S. HRG. 113–518 

CONCURRENT RESOLUTION ON THE 

BUDGET FOR FISCAL YEAR 2015 

HEARINGS 

BEFORE THE

COMMITTEE ON THE BUDGET 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

February 4, 2014—THE 2014 OUTLOOK: MOVING FROM CONSTANT 

CRISIS TO BROAD-BASED GROWTH 

February 11, 2014—THE BUDGET AND ECONOMIC OUTLOOK FOR 

FISCAL YEARS 2014-2024 

February 25, 2014—THE ECONOMIC AND BUDGET OUTLOOK FOR 

INDIVIDUALS, FAMILIES, AND COMMUNITIES 

March 5, 2014—THE PRESIDENT’S FISCAL YEAR 2015 BUDGET 

PROPOSALS 

March 12, 2014—THE PRESIDENT’S FISCAL YEAR 2015 BUDGET AND 

REVENUE PROPOSALS 

May 6, 2014—THE PRESIDENT’S FISCAL YEAR 2015 EDUCATION 

BUDGET REQUEST 

May 8, 2014—THE US ECONOMIC AND FISCAL OUTLOOK 
CONCURRENT RESOLUTION ON THE BUDGET FOR FISCAL YEAR 2015 
S. HRG. 113–518 

CONCURRENT RESOLUTION ON THE 

BUDGET FOR FISCAL YEAR 2015 

HEARINGS 

BEFORE THE

COMMITTEE ON THE BUDGET 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

February 4, 2014—THE 2014 OUTLOOK: MOVING FROM CONSTANT 

CRISIS TO BROAD-BASED GROWTH 

February 11, 2014—THE BUDGET AND ECONOMIC OUTLOOK FOR 

FISCAL YEARS 2014-2024 

February 25, 2014—THE ECONOMIC AND BUDGET OUTLOOK FOR 

INDIVIDUALS, FAMILIES, AND COMMUNITIES 

March 5, 2014—THE PRESIDENT’S FISCAL YEAR 2015 BUDGET 

PROPOSALS 

March 12, 2014—THE PRESIDENT’S FISCAL YEAR 2015 BUDGET AND 

REVENUE PROPOSALS 

May 6, 2014—THE PRESIDENT’S FISCAL YEAR 2015 EDUCATION 

BUDGET REQUEST 

May 8, 2014—THE US ECONOMIC AND FISCAL OUTLOOK 
COMMITTEE ON THE BUDGET 

PATTY MURRAY, WASHINGTON, CHAIRMAN 

RON WYDEN, OREGON 

BILL NELSON, FLORIDA 

DEBBIE STABENOW, MICHIGAN 

BERNARD SANDERS, VERMONT 

SHELDON WHITEHOUSE, RHODE ISLAND 

MARK R. WARNER, VIRGINIA 

JEFF MERKLEY, OREGON 

CHRISTOPHER A. COONS, DELAWARE 

TAMMY BALDWIN, WISCONSIN 

TIM KAINE, VIRGINIA 

ANGUS S. KING, JR., MAINE 

JEFF SESSIONS, ALABAMA 

CHARLES E. GRASSLEY, IOWA 

MICHAEL B. ENZI, WYOMING 

MIKE CRAPO, IDAHO 

LINDSEY O. GRAHAM, SOUTH CAROLINA 

ROB PORTMAN, OHIO 

PAT TOOMEY, PENNSYLVANIA 

RON JOHNSON, WISCONSIN 

KELLY AYOTTE, NEW HAMPSHIRE 

ROGER F. WICKER, MISSISSIPPI 

EVAN T. SCHATZ, Staff Director 

ERIC UELAND, Republican Staff Director 

(II) 
iii 

C O N T E N T S 

HEARINGS 

Page 

February 4, 2014—The 2014 Outlook: Moving from Constant Crisis to BroadBased Growth ....................................................................................................... 1 

February 11, 2014—The Budget and Economic Outlook for Fiscal Years 2014- 

2024 ....................................................................................................................... 81 

February 25, 2014—The Economic and Budget Outlook for Individuals, Families, and Comuunities .......................................................................................... 149 

March 5, 2014—The President’s Fiscal Year 2015 Budget Proposals ................. 217 

March 12, 2014—The President’s Fiscal Year 2015 Budget and Reveue Proposals ..................................................................................................................... 299 

May 6, 2014—The President’s Fiscal Year 2015 Education Budget Request ..... 329 

May 8, 2014—The US Economic and Fiscal Outlook ........................................... 369 

STATEMENTS BY COMMITTEE MEMBERS 

Chairman Murray ............................................................. 1, 81, 149, 217, 299, 329, 369 

Senator Sessions ....................................................... 5, 84, 150, 152, 220, 302, 332, 371 

WITNESSES 

Robert Doar, Former Commissioner, New York City Human Resources Administration and Morgridge Fellow in Poverty Studies, American Enterprise 

Institute............................................................................................................. 178, 180 

Arne Duncan, Secretary, US Department of Education; Accompanied by 

Thomas Skelly, Acting Chief Financial Officer, US Department of Education ................................................................................................................. 334, 337

Douglas W. Elmendorf, Director, Congressional Budget Office ........................... 87, 89 

Robert Greenstein, President, Center on Budget and Policy Priorities................. 7, 10 

Courtney Johnson, High School English Teacher, Fort Hays Arts and Academic High School, Columbus, Ohio ............................................................... 161, 163 

Edith Kimball, Food Services Professional, Lee Elementary School, Lee, Florida ...................................................................................................................... 157, 159 

Jacob J. Lew, Secretary, US Department of the Treasury ............................... 304, 308 

Sylvia Mathews Burwell, Director, Office of Management and Budget 3, 

225 .........................................................................................................................

David A. Rosenberg, Chief Economist and Strategist, Gluskin Sheff & Associates, Inc. ................................................................................................................ 46, 49 

Neera Tanden, President, Center for American Progress ................................ 165, 167 

Scott Winship, Ph.D., Walter B. Wriston Fellow, Manhattan Institute for 

Policy Research................................................................................................. 192, 194 

Janet L. Yellen, Chair, Board of Governors of the Federal Reserve System..................................................................................................................... 373, 378 

Mark Zandi, Ph.D., Chief Economist, Moody’s Analytics ..................................... 20, 28 
Page

iv 

QUESTIONS AND ANSWERS 

Questions and Answers......................................... 269, 359, 411 
(1) 

THE 2014 OUTLOOK: MOVING FROM CONSTANT CRISES TO BROAD–BASED GROWTH 

TUESDAY, FEBRUARY 4, 2014 

UNITED STATES SENATE, COMMITTEE ON THE BUDGET, Washington, D.C. 

The Committee met, pursuant to notice, at 10:38 a.m., in Room 

SD–608, Dirksen Senate Office Building, Hon. Patty Murray, 

Chairman of the Committee, presiding. 

Present: Senators Murray, Whitehouse, King, Sessions, Crapo, 

and Johnson. 

Staff Present: Evan T. Schatz, Majority Staff Director; and Eric 

M. Ueland, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN MURRAY 

Chairman MURRAY. Good morning. This hearing will come to 

order. First of all, I want to welcome everyone to the first Senate 

Budget hearing in 2014 and thank Ranking Member Sessions and 

all of our colleagues who are joining us here today. 

And I want to thank our witnesses as well. Dr. Mark Zandi, chief 

economist for Moody’s Analytics, who will be here in just a few 

minutes—he is on a train, is my understanding; Robert Greenstein, 

president of the Center on Budget and Policy Priorities; and David 

Rosenberg, who is the chief economist and strategist of Gluskin, 

Sheff and Associates. 

Right now, as many of you know, the Congressional Budget Office is sharing its baseline numbers and economic outlook for the 

next decade. We will have a hearing with CBO Director Elmendorf 

on that outlook next week. 

But for our hearing today, I want to take some time to look back 

at where we have been and how I would like to see this Committee 

and Congress move forward in the years ahead. 

There is no question Congress has spent far too much time over 

the past few years lurching from budget crisis to budget crisis, 

from one artificial deadline to the next, and from one partisan battle to another. That has had a real impact on our economy and on 

families across the country. 

Last March, I was out in Lakewood, Washington, where I met a 

man who name is Matthew Hines. He and his wife both work at 

the Joint Base Lewis McChord. And when the across-the-board 

spending cuts, known as sequestration, hit, both he and his wife 

were furloughed. Together, they stood to lose about 40 percent of 

their income. Because of irresponsible budget cuts in D.C., Matthew worried his family would miss their mortgage payments. 
2 

He was working very hard—serving his country—doing the right 

thing. But because Congress was mired in partisanship and gridlock, his family was forced to pay the price. And I think that is just 

wrong. 

We were sent here by our constituents to solve problems, not create them; to work together, not tear each other apart. 

So I am hopeful that we here in this Committee and all of us in 

Congress can build on the foundation of the bipartisan budget deal 

we brokered last December and on the progress that we have seen 

since then. 

Now is the time to move away from governing by crisis and move 

forward by investing in priorities that help families and communities all across the country. 

Now, the senseless across-the-board cuts did not just hit defense 

workers like the Hines family. They also took a toll on education 

and Head Start programs. 

In years past, the Denise Louie Education Center that is in 

Washington State had a waiting list for preschoolers. But last year, 

because of those cuts, the school had to start dropping kids from 

their program. 

Across the country, more than 50,000 young learners were not 

able to attend Head Start. 

Severe cuts slashed other important investments in medical research, in infrastructure, and in military readiness. And it did not 

end there. 

At a time when families across the country have been reeling 

from the greatest economic downturn since the Great Depression, 

brinkmanship in Congress infused uncertainty into the economy. 

Last September, the Budget Committee had a hearing on the 

detrimental impact of political uncertainty on jobs and the economy. 

In fact, one of our witnesses today, Mark Zandi, was at that 

hearing, and he told us that since 2008, political uncertainty reduced real GDP by nearly $150 billion and increased unemployment by 0.7 percentage points. 

I am glad Dr. Zandi will be here again to share his outlook on 

the economy today because since then, Congress has made some 

significant progress. 

Late last year, after the Government shutdown and debt limit 

scare, Republicans dropped their demands and joined with Democrats to re-open the Government, prevent a catastrophic default by 

raising the debt limit without preconditions, and finally allow the 

budget conference that many of us here on the Budget Committee 

spent 7 months fighting to start. 

When Chairman Ryan and I sat down together in the budget 

conference, we faced a lot of skepticism that we would be able to 

get anything done. Every bipartisan budget group that had met 

over the past few years had ended the same way: with gridlock and 

inaction. And coming so soon after the partisanship and bitterness 

surrounding the Government shutdown, many people thought there 

was just no way Democrats and Republicans could work together 

for the good of the country. 

We came into our budget conference knowing we were not going 

to agree on everything. We came in with very different budgets, 
3 

very different ideologies, and very different values and priorities. 

But we also came ready to listen to each other, put partisanship 

aside, find some common ground, and make some compromises. 

Many of us wanted an agreement, not a fight. We aimed for what 

was attainable, and we were able to reach a deal that showed the 

American people that the dysfunction of the past few years was a 

choice made by a minority, not an inevitable fact of our divided 

Government. 

That 2-year deal, the Bipartisan Budget Act, prevented a Government shutdown and set bipartisan spending levels through the 

end of 2015. 

It replaced almost two-thirds of this year’s across-the-board cuts 

to domestic investments. And it prevented another round of defense 

cuts that were scheduled to go into effect earlier this year. 

The bipartisan budget deal was a step in the right direction. But 

it was only a step. It was not exactly the deal that Democrats 

would have done on our own. And I know it is not what Republicans would have done on their own. 

But the agreement moved us away from the dysfunction that has 

defined Congress in the past few years. It proved that bipartisan 

work was possible. And now we all have a responsibility to keep 

that work going. 

Congress has now built on that bipartisan success. After laying 

the groundwork in the budget deal, Chairwoman Mikulski worked 

with House appropriators, and together they were able to make 

critical investments in our country. 

The bipartisan omnibus bill we passed last month expanded access to preschool. More 2-, 3-and 4-year-olds will get the tools they 

need to start kindergarten on strong footing. 

For our national defense, the bill eliminated the threat of civilian 

furloughs in 2014. That means more hard-working Americans will 

not have to worry if their next paycheck will be enough to make 

ends meet. 

And it made critical investments in transportation projects that 

put more people back to work and help make our roadways and 

transit systems safer and less congested. 

In addition to that important legislation, just last week, under 

the leadership of Chairwoman Debbie Stabenow, our colleague here 

on the Committee, an agreement was reached on a bipartisan farm 

bill. 

So we have bipartisan momentum right now. We should build on 

that by investing in broad-based economic growth and expanding 

opportunities for families, small business owners, and communities 

across the country. 

That does not mean we lose sight of or ignore our long-term fiscal challenges. Of course not. 

Since 2009, the deficit has been cut in half. We need to build on 

that work, fairly and responsibly. 

I know Democrats are at the table ready to do that, and I am 

hopeful this will be a year that Republicans are ready to join us 

and make some compromises. 

But we also need to make sure we do not let the reality of our 

long-term fiscal challenges prevent us from addressing the reality 

of our short-term economic challenges. 
4 

Families are struggling today. Workers are fighting to get back 

on the job—or barely keeping their heads above the water with the 

jobs they do have. 

Our country is not making the investments that we need to in 

education, in research, or in innovation to compete and win in the 

21st century global economy. 

Our infrastructure is crumbling, and we are not doing what we 

need to do to leave a stronger country for our children than the one 

we got from our parents. 

So we need to get to work. For starters, I believe we should increase the minimum wage. One of our witnesses here today, Robert 

Greenstein, testified last week before the House Budget Committee. I will echo a point that Mr. Greenstein made there. 

Raising the minimum wage would boost the upward economic 

mobility of low-wage workers. A pay increase to $10.10 would help 

families make ends meet, and it would expand opportunities for 

them to get ahead. 

Last week, in his State of the Union address, President Obama 

stressed that early childhood education is one of the smartest investments we can make, and I could not agree more. As a former 

preschool teacher, I know the difference it can make in a child’s 

life. 

Preschool offers young learners the building blocks they need to 

go to kindergarten, ready to tackle a curriculum. The path to greater opportunity in this country starts with a quality education. 

So I will be working hard to make sure more students have access to preschool, to world-class grade schools, and to higher education. 

Those are just a few examples of the work we should be doing. 

But divided Government requires that Republicans and Democrats 

work together. That is the only way we will enact policies that 

solve problems and help families and businesses by creating broadbased economic growth and increased opportunity. 

Just when we have the opportunity to make progress on investing in the future, I worry that some Members of Congress are falling back into their old habits and planning to manufacture a crisis 

over the debt limit. 

And just like last time, they cannot seem to agree on which ridiculous demand to make in exchange for ensuring the United States 

pays its bills. 

Secretary Lew had an important message for these members yesterday: Time is running out. And the longer Republicans take to 

dream up empty debt limit demands, the more economic uncertainty and harm they will cause for workers and families and businesses. 

So I hope those Republicans who are engaging in brinkmanship 

will listen to Secretary Lew and to our discussion today. And I 

hope they will do right away what they have ultimately done twice 

in one year: give up their ransom demands and raise the debt ceiling without strings attached and work with Democrats on the real 

challenges that we face. 

I recently got an update from the Hines family I talked about a 

few minutes ago, and it reminded me of what is at stake here. Mat-
5 

thew said he and his wife survived last year’s furloughs. He just 

hopes they never have to go through that again. 

Thankfully, because of our bipartisan budget deal, his family and 

his coworkers will not have to worry about layoffs and furloughs. 

When Congress gets serious about putting families and communities first, we can solve problems. We can help people like the 

Hines family, and we can move the country forward. 

I invite all of our colleagues—Democrats and Republicans—to 

join me this year in building on the bipartisan work we have done 

and investing in our national priorities. 

Together we can move forward, beyond the constant crises of recent years, to make sure businesses can grow and communities can 

thrive. 

Together we can expand opportunity so all Americans get the 

chance they need to succeed. 

And with that, before we hear from our witnesses, I will turn to 

my Ranking Member, Senator Sessions, for his opening remarks. 

OPENING STATEMENT OF SENATOR SESSIONS 

Senator SESSIONS. Thank you, Madam Chairman. The recovery 

from the 2009 recession seemed to be solid at first, but it has not 

come close to meeting the projections of the Obama administration’s, OMB, the Federal Reserve, Congressional Budget Office, or 

others. 

For example, every year when OMB and others have made their 

2-year GDP projections, they have missed, not just a little bit, and 

these misses were not divided, with some too high and some too 

low. Everyone projected markedly higher growth rates than actually occurred. 

Specifically, the August forecast team at the Federal Reserve 

projected just 2 years ago, 2011, that growth this past year, 2013, 

would be 4.1 percent when, in fact, it came in at a very weak 1.9 

percent. CBO had estimated that we would have 3.5 percent. Good 

growth rates. They did not occur. 

So some will say that is because we have a financial recession, 

but in 2011 and 2012, these experts knew this was a financial recession. Their projections were based on something—we do not 

know what—that did not come true. 

For example, in December of 2012, at the very beginning of the 

2013 year, the Federal Reserve projected growth would be between 

2.3 and 3 percent. It came in at 1.9 percent. President Obama’s 

team, OMB, also produced 2-year growth projections that were 

higher than reality. 

So, additionally, the stock market experts have told us we will 

have a correction now. This is just a correction, but we have lost 

6 percent since the beginning of the year. So forgive me if I am a 

bit concerned about where we are. 

More seriously, I am not attacking OMB, CBO, or the Fed for incompetence or deception. My concern is deeper. It is why our economy is failing to achieve liftoff even 4 years after the recession. The 

Government and Federal Reserve remain quite proud of themselves 

for their heroic response to the financial crisis. I know business 

profits are strong, and the stock market did extraordinarily well 

last year. That gives us hope. 
6 

But it is time to face facts. All is not good, especially for middleclass working Americans. Middle-class family incomes have declined since 2000, and the decline has accelerated since 2010, since 

the recovery was declared. Approximately 16 million people have 

been added to our population since 2000, but 2 million fewer people 

are working today than they were in 2007. Nearly two-thirds of the 

jobs created in 2013 counted in our employment surveys were parttime jobs. We have the lowest workforce participation rate since 

1974, and it is not getting any better. 

The Labor Department reported last month that the economy 

produced only 74,000 jobs for December—shockingly low and well 

below the 200,000 jobs per month actually needed to increase employment in America. 

So it seems to me the fiscal policies of our Government and the 

monetary policies of the Federal Reserve have relied on bold stimulus-type initiatives—spending more, borrowing more, and dramatic and unprecedented purchases of Government debt by the 

Federal Reserve, all to change the grim dynamic that is out there 

for the American people. 

President Obama pushes more Government spending, more regulations, more investments, expansion of Government, and more 

welfare as the proper response to this crisis we are in, especially 

to help the working poor. I know he is sincere in that. Specifically, 

the Government would set wages and provide more support payments for those not working. A new Government-directed health 

care system is created that, we are told, will reduce the costs of 

health care and help all of us and help the economy. But is this 

a compassionate response that will actually work to help the millions of Americans that are hurting today? I have never thought 

this is a successful long-term approach. 

Our debt margins have been eliminated. We cannot keep borrowing more. Taxes cannot keep going up. They have gone up significantly. We still face Medicare and Social Security crises. The 

Ryan-Murray spending agreement got Congress out of a political 

bind and avoided a conflict, but it did not change the debt course 

of our country. It taxed a little more and it spent a little more. 

We have tried taxing, spending, and borrowing to jump-start our 

way to prosperity. The President proposed more of the same in his 

State of the Union. It has not worked. This will not work. We need 

a course correction. 

I am going to suggest some solutions that will help American 

workers without adding to our debt. We need to promote more 

American energy, produce more American energy, fair trade, defending the American worker on the world stage, better immigration policies, welfare and tax reform, a leaner more productive Government, the elimination of regulations that destroy jobs, transforming the welfare office into a job training, job promotion office, 

and more growth that is created when we get off a debt course that 

we are now on that leads us to continuing increases in our annual 

deficits in the years to come. 

And I know we need to work together on a bipartisan way to get 

past difficulties that we have here, but my Democrat colleagues are 

not always right, at least in my opinion, and their ideas and vi-
7 

sions for helping people in America are not always working. And, 

in fact, many times they are not working. 

So I hope that we can agree to take some steps toward improving 

our financial circumstances when the debt ceiling is reached. Why 

shouldn’t that be a point in time in which this country can evaluate 

where we are going, how we reached the debt ceiling so fast, and 

what we can do to improve it? Mr. Lew says he will take no reform 

whatsoever as a part of raising the debt limit, that the credit card 

has reached its limit, no one—Mom and Daddy cannot question the 

spending that has gone on, and we cannot make any reforms. I 

mean, how reasonable is that? This is the same Mr. Lew that sat 

at that table there and said the President’s budget would spend 

only money that we have and not add to the debt anymore. What 

a thunderously false statement, one of the greatest financial 

misstatements in the history of the world. And now he is telling 

us we can do nothing to contain spending, that we have to just ratify and raise the debt ceiling without even a peep? How silly is 

that? 

We need to be thinking about how to get this country on a sound 

path, and one way to get us on a sound path is to eliminate the 

debt cloud that is over this economy and put ourselves on a course 

that the whole world will recognize is a sound financial course. 

So I would say, Madam Chairman, we share the same goals. We 

want to see this economy grow. We want to see a growing economy 

produce more tax revenue and help us reduce our deficits. We want 

to see a growing economy that helps workers find jobs, that ends 

flat wages and reducing wages and creates naturally through the 

process of free enterprise higher wages for American workers. The 

question is how to get there. I just do not believe tax, spend, and 

borrowing is the right way. I think there is a better way, and I 

thank the Chair. 

Chairman MURRAY. With that, we are going to turn to our witnesses, and, Mr. Greenstein, we will start with you. 

STATEMENT OF ROBERT GREENSTEIN, PRESIDENT, CENTER 

ON BUDGET AND POLICY PRIORITIES 

Mr. GREENSTEIN. Thank you very much and good morning. 

As you know, deficits have been coming down in the past few 

years. In 2013, the deficit was about 4 percent of GDP. The new 

CBO projection is it will come down to about 2.5 percent of GDP 

by 2015. Of course, in subsequent years and decades, it will climb, 

and we clearly have more work to do on our long-term fiscal challenges. 

But there has been significant progress. We project, if you look 

out three decades under current policies, that the debt in 2040 

would be somewhere in the rough vicinity of 95 percent of GDP. 

Now, that is too high, but it is much lower than the more than 200 

percent of GDP that we and other analysts were forecasting for 

2040 only a few years ago. 

The improvement in the long-term projections primarily reflects 

two factors: 

First, health care cost growth has slowed considerably. CBO has 

lowered its estimate of Medicare and Medicaid spending over the 
8 

period from 2010 to 2020 by over $1 trillion relative to the estimates it made in 2010. 

And, second, counting sequestration, policymakers have enacted legislation that reduces the deficit about $4 trillion over the coming 

decade with nearly 80 percent of the non-interest savings coming 

from spending cuts. 

Now, these figures reflect the fact, reflected in the budget agreement in December, that the costs of sequestration relief and relief 

from the scheduled Medicare physician payment cuts, it is increasingly clear, are being paid for, and the one policy uncertainty in 

this area is whether policymakers also will offset the cost of extending the tax expenditures known as ‘‘tax extenders.’’ 

We recommend that policymakers commit to doing so, that they 

apply to legislation to continue the extenders the same principle 

they are applying to sequestration relief, to the Medicare physician 

payment relief, and that it now appears clear Congress will be applying to Federal unemployment relief if that goes forward. 

If policymakers pay for the cost of continuing the tax extenders, 

we estimate that would reduce the debt in 2040 to somewhere in 

the range of 85 percent of GDP, or thereabouts—still too high, but 

significant progress. And given political gridlock, this is likely to be 

one of the only steps policymakers have a shot at enacting this 

year that would materially improve the long-term fiscal outlook. 

As I have noted, ultimately more will need to be done with our 

fiscal challenges, but in the near term, the increased certainty that 

the December budget agreement brings for the next 2 years also 

gives Congress the opportunity to focus on a number of pressing 

issues that have received insufficient attention. Let me very briefly 

note four of them. 

Number one, I believe policymakers should temporarily extend 

the unemployment benefits that have expired. The Congressional 

Budget Office estimates the economy will have up to 300,000 more 

jobs by the fourth quarter of 2014 if those benefits are extended for 

the coming year. 

Second, as the Chair has alluded to, I do recommend that policymakers help lower-wage workers by strengthening the minimum 

wage, which is significantly below its purchasing power level of a 

number of earlier decades. 

Third, single workers who are paid low wages are the one group 

of workers in America whom the Federal tax system taxes into or 

deeper into poverty. The main reason for that is that the earned 

income tax credit for these workers is tiny. A childless adult working full-time year round at the current minimum wage earning 

$14,500 a year is considered to have income too high to qualify for 

the EITC, even though that individual pays over $1,500 a year in 

Federal income and payroll taxes. And a worker whose wages put 

them right at the poverty line, $12,000 for a single individual, is 

required to pay close to $1,000 in Federal income and payroll taxes, 

gets maybe $180 earned income credit, and is literally taxed into 

poverty. So I would recommend that Congress look at strengthening the earned income credit for workers who are not raising 

minor children, a recommendation that a number of experts and 

analysts across the political spectrum have been making, looking at 

the fact that it could induce more young men to enter the labor 
9 

force, and it could have positive effects on marriage, crime, and incarceration rates. This is why you see people like former Bush adviser Glenn Hubbard recommending this as a policy to pursue. 

Lastly, we will need to return before 2016, although we do not 

need to do it this year, to the issue of discretionary funding levels. 

The budget agreement covered 2014 and 2015. By 2016, non-defense discretionary funding will drop below the post-2013 sequestration level, adjusted for inflation, and will fall to the lowest level 

as a share of the economy since the 1950s, and those figures understate the coming crunch. 

For example, veterans health care does not just grow with the 

caps. It has been growing and will probably need to grow around 

7 or 8 percent per year. That has been its history. And the Pell 

grant program faces a funding shortfall starting in 2016, which, if 

not addressed, will result in large cuts in that program that reduce 

the ability of students from low-income families to attend college 

and get a chance at opportunity and upward mobility. There are 

issues in research and infrastructure. There are issues in defense. 

In short, after the 2 years the current budget deal covers, we really 

will need a new budget agreement. The Nation cannot afford to neglect funding for education, scientific research, and the like. That 

is not something Congress has to do this year. It is something we 

will need to get back to in 2015. 

Let me stop there. My time has expired. I look forward to answering questions. 

[The prepared statement of Mr. Greenstein follows:] 
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Chairman MURRAY. Thank you, Mr. Greenstein. 

Dr. Zandi, welcome. We will turn to you. 

STATEMENT OF MARK ZANDI, PH.D., CHIEF ECONOMIST, 

MOODY’S ANALYTICS 

Mr. ZANDI. Sorry I am late. A lot of snow in Pennsylvania. 

Chairman MURRAY. We are glad it is not here. 

Mr. ZANDI. Yes, more than I would have expected. 

Well, thank you for the opportunity to be here this morning. I 

have three points I would like to make in my opening remarks. I 

do have slides if someone wants to power that up. I will just use 

one or two of them. 

The first point is I am optimistic about the economy’s near-term 

prospects. In terms of GDP, the value of all the things that we 

produce, we have been growing roughly 2 percent per annum, a little over that, since the recovery began 4–1/2 years ago. I expect 

growth this year of 3 percent and closer to 4 percent in 2015. 

There are a number of reasons for this optimism. The most important is the fiscal drag is fading. We have been through a period 

of very significant fiscal austerity—Government spending cuts, tax 

increases. If you add it all up, it shaved 1–1/2 percentage points 

from GDP growth in calendar year 2013. So the economy grew 2 

percent. If fiscal policy was simply neutral with respect to the economy, the economy would have grown 3–1/2 percentage points last 

year. By the way, that is growth in the private economy. The private economy grew 3–1/2 percentage points last year. 

This year under current law, assuming no change in law, the fiscal drag will be no more than half a percentage point, probably a 

little less than that. So we are going to get a point to growth simply because the austerity is less significant this year compared to 

last. And that is arithmetic and a very solid reason for optimism. 

Next year the drag will be a couple three-tenths of a percentage 

point, and in 2016 it will be zero. So this is a very important reason for optimism. 

Another reason for optimism is more fundamental; that is, the 

economy has come a long way in righting the wrongs that got us 

into the Great Recession. We have de-levered. We have reduced 

debt. Businesses have reduced their cost structures significantly. 

Households in aggregate have their debt loads down. The banking 

system is much better capitalized. This is, most of it, with regard 

to American businesses, they are very competitive. Unit labor costs, 

which is a good measure of international competitiveness, have not 

changed—that is labor compensation per unit of output, so it 

counts for productivity growth—essentially in almost 10 years. And 

in manufacturing, which is obviously where the competition is most 

fierce globally, it has not changed in almost 25 years. And given 

the very positive energy story, I think prospects are very good for 

American companies. They are in very good shape and should be 

able to produce more jobs going forward. 

The one missing ingredient to stronger growth, though, throughout the economic recovery has been confidence. There have been a 

lot of factors weighing on sentiment. Most significantly has been 

the budget wars here in Washington. They have been very debilitating psychologically. The good news is, I think we are past the 
27 

worst of that, and I think you can see it already in the confidence 

measures. Various surveys show much improved confidence, and I 

think that is going to start translating into more aggressive business hiring, so that means more jobs and more investment, and 

that augurs very well going forward. So I am optimistic. 

Point number two, things can go wrong. There are threats to my 

optimism. You can see that in the marketplace today, the last few 

days. I think the most significant threat is a policy error. Most significantly, most immediately is lawmakers must raise the Treasury 

debt limit quickly. By my calculation, the drop-dead date is probably March 3rd, large Social Security payment on that day. There 

probably will not be enough cash in the Treasury to make full payment, so the debt limit has to be increased. 

I would also argue that there are a number of other things policymakers could do to support the economy near term. I strongly 

agree with Mr. Greenstein that we should extend the emergency 

unemployment insurance program, expand the earned income tax 

credit for childless workers, and increase the minimum wage modestly. I think those would be very important boosts to the economy 

near term. 

Finally, my third point, while the fiscal situation through the remainder of this decade is stable, it looks okay, obviously in the 

longer run we have got problems. That requires then that lawmakers will need to do more work. We do need entitlement reform. 

We do need tax reform. We do not need it today. We do not need 

it next year. But we certainly will need it before the end of the decade because we will have very significant problems as we move into 

the next decade if we have not addressed these things. And along 

the way, it would be very helpful if we could do things that would 

spur strong economic growth, no better way to address our longterm fiscal problems. So we should be focusing on policy that helps 

to lift the supply side of the economy, more infrastructure spending—I can testify to that today. Being stuck on an Amtrak train 

for a half-hour, I am all for more infrastructure spending, and I 

would be willing to pay for it myself. More funding for early childhood education, evidence there is quite strong; and immigration reform. All those things I think would be quite helpful for the economy in the longer run and help our long-term fiscal situation. 

Thank you very much. 

[The prepared statement of Mr. Zandi follows:] 
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Chairman MURRAY. Thank you, Dr. Zandi. 

Mr. Rosenberg? 

STATEMENT OF DAVID A. ROSENBERG, CHIEF ECONOMIST 

AND STRATEGIST, GLUSKIN SHEFF + ASSOCIATES INC. 

Mr. ROSENBERG. Chairman Murray, members of the Committee, 

thank you for the opportunity to appear before you today. I concur 

with Mr. Zandi about the economy improving, notwithstanding the 

correction of the stock market. I think it will continue to improve, 

real GDP likely to be at least 3 percent this year, I think slightly 

more than that in 2015. 

My principal concern, however, comes down more to what I am 

seeing on the supply side of the economy as opposed to the demand 

side. You know, when economists discuss their economic outlook, 

they invariably talk about their GDP growth forecasts, and GDP is 

actually not about production. It is about spending—consumer 

spending, housing spending, business spending, Government 

spending and the like. But there is also the supply side of the economy, which Mr. Zandi alluded to, which receives scant attention. 

It is equally important, with the critical inputs being productivity 

and labor force growth. 

Over the past year, productivity growth in this country has 

slowed to a mere 0.3 percent, which is completely abnormal for this 

stage of the economic cycle; in fact, only in the sclerotic 1970s has 

productivity been so anemic at this same stage. 

The labor force is also growing at only a rate of 0.3 percent, 

again, disturbingly weak from a historical perspective. So when you 

combine productivity and labor force growth, the supply side of the 

economy is expanding actually at less than a 1-percent annual rate, 

with repercussions I will discuss later. 

Fed Chair Janet Yellen acknowledged the supply-side deficiencies in a speech she gave back on March 4th of last year titled 

‘‘Challenges Confronting Monetary Policy,’’ where she stated, and 

I quote, ‘‘the slow recovery has depressed the pace of capital accumulation, and it may also have hindered new business formation 

and innovation, developments that would have an adverse effect on 

structural productivity.’’ And that is indeed what has occurred. Productivity growth has stalled for a country whose long-term trend 

has been close to 2 percent. 

One key reason is because the growth rate in the private sector 

capital stock over the past 5 years has been nearly stagnant, the 

weakest pace in any half-decade period in the post World War II 

era, and there is a direct, though lagged linkage, between capital 

formation in the private sector, or lack thereof, and productivity 

growth down the road. 

One survey I pay very close attention to is the National Federation of Independent Business monthly poll on confidence in the 

small business community. The 600-plus small businesses that are 

part of this survey are asked, among other things, what their top 

impediment is. In December, 43 percent of them said taxes and 

Government regulation. Very few times in the past has this share 

been so high, and there is no other factor today that comes so close 

as this as the most prominent obstacle. 
47 

Now, what about the labor market, the other part of the supplyside story? The dilemma is that people are becoming disengaged 

from the labor market at an alarming rate. In fact, 2.9 million 

Americans withdrew from the labor force in 2013, more than doubling the 1.4 million jobs that were actually created. There are now 

a record 92 million Americans in total who reside outside the labor 

force. Just 5 years ago, that number was 80 million. 

No doubt there is a demographic element since the first of the 

baby boomers turned 65 in 2011 and 1–1/2 million turn that age 

annually for the next 15 years, so the retirement wave is obviously 

one reason. But that does not explain why it is that the number 

of people in the 25-to 54-year age category who say they have left 

the labor market because they are ‘‘discouraged’’ has fallen almost 

20 percent in the past year. 

So something is going on here over and beyond the classic argument that people are either retiring or they are dropping out of the 

labor market because of a weak economy. The causes are open for 

debate, but the facts are not, and the facts are that we have a rapidly depleting pool of labor on our hands and it needs to be addressed. According to the Bureau of Labor Statistics, the available 

pool of labor shrunk 13 percent in 2013 to 16.5 million, which is 

the lowest it has been in 5 years, and the decline is unprecedented. 

If the depletion continues at that rate, we will run out of newly 

available workers in this country in just about 8 years’ time. 

This is not about the demand for labor, which actually is 

strengthening. The number of job openings nationwide in November climbed above the 4 million mark for the first time since March 

2008 and is up 6 percent from a year ago levels. The problem is 

that this is not translating into new hirings which are lagging well 

behind, up less than 2 percent over the past year. 

I look at the data, again, from the NFIB survey, and I see that 

nearly 1 in 4 small businesses have at least one position open right 

now that they cannot fill. Almost 40 percent say that there have 

been few or no qualified applicants for the jobs being advertised. 

In other words, there is evidence of an increasing shortage of 

skilled labor in this country, which in turn is posing a significant 

constraint on the sustainability of economic growth. 

