[Senate Hearing 117-236]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-236

                   CORPORATE PROFITS ARE SOARING AS 
                     PRICES RISE: ARE CORPORATE 
                     GREED AND PROFITEERING FUELING 
                     INFLATION?

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

                                HEARING

                                 BEFORE

                        COMMITTEE ON THE BUDGET

                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 5, 2022

                               __________

           Printed for the use of the Committee on the Budget
           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
47-315 PDF                 WASHINGTON : 2022                     
          
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                        COMMITTEE ON THE BUDGET

                   BERNARD SANDERS, Vermont, Chairman

PATTY MURRAY, Washington             LIINDSEY O. GRAHAM, South Carolina
RON WYDEN, Oregon                    CHARLES E. GRASSLEY, Iowa
DEBBIE STABENOW, Michigan            MIKE CRAPO, Idaho
SHELDON WHITEHOUSE, Rhode Island     PATRICK TOOMEY, Pennsylvania
MARK R. WARNER, Virginia             RON JOHNSON, Wisconsin
JEFF MERKLEY, Oregon                 MIKE BRAUN, Indiana
TIM KAINE, Virginia                  RICK SCOTT, Florida
CHRIS VAN HOLLEN, Maryland           BEN SASSE, Nebraska
BEN RAY LUJAN, New Mexico            MITT ROMNEY, Utah
ALEX PADILLA, California             JOHN KENNEDY, Louisiana
                                     KEVIN J. CRAMER, North Dakota

                Warren Gunnels, Majority Staff Director
                  Nick Myers, Minority Staff Director
                           
                           C O N T E N T S

                              ----------                              

                         TUESDAY, APRIL 5, 2022

                                                                   Page

                OPENING STATEMENTS BY COMMITTEE MEMBERS

Chairman Bernard Sanders.........................................     1
Ranking Member Lindsey O. Graham.................................    10

                               WITNESSES

Statement of the Honorable Robert B. Reich, Carmel P. Friesen's 
  Professor of Public Policy, Goldman School of Public Policy, 
  University of California, Berkeley.............................     4
    Prepared Statement of........................................    26
Statement of the Ms. Lindsay Owens, Ph.D., Executive Director, 
  Groundwork Collaborative.......................................     6
    Prepared Statement of........................................    36
Statement of the Honorable Michael Faulkender, Ph.D., Dean's 
  Professor of Finance, Robert H. Smith School of Business, 
  University of Maryland.........................................     8
    Prepared Statement of........................................    47

 
 CORPORATE PROFITS ARE SOARING AS PRICES RISE: ARE CORPORATE GREED AND 
                    PROFITEERING FUELING INFLATION?

                              ----------                              


                         TUESDAY, APRIL 5, 2022

                                       U.S. Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 11:03 a.m., via 
Webex and in Room SD-608, Dirksen Senate Office Building, Hon. 
Bernard Sanders, Chairman of the Committee, presiding.
    Present: Senators Sanders, Whitehouse, Kaine, Van Hollen, 
Padilla, Graham, Grassley, Crapo, Braun, and Scott.
    Staff Present: Warren Gunnels, Majority Staff Director; and 
Nick Myers, Republican Staff Director.

             OPENING STATEMENT OF CHAIRMAN SANDERS

    Chairman Sanders. Let me call this hearing to order.
    There is some confusion on the floor about when the next 
vote is going to take place, so we will see what happens. But I 
do want to thank our panelists for being with us. I am going to 
get to them in a moment.
    I believe Senator Graham should be here in a while, and I 
have the feeling that other members will be floating in and out 
depending on the votes on the floor. This is an important 
hearing, and I want to thank everybody for being here.
    The truth is that corporate greed is nothing new. It has 
been going on for a very, very long time, and it manifests 
itself in the extreme wealth and income inequality that we are 
seeing in this country now. And this is one of the issues which 
gets far too little discussion, but the American people have 
got to determine whether or not we are comfortable with 2 
people owning more wealth than the bottom 42 percent of 
Americans, whether we are comfortable with the top 1 percent 
owning more wealth than the bottom 92 percent.
    And I have said this a million times. You know, we focus on 
the oligarchy in Russia, which should be focused on, and 
Putin's allies there led him into this and worked with him on 
this terrible war. The truth is we have an oligarchy in this 
country, and we might want to be focusing on that as well.
    When we talk about why the American people are angry, why, 
among other things, we are seeing a spurt in the growth of 
trade unionism in this country, it has a lot to do with the 
fact that CEOs in large corporations now make 350 times more 
than their average workers. In addition to that, they receive 
stock options, golden parachutes, and a wide range of perks go 
to the CEOs. And meanwhile, working families are struggling to 
pay their bills, to feed their kids, to take a few weeks' 
vacation, and to save up for retirement. So what we are seeing 
now is more income and wealth inequality in this country than 
we have seen in a hundred years, and this is an issue that if 
nobody else wants to talk about we will talk about in this 
Committee.
    But it is not just income and wealth inequality. Corporate 
greed manifests itself in the massive amounts of union busting 
that we have been experiencing in which large corporations 
spend millions of dollars to deny workers their constitutional 
rights to organize while, in many cases, forcing workers who 
belong to unions to make unacceptable concessions like 
eliminating pensions and major pay cuts. I have been involved 
in a number of strikes in the last year, and it is astounding 
to me to see the degree to which large, profitable corporations 
go out of their way to try to take away health care, take away 
pension benefits, lower wages. It is really rather astounding.
    And today, when we talk about corporate greed, it manifests 
itself in corporation after corporation using the pandemic and 
all of the instability caused by the pandemic, using the 
terrible war in Ukraine, as a specter, as an attempt to raise 
prices for the average American higher and higher. And that 
obviously deals with gas prices. It deals with housing. It 
deals with food.
    And what we are seeing is during this pandemic this is an 
issue we have to deal with, and we are going to deal with it 
today. Is it appropriate that during this pandemic, during the 
war in Ukraine, during all of this instability, that this be a 
moment in which large corporations continue to enjoy huge 
profits? And I think the American people, based on the polling 
that I have seen, have had enough. They are outraged at the 
unprecedented level of corporate greed that is taking place all 
around them.
    And today, while the average worker is making $40 a week 
less in real wages than he or she made nearly 50 years ago, 
corporate profit margins are a 70-year high, and CEOs are 
seeing huge increases in their compensation package. So let me 
just give you a few examples though I do not know that I have 
to because the American people are seeing this every day right 
in front of them.
    Yesterday, at a time when gasoline in America is now at a 
near record high of $4.17 a gallon, guess what? We have seen 
yesterday ExxonMobil reported that its profit from pumping oil 
and gas alone in the first quarter will likely hit a record 
high of $9.3 billion. Meanwhile, big oil CEOs are on track to 
spend $88 billion this year, not to decrease supply 
constraints, not to address the climate crisis, but to buy back 
their own stock and hand out dividends to enrich their wealthy 
shareholders. That is for oil and gas.
    And let us talk about more examples of corporate greed. 
Amazon recently raised the price of its Prime Membership by 
16.8 percent while increasing its profits by 56 percent last 
year to a record-breaking $33 billion, and by the way, they 
avoided over $5 billion in Federal taxes. Meanwhile, the 
founder of Amazon, Mr. Bezos, became $83 billion richer during 
the pandemic and is now worth almost $200 billion, making him 
the second wealthiest person in America.
    Other examples of corporate greed, let us talk about food. 
Tyson, a major meat producer, has increased the price of beef 
by 32 percent, the price of chicken by 20 percent, and the 
price of pork by 13 percent. Meanwhile, Tyson Foods has 
increased its profits by 140 percent last quarter to $1.1 
billion and gave its CEO a 22 percent pay raise last year, to 
$14 million, while its owner, John Tyson, doubled his wealth 
during the pandemic and is now worth $3 billion.
    Another example about corporate greed in terms of products 
desperately needed by the American people, let us talk about 
prescription drugs. Last year, Pfizer, Johnson & Johnson, and 
AbbVie, three giant pharmaceutical companies, increased their 
profits by over 90 percent to $54 billion. Meanwhile, the CEOs 
of just 8 prescription drug companies made $350 million in 
total compensation in 2020.
    In other words--and these are just some examples. We can go 
on and on. But in other words, the problem is not that a low 
wage worker got a 50-cent raise 2 weeks ago and a $1,400 check 
from the government last year, as some of my Republican 
colleagues will suggest. The problem is that corporations are 
making record-breaking profits and over 700 billionaires in 
American became nearly $2 trillion wealthier during the 
pandemic while engaging in obscene levels of price gouging.
    Now the American people want us to take action. They are 
sick and tired of prices going up, corporate profits going up, 
CEO compensation going up. They want us to represent them, not 
the corporate world. They are sick and tired, among other 
things, of billionaires paying a lower effective tax rate than 
a teacher, a nurse, a truck driver, or a firefighter. They want 
Congress to address corporate greed and make sure that the 
wealthiest people in our country and the most profitable 
corporations pay their fair share of taxes.
    In order to address the current crisis, I have introduced 
legislation to enact a windfall profits tax modeled off a bill 
signed into law during World War II. During World War II, our 
country, the people of our country, understood that it was 
unacceptable for companies to make obscene profits when young 
men and women were dying in Europe and in Asia. That is not a 
time to make huge profits.
    Now I am not here to suggest that this moment is equivalent 
to the 1940s and World War II, but I will tell you that during 
this terrible pandemic, which has caused so much pain and so 
much economic instability, during Putin's murderous invasion of 
Ukraine, it is at this moment not acceptable to me for 
corporate America to make huge profits by ripping off Americans 
at the gas station, at the grocery store, or any other sector 
of our economy.
    And let us be clear. When we talk about corporate greed, we 
are also talking about the enormous concentration of ownership 
that exists in America today and the lack of competition which 
has allowed companies to drive prices higher and higher. So it 
is not just the reality of income and wealth inequality, and 
corporate profits, it is an economy in which a handful of giant 
corporations control sector after sector after sector and can 
control the pricing that goes on.
    In terms of agriculture, just 4 firms in America control 85 
percent of the corn seed market, 82 percent of the beef packing 
market, 76 percent of the soybean seed market, 66 percent of 
the pork processing market, and 54 percent of the poultry 
processing market. All right, that is agriculture; that is 
food.
    In terms of transportation, 4 large companies control 67 
percent of our airlines and 83 percent of our railways while 
just 3 companies control 80 percent of cargo shipping.
    In terms of health care, over the past 20 years, there has 
been approximately 1,600 hospital mergers while 90 percent of 
metropolitan hospital markets are considered highly 
concentrated.
    And maybe most important--and we had a hearing on this, and 
we are going to come back to this issue over and over again. In 
terms of our entire economy--and I want everybody to hear 
this--we should all understand that just three Wall Street 
firms, three, one, two, three, BlackRock, State Street, and 
Vanguard, control $22 trillion in assets, which is roughly the 
equivalent of the entire gross domestic product (GDP) of the 
United States of America. Three companies. And when you have 
that kind of power, you are impacting hundreds and hundreds of 
corporations, where you are a major stockholder in the lives of 
millions and millions of workers.
    If we are serious about combating inflation and lowering 
prices, we must aggressively use the antitrust laws that are on 
the books and introduce new ones as necessary to break up 
behemoth corporations and increase competition.
    Now is corporate greed the only reason for inflation? The 
answer is obviously not. The severe supply chain crisis and the 
microchip shortage are also contributing to higher consumer 
prices.
    But let me remind my colleagues that over the last 30 
years, as a result of our disastrous, unfettered free trade 
policies, corporate America has shut down many thousands of 
factories and shipped millions of good paying American jobs to 
low-wage countries. Maybe, just maybe, if we did not make it so 
easy for corporations in America to move abroad, our supply 
chain crisis and microchip shortage would not be as serious as 
it is today.
    Bottom line, we need an economy that works for all 
Americans, not just a handful of people on top.
    Senator Graham is not here, so we go to the--okay, let us 
go to our panelists, and let me begin with Robert Reich, who is 
a former Secretary of Labor, U.S. Secretary of Labor, and is 
the Carmel P. Friesen Professor of Public Policy at the Goldman 
School of Public Policy at the University of California, 
Berkeley.
    Professor Reich, are you there?
    Mr. Reich. Yes, I am right here. Senator, I hope you can 
see me. I can see you.
    Chairman Sanders. Loud and clear.

