[Senate Hearing 118-76]
[From the U.S. Government Publishing Office]
S. Hrg. 118-76
THE DEFAULT ON AMERICA ACT: BLACKMAIL,
BRINKMANSHIP, AND BILLIONAIRE
BACKROOM DEALS
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HEARING
before the
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
May 4, 2023
__________
Printed for the use of the Committee on the Budget
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
_________
U.S. GOVERNMENT PUBLISHING OFFICE
53-194 WASHINGTON : 2023
COMMITTEE ON THE BUDGET
SHELDON WHITEHOUSE, Rhode Island, Chairman
PATTY MURRAY, Washington CHARLES E. GRASSLEY, Iowa
RON WYDEN, Oregon MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan LINDSEY O. GRAHAM, South Carolina
BERNARD SANDERS, Vermont RON JOHNSON, Wisconsin
MARK R. WARNER, Virginia MITT ROMNEY, Utah
JEFF MERKLEY, Oregon ROGER MARSHALL, Kansas
TIM KAINE, Virginia MIKE BRAUN, Indiana
CHRIS VAN HOLLEN, Maryland JOHN KENNEDY, Louisiana
BEN RAY LUJAN, New Mexico RICK SCOTT, Florida
ALEX PADILLA, California MIKE LEE, Utah
Dan Dudis, Majority Staff Director
Kolan Davis, Republican Staff Director and Chief Counsel
Mallory B. Nersesian, Chief Clerk
Alexander C. Scioscia, Hearing Clerk
C O N T E N T S
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THURSDAY, MAY 4, 2023
OPENING STATEMENTS BY COMMITTEE MEMBERS
Page
Senator Sheldon Whitehouse, Chairman............................. 1
Prepared Statement........................................... 43
Senator Charles E. Grassley, Ranking Member...................... 4
Prepared Statement........................................... 46
STATEMENTS BY COMMITTEE MEMBERS
Senator Patty Murray............................................. 18
Senator John Kennedy............................................. 19
Senator Debbie Stabenow.......................................... 22
Senator Mitt Romney.............................................. 23
Senator Chris Van Hollen......................................... 25
Senator Roger Marshall........................................... 27
Senator Jeff Merkley............................................. 29
Senator Rick Scott............................................... 31
Senator Ben Ray Lujan............................................ 34
Senator Mike Braun............................................... 35
Senator Alex Padilla............................................. 38
WITNESSES
Dr. Mark Zandi, Chief Economist, Moody's Analytics............... 7
Prepared Statement........................................... 49
Mr. Fred Krupp, President, Environmental Defense Fund............ 8
Prepared Statement........................................... 58
Ms. Abigail Ross Hopper, President and CEO, Solar Energy
Industries Association......................................... 10
Prepared Statement........................................... 63
Mr. Brian Riedl, Senior Fellow, Manhattan Institute.............. 12
Prepared Statement........................................... 76
Dr. Jason J. Fichtner, Vice President & Chief Economist,
Bipartisan Policy Center....................................... 13
Prepared Statement........................................... 80
APPENDIX
Responses to post-hearing questions for the Record
Dr. Zandi.................................................... 84
Mr. Krupp.................................................... 85
Mr. Riedl.................................................... 88
Dr. Fichtner................................................. 90
Chart submitted by Senator Rick Scott............................ 93
Statements submitted for the Record by Chairman Sheldon
Whitehouse..................................................... 94
Statements submitted for the Record by Ben Ray Lujan............. 102
Statement submitted for the Record by the National Education
Association.................................................... 131
THE DEFAULT ON AMERICA ACT: BLACKMAIL,
BRINKMANSHIP, AND BILLIONAIRE
BACKROOM DEALS
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THURSDAY MAY 4, 2023
Committee on the Budget,
U.S. Senate,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:00
a.m., in the Dirksen Senate Office Building, Room SD-608, Hon.
Sheldon Whitehouse, Chairman of the Committee, presiding.
Present: Senators Whitehouse, Murray, Stabenow, Warner,
Merkley, Kaine, Van Hollen, Lujan, Padilla, Grassley, Romney,
Marshall, Braun, Kennedy, and R. Scott.
Also present: Democratic Staff: Dan Dudis, Majority Staff
Director; Joshua P. Smith, Budget Policy Director; Kara Allen,
Senior Energy and Climate Advisor, Energy Lead; Tyler
Evilsizer, Senior Budget Analyst; Dan Ruboss, Senior Tax and
Economic Advisor and Member Outreach Director.
Republican Staff: Chris Conlin, Deputy Staff Director;
Erich Hartman, Director of Budget Policy & Review; Nic
Pottebaum, Professional Staff Member; Jordan Pakula,
Professional Staff Member.
Witnesses:
Dr. Mark Zandi, Chief Economist, Moody's Analytics
Mr. Fred Krupp, President, Environmental Defense Fund
Ms. Abigail Ross Hopper, President and CEO, Solar Energy
Industries Association
Mr. Brian Riedl, Senior Fellow, Manhattan Institute
Dr. Jason J. Fichtner, Vice President & Chief Economist,
Bipartisan Policy Center
OPENING STATEMENT OF CHAIRMAN WHITEHOUSE \1\
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\1\ Prepared statement of Chairman Whitehouse appears in the
appendix on page 43.
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Chairman Whitehouse. Good morning everyone. I am delighted
to call this hearing to order, and I want to thank the
witnesses who are here with us, and also our witness who is
going to be appearing remotely. Senator Grassley and I will
provide brief opening remarks, and then I will introduce the
witnesses, and we'll get into all of the witness statements,
which I urge you to confine to five minutes, so that we can
then get into a conversation with colleagues who are here.
The point of the hearing this morning is to examine Kevin
McCarthy's so-called Limit Save Grow Act, more accurately known
on our side as the Default on America Act, an Act cobbled
together by House extremists in back rooms in the dark of
night. Since the House didn't hold a single hearing on this
extreme and dangerous measure, the Senate will.
MAGA Republican's dangerous bill poses a terrible choice.
Default on our financial obligations, causing widespread pain
and wrecking our economy, or gut basic federal programs
essential to our economic strength causing widespread pain and
wrecking our economy.
It is a false and unnecessary choice. MAGA Republicans have
claimed they are averting a catastrophe by setting up this
rotten choice. Do not believe it. They are causing one. Many of
them want one. Our Republican House friends care about the debt
sporadically. With Republican presidents they pass huge tax
cuts for the wealthy and large corporations adding trillions to
the debt.
More than $7 trillion of debt was added under President
Trump and almost $3 trillion was added under President George
W. Bush, the last two Republican presidents. But when there's a
Democrat in the oval office they seek to interfere with the
ability of government to function, whether it's shutdowns, or
near defaults, or blocking economic recovery legislation.
They seek to cause chaos. Not coincidentally this serves
the eccentric and secretive billionaires and polluting
industries who are the Republican party's funders, whose stated
goal is to destroy the socalled administrative state.
The agencies that protect regular people against powerful
polluters and special interests.
The party's funders, chief among them, the fossil fuel
industry, demand reward. And 275 out of 315 pages of the dirty
Default on America Bill are devoted to giveaways to the fossil
fuel industry. 275 out of 315 pages. What is the history here?
Since Bill Clinton took office 30 years ago Congress has raised
or suspended the debt limit on 24 separate occasions, 14 times
under Democratic presidents and 10 times under Republican
presidents.
We've raised it under divided Congresses and under unified
ones. We've even raised the debt limit twice under unified
Republican control, with no strings attached, with President
Trump in office. And two of the three times we raised the debt
limit under President Trump were paired with spending
increases.
On Monday, Leader Schumer, along with Senators Murray,
Wyden and I introduced a two page bill to stave off default
through the end of 2024. The section that would actually
suspend the debt limit is 31 words. The Senate should pass this
bill immediately, particularly as we learned on Tuesday the
Treasury could run out of funds as soon as June 1st.
Attempting to extract partisan policy concessions with
threats to intentionally drive the American economy off a cliff
is the very definition of extremism. Democrats have been
threatened default unless Congress also passes gun control
legislation, or climate legislation, even though those are
desperately needed policies with popular support.
Why not? Because crashing the global economy if we don't
get what we want isn't policymaking, it's hostage taking, and
it's extremism. So let's examine the two terrible options the
dirty DOA Bill tees up. Option one is the Republican default
option. What will that cost? Dr. Zandi estimates that the
default of even just a few days would lead to a recession,
close to a million jobs, and raise unemployment from 3.4
percent to 5 percent.
A long-term default would cost over 7 million jobs and push
the unemployment rate over 8 percent. Interest rates on car
loans, mortgages and credit cards would rise for decades. Their
other option is their Default on America Act, with its massive
backroom devastating cuts to things like border security, law
enforcement, education, affordable energy, opioid treatment,
Meals on Wheels, elderly housing and administering social
security benefits, supports vital to our economic health and
well-being.
Dr. Zandi analyzed the effects of this option, and
estimates the DOA Act would cost 790,000 jobs, and shrink the
economy by $141 billion next year. We're supposed to choose
between 790,000 and nearly 1 million jobs lost between
recession and 141 billion dollar hit to the economy, pick your
poison.
It's a false choice, and we shouldn't go either way. In
addition to the cuts the bill imposes what it calls 1 percent
caps. Those caps on discretionary spending will affect a huge
swath of what the government does, including the Defense
Department and veteran's healthcare.
Republicans maintain the defense and veterans would not be
cut, but no exemption for veterans appears in the 315 pages.
When Congress imposes spending caps, defense and veterans
programs get the squeeze, along with everything else. Even if
defense and veterans health programs were allowed to grow with
inflation, that just shifts cuts to the remaining discretionary
programs.
Under this future law enforcement, child nutrition, and
scientific research would all be cut 33 percent below baseline
next year, and by 2033 they'd be cut 60 percent. Even the
republican Chairman of the House subcommittee that oversees
transportation and housing spending implied that the proposed
cuts are ``essentially unworkable''.
Here's some gems. Republican's DOA Act would rescind the
extra funding we provided to the IRS to go after wealthy tax
cheats and serve Americans better. This would add $120 billion
to the deficit, and help super wealthy individuals and
corporations who evade their tax responsibilities. After all
our work on healthcare the DOA Act would put 21 million people
at risk of losing their health insurance.
The DOA Act is a field day for polluters, repealing clean
energy tax credits that are already generating over 142,000
jobs for more than 190 projects, including projects Republicans
have touted back home before coming to Washington to pull down
those very credits.
Freeze frame that, and read it at your leisure. Those were
comments by Republican House members lauding projects funded by
those tax credits they're trying to undue. It would even let
fossil fuel interests leak polluting methane emissions with no
fee for that pollution.
By contrast, President Biden's budget proposed $3 trillion
of deficit reduction by raising taxes on the wealthy and large
corporations. It was win/win. People and corporations dodging
tax responsibilities would pay a fair share, and the economy
would grow.
This DOA proposes raising costs on working families. It's a
lose/lose. Pick your poison, default or disaster. Simply put,
we must raise the debt limit. We must do it now. And we must do
it without wrecking lives and livelihoods to appease eccentric
billionaires.
Chairman Whitehouse. Senator Grassley.
OPENING STATEMENT OF SENATOR GRASSLEY \2\
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\2\ Prepared statement of Senator Grassley appears in the appendix
on page 46.
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Senator Grassley. If you really care about working
Americans why wouldn't you want to do something about the
terrible energy policies of this administration, and the
terrible spending policies of this administration that has
raised inflation to a 40 year high, and gas prices to a
historic high last year, and shooting up again?
It seems to me that the Republicans have taken the right
approach in this effort because we do care about working
Americans. I think that when it comes to inflation I'd like to
remind everybody of a statement that Paul Volcker made way back
in 1981, but it was the same historical time we're in right
now, a time of high interest rates, and high inflation.
His words and advice to Congress, and it was advice to
Congress, ``Cutting spending may appear to be the most painful
part of the job, but I'm convinced that the pain for all of us
will ultimately be much greater if it is not accomplished.'' I
think in my opening comments I'm going to try to make it clear
that in I think, out of 11 times in over how many years, I
don't know the debt limit has been increased.
It's been coupled, six or seven times at least with debt
reduction, spending reduction I should say, and it also is
something that I'm going to show you that many Democrats had
proposed in the past. So Mr. Chairman, I thank you for holding
today's hearing on the House passed Limit, Save and Grow Act.
I think the Grow Act is the most important part of that
title because we're not going to improve the economy by taxing
and spending more, and I don't know who out there believes that
the government--of our witnesses--believes that the government
is the answer to every problem in the world.
But remember, Washington consumes wealth. It's the people
out there in middle America, and both on the west coast and
east coast that do the work, that feed the money to this city
that we spend, and we consume, so House Republicans have acted
responsibly by passing a debt limit increase, while also
beginning to tackle our country's unsustainable debt and
deficits.
Now in contrast, President Biden and Biden's Senate
Democrats have sat idly by, watching the clock tick down to
default, by not thoughtfully engaging they hope to avoid a
substantive debate on a very serious fiscal issue, and that
issue we all now was facing 330 million Americans.
Now I know that they're going to start meeting next
Tuesday, but they wasted, I suppose as of now, about 97 days
since Biden and McCarthy met in the White House, way back in
early February. So, in a last bid effort to avoid an honest
debate on our nation's finances, this week do you know what
Senator Schumer did?
He introduced legislation to suspend the debt limit until
2025. Schumer is too little and too late, as a growing number
of Congressional Democrats, yes, Congressional Democrats, are
starting to call on President Biden to negotiate. It's time for
President Biden, and Biden's Senate Democrats to come to the
realization that their reckless, and irresponsible strategy of
delay has failed, and begin negotiations in earnest.
