[Senate Hearing 118-387]
[From the U.S. Government Publishing Office]
S. Hrg. 118-387
EXAMINING CBO'S UPDATED 2024-2034 BUDGET
AND ECONOMIC OUTLOOK
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HEARING
BEFORE THE
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
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July 9, 2024
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Printed for the use of the Committee on the Budget
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
56-441 WASHINGTON : 2025
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COMMITTEE ON THE BUDGET
SHELDON WHITEHOUSE, Rhode Island, Chairman
PATTY MURRAY, Washington CHARLES E. GRASSLEY, Iowa
RON WYDEN, Oregon MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan LINDSEY O. GRAHAM, South Carolina
BERNARD SANDERS, Vermont RON JOHNSON, Wisconsin
MARK R. WARNER, Virginia MITT ROMNEY, Utah
JEFF MERKLEY, Oregon ROGER MARSHALL, Kansas
TIM KAINE, Virginia MIKE BRAUN, Indiana
CHRIS VAN HOLLEN, Maryland JOHN KENNEDY, Louisiana
BEN RAY LUJAN, New Mexico RICK SCOTT, Florida
ALEX PADILLA, California MIKE LEE, Utah
Dan Dudis, Majority Staff Director
Kolan Davis, Republican Staff Director and Chief Counsel
Mallory B. Nersesian, Chief Clerk
Alexander C. Scioscia, Hearing Clerk
C O N T E N T S
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TUESDAY, JULY 9, 2024
OPENING STATEMENTS BY COMMITTEE MEMBERS
Page
Senator Sheldon Whitehouse, Chairman............................. 1
Prepared Statement........................................... 28
Senator Charles E. Grassley...................................... 3
Prepared Statement........................................... 30
STATEMENTS BY COMMITTEE MEMBERS
Senator Patty Murray............................................. 10
Senator Alex Padilla............................................. 12
Senator Roger Marshall........................................... 14
Senator Ben Ray Lujan............................................ 16
Senator Mike Braun............................................... 17
Senator Chris Van Hollen......................................... 21
Senator John Kennedy............................................. 22
Senator Ron Johnson.............................................. 24
WITNESS
The Honorable Phillip Swagel, Ph.D., Director, Congressional
Budget Office 6
Prepared Statement........................................... 36
APPENDIX
Responses to post-hearing questions for the Record
Hon. Swagel.................................................. 46
Charts submitted by Chairman Sheldon Whitehouse.................. 68
EXAMINING CBO'S UPDATED 2024-2034 BUDGET AND ECONOMIC OUTLOOK
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TUESDAY, JULY 9, 2024
Committee on the Budget,
U.S. Senate,
Washington, DC.
The Committee met, pursuant to notice, at 10:03 a.m., in
the Dirksen Senate Office Building, Room SD-608, Hon. Sheldon
Whitehouse, Chairman of the Committee, presiding.
Present: Senators Whitehouse, Murray, Van Hollen, Lujan,
Padilla, Grassley, Johnson, Romney, Marshall, Braun, Kennedy,
and R. Scott.
Also present: Democratic Staff: Dan Dudis, Majority Staff
Director; Tyler Evilsizer, Senior Budget Analyst; Sion Bell,
Tax Policy Advisor.
Republican Staff: Chris Conlin, Deputy Staff Director;
Krisann Pearce, General Counsel; Erich Hartman, Director of
Budget Policy and Review; Nic Pottebaum, Professional Staff
Member; Ryan Flynn, Budget Analyst.
Witness:
The Honorable Phillip Swagel, Ph.D., Director,
Congressional Budget Office
OPENING STATEMENT OF CHAIRMAN WHITEHOUSE \1\
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\1\ Prepared statement of Chairman Whitehouse appears in the
appendix on page 28.
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Chairman Whitehouse. This hearing of the Senate Budget
Committee will come to order. I'm pleased that we are joined by
Director Swagel today, to discuss the Federal Government's
fiscal trajectory. My Republican colleagues complain that I,
and my Democratic colleagues, aren't concerned about our
nation's fiscal situation because they can't acknowledge the
well documented fiscal dangers of climate havoc, and they won't
fix our corrupted tax system to require billionaires and mega
corporations to pay fairer taxes.
We can at least talk about healthcare delivery system
reform, as a remedy for our fiscal trajectory. One out of three
ain't bad. As we've noted at prior hearings, more than $10
trillion, about 35 percent of our national debt stems from two
economic shocks to the economy: the 2008 financial crisis, and
the COVID pandemic.
As we've heard over and over again at our hearings, the
economic shocks from climate change may well be worse. I
suspect that Director Swagel would be the first to agree that
his 10-year baseline projections are shot if we experience
another massive shock to the economy.
Ignoring looming, systemic economic shocks to the economy
would be imprudent, even dangerous. Prior to the 2008 financial
crisis, the Committee held no hearings on brewing trouble in
the mortgage markets, nor did this Committee hold a single
hearing on the economic risk from global pandemics.
If this Committee, or any Committee had warned effectively
of those looming shocks, and Congress had then acted to better
regulate mortgage markets, to invest in vaccine development,
and pandemic preparedness, lives would have been saved, and
trillions in economic harm avoided.
In the first hearing we held under my Chairmanship, I spoke
about science as the headlights for humanity. A well run
Committee can shine the headlights of knowledge, including
knowledge about climate havoc, into the future, to head off
dangers lurking there.
Our national debt is not only the result of those two
economic shocks, of course. It is also the result of repeated
rounds of Republican tax cuts that primarily benefited giant
corporations and very, very wealthy individuals. The Bush and
Trump tax cuts, skewed to the wealthy and big corporations,
have added another $10 trillion to the national debt.
If not for those tax cuts, the debt to Gross Domestic
Product (GDP) ratio, our best fiscal safety metric, would be
declining in perpetuity. Helping the wealthy avoid taxes is
such an infatuation that House Republicans even brought the
United States to the brink of default trying to prevent the IRS
from cracking down on wealthy tax cheats.
The third great driver of our fiscal perils is an aging
population. As our population ages, we spend more on Social
Security and Medicare. Add in the developed world's most
inefficient healthcare, and you've got a huge fiscal cost. The
Congressional Budget Office (CBO) has found that reforming how
we pay for healthcare, and increasing participation in
Accountable Care Organizations (ACOs), and other value-based
care enterprises can save money without cutting benefits.
Indeed, CBO found that actual and projected federal health
spending over the 2010 to 2033 period was $6.3 trillion, $6.3
trillion lower than predicted, which I attribute to improving
quality, and moving to value-based care. I am pleased to be
working with Ranking Member Grassley, and other Republicans on
delivery system reform proposals to do more of that.
Democrats have always pledged to protect and preserve
Social Security and Medicare. For years Republicans sought to
cut both programs. Now they say they don't. If so, that is
wonderful news, and I applaud it. If we all agree that we're
not cutting Social Security and Medicare, and we all agree that
their trust funds become cash insolvent in approximately 10
years, there's only one solution left. Raise new revenues to
fund Social Security and Medicare.
We can do this by de-corrupting the tax code, so that big
corporations and billionaires don't pay less in taxes than
nurses and firefighters. My Medicare and Social Security Fair
Share Act will protect Social Security and Medicare forever, or
at least for as far as actuarial science can see. Imagine if
American families could erase from their list of worries what
if Social Security and Medicare won't be there for me?
What a blessing that would be. For 18 months we've heard a
steady chorus of Republican voices expressing alarm about debt
and deficits, and calling for this Committee to focus on its
``real job''. It's hard to reconcile that with Republicans
voting for the 2017 reconciliation bill, that cut taxes for the
wealthy and large corporations and blew a $2 trillion hole in
the deficit.
It is hard to reconcile that with Republican plans to
extend those cuts, and add almost $5 trillion more to the
deficit. And it's hard to reconcile that with Republican calls
to spend an extra $6 trillion on defense with no proposed
offset. And what is the Republican plan for the looming
insolvencies of the Social Security and Medicare trust funds?
Make America Great Again (MAGA) Republicans live in a
fantasy world of a balanced budget, with extended Trump tax
cuts, and funded Social Security, Medicare, defense and
veteran's programs. Can't happen. CBO says it's arithmetically
impossible, even if Republicans cut everything else to zero in
the entire budget.
To get real about debt and deficits we have to avert
climate driven shocks, and persistent climateflation, we have
to de-corrupt the tax code, so that big corporations and
billionaires, are no longer a favored, free-riding elite, and
we have to bring down healthcare costs without cutting benefits
with common sense delivery system reforms, which is why I focus
on those things. Senator Grassley.
OPENING STATEMENT OF SENATOR GRASSLEY \2\
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\2\ Prepared statement of Senator Grassley appears in the appendix
on page 30.
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Senator Grassley. Before I read my statement, I want to
comment on what you said about Social Security and Medicare,
and I'm not criticizing what you said. I'm going back to this
comes up why can't you guys do something about saving Social
Security and Medicare?
