[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\
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    \6\ Prepared statement of Dr. Michel appears in the appendix on 
page 84.
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    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.]

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