[Senate Hearing 118-78] [From the U.S. Government Publishing Office] S. Hrg. 118-78 THE RICH GET RICHER, DEFICITS GET BIGGER: HOW TAX CUTS FOR THE WEALTHY AND CORPORATIONS DRIVE THE NATIONAL DEBT ======================================================================= HEARING before the COMMITTEE ON THE BUDGET UNITED STATES SENATE ONE HUNDRED EIGHTEENTH CONGRESS FIRST SESSION __________ May 17, 2023 __________ Printed for the use of the Committee on the Budget [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] www.govinfo.gov ______ U.S. GOVERNMENT PUBLISHING OFFICE 53-196 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 ---------- WEDNESDAY, MAY 17, 2023 OPENING STATEMENTS BY COMMITTEE MEMBERS Page Senator Sheldon Whitehouse, Chairman............................. 1 Prepared Statement........................................... 34 Senator Charles E. Grassley, Ranking Member...................... 3 Prepared Statement........................................... 36 STATEMENTS BY COMMITTEE MEMBERS Senator Ron Wyden................................................ 16 Senator Ron Johnson.............................................. 18 Senator Tim Kaine................................................ 19 Senator Mike Braun............................................... 21 Senator Chris Van Hollen......................................... 23 Senator John Kennedy............................................. 25 Senator Jeff Merkley............................................. 31 WITNESSES Mr. Bobby Kogan, Senior Director, Federal Budget Policy, Center for American Progress.......................................... 6 Prepared Statement........................................... 38 Mr. Bruce Bartlett, Former Deputy Assistant Secretary for Economic Policy, United States Department of the Treasury...... 7 Prepared Statement........................................... 44 Ms. Samantha Jacoby, Senior Tax Legal Analyst, Center on Budget and Policy Priorities.......................................... 9 Prepared Statement........................................... 71 Mr. Adam Michel, Ph.D., Director of Tax Policy Studies, Cato Institute...................................................... 10 Prepared Statement........................................... 84 Mr. Scott Hodge, President Emeritus and Senior Policy Advisor, Tax Foundation................................................. 12 Prepared Statement........................................... 100 APPENDIX Responses to post-hearing questions for the Record Mr. Kogan.................................................... 107 Dr. Michel................................................... 109 Mr. Hodge.................................................... 111 Chart submitted by Chairman Sheldon Whitehouse................... 116 Chart submitted by Mr. Bobby Kogan............................... 117 Statement submitted for the Record by Mercatus Center............ 118 Statement submitted for the Record by R Street Institute......... 128 THE RICH GET RICHER, DEFICITS GET BIGGER: HOW TAX CUTS FOR THE WEALTHY AND CORPORATIONS DRIVE THE NATIONAL DEBT ---------- WEDNESDAY, MAY 17, 2023 Committee on the Budget, U.S. Senate, Washington, DC. The hearing was convened, pursuant to notice, at 10:03 a.m., in the Dirksen Senate Office Building, Hon. Sheldon Whitehouse, Chairman of the Committee, presiding. Present: Senators Whitehouse, Wyden, Merkley, Kaine, Van Hollen, Grassley, Johnson, Braun, Kennedy, and R. Scott. Also present: Democratic staff: Dan Dudis, Majority Staff Director; Joshua P. Smith, Budget Policy Director; Tyler Evilsizer, Senior Budget Analyst; Dan Ruboss, Senior Tax and Economic Advisor and Member Outreach Director. Republican staff: Chris Conlin, Deputy Staff Director; Krisann Pearce, General Counsel; Nick Wyatt, Professional Staff Member. Witnesses: Mr. Bobby Kogan, Senior Director, Federal Budget Policy, Center for American Progress Mr. Bruce Bartlett, Former Deputy Assistant Secretary for Economic Policy, United States Department of the Treasury Ms. Samantha Jacoby, Senior Tax Legal Analyst, Center on Budget and Policy Priorities Mr. Adam Michel, Ph.D., Director of Tax Policy Studies, Cato Institute Mr. Scott Hodge, President Emeritus and Senior Policy Advisor, Tax Foundation OPENING STATEMENT OF CHAIRMAN WHITEHOUSE \1\ --------------------------------------------------------------------------- \1\ Prepared statement of Chairman Whitehouse appears in the appendix on page 34. --------------------------------------------------------------------------- Chairman Whitehouse. Good morning everyone. I'm delighted to have this panel here to be joined by my very distinguished Ranking Member. We will have opening statements from myself and Senator Grassley. We will then have five-minute comments from the witnesses. All of your prepared testimony will be made a matter of record and then we will have a chance for members present to exchange views with the panel, so thank you. Unfortunately, we meet this morning in the shadow of the Republican Speaker's continuing threat to force a catastrophic U.S. default. By the way, in the Big Five in the room, the President has said he doesn't want to default and wouldn't cause one. The Majority Leader has said that he doesn't want to default and wouldn't cause one. Minority Leader McConnell has said he does not want a default, would not cause one. And the Democratic Leader in the House has said he does not want a default and wouldn't cause one. There's only one person in that room who was threatening to default on the credit of the United States. Two weeks ago we looked at the House MAGA extremists demands which would inflict widespread economic pain on the American people, mostly to extract a fossil fuel wish list. Remember, 275 out of 315 pages are fossil fuel favors. We heard unchallenged testimony from Moody's Chief Economist that the MAGA plan would cost the American economy almost 800,000 jobs and increase the chance of a recession. Not rebutted, not challenged, 800,000 jobs lost and dangerously close to economic recession. This was supposedly to reduce the debt and deficits, but as we've repeatedly heard predicted catastrophes like the 2008 banking crisis and COVID that we failed adequately to prepare for caused much of our debt. That makes the climate crash warnings so many witnesses have presented highly relevant to our debt and deficit conversation. Another major cause of debt and deficits is the Republican fixation on giant tax cuts for big corporations and the wealthy. Together, Bush and Trump tax cuts have added $10 trillion to the debt. They account for 57 percent of the increase in debt to GDP ratio since 2001. But for those tax cuts, our debt would actually be declining as a share of the economy. Take our crisis response measures like COVID relief and those giant tax cuts account for 90 percent of the increase. Under Republican presidents there's a familiar pattern. Giant tax cuts that benefit wealthy and corporate donors and debt limit hikes. The debt limit was raised three times under President Trump, twice paired with spending increases. When Democrats are in charge, Republicans use debt limit threats and government shutdowns to disrupt United States Government operations. The Speaker's current default threat would tip the economy into severe recession, kill nearly a million American jobs and put at risk the dollar as the world's reserve currency. That would blow our debt and deficits through the roof, raise interests costs for everyone, and create political upheaval, particularly when regular Americans feeling the pain see rich corporate political donors paying little or no income taxes. Republicans routinely claim the tax cuts for the wealth and corporations pay for themselves with economic growth and the benefits will trickle down to everyone else. That has never happened. Even the Republican witness here, former Congressional Budget Officer, Director Doug Holtz-Eakin, has said that no serious economist would make such a claim. Taking care of the rich with tax favors is politics, not economics. So the beat goes on even after CBO found Trump's tax cuts boosted annual deficits to over one trillion dollars. If want another clue, the Speaker's Default on America Act increases the deficit by $120 billion by gutting IRS funding, allowing the wealth to evade tax responsibilities again to the tune of $120 billion. The CBO just estimated yesterday that extending the Trump tax law, as Republicans want to do would cost $3.5 trillion, but it takes care of big donors. Among Trump's torrent of lies, he claimed there'd be so much economic growth from his tax law that the average American household would see a $4,000 annual pay increase, except instead of raising wages or making productive investments, corporations loaded up their CEO and shareholders with stock buybacks. One of our witnesses today hit the nail on the head and I'll pursue that in questioning. What Republican tax cuts achieve without fail is to increase debt and deficits and to lavish billions worth of tax breaks on wealthy donors and large corporations. Trump's tax cuts were so loaded up for the rich that foreign investors enjoyed a larger windfall than the bottom 60 percent of Americans. Making those tax cuts permanent would send a full 40 percent of the new tax benefits to the top 5 percent. President Biden's budget would reduce the deficit by three trillion dollars while leveling the playing field for American workers and small businesses. Speaker McCarthy's proposal would cut funding for law enforcement, child nutrition, and medical research. For instance, throw millions of folks off Meals on Wheels, but protect loopholes that let billionaires pay lower tax rates than teachers and firefighters. There is a very clear choice. Our corrupted Tax Code should be fixed for its own sake. Removing its flagrant injustices would also help reduce our debt and deficit. That makes fairer taxes a good place to start. And with that, I turn to my distinguished Ranking member. OPENING STATEMENT OF SENATOR GRASSLEY \2\ --------------------------------------------------------------------------- \2\ Prepared statement of Senator Grassley appears in the appendix on page 36. --------------------------------------------------------------------------- Senator Grassley. Well, Mr. Chairman, I thank you very much for holding this hearing. It's a welcome relief from the series of climate change hearings that we've been having. Chairman Whitehouse. Don't worry. There'll be more. Senator Grassley. However, today's hearing title--just look at that title. It suggests that we're likely to hear some very misleading narratives about tax relief enacted into law since 2001. So I think I can speak with some expertise because I was Senate author of at least two major bipartisan tax relief measures, so I would like to set a few things straight. First, the last time that we had a balanced budget, and you remember those years, '97, '99, 2000, revenues were 18.9 percent of Gross Domestic Product. Last year federal revenues were 19.6 percent of GDP. That's the fourth highest level on record, yet last year's deficit, even with the highest percentage of GDP coming in, in taxes, still came in at a whopping $1.4 trillion. The problem isn't tax cuts as we all know, but the problem is unchecked spending. Over the next decade, spending is projected to average 24.1 percent of the economy, a level previously reserved for either wars or recessions. Even if we managed to sustain revenues at their historic peaks, looks what's happened. Two trillion-dollar deficits would still become a norm within a matter of years. Now evidently, this is okay to the other side of the aisle, but it happens to be very much a moral issue. Whether this generation lives high on the hog and let's our children pay for it. That's not a very responsible thing to do. Second, if Democrats are concerned about tax cuts for the rich and corporations, they ought to reconsider the ones that they enacted last year in the so-called Inflation Reduction Act, which isn't reducing inflation at all, so I like to refer to it as the inflation enhancement act and that's CBO saying it's not going to reduce inflation. Those partisan tax subsidies, are now expected to cost hundreds of billions, if not trillions of dollars, more than we were told when the bill passed and they disproportionately benefit large corporations and wealthy investors. So who just gave billions of tax benefits to the rich that they're now complaining about? Well, we know the answer. That was a partisan approach, so Democrats and President Biden I hope will take responsibility for that. Now isn't that rich. For the past 20 years of Republican-lead tax cuts have benefitted Americans across the board and low to middle-income Americans have seen their tax