell
    you, Director.
        Let me ask you about your economic growth objectives. Your
    budget says the economy will grow at 3.1 percent this year. But
    given that the most recent GDP report actually showed a decline
    of 1.4 percent, knowing what you know now, how would the
    current dismal economic numbers affect your projections? Or are
    you sticking with it like you are the inflation numbers?
        Dr. Swagel. OK. You know, again, just because the process
    we have that once we have the baseline, you know, that is
    locked down, so we are not going to--we don't redo our
    forecast.
        As you said, the first quarter had negative GDP growth. You
    know, some of that we see unwinding with, you know, changes in
    inventories and trade. You know, the outlook for the year is--
    our outlook for the years is based on people come back to the
    labor force. There has been a million people still on the
    sidelines who we see as coming back. And that is supporting in
    part the rebound that we see in the economics over the course
    of this year.
        Mr. Smith. So let us ask this. Your future year inflation
    projections are relatively mild compared to where we are
    actually currently at with inflation--8.3 percent in the most
    recent year-to-year CPI report and 11 percent since Biden took
    office. But taking your projections for inflation, which
    assumes back to more normalized levels of 2 percent in a few
    years, what is the long-term damage to the U.S. budget and
    economic outlook of even the so-called short burst in inflation
    if it is actually short lived?
        Dr. Swagel. So inflation has a number of effects on the
    economy and of course on the fiscal outlook. The key risk is
    interest rates. High inflation leads to high interest rates,
    both through what the Fed is doing and through market
    reactions. And then as they debt level has gone up, higher
    interest rates translate into higher net interest outlays. And
    so you see that in our projection over 10 years. Net interest
    outlays as a share of GDP are more than doubling in our
    projection.
        So that is the fiscal risk of high inflation. It comes
    through high interest rates and high payments to service the
    U.S. debt.
        Mr. Smith. You know, Director, I am a little concerned with
    some of the proposals you selected in your alternative fiscal
    assumptions modeling. For starters, a lot of them seem targeted
    at tax relief Republicans. When they want to continue to
    provide--which now has a proven track record of economic growth
    and historic revenue generation--in your alternative
    assumptions you do incorporate--do you incorporate say things
    that the majority has been very clear that they do not view as
    temporary pandemic policies and they want to continue? Say
    things like the cost of continuing the student loan repayment
    moratorium indefinitely, canceling student loan debt
    altogether, a permanent extension of the child tax credit
    revision included in the American Rescue Plan that failed to
    include work requirements, and let us say a continuation of the
    increased Affordable Care Act subsidies that are set to expire?
        Dr. Swagel. OK. So thank you for the question. And I know
    that this is extremely important to you and we are continuing
    to work on some of these issues. Of course we have done some
    work for you and for Senator Graham on these expiring
    provisions. We will continue to do that.
        What we have in the report is Chapter 5 in the report is
    the--you know, the alternative scenarios. Essentially we
    followed the practice in the past of looking at provisions such
    as the tax ones that you mentioned that have been in place for
    several years and continue. And the challenge for us was so
    much in pandemic related provisions were in the law for maybe a
    year and then expired--the child tax credit as you mentioned,
    the expanded subsidies for the Affordable Care Act. We did
    not--you know, of course we didn't extend them in the baseline
    because they are not in current law. And then for the
    alternative provisions, we did not extend those either. You
    know, again, because they are not--you know, they are not a
    current law, they are not scheduled to expire in the future.
    You know, it is analysis that we can do, of course along with
    the JCT to--you know, to answer the sorts of questions that I
    know you are very focused on.
        Mr. Smith. Thank you, Mr. Chairman.
        Mr. Scott. Chairman, you are on mute.
        Dr. Swagel. Mr. Chairman, you are still on mute.
        Chairman Yarmuth. I hit it. I am sorry.
        I now yield five minutes to the gentlewoman from
    California, Ms. Lee.
        Ms. Lee. Thank you very much, Mr. Chairman. I have to
    associate myself with your remarks earlier about the American
    Rescue Plan.
        I just want to remind all my colleagues that this pandemic
    has taken over a million lives. I shudder to think what would
    have happened had we not passed the American Rescue Plan and it
    has saved lives and it has saved livelihoods. And so we can't
    forget that in terms of the investments that were made.
        Let me thank our Director for being here and let me just go
    right into our questions, because I think you know I am going
    to ask about the Department of Defense.
        It is quite frankly the only cabinet agency not to pass an
    audit. And I have legislation that would require DoD to pass an
    audit or face automatic spending cuts.
        So how does DoD's failure to pass an audit complicate
    budget planning from an auditing point of view? How much
    Pentagon spending is unaccounted for? Why should this Congress
    continue to add more and more money to the defense top line in
    the meantime if it can't be audited, if there is no
    accountability? And what sort of forcing mechanism should we be
    considering in Congress to get DoD to pass an audit? And this
    has been supported by my bill, by my colleagues on the other
    side of the House. What can we do? It is long overdue.
        And you also finally--the report--how DoD might save $1
    trillion over the next 10 years, it concluded that we can
    better defend our country by getting more for less money. Can
    you talk a little bit about that?
        Dr. Swagel. Yes. I would be glad to talk about this.
        And the problems you are pointing to are a challenge for us
    as well, that we aim for our baseline that we provided
    yesterday to inform policymakes, to inform you and your
    colleagues. And when the information that we get from the
    executive branch is--you know, I guess imperfect is the nice
    way of putting it, that means our baseline isn't as informative
    as it should be. And so absolutely, we are there and better
    information from DoD and from others would help us serve the
    Congress with our mission.
        In terms of the defense budget going forward, you know, of
    course CBO doesn't provide policy recommendations, but we have
    done a number of studies that help policymakers look at
    different choices for the defense. We recently put out a tool
    that is actually online on different force structures that, you
    know, you and your staff could go through and say, if we change
    the services in different ways what would be the fiscal
    implications of that. Of course we are not saying do this or do
    that, but you can see the--you know, basically how much money
    is saved by different choices on the national security side.
        Ms. Lee. Well, let me ask you though, it has failed to pass
    an audit. What do we do? You know, if a business fails to pass
    an audit, it gets dinged, there are penalties. Agencies have
    penalties, people have penalties. Why does the defense
    department get away with unaccounted spending? It boggles my
    mind. There is no accountability there.
        So I know you can't suggest policies, but tell me how
    inappropriate it is for our budgeting process to go forward
    without a clear picture? I mean we need to know what is--you
    know, the hand needs to be shown in terms of what you are
    dealing with. Otherwise it is not a good mechanism for us to
    make forecasts or for us to make decisions on our spending if
    we let agencies just run amok with the resources that we
    appropriate.
        Dr. Swagel. Right. And of course most of the national
    security spending is appropriations. And so we support the
    Appropriations Committees in both the House and the Senate as
    they take up the Fiscal Year 1923 appropriations. And you are
    absolutely right, the imperfect information means that we are
    not able to support them in the way that we need to.
        Ms. Lee. So how do you audit--OK, so what do you do? What
    would your suggestions be on any agency that is not auditable?
        Dr. Swagel. No, it is--you know, it is a difficult question
    for us because we provide information to the Budget Committee
    to enforce the budget rules and it is really GAO that does the
    auditing. Of course, it has very substantial expertise in
    auditing. So really they are the--and they would put forward
    policy recommendations. So they are the ones who would, you
    know, go out and say here is how the situation can be improved.
        Ms. Lee. Well, with your new--OK, CBO baseline, it is a
    real shame and disgrace that you all aren't working together
    and you are not suggesting it impairs your ability to be
    accurate and forecasting if they don't insist on an audit. But
    in terms of the baseline dealing with inflation, how does the
    Pentagon's budget assumptions fit into that in term of CBO's
    baseline?
        Dr. Swagel. OK. OK. No, absolutely. And essentially it goes
    both ways, that, you know, the fiscal spending has an impact on
    inflation and of course the decline in, you know, spending from
    last year to this year will alleviate some of the inflationary
    pressures going forward. But of course it is in the other
    direction as well, that inflation affects military spending.
    You know, the military is the--as I understand it, the largest
    purchaser of jet fuel, for example. So energy costs will
    affect--you know, affect them as well.
        So it definitely--there is an impact on inflation--between
    inflation and national security spending that goes in both
    directions.
        Chairman Yarmuth. The gentlewoman's time has expired.
        I now yield five minutes----
        Ms. Lee. Thank you, Chairman.
        Chairman Yarmuth [continuing]. to the gentleman from
    California, Mr. McClintock.
        Mr. McClintock. Thank you, Mr. Chairman.
        You know, I find it astonishing that the Chairman would
    tout the so called American Rescue Plan as a success. Even
    Democratic consultants like Steve Rattner and Larry Summers
    were warning that it was so irresponsible that it would trigger
    a crippling inflation. Mr. Chairman, it turns out all the free
    checks you sent out were actually very expensive and Americans
    are paying them back every day at the grocery store, the gas
    station, the tax collector--everywhere they spend money. I have
    seen a report costing average families about $5,000 for their
    purchasing power.
        My god, before the lockdowns took a wrecking ball to the
    economy, you know, we had the lowest unemployment rate in 50
    years, the lowest poverty rate in 60 years, the fastest wage
    growth in 40 years, and it was working class families gaining
    the most. The gap between rich and poor was actually narrowing
    for the first time in our lifetimes. We were energy independent
    for the first time in our lifetimes. Inflation was around 1
    percent, interest rates were near all-time lows. That didn't
    happen by accident. The Republican tax cuts produced one of the
    biggest economic expansions in history, an expansion that was
    so great we ended up taking in more revenues after the tax cuts
    than we had received before them. We saw the biggest regulatory
    roll back in history that freed up American energy resources,
    it brought companies back to America for oversees. All you had
    to do was continue those policies that produced this
    prosperity, and instead you did the opposite. You spent
    trillions of dollars we didn't have, you started what Mr. Biden
    just called an incredible transition away from fossil fuels by
    imposing the highest gasoline prices in American history. You
    have admitted into our country an impoverished population the
    size of West Virginia that American taxpayers have to now
    support, and you have the audacity to try to tell us that the
    economy is doing great? You know, just a word of advice, you
    can't spin the economy. Every person knows how the economy is
    doing because they are living it every day. And that is what
    makes the old Reagan question so devastating to you and your
    party--are you better off today than you were four years ago.
    Everybody knows the answer to that in their own lives and they
    can see clearly who is responsible for it. You are not fooling
    anyway.
        Now, Mr. Swagel, I want to begin with three numbers that
    describe the fiscal reality we face--28, 76, and 89. According
    to our calculations, 28 percent is the growth in population and
    inflation combined over the last 10 years--28 percent. 76
    percent is the growth in revenues, which means that revenues
    are growing at nearly three times the rate of inflation and
    population over the past 10 years. That is after the tax cuts.
    89 percent is the increase in spending and spending is the fine
    point of the matter.
        It seems to me there are only three ways to pay for it--by
    taxes. Personal taxes decrease the purchasing power of families
    in the present. Business taxes are passed through to consumers
    as high prices, to employees as lower wages, and to investors
    as lower earnings. That is one way you can do it. The second
    way is to borrow from capital markets. But of course this
    reduces the capital available to finance construction and
    consumer spending and home and automobile purchases and
    business expansion. And of course borrowing is paid back
    through future taxes and it generates additional interest costs
    along the way. And the third way is to borrow from ourselves,
    essentially printing money, which is the direct cause of
    inflation. Too many dollars chasing too few goods.