In conclusion, we do indeed have a cyclical recovery in place, but 

if aggregate demand expands, say, 3 to 3–1/2 percent over the next 

2 years, then we are going to begin to strain scarce supply-side resources in terms of available labor and capital. Then inflation reemerges, interest rates begin to rise, potentially sharply, which is 

the last thing that fiscal policymakers need since it was actually 

relief from lower debt service costs that played a critical role in allowing the deficit to recede so substantially in recent years. I estimate that if not for this current low interest rate structure, debt 

service charges and the budget deficit would be roughly $250 billion higher than is the case today. 

Under current official projections, net interest charges go from 

just over $200 billion now to over $800 billion 10 years from now, 

rivaling what the Government will be spending on Medicare, accounting for almost the complete deficit at that time, which I can 

assure you, seeing how this played out in Canada in the early 

1990s, will severely impair fiscal flexibility in the future. At that 
48 

time, nearly 20 cents of every revenue dollar will be diverted towards servicing the debt compared with fewer than 8 cents today, 

a dead-weight drag on the economy and the public purse that can 

be averted through macroeconomic policies that foster growth in 

the productive capacity or the supply side of the economy, keeping 

inflation at bay even as demand growth expands, thereby freeing 

up vital financial resources needed to deal with the burgeoning demographic requirements and tough fiscal choices that lie ahead. 

Again, thank you for the opportunity to present my views, and 

I look forward to your questions. 

[The prepared statement of Mr. Rosenberg follows:] 
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Chairman MURRAY. Thank you again to all three of you for being 

here today. 

Dr. Zandi, I want to start with you. You testified before this 

Committee last fall and warned about the consequences of failing 

to raise the debt ceiling. You indicated that exceeding the debt ceiling would, and I quote, ‘‘have catastrophic consequences for the 

economy and even threatening default could have significant negative consequences for our economy.’’ 

In today’s testimony, you stated that the principal threat to the 

stronger U.S. economic growth you see for this year is a policy mistake, listing the debt limit as the most immediate risk that is out 

there. 

We are hearing again from some of our Republican colleagues 

raising the possibility of waging a fight again over this debt limit, 

and so for those watching at home, I wanted you to just explain 

what it would mean for them and their families if Congress failed 

to raise the debt limit, even temporarily. 

Mr. ZANDI. It would be catastrophic. If we get to that March 3rd 

deadline—and there is a lot of uncertainty around that given tax 

refunding and other factors that will influence payments by the 

Treasury. But I think the most likely drop-dead date would be 

March 3rd. On that day, if memory serves, there is a $26 billion 

payment to Social Security recipients. It would be unlikely that the 

Treasury would be able to make that payment in full. So the most 

immediate obvious impact would be Social Security recipients 

would not get their checks in full or on time. And I think that mere 

fact alone would be incredibly debilitating and scary to everyone 

and would be enough to undermine confidence, undermine the recovery, and push us back into recession. But extended any longer 

than that, of course, it would be—the severity of the economic impacts would intensify very, very rapidly. 

So it is just not a path we want to go down, and it is not even 

a path we would really, I think, should entertain because that is 

by itself very counterproductive. It does undermine confidence. It 

undermines the willingness of business people to step up, increase 

their hiring, increase their investment. It weighs on economic 

growth. There is increasing statistical evidence of the impact of all 

the budget brinkmanship that has occurred over the past several 

years on economic growth, on jobs, on unemployment. So in my 

view, it would be a mistake to even go down the path— 

Chairman MURRAY. Or threaten or— 

Mr. ZANDI. Or threaten to not do it. 

Chairman MURRAY. Okay. Mr. Greenstein, I wanted to ask you 

a question as well. As you know, in recent years some of our colleagues have attempted to use the need for Government to perform 

the most basic tasks—paying its bills, raising the debt limit—as leverage to extract major policy concessions from this administration. 

My question is: As one of our Nation’s leading experts on budget 

issues, does raising the debt ceiling add to the deficit? 

Mr. GREENSTEIN. No. 

Chairman MURRAY. Well, is it not the case that increasing the 

debt limit only allows the Treasury to pay the bills that resulted 

from our policy decisions that have already been put in place? 
65 

Mr. GREENSTEIN. That is right. Raising the debt limit does not 

change the level of benefits in any entitlement program; it does not 

change the tax obligation that any individual or corporation faces. 

It does not change the caps, the ceilings on discretionary spending. 

It does not have— 

Chairman MURRAY. All that was done in the budget agreement 

and the appropriations bills that we just did. 

Mr. GREENSTEIN. That is right. 

Chairman MURRAY. And those decisions were made. 

Mr. GREENSTEIN. That is right, and they are in law, and they 

hold, whether the debt limit is raised or not, except that as Dr. 

Zandi has said, if the debt limit is not raised, then the Government 

basically is faced with doing things like breaking the Social Security law by not sending the checks out on time because it does not 

have the resources with which to do so. 

Chairman MURRAY. Or people who are waiting for their IRS 

money back. 

Mr. GREENSTEIN. Yes. 

Chairman MURRAY. Okay. I really appreciate that. 

Dr. Zandi, let me go back to you and talk about the bipartisan 

budget agreement. That was the result of some pretty tough negotiations on both sides. Republicans and Democrats compromised for 

the greater good. Neither one of us agreed it was perfect. Chairman 

Ryan did not think it was perfect; I did not think it was perfect. 

But we felt it was the right way to go for our families and communities and business rather than where we were. 

Importantly, the budget deal unwound some of the spending cuts 

from sequestration and reset the appropriations levels for 2 years, 

2014 and 2015. And in doing do, we were able to lessen some of 

the damaging consequences of sequestration that concerned actually members on both sides of the aisle here and remove the threat, 

again, of another Government shutdown and provided some certainty so that Chairwoman Mikulski could work with her counterpart and get our bills passed. 

Can you help us today better understand the impact—or the direct and indirect consequences of the bipartisan budget deal and 

explain how the increase in policy certainty for this 2-year period 

and the decrease in austerity helps our economy? 

Mr. ZANDI. Yes, I think the Bipartisan Budget Act was a significant plus for the economy, both directly and indirectly. Directly, as 

you point out, it reduces some of the spending cuts that were slated 

for 2014 going into 2015, and the sequester itself, which were poorly designed spending cuts. So eliminating that was very therapeutic for the economy in a very direct way. 

But perhaps most importantly is the indirect consequence, and 

that is the impact on confidence and sentiment. 

Chairman MURRAY. The mental health of the country. 

Mr. ZANDI. Yes, really. It is hard to measure, admittedly, and it 

feels squishy, but I do think there is growing evidence that all of 

the budget battles that we have experienced, the fiscal cliff, the 

debt limit debacle back in the summer of 2011—and there has been 

a string of them—have been very hard on the collective psyche, and 

it is the key reason, one of the key reasons why people have not 

fully engaged and not taken the risks that they normally take in 
66 

an expansion, particularly business people. It is one of the reasons 

why small businesses have been so nervous about taking a chance. 

I sense in the wake of the budget deal that sentiment has dramatically improved. We have a survey we conduct of business people every week—we have been doing it since January of 2013—and 

it hit a record high in January of—excuse me. We have been conducting it since January of 2003, so for 11 years. It hit a record 

high in January of 2014, by orders of magnitude, and expectations—you know, we ask a lot of questions, one of which is, ‘‘How 

do you think things are going to be 6 months down the road?’’ They 

are far and away as strong as they have ever been in this survey. 

So my sense is that because of the deal and because of what it 

means going forward with regard to the tensions here in Washington, we are going to get more risk taking, we are going to get 

more hiring, we are going to get more investment, business expansion, and a stronger economy. So I think the deal, the Budget Act, 

was very, very important to solidifying a much stronger economy 

going forward. 

Chairman MURRAY. Okay. Thank you very much. 

Senator Sessions? 

Senator SESSIONS. Madam Chairman, I would yield to Senator 

Crapo at this time. 

Chairman MURRAY. Okay. 

Senator CRAPO. Thank you, Senator Sessions, and thank you, 

Madam Chairman. 

Dr. Zandi, I would like to start with you. In your introductory 

comments, you discussed the fact that some of the drag on the 

economy that is a result of Federal policies is going to be softening. 

We can expect some higher growth in the next few quarters, as I 

understood your testimony. The question I have, though, is: How 

do we determine that? And what I am getting at is, isn’t the debt 

crisis that we face, isn’t the level of debt that we are carrying a 

constant drag on the economy that needs to be resolved? 

Mr. ZANDI. Yes, I agree. You know, I do think you have made significant progress. You stabilized the fiscal situation. The deficit to 

GDP is shrinking. The debt-to-GDP ratio is stable. And under reasonable economic assumptions—and they are reasonable because 

they are my assumptions, you know, and they are close to CBO— 

we are going to have a stable fiscal situation for the next several 

years. Good, great, it restores confidence and I think allows the private economy to kick into gear. 

Senator CRAPO. But we still have a looming debt crisis. 

Mr. ZANDI. Exactly, and I do not think we should feel at all comfortable with a debt-to-GDP of 73, 74 percent. It is double what it 

was before the recession. Thirty-five, 40 percent is perfectly manageable, we are okay. Seventy-five percent I think is—we have no 

room for error if something goes wrong. And as importantly, as you 

move into the next decade, again, under reasonable assumptions, 

the deficits are going to start to rise; the debt load is going to start 

to rise. So your work is not done. You have more work to do. 

Senator CRAPO. As I see it, we have done some modest improvement in terms of controlling discretionary spending, although we 

have backtracked on that a little bit from the last Congress’ Budget 

Control Act. We have seen about $2 trillion of new taxes come into 
67 

play, including everything that has happened over the last 4 or 5 

years. So we have got more tax revenue coming in. But we have 

done very little in terms of reforming the Tax Code, and we have 

done very little in terms of reforming entitlement spending. And it 

seems to me that we need to pay strong attention to all of those 

areas. Would you agree to that? 

Mr. ZANDI. Absolutely. Absolutely. The long run looks dark because our entitlement programs are not on a sustainable footing, 

and we do need tax reform both to make the Tax Code more efficient but also to raise more revenue. So we need both tax reform 

and— 

Senator CRAPO. The pro-growth element of what we need to get 

done is critical, and in the Tax Code I think is where we need to 

look for that. 

Mr. ZANDI. Absolutely. 

Senator CRAPO. Thank you. 

Mr. Rosenberg, I would like to talk to you in my remaining few 

minutes about the issue of quantitative easing. As we try to look 

at what is happening in our economy, a number of us are very concerned that the Federal Reserve has basically been propping up our 

credit for—well, to the tune of trillions of dollars now, and we think 

there is a price that is going to be paid for that ultimately. 

First of all, is that correct? Has the quantitative easing put us 

into a posture of facing an increased risk of inflation or other difficulties in the economy? And what will be the effect of the ending 

of the Federal Reserve’s quantitative easing, if and when the Fed 

ever does start actually easing off? 

Mr. ROSENBERG. Thank you, Senator. Well, I think the Fed has 

already started that process in terms of tapering, which is— 

Senator CRAPO. Just to some extent. 

Mr. ROSENBERG. —reducing the rate of growth of its balance 

sheet. That is a very complicated question, and I will tell you why: 

because so much of what happens in the marketplace is psychological. So we will draw some sort of linkage between what the Fed 

is doing with its balance sheet and, say, what the stock market is 

doing or what asset prices are doing. And what is interesting is 

that when you take a look at the past few years, this money, in 

quotes, that has been created by the Fed through quantitative easing, well, 90 percent of that money creation has actually just ended 

up as excess reserves on the balance sheets of the commercial 

banking system. 

So you can really as a central bank create all the money you 

want, but if it just sits in the garage and does not get recirculated 

in the economy, it is not really going to have a sustained inflationary impact. The way economists would view that is one of the 

reasons why we have not had an inflationary impulse is because 

the velocity of money or the turnover rate has continued to decline 

and acted as a huge offset to the so-called money creation. 

So the inflation would ultimately come if and when we get the 

commercial banks engaged in a new credit cycle, and there are reasons why that is not happening from a regulatory standpoint. But 

the inflation would come from a classic quantitative—quantity theory of money identity. If we were to go through a new credit cycle, 
68 

if that velocity of money begins to turn around and go higher, we 

go into a whole new credit cycle, then the inflation would ensue. 

There are other reasons why I think inflation could rise for reasons I said before, but from a monetary standpoint, it is unclear 

to me that the quantitative easing is going to lead to inflation barring a new credit cycle formulating. 

Senator CRAPO. Thank you. 

Mr. Greenstein, could you comment on this as well? 

Mr. GREENSTEIN. I am afraid I am not an expert on things like 

quantitative easing. I think Dr. Zandi could opine, but I hesitate 

to offer an opinion on something that I really do not have the expertise in. 

Senator CRAPO. All right. We will let you pass then. 

Dr. Zandi? 

Mr. ZANDI. I do not think inflation is an issue, no. I think with 

a 6.7 percent unemployment rate and with labor force participation 

as low as it is, and a lot of discouraged workers, I think we are 

a long way from monetary policy resulting in inflationary pressure. 

So I do not view that as a concern at this point. 

Senator CRAPO. Do you view there to be risk or concern about the 

level of quantitative easing that we have seen so far? 

Mr. ZANDI. No. I think that the Federal Reserve had no choice 

in what they did. They had to bring long-term interest rates down, 

mortgage rates down to help the housing market, support asset 

values. So I think they did what they had to do. It is, you know, 

obviously not the most desirable policy, but we are not living in a 

very desirable time. So they did what they had to do. And there 

are downsides to it. You know, I— 

Senator CRAPO. That is what I am getting at. I mean, I do not 

think that the Fed can undertake this for the length of time and 

to the level and scope that it has without consequences. What are 

those downsides? 

Mr. ZANDI. Well, there are a number of potential downsides. You 

mentioned inflation, but I discount that. I think the most serious 

potential issue are bubbles in asset markets. And you could argue, 

reasonably so, that there was bubble-like conditions in a number 

of emerging markets that are now getting wrung out because the 

Federal Reserve is changing policy. And so this dislocation—the 

turmoil in financial markets we are seeing right now is in part related to the Fed starting to exit, and there is a case—in my view, 

that is the most significant potential downside to what they are 

doing. And it could show up in other asset markets. You know, 

they are scouring the planet for potential imbalances in the financial system. Before the crisis, I would not get a call from anybody, 

any regulator, about any problem. Now I get calls every week from 

every regulator all the time. You know, ‘‘What should I be worried 

about?’’ Which I view as quite encouraging. And so they are really 

thinking through what could be going wrong. 

But at this point, this bubble concern, it is a legitimate concern. 

I just do not think it is an overwhelming one. And it is not a reason 

not to go down the path of quantitative easing. 

Senator CRAPO. All right. Thank you. 

Chairman MURRAY. Thank you. 

Senator Whitehouse? 
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Senator WHITEHOUSE. Thank you, Chairman. Thank you, gentlemen. 

I want to touch on health care in the first instance. Mr. Greenstein, your testimony is that we have reduced the debt by $2.8 trillion deficit reduction as a result of the tax increases and the spending cuts that have already been implemented. 

Mr. GREENSTEIN. Closer to $4 trillion, if you count sequestration. 

Senator WHITEHOUSE. If you count the out-years of sequestration, correct. 

Mr. GREENSTEIN. Correct. 

Senator WHITEHOUSE. Now, in parallel with that, CBO has just 

reported again on its forecast on Medicare-Medicaid prices, and 

they have reduced the proposed Medicare-Medicaid spending that 

they anticipate by $1.2 trillion, and in today’s news, before anybody’s testimony could adapt to it, I gather that they have added 

another $150 billion in Medicare and Medicaid savings in the outyears in their projections. Is that number incorporated into your 

$2.8 trillion or your $4 trillion? Or is that a further addition to it 

in savings in the out-years? 

Mr. GREENSTEIN. Some of it is incorporated and some is not. So 

the part that is incorporated is the part that results from legislative action. For example, changes in Medicare that were—well, no, 

actually this is since 2010, so it already had in the starting point 

the changes in the Affordable Care Act. 

The $1.2 trillion figure, which was CBO’s estimate of Medicare 

and Medicaid costs through the coming decade relative to what it 

had forecast back in 2010 and before today’s numbers reflects what 

we call economic and technical factors. 

Senator WHITEHOUSE. Is it a part of the $2.8 trillion? 

Mr. GREENSTEIN. Is it a part of the $2.8 trillion? Really, no, because the $2.8 trillion is limited to things that Congress enacted 

and CBO scored from legislation. And that $1.2 trillion is lower 

prices and payouts in Medicare and Medicaid just because the costs 

of health care systemwide—Medicare, Medicaid, and the private 

sector—have been rising at a significantly slower rate. So that is 

not reflected in the $2.8 trillion. 

Senator WHITEHOUSE. So the point that I would make is that we 

are making ground on Medicare and Medicaid, the anticipated 

costs in the out-years are starting to decline, and by real numbers. 

And trillions are big numbers. But we still remain a country that 

is burning 17 to 18 percent of GDP on health care. We are still, 

by about a 50-percent factor, more expensive than all of our—including our most expensive industrial competitors in the OECD. 

There are huge opportunities for savings in ways that are winwins, improving the quality of care by lowering costs, and I will 

just take this opportunity to again call on the Obama administration to please try to set a goal, a target for the administration and 

what they intend to accomplish with their delivery system reform 

programs. It is the one big gap in what I think is good implement 

and, frankly, a pretty good law. The Affordable Care Act, about a 

third of it was dedicated to this delivery system reform stuff, and 

we never hear about it from our Republican colleagues because it 

is noncontroversial. It is being used in Wisconsin. it is being used 

in Alabama. It is being done in people’s home States. ACOs are 
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standing up. Hospitals are taking advantage of it. Prices and costs 

are beginning to come down. Care is improving. And it is all to the 

good. But it is being done without a goal, and I think for the President to set a hard goal would add a lot of focus to the effort that 

is underway, and we really need to get that done. 

The last point I will make, Mr. Greenstein, would you mind calling up your Figure 9, tax expenditures are very costly, onto the 

screen? Can somebody do that who is in charge of AV? Or are we 

past that? 

Mr. GREENSTEIN. I do not know if they are programmed— 

Senator WHITEHOUSE. I go back to AV. I am sorry. 

All right. It is a good graphic. You know, we talk a lot about the concerns about the cost of Social Security, $768 billion on the 

graph, the costs of Medicare and Medicaid $716 billion on the 

graph. Tax expenditures, the money that goes out the back door of 

the Tax Code is $1.08 trillion, and we really have not addressed 

that yet. And I would like to ask the witnesses: Do we need to address the $1.8 trillion going out the back door of the Tax Code? And 

would you be able to help with the income inequality problem in 

the country by addressing the $1.8 trillion going out the back door 

of the Tax Code? Let me go right across. One minute, so pretty 

quick answers. Sorry. 

Mr. ZANDI. I think tax reform is addressing this issue of tax expenditure. That is a big part of it. 

Senator WHITEHOUSE. Which we have not done. 

Mr. ZANDI. Which we have not done and we need to do. It can 

make the system more efficient, more fair, easier to implement, 

and at the end of the day generate revenue, which we desperately 

need. And as you point out, it has important implications for the 

distribution of income as well. So this is one place where— 

Senator WHITEHOUSE. Why does it have important— 

Mr. ZANDI. Well, the benefits of the tax expenditures accrue 

mostly to upper-income households, for very obvious reasons. They 

pay most of the taxes, and they are going to get most of the benefit. 

Whereas, the spending benefits generally go to lower-and middleincome households. So if you can focus on tax expenditures—which 

tax expenditures is simply spending through the Tax Code, no different from an economic perspective. So when we talk about spending cuts, reducing tax expenditures is the same thing. So we should 

be focused on that to address this issue of income inequality. 

Senator WHITEHOUSE. Well, my time has run out, but I would 

urge my Republican colleagues to allow us to begin to address 

these massive multi-billion, -trillion dollar tax expenditures which 

so far they have protected with a vehemence that is really remarkable. 

Chairman MURRAY. Senator Sessions. 

Senator SESSIONS. Thank you. With regard to the earned income 

tax credit, which is certainly one of the larger tax expenditures 

that we have, I do think as a matter of policy that is preferable 

to the classical welfare benefits. It is tied directly to work. It 

incentivizes work. It helps people to work. 

But I would share with my colleagues, the way it is paid undermines that concept because people file a tax return, they get a big 

tax check, and they do not really realize it is tied to their work. 
71 

It would amount to about $1 an hour if you put it on people’s paychecks, and I think with the new modern computer payrolls, that 

could be done pretty easily, and I think that would help us. So I 

think that is a move that I would be supportive of, although we 

have got other problems. 

With regard to the labor situation in the country, Gene Sperling 

has said, the President’s adviser, a few weeks ago, we have three 

applicants for every job, and I would suggest to all of you market 

economists, if we have a shortage of labor, why are not wages going 

up? Wages have been going down, and they continue to go down. 

So I do not think we have some compelling need to find more labor. 

I think the compelling need is to take the millions of people that 

are out of work and incentivize them and train them to get them 

back into the workforce. For what it is worth, that is my thinking. 

Mr. Rosenberg, according to the 2014 Index of Economic Freedom, Canada is more economically free than the United States, 

which is a change. I guess the progress Canada has made, would 

you say that is good? If the United States were more economically 

free, would that help us increase the gross domestic product? 

Mr. ROSENBERG. Well, thank you for the question, Senator, and 

let us hope that translates into a Gold Medal for the men’s hockey 

team in Canada. 

[Laughter.] 

Mr. ROSENBERG. Well, in answer to the question, the answer is 

yes, and, you know, as I sit here today, I feel almost as though I 

have been transported back in time in a similar setting in Ottawa 

15, 20 years ago, when Canada faced very similar fiscal pressures 

that the U.S. does today. So in answer to your question, yes, I 

think that in Canada it comes down to the question before from 

Senator Whitehouse about the importance of lowering tax rates. 

What was interesting in Canada was that the party that really got 

the ball rolling on the fiscal mess the country was in were the liberals, and they were actually the party ultimately in the mid-1990s 

that solved the problem. But they managed to convince Canadians 

that fiscal sustainability was important. 

The point I tried to bring up was not to fall into a false sense 

of complacency because in the future—I actually do not agree with 

Mr. Zandi. I think that inflation might be dormant, but it is not 

dead. And if it does come back, the windfall we have had—and a 

big part of this windfall has been lower debt service charges—we 

are going to lose that. That is why I focused on the supply side. 

I fully support what the Federal Government in Canada did, 

which was, by the way, broaden the tax base—it comes down to tax 

expenditures. Broaden the base. And the Government of Canada 

broadened the base from, say, 70 percent to 85 percent of participants, and at the same time they lowered top marginal tax rates, 

which I think most economists—not all—would tell you that helps 

improve the incentive system. 

Senator SESSIONS. Mr. Rosenberg, was there resistance to some 

of the fiscal restraints that were placed on spending during those 

years? 

Mr. ROSENBERG. The spending cuts were dramatic, there is no 

question about it. 
72 

Senator SESSIONS. And did it hammer the Canadian economy? 

Was the economy in Canada permanently damaged? or is it 

healthier today as a result? 

Mr. ROSENBERG. Not at all. It was controversial at the time. 

Now, this is basically important because this was not the conservative party that did this. It was the liberals who typically were center or left of center. But they could see that fiscal sustainability 

was being put into question. 

Now, Canada ultimately did face a fiscal crisis in the early 

1990s, and the government had to respond. And the answer to the 

question is that what the government did was they educated Canadians, comparing the fiscal budget to the household budget, living 

beyond your means, and it resonated because the liberals won two 

majority governments over the course of the next decade, so they 

never paid the political price. In fact, it became politically acceptable to have a lower level of government spending as a share of 

GDP in Canada and to have fiscal integrity. 

Senator SESSIONS. Well, Mr. Rosenberg, one of the difficulties we 

have, in my opinion—and I think I am fair in saying this—is that 

the President refuses to even acknowledge that we have a deficit 

problem, and the Secretary of Treasury testified in this Committee 

that his budget would spend only money that we have and not add 

to the debt anymore, so it makes it difficult for the American people to be asked to sacrifice if their leaders are not doing it. 

Now, let me ask you further, Canada has a much lower corporate 

tax rate. Would you say that if we eliminated some of the deductions or tax expenditures in the corporate world and used those 

savings to reduce corporate rates, this would help us a Nation have 

greater GDP growth? 

Mr. ROSENBERG. I firmly believe that top marginal rates are very 

important. In Canada, the Federal Government cut top marginal 

rates on corporate income from 29 percent to 15 percent. When you 

look at the combined provincial-Federal, it is 26 percent in Canada; 

it is 40 percent in the United States. And the reality is that—and, 

again, I am taking a big-picture view here. I know we are talking 

about, you know, the debt ceiling, things that are coming up in the 

next 4 weeks, 8 weeks. I am taking a look at the next 4 to 8 years. 

We are talking about fiscal sustainability, because when you get to 

a situation where you are spending 20 cents of every revenue dollar 

on debt servicing, there is a significant problem, and that is a problem we are going to face under status quo. 

In answer to your question, yes, I think corporate tax reform— 

and, actually, Canada is a great template. Canada today, on an 

equivalent basis to the United States, has a 5.7-percent unemployment rate in Canada today with a participation rate that is 3 percentage points higher. So if you are willing to take a long-term 

view, achieving fiscal sustainability and the certainty that imparts 

to the private sector is integral. I do not think anybody 20 years 

ago could have forecast that Canada today on an apples-to-apples 

basis would have a lower unemployment rate than is the case in 

the U.S. 

Senator SESSIONS. Would the fact that we could get our Nation, 

as Canada has done, on a fiscal course that is not dangerous, would 

that help the economy grow by creating more confidence? 
73 

Mr. ROSENBERG. Absolutely. And Canada is a template. You 

know, if I go back, say, to the mid-1990s and you take a look at 

where Government spending was as a share of GDP in Canada, it 

was 20 percent. Today it is down to 15 percent. It has come down 

5 percentage points. 

Senator SESSIONS. And the economy has grown and unemployment is below the United States significantly. 

Mr. ROSENBERG. That is correct. 

Senator SESSIONS. Well, my time is up, but I do think that these 

are some of the long-term questions that we are wrestling with in 

Congress. Frankly, it is the disagreement, the good-faith disagreement between our parties mostly. Mr. Zandi believes we should 

spend more, borrow more, and tax more. So does Mr. Greenstein. 

And you do not, and I think I agree with you. Therein we have a 

disagreement. 

Thank you, Madam Chair. 

Chairman MURRAY. Thank you very much. And, Mr. Rosenberg, 

I just have to say I think all my constituents who want a Canadian-style health care would applaud how well Canada is doing as 

well. 

Mr. ROSENBERG. Thank you. 

Chairman MURRAY. Senator King? 

Senator KING. Thank you. 

Mr. Rosenberg, first, welcome to Washington and the U.S. I live 

in Maine where we can see Canada, generally. 

[Laughter.] 

Senator KING. And I do not know if you are aware of the definition of a Canadian. A Canadian is an unarmed North American 

with health insurance. 

[Laughter.] 

Mr. ROSENBERG. And a hockey stick in the other hand. 

Senator KING. There you go. 

Madam Chair, in reference to the budget, I think—and this takes 

off on Mr. Zandi’s testimony—the passage of the budget agreement 

was miraculous because it did show that we could, in fact, do 

things. And I think it has already shown a positive effect on the 

economy. 

I know it is miraculous because, in a hearing at the Armed Services Committee, we could not determine where the idea of reducing 

the COLA for military veterans came from, and I concluded that 

it was an immaculate conception, because it does not seem to have 

any parentage. 

Gentlemen, I am worried about interest rates and the debt. And 

I think my friends on this side of the dais should be worried about 

it, too, because right now at a $17 trillion debt, if interest rates go 

to anything close to historic levels—call it 5 percent; in 2000 it was 

6 percent—we are talking about $850 billion a year just to pay interest. That is larger than Social Security. That is a dead expense. 

And it is going to crowd out all the priorities that this side of the 

aisle wants to effectuate. It is bigger than Social Security. It is bigger than defense. It is 5 percent of GDP. 

What do you think of the idea—I mean, we have done—I think 

we have done an incredible job of reducing the deficit from 9 percent of GDP to 3 percent. That is progress. But we have not done 
74 

a thing about the debt itself. Do we need a mechanism to reduce 

the debt, some kind of 1 percent dedicated to debt reduction? In a 

home mortgage, it is when you put an extra $500 every month toward principal reduction. Otherwise, we will never get out of this 

hole, and I think we are facing a time bomb of interest rates. And 

an interest rate increase to 5 percent would make—I am trying to 

think of the sequester. Basically it would equal the sequester, if not 

greater. 

Mr. Zandi, thoughts about that? 

Mr. ZANDI. Well, I certainly sympathize with your concern. I 

would say a couple things to make you feel a little bit better. One 

is that in the budget forecast, the CBO budget forecast, they 

project a normalization of interest rates, so 10-year Treasury yields 

go back closer to that 5-percent rate that you mentioned. And— 

Senator KING. That makes me feel better? 

Mr. ZANDI. Well, in the sense that— 

Senator KING. That gets us to $850 billion a year of interest payments. 

Mr. ZANDI. In the sense that even with that interest rate assumption, which is a very reasonable assumption, the deficit-toGDP ratio remains low, at least through the remainder of the decade. 

The other thing I— 

Senator KING. The deficit or the debt. 

Mr. ZANDI. Both. Both. The deficit to GDP will remain stable at 

3, 3–1/2 percent of GDP, and the debt-to-GDP ratio will remain 

constant at 73, 74 percent for the next 5 years or so. 

The other reason to be a little sanguine in the near term is that 

the Treasury is also extending the maturity of the debt, so the average maturity of the debt is almost 6 years, so they are locking 

in these low interest rates for a while. But you make a great point. 

As you move out into the next decade, we have got rising entitlement costs and rising interest costs, and it does not work. Our fiscal situation will fall apart. So we need to address that. 

But the way to address that is through blocking and tackling. 

You know, we have got to reform the entitlement programs to put 

them on a sustainable basis. That means more work on health care 

at some point. And it also means tax reform and generating more 

tax revenue. There will be more baby boomers retiring needing Social Security and Medicare, and we need more tax revenue to meet 

that demand. 

So there is no easy answer that, you know, we pay back the debt 

one dollar—without addressing spending, without addressing the 

Tax Code. We have to do those things to address the debt. 

Senator KING. We have to do all three of those things. But my 

question, Mr. Greenstein, is: Don’t we need to be thinking about 

that $17 trillion and how we get it down to 10 or some number 

where 1 point of the interest rate does not equal $170 billion a 

year? 

Mr. GREENSTEIN. A couple of points. Our key figure is really the roughly $12 trillion that is the debt held by the public. The other 

roughly $5 trillion is debt one part of Government owes another 

part of Government, and the interest is just sort of moving between 

accounts within the Government. 
75 

But the $12 trillion, which is the publicly held debt, is a concern, 

and the concern is that over the long term, if the debt keeps rising 

as a share of the economy and, as you say, interest rates come back 

to more normal levels, then I think all three of us are saying that 

the total amount the Government has to pay out in interest each 

year is too high. It probably both makes our fiscal situation less 

good and crowds out other things that are important to do. 

So the issue, I think, is not actually lowering that dollar amount. 

You know, let us suppose that magically you could keep the publicly held debt from not rising too much above $12 trillion. Your 

debt would come way down over time as a share of GDP as the 

economy grew. 

I think we kind of see as the goal, first, stabilize the debt so it 

does not rise faster than GDP, and then as Mark Zandi said, over 

time we want to get that debt ratio down. We have made more 

progress than people understood. ‘‘We, the Committee for a Responsible Federal Budget. 4 years ago, were predicting debt-to-GDP ratios of 200 to 300 percent of GDP out 30 or 40 years. Now it looks 

like it is below 100 percent of GDP. Still too high. We have got to 

get it down lower. But I think the lesson to me of the last few years 

is it is politically very hard to do grand bargains, but if we keep 

chipping away incrementally, we can make progress, first, to stabilize the debt and then to put it on a downward path. And, of 

course, the single most important variable here, what happens to 

the rate of growth of health care costs throughout the entire U.S. 

health care system? 

Senator KING. I missed your initial testimony. I apologize. I was 

at another hearing. But are there any good theories about why the 

health care costs have, in fact, fallen, the growth has fallen in the 

last 2 or 3 years? Is it sustainable? I guess that is the real question. 

Mr. GREENSTEIN. That is the $64,000 question. I think the— 

Senator KING. It is in the billions, Mr. Greenstein. 

Mr. GREENSTEIN. I am showing my age. I watched that quiz 

show as a kid. 

I think there is broad agreement among analysts that some of 

the slowdown is due to the economy—less consumer demand affects 

purchases for health as well—but then a lot of it is due to changes 

in the health care system. If it were purely the economy, we would 

not see a big effect in the slowdown in cost growth per beneficiary 

in Medicare, since Medicare beneficiaries are generally out of the 

economy. 

With each new year of data, analysts are getting more encouraged that a larger share of this may be ongoing rather than temporary. We do not know yet, and there is a lot of ferment going on 

in the private sector, in demonstration projects throughout the 

country in Republican and Democratic States alike. States are experimenting with things like better coordinating care for MedicareMedicaid dual eligibles. The hope is that much of this remains. 

There are new developments that slow cost growth and that we get 

results from research and demonstration projects that point out the 

next set of things to do. But that is part of the uncertainty. There 

is a wide range of uncertainty now on how much health care costs 

will slow on an ongoing basis in future decades. And if you are at 
76 

the low end of the spectrum, the fiscal situation is no longer that 

dire in future decades. But if you are at the high end of the situation, it is a disaster in future decades. And we do not know yet 

where in that range we are. 

Senator KING. I am out of time. I certainly appreciate your testimony and would commend to you three gentlemen to think about 

is there some mechanics whereby we can not only reduce the deficit 

but also make a credible reduction of the debt itself, for example, 

tax reform, part of the new revenues go to lowering rates, but part 

goes to debt reduction—not deficit reduction but debt reduction. It 

is just an idea, and I would ask you to think about that. If you 

have thoughts, pass them on. Thank you. 

Thank you, Madam Chair. 

Chairman MURRAY. Thank you. 

Senator Johnson? 

Senator JOHNSON. Thank you, Madam Chair. 

I will just quickly give a business person’s perspective of one of 

the reasons that health care costs are restrained is over 31 years, 

as I bought health insurance for the people who worked with me, 

as we went to higher and higher deductibles, instituted health savings accounts, that put people in charge and involved in the consumer’s decisions. I think that has certainly had an impact. 

One thing I would like to do is I do have one slide. You know, 

as a manufacturer, I certainly learned how to solve problems. The 

first step in solving a problem is to admit you have got one. The 

second step is to properly define it. 

Now, what we have tried to do—and CBO has been somewhat 

helpful, but not as helpful as I would like them to be, but we have 

used their alternate scenario here, which is really, if you take a 

look at the assumptions here, pretty reasonable: tax cuts for people 

making less than $250,000 continue, and we basically enacted that; 

AMT patches, doc fixes, all these things continue. 

As we have taken their percentage of GDP figures—which is incomprehensible. I mean, I am sorry, we all talk about it, but nobody understands it—and tried to turn that into dollars, what we 

have come up with is about $100 trillion of deficit spending over 

the next 30 years. Now, 30 years is not a very long time period. 

My eldest child just turned 30. It went by in a heartbeat. 

We do not have a 10-year budget window problem. You can see that. The deficit over the next 10 years is about $5 trillion. We 

have a 30-year demographic problem. We have a bunch of baby 

boomers retiring at the rate of 10,000 per day. We have made all 

these promises to them, and we did not make adequate provision 

to pay them. And that puts us in a real pinch. 