burdens reduced the most. Now according to the non-partisan--now let me emphasis-- non-partisan Congressional Budget Office, the bottom 20 percent of households have seen their average federal tax rate slashed from 7.2 percent in 2000 to only 0.5 percent in 2019. In contrast, the top 1 percent have seen theirs drop 2 percentage points from 32 to 30. So we have made the Tax Code more progressive, not less. I say we because in these cases many of my friends across the aisle supported most of the tax relief measures enacted into law. So I just need to remind this generation of Democrats, the Bush/Obama tax cuts were bipartisan. Democrats in both the House and Senate voted to enact them. Democrats voted to extend them. And not that long ago a majority of Democrats voted to make most of them permanent. Now have Democrats moved so far to the left that now they're having second thoughts about the last 23 years of mostly bipartisan tax relief? Do Democrats want to repeal these changes and send us to last century's Tax Code? Now if Democrats want to do that, what happens? Doing that means raising the lowest marginal tax rate from 10 percent to 15 percent. It means slashing the Child Tax Credit, which Democrats say they support. That would be reduced from $2,000 per child to $500. It also means subjecting an ever-increasing share of families to the alternative minimum tax and we know how terrible that tax policy is, not just from its justification, but because the complications of it. The non-partisan Tax Foundation estimates taking tax rates and the Child Tax Credit back to pre-2001 levels would disproportionately hit low and middle-income Americans. Now I've been on this Senate Budget Committee for my entire life in the United States Senate of 42 years and before this Committee started focusing almost totally on climate change, it heard regular warnings from the CBO and other non-partisan experts about the long-term debt problems facing our nation. That was the case even when budgets were temporarily in surplus. The Biden Administration has made our structural deficits worse thanks to the President's poor fiscal stewardship. CBO tells us deficits through 2031 will be 6.10 trillion higher than what the agency expected when he took office. Last week the CBO, non-partisan, I want to emphasis, put out their latest budget outlook and the Government Accountability Office, which I don't think has a partisan tinge, released their annual report on the nation's fiscal health. If this Committee is interested in examining our rising debt, we ought to bring in these non-partisan heads of these agencies to give us the straight facts. Let's put aside all these issues we're talking about that don't have anything to do about the fiscal health of our nation and I know our Chairman has emphasized this very closely connected, we need to have a very serious discussion about these fiscal problems. So I welcome all of you who are here today. I look forward to hearing each of your testimonies. Thank you, Mr. Chairman. Chairman Whitehouse. Thank you very much, Senator Grassley. I'm delighted to welcome our first witness, Mr. Bobby Kogan, Senior Director, Federal Budget Policy, at the Center for American Progress. Kogan's work focuses on federal budget issues, including the role that major tax cuts have played on the national debt. Previously, he served as an advisor to the Director of the Office of Management and Budget, after working as a policy advisor and budget coordinator on the Biden/Harris transition team. Before that Kogan worked on the Budget Committee staff for six years under former chairs Murray and Sanders, so welcome back, Mr. Kogan. And Mr. Bruce Bartlett will be our next witness. He's an author, columnist, and former domestic policy advisor to President Ronald Reagan and a former Deputy Assistant Secretary for Economic Policy of Treasury during the George H. W. Bush Administration. Since the George W. Bush Administration, Mr. Bartlett has been a steadfast critic of Republican Party economic policies, specifically tax cuts as a method of stimulating the economy. Third is Ms. Samantha Jacoby, Senior Tax Legal Analyst at the Center on Budget and Policy Priorities where she focuses on federal budget and tax policy. Prior to CBPP, she practiced tax law at international law firms in New York City and Washington, D.C. I'm also glad to welcome Dr. Adam Michel, Director of Tax Policy Studies at the Cato Institute where he focuses on analyzing the economic and budgetary effects of taxation in the United States. Prior to joining Kato, Michel served as Deputy Staff Director at the U.S. Congress Joint Economic Committee where he helped lead Senator Mike Lee's Social Capital Project, organized congressional hearings, and produce research on a wide array of economic topics. Our last witness will be Mr. Scott Hodge, President Emeritus and Senior Policy Advisor at the Tax Foundation, which he led as president for over two decades between 2000 and 2022. Mr. Hodge is recognized as an expert in tax policy, the federal budget, and government spending and holds a degree in Political Science from the University of Illinois at Chicago. We welcome you all. Mr. Kogan, please proceed. STATEMENT OF BOBBY KOGAN, SENIOR DIRECTOR, FEDERAL BUDGET POLICY, CENTER FOR AMERICAN PROGRESS \3\ --------------------------------------------------------------------------- \3\ Prepared statement of Mr. Kogan appears in the appendix on page 38. --------------------------------------------------------------------------- Mr. Kogan. Thank you, Mr. Chairman. Chairman Whitehouse, Ranking Member Grassley, and members of the Committee, thank you very much for inviting me to testify today. It is with enormous happiness that I come here today having served as a staffer on this Committee for six and a half years under both Senator Murray and Senator Sanders. Today I intend to make two points. First, without the Bush tax cuts, their bipartisan extensions, and the Trump tax cuts, the ratio to debt GDP would be declining indefinitely. And second, our rising debt ratio is due entirely to these tax cuts and not to spending increases. Throughout this testimony, when I say ``spending,'' I mean primary spending. That is, spending excluding interest on the federal debt. And every mention of revenues, spending, deficits, and debts means those amounts as a percent of GDP. Okay. According to CBO, primary deficits are on track to stabilize at roughly 4 percent over 30 years, high enough to cause the debt to rise indefinitely. The common refrain that you will here, that I heard when I staffed this Committee, and that unfortunately I expect to hear today, is that rising debt is due to rising spending. Revenues have been roughly flat since the 1960s and while spending was also roughly flat until recently, demographic changes and rising healthcare costs are now pushing the costs up. These facts are true. Our intuitions might reasonably tell us that, if revenues are flat and spending is rising, then the one changing must be to blame, but our intuitions are wrong. In CBO's periodic long-term projections earlier this century, spending was projected to continuing rising, but despite this CBO routinely projected long-term debt stability. It projected revenues to keep up with this rising spending, not due to tax increases, but due to our Tax Code bringing in more as our country and the people in it prospered. That prosperity results in both higher revenue collection and higher real after-tax income for the people whose incomes are growing. It is a win-win. In other words, we used to have a tax system that would fully keep pace with rising spending. And then, the Bush tax cuts were enacted and expanded. And then on a bipartisan basis, eventually made largely permanent in 2013. Under the law dictating CBO and OMB's baseline construction, temporary changes in tax law are assumed to end as scheduled. In practice, this meant that CBO's projection showed the Bush tax cuts ending on schedule with the Tax Code then reverting to prior law. 2012 was therefore the last year in which CBO's projections reflected the Bush tax cuts expiring. Yes, CBO's 2012 long-term projections showed rising spending, but it also showed revenues exceeding spending for all 65 years of its extended baseline. With indefinite surpluses, CBO showed debt declining indefinitely. But ever since the Bush tax cuts were made permanent, CBO has showed revenues lower than spending and has projected debt to rise indefinitely. And, since then, the Trump tax cuts further reduced revenues. Without the Bush tax cuts, their bipartisan extensions, and the Trump tax cuts, debt would be declining indefinitely regardless of your assumptions about the alternative minimum tax. Two points explain this. The first employs a concept called the fiscal gap, which measures how much primary deficit reduction is required to stabilize a debt. The 30-year fiscal gap is currently 2.4 percent of GDP, which means that, on average, primary deficits over 30 years would need to be 2.4 percent of GDP lower for the debt in 2053 to be equal to what it is now. The size of the Bush tax cuts, their extensions, and the Trump tax cuts under current law over the next 30 years is 3.8 percent of GDP. Therefore, mathematically and unequivocally, without these tax cuts debt would be declining as a percentage of GDP, not rising. Second, spending is not to blame despite the fact that it is rising. As I said, CBO's 2012 long-term budget outlook was the last time that debt was projected to decline indefinitely. And relative to CBO's 2012 projection, current spending projections are down, not up. On this graph, the darker dash line is lower than the lighter dash line. In short, if you're trying to explain how we got from CBO's 2012 projection of debt declining indefinitely to our current projections of debt rising indefinitely, then spending has decreased the future debt path, but revenues have declined significantly more than spending. The darker solid line is far lower than the lighter solid line. Changes in revenue are therefore entirely responsible for going from declining debt to ever-growing debt. And importantly, a disproportionate share of the benefits from these tax cuts accrued to very rich Americans, profitable corporations, and wealthy heirs. Any discussion of how to address the deficits caused by these tax cuts should first look to the source. Thank you. Chairman Whitehouse. Thanks very much, Mr. Kogan. We now welcome Mr. Bartlett, please proceed, sir. STATEMENT OF BRUCE BARTLETT, FORMER DEPUTY ASSISTANT SECRETARY FOR ECONOMIC POLICY, UNITED STATES DEPARTMENT OF THE TREASURY \4\ --------------------------------------------------------------------------- \4\ Prepared statement of Mr. Bartlett appears in the appendix on page 44. --------------------------------------------------------------------------- Mr. Bartlett. Thank you. It's a pleasure to be here again. The last time I testified before this Committee was in 2015 and I think I testified on pretty much the same subject. I'm a bit unaccustomed to be here talking about the need for higher revenues considering that the first 25 years or so of my career here in Washington was spent trying to cut taxes. In fact, in 1977, I drafted the Kemp-Roth tax bill when I was working for Jack Kemp and I wrote a book about the Reagan economic program and why I thought those tax cuts were good for the economy. But something has changed over the last 20-some years. I haven't heard anybody mention it yet and that's entitlement programs. I mean I've always been concerned about their growth. I think we should try to control them, improve them if we can, but the most important thing I think we need to do is fund them properly. And as everybody on this Committee knows, the Social Security Trust Fund is rapidly running out of money and some action will have to be taken over the next few years to fix that problem. Now the reason I changed my mind about taxes and decided that we needed tax increases happened on a specific day that I'm sure Senator Grassley remembers, if nobody else. That was in November of 2003 when Medicare Part D legislation passed. At the time I thought the reason Republicans, and I was a Republican in those days, were put on this Earth was to control entitlement programs. I was appalled that an entirely new entitlement program was created that was completely unfunded. Medicare part D raised the deficit forever by about 1 percent of GDP. I thought a dedicated tax should've been enacted along with that program, which I didn't oppose and don't oppose. In fact, I benefit from it at my age, but I just think that we need proper funding. That was when I first started saying we needed to raise taxes because we just can't cut discretionary spending enough to fix the problem and I think this is the