No longer can Biden Democrats ignore that over the next ten
years deficits will average $2 trillion, or ignore that the
public debt as a share of our economy is set to rocket past the
previous World War II era records of 106 percent of GNP by
2028, or that interest costs are set to triple from $475
billion last year, to $1\4/10\ trillion by 2033.
Our out of control debt is a bipartisan problem. But once
President Biden and Biden's democratic Congress, exacerbated
through budget busting partisan legislation and costly
executive fiats. And they were warned in December of 2020 by
their own economists, importantly Harvard economists and former
Secretary of Treasury Summers, saying listen, the economy is
turned around by December 2020, we're on a path of growth.
Don't spend anymore money. Within less than 60 days another
$1\9/10\ trillion. On January 20, 2021 inflation 1.4 percent.
Don't forget, it immediately shot up to 9.1 percent, so our out
of control debt is a bipartisan problem, and that's where it's
going to have to be fixed.
Don't forget that the deficits that CBO are currently
projecting through 2031 are $6 trillion higher than what the
agency expected when Biden took office. Given our dismal,
fiscal outlook, it would be irresponsible not to follow the
historical practice of pairing an increase in the debt limit
with fiscal control to reign in Washington's chronic
overspending.
Simply kicking the can down the road can no longer be an
option. The House bill starts to improve our unsustainable
fiscal trajectory by repealing the President's unconstitutional
student loan giveaway, another thing that's going to exacerbate
inflation. Also, pairing back the reckless spending of Biden
Democrat's inflation increasing Reconciliation Act, and capping
discretionary spending for next year at fiscal year 2022
levels--levels agreed to by a Democratic Congress, and in
effect as recently as December.
On that last point, it would be up to Congress,
particularly appropriators to determine how to meet the
discretionary top line. Nothing in this legislation mandates
cuts to defense, veteran's healthcare, border security, or
other activities that Republicans have already prioritized.
Biden Democrats contend that doing anything but
rubberstamping an unconditional increase in the debt limit is
irresponsible. Well, just a few years ago, the very same
Democrats, Biden Democrats, were singing a different tune. In
2017, Senator Schumer boasted about using the debt limit as,
his words, ``leverage'' in negotiations with the White House.
And in 2019, then Speaker Pelosi demanded that any debt
ceiling suspension be paired with an increase in discretionary
budget caps. She said, ``When we lift the caps, then we can
start talking about lifting the debt ceiling.''
And last, but not least, then Senator Biden had this to say
in 1984, shortly before he voted against raising the debt
limit. ``I cannot agree to vote for a full increase in the debt
limit without any assistance or assurance that steps will be
taken earlier next year to reduce the alarming increase in
deficits and the debt.''
The fact is that debt limit legislation has always been the
product of negotiations between White House and Congress. And
it's long past time for President Biden to sit down with the
Speaker, and negotiate a deal like the one he brokered as Vice
President in 2011. If it worked then, it can work now.
Republicans aren't the only ones saying so. Even many
Democrats are now telling the President he needs to sit down
with Congressional leaders. Well, we know that's going to
happen next Tuesday. One Senate Democrat said that the
President's refusal to meet with the speaker, ``signals a
deficiency of leadership,'' so by now maybe 95 days have been
lost.
Another Democrat in the House says that President and
Speaker, ``Ought to get to work and get it done for the sake of
the country.'' The House Republicans bill is meant to start a
conversation. To start a conversation, not end it. Speaker
McCarthy has said many times that he wants to negotiate with
President Biden.
So all the barbs and attacks on the House bill today are
meaningless. Everyone knows it. This is an opening bid. It's
time for President Biden to stop playing politics, and
demonstrate real presidential leadership by negotiating in good
faith, and we'll find out whether it's in good faith next
Tuesday.
I'm glad that the President finally agreed to meet with
Congressional leaders, but a meeting is not the same as
negotiation. I hope when the President sits down with the
Speaker he will bring an open mind, and a serious counteroffer
because the longer the President spends dragging his feet, and
putting off negotiations, the closer President Biden brings us
to the first ever federal default in U.S. history. Thank you.
The Chairman. Thank you Senator Grassley. Our first witness
is Dr. Mark Zandi. He is Chief Economist of Moody's Analytics,
where he directs their economic research. Dr. Zandi's research
interests encompass macroeconomics, financial markets, and the
economic impact of government spending policies, and monetary
policies, and he will evaluate the default and Default on
America options. Dr. Zandi, thank you for being here.
After that, appearing remotely we have Fred Krupp,
President of the Environmental Defense Fund. And since 1984 he
is an advocate for harnessing the power of the marketplace to
protect our environment and help steward the acid rain
reduction program into the 1990 Clean Air Act.
Recently, EDF has focused on the problem of methane
emissions from the oil and gas system. Thank you for appearing
Mr. Krupp.
Our third witness is Abby Hopper, President and CEO of the
Solar Energy Industries Association. Ms. Hopper oversees all of
SEIA's activities, including government affairs, research,
communications and industry leadership, and is focused on
creating a marketplace where solar will constitute a
significant percentage of America's energy generation.
Unfortunately right now there are Republican efforts in
this bill, and in the CRA to try to destroy the American solar
industry. Ms. Hopper, thank you for joining us.
Next, we have Brian Riedl. Riedl is a Senior Fellow at the
Manhattan Institute, where his research focuses on budget, tax
and economic policies. Previously, he worked for six years as
Chief Economist to our friend, Senator Rob Portman of Ohio. Mr.
Riedl, welcome.
And finally, we'll hear from Dr. Jason Fichtner, who is
Vice President and Chief Economist at the Bipartisan Policy
Center. His research focuses on Social Security, federal tax
policy, federal budget policy, retirement security, and policy
proposals to increase saving and investment. Dr. Fichtner we
appreciate you being here. Thank you. Dr. Zandi, please
proceed.
STATEMENT OF DR. MARK ZANDI, CHIEF ECONOMIST, MOODY'S ANALYTICS
\3\
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\3\ Prepared statement of Dr. Zandi appears in the appendix on page
49.
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Dr. Zandi. Thank you Senator Whitehouse, Ranking Member
Grassley, and the rest of the Committee for the opportunity to
participate today. I am the Chief Economist at Moody's
Analytics, but my remarks today are my own views.
I should also say, just for sake of disclosure, I'm on the
Board of Directors of a publicly traded mortgage insurer. I
will make three points in my remarks. First, by my calculation
the X date, the day on which the Treasury will run out of cash
to pay all the government's bills on time will be June 8th.
This estimate of the X-date is very uncertain because it
depends on the very uncertain tax receipts. But it's very clear
that the April tax revenues came in very weakly, about a third
of what we took in last year. We don't quite know what the
revenue numbers are going to look like in coming days, but by
my best calculation June 8th will be the day when Treasury
can't pay its bills.
There is a possibility, a worst case scenario that it will
be June the 1st. It will be very close. Best case scenario will
be August 8th. So that gives you a sense of timing here. Point
number two, this is an especially opportune time to have a
political debate over the debt limit. Recession risks are
uncomfortably high. I'd say a majority of economists, many CEOs
and investors firmly believe that a recession is likely over
the next 12 to 18 months.
The economy is struggling with the increase in interest
rates. There was a rate increase by the Federal Reserve again
yesterday. The Fed has raised rates over 5 percentage points in
a little over a year. That's created tremendous pressure on the
economy, and of course on the banking system. The banking
system is struggling as well at this point.
And while it feels like the worst of the crisis is over,
it's still simmering, and the fallout is yet to be felt in
terms of credit availability, and what it means for small
business, commercial real estate and other parts of the
economy. This leads me to one of my concerns about the Limit
Save and Grow Act, and that is it entails significant cuts to
spending, government spending, beginning in fiscal year 2024,
which begins at the end of this year, right at the point in
time when the economy is going to be the most vulnerable to
going into recession.
By my calculation the Act will shave spending equal to
about a half a percent of GDP in 2024, and that's a half a
percent that the economy does not have. And you will see, under
any scenario, significant, meaningful job loss in 2024,
unemployment will rise.
I go into much more detail with regard to my assessment of
the macroeconomic effects of the Limit Save and Grow Act in my
written testimony, but just to summarize, it will reduce
employment by the end of 2024 by about 800,000 jobs, and add
meaningfully to unemployment by almost a half of a percentage
point, putting the unemployment rate, which is currently 3 and
a half percent, closer to 5 percent.
So, the timing here is particularly difficult. Finally, I
think there's a path forward. A viable, political path forward
here, and I think the first thing that needs to be done is the
debt limit needs to be suspended. There's no time to get this
done before the X date. In the current debt limit negotiations,
I recommend suspending the debt limit to the end of FY 2023 to
line it up with the budget negotiations so legislation
increasing the debt limit can be passed.
I highly recommend the legislation increases the debt limit
enough to push the next debt limit negotiations to the other
side of the 2024 election, because if you don't, the
uncertainty that will be prevalent between now and when we
debate this again next year, is going to be very, very
significant, and again, contribute to the potential economic
recession.
So, move the suspension to the other side of the election.
Pass a piece of legislation increasing the debt limit, then
pass a piece of legislation the same time funding the
government in fiscal year 2024. Debate, discuss, appropriate
spending levels, composition of that spending, and any other
fiscal policy that's necessary to pass that budget legislation
for fiscal year 2024.
Do them at the same time. Get this done and let's move
forward. I will say, of course, all this will not address the
nation's long-term fiscal problems. We are on an unsustainable
fiscal path. We need both additional tax revenue, and we need
spending restraint, both of those things need to happen, but we
can't do that in the current environment. This is not the time
to do it.
We need to end this drama as quickly as possible. If we
don't we're going to go into recession, and our fiscal
challenges will be made even worse. Thank you, Senator.
Chairman Whitehouse. Thank you very much. Mr. Krupp, do we
have you standing by?
Mr. Krupp. You do indeed.
Chairman Whitehouse. All right. You may proceed with your
statement. Thank you for joining us electronically.
STATEMENT OF FRED KRUPP, PRESIDENT, ENVIRONMENTAL DEFENSE FUND
\4\
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\4\ Prepared statement of Mr. Krupp appears in the appendix on page
58.
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Mr. Krupp. Thank you Chairman Whitehouse, Ranking member
Grassley, and members of the Committee. I am Fred Krupp,
President of the Environmental Defense Fund, with more than 3
million members. EDF is working across the United States, and
in 28 countries to create transformational solutions to the
most serious environmental problems.
I want to thank you for the opportunity to testify today.
The House Republicans plan to tie the debt ceiling increase to
repeal of critical Inflation Reduction Act provisions threatens
our economy, our health, and our clean energy future. I'm going
to focus my verbal testimony on the proposed repeal of the
Methane Emissions Reductions Program, MERP.
It's an example of the smart policies and tremendous
opportunities that would be taken away by the House passed
bill. Now methane is the main component of natural gas, and
U.S. companies currently waste enough methane to meet the
annual energy needs of more than 12 million households.
Put another way, it's a third of the gas that Europe was
importing from Russia before the invasion of Ukraine. And this
gas could be brought to our allies without the need for any
additional new export capacity. At a time of uncertainty and
instability in global energy, allowing companies to continue to
waste this energy resource is just unconscionable.
Reducing methane pollution is also the fastest, most cost-
effective way to immediately slow our current rate of global
warming. Oil and gas companies are the largest industrial
source of methane.
U.S. companies emit at least 13 million metric tons of
methane annually. That's an amount that has a greater near term
climate impact than over 200 million cars driven for an entire
year.
And cutting methane, and other dangerous air pollutants
emitted alongside it, are important to protect the health of
the roughly 10 million Americans who live near an active oil or
gas site. So MERP provides a strong incentive to cut pollution
with its charge on excessive methane emissions from the U.S.
oil and gas facilities.
Now many operators will choose to invest in preventing
pollution, rather than pay for the excess emissions. That's
what we want. The charge applies to emissions from large
operators that emit above levels consistent with the industry's
own pollution targets. Operators can avoid the charge by just
cutting their emissions.
Let me stress that point. By meeting the industry's own
emission reduction targets operators would not pay the charge.
MERP also directs $1.55 billion to state and tribal agencies,
communities, and producers, to help reduce the emissions.
Funding that would be eliminated if this program is repealed.
MERP also supports job creation by keeping more product in
pipelines and out of the atmosphere. The growing methane
mitigation industry provides the goods and services needed to
help the companies measure and reduce their emissions.
This industry is nearly doubled in size since 2017, with
more than 200 companies today providing family sustaining jobs
that can't be offshored.
Now, EPA's current method of quantifying methane emissions
does not accurately reflect today's oil and gas production
practices and equipment. Studies have found that methane
emissions are as much as 60 percent higher than current EPA
estimate. To fix the problem, we must accurately understand the
magnitude and source of the pollution.
MERP addresses this by directing EPA to update the
greenhouse gas reporting program to incorporate real data that
will ensure emissions estimates and MERP's waste charge
accurately reflect the total emissions from oil and gas
facilities.
We need strong and comprehensive pollution standards from
EPA to ensure robust pollution reductions from every company,
for every community.
A charge will discourage wasteful levels of methane
emissions, and hold companies accountable, while exempting
those that are in compliance. Congress was right to enact MERP.
Our health and the environment will benefit because of it, and
it should be left in place to do its job.
Chairman Whitehouse. Thank you very much Mr. Krupp, and
wonderful precision on the five minutes, to the second. Ms.
Hopper, please proceed with your testimony. Thank you.
Ms. Hopper. Thank you.
STATEMENT OF ABIGAIL ROSS HOPPER, PRESIDENT AND CEO, SOLAR
ENERGY INDUSTRIES ASSOCIATION \5\
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\5\ Prepared statement of Ms. Hopper appears in the appendix on
page 63.