And I'll use history as an example. I always start out by
saying you know why nothing gets done in Washington, D.C. about
Medicare and Social Security now? There's no Reagans and Tip
O'Neill's in this town anymore. Because they found where we're
going to be in 10 years on these two programs, they were right
there in 1983, or '84, or whenever it was.
And they raised taxes. They cut benefits. They changed
formulas. They probably did a whole lot of other things that I
don't remember. And they probably thought they were doing
something for 20 years, I tell my constituents, but they did
something for 50 years now if we still go to 2033.
And they did it because they got together and said, you
know, Social Security was so important we can't let it go
broke. And they built up a surplus that we're still using of
trillions and trillions of dollars, and that's going to be
spent down by 2033, and if we don't do something, Social
Security is going to be cut.
It's going to be cut by I guess 23 percent or something.
So, I guess I'm trying to if there's any comment that I'm
trying to make to you, it is that they didn't just raise taxes.
They got together in a program that was bipartisan and passed
the Senate 90 to 10. I voted for it.
Well, Mr. Chairman, I thank you for agreeing to my request
for today's hearing, with Director Swagel. It's been nearly 4
years since the CBO Director last testified before the Senate
Budget Committee on the nation's budget outlook. That's far too
long for what's traditionally been a routine occurrence in the
Budget Committee, particularly given the budget hole we've dug
ourselves into.
Federal Reserve Chairman Powell stated earlier this year
that it's, ``past time to get back to an adult conversation
among elected officials, about getting the Federal Government
back on a sustainable fiscal path.'' Today in the Budget
Committee that conversation is finally taking place.
Director Swagel, thank you for coming, and I think you're
going to tell each of us things that we'd rather not hear, but
that's part and parcel of having what Powell called, ``an adult
conversation''. So, in moving beyond the partisan blame game of
who is most at fault for our fiscal mess, President Biden tried
to play this game at the recent Presidential debate in an
attempt to claim the mantel of fiscal responsibility.
The reality is that President Biden has been dragged
kicking and screaming to agree to even modest spending
restraints, as part of last year's Fiscal Responsibility Act.
The fact is our nation's debt will soon top 35 trillion. Next
year's interest payments will exceed $1 trillion, and in 10
years Social Security will go broke, if we don't take
bipartisan action to save it.
I shouldn't say go broke, because you're still going to
have the revenue coming in that will pay 77 percent of what
benefits are today. CBO has warned Congress for decades that
we'd face a fiscal reckoning due to ballooning mandatory
spending. That reckoning is now at our doorstep.
Absent action, rising debt will leave future generations
facing higher interest rates, lower incomes, greater inflation,
and the risk of full-blown fiscal crisis. Avoiding this
requires a robust discussion of revenue and spending. As I've
said in previous hearings, I have a record of going after
genuine tax loopholes, and wasteful carveouts, and I'm open to
reviewing tax subsidies. Now, a very good place to start is
with those in the so-called Inflation Reduction Act, which CBO
has said actually increases inflation. Ending the law's
subsidies for luxury Electric Vehicles (EVs), and other
regressive giveaways that have exploded in cost could net
hundreds of billions of savings.
Contrary to claims from the left, taxing the so-called rich
is no silver bullet to our fiscal outlook. Even confiscating, I
want to emphasize confiscating, not taxing, all income over $1
million wouldn't close our $2 trillion deficit. History proves
that high tax rates fail to raise significant revenue. So, I'm
repeating something I've said here a couple meetings ago.
Taxpayers and workers, and investors are smarter than we are in
the United States Senate, because we've had 93 marginal tax
rates.
Then 70 percent marginal tax rates, 50 percent, 30 percent,
back up to 40 percent, and you can go on and on. But regardless
of the rate, we've brought in about the same amount of revenue
as you can see from this chart.\3\ So, we ought to stop to
think that we Senators are not smarter than the taxpayers.
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\3\ Chart submitted by Senator Grassley appears in the appendix on
page 32.
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Rather than punish success, tax reform should focus on
incentivizing work, savings, and investment, and that's exactly
what Federal Reserve Chairman Volcker advised Congress in the
1980s at a similar time of large deficits and inflation. It was
a recipe for success then, and it can be a recipe for success
at this point.
Most importantly, we must have a frank discussion about
Washington's spending addiction. Whereas, revenues are in line
with historical levels, federal spending relative to the size
of our economy is at heights previously reserved for wars, and
recessions, and still growing.
Record spending is driving up unprecedented debt and
deficits, which fuel more spending in the form of ballooning
interest payments. Interest costs are rapidly become one of the
largest line items in the federal budget. Next year, we'll see
a new record as a share of our economy.
No single chart can capture the size and scope of our
fiscal mess, but the closest to it is a depiction of federal
debt relative to the size of our economy. We're on track to set
a new record high by 2027, exceeding the World War II era
record.
While debt to GDP declined quickly after World War II,
today our debt is infinitely projected to grow faster than the
economy, and that's the definition of unsustainable. Yet,
President Biden continues to use his pen and phone to spend
trillions, particularly on student loan bailouts, and in these
unprecedented fiscal times that's the height of recklessness.
We must stop digging ourselves into an ever deeper budget
hole, and I think the budget agreement reached between McCarthy
and Biden a year ago starts us down that track, maybe not as
aggressively as we should, but it's still a start. We must find
common fiscal goals that can serve as a catalyst for continuing
that bipartisan action.
Can we agree that debt to GDP can't increase forever,
without consequences? Can we agree to a debt to GDP level that
we mustn't cross? One last note, this week marks the 50th
Anniversary of the Congressional Budget Act, which created CBO,
and the Budget Committee.
A lot has changed since 1974, from the way Congress
operates, to the size, the scope of the federal budget.
Updating the Budget Act for the 21st Century is a shared goal
worth continuing to work towards. So, once again, thank you,
Mr. Chairman, for this meeting, and welcome to you, Director
Swagel.
Chairman Whitehouse. Thank you very much, Senator Grassley.
Your mention of can we agree to a debt to GDP level
provokes me to remember my work with Chairman Enzi to find a
safe debt to GDP level, a glide slope to get there, and
guardrails to assure that we're not cheating on it, and I think
that that matrix still remains a smart one.
Our witness today, to speak about his agency's latest
economic and budgetary projections is Dr. Phillip Swagel,
Director of the Congressional Budget Office. Prior to his
appointment to lead CBO in 2019, Swagel was a member of the
Council of Economic Advisers during the Bush administration,
and served as Assistant Secretary of the Treasury for Economic
Policy from 2006 to 2009.
Director Swagel, welcome. Please proceed with your
statement, your entire testimony will be made a matter of
record.
STATEMENT OF THE HONORABLE PHILLIP SWAGEL, PH.D., DIRECTOR,
CONGRESSIONAL BUDGET OFFICE \4\
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\4\ Prepared statement of Hon. Swagel appears in the appendix on
page 36.
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Director Swagel. Okay. Thank you. Thank you, Chairman
Whitehouse, Ranking Member Grassley, and members of the
Committee. Thank you for inviting me to testify about the
budget and economic outlook. In the projections we released
last month, the projected deficit grows from nearly $2 trillion
this year, to $2.8 trillion in 2034.
Measured in relation to economic output, deficits during
the coming decades are about 70 percent larger than their
historical average over the past 50 years. We project the
deficit this year to equal 7 percent of GDP, with deficits
projected to remain over 6 percent into the future.
Such large deficits are historically unusual outside of a
war, the financial crisis, or the pandemic. Net interest costs
are a large and growing contributor to the deficit. By the end
of the 10-year budget window, net interest costs are roughly
1.5 times larger than either defense or non-defense
discretionary (NDD) spending.
Also boosting deficits, are two underlying trends, the
aging of the population, and growth in federal healthcare costs
per beneficiary. Those trends both put upward pressure on
mandatory spending. In relation to economic output, federal
debt held by the public rises from 99 percent in 2024, to 122
percent in 2034, and as you both said, that surpasses its
historical peak.
From 2024 to 2034, the 10-year budget window, the deficit
is 11 percent larger than we projected in February, primarily
because the appropriations enacted in March and April,
including both the fiscal year 2024 appropriations, and the $95
billion security supplemental, those get extended out in our
budget projections by statute.
The additional funding increases projected discretionary
spending by $1.3 trillion. But of course, the actual spending
in the future is up to the decisions of future Congresses.
Including the added debt service, the legislative changes
increase deficits by $1.6 trillion through 2034, and all
changes increase projected deficits by $2.1 trillion.
In our projections, a larger labor force stemming from the
surge of immigration that began in 2021, reduces deficits by
about $900 billion over the 2024 to 2034 period. Revenues are
about $1.2 trillion greater, than they otherwise would be
because of higher individual income and payroll taxes paid by
the larger labor force.