error of the House budget, which cuts almost entirely domestic discretionary spending. It doesn't even touch defense and I just think that's extraordinarily unrealistic and an unserious approach to our deficit problem. We simply have to do something about entitlements if we're going to control the budget on the spending side. I don't think we're going to do that. I think we need a new tax. I've advocated a value-added tax for many years as a supplement to our existing tax system. You can raise a lot of revenue from it. Virtually, every industrialized country has one. That money could be used to fix things in the Tax Code as a tax reform measure. Once upon a time, in the seventies and even the eighties, the VAT was consider the sine qua non of Republican tax policy because it's a consumption-based tax system, a flat tax. And now many Republicans are in favor of something called the Fair Tax, which is very similar except that it won't work. Administratively, it's poorly designed. The value-added tax will work and that's why it is a better approach to these problems. So I would just say that we need to think seriously about funding entitlements. I think that we need higher revenues and that goes on top of the points that my colleagues to the right and left are going to be making about the unfairness of the Tax Code. Too many of the benefits are going to people at the top. That's all well and good and I think we should raise taxes on the wealthy, but we're going to have to eventually raise taxes on the middle class too. I understand that's something nobody wants to say. I don't know what kind of crisis would lead Congress to seriously consider that kind of proposal, but I think it will happen one of these days. Maybe we'll have a debt default in a couple of weeks and that will get everybody's attention if everything goes the way some people think it's going to go and we don't act in time, but we shall see. Thank you. Chairman Whitehouse. Thank you very much. Giving the testimony to the second, of the five minutes. Ms. Jacoby, please. STATEMENT OF SAMANTHA JACOBY, SENIOR TAX LEGAL ANALYST, CENTER ON BUDGET AND POLICY PRIORITIES \5\ --------------------------------------------------------------------------- \5\ Prepared statement of Ms. Jacoby appears in the appendix on page 71. --------------------------------------------------------------------------- Ms. Jacoby. Chairman Whitehouse, Ranking Member Grassley, and distinguished members of the Committee, thank you for the opportunity to testify today. I'm Samantha Jacoby, Senior Tax Legal Analyst at the Center on Budget and Policy Priorities. Today I will make three points. First, tax cuts enacted in the last 25 years gave windfall benefits to households in the top 1 percent and profitable corporations, exacerbating inequity, costing significant federal revenue, and adding trillions to the national debt. These tax cuts have failed to trickle down to workers and families. Second, extending the Trump tax cuts that expire at the end of 2025 would continue this trend, further expanding benefits for the wealthy while adding considerably to the deficit. Third, there's an opportunity to set a new course by taking three key steps to improve the tax system. Those steps include allowing the 2017 law's cuts for the wealthy to expire, revisiting the law's corporate tax cuts and international tax changes, and reconsidering the Tax Code's large benefits for capital gains. Taking these steps would make the Code more progressive and raise substantial revenue, revenue that could be used to address the nation's long-term fiscal challenges and pay for important policy priorities. Together the Bush and Trump tax cuts delivered windfall gains to the nation's wealthiest people and profitable corporation. From 2004 to 2012, the Bush tax cuts gave more than $700,000, on average, to households in the top one percent. The 2017 further cut taxes for the wealthy and corporations. In 2025, households in the top 1 percent will get a $54,000 tax cut and the top 1/10 of 1 percent will get over $200,000. This tilt to the top is largely because of a few costly provisions, including the dramatic cut in the corporate tax rate down to 21 percent that mostly benefits wealthy shareholders and the special deduction for passthrough businesses such as real estate funds, oil and gas companies that encourages tax avoidance and cost $50 billion a year and millionaires get half the benefit of that deduction. The 2017 law cost $1.9 trillion over 10 years and extending the expiring cuts would add over $300 billion to the total price. But the country needs more revenue, not less. Baby Boomers are retiring and the nation needs to invest in workers and families. Looking ahead there are three critical steps for building a better tax system that raises adequate revenues in a progressive and equitable way to address our long-term fiscal challenges and to support investments that make the economy work for everyone. The first step is letting the Trump tax cuts for the wealthy expire, including the passthrough deduction, the cut in the top tax rate and other changes that primarily benefit affluent households. The second step is partially reversing the 2017 law's large corporate tax cut and updating its international tax provisions. Cutting the corporate rate from 35 percent down to 21 percent failed to create the economic boom proponents promised. Raising that rate to 28 percent, just halfway between where it is now and where it was before would generate over $700 billion in revenue without harming the economy. And despite major international tax changes in 2017, more than half the income of U.S. multinationals as reported in just seven low tax countries. That little change from before the law. These international tax provisions should be made more robust to reduce revenues lost to tax havens. The third step is ensuring that the nation's wealthiest people pay at least some income tax each year. Wealthy people who get their income from investments accumulate large gains as those assets go up in value over time, but they won't owe income tax unless they sell their assets and if they never sell no one will ever pay income tax on those gains. That's arguably the biggest flaw in the Tax Code. Policymakers should consider a tax like President Biden's budget proposal to enact a minimum tax on very wealthy households. This would treat unrealized capital gains, which is the primary source of income for many wealthy households, as taxable income instead of letting income accrue tax free across generations. In conclusion, the reforms I've outlined today belong at the center of future tax debates. They will generate substantial progressive revenue to fund new investments and address long-term fiscal challenges benefitting U.S. workers, families, and businesses. Thank you again for having me testify today and I welcome any questions you have. Chairman Whitehouse. Thank you for being here. And now we turn to Dr. Michel. STATEMENT OF ADAM MICHEL, Ph.D., DIRECTOR OF TAX POLICY STUDIES, CATO INSTITUTE \6\ --------------------------------------------------------------------------- \6\ Prepared statement of Dr. Michel appears in the appendix on page 84. --------------------------------------------------------------------------- Dr. Michel. Chairman Whitehouse, Ranking Member Grassley, and members of the Committee, thank you for inviting me to testify today. I'll start with three points. First, the 2017 tax cuts were a success. Second, the tax cuts did not cause the federal deficit. And third, the topic of this hearing is really about the appropriate size and scope of government. A topic on which reasonable people can disagree. However, if Congress decides that the current trajectory of federal spending does not need to be curtailed, it should be honest with the American people. Big government is expensive and will require significantly higher taxes for everyone. I'll begin with a bit of history of the 2017 tax cuts. After years of misleading reporting, many Americans still don't believe that they benefited from the tax cut. This is a shame because it not only lowered tax rates on Americans at every income level. It simplified taxpaying and supported an economy that was struggling to finish the long climb out of the great recession. The law cut taxes for more than 80 percent of Americans and cut the tax bills of the lowest income Americans the most. Despite claims to the contrary, the Tax Cuts and Jobs Act made the Tax Code more progressive, collecting a larger share of revenue from the highest earning taxpayers. The law cut tax rates for individuals, doubled the Child Tax Credit and curtailed special interest itemized deductions so that 30 million more taxpayers now use the simpler and larger standard deduction. The tax cuts also boosted wages, boosted investment, and boosted economic growth by expanding full expensing for businesses and lowered the corporate tax rate to 21 percent, moving us from the highest rate in the developed world to a bit above average. In 2018, investment outpaced CBO projections, new manufacture orders increased and small businesses optimism peaked. The labor market also improved. Wage growth went from flat or declining to steadily increasing. At the beginning of 2020, the average production and nonsupervisory worker saw about $1,400 in higher wages. These economic gains were also widely shared. Following the tax cuts inequity declined as income growth for the lowest income and minority households outpaced all others. To my second point, the deficit is the result of unsustainable spending growth, not a lack of tax revenue. Last year federal revenue was at a two-decade high and this year federal revenue will be a full percentage point above the historical average. If Treasury collected as much revenue as it did when we had budget surpluses in the Year 2000, the current deficit would still be above 5 percent of GDP. It's new spending that drives the deficit. For example, in his time in office, President Biden has added about five trillion dollars in unnecessary spending to the national debt. That's more than three times the 10-year revenue reduction of the 2017 tax cuts. Deficits are caused by spending more than Congress is willing to raise in taxes which brings me to my final point. Americans benefit from being a relatively low tax country compared to many others around the world. Lower income taxpayers would pay about $6,000 more in taxes if they moved to Europe. A middle class taxpayer would forego more than half of his income and pay about $16,000 more in taxes. President Biden's pledge to increase government spending without raising taxes on Americans earning less than $400,000 year is a mathematical fiction. Every other large modern welfare state funds its programs with high taxes on the poor and the middle class. Advocates for more government spending need to be honest with the American people. Big government requires significantly higher taxes on everyone and not just the rich. Tax increases are also no panacea. Historically, higher taxes prolong and deepen recessions, fuel additional spending growth, and don't stabilize government debt ratios. Keeping government small is the best way to ensure that the American people can continue to prosper. Without addressing spending growth, ever larger tax increases mean that the poor will get poorer and deficits will continue to grow. Instead, I hope that Congress addresses the drivers of our unsustainable budget, put constraints on the size and scope of government, and protects Americans from the cost of higher taxes as the 2017 tax cuts begin to expire. Thank you. Chairman Whitehouse. Thank you very much. And our final witness, Mr. Hodge. STATEMENT OF SCOTT HODGE, PRESIDENT EMERITUS AND SENIOR POLICY ADVISOR, TAX FOUNDATION \7\ --------------------------------------------------------------------------- \7\ Prepared statement of Mr. Hodge appears in the appendix on page 100. --------------------------------------------------------------------------- Mr. Hodge. Thank you very much, Mr. Chairman, Ranking Member Grassley, members of the Committee. Mr. Chairman, if you're running a business and your CFO says the company's finances are unsustainable, you should heed that warning. Well, Congress just got that same warning from their own CFOs in the latest financial report of the U.S. Government. It says that unless lawmakers take action soon, the federal debt could exceed 200 percent of GDP by 2046 and reach an astonishing 566 percent of GDP by 2097. Now, there are many in Washington who point to tax policy as both the cause and the solution to the debt crisis. Some claim that prior tax policies have contributed to the debt crisis and suggest returning to Clinton era tax policies would close the deficit. President Biden has proposed