        So it follows then that it is excessive spending that is
    driving all three drags on the economy. To paraphrase the
    Clinton era maxim, it is the spending stupid.
        Mr. Swagel, am I missing anything?
        Dr. Swagel. No. I mean you have--I think you have got it,
    right. The inflation we are seeing is the combination of very
    strong demand and, you know, much of that is driven by--you
    know, by fiscal policy. Certainly there is a recovery from the
    pandemic combined with the supply constraints, and those are
    driving inflation.
        Mr. McClintock. Well, let us talk about that inflation rate
    for a second, 8.3 percent as I understand it. So does that mean
    if I manage to put away $100,000 in my retirement fund, does
    that mean I just lost $8,300 in purchasing power over the last
    year?
        Dr. Swagel. That would be one implication, that--right, the
    number you gave is the most recent 12 months of inflation. It
    means that Americans--nominal wages are up, but real wages are
    down for most Americans. So, yes, it is a challenge for
    families and a challenge for the economy. And a fiscal
    challenge as well.
        Mr. McClintock. And isn't the classic definition of
    inflation too many dollars chasing too few goods? So if you
    flood the economy with dollars while you raise taxes on
    productivity, you get more inflation or less inflation?
        Dr. Swagel. Right. I mean we have very strong demand and,
    you know, serious constraints on supply. And those dollars
    chasing the inadequate supply, that leads to higher inflation.
        Mr. McClintock. Thank you.
        Dr. Swagel.
        Chairman Yarmuth. The gentleman's time has expired.
        I now yield five minutes to the gentlewoman from
    California, Ms. Chu.
        Ms. Chu. Dr. Swagel, thank you for being here with us
    today.
        As a Member of the Ways and Means Committee I have made it
    my mission for years to lower the cost of prescription drugs.
    It is unconscionable that Americans pay the highest prices in
    the world for the exact same drugs. People with diabetes have
    to pay triple the cost for insulin compared with those living
    in countries like Canada. And now one in five seniors struggle
    to afford their medications. That is why it was so significant
    that when the House passed the budget reconciliation bill it
    included provisions to lower prescription drug costs by
    allowing Medicare to negotiate prices for certain high cost
    drugs. And it also penalized drug makers for hiking prices
    faster than inflation and it lowered out-of-pocket expenses for
    seniors and capped the price of insulin at $35 for those
    covered by Medicare and private insurance.
        While the CBO estimated that these provisions would result
    in nearly $80 billion of savings to Medicare and would reduce
    the federal deficit by nearly $300 billion, so Mr. Swagel can
    you explain how these provisions would not only reduce federal
    spending but also lower prescription drugs for Americans?
        Dr. Swagel. Yes, of course. And this is first from our cost
    assessment for H.R. 3 and then, as you said, inside the Build
    Back Better Act. The provisions in the Build Back Better and
    H.R. 3 would set up a system of negotiation between the
    secretary of HHS and drug companies. The secretary would have
    very substantial leverage in the form of an excise tax. We have
    done substantial modeling to that. We put out working papers
    that explain the technical details. We find that that would
    lower drug prices. The lower drug prices would have many
    effects. Some of them would be health. People would take more
    medicine and have healthier impacts, so save money on doctors
    and hospitals. The lower drug prices would save money for the
    federal government because the cost of health insurance would
    be lower and the federal government subsidizes health insurance
    through a variety of ways, employers, the ACA, Medicaid, and
    others.
        So the system in that bill, by lowering drug prices, would
    both make people healthier and save money for the federal
    government.
        Ms. Chu. Thank you.
        And now I would like to ask about paid family leave. As you
    know, the U.S. is the only country among 41 nations that does
    not mandate any paid leave for new parents, according to data
    compiled by the Organization for Economic Cooperation and
    Development. Democrats in the House tried to rectify that by
    passing a national paid family and medical leave program. Your
    analysis of that proposal found some important things. First,
    having access to paid family and medical leave could improve
    physical and mental health for some workers. Second, while some
    employers might reduce their company paid leave policies and
    shift to the federal program, that is not a bad thing for
    workers. Employees would still get paid leave and you found
    that employers would increase pay or provide other benefits to
    attract good workers.
        Could you expand on how a federal paid family leave program
    might help increase pay for workers?
        Dr. Swagel. No, that is right. You know, we have done a lot
    of work on this, including a set of slides in 2021 that went
    through the various dimensions in which paid leave would affect
    workers and effect the, you know, fiscal situation. And, as you
    said, that might lead some people to come back into the labor
    market, people for whom--you know, who are taking care of
    family members or loved ones, parents. And the availability of
    paid leave would make it possible to come back into the labor
    market.
        For people already working it would give them added
    flexibility. It might change the--you know, the way they are
    compensated. So there would be lots of different economic
    effects. We had that in the cost estimate for Build Back
    Better. For the Build Back Better Act as passed by the House of
    Representatives, we had that as costing the federal government
    $200 billion over 10 years, that is from 2022 to 2031. So there
    would be a fiscal cost and, as you said, there would be, you
    know, implications for families and for the economy.
        Ms. Chu. And just quickly, one of the drivers of increasing
    deficits and debt over the decade is the aging of the
    population. How would immigration reform help keep our promises
    to our seniors?
        Dr. Swagel. So, as you said, as the decade goes on, as we
    get out into the long-term outlook, the aging of the population
    becomes an important driver of, you know, the fiscal challenge,
    both through Social Security and through Medicare. Immigrants
    make substantial contributions to the U.S. economy, the
    immigrants who are here and new immigrants. You know, people of
    working age come in, they would tend to pay into the trust fund
    supporting Social Security. And Medicare, they get benefits,
    those would be off into the future. They boost growth, they
    boost innovation, they boost our society in other ways.
        So of course it is up to policymakers. CBO doesn't perform
    policy recommendations, but increased immigration has many
    effects on the economy and on the fiscal trajectory.
        Ms. Chu. Thank you.
        I yield back.
        Chairman Yarmuth. The gentlewoman's time is expired.
        I now yield five minutes to the gentleman from Wisconsin,
    Mr. Grothman.
        Mr. Grothman. Thank you much.
        I was trying to scramble here and find a Ronald Reagan
    quote. I couldn't find it in time, so I am going to have to
    kind of guess a little bit.
        Our forefathers didn't come here to copy Europe. And I
    always run into people, you know, who came here from England,
    came here from Germany, came here from a variety of European
    nations. I am sure occasionally somebody goes the other way,
    but largely everybody wants to come here and I would suggest
    that is in part because we have less government and government
    does less in America than it does in Europe.
        Now, I would like to talk a little bit about the overall
    level of spending and the effect of two bills, the American
    Rescue Plan, which I thought was about the most fiscally
    reckless thing I have ever seen, and the Bipartisan
    Infrastructure Bill.
        I think we already saw that--I would even argue the CARES
    Act was somewhat excessive. I know it happened under President
    Trump, I know it was negotiated by Treasury Secretary Mnuchin,
    who was a Democrat--kind of looked like it. But in any event, I
    would like to ask you in your 10 year deficit projections, how
    much is the legislation enacted so far by this Congress
    affected them, including the American Rescue Plan and
    bipartisan infrastructure framework?
        Dr. Swagel. OK. No, absolutely. As I said, I am holding up
    your report. It is on page 30 of our report, figure 2-2. Goes
    through and shows the impact of the major legislation. And so
    you can see that the--you know, the early pandemic legislation,
    you know, especially the CARES Act was--it contributed over $2
    trillion to the deficit last year and another roughly half
    trillion this year, and so on. And you can see in there the
    American Rescue Plan Act also was over $1 trillion in 2021 and
    then about, you know, $400 billion this year.
        Now, since February 1921 overall the legislation that has
    been enacted has increased spending by $3.4 trillion. And of
    that, $2.4 trillion was since our July 2021 update. So it is
    $3.4 trillion in legislation since February 2021.
        Mr. Grothman. Already?
        Dr. Swagel. Already. That is right. And that is under
    current law. Of course that would not include Build Back Better
    since that is not part of current law.
        Mr. Grothman. OK. Now, I will give you another question.
    There have been a lot of actions with the Biden Administration
    and quite frankly I think the high unemployment, which began in
    the CARES Act, was to a certain extent extended by President
    Biden, I think that encourages people not to work. You made the
    assumption in your presentation today that unemployment is
    going down because the pandemic is ending and less people are
    sick or whatever. Do you think part of the reason unemployment
    is going down is we need to peel off those excessively high
    unemployment benefits? Could that be one of the reasons why
    more people are getting back to work? We no longer bribe people
    quite as much not to work?
        Dr. Swagel. You know, that is certainly part of it. And one
    of the things that we see today as compared to our--you know,
    our economic projections a year ago is that there has been a
    million--just over a million--it is like 1.1 million people who
    are still out of the labor market who we thought a year ago
    would be back.
        Mr. Grothman. What do you attribute that? Too generous
    government benefits or what?
        Dr. Swagel. You know, it is a mix. In part we think it is
    the--you know, the effects of unemployment insurance and the
    other transfers last year had some impact. It is also health
    concerns, it is childcare. You know, I think we all understand
    that, you know, the federal government hasn't given clear
    guidance to childcare providers. I mean it affects me, the 276
    people I work with here. You know, there are childcare
    providers.
        Mr. Grothman. I want to give you another question along
    that vein. Since January 2021 the Biden Administration has
    spent hundreds of billions of dollars without congressional
    approval through various executive actions. And a lot of these
    programs are programs in which we pay people not to work. It
    includes the higher SNAP benefits, about 250 million student
    loan repayment moratoriums, dropping previous actions related
    to strengthening work requirements in welfare programs, which I
    think, you know, is clearly you don't want people to work, you
    want them to depend on the government. Total cost of Biden
    Administration's executive actions could be half a trillion
    dollars or more.
        CBO's budget outlook provides information on how much the
    deficit is increased due to the laws passed by Congress. Do you
    think you should also include how much it is increased due to
    the impact of executive actions?
        Dr. Swagel. No. And we try to provide as much information
    as we can. And some of this is in the baseline. For example,
    you mentioned the Thrifty Food Plan update that increased SNAP
    benefits. So that is in the baseline. That is roughly $225
    billion over the--you know, for 2022 to 2032. There are other
    executive actions that we can't quantify. There is the EO 13990
    relating to the climate change. We just--you know, we can't
    pinpoint where that enters in the budget. There is just not
    enough specificity for us to say what is the impact on the
    budget.
        So when we can, we certainly try to provide that
    information and sometimes, you know, it just a little bit too
    amorphous for us to pinpoint.
        Mr. Grothman. Well, thank you very much and thank you for
    the extra time, Mr. Chairman.
        Chairman Yarmuth. That is all right. That was Dr. Swagel's
    answer.
        The gentleman's time is expired.
        I now yield five minutes to the gentlewoman from the U.S.
    Virgin Islands, Ms. Plaskett.
        Ms. Plaskett. Hi. Good morning. I am sorry, I was having
    some technical difficulties here.
        Thank you, Chairman Yarmuth, and to the Ranking Member for
    holding today's hearing on the Congressional Budget Office's
    Budget and Economic Outlook.