STATEMENT OF THE HONORABLE ROBERT B. REICH, CARMEL P. FRIESEN'S 
 PROFESSOR OF PUBLIC POLICY, GOLDMAN SCHOOL OF PUBLIC POLICY, 
               UNIVERSITY OF CALIFORNIA, BERKELEY

    Mr. Reich. Okay. Good. Mr. Chairman and members of the 
Committee, I am going to submit my formal testimony for the 
record, and I will simply summarize.
    The Commerce Department reported last Wednesday that 
corporate profits are at a 70-year high, which raises an 
obvious question about inflation. When corporations are so 
flush with cash, why are they raising prices? Not because of 
the increased cost of supplies and components or of workers who 
are beginning to get raises because they are in demand. Yes, 
there are increased costs, but in a competitive economy, 
corporations enjoying record profits would absorb these costs. 
They would keep their prices down to prevent competitors from 
grabbing away customers, but instead, they are passing these 
costs on to consumers in the form of higher prices.
    Why? Because they can. They can because they do not face 
meaningful competition. Since the 1980s, two-thirds of all 
American industries have become more concentrated. This 
concentration gives corporations the power to raise prices 
without risking the possibility of losing customers who have no 
other choice.
    Now, Mr. Chairman, you went through a number of examples. 
Many people see it every day. Starbucks is raising its prices 
to consumers, blaming the rising costs on supplies, on 
increasing supply costs, but Starbucks just reported a 31 
percent increase in yearly profits.
    Proctor & Gamble is charging more for consumer staples, 
also citing rising costs, but Proctor & Gamble has reported a 
whopping 24.7 percent profit margin. It even spent $3 billion 
during the fourth quarter buying back its own shares of stock.
    Meat prices are soaring because the four giant meat 
processing corporations that dominate the industry are using 
their market power to extract bigger and bigger profit margins 
for themselves, and this is according to a report from the 
White House National Economic Council.
    Although major oil companies have faced increasing costs 
for crude oil, they posted near record profits last year. So 
they are passing those costs on to consumers in the form of 
higher prices at the pump and for heating oil, and they are 
keeping record profits. And now they are using Putin's invasion 
of Ukraine as an excuse to raise prices even further.
    The New York Times, two weeks ago, pointed out that 
corporate executives have spent recent earnings calls with Wall 
Street analysts, bragging about their newfound power to raise 
prices, often predicting that it is going to last.
    Now what are large corporations doing with their near 
record profits? They are buying back their own shares of stock 
in order to deliver higher returns to their shareholders. Stock 
buybacks hit a new record last year, this year is on track to 
exceed it. The oil giants alone are planning to buy back at 
least $22 billion of their own stock.
    So here we have corporations with record profits not seen 
in 70 years. They are raising their prices. This means 
consumers are paying more. Wages are rising, but almost all of 
the increase in wages is being wiped out by price increases. 
And, corporations are using their profits to buy back their 
shares of stock. All of this--what is all of this? Connect 
these dots. This amounts to an upward transfer of income and 
wealth from consumers and workers, many of whom live from 
paycheck to paycheck, to shareholders, half of whom are in the 
richest 1 percent of the population and more than 80 percent of 
whom are in the richest 10 percent.
    Now what to do about this? The Fed is battling inflation 
the old fashioned way, by raising interest rates to slow the 
economy. But here is the point; higher interest rates are not 
going to stop corporations from using their pricing power. 
Higher interest rates are just going to slow the economy and 
potentially cause millions of lower-wage workers to lose their 
jobs and forfeit long overdue real wage increases.
    There is a far better way to battle this corporate-induced 
inflation that would not hurt average working Americans. It is 
for Congress and the Administration to apply tougher antitrust 
enforcement and enact a windfall profits tax and price 
controls.
    Inflation is intimately connected to record corporate 
profits and widening inequality. Average working people in 
America are being shafted. They need and deserve action.
    Thank you.
    [The prepared statement of Mr. Reich appears on page 26]
    Chairman Sanders. Professor Reich, thanks very much.
    Let us now go to Senator Graham, and then we will go back 
to the other two witnesses.
    Senator Graham. If you want to do the witnesses, I am okay 
with that, Mr. Chairman.
    Chairman Sanders. All right. Very good. Then let us go to 
Dr. Lindsay Owens. Dr. Owens is the Executive Director of the 
Groundwork Collaborative and an award-winning sociologist and 
policy researcher.
    Dr. Owens, thanks for being with us.