So if you take a look at—what I have tried to do is do this 30- 

year projection—and I know, Senator King, I appreciate you are 

willing to hear me out on this. We have tried to set up in a format 

where we are not dealing with that many numbers, but we are 

dealing with numbers so people can understand it. I think people 

can take a look at this and go, boy, $100 trillion, by the way, that 

exceeds the net private asset base of the United States today. 

But you can also kind of see where the problem lies. You have 

got about $14, $15 trillion in Social Security benefits that exceed 

what we take in the payroll tax. You have got about $35 trillion 
77 

of Medicare payments, benefits, that exceed what we take in the 

payroll tax, and the rest is just other deficit spending, if you want 

to define it that way. So, you know, from my standpoint I would 

like to start with a couple questions. 

Mr. Rosenberg, you were talking about labor force participation 

and talking about educating the public. I could not agree more with 

you. Very interesting that Canada limits their—right now their 

spending in relationship to GDP is 15 percent. Ours peaked over 

the last couple of years at 25 percent, not historically peaked but 

in the relatively short term 25 percent. We are down to 20, but we 

are on a trajectory to hit 30, 35 percent, depending on what projections you are looking at. 

You quote—and I am also aware of the fact that in the last 5 

years we have gone from people out of the workforce, from about 

81 million to 92 million, increasing 11 million individuals. Now, 

some of those are those retiring baby-boom generation. Do you 

have that broken down at all? Have you ever seen where that 

breaks down? How many are retiring? How many should potentially be in the workforce? 

Mr. ROSENBERG. Well, I do not have the numbers broken down, 

but the data from the BLS, from the household survey, are fairly 

detailed. So the data are not that difficult to obtain. But I think 

that when you take a look—and what I said before, that even if you 

take a look at the prime aged adult cohort, say that 25-to 54-year 

cohort, people have been leaving the labor force there as well. 

Those are not retirees. And I think the one area where I would disagree with Mark Zandi is that this is not about discouraged workers. That is what is incredible, is that in the prime aged cohort, the 

number of people that have left the labor force that say they are 

discouraged are actually down 20 percent. There is something else 

at work here. 

Senator JOHNSON. We had an incredibly interesting witness here, 

the head of the welfare department of Pennsylvania, and he did a 

study on a single mom, who we have got a great deal of sympathy 

for. But he showed that basically up to $26,000 of earnings it was 

marginally beneficial for her to continue to work. Past that point, 

because of a decrease in benefits and an increase in taxes, she basically was facing a marginal tax rate of 100 percent until her earnings got into the $60,000 range. 

Have you seen studies and could it be one of the reasons people 

are leaving the labor force, is we incentivize them not to work at 

a certain point? 

Mr. ROSENBERG. Well, there have been studies, some rather controversial, which have shown that, you know, if you do tap the 

myriad of benefits at every level of Government, you can actually— 

in 39 States apparently you could make as much money, say, as 

an admin assistant. Now, as I said, these—you know, this report 

in particular was controversial. I cited in the written testimony 

that I handed in a report, testimony by C. Eugene Steuerle in 

February of last year to the House Committee on Oversight and 

Government Reform. It was titled—and I think this is well worth 

the read for everybody. It was called ‘‘Labor Force Participation, 

Taxes and the Nation’s Social Welfare System.’’ And he did basically discuss some of the plausible explanations as to why people 
78 

are falling through the cracks of the labor market as traditionally 

defined. 

Basically one of the things that should be examined, at least is 

his conclusion, was the piecemeal and inefficient manner that a lot 

of these, say, Government subsidies are being introduced. That is 

one thing that the Canadian Government did at the same time. 

They did a whole bunch of things back in the mid-1990s. But they 

unbundled a lot of these social programs to make them more targeted, and in the final analysis saved taxpayer money. 

Senator JOHNSON. Senator Sessions talked about making a modification to the earned income tax credit, which I believe is the best 

way of addressing a livable wage so that we do not actually reduce 

the entry-level job positions, because I think that is what happens 

when you increase the minimum wage. 

Another thing we take a look at in terms of strengthening that 

is let us work to eliminate the 21 percent of improper payments in 

the earned income tax credit. That is one way we can strengthen 

it. 

Before I run out of time, I do want to just touch on Social Security. I think, Mr. Greenstein, you talked about the difference between public debt and total debt, and that really does speak to the 

trust funds. We had very interesting testimony from CBO Director 

Elmendorf in our budget conference where finally, after four attempts with administration officials, I was able to get Mr. Elmendorf to admit that the Social Security Trust Fund nets to zero 

when you consolidate the books of the Federal Government. You 

have an asset in the Social Security Trust Fund offset by the liability to the Treasury netting to zero. 

And so when you take a look at these deficits, when you realize 

that you really have no asset, no real asset of the Federal Government to pay off $14, $15 trillion in Social Security, that is a real 

problem, isn’t it? 

Mr. GREENSTEIN. Well, it is part of their larger long-term fiscal 

imbalance. The Social Security Trust Fund holds Treasury bonds 

that investors worldwide view as perhaps the safest investment in 

the world. So Social— 

Senator JOHNSON. But when it is held in the hands of the Federal Government, it is the same thing as if you had $20, spent it, 

and then write yourself a pretty little note, put it in your pocket, 

and say, ‘‘I have got 20 bucks.’’ No. You have a piece of paper that 

you are going to have to get somebody else to give you money, either tax people or get somebody else to buy that bond. Correct? 

Mr. GREENSTEIN. It is as good as gold for Social Security. It is 

not sufficient for Social Security for the next 75 years. That is why 

the system is projected to become insolvent in about 2033. But 

part— 

Senator JOHNSON. So who pays, who reimburses the trust fund 

for the $2.6 trillion? 

Mr. GREENSTEIN. This is part of our larger governmentwide fiscal 

imbalance that we need to address. 

Senator JOHNSON. It is the Federal Government that has to pay the $2.6 trillion, right? So it has got the liability, the asset; it has 

no value to the Federal Government. I just want people to understand, to define the problem, admit we have one, because Social Se-
79 

curity is not solvent to the year 2033. It is running cash deficits 

now. It will run cash deficits of $4 to $5 trillion over the next 30 

years, and we better fix that. And Medicare is even worse, a dollar 

going in, $3 being paid out in benefits, and, you know, around this 

town nobody is—we basically have reality deniers here. Nobody is 

admitting we have a problem. We are not defining it properly. We 

are talking all these percentages and gobbledygook. We need to put 

some real hard numbers. We have got to have the solutions laid out 

with the dollar value of those solutions so we start talking about 

and debating these issues with real information. That is my point. 

Mr. GREENSTEIN. I would just say two things can simultaneously 

be true, and this is not a contradiction: 

Social Security is solvent through the early 2030s because it has 

these assets which will absolutely be honored. If the Federal Government stopped honoring Treasury bonds, whether they were held 

by U.S. investors, foreign investors, or the Social Security Trust 

Fund, any one of the three, that would have catastrophic implications. 

But it is also true, as you are saying, that the overall Federal 

balance sheet that includes Social Security has to be stable, and to 

do that we have to have a debt-to-GDP ratio at a sustainable level 

that is not rising rapidly. 

Chairman MURRAY. Mr. Greenstein, that is going to have to be 

our last word, and I appreciate all of our witnesses for participating today, and I want to thank all of our colleagues as well. 

As I said at the outset, I really hope that the passage of our Bipartisan Budget Act really signals the beginning of the end of Congress lurching from these manufactured crises to the next and 

serves as a model of how we can all work together on issues that 

expand opportunity and growth for our families and our communities and our businesses. 

With that, as I mentioned earlier today, we will be here again 

next Tuesday to hear from Director Doug Elmendorf on CBO’s latest budget and economic outlook. I urge all of our colleagues to attend that important hearing. 

And, finally, as a reminder, additional statements and/or questions for our witnesses from today’s hearing are due in by 6:00 p.m. 

today. 

With that, thank you all for your participation, and this hearing 

is closed. 

[Whereupon, at 12:09 p.m., the Committee was adjourned.] 

(81) 

THE BUDGET AND ECONOMIC OUTLOOK FOR 

FISCAL YEARS 2014–2024 

TUESDAY, FEBRUARY 11, 2014 

UNITED STATES SENATE, COMMITTEE ON THE BUDGET, Washington, D.C. 

The Committee met, pursuant to notice, at 10:34 a.m., in Room 

SD–608, Dirksen Senate Office Building, Hon. Patty Murray, 

Chairman of the Committee, presiding. 

Present: Senators Murray, Nelson, Stabenow, Whitehouse, Warner, Coons, Baldwin, Kaine, King, Sessions, Grassley, Enzi, Crapo, 

Portman, Toomey, Johnson, Ayotte, and Wicker. 

Staff Present: Evan T. Schatz, Majority Staff Director; and Eric 

M. Ueland, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN MURRAY 

Chairman MURRAY. This hearing will come to order. I want to 

welcome everyone and thank my Ranking Member, Senator Sessions, and all of our colleagues who are joining us here today. 

And I want to thank Dr. Doug Elmendorf and the entire staff at 

the Congressional Budget Office. We really do appreciate all the 

hard work and the high standard of professionalism and objectivity 

that CBO provides to this Committee and to Congress. Those qualities were especially helpful last year in assisting Chairman Ryan 

and I with the completion of the 2-year Bipartisan Budget Act. 

That deal that we reached in December was a strong step away 

from the constant crises that we have seen for the past few years. 

Democrats and Republicans finally came together to pass a budget 

and roll back the irresponsible cuts from sequestration with a balanced approach that included smarter savings and new revenue. 

And we came together and compromised to show people everywhere 

that bipartisan work in Washington is possible. 

Unfortunately, the drama and uncertainty around the debt limit 

that caused so much harm to families and the economy last year 

has come back over the past few weeks. But there was encouraging 

news this morning. House Republicans seem to have finally realized that Democrats are not going to pay a ransom to allow the 

Federal Government to pay its bills, and I look forward to them 

sending over a debt limit bill with no ransom demands attached. 

And I am hopeful that we can truly step away from the constant 

crises and debt limit brinkmanship to build on the bipartisan 

progress that we did make in our budget deal. 

Now, recognizing the findings and the challenges that the CBO 

budget outlook identified, I think we should move forward in two 
82 

ways. First, we need to work to ensure every family has the opportunity to succeed in America. At the same time, we need to address 

our long-term fiscal challenges fairly and responsibly. 

Those two goals go hand in hand because the best way to tackle 

our long-term fiscal challenges is to invest in broad-based and longterm economic growth. 

Before we get into the details of the CBO’s outlook for the next 

decade, it is helpful to take a step back and see where we have 

been. 

When President Obama took office, we were facing the worst economic downturn since the Great Depression. The country was losing more than 700,000 jobs a month. Families were losing their 

homes, and parents were losing confidence in what the future 

would be like for their children. 

We have made significant progress since then. We have had 47 

consecutive months of private sector job gains. Economists believe 

economic growth is poised to accelerate this year. The housing market has improved, though we cannot forget that many families are 

still struggling. And, of course, even though these are good signs, 

the recovery has not been nearly as fast, or as strong, as any of 

us would like. Last Friday’s disappointing jobs report is just the 

latest reminder of that. So while we are moving in the right direction, Congress can, and must, do more to boost this economic recovery. 

In the past few years, we have also made significant strides in 

tackling our fiscal challenges. Since 2009, we have cut our deficit 

in half. CBO projects it is on a path to decline further this year 

and the next, with the debt stabilized as a share of the economy 

through the end of this decade. 

But as with the economic recovery, we have more work to do, and 

I look forward to hearing from Dr. Elmendorf about the long-term 

deficit challenges—challenges we cannot ignore. 

To be clear, discretionary spending—by which I mean investments in priorities like national security and infrastructure, research, education, and programs that fight poverty and provide economic security—that is not driving our fiscal challenges. 

In fact, CBO projects that discretionary spending will continue to 

decline as a share of GDP through 2024. In the 1970s and 1980s, 

discretionary spending averaged about 10 percent of GDP. Last 

year, it was at 7.2 percent of GDP. And by 2024, those investments 

will represent just 5.2 percent of GDP. This decline is alarming because limiting discretionary spending means limiting investments 

in innovation and cutting-edge technology that actually spark job 

growth. It also means threatening our efforts to care for service 

members, veterans, and their families. Those lifetime investments 

will be critical over the next few years as more military families 

transition from the battlefront to the home front. 

And limiting discretionary spending will roll back efforts to give 

kids and families the education and job training opportunities that 

they need to succeed in a global economy. 

I want to be clear on another point in the CBO report that 

caused a lot of confusion last week. For too long in this country, 

leaving a job also meant leaving behind your health care coverage. 

In 2008, Harvard University conducted a study that found 11 mil-
83 

lion workers wanted to change jobs, but felt locked in to their current job simply to keep their insurance. 

One of those workers is named Christine Lange. She is from my 

home State of Washington, and a year ago, Christine dreamed of 

quitting her job to start a small business. But her family relied on 

the health insurance that she received through her employer. 

The Affordable Care Act changed that for her. In January, she 

retired from her old job and now plans to launch her own business 

later this year. 

By expanding access to health care, more people will also have 

the opportunity to retire early. More entrepreneurs will have the 

chance to start a new business, without giving up access to health 

care. 

And CBO’s report makes it clear that the Affordable Care Act is 

good for parents. That is because it will give more parents the 

choice to stay home and raise a family and the choice to reduce 

hours to take care of an aging parent or family member. 

That does not mean that unemployment will go up. In fact, CBO 

found that, on balance, the Affordable Care Act will actually boost 

demand for goods and services over the next few years. And that 

is because when people have access to affordable health care, they 

are able to spend more of their earnings on other family needs. 

But the latest outlook makes clear we have some areas to work 

on. The CBO projects mandatory spending for programs like Medicare and Medicaid will continue to rise over the next decade. The 

solution is not to shift those growing costs onto seniors and families, as we have heard Republicans propose. We need to work on 

ways to bring those costs down responsibly. 

The good news is health care costs have slowed significantly in 

recent years. From 2010 to 2012, the cost of health care grew at 

its slowest pace since the Government started tracking it in the 

1960s, according to the Council of Economic Advisers. The CBO reports the cost of Medicare ‘‘will be slower than usual for some years 

to come.’’ 

So we need to follow through on the reforms in the Affordable 

Care Act that reduce costs and increase access to quality care. And 

we need to work together to build on them. 

Bringing down health care costs is just one part of the solution. 

We also need a balanced approach to tackle our deficit—one that 

reduces spending and raises new revenue fairly and responsibly. 

As CBO reports, in 2014, Federal spending through the Tax Code 

is the single largest item in the budget, costing American taxpayers 

more than Social Security, Medicare, or defense. 

While some of those tax breaks go to important investments in 

the middle class and low-income working families, the Treasury 

loses hundreds of billions of dollars to tax loopholes and carve-outs 

that benefit the wealthiest Americans and biggest corporations. 

Big businesses should not get to write off expenses associated 

with shutting down a plant in the U.S. and moving it overseas. It 

is wrong that corporations can claim massive tax breaks by deducting the interest on loans used to finance foreign operations before 

they pay tax on their foreign income. 
84 

These unfair tax giveaways only incentivize corporations to move 

jobs abroad, and they make it harder for U.S. businesses without 

foreign operations to compete. 

The list of egregious loopholes and special interest giveaways 

goes on, and it would be unfair and unacceptable to protect every 

last one of them and ask seniors and families to bear the burden 

of deficit reduction alone. 

In recent years, many in Congress have had almost a singular 

focus on reducing the budget deficit. While important, that has left 

us with deeper deficits in other areas. 

Our roads and bridges are crumbling. We are not making the investments we need in education and job training. While other nations are investing in innovation and research and development, we 

have scaled them back. We have a serious jobs deficit and a serious 

opportunity deficit. And we would be doing families today, and the 

next generation, a great disservice if we let these deficits continue 

to grow. 

Addressing these deficits is not just the right thing to do. It is 

also good economics, and it is good for the budget. When we invest 

in job creation and innovation, small business owners create new 

products and technology the rest of the world wants to buy. And 

with more growth, more people can find jobs, and incomes increase. 

As broad-based prosperity increases, our long-term budget challenges become easier to tackle. 

That point—that these two challenges go hand in hand—is riveted by the latest CBO report. As I read it, Dr. Elmendorf, the biggest change in the deficit and debt projections relative to last May 

result from changes in CBO’s economic projections. Those changes 

lower revenues and, on net, increase deficits and debt by $1.2 trillion. 

To put that in perspective, $1.2 trillion is twice the amount of 

revenue that Congress elected to raise by allowing a portion of the 

2001 and 2003 tax relief to expire for upper-income taxpayers at 

the end of the last Congress. 

So we need to put in place a credible plan that reduces spending 

responsibly, that raises revenue by closing wasteful and egregious 

tax loopholes, and that invests in and grows our economy today 

and pays dividends for generations to come. 

But to do that, we will have to build on the bipartisan foundation 

we built with our 2-year budget deal. That deal was a good start. 

It showed that Republicans and Democrats can come together to 

put families and the economy first. 

I hope continue that work and tackle our long-term fiscal challenges fairly and responsibly and expand opportunities for our 

workers and our families, because I think if we do that, we can 

move forward together and build a future of shared prosperity for 

generations to come. 

With that, Dr. Elmendorf, I am looking forward to hearing your 

remarks, but first we will hear from my colleague Senator Sessions. 

OPENING STATEMENT OF SENATOR SESSIONS 

Senator SESSIONS. Thank you, Madam Chairman, and welcome, 

Director Elmendorf. We want to thank you and your team for the 

good work and support you give to Congress. 
85 

The Ryan-Murray bill did, Madam Chairman, create some stability in our fiscal situation, which is good, but it did spend more 

money than was agreed to in the Budget Control Act. And this very 

day we will be voting again to bust the limits you placed in RyanMurray. So this Congress is not showing in any real sense a commitment to honor the promises we make to the American people, 

and that is one of the reasons our debts have reached such a high 

level. 

CBO’s latest budget and economic outlook is another sobering report in a number of sobering reports since the 2007–09 recession. 

It has been 4 years since that recession, long past the time we normally see more robust growth than we are now recognizing. And 

the CBO report indicates that in the tenth year, the amount of interest we would pay on our debt just that year is higher than you 

projected last year after 10 years. It is not a good path. 

So the Nation’s policies after the recession ended in 2009 have 

not come close to producing the results, the growth the President 

promised. CBO and many other organizations, the President’s own 

OMB, and the Federal Reserve have also made forecasts for economic growth that were far above what actually happened. CBO’s 

report today is a recognition that the economy has failed to lift off 

after the recession had been declared over. 

Millions of Americans are hurting. This is not a healthy recovery. 

It is just not. The United States economy typically reverts to the 

mean after a recession, but this time it has not. The President has 

said his stimulus bill, the Affordable Care Act, increased taxes and 

regulations, and more Government spending would result in a 

strong bounce-back. But after President Obama signed the stimulus bill, the Congressional Budget Office estimated that real GDP 

growth would be at 4.7 percent for each of the past 2 years. That 

is 2012 and 2013. We did not have that growth. It grew at a paltry 

1.9 percent last year, falling from an anemic 2.8 percent the year 

before. 

Only 2 years ago, after the Affordable Care Act was passed, CBO 

expected real growth this year, 2014, to be 4.6 percent. Wouldn’t 

we like to have that? After these misses, CBO is now predicting we 

would have only 2.7 percent growth this year. 

Ominously, the percentage of people participating in the economy, working or looking for work, the labor force participation rate 

has fallen to 1970s levels. 

So the policies that the Nation has pursued to promote economic 

growth, they have not had the effect we hoped for. The growth that 

is needed to increase the number of Americans with jobs did not 

occur. The recovery to date has seen corporate profits increase 

some and the wealthy to see their investments grow at least close 

to what they were before the recession. But working Americans 

have seen lower wages, more part-time jobs, and fewer full-time 

jobs. 

It is clear that growth at 2 percent is merely treading water. It 

must be sharply higher to increase the number of Americans actually working. Certainly we have learned in this recovery that GDP 

growth can occur without real benefits for the working people in 

our country. And, sadly, CBO’s report also recognizes that the 
86 

President’s 2010 health care law is a hammer blow to lower-income 

workers. 

Despite concerns raised at the time that the Affordable Care Act 

would reduce work opportunities, CBO did not think that effect 

would be significant when the law was signed in 2010. CBO now 

estimates Obamacare will lead to Americans working fewer hours 

or dropping out, and this will be the equivalent of 2.5 million productive Americans. In other words, 4 years after the health care 

law was enacted and just as it is beginning to be implemented, 

CBO has now tripled its estimate of the number of jobs that will 

be lost or equivalent jobs that will be lost as a result of the law. 

So that means the average employed person’s wages will total $930 

less 10 years from now. 

CBO has been criticized for this finding, but the analysis you 

have made, Dr. Elmendorf, it seems to me just reflects what data 

is showing. Indeed, two-thirds of jobs created in 2013 were parttime jobs. So I look forward to receiving from CBO more information about how these conclusions were derived. We do know this 

compensation loss will fall more heavily on lower-income Americans. 

So this is another example of the policies with good intentions 

that are actually hurting working Americans, not helping them. 

The end result is that CBO has reduced its estimate of the economy’s growth potential, and the report finds the U.S. economy is not 

assumed to reach even that reduced potential over the next 10 

years under current policies. 

So let us pause a minute to consider an important point, as stated by the free market-oriented National Review. They declare, 

rightly I think, that we are a nation with an economy, not an economy with a nation. It is our duty to take principled, achievable 

steps that will benefit the most Americans in our country, not just 

the fortunate few, and to do so without increasing our debt, which 

is already well into the danger zone. 

So I hope the CBO’s report and today’s decision can help serve 

as a springboard for a more serious conversation about what is 

going on in the U.S. economy and the people who have not prospered. 

Spend, borrow, regulate, and tax have not worked as a jumpstart to prosperity. Expanding Government has not produced prosperity. Stimulus programs and quantitative easing have done little 

good. Indeed, these actions reality shows overall have produced far 

weaker growth than was predicted even just a few years ago, and 

which we normally see after a recession. 

So working Americans should focus less on promises and good intentions. They need to focus more on results and what will actually 

happen. That is what we in Congress should do. Good intentions 

are not sufficient. We need to enact sound policies that reduce the 

deficits and put us on a path to growth and prosperity. 

I thank you for your report, Dr. Elmendorf, and look forward to 

working with you as we go forward. 

Chairman MURRAY. Thank you. 

Dr. Elmendorf, I understand that your microphone is not working, so we have jury-rigged something for you. It is probably unfortunate that our microphones did not blow out. But be as it is, I 
87 

hope that that one works well for you and we can move forward 

with your testimony. 

STATEMENT OF DOUGLAS W. ELMENDORF, DIRECTOR, 

CONGRESSIONAL BUDGET OFFICE 

Mr. ELMENDORF. So I hope this will be fine. Thank you, Chairman Murray, Senator Sessions, and members of the Committee. On 

behalf of all of my colleagues who have worked so hard to produce 

these reports on the outlook for the budget and the economy and 

on the slow recovery of our labor market, I am happy to be here 

today. 

Beginning with the budget, the Federal budget deficit has fallen 

sharply during the past few years, and it is on a path to decline 

further this year and next year. We estimate that, under current 

law, the budget deficit this year will total about $500 billion compared with $1.4 trillion in 2009. At that level, this year’s deficit 

would equal about 3 percent of the Nation’s economic output or 

GDP, close to the average percentage seen during the past 40 

years. 

As you know, our baseline projections show what we think would 

happen to Federal spending, revenues, and deficits over the next 

10 years if current laws generally were unchanged. Under that assumption, the deficit is projected to decrease again in 2015 to about 

2.5 percent of GDP. After that, however, deficits are projected to 

start rising, both in dollar terms and as a share of the economy, 

because revenues are expected to grow at roughly the same pace 

as GDP, whereas spending is expected to grow more rapidly than 

GDP. 

Why the more rapid spending growth? In our baseline, spending 

is boosted by four factors: the aging of the population, the expansion of Federal subsidies for health insurance, rising health care 

costs per beneficiary, and mounting interest payments on Federal 

debt. 

With no changes in the applicable laws, spending for Social Security will increase from about 5 percent of GDP this year to about 

5.5 percent in 2024. Spending for the major health care programs, 

a category that includes Medicare, Medicaid, the Children’s Health 

Insurance Program—or CHIP—and subsidies to be provided 

through insurance exchanges, will climb from less than 5 percent 

this year to more than 6 percent in 2024 under current laws. And 

net interest payments by the Federal Government are also projected to grow rapidly, primarily because interest rates are likely 

to return to more typical levels. 

In sharp contrast, the rest of the Federal Government’s non-interest spending for defense, for benefit programs other than the 

ones I just mentioned, and for all other non-defense activities is 

projected to drop from about 9.5 percent of GDP this year to about 

7.5 percent in 2024 under current law. That would be the lowest 

percentage of GDP since at least 1940, which is the earliest year 

for which comparable data have been reported. Thus, an increasing 

share of the budget would go toward benefits from a few large programs, and a shrinking share would go toward most of the rest of 

the Government’s functions. 
88 

The large budget deficits recorded in recent years have substantially increased Federal debt, and the amount of debt relative to 

the size of the economy is now very high by historical standards. 

We estimate that Federal debt held by the public will equal 74 percent of GDP at the end of this year and under current law will 

reach 79 percent in 2024. Such large and growing Federal debt 

could have serious negative consequences, including restraining 

economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis in which investors would demand high 

interest rates to buy the Government’s debt. 

Turning to the economy, we expect that, after a frustratingly 

slow recovery from the severe recession of 2007–09, the economy 

will grow at a solid pace for the next few years, but will continue 

to have considerable unused labor and capital resources, or ‘‘slack.’’ 

Further growth in housing construction and business investment 

should raise output and employment, and the resulting increase in 

income should boost consumer spending. In addition, under current 

law, the Federal Government’s tax and spending policies will not 

restrain economic growth this year to the extent they did last year. 

And the State and local governments are likely to increase their 

purchases of goods and services, adjusted for inflation, after having 

reduced them for several years. As a result, our baseline shows inflation-adjusted GDP expanding more quickly from 2014 to 2017— 

at an average rate of roughly 3 percent a year—than it did in 2013. 

We expect that those increases in output will spur businesses to 

hire more workers, pushing down the unemployment rate and 

tending to raise the rate of participation in the labor force, as some 

discouraged workers return to the labor force in search of jobs. 

That effect on participation will keep the unemployment rate from 

falling as much as it would otherwise. We project that the unemployment rate will decline only gradually over the next few years, 

finally dropping below 6.0 percent in 2017, and then edging down 

further after that. 

Nevertheless, the labor force participation rate is also projected 

to decline further in the next few years because, according to our 

analysis, the increase in participation stemming from improvements in the economy will be more than offset by downward pressure from demographic trends, especially the aging of the babyboom generation. 

After 2017, when the demographic trends will still be unfolding 

but the effects of cyclical conditions will, we expect, have largely 

waned, the participation rate is projected to decline more rapidly. 

That is the main reason why beyond 2017 we project that economic 

growth will diminish to only a bit more than 2 percent per year, 

a pace that is well below the average seen over the past several 

decades. 

Thank you. I am happy to take your questions. 

[The prepared statement of Mr. Elmendorf follows:] 
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Chairman MURRAY. Thank you very much. 

Dr. Elmendorf, let me start off by asking you a question about 

the role the overall economy plays in our efforts to address the deficit. Last week’s CBO report describes how ‘‘lingering effects from 

the Great Recession and the subsequent slow recovery continue to 

dampen our economic potential.’’ Relatedly, your report contains 

some very significant downward revisions to your expectations 

about the strength of our economy over the next decade, and the 

direct fiscal consequences of those revisions were pretty dramatic, 

about $1.2 trillion in added debt by 2024. That added debt is not 

from new spending programs or new tax cuts. It is purely because 

CBO now expects the economy to be weaker than it previously 

thought, correct? 

Mr. ELMENDORF. Yes, that is right, Senator. 

Chairman MURRAY. Okay. So my question is about the importance of economic growth and building a strong economy and tackling our deficits and our debt. Certainly, we have to continue to 

work to reform spending programs and the Tax Code, but do you 

believe, given the large negative impact your economic revisions 

had on the budget projections, that fiscal responsibility also requires that we take measures that ensure we have a strong economy? 

Mr. ELMENDORF. Yes, Senator. Any actions that the Congress 

can take to boost economic growth can have a very powerful effect 

on the future budget outlook. There are no plausible changes in 

economic growth that would make the long-term budget pressures 

go away. When we did our long-term budget outlook last fall, we 

looked at a range of alternative possible growth rates of the economy and interest rates and health care costs and so on, and the 

fundamental problem will remain. But the magnitude of the problem, the extent of the changes that would be needed in tax policy 

or spending policy or both, would be smaller if the economy were 

to grow more rapidly. 

Chairman MURRAY. Okay. Last week, a rippling effect of the 

CBO report was the wide confusion about the section dealing with 

the impact of the Affordable Care Act on the workforce. That confusion actually was bad enough that the Washington Post fact checker examined some of the claims just 3 days ago. I do not know if 

you all saw it, but he called them ‘‘out of context,’’ ‘‘deliberately 

misleading,’’ and gave them three Pinocchios. 

Now, as Chairman Ryan noted in the hearing last week, when 

you were before them, your report does not say that the Affordable 

Care Act is causing employers to lay off workers. In fact, the ACA 

is making it possible for people to be innovative and start new companies without being locked into a job or keeping longer hours just 

so they can have health insurance. 

So can you please clarify this part of your outlook and specifically 

tell us are you saying that the ACA will cause 2.5 million people 

to lose their jobs, as some are claiming you said? 

Mr. ELMENDORF. No, Senator. We would not characterize our results as saying that 2 or 2.5 million people would lose their jobs. 

I have not, to be honest, read all of the coverage that sprouted last 

week, but we took pains in a blog posting yesterday to emphasize 

the point we made in the appendix to the outlook last week that 
122 

almost the entire effect that we are projecting comes not from people losing their jobs but from people choosing to work not at all or 

to work shorter hours. 

Chairman MURRAY. Stay home and take care of their kids, start 

a new business, other things that families have that kind of choice. 

Mr. ELMENDORF. A range of other activities, Senator, yes. 

Chairman MURRAY. Can you talk a bit about how increased accessibility and affordability and availability of health insurance 

helps workers and specifically prevents what is known as job lock? 

Mr. ELMENDORF. Yes, Senator. So the subsidized health insurance coverage that will be provided under the Affordable Care Act 

through both the expansion of Medicaid and through the initiation 

of tax credits to be provided for insurance bought through insurance exchanges, those subsidies make the people who receive them 

better off by raising their—by providing health insurance coverage 

at reduced cost to them. Some of them will respond to being better 

off by not working or working less. 

In addition—and this is intrinsic to some extent in any program 

that provides benefits to lower-income people—those benefits are 

withdrawn under the Affordable Care Act as people’s income rises. 

Lower-income people receive them and higher-income people do 

not. And that withdrawal of benefits creates an implicit tax that 

also reduces the incentive to work to some extent. 

As you noted, the health insurance system as it existed prior to 

the Affordable Care Act also distorted people’s labor market behavior relative to some ideal system in which health insurance was not 

related to work. And, in particular, there has been a substantial 

amount of research showing that people who had jobs and had particular health problems or concerns about the risk of health problems would then be unwilling to leave those jobs to take other jobs 

they might be more productive in if they thought they would lose 

their health insurance. That is the phenomenon known as ‘‘job 

lock,’’ and that is a phenomenon that under the Affordable Care 

Act would not be there because people would be able to obtain 

health insurance through exchanges and possibly obtain subsidies 

for health insurance coverage. 

Chairman MURRAY. Okay. Thank you very much. I really appreciate your clarification. 

Senator Sessions? 

Senator SESSIONS. Thank you. I think I understand, Mr. Elmendorf, your comments about the Affordable Care Act and hours lost 

and reduced. I would note that, from my perspective, what you 

have indicated is the act has a tendency to incentivize people not 

to work, and what we need in this country, in my opinion, is incentives to work, and that will help us be more productive. And we 

have to create systems, I think, to help people work even longer 

and reduce the amount they are drawing down their retirement 

benefits, extending and increasing their Social Security benefits if 

they can work longer, and we should be looking to do that. 

Mr. ELMENDORF. Senator, we have analysis of the effects on the 

Federal budget and on the economy of raising the eligibility age for 

some programs to encourage people to work longer, as you are suggesting. 
123 

Senator SESSIONS. I think we have to talk about that, and you 

note that the big programs are the ones that are drawing a larger 

percentage of the taxpayers’ revenue each year, are leading us and 

accelerating our debt course. I would just have to say, colleagues, 

that we are not going to be able to fix that and address it effectively if the President of the United States will not look the American people in the eye and tell them we have a problem that needs 

to be fixed. I wish it were different. But he has not done that, and 

we are not going to be able to achieve progress unless he does. 

Just looking at your estimate of interest costs that we will be 

paying each year is rather stunning. Do you recall what the interest payment total was last year? Was is $240 billion or $250 billion 

that we actually paid out of our Treasury to— 

Mr. ELMENDORF. Yes. So last year there were $221 billion in net 

interest, Senator. 

Senator SESSIONS. So you project—and last year, last May, you 

projected 10 years from now, we would be paying $823 billion. This 

year, you project 10 years from today we will be paying $880 billion 

in one year, each of those one year in interest on the debt, which 

is over $500 billion more than we are now paying each year on the 

debt. Where does this money come from? That is the question I 

think the American people need to ask. It is going to come out of 

programs that people from both parties believe in, want to support, 

and want to see grow, and they are not going to be able to grow 

because we are going to have this huge increase in interest, the 

largest, fastest increasing part of our budget. Would you not agree 

fundamentally? 

Mr. ELMENDORF. Yes, Senator, that is right. 

Senator SESSIONS. Now, you projected a couple of years ago, I believe, that if interest rates increased 1 percent, that would add a 

$1 trillion extra interest cost to the budget. This year, I believe you 

are saying that if interest rates increase 1 percent, it would add 

$1.5 trillion to the cost of the—to our budget cost. Is that correct? 

Mr. ELMENDORF. Yes, Senator. If interest rates were 1 percentage point higher throughout the coming decade, we estimate that 

would add about $1.5 trillion to the Federal deficit. 

Senator SESSIONS. And I teased you a little bit about missing 

some of your growth projections, but nobody knows for sure what 

interest rates will be 4, 5, 6, 8 years from now, do they? You just 

make the best estimates you can. 

Mr. ELMENDORF. That is right, Senator, and your critique of our 

past economic forecast was quite correct. We missed the extent to 

which this recovery would be very slow. We had built in a slow recovery by the standards of the post-war U.S. period but not slow 

enough. And I think the people who had looked more carefully at 

financial crises in other countries over longer periods of time and 

said, ‘‘No, no, this kind of crisis takes a long time to recover from,’’ 

were more right than we were. 

Senator SESSIONS. Just briefly, since we cannot, in my opinion, 

continue to borrow more or to spend more to stimulate the economy, if we had a simpler Tax Code with a lower top marginal rate 

for corporate tax rate, as witnesses have said, would that help 

growth, be positive for growth? 
124 

Mr. ELMENDORF. Yes, Senator, and a tax reform that broadened 

the base and brought down rates in either the corporate or individual sides, or both, would be positive for economic growth. How 

much difference it would make would depend on the specific— 

Senator SESSIONS. If we could identify regulations that were unnecessary and eliminate those, would that allow more growth to 

occur? 

Mr. ELMENDORF. It might, Senator, but, again, the effects would 

depend very much on— 

Senator SESSIONS. Well, experts tell us that regulations are adversely impacting growth. I would think so. If we produce more 

American energy and imported less, would that help growth in 

America? 

Mr. ELMENDORF. Yes, Senator, I think it would, and we are in 

the process of working on an analysis now of the effects of fracking 

on the U.S. economy and on the budget, and we hope to— 

Senator SESSIONS. If we could reform our 80 or so means-tested 

social programs and to focus more on incentivizing and training 

people to work and to move out into the employment field, would 

that improve America’s GDP growth? 