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Ms. Hopper. Chairman Whitehouse, Ranking Member Grassley,
and members of the Senate Budget Committee, thank you for
inviting me here today to share what we are already seeing
because of the Inflation Reduction Act, and the impact that the
proposed repeal of this legislation would have on our economy.
My name is Abigail Ross Hopper, and I am the President and
CEO of the Solar Energy Industry's Association. I am privileged
to represent the 255,000 working Americans who are employed in
the solar and storage industry. The policies enacted by the
Inflation Reduction Act are having a huge impact across the
country in the form of new American jobs, new American
manufacturing capacity, and improved U.S. energy security.
That is why it is essential that the IRA remain intact in
its current form. The certainty that the law provides, the
investments that are being made, the jobs that are being
created are all contingent on the continuation of this statute.
Nearly every week I travel across the country visiting company
headquarters, manufacturing facilities, and solar and storage
installations.
Don't ask my children how they feel about that. Among the
biggest takeaways is that the IRA is an engine for American job
creation for all renewable energy sectors, storage, solar,
wind, offshore wind, and EVs to name just a few.
These investments are being made across the country in
states led by Republicans and Democrats alike. Climate Power
recently announced that within six months of the IRA being
signed into law, clean energy companies have announced more
than 142,000 new jobs across 41 states.
Climate Power has also tracked 191 clean energy projects,
and 242 billion in investments. Our team at SEIA is tracking
announcements of new manufacturing facilities for the solar
supply chain that would grow our domestic manufacturing
capacity from 7 gigawatts per year to nearly 50 gigawatts per
year, thanks again to the IRA.
This is proof positive that we are in the midst of a next
evolution of our economy, one that focuses on economic growth,
well-paying jobs, and rebuilding our country's manufacturing
sector. For example, upwards of 40 new electric vehicle battery
manufacturing sites will be coming to Michigan, Arizona and
South Carolina, with an additional 22 companies sharing their
plans for expanding manufacturing in places such as Oklahoma,
Alabama and Michigan.
Wind manufacturing facilities have been announced across
states that include South Dakota, Iowa, Georgia, excuse me,
Georgia, Arizona, South Carolina, Texas and Tennessee and
Qcells is investing $2.5 billion in cell and module
manufacturing in Dalton, Georgia.
Qcells also recently announced an investment of $160
million in formerly shuttered REC silicon plant in Washington
State. Collectively, these factories and dozens more like them
represent tens of billions of dollars in new investments, and
100,000 home grown jobs across the country, and again, all the
result--the direct result, of the Inflation Reduction Act.
Any threat to the IRA is a threat to these factories and
these jobs. The investments also continue to help build
workforce demand, and rebuild opportunity in low-income
communities, communities of color, and traditional energy
communities. I've been talking a lot about numbers, and I
anticipate will continue to do that through the course of this
hearing, but I want to personalize this just a little bit.
Last week I was in the great State of Arizona, and I was on
a manufacturing floor, and I met a woman named Michelle.
Michelle has worked in that manufacturing facility for the last
few years. They manufacture tracker systems for utility scale
projects. They use American steel and are an American company.
Michelle has been promoted a couple of times over the
course of the last few years, and since the passage of the IRA
there's been even more demand. The company is growing, and the
production continues there. In addition to the jobs and
economic growth that the IRA has produced, it has also made our
country more secure, producing energy at home with renewable
energy, and making the materials to deploy that energy here in
this country will insulate us from global conflicts, and allow
us to make needed upgrades to our grid with confidence.
The IRA is a landmark law, that through the deployment of
clean energy is not only building our economy through
manufacturing and jobs, but is the foundation of our country's
next and greatest evolution, and that my friends, is real
energy dominance.
Chairman Whitehouse. Thank you Miss Hopper. With consent I
would like to put an additional exhibit into the record
supplementing your testimony, which represents the investment
in jobs in states represented by members of this Committee
since the passage of the IRA, and spoiler alert, it's over
56,000 jobs just in states that this Committee represents, and
nearly $60 billion in investment and with that we turn to Mr.
Riedl.\6\
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\6\ Statement submitted by Chairman Whitehouse appears in the
appendix on page 94.
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STATEMENT OF BRIAN RIEDL, SENIOR FELLOW, MANHATTAN INSTITUTE
\7\
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\7\ Prepared statement of Mr. Riedl appears in the appendix on page
76.
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Mr. Riedl. Good morning Chairman Whitehouse, Ranking Member
Grassley, and members of the Committee. Thank you for inviting
me to participate in today's hearings at a Committee where I
have many fond memories of staffing so many hearings back when
I was Chief Economist to Senator Portman.
Today I will make three main points. First, that the
current debt path is unsustainable, and required immediate
attention. Second, that there is a long and bipartisan history
of attaching deficit reforms to debt limit bills, and third,
that ultimately the debt limit must be raised no matter what.
On that first point the debt is totally unsustainable. The
deficit will likely settle in around $1.5 trillion this year,
and approach $3 trillion within a decade, even assuming peace,
prosperity and low interest rates. This comes to $20 trillion
in new borrowing over the decade, even if the 2017 tax cuts
expire on schedule.
The long-term projections are even worse. CBO forecasts a
staggering $114 trillion in deficits over the next 30 years,
pushing the debt to nearly 200 percent of GDP. Virtually, the
entire projected shortfall comes from social security and
Medicare systems that CBO forecasts were running deficit of
$116 trillion over the next 30 years.
Those two programs themselves will be running 13 percent of
GDP deficit by 2052. Even under those baseline assumptions of
low interest rates, interest costs will set a record share of
GDP within a decade, and consume half of all tax revenues
within three decades. If interest rates rise, as we're seeing,
each percentage point will add $3 trillion over the decade, and
$30 trillion over 30 years.
That's each percentage point. By that point interests costs
would consume easily 70 or even 100 percent of tax revenues.
With respect to interest rates and soaring debt we are sitting
on a ticking timebomb. Congress should be working diligently to
avert an otherwise inevitable debt crisis, and raising the debt
limit has historically been one opportunity to address the
underlying debt problem.
For decades the debt limit served as a legitimate tool for
both Republicans and Democrats to address deficits. Debt
showdowns were relatively rare--debt limit showdowns were
relatively rare because both sides recognized the need to
include fiscal reforms. Indeed, of the eight largest deficit
reduction laws since 1985, all eight were attached to debt
limit bills.
This includes both Graham Redmond laws in the 1980's. The
1990 Bush tax hikes, the 1993 Clinton tax hikes, the 1997
Balance Budget Act. The 1996 line item veto Law, the 2009 Pay
Go Law, and the 2011 Budget Control Act. Every single one of
those deficit reforms was attached to a debt limit hike.
Many of these laws occurred in '80s and '90s when a 6
percent of GDP deficit, kind of similar to today, was
eliminated and turned into a budget surplus by 1998. Clearly,
both parties have gotten away from using the debt limit to
address red ink, just as both parties bear responsibility for
the past decade's deficits, but the unsustainable debt means
that all legislative avenues should again be open.
This is perhaps why a new survey shows that 74 percent of
voters, including 58 percent of Democrats agree with the
statement that, ``President Biden should agree to negotiations
and try to find common ground around the debt ceiling,
including some reductions in government spending.''
Just 26 percent believe the President should resist
negotiating, and demand a clean debt ceiling hike. All that
said, I agree the debt limit must be raised on time no matter
what. Hitting the debt limit would force an immediate 20
percent cut in federal spending, and possibly default on the
national debt.
The affect on families, businesses, financial markets, and
the broader economy would be devastating. Hitting the debt
limit is not a solution to soaring debt. It must be raised. In
fact, replacing the debt limit should be an option, but only if
Republicans and Democrats can come up with an alternative
process that would allow members to vote on the entire budget
with the true ability to trade off between competing tax and
spending priorities.
You see right now the debt limit, as flawed as it is, is
the only real true lawmaker vote available that truly covers
and trades off the whole federal budget. If we don't want
lawmakers to use this risky and flawed process to address
soaring deficits, then let's debate and come up with a better
budget process tool to have these debates and trade-offs. Thank
you.
Chairman Whitehouse. Here, here on the better budget
process.
Mr. Riedl. Thank you, sir.
Chairman Whitehouse. Next, Dr. Fichtner, please proceed.
STATEMENT OF DR. JASON J. FICHTNER, VICE PRESIDENT AND CHIEF
ECONOMIST, BIPARTISAN POLICY CENTER \8\
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\8\ Prepared statement of Dr. Fichtner appears in the appendix on
page 80.
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Dr. Fichtner. Thank you. Good morning Chairman Whitehouse,
Ranking Member Grassley, and members of the Committee. Thank
you for inviting me to testify today. My name is Jason
Fichtner. I am Vice President and Chief Economist at the
Bipartisan Policy Center, and apparently all the economists
came today with three main takeaways for you.
So, for my testimony I hope to leave you with the following
three. First, Congress must raise the debt ceiling. Second, the
nation's debt is on an unsustainable trajectory, and action
must be taken now. Further delay will only make the problem
worse, and the necessary corrections more harmful to the
country, and to the most vulnerable in our society.
And third, raising the debt ceiling and tackling the fiscal
challenges facing our nation will require both a bipartisan
effort, and presidential engagement. Turning these three
takeaways in slightly more detail, first again, Congress must
raise the debt ceiling. Period. Full stop.
Taking the nation near the brink of defaulting on any
payment obligations, or going over the cliff and failing to
make any obligated payments will cause unnecessary fiscal
expense, potentially damage the full, faith and credit of the
United States, and cause financial harm to millions of
Americans, even under a situation where the Department of
Treasury can prioritize certain payments, such as interest on
the debt, and social security benefit payments. The problem of
paying the rest of the nation's bills remain.
Second, the nation's debt is on an unsustainable
trajectory. According to the Congressional Budget Office, this
year's deficit is estimated to be $1.4 trillion, with annual
deficits averaging $2 trillion over the next 10 years. A $1.4
trillion deficit is slightly higher than the $1.2 trillion we
spent on social security benefits last year. Further, the
national debt now stands at just over $31 trillion. It's hard
to comprehend a number this large. As an illustration, imagine
you had hundred dollars bills. I'm sure everyone here has a
hundred dollar bill in their pocket. A 10,000 dollar stack of
100 dollar bills would measure about a half inch thick.
A pile of 100 dollar bills totaling 1 million dollars would
fit inside a standard school backpack, while $100 million would
fit on a standard construction pallet, and one billion of
hundred dollar bills would be ten standard construction
pallets, but a trillion of one hundred dollar bills, a million,
million, a thousand billion, would require 1,000 of these one
billion dollar pallets, which double stacked would take up an
entire football field. That's $1 trillion.
There are 32 football teams in the National Football
League, just enough NFL home stadiums to hold the nation's
$31.46 trillion national debt if we printed it in 100 dollar
bills. Our fiscal problem is real. According to CBO the
national debt is on track to exceed 46 trillion dollars in
2033, or 118 percent of GDP.
The interest payments alone will near $1.5 trillion in
2033. More than our nation is planning to spend on national
defense at that time. Third, bipartisan cooperation is
imperative. If you are not sitting at the table, you are not
negotiating. While the debt limit is not a good mechanism to
facilitate the necessary and thoughtful conversation on
addressing the nation's physical challenges, it is the
opportunity currently present and available.
I encourage members of the House and Senate Democrats,
Republicans, and President Biden to sit down and negotiate
before the Treasury Department runs out of options to continue
making full payments on the government's obligations.
Finally, I would add that it's critically important for the
U.S. to avoid future debt ceiling brinkmanship. My BPC
colleagues and I proposed a solution, which I address in my
written testimony, which I ask Mr. Chairman, with your
permission my written testimony be submitted into the record.
Chairman Whitehouse. Without objection.
Dr. Fichtner. Thank you.
Chairman Whitehouse. The written testimony of all witnesses
will be a matter of the record.
Dr. Fichtner. And since I have one minute remaining Mr.
Chairman and Mr. Grassley, I want to take a few moments to
personally thank you. The last time I testified before both of
you was back in February of 2020, right before COVID hit, and
it was before the Senate Finance Committee.
I was a nominee for the Social Security Advisory Board, and
while my nomination never received a vote on the floor, I did
pass favorably out of Committee with both of you recommending
me for confirmation. So I appreciate then, and I appreciate
now, your support, and also your willingness to reach across
the aisle. Thank you for the opportunity to testify today, and
I look forward to your questions.
Chairman Whitehouse. Thank you, and we appreciate your
being here and your long work in this cause, and to the issue
of getting rid of this debt limit bear trap in the bedroom,
again here, here. Mr. Zandi we are being presented by House
Republicans with curtain number one and curtain number two.
Behind curtain number one is default. You have assessed
that as financial calamity as I understand. Is that correct?
Dr. Zandi. That's the word, yeah.
Chairman Whitehouse.. It would pitch us into recession?
Dr. Zandi. Severe recession.
Chairman Whitehouse. Severe recession, and it would cost
perhaps a million jobs.
Dr. Zandi. That's the short period of default, yeah.
Chairman Whitehouse. Correct. Longer period of default much
more job loss?
Dr. Zandi. Correct.
Chairman Whitehouse. Behind curtain number two is Speaker
McCarthy's what we call Default on America Act. You assess the
economic harm to America of that bill if it were to pass as
also very severe, correct?
Dr. Zandi. Yeah. It would put the economy on the brink of
recession, if not in recession, yes.
Chairman Whitehouse. And knock $141 billion off our GDP?
Dr. Zandi. GDP. Correct. Close to 800,000 jobs.
Chairman Whitehouse. Nearly 800,000 Americans would lose
their jobs if this bill were to pass?