    STATEMENT OF LINDSAY OWENS, PH.D., EXECUTIVE DIRECTOR, 
                    GROUNDWORK COLLABORATIVE

    Ms. Owens. Chairman Sanders, Ranking Member Graham, members 
of the Committee, thank you for inviting me to testify today. 
My name is Lindsay Owens, and I am the Executive Director of 
the Groundwork Collaborative, a think tank working to produce 
broadly shared prosperity and abundance for all.
    My testimony today will focus on three key points. First, 
corporate profiteering and price gouging are accelerating price 
increases and squeezing consumers and small businesses while 
corporate executives and shareholders cash in. Second, Wall 
Street's presence in every corner of our economy is putting us 
at risk for a profit-price spiral; in contrast, the share of 
economic output going to labor is declining inconsistent with a 
wage-price spiral. Finally, today's price increases are the 
direct result of the outsized market power that giant 
corporations hold over our supply chains and our economy more 
broadly.
    There are a range of factors driving inflation right now, 
from increasing and shifting demand to supply chain disruptions 
and even conflict abroad, but last week's Bureau of Economic 
Analysis's data release laid bare another culprit behind recent 
price hikes: plain old profiteering. Corporate profits of 
nonfinancial firms surged 35 percent in 2021, and overall 
profit margins reached their highest level since 1950. In all 4 
quarters of 2021, the overall profit margins stayed above 13 
percent, a level reached in just one other 3-month period 
during the past 70 years.
    The 2021 profit data confirms what CEOs have been telling 
shareholders for months. Inflation has been very, very good for 
business.
    My team at the Groundwork Collaborative has combed through 
hundreds of quarterly earnings calls to understand why profit 
margins are at record highs despite the rising costs of energy, 
raw materials, and other inputs. In these calls, executives 
tell investors about last quarter's performance and discuss 
what they can expect going forward. Over and over, the message 
from corporate America is clear. They are not just asking 
consumers to pay for their rising costs; they are going for 
more.
    Whereas, the CEO of Constellation Brands, the parent 
company of popular beers Modelo and Corona, put it in their 
January earnings calls, ``So we want to make sure that we are 
not leaving any pricing on the table. We want to take as much 
as we can.''
    Giant corporations are able to get away with this kind of 
aggressive and extractive pricing precisely because of the 
current inflationary environment. As the CEO of Hostess said in 
an earnings call last month, ``When all prices go up, it 
helps.''
    Wall Street's influence in every corner of our economy 
makes this period of inflation unique and puts us at risk for a 
profit-price spiral. As profits rise as the result of price 
hikes, so too does investor demand for those profits.
    Take an example from the energy sector. Last month, the CEO 
of Texas-based Pioneer Oil was asked whether Pioneer would 
consider increasing production to make up for any shortfall 
resulting from Russia's invasion of Ukraine. His answer, 
``No.'' When asked to explain, he said, ``It is all about the 
shareholders. Our shareholders own this company. They want a 
return of cash.''
    But it is not just Pioneer. Fifty-nine percent of oil and 
gas executives recently told the Dallas Fed in a survey that 
investor pressure to maintain capital discipline is the primary 
reason publicly traded oil companies are throttling supply 
despite high prices.
    Shareholders across sectors are not hiding the ball. They 
expect buybacks and dividends, not investments in production, 
and their strategy is paying off. In 2021, S&P 500 firms spent 
nearly $900 billion on stock buybacks, and U.S. companies paid 
out nearly $1.5 trillion in dividends to shareholders, both 
record highs.
    Over the last 50 years, corporate America's ruthless 
pursuit of efficiency and short-term profit set the stage for 
today's high prices by ushering in a wave of corporate 
consolidation that left us vulnerable to profiteering and price 
increases in two ways. First, it hollowed out and nearly 
eliminated diversity in our supply chain, leaving us without 
any fail-safes to withstand significant shifts in demand 
without shortages. Second, without competition to undercut 
companies who are charging excess prices, those companies with 
market power can continue raising prices virtually unabated.
    Giant corporations' control over our supply chain has 
supplanted the functioning, resilient system we could have 
built through robust public investment and free and fair 
competition. But it is not too late. We have many policy tools 
at our disposal. First, Congress should tax excess and windfall 
profits to encourage productive investment instead of 
profiteering. Second, regulators should enforce the laws 
already on the books to make markets more competitive and 
prevent collusion and price fixing. Third, Congress should 
pursue a Federal price gouging standard to protect against 
excessive price hikes during periods of economic transition. 
And finally, Congress should make long overdue investments in 
our supply chain.
    Importantly, interest rate hikes, which slow inflation by 
tamping down demand and making people poorer, will not address 
any of the underlying causes of our supply shortages and do 
nothing to address profiteering.
    Thank you for inviting me to testify today, and I look 
forward to your questions.
    [The prepared statement of Ms. Owens appears on page 36]
    Chairman Sanders. Thank you very much.
    Our third witness is Dr. Michael Faulkender, the Dean's 
Professor of Finance at the University of Maryland's Smith 
School of Business. Dr. Faulkender served as the Treasury 
Assistant Secretary for Economic Policy during the Trump 
Administration.
    Dr. Faulkender.

 STATEMENT OF THE HONORABLE MICHAEL FAULKENDER, PH.D., DEAN'S 
   PROFESSOR OF FINANCE, ROBERT H. SMITH SCHOOL OF BUSINESS, 
                     UNIVERSITY OF MARYLAND

    Mr. Faulkender. Chairman Sanders, Ranking Member Graham, 
Senators on the Committee, thank you for the opportunity to 
speak with you today on the impact of inflation on the American 
people and its root causes.
    I had the honor of serving as Assistant Secretary for 
Economic Policy at the Department of Treasury in the previous 
administration. In that role, I worked with Senators on both 
sides of the political aisle and the Small Business 
Administration to quickly implement the Paycheck Protection 
Program (PPP) and ensure that the economic devastation that 
might have resulted from the pandemic was not realized.
    The excessive inflation currently harming America's 
families is primarily the result of unnecessary fiscal stimulus 
passed by Congress and implemented by this administration, 
bolstered by excessively accommodative monetary policy by the 
Federal Reserve.
    At the onset of the pandemic, prices declined. When the 
economy reopened, prices started rising with inflation from 
June 2020 to February 2021, averaging 32 basis points per 
month.
    The $1.9 trillion American Rescue Plan (ARP) was signed 
into law in March of 2021. Since then, monthly inflation has 
doubled to 64 basis points per month, resulting in a 7.9 
percent annual inflation rate.
    Due to a fundamentally strong economy prior to the 
pandemic, Americans had aggregate balances in their checking 
and savings accounts of just under $11 trillion. Following 
ARPA's disbursements, that amount had risen to over $14.2 
trillion, nearly a 30 percent increase.
    The entirely predictable result was inflation, running the 
highest we have seen in 40 years. Even former Clinton Treasury 
Secretary Larry Summers characterized enactment of such policy 
as ``the last responsible macroeconomic policies we have had in 
the last 40 years.''
    Last week, researchers at the San Francisco Federal Reserve 
published findings that stated, ``Fiscal support measures 
designed to counteract the severity of the pandemic's economic 
effect may have contributed to this divergence by raising 
inflation about 3 percentage points by the end of 2021.''
    Some are, instead, blaming the recent inflation on 
corporate greed and the exercise of market power. There are 
many problems with this conclusion. From January 2010 through 
January 2020, the 12-month average inflation rate averaged 1.8 
percent. Over the last 12 months, inflation has been 7.9 
percent, more than quadrupling recent increases.
    Were corporations not greedy in the 2010s? What changed in 
March 2021 such that corporations suddenly became greedy? As 
someone who has researched corporate financial decision making 
for the last 20 years, I am not aware of any finding that 
corporations only recently desired profits.
    It is true that corporate profits have risen during the 
recovery. Just as corporate profits fell at the beginning of 
the pandemic, when there was extra supply relative to suddenly 
diminished demand, corporate profits will rise when demand 
significantly outstrips supply. This outcome is caused by a 
shortage caused by policies that have inflated demand while 
discouraging supply. It also appears to be the case that PPP 
expenses in 2020 that were forgiven in 2021 helps explain the 
vast majority of the increase in corporate profits.
    To curb the 40-year high rate of inflation the American 
people are enduring, Congress must reverse course. Continuation 
of irresponsible fiscal policy would only accelerate the 
Federal Reserve's already aggressive plans to hike interest 
rates. Instead, we need to encourage more domestic supply by 
reducing the regulatory burdens on companies, cease the 
constant threats of higher taxation, remove barriers to work, 
and declare an end to pandemic restrictions. Following those 
policies prior to the pandemic, our nation saw low inflation, a 
50-year low in the unemployment rate, historic gains in 
household income, reductions in income inequality, and record 
low poverty rates across all races.
    The Chairman's proposal would have devastatingly 
counterproductive effects. The proposal would apply a 95 
percent tax rate on any profits realized by large companies 
above their pre-pandemic 5-year average profit level adjusted 
for inflation. Any company that created new products, 
successfully entered new markets, or shifted their offerings in 
response to changes in consumer preferences following the 
pandemic would be punished. Companies whose product prices rose 
with inflation but who merely served more of their fellow 
Americans would have their increased results deemed excess 
profits and taxed at 95 percent.
    If enacted, this proposal would nearly eliminate domestic 
economic growth. Today's punishment becomes tomorrow's 
extremely strong disincentive. Profits from successful 
innovation that better serve the needs of fellow citizens would 
be forcibly taken by government, but losses from failed 
innovation would be borne by the businesses. Why would American 
companies innovate, respond to changes in the economy, 
supplement supply when there are shortages, or engage in 
research and development under those kinds of conditions? I 
urge the Senate to reject such destructive proposals.
    I look forward to participating in today's conversation. 
Thank you.
    [The prepared statement of Mr. Faulkender appears on page 
47]
    Chairman Sanders. Thank you very much.
    Senator Graham.