        I would also like to extend my gratitude to Director Swagel
    for appearing before us today and providing insight into the
    year's Budget and Economic Outlook.
        I believe CBO is invaluable to our work here in Congress
    and the release of this report will help us begin the
    conversation on addressing fiscal issues.
        The National Oceanic and Atmospheric Administration's
    Climate Prediction Center recently announced that they are
    predicting an above normal Atlantic hurricane season. The
    Virgin Islands, specifically, is still recovering from
    Hurricanes Irma and Maria.
        Could you tell me how our climate related disasters and
    storms are expected to affect the federal budget and economic
    outlook?
        Dr. Swagel. Yes, Representative Plaskett.
        So it is something that we have done a lot of work on and
    that is embedded in the economic baseline that we produced
    yesterday. So we look at the effects of climate over time
    affecting the economy and affecting fiscal situation, both
    through the effects on, you know, things like agriculture and
    construction and then through disasters, through, you know,
    wildfires, which is very important right now, and hurricanes.
    And those both have a measurable impact that reduce GDP and
    therefore reduce revenues over the forecast. And that is in our
    baseline.
        Ms. Plaskett. Great. Thank you for that.
        You know, we hear a lot of discussion surrounding
    inflation. And it is of course something that Congress cannot
    ignore, although we recognize that this is a global issue that
    is occurring. Prices for groceries, housing, gas, and other
    forms of energy are steadily rising. As you saw, the House
    recently passed a bill with no Republican support to lower gas
    prices by cracking down on the alleged price gouging by energy
    companies. The House and Senate both passed versions of a
    bipartisan U.S. competitiveness bill that will strengthen
    supply chains and lower costs for American consumers.
        What additional acts can Congress take to mitigate the
    effects of inflation? We cannot just complain about it, we have
    to do something about it. I know that my side of the aisle is
    working steadily to do that and are trying to work in a
    bipartisan. What are some of the suggestions you have for us to
    do that?
        Dr. Swagel. OK. And I should just preface what I will say,
    is that CBO--you know, we provide analysis and not policy
    recommendations. So I will give you some examples of supply
    constraints that are affecting inflation and just please, you
    know, be aware that this is not my saying you should do this. I
    am just--I am answering the question.
        Ms. Plaskett. I love your disclaimer. Very smart.
        Dr. Swagel. OK.
        Ms. Plaskett. Thank you.
        Dr. Swagel. You know, it is really the key to this
    organization, as set by Alice Rivlin from the beginning, that
    we don't provide--you know, we don't tell Members what they
    should do. So, but, you know, there are supply constraints
    affecting the economy and labor markets and product markets,
    international, right. So one is tariffs. And we have a write up
    of that in the report that, you know, tariffs are raising the
    price of, you know, many products. Anything with steel,
    anything with aluminum. We have a tariff on infant formula. You
    know, the CBP until recently was--I guess bragging is the
    word--is the right word, if keeping out infant formula. And
    obviously that has changed, but that is the sort of impediment
    of trade policy. So that is one.
        We talked about the immigration before. I mentioned
    childcare. Just I think--you know, again, I am speaking a
    little bit for on behalf of CBO employees getting clear
    guidance on, you know, childcare and the pandemic and the virus
    would be helpful. And then energy. And you mentioned energy.
    There is energy transportation, the--you know, the Jones Act.
    This raises costs for transporting, you know, goods and service
    and energy is part of that. There are other provisions that
    could be taken.
        So, you know, again, CBO wouldn't say what to do, but there
    is--you know, anything on the supply side would help reduce
    inflation.
        Ms. Plaskett. Thank you. Thank you very much for that
    answer.
        And with so little time I just want to yield back. And
    thank you again, Mr. Chairman for holding this hearing. And
    thank you so much to the witness for answering the questions
    and being a policy advisor, letting us know what policies
    affect those issues.
        Thank you.
        Chairman Yarmuth. Thank you. The gentlewoman yields back.
        I now recognize the gentleman from Pennsylvania, Mr.
    Smucker, for five minutes.
        Mr. Smucker. Thank you, Mr. Chairman. Appreciate that.
        You know, I want to concur with the comments of Mr.
    McClintock earlier. I found the comments by the Chairman, with
    all due respect, and by Mr. Jeffries to be astounding when they
    talked about the health of this economy. And I can tell you
    that that is not what my constituents are experiencing. They
    are experiencing massive price increases at the pump, they are
    making tough decisions about whether they can buy gas or go buy
    food. They are deferring retirement. It goes on and on.
        And so I don't know that I have ever felt the comments that
    were so out of touch with what my constituents are feeling.
    And, frankly, it is why Democrats are in big trouble in the
    upcoming Midterm elections, because of that out of touchness
    that we are hearing today.
        The other thing I want to say, Mr. Swagel, the argument
    that you sort of concurred with in regards to Ukraine causing
    the inflation, but then in the next sentence you admitted that
    inflation was 7.2 percent, or something like that, before
    Ukraine started. So how can you--tell us how you can reconcile
    those two statements.
        Dr. Swagel. Yes, I know--OK, no, it is an important
    question.
        And so inflation was high before the invasion----
        Mr. Smucker. Yes.
        Dr. Swagel [continuing]. of Ukraine. And----
        Mr. Smucker. So it was not caused by Ukraine?
        Dr. Swagel. No, no. Inflation was high and----
        Mr. Smucker. Yes. OK. I----
        Dr. Swagel. You know, this wasn't only in the U.S. The
    Ukraine shock was a global shock. And so now we see inflation
    around the world go up.
        Mr. Smucker. But inflation here was not caused by Ukraine?
    Would you concur with that?
        Dr. Swagel. Oh, absolutely. Inflation was high in the
    U.S.----
        Mr. Smucker. Yes.
        Dr. Swagel [continuing]. before Ukraine. It has gotten
    higher because of the effects of the invasion of Ukraine.
        Mr. Smucker. Yes. Then one other thing you said, you talked
    about sort of the classic economic formula. And I am not an
    economist, but, you know, you increase demand, you decrease
    supply, you are going to have inflation. That is what happened
    here.
        What are you talking about when you say increase demand?
        Dr. Swagel. So increase demand, we think of that as
    spending by families, by households.
        Mr. Smucker. Yes, yes.
        Dr. Swagel. But this is----
        Mr. Smucker. So it is the trillions of dollars that was
    inserted into the economy by Democrat spending that increased
    demand and caused inflation, correct?
        Dr. Swagel. That would be certainly a contribution to it,
    was the fiscal----
        Mr. Smucker. It was the----
        Dr. Swagel. The inflationary impact of fiscal policy.
        Mr. Smucker. The biggest part of it, right?
        Dr. Swagel. I mean it is--you know, it is a little bit--
    there is both because you had this supply----
        Mr. Smucker. So the American Rescue Plan caused the
    inflation that we were seeing? That we are seeing now?
        Dr. Swagel. I would say it definitely contributed to it.
    The fiscal policy. The economy was really----
        Mr. Smucker. Most economists that I talk to believe that it
    was the primary factor in causing inflation that we are seeing.
    Are you disagreeing with that?
        Dr. Swagel. No, you know, I am not disagreeing. I am just
    trying to say that there is two----
        Mr. Smucker. OK, thank you. I appreciate it. I am sorry, I
    am going to keep going.
        Dr. Swagel. No, no, of course, of course.
        Mr. Smucker. Because I think it is really important that we
    come to an understanding about what has caused some of these
    disastrous economic situations----
        Dr. Swagel. Mm-hmm.
        Mr. Smucker [continuing]. that we are in for our
    constituents. So I appreciate the answer to those questions.
        Dr. Swagel. Mm-hmm.
        Mr. Smucker. The Democrats talk about reducing deficits in
    this budget--in their budget, which is pretty bizarre when you
    look at the numbers. And I want to see if you agree with me on
    this as well.
        They are estimating a $1.6 trillion in average federal
    deficits over the next decade. Is that right?
        Dr. Swagel. That is right. That is the 10 year average.
        Mr. Smucker. Do you know what the average was in the 10
    years prior to COVID? Like we all know it was an anomaly during
    COVID, what was the average in the 10 years prior to COVID.
        Dr. Swagel. Yes, it is a good question. I don't have that
    offhand. Just before COVID----
        Mr. Smucker. It was $829 billion average.
        Dr. Swagel. OK.
        Mr. Smucker. So in the 10 years prior, not even looking at
    any, you know, numbers going up and down, they are doubling in
    the 10 years coming up compared to the 10 years prior to COVID.
    The year before COVID the deficit was $984 trillion. So how
    could the Democrats possibly credibly be saying that they are
    reducing deficits in any way?
        Dr. Swagel. So that--right. I mean the deficit is coming
    down this year as the emergency standing of the pandemic----
        Mr. Smucker. But that is only because we spent trillions--
    it is because they spent trillions and trillions of dollars
    more and now they claim that they are reducing deficit. It
    makes absolutely no sense and I think everyone can easily see
    that.
        How concerned are you with our debt-to-GDP? If you give us
    a little bit of history on where we are in debt to our gross
    domestic produce.
        Dr. Swagel. Right. So the debt-to-GDP ratio is just under
    100 percent this year.
        Mr. Smucker. How does that compare to historical average?
        Dr. Swagel. It is essentially, you know, right up there
    near where we were at the peak when we were paying for World
    War II.
        Mr. Smucker. And currently it is projected to keep
    increasing. Are you concerned about that?
        Dr. Swagel. That is right. I am concerned that the debt
    ratio by the end of the 10-year window goes up 120 percent,
    higher than ever, and the service cost more than doubles. So
    goes up to 3.3 percent of GDP just to do the annual servicing.
    And that is if interest rates are still pretty moderate by
    historical standards.
        Mr. Smucker. It is why this budget is so irresponsible, and
    I thank you for pointing that out.
        Thank you, Mr. Chairman.
        Chairman Yarmuth. The gentleman's time is expired.
        I now recognize the gentleman from California, Mr. Peters,
    for five minutes.
        Mr. Peters. Thank you, Mr. Chairman. Thank you very much
    for holding this hearing. Dr. Swagel, thanks for being here.
        Let us start with the good in this report.
        Despite the havoc the pandemic wreaked on our economy, the
    economy is fairly strong if you look at higher wages and lower
    unemployment rates. In San Diego our unemployment rate sits at
    just 3.5 percent.
        Your testimony notes that the size of the labor force,
    which in early 2022 remained 1 million people below its pre-
    pandemic level, is expected to keep increasing, exceeding that
    level by the end of 2022. And what is driving the recovery in
    the labor force participation rate?
        Dr. Swagel. You know, so it is a mix. It is got to be large
    part of that is the reopening of the economy and scientific
    progress. You know, progress with the virus. There is probably
    the strong--you know, the tight labor market and rising wages
    are leading people to come back in. It could be high inflation,
    and so this is pushing people who need more income to come back
    in as well.
        Mr. Peters. And I suppose over time that that will serve to
    address some of the supply issues in the labor market that are
    driving inflation? Don't you agree with that?
        Dr. Swagel. That is right. And that is essentially why we
    have--part of why we have inflation moderating over the next
    couple of years.
        Mr. Peters. Well, let us turn to some of the bad things in
    the report. You estimate inflation will remain elevated through
    2022 and the Federal Reserve will hike interest rates to fight
    inflation. And I commend the Fed for doing that. But at the
    same time we have to confront the consequences of rising rates.