Dr. Zandi. Correct.
Chairman Whitehouse. For the record, the MAGA extremists in
the House who were essential to McCarthy's speakership have
said that nothing less than the Default on America Option will
pass. Just so it's clear. Those are the two options that the
extremists in the House are now presenting us.
Ms. Hopper in simple terms, layman's terms, what becomes of
the American solar industry if the Default on America Bill were
to pass?
Ms. Hopper. The Default on America Bill were to pass as you
call it, all of the investment that we anticipate, both in
solar deployment, and in solar manufacturing would not take
place, so the 50 gigawatts of investment, the over 100,000 jobs
in solar manufacturing alone would not happen.
Chairman Whitehouse. Would it be fair to describe that as
crashing the American solar industry?
Ms. Hopper. It certainly would be fair to describe it that
way, and it would also be fair to describe it as just gutting
the vision of rebuilding the domestic manufacturing base here
in the United States.
Chairman Whitehouse. And just from my purposes, it comes as
no surprise that a bill from House Republicans, of whose 315
pages, 275 are dedicated to handouts to the fossil fuel
industry, would if implemented, also crash their competition,
the solar industry. I think that that is not coincidental.
Mr. Krupp, what does it tell you when 275 out of 315 pages
of this bill are dedicated to handouts and favors for the
fossil fuel industry?
Mr. Krupp. Well to me, Mr. Chairman, it is--it would have
the affect of you know, causing tremendous more pollution, and
it's just unconscionable because it's not just the pollution.
As I said in my testimony we are wasting gas that Europe needs.
How? I don't understand how anyone in any party could be in
favor of repealing this.
Chairman Whitehouse. Where is the methane leakage support
caucus to be found?
Mr. Krupp. Well usually they're hiding, Senator.
Chairman Whitehouse. I've never heard from them. I've never
heard a colleague say you know what? Methane leakage is a
really good thing. We're for that. And yet here we are with a
bill that does exactly that. It repeals the measure we just
passed to constrain methane leakage in the economy. To me that
is yet another measure of extremism.
And extremism in the service of default, or put it the
other way, default in the service of extremism is a place we
should not be going, and I'm delighted that all three of the
economists firmly agree that default is not an option no matter
what. With that I'll yield to my Ranking Member, Senator
Grassley, for his five minutes, and then to Senator Murray.
Senator Grassley. Just one statement before I get to Mr.
Fichtner, Dr. Fichtner, and that's for everybody to think about
what we've heard about the dire consequences of the solar
industry. I never heard those dire consequences stated when we
all agreed and worked with the industry to phase out the tax
credit that was going to happen on 2022, until it was extended
in recent legislation.
And that was a multi-year phase out. For you, Dr. Fichtner,
it's interesting how we only hear about brinksmanship when it's
Republicans who want to negotiate a debt ceiling. I'd note that
Senator Schumer's bill lifts the debt limit through the end of
2024, maybe to maintain their leverage if we have a Republican
president in 2025.
So to you, is it fair to say that both parties have used
the debt ceiling as leverage in negotiations?
Dr. Fichtner. It is fair to say that, Senator, and I would
add that because of that that's one reason why negotiation,
whatever we do with the debt ceiling should be pushed off as
Dr. Zandi said, until after the election. And I would go one
further and say it no longer does what it's intended to do.
It doesn't control spending, so let's just get rid of the
debt ceiling all together.
Senator Grassley. And the Chairman mentioned what used to
be called Enzi-Whitehouse, but now Whitehouse something that I
want to help him with. I would like to see.
Chairman Whitehouse. I was looking for it to being White
House Grassley.
Senator Grassley. Us deal with those things. I don't think
you're going to have a problem from me. Good. Okay. To Mr.
Riedl, as I mentioned Democrats have no problem using the debt
ceiling as leverage in negotiations with Republican presidents.
What did Democrats demand and get in exchange for raising the
debt ceiling under President Trump?
Mr. Riedl. Thank you, Senator. The debt limit was raised
three times under President Trump. Twice it was attached to
large spending bills raising the spending caps by $620 billion
over 4 years. And once it was part of a bill that included
disaster rate spending. Even with that spending, the majority
of House Democrats still voted against the 2018 debt limit
hike. And if we just want to go back a little further, there
were three clean debt limit hikes under President Bush with a
full Republican Congress, and House and Senate Democrats voted
against the clean debt limit hike at a 98.8 percent rate,
including then Senator Barack Obama and Biden.
So, I think it's fair to conclude that really neither
party's hands are really clean on debt limit hikes.
Senator Grassley. To you also, President Biden likes to
claim that he's lowered the deficit, a falsehood repeated so
often that the Washington Post awarded him what's called a
bottomless Pinocchio rating. You've been critical of fiscal
legacies of presidents in both parties.
What do you make of President Biden's track record on the
budget?
Mr. Riedl. Thank you. I mean in all my reports, I've done
reports scoring presidential records of Democrats and
Republicans, and the proper measure is against the baseline the
President inherited because something like one-time pandemic
spending, expiring on schedule, is not new deficit reduction.
When President Biden was elected CBO forecast deficits of
$2.3 trillion, and then $1.1 trillion. Instead, we got $2.8
trillion and 1.4, which is $800 billion higher than the
baseline. Overall, as you mentioned earlier when President
Biden was inaugurated, CBO forecast $14 trillion in deficits
over ten years, and now they're forecasting $20 trillion in
deficits over the same 10 year period.
Five trillion of that increase has come directly from
legislation and executive orders, pushing deficits towards $3
trillion, so in that context, I don't think keeping the deficit
below a past one-time pandemic spike is really the right
measure.
Senator Grassley. And then also to you. CBO and Joint
Committee on Taxation released their scores of the House Bill.
They revealed that many of the new tax credits in last year's
partisan Reconciliation Bill are actually going to cost much
more than initially advertised.
Knowing what we know now, was last year's Reconciliation
Bill, the so-called Inflation Reduction Act, fiscally
responsible legislation supporters portray it to be?
Mr. Riedl. Well at the time of enactment CBO scored the
bill as saving $238 billion over the decade, including the IRS
revenues. Now, OMB says the same bill is going to add $216
billion of ten year deficits. Much of that change is due to the
electric vehicle incentives that were originally scored by JCT
as $12 billion, and are now estimated by Goldman Sachs and
Brookings as costing $390 billion over ten years.
So, no, the law at this point does not appear to be a
deficit reducer.
Senator Grassley. Thank you Mr. Chairman.
Chairman Whitehouse. Senator Murray.
STATEMENT OF SENATOR MURRAY
Senator Murray. Well thank you Chair Whitehouse for holding
this really important hearing because the stakes are really
high, and the clock is ticking. We have, as we all know, until
June 1st to raise the debt ceiling. That is weeks away. The
American economy right now is heading for a cliff, and last
week the House Republicans voted to drive it off full speed
ahead.
This should not be hard. When you are heading for a cliff
you turn the wheel. You don't say, well I'll turn the wheel if
you let me cut the brakes, or disable the airbags, or trash the
engine, but that is essentially what the House Republicans are
offering us.
Mr. Chairman, you called it door one or door two, I
believe, because House Republicans are saying if you don't let
us wreck the economy, and whittle down essential government
services to the point where we're laying off people like our
air traffic controllers, then we will just wreck the economy by
refusing to pay the bills instead.
Make no mistake, it doesn't matter who you vote for, what
state you live in, or what you make. If House Republicans get
their way it is going to make your life worse. The cuts they
are proposing in the Default on America Act won't just kick
families off food benefits, or rip away housing support for
veterans, it will gut funding that keeps our planes in the
skies, trains on the rails, our food and medicines safe, our
cops on the street, and helps get deadly fentanyl off of them.
And despite Republicans protesting, the reality is that
this bill will not protect veterans from cuts, just read it.
What House Republicans passed does nothing to protect the
benefits and support that veterans have earned and are counting
on to get housing or higher education, or start a business.
The Default on America Act doesn't even protect veterans
healthcare, one of our fundamental obligations to the men and
women who put their lives on the line for our country. It just
cuts across the board medical research, childcare, workforce
training, disaster relief, border security, small business
grants cut. That is their big idea.
That is the Default on America Act that House Republicans
are taking our economy hostage for, except that's only half of
it because House Republicans are also demanding spending caps
that will lock in even more cuts over the next decade. That is
10 years of our competitors, who are going to be investing in
their economies growing stronger and gaining ground, while
House Republicans tie our hands and force us to fall further
and further behind.
A lost decade for America. That is what MAGA Republicans
are proposing. What House Republicans have voted for is one
massive gift to the Chinese government because guess what? Our
competitors are not debating whether to pay their debts or
wreck their economy. They are not debating whether to invest in
their future, or cut and cap the investments that keep them
competitive.
They are doing everything they can to get ahead. So I'm
asking my Republican colleagues here at the brink of economic
calamity, do not let Speaker McCarthy's partisan, hostage
taking win the day, and lose the 21st Century. Do not force an
unprecedented economic crisis on our country in a vain attempt
to slash funding for families and veterans and communities
across America.
Come to the table. Work with us to simply pay our country's
bills like we have so many times before, including three times
under the last president, and then let us work together on our
bipartisan spending bills that invest in America, and keep us
moving forward, which is--I will tell my committee members,
exactly what we are focused on doing in the Senate
Appropriations Committee.
So with that, Dr. Zandi, let me ask you can you speak to
the potential macroeconomic damage of House Republican's
Default on America Act, both to our economy, and our nation's
competitive edge on the world stage over the next decade?
Dr. Zandi. Thank you for the question, Senator. I think
there are two broad macroeconomic issues. One, I mentioned in
my oral remarks, and that is the cuts are going to occur later
this year under the legislation that's been passed by the
House, later this year, and in 2024, when the economy is going
to be very, very fragile, at risk of going into recession,
grappling with the higher interest rates, the banking crisis,
and now the drama related to the debt limit.
So it's starting to do damage in the financial markets, and
I suspect significantly more damage before lawmakers act and
increase the limit. So the risks here are quite significant in
the near term.
The second macroeconomic impact that I think is worth
considering is if you do the arithmetic, the cuts to non-
discretionary non-defense spending will take the spending from
3.5 percent of GDP currently--and 3.5 percent by the way, is
less than it's average over the past 50-60 years, so this isn't
really--this is a place where spending has remained very
restrained, and not grown more quickly than the economy--it's
been equal to the economy.
But under the Limit, Save, Grow Act it would fall to 2
percent of GDP by the end of the decade, and of course this
goes to very significant cuts to all of the things that you
described, everything from healthcare and education training,
NASA, national parks, you know, things that I think Americans
count on as essential services, and critical income support.
And that would be incredibly difficult for the economy. And
at the end of the day would not address our long-term
unsustainable fiscal situation.
Senator Murray. Thank you. And takeaway our competitive
edge.
Dr. Zandi. And severely limit our competitive edge, yes.
Senator Murray. Thank you. Thank you.
Chairman Whitehouse. Thank you Senator Murray. My friend
Senator Kennedy is next.
STATEMENT OF SENATOR KENNEDY
Senator Kennedy. Thank you Mr. Chairman. I don't know any
fair-minded person that wants us to default on America's debt.
You don't have to be Mensa material to understand the
consequences would be terrible. And I want to thank President
Biden for agreeing to meet with the Speaker.
I thought he should have done it sooner. You can only be
young once, but you can always be immature, and I thought he
was being a trifle immature. I hope he will negotiate in good
faith. Please, please, please, Mr. President negotiate in good
faith. Please with sugar on top.
I don't think you want to be responsible for defaulting on
America's debt. I believe you're better than that. Mr. Riedl,
let me ask you a couple of questions. Did you know that since
the 1950's we have had ten periods of disinflation in America?
Did you know that?
Mr. Riedl. Not at that exact number, but that makes sense.
Senator Kennedy. Okay. And disinflation is when inflation
is too high, and we have to reduce the rate of growth of
inflation. It's not deflation, where prices go down, we just
reduce the rate of growth. Is that correct?
Mr. Riedl. Yes.
Senator Kennedy. Okay. And did you know that if you look at
history at all ten of these times when we had to reduce
inflation, that in order to get inflation down 2 percent we had
to raise on average, the Federal Reserve had to raise interest
rates such that it raised unemployment about 3.6 percent. Did
you know that?
Mr. Riedl. That sounds similar to what Mr. Summer has said.
He's made similar points. That sounds very correct.
Senator Kennedy. Okay. All right. So the current
unemployment rate is 3.5 percent. Is it not?
Mr. Riedl. Yes.
Senator Kennedy. And the current inflation rate is 5
percent is it not?
Mr. Riedl. Approximately. Yes.
Senator Kennedy. So if history tells us in order to get
inflation down 2 percent, the Federal Reserve has to raise
interest rates such that it increases unemployment 3.6 percent.
Then if you do the math, given that the current unemployment
rate is 3 and a half percent, and the current inflation rate is
5 percent, that would indicate, would it not, that the Federal
Reserve, if history is any indication, will probably have to
eventually raise interest rates to between 7 and 8 percent. Is
that correct?
Mr. Riedl. It could have to go that high depending on how
the economy responds to current rise.
Senator Kennedy. Okay. Now can we agree that the best way
to get inflation down is to attack it on the fiscal side and
the monetary side?
Mr. Riedl. Absolutely.
Senator Kennedy. We can agree on that? We can agree on
that?
Mr. Riedl. Well you can wind the economy into a recession.
Senator Kennedy. Okay. We can agree on that. And when you
attack it on the monetary side, the Federal Reserve raises
interest rates, it's trying to slow the economy. It doesn't
want to, but the way you measure the slowing of the economy is
in unemployment rate.
When you attack it on the fiscal side you reduce your rate
of growth of spending and debt accumulation. Did I describe
that right?