              OPENING STATEMENT OF SENATOR GRAHAM

    Senator Graham. Thank you, Mr. Chairman. I am sorry, I 
voted. There is another vote on, so . . .
    Chairman Sanders. Is there one?
    Senator Graham. Yeah, so you might--we will figure out how 
you want to do this.
    So anyway, very well done, sir. I agree with everything you 
said.
    I want to remind the Committee and the American people that 
basically before the pandemic hit we had a 50-year low 
unemployment rate. We had among--African Americans and Hispanic 
Americans and Americans with disability hit their lowest levels 
on record. American workers saw their paycheck rise at the 
fastest pace in years, and they were rising faster for low 
earners. The official poverty rate in 2019 hit an all-time low.
    We cut taxes in 2017 through the reconciliation process. We 
reduced the corporate rate to make it competitive. Before the 
tax reduction, from 35 percent to 21 percent, America had the 
fourth largest corporate tax rate in the world.
    What you saw from 2017 to 2019 was economic growth that 
touched every sector of the economy. Making our corporate tax 
rate competitive is important in my view because we live in a 
global economy and people can go where capital is most well 
received. And if you want to create jobs in America, the 
American corporate tax rate has to be competitive with the rest 
of the world.
    Now we find ourselves here talking about how to fix 
inflation and who to blame. And all I can say to my Democratic 
colleagues, you have an insatiable desire to take money from 
the private sector, build the government bigger, and I assume 
you do this because you think that is the best way to help 
people.
    My view is that the best way to help people is have a 
competitive tax code, take money from the American people to 
run the government in a professional manner, not overly expand 
the role of government, but whatever you do, do it well, and we 
have to be competitive. If you have ever been in the private 
sector, tax policy really does relate to who you hire and how 
many people you can hire.
    So the idea of a windfalls profit tax in the middle of this 
would be a disaster. We are trying to get our economy back on 
its feet after dealing with COVID throughout the world. And, 
what I would say is that the best cause for inflation lies in 
the policy choices of this administration more than any single 
thing.
    So that is kind of an inventory of where we are at.
    Here is the tale of the tape. If you are buying a used car, 
it is up 41.2 percent since the Administration took over, 38 
percent increase in gas prices, 12.7 percent increase in 
airfare; meat, poultry, fish, eggs, 13 percent; fruits and 
vegetables, 7.6; milk, 11.2; electricity, 9 percent from 
February 2021 to February 2022. So people get what I am saying 
because they are living this.
    You can see the 7.9 percent surge in inflation from October 
2021 to January 2022. We are going in the wrong direction at a 
fast rate. So if you got a 5 percent pay raise, it does not go 
very far.
    You can see this chart, the tremendous spike in inflation 
from basically January 2021 till now. It has just gone through 
the roof, and the question is, why?
    On the energy side, every time you go to the pump, you are 
reminded of the dramatic increase in gas prices, and inflation 
is a nightmare for working-class people. It is the enemy of the 
middle class.
    So let us see if we can figure out what happened here. Why 
are gas prices so high? Well, there is a supply and demand 
component for sure. Demand was down during COVID because most 
of us were not traveling. Demand is up, so you would expect 
some increase.
    But what happened here? Remember the 2020 election? I do. 
This is Biden's campaign promise, President Biden on energy: 
``We are going to end fossil fuel,'' September 2019. No more, 
no new fracking, March 2020. ``No more drilling, including 
offshore,'' March 2020.
    So how can you be surprised that American energy production 
is down? The policies that he campaigned on were basically to 
declare war on the fossil fuel industry in the United States. 
And, guess what? It worked.
    Top five Biden actions that impede energy production: 
Revoked the Keystone Pipeline, which would have had a supply 
coming out of Canada. Paused new oil and gas leases on Federal 
lands and waters. Halted drilling in Alaska's Arctic National 
Wildlife Refuge. Stifled new energy infrastructure projects in 
the name of climate change. Included $45 billion in new taxes 
on domestic energy production.
    Now when you look at all this, if you are surprised that 
gas prices are up, you should not be.
    So what is driving all this? I think, Mister--what is your 
name, sir?
    Mr. Faulkender. Faulkender.
    Senator Graham. Okay. I think you and Larry Summers agree 
that this is not from profiteering; this is from policy.
    So what I want the Committee to understand is that we have 
a vastly different view in this Committee of how to fix this 
problem and the role of government and tax policy. Our 
Democratic colleagues spent $1.9 trillion by themselves, and I 
think you see from the passage of that bill to now a dramatic 
increase in inflation. We poured a bunch of money into the 
system, and you have got demand chasing money.
    They proposed Build Back Better, which would have made all 
of our problems 10 times worse. So the people telling you how 
to fix this inflation problem were trying to sell you a bill on 
top of the $1.9 trillion, the American Rescue Plan, called 
Build Back Better. Democrats said it would cost $1.75 trillion 
over a decade. CBO scored the cost, and it is $4.9 trillion 
because all the gimmicks in the bill limiting programs to 1 or 
2 years. If you actually look at reality, they never go away. 
So it over doubled the cost of the bill. In terms of deficit 
impact, Democrats told us it was $365 billion over 10; it is 
actually $3 trillion over 10.
    So I remind the American public that they have been selling 
policy proposals that really do not pass the smell test.
    So this Committee is designed to debate where should we go 
and how we get there when it comes to budgets. To the American 
people, if we impose new taxes now on businesses who have 
changed their business model in light of COVID, we are going to 
make a huge mistake. It is hard enough in America to create a 
job as it is. Every time we turn around, there is a new desire 
by my Democratic colleagues to take more money out of the 
economy, to make villains out of people who work and produce 
jobs, to grow this government, and this will be on the ballot 
in November 2022.
    It is not Putin's fault. It is not corporate greed. As you 
said, in March, did they suddenly get greedy before then? What 
changed was the big spending package in March and a destruction 
of American oil and gas supply.
    So if you spend a bunch of money at the Federal level and 
you reduce the ability of America to produce its own oil and 
gas, you will wind up one day with gas prices like we have. If 
we do not change our policies, it is going to get worse, and 
the only policy change I see is to double down on the policies 
that are not working.
    So all of us on this side will oppose a windfall profits 
tax as designed by the Chairman, and we will take this issue to 
the voters in November and argue that when somebody campaigns 
in 2020 of destroying American energy production you should not 
be surprised in 2022 your gas bill was through the roof.
    Thank you, Senator Kaine.
    Senator Kaine [presiding]. We will now move to five minute 
rounds of questions, and I am the only Democrat here, so I will 
start. I feel lonely in this body. I feel like there is a 
hundred people here and most people in the Senate only have 
broad brushes in their paint kit.
    So inflation is Biden's fault----
    Senator Graham. Well, I will take you to lunch if you are 
lonely. I like you, you are a nice fella.
    Senator Kaine. Inflation is Biden's fault, or inflation is 
because of corporate greed? I think most Americans understand--
and you acknowledge this, Dr. Owens, in your written 
testimony--there is a lot of different causes for this.
    Inflation is Biden's fault when nations all around the 
world are experiencing it? Inflation is because of American 
corporate greed when nations all around the world are 
experiencing it?
    I do think we made a big mistake. I want to focus on some 
labor market issues. I think we made a significant mistake in 
the tax bill in 2017. I voted against it. And in particular, 
here was a mistake, the corporate tax rate. Did we need to 
reduce it to make the corporate tax rate competitive? I think 
we did.
    And my Virginia companies were coming to me and saying, 
reduce the rate to 26 or 27 percent. Were they greedy to ask 
for that? I do not know whether they were or not. I think they 
were trying to be competitive.
    But Congress was stupid to take it to 21.5. My companies 
were asking for 26 or 27, and Congress, in my view, stupidly 
took it to 21.5.
    I made an amendment on the floor during our--when we were 
given the thousand-page bill to read immediately and we got a 
one-minute opportunity to amend, I said, take it back up to 27 
and you will dramatically reduce the deficit or give us the 
opportunity to do some other things.
    And Senator Toomey and all the Republicans opposed me. 
Senator Toomey said he opposed me because it would be raising 
taxes on corporations.
    I felt like I was in Alice in Wonderland. No. It would have 
been reducing taxes dramatically to what they were asking us to 
do, but sadly, we went further.
    I think one of the reasons for inflation--and there are 
many reasons, but one of the reasons for inflation right now is 