        I am serving currently as the Vice Chair of Policy for the
    New Democratic Coalition and I helped start an inflation
    working group to identify solutions to ease inflation and ease
    the effects of inflation on families. I want to just note, you
    have mentioned immigration, you have mentioned tariffs. I also
    note that the--my colleagues on the other aisle, when they had
    control of all three branches lowered taxes for wealthy people
    in the middle of a booming economy. I am happy to work with any
    of my colleagues on anything they want to do, on any of those
    things, to get a fairer tax system, to cut back on the Trump
    tariffs, and to deal with immigration, which they have really
    left the building on. And I hear a lot of criticism, but what I
    don't hear from the other side of the aisle is answers on what
    they would like to do about this.
        Dr. Swagel, based on the Fed's current trajectory, do you
    predict inflation will slow in 2023 and 1924, but spending on
    interest payments will grow each year for the next decade? Can
    you describe in a little bit more detail on how interest
    payments will rise substantially over the next 10 years and how
    that compares to previous outlooks as a share of our total
    budget?
        Dr. Swagel. I can. So interest payments rise both with
    higher interest rates and with the increased debt. And the
    challenge is that that the--you know, the debt level has gone
    up by so much that even a pretty modest increase in interest
    rates will have a, you know, an outsize effect. You know, it is
    not immediate because, you know, we are not funding the U.S.
    debt with like 30 days T-bills. So, you know, there is some
    time period over which those debt payments go up.
        It is at 1.6 percent of GDP for net interest outlays today.
    You know, the 50 year average is like 2 percent. So we are
    actually below the 50 year average just because interest rates
    still remain moderate. And that is the challenge, that we are
    going up. We are going up to like 3.6 percent by the end of the
    10 year window, both because the debt is going up, but also
    because interest rates are going up. And interest rates in our
    projection go up kind of moderately. So that is--you know,
    essentially if interest rates go up even more than the net
    interest payments, the challenge there would get even sharper.
        Mr. Peters. I have a personal concern as a policy matter
    about continuing to spend more on interest than on the future
    of our children. Are there budget consequences for doing that?
        Dr. Swagel. Absolutely. And I mean the choice that you
    highlighted, I mean that is the choice, right. I mean we are
    going to pay the interest payments on our debt, right. And that
    is since Alexander Hamilton, that is part of the country. But
    that crowds out other priorities or it means that policymakers
    must put in place more revenue provisions.
        So it is rising interest rates and rising debt payments,
    you know, pose a challenge and a choice for policymakers.
        Mr. Peters. Mr. Chairman, I appreciate very much this
    hearing. And I would just say to my colleagues on the other
    aisle, they all know that I am interested in the deficit and
    working with them on the deficit. I would invite them to work
    with us on immigration, on the Trump tariffs, and on a tax
    system that funds this government in a way that is good for our
    fiscal health as well as for our children.
        And with that, I yield back.
        Chairman Yarmuth. The gentleman yields back.
        I now yield five minutes to the gentleman from Georgia, Mr.
    Carter.
        Mr. Carter. Thank you, Mr. Chairman, and thank you Mr.
    Swagel for being here.
        You know, I want to build off of what some of my colleagues
    have been talking about the deficit. Here we have the 2021
    deficit, the second highest in American history, was $517
    billion over CBO's estimate. Yet the Biden Administration is
    trying to tout this as a deficit reduction. I mean, honestly
    and sincerely and seriously, do you think we are stupid?
        Dr. Swagel. I don't think I should answer that question.
        Mr. Carter. OK. Well, don't answer it then, but we are not,
    I will tell you. It is just ridiculous.
        You know, here we have the $2.78 trillion deficit. That is
    almost three times the average trillion-dollar 10-year average
    deficit. And yet, they are saying it is a deficit reduction. It
    just baffles me that someone could possibly even think that or
    say that.
        But let me ask you this. What was the largest contributor
    to the deficit growth between last year's projection and this
    year's?
        Dr. Swagel. So, there was some legislation that was
    enacted. It was both the Investment Infrastructure and Jobs Act
    and then the Fiscal Year 2022 appropriations that were passed
    earlier this year. And so that was new spending. Some of that
    shows up this year. And that was offset by increased revenues
    and then, of course, the pandemic-related spending that fell
    away. So, that is where the--I will just say that is why the
    deficit falls from--it was $2.8 trillion last year to $1
    trillion this year, the combination of essentially the pandemic
    spending falling away and then some increased revenues.
        Mr. Carter. OK. Well, let me ask you this. Has the
    Administration or the Democratically controlled Congress,
    either one of them, have they taken any steps to stabilize our
    debt or to deal with the dramatic disparity that we are
    witnessing right now between our growing spending and the
    revenues that fail to cover that spending?
        Dr. Swagel. I mean, the fiscal trajectory is challenging
    and so that, you know, that is essentially I think the message
    of the report we released yesterday, that choices need to be
    made. It is not--you know, not that this year there is going to
    be crisis. Maybe not even by the end of the 10 years. But the
    trajectory is challenging and will drive the need for choices
    to be made.
        Mr. Carter. We all know that inflation has gone up every
    month--every month--since this President has been in office. I
    guess you could make the argument maybe a tick down a couple of
    points or a couple of tenths of a point last month. It went
    from 8.5 to 8.3, but I can assure you, you are going to see it
    go back up again this month. But every month. When Joe Biden
    went into office, when this President went in office, the
    inflation rate was 1.7 percent. Now here we are at 8.3, 8.5
    percent.
        You know, we don't have a revenue problem. What we have got
    is a spending problem. But let me ask you this. How much do you
    think we need to reduce the deficit to stall inflation?
        Dr. Swagel. So, some of that is in the works with the
    reduction in--you know, the falling of pandemic-related
    spending. And the amount in substance of contractionary, you
    know, impulse that is needed to reduce inflation, it is going
    to depend on the success of the Fed's efforts and also on the
    supply constraints falling away.
        So, it is not clear. I can't give you a single number of
    what needs to be done on the fiscal side because it depends on
    the Fed and on what happens with the supply side.
        Mr. Carter. Let me ask you something. Inflation was at 7
    percent in 2021 and it was at 8.3 percent over the last 12
    months and it is running at an 11 percent pace so far this
    year. The last time we experienced this kind of inflation, the
    effective interest rate on the debt was 10.8 percent. How does
    that limit our ability to reduce our debt?
        Dr. Swagel. No, it is an important challenge that as
    interest rates go up, given the increase in the debt level,
    that means that net interest outlays will rise as a share of
    the budget and a share of the economy. And that is going to
    crowd out other things or require action to raise revenues. And
    so we have a pretty moderate increase in interest rates and
    that already has a pretty substantial rise in spending to
    service the debt.
        Mr. Carter. And correct me if I am wrong, but we had a .5
    percent increase in the interest rate by the Federal Reserve,
    which resulted in $29 billion interest, an increase of $29
    billion interest just like that.
        Dr. Swagel. Right.
        Mr. Carter. And don't think that the interest rate isn't
    going to go up again. It is probably going to go up two or
    three more times at that rate. And how much is that going to
    cost us?
        Dr. Swagel. And we have----
        Mr. Carter. I am sorry, I am out of time. But what is it
    going to take? What is it going to take to get people's
    attention at what is going on here?
        Chairman Yarmuth. Is that a rhetorical question of the
    gentleman?
        Mr. Carter. No, no, it is a real question. And maybe you
    could followup in writing for me. Tell me what it is going to
    take because I really need to know.
        Mr. Chairman, I appreciate your indulgence and I yield
    back.
        Chairman Yarmuth. That is all right. The gentleman's time
    has expired. I now recognize the gentleman from Pennsylvania,
    Mr. Boyle, for five minutes.
        Mr. Boyle. Thank you, Mr. Chairman. I know it is tempting
    to get into the usual partisan food fight and score points. I
    am going to use my precious five minutes that I have with
    someone as esteemed as you for perhaps a better purpose.
        And I am struck, Mr. Swagel, that whenever I am with
    colleagues of mine, fellow parliamentarians from around the
    world, especially in Europe, obviously right now the Russian
    invasion and attack on Ukraine is paramount, but a close second
    to that is every one of my colleagues is speaking about the
    inflation going on in their country. It is pretty much a
    worldwide issue, so hardly something we are dealing with in the
    U.S.
        So, I was wondering if you could take a step back and maybe
    just give us the lay of the land internationally, and
    especially in other Western democracies, at what inflation
    looks like for those countries.
        Dr. Swagel. OK. No, very good and I can speak to that. And
    that affects the U.S. because the, you know, the condition of
    foreign countries affects us, you know, both China and their
    lockdowns there and what it does to our supply side and then
    demand in other countries for U.S. exports. So, other countries
    are suffering from some of the same factors as we are. And I
    talked about earlier that the Ukraine-related shock on food and
    energy, and, of course, Europe is much more affected by the
    negative effects of the energy shock there.
        So, inflation has risen for all countries. You know, for
    the U.S., I mean, the U.S. is first, so it does look like we
    had something different last year: the combination of the
    supply issues in the U.S. and the demand in the U.S. It made us
    go first. And so, you know, that is a factor and more recently
    all countries are facing similar challenges together.
        Mr. Boyle. Yes. My Belgian colleagues tell me theirs is
    over 8 percent. A French parliamentarian who I am friends with
    I think pegged it at 7 \1/2\. So, obviously, this is a
    challenge worldwide.
        Do you think one of the lessons coming out of COVID is--
    well, you will see this is a bit of a leading question, but
    something I have been pushing for a number of years now is to
    increase domestic manufacturing both for economic reasons, but
    also in terms of our national security. Do you believe now that
    coming out of the COVID experience the argument for that is
    strengthened? And maybe you could even talk about some other
    critical parts of our supply chain that we now realize are
    really at risk, and COVID helped expose that.
        Dr. Swagel. Right. I can talk about a couple dimensions
    and, of course, there are many dimensions to this. It is almost
    the closer you get to it, the more dimensions there are. It is
    fractal I think is the word for that.
        And so we have seen the supply chain issues that bedeviled
    the U.S. economy even from the very beginning of the pandemic.
    And, of course, items produced in the U.S., those supply chains
    have been more resilient. But even there, you know, issues with
    the labor supply have affected the U.S.
        I think we all understand now the impact of, you know, some
    of the critical supply chains, like in medicine and, you know,
    other critical issues, relying on foreign countries is
    difficult. And, of course, not every foreign country is the
    same, so there is an important discussion to be had there
    about, you know, about our trade alliances.
        And then last, obviously, what has happened with infant
    formula, right, there is ample supply, global supplies of safe
    and nutritious formula. It is the U.S. that, in some instances,
    you know, we have inflicted the problem on ourselves. And so it
    is--you know, it is sort of--it is just a different wrinkle on
    the supply chain.
        And so absolutely, it is coming out of the pandemic. I
    think we all understand we need to focus on this more as an
    economic impact, a fiscal impact, and, of course, the impact on
    families.
        Mr. Boyle. Yes. One thing, in speaking to a pretty
    prominent economist, Ian Stephenson, he believes that inflation
    is going to be a challenge for the rest of the year, beginning
    to come down next spring. And once it drops, dropping pretty
    precipitously, you talked about this way back in the beginning,
    but I was wondering if you could just kind of offer your
    thoughts on that timetable, where you agree, disagree.