for 4.5 trillion in new tax revenues, in part, by repealing some of the Tax Cuts and Jobs Act. Well, despite some of the well-worn rhetoric that we hear, both the Bush tax cuts, and the Tax Cuts and Jobs Act made the federal tax burden much more progressive than it was during the Clinton Administration. Today the top 1 percent of taxpayers face a much larger share of the tax burden than they did 20 years ago and the bottom 50 percent of taxpayers pay half the tax burden than they did two decades ago. Our modeling suggests that the poor and middle class would be the hardest hit by returning to Clinton-era policies. Our model shows that repealing the Bush tax cuts would reduce the after-tax incomes of those in the bottom quintile by 8.2 percent, reduce the incomes of those in the second quintile by more than 10 percent, and reduce the middle-class incomes by nearly 8 percent. Yet, meanwhile, those taxpayers who are least impacted by repealing the Bush tax cuts would be those at the top 1 percent. Well, because of the expansion policy such as the Child Tax Credit more than 37 percent of all taxpayers today pay no income taxes after claiming their credits and deductions. Reverting to Clinton-era policies would put 20 million working families back on the tax rolls. President Biden's budget would make the fiscal crisis worse. Using the Tax Foundation's macroeconomic tax model, our economists estimate that the Biden tax increase would reduce the size of the economy by 1.3 percent, reduce the capital stock by 2.4 percent, and eliminate 335,000 private sector jobs. It's impossible to deal with the debt crisis with a shrinking economy. And as we'll see, tax increases don't bend the cost curve of the national debt. Yet, there are many people who say taxes have to be on the table. Well, if taxes are on the table, lawmakers must consider the tradeoff between raising taxes and economic growth. Our economists modeled three significant tax increases to measure their impact on both the economy and the cost curve on the national debt. Raising the gas tax would have the smallest negative impact on the economic growth, but it would have the least impact on reducing the cost curve. Eliminating the tax exclusion for employer provided health insurance has a slightly larger impact on economic growth but has the biggest impact of the three simulations on reducing the debt curve. By contrast, President Biden's tax increases would have the largest negative impact on economic growth and do less than the tax exclusion for reducing the debt. Overall, however, none of these tax increases bend the debt curve that much and none stabilize the debt over the near term or even the long term. In conclusion, Mr. Chairman, there are many elements of the Tax Code that benefit the wealthy and big corporations. I absolutely agree. And the Inflation Reduction Act is the most recent example of corporate welfare in the Tax Code. And there are dozens of tax expenditures that disproportionately benefit high income families much more than the middle-income families. Removing these tax expenditures would be more effective than raising tax rates in altering the long-term debt curve. But that said, our simulations suggest that even large tax increases are insufficient to stabilize the debt, which points to the only sustainable solution to stabilize the national debt, controlling federal spending. With that, thank you, Mr. Chairman. I'm happy to answer any questions you may have. Chairman Whitehouse. Thank you, sir. If I may, in my time, let me start with Ms. Jacoby. And I would really like to draw your attention to your Figure 4 in your testimony which shows the offshoring of corporate profits to tax havens. And what's notable about it is it starts at zero in 1975 this really wasn't going on and it grew steadily to 2010 when 20 percent of multinational corporate profits had shifted to tax havens. And then from 2010 to 2015 there was a dramatic jump from 20 percent to 35 percent and it's now climbing towards 40 percent. When you look at that and you compare where the benefit goes, how does it stack up for a small business that does not have the wherewithal to establish an offshore, profit-hiding tax haven compared to its, say, chain competitor down the street that does have that capability? Ms. Jacoby. Thank you, Senator. The 2017 law it dramatically changed the way that foreign profits are taxed of multinationals and so what happens now is large corporations who have big foreign profit centers, also foreign profits overseas, they pay a lower tax rate on those foreign profits than they do on their domestic profits or purely domestic businesses pay. So the law preserved a good tax deal that multinationals have on their foreign profits. Chairman Whitehouse. It's basically a big business tax shelter that small business doesn't have access to. Ms. Jacoby. Domestic businesses, small businesses, generally, they don't have foreign profits and can't use that. Chairman Whitehouse. Mr. Bartlett, you made a couple of statements that I'd like to raise in your testimony. One, you cite a prominent colleague who said, ``There's no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue because of the vibrancy of these tax cuts in the economy.'' You point out this was not true. You then quote Secretary Mnuchin saying that the tax cut would be offset by economic growth and that there'd be no increase in the budget deficit and you pointed out that earned four Pinocchios for being so disingenuous and then you say perhaps the most fantastic claim for the Trump tax cut by Kevin Hassett of the Council of Economic Advisors is that it would cause so much additional corporate investment that workers would see a rise in their real wages between $3,000 and $7,000. What is going on with these various statements if they're not supported by the evidence? Mr. Bartlett. Well, keep in mind that these statements were made mostly in 2017 before the legislation was enacted. And one of the things I've tried to do in my prepared testimony is look at what has actually happened in the seven years since then. I also looked at the very few studies, which are listed in the footnotes. My colleagues' testimony are projections based on studies that were done in 2017, 2018. I tried to find things that were written more recently, perhaps or preferably, I should say, in the academic literature, which I think is more substantive and more dependable. With the peer reviewed journals and the data that I could find show no macroeconomic impact whatsoever from the 2017 tax cut. It didn't raise growth. It didn't lower growth. And I think I concluded in that---- Chairman Whitehouse. It shift wealth. Correct? Mr. Bartlett. Excuse me? Chairman Whitehouse. It did shift wealth. Mr. Bartlett. Absolutely. No question about that. But I'm more interested in the macroeconomic effect on investment and growth and employment. And I'll just close by saying that if a tax cut had no positive impact then it can't have any negative impact if you get rid of it. Now you may not want to for other reasons, but I don't think it will impact the economy. Chairman Whitehouse. Let me turn to Mr. Kogan before I lose my time. The equation here is has been spending versus revenue. And Dr. Michel said this is basically a proxy fight over the size of government. It looks to me from your testimony that there are other factors in here. One is demographics. That the American population is aging and that causes effect, both in revenue and in costs that should be fairly accounted for. And within that I've long believed that healthcare costs is a particular problem and we'll be doing, I promise you Ranking Member Grassley, hearings in the future, on ways to save healthcare costs that don't require benefit cuts, but take advantage of things like accountable care organization savings and my graphs that I use all the time that shows that trillions of dollars below anticipation. Could you comment on how spending versus revenue intersect with demographics and external factors like healthcare costs? Mr. Kogan. Yes, thank you, Mr. Chairman. So our demographics changes and rising healthcare costs are the reason that spending is increasing. If you break spending into two categories: Medicare, Medicaid, Social Security; everything else, including the everything else entitlements, the everything else is shrinking as a percent of GDP and it's the Medicare, Medicaid, and Social Security that are growing and they're growing not because they're doing more. It's not because we're giving more and more to seniors and to extremely poor people, but because it costs to do the same. That is the demographics that's changing the ratio of nonworkers to workers, and it is also the rising healthcare costs. And so what this means is that, if you want to spend less you are necessarily saying that future seniors should be getting less of a benefit than they're currently getting. That's the only way to do it. Since that's the portion of the budget that's growing, if you want to cut that, you have to say that the current amount that--we're doing for Social Security recipients, the current amount that--we're doing for seniors, the current amount that--we're doing for people on Medicaid is too much and future people should be having less. That's the only way to do it. And the very nice thing that I had, though, was in my testimony. We used to have a tax system that despite rising would keep up with that and now we don't. To your point about healthcare, it has been going down a lot. It's still going up, but things like the Affordable Care Act and things like drug price negotiation have been bending that curve and it would be a great source to bend more. Chairman Whitehouse. Great. Well, just for fun, as I turn to Senator Grassley, I'm going to put into the record my graph that I use all the time that shows the change in healthcare costs, but we're still way above all of our international economic competitors. Sir? Senator Grassley. Mr. Bartlett, in your testimony you expressed support for a value-added tax and higher taxes on the middle class. How much would you raise taxes on the middle class and low-income classes? Mr. Bartlett. I can't say a number, but incidentally, I don't know if you remember, but one of the first times I ever testified before Congress was before a Subcommittee that you chaired back in 1984, so we go back a long ways. I mean I look at foreign countries and I see that they have much more stable fiscal systems than we have largely because they raise a lot more revenue than we do and the reason they're able to raise that revenue is because they do it very conservatively by taxing consumption, which is what the value-added tax does. Senator Grassley. I think I'm going to stop you at this point because I've got some questions I want to ask of other panelists. Mr. Hodge, an underappreciated part of the 2017 tax reform and the Bush/Obama tax cuts was relief from the alternative minimum tax. What would be the effect of going back to the pre- 2001 AMT rules? Mr. Hodge. Thank you, Mr. Chairman. As you know, the AMT is one of those classic cases in tax policy where a tax was aimed at the rich and eventually hit the middle class. And the 2017 Tax Cuts and Jobs Act did a great deal in raising the thresholds so fewer Americans were being affected by it. The AMT was sort of a pandemic of tax policy where it was hitting families in the suburbs of high-income areas such as New York, Chicago, California, and so forth and the TCJA did a great deal to stem that tide against American households. Senator Grassley. Also for you, Democrats have criticized the 2017 tax law as a giveaway to the wealthy. However, at the same time they've advocated repealing the $10,000 cap on state and local tax deductions. So for you, wouldn't such a change overwhelming benefit the wealthy and make the Tax Code less progressive? Mr. Hodge. It's hard to claim that the TCJA was a big windfall for the rich and then say at the same time we want to give them a windfall by expanding the state and local tax deduction. It would be a huge windfall for the rich and if anything we should eliminate the Salt deduction rather than expand it. Senator Grassley. Dr. Michel, the Inflation Reduction Act greatly expanded green energy subsidies for corporations and businesses. Part of this expansion included adding new features such as transferability and direct pay to select energy incentives. While Democrats complain about corporations paying little or no tax, won't these expanded credits and new features enable more wealthy taxpayers and corporations to pay little or no tax? Dr. Michel. Yes. The point of most of these tax credits, like the ones included in the IRA and many others throughout the Tax Code, are designed to lower business taxes from the statutory rate all the way down