a tight labor market. We still have a lot of people out of the 
labor market. It would be good if we could get people back in 
the labor market. I believe we could get a lot of people back 
in the labor market if child care was more affordable.
    If we took the corporate tax rate back to what they were 
asking for, the 26 or 27, I think it would dramatically fund 
more affordable child care and universal pre-K.
    Let me just ask that question. Would more affordable child 
care and universal pre-K, in your views, get more people back 
in the labor market?
    Ms. Owens. Yeah, absolutely. According to the Washington 
Post today, the second most common reason people cite for being 
out of the labor force, aside from early retirement, is the 
lack of child care options. And so providing robust child care, 
bringing the United States closer to peer countries where 
folks, you know, can assume that they will have child care, it 
will be ready for them when they need it to go to work, will 
absolutely pull people off the sidelines and help secure a 
robust economic growth.
    Senator Kaine. Here is a question that I would like all 
three of you to answer. Would Congress working together in a 
bipartisan way to do immigration reform, would that also open 
up the labor market and maybe put some downward pressure on 
prices? And I would like each of the witnesses to answer that 
question.
    Ms. Owens. Sure. We are absolutely overdue for immigration 
reform, and it would be a great way to increase our labor force 
participation.
    Mr. Faulkender. I agree we need to reform the immigration 
system. In particular, we need to look at more H-1B visas and 
facilitating high-educated foreign workers to come into the 
country legally to perform services and relax some of the labor 
constraints we have.
    Senator Kaine. Professor Reich.
    Mr. Reich. Yes. And, Senator, I do agree as well. The 
United States labor force is aging. I am a good example of 
that. And the Baby Boomers are moving on. The Millennials are a 
big generation, but the United States is going to need more 
workers. Immigration is, and has always been, a source of 
extraordinarily important labor market growth in America, and 
there is absolutely no doubt that we need to have immigration 
reform and we need to allow in more immigrants.
    Senator Kaine. Thank you. I yield back, Mr. Chair.
    Chairman Sanders [presiding]. Senator Graham.
    Senator Graham. Well, thank you. On immigration reform--
number one, Senator Kaine is really good to work with.
    The 21 percent rate that we picked was, I think, the world 
average. Is that right, Doctor--how do you say your name again?
    Mr. Faulkender. Faulkender.
    Senator Graham. Okay. Was that correct, that 21 percent is 
sort of the world average?
    Mr. Faulkender. That brought us to the median within the 
OECD (Organisation for Economic Co-operation and Development).
    Senator Graham. Yeah. So when Senator Kaine says 25 versus 
21, it is not an unreasonable debate to have. We just did not 
pull 21 out of the air. So--but, no, he is always trying to 
look for a way forward, and I appreciate that.
    When it comes to immigration reform, I have been in the 
Gang of Eight and about every other gang you can be. I will 
just tell--you know, Dr. Reich, I know you have been involved--
that if we do not secure our border first there will be no 
immigration reform.
    Dr. Owens, does that make sense? If you legalized a bunch 
of people now without securing your border, you would have even 
more illegal immigration?
    Ms. Owens. I think Dr. Reich was referring to the fact that 
our aging population means that to get robust labor market 
growth over the future we are going to need some population 
growth and immigration reform is one way to take that on.
    Senator Graham. Yeah. I am just--Dr. Reich, are you there?
    Mr. Reich. Yes, I am, and that is exactly what I said, and 
that is exactly what I mean.
    Senator Graham. Okay. But we do have to secure the border 
as part of immigration reform. Is that correct?
    Mr. Reich. Yes, and we have had in this country a very 
strong and robust debate about what securing the border 
actually means just as we have had a robust debate about a lot 
of things.
    I think the central issue that we are debating today is 
whether we have a corporate-centered economics or whether we 
have a people-centered economics in terms of inflation and 
making sure that wages rise in a real way. And as somebody who 
has been involved in labor policy for the last 50 years, I can 
tell you that from the World War II until the late 1970s we had 
a growing middle class, we had lower inequality, we had more 
opportunities for people in this country. And starting in 1980, 
we actually had a U-turn, and most Americans have not had much 
of a wage, if at all, but corporate profits continue to grow to 
the point where last week we learned that corporate profits are 
at a 70-year high.
    Now if you cannot actually explain that and explain to the 
American public how we can possibly have inflation and price 
increases while corporate profits are at a 70-year high, then I 
just simply do not know how you can say we have a people-
centered economics. We do not.
    We have policies coming out of Washington----
    Senator Graham. Thank you.
    Mr. Reich [continuing]. That continue to improve the 
wellbeing of American corporations----
    Senator Graham. Okay.
    Mr. Reich [continuing]. Not the wellbeing of American 
people.
    Senator Graham. Thank you. So I totally disagree with what 
you just said. Before COVID, we had the fastest growing economy 
in all sectors of America. African American and Hispanic 
families were doing better than they have ever done. The 
American disability community was doing better than it has ever 
done. The poverty rate was lower, and our economy was in good 
shape. And along comes COVID.
    So all I am saying is we are here to talk about inflation, 
and Senator Kaine mentioned immigration. Count me in for 
supplementing a declining workforce. Count me out for an 
immigration bill that does not secure the border first.
    So, yes, we need a rational immigration system to 
supplement a declining workforce. It is not just H-1B visa 
workers. We need people in the service industry. When you 
cannot find an American to do a job after you advertise it at a 
competitive wage rate, you need to give business a chance to 
bring people into our country to improve their lives and 
improve our economy. Count me in for that.
    But we are here to talk about how to deal with inflation, 
and the Democratic response is to tax people. The Democratic 
response is it is business's fault. It is Putin's fault. No. It 
is the policy choices you have made as Democrats is the leading 
contributor.
    It is a bit complicated. I am sure there are other things 
other than the policy choices, but it is no accident there has 
been a surge in inflation after you pass a $1.9 trillion bill 
to flood the Federal Government with spending, put money 
throughout the economy in every area you can think of. It is no 
accident that gas prices are through the roof when the man 
campaigning for President said he would put the fossil fuel 
business out of business. They virtually have.
    So this whole hearing is about what to do, and if you left 
it up to my Democratic friends, they would spend more money 
through Build Back Better. Thank God, Manchin and a few others 
said, no. And when it comes to energy production, instead of 
producing here, you are calling Venezuela and you are calling 
OPEC and you are calling maybe even Iran. You have got it 
backwards.
    Thank you.
    Chairman Sanders. Thank you very much, Senator Graham.
    Let us do a little bit of reverse engineering, so to speak. 
Let us look at where we are.
    Senator Graham mentioned policy issues. Let us take a look 
at where we are and how we got here. Right now, we have more 
income and wealth inequality than we have had, I think, in a 
hundred years. We have CEOs making 350 times what their average 
workers make. We have half of our people living paycheck to 
paycheck. We have the average worker in America today making 
$40 a week less in real wages than he or she made 50 years ago 
despite huge increases in productivity. And right now, we are 
looking at corporate profits at a 70-year high while companies 
have raised prices for a number of goods at extremely high 
levels. And, we have concentration of ownership in sector after 
sector that we have not seen in a long, long time.
    Secretary Reich, let us talk about policy. How did we get 
to where we are today with so much income and wealth 
inequality, where the people on top are doing phenomenally well 
while ordinary Americans are struggling?
    Mr. Reich. Mr. Chairman, to my mind, there are three 
related, interrelated reasons. One is that corporate power 
keeps growing. And when I say corporate power, I am talking 
about market power, corporate dominance over their markets, the 
ability to raise prices and not suffer any competitive loss, 
and we see this especially during the pandemic and now.
    Senator Graham asks, how can it be? Well, I will tell you 
how it can be. Because corporations--and they have said this in 
earnings calls over and over again. They are taking advantage 
of both the pandemic and the inflation and the war, some 
companies, to raise their prices because they can. They can get 
away with it.
    Now you can call it, and we can call it, whatever we want 
to. We can call it price gouging, or we can call it 
profiteering. It does not matter what we call it. The fact is 
they are doing what their shareholders want them to do, and 
that is capitalism, but workers and consumers are paying the 
price.