Mr. Riedl. You did.
Senator Kennedy. So is it not the case that if you vote
against slowing the rate of growth of spending and debt
accumulation, you're voting to raise interest rates even higher
are you not?
Mr. Riedl. Generally, I would agree with that viewpoint,
yes.
Senator Kennedy. I mean that's just basic economics 101,
right?
Mr. Riedl. Right. The Federal Reserve's tool----
Senator Kennedy. I mean I saw Mr. Portman taught you did
he. Yeah. Okay. All right. Let me ask you a couple more
questions. So putting aside all the politics here, we're
talking about people's lives. If we don't reduce the rate of
growth of spending and debt accumulation, Jay Powell is going
to do what he's got to do to get control of inflation. And he's
going to keep raising rates, and that's going to put people out
of work.
He doesn't want that, but if he has to raise rates between
7 and 8 percent, then that could be six, seven, eight million
people out of work. Dr. Zandi, I have to ask you this. You made
some pretty bold predictions today, and some of them I agree
with, and some of them I don't.
But were you at Moody's in the mid-2000's when Moody's
graded a lot of these mortgage backed securities, AAA and A
good as gold that promptly tanked, and almost dragged down the
world economy. Were you there then? Or was that before you
time?
Dr. Zandi. No. It was before my time. I sold my company to
Moody's in late '05.
Senator Kennedy. I'm glad you missed that.
Dr. Zandi. Yeah.
Senator Kennedy. If you were there.
Dr. Zandi. If you're interested I can send you a couple
studies I did at that time that you would find very
interesting.
Senator Kennedy. Please do. That would be great. I wish
Moody's would have them then. Ms. I can't see your name.
Ms. Hopper. Hopper.
Senator Kennedy. Hopper. Ms. Hopper. I love solar energy. I
just want you to know that, and I love electric cars. But I've
got to ask you this question. I've been waiting to ask this. If
electric cars are so swell, how come government has to pay
people to drive them?
Ms. Hopper. So I think like most government policies right,
are put in place to incent certain behaviors, and so that's
part of the policy is that if we want more electric cars----
Senator Kennedy. Yeah, but if they're so swell why couldn't
they just in a competitive market people--why wouldn't they be
choosing electric cars over internal combustion engine cars?
Why do we have to pay people to drive them?
Ms. Hopper [continuing]. I wouldn't characterize it as
paying people to drive them.
Senator Kennedy. Well sure we are. We're giving them the
big ole tax credit.
Ms. Hopper. It's the government having a policy to incent
more purchase of electric vehicles.
Senator Kennedy. Okay.
Chairman Whitehouse. Senator Stabenow.
Senator Kennedy. Thank you Mr. Chairman.
Chairman Whitehouse. Thank you Senator Kennedy.
STATEMENT OF SENATOR STABENOW
Senator Stabenow. Well good morning. Thank you Mr.
Chairman. I love to talk about EVs at another time here. I wish
we had a tax code that actually worked that we passed, so, but
let's talk about an extremely serious issue this morning. And
I'm glad my friend raised the issue of Federal Reserve Chairman
Jerome Powell, and you know, what might happen. Let me just
quote again what he said yesterday to the press. ``No one
should assume that the fed can really protect the economy and
the financial system, or our reputation globally from the
damage that a U.S. default might inflict. We shouldn't even be
talking about a world in which the U.S. doesn't pay its
bills.'' It's pretty simple, pretty straightforward. I just
came from an agriculture committee meeting Mr. Chair, and I can
tell you it was on credit and crop insurance, and nobody there
thought it was a good idea for farmers and ranchers to see
their interest rates go up, which will happen.
So this is a very, very serious thing, and unfortunately,
we know that last week House Republicans pushed our country
closer to this default, this catastrophic default and chaos
that would arise from it, and I think over and over again that
we need to stress that while republican colleagues are
concerned about the debt, we know that about 25 percent of all
the debt of the country ever came from four years of Donald
Trump's presidency, of which folks voted for.
But at that time it was about billionaires and large
corporations getting big tax cuts. So if we want to have a real
discussion about revenues and spending, that's great, that's
great, let's do that. Don't default, but let's have that debate
about what's fair for the majority of American people,
including the fact that the largest corporations and
billionaires should just pay their fair share like everybody in
Michigan. That's all. We just want folks to pay their fair
share.
But instead, we are seeing this bill, the Default on
America Act, targeting millions of working families, so many
things I don't even know Mr. Chairman how to go through all of
them. I will just mention three. One million seniors no longer
getting Meals on Wheels. Actually that's a pretty big deal if
you want to eat for an awful lot of seniors that are homebound
in our country.
30,000 law enforcement jobs gone. What does that do to our
public safety? 80,000 VA jobs. How do we do veterans healthcare
if that's cut? And when we talk about all of this, 7 million
jobs lost, unemployment over 8 percent, more than doubled, and
higher mortgage, car payments, lower 401K's and so on and so
on.
This is not a good idea. When we're coming out of a
pandemic, we're seeing the fastest growth ever in a generation,
which is extraordinary actually, after all of this. We're
bringing jobs home. In my state we are cheering about creating
manufacturing jobs.
And then we want to put the country in a default? The only
people that want chaos, and want to play politics would even be
considering this. So let me just ask, one area that is so great
that we are seeing right now is the number of increases in
small businesses. We're really seeing a renaissance in small
business, more than 12,000 new small business applications were
submitted just in April. And Mr. Zandi, I wonder if you might
speak to how the environment for small business owners would
change in the event of a default?
Dr. Zandi. Yeah, thank you for the question, and yeah this
is amazing, the small business formation we've seen during the
pandemic.
Senator Stabenow. Amazing. Yeah.
Dr. Zandi. It's one very significant bright spot in our
economy.
Senator Stabenow. Yeah.
Dr. Zandi. It is across all industries, and all regions of
the country, really quite incredible to see. But I didn't fear
that small businesses are now under significant threat. I mean
of course the banking crisis is a very serious problem because
many small banks that are under a lot of pressure provide
credit to small business.
I mean when I started my company I got my loan from Malvern
Federal Savings, my first loan from Malvern Federal Savings
Bank, three branches, still operating in Malvern, Pennsylvania.
So they're already under a lot of pressure, and with a debt
default, you know, the problems are going to be magnified many
times over.
The banking crisis will continue on. The availability of
credit, the cost of credit will become prohibitive. I think
it's going to be very difficult for small businesses to not
only operate and thrive, but to actually survive. We will
instead of seeing a significant increase in formation, see a
significant increase in bankruptcy and default.
I think we should buckle in for some of that anyway, even
without the debt limit drama, but with the drama and a breach
that would just be over the top I think for small business.
Senator Stabenow. Thank you. Mr. Chairman, I would just say
the message we should send today to our Republicans in the
House is don't default. Come and work with us within the budget
process, within appropriations process, within the Farm Bill
process. Some of what they did is actually Farm Bill
jurisdiction, we'll have that debate.
We'll have that debate during the Farm Bill, but don't
create chaos in the American economy that's just beginning to
thrive here. Thank you.
Chairman Whitehouse. Which has the additional benefit of
public daylight, rather than back room dealings.
Senator Stabenow. Absolutely.
Chairman Whitehouse. Senator Romney.
STATEMENT OF SENATOR ROMNEY
Senator Romney. Mr. Chairman, thank you and thank you to
the panelists. A couple of you I know pretty well, respect you
all. These comments don't refer to you, but to us, which is I
think we ought to be embarrassed. This Committee ought to be
embarrassed, which is the American people expect us to work in
a bipartisan basis to address the challenges that America
faces, rather than holding hearings that are about preening and
posturing, and politicizing, and trying to blame the other
party. It's really embarrassing. This is a Committee
responsible for setting a budget every year. We're supposed to
have already done it. We've never even met to discuss doing
that. We don't even have a budget.
This is a Committee that could be talking about what things
we could do to restrain the amount of spending we have, the
debt that we're seeing increase, that's a real concern. I think
people on both sides of the aisle agree on, but we're not doing
that. We're coming here saying the obvious, which is of course
we can't default on our debt, and it would be terrible if we
did. We know that.
We also know that every time the debt ceiling had been
raised in the past there had been questions about whether we
should restrain spending, and about half the time that we've
raised the debt ceiling in the past there's been efforts, and
there's been provisions and agreements to curb spending. We've
got to find a way to reduce our spending, or deal with our
fiscal problems, but instead we're just preening and posturing.
You know, I agree with all the people who say it would be
terrible to default on our debt. We're not going to default on
our debt. I certainly hope not, it would be awful, but don't
forget that that could have been solved a long time ago by our
Democrat friends simply in their Reconciliation Bill doing what
Leader McConnell asked them to do, which is just raise the debt
ceiling yourselves. They didn't need a single Republican vote,
not a single vote.
But they chose not to because politicking is the way of
this city. And it just it makes the American people sick.
Frankly, it makes a number of us who serve in these positions a
little ill as well, that with such critical issues being faced,
and instead of solving them and working together.
I don't think this Committee has ever come together since
I've been here to sit down, Republicans, Democrats and these
back rooms that we talk about where deals are getting done. We
never had a back room meeting to talk about these things, to
negotiate, to talk about how we're going to rein in spending.
Look, there's no question, but that we're going to have to
deal with our entitlements, both on the revenue side, and on
the spending side. We're going to have to deal with
discretionary and non-discretionary spending, but we don't talk
about it. We basically just blame the other side.
And every year we add another trillion dollars to the debt.
Let me just ask, and Mr. Zandi, Dr. Zandi, is it your view, and
Moody's view, that the amount of debt we're adding is
ultimately going to become a real problem for the American
economy, and for the American people, and for our ability as a
nation to protect ourselves, and to have a robust and growing
economy. Is this a problem we need to deal with?
Dr. Zandi. These are my views, Senator, not Moody's. And I
hear you. I hear your words. They resonate with me, and it's
very clear that we're on an unsustainable path fiscally. And
it's in our face. It's not 10 years from now, it's not a
generation from now, it's now.
And I agree. We need to address this both with regard to
spending restraint, and you mentioned the entitlement programs,
and tax revenue. We can't do one without the other. Both have
to be done. And I think it's critical that lawmakers come
together and talk about this, and figure out how to do it. I
don't think it should be done, or can be done in the context of
a debt limit debate.
I don't think that's possible. And I think our politics is
in a place now that we are increasingly coming to the edge of
defaulting, and we will default if we continue down this
political path that we're on. We've just got to get off that
road and come together. And I totally agree with you. You know,
we need to stop posturing, and we need to start acting.
Senator Romney. Yeah. Thank you. Mr. Riedl, good to see you
again, and appreciate your help some years ago. Let me ask you
the same question. Is this an issue we ought to be addressing
and dealing with, which is the excessive spending we have, the
borrowing that we're doing, the fiscal challenge, and I realize
there are two parts of a fiscal challenge, tax revenue as well
as spending.
But is this something we're ought to make an urgent
priority? I saw one group, a non-partisan group in the house
called the No Labels Group. They said hey, let's just get a
Commission together to talk about how we can restrain spending.
Isn't this something we ought to be talking about as opposed to
just pointing at each other and saying you're to blame, no,
you're to blame?
The debt went higher under Trump. No it didn't, it went
higher under--it's like guys, solve the problem. Don't just hit
each other with brick pads. Is this a challenge we've got to
deal with?
Mr. Riedl. Yeah. Erskine Boules years ago said this is
going to be the most predictable economic crisis in history.
Again, we're on pace by the CBO to borrow $114 trillion over
the next 30 years under the rosy scenario of peace, prosperity,
low interest rates, no new spending, no new tax cuts. $114
trillion.
Who is going to lend us $114 trillion? China and Japan have
already reduced their holdings to $2 trillion. The Federal
Reserve holds $5 trillion. They're not going to monetize it. So
are we really going to borrow $100 trillion from domestic
investors over the next 30 years?
And if we do so, what's going to happen to interest rates
and the economy? If Congress doesn't deal with this, the bond
market will cut us off at some point, and then it's going to be
much more painful.
Senator Romney. Thank you. I could go on a long time, but I
already have, so Mr. Chairman, back to you.
Chairman Whitehouse. You've been fine Senator Romney.
Senator Van Hollen.
STATEMENT OF SENATOR VAN HOLLEN
Senator Van Hollen. Thank you Mr. Chairman. Welcome to all
of you. I wish I shared Senator Romney's optimism about the
chances of not defaulting this year, having been very involved
in the 2011 debate. I am much more worried that this time it
will go over that cliff.
Ms. Hopper, great to see you. Thank you for your work in
Maryland. I'm going to start by questioning Mr. Zandi. I think
many of us are grateful, Mr. Zandi, for sharing over many years
your expertise on fiscal issues. If I could just ask you
regarding inflation today. We know we still have work to do in
the economy.
But inflation has now fallen 40 percent compared to the
peak of last year. It's at a two year low. Chairman Powell, the
Chairman of the Federal Reserve was recently asked about what
he thought the pressures on inflation were at the current time,
and he indicated that in his view it's not fiscal policy that's
driving inflation now. Do you agree?
Dr. Zandi. Agreed. I think the inflation we're suffering
through right now is the continued fallout from the impact of
the pandemic on supply chains, labor markets, and the Russian
War on Ukraine, and its impact on energy, food and commodity
markets. And what's happened is those two shocks conflated and
affected inflation expectations in wage and other dynamics in
the labor market.
So lots of reasons for the high inflation. At the very
tippy top is the fact that we're still working through the
fallout from those two massive shocks to the supply side of the
economy. At this point I don't think fiscal policy has played
any role. Just one quick other point, if you had asked me that
question back in 2021, I would have said fiscal policy yes, is
playing a role.