Outlays would be $278 billion greater, of which $194
billion is greater spending, mostly for benefit programs, and
$84 billion is higher interest payments. We estimate that the
larger labor force from the immigration surge will lead GDP to
be nearly $9 trillion greater than it would otherwise be.
Now, these effects of the immigration surge on the federal
deficit do not include effects on discretionary spending. Those
effects depend on the decisions that will be made by Congress
in the future. We're working to provide additional information
on the potential impacts of the immigration surge on
discretionary appropriations.
And the surge in immigration will also effect the budgets
of state and local governments, and we are currently examining
those effects, and those are not included in the budget update.
Let me finish by just going back to the beginning to say that
the fiscal outlook is daunting.
The United States faces a budget trajectory with deficits
of more than 6 percent of GDP into the future. Our projections
suggest that changes in fiscal policy must be made to mitigate
adverse consequences of high and rising debt. Let me stop
there, and I'm happy to take your questions.
Chairman Whitehouse. Thanks very much, Director. The CBO
about 2 months ago released new estimates that project that an
extension of the 2017 Trump tax cuts would add $4.6 trillion to
the debt over 10 years. Is that correct?
Director Swagel. Yes, that's correct.
Chairman Whitehouse. And, does CBO believe that the
original 2017 Trump tax cuts paid for themselves, and does any
CBO data support that extension of these tax cuts would pay for
themselves?
Director Swagel. No. There was an effect to the tax cuts on
the economy and back to revenues, but by far it did not pay for
itself, and the same would apply for the extension of the 2017
Act.
Chairman Whitehouse. CBO's long-term budget projections
back in 2012 were the last time that CBO showed debt declining
as a share of GDP. Since then Congress has cut taxes numerous
times, including extending most of the Bush tax cuts, and then
piling on the 2017 Trump tax cuts.
Is it a fact, Director Swagel, that projected primary
spending, that is federal non-interest spending, is now lower
than it was projected to be in 2012?
Director Swagel. That's correct, and the interest payments
have gone up, but as you said the non-interest payments have
gone down.
Chairman Whitehouse. So, let me just to put this into
context, take a look at this graphic here, which shows from
1994 to 2054, how revenue and spending have worked.\5\ Social
Security has gone up, and is that consistent with an aging
population?
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\5\ Chart submitted by Chairman Whitehouse appears in the appendix
on page 69.
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Director Swagel. That's right. That results from the aging
population.
Chairman Whitehouse. And healthcare spending has gone up
even more. Does that also relate to an aging population?
Director Swagel. Right. It's both the aging population, and
rapid growth in health costs.
Chairman Whitehouse. So, other mandatory spending had a
huge surge right here. Can you explain what that was? Was that
COVID?
Director Swagel. That's COVID, and you know, the spending
because of you know, the Senate rules, the spending in the
reconciliation bill, I'm sorry, the COVID spending, and then
the 2021 reconciliation spending was all mandatory.
Chairman Whitehouse. Yes. And then here's defense
discretionary spending, and then this is non-defense
discretionary spending, which as you can see has been fairly
constant over all of those years. This is the place where our
Republican friends want to focus all of their attention related
to debt and deficits.
But I think as we can see, even if you zeroed that out, we
still wouldn't get out of our problems, correct?
Director Swagel. No. That's correct. That even if
discretionary spending was entirely eliminated, that wouldn't
take the deficit to zero.
Chairman Whitehouse. Great. And then as has been pointed
out, interest costs are what are going up. That's the biggest
number. And is it true that tax cuts have an effect on the
interest obligations of the country?
Director Swagel. That's right. The rising interest
payments, as you noted, reflect both higher interest rates, and
also more debt, and the tax cuts lead to less revenue, which
mean more debt.
Chairman Whitehouse. Yep. So, what I've added here, this is
what our actual revenue has looked like if the Bush tax cuts
had not been extended back in 2012, here's what our revenue
would look like. We'd be darn close to operating in an
effective way. So, you can ascribe an enormous amount of our
problem to the extension of the Bush tax cuts, according to--
are these numbers correct? Can you vouch for the extension of
the Bush tax cuts having that much of an effect on revenues?
Director Swagel. You know, I'd have to look at it. I just I
haven't, you know, from this distance I can't see it.
Chairman Whitehouse. Okay.
Director Swagel. But, certainly the 2012 extension of the
2001 and 2003 Tax Acts, had an effect on revenues as you've
said.
Chairman Whitehouse. A pretty massive effect on debt and on
deficits because of lost revenues, correct?
Director Swagel. That's right, yes.
Chairman Whitehouse. And then one other one I wanted to
show you. If you look at what's been added to the national
debt, this is Trump time, $3.6 trillion was added, and that was
COVID relief, so we can understand that was a little bit of an
emergency. But $4.8 trillion was non-COVID added to the debt.
By contrast, there's still $2.1 trillion left under Biden,
but $2.2 trillion in non-COVID, so does the math add up that
under Biden the addition to the debt is less than half than
under Trump?
Director Swagel. I mean, you know, I would have to look at
the numbers, but as you said the debt, dollars in debt, and the
debt ratio went way up, especially during the pandemic, but
even before that the debt ratio went up.
Chairman Whitehouse. Senator Grassley.
Senator Grassley. Mr. Chairman, you referred to analysis
claiming to compare Trump and Biden fiscal records. I've
criticized both Presidents for not doing enough to control
spending and deficit, but I don't put much stock in a study of
Biden's fiscal records that leaves out hundreds of billions of
dollars of unlawful student loan giveaways, or that stubbornly
assumes Democrat's inflation enhancing Reconciliation Act is
going to reduce deficits despite all the evidence to the
contrary.
I'm glad that your party is willing to at least move away
from the delusional claim that President Biden's agenda has
reduced the deficit, even if the $4 trillion that they're now
pointing to is a serious under estimate of how much Biden has
added to the deficit.
Mr. Swagel, as I said earlier, I'm willing to consider
putting certain tax breaks on the chopping block, if it is part
of a deal to reign in spending and deficits, but taxes on the
so-called wealthy alone aren't enough to dig us out of the
fiscal hole that we're in. Democrat proposals is to tax the
rich, either barely, make a dent in the deficit, or they're
designed to sneakily tax a lot more than just the rich.
So, my question, has CBO analyzed any legislation, or
determined it would put the debt on a sustainable course just
by increasing taxes on those at the top 1 percent?
Director Swagel. No. CBO has not analyzed any legislation
that would do that.
Senator Grassley. Okay. If you were to stabilize the debt
solely by increasing the tax rate on incomes above $400,000,
how high would the rate have to be?
Director Swagel. You know, we haven't done the analysis of
how high, but it would have to be a substantial increase on
such a narrow base.
Senator Grassley. Okay. And wouldn't the tax rate required
have significant behavioral effect, and serious negative
consequences for the economy?
Director Swagel. Yes. You know, a much higher tax rate like
that would have macroeconomic feedback that would effect growth
and job creation.
Senator Grassley. Recently the Wall Street Journal
published an essay discussing historical examples of fiscal
mismanaging contributing to the downfall of once great powers
throughout history. The Historian Niall Ferguson noted how the
general rule of history has been that, and I quote him, ``any
great power that spends more on debt service than on defense,
will not stay great for a long time, a very long time.''
According to CBO, we just crossed this fiscal Rubicon, the
U.S. will spend more on interest than on defense this year, and
every year onward. In your view, do rising debt service costs
pose a threat to economic stability, and what is historical
lessons can you inform our current fiscal situation?
Director Swagel. Yes, they do. And in a sense, that's the
near-term fiscal risk, is the rising interest payments. That
you know, again, it's both higher interest rates, and more
debt, leading to those higher interest payments, and that
affects all the other choices that U.S. policymakers want.
If you want more spending on something, or tax relief on
something, the rising interest payments crowd that out, and
then have effects on the private economy, that there's less,
you know, fewer resources available for the private sector,
less private investment and job creation and so on.
Senator Grassley. The Constitution gives the power of the
purse to Congress, but the current administration has rules,
regulations and other executive actions to make major policy
changes with unprecedented consequences for the federal budget,
and all of this without a single vote of Congress.
How have executive actions changed CBO's budget projections
since the agency's February 2021 baseline?
Director Swagel. Yes, sir. So, we track those, and those go
into the baseline. I'll list a couple of the largest ones. The
executive actions, and you mentioned student loans, that's a
total of about $560 billion, so more than $0.5 trillion, in
additional outlays so far.
And then there's more court cases, and more announcements,
so that's as of say 2 weeks ago. So, that's one. The second is
the Thrifty Food Plan that redefined the basket used in the
Supplemental Nutrition Assistance Program (SNAP) Program. That,
along with higher food prices, led to about $200 to $250
billion of higher costs.
There are Medicaid executive actions to streamline
enrollment, that was about $164 billion. There are others.
The Environmental Protection Agency's (EPA) Tailpipe Rule
will have costs as well, since that interacts with the
provisions in the Inflation Reduction Act that subsidize
electric vehicles (EVs).