    Another major factor is that labor has had less and less 
bargaining leverage. Labor unions--when I was growing up, a 
third of the private sector workforce was unionized. Now, 6 
percent of the private sector workforce is unionized, which 
means that if you have companies that are getting more and more 
dominant on the one hand and workers who are losing their 
bargaining power on the other, it is no surprise that you are 
going to see widening inequality.
    Chairman Sanders. Let me interrupt you if I could because I 
want to get to--thank you. Let me get to Dr. Owens to respond 
to that.
    Ms. Owens. Yeah, so you need motive and opportunity to 
commit a crime. I do not think that corporate greed has changed 
significantly from the pre-pandemic period to the post-pandemic 
period. So I really agree with my Republican colleagues on that 
point.
    I think what we are seeing here is opportunity. It is the 
opportunity that changed. In the case of Exxon, which just 
today noted that they are going to be seeing quarterly profits 
this quarter better than they have seen in a decade, the 
opportunity was foreign war. In the case of 3M, that has jacked 
up the price of masks, the opportunity was the pandemic. And in 
some cases, the opportunity is actually the pretext of 
inflation, the ability to point to inflation rather than their 
own profiteering.
    So I think what we are seeing here is really a system that 
was set up to pounce on a moment like this and corporations are 
taking it to the hilt. They are telling us that over and over 
again. I think we should believe them.
    And I think Congress can step in and we have a variety of 
policy tools at our disposal, from an excess profits tax to 
trying to rein in buybacks to implementing a Federal price 
gouging statute. I think we are overdue for a Federal price 
gouging statute to protect against exactly this kind of 
profiteering during crisis moments, economic transition, 
climate catastrophe, and the like.
    Chairman Sanders. Let me ask Dr. Faulkender. How do you 
feel when two people have more wealth than the bottom 42 
percent, when CEOs make 350 times more than their average 
employee? Is that a good thing?
    Mr. Faulkender. I view profit as a reward that people 
realize from serving their fellow Americans, and so if they 
amass profits because they have offered a better product at a 
lower cost than somebody else, I do not begrudge them for 
providing that good or service to me or to my fellow Americans.
    Chairman Sanders. Okay. Thank you.
    Senator Grassley.
    Senator Grassley. Thank you, Mr. Chairman. I have no 
questions. I want to speak. Democrats have been consistently 
wrong about inflation. This hearing is yet more evidence that 
they remain clueless about the economies of inflation and are 
in denial about the role played by their reckless spending.
    At the start of 2021, Democrats told us inflation was 
nothing to worry about as they pushed ahead with a $2 trillion 
liberal spending spree. According to them, the real risk to our 
economy was spending too little. Now imagine that. This 
argument never had any basis in reality. At that point, 
Congress had spent as much on the pandemic in inflation-
adjusted dollars as we had waging World War II.
    Democrats ignored common sense, and they ignored the 
warnings of very prominent economists. This included Larry 
Summers, who held top posts in the Obama and Clinton 
administrations, who cautioned that Democrats' $2 trillion 
partisan spending spree ``set off inflationary pressures of a 
kind we have not seen in a generation.''
    Since then, Democrats have been trying to explain away 
inflation. In April 2021, President Biden told us inflation was 
due to base effects from prices being suppressed during the 
pandemic. In June, we were told inflation was merely transitory 
and the result of a bottleneck in supply chains. These remained 
the favored lines of arguments until October, when inflation 
surged to 6.2 percent, at that time the highest rate in 31 
years.
    President Biden finally recognized inflation as a problem 
and claimed addressing it was his, quote-unquote, top priority. 
However, instead of admitting government spending was a main 
contributor, would you believe it, he sought to argue that the 
solution was spending trillions more. Now can you imagine that?
    Thankfully, the American people were not buying it. More 
importantly, common-sense Democrats like Joe Manchin did not 
buy it either.
    It is now clear high inflation endangers Democrats' 
reckless tax-and spending agenda. As a result, Democrats are 
grasping at straws to find a scapegoat, hence, blaming 
inflation on corporate greed, never mind that economists across 
the political spectrum overwhelmingly reject the theory. 
Seventy-nine percent of the economists responding to a Chicago 
Booth School of Business survey said they disagreed that, 
quote-unquote, dominant corporations is the cause of today's 
inflation. Jason Furman, President Obama's Chief Economist, has 
stated that ``corporate greed is a bad theory of inflation'' 
and called such arguments, quote-unquote, a side show. Larry 
Summers has called such arguments, quote-unquote, diversionary. 
And Benjamin Page, a senior fellow at Liberal Tax Policy 
Center, has called them, quote-unquote, a red herring.
    The current Democratic rhetoric would be amusing if not for 
the disastrous consequences that could result from 
misdiagnosing the cause of inflation. The current focus on so-
called corporate greed risks taking us down the failed road of 
the 1970s-style price controls and windfall profit tax. Anyone 
who lived through that time can tell you that these policies 
made things worse by reducing supply. The result was rampant 
shortages, most notably, gas lines around the block. Let us not 
repeat the mistakes of the past.
    I yield back my time.
    Chairman Sanders. Thank you very much.
    Senator Whitehouse.
    Senator Whitehouse. Thanks very much. Secretary Reich, you 
have said that corporate profits are at a 70-year high. My 
recollection from my economics classes is that competition 
would drive prices to, at, or near the marginal cost of 
production. That does not seem to be happening, and there are 
two markets in which it seems particularly not to be happening. 
One is the oil market, and the other is the meat market. Are 
there characteristics of the oil market that create this 
problem or allow it to exist? And same for the meat market, is 
there something unusual about those two markets that seemingly 
causes this market theory not to pertain in those markets?
    Mr. Reich. Well, Senator, you have both in the oil market 
and in the meat market a relatively few number of producers who 
can easily coordinate their production. It is called 
oligopolistic pricing and oligopolistic coordination, and we 
see it not just in oil and in meat.
    I want to emphasize that since the 1980s two-thirds of all 
American industries have become more concentrated, and you look 
across the industries, particularly where you see the greatest 
inflation, and you see the fewest number of competitors 
dominating the industries because they can raise prices even 
though they are highly profitable. That is a core problem 
today.
    If you will allow me, I just want to--because I have been, 
in much of this discussion, struck by the criticism of the 
American Rescue Plan and the very important actions that the 
Senate and the House took to help average Americans. I think it 
would be wrong simply to sit back and not say that one of the 
great successes going through this pandemic was that so many 
Americans did not fall into poverty as we have seen in former 
recessions. The fact that they did not fall into poverty, that 
they actually survived, is a great credit to the Senate and the 
House for passing the American Rescue Plan. And again, if you 
take the view that this economy is about people, it is not 
about corporations, then you have to congratulate what the 
government did to help people through this pandemic.
    Senator Whitehouse. What would you say is the role of the 
international oil cartel and speculation in driving the recent 
surge in oil prices?
    Mr. Reich. The international oil cartel and speculation 
typifies the kind of oligopoly that is the relatively few 
number of players who coordinate prices and production that we 
see and again that exemplifies the problems of oligopoly, that 
is, when you have producers who are able to coordinate prices 
and production, inevitably, they are going to do what their 
shareholders want them to do, and that is to maximize profits. 
And then they are going to turn around, and they are going to 
do again what their shareholders want them to do, which is buy 
back their shares of stock to raise and maintain the highest 
possible share prices. That is probably good for their 
shareholders, but what is good for shareholders, we see time 
and again, is not necessarily good for the economy or good for 
consumers or good for workers.
    Senator Whitehouse. In the 30 seconds remaining, I would 
just note that in addition to corporate market power, which the 
Secretary discussed, we have a really stunning problem of 
corporate political power in this country, with massive 
corporate trade associations dominating this building. The oil 
and gas industry, through basically blunt force political 
power, has forced us to ignore climate change now for a decade. 
I think we will rue the day that we let the oil and gas 
industry have that kind of control over what we do here in 
Congress.
    And with that, I will yield.
    Chairman Sanders. Senator Scott.
    Senator Scott. Thank you, Chairman Sanders. The Federal 
Reserve Bank of San Francisco recently released a report 