        Dr. Swagel. Yes. So, we the supply issues facing the
    country generally waning over the course of this year. I talked
    earlier about the labor supply, that is one. We see some of the
    trade supply issues, the situation at some of the key U.S.
    ports looks to be getting better. You know, the China lockdowns
    don't yet seem to be affecting their exports too much, so that
    is supporting our expectation that inflationary pressures will
    diminish over the course of the year.
        And then, of course, you know, as we have discussed a
    couple times, the, you know, demand side pressures driving
    inflation will diminish as well, both from what the Fed is
    doing and from fiscal policy, the pandemic spending falling
    away.
        Mr. Boyle. Well, thank you. It is always a pleasure to be
    with you. Thank you.
        Chairman Yarmuth. The gentleman's time has expired. I now
    recognize the gentleman from Virginia, Mr. Cline, for five
    minutes.
        Mr. Cline. Thank you, Mr. Chairman. I want to thank
    Director Swagel for being here today as well.
        Despite the last update of inflation being 8.3 percent,
    CBO's new economic baseline projects a rate of only 5.1 percent
    in this quarter. I think everyone would prefer if inflation
    really were only 5.1 percent. Obviously, however, CBO is
    underestimating the level of inflation.
        We all know that the assessment of our fiscal future is
    sensitive to inflation. You have inflation going down over the
    next year quite a bit. Can you talk about if inflation does
    stay at the rates that we are seeing now, the impact that that
    would have on families, particularly, you know, those who are
    working on fixed incomes?
        Dr. Swagel. Absolutely. The inflation we have seen already
    poses an important challenge for families. It means that family
    incomes just don't go as far. And so even though wages are up,
    nominal wages are up, crises are up by more, and so most
    Americans over the past year have seen their real take-home pay
    go down. And if that continues, as you say, that would continue
    to pose an important challenge for families.
        Mr. Cline. Now, we are expecting federal deficits to exceed
    $2 trillion by 2031 and 2032, going on in perpetuity. The
    President's budget does nothing to address these deficits going
    forward, does nothing to move us toward fiscal responsibility
    or a balance in any way. And this represents a huge crowding
    out of private investment and economic growth. How would you
    say that that, these recurring deficits, are going to impact
    the fiscal futures for American families as well?
        Dr. Swagel. Oh, it is through the mechanism that you have
    highlighted is an important one, that the deficit over time, as
    it gets larger, crowds out private spending, private
    investments. And that leads to higher interest rates. And
    otherwise, that affects American businesses, American families,
    it affects job creation, it affects productivity.
        You know, again, in our forecast it is not a crisis. We
    don't have a recession in our forecast. But it is more like a
    slow undermining of the foundation of success for the American
    economy.
        Mr. Cline. And CBO is also expecting the Fed to reduce its
    holdings of federal debt by roughly $2 trillion over the next
    three years. This would also contribute to that crowding out of
    private investment. The last time the Fed promised to reduce
    its holding of federal debt it only offloaded about $750
    billion, leaving its assets 300 percent larger than before the
    2008 financial crisis.
        Do you really think that the Fed will reduce its assets by
    this much and stop facilitating massive federal deficits?
        Dr. Swagel. So, in our economic forecast, we have the Fed,
    as you said, reducing, you know, its asset holdings.
    Essentially it is going from quantitative easing to
    quantitative tightening, and that is pushing up long-term
    interest rates. I mean, and essentially that is by design. The
    Fed is trying to reduce demand in the economy to reduce
    inflationary pressures. But, you know, that has an impact. It
    has an impact on families and on businesses.
        And, you know, of course, the challenge for the Fed is
    getting that right and reducing inflation without excessive
    negative effects on families and businesses.
        Mr. Cline. You know, the government is repositioning and
    implementing more of this pseudo socialist ideology that the
    current Administration and the current congressional leadership
    is promoting. The government right now spends $4 on wealth
    redistribution for every dollar that it spends on government
    services. This uptick represents, as I said, a decades-long
    shift of the government moving closer to this pseudo socialist
    dystopia of the left.
        Does the CBO have a position on this trend and increasing
    use of government to redistribute wealth as opposed to support
    economic growth?
        Dr. Swagel. OK. I would say that the transfers that you are
    pointing to are part of the fiscal challenge, that, you know,
    as we go out further, right, we have debt-to-GDP going to 110
    percent by the end of the 10-year window, to 185 percent out in
    30 years. And that is driven overwhelmingly by mandatory
    spending, by Social Security and Medicare.
        Now, of course, CBO doesn't have a position on what the
    right spending is, you know, how much or for what. But it is
    just the budget arithmetic that the fiscal challenge is being
    driven by mandatory spending.
        Mr. Cline. And does the budget do anything to address this
    increase in mandatory spending?
        Dr. Swagel. No, our projection is current law. So, current
    law has this very challenging fiscal trajectory.
        Mr. Cline. And that is the greatest tragedy of this
    Administration. Thank you. I yield back.
        Chairman Yarmuth. The gentleman's time has expired. I now
    recognize the gentleman from Iowa, Mr. Feenstra, for five
    minutes.
        Mr. Feenstra. Thank you, Chairman Yarmuth and Ranking
    Member Smith. And I want to thank Dr. Swagel for being here.
        My question is on pages 31 and 32 of your analysis you
    mention that ``the expiration of the temporary provisions of
    the 2017 tax act, including the expiration of most of the
    provisions affecting individual income taxes at the end of 2015
    and the phaseout of bonus depreciation by the end of 2026, is
    projected to temporarily slow down the economic growth.'' That
    is a real concern to me.
        Looking at the economic growth rates, you project after
    2025. Do your projections consider the damage to the economic
    growth and opportunity that would accompany an increase in the
    federal tax burden from the expiration of these tax and job
    cuts? Could you answer that?
        Dr. Swagel. Oh, yes, we do. So, we have the 2018 CBO's
    analysis showed the impact of the 2017 tax act in boosting
    economic growth, boosting business investment and growth, and
    concomitantly the expiration of the individual side provisions,
    we had that as reducing growth. That economic growth and job
    creation, that is in our baseline.
        Mr. Feenstra. OK. So, that is very significant. I mean, if
    those go away, if those tax cuts go away, I mean, this could be
    a pretty significant reduction in economic growth. Is that fair
    to say?
        Dr. Swagel. There is a slowdown. In our baseline we assume
    that the Fed would react to it and cut interest rates. So, that
    is why the, you know, the baseline has some sort of, you know,
    a modest slowdown. That is because we are anticipating that the
    Fed would react to it, that the Fed would see it coming and
    react to it in part.
        Mr. Feenstra. Right.
        Dr. Swagel. But there would be an economic impact.
        Mr. Feenstra. Yes, thank you. I am glad you said that.
    There would be truly an economic impact.
        I want to transition over to the forecast that you stated
    on our trust funds. And they are set to expire in the next
    several years. We have got some real problems. And I understand
    the CBO is required by law to assume that the trust funds will
    make full payments after they expire. However, on page 127 of
    your report, it notes all active trust funds, including Social
    Security, Medicare Part A, and highway trust funds, are
    projected to ultimately increase the debt by $14 trillion over
    the next 10 years.
        Director Swagel, can you explain to the committee the
    seriousness of not mitigating the spending costs of these
    programs and the catastrophic effects that could exist if we
    don't start looking at these programs and how to fund them as
    we move forward?
        Dr. Swagel. No, absolutely. And in substance the trust
    funds represent the fiscal challenge not being over the
    horizon, but really right in front of us. Right? The trust
    funds in some sense are accounting devices that redeem the
    special purpose bonds. And the trust funds, the Treasury has to
    raise revenue just in the same way it does to fund any other
    spending. And so that is--that table is table B-2 on page 127.
    As you mentioned, that shows the, you know, the deficit impacts
    of the trust funds over the next 10 years and it is $14--it is
    nearly $13.8 trillion, nearly $14 trillion.
        Mr. Feenstra. Yes. This to me is so serious. And
    unfortunately, the Administration and the majority party are
    not even taking a look at this. And it is something that we
    just got to get our arms around.
        One other thing, it was stated yesterday that the U.S.
    economy contracted 1.5 percent on its annualized basis in the
    first quarter of this year. The downgrade revision of the GDP
    to me is very concerning. And it was noted that the contraction
    was partially attributed to the U.S. spending more on imports
    with us reducing U.S. exports, or on domestic goods. The
    Administration has clearly shown that trade is not a priority.
    It has not filled a lot of the trade positions and, in that
    sense, has not effectively completed any unilateral or
    bilateral trade deals.
        Can you explain how critical trade is to our economic
    growth as we move forward?
        Dr. Swagel. No, absolutely. And trade is a critical part of
    our economy, as you said. You know, it is important factor in
    what happened in the first quarter.
        We see some of that unwinding over the rest of the year. We
    expect a bit better growth in other countries. That should
    boost our exports. But over time, trade is a critical factor in
    the U.S. in supporting growth, in leading to lower inflation,
    and also boosting productivity. Right? Larger markets mean--you
    know, through trade, help American firms, whereas, you know, a
    greater variety for American households, you know, boosts their
    choice and lowers their prices. And that is trading.
        Mr. Feenstra. Absolutely. And I appreciate, Director, what
    you are saying. I mean, trade is so critical. And just again,
    it doesn't seem like this Administration has a handle on it,
    doesn't care about it, doesn't fill positions. It is not doing
    any bilateral or unilateral trade deals. I am just so
    disappointed there.
        So, thank you and I yield back.
        Chairman Yarmuth. The gentleman's time has expired. I now
    recognize the gentleman from Virginia, Mr. Good, for five
    minutes.
        Mr. Good. Thank you, Mr. Chairman. Thank you for your
    testimony, Director Swagel. Thanks for your appearance today.
        I find it interesting, if not surprising, that not many of
    our members in the majority want to participate today and
    defend the disastrous economic record of this Administration,
    let alone its proposed budget, which it obviously exacerbates
    the problems we have. It is interesting the only call for
    bipartisanship I have heard from Democrats in my first term is
    during this hearing because they don't want to hear from
    Republicans on the disaster that they have created
    economically.
        Director Swagel, if Democrats were trying to ruin the
    economy, if they were trying to do that, what would they have
    done differently on spending, on energy, paying people not to
    work, growing the welfare state, firing people for not getting
    vaccines, closing or making it hard for businesses to operate,
    suspending rent and student loan payments, and continuing other
    COVID mandates and so forth? What might you do differently if
    you were trying to ruin the economy over the past year and a
    half?
        Dr. Swagel. I mean, in our baseline you can see the effect
    of the supply challenges that are facing the economy. And, you
    know, with the labor participation, people not coming back, you
    know, in part that is because of health reasons. And so
    anything that would get people to come back into the labor
    force, that would support greater supply and a stronger economy
    with lower inflation.
        Mr. Good. Yes. I just can't imagine you doing anything
    differently if you were trying to ruin the economy than what
    they have done this past year and a half. Do you think
    Americans can afford the President's continued pursuit of his
    Build Back Bankrupt plan? Or maybe said differently, how much
    worse off would we be if they were successful in passing the
    unprecedented $5 trillion worth of spending last fall?