And the Tailpipe Rule will push consumers toward EVs.
There's Affordable Care Act (ACA) regulations, addressing
the so-called family glitch, extending subsidies to Deferred
Action for Childhood Arrivals (DACA) recipients, and more. I
should mention that some of the administration's actions have
reduced the deficit. They had a rule that changed the payments
to Medicare Advantage plans, and that reduced the deficit.
So, it's a bit of both, but as you've said, it's mainly on
the outlay side.
Senator Grassley. Thank you.
Chairman Whitehouse. Senator Murray, Distinguished Chairman
of Appropriations.
STATEMENT OF SENATOR MURRAY
Senator Murray. Thank you, Chair Whitehouse. I really
appreciate you holding this hearing. Director Swagel, good to
see you again. Thank you to you and all your staff at CBO for
the critical work you do for our Congress. You know, Mr.
Chairman, my dad actually ran a five and dime store, you nodded
and just gave away your age, but he ran a five and dime store.
And my mom worked as a bookkeeper when we were growing up.
But you know, you don't have to run a cash register, or be
an accountant to understand the really basic fact that when it
comes to our national budget, spending is just half of the
equation. There is also revenue. And I mention this because
when our Republican colleagues talk about debt and deficits,
they tend to discuss only that one side of the ledger, which is
spending.
So, I want to focus on something that goes overlooked, or
rather goes unsaid by my Republican colleagues. Because while
they love to talk about reigning in spending, as the Chairman
just talked about, which in my mind actually means the
investments that we make for families and working people, I
don't hear the same concern regarding the huge tax breaks that
go to mostly billionaires.
We need to get one thing clear, despite all the bogeymen
that Republicans like to point to, to driving the national
debt, the reality is that the single biggest driver of our
national debt since 2001 has been Republican tax cuts. The
Trump and Bush tax cuts have cost our nation over $10 trillion
and counting.
And what do Republicans want to do if they return to power?
What's at the top of the Trump economic agenda? Do they want to
solve the childcare crisis? Do they want to extend healthcare
credits that are saving millions of families thousands of
dollars? Of course not.
They want more tax cuts for the ultra-wealthy and biggest
corporations. Republicans' big economic vision is to extend
their horribly one-sided Trump tax cuts. If Republicans are so
concerned about the national debt, why is it that every time
they get the chance they start giving away cash, and writing
tax loopholes for mega corporations?
So, we've got to get real. There's no reason that investors
on Wall Street should pay less in taxes than a firefighter in
Spokane, Washington, or a nurse in Seattle, or that companies
making billions in profits should pay less than mom and pop
shops in Washington State.
And there's every reason for us to ask the wealthiest
people in our country to pay their fair share, so we can make
this country stronger for everyone. So, for parents back in
Washington State, for working families, they don't want us to
invest in the richest people in the world, they want us to
invest in our roads, and schools, and healthcare and security,
and ending the childcare crisis, things that actually make
their lives better.
You have to be kind of out of touch to miss that. That is,
for my colleagues to know, why Vice Chair Collins and I have
both worked together to reach a bipartisan agreement to
increase both defense and non-defense discretionary funding as
part of our Fiscal Year (FY) '25 appropriations process, so we
can invest in our security, and in our working families, and
our communities, not just to throw money away at billionaires.
Now, Director, I have talked at length about the hardship
and pain capping non-defense discretionary spending puts on
Americans, yet Republicans only insist on those caps. They also
put outside focus on the spending as it relates to the deficit.
Current NDD spending as a percentage of GDP has declined
from the long-term average, and NDD spending accounts for less
than a single percent of the increase in spending since the
start of the pandemic in 2019, which are the spending levels
Republicans want us to return to.
Director Swagel, beyond emergency pandemic spending, what
are the significant drivers behind our country's deficit over
the last decade?
Director Swagel. Yeah. It's, I would point to three things.
You know, one is rising interest payments. Two is rising
healthcare costs, and then three is rising spending on other
benefit programs, Social Security is the largest of them. And
so, it's the aging of the population, it's healthcare cost
growth, and it's interest costs.
Senator Murray. And revenue?
Director Swagel. And revenue has not kept up, and you can
see that in the charts put up by both the Chair and the Ranking
Member, that legislation action has made it so that, you know,
rather than rising, revenue as a share of GDP has remained
flat. So, as spending has gone up, revenue has not kept up.
Senator Murray. Okay. And there was one legislative change
since your last projection in February, the effective revenue.
The Internal Revenue Service (IRS) rescission. According to
your report, these rescissions accounted for a $32 billion
reduction in projected revenue. The IRS and Treasury project
six-fold returns for every dollar spent on tax informant.
Yet we continue to hear from our Republican friends that we
should target IRS funding as part of the increasing deficit.
So, last question, how does the rescinding funds provided to
the IRS under the Inflation Reduction Act, impact revenue and
deficits?
Director Swagel. So, in our calculations, $1 that goes to
the IRS results in an additional $2 of revenue, so for a net of
one. So the rescissions on net increase the deficit.
Senator Murray. Thank you, appreciate that.
Chairman Whitehouse. Senator Marshall is up now. Senator
Padilla has to go and preside, so I think with Senator Lujan's
permission, we will reverse, so the order will be Marshall
Padilla, the next Republican, and then Senator Lujan.
Senator Marshall. I'm happy to yield to Senator Padilla if
he needs to scoot.
Chairman Whitehouse. Do you want to go ahead, Alex? Don't
worry, you'll be next. That's kind of you, thank you.
STATEMENT OF SENATOR PADILLA
Senator Padilla. Thank you both for your accommodation, and
your consideration. Thank you, Mr. Chair, for this opportunity.
Mr. Director, how are you this morning?
Director Swagel. Yeah, thank you, very well.
Senator Padilla. Good. Thank you for being here. I'm
pleased to have this opportunity to talk to you about a subject
that I've been familiar with for a long, long time, and I'm
speaking specifically to the dynamic of immigration, and its
impact on our economy.
Coming from the state of California, not just the most
populous state in the nation, the most diverse state in the
nation, home to more immigrants than any state in the nation,
and it has the largest economy of any state in the nation, as
well. So, we know full well that immigration, the contributions
of immigrants, is critical to the economy, and critical to the
growth of the United States.
And now, thanks to the hard work of the CBO, you've all
crunched the numbers, and now project that U.S. revenue will be
$1.2 trillion higher over the next 10 years because of the
impact of migrants, and migrants in the workforce, as you see
it today.
And I would imagine that given my Republican colleagues'
obsession with our debt, that they would welcome the news that
CBO also found that this increased immigration, migrants, and
their impact on the workforce, leads to lower deficits. So, it
seems like it's something that we ought to embrace.
So, would you please speak to how the CBO was able to
quantify the economic benefits of immigration, and what the
impact would be on revenues to the federal treasury if more
than 10 million undocumented immigrants, many of the workforce,
were to be deported?
Director Swagel. Ah, yes. So, we haven't analyzed the
deportation, but there's a sense in which it would be the
opposite of the immigration increase that you mentioned, and so
we said there's about a $9 trillion increase in GDP from the
immigrants coming in, they add to the labor force, they pay
taxes, they, you know, they fill jobs.
And the deportation would in some instances reverse that,
that there would be a big negative hit to GDP, the labor force
would shrink, and revenue would go down.
Senator Padilla. That seems pretty logical to me, so thank
you for that. I know you're from the CBO, not the Department of
Labor, but I also think if we look at the data that is out
there, even with the level of migration we've seen in the
course of the last decade, we are experiencing record,
sustained low levels of unemployment.
And wages continue to rise. So, for those concerned, those
who spread the false rhetoric that immigrants are taking
American jobs, or they're a downward force on wages, that has
proven to be false. Do you have any data that would suggest
otherwise?
Director Swagel. That's right. There's a sense in which the
immigration surge explains how our economy continued to grow
rapidly, and create jobs, even when the labor market say, 2
years ago, looked to be tight. It's the added--the immigrants
adding to the labor force, these are additional jobs and
additional income.
Senator Padilla. All right. So, I also want to ask about a
related dynamic that is a priority concern for this Committee.
We've--I see Senator Braun has joined us, and he's always one
of the first, if not the first, to raise concerns about the
debt. We're talking about the contributions of immigrants to
the workforce, and to the economy, and the net benefit that
there's been on revenues, debt reduction, et cetera.
But we're also speaking in this Committee regularly about
the solvency of our social safety net programs, particularly
Social Security and Medicare. Between 2010 and 2020, the U.S.
saw its lowest population growth of any decade since the 1930s,
and it presents a huge challenge to the social safety net
programs that rely on current workers to fund the benefits for
America's retirees.
And we know that immigrants help sustain the programs like
Social Security and Medicare, even though they don't benefit
from those programs themselves. In 2022 alone, immigrants paid
over $570 billion in federal, state, and local taxes, so would
you please discuss the impact on the solvency of our social
safety net programs if due to potential change in our
immigration policies, that we would realize a significant
reduction in our workforce?