stating that massive government spending is to blame for the 
raging inflation crisis hurting families across America right 
now. My Democratic colleagues disagree and want to approve 
trillions in additional spending.
    Dr. Faulkender, is the Federal Reserve wrong?
    Mr. Faulkender. Is the Federal Reserve wrong? The Federal 
Reserve was entirely too accommodative during the most recent 
year in increasing the money supply and facilitating the amount 
of Federal spending that was then monetized by the Fed.
    Senator Scott. So what is causing inflation? Is it 
spending, or is it Federal Reserve actions, or both? What is 
it?
    Mr. Faulkender. It is a combination of both. So we have 
excessive demand coming from excessive fiscal stimulus. So we 
have increased household checking and savings accounts balances 
by $3 trillion while the Fed pushed more money into the money 
supply, and at the same time, we degraded our ability to 
provide supply to offset that increase in demand.
    Senator Scott. So how much longer is the inflation going to 
last?
    Mr. Faulkender. I think we were looking for inflation to 
curb this year, but with what is going on geopolitically we 
continue to expect energy prices to rise. And now we are 
looking at food prices rising, particularly grains, and so 
inflation will continue. Fortunately, with the failure of the 
enactment of Build Back Better, we are not going to have as 
much fiscal stimulus overdoing demand in the economy.
    Senator Scott. So does spending in excess of what we 
collect, does that cause inflation?
    Mr. Faulkender. It does, particularly when it is monetized 
by the Fed increasing the money supply to support it.
    Senator Scott. I questioned OMB Director Young last week 
about the nation's financial stability and President Biden's $6 
trillion proposed budget that will take the U.S. debt to $45 
trillion in 10 years. She could not tell me if that debt was 
too much or what number would be enough. I know that the 
Chairman believes that, you know, we can absorb more debt. I do 
not think on this--nobody would do that in their personal life, 
have all this excessive debt.
    So each of the witnesses, can you tell me, is $45 trillion 
worth of debt too much for the United States to carry, or what 
number do you all think is the right number? Mr. Faulkender?
    Mr. Faulkender. Historically, when debt-to-GDP ratios get 
above 100 percent, that is when you start being concerned. The 
U.S. fiscal capacity is probably slightly larger than that 
because we are the world's reserve currency, but I do not want 
to test how much we can get to. I think we need to pull back.
    Senator Scott. So can we service $45 trillion?
    Mr. Faulkender. Given the expected increase in interest 
rates, it is going to become an excessive burden for the 
Federal budget. It is going to become unsustainable, and that 
could put us into a debt spiral.
    Senator Scott. So does that mean we would not be able to 
pay the interest expense, or what would happen?
    Mr. Faulkender. We would have to print additional money to 
pay the interest expense, which is just going to increase 
interest rates even further and increase inflation.
    Senator Scott. Ms. Owens.
    Ms. Owens. Yeah, when I look at the inflation we see right 
now, I actually see 50 years, decades, of underinvestment. We 
have let American manufacturing hollow out. We have let our 
supply chain hollow out. And we are really paying the price for 
that right now. We do not have any redundancy, any geographic 
diversity, any resilience in our supply chain.
    Senator Scott. What about the $45 trillion?
    Ms. Owens. It seems like we are paying the price for that.
    Senator Scott. But you think we can sustain $45 trillion 
worth of debt?
    Ms. Owens. I believe we are at about $23 trillion right 
now.
    Senator Scott. But the budget--if in 10 years, if we follow 
President Biden's budget, we will be at $45 trillion.
    Ms. Owens. Yeah, I think the President's budget laid out 
his plans for investment in the American economy going forward 
and his plans to pay for it with taxes on the rich.
    Senator Scott. Well, even with that, you know, the budget 
goes--the debt goes to $45 trillion, even with the taxes on the 
rich. You realize that?
    So, Mr. Reich, what do you think about $45 trillion worth 
of debt? Do you think we can afford it?
    Mr. Reich. Well, I think that we could afford it, but there 
are two necessary prerequisites. One is investing in the 
American people, that is, education, infrastructure, making 
sure that people have what they need to be more productive. 
That is what we have done for much of the postwar era. We 
stopped doing it. It is very important that we resume doing it.
    Secondly, I think we have to raise taxes on the 
extraordinary wealthy and also on big companies, and for 
Congress to fail to do that at a time when we have 
unprecedented corporate wealth and income, and also individual 
wealth and income at the top, not ordinary people--I am talking 
about at the top. There is extraordinary--it is an opportunity 
to get our fiscal house in order, and for Congress not to take 
this opportunity I think would be a shame.
    Senator Scott. Thank you, Chairman.
    Chairman Sanders. Thank you.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. Thank all of 
you for your testimony.
    I keep hearing from some of my Republican colleagues that 
the Trump tax cuts brought better outcomes for American 
workers. I would just point out that it is a fact that real 
wages grew faster during President Obama's second term than 
during the Trump years, and that does not include the Trump 
years after COVID hit. So the notion that this $2 trillion tax 
cut was a great boon to American workers and wages just does 
not bear out under any scrutiny.
    What we know it brought us was $2 trillion added to the 
deficit and debt and a huge amount of additional stock 
buybacks, and I want to focus for a moment on the stock 
buybacks because they went from approximately $368 billion a 
year in 2016-2017 to what Goldman Sachs estimates will be about 
$1 trillion this year.
    Secretary Reich, let me just ask you to talk a little bit 
about the connection between those Trump tax cuts and ongoing 
stock buybacks. As I think everybody agrees, all the witnesses 
agree, those are great from the perspective of the 
stockholders. I mean, you have a large share of those 
stockholders, I would point out, are overseas investors that 
are pocketing those gains, but clearly, the argument that they 
were going to go to higher wages and more investment just did 
not bear out.
    So, Secretary Reich, if you could start by just talking 
about what the incentives from that bill were created and what 
we are still living with.
    Mr. Reich. Yes, Senator, we were promised--the American 
public was promised--you recall, before the Trump tax cuts, 
that everybody would get a raise, a wage raise, and that there 
would be a huge new round of investments in America. Neither of 
those came to pass. Instead, corporations used their--the money 
that they otherwise would have spent, otherwise would have been 
taxed, the revenues, they actually spent on corporate buybacks.
    I think it is important to understand that stock buybacks 
do not generate more productivity in the economy. There is no 
trickledown from a stock buyback. When corporations use their 
record profits, as they are doing right now, to buy back their 
own shares of stock, what they are doing is delivering higher 
returns to their shareholders because buybacks reduce a 
company's shares outstanding, pushing its profit per share 
figure higher. They hit a new record last year. They are 
going--they are on the way to hitting an even larger record 
this year.
    It is--it helps the share price, but it amounts to a 
redistribution from workers and consumers to shareholders 
because in an inflationary environment, as we are in right now, 
when highly profitable companies are using their profits to buy 
back shares and they are raising their prices at the same time, 
what happens is: Consumers pay more. Workers, even if they got 
a raise, are losing those raises because they are losing them 
to inflation. And shareholders do better, but as we all know, 
most shareholders--half of the stock market is owned by the top 
1 percent of Americans by income, and 84 percent is owned by 
the top 10 percent of Americans by income. This is how you get 
the redistribution upward.
    Senator Van Hollen. So, Dr. Owens, one of the proposals 
that was in the House-passed Build Back Better agenda was a 
modest excise tax on stock buybacks. I do not know if you are 
familiar with the proposal and what your view of that is.
    Ms. Owens. Yeah, I mean, I think the other thing buybacks 
are good for, aside from shareholders--and I completely agree 
with the Secretary that buybacks do nothing for innovation, 
nothing for productive investment, but you should remember they 
are also really good for executives. Executives are frequently 
compensated in stock. They announce a round of buybacks. Share 
prices go up. And guess what we see in the research? In the 
days following one of those buyback announcements, executives 
are more likely to cash in that stock.
    So I think if we want CEOs' incentives, shareholders' 
incentives, corporate incentives aligned with what we care 
about in the real economy, you know, building worker power, 
building an economy that works for all of us, taking on 
buybacks is a critical piece of that. The House-passed proposal 
could do that. President Biden put out a proposal in his budget 
that is nice as well. I think there are a lot of options here.
    Senator Van Hollen. Thank you. I guess my time is out.
    Chairman Sanders. You can take a little bit more.