But at that point hard to remember back, that was deemed to
be good inflation. We had been through a decade of suboptimal
inflation. We wanted to see higher inflation. It wasn't an
issue.
Senator Van Hollen. My time is running short.
Dr. Zandi. I'm sorry.
Senator Van Hollen. A couple more questions. So I did see
your assessment that if you actually passed the House
Republican plan we would lose 790,000 jobs in the economy. Have
you had a chance to look at the Biden budget proposal, and
determine whether it would cause anything in that range of job
loss?
Dr. Zandi. No. I mean they both had deficit reduction long
run over the course of the House legislation on the spending
side, the President mostly on the tax side. But in the next
year, year and a half, when the economy is incredibly
vulnerable, the President's budget does not have the same kind
of negative consequence.
So in the longer run the negative consequence of the higher
taxes in the President's budget, all else being equal, weigh on
economic growth, but to a very modest degree compared to the
budget cuts that are in the House legislation.
Senator Van Hollen. Thank you Mr. Zandi. Mr. Riedl, you
mention in your testimony that we actually eliminated our
deficits and saw a surplus back around the turn of the century.
Do you recall what share revenues were as a percent of GDP when
we did that?
Mr. Riedl. Back then revenues had jumped to 20 percent,
spending fell to about 17 percent. Essentially the balance, the
budget was balanced by a huge defense savings, and a revenue
bubble. And then the bubble burst and 911 happened.
Senator Van Hollen. Right. So as you said, at that time
revenues were around 20 percent.
Mr. Riedl. Correct.
Senator Van Hollen. And I think you're aware of the fact
that if you look at the current budget and project it out a
couple of years, we're talking about 18 percent. Now 2 percent
may not sound like a big gap, but when you're putting 2 percent
on top of this huge economy, that's a lot of revenue that we
had back in 2000 as a percentage of GDP that we do not have
today.
Here's my question to you. President Biden has put a budget
plan on the table. In fact, much more detailed than the plan
that passed the House of Representatives. It has $3 trillion in
deficit reduction. Do you think President Biden should take the
position that he would veto a debt ceiling increase unless he
gets his way on how we reduce the deficit by $3 trillion?
Mr. Riedl. I think both sides need to negotiate.
Senator Van Hollen. No, no, that's--I'm asking you a
question because the House has said if you don't adopt this,
this is our bill. You don't adopt this we're going to default.
All right. I'm asking you should President Biden take that
position and say if you don't reduce the deficit in my way by
$3 trillion by raising taxes on very rich people, increasing
taxes on corporations to actually lower than it was a number of
years ago, and requiring that you know, prescription drug
companies contribute more, so Medicare pays less.
Should he say if you don't adopt my plan I'm not going to
sign a debt ceiling increase?
Mr. Riedl. I think the President should say we need to
adopt a deficit reduction plan. I've made an opening offer, but
I'm flexible to negotiate.
Senator Van Hollen. And if we don't do that we should
default, he should say that?
Mr. Riedl. I don't think anyone should say that.
Senator Van Hollen. Well that is what the House Republicans
are saying, and so why you have number three point in your
testimony, avoid a default at all costs, that is not what the
House Republicans are saying. They're saying if you don't adopt
our plan we will default. That is reckless.
You know it. Others know it, and the President knows it,
which is why he hasn't taken the position that it's either his
way or the highway. Thank you Mr. Chairman.
Chairman Whitehouse. Senator Marshall.
STATEMENT OF SENATOR MARSHALL
Senator Marshall. Thank you Mr. Chairman. There's not a
single person on our side of the aisle that wants the country
to default on its debt. I want the American public to know
that. There's not one of us that wants to default on our debt.
But we also want to see responsible spending, and we know we
cannot give the White House another credit card.
Look, we can walk and chew gum. We can solve both problems.
Why does it have to be either or? Why does this Capitol Hill
live working in silos? I'll never understand it. What we can't
do is push this problem onto my grandchildren, and cripple
their generation with burdensome debt and interest payments.
And for the life of me I don't understand why my colleagues
across the aisle want to destroy future generations all so that
they can function as climate demagogues. Let me tell you what
I'm talking about. You know, Jupiter is the Roman god of
climate and weather. Indra was the Hindu god. Horus, the
Egyptian god of climate and weather, Zeus, the Greek mythology
god.
I ask you who is America's climate god? Is it John Kerry?
Is it Al Gore? Why do we have this religious experience with
climate, rather than using common sense. Talking about
affordability, reliability, and all the while America's carbon
footprint is going down?
Today's White House and the Democrat Party become the
European Green Socialist party. That's who they are today. They
worship climate. And even the bank's meltdowns have been
impacted by the worship of climate. Even our own Federal
Reserve is upside down now, ignoring the same interest rate
risk problems that Silicon Valley Bank ignored, all impacted by
their climate worship.
I just can't tell you enough how much I'm disappointed by
the name of this hearing. The Default on America Act,
Blackmail, Brinkmanship and Billionaire Back Room Deals. I
don't know if I could come up with a more misleading and unjust
title for a hearing. Again, there's not a single person on this
side of the aisle that wants us to default on our debt.
There's been no back room deals, no brinkmanship, there's
been no blackmail involved in this bill sent to us from our
colleagues in the House. I believe the House GOP bill is a good
solution. And let me be absolutely clear. There's no cuts to
the VA, or veterans benefits in the House Republican proposal,
despite the lies coming from the left to the contrary.
Democrats fear mongering and scare tactics, using our
veterans as political pawns are beneath the office we've been
elected to serve. And of course, Republicans are going to keep
fighting to protect and save Medicare and Social Security from
White House policies that cut funding to those programs, and
dilute the resources.
The irony is that your side of the aisle truly knows a
thing or two about back room deals. You've got a marvelous
warmup with the American Rescue Plan and truly refined the art
with the also misnamed Inflation Reduction Act. What a joke.
While drafting the IRA in secret behind closed doors, there
were no hearing. No bills, no debate, and no discussion.
One minute there was no bill. The next we're voting on this
sprawling wish list of EU Socialist Green Party agenda items,
like saddling small oil and gas producers in Kansas with
devastating methane fees that won't have any impact on the
environment. I'd love to talk, I'd love to have a real debate
about methane in this room, in this hearing.
I'm here to tell you what won't work. I care too much about
my children and my grandchildren, and my parents, and hard-
working Americans, already suffering by 15 percent overall
inflation since Democrats took control of government policy.
The American people and the national media know that the ball
is in Joe Biden's court.
Speaker McCarthy and the House GOP have put a deal on the
table that claws back reckless government spending, and
hopefully will slow inflation while taking care of the debt
ceiling for a year. That's a win/win opportunity. A deal is on
the table. These are good things that the American people want
and deserve. Our country can not keep racking up debt on the
backs of hard-working Americans.
We must face this head-on, and all we're asking is that the
Democrats stop all the political theatrics long enough to
participate in good faith negotiations, so we can pay America's
bills. We can do both.
If anybody is listening today, I want to remind them when
it comes to addressing America's debt crisis Republicans have
done something, and put forward a solution. Democrats have not.
Mr. Riedl, what would your advice be to the President right
now?
Mr. Riedl. My advice to the President is to sit down and
negotiate. The American people at least want to have a
discussion, and he should sit down and negotiate with an open
mind towards raising the debt limit, and reducing a deficit
that both sides can agree on.
Senator Marshall. And the bill on the table does both of
those. The deal that the Republicans on the House side have put
forward does both of those, responsible spending, and solves
the debt limit crisis.
Mr. Riedl. It raises the debt limit, and it addresses the
deficit.
Senator Marshall. Thank you. I yield back.
Chairman Whitehouse. Oh, for the record, since I sit on the
Finance Committee also, since I sit on the Environmental Public
Works Committee, let me just note that the tax credit
provisions in the IRA came through the Finance Committee, were
publicly debated in the Finance Committee, were voted on in the
Finance Committee, and the methane program came out of the
Environmental Public Works Committee based on my methane fee,
which was also a matter of a lot of conversation in the
Environment Public Works Committee.
Senator Marshall. So we want to have that debate as well
today?
Chairman Whitehouse. No. Just correcting the record that
there was in fact a lot of committee public action on the
measures that ended up in the IRA.
Senator Marshall. When did we get the bill?
Chairman Whitehouse. Senator Merkley.
Senator Marshall. When did we get the bill from the time we
got it until we voted? How much time passed?
Chairman Whitehouse. The provisions were clear well before,
and were subject to hearings and debates.
Senator Marshall. Was it minutes or seconds?
Chairman Whitehouse. Hearing and debate months before.
STATEMENT OF SENATOR MERKLEY
Senator Merkley. My colleague from Utah, Mitt Romney, said
you know, why can't we figure out a path forward. And you know,
here we are. It's very clear that many people on my side of the
aisle think we need to reduce the deficit by raising revenue
from those who pay the least, that is the rich and the
corporations.
And my colleagues on the other side of the aisle say we
want to do it on spending cuts. And I'm taken back in time to
1974. This Committee exists because a bill was passed in 1974.
And that bill, which was titled The Congressional Budget and
Impoundment Control Act, passed with 100 percent of the
Senators. Every single Senator, both sides of the aisle.
And the deal was for reducing the deficit. Only for
reducing the deficit, we will create a filibuster free pathway.
Now you might recall that there was intense supporters of the
filibuster, and yet every single one of them said for one
purpose, decreasing the deficit, we will have a filibuster free
pathway.
And that held for 20 years. And you all as experts in this
area, I'm sure you're well familiar with what happened. And
what happened in 1996. In 1996 you have the Gingrich
revolution, and we had essentially a series of bills. One of
them was a line item veto bill, and that was struck down by the
Supreme Court.
We also had a debate over a balanced budget amendment, and
that fell one vote short here in the Senate from passing, and
failed. And then at that point the Senate pivoted. The Senate
leadership pivoted at that point and said let's do a massive
revenue reduction, a tax cut, a massive tax cut.
Well Democrats said no, and so Republicans in this body
said you know what, let's use that filibuster free pathway from
1974, and they proceeded to ask Robert Dove, the
Parliamentarian for a ruling. That instead of using that
filibuster free pathway for deficit reduction, they could use
it for a tax cut that would increase the deficit.
And they got the ruling they wanted. Robert Dove was
previously an employee of Robert Dole, and he conceded. We will
change this purpose. And it was challenged, and there was a
vote on the floor, and the vote was sustained by the majority.
The ruling was sustained by the majority.
And now we have, after 22 years, we blew up this bipartisan
strategy of only using this for deficit reduction. That opened
the door to what we did last year with the Inflation Reduction
Act, in which Democrats said well it's going to be used for the
republican priorities to increase the deficit. Hell, we'll use
it for our priorities to increase the deficit, our particular
things that we would like to see accomplished that are
important to America.
I just want to give this history because we quickly lose
track that this has been a struggle that we have been engaged
in for 50 years. And there was a pretty significant legislation
in 1974 saying deficit reduction. We don't agree on how to do
it, but it's so important we will create this sacred,
protected, filibuster free highway, and then it got blown up in
1996.
And here we are, kind of having the same question on how do
we reclaim that. The former Chair of this Committee from North
Dakota, he proceeded to change the rule back to saying it could
only be used for deficit reduction, Kent Conrad. Conrad Rule.
And immediately, as soon as the Democrats were out of power
here, Republicans changed it back.
So there's a lot of posturing over who's right and who's
wrong, the fact is we have failed as a Senate to wrestle with
this, and we blew up the one tool we had come together
universally to support. And are you all familiar with this
history Dr. Zandi?
Dr. Zandi. I have to say I forgot a lot of it, but that was
very helpful. Yeah.
Senator Merkley. And Dr. Fichtner, this is in your
bailiwick.
Dr. Fichtner. Yeah, Senator, you're spot on. So one, thank
you for bringing it up, and make a offer to the Chairman that
if the Chairman and Ranking Member want to reintroduce the
bipartisan Congressional Budget Reform Act, I would like
nothing better than to spend hours up here testifying about the
benefit, the biannual budgeting, making the budget resolution
stronger, going back to having deficit reduction, a priority
and how to do that. I would welcome the opportunity sir.
Senator Merkley. Well my commentary to using, not using if
you will, the debt ceiling in this fashion, which we hold each
other hostage. This has happened because we blew up the common
collective tool that we worked out in 1974, and it worked for
22 years.
And so, this is a very dangerous path we're on. We're in a
game of chicken, and it may very well blow up the economy, and
you know, I'm a blue collar kid, we still live in a blue collar
community, and I'm thinking about the folks who have the car
loans on adjustable, or they have adjustable rate mortgages,
they're worried about the interest rates on their student
loans, and they're all going to be really hurt. Not a lot of
people have stock, but some of them have some stock through
some--they're fortunate to have an IRA or something of that.
And so they have that little bit of savings there. They're
going to be hurt on that if the stock market crashes.
So, I don't know how to put this back together, because
even if we were to recreate the '74 Bill, that '74 consensus,
what we now know is that under political pressure, on party or
the other, and it could be the blue side or the red side, is
going to get a ruling from a Parliamentarian. Blow it up, and
use it exactly the opposite way that it was intended as a
moment of political convenience.
So, I think the right way to deal with this is that we
wrestle with spending bills, and those require bipartisan
cooperation because they're subject to 60 votes, unless we're
doing it through reconciliation. We wrestle with the revenue
side.
If those things, that's what produces a deficit, the
difference between revenue and spending. And so, when the bill
comes due I'm always reminded of President Reagan saying you do
not mess with the American debt. And I'm not sure how he
phrased it, but basically it was the American credit.
I'm out of time. I actually wanted to ask a bunch of
questions, but I wanted to bring up that piece of history
because it's relevant to what this Committee does, and wrestles
with, and the impasse we're at today.