to zero. JCT looked at these credits for electricity production and investment and I think they found 90 percent of the benefit goes to companies with over one billion dollars in gross receipts. I think if the Democrats wanted to cut the tax rates of large corporations I wish they had expanded expensing and lowered the corporate tax rate. I think this would've been better for sustainable energy production and would've been better for the economy as a whole. Senator Grassley. Dr. Michel, Biden proposed five trillion in new tax hikes in his recent budget. Even with these massive tax hikes deficits and debt continue to grow and grow at an unsustainable rate, so is it possible to stabilize our rising debt solely on the backs of the rich? Dr. Michel. No, it's not. The $4.7 trillion in tax hikes I like to think of this as sort of an upper bound of what's politically possible to raise taxes on the rich coming from the President's budget. It only covers about 20 percent of the $20 trillion 10-year budget deficit. If you sort of go beyond that and confiscate every dollar earned over $500,000 a year from Americans, you still don't cover next year's budget deficit and this doesn't include the economic costs of doing something like that or the additional spending that has been proposed. There simply is not enough money at the top of the income distribution to fund the current size of government, let alone the growth that's projected. Senator Grassley. Thank you, Mr. Chairman. Chairman Whitehouse. You're very welcome. And I would turn to the distinguished Chairman of the Finance Committee, Senator Ron Wyden. STATEMENT OF SENATOR WYDEN Senator Wyden. Thank you very much, Mr. Chairman. I want to thank all our guests. I'm sorry I had to be out of the room. I'm dealing with some family issues this morning and I think you all know, and we've had a chance to talk to a number of you over the years. You've got four members of the Senate Finance Committee, two Democrats, two Republicans. And historically, the Finance Committee has worked in a bipartisan way and I'd like to ask you some questions that I hope will be able to elicit some bipartisanship going forward. In the last few weeks, the Senate Finance Committee has been digging into two areas where powerful interests are shirking their revenue responsibilities and this is at the time, of course, when our country is staring at default. And I'll be brief about this. Our Credit Suisse investigation was about tax evasion and you had Credit Suisse, even after they got busted in 2014, do the same thing. Basically, look the other way when dual nationals and we had crooked bankers and crooked banks just ignoring their responsibilities, enormous sums involved and this was after the head of the company, after they got busted in 2014, came in and swore to the Congress that they'd never let it happen again. A textbook case of tax evasion recidivism, get that word, recidivism, they did it twice. Our tax avoidance case what something that I participated in last week, I know the Chairman and the Committee did, involving Big Pharma. This is an instance where these big pharmaceutical companies would make most of their sales in the United States, then they race overseas to, in effect, pretend that they were really residents there so they could pay very low taxes and they got staggering sums, basically got a 40 percent tax cut or something in that ballpark. So Mr. Bartlett, you've been doing a lot of good work on these issues over the years and I've had the pleasure of talking to you. So here we are staring at default today, right now. How do you deal with the country's revenue needs when you have this kind of tax evasion, which is what our Credit Suisse case was really all about and then Big Pharma out there practicing tax avoidance? Those don't strike me as very responsible practices. We've got to root them out and you've got four members of the Senate Finance Committee. I want to emphasize that, two Democrats, two Republicans, people who have the ability to do something about it. You're advising the Senate Finance Committee on a bipartisan track--I know that you've worked with both parties in the past. I know about your involvement with Republicans. You've been very gracious to me when I've called. How do we deal with our revenue responsibilities here? Mr. Bartlett. Well, first of all, I think in terms of tax shelters and tax evasion and extreme levels of tax avoidance, the problem isn't so much with the law as with the enforcement. And as you know, it's been the policy of Republicans to slash the budget of the IRS in real terms for many years, which is a way of privatizing tax avoidance to rich people because rich individuals have the greatest power and ability to avoid taxation and I think it was really wonderful that Congress increased the IRS's budget and I think it's just the height of absurdity that one of the major elements of the House Republican proposal is to slash the IRS's budget again, even though the CBO has said this is a revenue-losing proposition. So I think the first thing we can do is back up the IRS and give them the resources they need to do their job. Senator Wyden. I think you've said it very well. I'm over my time. I think the point is we've highlighted in the last month two important cases. One was tax evasion, that was the Credit Suisse matter. The other one was tax avoidance, which was Big Pharma. And Mr. Bartlett, who has looked at these issues in a non- partisan way in the past has made it clear that if you harm the IRS enforcement budget, you are going to make these serious problems that we've got today worse. Message sent, Mr. Bartlett. I'm going to be talking to all the Democrats and Republicans about how we beef up the enforcement issue. Chairman Whitehouse. Senator Johnson, then Senator Kaine. STATEMENT OF SENATOR JOHNSON Senator Johnson. Thank you, Mr. Chairman. I'll ask all of you. Anybody think we've got a great tax system and you want to raise your hand and defend it? Anybody want to say that it's not a big, old mess? So my point always is what we ought to have done in 2017, like we ought to do now is simplify it and rationalize it. I never liked the word tax reform. One of my favorite sayings is all change is not progress. All movement is not forward. And so we just continue to complex or complicate our tax system and it really hasn't helped out a whole lot. One chart, speaking of charts, that I always found pretty interesting was this one. This shows the top marginal tax rate in pink block and then--this is since 1959. This is 60 years' worth of history. As we've tried to punish success with the tax rate as high as 91 percent, 70 percent, 50 percent. It's kind of moderate here, a little bit below 40, but on average, we collect about 17.3 percent of GDP in revenue. I realize there's lot of tax deductions, but still it just seems like there's sort of an immutable reality that as hard as you try to punish success by increasing tax rates, you're not able to squeeze much more than 17, 18 percent out of our economy. Mr. Hodge, do you have any explanation for this? Mr. Hodge. Well, as long as we try to tax income, and as long as Congress is going to have various deductions in the Tax Code, you're going to get those kinds of results. If we move toward a more consumption-based tax, it'll be a lot steadier and a lot more efficient and we won't have to resort to those kinds of levels. Senator Johnson. Mr. Bartlett, I'd probably say you'd agree with Mr. Hodge in terms of simplification be moving more toward a consumption-based tax as opposed to an income-based tax. Mr. Bartlett. I think that's one area all economists agree on, at least from an economic point of view tax on consumption is better than taxing income. The problem of course here that you run into is that it's a highly regressive form of taxation and it's hard to offset the higher taxes that lower income levels would pay. Senator Johnson. Another problem is if you add it to an income tax you just end up raising massive revenue which I do believe does hurt economic growth. One question I was trying to ask those witnesses that are proposing more progressivity in our Tax Code, so I'll ask Mr. Kogan and Ms. Jacoby. What do you think is the maximum tax rate any American should pay on a dollar of income? Mr. Kogan? Mr. Kogan. Thank you, Senator. I think that the maximum-- you're talking about the average, or the marginal? Senator Johnson. So if you're one of these wealthy guys that have reinvested their money in building a factory and providing jobs I mean how much do you want to tax that wealthy individual? Mr. Kogan. Sure. So Professor Saez estimated that probably the Laffer Curve would end up at around 73 percent. So I think probably if you're going above 73 percent you're no longer raising revenue; you could be going up there, but part of the issue is---- Senator Johnson. I want your opinion. So you think we should have a top tax rate of 73 percent. Mr. Kogan. I'm sorry. What I meant to say is part of the issue is where the marginal rate is not really capturing your effective rate. I mean part of the issue here is---- Senator Johnson. Again, this is actually a pretty simple question. What is the maximum amount the federal government ought to take on one dollar of income? What's the maximum amount, what's the maximum percentage? Mr. Kogan. Senator, I think it depends what has been happening below that rate. Senator Johnson. Ms. Jacoby, maybe you'll give me a straight answer. I mean what in your dream world if you could design a tax code what would be the maximum rate you'd tax on income? Ms. Jacoby. I think your question is an important one to think about, but I think before we even get there the Tax Code has to make sure that wealthy people are paying any tax at all. The way it---- Senator Johnson. Why can't I ever get an answer on that. Ms. Jacoby. Because it's---- Senator Johnson. It actually just amazes me. What's hard about saying I want to tax income at X percent. Ms. Jacoby. The question takes away a lot of important context about the way the Tax Code is structured that allows wealthy people to avoid tax for their entire life. Senator Johnson. I started this thing talking about simplifying and rationalizing the Tax Code, so I'm envisioning a very simple Tax Code. I don't want to socially or economically engineer the Tax Code. I want to raise the revenue we need, with as little friction as possible, but again I need from progressive witnesses what is the maximum tax rate you're looking for. You want to give it another stab before I run out of time here? Ms. Jacoby. A simpler Tax Code would treat different types of income the same way and right now it doesn't do that. Senator Johnson. Okay. Let's assume that. Everything's treated the same. There's not different definitions. Income is income. A dollar is worth a dollar. How much do want to tax them? Ms. Jacoby. When we get there, we can talk about a number. I'm not prepared to give you an answer. Senator Johnson. That's a cop out. STATEMENT OF SENATOR KAINE Senator Kaine. Thanks to the witnesses and I'm sorry that I missed the opening discussion. I feel like I've come into one at midstream, but I'll probably repeat some. In prepping for a similar hearing in this Committee a couple of years ago. I did a little research that I haven't updated, so I may be slightly off on this, and if I am, perhaps you can tell me if I am. I looked at budgetary items and whether they have been increasing as a percentage of the GDP or decreasing. Non- defense discretionary spending has been decreasing as a percentage of our GDP. Defense spending has been decreasing as a percentage of our GDP. Those are the two big spending categories. What has been increasing are three categories. Spending in the kind of entitlement earned benefit programs-- Medicaid, Medicare, Social Security, Disability. Thank goodness we're aging. A lot of people are living a lot longer and those expenses tend to be increasing as a percentage of the GDP. Debt service is increasing as a percentage of the GDP. And the other item that is increasing is a percentage of the GDP is tax expenditures. Tax collections are decreasing as a percentage of the GDP. Tax expenditures are increasing as a percentage of the GDP. That was work I did a couple years ago, is that still basically accurate or anybody want to quibble with the way I've said it. Mr. Kogan, you want to say something? Mr. Kogan. No, I was saying you're right. I give a thumbs up. Sorry, Senator. Senator Kaine. I never get a thumbs up, so I don't know how to interpret it. So that's why we're here. Tax expenditures are increasing as a percentage of the GDP while virtually everything else is reducing. We need to tackle the areas that are increasing as a percentage and look for solutions and we need to ask whether