Director Swagel. Yeah. And so, we looked carefully at the
composition of the immigration surge, and they're very heavily
skewed toward working age adults. These are immigrants that
have a high propensity to work, and they have a strong
incentive to work on the books once they receive authorization,
generally within 6 months.
You know, many of them will face, you know, a hearing in 7
to 10 years, and working on the books will let them demonstrate
attachment. So, all of that means more revenue for Social
Security, it increases the financial--improves the financial
situation of the Social Security system, and yeah, then that's
again it's just like the overall revenue, some of it goes to
Social Security.
Senator Padilla. Okay. Couldn't have said it better myself.
Thank you very much. Thank you, Mr. Chair.
Chairman Whitehouse. Thank you, Senator Marshall, for your
courtesy to Senator Padilla. It is now your floor.
STATEMENT OF SENATOR MARSHALL
Senator Marshall. Thank you, Mr. Chairman, and welcome Dr.
Swagel. If there's one thing clear from this meeting it's that
my friends across the aisle have promised that they will raise
your taxes. That that is their solution to everything is to
raise your taxes.
Folks, we don't have a taxing problem in this government,
we have a spending problem. The Trump tax cuts demonstrated
that if you lower taxes, it grows the economy and increases the
tax revenue. It's a rising tide, raising all boats. I think
it's quite evident. No one could argue that. It's unarguable.
But what's not arguable is that indeed that these tax cuts
indeed have worked in the past. Dr. Swagel, let me ask you, do
you ever review your work in the past? Do you go back and look
at the last 10 years and say what percentage were we off on our
scores?
Director Swagel. We do. We go back for major legislation,
and analyze what, in terms of what we got right, and what we
got wrong.
Senator Marshall. Over the last 10 years what does your
score sheet look like in speaking in general?
Director Swagel. So, we compare ourselves to other major
forecasters, and we do pretty well. There's somethings that
we've----
Senator Marshall. No. You don't do well. You just missed
the deficit this year by $0.5 trillion. That's not doing well.
I just--I mean don't you think you're off 10, 20, 30, 40
percent on most of the big numbers?
Director Swagel. Right. So, from February to June the
deficit went up by 27 percent, mainly because of actions taken
by the administration. And so, the student loans, the Federal
Deposit Insurance Corporation (FDIC), actions on Medicaid, that
we're providing you with the current law----
Senator Marshall. So, through executive fiat they added
goodness, 3 or 4, oh goodness, I guess it's about $1 trillion.
Director Swagel. That's right. Between student loans and
the other pieces, there's several hundred billion dollars.
Senator Marshall. Would you have the ability to score, if
we did our job, if we followed the Budget Act of 1974, and all
the additions where the President submitted a budget on time.
If we did a meaningful bipartisan budget resolution, and we
went back to regular order, and the House did their job, if we
did a real budget, would that have impact on how much money we
spend, and is that something you could help generate a CBO
score for?
Director Swagel. I mean we would certainly support the
Congress in doing that. It's hard to say what the outcome would
be, you know, of regular order, would certainly be a change,
but I can't tell you, you know, what the fiscal outcome would
be.
Senator Marshall. It's certainly works in the private
sector to do a meaningful budget, and then use that as a
blueprint, and not allow an administration to tack on, like you
just mentioned, almost $1 trillion of unsuspected spending
through executive fiat, and which is unconstitutional the way
they did it.
As we've mentioned before, the 2024 budget deficit is going
to be $2 trillion. We're going to spent 2 trillion more than we
take in this year. The administration added $2.1 trillion with
the American Rescue Plan, another $800 billion with the
Inflation Simulation Act.
People call it the Inflation Reduction Act because it's
actually inflationary, as well as over another trillion
unilaterally as you mentioned through executive actions. The
student loans $400 billion. They redefined the thrifty plan
with another $300 billion, and then they did some voodoo with
the ACA, and another $300 billion as well. I want to talk about
SNAP for a second. We're in the middle of trying to write a
farm bill, and I'm concerned about the politics at play in
scoring a piece of legislation that's extremely important to
everybody.
You know, a farm bill, 85 percent of farm bill is SNAP
payments, nutritional programs. The largest part of the farm
bill also has the highest fraud rate in the error rate. There
has been an annual repayment rate of 10 percent. Stopping the
error rates, stopping the fraud, stopping the overpayments that
result in nearly $100 billion in savings to the SNAP program
over the next 10 years.
So, if we get rid of the fraud and the abuse and errors, it
would save $100 billion over 10 years. Do you believe that
fixing the error rate in SNAP would be a cut to the program?
Director Swagel. It would make sure that the beneficiaries
who are supposed to get the benefits are getting them, and you
know, not other people.
Senator Marshall. Okay. The bipartisan Farm Bill was passed
out of the House Ag Committee, has a provision in the nutrition
title which preserves SNAP benefits, and ensures that benefits
can modestly increase with the cost of living. Now, my friends
across the aisle instead are calling these provisions the
largest cut to SNAP in history. In your opinion, do you
consider this a cut?
Director Swagel. So, you know, after we saw what the
administration did with changes to the Thrifty Food Plan, we
then had to assume that in the future there could be such large
increases again, and I said before that was about 200 to $250
billion of additional costs. And so that gets built into the
baseline. What the House has done is scale that back, and so
there's a sense in which they're preventing a future
administration from doing the kind of increase that we've done.
Senator Marshall. But net at the end of the day, we're
going to be spending more money on SNAP in the future than we
are today?
Director Swagel. That's correct, yeah.
Senator Marshall. Thank you. I yield back.
Chairman Whitehouse. Thank you again for your courtesy,
Senator Marshall, and thank you Senator Lujan for your courtesy
to your colleague. You are recognized.
STATEMENT OF SENATOR LUJAN
Senator Lujan. Thank you very much, Mr. Chairman. Director,
the Radiation Exposure Compensation Act (RECA), this program
was created to provide compensation and justice to those
Americans who suffered devastating health impacts of nuclear
weapon development and testing.
Despite being treated 34 years ago, people in states like
New Mexico, which is where the first nuclear bomb was tested
without warning to people in these communities were left out of
the program.
Even the author of this legislation, may he rest in peace,
the former Senator from Utah, Warren Hatch, he referenced this
before he passed away about the mistakes that were made in this
legislation, and how New Mexico is one of those mistakes not
being included, not including post 1971 workers, which are
uranium mine workers that worked in the mines after 1971, side
by side with people that qualified for the program doing the
same jobs.
These Americans, many of whom were the unwilling and
unknowing victims of radiation exposure have waited too long
for justice. The Senate has now passed my bill to strengthen
RECA with Senator Crapo and Senator Hawley twice, but we have
yet to get a full analysis of the impact of the program.
Meanwhile, the House has refused to act. As a result, the
clock ticks on, and Americans continue to wait, from those from
New Mexico to Utah, to Idaho, and many other states have fought
cancer, too many have died, and watched family die alone, being
ignored, all without recognition from the government that made
them sick.
Now, Dr. Swagel, as you worked to get that full score, I
would like you or your analysts, and preferably all of us to
get together in a room to meet with me and my staff, walk me
through the state by state breakdown of who would benefit from
this improved RECA program. Will you commit to securing that
meeting?
Director Swagel. Yes, sir. Because of the path that the
legislation took to the Senate floor, as you said, you didn't
get a full cost estimate from CBO. We've given some rough
guidance on the cost, but you have my commitment that we'll
come to you, and take you through the estimate. You know, a
challenge for us is the state by state part, just because we're
set up to do federal costs.
And so, instead of just analyzing one state at a time is a
challenge, but we will come and do as much as we can to make
sure you get the information you need.
Senator Lujan. Have you done state by state analysis
before?
Director Swagel. You know, not of the RECA program. We have
of some programs, but not of this one.
Senator Lujan. Doctor Swagel, have you conducted analysis
for Wyoming?
Director Swagel. For, I'm sorry, say it again?
Senator Lujan. The state of Wyoming as it pertains to RECA?
Director Swagel. Oh, no we haven't.
Senator Lujan. Yes, the CBO has, and have you done it for
New Mexico?
Director Swagel. Not separately.
Senator Lujan. So, I've been told because the mistake that
was made by CBO with the initial--I wasn't planning on getting
into this, but if I'm going to--if there's going to be
something included in the record as to what the capabilities
are or are not, Wyoming and New Mexico had to be reviewed
because there was a mistake of including analysis of Wyoming,
when Wyoming was not included in the original bill, and New
Mexico was.
And so CBO had to look at that initially from its initial
score to where we are. The score the CBO came out with, with
the initial draft was $160 billion, $150 billion. This program
was started back in 1990. It's cost us a lot of money, $2.2
billion.