Mr. ELMENDORF. Yes, I think it would, Senator. Again, the effects would depend very much on the specific changes— 

Senator SESSIONS. And if we had a leaner, more productive Government, just the money that came into this United States Government, we got more for it for our citizens, would that be good for 

growth? 

Mr. ELMENDORF. Well, getting more effective Government services or more benefits per dollar of tax revenue would be good for 

people by receiving more benefits or services— 

Senator SESSIONS. And if we— 

Mr. ELMENDORF. —for growth depends on a lot of the—the timing of the changes and the nature of the changes. 

Senator SESSIONS. And if we brought our deficits under control, 

would that create more confidence and more growth in the future? 

Mr. ELMENDORF. Reduction in the long-term projected deficits 

would be good for the economy in the long term and we think in 

terms of people’s confidence today, Senator. 

Senator SESSIONS. Thank you. 

Chairman MURRAY. Senator Sessions—I mean, sorry, Senator 

Stabenow. 

Senator STABENOW. Thank you very much, Madam Chair. You 

know, listening to the debate on the budget and the numbers, I 

think for people watching this today could scratch their heads because you can look at things so many different ways. 

I want to back up and just start with some good news and if, in 

fact, bringing down the deficit increases economic activity, we 

ought to all be celebrating today. Mr. Elmendorf, when you say 

that in 2009 we had a $1.4 trillion deficit, this year it will be $500 

billion—did I hear you say that? 

Mr. ELMENDORF. Yes, that is right, Senator. 

Senator STABENOW. Yes. So that is a pretty big drop. A pretty 

big drop. 

Mr. ELMENDORF. Yes, Senator. 
125 

Senator STABENOW. And we should actually view that as good 

news. And, in fact, it is good news. It may not be good politically 

for folks that want to use the issue, but it is good news. 

We also have seen 8.5 million private sector jobs. We need more, 

but certainly in the last few years, and that is a good thing. 

Do you stand by your statement that says in your report, ‘‘In 

CBO’s judgment, there is no compelling evidence that part-time 

employment has increased as a result of the Affordable Care Act’’? 

Mr. ELMENDORF. Yes, we stand by that, Senator. 

Senator STABENOW. Yes, thank you. So, in fact, what we are seeing is job growth, and what we need is more of it. 

One of the things that is concerning to me in your numbers for 

us as policymakers is that you have indicated that in discretionary 

spending—our investments in education, opportunity, rebuilding 

America, infrastructure, innovation, those things that we do to 

compete in a global economy—that in the next 10 years we will see 

the lowest investments in those things that affect people and opportunity, economic development, since 1940? Did I hear you correctly? 

Mr. ELMENDORF. So the specific fact, Senator, was that all of 

Federal spending, apart from Social Security, the health care programs, and interest on the debt, so the rest includes defense spending, non-defense discretionary spending, and the other benefit programs and mandatory spending, that collection of programs together, spending will be smaller as a share of the economy in 2024 

under current law than at any point since at least 1940. 

Senator STABENOW. So when we are looking at a global economy 

competing with China, with those around the world investing like 

crazy to lower their costs of college, to build their countries, to invest in clean energy and so on, we in America are actually going 

in the opposite direction. And I want to underscore that when you 

talked about economic growth mitigating some of the other factors—obviously we care about long-term deficits; obviously we want 

to continue to stay on a path of fiscal responsibility. But certainly 

growing would do an awful lot, creating jobs would do an awful lot 

to mitigate that. 

My questions, I want to go back just one more time, because I 

feel like we are speaking two languages here on the Committee as 

it relates to the Affordable Care Act, so I want to go back just one 

more time and ask you, as it relates to the ability for people to 

have freedom to dream big dreams and make decisions without 

being chained to their desk or their job, one more time: Did the 

February 2014 report on the budget and economic outlook find that 

the affordable health care law will end 2.5 million jobs? 

Mr. ELMENDORF. What we found, Senator, was that about 2.5 

million—we found that people would reduce their work effort by 

the equivalent of about 2.5 million full-time equivalent positions, 

but— 

Senator STABENOW. Okay. But is that 2.5 million jobs that we 

would lose? 

Mr. ELMENDORF. We did not say that 2.5 million people would 

lose their jobs. 

Senator STABENOW. Or that we would lose 2.5 million jobs in the 

economy? 
126 

Mr. ELMENDORF. We have not quantified the ultimate effect on 

employment. I want to be careful here, as you say, Senator. We 

think that when people talk about—outside of economic and budget 

people-talk about people losing their jobs, they mean people who 

are laid off from jobs they want to keep. What we describe in our 

report is almost entirely people who are choosing to work less or 

not to work because of the extra benefits they will receive under 

the Affordable Care Act and the withdrawal of those benefits as incomes rise. That is a reduction in the supply of labor that is driving 

the change, and the amount of the change is ultimately a reduction, an equivalent to 2.5 million full-time equivalent positions. 

Senator STABENOW. So we are giving people more choices, just 

like the ones that exist for the very wealthy and live off investments, who can choose whether or not to be actively in the workplace or not or to do other things, philanthropic things, or to spend 

time with their family. We are giving a choice to someone in my 

family, in fact, right now where this is very real who wants to stay 

home with her 18-month-old and has not been able to do that because her family’s health care comes from her job as opposed to her 

husband, who is in small business. And so they are going to have 

a different kind of freedom to be able to do something I would 

argue that is just as productive, which is to raise a little boy and 

have mom at home. 

Mr. ELMENDORF. So, Senator, as we were clear yesterday, we are 

not judging the— 

Senator STABENOW. No, I appreciate that. 

Mr. ELMENDORF. —value of the good things they are choosing to 

do. We are just— 

Senator STABENOW. I appreciate that. No, I am actually evaluating— 

Mr. ELMENDORF. —economics of the situation. 

Senator STABENOW. Yes. What I am doing is adding the evaluation, which is moms or dads being able to be home with little ones 

has tremendous value for their family and for all of us, and I am 

so proud that we are going to be able to give moms and dads that 

choice. 

And then, Madam Chair, I know my time is out, but on the other 

end, also in my family are individuals that are going to be able to 

retire from some very, very hard work a little bit early, in one case 

develop the small business they have been hoping to for a long, 

long time. So I think the freedom involved in folks being able to 

make choices is one of the wonderful things about moving forward 

and not having health care have to be tied to employment. 

Thank you, Madam Chair. 

Chairman MURRAY. Thank you. 

Senator Grassley? 

Senator GRASSLEY. I want to continue that discussion, but I want 

to look at the macroeconomic impact rather than the specific number of jobs. I would like to ask you about the lackluster economic 

recovery in the labor market. We already know that the labor force 

participation rate is at the lowest point since 1975, although I 

guess last month it ticked up just a hair. CBO now projects that 

the Affordable Care Act would reduce the number of full-time 

equivalent workers by about 2 million by 2017, 2.5 million by 2024, 
127 

obviously a result of some people choosing to not work at all or others choosing to work less. The fact is, it is a disincentive for some 

people to work, resulting in a decrease of labor supply. 

So getting to the questions, to grow the economy and increase 

economic opportunities, we need more workers and ought to encourage people to work. What effect will this have on the economy 

and GDP growth? 

Mr. ELMENDORF. So, Senator, the reduction in the supply of labor 

that we estimate would result from the Affordable Care Act pulls 

down GDP, pulls down investment, pulls down tax revenues relative to what would be the case otherwise. 

Senator GRASSLEY. So, simply put, it is not in our economic interest to shrink the size of the workforce. 

Mr. ELMENDORF. Well, it is not in the interest of GDP to reduce 

the workforce. Of course, how we value GDP— 

Senator GRASSLEY. Well, GDP is more for more people, and if we 

are going to have lower GDP, we are going to have more people in 

this country, and more people are going to have less. You have to 

expand the economic pie. It seems to me like it is very basic to 

Americans to have more for more people. 

Finally, then, would it be fair to say that discouraging people to 

work is harmful to our economic growth and diminishes individuals’ economic opportunity? 

Mr. ELMENDORF. It is harmful to our economic growth, Senator. 

I do not want to speak to how an individual feels about this because there are pros and cons. But it does reduce our economic 

growth, absolutely. 

Senator GRASSLEY. Thank you. According to CBO, Federal reve- nues are expected to reach $3 trillion this year, or 17.5 percent of 

the economy, which is just a little bit below a 40-year average. 

Over the 10-year window, revenues are expected to grow at the 

same pace as the economy and average about 18.1 percent of GDP. 

Conversely, Federal spending for 2014 will be 20.5 percent of GDP, 

which matches about a 40-year average. CBO projects the outlays 

will grow faster than the economy over the next decade and will 

equal 22.5 percent of GDP by 2024. 

What is the economic impact of spending that consistently outpaces revenue? And, secondly, doesn’t this demonstrate that we 

have a spending problem that is fiscally unsustainable? 

Mr. ELMENDORF. Yes, Senator. We think the Federal budget is 

on an unsustainable path. As you understand, when spending outpaces revenues for prolonged periods of time, especially after we 

get out of this current economic downturn, then that extra—those 

deficits lead to an accumulation of Federal debt. That debt crowds 

out some private capital investment, which reduces GDP and 

wages and incomes relative to what they otherwise would be. 

In addition, as I noted, the rising debt reduce your and your colleagues’ flexibility to respond to unexpected challenges that arise 

and raises the risk of a fiscal crisis down the road. 

Senator GRASSLEY. Since CBO’s previous baseline budget projection of May 2013, you have raised the estimate of the cumulative 

deficit between 2014 and 2023 by $1 trillion. According to CBO, 

most of the increase in projected deficits results from lower economic growth and, thus, lower tax revenue. 
128 

First question: Can you describe what economic factors have led 

to the lower economic growth projections? And, secondly, can you 

describe what impact the Federal debt at 79 percent of the economy will have on economic growth? 

Mr. ELMENDORF. So, Senator, the second question first. The high 

amount of debt, the historically high amount of debt that we 

project throughout the coming decade will diminish economic 

growth by the end of the decade by crowding out some capital investment and reducing our ability to produce. 

The downward revision to our projection of GDP actually stems 

from a large collection of factors, no one of which was dominant but 

almost all of which ended up going in the same direction. And we 

looked at revised data from the Bureau of Economic Analysis and 

the comprehensive revision to national income accounts last year. 

We reassessed how close we thought actual output would get to potential output by the second half of the decade. Historically, in fact, 

there has been some shortfall there, and we built that into our projection this time. 

We took a new look at the effects of the Affordable Care Act on 

the labor force, as we have been discussing, and a number of other 

factors as well. And the collection of those factors brings down, by 

our estimate, real GDP, inflation-adjusted GDP, by 2 percent at the 

end of the 10 years relative to what we thought before. We have 

also brought down the price level so that nominal GDP in our projection is 3.5 percent below what it was before. And that is the 

dominant factor in our upward revision to projected deficits. 

Senator GRASSLEY. Thank you. 

Thank you, Madam Chairwoman. 

Chairman MURRAY. Thank you. 

Senator Whitehouse? 

Senator WHITEHOUSE. Thank you, Chairman. Welcome, Dr. Elmendorf. 

Mr. ELMENDORF. Senator. 

Senator WHITEHOUSE. We are having an ongoing discussion in 

the Senate about extending unemployment insurance. In Rhode Island, I just flying down sat next to a lady who has a friend who 

sort of meets the profile that we are talking about. She has worked 

all her life, and she was not able to retire, and she lost her job, 

and she is in her 50s, and it is very hard for her to find employment. It is through no fault of her own whatsoever. She is constantly looking for work. In Rhode Island, we still have a 9-percent 

unemployment rate, and if you put the number of people looking 

for work against the number of jobs, there is just no way you can 

make it fit. 

And we are also hearing that if you extend unemployment insurance, that will have an unhelpful effect on our employment numbers because really these are lazy people who are out there goofing 

off, and if they just got a good, solid swat from having their unemployment insurance benefits cut off, then they would get back to 

work. That is what— 

Mr. ELMENDORF. That is not what our analysis shows, Senator. 

Senator WHITEHOUSE. Indeed, your analysis seems to show the 

exact contrary. Could you tell us what your analysis shows of what 
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the effect of extending unemployment insurance benefits would be 

on national unemployment levels? 

Mr. ELMENDORF. So, Senator, our analysis suggests that if the 

emergency unemployment benefits were extended through this 

year, that would raise real GDP by two-tenths of a percent at the 

end of the year and would increase full-time equivalent employment at the end of the year by about 200,000 positions. 

Senator WHITEHOUSE. So put the other way, to reverse what you 

just said, the Republican insistence on blocking even a paid-for unemployment insurance extension is costing this country a 0.2 percent GDP growth and is costing—will cost 200,000 jobs if it is not 

resolved. 

Mr. ELMENDORF. Senator, I can only repeat our analysis. Your 

attribution of consequences to particular people is beyond the scope 

of my position. 

Senator WHITEHOUSE. But it does have that effect. Those are the 

effects that you have quantified. 

Mr. ELMENDORF. The effects that we wrote about in a letter to 

Congressman Van Hollen in December remain our estimates, and 

we repeat some of them in the report we released last week. 

Senator WHITEHOUSE. Well, on the strength of that, I would take 

this opportunity to urge my Republican colleagues, who came within one vote of doing this—we are one vote away from adding 0.2 

percent to GDP and 200,000 jobs to the economy by doing the right 

thing for people who are out of work through no fault of their own. 

And how we are at a place where that is not something we can 

work together to get done I think is a sad commentary on politics 

in Washington. 

My time is running out, so let me close. I hear my colleagues on 

the other side talk about the debt and the deficit and say how— 

you know, to use words that were used today—this is a problem 

that needs to be fixed. And the enthusiasm and the passion and 

the militancy with which our colleagues on the other side pursue 

the debt and the deficit problem I think is commendable. What concerns me is that that passion and that militancy and that determination evaporates as soon as you are talking about benefits that 

go out to wealthy folks and to corporations through the Tax Code. 

We are, I think, more than happy to work to reduce our debt and 

deficit, but it is impossible for me to look at adding to the cuts that 

we have applied to middle-income families and to investments like 

infrastructure and scientific exploration and innovation, and at the 

same time be protecting the right of the hedge fund billionaire to 

pay a lower tax rate than a brick mason in Rhode Island. 

And my test of when our colleagues are going to be actually serious about the debt and the deficit is when it is no longer less important than protecting carried interest for hedge fund billionaires. 

As long as the primary thing is to protect that tax benefit and a 

horde of others that go to high-end and corporate politically influential people, you cannot put those to me side by side and say that 

we are actually really all that serious about the debt and the deficit. You are only as serious about the debt and deficit as you are 

putting it in relation to other things, and put in relation to protecting hedge fund billionaires paying lower tax rates than brick 

masons to me puts a context into that claim. 
130 

Thank you. 

Chairman MURRAY. Senator Toomey. 

Senator TOOMEY. Thank you, Madam Chairman. 

Well, first let me say, Dr. Elmendorf, thanks for being here, and 

I just want to compliment you and your team. My staff and I have 

on numerous occasions turned to your office for help when we are 

wrestling with legislative challenges. Whether it is potential 

changes to the Flood Insurance Program or granting the administration some flexibility in managing through a difficult sequester, 

your staff has consistently and timely been responsive in helping 

us to understand the budgetary implications, the scoring implications, and that is a very, very helpful service. So you have a great 

team, and I want to thank you for that. 

Mr. ELMENDORF. Thank you very much, Senator. That means a 

tremendous amount to all of us. 

Senator TOOMEY. Well, they do a great job. 

I do have to say I am shocked, have been since last week—not 

by your analysis that suggests that if you increase incentives to 

leave the workforce, some people will, in fact, leave the workforce. 

That is not shocking. That is not revolutionary. What is shocking 

to me is my colleagues suggesting that this is a great thing, that 

it is somehow a good thing to diminish the incentives to work. I 

do not know how we got to the place in America where work has 

become a terrible thing that we must unshackle people from the 

misery of having to be productive and from actually supporting 

their family. And I do not know how it is lost on so many people 

in this town that work is a source of dignity and it is the way people get ahead. And it has always been the source of advancement 

in our society. 

I am not asking you to comment on that. I think you would probably rather not. But I do want to be clear. Your analysis about the 

effects, the result from the incentives of Obamacare, your analysis 

says that we will have a smaller workforce as a result. Correct? 

Mr. ELMENDORF. Yes, absolutely. 

Senator TOOMEY. And a smaller workforce means a smaller economy. 

Mr. ELMENDORF. Yes, that is our estimate, Senator. 

Senator TOOMEY. So your analysis is that, as a result of this phenomenon, we have less total output, and I think it is very clear 

that that means less opportunity, less prosperity. 

One of the things that is really disturbing about your projections 

is how meager the economic growth forecast is. For most recent 

decades—I am not sure exactly what the time frame I have here 

is—actually, I guess about the last 60 years or so, even including 

the Great Recession, average real GDP growth has been over 3 percent. You are projecting that starting from next year forward it just 

gradually declines every year, every single year, until we get to 

about 2 percent, which is well below our historical average. And 

what that means is just fewer people working, fewer people getting 

raises, fewer people advancing in a lower standard of living. Isn’t 

that what it means to have a 2-percent GDP growth instead of a 

3-percent GDP growth? 

Mr. ELMENDORF. So let me just be clear here that the thing that 

slows throughout the decade is the growth of potential output. We 
131 

think there will be some recovery of actual output up to our potential as we continue the recovery. But then potential output growth, 

you are right, Senator, we think will be much lower in the future 

than in the past. The most significant part of that is the demographic change. It is the retirement of the baby boomers. But there 

are other factors as well. 

Senator TOOMEY. Well, there are, and, in fact, you knew very 

well the demographics of the aging population last year. That has 

not changed in the last year. Demographics are very immutable. 

But yet you have reduced your forecast for the actual size of our— 

in fact, you reduced it so much between last year and this year, it 

is $1 trillion, which is a hard number to—roughly $1 trillion in 

2024. It is hard number to wrap your brain around, so one way to 

think about it, that is the total economic output of Pennsylvania, 

West Virginia, Delaware, and Maryland combined. That is how 

much you have diminished your forecast of economic growth in 

2024. 

So could you share with us the main reasons that you think our 

economy is going to be so much smaller now than you thought a 

year ago? 

Mr. ELMENDORF. So there are a large collection of factors, Senator. Part of it was that the national income accounts data were 

revised last summer, and that affected our view of how much output had grown in the past. It affected our view of what productivity 

growth was likely to be going forward. There were new data that 

changed our view of how much the labor force had grown in the 

past. So a lot of factors. 

We also did, as we have discussed, a re-evaluation, a very intensive examination of the effects of the Affordable Care Act. And so 

this collection of things, it turned out that the revisions were largely in one direction. But we do think our current projection is the 

best one that we can give you at this point in time, recognizing tremendous uncertainty— 

Senator TOOMEY. But a significant contributing factor is the decline in the total workforce participation rate. Isn’t that— 

Mr. ELMENDORF. That is absolutely right. If you look at the—the 

most significant factor explaining why growth will be slow in the 

future relative to the past is slower growth of the labor force. And 

that is partly the retirement of the baby boomers. It is partly that 

the big increase in women’s participation in the labor force in the 

1970s and 1980s will not be repeated. 

Senator TOOMEY. Right. But you knew that last year. I am talking about— 

Mr. ELMENDORF. We knew that last year. 

Senator TOOMEY. —the difference from this year to last year. 

I see my time is out, and I appreciate your answers, Dr. Elmendorf. I would just suggest that since the Great Recession, we have 

been in this great experiment with virtually and in some ways 

completely unprecedented governmental policies, massive expansion in regulatory burdens imposed on the economy, huge tax increases, massive surge in spending, which has since declined somewhat but is projected to grow again, completely unprecedented 

monetary policy. And I would just suggest that the data that is 
132 

coming in is indicating this is not working so well, and the forecast 

is for it to get worse. I hope we will get off this path. 

Thank you, Madam Chairman. 

Chairman MURRAY. Senator Kaine. 

Senator KAINE. Just quickly, by way of introduction, there is a 

lot of food for thought in this, Senator Toomey’s comments about, 

you know, does the ACA disincentivize work. The way I look at it, 

the Federal Government has been disincentivizing work for a long 

time. I mean, it used to—through tax policy. We used to tax investment income at a rate that was less than wage income—I am sorry. 

We used to tax investment income at a rate significantly higher 

than salary and wages. Then they reached a rough equivalence, 

and now we decide to tax work much heavier than we tax investment income. So if we are going to look at what disincentivizes 

work, we need to tackle the tax expenditure issue. That is my editorial comments. 

The questions I want to ask, to make sure I understand the report, deal with revenue as a percentage of GDP and spending as 

a percentage of GDP. 

Dr. Elmendorf, as I read the report—and this is pages 79 and 

80—on revenue as a percentage of GDP, the 10-year average you 

project from 2014 to 2024 is about 18.1 percent. It varies over the 

10 years, but that is the average. 

Mr. ELMENDORF. Yes. 

Senator KAINE. The 40-year average going back essentially to the 

start of Medicaid and Medicare 40 years, is 17.5 percent. So the 

next 10 years we are projecting to be somewhat higher. But on the 

five times when we have had a balanced budget, the average of 

revenue to GDP is between 19 and 20 percent. Is that correct? 

Mr. ELMENDORF. Yes, that is right, Senator. 

Senator KAINE. For the record, I would like to ask you to submit 

an answer to this question later, and that is, if over the next 10 

years, instead of an 18.1 percent revenue to GDP we had a 19.5 

percent, or whatever the average is of the 5 years when we balanced it, we had a 19.5 percent revenue to GDP, what would that 

do to the deficit projections over the next 10 years? And what 

would it do the projections of annual interest payments over the 

next 10 years? 

Now, I know that involves some assumptions that you could just 

up it to 19.5 without having cross-wind economic effects. But I just 

would like to know mathematically—because I believe what we 

have is not just a spending problem but a revenue problem. I would 

like to know mathematically, if we had revenue at 19.5 percent of 

GDP, what would that do to deficit projections and Internet expense over the 2014 to 2024 period? 

Mr. ELMENDORF. We will provide you that answer, Senator. 

Senator KAINE. Similarly, on spending, which is at pages 49 and 

50 in your report, you project from 2014 to 2024 that spending will 

go from 20.8 percent of GDP to 22.4, and the components of that 

are also interesting: Social Security from 4.9 to 5.6; major health 

programs, Medicare especially, from 4.8 to 6.1; other mandatory 

programs dropping from 2.5 to 2.2; discretionary programs really 

dropping from 6.4 to 5.2; interest payments going up as a percentage of GDP from 1.3 to 3.3. 
133 

For the record, I would like to ask you to calculate where tax expenditures fit in this component. In your section in the CBO report 

on spending, you do not have tax expenditures. You would consider 

that more on the revenue side. But based on the work that we have 

done on this Committee and the Chairwoman’s opening statement 

that the tax expenditures are virtually larger than any other programmatic line item, and they are every bit as much, quote, entitlements as other entitlement programs. Unlike the budget that we 

battle every year how much to put into Pell grants, so often these 

tax expenditures get put in the codes, and then we just, you know, 

let them go forever. I would be interested over the course of 2014 

to 2024 as to what is the projection of tax expenditures as a percentage of GDP and how that would change over the 10-year period. I know that involves some assumptions, too, assumptions 

about congressional behavior, will tax expenditures be extended, et 

cetera. But obviously you have built some of that into your revenue 

projections, anyway, and I would like to see the magnitude of tax 

expenditures as a percentage of GDP, as a follow-up question for 

the record, if that is okay. 

Mr. ELMENDORF. We are happy to do that, Senator. I will say 

that we have a discussion of the tax expenditures in the revenue 

chapter of the report. We note there that the 12 largest tax expenditures, which are about three-quarters of the total dollars, would 

total about 6.5 percent of GDP over the coming decade. 

Senator KAINE. So if the 12 largest are 6.5 percent of GDP and 

they are three-quarters, then you are probably talking about a total 

of like 9 to 9.5 percent of GDP if you put all the tax expenditures— 

Mr. ELMENDORF. I think that is right. I think we have not projected all of them out over the entire decade, which is why we put 

it that way. There is a widespread consensus among analysts that 

tax expenditures have the same types of effects on the budget and 

on the economy as many types of direct Federal spending and, 

thus, should be viewed comparably by analysts and by policymakers. 

Senator KAINE. They cost money, but they can also kind of warp 

market behavior. I would love that answer with all of the tax expenditures added in, but just if I am doing the math right, for the 

12 largest at 6.5 percent or three-quarters of the total, and so the 

actually total is closer to 9.5 percent, I mean, that is significantly 

larger than Social Security, significantly larger than Medicare and 

other health programs, and almost double of what the discretionary 

budget would be over the next year. So I would just ask you to submit that answer for the record. 

Mr. ELMENDORF. Yes, Senator. 

Chairman MURRAY. Senator Johnson. 

Senator JOHNSON. Thank you, Madam Chair. 

To start out with, there are a number of things I agree with you 

in your opening comments. You said that we really want to drive 

for opportunity growth. I think we have pretty well established, I 

think, in the testimony that the Affordable Care Act is going to decrease economic growth by shrinking our labor force. I also agree 

that we need to address our long-term fiscal challenge. 

I disagree with the way you typify certainly what folks like me 

want to do in terms of a debt ceiling. It is not about demanding 
134 

a ransom. It is about trying to instill, if we are going to increase 

the debt burden on our children and grandchildren, I think most 

Americans would expect us to at least enact some reforms to the 

long-term entitlement programs, you know, instill some additional 

fiscal discipline. 

So let me start out there, Director Elmendorf. If we stopped deficit spending today—and I realize that is kind of a long shot. If we 

stopped deficit spending today, other than maybe some short-term 

cash flow problems, there would be no reason whatsoever to increase the debt ceiling. Correct? 

Mr. ELMENDORF. Well Senator, as you know, the unified budget 

deficit does not capture all the forces that lead to an increase in 

the debt subject to limit. 

Senator JOHNSON. Okay. There could be some cash flow issues. 

There can be some work—I got that. But, in general, in terms of 

how much, how dramatically we are having to increase the debt 

ceiling, by and large the reason we have to increase the debt ceiling 

is because we continue to deficit spend. Correct? 

Mr. ELMENDORF. Yes, that is right, Senator. 

Senator JOHNSON. Okay. I have a chart up here, because I think 

as a problem solver myself, the first step in solving a problem is 

you have to admit you have one. And when I hear people say that 

Social Security is solvent to the year 2033, I challenge that assumption. And the next step is you have to properly define it, and 

I would continue to argue that we do not have a 10-year budget 

window problem; we have a 30-year demographic problem. 

What we have done with your CBO estimates is, you know, everything you do is basically a percentage of GDP, or most of what 

you do, which certainly I found in talking to my constituents, they 

do not quite—that does not really do it for them in terms of understanding the problems. 

So what we have attempted to do—and I would certainly like 

your input, and I want to make sure that we are getting this right, 

but off of the latest CBO projections, we have taken those percentages of GDP, put numbers to them, this is what we come up with 

over the next 30 years; in other words, deficit spending of $8 trillion in the first decade, $31 trillion in the second decade, $88 trillion in the third decade—for a whopping total of $127 trillion. 

And I want to first focus on Social Security because I appreciated 

during our December budget conference committee hearing when I 

was just kind of going through the practicality or the reality of the 

fact that, yes, the Social Security Trust Fund holds right now $2.7 

trillion of Government bonds, but the Treasury has that offsetting 

liability which nets to zero. And your CBO projections of basically 

deficit spending in the Social Security Trust Fund—in other words, 

the amount of benefits we are going to pay out that exceed the payroll tax, it is about $15 trillion. Is that largely correct? 

Mr. ELMENDORF. We have not done the calculation in dollar 

terms as you have, Senator, but it certainly would be a large number, and I would defer to your calculation. 

Senator JOHNSON. Well, I tell you what. It seems that you are 

being very cooperative with Senator Kaine in terms of providing 

those types of calculations. We have been asking—and your staff 

has been helpful, but I would really like the CBO to start con-
135 

verting these percentages of GDP. You do provide long-term GDP 

figures in dollars. I think if you convert all the rest of your alternate scenarios and baselines in dollars, that would be extremely 

helpful. 

Mr. ELMENDORF. As you know, Senator, we focus on shares of 

GDP because we think that nominal dollars have less and less 

meaning as one goes further and further out. We project that GDP 

over the coming decade will be more than $200 trillion in aggregate. So we find that these sorts of numbers without the context 

of the size of the economy around them have the potential to be— 

Senator JOHNSON. But you—you know, so—but it is all relative. 

So you publish the dollar amount of the size of the economy. So in 

30 years, the size of the economy, according to your numbers, will 

be $64.8 trillion, and, you know, so off of that, percentage of GDP, 

what we are coming up with is the deficits, the cumulative deficit 

over that time period would be $127 trillion. Our debt at that 

point, based on those projections, by the way, would be—I have it— 

about $128 trillion divided by the $64.8 trillion economy, would be 

197 percent debt held by the public as a percentage of GDP. Those 

are real scary numbers. 

Let me put this further into context. Then I will be done. 

To put that number into context, because I realize trillions of dollars are just incomprehensible, currently the net private asset base 

of America, all assets held by businesses, large and small, and 

households is about $96 trillion. So in the next 30 years—which, 

by the way, my little baby is now 30 years old, and that went by 

[snaps fingers] like that. So the relevant time frame, the babyboom generation retiring, all these benefits we promised and we 

have not made adequate provisions to pay for it, that long-term fiscal challenge that Madam Chair talked about us addressing, the 

only way we are going to address that is if we admit we have the 

problem, we start properly defining it, and put it in the terms that 

the American people understand. Percentage of GDP is not a term 

or a way of presenting this that the American people understand. 

I think they will start getting that, and if we start talking in these 

terms about the real danger facing this Nation, we just might have 

an opportunity to, in a bipartisan fashion, get everything on the 

table and start working toward real solutions so we stop mortgaging our children’s future. 

Thank you. 

Mr. ELMENDORF. Thank you, Senator. 

Chairman MURRAY. Senator Baldwin. 

Senator BALDWIN. Thank you, Madam Chairwoman and Ranking 

Member Sessions. Thank you, Dr. Elmendorf, for being here. 

A lot of the terrain that I intended to cover has already been covered by my colleagues, but I thought I would still like to visit it 

with perhaps a Wisconsin face. 

Starting with the report on the impact of the Affordable Care Act 

on people choosing to leave the workforce, to me this brings me directly to a bunch of very hard-working people who I have been 

proud to represent, both in the House and the Senate, for many 

years, and I think of family dairy farms. For so many years, one 

of the family has usually had to leave the farm to work solely to 

bring in health insurance, whether it is because of the pre-ACA 
136 

rules whereby insurance companies could deny coverage with preexisting health conditions or simply the risks and actuarial risks 

associated with covering a small organization in a risky business. 

And that story has repeated itself—you know, I have met so many 

folks that are in that situation, and I think about the fact that they 

may, now that they can get family health coverage in a marketplace, choose to leave those jobs, and that that will be counted in 

one way, but I can assure you, when they return full-time to the 

farm, they will be working, both investing their efforts and labor 

in raising their families, caring for senior relatives, but also engaged in the economic activity of the farm. 

And I appreciated your blog entry the other day trying to bring 

greater clarity to what sort of movement in and out of the workplace this is, that, you know, when somebody is laid off, we mourn 

and we are upset, but when somebody chooses to leave in this sort 

of manner, whether it is retiring or doing what they really want 

to be doing, work in their family enterprise, that is more of a reason for celebration. 

I also note in the report on the slow recovery of the labor market, 

some of the recent numbers on the number of job seekers per job 

opening that exists—of course, we reached a huge peak in, I guess, 

2009 of 6.7 job seekers per open job, and then dropped to what is 

now I guess 2.7— 

Mr. ELMENDORF. Yes. 

Senator BALDWIN. Somewhere I have been hearing between 2.7 

and 2.9 in the fall of last year. And so I know it is not a part of 

your Affordable Care analysis to talk about what happens when 

people do leave the job market or leave jobs because they can secure health insurance. But is it reasonable or logical to assume 

that there will be 2.7 people today looking to seize that opportunity 

if that displacement and dislocation occurs? 

Mr. ELMENDORF. Yes, Senator, the effects of changes in the supply of labor are very different under the economic conditions we 

face in the country today, where there is, as you noted, a large excess of people looking for jobs who cannot find them, than the effects that that reduction in labor supply will have later in this decade when we think that the job market will have tightened considerably. 

Under current economic conditions, where really it is the demand 

for labor that is limiting the level of employment, changes in the 

number of workers does not have much effect on the actual ultimate level of employment. However, by later in the decade—I think 

that is the point you are referring to, but I want to emphasize, 

later in the decade, when the job market will have tightened, that 

is a point at which we think changes in the labor supply really will 

translate into changes in the number of people who are employed, 

because we think that this 2.7 number will come back down to the 

more standard level we have in the labor force, just given the normal turnover. 

Senator BALDWIN. And I know that my time is running out, so 

I just briefly want to associate myself with some of the previous 

comments on our ongoing debate on extending emergency unemployment benefits long-term unemployment benefits. When you 

were last before the Committee, we actually engaged in a conversa-
137 

tion based on the Federal Reserve paper on the long-term unemployed and how they have become less attached to the workforce 

and have lost skills they once held and present other real challenges. 

I just have to say, when this emergency unemployment compensation lapsed at the end of December, the statistics in Wisconsin are about 23,700 Wisconsinites lost benefits. It is supposed 

to, if let continue throughout the year, hit somewhere close to 

99,000, and we know the statistics nationally. 

The stories are heartbreaking—foreclosure, I hear from folks on 

the number of jobs they have applied for, the budgets that they 

have been trying to live on with unemployment assistance and 

what that will mean to not have it. 

I guess I just would ask, is it correct to state that extending unemployment insurance is one of the most cost-effective ways to 

stimulate a weak economy? 

Mr. ELMENDORF. Yes, that is right, Senator. A report that we did 

a couple of years ago about a number of alternative possibilities 

that you and your colleagues could pursue to strengthen the economy and add jobs in the short run, expansion of unemployment insurance benefits was the most cost-effective item on that list. 

Senator BALDWIN. Okay. Thank you. 

Chairman MURRAY. Senator Ayotte. 

Senator AYOTTE. I want to thank the Chair and the Ranking 

Member and thank you, Dr. Elmendorf. I appreciate your being 

here today. 

I wanted to ask you, yesterday the administration announced another delay in the implementation of the Affordable Care Act for 

the business community. Businesses with 50 to 99 employees were 

given an additional year to comply with the law, and businesses 

with 100 or more employees are now able to phase in their compliance with the law. 

Is this something you have looked at? And has the CBO had an 

opportunity to review this most recent change and budgetary impact? And do you think it will have a difference? I mean, in your 

report, you basically, I think, put off some of the conclusions based 

on the original data of the employer mandate going in in 2015 in 

terms of what the impact will be on, for example, part-time employment, other employment issues. Where do we stand with all of 

these changes made essentially unilaterally by Executive order to 

this law in terms of CBO’s analysis on the overall impact on the 

workforce? 

Mr. ELMENDORF. So the analysis in this report, the reports we 

released last week, both in terms of the budgetary effects and the 

economic effects of the Affordable Care Act, are based on our view 

of how the Affordable Care Act would unfold as of early December. 