the areas that are reducing are good for the long-term health of the country. Tax expenditures increase as a percentage of the GDP for a variety of reasons. I'm with Senator Johnson. I want a lot simpler Tax Code, a lot simpler Tax Code. I want to treat income as income. I don't to give people a break if they make their salary and they call carried interest. I want to treat income as income. I want it to be progressive. If the simpler we make it, the less we give incentives for people to play games and structure transactions and hire phalanxes of tax accountants and lawyers and that might hurt my old profession, but I think it would be better for the country. It would be fairer, so it sounds like there is some consensus among witnesses from any direction that simplification should be a goal of ours. What about setting goals for both expenditures and revenues as a percentage of GDP? Chairman Whitehouse is interested in budget process reform, and as you guys know, the sort of the real action on the budget is in the Appropriations Committee. What we can do here, though, is set guidelines, set policy, try to figure out the way to do more rational budgeting. If we were to try to do rational budgeting around expenditures should be some percentage of GDP and revenue should be some percentage of GDP, would that be a good way to look at how to do budgeting and if so, how would you approach a challenge like that, Mr. Bartlett? Mr. Bartlett. Well, the Congress discussed all those matters 50-some years ago and established the Budget Act of 1974 that created this Committee and established procedures to do an annual budget resolution that spelled out exactly what those things should be. So I think the place to start is to go back to the regular order and do the budget resolution the way that used to be done. Senator Kaine. Which we haven't done much of the time I've been here in the Senate. The only thing I would adjust, and I've raised this before, is we have a budget calendar that doesn't really work because September 30 is not a magic day for anyone. In fact, one third of the Senate and 100 percent of the House ever hit September 30, they're not worried about the budget. They're worried about November. And when we get budget deals at all, we tend to get them right before year end because everybody wants to take a break and spend some time with family. And so if we just took the Budget Control Act of 1974 and adjusted all the dates backwards three months you would start to see a dramatic reduction in CRs and you would start to see budgets being done a little more according to what was originally the intent. Even if you do the Budget Act right and you do it according to Hoyle, we still don't really have a policy at the federal level for something like debt management. A debt limit is not a policy for debt management. Every state--I was a governor. We have a policy. Debt shall be no more than X percent of state GDP debt. Service shall be no more than Y percent of annual outlies. We use debt differently at the federal level, obviously. At the state level it's going to be used for capital. At the federal level it includes counter-cyclical standing on programs and that's understandable, but we don't have a debt management policy. And one of the reasons we end up in hearings like this and do them again and again and again is that we don't have a debt management policy. Mr. Bartlett. Well, one suggestion that has been made many, many times before is to separate the capital expenditures from the operating expenditures. Senator Kaine. As state and local governments do. Mr. Bartlett. Exactly. I think if you had a capital budget it would help. Senator Kaine. Thank you. I yield back. Chairman Whitehouse. Thank you, Senator Kaine, Senator Braun and then Senator Van Hollen. STATEMENT OF SENATOR BRAUN Senator Braun. Thank you, Mr. Chairman. I want to ask every one of you to answer this question and it's just a yes or no. Because there's been such kind of a disparate point of view on revenues, expenses, and all that, do we need a balance budget amendment? Let's start with you, Mr. Kogan. Mr. Kogan. Thank you, Senator. The answer is definitely not. Mr. Bartlett. No, Senator. I don't think one can be written in such a way that it's enforceable. Ms. Jacoby. Thank you, Senator. I agree with my colleagues. I'd say no. Dr. Michel. I'd say yes. Mr. Hodge. I think it's wishful thinking. Senator Braun. I'd agree with that probably. All I can tell you is other than a few states---- Mr. Hodge. It's not a magic bullet because it takes the will of this body. Senator Braun [continuing]. Especially since it seems to be mostly how to relieve ourselves of any moment of discipline we put in place and that's been obvious over the years. Most states incorporate either a statute or an amendment and I would say unequivocally they run a better show than we do here because the first budget meeting I was with an esteemed senator from Maryland said we have very little political will here to do anything, whether it come from revenue or the expense side. I come from the side of being a CEO that was a CFO and always worked because you're constrained by bad behavior taking you out of the marketplace. You could not renew your line of credit if you were borrowing or losing 30 percent on your PNL and expect to remain a viable entity and all this kind of theory about what's working here has none of the perimeters of what makes it work anywhere else. So I would disagree with the first three that you're going to have to need the straitjacket process to some extent or we're going to take the new paradigm of running two trillion-dollar annual deficits up to three and a bunch of this discussion about earlier where it started I agree with. We were only five million in debt when the Bush Administration took over. We did put two wars on the credit card. It's been an equal opportunity endeavor through that whole navigation where everyone wants what they want, but no one else is giving up anything. That seems to be a prescription for disaster in the long run. Ron Johnson held this up. That, to me, should be the most salient statistic that regardless of what the tax rate is our system, due to its kind of entrepreneurial nature, the fact that it's not driven by government I would contend that private investment through the business sector is the most important thing that we should get more of. It actually engenders more consumption in the long run. But when you're consuming in the short run and you're borrowing the money to do it, I don't know what anybody could do to justify that and that seems to be the driving thesis of how this place works, 17.3 percent regardless of the tax rates. And I'm not going to ask you what you think the ideal tax rate is. That would be a redundancy because here I don't think you can see one. We were in a meeting last week. I did ask what do you think the ideal percentage of GDP would be for federal spending regardless of how we tried to get ourselves there. Start with you, Mr. Kogan. Mr. Kogan. Thank you, Senator. I think the ideal tax rate would be to match whatever your primary spending is. Senator Braun. I'm asking you what the spending rate should be because we know that this is a elusive way to get to where you might be spending. Where do you think--and you might have to go to a different form of taxation, what do you think we ought to be spending at the federal level, ideally, as a percentage of our GDP? Mr. Kogan. Well, actually I had a graph that's prepared in response to that graph. The graph that you held up looks only at the top marginal rate, but not the average rate. And I have a graph here that looks at the---- Senator Braun. But I'm not talking about revenue. I'm talking about spending because to me I think that's the more difficult part of the equation. Very simply because I want to give everybody else at least say something. What percentage would you like to see the federal government as a percentage of our GDP? Mr. Kogan. Sure. I don't have the exact number, but I think it needs to be much higher. Senator Braun. Well, okay. Next? Mr. Bartlett. Senator, I think that the most important thing is to deal with entitlements because so much of that is out of control. Senator Braun. And I'd agree with you there, but that all comes to general---- Mr. Bartlett. I think if you held constant domestic spending and defense spending as a share of GDP and allowed for an increase in entitlement programs to pay for the Baby Boomer Generation, you'd have a slightly rising share of GDP, so you can't fix it at---- Senator Braun. Well, we're currently at about 20, I think, is what we spend. It's at 25 right now to 27 percent with the binge that we had over the last two years. But let's go back to the baseline of 20, maybe 21 or 22, slightly up? And next please, we're going to see if you've got a particular amount in mind. Chairman Whitehouse. Complete your answer to Senator Braun's question, but Senator Van Hollen is waiting, so if you could make it brief I'd appreciate it. Senator Braun. Yes, please. Ms. Jacoby. Thank you, Senator. I think there's a significant investment offset that we need to---- Senator Braun. So do you want to go to a percentage or do you just want to say we need more? Ms. Jacoby. I'm not prepared to give a specific number. Senator Braun. Okay. Dr. Michel. I think you should start by reducing spending to the historical average of revenue collection, which is 17.4 percent and then I think you should reduce it further from there. Senator Braun. Okay. Mr. Hodge. I was going to say exactly the same thing. Senator Braun. And by the way, somebody did say on kind of your side of the aisle, in terms of approach, Mr. Zandi, last week he thought it would be ideal between 20 and 22 percent. Just so you know, he did come up with a figure. That means we'd then be admitting to 5 percent of our GDP that we'd be chronically borrowing into the future. At least he came out with a spending figure. Thank you. Chairman Whitehouse. Senator Van Hollen. STATEMENT OF SENATOR VAN HOLLEN Senator Van Hollen. Thank you, Mr. Chairman. Thank all of you for your testimony. I hope can all agree that it would be a disaster for our economy and our country if we default for the first time in our history. I think, as many of us said, we're more than open to have a discussion about how we address deficits and debt. And Senator Braun, I remember that first meeting. I haven't changed my mind either. I think the reforming process maybe at the very margin could be helpful, but this is a matter of political will and getting things done. And in that light, the President has submitted a budget which achieves three Trillion dollars in deficit reduction over 10 years through revenue by getting very wealthy people to pay more, closing tax loopholes, asking corporations to pay more than they are today, but less than they were a short time ago. And now we have a House proposal that's about $4.5 trillion over 10 years. They have not proposed a budget, just to be clear, but they've got device to do it. So here we are and I do reflect back on the last time that we've had a balanced budget in the country and Senator Kaine referred to some of the things that had gone up and what went down, but Mr. Kogan, am I right that the last time we had a balanced budget, which was around 2000/2001, the revenues as a percent of our GDP were around 20 percent? Mr. Kogan. That's right, Senator. Senator Van Hollen. Right. And I know you worked on the Biden budget proposal before you left the White House. And as you look at this proposal that he's put forward, would it get us back to around 20 percent as GDP? Mr. Kogan. Yes, Senator. Senator Van Hollen. As of today, however, if you look forward the next couple of years and you look at CBO projections, we're at around 18 percent, am I right? Mr. Kogan. Yes, Senator. Senator Van Hollen. So I just would again to my Republican colleagues, and Senator Braun mentioned the Zandi number, the reality is the last time we were at a balanced budget we had higher revenue. Two percent doesn't sound like a lot, but on top of a big economy that's a lot of revenue. So we keep hearing the House Republicans talk about reducing the deficit, but they're not willing to raise a penny of revenue from rich people, which just leads me to conclude this has nothing really to do with deficits and debt. It does have to do, as someone said, trying to shrink government, but as we have more aging Americans, we have continuing obligations even if we stick with current benefits. So I'm hoping maybe we can dispel at least one myth. I don't think I've heard it recently from any member of this Committee, but I continue to hear it out there at some points in time, which is that the Trump tax cuts actually pay for themselves and I've looked at