        Dr. Swagel. You know, of course, CBO won't, you know, won't
    evaluate the merits or demerits of policy. We won't tell
    Members what to do. The deficit reduction we have seen this
    year is under current law. And so if there is additional
    spending that would go in the other direction of deficit
    reduction.
        And now that could have implications for inflation as well
    that, you know, has been widely understood, that, you know, the
    lower deficit means some fiscal constraints and that is
    reducing inflation along with the actions of the Fed. And so
    additional spending would go in the other direction. Of course,
    the details would matter, but, broadly speaking, that would
    have an effect on inflation as well.
        Mr. Good. Thanks for bringing up the deficit. I know others
    have talked about that already today. But, you know, the
    Administration is claiming a deficit reduction, as you know, of
    a trillion dollars or so. But, as you know, they are not going
    to stop with the spending. The Democrat majority here is not
    going to stop with the spending. There are going to be more
    they are going to try to get through, to try to get more of the
    Build Back Bankrupt plan through piecemeal or what have you.
        But last year's deficit was $2.8 trillion. Obviously, an
    abnormally high number under the disastrous American Rescue
    Plan. Do you think it is physically
        [sic] responsible to overspend by a trillion dollars even
    what they are projecting even right now?
        Dr. Swagel. I mean, the deficit is large under current law
    and that has important economic effects. Right? That leads to
    higher interest rates and higher inflation and that would, you
    know--a wider deficit would make those challenges even greater.
        Mr. Good. During the State of Union the President said that
    to combat inflation that businesses should just lower their
    costs, demonstrating I think a fiscal or economic illiteracy
    there. He has also accused them of price gouging, businesses
    are just price gouging and that is what is causing inflation.
    He and members of the Administration have said that.
        Do you think that businesses--do you hold the view that
    businesses are really kind of too dumb to understand that they
    should be trying every day to lower their costs and they don't
    really do that? Or do you think that they don't understand that
    they compete by the lowest cost possible? Do you hold to that
    view that has been expressed by the President and some members
    of the Administration?
        Dr. Swagel. So, I would tell you our baseline projection
    assumes that businesses--builds in the assumption that
    businesses are doing their best. They are trying to lower
    costs, they are trying to sell more, and help their customers.
    And so we don't have price gouging in our baseline. That is
    just not----
        Mr. Good. Thank you. I wouldn't think that you would and I
    appreciate that answer on that.
        Do you think that the--can you confirm the overspending
    doesn't contribute significantly to inflation in your view?
        Dr. Swagel. You know, there I would have to go back to what
    I said before, that it is a mix. It is together it is the, you
    know, the substantial demand, including for fiscal policy,
    together with the supply constraints.
        Mr. Good. Let me interject just for a second because, as
    you know, the President's budget has proposed a massive
    increase over the next 10 years on spending, admittedly. What
    is that going to do to inflation and prices going forward? And
    I will just let you finish with that.
        Dr. Swagel. OK, sure. No, I see the clock. I will be quick.
        You know, we have inflation coming down in our forecast
    with, you know, fiscal constraints, with the actions of the
    Fed, and supply challenges waning. Deviations from that would
    feed into higher inflation. We haven't yet analyzed the
    President's budget. We will actually have that later in the
    summer, so, you know, stay tuned.
        Mr. Good. Well, we look forward to that analysis, but thank
    you. Thank you, sir. Thank you, Mr. Chairman. I yield back.
        Chairman Yarmuth. The gentleman's time has expired. I now
    recognize the gentlewoman from Texas, Ms. Jackson Lee, for five
    minutes. Unmute, please.
        Ms. Jackson Lee. I did it again, as they say. Let me--Mr.
    Chairman, thank you.
        Chairman Yarmuth. I have already done it once during the
    hearing myself, so.
        Ms. Jackson Lee. I did hear, so I feel like I am in good
    company. But let me thank you for this hearing and as well
    thank the budget Director, Dr. Swagel.
        Let me indicate to my colleagues I am actually in the
    middle of a memorial for Uvalde. We are all overwhelmed here in
    Texas, so it is not that you live in Uvalde. It is that you
    live in Texas. And we are all broken and we know the nation is
    praying for these families. So, I thank you for yielding to me
    at this time.
        Dr. Swagel, I am going to ask one-answer questions, so that
    I can get an overview of the direction in which I wish to go.
    First of all, let me ask the question in your economic life
    have you seen the economic impact of a pandemic? Have you been
    through, have we been through in the last 50 years, short of
    wars, a pandemic of this sort where the economy was practically
    shut down?
        Dr. Swagel. This is--the pandemic is unprecedented in our
    lifetimes.
        Ms. Jackson Lee. So, we are looking at an economy that is
    now in the midst of or in the aftermath of an unprecedented
    moment in history and an economic unprecedented moment. Is that
    not--yes or no?
        Dr. Swagel. Oh, I think that is fair to say, absolutely.
        Ms. Jackson Lee. And then is the economy performing better
    than previously assumed in comparison to--as it relates to the
    baseline in comparison to the February 2021 baseline?
        Dr. Swagel. Yes, the output is higher and the unemployment
    rate is lower than what CBO had previously had in our last
    update.
        Ms. Jackson Lee. And that was before--that baseline was
    before the American Rescue Plan?
        Dr. Swagel. That is correct.
        Ms. Jackson Lee. And so projections on growth and
    employment now, are you assessing that they are more positive?
        Dr. Swagel. Yes, we have stronger economic. We have
    increased employment. There is also high inflation, so, yes,
    the picture is complex. But the American Rescue Plan certainly
    contributed to stronger growth and stronger employment gains.
        Ms. Jackson Lee. And have we had more jobs created in the
    last year? My understanding is 8.3 million jobs created since
    President Biden took office.
        Dr. Swagel. Oh, yes, the rebound from the pandemic over the
    last year has meant, again, an unprecedented number--an
    unprecedented increase in employment in the U.S. economy.
        Ms. Jackson Lee. Let me quickly move to a history lane.
    One, the Bush tax cut that came after President Clinton and now
    the tax cut that was done under President Trump, did that
    create an increased deficit in spite of the celebratory
    attitude of my Republican friends? Did that Trump cut in
    particular create a deficit?
        Dr. Swagel. Yes, the CBO analysis from April 2018 goes into
    the fiscal and economic impacts of the 2017 tax act. And we had
    that as increasing the deficit.
        Ms. Jackson Lee. Is the good news is that in 2022 we expect
    a trillion-dollar deficit down from $2.8 million
        [sic] in 2021?
        Dr. Swagel. That is right, down from $2.8 trillion. It is a
    $1.8 trillion decrease in the deficit from last year to the
    current year.
        Ms. Jackson Lee. And in spite of the issue of inflation,
    which we are concerned about for my families, my working
    families, we are not ignoring it, the economy is moving along?
    What is your assessment?
        Dr. Swagel. Yes. So, we have a continued recovery from the
    pandemic that real economic growth and job creation is very
    strong with the tight labor market this year.
        Ms. Jackson Lee. Let me just ask an employment question and
    that is we have jobs. Let me mix this with have you give an
    assessment. So, let me ask, I would like an assessment of a
    comprehensive immigration program, meaning legislation that
    Congress would have to plan for, access to citizenship, for
    green cards, et cetera. Have you had that analysis done? I am
    asking that analysis be done on a comprehensive immigration
    plan as to its infusion of dollars into the economy and also
    employment. Would it impact employment negatively? Do we have
    jobs in the United States now?
        Dr. Swagel. You know, it is important question. The CBO did
    a fiscal analysis for the immigration provisions in the Build
    Back Better Act. That was narrow relative to your question
    because we focus on the fiscal impacts. And it has been some
    time since CBO did the wider economic impact and, you know, the
    contributions of immigrants to the economy to jobs, to, you
    know, to culture and society, entrepreneurship, innovation.
    That is something we can do. We haven't done it for a while,
    though.
        Ms. Jackson Lee. Are you saying it would have a positive
    impact? I didn't get your point.
        Dr. Swagel. It would, yes. Yes. And this is--CBO's past
    analysis has shown this, that immigrants contribute to the
    economy both economically, fiscally, through, you know, through
    innovation, entrepreneurship. They create businesses, they hire
    other people. Their children make contributions, their
    grandchildren. And that is--those are effects that CBO has
    analyzed in the past.
        Ms. Jackson Lee. So, as President Biden, we have managed to
    survive an historic moment that we have never expected that we
    would be in. Dr. Swagel, as my time closes, Dr. Swagel?
        Dr. Swagel. Yes.
        Ms. Jackson Lee. Can you----
        Dr. Swagel. It has been an absolutely unprecedented moment.
    I am in solid agreement with you.
        Ms. Jackson Lee. OK.
        Chairman Yarmuth. The gentlewoman's time has expired. I now
    recognize the gentlewoman from Iowa, Ms. Hinson, for five
    minutes.
        Mr. Hinson. All right. Thank you, Mr. Chairman, for holding
    this hearing today. And I apologize if you are hearing some
    banging. We are finally having work done on our house two years
    after a major storm, so.
        Director, thanks so much for the work you do. The CBO
    obviously provides such an important role for us as Members of
    Congress with the legislation that we are considering. And with
    the runaway spending coming out of this Congress combined with
    the historically expensive proposals that we have seen from the
    Biden Administration, I know you have had your work cut out.
        The baseline in front of us today makes it very clear.
    Under this Administration costs are on the rise. Our debt has
    surpassed $30 trillion. Interest rates are rising. Your
    baseline projection back in February of last year was 2 percent
    average inflation. And as you know, we are well past that
    today. Democrats to say the solution to this is to just spend
    more money and grow government. Well, President Biden wants to
    spend another $4.9 trillion on the Build Back Better agenda. It
    is Build Back Broke. And the out-of-control spending is why we
    are seeing the numbers in front of us today.
        I have held a town hall in each of the 20 counties that I
    represent in Iowa and there was a common theme across all of
    Northeast Iowa. It is that rising costs are the number one
    concern that I hear from my constituents here in Iowa.
        Families are truly struggling to make ends meet and we have
    to get our fiscal house in order. You know, working moms that
    have to choose right now between filling up their tank and
    putting food on the table; the restaurant owner who is seeing
    those chicken wings rise in price, double in price, and they
    have to pass that on to their customers. Grandparents are on a
    fixed income. They are worried about making rents. And those
    folks have been left behind by what is happening with our
    economy, which is, again, a direct result of the decisions made
    by the majority party in Congress and the President in White
    House.
        When OMB Director Young testified in front of this
    Committee on the President's budget I asked her last year were
    they thinking inflation was going to be transitory. She said
    yes, and they weren't considering the impacts of inflation.
        Then I asked her this year how they are projecting 2.3
    percent inflation in 2023 and beyond. And the Administration
    believes that, again, it would be transient and did not need to
    be accounted for the longer term.
        Well, clearly, it has not gone away. Your baseline does say
    that that will continue into 2023, but what does CBO account
    for here as far as inflation goes that the Administration is
    ignoring?
        Dr. Swagel. So, our baseline is based on current law. So,
    we have, you know, just the fiscal policy in place. Additional
    fiscal action would, you know, put additional upward pressure
    on inflation. And so that is the thing that we don't have.
        Mr. Hinson. So, you know, when you talk about this, this is
    a miscalculation and I think the American people--if a small
    business had to budget this way, they would be out of business.