So these analyses we do are very complicated, and we need to stop 

taking on board changes in what is happening and focus on the 

analysis in order to get these reports done. We are already at work 

on our next baseline projections. Every year, as you know, we do 

projections in the spring that are the basis for our cost estimates 

for the rest of the year. So we are already working to update our 

projections for the Affordable Care Act and other aspects of the 

budget. 
138 

Yesterday’s announcement was, of course, as much a surprise to 

us as you. These things are complicated, so people have started to 

look at it. But we have reached no conclusions yet. But our spring 

baseline projections will incorporate the effects of all of the changes 

in policy that we can get in as well as all that we learn about what 

is happening in the insurance exchanges and in Medicaid programs 

in different States and so on. That is why we labeled these updates 

that we released last week as, quote, both partial and preliminary. 

Senator AYOTTE. Well, at the rate the administration is changing 

this law unilaterally, I think your people are going to have to be 

working overtime, because it seems like it is a moving target. So 

I think this could be a real challenge for you. 

Mr. ELMENDORF. I assure you, Senator, the people who work in 

health care are working over time. 

Senator AYOTTE. I bet they are. I can only imagine. 

I wanted to ask you about the issue that Senator Toomey asked 

you on the conclusion in the report about the reduction essentially 

in the labor participation rate that you have predicted as a result 

of the Affordable Care Act. Are you concerned at all when you look 

at this reduction in the labor force in terms of the impact on the 

subsidies that will cause some people to either leave the workforce 

or work less hours, as I understand your report? Did I understand 

it correctly? 

Mr. ELMENDORF. Yes, that is right. 

Senator AYOTTE. Okay. Who will that have a more disproportionate effect on—lower-wage workers or higher-wage workers? 

Mr. ELMENDORF. The change in the labor supply will be primarily by lower-wage workers because they are the people who are 

facing the largest change in incentives under the Affordable Care 

Act. 

Senator AYOTTE. So are you worried at all that the incentives 

could have discouragement also on upward mobility? Because if 

there is a relationship between the amount of subsidy that you receive and whether or not you will continue working or perhaps seek 

higher employment, could that become a discouragement to upward 

mobility? In other words, do I take that promotion or don’t I for 

lower-wage workers? We want to encourage more upward mobility. 

Mr. ELMENDORF. Yes, Senator. I think the provisions in the Affordable Care Act that we studied reduced the incentive to provide 

more labor, and that can be reducing the incentive to work more 

hours or reducing the incentive to work harder in those hours or 

to do other things that would advance one’s labor earnings. 

Senator AYOTTE. So is it fair to say one of the concerns we should 

be keeping an eye on here is that the structure of the law could 

reduce some incentives for upward mobility—in other words, people 

seeking to go sort of up higher in the workforce depending on 

how—based on the structures of the subsidies? That is what I am 

trying to understand. 

Mr. ELMENDORF. So I think, Senator, that the particular provisions that I have talked would, as you are suggesting, reduce upward mobility in that way, but I want to be very careful not to 

make that conclusion for the Affordable Care Act as a whole because we have not done that particular analysis. And the provision 

of subsidized health insurance to lower-income people may also af-
139 

fect their upward mobility, and we simply have not analyzed that. 

So I think these particular provisions that we are talking about 

that reduce the amount of labor supply do reduce the incentive for 

people to move up the earnings ladder. But I do not want to suggest that we have drawn that conclusion for the Affordable Care 

Act as a whole, because other aspects of the provisions could have 

different effects, and we have not studied— 

Senator AYOTTE. No, and I understand, and I would not ask you 

to draw it as a whole because we do not really know yet, with the 

changing landscape, with the Executive orders, exactly when things 

will be implemented on the whole. So I can understand why you 

would want to qualify your answer. I appreciate it. 

Mr. ELMENDORF. Thank you, Senator. 

Senator AYOTTE. Thank you. 

Chairman MURRAY. Senator King. 

Senator KING. Thank you. 

Dr. Elmendorf, first I would like to say you are the indispensable 

man around here. I admire you, and I admire you even more today 

watching you. You remind me of the guy walking on the tightrope 

across the Grand Canyon between the various questions, and I 

think you are doing it very well, and you are providing a tremendous service to us. 

One technical question, then some more larger ones. What is the 

lag time in terms of the increase in interest rates and effects on 

interest charges? In other words, if all of our debt today was locked 

in 10 years at 2 percent, an interest rate change next year would 

have no effect, as I see it, and I am just trying to understand what 

components of the debt are locked in and what are short term? Because I am concerned about this interest rate increase and the impact on the budget and the crowding out of other priorities, but 

there is a time lag thing here, isn’t there? 

Mr. ELMENDORF. Yes, there is, Senator. In our estimates of the 

effect on the budget of having interest rates that are 1 percentage 

point higher throughout the coming decade, we take explicit account of the phenomenon you are describing, which is that the Government will sell some new debt next year, and that will incur the 

higher interest rates right away. Other debt it will not roll over for 

8, 9, 10 years, and some debt will not mature at all within the 10- 

year budget window. 

Senator KING. So it would not be accurate to take $17 trillion 

and say if interest rates go up next week 1 percent, then 1 percent 

of $17 trillion, that is not the way— 

Mr. ELMENDORF. That does not work. What we publish in this 

appendix to the outlook is itself a rule of thumb for you and your 

colleagues to use, but that rule of thumb takes account of the phenomenon you are describing. 

Senator KING. Thank you. And I perhaps want to follow up on 

that to get the data. 

Mr. ELMENDORF. We are happy to talk to you, Senator. 

Senator KING. All this talk about the effect of the Affordable 

Care Act on people’s employment decisions, I believe that in the 

long run probably the most lasting and important effect of the Affordable Care Act will be the very subject we have talked about, 

which is the virtual elimination or certainly the significant reduc-
140 

tion of job lock, because it is going to free people to start new businesses. That is where the dynamism comes in the country. And I 

know people and I am sure everyone in this room knows people 

who said, ‘‘I have a great idea, but I cannot leave my job because 

I have a sick child and I cannot lose my insurance.’’ 

So, you know, this idea that somehow we are discouraging people 

from work, we are actually liberating people to follow the American 

principle of self-determination and creativity and innovation. And 

I think that is a hidden benefit, frankly, of the Affordable Care Act 

that I am not sure people really calculate. I realize that is hard to 

calculate in economic terms, but I believe that that is going to be 

very significant. 

The idea that somehow the Affordable Care Act by taking away 

the linkage between employment and health insurance is something we should discourage, we want everyone to work, you know, 

pensions, Social Security, why not have everybody work until they 

are 100? I mean, that just does not make sense to me. We want 

people working because they need to, they want to, they want to 

provide for their families, and they want to be creative about it. 

A specific question to get to my—another question is: Are tax expenditures expenditures just like Head Start or Pell grants? 

Mr. ELMENDORF. As you know, Senator, they are recorded in different ways in the budget, but there is a widespread consensus 

among analysts that tax expenditures have very similar sorts of effects to direct Federal spending and, thus, should be viewed similarly to direct Federal spending by both analysts and policymakers. 

Senator KING. And I would comment to my colleagues from page 

89 on in the report a very good analysis of tax expenditures, and 

really you say they are almost like entitlements because if you are 

legally qualified, you get them, and they are not examined very 

often, and they just go on forever. Correct? 

Mr. ELMENDORF. Yes, that is right, Senator. 

Senator KING. It just strikes me that we are talking around here 

about how we pay for things, and it is always it is okay to pay for 

it by taking away some benefit that the disabled get or somebody 

else, but to say you cannot look at tax expenditures because that 

is revenues is really a misunderstanding of the fact that the two 

are really virtually identical. 

Mr. ELMENDORF. I want to mention, Senator, we issued a report 

last year that looked in a more in-depth way at tax expenditures, 

including at the distribution of tax expenditures, also at their economic effects, and people who are interested in that topic, we are 

happy to send you that report. 

Senator KING. I have not seen that report, but I am guessing 

that tax expenditures tend to go more heavily to people with higher 

incomes. 

Mr. ELMENDORF. Well, different expenditures are quite different, 

so the earned income tax credit induces some tax expenditures that 

are obviously toward the lower end of the income distribution. But 

the State and local income tax deduction tends to be more for the 

high end of the distribution. So we will make sure you have that 

on your desk today, Senator. 

Senator KING. Fine. I will have one more question for the record, 

but a final question is: Not fixing infrastructure is debt, is it not? 
141 

Mr. ELMENDORF. Well, it is a different sort of future commitment. 

Senator KING. But it has to be paid eventually. 

Mr. ELMENDORF. If we think we will ultimately repair the bridge 

or expand the highway, then not doing it now, putting it off, is putting a burden on the future in a way that is similar to the burden 

of doing something and borrowing to pay for it. 

Senator KING. Carefully parsed, but I would take your answer as 

a yes. 

Mr. ELMENDORF. Senator, I would like to close by noting that although you kindly referred to me as indispensable, as you and your 

colleagues understand, it is my colleagues who are indispensable. 

And if I have good answers for your questions, it is because of the 

things they have taught me. But they also taught me to be careful 

in how I put things. 

[Laughter.] 

Senator KING. And I will bet after last week you certainly understand that. Thank you, sir. 

[Laughter.] 

Chairman MURRAY. Senator Portman. 

Senator PORTMAN. Thank you, Madam Chair. 

Dr. Elmendorf, thank you for your indispensable staff and you 

and your personal responsiveness to our questions and your input 

and for being here today. I have so much I want to ask you about 

and so little time, so I am going to go quickly here. I want to focus 

on three things: 

One, of course, is what the real problem is in the deficit, and I 

think your new report only emphasizes what we already knew. 

Second is, What can we do on growth? 

And then third is, What is the impact of Obamacare on growth? 

In terms of the deficits, this was a discouraging report for me because it shows things are getting even worse. If you could give me 

just a series of quick yes-or-no answers, that would be great. 

Am I correct that in the past 50 years Federal revenues have 

averaged just under 18 percent of GDP? 

Mr. ELMENDORF. Senator, we have averages for 40 years, and we 

say it has been about 17.5 percent. 

Senator PORTMAN. Less than 18 percent over the last 40 years. 

Over the next decade, you projected that it would average more 

than 18 percent of GDP. Is that right? 

Mr. ELMENDORF. Yes. 

Senator PORTMAN. And you are saying it will keep rising thereafter? 

Mr. ELMENDORF. Under current law, yes. 

Senator PORTMAN. Okay. So the notion earlier we talked about, 

you know, that we need more revenue, we are above the historic 

average based on your projections over the next 10 years and continuing to grow. 

How about discretionary spending and what we call other mandatory spending? Are those falling as a percent of the economy over 

the long term? 

Mr. ELMENDORF. Yes, under current law, Senator, and the projection— 
142 

Senator PORTMAN. Okay. So what is left? Discretionary spending 

is what we appropriate here every year; ‘‘other mandatory’’ is part 

of the two-thirds of the budget that is mandatory. Social Security, 

health entitlements, 7.8 percent of GDP in 2005, now 9.7 percent 

of GDP, on their way to 13.7 percent of GDP in the next 20 years. 

Is that correct? 

Mr. ELMENDORF. That sounds right, Senator. 

Senator PORTMAN. And you project that health entitlements 

alone are going to go up over 100 percent, more than double, 115 

percent in the next 10 years now. Is that right? 

Mr. ELMENDORF. The spending for the major health care programs we project to rise from 4.8 percent of GDP this year to 6.1 

percent in 2024. If you are referring— 

Senator PORTMAN. In nominal terms— 

Mr. ELMENDORF. —to a nominal— 

Senator PORTMAN. In nominal terms, you go 115 percent over the 

next 10 years. 

Mr. ELMENDORF. I take your word for it, Senator. 

Senator PORTMAN. Okay. Steeply rising national debt and its resulting interest costs are mostly the result of what, borrowing for 

what specific programs? 

Mr. ELMENDORF. Well, the borrowing is for the gap between 

spending and revenues, as you know, Senator. 

Senator PORTMAN. Right, but— 

Mr. ELMENDORF. But the part of the budget which is— 

Senator PORTMAN. We just talked about the fact that— 

Mr. ELMENDORF. —growing most substantially is spending for 

Social Security and the major health care programs. 

Senator PORTMAN. Okay. So we have identified what the focus 

ought to be. We are heading toward record high tax revenues over 

the decade, nearly record low discretionary spending, falling other 

mandatory spending, so we are talking about these important programs but unsustainable in their current form, health care entitlements, Social Security, and the resulting net interest cost. Is that 

correct? 

Mr. ELMENDORF. There is a striking shift in the composition of 

Government spending toward those few large programs you have 

highlighted, Senator, yes, and away from other things. 

Senator PORTMAN. So the next question is, How do you solve 

that? Obviously we need reforms, again, incredibly important programs. But we have heard a lot about a balanced solution which 

basically is to make the next generation pay the cost for our generation as opposed to reforming these programs. So that is very 

clear in your report. This is the problem. We have to address it. 

And if we do not, we will face consequences you talked earlier, including the possibility of a fiscal crisis. 

Second, the economy. I found it depressing, actually, what you 

put on your report. I am not saying you are wrong. I am saying 

that you are asking us to accept a new normal, and that new normal is not for 5 percent growth. It is 2 percent growth. In fact, 

what you tell us is that in this new baseline you have pared back 

your economic growth assumptions, which, by the way, have always been more optimistic than what actually happened in the last 

several years, and so I understand why you did it, 2.5 percent over 
143 

the next decade, decelerating to just 2 percent in 2024; $1.4 trillion 

less tax revenue, therefore, over the next decade. And, you know, 

this is not the first time this has happened. Since, again, President 

Obama took office, you have consistently come out with decreases 

in projected economic growth. Those have translated just in this 

President’s term to more than $2.2 trillion in reduced tax revenue 

when you take those projections out to 2024. And, remember, this 

is all about the bad economy since the President took office. 

So earlier you talked about this, but economic growth obviously 

is key. Restraining the spending, the growth, we need it. Economic 

growth through tax reform, would that make sense, lowering the 

rate and broadening the base? 

Mr. ELMENDORF. That would be good for the economy, Senator, 

but— 

Senator PORTMAN. How about trade? 

Mr. ELMENDORF. It depends on the specifics of the reform. 

Senator PORTMAN. Would trade be good for the economy, expanding trade? 

Mr. ELMENDORF. Yes, it probably would be, Senator, again— 

Senator PORTMAN. Okay. Trade promotion authority is before us 

right now. How about long-term debt reduction through these reforms we have talked about? 

Mr. ELMENDORF. That would be good for the economy in the— 

Senator PORTMAN. That would be good for the economy, so it is 

three— 

Mr. ELMENDORF. —long term, Senator. 

Senator PORTMAN. —things. How about more domestic energy 

production? 

Mr. ELMENDORF. I think that would be good for the economy as 

well, and— 

Senator PORTMAN. This is what is frustrating, is we have these 

things that you know would work and we know would work, and 

if we would just do them, we could both deal with the spending 

side and the growth side. 

On Obamacare just quickly, I appreciate you looked at the work 

of Casey Mulligan and others at the University of Chicago. There 

has been a lot of talk about this today. People are leaving the 

workforce because of this sharp cliff. I would say to my colleagues 

on the other side who said, you know, this is all about moms who 

want to stay home with their kids and it is all about people starting new businesses or even working in their family businesses. I 

mean, if you are working, you are working, and you are not out of 

the workforce, first. But tell us the demographics of this group that 

is likely to drop out. What do you know about them? 

Mr. ELMENDORF. The attributes of the group? 

Senator PORTMAN. Yes. 

Mr. ELMENDORF. So the biggest effects, as we wrote, Senator, are 

primarily on people of lower income because they are the ones who 

are receiving the subsidies through the Affordable Care Act. It is 

the existence of the subsidies and the withdrawal as people’s income rises that create—that reduces the incentive to work. 

Senator PORTMAN. So as Mulligan says, about a 50 percent, in 

effect, tax or penalty on work because of this cliff. But tell us who 

these folks are. Do you think it is primarily people who would like 
144 

to retire early or moms who want to stay home with their kids? 

Who is it? And I ask you this because when you look at the labor 

participation rate, which is already at 1970s levels, it is a record 

low for men right now. It is a record low for working men. And 

here we are taking this labor participation rate even lower, fewer 

people working, which is bad for the economy, it is bad growth, it 

is bad for prosperity. When you look at this data that we know out 

there—and the early indications are this tends to be single men, 

they tend to be childless. And my concern is we are going to even 

exacerbate further this already record level. What do you think 

about that? 

Mr. ELMENDORF. So, Senator, the subsidies under the Affordable 

Care Act affect a broad range of types of people, and we did not 

do this analysis in a way that lets us isolate the effects on particular— 

Senator PORTMAN. Could you look at the Brookings study on that 

and look at whatever else you think is appropriate and get back 

to me on that as to who you think really is going to be affected 

here? We talked about the fact that these are people who you want 

to get on that ladder of opportunity, that income ladder and moving up on the ladder, and this takes them off the ladder, reduces 

their Social Security benefits, as you know, because their lifetime 

earnings are going to be reduced. It takes them out of this possibility of being able to achieve their dream for themselves and their 

families because they lose, again, the dignity and self-respect and 

the opportunity that comes with work. And that is my concern, is 

that—I know you and I disagree on some of the Obamacare impacts on the labor demand side. I think that $1 trillion in new 

taxes does have an effect on workers. I think also the 50-person 

limit and the part-time at 30 hours does have an effect. We may 

disagree on some of that. But this data is really concerning because 

it exacerbates an already terrible problem we have, and you do not 

have to do it. You can solve these health care problems without 

that stiff cliff. And that is one of the differences maybe between the 

two sides here, is that there are ways to do it, including through 

the Tax Code, that have been talked about where you would not 

have that 50-percent penalty and still be able to address many of 

the problems on pre-existing conditions and other issues that have 

been raised today. 

I am over my time. Thank you, Madam Chair, for your indulgence. Thank you, Dr. Elmendorf. 

Mr. ELMENDORF. Thank you, Senator. 

Chairman MURRAY. Senator Coons. 

Senator COONS. Thank you, Senator Murray, and thank you, Director Elmendorf, for your work and for the work of your team and 

for the very valuable report you have delivered. I am struck at how 

across all the questions from members of this Committee, the one 

North Star is economic growth. We have talked back and forth 

about this Grand Canyon that Senator King suggested you are trying to navigate across the tightrope. The other side wants to focus 

almost exclusively on entitlement reform. We want to talk about 

tax expenditures. We think extending unemployment insurance 

will be stimulative for the economy. They think reducing regulatory 
145 

burden—we seem to go back and forth on these issues with great 

predictability. 

One thing that I wanted to ask for your input on was the one 

area where I hear general agreement between our parties, and that 

is in manufacturing. Restoring robust economic growth in the 

United States strikes me as one of the best ways to achieve deficit 

reduction and to achieve return to full employment and to achieve 

a lot of other shared objectives. 

There are about 25 of my colleagues and more than a dozen bipartisan bills that would strengthen significantly the environment, 

the ground for manufacturing, and for the continuing growth in 

manufacturing employment in the United States. Manufacturing 

jobs, as you know, are among the highest-quality jobs, have the 

best multiplier effect, and they have the best impact on their immediate community. And the bills broadly speak to skills, access to 

credit, investment in R&D, export markets, infrastructure. 

Could you just comment on the relative importance of manufacturing as a sector to contributing to growth and what you see as 

appropriate policy actions we might take on a bipartisan basis that 

would strengthen that sector? 

Mr. ELMENDORF. Senator, those are hard questions for which I 

do not have adequate answers. You are certainly correct that manufacturing jobs have tended in the past to provide higher-than-average wages and better than average benefits. But we have not 

done an analysis ourselves, at least at my time at CBO or that I 

am aware of, of what policy actions might do for the manufacturing 

sector and how that might then ripple through the broader economy. 

So, again, you ask questions to which I wish had answers, but 

I do not have them, I am afraid. 

Senator COONS. Well, I would be eager to work with you, if I possibly could, at submitting for some review and discussion a variety 

of both historical and prospective policy tools that have been 

brought to me and to many of my colleagues by the manufacturing 

sector, by manufacturing leaders in my State and the country 

around skills, credit, export, R&D. It is an area where Government 

action and fiscal policy can make a significant, enduring difference. 

Let me turn to one other topic in my time here, which is interest 

rates, and a number of other Senators have asked about this. 

There are, I think, roughly half of our current debt held by foreigners, and they have difficulty, I think, sometimes discerning the 

dance of politics here in the Capitol. I would be interested in what 

you view as the short-term and long-term threats to our interest 

rate, to our debt service costs. We have in recent years had, in my 

view, far too many close calls where there was open discussion of 

the possibility of default, and I think that has increased our borrowing costs. And then there are long-term drivers that also create 

some question about the debt service costs that we may face going 

forward. So if you would just briefly speak to the short-term and 

long-term drivers, I would be grateful. 

Mr. ELMENDORF. So, Senator, we think that defaulting on any 

obligation of the U.S. Government would be a dangerous gamble, 

and that is importantly because, until now, investors had been able 

to count on the Federal Government paying its debt. And if that 
146 

were to change, it would have consequences that could be very severe, but that are hard to quantify given the lack of historical experience. 

Interest rates can go up or down for a variety of reasons, and 

some would be good things for the economy as a whole, but would 

make the Government’s interest burden larger and some—for example, if there were much stronger economic growth than we expect over the next few years, that could increase private credit demands and push up interest rates in a way that would basically 

make this Committee and other people happy about the economy 

but could raise the cost of Government borrowing. If the economy 

is weaker in the next several years than we expect, that could keep 

interest rates lower. 

So there are economic factors that will matter, but also the perceived risk of Treasury securities and the perceived risk of other 

investments. As you know, capital can come into the U.S. Treasury 

market if it is leaving other financial markets that seem more dangerous. There is a wide panoply of factors that can affect interest 

rates, but—although one might root for low interest rates for the 

Federal Government, of course, that might come together with a 

weak economy, which is exactly what you are not rooting for. So 

one does not want to think about high or low interest rates as necessarily correlating with good or bad economic circumstances in 

general. And we look at a variety of forces that can affect interest 

rates. In our projections we think we balance the risks. But the 

risk of rates being a good deal higher or lower than we thought is 

a very real one. 

Senator COONS. But to be clear, if I understood your testimony, 

publicly discussing the possibility of default, urging default as a negotiating tool in policy debates is—and I think I am quoting you— 

a ‘‘dangerous gamble.’’ 

Mr. ELMENDORF. Yes, Senator. 

Senator COONS. Thank you. 

Thank you, Chairman. 

Chairman MURRAY. Thank you very much. I want to thank all 

of our colleagues who participated today. Dr. Elmendorf, I especially want to thank you and, again, this Committee really does appreciate all the hard work that you and all of your staff put in in 

order for us to do our work, so thank you very much for being here. 

As a reminder to all of our colleagues, if you have any additional 

statements or questions, they need to be submitted by 6:00 p.m. 

today. 

Senator SESSIONS. Madam Chair, just briefly, it looks like the 

President’s budget will be late again. There are some reasons for 

that. Director Burwell called to discuss that. 

Chairman MURRAY. She has been very clear that there has 

been—we were late, they are late. 

Senator SESSIONS. But that result is causing us a problem I will 

write you about. Fundamentally, by the time she testifies, we still 

will not have had the complete budget. I think that would be better. So if there is some way we could alter the course we are on 

so that we do have the President’s complete budget when she testifies, I think that would be essential for our smooth operation. 

Chairman MURRAY. I would be happy to discuss that with you. 
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Senator SESSIONS. Thank you, Dr. Elmendorf. 

Chairman MURRAY. Thank you. 

Mr. ELMENDORF. Thank you very much. 

[Whereupon, at 12:19 p.m., the Committee was adjourned.] 

(149) 

THE ECONOMIC AND BUDGET OUTLOOK FOR 

INDIVIDUALS, FAMILIES, AND COMMUNITIES 

TUESDAY, FEBRUARY 25, 2014 

UNITED STATES SENATE, 

COMMITTEE ON THE BUDGET, 

Washington, D.C. 

The Committee met, pursuant to notice, at 10:35 a.m., in Room 

SD–608, Dirksen Senate Office Building, Hon. Patty Murray, 

Chairman of the Committee, presiding. 

Present: Senators Murray, Stabenow, Whitehouse, Sessions, and 

Johnson. 

Staff Present: Evan T. Schatz, Majority Staff Director; and Eric 

M. Ueland, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN MURRAY 

Chairman MURRAY. The hearing will come to order. 

I want to welcome everyone and thank my Ranking Member Sessions and all of our colleagues who are joining us this morning. 

And I want to extend a very special thank you to all of our witnesses for being here today: Edith Kimball, Courtney Johnson, 

Neera Tanden, Robert Doar, and Scott Winship. Thank you all for 

being here. And, Edith, I understand this is one of the rare times 

in your life you 

have seen snow, so welcome to Washington, D.C. 

[Laughter.] 

Chairman MURRAY. Because of the votes that are now scheduled 

starting at 11:15, I am going to be very brief in my remarks. I want 

to make sure we have enough time to hear from all of our witnesses. 

At our last Committee hearing with Dr. Doug Elmendorf, we examined the economic outlook from the macro level, but to me it is 

just as important that this Committee also examines the micro 

level. I want to hear from people across the country about how the 

Federal budget affects them—people like Edith Kimball, from Lee, 

Florida, mother of three, who works as a food service professional 

at her children’s elementary school. Courtney Johnson joins us 

from Columbus, Ohio. She is a high school English teacher and has 

a son in the second grade. I hope their stories today will serve as 

a reminder to all of us that we have work to do to expand opportunities for more Americans. 

The simple truth is, across the country, too many people sit at 

their kitchen table, wondering how they are going to be able to pay 

this month’s bills or save enough to send their kids to college. 
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Those challenges leave people without the opportunities they need 

to get ahead. 

I am hopeful that Congress will build on the bipartisan progress 

that we have seen in the past few months. As we all know, late 

last year, Chairman Paul Ryan and I compromised to reach a 2- 

year budget agreement, and that compromise was a strong step in 

the right direction. And I now hope we can work together to create 

more opportunities for people and families and do that by investing 

in education and job training and manufacturing so more Americans can climb the economic ladder. 

Expanding opportunity is not just the right thing to do; it is good 

for our economy. And it is a good solution for our long-term fiscal 

challenges. 

So I hope we can work together on a bipartisan basis to create 

jobs, grow the economy, invest in our middle class, and expand opportunity for more Americans. And I am looking forward to hearing 

from all of our witnesses today after I turn to my Ranking Member, 

Senator Sessions, for his opening remarks. 

OPENING STATEMENT OF SENATOR SESSIONS 

Senator SESSIONS. Thank you, Madam Chairman. 

CBO Director Elmendorf recently testified before this Committee 

to share an alarming diagnosis. He declared our current debt trajectory to be unsustainable and ‘‘raises the risk of a fiscal crisis.’’ 

The last thing we need is another fiscal crisis. 

One of the clearest indicators of the danger we face is the rising interest we pay. Our debt today stands at $17 trillion, and we owe 

$233 billion, he projects, in interest this year on that debt. In 10 

years, he projects continued—the debt and interest will grow to a 

mind-boggling $880 billion in 1 year annual interest payment. This 

is money for which we get nothing. It will crowd out spending on 

all kinds of investments that the Chair would like for us to make. 

So I was, therefore, stunned to read, according to the Washington 

Post, that the White House has declared the President’s 2015 budget will mark ‘‘an end to the era of austerity.’’ Our debt has grown 

67 percent in the past 5 years, and we have had annual four deficits over $1 trillion. As Charles Krauthammer said such a characterization is ‘‘an assault on the dictionary.’’ 

The Washington Post also reported that the President plans to 

bust the budget caps in Ryan-Murray that he signed into law only 

8 weeks ago. The ink is not even dry, and he is already proposing 

we bust the new and higher spending caps that were passed. Do 

promises mean nothing in this country anymore? 

So I hope our distinguished Chair will join me in opposing any 

plan from the President that would spend more than we agreed to 

spend under Ryan-Murray. 

I am looking forward to our conversation today. The American 

workers are hurting. Wages are down. The workforce is shrinking. 

Welfare rolls continue to grow. We have a moral duty to take firm, 

principled steps that will actually help millions of struggling workers transition from joblessness and dependency to work and rising 

wages. 

Clearly this goal cannot be accomplished simply by borrowing 

and spending more money. There is an article in yesterday’s paper 
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that said, ‘‘CBO reports stimulus now taking its toll. Economy will 

soon be worse off than if the stimulus law had never passed.’’ 

Mr. Elmendorf told us that would be the case. The sugar high 

is over. We will pay the interest and bear the burden of that stimulus plan, every penny of which was borrowed, for decades to come. 

So over the last 5 years, we have added a staggering $7 trillion 

in debt. So what do we have to show for this? Just ask this honest 

question. Has it worked? Twenty-nine million people are unemployed or have become discouraged from even seeking a job. Nearly 

one in two college graduates are underemployed. We have 800,000 

fewer jobs since the recession began, but the population has grown 

by 15 million. The share of the population actually working has declined to the lowest level in 40 years. Wages for American workers 

are lower today than in 1999. Take-home pay has fallen each of the 

last 5 years. Forty-seven million people are on food stamps. 

So the desperate need today is for growth and job creation and 

higher wages. We can all agree on that. But what action do our 

Democrat colleagues propose to fix this problem? Energy restrictions, more restrictions on energy that drive up costs and destroy 

jobs; unprecedented increases in Federal regulations that are hurting our factories and small businesses; a health care law that the 

CBO confirms will result in the loss of another 2.5 million workers; 

higher taxes that enrich a booming Washington, the only place in 

America that’s booming really other than North Dakota is here in 

Washington, while our middle class is being impoverished; a weak 

trade stance that allows China to devaluate its currency and foreign competitors to game the system, sending our jobs abroad; an 

immigration plan that would double the flow of immigrant workers, 

by definition job takers, competing against unemployed Americans 

by the millions; a new minimum wage that will reduce the number 

of jobs by 500,000 to a million, according to Mr. Elmendorf; a budget plan that will never balance and would add trillions to the longterm debt, resulting in weaker growth and a diminished future for 

our children. 

So we cannot keep hurting the future, burdening the future, to 

enjoy a sugar high today. So we should work on a strategy that 

would reduce our welfare rolls and bring our workers to prosperity. 

And I will just put the rest of my remarks in the record and say 

one more point. To me, it is so important that we use the welfare 

office as a job training office, an office to advance people from dependency to independence, to have, Madam Chair, like the special 

ed, an individual IEP right, individual education plan. We need an 

individual employment plan for each person that is hurting, unemployed, and help move them out into employment. We can pay for 

that by reduced welfare and improved economic growth in our 

economy. 

So I feel strongly that we are not doing well in America today. 

We can do better. And I think there is, unfortunately, some disagreement about how to get there. 

So I thank the Chair and look forward to this excellent panel. 

[The prepared statement of Senator Sessions follows:] 
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Chairman MURRAY. All right. Thank you very much, and, again, 

thank you to all of our panelists for being here today. 

We are going to start on my left, Ms. Kimball, with you, and 

work our way across. So we will start with you. Thank you. 

STATEMENT OF EDITH KIMBALL, FOOD SERVICES 

PROFESSIONAL, LEE ELEMENTARY SCHOOL, LEE, FLORIDA 

Ms. KIMBALL. My name is Edith Kimball, and I thank you for inviting me to be here today. I have been married to my husband, 

Kenny, for 14 years. We have three children: 9-year-old twins, a 

boy named Cameron and a girl named Olivia; and a 7-year-old, 

Jacob. I have lived my entire life in my small town of Lee, Florida, 

where I have worked as a food service professional at Lee Elementary for the past 3 years. 

Lee is a rural town in Madison County between Tallahassee and 

Jacksonville and near the Florida-Georgia State line. It is a caring 

community where you know just about everybody and people are 

willing to help out and lend a hand when someone is in need. We 

have a saying in Lee: ‘‘Little, But Proud.’’ 

Our county is one the poorest in the State, and jobs have been 

tough to come by. About 20 years ago, a meat-packing plant closed 

down. It was a place where hard work was rewarded; you could 

move up the ladder and provide for your family. A lot of workers 

were the second or third generation in their family to work there. 

When the plant closed its doors, it devastated many families. 

I feel blessed to work at our elementary school where I work with 

my mother, who is the food service manager. Together, we prepare 

and serve almost 200 meals each day. Lee Elementary is a school 

full of great, well-mannered kids who say ‘‘Yes, ma’am’’ and ‘‘No, 

ma’am.’’ My school is special because of the caring teachers who 

pour their hearts into teaching their students. As a parent, I appreciate this. 

My school, like our county, is poor. A few years ago almost all 

our kids were on free or reduced-price lunch, and now a new grant 

helps provide meals to all of them. I love preparing healthy meals 

for them, even though many are picky eaters. And I know many 

of their families, like mine, struggle to make ends meet. 

Before the elementary school, I worked for a local grocery store 

for 10 years. I still remember families would come in with food 

stamps, and I knew they had to make that food last for their family 

until the end of the month. After Jacob was born, I chose not to 

return to the grocery store because of the high cost of child care. 

It just did not make sense for our budget. And I needed a job that 

would let me be there for my children after school. My prayers 

were answered when I got my job at Lee Elementary. 

I knew that the pay would not be great, but I would be there for 

my children, especially my oldest son, who is a special needs child, 

and be home to help my other two children with their homework 

to become better students. Being home when my kids are home is 

important. My husband, Kenny, is a truck driver and is on the road 

for 4 to 6 weeks at a time. 

Kenny is the owner/operator of his truck, which means he pays 

the maintenance and all costs for it. Between fuel costs, truck payments, and maintenance, there is not a lot left over at the end of 
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the month. We get by decently. We pay our bills, buy groceries, and 

pay our tithe to our church, but there is no room for extras at the 

end of the month. 

I know that Congress is talking about raising the minimum 

wage. For me, in my job that would mean an increase of $200 more 

a month for my family. That would help give us a just a little more 

in our budget. It could even help me open a college savings plan 

for my children for their future. 

Every parent wants the best for their children, and I am not any 

different than any other parent. My daughter, Olivia, wants to be 

a doctor. It is my responsibility to see to it that she gets the best 

education available. I have told her she will have to study and 

work hard and I would do my best to see that she could fulfill that 

dream. But right now that is going to be difficult for my family. 

I know other families in my town that would be helped by an increase in the minimum wage, too, and I think it would make more 

people want to work. It is my prayer that you will think about 

towns like mine and families like mine when you make major decisions here. We should not be forgotten and left by the wayside. 

Thank you to Chairwoman Murray and all of you for the chance 

to talk to you today. 

[The prepared statement of Ms. Kimball follows:] 
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Chairman MURRAY. Thank you very much. 

Ms. Johnson, we will turn to you. 

STATEMENT OF COURTNEY JOHNSON, HIGH SCHOOL 

ENGLISH TEACHER, FORT HAYES ARTS AND ACADEMIC 

HIGH SCHOOL, COLUMBUS, OHIO 

Ms. JOHNSON. Good morning. Thank you, Chairwoman Murray 

and members of the Committee, for inviting me to speak to you 

today. 

Three years ago, when I came here to Washington, D.C., to talk 

to Congress about why I as a teacher valued collective bargaining, 

I would have considered myself solidly in the middle class. Today, 

like so many others, my family’s foothold in the middle class has 

become perilous. 

I am a high school English teacher at a public arts magnet school 

in Columbus, Ohio. My large urban school district is in financial 

trouble. State budget cuts, Federal sequester cuts, indirect cuts 

through charter school and voucher programs, and the end of onetime Race to the Top money means that many good teachers will 

lose their jobs. I worry that I will be laid off in the coming weeks 

as my district has to find a way to trim $50 million more from our 

already bare-bones budget. My husband, who holds a degree in 

health care administration, was laid off last month. In the past few 

years, we have made two major moves, suffered two job losses, and 

had to rely on Brad’s 401(k) to stay afloat. We know we are fortunate to have had that money. 