It's hard for me to understand without seeing disaggregated
data how the program grows exponentially from 2.2 over a 30
year period to 75 percent higher, so I think it's important for
us to get there. I think the other offices would also be very
interested in presenting the facts to the Congress, to my
colleagues, to the American people about what this is, and what
this is not.
I very much appreciate what the Ranking Member shared about
Tip O'Neill and President Reagan. That was a time when people
in this town could still stipulate the facts, and they would
negotiate, but they could stipulate to facts, what the receipts
were.
And I just want to make sure that we have the correct
receipts in this place, so that we can have an honest
conversation about the policy, and get help to a whole bunch of
people across America who this country owes a liability to,
owes an apology to, and quite honestly, cost them their lives
in many instances, and the cancer that they're still going
through today, so I very much look forward to that.
And Mr. Chairman, I have other questions. I'm going to
submit them into the record to be respectful of my colleagues
today as well, but very much appreciate the agreement to be
able to secure a meeting, and have a thorough conversation
about this package, this legislation for myself, and there may
be other offices that want to be included, so thank you.
Chairman Whitehouse. Thank you, Senator Lujan, and if we
can help facilitate that meeting, don't hesitate to ask.
Senator Braun.
STATEMENT OF SENATOR BRAUN
Senator Braun. Thank you, Mr. Chairman, and thank you for
having the discussion on budget here today. Dr. Swagel, you and
I have had many conversations since I've been here 5.5 years
ago, and I look at your basic one pager here, and some things
stand out to me, and that is how stubborn revenue generation
has been.
You compile statistics that show that revenues from '94 to
'23 have averaged 17.2 percent of GDP, correct?
Director Swagel. That's right.
Senator Braun. And actually, in '23 and '24, '23 was lower,
'24 is going to be slightly higher, but when you look at the
stubbornness of that figure, and the fact that even in your own
projections, you see it staying flat generally around 18
percent, is that what you've got here in terms of basing long-
term forecasts on?
Director Swagel. That's right, and '23 was lower because
there was some revenue that got pushed from '23 into '24, the
disaster declarations, especially in California, for example.
The corporate minimum tax wasn't implemented, so that's why '23
is a bit lower, but as you said it's----
Senator Braun. But it's been a stubborn range of between
17.5 and 18.5?
Director Swagel. And 18, that's right, yes.
Senator Braun. And most of the 18.5 is projections into the
future, so I want to then go to outlays. And for nearly 30
years those were average around 21 percent of GDP, and those
culminated in recent years in the trillion dollar structural
deficits. Is that correct, give or take?
Director Swagel. That's right.
Senator Braun. Yes.
Director Swagel. Especially on the mandatory side.
Senator Braun. And now that has doubled to about $2
trillion, give or take, in the present?
Director Swagel. That's right.
Senator Braun. So it gets bleaker as you make projections
into the future, and revenue has been stubbornly consistent
regardless of tax rate. Is that correct?
Director Swagel. That's right. And you know, there has been
legislative changes as revenues have gone up that have taken
them back down, so there is some legislation there.
Senator Braun. But generally that would mean once you cut
taxes you're depriving the treasury in the short run. You might
get a little better economic growth generally as you go into
years two, three and four. And the reverse is true, you know,
when you raise taxes, correct?
Director Swagel. That's right.
Senator Braun. You're going to flush a little more into the
treasury, and then economic growth is going to go down a little
bit each year.
Director Swagel. Yeah, yeah.
Senator Braun. The fundamentals that basically drive our
economy and our government generally?
Director Swagel. That's essentially what we've got in our--
as well.
Senator Braun. So, what you've got here looking at 2024,
the snapshot of where we are currently, and you see that
revenue is budging at most 1 point as a percentage of GDP, and
you're taking spending up by 4 additional percentage points,
correct? From '23, which is 23.1 to 27.3?
Director Swagel. I'm sorry, I just wanted to make sure,
23.1.
Senator Braun. In '24 is what you're forecasting will be up
on the outlay line?
Director Swagel. I'm sorry. I wonder, you--I'm sorry since
I'm----
Senator Braun. I'm talking about outlays.
Director Swagel. Yeah.
Senator Braun. Outlays on the chart you gave me.
Director Swagel. Yeah, 24.2 for 2024.
Senator Braun. Yeah. And then what are you showing in 2054?
Director Swagel. I'm sorry. I gave you--I'm sorry, I gave
you our long-term outlook.
Senator Braun. Yes.
Director Swagel. And I have our short-term outlook as well.
Senator Braun. Well, okay.
Director Swagel. But you've got the numbers right. Yeah.
Senator Braun. Yeah. So, in your opinion, how do we get
things right sized? Can we do it through revenue when history
has shown we've never been able to, and the cutting taxes
started back many, many years ago without adjusting spending.
And to me, it looks like the data is all there, that if we
don't want to keep borrowing from our kids and grandkids, that
we've got to choose and prioritize what we're spending here
that's going to match up with what revenues have shown that we
can generate over a long period of time. Do you agree with
that?
Director Swagel. Right. I mean that is the choice in front
of policy makers, that revenues and outlays at some point have
to come closer together. That can be done, as you said, on the
outlay side. In principle, it could be done on the revenue side
if you know, it's up the Congress, you give high rates.
Senator Braun. And you always say that because yours is not
advise on policy, it's just to tell us the figures.
Director Swagel. The figures. That's right.
Senator Braun. And the figures are bleak.
Director Swagel. It is a daunting situation, rising debt.
Senator Braun. Okay. We'll settle for daunting. And then I
want to circle back to what the Chair said earlier. Shocks to
our economy, which we had to navigate through in '08-'09, that
was trivial dollarwise compared to what we spent recently on
COVID. Maybe you can't measure the two, but that was roughly
measured around a trillion.
What we did was over $4 trillion, and then enterprise over
the first 2 years of the Biden administration to add another
roughly $4 trillion, so we're in a place where this to me looks
like we end up with something like a Chapter 11 in the real
world, which means sooner or later you've got to get our
spending in line with our revenue.
I mentioned that coming in to this hearing, a lady working
here in the Capitol, carrying a box of files laughed out loud
when I said that, and it was in agreement, and I think that's
what the American public is doing. One final thing, because I
don't see anybody else here, so I'd like to have a little
latitude.
Chairman Whitehouse. Go for it.
Senator Braun. I spent so much time on it, healthcare is
the place that we can within our own means, take a broken
industry and system, that has no consumer involvement within
it, no emphasis on prevention and wellness, and it's run by a
very corporate system of healthcare that's even frustrating
doctors and nurses to become a part of it, and that is doable.
And unless we want government to even do more, I would ask
that the healthcare industry embraces things like competition,
transparency, engages every American in their own wellbeing, so
that you don't need to use the system as much, because it is
approaching 20 percent of our GDP, and in most other developed
countries it's 10 to 13 percent.
Would your opinion be that that would be the lowest hanging
fruit of where if we put policies into place that it can
actually weigh in on our current, chronic big deficit?
Director Swagel. Yeah. I'm going to switch metaphors. It's
where the dollars are. It's the rising spending, and you could
see that in the Chairman's chart at the beginning that
healthcare spending is rising quickly. And you know, the good
and the bad is that there's so many distortions in healthcare
as you said.
It's hard to get at them, but there's so many dollars that
even if you make kind of modest progress in percentage terms,
the dollar change could be quite lofty.
Senator Braun. So, thanks for the latitude on time, thanks
for your answers. In summary, we've got to spend less than we
take in. History shows that revenue is stubborn. History also
shows that we used to have healthcare as a percentage of our
GDP, closer to 10 percent, not too many decades ago, and the
rest of the world has figured out how to do that at better
value. We need to start doing a few things that most Americans
believe should be done, don't spend more than you take in, and
if something is out of line in terms of cost, reform it.
Thank you for being here today. Thank you, Mr. Chairman.
Chairman Whitehouse. Thank you very much, Senator Braun. I
believe we're waiting on one more colleague, so I'll take just
an additional moment while we give him a chance to walk from
his other hearing to this one, and point out that at least in
our view, the net effect of the 2008 mortgage meltdown, and the
recession that followed, ran around $5 trillion.
And the bulk of the effect was not spending, but was lost
revenue because of the shock to the economy. People simply
weren't paying taxes because they weren't making money because
the economy collapsed. Is that a pretty fair overview of how
the 2008 mortgage meltdown hit the economy? Am I roughly in the
right neighborhood with the numbers?
Director Swagel. Yes. Yeah, that's right. It had a big
negative impact on activity, and then from there to revenue.
And there was a legislative response, the Troubled Asset Relief
Program (TARP), you know a lot of that money came back as the
assets that were purchased by the Treasury were sold back to
the private sector.
Chairman Whitehouse. Yeah. And while as you pointed out in
your exchange with Senator Braun, the growth in healthcare
spending has been one of the primary drivers on the spending
side. We do have the comparison with CBO's 2008 projections for
where that spending would be, and where it actually went, and
it's $6.3 trillion lower than projected over that intervening
time period.