    And so when I look at this miscalculation by OMB, it really
    does affect their ability to make accurate projections and so
    that is a huge concern for me.
        So, I would ask you what measures of the economic outlook
    does inflation impact the most?
        Dr. Swagel. Oh, OK. No, it is important question. So, there
    is three measures. So, first is on the spending side, there is,
    you know, both what we call the primary deficit, so spending
    on--you know, everything the federal government spends on,
    Social Security benefits, I talk about jet fuel for the
    military, you know, home healthcare aides, all the things that
    the federal government directly or indirectly spends on,
    inflation raises the cost of that.
        Inflation raises the cost of the net interest payments as
    well, the government servicing its debt. You know, higher
    inflation means higher interest rates, higher payments to the
    federal government.
        Inflation does also mean more revenue. And so, you know,
    because we tax, we tax essentially nominal, inflation
    translates into higher revenues. The net is interest. The net
    shows that the interest rates are the--this is the danger, that
    higher inflation leads to a worsening deficit because of the
    higher interest rates and higher interest payments.
        Mr. Hinson. So, because of these changes and fluctuations
    in the economy, they have, in essence, impacted your
    projections, I am assuming, with your last baseline. So, can
    you kind of delve into that a little bit, how those have
    changed?
        Dr. Swagel. OK. No, absolutely. Compared to--you will see
    that over the 10-year outlook, the 10-year outlook has gone
    from--it is just over $12 trillion to over $14 \1/2\ trillion,
    and so revenue has gone up. So, this is, again, looking at 10
    years, we see it as revenue, you know, going up on more than--
    it is like $3.4--an initial $3.4 trillion. Its outlays go up by
    more. And part of that is legislation, part of that is the
    economic effects, such as higher inflation. And that is what is
    driving the increase on deficits going from $12 trillion to $14
    \1/2\ trillion over the 10-year horizon.
        Mr. Hinson. All right. Thank you, Director. And I see I am
    out of time. Mr. Chairman, I yield back. Thank you.
        Chairman Yarmuth. The gentlewoman's time has expired. I now
    recognize the gentleman from Texas, Dr. Burgess, for five
    minutes.
        Mr. Burgess. Thank you, Chairman. And, Director Swagel,
    thank you for being here today. Thank you for talking to me
    earlier this year. In fact, the Chairman mentioned that the
    budget that we have before us, the subject of this hearing is
    late this year. He has described it as a little late. Three
    months is probably significantly late in anyone else's book.
    Tell us again why the delay for the CBO baseline this year.
        Dr. Swagel. OK. No, very good. So, essentially it has three
    different pieces to it.
        One was that we normally would have done an update in
    January. The people who would have done that were busy with the
    analysis on Build Back Better. And just between those two
    priorities we could not do the update in January.
        Mr. Burgess. May I just interrupt you there?
        Dr. Swagel. Yes. No, please, please.
        Mr. Burgess. It seems like that would be--if you were
    primed to properly price and project the cost of a major
    spending bill, a major spending reconciliation bill, you would
    at least want to have your baseline set or you would at least
    prioritize to continue to work on setting the baseline before
    you proceeded with another massive spending project if you were
    truly concerned about the effect of--or the budgetary impacts
    of what you were doing. Would I be wrong to make that sort of
    assumption?
        Dr. Swagel. I mean, you know, of course, the latest
    information would be helpful and we try to be as helpful as we
    can to policymakers. But that Build Back Better delay, that is
    the first event. There is three components to the delay that we
    faced. I can go into the other two quickly.
        Mr. Burgess. Can you do it briefly?
        Dr. Swagel. Oh, yes, very quickly I will say it. So, the
    second is the Fiscal Year 2022 appropriations, that those were
    delayed as well. And then the third is that the President's
    budget, the submission of that was delayed and so we get
    information on last year's actual spending when the President
    releases the budget. And so it was those three--those three
    components pushed our baseline--our economic update back until
    yesterday.
        Mr. Burgess. So, two on the White House and one on the
    Congress that kept you from begin able to do your job. But when
    we spoke earlier in the year, you suggested to me that the
    strength of the economy going into the pandemic was much
    stronger than you had anticipated. Did I understand that
    correctly?
        Dr. Swagel. That is correct, that the economy in early 2021
    as compared to the forecast that we put out in early 2021, the
    economy is stronger, that people are coming back into the labor
    market and the impact of the fiscal policy that had been
    undertaken I think is more impactful than we understood at the
    time.
        Mr. Burgess. And just to be clear, this is fiscal 2021, so
    actually starting October 1st of 2020?
        Dr. Swagel. That is right. I am thinking of there is a CAA
    that--an appropriations act that was enacted at the end of 2020
    had essentially more economic impact payments, the rebate
    checks put back some--expanded unemployment insurance and some
    other things like that.
        Mr. Burgess. Another thing you related to me was that the
    amount of tax collections were stronger than you had
    anticipated and it looks like from your report that you are
    delivering us today that that has continued. Is that correct?
        Dr. Swagel. That is right. That continues to be the case as
    both from the economy is stronger. There is some timing shifts
    that, you know, with the pandemic legislation, you know,
    delayed some taxes. We are seeing some of that come back now.
    You know, even beyond that, tax revenue is strong.
        Mr. Burgess. Well, let me ask you this. When you report a
    reduction in the deficit is that largely because the strength
    of the income tax collections were stronger than what you
    anticipated?
        Dr. Swagel. You know, it is a mix that compared to our
    previous analysis that----
        Mr. Burgess. But how much of that mix was increased tax
    revenues? We were all told that it was a trillion-dollar
    giveaway to the millionaires and billionaires according to
    Chairman Sanders. So, what is the deal here?
        Dr. Swagel. So, I will tell you, in our--if you compare the
    projection we made in 2020--for 2022, right, so we are saying
    it is a trillion dollars is what we are saying now, we
    previously thought it would be $1.2 trillion. And that is the
    mix that revenue is about $400 billion stronger than we
    anticipated, spending is----
        Mr. Burgess. Yes, it is an important number, $400 billion
    stronger.
        Dr. Swagel. That is right.
        Mr. Burgess. And that is pretty significant. Look, do you
    stress test this stuff? We require banks to stress test their
    projections, their balance sheets. Does any of your modeling
    require stress testing, what is happening with the United
    States economy, with the spending of the Biden Administration?
        Dr. Swagel. No, absolutely. And it is something that we
    think about, I think about, in terms of what could go wrong?
    And we have done some of this work. We had recent work that we
    did for Senator Crapo and the Finance Committee on what is the
    effect, the physical effect, of higher inflation? We looked at
    two different scenarios. We are continuing to do some of that.
    What is the effect of higher inflation and higher interest
    rates? What would it mean for the economy and what would it
    mean for the fiscal situation? I am hopeful that we will have
    more on that later this year.
        Mr. Burgess. Well, I hope to followup with you on that.
    Thank you very much. I just wanted to ask.
        Chairman Yarmuth. Yes. The gentleman's time has expired. I
    now recognize the gentleman from California, Mr. Obernolte, for
    five minutes.
        Mr. Obernolte. Thank you, Mr. Chair. Dr. Swagel, thank you
    for the update on the outlook. I would like to talk about some
    of the alternative policy solutions that you have examined in
    the outlook and how those fit into the long-term budgetary and
    economic outlook that the CBO issued a few months ago.
        Now, in the long-term outlook, if I am recalling correctly,
    you expressed some grave concerns that by the end of the
    forecast period on the path that we were on that net interest
    outlays would exceed 8 percent of GDP, would consume over half
    of all federal tax revenue, and that if interest rates
    increased in response to inflation, that would get much worse.
    And that sometime between now and then something would have to
    be done to get the deficit under control. Am I understanding
    that right?
        Dr. Swagel. No, that is right that the fiscal trajectory
    is, you know, is challenging now, but the longer we go--the
    further we go out, it gets more challenging. We will have
    another update of that at the 30-year horizon later this
    summer, I am hoping in July. It will get more difficult,
    honestly, but we will argue that.
        Mr. Obernolte. OK. So, in this outlook that we are
    discussing in this hearing you examine a couple of different
    policy alternatives and you analyze their impacts on the
    deficit. And you have got a table that summarizes it, the ones
    that increase the deficit, the ones that reduce the deficit.
    Can you tell me which of those policy scenarios actually have
    a--result in a declining deficit over the course of the
    forecast period?
        Dr. Swagel. So, we did, you know, we did a range of
    alternative scenarios, some with higher spending and some with
    lower spending. One of the ones that has a lower path of
    spending freezes appropriations at the current level, and that
    reduces the deficit. You know, we looked just--in that, that
    was just appropriations, which, of course, is not the biggest
    part of the----
        Mr. Obernolte. It is discretion----
        Dr. Swagel [continuing]. deficit challenge.
        Mr. Obernolte. Yes, discretionary spending I think you call
    it in the document.
        Dr. Swagel. Yes, exactly, exactly.
        Mr. Obernolte. OK. But if I am reading it right, although
    it reduced the deficit over the baseline, it did not reduce the
    deficit on an absolute basis. Is that correct?
        Dr. Swagel. No, that is correct.
        Mr. Obernolte. OK. So, let me ask again. Which of these, on
    an absolute basis, which of the policy scenarios that you have
    laid out here in the outlook actually reduce the deficit, you
    know, on an absolute basis?
        Dr. Swagel. OK. There is one other one we did here. I will
    mention two things. One we did in this report and then one we
    will have later, you know, by the end of the year, is we looked
    at the spending in the Infrastructure Investment and Jobs Act.
    By the budget rules, that gets extended out through the budget
    window. There is a box on page 77 of the report, which is Box
    3-4, that goes through and shows the fiscal impact of that. And
    it is just mechanical through budget rules, and so if that
    doesn't get extended, that would be substantial enough to
    reduce the budget deficit. You know, that is the not the long-
    term----
        Mr. Obernolte. OK, but not on an absolute basis. So, that
    change, if I am understanding right, would not result in the
    budget deficit decreasing over time instead of increasing. Is
    that right?
        Dr. Swagel. Oh, that is correct, absolutely.
        Mr. Obernolte. OK. So, here is----
        Dr. Swagel. I am talking relative and you are thinking
    absolute.
        Mr. Obernolte. Here is the crux of what I am asking here is
    why are we not examining policy alternatives that result in an
    overall decline in deficit instead of an increase in deficit
    over time if, as you say, we should be so concerned about this
    increasing deficit?
        Dr. Swagel. No, no, I agree. It is a grave concern and we
    will have that for you later this year. So, it is probably
    December we will have a new edition of our budget options
    volume that goes through a wide range of policies. And we will
    provide information on policies that change the course, instead
    of just change the shape of the river, that really make a big
    impact on the deficit.
        Mr. Obernolte. Great. OK. Well, I mean, I wish that every
    outlook that you gave us with these policy alternatives would
    include those alternatives just to illustrate the gravity of
    the problem and the magnitude of the changes that are going to
    be required to effect, you know, that trajectory.
        So, you know, along those lines let me ask about something
    Congressman Feenstra mentioned, the trust fund and the
    declining balances in the trust funds. And you go over that on
    page 125 and 126 of your outlook.
        You say that the outlook was prepared under the assumption
    that mandatory spending would continue regardless of the
    balance in the trust funds. But you also say on the previous
    page that the government has no legal authority to continue to
    expand anything when the balance of the trust funds is
    exhausted other than the revenue that is coming in. So, are
    those two statements your intention? And I am wondering why do
    we do it that way? Because we are contradicting ourselves, you
    know, in the span of one page.