But we live under constant anxiety that I will be laid off, that 

Brad will not find another job, and that we will not be able to sell 

our home should we need to find more affordable housing. I bring 

home less in my paycheck now than I did 3 years ago. Our Governor has raised the sales tax, spreading my smaller paychecks 

thinner and thinner. We cannot even fathom saving for college for 

our son, Brady, as we are still paying for our three degrees between the two of us. We only had one child because the cost of 

quality child care was too much. And yet we are fortunate. When 

I compare my family’s situation to my students’ families, I know 

that we are fortunate. 

I do not know all the specific policies that have contributed to the 

decline of the middle class, but I know that when folks do not have 

good jobs, everything else in our society unravels. When we cannot 

meet our basic needs of safety and security, we cannot care about 

much else. As any teacher will tell you, it is about the hierarchy 

of needs. I care very much about many issues: public education, 

women’s rights, workers’ rights, voting rights. But most of all, I 

care about whether or not we have jobs in my community. If I have 

to work three low-wage jobs, I do not have time to help my kids 

learn to read or do their homework. I cannot send my kid to college. I do not have time to be an informed voter. I do not have time 

to care about anything but paying my bills and making sure my 

family is fed. 

Anti-worker policies like the erosion of collective bargaining, 

wage stagnation, and free trade agreements have destroyed the 

middle class that labor built. I just read in the New York Times 

a couple of weeks ago that the top 40 hedge fund managers make 
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as much as a third of all high school teachers in America combined. 

Where are we as a country when we do not value and respect the 

dignity of work? 

I am frustrated that the pathways to the middle class that existed for my generation no longer exist for my students or my son. 

Why does the American dream have to end with me? 

When I was a little girl growing up in Ironton, Ohio, I knew that 

college was how I entered the middle class. Becoming a teacher 

was not something I settled for as a career. I made a choice. Teaching was my pathway to making a middle-class life that would allow 

me to build lives, too. Where are we as a country when the folks 

who teach our children cannot have a stable economic avenue into 

the middle class? 

But that college opportunity that I was privileged to have is not 

there for many of my students. Just a few weeks ago, I was sitting 

with a bright young senior as she anxiously scrolled through her 

college application, and she sat like with, with her head in her 

hands, and she said, ‘‘I just want to go to college.’’ How will she 

afford it? It is heartbreaking, and I do not have an answer for her. 

We are complicit in a system where wealth protects wealth, and 

college is the new lotto ticket. Community college or bust is the 

story of dreams deferred. We are telling young people, ‘‘College is 

not for you.’’ We are the first generation to break Horace Mann’s 

vision for America. He said, ‘‘Education is the great equalizer.’’ 

Where are we as a country when our young folks have no hope of 

a pathway out of poverty and into the middle class? 

We can create a world where kids can have hope that they can 

move out of poverty and into a strong middle class. You can work 

on investing in jobs and ensuring job creation in my State and in 

my community. You can raise the minimum wage. You can make 

education the great equalizer by providing formula-based funds to 

public schools where they are needed the most. You can make college affordable. 

I still have hope. My hope is in the eyes of my students and my 

second grader. They still believe in the promise of America and 

trust in education as the most powerful tool for advancement. But 

they cannot act alone. We give our power and our voice to you, our 

elected officials. Please speak—and act—on our behalf. 

Thank you again for inviting me to be here today. 

[The prepared statement of Ms. Johnson follows:] 
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Chairman MURRAY. Thank you very much. 

Ms. Tanden? 

STATEMENT OF NEERA TANDEN, PRESIDENT, CENTER FOR 

AMERICAN PROGRESS 

Ms. TANDEN. Thank you, Chairwoman Murray and Ranking 

Member Sessions and members of the Committee. My name is 

Neera Tanden, and I am president of the Center for American 

Progress. CAP is an independent nonpartisan educational institute 

dedicated to improving the lives of Americans through progressive 

ideas and action. We believe that a robust and growing middle 

class is critical to growing a stronger, more resilient economy and 

a competitive future. This tenet is one of CAP’s core values, and 

I know that it is a priority for every member of this Committee. 

We believe that we should measure our budget priorities against 

a simple test: Are we expanding opportunity for all Americans? No 

matter where you come from, we are all better off if everyone in 

our society has the opportunity to succeed. 

Unfortunately, our recent budgets are failing that test. Simply 

put, many of the budget choices we have made over the past 3 

years are hurting people and hindering economic growth. 

At a time when we should be doing everything we can to get the 

economy moving, where everyone is frustrated it is not moving fast 

enough, instead we have made deep cuts to education, research, infrastructure, and safety net programs. CBO has warned that these 

austerity policies have made our immediate economic problems 

worse and now reports that these short-term problems have weakened our long-term economic outlook. High unemployment is driving workers out of the labor force permanently. New capital investment remains relatively low, and less investment now means fewer 

resources in the future. Weak demand is hurting productivity by 

making it harder for workers to receive training and for businesses 

to invest in research and development. We need to solve these 

problems now, or the economy and American families will struggle 

for years to come. 

What troubles me most about our misguided austerity policies is 

that Congress has cut the very programs that help low-and middleincome families get ahead. Food stamps and nutrition assistance 

have been cut. Section 8 housing and welfare are not keeping up 

with the need. I am concerned about the impact of the cuts to these 

programs, because I know firsthand I would not be here today if 

they had not been available to me. 

Let me just tell you a little bit about my own story. I grew up 

the child of two immigrants who had come from India decades earlier. When I was 5, my parents divorced and my dad left. My mother was on her own, and she had never held a job in her life. She 

had a choice to make at that point. She could go back to India, a 

woman who had been divorced, with two children, or go on welfare 

here in the United States to support her two young kids. Now, it 

was a hard choice for her, but she knew if she went back to India, 

her children would be stigmatized for the rest of our lives. 

So she chose to stay. She went on welfare. As a child, I remember getting those little vouchers to get reduced lunch. It cost 10 

cents back then. We were on food stamps. I remember going to the 
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welfare office, and the lines. She stayed in the U.S., and we were 

on those programs, and we received Section 8 housing as well. But 

we were lucky to be able to stay in Bedford, Massachusetts, that 

had good public schools. And after 2 years, she got a job, first at 

a travel agent office and then a few years later at a defense contractor’s offices in Bedford. And eventually, by the time I was 11, 

she was able to buy her own house in Bedford, Massachusetts. 

I know that I am here really because of the incredible tenacity 

of my mother. But I am also here because there were social safety 

net programs that were about giving people an opportunity, about 

giving people a hand when they needed it most. 

So I am worried that children today do not have that same social 

safety net to fall back on, and really the middle class is out of 

reach for too many families. 

As we strive to build an economy that works for everyone, there 

are a few key policies that would go a long way in rolling back income inequality. 

So first, let us stop cutting the programs that help people get 

into the middle class. Let us invest in job training and other programs to help the unemployed get the skills they need. And, absolutely, we must pass an increase in the minimum wage because 

that will mean real money in the hands of people who will actually 

spend it in their local communities and drive jobs. I think that is 

one of the reasons why The Gap just decided to increase its minimum wage to $10.10. 

We also have to ensure that we address the uneven playing field 

because when wealthy parents have a leg up in providing their 

children with an environment conducive to long-term success and 

middle-class and low-income families do not, that is a problem for 

all of us. 

So as the Committee addresses the work it has going forward, I 

hope you will keep in mind the families here and their struggles 

and pass minimum wage, address unemployment insurance, and 

take on the investments we need to make to make the economy 

grow. 

Thank you very much. 

[The prepared statement of Ms. Tanden follows:] 
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Chairman MURRAY. Thank you very much. 

Mr. DOAR. 

STATEMENT OF ROBERT DOAR, FORMER COMMISSIONER, 

NEW YORK CITY HUMAN RESOURCES ADMINISTRATION, 

AND MORGRIDGE FELLOW IN POVERTY STUDIES, AMERICAN 

ENTERPRISE INSTITUTE 

Mr. DOAR. Thank you, Chairman Murray, Ranking Member Sessions, and other members of the Senate Budget Committee, for inviting me to testify today. 

In looking at the conditions, prospects, and possible solutions for 

low-income Americans, I have four main points, all of which have 

been informed by my work in New York City for former Mayor Michael Bloomberg, where for 7 years I ran one of the Nation’s largest social services agencies. 

First, things are not good for struggling Americans. More than 

50 months after the end of the recession, millions of Americans are 

still unemployed, 3.6 million have been jobless for more than 27 

weeks, 7.3 million are involuntarily working part-time, and the 

labor force participation rate is still too low. As a result, some 46 

million Americans are living below the Nation’s official poverty 

line. 

From my experience in New York, I believe I have an understanding of what works to increase the livelihood of struggling 

Americans. A stronger economy works to help the poor. But in 

order for that to happen, we need leaders who are focused on protecting and growing job opportunities. 

In New York City, we nurtured a strong and vibrant economy, 

providing an abundance of job opportunities for low-skilled New 

Yorkers. New York City’s job recovery from the recession has been 

much, much faster than the rest of the country, and it is partly due 

to that vibrant economy that New York City is the only city among 

the Nation’s 20 largest cities not to have seen an increase in poverty since the 2000 census. In fact, the average increase in the Nation’s other major cities has been 36 percent, and across the whole 

Nation, the increase has been 28 percent. In New York City, zero. 

And that is after the deepest national recession since the Great Depression. 

Work expectations and requirements in public assistance programs also have been successful. We need to replicate the success 

of welfare reform and the TANF program in other public assistance 

programs. At the job centers in New York, we required a minimum 

number of hours of work or work-like activity for all welfare applicants and recipients, and we extended that requirement to ablebodied adults without children in the food stamp program. And our 

employment programs, which we paid for based on job placements 

not process, were able to absorb that increased demand. 

We need to reward work with available and sometimes more generous supports such as the earned income tax credit. New Yorkers 

receive the most generous EITC in the Nation, and we made sure 

food stamp benefits, child care assistance, child support collections, 

and public health insurance were available to low-income working 

New Yorkers. 
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Finally, we need policies and messages which foster stronger 

families. There just is not any doubt that fewer Americans will be 

poor if more children are raised in two-parent married households. 

I do not want to impose my culture on anyone, but I do want to 

be honest and I want our leading institutions to be honest about 

the consequences for our society of an increasing portion of our 

population being raised in single-parent families. 

The Bloomberg administration implemented a path-breaking 

public service advertising campaign which highlighted the consequences for children of teen pregnancy. We need to replicate that 

campaign on a much larger scale. 

Going forward, we need policies which create jobs, not shrink 

them, and we need to be especially protective of industries which 

provide entry-level opportunities: tourism, security, and retail. We 

need to impose welfare reform-like requirements on public assistance programs in return for assistance. We need to reward work 

with better targeted and more generous EITC, especially for single 

individuals, and we all need to participate in an honest discussion 

about good personal choices that will lead to better outcomes for 

children and families. And we should recognize and celebrate the 

value of low-conflict marriage for children. 

I would ask the Committee to consider a more generous EITC for 

childless adults, support programs which target poor young men, 

and test the two-generation programmatic approach which helps 

both parents and children under the same organizational structure. 

And, finally, the Committee should support relocation assistance 

so unemployed Americans can get help moving to areas where 

there are more jobs. 

Thank you. 

[The prepared statement of Mr. Doar follows:] 
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Chairman MURRAY. Thank you. 

Dr. Winship? 

STATEMENT OF SCOTT WINSHIP, PH.D., WALTER B. WRISTON 

FELLOW, MANHATTAN INSTITUTE FOR POLICY RESEARCH 

Mr. WINSHIP. Thank you. Chairman Murray, Ranking Member 

Sessions, members of the Committee, thank you for inviting me to 

appear today to discuss the outlook for the Nation’s economy and 

budget. As we enter budget season, with the Great Recession growing dimmer in our rearview mirror but significant economic anxiety 

still riding shotgun, it is important to assess where we have been 

and where we stand, to carefully distinguish between short-and 

long-run challenges, and to prioritize among them. My written testimony reviews the long-term trends in household income earnings 

inequality and mobility and points to three conclusions for policy 

that I will highlight here this morning. 

Many of the statistics I cite will appear at odds with the lived 

experience of Ms. Kimball and Ms. Johnson and their communities. 

Nothing I say is meant to minimize their challenges or to contest 

their stories. But as a researcher, I rely on statistics, which are impersonal but which have the important strength of aggregating all 

Americans’ individuals stories and assessing our challenges with 

the benefit of that information. 

So that said, first, while I will reiterate that we face challenges, 

I think the evidence indicates the American middle class is actually 

healthier economically than many of us believe, but what it really 

needs is for strong economic growth to return. 

A few statistics. The median household income of Americans, the 

income that’s in the very middle of the distribution, for Americans 

under age 60 rose by 30 percent between 1979 and 2007, before 

taking into account public transfer payments, employer-provided 

health coverage, or the impact of taxes. After accounting for them, 

median income rose nearly $22,000 for a family of four between 

these two business cycle peaks. 

It is true that this rate of growth pales in comparison with those 

of the 1950s and 1960s. Many observers, including President 

Obama, have attributed this slowdown to rising income concentration, which is said to have produced gains at the top at the expense 

of the poor and the middle class. 

However, median incomes began to slow in the 1970s while income concentration did not take off until the 1980s. The middle 

class experienced strong income gains in the second half of the 

1990s despite rising income concentration, and at the time you did 

not see inequality as a major political issue, interestingly enough. 

Given the healthy state of the middle class, it is not only necessary but reasonable to implement reforms to senior entitlements 

so that we contain future deficits and debt levels that threaten 

America’s economic stability and growth. Doing so will allow us to 

afford current and new commitments to promote the upward mobility of poor children, which will also increase productivity and 

growth in the long run. 

Other policies to promote growth might include cuts in corporate 

and individual investment taxes; increases in Federal researchand-development spending, both of which might be expected to pay 
193 

for themselves; greater high-skilled immigration; and health care 

reform, both as part of deficit reduction (because scheduled provider cuts are unlikely to be implemented) and to prevent the excessive health care inflation that the ACA’s subsidies and mandated benefits are likely to create. 

Second, the experience of the 1990s shows that work-based welfare reforms can ensure that low-income Americans also benefit 

from growth. Indicators that remedy the well-known flaws of the 

official poverty measure show that poverty has declined since 1979, 

with a particularly large drop between 1993 and 2000. This was 

the strongest period of income growth since the 1960s and reiterates the importance of robust economic growth for reducing poverty. 

However, research suggests that child poverty would not have 

fallen as much during these years if not for Federal taxes and 

transfers. Since the safety net for non-working families actually became less generous during these years while it became more generous for working families, the implication is that the work-oriented welfare reforms of the 1990s helped to reduce poverty by encouraging low-income adults to enter the workforce. 

Welfare reform was successful by replacing a program with minimal reciprocal expectations of recipients and severe work disincentives with a social policy regime in which work clearly paid off. Yet 

many of our safety net policies still ask little of beneficiaries and 

retain high marginal tax rates. For most people, as we have heard, 

I think, from some of the other folks who have testified, these programs serve as a temporary stopgap measure in hard times; but for 

others, especially during economic expansions, they end up becoming poverty traps, discouraging work, marriage, and saving. The 

problem is not so much one of personal failure but that people are 

responding to the incentives embedded in our safety net policies as 

any of us would in the same situation. 

Third, while we have reduced poverty, Federal programs have 

failed to increase upward mobility out of the bottom, which remains stubbornly low. Despite rising inequality—I think this is an 

important point to make—the academic literature consistently 

finds that intergenerational mobility has not fallen since the mid20th century. The American dream has not died. But, of course, it 

has not increased either, and only 30 percent of today’s adults who 

are raised in the bottom fifth manage to make it into the middle 

fifth or higher as adults. This is a rate of upward mobility that 

should satisfy no one. 

Winning a war on immobility, I believe, will require not only economic growth and safety net reforms, but that we empower poor 

parents to invest in the skills of their children. But soft-hearted 

policies must also be hard-headed ones. Given the dearth of successfully scaled-up models, we will have to discover how to increase 

the school readiness of poor children and keep them on track. 

A system of opportunity grants for low-income parents would 

make markets for child investment services, uncover successful 

models, facilitate the dismantling of ineffective ones, and potentially raise parental aspirations in communities with deficits of 

hope for their children. 

Thank you. 
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[The prepared statement of Mr. Winship follows:] 
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Chairman MURRAY. Again, thank you to all of you for being here 

and your testimony today. 

Ms. Johnson, let me begin with you. You talked in your testimony about how hard it is for Americans to get into and stay in 

the middle class. This really is an erosion of the American dream, 

as you talked about. You are a teacher. You are a mother. Every 

day you are surrounded by a lot of young people. What types of investments do you believe are most important to make sure that our 

young people, our country’s future really, have a better shot at the 

American dream? 

Ms. JOHNSON. Thank you, Chairwoman. I think we have to invest in job creation so that there is something—there is hope that 

they are going to have a job when they come out of school, whether 

they go to college or not. I think that is the most important thing. 

I have been very clear that I think that the creation of jobs in my 

community and my State is the number one, because when folks 

have jobs, when the parents of my students have jobs, when my 

students have the opportunity for good jobs, then everything is better in school. And that is the second thing I think we should invest 

in, is a reliable formula funding program for schools so that students like mine who largely live in poverty get what they need at 

school. So I would say jobs and public education. 

Chairman MURRAY. All right. Thank you very much. And Senator Stabenow, who has got a manufacturing bill, is nodding over 

there. I can feel her. 

Senator STABENOW. Yes, exactly. 

Chairman MURRAY. Ms. Tanden, we got a report from the Congressional Budget Office last week, as you know, about the projected effects of raising the minimum wage on family income and 

employment. Can you talk a little bit about your thoughts on this 

report and the related research on the minimum wage? 

Ms. TANDEN. Absolutely. I think a lot of people who have been 

looking at the research were really surprised by CBO’s findings because there have been so many really large-scale recent efforts and 

reports and analysis of minimum wage as it is actually applied that 

have demonstrated that the minimum wage does not encourage job 

loss and might actually increase jobs. There are numerous Nobel 

laureates who have supported the minimum wage and have argued 

that a minimum wage increase will have no negative impact on 

jobs. 

I would like to talk about one particular study that analyzed 

minimum wage increases among States, looked at States that increased the minimum wage and looked at States that did not, and 

it looked—really did a deep-dive analysis of the borders, the counties, and the borders between those two States, and it is one of the 

most comprehensive studies—it was done by professors at Berkley 

and Universit of Massachusetts at Amherst—and details how, in 

fact, when the minimum wage increased in communities, people 

had more money to spend, and they spent it in their communities, 

and there was no negative job attribution for that, and the jobs did 

not move from one county with a high minimum wage to a low-income county, although that would be relatively easy to do. And so 

they did not find the negative numbers, and it seems like CBO 

looked at recent studies and older studies and averaged the two, 
209 

instead of looking at the most recent analysis. And that is why I 

think 600 economists have written in favor of a minimum wage increase. And I think we should recognize the arguments behind the 

minimum wage are really important economic arguments, because 

we have a demand challenge in this economy. 

But at the end of the day, I think one of the most important 

issues here is whether people should work 40 hours a week, many 

of them parents, most of them women—two-thirds of minimym 

wage workers are women—and live in poverty. And I think in a 

country as great as ours, the answer to that question should be no. 

Chairman MURRAY. Well, thank you, and with that, let me turn 

to Ms. Kimball. It is great that we have got two witnesses here 

who actually work in schools, so thank you both. What you are all 

doing is really important, and we appreciate it. 

Ms. Kimball, let me talk to you. In your testimony, you did talk 

about the need to increase the minimum wage, which, we know, 

has not changed in 5 years. And I just wanted you to tell me what 

that increase in minimum wage would mean to your family and for 

others in your community. What types of things would you be able 

to buy or do then that you are not able to do today? 

Ms. KIMBALL. It would mean for people in my community probably to encourage them to get a job if, you know, it is there. For 

my family, it would mean I could save for college for my children, 

put that money to possibly go on vacation, which we have never 

had, never been on vacation. It would just mean a better life, you 

know, overall for my family. 

Chairman MURRAY. Okay. Thank you very much. 

My time is up, and we do have votes coming up, so I am going 

to turn it over to Senator Sessions for his questions. 

Senator SESSIONS. Thank you. 

Ms. Johnson, you know, we spend about $100 billion, I think, on 

all the different education programs from the Federal Government. 

Of course, the States are the primary funders of education. But interest on our debt this year is expected to be $233 billion, and it 

is expected to increase to $870 billion in 10 years. So for those of 

us who are concerned about our future and our children’s future, 

we have got to watch out that we do not put ourselves on a track 

to a fiscal crisis, as Dr. Elmendorf warned right from that table a 

couple of weeks ago, and put us in a position where interest—the 

fastest growing item in our budget—crowds out all other spending. 

I mean, $870 billion in 1 year of interest is well above the defense 

budget of 500, well above Medicare, around 500, well above Medicaid. So, anyway, that is one of the challenges that we have to 

face. We just have to be realistic about it. 

Really, food stamps have not been cut, Ms. Tanden, to any significant degree. It went up four times from 2001 through 2011, 

four-fold, and this year’s ag bill reduced welfare from 800—saved 

$800 billion out of—$8 billion out of $800 billion. That is how much 

the saving was over the projected growth of food stamps. So we 

made no real changes whatsoever and have not reduced that. And 

I just do not think we are evaluating that enough. 

Now, Mr. Doar—well, first, I think we all agree, Ms. Johnson, 

that economic growth is important. Could I briefly, Dr. Winship, 

ask you just some simple questions. You have studied these issues. 
210 

Would more American energy strengthen economic growth and 

help create jobs? 

Mr. WINSHIP. I would have to believe it would. 

Senator SESSIONS. Are there regulations that are damaging the 

economy and businesses that could be eliminated and improve economic growth? 

Mr. WINSHIP. I think there are for sure at all levels of Government. 

Senator SESSIONS. Do you have an opinion as to whether or not 

the Affordable Care Act is adversely affecting job creation and economic growth? 

Mr. WINSHIP. I think it has increased the amount of uncertainty 

that employers face in terms of their business plans. I think it has 

got incentives to hire part-time workers instead of full-time workers or reduce people to part-time work. So I think potentially it is 

a problem. 

Senator SESSIONS. Two-thirds of the jobs last year created were 

part-time. 

Higher taxes tend to retard economic growth, do they not? 

Mr. WINSHIP. I believe that is right. 

Senator SESSIONS. And the deficits themselves, the debt itself 

that we have today, is that, as someone said, a wet blanket or a 

depressant of economic growth and investment by the private sector? 

Mr. WINSHIP. It is certainly not helping growth, I think. The lessons of the 1990s, I think, is that when you take dramatic steps 

to show that you are concerned about deficits and getting them 

under control— 

Senator SESSIONS. All those things can be done without increasing debt and taxes and spending. 

Mr. Doar, share with us your view—this vision here, something 

that I think is not impossible, but we are not close to it, I will acknowledge, right now. So we create a single Federal welfare assistance office. All our programs are there. When a person is in need, 

they go to that office, and they are identified and worked with individually. 

I was with a lady who got 800 people jobs. She told us last week 

she spends as much as 18 hours with each unemployed person who 

comes in her office to focus them in the right way. Could we develop an individual plan for those people who are hurting and help 

them move into employment and prosperity? 

Mr. DOAR. I think the programs could work much better together 

to support work and support—and provide assistance to working 

individuals so that they can go to work in jobs that may pay lower 

than is able for them to raise a family, but then you raise their 

total income by supports for working people as opposed to imposing 

a very, I think, blunt instrument that could end up losing jobs, especially for the most vulnerable part of our society. 

I ran the poverty programs in New York City, and to some extent, the people that were most at the fringes of the labor force 

were African American men. And I have a very great concern that 

raising the minimum wage will affect them more negatively than 

positively. And I think Congress should be very careful about playing with labor markets in that way when we have a work support 
211 

system that shores up low wages through the earned income tax 

credit and other supports that can go to working Americans. 

Senator SESSIONS. Well, thank you. I know my time is up. Thank 

you very much, all of you. 

Chairman MURRAY. Senator Stabenow. 

Senator STABENOW. Thank you very much, Madam Chair, for 

this very important hearing, and thanks to each of you. 

Just a couple of things for the record on numbers. I just want 

to emphasize again that the head of the Budget Office, when he 

testified, indicated to us that in 2008 the budget deficit was $1.4 

trillion, and this year it is going to be 514, so $1.4 trillion to $514 

billion and next year down to 480, as the Chair knows. So I just 

want to say it is going down. It has dramatically gone down. Unfortunately, we are not seeing employment go up, and we are never 

going to get totally out of debt with 10 million people out of work. 

So we should be focused on jobs and investments certainly in the 

future. 

I also, just for the record, as Chair of the Agriculture Committee, 

want to indicate, in fact, we have built in savings to this 5-year 

farm bill, $11.5 billion, Madam Chair, we will spend in less food 

assistance dollars, the right way, which is people going back to 

work and they do not need temporary help. So $11.5 billion less because people are going back to work, and that is the way we ought 

to reduce these programs. 

So a question that I have, I guess, to start, Mr. Doar and Dr. 

Winship, you have talked about people working to be able to get 

help. What do you say to Ms. Kimball and Ms. Johnson, who are 

working, what do you say to somebody who is working 40 hours, 

50 hours, 60 hours, two, three jobs, and still in poverty? What do 

you say to them? 

Mr. DOAR. Well, what we have talked about in New York is the 

extent to which work support programs can shore up wages that 

are not sufficient to rise people above the poverty level, so that is 

what has been successful, whether it is the earned income tax credit or food stamp benefits or public health insurance. And that is 

what I think Mr. Winship is talking about when he says the poverty measure does not really accurately measure the material wellbeing of families because it does not take into account all of the 

supports that Government provides. 

Senator STABENOW. If I may just stop you there, just in the interest of time, what you are suggesting is that rather than raising the 

minimum wage so there is a decent livable wage, that Government, 

taxpayers, should be paying more money through their earned income tax credit or food help or Medicaid and so on. Certainly we 

are already doing that. That is what is happening to people on 

minimum wage. But, I just want to throw out a business owner 

who some years ago said that the minimum wage was not good 

enough and actually doubled it for his employees, and he was heavily criticized and shunned by the business community. People said 

he would go bankrupt. A hundred years later, we now call him one 

of our great business leaders, and he is Henry Ford. And he doubled his employees wages at the time, and when they said he was 

crazy, he said, ‘‘I need somebody who can buy my cars.’’ And so, 

you know, how do juxtaposition that. 
212 

Mr. DOAR. Well, CBO did say that there would be job losses, as 

much as 500,000 to a million. And I think given the increased automation in the workplace and the not great health of labor markets 

in large parts of the country, an increased minimum wage is a very 

risky thing for allowing people into the workplace. 

Senator STABENOW. So your position would be that rather than 

reward work so if someone is working 40 hours a week, so they 

they would be out of poverty, that they work 40 hours a week, they 

stay in poverty, but Government subsidizes that poverty? 

Mr. DOAR. Well, if poverty is the definition of material wellbeing, the Government supports would make them not in poverty. 

And often that is what many people from both sides of the aisle 

say, the extent to which these Government programs rise people 

out of poverty by providing assistance. 

So, again, from the perspective of the welfare office in New York 

City, this combination of work requirements and work expectations 

with work supports got people into the workforce in a very high degree and provided assistance that allowed them to be above the 

poverty line in terms of their entire material well-being. 

Senator STABENOW. And I agree with you. I think we need to be 

doing more on work, job training, and similar efforts. We are seeing 

programs in Michigan that match up employers with individualized 

skill development for people through community colleges. Of 

course, that takes resources, which is the other issue, because, Mr. 

Doar, you are suggesting that we actually support people by increasing the earned income tax credit, which colleagues on the 

other side of the aisle want to cut, or they want to cut food assistance. That was the big debate in the farm bill. It was not doing 

more. It was actually to do less. 

Mr. DOAR. Well, I thought it was more to get people more into 

work, as you said— 

Senator STABENOW. No, not at all. 

Mr. DOAR. Well, to the extent that their earnings were replacing 

the assistance provided and the savings was generated from that 

respect. And we are—I am not someone who shies away from Government spending that supports working individuals and gets more 

people working, because— 

Senator STABENOW. I appreciate that, and I am going to stop in 

just one second because I want to—I do not mean to be rude, but, 

Dr. Winship, I am just about out of time. 

Chairman MURRAY. And we do have votes that start at 15— 

Senator STABENOW. And I am just going to say then, I will just 

make a comment, Madam Chair, rather than ask a question. But 

when you talk about how the middle class is better today, boy, that 

is not what I am hearing. And I just have to say for the record, 

I do not even see the numbers showing that when we see the top 

10 percent of the public getting 76 percent of the wealth in 2010, 

and the bottom 60 percent of Americans, fell to less than 2 percent 

of the wealth. So I would sure love to see your numbers because, 

Madam Chair, that is certainly not what I see. 

Chairman MURRAY. And we have to get our members to the vote, 

so I am going to go to Senator Johnson. Thank you. 

Senator JOHNSON. Thank you, Madam Chair. And as long as we 

are talking about numbers, Ms. Tanden, you talked about cutting 
213 

food stamps. I just want to reinforce what Senator Sessions said. 

In the year 2000, 17 million Americans were on food stamps. It cost 

about $17 billion. Last year, 47 million Americans, an increase of 

30 million more Americans, were on food stamps, and it cost almost 

$80 billion. And I have the entire list here. I have never seen a cut 

in the program, so it has grown. So just, you know, to give us accurate information from that standpoint. 

We share the same goal here. I mean, I agree with you, Ms. 

Tanden, that the question is: Are we expanding opportunity for all 

Americans? We want a prosperous America, and that is really what 

we have to talk about. 

Mr. Doar, I want to just talk a little bit about, you know, the 

minimum wage and a potential loss of 500,000 jobs. Those are estimates, that is true. But you talked about the earned income tax 

credit. Isn’t that a better way of addressing individuals, particularly heads of households, that are in low-wage jobs to rise them 

out of poverty without risking job loss? 

Mr. DOAR. Yes, it is a better way; it is a more targeted way; it 

is a more effective way. And there are portions of the population, 

like single individuals without children, that we could do more to 

make them more a beneficiary of the EITC to help them get into 

the workplace. 

Senator JOHNSON. Let me just throw out a couple more numbers. If we were to increase the minimum wage from $7.25 to $10.10, 

that would raise an annual salary about $6,000. We had an Inspector General’s report about the earned income tax credit showing 

that between 21 to 25 percent of those payments were improper, 

costing about $11 billion per year. So if you take $11 billion divided 

by, let us say, the 900,000 people CBO estimates that increasing 

the minimum wage would increase—rise out of poverty, that would 

be about almost $13,000. I mean, if we would solve that improper 

payment problem, possibly eliminate the individual taxpayer identification number that leads to that fraud, couldn’t we make the 

earned income tax credit a far more robust program— 

Mr. DOAR. Yes, the program— 

Senator JOHNSON. —and far more better job of raising people out 

of poverty without risking jobs? 

Mr. DOAR. It is a good program, but it is not perfect and it needs 

fixing. And that is a major problem with the program. 

Senator JOHNSON. We had an incredibly interesting witness last 

year in the Budget Committee right here in this room. He was the 

head of the welfare department in Pennsylvania, and he had done 

a study on a single mom who, again, we have got a great deal of 

sympathy for. We all want a strong social safety net to help people 

like that. But his study showed that beyond $26,000 of income, 

that young woman had no incentive—there was no marginal benefit because of an increase in taxes and reduction of benefits for her 

to earn $27,000 or $30,00 or $40,000 or $50,000 or $60,000. She 

would have to leapfrog to $60,000. Can you just speak to the 

disincentivizing nature of our social safety net? 

Mr. DOAR. Well sometimes arguments are made about the marginal tax rates, and that would lead to greater benefits or slower 

phase-out periods further into the middle class. I have some concern about that for budget deficit reasons. So, sure, there is a con-
214 

ception that the loss of the assistance from Government will make 

someone less likely to move up the economic ladder or take a higher-paying job. But I have not been persuaded that that is so significant that we should extend assistance even further up the economic ladder. 

Senator JOHNSON. I am not talking about the solution. I am just 

talking about the reality of the situation. You know, just like we 

heard CBO, because of the Obamacare subsidies, 2.5 million people 

will remove themselves from the labor force, which, Mr. Winship, 

let me ask you, that is not good for the economy, is it? Because you 

have to combine human capital with financial capital to make an 

economy grow, correct? Can you speak to that disincentivizing nature? 

Mr. WINSHIP. Yes, I think that is right, and I think the problem 

with a lot of policies that look really attractive, like raising the 

minimum wage, is that the benefits to them are obvious and clearcut for the people that get them. To the extent that somebody’s 

wage goes up from $7.25 to $10.10, that is a clear benefit to them. 

The costs are much more diffuse, and so for the people who lose 

their job, or who never get hired because the cost of hiring has 

gone up so much, that is a real problem. 

Senator JOHNSON. We always hear that raising the minimum 

wage increases demand. Who pays for that, though? And isn’t that 

a business that pays it? And doesn’t that decrease demand? I 

mean, aren’t you taking money out of a business owner’s pocket, 

which, you know, from my standpoint is going to probably reduce 

the number of jobs available, but also reduces that business person’s purchasing power, does it not? 

Mr. WINSHIP. Yeah, I think, I mean, the effects of increasing the 

wage in any given moment I think are really hard to predict. What 

we do know is that the major challenge of the Great Recession is 

long-term unemployment. That is the main way that this recession 

differed from past ones. 

Arguably, what the CBO report found is that there is a cost of 

raising the minimum wage that results in less employment. The 

flip side of that is you could actually lower the minimum wage and 

increase employment, and then we could use work supports like 

Mr. Doar talked about if we worried about poverty increasing. So 

I think the earned income tax credit and those sorts of policies are 

just clearly better than a minimum wage hike. 

Senator JOHNSON. Thank you, Madam Chair. 

Chairman MURRAY. Thank you, Senator Johnson. And we have 

4 minutes to get to a vote. I am going to let Senator Whitehouse 

have the last word. I cannot imagine somebody lowering the minimum wage from $15,000 a year and surviving, but I will let Senator Whitehouse— 

Senator WHITEHOUSE. We do have very short time, so I just will 

ask my question for the record. But first I want to thank Ms. 

Kimball and Ms. Johnson for their testimony. You have no idea 

what a relentless diet of policy we get here, and that can get quite 

disconnected from personal life and personal experience, particularly when there is ideology and even perhaps special interests 

driving policy determinations. So hearing from you is really refreshing and really powerful, and I appreciate it. 
215 

I do want to say that when the economy gets trashed, because 

of the Great Recession, because Wall Street looted the economy, because of unbelievable tax favoritism in the Tax Code, and as a result of those very painful countrywide phenomena that we saw, 

families have to go on to food stamps in order to continue to eat 

and feed their children, to take a look at that and say that the 

problem is the food stamps to me is very much at odds with reality. 

Let me ask the question, and I will ask—this is going to be a little bit unusual, but I would like to ask Ms. Tanden and Mr. Doar 

for the record, if you could get together and see if there are any 

joint recommendations that you could agree to, to address the benefit cliff question of when somebody gets right up to the edge and 

then they look at the next step they can take to help their family, 

and because of the benefit structure it actually worsens their family income. That is a dumb thing to have in a program. It is something we would like to avoid. If there are ways in which from both 

sides of the aisle we could get some guidance as to how best to address that, I think that would be a productive outcome for the 

hearing. So if you would be willing to have a conversation with 

each other and see if there is anywhere you agree and then get 

back to us for the record. 

Chairman MURRAY. That would be great. 

Senator WHITEHOUSE. Thank you very much. 

Mr. DOAR. The marriage penalty— 

Ms. TANDEN. I would be happy to, and an expansion of the 

earned income tax credit. 

Chairman MURRAY. All right. We will let you have that conversation and get back to you. 