reports done by all of you and I just would like to get agreement on the point that the Trump tax cuts did not pay for themselves. In other words, they didn't raise more revenue over time than they gave up. If we could just start with you, Mr. Kogan. Mr. Kogan. Yes, Senator. You are correct. Federal revenues are lower than they would have been if not for the Trump tax cuts. Mr. Bartlett. The Trump tax cuts did not pay for themselves. I provide documentation in my statement. Ms. Jacoby. I agree they did not pay for themselves and they did not trickle down to employee earnings. Dr. Michel. I prefer to think of the tax cuts as a one-time cost. I don't think they're an ongoing contributor to the debt. Senator Van Hollen. Well, I'm looking at something, Mr. Michel, that you put together when you were at the Heritage Foundation. And you've got 12 myths and one of the myths, and I'm quoting, is that the tax cut doesn't pay for itself, the Trump tax cut. Are you changing your mind today about that conclusion? Dr. Michel. No, I'm not. Senator Van Hollen. So just to be clear, the Trump tax cut did not pay for itself. Correct? Dr. Michel. Not within the 10-year budget window, no. Senator Van Hollen. Well, let's look at the next budget window. I'm looking at your report here too. It doesn't pay for itself in the next 10, does it? Dr. Michel. The cost was largely a one-time cost. The economy was projected to grow. Senator Van Hollen. I'm just looking at your own report here, right? It didn't pay for itself in the second window. Dr. Michel. I'm agreeing with you. Senator Van Hollen. Okay. Thank you. And Mr. Hodge, did the Trump tax cuts pay for themselves? Mr. Hodge. The Tax Foundation modeled every iteration of what became the Tax Cuts and Jobs Act from the beginning to the end and at no time did our model ever predict that it would pay for itself and our model is perhaps the most sophisticated model in Washington and it does not estimate that virtually any tax cut would pay for itself and that's a kind of a myth that's been created. However, tax cuts can improve economic growth dramatically or they can punish economic growth, so we have to be very careful. Senator Van Hollen. You know I was listening to Mr. Bartlett's testimony and looked at his analysis, which concluded that the Trump tax cuts did not provide any increase in economic growth. There may be differences of opinion here, but I'm trying to get to the one point that we all agree on. Mr. Hodge. I will say there are elements of the tax cuts that did improve the economy. The full expensing provision dramatically increased the capital stock. Senator Van Hollen. You know we could look at particular items of any tax bill by themselves, but when you look at in aggregate, and that's what Mr. Bartlett did, it did not increase economic---- Mr. Hodge. Expanding Child Tax Credit was a waste of---- Senator Van Hollen. But I am glad that we have gotten all of you to agree that it's a myth that the Trump tax cut paid for itself. And again, I've not heard any senator on this Committee say that, but it is still something you hear commonly in discussions about the Trump tax cuts, so hopefully we can bury it here today. Thank you. Chairman Whitehouse. Senator Kennedy. STATEMENT OF SENATOR KENNEDY Senator Kennedy. Thank you, Mr. Chairman. Mr. Hodge, the balanced budget approach works pretty well at the state level, doesn't it? Mr. Hodge. Yes, it appears to. Yeah. Senator Kennedy. Mr. Bartlett, let me ask you a couple of questions if I could. You're here on behalf of our Democratic colleagues? Mr. Bartlett. I was invited by them. Yes. Senator Kennedy. On May 5, 2023, I'm going to read your tweet. ``How soon before Clarence Thomas's corruption goes the way of Melania's green card. A few days of intense speculation and then totally forgotten.'' Did I read that right? Mr. Bartlett. No, I wrote that. Senator Kennedy. Let me ask you about another one if I could. On April 22, 2023, you tweeted ``Apparently French people are too stupid to know the difference between champagne and beer. Must be protected.'' Did I read that correctly? Mr. Bartlett. Yeah, that was a joke. I was referring to the fact that they were banning, as I recall, Miller Beer because it was called the champagne of beer. Senator Kennedy. Right. Right. Mr. Bartlett. Which I thought was kind of silly. Senator Kennedy. Right. On April 8, 2023, you tweeted ``Tennessee is a cesspool of racism and corrupt.'' Did I read that right? Mr. Bartlett. Yes. That may have been an exaggeration, but I think things are pretty terrible in that state, frankly. Senator Kennedy. On May 10, 2023, you quote or you tweet rather--excuse me--``Excellent news. Congratulations to every person who left the Southern Baptist Church, which was formed to defend slavery.'' Did I read that correctly? Mr. Bartlett. Yes. And I provided a link to an official document of the church which takes responsibility for its racist history. As we know it, the church was created during the Civil War to break away from the northern church because it supported slavery. Senator Kennedy. On April 5, 2023, you tweeted ``Fox reporters don't deserve the common courtesy usually extended to journalists. They should be treated like people who do podcasts or write newsletters unfettered by fact-checking or balance. Revoke Fox press credentials. Don't call them in at press conferences. Ignore them.'' Mr. Bartlett. Yes, I said that. Senator Kennedy. Do you really believe that government should use its power to thwart a cable news station? Mr. Bartlett. I'm not suggesting using governmental power in any way whatsoever. Senator Kennedy. You said revoke their press credentials. Don't call them at press conference. Mr. Bartlett. Okay. Well, yeah, I agree with that. I think Fox is not a serious news organization. I wrote a long paper on the subject that I'd be happy to provide to you. Chairman Whitehouse. Would you like that added to the record, Senator Kennedy or should we just leave it as it is? Senator Kennedy. Oh, I don't know that I'm going to have time to read the gentleman's papers. I think I already know what's in them. On May 13, 2023, did you--I'm going to read one of your other tweets. ``Very good news. The AM radio ban is a cesspool of rightwing talk and insipid sports babble. The bandwidth has better value.'' Did I read that correctly? Mr. Bartlett. Absolutely correct. I said that and I believe that. Senator Kennedy. On May 12, 2023, I believe you tweeted the following. ``Ralph Nader correctly points out that Democrats have done a poor job of fighting Republican fascism and stupidity.'' Did I read that right? Mr. Bartlett. Yes. Senator Kennedy. Okay. Thank you, Mr. Chairman. Mr. Bartlett, I appreciate you answering my questions. It helps me to determine the credence or credibility to give to your testimony. Mr. Bartlett. Well, I wouldn't take anything that's said on Twitter too seriously, though. Senator Kennedy. Thank you, Mr. Chairman. Chairman Whitehouse. If I may take a brief Chairman's prerogative and following the example of I think both Senator Kaine and Senator Van Hollen, looking for agreement among all the witnesses, I believe that both in the Enzi Whitehouse Budget Reform proposals and in the Bicameral effort that followed, every single witness that we ever heard said that whatever you think the debt to GDP ratio should be, the debt to GDP ratio is the correct factor that we should be looking at. Do you each agree the debt to GDP ratio is the most pertinent factor to be looking at as we look at these deficit issues? Mr. Kogan. Thank you, Senator. It is not my preferred metric, but it's my secondary metric or tied for my secondary metric, so I think it's a useful one, in the same way that when you look at the strength of the economy you tend to look at a handful of metrics. I think it's an important factor, but it's not my number one. Chairman Whitehouse. Mr. Bartlett, debt to GDP. Mr. Bartlett. Well, Mr. Kogan reminded me previously that I had once told him that I thought debt-GDP was a bad measure because the debt is a stock and the GDP is a flow, so you ought to try to match stocks with stocks and flows with flows. So if you looked at the debt as a share of national wealth that might be a better metric. If you want to look at the flow associated with the debt, that would be interest on the debt. But you have to remember to subtract the money that the Federal Reserve pays to the Treasury on the vast holdings of federal debts that it has, so debt-GDP is better than just looking at the raw numbers, but it really depends on the question you're trying to answer. Chairman Whitehouse. Understood. Ms. Jacoby, debt to GDP? Ms. Jacoby. Thank you, Senator. I agree with my colleague to the right. It's a very important metric to look at, among others. Chairman Whitehouse. Dr. Michel. Dr. Michel. I also agree it's an important metric. I also think it's important what question you're trying to ask when you're thinking about the government's impact, whether it's debt, deficit on the economy. I think you should be looking at the size of government spending. Chairman Whitehouse. Mr. Hodge. Mr. Hodge. It's one element in the equation, but we also have to keep in mind the revenue to GDP figure because that can have as big an impact on economic growth as any other metric. Chairman Whitehouse. All right. Well, Senator Braun and Senator Kaine are interested in a second round, so let me just follow up on two quick things and then I'll yield to them. The first is there's been a lot of commentary about Democrats being willing to lower business taxes. I think the thing that I try to look at, just speaking for myself, is what the function is of lowering business taxes. If the function of lowering business taxes is to reward and induce investment that create jobs, then I can get behind that. If the function is to accelerate the transition and avert the danger of the climate catastrophes we've heard of, I can get behind that. And indeed, it's pretty bipartisan because there's been immense Republican enthusiasm shown at groundbreaking for new projects that have been supported by the IRA, so those are real things that turn to real projects and real investment. If the purpose of lower business taxes is to windfall to CEOs and shareholders stock buybacks and increase compensation, then I don't support that. And if, for sure, the purpose is either to transfer wealth to the already wealthy from the rest of society or to encourage the offshoring to other countries of jobs and profits to take advantage of the foreign taxes there, then I think that that's a terrible mistake. So the question of being for business taxes is one that I think has a second component which is what is the function? And I'll close by saying that we've gone through this before, but I'll just say it again. I think if we're going to do this, we've got to come up with a budget reform that moves us to a stable, sensible debt to GDP or however adjusted with guardrails to get us there and a timeframe to get there without massive disruptions to the economy. And as a part of that tax expenditures have to be part of the equation, which they're not, under the budget law right now and healthcare spending has to be a part of the equation. And with the healthcare spending there is enormous room for savings that doesn't require anybody to lose a single benefit, as has been proven by, among other things, accountable care organizations in my great state of Rhode Island. With that, I turn to Senator Braun and then Senator Van Hollen. Do you want a second round? Senator Grassley. No. Just the one question for Dr. Michel. Compared to the new partisan tax subsidies that I've talked about in the Inflation Reduction Act, wouldn't extending full expensing for Research & Development and 100 percent bonus depreciation provide more bang for the buck and benefit more businesses, including even green businesses? Dr. Michel. Yes. That's correct. The full business expensing was the most pro-growth feature of the 2017 tax cuts. It incentivizes new business investment here in the United States for the benefit of American workers and I think it would be significantly better use of the fiscal resources and half the cost of IRA tax credits. Senator Grassley. That's all I have. Chairman Whitehouse. With that, we then flip the script so it goes to Senator Kaine and then Senator Braun. Senator Kaine. Mr. Bartlett, you're a private citizen, right? And like a lot of private citizens you do social media without the staffs that we have that exercise some control over what we say. Correct? Mr. Bartlett. Yes. Well, Senator, anybody who's read my---- Senator Kaine. I'm going to try to do quick questions. So you don't have anybody checking what you say, which is what virtually everybody in America does. I had not heard the tweets