    Senator Van Hollen. Well, we have a professor from the 
great Smith School at the University of Maryland. Good to see 
you. So I did want to press you on one issue, which is the 
House Build Back Better legislation. And people can have 
disagreements, obviously, over the elements, but it is paid 
for. You would agree with that?
    Mr. Faulkender. I would not. As Senator Graham pointed out 
in his opening statement, once you recognize that these 
temporary measures are going to be made permanent, CBO 
estimates that it will add $3 trillion to the debt.
    Senator Van Hollen. Right. But if you look at the--what CBO 
does is the actual, the law, right, budget projection. It is 
paid for. We have got lots of tax cuts around here. Some have 
expired by law; some have been extended. But just in terms of 
the legislation itself, it is paid for on its face. Right?
    You are assuming that the Congress, future Congresses, will 
extend the tax cuts. That is your assumption. Right?
    Mr. Faulkender. I am assuming future Congresses will extend 
some of the spending programs; that is right.
    Senator Van Hollen. Right. And the tax cuts.
    Mr. Faulkender. Yes. So if things like the refundable child 
tax credit will be extended----
    Senator Van Hollen. And not the taxes, yes. Right. So I 
think in terms of the near-term impact on inflation, to the 
extent that you have got tax revenue coming in, offsetting 
expenditures, in that sense, at least in the first number of 
years, it would be neutral.
    I do not want to prolong the conversation. My time is up. 
Thank you, Mr. Chairman.
    Chairman Sanders. Thank you very much.
    Senator Padilla.
    Senator Padilla. Thank you, Mr. Chair, and I thank you for 
once again putting the spotlight on how corporate greed drives 
up costs for working Americans and hurts workers across the 
country.
    As I have noted in this Committee before, I approach the 
topic not just as a member of this Committee and as a member of 
the Senate but as a parent. We have seen it firsthand, Angela 
and I, when we go to the grocery store, when we are at the gas 
station. Prices are up, and we know how it impacts working 
families. We get the feeling, and the feeling is not good.
    But these price increases--right. This is our job to lay 
out what is causing it in our attempts how to address it. These 
price increases that are in the news constantly are not just 
about rising costs for small businesses that may be struggling 
to get by. The reality is--and you have pointed out the 
evidence, Mr. Chairman, that corporations across industries are 
posting record profits.
    In 2021, corporate profits hit an all time high of nearly 
$3 trillion, up 25 percent from 2020. Now estimates show that 
the earnings of S&P 500 companies rose nearly 50 percent over 
the past year, and no doubt, they boast about these statistics 
to their boards and to their investors while they justify 
increased prices for American families, to the public, by 
citing the pandemic or supply chain- related challenges.
    And to add insult to injury, while some major corporations 
are increasing costs for working families, they are issuing the 
stock buybacks that were just mentioned and record executive 
compensation packages that enrich CEOs and shareholders.
    Some have even tried to blame inflation on the critical 
assistance provided to the American people to help them endure 
a once-in-a-century global health pandemic. Or, some have even 
blamed workers who are fighting for the right to organize and 
standing up for fair pay and benefits and safer working 
conditions.
    But with the growing consolidation of corporate power and 
increasing inequality amid record corporate profits, it is 
evident that corporate greed is what is increasing the costs 
for American families, and as we continue our recovery, we must 
ensure that the economy works for all Americans.
    And so with that as a basis, my first question is going to 
be directed at Secretary Reich. While large oil and gas 
companies--we talked specifically about record profits while 
prices are going up, and I wanted to focus on the oil and gas 
industry for a moment because while large oil and gas companies 
have raised prices at the pump the profits of five of the major 
oil companies increased by $154 billion last year. Now these 
companies have also spent nearly $13 billion on stock buybacks 
over the past year.
    As working families are paying the price amid these higher 
gas prices, it is outrageous that oil companies continue to 
reap billions in profits and use those profits to further 
enrich their executives and shareholders. That is why I am a 
proud co-sponsor of the Big Oil Windfall Profits Tax Act, which 
would establish a per-barrel tax to capture the windfall 
profits of the largest oil companies and return that money to 
consumers in the form of a quarterly rebate. I know Senator 
Whitehouse has talked about this earlier. The measure would 
provide consumers much needed relief while maintaining American 
competitiveness and reducing pressure on inflation by targeting 
corporate profiteering.
    So, Mr. Secretary, I know you are joining us virtually, but 
can you spend a minute talking how a windfall tax can help 
counter the outsized power of these large corporations and 
reduce inflationary pressure?
    Mr. Reich. Yes, Senator, and I think it is very important. 
A windfall profits tax is exactly what is needed right now when 
oil companies, for example, are showing, as they are, 
historical profits. They are making huge amounts of money. They 
are raising prices at the pump at the same time. They do not 
need to raise those prices. They could easily absorb any cost 
increases, but they are not absorbing those cost increases. 
They are--instead, as you pointed out, they are taking their 
windfall, their huge windfall profits, and they are buying back 
shares of stock to help their shareholders and executives.
    And so people are going to the gas pumps. They are spending 
their own money at very, very high and rabid rates to fill 
their gas tanks. And that money, a large portion of that money, 
is going to executives and major investors. So you want a 
windfall profits tax that enables--that stops them from doing 
that and actually rebates that money to consumers.
    We did it in World War II. We did it in World War I. We did 
it under emergency circumstances. There is no reason we should 
not be doing it now. In fact, there is every reason we should 
be doing it.
    Senator Padilla. Thank you very much.
    And, Mr. Chairman, I know my time is up. I will submit some 
additional questions for the record. I just wanted to 
appreciate the distinction and the emphasis on not just taxing 
profits, taxing windfall profits because that is what is 
happening now through the exploitation at the pump. Thank you, 
Mr. Chair.
    Chairman Sanders. Well, thank you, Senator Padilla.
    Let me close by saying this. This hearing has focused on 
inflation taking place at the same time as we are seeing 
record-breaking profits, we are seeing record-breaking levels 
of stock buybacks, we are seeing high dividends, we are seeing 
and living through a moment in American history where the 
people on top are doing phenomenally well while working people 
are struggling.
    Now this hearing actually has been criticized. I got a 
letter this morning from the Chamber of Commerce, who strongly 
criticized the basis, the hypothesis, underlying this hearing. 
But when we talk about corporate power in America, it is 
important to understand that the Chamber of Commerce itself has 
spent $1.4 billion in lobbying in the last 20 years.
    During this hearing, we referred to the fact that 
pharmaceutical industry profits are soaring. And yet, at a time 
when we want to lower the cost of prescription drugs, it turns 
out that the pharmaceutical industry, to defeat that initiative 
within Build Back Better, spent some $300 million on lobbying 
alone, not to mention advertising and campaign contributions.
    So while this hearing today focused on corporate profits 
and inflation, in truth, what we are touching on is an issue 
much broader, and that is the incredible power now held by 
corporate America, not only over the economic life of this 
country but the political life of this country and the media 
life of this country. And I think it is fair to say that never 
before, at least in the modern history of this country, have so 
few had so much in terms of financial resources and in terms of 
political power.
    And the challenge that we are facing right now is whether 
we are going to live in a government--live with a government 
that works for all of us or is dominated by big money and 
trusts and works for the very few. Unfortunately, right now the 
latter is the case. The rich get richer, and working families 
struggle. The wealthy buy political campaigns. So I would hope 
that this hearing today is simply a start in focusing on this 
massive disparity, not only in wealth but in economic and 
political power as well.
    And with that, let me thank our panelists for being with us 
and the Senators who participated, and let me conclude this 
hearing.
    And let me just say that I want to thank the--all 
information for all Senators--as information for all Senators, 
questions for the record are due by 12:00 noon tomorrow with 
signed hard copies delivered to the committee clerk in Dirksen 
624. E-mailed copies will also be accepted. Under our rules, 
the witnesses will have seven days from receipt of our 
questions to respond with answers.
    With no further business before the Committee, this hearing 
is adjourned.
    [Whereupon, at 12:30 p.m., the Committee was adjourned.]

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