Chairman MURRAY. I want to thank everyone for participating 

today. I apologize. We do all have about 2 minutes to get to a vote, 

so they are all running. And I particularly thank both of our witnesses who traveled so far today. And I will leave the record open 

for any additional questions or statements until 6:00 p.m. today. 

Thank you very much. 

[Whereupon, at 11:33 a.m., the Committee was adjourned.] 

(217) 

THE PRESIDENT’S FISCAL YEAR 2015 BUDGET 

PROPOSAL 

WEDNESDAY, MARCH 5, 2014 

UNITED STATES SENATE, 

COMMITTEE ON THE BUDGET, 

Washington, D.C. 

The Committee met, pursuant to notice, at 10:01 a.m., in Room 

SD–608, Dirksen Senate Office Building, Hon. Patty Murray, 

Chairman of the Committee, presiding. 

Present: Senators Murray, Whitehouse, Warner, Merkley, Coons, 

Baldwin, Kaine, King, Sessions, Enzi, Crapo, Graham, Portman, 

Johnson, and Ayotte. 

Staff Present: Evan T. Schatz, Majority Staff Director; and Eric 

M. Ueland, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN MURRAY 

Chairman MURRAY. Good morning. This hearing will come to 

order. 

I want to welcome everyone and thank my Ranking Member, 

Senator Sessions, and all of our colleagues who are joining us for 

this hearing today. A special thank you to Sylvia Mathews Burwell, 

who is the Director of the Office of Management and Budget. 

It has been nearly a year ago that you were before this Committee for your confirmation, for your nomination. You have been 

doing a great job since then, during some pretty tough times, and 

I really am pleased that you are able to join us here today. 

In a short few months, we had a Government shutdown in October, followed by the 2-year budget deal in December, and the fiscal 

year 2014 appropriations process was not finished until January. 

So the President’s budget proposal is understandably a few weeks 

later than you would have hoped. 

But one of the many benefits of the 2-year budget deal is that 

we have agreement on a bipartisan spending level for 2015. That 

will enable Congress and the administration to complete our appropriations work on a timely basis this year. 

We are going to be discussing the President’s 2015 budget proposal today, but I want to take a minute or two to talk about how 

we got here and what we can do to build on what we have done. 

For far too long, Congress has been lurching from one budget crisis to the next, hurting families, devastating our economy, and 

eroding the trust of the American people in our Government. But 

at the end of last year, Chairman Ryan and I finally sat down to 

negotiate in a budget conference. 
218 

We both knew we were not going to get everything we wanted. 

We also knew the country was looking to us to make some compromises and to show that Government could function and that our 

democracy could work. 

So, working closely with many of our colleagues on the Budget 

Committees, we got to work and put our ideas on the table, made 

some very tough compromises, focused on what was attainable, put 

partisanship aside, and we did reach a deal. 

Our bipartisan 2-year budget passed with overwhelming support 

in the Senate and House and was signed into law by President 

Obama in December. 

It rolled back some of the most damaging cuts from sequestration. It prevented Government shutdowns in January and October 

of this year. It set spending levels for fiscal year 2014. And, critically, because it was a 2-year deal, it set budget levels for fiscal 

year 2015, which now allows our Appropriations Committees to get 

to work with a bipartisan spending level. That gives our families 

and communities across the country the budget certainty that they 

deserve. 

I give Chairman Ryan a lot of credit for his work on our 2-year 

budget, along with the many Republicans and Democrats who 

worked with us and supported it. 

Nobody thinks our 2-year budget deal was perfect. It was a compromise. And nobody thinks it was the end of the story. Of course 

it is not. I hope we can work together now to build on that 2-year 

budget deal and not re-litigate it. 

Let us take the opportunity we have here in Congress, finally 

freed from the manufactured crises, and invest in jobs, broad-based 

economic growth, and opportunities for our families and communities. 

There has been $3.3 trillion of deficit reduction done over the last 

few years, and it is more than $4 trillion if you include all of the 

savings from sequestration. 

Our deficit is on the path to shrink by about a two-thirds of what 

it was 5 years ago. And while we absolutely need to tackle our 

long-term deficit and debt challenges fairly and responsibly, we 

now have some breathing room to focus on the other deficits that 

face our country—our deficits in jobs, our deficits in innovation and 

infrastructure and education. 

And that is why I am very glad that we are here today to discuss 

the President’s budget proposal that would build on our bipartisan 

2-year budget in exactly this way. 

One important way that this budget proposal would build on our 

2-year budget deal is through the Opportunity, Growth, and Security Initiative that would further invest in priorities like manufacturing and research and development, military readiness, education, and job training. 

The initiative would invest equally in defense and nondefense 

priorities and fully offset the cost of these additional investments 

in a balanced and responsible way—very much in the spirit of our 

bipartisan budget deal. 

Like every proposal in the President’s budget, we would need a 

bipartisan agreement to pass it and build on this 2-year budget 
219 

that we have in place now that will guide the work of the Appropriations Committee this year. 

I truly hope Republicans are willing to join us at the table once 

again to talk about this critical work of investing in jobs and our 

security in a balanced and fiscally responsible way. 

I want to briefly mention just a few of the many strong proposals 

in the President’s budget that I am hoping to hear more about 

today. I was very glad to see that this budget maintains the commitment to a national preschool initiative. Expanding preschool 

would not only help our youngest children and pay dividends in future economic growth; it would empower millions of women who 

would be able to go to work and give back to their communities. 

I am also pleased to see that this budget proposal would invest 

in a skilled health care workforce with clinical training for community health programs. It would strengthen the National Service 

Corps and increase the number of medical residents for primary 

care, among other initiatives. 

This is an important step to ensure that our families across the 

country get the care they need. And it is something that should get 

strong bipartisan support. 

I am also very glad to see the budget calls for a reform of the 

Earned Income Tax Credit for childless workers. The EITC lifts 

millions of low-income working families out of poverty each year, 

but it is currently leaving individuals without children behind. 

Boosting the credit for this segment of the population would further incentivize work and increase economic opportunity for more 

Americans. 

The President’s budget also includes a plan to reauthorize our 

surface transportation programs for 4 years. It would boost infrastructure funding and would address the expected shortfalls in the 

Highway Trust Fund, which would allow for much-needed investments in our aging infrastructure to help our commuters and our 

businesses and create jobs for countless Americans. 

The budget proposal pays for these investments with the temporary revenue boost that would come during the transition to a 

fairer and more competitive corporate tax system. This is a fiscally 

responsible approach to corporate tax reform. And Chairman Camp 

included a similar proposal to shore up the Highway Trust Fund 

in the tax reform plan that he released last week. So I think Congress should take a close look at that. 

On the individual side of the Tax Code, the President’s budget 

would generate revenue for deficit reduction by eliminating hundreds of billions of dollars in back-door spending that benefits the 

wealthiest individuals who need it the least. 

These reforms would increase the efficiency of our tax system 

and make our Tax Code fairer to middle-class families. 

I am very glad the President has taken a balanced approach with 

this budget proposal. This is the approach that the vast majority 

of the American people support. It is fiscally responsible. And it is 

the right thing to do. 

Our Tax Code is riddled with wasteful loopholes and special interest carve-outs. It would be unfair and unacceptable to ignore 

every last one of them, while calling on seniors and families to bear 

the burden of deficit reduction alone. 
220 

The budget also capitalizes on the savings from declining health 

care costs. In the past few years, health care costs have grown 

more slowly than at any other time period since the mid-1960s. I 

am glad the President’s proposal builds on the savings from this 

decline. 

The President’s proposal also upholds immigration reform as a 

way to tackle our long-term deficits. In July of last year, the Congressional Budget Office found that immigration reform would significantly reduce the deficit over the next 20 years and expand the 

labor force. Passing comprehensive immigration reform is the right 

thing to do for our families, for our economy, and for the long-term 

budget outlook. 

Finally, I want to note the President’s budget this year does not 

include chained CPI. That is a proposal that has been pushed by 

Republicans that was included as a compromise offer in his budget 

last year. 

I personally believe there are better ways to create jobs, grow the 

economy, and tackle our long-term fiscal challenges than this policy. I am glad it was not included this year. 

The President’s budget is a strong proposal for a long-term plan 

to build on our 2-year budget deal, create jobs and broad-based 

growth, and expand opportunities for families and communities 

across the country. 

Congress proved in December that when we work together on a 

budget, we can invest in our priorities and reduce the deficit. I am 

hoping that everyone will join us again to continue that work. 

And with that, before I turn to Sylvia Burwell, I will ask Senator 

Sessions for his opening remarks. 

OPENING STATEMENT OF SENATOR SESSIONS 

Senator SESSIONS. Thank you, Chairman Murray, and it is a 

pleasure to be with you. There is no doubt that Murray-Ryan did 

avoid uncertainty and helped us in that way. I think we could have 

done that in a better way, but I do believe that you tried to do the 

right thing and you passed a law that has helped us. 

Ms. Burwell, thank you for contacting us and staying in touch 

and trying to—I believe you did the best you could to get a budget 

in on time, although it did not quite meet that, but it is something 

you promised to try to do, and I know maybe next year you will 

be able to do that. Thank you for being with us. 

Two weeks ago, where you are sitting today, we heard chilling 

testimony from Director Elmendorf of the Congressional Budget Office that declared the United States was on an unsustainable financial path and that this path leads to the risk of fiscal crisis. The 

President has proposed a number of ideas in this budget, but mostly it is a tax increase plan to confront our spending deficit problem. 

So I was really surprised and stunned that 2 months after the 

President signed the Ryan-Murray spending caps into law that 

does, in fact, validate the spending limits we all agreed to and he 

signed, his budget proposes to dramatically burst through those 

statutory limits and spend an additional $791 billion, new spending 

above the growth that we are on today, and that is above the 

growth line we are on. 
221 

Remarkably, in fiscal year 2015, the budget calls for $56 billion 

more than Ryan-Murray limits. The budget then calls for another 

huge tax increase of well over $1 trillion and to increase spending 

by almost $1 trillion. Over 10 years, the President’s plan projects 

mandatory spending to grow 78 percent—and Medicare and Medicaid 73 percent. Means-tested welfare and poverty spending, which 

now totals $750 billion, is really the largest single Government expense. It continues to grow without reform. 

The President’s health care law remains perhaps the greatest 

threat to our financial stability with GAO estimating it would add 

$6.2 trillion to our long-term unfunded liabilities. So all together, 

President Obama’s budget by his own numbers, your numbers, 

would add more than $8 trillion to the debt, bringing the total debt 

from $17 to $25 trillion. 

This national profligacy is already inflicting an excruciating toll. Last year we paid our creditors $221 billion in interest on the Federal debt. We spent $40 billion on the highway bill, for example. 

Under the President’s tax and spend plan, he projects, your own 

numbers, that the annual interest payments will increase to $812 

billion in 10 years from today. That is less than CBO’s $880 billion, 

but it is very high. That means that if you took the 150 or so million Americans that would be working 10 years from today, according to estimates, their share, each worker’s share of the interest on 

the debt would be $429 in monthly interest costs and over $5,000 

per year on their share of the annual interest every year. 

The White House also continues to make unreasonable growth 

assumptions. The budget you submitted, he submitted, from 2009 

through 2012 shows average growth projections for our economy of 

3.9 percent. That is double what came in in 2013 last year of 1.9. 

That is a large difference. 

The new White House budget further projects that the economy 

will grow at 3.1 percent in fiscal year 2014, 3.4 in 2015, and 3.3 

in 2016, well above the respected Blue Chip economic estimates. 

With regard to the immigration savings that you claim would be 

accruing, I would note that the income you are projecting of Social 

Security and Medicare payroll taxes to be paid by illegal immigrants now being given legal status, but that is not your money to 

be spent. It is their money. It is their Social Security. It is their 

Medicare. And they will be drawing it out when they become eligible for it. In fact, they will draw out under current law well more 

than they put in, and that is the problem we are in today. A budget 

is a document that brings all the President’s policies together in 

one place. It reveals the President’s agenda in its entirety. 

So what does it show about the plans? Across the board, it 

showed the President’s policies are to further grow the Government 

and, in effect, the effect is to shrink the private sector and the middle class. The administration appears determined to shield the bureaucracy from accountability and cuts and to spare it from reductions, and that drains American wealth. So American families are 

struggling under failed policies. We have got to change these. We 

have got too many energy restrictions. We have got regulations 

that are reducing productivity and closing factories. We have got 

a health care law that is hammering the economy and the workforce. We have got a welfare policy that is trapping people into de-
222 

pendency and poverty, not lifting them out; a trade policy that is 

sending jobs overseas; an immigration policy that CBO tells us will 

pull down wages for over a decade for American working people; a 

tax burden that undermines our ability to compete; and a crushing 

debt burden that is sapping our confidence and the vitality of our 

economy. 

So the President’s budget proposes dozens of new taxes, new 

spending programs, and Government initiatives. It does nothing to 

fix our fiscally unsound Medicare and Social Security programs. 

This will have to be done. But the President will have over 8 years 

done not one thing to save or fix these programs, leaving his successor with an even harder challenge. 

Nor has the President done anything to contain soaring welfare 

costs. In fact, his administration has surged welfare spending and 

has been an obstacle to reform and accountability. 

And, finally, the biggest failure displayed in this budget presentation is that the President for political purposes refuses to look 

the American people in the eye and tell them the truth: that we 

are on an unsustainable fiscal path. He refuses to rally the Nation 

to avoid a fiscal crisis. If he would do so, I have no doubt the American people would respond, and we could meet this challenge. I can 

only assume he does not do so because it would interfere with his 

plan for ever growing the Government bigger and bigger, therefore 

requiring the American people, he thinks to raise more and more 

taxes. 

So the President’s policy was made clear last week when the 

White House declared, colleagues, that the era of austerity is over. 

Everyone here knows the significance of that statement. It meant 

that he is going to oppose programs that would end the growth in 

spending at the rate we are now on. And he is abandoning as a priority the containing of debt growth in America. 

I know you score that there is a reduction in deficits, but that 

assumes over $1 trillion in new taxes that will not occur. They are 

not going to occur. You have already had over $2 trillion in new 

taxes in the time the President has been here, and these new taxes 

are not going to occur. So you have more spending, assuming we 

are going to have tax increases that will not occur, and I think that 

is a path to problem, not prosperity. 

I thank you, Madam Chairman, for the opportunity to share 

these remarks. 

Ms. Burwell, you have got a challenging job. I know it is. I know 

it is hard. I hope that you have been able to look some of those 

claimers for money in the eye and say, ‘‘Sorry, we do not have 

enough money. Go back to your departments and see if you cannot 

save some.’’ I know you will try to do that as you can. 

Thank you, Madam Chair. 

Chairman MURRAY. Thank you very much. 

With that, we will turn it over to you for your testimony, Director Burwell. 
223 

STATEMENT OF THE HONORABLE SYLVIA MATHEWS 

BURWELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET 

Ms. BURWELL. Thank you. Thank you, Chairman Murray and 

Ranking Member Sessions, members of the Committee. Thank you 

for welcoming me here today and giving me the opportunity to 

present the President’s 2015 budget. 

The President’s budget provides a fiscal road map for accelerating economic, expanding opportunity, and ensuring fiscal responsibility. It includes fully-paid-for investments in infrastructure, 

job training, preschool, and pro-work tax cuts. At the same time, 

it reduces deficits and strengthens our long-term fiscal outlook 

through additional health care reforms, tax reforms, and by fixing 

our broken immigration system. 

In recognition of the important bipartisan funding compromise 

reached by the Congress in December, the budget shows the President’s funding priorities at the 2015 spending levels agreed to in 

the Bipartisan Budget Act. However, those levels are not sufficient 

both in 2015 and beyond to ensure that the Nation is achieving its 

full potential. 

For that reason, the budget also shows how to build on the 

progress made by that compromise agreement with a fully-paid-for 

$56 Opportunity, Growth, and Security Initiative that supports investments in critical areas such as education, research, manufacturing, and defense. 

Building on the model that was established in the Murray-Ryan 

compromise, the initiative is split evenly between defense and nondefense priorities and is fully paid for. So it is deficit neutral. 

Supporting what the President said in the State of the Union, 

the budget includes a series of measures to create jobs and accelerate economic growth. For example, the budget lays out an ambitious 4-year, $302 billion transportation proposal paid for with the 

transition revenue of pro-growth business tax reform. It invests in 

American innovation and strengthens our manufacturing base by 

supporting the President’s goal of creating a national network of 45 

manufacturing institutes. It maintains U.S. leadership in research 

by making the R&D tax credit permanent and continuing to support groundbreaking basic and applied research across a range of 

fields. And it enhances the administration’s management efforts to 

deliver a Government that is more effective, efficient, and supportive of economic growth, focusing on areas directly impacting 

citizens and businesses. 

The budget also includes measures designed to expand opportunity for all Americans. For example, it doubles the maximum 

value of the earned income tax credit for childless workers to build 

on the EITC’s success in encouraging people to enter the workforce 

and reduce poverty. It invests in the President’s vision of making 

access to high-quality preschool available to every 4-year-old child. 

And it invests in new efforts to drive greater performance and innovation in workforce training to equip American workers with the 

skills that match the needs of employers. 

To ensure the Nation’s long-term fiscal strength, the budget focuses on the primary drivers of long-term debt and deficits, par-
224 

ticularly in the health care growth area and in adequate revenues 

to meet the needs of our aging population. 

It builds on the savings and reforms in the Affordable Care Act, 

with another $400 billion in health care savings aimed at continuing to slow the growth of health care costs and improve the 

quality of care. 

It curbs inefficient tax breaks that benefit the wealthiest and ensures that everyone is paying their fair share. It also calls for progrowth immigration reform, which we know would promote economic growth as well as reduce the deficit. 

Under the President’s leadership, the deficit has already been cut 

in half as a share of the economy. By paying for new investments 

and tackling our true fiscal challenges, the budget continues that 

progress, reducing deficits as a share of GDP to 1.6 percent, and 

stabilizing debt as a share of the economy by 2015 and putting it 

on a declining path. 

The budget shows the President’s vision for moving the country 

forward. It provides a responsible, balanced, concrete plan for accelerating economic growth, expanding opportunity for all Americans, 

and ensuring fiscal responsibility. 

I look forward to working with the Congress and this Committee 

in the coming months. Thank you. 

[The prepared statement of Ms. Burwell follows:] 
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Chairman MURRAY. Thank you very much. 

You know, it was really important to Chairman Ryan and me, as 

well as a lot of our colleagues on this Committee, that we set a 

level not only for 2014 but for 2015 as well so that we could get 

back to our work to pass appropriations and focus on our other priorities. 

I have made it very clear the Bipartisan Budget Act is not the 

deal I would have written on my own, and I acknowledge that the 

funding levels for 2015 will be very tight. 

So, first, Director Burwell, as someone who oversees the budget 

and the appropriations process from the executive side, can you 

comment on the value you see in Congress having set aside the 

fights of the recent years and agreed upon a bipartisan funding 

level for the upcoming budget year? 

Ms. BURWELL. I would focus on the benefits in two ways. One are 

the direct benefits to the American people in terms of what the 

deal did. By setting the levels in 2014 and 2015, the deal provided 

I think much needed relief in the sequester space that was paid 

for, so it was deficit neutral in terms of our long-term fiscal health. 

It did things when the deal with translated to the appropriations 

process like ensure that there were double-digit percentage increases off of sequester for key things like infrastructure and 

TIGER grants. 

The deal also led to things like progress on making sure that 

States can get started on a process to get universal preschool. So 

across the board—and in our national security it provided additional funding for defense. And so those are things it specifically 

did I think that impact our citizens and our businesses every day. 

In addition to that, it is a process issue in terms of the certainty 

it provided, and I think we had a fall of much uncertainty, an uncertainty that caused damage to the Nation’s economy and its citizens. And so the certainty I think is an important part of what it 

did as well. 

I think finally in that area of process, what it did is it shows that 

we in Washington can start to build the muscles of working together to move things forward. 

Chairman MURRAY. Can you also comment on the President’s 

Opportunity, Growth, and Security Initiative and how you see that 

complementing the 2015 appropriations process? 

Ms. BURWELL. I think ‘‘complement’’ is the right word. One of the 

things that we have done is, in the budget and in the 1,500-page 

appendix that accompanies it that came out today, you see how the 

President would fund priorities at the current 2015 levels, and so 

it is hopeful that yesterday when our budget came, the appropriations process can start and move forward. That was our objective; 

that was our goal. 

As you also articulated, while everyone signed and believed in 

the deal and we put forth a proposal to live at those numbers, we 

believe those are not the right numbers to actually encourage the 

economic growth and job creation and opportunity we need as a nation. Therefore, what we have done is propose an initiative, and an 

initiative that would be fully paid for, to express what we think is 

a more and better path for the Nation. 
239 

Chairman MURRAY. Okay. Let me switch gears here really quick. 

I have been very clear in my conversations with you and the Department of Energy that I expect the Federal Government to meet 

its milestones at our defense environmental cleanup sites. That is 

really important to me as well as other Senators who sit on this 

Committee. Within your 2015 budget request, you cut environmental management by $135 million, with the Hanford-Richland 

operations getting about $100 million of that cut. I would like you 

to explain that justification, and with that reduction, what is the 

plan now to keep the legal commitments that have been made to 

communities like the tri-cities in my home State? 

Ms. BURWELL. Senator, the legal commitments are something 

that are very important and the administration takes very seriously and has put forward a budget that we believe enables us to 

do that. 

With regard to the cuts that are occurring, one of the things, a 

number of those programs are for pieces of work that have been 

completed. 

Have said that, the administration is committed to making the 

progress we need in Hanford and the other areas that are funded 

there to do the cleanup that we need to do and work on that. That 

is a commitment that the administration has made and we will 

continue to work towards. 

Chairman MURRAY. Well, we have really serious challenges in 

making progress at these nuclear cleanup sites across the country. 

We need a long-term sustainable plan for this, and I would like you 

and the Department of Energy to work with me to develop a longterm comprehensive plan to make sure that we are meeting the 

needs at these really incredibly important sites. 

Ms. BURWELL. Senator, I look forward to doing that. 

Chairman MURRAY. Okay. And I just have a few seconds left 

here. I wanted to ask you about the health care costs that we are 

seeing, the slowdown in Medicare per beneficiary spending. I have 

asked Dr. Elmendorf for his views on what is contributing to the 

decline in health care costs, particularly for Medicare. Can you just 

comment on that really quickly? 

Ms. BURWELL. A number of things are contributing to that. 

One, there were some things that were trending, that were 

trending down. We also saw some of the decline that has come 

from the slow growth of the economy, but most of that is now going 

away. And the Affordable Care Act is an important part of what 

is contributing to those slower growth levels. And what we try and 

do in this budget is build on that by doing additional cost savings 

in the health care space, which is one of the fundamental drivers 

of the deficit. 

Chairman MURRAY. Okay. Thank you very much. My time is up. 

Senator Sessions? 

Ms. BURWELL. Thank you, Madam Chairman. 

Senator SESSIONS. Ms. Burwell, I think you have acknowledged 

plainly that the President’s budget calls for spending on the discretionary side, $56 billion more than the Ryan-Murray bill that was 

passed about 10 weeks ago. Is that correct? 

Ms. BURWELL. In a paid-for initiative. 
240 

Senator SESSIONS. The question is: Do you spend more than was 

agreed to in the spending limits of the Ryan-Murray bill? 

Ms. BURWELL. We propose an initiative that would be paid for to 

do that. 

Senator SESSIONS. And you would spend $56 billion more? 

Ms. BURWELL. Only if paid for. 

Senator SESSIONS. But do you not agree that the Ryan-Murray 

law did not say pay for, it simply limited the amount of spending, 

and you are spending over the amount that that bill allows to be 

spent? 

Ms. BURWELL. Senator, when the caps were put in place—and I 

had the opportunity to work with the caps in the first round when 

I was at OMB—much of the why the caps were put in place was 

about deficit reduction. When— 

Senator SESSIONS. No, you are talking about—you are theorizing 

about the purpose of it. The law limited spending, did it not, and 

you are spending over what the law requires? 

Ms. BURWELL. Senator, only if the Congress would choose to pass 

a law that would alter that. Our budget comes in at the levels of— 

Senator SESSIONS. So you are proposing that we alter Ryan-Murray so you can spend $56 billion more next year alone? 

Ms. BURWELL. What we are proposing? 

Senator SESSIONS. Yes or no? Is that correct? 

Ms. BURWELL. We propose a paid-for— 

Senator SESSIONS. Can’t you answer that question simply yes or 

no? Do you propose to spend $56 billion more than Ryan-Murray 

allows, and you are proposing that we change Ryan-Murray to 

allow you to do so? Yes or no? 

Ms. BURWELL. Senator, we do propose a change in the law that 

would be fully paid for that would invest in the things that we believe are necessary for the economic health of the Nation. 

Senator SESSIONS. So you are spending $56 billion more, and you 

are going to raise taxes to pay for it, and you think that is acceptable? 

Ms. BURWELL. Senator, we believe— 

Senator SESSIONS. And I just want you to know—ask you to tell 

the American people, do you want to spend more than the President agreed to when he signed Ryan-Murray 10 weeks ago? 

Ms. BURWELL. Senator, we signed Ryan-Murray— 

Senator SESSIONS. You look real innocent the way you look at me 

here like you do not know what I am talking about. Can’t you just 

simply answer the question? Yes or no, do you intend to spend 

more than Ryan-Murray? And will that not require an amending 

of the law to allow you to do so? 

Ms. BURWELL. It will require an amending of the law. 

Senator SESSIONS. And it will spend $56 billion more? 

Ms. BURWELL. Not against the— 

Senator SESSIONS. I am not talking about paid for. I am not talking about budgets. I am just saying, Are you spending more than 

the law allows currently? 

Ms. BURWELL. Senator, it, I believe, makes a very big difference 

whether— 

Senator SESSIONS. Why can’t you say yes or no to that? 
241 

Ms. BURWELL. Senator, because I think that some questions are 

not simply yes-or-no questions. 

Senator SESSIONS. Well, you have had your explanation. Now I 

am just asking yes or no— 

Ms. BURWELL. Senator— 

Senator SESSIONS. —are you spending more or less? 

Ms. BURWELL. I think there are some questions that are not simply yes-or-no questions. Therefore— 

Senator SESSIONS. This one is a yes-or-no question. You are refusing to answer it. I will answer it. The answer is that you are 

going to spend—you are asking us to raise the spending limits by 

changing the Ryan-Murray law so you can spend even more than 

you agreed to spend 10 weeks ago. And this is the way a nation 

goes broke. When we cannot adhere to our own spending agreements, then we get into financial trouble, and we end up with huge 

interest payments that we cannot afford, that are going to crowd 

out spending that we need to make in a dramatic way in the years 

to come as you well know. And I think that is important. 

Now, you say that you have got a pro-growth tax reform and that that is going to increase revenues to the Government $300 billion 

for the transportation fund. That means you are going to raise 

taxes $300 billion, does it not? 

Ms. BURWELL. Those are one-time transitional revenues. 

Senator SESSIONS. And they will come from increased taxes so 

you can afford this spending. 

Ms. BURWELL. They are one time, and that is why we have chosen to invest those in infrastructure. 

Senator SESSIONS. Well, they are increased spending. Now, with 

regard to the interest on the debt, it is astounding to me, your own 

budget projects—OMB’s numbers project that we would be spending—we spent last year $221 billion on interest, which is a huge 

sum for which we get nothing. And your budget projects that we 

would go to $812 billion in 1 year annual interest payment in 2024. 

Does that not threaten the financial future of America? 

Ms. BURWELL. Senator, I agree with you, interest payments are 

not the most impactful way that we can use our dollars, our tax 

dollars as a nation, and that is why we need to be on a path to 

a declining debt-to-GDP ratio and a declining deficit-to-GDP ratio, 

which are now. 

Senator SESSIONS. Well, not an impactful way to spend money— 

Ms. BURWELL. Our budget— 

Senator SESSIONS. —but it gets no real benefit, right, to pay interest on the debt? 

Ms. BURWELL. Senator, our budget decreases the amount of interest we will pay on the debt by $236 billion. 

Senator SESSIONS. The baseline budget that CBO gave us projected the interest would be $880 billion in the tenth year. You 

project $812 billion. The reason you project less I assume is because you have got $1 trillion in tax increases. But either way, 

doesn’t this indicate that we have got to get our financial house in 

order because our future is threatened financially, as Dr. Elmendorf told us from that table a few weeks ago? 

Ms. BURWELL. Senator, I think as we talk about our fiscal matters, we need to connect them to why we care about our fiscal mat-
242 

ters, and that has to do with the health, the economic health of our 

Nation in terms of economic growth and jobs. And we think in the 

President’s budget we have laid out a path that is the right path 

in terms of where the Nation needs to encourage growth and at the 

same time meet our fiscal responsibility. 

What has happened in the numbers that you are appropriately 

reflecting, those numbers have grown over many, many years. 

There is a deep hole. There is a deep hole, and we have made good 

progress— 

Senator SESSIONS. Well, when the President leaves office, he will 

have doubled the amount of debt of the United States of America, 

and he will be primarily responsible for at least half of it. And the 

President said in a statement a few days ago, this budget that you 

have prepared for us ‘‘adheres to the spending principles Members 

of both Houses of Congress have already agreed to.’’ That is RyanMurray. It does not. Would you agree? 

Ms. BURWELL. I am sorry. Our budget does not adhere to RyanMurray? 

Senator SESSIONS. Right. 

Ms. BURWELL. We do, because the document that has been put 

up shows fully how we will meet those levels. 

Senator SESSIONS. It does not agree with Ryan-Murray. Forgive 

me. 

Chairman MURRAY. Senator Baldwin. 

Senator BALDWIN. Thank you, Chairman Murray and Ranking 

Member, for holding this. Welcome, Director Burwell, back to the 

Committee. 

As I have begun to study the President’s fiscal year 2015 budget, 

I think that there is a strong acknowledgment on behalf of the administration that we are facing deficits on several fronts and of 

several variations. While we are making our way to stabilizing our 

fiscal deficit, we are also facing an infrastructure deficit, an education and workforce development deficit, and a research and innovation deficit. And addressing these other deficits will help us out 

of our fiscal deficit because it sets the foundation, in my opinion, 

for long-term economic growth. 

And for this reason, I am encouraged by the Opportunity, 

Growth, and Security Initiative in the President’s budget, which I 

think makes the very investments that we need in order to move 

our economy forward. 

I do want to actually focus on a couple of issues that are important to me as a Senator from the State of Wisconsin, some of which 

we have communicated about in the past. 

On the positive side, Director Burwell, as you know, I wrote to 

you last year, late last year, requesting that the President’s budget 

include a new plan to address the chronic problems of siphoning off 

funding that is intended for forest management and for fire prevention activities, and instead using them for wildfire suppression. I 

am encouraged that the President’s budget treats our biggest fires 

as the true disasters that they really are by separating them out 

from the rest of the Forest Service management budget, and I 

think this is a good first step, and I look forward to continuing a 

dialogue on this issue. It has particular relevance to the State of 

Wisconsin and our northern forested area. 
243 

On a different note, I also want to make a comment about an 

issue that I was in communication with the administration about 

as the budget was developed, and that relates to a specific naval 

acquisition, the littoral combat ship. The Secretary of Defense has 

talked about a new vision, a pivot to facing the current day threats 

and the threats of tomorrow, and I frankly believe that this particular ship is very in tune with that change in direction, that pivot 

that we must take as a country. And while I have more overall 

supportiveness of the direction, I believe the proposal to truncate 

the purchase of littoral combat ships is shortsighted, especially 

given the direction of this administration. 

Now, as to questions, the President’s budget states that the race 

is on to ensure that the next wave of high-tech manufacturing jobs 

are created and happen here in America rather than overseas. The 

President’s budget calls for the continued transformation of regions 

across the country into really global epicenters of advanced manufacturing by funding five new manufacturing innovations, sort of 

hubs, this year. And I strongly believe in this effort, and I know 

that in my travels around the State of Wisconsin, I can tell you 

that this is an effort that has been given strong support by private 

industry as well as public research universities. 

So can you tell me how the President intends to roll out these 

next five institutes, how the selection will occur, and how these institutes fit into the President’s overall manufacturing strategies? 

Ms. BURWELL. So the institutes that will be coming online, some 

are in different categories. The Defense Department, as you know, 

has done one, and USDA will be doing one, and so different areas 

will be supporting the effort, and they will roll out one by one. 

In the President’s budget, the proposal—and you mentioned the 

Opportunity, Growth, and Security Initiative. That is where we 

would actually expand the number so that you could try and do 45 

of these throughout the period of the next 10 years. 

We think that encouraging this type of innovation, which brings 

together the private sector, our academic communities, and our 

communities themselves to encourage economic growth, is an important part of how we focus on growth and opportunity and jobs 

for the future. And so that is how it fits in the broader strategy. 

Senator BALDWIN. Great. I notice I have just a couple of seconds 

left, but I want to note that the Department of Commerce has been 

an instrumental partner in the growth of a water technology cluster in the Milwaukee area known as the Water Council, and I hope 

that we can perhaps have a visit from you and others in the administration to see the fine work that is being done there. 

I am going to be submitting some additional questions for the 

record as my time has expired. 

Chairman MURRAY. Absolutely. 

Chairman MURRAY. Senator Crapo. 

Senator CRAPO. Thank you, Madam Chairman. And, Director 

Burwell, welcome. 

Ms. BURWELL. Thank you. 

Senator CRAPO. I want to spend my time trying to get some clarity on some of the numbers as we move through analyzing the 

budget. First, I wanted to return to the $56 billion in discretionary 

spending that Senator Sessions was discussing with you. 
244 

I understand the discussion you and Senator Sessions had. The 

question I have is: You indicated that $56 billion is fully paid for. 

I just would like to know, to be sure we are clear, how it is paid 

for. Is that in the tax revenue increases that are in the budget? 

Ms. BURWELL. There are specific revenue areas in terms of what 

we think are loopholes, as well as mandatory spending cuts. So it 

is paid for both by spending cuts as well as revenue changes? 

Senator CRAPO. And with regard to the revenue changes, the 

overall totals that I am seeing from the analysis that we have got 

is that if you look at the total number of revenue increases that 

are included in the budget, what I am seeing or what I am calculating is about $1.8 trillion over 10 years of new revenue. Is that 

correct? Does that square with your numbers? 

Ms. BURWELL. I would not agree with the things that are included, and I think we could go back and forth on what is included 

in that number. For instance, things like immigration are counted 

on the revenue side, and that is because of the increased economic 

growth and productivity that is happening. So the revenue, immigration is counted in those numbers, but that is not what I think 

you would consider a policy change— 

Senator CRAPO. If you took that, you would still be roughly over 

$1 trillion, then, wouldn’t you? 

Ms. BURWELL. Yes. Yes, around a trillion. 

Senator CRAPO. So would you agree that leaving out the immigration revenue, there is roughly at least $1 trillion—again, roughly—of new tax revenue in the proposed budget? 

Ms. BURWELL. Yes, and we would say that some of that we believe is revenue that relates to closing tax loopholes, that there has 

been bipartisan support for— 

Senator CRAPO. Sure, and I understand that there is a lot of 

room there where we can discuss the loopholes. I just want to get 

the numbers right here. 

By the way, with regard to the projected growth in the immigration reforms, I call that dynamic revenue—in other words, growing 

revenue as a result of growing the economy rather than just a 

straight tax increase. Would you agree with that? 

Ms. BURWELL. No, in the way that CBO actually scored immigration. What CBO did was they scored a title of the bill, a very specific title of the bill that had growth in population, and while they 

did not—they did supplemental— 

Senator CRAPO. Okay. 

Ms. BURWELL. —efforts in terms of the scoring that would be related to what you would call ‘‘dynamic scoring,’’ I think is the distinction that I would make. 