So, while that number has gone up--never mind, so while
that healthcare spending number has gone up, something happened
to keep it from going way more up, and thank you, Doctor, for
your work trying to parse through the data to figure out
exactly what it was that helped us save those $6.3 trillion
without cutting benefits, because if we can do more of that,
that would be a very, very good thing.
Senator Van Hollen, are you ready to roll?
Senator Van Hollen. I'm ready to roll.
Chairman Whitehouse. Great. You're up then, followed by
Senator Kennedy.
STATEMENT OF SENATOR VAN HOLLEN
Senator Van Hollen. All right. Well, thank you, Mr.
Chairman, thank you, Director Swagel. It's good to see you
again. Let me just start on the revenue side because I'm
looking at the CBO projections, and I see that, you know, a
number of months ago you had projected that the Trump tax cuts
would add--well, this is back during that time, $4.6 trillion
to the debt over the next 10 years.
I understand you had an earlier exchange with the Chairman,
the Trump tax cut did not pay for themselves despite claims,
right?
Director Swagel. That's correct. That's what we----
Senator Van Hollen. And your projection is that if we just
did a straight extension of the tax cuts, those would not pay
for themselves either, would they?
Director Swagel. No, they wouldn't.
Senator Van Hollen. Okay. So, one of the arguments that was
made at the time was that the trickle down economics was going
to work, right? I'm looking at projections that were made by
the Trump economic team. They predicted that that tax plan
would generate 4 to 6 percent growth in GDP.
But then I'm looking at the seven quarters that succeeded
that, and so this is data before the COVID pandemic hit. And
I'm seeing that growth actually during that period of time was
not appreciably different than the growth during the prior
seven quarters.
There was a small bump in Q2 of 2018 to 3.5 percent, but
that was the same as Q4 of 2017, before enactment of the Trump
tax cuts. So, this whole theory of trickle down economics was
behind the claims that the tax cuts were going to pay for
themselves, right?
Director Swagel. That would be the way that in principle a
tax could pay for itself if it generates so much additional
output that that comes back as revenue. And you know, the
analysis CBO did in 2018 was that there would be some impact.
There would be some impact on business investment, and then
some additional revenue. It was about an 18 percent fiscal
feedback, so something, and the challenge was that, as you
said, we saw a little bit of a, you know, higher growth early
in 2018.
And then in the middle of 2018 tariffs were raised, and
those looked to have affected business investment. And so, in
some sense, even before the pandemic, you know, if there were
macro effects of the tax cut, those got in some instances, you
know, offset or hidden by the, you know, by----
Senator Van Hollen. And look, I looked at the CBO analysis
and I saw some of the feedback loop, and I think you attribute
this primarily to some of the corporate tax cuts, but let me
ask you on the individual side, the claims that, you know, big
tax, personal tax cuts for wealthy people is going to generate
something like in the range of 4.6 percent. I mean that was
just ridiculous, right?
Director Swagel. The CBO didn't have that--those kind of
figures.
Senator Van Hollen. You're being diplomatic, but so, and of
course, claims going forward that continuing the Trump tax cuts
would pay for themselves, as you said is absurd. I will point
out that if you look at the analyses that were done by the Tax
Policy Center, they point out that extending the Trump tax cuts
would provide more than twice the benefit for the top 1
percent, then for the entire--the bottom 60 percent as a
percentage to their income, in real dollars that translates to
an average $48,000 tax cut for households in the top 1 percent,
about $500 for those in the bottom 60 percent.
So, it makes no sense to add even more to our deficits to
disproportionately benefit those at the very top. I will point
out that President Biden has committed to making sure that any
tax benefits that apply to people, $400,000 and under, will be
maintained, but it does seem a total--a stupid and backwards
policy to extend those that provided big breaks to the wealthy,
that did not have the so-called trickle down growth benefit,
but did add to the deficit.
In my remaining time, I'd just like to ask you about the
recent cuts to the IRS. As you know, as part of the budget deal
the last year there was a $20 billion clawback. What is your
best estimate of how much that will add to the deficit over
time?
Director Swagel. So, our calculations of that $1 of
additional resources to the IRS generates about $2 of revenue,
so a net of 1, so you know, the rescission of funding to the
IRS, that's why it increased the deficit in our projections.
Senator Van Hollen. Right.
Director Swagel. So roughly, you know 2 to 1.
Senator Van Hollen. So, it was a $20 billion cut, so your
estimate is that what, it will lose $40 billion?
Director Swagel. About $40 billion.
Senator Van Hollen. In income, yeah. Thank you, Mr.
Chairman.
Chairman Whitehouse. Thank you, Senator Van Hollen. Senator
Kennedy of the Great State of Louisiana.
STATEMENT OF SENATOR KENNEDY
Senator Kennedy. Thank you, Mr. Chairman. Mr. Director,
welcome. Mr. Director, what's the national debt right now?
Director Swagel. Well, it's--we project at the end of this
year it is going to be over $28.1 trillion.
Senator Kennedy. $28 trillion. What percentage of GDP is
that?
Director Swagel. It's just under 100 percent.
Senator Kennedy. Could you speak into the mic, and repeat
that?
Director Swagel. Yeah. It's just under 100 percent of GDP.
Senator Kennedy. And for this current fiscal year will we
have spending deficits?
Director Swagel. Yes, sir. We're looking at about a $2
trillion deficit this year.
Senator Kennedy. And that means we've spent $2 trillion
more than we took in, right?
Director Swagel. That's right.
Senator Kennedy. So, we had to borrow money, right?
Director Swagel. That's right. The debt is going up.
Senator Kennedy. And so that money that we borrowed
increases the amount of national debt doesn't it?
Director Swagel. That's right, and it means more interest
payments, which then goes back and means more debt, so there's
a negative cycle attached to it.
Senator Kennedy. Okay. So, our current national debt is
over 100 percent of our economy, that's $28 trillion. Let's
suppose that we think in 10-year windows, as you know. Let's
suppose nothing changes over the next 10 years, nothing. We
don't renew the tax cuts, nothing changes. What's the debt
going to be 10 years from now?
Director Swagel. All right. So our projection is then over
$50 trillion, or over 122 percent of GDP.
Senator Kennedy. Well, damn looks to me like we better do
something. I mean will you sit here and debate the tax cuts,
and you talk about the tax cuts don't work. I don't know how
you know that because the pandemic skewed all economic results.
But we better do something. Do you think we can sustain the
spending?
Director Swagel. No. The risks are mounting with higher
interest payments, and higher debt, and that's as you said,
that's why action must be taken.
Senator Kennedy. So what should we do?
Director Swagel. It's, you know, the sooner Congress acts,
the easier it will be.
Senator Kennedy. I get that, so what should we do?
Director Swagel. You know, I'm here to support you, but not
to tell you what to do. I mean reduce the deficit. You have
choices. You can look at mandatory spending on the spending
side as the driver. You have healthcare costs and Social
Security. On the revenue side----
Senator Kennedy. Well, let me stop you for a second.
Everybody always says that. Mandatory spending is driving the
cost, but and so we've got to do something because of Social
Security trust fund is going to run out, and Social Security is
going to be automatically cut.
Look me in the eye and tell me you really think the United
States Congress is going to allow Social Security to be cut?
Director Swagel. I would expect some action to be taken
before that happens.
Senator Kennedy. Yeah. I mean if you think the United
States Congress is going to sit here and allow Social Security
to be cut, even if there's not a penny left in the trust fund,
you've been dipping in your Ketamine supply. It is not going to
happen. We'll just go under the general fund, and take the
money won't we?
Director Swagel. Right. And that would add to the deficit
as compared to current law.
Senator Kennedy. Yeah. So I get it, we make these
distinctions between mandatory spending and discretionary
spending, but it's really out of the same pot.
Director Swagel. That's right. There's just one general
fund of the treasury.
Senator Kennedy. Okay. So one option is to reduce our
spending, correct?
Director Swagel. That's right.
Senator Kennedy. What if we cut our spending 1 percent, 1
percent? What if we turned to every single department head in
the Federal Government, and said next year you're going to cut
your spending 1 percent. Not 5 percent, not 4 percent, 1
percent, something families who living under Bidenomics, which
is defined as paying more to live worse, something families
have to do every day. What would be the impact of a 1 percent
cut by every budget office?
Director Swagel. Yeah. So, outlays next year are going to
be just under $7 trillion, so 1 percent of that is $70 billion.
Senator Kennedy. What if we did 2 percent? What would be
the impact?
Director Swagel. 140. Yep, there would be $140 billion, and
you know that's the challenge that the deficit is so large
that, you know, sort of what you're saying, you know, makes a
difference, but it's pretty model relative to the size of the
challenge.
Senator Kennedy. What do you think we would have to cut
spending to get in control of our debt?
Director Swagel. Yeah. So if you just wanted to stabilize
the debt, you know, make it so that the debt is at 100 percent,
and it just goes up not by too much, you would have to cut and
do it on the spending side. You're talking about $5 trillion
over 10 years.