Chairman Whitehouse. It is important history, and as I turn
to Senator Scott, I would say we actually got pretty close With
Enzi-Whitehouse. It made it into the bicameral, bipartisan Debt
Commission, and it passed there in bipartisan fashion as I
recall, perhaps even unanimously, and then neither body took it
up on the floor.
So, don't think that there isn't an avenue to complete the
work that so many have talked about. It is there. Senator
Scott, thank you for your patience.
STATEMENT OF SENATOR SCOTT
Senator Scott. Thanks for the history. I knew most of it,
but it's good to have a reminder. You know I became Governor of
Florida, and everybody thinks these states balance their
budgets. They don't. My state had not balanced its budget in 20
years before I became Governor, and I walked into a 4 million
dollar budget deficit, not as big as the federal one, but we
just said this is what our revenue base is going to be, and we
figured out how to allocate the dollars. And we actually were
able to grow our economy, and as a result we paid off a third
of the state debt in eight years, so. I've been up here four
years, and I think the most frustrating thing is that we don't
do budgets. We don't even have a fight over spending bills, we
just get these bills, these spending bills. And it's not like
one side is bad, and the other side is good.
Both sides have been doing this. And we just give, I think
what Senator Marshall, it's not just that bill, but all these
things. I mean it happened when Republicans controlled it. I
mean we had these omnibus bills that we had no power to make
them, it never went through a Committee or anything.
So, for each of you, so we have 31, almost $32 trillion of
debt.\9\ What's the limit? So I guess our GDP is around 26, so
whether it's a dollar amount, or whether it's a percentage of
GDP what do you guys think? I mean what's the limit?
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\9\ Chart referenced by Senator Scott appears in the appendix on
page 93.
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In my experience at least is that when we raise taxes we
never get the revenues, so I mean because I want everybody to
pay their fair share, and figure out how to balance this, but
we never get the revenues. We are reciting the other people say
if we do this we're going to save money, we never get the
savings either.
So, what do you guys think the limit is? Maybe we just go
this way. Either way.
Dr. Fichtner. Thank you Senator. Many of us have been
calling for this to be a problem for years, and I think one day
I'm going to be right. I'm just not sure when that day comes.
But I'll tell you now where I think it's going to happen is
2033 because that's when the social security retirement trust
fund becomes depleted, and that's when if no action is taken by
Congress, we're going to have to borrow 300, $350 billion a
year to make up the difference in general revenue shortfalls,
if we don't raise taxes, or cut benefits, which I don't think
Congress will do at the last minute.
That's where you're going to start seeing the bond markets
interact and say this borrowing could go on for how much
longer, and that's when I think we're going to start hitting
our limit.
Senator Scott. So the CB score, the Congressional Budget
Office I think has this if we continue the path we're going
down, we would be at 48, something like that, trillion dollars
of debt on top of that.
Mr. Riedl. Yeah. I think once the debt gets up to 150 to
200 percent in GDP, you're really in rare territory with the
global economy, and with the experience of other countries. I
mean just to put a number on it, imagine we get to 200 percent
of GDP, and we have a 5 percent interest rate.
You're paying 10 percent of GDP in interest. Well if
revenues are usually what? 17, 18, 19 percent of GDP, you're in
rough shape if the majority of your revenue is just paying
interest, so you don't want to get to that point. The bond
market may cut you off before you get there, but even if they
don't you don't want to be paying 10 percent of GDP just in
interest.
Ms. Hopper. So, I'm a lawyer, not the economist, so I'm
going to not--I'll defer to my colleagues here.
Dr. Zandi. I think the way I would think about it is it's
not a cliff event, it's a corrosive on the economy. And a good
rule of thumb, this is empirically based with a lot of debate,
and CBO comes pretty close, is that for every percentage point
increase in the debt to GDP ratio, it adds about 2 basis points
to 10 year treasury yields.
So, just to make that concrete, if the----
Senator Scott. On average?
Dr. Zandi [continuing]. On average. And it is not linear
over time, but that feels roughly right, so if you go up 10
percentage points, you add 20 basis points, but if you do the
arithmetic here, you know, obviously of course it undermines
the economy, you know, out in the long run, so we clearly have
to change this.
Senator Scott. So let me ask you another question. We're
at, I guess we're at a little over six times debt to what we
anticipate we'll collect in revenues, right? How much of your
net worth would you invest in a company like that? So, how many
of you are buying 30 year Treasury's right now? Anybody?
Anybody buying 30 year?
Dr. Zandi. No 30 year.
Senator Scott. What would you buy?
Dr. Zandi. I have great faith in you, that you will resolve
this, and that the U.S. will remain the----
Senator Scott. I'm hopeful.
Dr. Zandi [continuing]. No. And I would invest. And by the
way so does the rest of the world. We still are the AAA credit
on the planet, money comes here when times are tough, and
that's because when times are tough we ultimately do the right
thing.
Senator Scott. It does say something when nobody is sitting
here saying they would buy 30 year treasuries, because we're
supposed to be the safest investment in the world.
Dr. Fichtner. And a lot of money is held right now in cash.
It's paying a good interest rate in the money market.
Dr. Zandi. I'd say a lot of people are buying U.S. treasury
debt at this point, but now they're counting--and I will say
this, if you look at yields on short-term treasury securities,
one month, three month, they're now, you can see the yields are
now rising and falling based on when investors think it's
possible that we do default on the debt, so the idea that
people don't think we're going to default, that's slowly
breaking down here at some point there's going to be a problem.
Senator Scott. Supposedly worse than any time in our
history.
Dr. Zandi. Yeah. You'll get one month versus three month
treasury is a beautiful chart, just take a look at it. I mean
in fact it's in my written testimony. It's unprecedented. So,
investors, and you can look at treasury security yields by day,
and people are now looking at you know, when receipts are
coming in, when expenditures are going out, and they can say oh
on this day it's the most likely day that treasury is going to
run out of cash, and therefore I'm not going to get paid.
Senator Scott. It's probably positive. People are getting
engaged. Right.
Dr. Zandi. It's actually critical that they get engaged.
Senator Scott. Thanks.
Chairman Whitehouse. Thank you Senator Scott. Senator
Lujan, then Senator Braun, then Senator Padilla.
STATEMENT OF SENATOR LUJAN
Senator Lujan. Thank you Mr. Chairman, and thank you to
everyone that's here in person, and also helping us
electronically to be here today with the panelists. It's been a
good discussion, one that I have appreciated and learned from.
I want to take this back to what the Republican legislation
that was passed this last week, which I think similar to 2017,
when the American people dubbed the Trump tax policy as a tax
gap that was promised to be targeting middle class, and those
aspiring to be in the middle class, to prioritize them.
The proof is in the pudding, and everyone knows where that
money went, and to the dissatisfaction of many constituents I
represent, they were trying to figure out how to submit their
taxes next year because the withholding table changed a little
bit, and less was taken from their checks, but when April 15th
came they were thinking what happened last year is probably
going to happen again, and it didn't. And it hurt their
budgets.
So I hope that when we talk about budgets we also include
the budgets of the people that we represent, when we're talking
about this. And with me saying that, I don't know if the Chair
knows, or if any of you know, do you know how many U.S.
Senators went to Head Start? There's two. There's only two U.S.
Senators that went to Head Start. I'm one of them.
Now I think that if those programs would have been stronger
in other parts of the country, colleagues would have benefited
from them as well. But nonetheless, I bring that up because
this Default on America Act that came through the House
recently would dramatically reduce and eliminate investments in
Head Start.
I've heard economist after economist tell me that one of
the greatest returns on the dollar is an investment in
education in children. Dr. Zandi, does what I say hold true?
Dr. Zandi. Yes. I mean there's very strong academic
research that shows that investments in young children, you
know, pay off enormously, not only for their financial well-
being, but for the communities they live in and for the broader
economy.
Senator Lujan. I appreciate you sharing that. I know that I
benefited from this education, and I didn't realize until later
in life what opportunity that I had that presented itself to my
family. Not just that I was able to get a jump start if you
will on those classes, and socializing with other students, and
you know, the power of a nap.
I think that America could learn something about that on
occasion. But you know, during those Head Start days to ensure
that I could learn a little bit more, and look, we sometimes
had a little lunch that would be available to us too, to keep
us nourished and keep us strong, which would help us learn
more.
But my parents also didn't need to find childcare for me
when I was growing up, which let them stay in the workplace and
work more. That sounds like good economic policy to me. And so,
what I wanted to raise Mr. Chairman was my concern associated
with the devastating cuts that were listed in these programs,
in the area of early childhood education.
But one other area I wanted to raise that's not been raised
just yet is as a reminder to all of us the United States has a
treaty obligation to tribal nations in America. The United
States has a horrible track record of meeting.
The plan that came out of the House would devastate
investments into tribal communities. A one billion dollar cut
to Indian health service, a 60 million dollar cut to the Bureau
of Indian Affairs, 200 million dollar cut to the Bureau of
Indian Education.
And I certainly hope that we're having this conversation as
all this moves forward. You know, when I was elected to the
U.S. House of Representatives in 2008, I proudly supported Pay
Go. A simple policy that was instituted in 2006 that was moved
forward to 2008, and then it was erased.
The majority changed and it went away. But that's a pretty
simple policy that I think everyone across America can
understand. If you're going to buy something you've got to pay
for it. And so while I'm not as smart as all the folks that I
learned from, I know that. I think that's a strength of mine. I
surround myself with smart people.
But I also understand simple concepts. And if we can go
back to there's an acronym, I'll leave the last S off, but if
you can keep it simple, and we can all come together and do
some things, we can make things better, and so Mr. Chairman, I
apologize for my approach to some of this, but I think
sometimes we just need to step into the shoes of the people
that we represent and try to communicate in a way that complex
policy takes them into consideration when we have to make these
really tough decisions. I thank you for the time. I yield back.
Chairman Whitehouse. No apology needed, Senator Lujan, you
have a very important voice. Senator Braun.
STATEMENT OF SENATOR BRAUN
Senator Braun. Thank you Mr. Chairman. To put into context
this is a Budget Committee, and at least today I think we're
talking about budget. I've been on it, as a Committee I was
most interested in being on, since I got here four and a half
years ago, and we've not even gotten to first base on a budget
resolution that was accepted broadly, let alone a budget.
So, I'd like to ask the Chairman of the Budget Committee,
this Senator here had to take as a privileged motion, a budget
to the floor about a year ago. And that's when it doesn't get
done in the regular order of business.
Would you commit to you and I at least working when the new
fiscal year starts on October 1st, that we will bring a budget
to the Senate floor that we craft here, and spend the time on
the Budget Committee through regular order, like you do
everywhere else, to get a budget that we would at least get out
of this Committee?
Chairman Whitehouse. I'm going to have to wait and see how
the present circumstance plays out because if the House
Republicans set off the default hand grenade that they're
negotiating with right now, we are in a very different world,
and I can't predict that world.
Senator Braun. Well let's assume that doesn't happen.
Chairman Whitehouse. What I've already said I will do is to
get back to work on the Enzi-Whitehouse Budget Reform Proposal
that can lead in that direction, and set up the terms for
precisely the conversation you want. I think we've talked about
this before.
Senator Braun. Yeah.
Chairman Whitehouse. My recollection is that you were
favorable, Senator Kaine has been here, I think we've got some
real bipartisan interest there, and I will pursue that. I think
we're pretty comfortable with the President's budget, so I
don't know that we need to do more. That's now between the
White House----
Senator Braun. I think if we still have a Budget Committee,
we ought to use it through regular order to at least put
something out there. The other House needs to do that as well.
So let's get to what I've observed other places, everywhere
else. You don't have the printing press in the basement, and
you do not have a credit card that is automatically renewable.
I think that's the context that we work within here.
Obviously, that would be pandemonium anywhere else. Sooner
or later things like your sovereign currency are at risk. We
saw what happened in Europe when Greece, Spain, Portugal and
Italy fell off the wagon not too many years ago. We got them
back in line.
And my observation has been that the ability for our unique
economy to raise revenue, we ought to at least look to see what
that maximum amount would be without threatening economic
growth. And here's a statistic that I have not heard anyone
mention that it's over 50 years regardless of the tax rate, we
generate about 17 and a half to 18 percent of our GDP in
revenue.
So, that means through high rates obviously you get lower
economic growth. The Trump tax cuts, those were chump change if
you give the full $150 billion to them, that would only be 7
percent or so of our current structural deficits. So my
question is going to be to every one of you, and give me a
fairly brief answer because I am going to have another one, is
that a reasonable place to be?
Then where we just live within it? Is there more capacity?
Is there not? Tell me why only three times I think during the
Clinton years did we hit 20 percent of our GDP in tax revenue.
We'll start over with Mr. Zandi.
Dr. Zandi. I think there's more room. I think the average
revenue to GDP is about 18 percent, but I think there's more
room, and there needs to be because of the aging of the
population. There's more folks that need social security and
Medicare, and that is a significant--just keeping spending per
person constant in real dollars.
Senator Braun. Do you have a level that you think that you
would be comfortable with that wouldn't strain economic growth,
and that would be reasonable?
Dr. Zandi. Yeah. I think somewhere between 20 and 22
percent, in that range.
Senator Braun. Okay.
Dr. Zandi. Yeah. I think that would go a long way to
addressing our long-term fiscal issues, but we need spending
restraint on top of that.
Senator Braun. And by the way, that would be about 3 to 5
percent lower than where we're currently at with $7 trillion
divided by what is our GDP, like $26 trillion, roughly?
Dr. Zandi. 25.
Senator Braun. Okay. So we're way above 25 percent
currently, and that's not sustainable. Ms. Hopper what do you
say?