and I was kind of trying to follow them, but the tweet about Tennessee was that something you tweeted after the Tennessee legislature took the unprecedented step of expelling two African American members of the legislature for advocating passionately for gun safety laws in the aftermath of a tragic shooting at a Christian private school in Nashville? Is that what motivated your tweet? Mr. Bartlett. Yes. Yes, Senator, I thought that was one of the most irresponsible actions I've seen in American politics during my lifetime. Senator Kaine. I mean I've never seen anything like that. I can't imagine the Virginia legislature doing that, or any other legislature. And then there was a tweet about Justice Thomas. And from the timing of that was that a tweet that you did following the news that Justice Thomas had not disclosed that an individual had lavished luxury vacations on him, had purchased his mother's home, had allowed his mother to live rent free in that home, had renovated that home and surrounding homes and had granted other benefits to Justice Thomas, also revelations about secret payments to Justice Thomas's wife with instructions that they not be listed. Was the tweet that you acknowledged was somewhat intemperate. Was that tweet generated by the revelations of all these shocking stories that Justice Thomas refused to disclose on his financial filings? Mr. Bartlett. Yes, Senator. Senator Kaine. And then the third one that I got was there was a tweet that you made about Fox journalists. And again, from the date that Justice (sic) Kennedy read it, just putting it together in my mind, it suggested that might have been motivated by Fox News having to settle a historic lawsuit and pay an unprecedented verdict for knowingly and recklessly preaching lies about the election of 2020 and in doing so damaging without any factual basis a company that tries very hard to produce election equipment that is protected and that's secure. And so was your Fox tweet generated by the revelations that were coming out in that lawsuit? Mr. Bartlett. Yes, Senator. Senator Kaine. Okay. Thank you. Chairman Whitehouse. Will the Senator accept a correction to the record that Senator Kennedy and not Justice Kennedy? Senator Kaine. I stand corrected. Chairman Whitehouse. When you're thinking of the Supreme Court, Justice Kennedy, of course, comes to mind. I understand perfectly. Senator Braun. Senator Braun. Thank you, Mr. Chairman. To not discuss the desired level of government spending, let me ask each one of you this. It looks like what we're doing by baselining federal spending at close to 25 percent of GDP up from 20, historically, that we will then be displacing something else within our GDP that would be, in total, between consumer spending, business investment, and net exports or imports, we know which way that is. Is the quality of that GDP better through government or do you think--and I just pick one category--It would be better to be spending more on the productive side of the economy in, say, business investment? And I'm not sure how you think that might get rearranged percentagewise, but something is going to shrink as opposed to government growing. Keep it fairly short. Mr. Kogan, you can start. Mr. Kogan. Thank you, Senator Braun. Quickly it doesn't always net to zero. Sometimes the government is simply additive, but to your question, the government does a broad series of things. I would say, on average, what the government is doing is very useful. Over 70 percent of what the government does goes to people in the form of Medicare, Medicaid, Social Security, SNAP and the other stuff is stuff like carrying out our agency budgets, defense and transportation infrastructure, biomedical research. I'm sure you can find things you don't like, as to whether that is the most pro-growth spending you could possibly do, it probably isn't---- Senator Braun. Would you describe that more as consumption or investment? Mr. Kogan. No, a lot of it is consumption. Some of it is investment. You're absolutely right, Senator, that you could do more pro-growth stuff maybe doing other things, but stop keeping people out of poverty is incredibly important for our society and for its fairness---- Senator Braun. Thank you. Thank you. Mr. Bartlett. The premise of your question seems to be that all government spending is just waste. Senator Braun. No. No, I'm just asking you to compare the two. Mr. Bartlett. Well, I think that it depends a lot on what the spending is for. I mean all government spending---- Senator Braun. Would you agree with Kogan it's--Mr. Kogan that I's more consumption than it would be investment? Mr. Bartlett. Not necessarily. There's a lot of investment that the government does that it doesn't get credit for, but I'm not saying this is the ideal level of spending or that this is the ideal mix of spending. I think that can only be determined by careful analysis and I don't think you can just pick a number out of the air and say, okay, this is the most to spend and not spend any more than that. Senator Braun. Thank you. Mr. Bartlett. I mean it just depends. Senator Braun. Ms. Jacoby. Ms. Jacoby. Thank you, Senator. I'd just add to what Mr. Bartlett and Mr. Kogan have said. I will just note that there is very solid research showing that infants and families with low incomes who benefit from child-related tax benefits. Those infants go on to have higher test scores in school, higher earnings in adulthood, and that contributes to economic growth. Dr. Michel. I think the government should control a smaller percent of private resources, less than it currently does and that the private sector is significantly more effective at deploying those resources than the government is. Mr. Hodge. Yes, the government should not be outbidding the private sector for capital. A Congressional Budget Office study of infrastructure spending, private versus government infrastructure spending found that government infrastructure spending was far less effective and pro-growth, if you will, than private sector spending. So I'll leave it up to the CBO to answer that question. Senator Braun. Thank you. And I'll note just generally in closing that since World War II we've become a nation of consumers and spenders, generally, as opposed to savers and investors. And I think it's inarguable that if you keep going in that direction we end up in a better place in the long run. Thank you today for your testimony. Chairman Whitehouse. Thank you, Senator Braun. Senator Merkley. STATEMENT OF SENATOR MERKLEY Senator Merkley. Your analysis concludes that the Trump and Bush tax cuts have together been the largest driver of increasing debt ratio. Were those tax cuts done under reconciliation? Mr. Kogan. Yes, Senator. The first and second round of the Bush tax cuts and also the Trump tax cuts were all done in reconciliation. Senator Merkley. So in 1974, when the Budget Control Act was done, it has 100 percent of the senators vote for it and that was because it created a filibuster-free pathway for one purpose, deficit reduction; am I correct? Mr. Kogan. I couldn't tell you for sure, but the first ever deficit reduction reconciliation package was not until the nineties and then the second was Bush tax cuts round one and the third was tax round two. It's a new phenomenon. Senator Merkley. So here's what happened because maybe I've been around here a longer period of time. For 22 years it stayed one purpose, the deficit, reinforced every single year. In 1996, however, you had a revolution, Gingrich revolution. And first they tried to do a balanced budget amendment that fell a vote short here. Then they tried to do a line-item veto that was struck down by the Supreme Court. And then they said, oh, what the hell, let's cut taxes, but they didn't have enough votes to do it, so they did what we call a nuclear option. They had a ruling from the Chair, reinforced by debate and vote of the members that instead of deficit reduction the reconciliation could be used to decrease taxes and increase the deficit, so are you familiar with that history? The reason I mention this is because my Republican colleagues like to come in here and say that they're the disciplined ones along the way, but they're the ones who blew up, by nuclear option, the 100 percent consensus that there'd be a filibuster free pathway though only deficit reduction. And thus, we got the Bush tax cuts and then we got the Trump tax cuts. Now in between, Kent Conrad, who was chair of this Committee, he reversed the rule back to being deficits only and the Republicans came back and reversed the rule back again. I don't know if you're all familiar with it, but I tell you this history because I think it's important in our conversation about what we face now. And at the end of the Clinton Administration, we essentially had a period, a very brief period when we were decreasing the deficit. But numerous decisions were made after that, including these tax cuts and including the war in Afghanistan, the war in Iraq that were not paid for and thus, we were left where we are. Doesn't it seem a little insane that tax cuts for the wealthy that have--and the powerful corporations that have created the bulk of this problem would then have the problem addressed by cutting basic programs for the most challenged Americans. Would any of you like to comment on that? Ms. Jacoby. Thank you, Senator. I absolutely agree. I think it's the completely wrong approach to cut IRS funding that helps the IRS police tax cheats and pay for that taking away services for low-income people and families who need it. Senator Merkley. Mr. Bartlett. Mr. Bartlett. Yes. I would just say that reconciliation is a very powerful tool for deficit reduction and I think it's quite telling that the House Republicans did not pass a budget resolution that include reconciliation instructions. They just willy-nilly pulled numbers out of the thin air almost entirely for appropriated funds. If they really care about these programs and want to cut them, all they have to do is go through the normal appropriations process and cut those programs however they feel like cutting them. Senator Merkley. So I'm very concerned about the strategy currently of holding the country hostage and saying we're going to drive the economy off of a cliff if we don't get changes that benefit the wealthy and hurt ordinary American families and I'd like to see President Biden basically say we have to put an end to this. These expenditures were authorized by law, the revenues were authorized by law and holding the American economy hostage in this fashion which would wipe out millions of jobs, crash the stock market, and wipe out a lot of wealth, drive up interest rates and make things much harder for ordinary families, we're not going to let that happen. I'll use the executive tools at my disposal if the Republicans are insistent on driving the economy off a cliff. And do any of you support the President using the 14th Amendment or other executive powers to address this? Mr. Bartlett. I have been working on this problem for a good dozen years. I think there's absolutely no question that the debt limit is unconstitutional, not just under the 14th Amendment, Section 4, but under the general powers of the President. I mean one of the things that I would point out is that the debt limit is a very serious national security issue. A huge percentage of the national debt is owned by foreign central banks. They are not going to be happy if their assets are suddenly worth a great deal less than they thought they were. I think the President has full power within his inherent authority to simple declare the debt limit null and void. And I would point out that it's not a simple question of whether you just violate the debt limit. I think a lot of people, even on this Committee, forget the impoundment part of the Budget Act of 1974, which says you must--the President must spend the money that is appropriated by law. He doesn't have a choice not to, which is what some Republicans seem to think that he can do and he lacks that power. So I would agree that the President has that power. I wish he would use it. I wish it as sincerely as anything I believe in life. Senator Merkley. Thank you. Thank you, Mr. Chair. Chairman Whitehouse. And it would disarm that hand grenade forever I think the great relief of markets. Let me thank the witnesses for appearing before the Committee today and all the members who came and participated. Questions to the witnesses for the record are due by noon tomorrow and we ask the witnesses if you receive such questions for the record to respond within seven days of receipt. And with that, the hearing is adjourned. [Whereupon, at 11:53 a.m., Wednesday, May 17, 2023, the hearing was adjourned.] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [all]