Senator Kennedy. What percentage is that?
Director Swagel. Right. So that's--I mean, over 10 years.
So spending is $7 trillion, multiple that by 10, so it's about
$70 trillion, you know, a bit more.
Senator Kennedy. Give me a percentage. American people
think in terms of percentages?
Director Swagel. No, that's right. So say you're talking
about a roughly 7 to 8 percent reduction in spending.
Senator Kennedy. Overall?
Director Swagel. Overall, just to stabilize the debt. You
know, we'd still have a high debt.
Senator Kennedy. And then we could try to grow out of it?
Director Swagel. Yeah, positive growth would improve
revenues, and help the situation.
Senator Kennedy. I'm way over. I'm sorry, Mr. Chairman. I
enjoyed talking to you, Mr. Director.
Director Swagel. Very good.
Chairman Whitehouse. Thanks, Senator Kennedy. Senator
Johnson.
STATEMENT OF SENATOR JOHNSON
Senator Johnson. Thanks, Chairman. Sorry, I was absent
until this point in time. I just have a very specific line of
questioning here, Director Swagel. You know, your projections
assume obviously, the tax cuts expire, correct?
Director Swagel. That's correct.
Senator Johnson. I mean one of the real tragedies of that
occurring is that we're going to have an enormous disparity
between C corporations, which represent about 5 percent of
American businesses in all the other pass throughs. What I want
to know in your projections, because having been a pass through
business myself, actually I've been part of business of every
different type of corporate structure.
And quite honestly, during the tax reform of 2017-2018, I
got letters from the Association of International Certified
Professional Accountants (AICPA) saying this is exactly what
would happen. These are particularly large pass through
businesses, but this might have a small pass through business
as well. They're not going to be able to compete with that huge
disparity between C corps and pass throughs.
And so, a lot of them will convert, particularly the big
ones will convert to C corp status, which is going to be a much
larger, not only marginal, but effective tax rate. In your
projections going out, do you take that into consideration?
Director Swagel. It's an issue we've been struggling with
because, you know, we model current law, our projections are
current law, and we've been trying to think exactly about this.
If you're an S corp, there's uncertainty about what's going to
happen at the end of '25. To what extent will S corps make the
switch, you know, now in advance of, you know, the expiration?
So, we have a little bit of that switching in our revenue
modeling, but not the kind of like, you know, full fledge
switching that you'd expect say in early '26.
Senator Johnson. I mean would you agree with me, I mean,
the rational choice for a business person, if you want to
continue to compete because let's face it, pass throughs
compete with the corporate corporations at the entity level. I
know everything about double taxation, that type of thing, but
I think it's about two-thirds of C corp business income is
never taxed, correct? Are you aware of that figure?
Director Swagel. I don't know offhand, but there's lots of
income that is retained.
Senator Johnson. Well, it's retained, but also a lot of C
corps are owned by non-taxable.
Director Swagel. But not taxable. That's right.
Senator Johnson. So again, it's hard to get that figure,
but somewhere between two-thirds and three-quarters of C corp
income is never double taxed, so you're looking at an effective
rate. We've got it from the Joint Committee on Taxation (JCT)
of 10 percent for large corporations, 14 percent for small C
corps, and large pass throughs, they're going to be up over 40
percent aren't they?
Director Swagel. No. That's right because the lower
corporate rates from the 2017 Act is permanent.
Senator Johnson. So, large pass through is going to be
paying a top marginal tax rate over 40 percent competing
against whether it's a large or small C corp, some with an
effective tax rate of 10 to 14 percent. So, the rational thing
for a pass through would be I can't complete, I'm going to
convert to a C corp status.
Director Swagel. Yes. No. That's exactly right, and we've
been trying to figure out when that, sort of that massive
switch will happen, given the uncertainty about what's going to
happen next year.
Senator Johnson. So, one of the reasons I'm bringing this
up is I'm trying to get a score on what I'm proposing, which
would be to equalize the tax treatment between American
businesses. In other words, tax all business income at the
ownership level, that's what pass throughs do.
Trying to get that score is going to be difficult for me
because we're not really reflecting what's actually going to
happen if we let those tax cuts expire. So, is there any way I
can get some sense of what that number is going to be if
there's a massive shift, which I believe there would be from
large pass throughs particular switching to C corps.
Director Swagel. Okay. I'll tell you two things. So, one is
the formal estimate would come from JCT, you know, just because
there would be a change in the tax code. We have an excellent
tax analysis division, and if we could come talk to you about
how our revenue projections would change, and we wouldn't be,
you know, the cost estimate that JCT would do, but we could
talk you through how we would see it, and what it would mean
for revenue.
Senator Johnson. Okay. Let's start with how you have
accounted for that because you've been thinking this through.
You made some provision for it.
Director Swagel. Yeah.
Senator Johnson. Let's take a look at that, and then you
know, kind of work with me on that. I'd appreciate it.
Director Swagel. Okay.
Senator Johnson. That's all I have, Mr. Chairman. Thank
you.
Chairman Whitehouse. Thanks very much. Two things I'll
close with as we wrap up the hearing. One is that we've
referred several times to the risk that the economy faces from
climate shocks. The Chief Economist of Freddie Mac broke that
out into weather, storms, sea level rise, make insurance harder
and harder to predict, which makes insurance first more
expensive, and then unavailable.
And once the insurance becomes unavailable, then you can't
get a mortgage because mortgage holders require insurance on
the property. And once you can't get a mortgage on a property
your pool of buyers shrinks dramatically to those who got the
money to simply pay cash, so supply demand drives prices down.
It's not that complicated.
No insurance, no mortgage. No mortgage, no buyers. No
buyers, no good market. So, the prospect of that creating a
shock to the economy along the lines of the 2008 shock or
worse, have been repeatedly raised in this Committee, and I
would just note today the New York Times has an article about
how climate change is blowing up the property insurance
markets.
And it's not only happening in high risk states like
Florida, but the companies are actually raising rates in other
areas to try to counter balance for the risk that they're
having to assume in these either wildfire adjacent, or coastal
adjacent markets that are getting increasingly hard to predict.
And the last word on this came from the expert who spoke to
the New York Times, and he said, ``I personally think we're in
a lot of trouble. This should be ringing alarm bells for
housing markets all over the country.'' We have tried to ring
those alarm bells here in the Budget Committee before this
blows up in our faces, because of the role of the fossil fuel
industry, and fomenting all of this through its pollution, and
through its political mischief.
We have a very hard time finding any bipartisanship on
that, but the facts ought to be pretty obvious by now. So, I
would make that point because that came up today. And then I'd
close with this graphic, which shows the increase in non-
defense discretionary spending, which is my Republican friends
traditional spending target, from 2019 to 2024 as a percentage
of GDP.\6\
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\6\ Chart submitted by Chairman Whitehouse appears in the appendix
on page 68.
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So, you move from a little over 3 percent of GDP to about
3.35 percent of GDP. So, it's an increase of 7 percent from
here to here. You can see it's a visually, relatively small
increase. And then when you dive into what that increase is
made up of, 40 percent of it is made up of benefits to
veterans.
The Pact Act, and things were made better for veterans. Do
they really want to get rid of that? I kind of doubt it. Health
expenditure, up 18 percent. Well, we have ways to get after
that by improving the reimbursement system, doing more of what
reduced the expense by $6.3 trillion against 2008 projections.
Community development disaster relief, most of that is Federal
Emergency Management Agency (FEMA).
Do we really want to starve FEMA while we're having
unprecedented levels of climate driven catastrophes that
require FEMA to come to people's rescue? I kind of doubt it.
Ukraine, and international spending 12 percent. That's 12
percent of the 7 percent by the way, it's not that big of a
number, but it's 12 percent.
Do we really want to leave Ukraine high and dry to the
tender mercies of the pediatric hospital bombing monster Putin?
I kind of doubt it. And then there are the income security
pieces down here, again 12 percent.
So, when people are talking about making very significant
cuts to non-defense discretionary spending, they are talking
about digging into very basic programs and services for the
American people, and we should be aware of that. We have a
significant revenue problem.
We have a very significant healthcare inefficiency problem,
and we have a very significant climate risk problem. And if we
can address those three problems I think we'll be well on our
way to solving the concerns that you have brought to our
attention today, Dr. Swagel.
So with that, I will conclude the hearing. If there are any
further questions for the Doctor that come in as--there's some
questions Senator Lujan said he had. If there are any others
get them in by noon tomorrow, colleagues, staff, and we will
ask Director Swagel to respond to those questions within seven
days of his receipt of them, if you could do that Dr. Swagel?
Director Swagel. We will do that, yes.
Chairman Whitehouse. That would be great. With no further
business before the Committee, the hearing is adjourned.
[Whereupon, at 11:33 a.m., Tuesday, July 9, 2024, the
hearing was adjourned]
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