Dr. Zandi. Of course, I was talking long-run, you know,
not, yes.
Senator Braun. Yes. I know long run. Ms. Hopper?
Ms. Hopper. Yes. I will say I'm the attorney, not the
economist again, so I will defer to my colleagues here.
Senator Braun. Okay.
Mr. Riedl. I've modeled out the tax numbers, and you could
probably get to about 20 percent of GDP tops, especially on
terms of taxing the rich. You can throw every proposal out
there that we've seen on taxing the rich, you'll get about 2
percent of GDP from that. And with spending going to 30 percent
of GDP, you've got a ways to go.
Dr. Fichtner. And I'll echo Mr. Riedl's point. In my
lifetime basically, the long-term average for revenues it
averages 17.4 percent to your point. When you get above 18
there's calls for tax cuts. When you get below there's calls
for revenue increases. That's kind of historical, even if we
have a range going up to 20. Let's just give ourselves that
there's some flexibility to go to 20.
2033 we're going to have 25 percent GDP in outlays. That's
the big gap, so you can't make it up all on revenue.
Senator Braun. So right here, historically, we've got 18
percent, let's round it up a half a percent. We have one
witness that says 20 to 22 percent. We're currently approaching
30 percent, so Mr. Chairman, I would think that one simple way
to get bipartisanship would be to at least establish what the
capability is of this federal government, and then live within
it because otherwise you're ending up basing this on an
increasingly indebted economy, which now puts us only number
two to Japan, in terms of percentage, of debt, debt as a
percentage of our GDP.
And to me that's a shameful, bad business plan that is not
sustainable.
Chairman Whitehouse. Since I was asked the question I'll
take a minute of Chairman's time before I turn to Senator
Padilla to say that the way that the Enzi-Whitehouse program
worked was very aligned with what you have just said, Senator
Braun. It was--I think everybody agrees the debt to GDP is the
right metric to be looking at.
I see all the economists' heads nodding, all three. And
then the question is what debt level per for the GDP is the
appropriate one, and that's something on which we can have a
civilized and thoughtful and sensible discussion informed by
experts.
And once you've determined what the range of a suitable
debt to GDP ratio is, you then have to figure out how quickly
you can get there without destroying the economy along the way,
because of sudden, brutal cut shocks to the economy like the
House has proposed, as Dr. Zandi has said, will cost 700,000
jobs, and put us into a recession.
So that's not a smart way to get there. You've got to have
a glide slope, and then you've got to think about how do you
enforce the glide slope with warnings that you're off the glide
slope? And then you have the revenue and spending discussions,
and I think that's the way we should do that.
Senator Braun. Mr. Chairman, just not to long----
Chairman Whitehouse. I've got to yield to Senator Padilla's
time.
Senator Braun [continuing]. Are you going to do another
round or?
Chairman Whitehouse. Sure. You can stick around, but it's
Senator Padilla's time now, so.
Senator Braun. Okay.
Chairman Whitehouse. Senator Padilla, excuse my
intervention into your time.
STATEMENT OF SENATOR PADILLA
Senator Padilla. Thank you, Mr. Chairman, I'll just make up
for it in the backend.
Chairman Whitehouse. Everybody else has, why not you.
Senator Padilla. Let me also try to sort of level set not
just the conversation we're having here today, but why we're
having it here.
Despite the slimmest of majorities in the House of
Representatives, Republicans are effectively saying to
President Biden, and to Senate Democrats and the America people
that we must have to accept their random demands, or they'll
force the country to default on its debt for the first time in
history.
Let's be clear. That the hostages they're taking, or
threatening to take isn't the federal government, it's the
American people, including their own constituents. A default
would plunge our economy into recession.
All the economists have established that, costing millions
of American jobs, increasing loan payments for working families
on everything from their homes to cars, to student loans, and
threatens to cut social security and healthcare payments as a
result.
So, much of what we're discussing here today as big, and
significant, is it going to be sound, is frankly only
scratching the surface of what the country will face should
Republicans refuse to allow the federal government to meet its
obligations.
Let me ask questions about some of the specifics. So as you
saw during a recent hearing with OMB Director Shalanda Young,
Republicans take great offense at the idea that they would cut
Social Security and Medicare, and yet because of this
manufactured crisis that would result in seniors not receiving
their Social Security and Medicare benefits, benefits that they
have paid into their entire life, and they have earned, a
default would keep the federal government from actually paying
them out.
Mr. Zandi, can you describe the implications for Social
Security and Medicare if the federal government defaults on its
debts?
Dr. Zandi. Of course it would be devastating. I mean the
first thing that would happen is people wouldn't receive their
checks on time. They'll eventually get the money, but it will
take longer and longer for that to occur the longer the impasse
continues.
Obviously, the hit to financial markets would be serious
immediately, and in fact that's already going to start to
happen even before we breach the debt limit because investors
are going to anticipate the breach. Stock prices will decline,
interest rates will rise, and of course that undermines the
financial well-being of all Americans, but most significantly
those retirees that are going to count on that.
And then ultimately it's going to cost jobs, the economy,
income, and that will affect obviously all Americans and the
entire global economy, and Social Security recipients, Medicare
recipients would be casualties like everybody else as a result
of that.
Senator Padilla. Now I was planning to raise an issue of
veterans, and I'm glad that Senator Marshall made reference to
it in his remarks because my understanding is that nowhere in
the House Republicans Default on America Act does it say that
veterans benefits are exempt from the 22 percent cut in
domestic spending, right?
So, we've covered Social Security, covered Medicare, now
let's talk about veterans benefits. It would have been
perfectly straightforward to write such an exemption in the
bill. In fact, House Democrats offered two amendments in the
House Rules Committee to protect veterans benefits from
spending cuts. And as we watched that Committee do its work we
saw House Republicans vote down those offered amendments.
They did, however, rewrite the bill to protect ethanol
subsidies. So, it seems pretty clears to me that House
Republicans made a conscious choice to subject veterans
benefits to their spending cuts, despite protests to the
contrary. Back to you Mr. Zandi, can you identify a provision
in the Default on America Act that would exempt veterans
benefits from the spending cuts proposed by House republicans?
Dr. Zandi. Not that I'm aware of. The cuts are to total
discretionary spending, so that would include defense, non-
defense, VA benefits, so that would be determined in the
appropriations process, but in the legislation I'm not aware of
any language related to the VA program.
Senator Padilla. Exactly. And look, Mr. Chairman, in the
interest of time I can go on and on with other specific
examples. Republicans have put us in this place of a looming
crisis. We can and should do, we've done numerous times before
under democratic and republican administrations, pass a clean
lifting of the debt ceiling.
But to hold hostage for a budget conversation is wrong, and
the exact budget plan not being offered or suggested, or
considered, but passed by House Republicans would only make a
horrible, horrible situation that much worse.
We can outline further examples, but the examples most
talked about, Social Security, Medicare, veterans benefits,
despite the bellyaching on the other side, are clear on the
chopping block. Thank you Mr. Chair.
Chairman Whitehouse. Thank you very much. That more or less
concludes the hearing, except that Senator Braun asked for
additional time, and I will gladly, as Chair, yield it to him,
then I will offer some concluding remarks, and that will be the
end of this, and thank you very much for the witnesses'
testimony and participation. Senator Braun.
Senator Braun. Thank you Mr. Chairman. So, in 2019 we spent
about 4.5 trillion. 2020 we did the CARES Act, and that was
bipartisan. Everyone agreed out of uncertainty, kind of an
emergency. I think we spent too much there. We didn't need--if
we had not shut the economy down to the extent we did now that
we know the healthcare information that came around sooner or
later, 6.5 trillion.
But then, you've got 21, 22, and 23. So, is it legitimate
to get off of the baseline of where we were before with
trillion dollar structural deficits when we were spending $4.5
trillion taking in about 3 and a half. Do we need to keep at a
level that was based upon something extra normal? Is it
healthy, and can we cede the territory that we need to be where
we are to have a healthy federal government, and should it be
occupying that much of our GDP?
So, in other words, just because you were able to spend it,
and borrow the money to do it, is that the new baseline that we
should operate on that takes us up to 25 percent plus of our
GDP? Or, should we go back to where we were before the
extranormal spending took place in the first place? We'll start
over with Mr. Zandi again.
Dr. Zandi. Well those are a lot of numbers.
Senator Braun. That's where we are. Those are actuals.
Dr. Zandi. I need a spreadsheet to disentangle all of that.
But let me just say this Senator. The fiscal problems we have
today are ecumenical. They're both Republican and Democrat.
Senator Braun. I'd agree.
Dr. Zandi. The Trump tax cuts were $2 trillion, and they
were not paid for.
Senator Braun. Well I mean that's $200 billion over ten
years, so, put it in per year.
Dr. Zandi. The fiscal response to the pandemic, which was
bipartisan up until the American Rescue Plan, but you know, in
2020, that was an additional $3 trillion, ecumenical. Both
sides agreed to that. And then the $2 trillion in ARP that was
Democrats.
Senator Braun. Yep.
Dr. Zandi. The situation we're in now is on both the
parties.
Senator Braun. And I'm talking about going ahead. Going
back to the original baseline, or should we be at the elevated
level?
Dr. Zandi. I think we need to get government, I don't know
precisely where it should go because I have to look at the
numbers more carefully, but the spending as a share of GDP has
to get back down to something close to 20 to 22--where I think
revenue should be is where spending has got to get, and it
shouldn't get there next year.
It doesn't need to get there in the next five years, it
doesn't even need to get there in the next 10, but there has to
be a clear path to that over the next 10-20 years. If we can
accomplish that, if you can accomplish that, we're golden.
Senator Braun. 20 to 22 percent. What about the other
panelists?
Mr. Riedl. I think spending has grown rapidly in the last
couple years, and I will add that discretionary appropriations
themselves have grown 23.4 percent in the past two years. And
so the idea that any cut to discretionary appropriations is
going to be a devastating starving of the government, it's
grown 23.4 percent in two years.
I don't know how that level will have to be the sacred
floor that will cause chaos if we go below it. I think that at
some point we have to align spending growth with the economy,
and the fundamentals in the deficit.
Dr. Fichtner. Well Senator, I'll make my answer quick. I
work at the bipartisan Policy Center. We are the only
organization in the District of Columbia with the word
bipartisan in its title. Now as an economist, I'm not sure if
that's a supply problem, or a demand problem, but it is a
problem.
And what I would come back to and say with the Chairman's
offer, to sort of put that back into White House Bill, and
you're trying to get a process in place, is very, very
important, and that should be in some ways get the debt
ceiling, get a budget, and make that priority number three Mr.
Chairman.
To your point about where we should go back to, it is pre-
COVID baseline. We all kind of agree here that somewhere tax
revenues may, I'll use the word may, go up to 20 percent. I'm
not sure we can do 22, but maybe 20, and spending should be
close to that. Spending average is about 21 percent of GDP on
average.
So, you get that little range, you have something----
Senator Braun. So most of our heavy lifting has to address
spending, and it's a question of timing, how you get it back to
a sustainable level.
Dr. Fichtner. And I'll state about the incidence of tax,
and where you could have different sort of tax policy, maybe
think about a carbon tax, or a financial transaction tax,
instead of relying on labor so much, or income for your tax
revenue.
Senator Braun. Thank you.
Chairman Whitehouse. And here, here to that last comment
may I say. First of all, let me thank Senator Braun for his, I
think, extremely sincere and thoughtful interest in all of
this, and I particularly appreciate his efforts in this regard,
and hope that we can work together.
I was delighted to hear my Ranking Member say that he was
interested in pursuing this, and to have bipartisan witnesses,
both says that reviving the Enzi-Whitehouse idea of a proper
procedure that gets to debt GDP over time, which as Dr. Zandi
just said, could be we're golden.
And that would be a better outcome than we're looking at
right now. So let me turn to the particularly bad side of where
we are right now in my closing remarks. If we end up going into
this Republican threatened default, and all the pain and
calamity that all of the witnesses have forecast comes to pass,
people in America are going to want to know who is responsible.
And this is a personal comment, do not blame any of the
other Democrats, and certainly I don't think it would be
logical to blame any of my Republican friends, but my hard
earned experience tells me that when the Republican Party acts
on pollution related and corruption related issues, the Party
acts as the glove for fossil fuels dark hand.
Essentially every movement of the glove can be explained by
the movement of the underlying fossil fuel industry hand. So,
House Republicans have armed the default hand grenade, and
pulled the pin, and have it in their hands, threatening to blow
it up with all of the consequences that each of you have
forecast, and the question is for whom?
Edgar Allan Poe wrote about the Purloined Letter, where was
it found? In plain view. Look in plain view. What is in plain
view in this bill? What is in plain view in the House Default
on America Act is 275 out of 315 pages that are giveaways to
the fossil fuel industry.
The fossil fuel hand in the Republican glove. If we go
there, if this default is provoked by what looks like a
desperate last attack on clean energy competition by a massive
polluting, and heavily political industry, that will come back
to them. There will be a story to tell.
People will be looking at this, and I promise that I will
do everything in my power to connect the dots, so that the
American people clearly see the dark fossil fuel industry hand
behind the Republican glove in the Default on American Act. 275
out of 315 pages is one hell of a tell, and with that I will
conclude the hearing.
If any members have questions for the record for the
witnesses, we ask that they be in by noon tomorrow. The
witnesses, if you receive questions for the record, are
requested to provide your responses within a week, and may I
hope that we reconvene in brighter days with the pin back in
the hand grenade, and go forward on a bipartisan path to do the
work that I think has been quite well outlined in the subtext,
if not the main text of this hearing. Thank you all very much.
[Whereupon, at 12:19 p.m., Thursday, May 4, 2023, the
hearing was adjourned.]
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