        Dr. Swagel. No, I agree. There is a tension there. And we
    are following the budget rules. And in terms of stats for that
    it is tables B-1 and B-2 around the chapter that you showed. It
    is trying to provide that information and it is the Deficit
    Control Act that requires us to do it that way. And so we are
    trying to provide as complete information as we can to follow
    the law and then provide the additional information to show the
    impact of that tension that you mentioned.
        Mr. Obernolte. All right. Well, I would encourage you to do
    that in the future. I see my time has expired. But, you know,
    please, in the previous outlook you had made plain that just
    attacking discretionary spending is not going to be sufficient
    to solve this problem and that is vital, you know, regardless
    of your political party or political, it is going to be vital
    for us to get this under control.
        So, we are going to have to take a look at those trust
    funds and what we are going to do as those balances decline and
    are exhausted. And I would like to encourage you to please
    include those scenarios. As uncomfortable as that conversation
    might be, please include those scenarios in future outlooks.
        Thank you, Mr. Chair. I yield back.
        Chairman Yarmuth. The gentleman's time has expired. I now
    yield five minutes to the gentleman from New York, Mr. Jacobs.
        Mr. Jacobs. Well, thank you very much, Mr. Chairman. And
    thank you for being here. I do have to shake my head that there
    has been a lot of celebration of a trillion-dollar deficit. I
    want to say I am not celebrating that we at a trillion-dollar
    deficit, which is one of the highest deficits we have ever had.
    So, only in Washington.
        But I wanted to first ask you, as we talk about the issue
    of inflation and the multitude of impacts it has, you know, we
    talk about the fact that the Fed is now in an effort to combat
    inflation begun raising interest rates and the expectation is
    they will continue to do so. So, the CBO projects that net
    interest payments on the debt will be $8.1 trillion over 10
    years. And that would be $1.9 trillion higher than previously
    or due to the increase in inflation that is projected. So, that
    in my mind is, you know, money that is essentially wasted
    because we have to pay because the rate of inflation increases.
        I also wonder as we talk about inflation, and certainly our
    priority as representatives is the price that our citizens are
    incurring when they go to the pump, when they go to the grocery
    store, et cetera, but what is the delta, if you have one, on
    the increased cost on running our government and the cost that
    we the government has on buying everything now due to this
    information that if inflation was at its previous level several
    years ago we wouldn't have had to factor?
        Dr. Swagel. No, it is an important one and the U.S.
    Government buys, you know, a wide range of goods and services.
    You know, it pays salaries, it buys jet fuel, you know, buys
    everything. And so that has an important impact on spending.
        You know, there is a revenue impact as well. The tax code
    is based on nominal wages. And then net interest payments go
    up, so that inflation has an important impact on the
    government. I guess we haven't looked at just that in
    isolation. You know, we have looked at the net of all these
    things.
        Mr. Jacobs. OK. Just back on the--you know, certainly
    related to the two things that, inflation and the interest rate
    increases, given the most recent economic data, what do you
    feel the likelihood of a recession is later this year or next
    year?
        Dr. Swagel. OK. So, we don't have a recession in our
    projection; that, you know, today the challenge is in some
    instances the demand is too strong relative to supply. Right?
    It is both supply and demand, but we have very strong demand.
        Now, of course, as the Fed tightens, we have seen the
    impact already in financial markets and wealth is down. And, of
    course, there is always the possibility, you know, of a
    recession. You know, we don't have it in our projection. We try
    to be in the middle of the range of possibilities and so
    certainly, you know, at one side is the possibility.
        Mr. Jacobs. OK. All right. Thank you. I thank you, Mr.
    Chairman. I yield back.
        Chairman Yarmuth. The gentleman yields back. And now it is
    up to me. I yield myself 10 minutes for my questions and
    comments. And first of all, once again, Dr. Swagel, thanks so
    much for being here and for your responsiveness and the
    information.
        One thing that I think may be important to have as a part
    of the record is for you to briefly explain what this forecast,
    what this outlook is used for, why it is important. And there
    is also, I kind of inferred a sense that some members,
    particularly on the Republican side, think that you work for
    Democrats. Because there were some pronouns, and maybe the
    pronouns were used accidentally, but talk just in general about
    this process and why it is so important and what its purpose
    is.
        Dr. Swagel. No, thank you. So, we serve the Congress. We
    work for the--you know, for both chambers and both sides. We
    are nonpartisan. We work through the Budget Committees and for
    the Chairs and Ranking Members of Committees in jurisdiction.
        The baseline update, once the Budget Committees adopt the
    work as a new baseline, provides a foundation for policymakers
    to look at the impact of a fiscal policy, whether on spending
    or on revenue. So, that is why we do it the way we do it. We
    try to look ahead under current law as best we can, so that you
    have the foundation on which to evaluate fiscal policy.
        Chairman Yarmuth. And I know you constantly give
    disclaimers about, you know, the uncertainty of these
    projections. I remember several years ago when Tim Geithner was
    Secretary of the Treasury and appeared before the Committee and
    I think Paul Ryan was Chairman at that point. And I asked--he
    was showing all these charts going out to 2075 and so forth.
    And I asked the Secretary at that point how reliable, given the
    pace of change in the world and all the dynamics that it
    involved in the world economy, how reliable do you think
    projections going out 30, 40, 50 years are? And he said to me,
    I don't think projections going out more than five years are
    reliable.
        And so I just want when we are talking about these 10
    years, I know you have to do it, but would you agree that there
    is a great variation in the possibilities relative to your
    projections at this point?
        Dr. Swagel. No, absolutely. And as you said and as
    Secretary Geithner said, the difficulty, you know, it grows,
    you know, as we go out over time. And we understand that, we
    acknowledge that. I mean, even, you know, nominal dollars,
    comparing a dollar in year 10 against a dollar in year 1,
    right, we do it because that is useful to the Congress. But, of
    course, policymakers understand that, you know, 10 years from
    now is different than this year.
        You know, the other thing we do also is we keep the
    baseline constant just so that you have a constant benchmark.
    You know, as I said before, we know our inflation forecast is
    too low, right, and there is--we locked in at the beginning of
    March. Subsequent events showed it was higher. We are still
    going to keep the baseline, the economic projection constant so
    that this is a consistent benchmark to evaluate all proposals,
    you know, both sides, both chambers. That is the key to what we
    do is to be consistent so that, you know, you and your
    colleagues can evaluate the merits or not of legislation.
        Chairman Yarmuth. Thank you. I want to talk about inflation
    for a little bit because I think when we hear these numbers,
    8.3 percent the most recent one, your projections for this year
    a little bit lower than that. And the comment made, you know,
    it is a $5,000 tax increase for the average family. Well, it
    really depends on what het average family does and how it is--
    what it is composed of. I mean, the impact of inflation on a
    family of six or eight is a lot different than the impact on a
    family of two. Food prices are different.
        If you are going to--at one point I know that it was
    estimated that a third of the inflation rate was due to the
    price of used cars or the growth. Well, if you are not buying a
    car that portion of the inflation rate doesn't affect you. So,
    it is really kind of--it is individual circumstances that are
    going to determine the impact of increased prices on everyone.
        Now, we know everybody eats and food prices are up and we
    have to respond to these as we can. But we generalize because
    that is what we do.
        But one of the questions, you know, I know, for instance,
    you know, everybody is saying, well, the price of eggs have
    gone up. Well, they had to kill 5 million hens because the
    avian flu. That is not anything that had to do with anybody's
    policy. Right? That was an unfortunate act of nature that
    resulted in the price of eggs.
        When the pandemic started lumber manufacturers stopped
    producing lumber because they thought there wouldn't be a
    demand for it. Well, it turns out there was a huge demand for
    it. They weren't supply it. The price of lumber went up five or
    six times. Now it has come back down to about a third of its
    highest level.
        But all of these components make it really difficult to--
    not just to figure out what happened to cause the inflation,
    but also to deal with it. Because a lot of it is the actual
    marketplace and decisions that producers made, the shipment of
    computer chips and so forth, impacted a lot.
        But Republicans want to say that the American Rescue Plan
    was largely responsible for this. And my question is have you
    done any analysis of to what extent the American Rescue Plan
    contributed to inflation? You said it was a factor, but have
    you done any analysis of to what extent it was a factor?
        Dr. Swagel. No. so, we haven't. We haven't tried to parcel
    that out, you know, between the mix of demand, you know, the
    strong demand and strong--you know, not strong, the oppositive
    of strong, the supply impediments. And it is both. And that is
    one of the challenges is that there are so many things going
    on, changes in the economy and the labor market, you know, from
    health and scientific reasons with the virus, and we have not
    disentangled that. You know, at some point in the future people
    will go back and disentangle that.
        Chairman Yarmuth. Right. Well, some have. I mean, I think
    Moody's Analytics said it was about a half a percent or a third
    of a percent of the total of inflation. The Fed in San
    Francisco came up with a similar number. I think Goldman Sachs
    came up with less than 1 percent. And, you know, Larry Summers
    predicted that, is now taking credit for having predicted this
    inflation rate based on the American Rescue Plan, but he
    basically said there was a third possibility. It would be
    significant inflation, a third would be moderate, and a third
    would be none. So he tried to cover his bases totally at the
    time and now he is taking credit for it. But there are not a
    lot of economists who are saying that it is the lion's share of
    inflation that we are seeing now.
        And what people tend to forget is that about 25 percent of
    the American Rescue Plan was essentially a tax cut. It was
    $1,400 checks to almost every citizen in the country. In every
    congressional district, on average, there was sent by the
    federal government $900 million of disposable income. And I
    think we can argue over whether that was justified or not or
    whether it was needed or not, but I don't think many of the
    hundreds of millions of Americans who got that $1,400 check
    sent it back. They were very grateful for it and I think you
    can make a strong case that that had a large--played a large
    role in actually helping the economy recover, saving businesses
    all over the country and saving lives.
        And the other thing I would say is that, and I will ask you
    for this, we talk about deficits. And obviously, we can argue
    about how bad they are, what we need to do to dissolve them,
    what we--if and whether we do. But by and large, isn't it true
    that when the government runs a deficit, that the American
    people run a surplus?
        Dr. Swagel. Oh, I see. I mean, right. The government is
    running the deficits and the funds are going somewhere. So, the
    American Rescue Plan Act was an illustration of that; that that
    contributed to a wider deficit and that was used for a variety
    of purposes, the rebate checks to American families, you know,
    combating the virus, unemployment insurance, and aid for state
    and local governments. So, absolutely, the money is, you know,
    recycled is a good term here, you know, used throughout the
    economy.
        Chairman Yarmuth. When the government runs a surplus, it is
    taking money out of the economy and, therefore, from people.
    When it runs a deficit, it is putting money into the economy
    and into people's pockets. And the question is, you know, what
    other impacts doe that have? And that is obviously what we are
    trying to discuss here.
        I am not going to use the last 20 seconds except once again
    to thank you for being here today. Thank you for your work.
    Thank you for your responses today. And we look forward to
    hearing from you again in the not-so-distant future.
        And unless there is any further business, this hearing is
    adjourned.
        [Whereupon, at 1:18 p.m., the Committee was adjourned.]
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