Senator CRAPO. All right. I understand your distinction. Someday 

I want to get into it, with Congress and the administration, and 

get to using dynamic scoring. But that is not what I want to use 

the rest of my time on here. 

You also said that you had in terms of the offsets in mandatory 

spending cuts, and I believe your number there is $402 billion in 

reductions in spending. Is that correct? 

Ms. BURWELL. That is only the health care changes, and so that 

number does not reflect other mandatory changes such as those 
245 

that are used to pay for the Opportunity, Growth, and Security Initiative, things like— 

Senator CRAPO. Do you have a rough— 

Ms. BURWELL. —crop insurance and other things. 

Senator CRAPO. Okay. Do you have a rough estimate of what the 

total would be for all mandatory programs that you are counting? 

Ms. BURWELL. I think what we are trying to do is put together, 

I think, the way we think about these spending numbers, which I 

think is what you are getting to in terms of the cut, is what we 

think about is in terms of there have been $3 trillion in deficit reduction from 2011 until now as the baseline. That is the baseline 

that was referred to in a number of others’ comments. And then 

beyond that, when you add ours, the number goes to $5.3 trillion. 

When you take that number, the revenues to spending ratio is 

about 2:1. 

Senator CRAPO. All right. Thank you. I appreciate that. 

I want to go back to the $402 billion for the health care mandatory spending. 

Ms. BURWELL. Yes. 

Senator CRAPO. I have a problem seeing how you get there, but 

I think I have figured it out, and I want to be sure that I understand this. Did you not assume that there was a Medicare doc fix 

in the baseline? 

Ms. BURWELL. We did assume that SGR is in the baseline. 

Senator CRAPO. And, in my opinion—that is a $110 billion figure, 

approximately. In my opinion, that is an assumption that is not 

valid, or at least that it ought to be paid for or offset in the budget 

and would reduce that $402 billion claim that you are making for 

health care savings. And in addition, does not the budget propose 

to turn off the Medicare sequester from the Budget Control Act? 

Ms. BURWELL. We do turn off the sequester in the out-years, yes. 

Senator CRAPO. And that is another $140 billion of new spending. My point is it seems to me that both the cost of the Medicare 

doc fix and the cost of turning off the sequester in the Budget Control Act are expenses that we are going to have that are not offset 

against the $402 billion figure that you are talking about. Am I 

seeing that wrong? 

Ms. BURWELL. So I think the way we think about those numbers 

is in terms of the overall, and—because I think what we are all 

talking about is trying to get to a declining deficit. I think that is 

the point that was made and has been made continually. And so 

when you get to those overall numbers, what we see is that the deficit as a percentage of GDP goes down to 1.6 percent, and as a percentage in terms of the debt to GDP, we see a declining—in 2015, 

we stabilize and then we decline to a number that is around 69 

percent. 

Senator CRAPO. I understand. My time is up, but I just do not 

see the $402 billion figure being accurate in terms of health care 

reforms if you offset those other appropriated expenditures. But we 

can talk about that at some other time. 

Thank you. 

Chairman MURRAY. Thank you. 

Senator Warner? 
246 

Senator WARNER. Thank you, Madam Chairman. Thank you for 

the opportunity. And, Director Burwell, good to see you again. 

I want to move the discussion a little bit over to an area that 

I think we are all going to have to grapple with. My good friend 

Senator Crapo and I spent a lot of time talking about, in our efforts 

around debt and deficit reform, infrastructure. I commend the 

President for making a request for $150 billion over 4 years. How 

we do that, whether it is involved in repatriation or some other 

item, I know we will talk more about. 

I do believe that a permanent funding source of infrastructure, 

we are still struggling. We obviously rely upon a declining revenue 

source in the gas tax, and there is not a lot of appetite to grapple 

with that. But it is an area that I think needs a lot more examination. 

One of the things that the President mentioned in his budget 

that I want to try to share with my colleagues is, with record low 

interest rates, it is—I think it would be a real mistake if we did 

not take advantage of trying to leverage private capital to help support infrastructure. And while the President in previous times had 

proposed an infrastructure bank, that did not go too far. I appreciate the fact that the President has kind of restructured part of 

his proposal and is talking about more of an infrastructure financing authority. 

For example, I have got some legislation where there are five Republican cosponsors and another three that are looking at it quite 

a bit. It would recognize that we ought to leverage private capital 

in infrastructure. It would not include energy generation, but it 

would focus on road, rail, bridges, water, transmission. It would 

have private capital take first dollar loss. It would require that any 

project that would be financed would have to be investment grade. 

It is a more conservative version of what had been put out, proposed earlier. And, again, I mentioned that I start with five Republican cosponsors, five Democratic cosponsors, a number of other 

folks who are interested in it. And, you know, this would not replace TIFIA. It would be in supplement to TIFIA. We have got a 

major project in Virginia that just received TIFIA financing. It took 

a year for DOT to make that assessment. 

The challenge on trying to leverage private capital into infrastructure is: One, TIFIA is a great initiative, but it is not a career 

path in DOT. We need long-term capital that is patient capital. We 

have lots and lots of American pension fund dollars that are going 

abroad because there are not enough projects here to finance because there is no financing mechanism. 

Two, we need that backdrop that lowers the interest rates. A 

200-basis-point interest rate can save $30 or $40 million on a 20- 

year or 30-year loan. 

And, three, you need the expertise to be concentrated on infrastructure, to be able to have on the public sector side the ability 

to go toe to toe with Wall Street. There are lots and lots of publicprivate initiatives out and around the States these days. Some of 

them are good deals; some of them are very bad deals for the taxpayer. And I would simply—this is more a commercial than a question, and I apologize—say that as we come up on the Highway 

Trust Fund challenge, coming up around Labor Day, an infrastruc-
247 

ture financing authority that would be initially capitalized at $10 

billion or only scored at $7 billion, it becomes self-funding because 

of the fees that are charged. And while not a solution set and I do 

not want to oversell it because it does not replace the need for a 

permanent funding source, but—and let me also make clear that 

this is also something that is extraordinarily viable to smaller 

States because, even if you may only have a $30 million water 

project, you still might have a tranche of private financing that 

could be a part of that. And I would simply say that I am glad that 

the President has included this idea in his budget, and I just wondered if you might want to comment on that. 

Ms. BURWELL. Well, I think probably the biggest comment I 

would have is the overarching importance of infrastructure. This is 

one piece of an overall approach to ensuring that we do fund our 

infrastructure, and I think funding for infrastructure has a number 

of dimensions to it in terms of, in the short term, the job creation 

that it can cause and create right now in terms of projects that are 

ready, moving those, and actually fixing things on the ground that 

are in need of repair across all sectors. You mentioned across all 

sectors, which I think is also very important. 

I think the other thing that is important is us investing in our 

economy for the long term. A strong infrastructure, our manufacturing base—these are the kinds of things that I think we have to 

think about, not just today but they are the kinds of investments 

that we need to put in place so that 10, 15 years from now, we 

have the things in place that we have an economy that is competitive. Having come from the private sector and a company that uses 

those roads every day, the Walmart fleet is out every day. And so 

these are important issues for the overarching economy, so I would 

just second and emphasize the importance, that focusing on this is 

an important issue for jobs today, but it is also an important issue 

for us to think through the long term. 

Senator WARNER. If I could just take 10 more seconds, I just 

want to say I concur because I believe this adds to our deficit. It 

will cost us more later than today, not to take advantage of these 

record-low interest rates. And to echo what Senator Sessions said— 

and I want to commend Chairman Murray for her good work on 

the budget—we bought ourselves a couple years, but at $17 trillion 

in debt, a 100-basis-point increase in interest rates adds $120 billion a year of, whether you view it as taxation or mandatory spending. That is the creation of two Homeland Security Departments 

each year with a 1-percent interest rate increase. 

One of the things we do have to come back to after this 2-year 

budget is entitlement reform and tax reform. 

Thank you, Madam Chair. 

Chairman MURRAY. Thank you. 

Senator Johnson? 

Senator JOHNSON. Thank you, Madam Chair. Director Burwell, 

welcome back. 

Ms. BURWELL. Thank you. 

Senator JOHNSON. Thank you for your testimony, and also thank 

you for spending some time over the last year trying to work with 

us, with me, trying to define the problem and trying to look at 

areas of agreement. 
248 

I want to focus a little bit—I want to understand a little bit more 

about the difference between discretionary and mandatory spending in the proposed budget here. I want to focus on 2015 just so 

I get a good understanding. The figures I have is that you are proposing in 2015 $3.9 trillion of spending; whereas, the CBO baseline would be about $3.78 trillion. So we are actually increasing total spending, total outlays by 

about $118 billion over the CBO baseline. Is that about right? 

Ms. BURWELL. I think one of the things that we would want to 

look at in terms of why and where those increases are is how 

things are accounted for, whether those are CHIMPS, fees, any 

manner of things. 

Senator JOHNSON. Which is always a problem, right. 

Ms. BURWELL. Yes. 

Senator JOHNSON. So, anyway, I guess the question I have—so 

$118 billion, $56 billion increase in discretionary spending, that 

would leave about $68 billion in some way, shape before scoring of 

mandatory spending. So the question I have is: Is the President or 

are you addressing the two-thirds of the budget, looking out 10 

years in terms of the mandatory spending, in terms of reforming 

any of those types of programs—because what I am seeing in the 

first year is an increase in mandatory spending even though you 

are claiming a $400 billion savings over 10 years, for example, in 

the health care spending. 

Ms. BURWELL. The mandatory savings do come as one moves out 

in terms of when they grow, and those savings in terms of those 

types of mandatory savings, when they are structural, as we have 

had the opportunity to discuss, those are the ones you want because they grow in the out-years. For instance, the— 

Senator JOHNSON. So what structural changes are you proposing 

in this budget— 

Ms. BURWELL. In terms of— 

Senator JOHNSON. —two-thirds to the budget? 

Ms. BURWELL. In terms of even just the implementation of the 

Affordable Care Act, when the Congressional Budget Office scores 

those numbers, in the second decade those numbers would be $1 

trillion. You are starting to get into that in terms of now we have 

moved from 2010, so our budget window starts to get those. The 

$400 billion is within the window of changes that we do to Medicare, Medicaid, in terms of reducing those overarching health care 

costs. 

Senator JOHNSON. We are getting really heart-wrenching e-mails 

and letters from our constituents. Their premiums are doubling 

and tripling. Their out-of-pocket maximums are increasing. They 

are making really heart-wrenching decisions, whether they have to 

quit a job so their income actually is lowered enough so they can 

qualify for subsidies and just be made whole because of increasing 

premiums. 

Specifically you mentioned that health care spending is coming 

down because of the Affordable Care Act. Can you point to one 

thing that is actually causing health care spending to decline because of the Affordable Care Act, which just kicked in? 

Ms. BURWELL. We have seen some of the changes in terms of 

some of the things that had been put in place in terms of incentives 
249 

and spending in the Medicare space. Also, we have also seen it is 

both a quality measure but it is a cost measure; 130,000 fewer readmissions are occurring because of some of the standards that 

have been put in. 

Senator JOHNSON. Okay. As you are well aware, as we were 

meeting over the year, I was really concerned about a 30-year 

budget window because we really have that demographic problem 

of the baby-boom generation retiring at the rate of 10,000 people 

per day. 

Have you looked any further in terms of the 30-year problem 

that we are facing? I know we could never come to agreement in 

terms of what that 30-year deficit would be. Have you given any 

further thought to that or done any more work on that? 

Ms. BURWELL. You know, one of the things that, when we think 

about those out-year numbers, I think is one of the most challenging—and you actually even see it in the 10-year window—is 

the question of the uncertainty when you get in those out-years in 

terms of the economic projections. 

Senator JOHNSON. I understand. 

Ms. BURWELL. And one of the things, I think, that is most challenging about those out-year numbers is we know what affects 

these numbers dramatically are the underlying economics, and 

whether it is the growth rate, the interest rates, any of those, and 

the level of uncertainty. And so we have focused our attention on 

trying to get the problem contained in those 10-year windows, continue to think about the out-year windows because that is when 

some of these very important costs come to bear. 

One of the things we do know is the demographic bubble that 

you mentioned in terms of that Social Security. In the 10-year window, we are in the middle of some of the height of that. And so 

hopefully that will start to come down. 

Senator JOHNSON. Well, speaking of Social Security, we are taking a look at that, and that is probably the best actuarial math we 

have. We are looking at between $13 and $15 trillion more in benefits being paid over the next 30 years versus payroll taxes being 

collected. That is pretty tough—some pretty tough numbers to look 

at in Social Security. The latest alternate fiscal scenario of CBO, 

when you take the percentage of GDP and convert those into dollars, shows a 30-year deficit, a total of about $127 trillion. So those 

are way larger than any projections we were talking to certainly 

in our discussions. 

Talking about Social Security, because I tried to get you to answer this in your confirmation hearing, and now I have Doug Elmendorf. The trust fund holds about $2.6 trillion worth of bonds, 

U.S. bonds, right? 

Ms. BURWELL. Yes. 

Senator JOHNSON. And the Treasury has a $2.76 trillion liability 

because of those bonds, right? 

Ms. BURWELL. Yes. 

Senator JOHNSON. When you consolidate the Federal Govern- ment, what happens to the $2.76 trillion asset versus the $2.76 trillion liability? For the Federal Government that nets to what? 

Ms. BURWELL. I think the question is whether those numbers are 

actually numbers that net. In terms of if one takes a balance—you 
250 

know, a balance sheet and an income statement, you do not—the 

numbers—the way the numbers are—what the trust fund does— 

Senator JOHNSON. Oh, but they— 

Ms. BURWELL. —is represents those claims and what has been 

paid in. What the unified deficit does is represents what we owe. 

Both of those are relevant, important, part of transparent representations that are important. 

Senator JOHNSON. I will refer you to your own—to OMB’s publication that says that transaction nets to zero, and I would actually 

refer you to Doug Elmendorf’s testimony where he also admitted 

that, yes, you have an asset, offset by a liability, and that nets to 

zero. 

Thank you, Director. Thank you, Madam Chair. 

Chairman MURRAY. Senator Merkley. 

Senator MERKLEY. Thank you very much, Madam Chair. 

In talking about the unified budget, I am looking at the budget 

total chart that is on 163 of your book. Do you have the budget 

with you? 

Ms. BURWELL. Which table is it? 

Senator MERKLEY. It is Table S.1. 

Ms. BURWELL. Yes. 

Senator MERKLEY. And just to be clear, this table includes the 

Social Security Trust Fund embedded within it, right? So as we 

look at these numbers, there is not some separate liability or concern that is on top of these. That is embedded inside of these numbers, yes? 

Ms. BURWELL. Embedded within. 

Senator MERKLEY. Okay. If we look at 2015 and we have a pro- jected deficit of $564 billion, do you know how that compares to the 

Simpson-Bowles glide path that would have—the bipartisan plan 

that would have—what we would have for a deficit in 2015? 

Ms. BURWELL. I do not know the specific number within Simpson-Bowles, but within Simpson-Bowles a number of the concepts 

and actual numbers and presentations are incorporated within our 

budget. One of the difference—and so much of it is embraced, and 

so I think they have not scored theirs against the new baselines 

that we have seen. So I do not know the exact number. 

I think it probably also is important to reflect that there are 

places where we have a number of similarities. One place where we 

do have a difference is the issue of defense, and I think you know 

that in our current budget we replace sequester on the defense and 

nondefense side in the out-years. In addition, we proposed the Opportunity and Growth Initiative for this year. 

Senator MERKLEY. Okay. Thank you. I will follow up and do 

those comparisons. It is helpful, because we had that bipartisan vision of a glide path to come back in fiscal responsibility. I do not 

think we are that far off— 

Ms. BURWELL. No. 

Senator MERKLEY. —from what was anticipated. And if we look 

at your projection for the year 2014 in that same chart, we basically see the debt held by the public drops to 69 percent of GDP. 

This has been a conversation in this room for year after year, since 

I came to the Senate, of the fact that we have to cap that debt as 

a percentage of GDP in order to avoid traveling into a declining 
251 

spiral that would endanger our economy, particularly given the 

risk of potentially higher interest rates. And what you are presenting here is a plan that has addressed that and started to bring 

us back down in terms of our debt as a percentage of GDP. 

Ms. BURWELL. That is correct and is in line with Simpson-Bowles 

in that the numbers that Simpson-Bowler, Rivlin-Domenici was 

about a $4 trillion number in total. Our budget produces about over 

a 5.3—it is $5.3 trillion in deficit reduction, so we are in that ballpark. 

Senator MERKLEY. Do you know what interest rate is assumed 

for the 30-year Treasury bond by the end of this 2024 period? 

Ms. BURWELL. No, not the exact number because the interest 

rate assumptions, you know, are on an annualized—they are on a 

year-by-year basis. But those interest rate assumptions are in line 

with the Fed and basically the Blue Chip in terms of our interest 

rate assumptions. 

Senator MERKLEY. I appreciate that. I would be interested in 

running some sensitivity to variable interest rates, because it is 

something that is hard to predict, and one of the things we have 

been concerned about is our exposure if interest rates do go much 

higher. Some of the crises in the world have kept our interest lower 

than we might have anticipated, but maybe the world will be doing 

better and we will not be so lucky down the line. So that is why 

I was curious about that point. 

I want to turn to the investment in infrastructure, particularly 

the inclusion of the $302 billion surface transportation reauthorization and the National Infrastructure Bank. And the multiplier for 

infrastructure is a pretty high multiplier, especially in an economy 

that has a shortage in construction projects currently. And I just 

want to applaud that. Everywhere I go in my 36 town halls every 

county, every year, folks are concerned about the state of the infrastructure, whether it is the fact that their local small port needs 

to be dredged or their local interchange needs to be expanded to 

be able to get onto the freeway, or so on and so forth. 

It is strikingly of concern to me that Europe is spending 5 percent of its GDP on infrastructure and we are spending, I believe, 

about 2 percent. So thank you for including a vision for increasing 

our investment in infrastructure. 

And, similarly, the importance that is placed on manufacturing 

in this budget, would you like to just comment on that? 

Ms. BURWELL. Yes. As we discussed a little bit before, the importance of manufacturing and promoting manufacturing institutes or 

hubs that will help develop economies in local areas, as well as the 

technology that will help the U.S. remain a leader in this space. 

And so right now the plan is hopefully through implementation of 

the 2015 budget levels that you see presented in terms of meeting 

the Ryan-Murray levels, we will have an additional four and then 

hopefully an additional one in 2016. 

As part of the Opportunity, Growth, and Security Initiative, we 

have proposed an additional funding that would get us to 45. 

In addition, in the manufacturing space, the importance of the 

R&D tax credit is something that we also think the permanent extension of that would be an important part of promoting that economic growth. 
252 

Senator MERKLEY. And you have talked about these manufacturing research or promotion centers. How many of those are you 

going to locate in the State of Oregon? 

Ms. BURWELL. It is a competitive process, as was reflected earlier. 

Senator MERKLEY. Thank you, Director, for your testimony. 

Chairman MURRAY. Senator Enzi. 

Senator ENZI. Thank you, Mr. Chairman. And thank you for your 

testimony. I am going to be a bit more specific, I think, than some 

of the others have been, because one area that I have been interested in and worked in a lot was this area of preschool. Of course, 

the President has proposed a Preschool for All Initiative to provide 

all low-and moderate-income 4-year-olds with access to high-quality 

preschool. And we all agree that funding invested in early education programs save the taxpayers later on. 

So for a long time, the Federal Government has been doing a lot 

to increase access to these important programs, and they began in 

the War on Poverty in the 1960s and grew to 119 programs. I think 

at the present time there are 69 programs. And those programs 

have more money dedicated to them than we dedicate to kindergarten through 12th grade. 

Now we are proposing another program. There has been a Government Performance and Results Act. It is not very well enforced. 

It is supposed to be enforced by the administration. That is where 

each agency, each one of these programs says what they are going 

to do, and then they evaluate how well they do it. And many of 

them are failing. 

What used to be education programs and we are paying for as 

education programs are now often babysitting programs. There 

should be a difference in cost between babysitting and education. 

When I was Chairman of the HELP Committee, we studied these 

programs, and Senator Kennedy and I were able to eliminate some 

of the overlap, some of the duplication, and change the course of 

some of the programs. But there are still 60 programs out there. 

Was there any effort in your budget process to eliminate any of 

these other programs, to further eliminate some of the overlap? 

There is a lot of money out there. Could that cover the Preschool 

for All Program that the President is suggesting? Would the President’s proposal be duplicative of Head Start or child care development block grants or some of the other programs that were authorized in No Child Left Behind, maybe even the Disabilities Education Act? Was there an attempt to eliminate some of those to 

fund this? 

Ms. BURWELL. So a couple of points. One is GPRA Modernization, which is something that also I do—am familiar and I am glad 

that we will be submitting, as part of this budget cycle, the goals. 

This will be part of the implementation. When I was here before, 

there was GPRA. Since I came back, right before I came back, 

there is GPRA Modernization, and we will be submitting goals, 

cross-agency goals as well as the Department goals. So step forward, a lot of progress in that since I was here before, need to continue on it. I believe it is an important tool that we need to make 

use of in terms of management. 
253 

With regard to the specifics in the area that you are speaking to 

in terms of Head Start, preschool, and toddler and pre-K, yes, some 

of the things that we have considered. So one of the things we are 

doing to improve—you described, I think aptly, that there are some 

child care programs that are more babysitting but not focused on 

learning and skill development. And so as part of this effort, you 

will see these efforts not creating a new program, but connecting 

to early Head Start so that you build off of existing programs. 

And so the issue of trying to make sure that we are aligning the 

work, there are a couple things we are trying to do: make sure you 

are not creating too many new things, do things within existing authorities, but also align with the States, because much of this work 

is done in the States, and we want to make sure that is a topic 

we all spend a lot of time on. And so we have tried to consider 

those in our proposals as we go forward. 

With regard to the question of can you get enough cost savings 

to do that, I think you are familiar with the fact that, you know, 

even when done well, the programs—I do not know that we could 

get enough, but we are always looking for ideas and approaches to 

improve the way we do it. 

Senator ENZI. Well, I hope there will be some emphasis on that. 

My next question, similar to what Senator Warner said, in the 

last month the Congressional Budget Office estimated that spending on Medicaid is expected to increase by $574 billion, more than 

twice 2013, and Medicare will rise from $585 billion to $1.1 trillion 

by 2024. And over the next decade, spending for Social Security 

and Medicare, Medicaid, and the other major health programs will 

represent more than half of the Federal budget. 

How does the President propose to make these programs sustainable in the long term when the bulk of the savings that you proposed includes reimbursement cuts and increased use of price controls on prescription drugs and that is not sustainable? 

Ms. BURWELL. I think that we believe that many of the changes 

that we are proposing in that space—first of all, we come back to 

the point that I think part of the opening conversation was about, 

the importance of entitlement changes. Entitlement changes are actually quite difficult when one looks at changes to Medicare in 

order to meet the deficit numbers that we do. So even to get our 

$400 billion, I think what you are appropriately reflecting is 

choices have to be made that are difficult. And we believe we have 

made those choices on best information and things like the GAO 

and MedPAC’s recommendations for where people are having overpayments. And some of those issues are in coding and a number 

of other places, and that is where we are basing our choices on in 

terms of what we believe. 

With regard to the changes that have previously been done in a 

number of different areas, we still continue to see beneficiaries getting benefits in an appropriate way. 

Senator ENZI. My point, though, is that those are one-time savings, and so it is not sustainable. 

Thank you. 

Chairman MURRAY. Senators Coons. 

Senator COONS. Thank you, Chair Murray, and thank you, Director Burwell, for your hard work and for joining us here today. The 
254 

administration in this budget has placed a real focus on economic 

growth and on job creation, which I think is appropriate and 

should be our highest priority as we continue to also find ways to 

achieve balanced deficit reduction and to improve our overall balance sheet as a country. 

Which of the proposals in this budget do you think has the potential to create the most jobs and the best jobs? 

Ms. BURWELL. I think that in terms of the issue of job creation, 

it is about the entirety of the budget in terms of there are things 

that are happening in the short term and things that are happening in the long term that are important, some of our fiscal responsibilities important to job creation in the long term, and certain things we are doing in the here and now. 

I would focus on the here and now question with regard to infrastructure as an important place where I think we believe that the 

emphasis is important. 

I think also we believe that research and development is another 

place where that is a more interim—is about the jobs that it creates now, but also the technologies that we develop and how that 

promotes economic growth is an important part in sort of the medium term as well. 

Senator COONS. I agree, and I frankly also want to draw your attention to manufacturing, a sector I have focused on pretty heavily, 

that creates good jobs, high-quality jobs that have a great secondary benefit to the community. And there is one bill that I think 

may have been brought up by Senator Baldwin as well, or I have 

joined as Senators Brown and Blount as a cosponsor— 

Ms. BURWELL. Yes. 

Senator COONS. —that continues to advance this strategy of taking R&D and a skilled workforce and growing manufacturing and 

export opportunities and pulls them together into a regional hub or 

institute. 

Tell me, if you would, about how these institutes will be rolled 

out going forward and why it is important to have it authorized by 

Congress. 

Ms. BURWELL. I think we believe that congressional support in 

a bipartisan fashion, as you just described, is important from an 

authorization perspective. It will also be important as appropriations come in terms of how one funds these efforts over time. 

In terms of how they will be rolled out, it is the plan to continue 

with the existing resources that there are to continue, and four 

have been announced. There will be others that will be announced 

over the period of the next 2 years. I think at this point in time 

we are hopeful that we can get nine of these done, but are hopeful 

that the funding would come to do 45, because as you articulated, 

we believe it is an important part of economic growth. 

Senator COONS. My understanding is Germany currently has 

roughly 70 comparable manufacturing hubs or institutes, so if we 

could move from 2 to 4 to something like 40, I think that would 

be a great objective long term. 

The long-term unemployed have particularly difficulty in rejoining the workforce and in transitioning back to work opportunities where they exist. Manufacturing employment, after significant, 

painful losses in the first 8, 9 years of this century, has come 
255 

strongly back. There have been about 600,000 manufacturing sector jobs created over the last 4 years. And some studies suggest 

there are hundreds of thousands more that are currently unfilled 

because of a skills gap. 

Tell me more, if you would, about the administration’s strategy 

in this budget to make it easier for the long-term unemployed to 

find meaningful work. 

Ms. BURWELL. There are a number of elements of that strategy, 

and it is a problem that we take seriously. It is actually a problem 

that is related to the long-term numbers with regard to productivity and growth. 

In terms of what we hope to do is the President talked about a 

workforce strategy, and the Vice President is actively involved in 

it. There are a number of elements that I think are core to that. 

First is ensuring that one pursues job training and skill training 

in a demand-driven or job-driven way, making sure that the training is matched to the needs of employers so we get a better match 

there. And then there is the question of doing high-quality training 

for those that are getting the training for those jobs and trying to 

put in place programs and best practices that do that. And so there 

are a number of steps that are part of that. 

Credentialing is another element that we hope will be important 

to getting people to match with the skills. 

Senator COONS. Well, and I know there has been great work 

done on the Workforce Investment Act reauthorization, streamlining it, focusing it. That is something I hope we will move on a 

bipartisan basis. 

My last question. Ways and Means Chairman Camp recently released a tax reform proposal. This budget relies fairly heavily on 

tax reform in order to achieve both deficit reduction and new resources. Too often around here we focus on our differences, not our 

similarities. Are there any areas of commonality between Chairman Camp’s proposals and the President’s budget in terms of tax 

reform that you think we should focus on? 

Ms. BURWELL. I think one of the similarities that is an important 

one is in a topic that we have had a lot of discussion on this morning, which is in the infrastructure space. Chairman Camp uses a 

similar approach to paying for infrastructure that we do in terms 

of those one-time transition revenues. I think that is a place. 

The other place that I would highlight that there are re some 

similarities in the proposal would be in the offsets that Chairman 

Camp uses. There are a number of things that he proposes that are 

offsets that you will see in the President’s budget. The out-year deficit numbers are deployment that would concern us in terms of the 

increases to the deficit in terms of a difference. 

Senator COONS. Well, thank you. Thank you, Director. 

Thank you, Madam Chair. 

Chairman MURRAY. Thank you. 

Senator Portman? 

Senator PORTMAN. Thank you, Madam Chair, and, Ms. Burwell, 

good to have you back. Having sat in that seat, I know it is not 

always fun, although you seem to be having a pretty good time this 

morning. 
256 

I am, as you know, very disappointed in the budget, and it is for 

the simple reason that we are not addressing the fundamental 

issue we all know exists, and sitting in that very seat only a couple 

weeks ago was the nonpartisan Director of the nonpartisan Congressional Budget Office, telling us things are getting worse not 

better, telling us the deficit and debt projection over the next 10 

years is worse not better, adding another $10 trillion to the debt. One reason the debt went up another $1 trillion or so was because of slow economic growth, by the way, and he pointed out 

what is obvious, which is that the mandatory side of the budget, 

which is the part that is not appropriated every year, is growing, 

and it is already about two-thirds of the budget. He said it is going 

to be 77 percent of the budget, over three-quarters of the budget, 

in the next 10 years. 

And he said basically the discretionary side, the part we do appropriate every year, the part Congress wrestles with, is going to 

be pretty flat as a percent of the economy. Revenues are going to 

go up, he said, not down. In fact, he said revenues are going to be 

up above their historic high within a year or so and then continue 

at that level. He said the problem is on the mandatory side. He 

said specifically the health care entitlements are going to grow by 

over 100 percent—over 100 percent. 

So you know why I am disappointed, because this budget in a political year is a political document, and it avoids the tough choices, 

takes a punt, it chooses to punt on these tough issues. And, you 

know, I have talked about this, but I think the President has a 

great opportunity to lead on this, and he has chosen not to. There are a lot of tax increases in here. There is over $1 trillion 

in new taxes. When you add that to the Obamacare taxes and the 

fiscal cliff, that means we would have added about $3 trillion in 

new taxes. 

You are probably going to tell me, no, there is $400 billion in 

health savings. We can debate whether these savings are good policy or not. As I read it, about $350 billion of the $400 billion comes 

out of providers. And we have already heard from a lot of providers 

about those in Medicare and Medicaid who are less interested in 

providing those services because of the cuts to providers that we 

have already put in place. 

But let us even assume that those savings, $400 billion, are appropriate. That would change the health care entitlement spending 

from being 115 percent growth over the next 10 years to 105 percent over the next 10 years based on your numbers. This means 

you are seeing more than a doubling of these important but 

unsustainable health care entitlements. 

So, you know, I think, again, you are in a position to have to defend this, but I think anybody objectively looking at this would say, 

wow, it is just not responsive to the real problem that we have had 

laid out to us time and time again. Erskine Bowles also sat right 

where you are and said this problem of mandatory spending is the 

issue, and if we do not deal with this, we are facing the most predictable economic crisis in our country’s history. 

Let me ask you this specifically: Social Security Disability Fund 

is schedule to go bankrupt, as you know, in 2017. Nothing in the 

President’s budget to save this program. Social Security Old Age 
257 

Program is schedule to go bankrupt in just 20 years; in other 

words, people who are retiring today are going to see these trust 

funds go belly up. And the trust funds are not what most Americans think they are, as you know. Most of us think of the trust 

fund actually having assets in it. We are going to have to borrow 

more or tax more or take spending from somewhere else in order 

to fund these trust funds. But even so, they go belly up. 

The HI Trust Fund is scheduled to go bankrupt in 12 years. 

Nothing to save Medicare for generations to come in here. Again, 

understanding that there is $400 billion in these savings on the 

provider side. But those are not the long-term solutions that all of 

us know we must go to. 

So I guess if this is the budget that truly reflects the President’s 

vision for the future, as you have said, what are the President’s 

plans for reforming and preserving these programs for future generations? 

Ms. BURWELL. As we have discussed a lot this morning, at the 

root of the issue in terms of these numbers—and they are growing. 

We have a baby boom; it is retiring. That is a point of fact, and 

the room looks like it is about split in terms of, you know, people 

who are part of that, and some people here will be the echo— 

Senator PORTMAN. I will not ask you to say who is on which side 

of that. 

Ms. BURWELL. I will not. You notice I stopped. 

[Laughter.] 

Ms. BURWELL. You notice I stopped before I— 

Senator GRAHAM. We are split on the high side, not the low side. 

Senator PORTMAN. Yes, I think so. 

Ms. BURWELL. I split before distinguishing between chairs. I 

looked around and thought it best not to do that. 

Senator PORTMAN. So we agree there are 10,000 baby boomers 

retiring every day, and that is one of the things putting pressure 

on these programs. 

Ms. BURWELL. It is putting pressure on the programs. 

Senator PORTMAN. So why don’t you address it? 

Ms. BURWELL. The other thing that is putting pressure on the 

programs is health care costs, and I do not know if in your comment about health care and our reforms on the provider side if you 

were suggesting that the right way to approach it is to cut beneficiaries in the Medicare space in terms of beneficiary cuts. 

Senator PORTMAN. Well, what do you think? 

Ms. BURWELL. I think we have proposed what we believe is the 

right approach to handle— 

Senator PORTMAN. Which is having these programs increase by 

over 100 percent over the next 10 years? Do you think that is sustainable? 

Ms. BURWELL. The programs are going to increase because of 

numbers. The programs are going to increase because of rate of 

growth of cost— 

Senator PORTMAN. So what do you—what happens when the 

trust funds go belly up, when they are insolvent? 

Ms. BURWELL. What we are— 

Senator PORTMAN. It is a 25-percent cut in people’s Social Security benefits. 
258 

Ms. BURWELL. What we are doing is proposing what we— 

Senator PORTMAN. Talk about beneficiaries. So you do not want 

to touch beneficiaries, but you want to be sure the beneficiaries 

take the brunt of this, because we refuse to do anything at this 

point—anything to deal with this— 

Ms. BURWELL. There are premium increases— 

Senator PORTMAN. —slow motion train wreck we see coming. 

Ms. BURWELL. There are premium—in our Medicare approaches, 

there are a number of different things, and in addition, we believe 

actually that revenues are a part of the solution for the long term 

in terms of an ability to meet the numbers. 

When one looks at the actual numbers, when one sits down— 

Senator PORTMAN. So you would just continue to increase taxes, 

that is your solution? 

Ms. BURWELL. Our solution is a combined proposal. If you look 

at deficit reduction in our budget, right now at the baseline, the 

CBO baseline since 2011, there has been about $3 trillion in deficit 

reduction. If you look at the proposals that we put in place, the 

number increases to 5.3. The ratio of spending to revenue in that 

is about 2:1. So we put much more burden on the spending side 

than on the revenue side. 

Senator PORTMAN. We can have a longer discussion about the socalled savings, because when you increase spending at the same 

time you are doing things like the Ryan budget, which I supported—I will call it the ‘‘Murray-Ryan budget’’ here today. 

Chairman MURRAY. Thank you. 

[Laughter.] 

Senator PORTMAN. You know, you are increasing spending in other places, and the fact is, again, you cannot escape this $10 trillion additional debt that CBO told us, sitting in that very chair, is 

going to occur, and the fact that these programs are not sustainable in their current form. 

And I guess your answer today is we will just continue to tax 

more and more. We already have taxes as a percent of the economy 

going up to above the historic levels. And, you know, that is not 

me again. That is third-party nonpartisan Congressional Budget 

Office telling us that. 

So I am disappointed in the budget, as you know. It does not surprise you. And I do hope that we can work together on some very 

small but positive aspects on the Medicare means testing side, because those stayed in the budget even though you took out your Social Security reforms during a political year, but on the— 

Chairman MURRAY. Senator Portman, we need to move along 

here. We have got— 

Senator PORTMAN. I am sorry. I was not looking at the time. My 

apologies. But I do hope we can work together on means testing 

under Part B and Part D, which I believe is still in the beginning. 

Thank you, Madam Chair. 

Chairman MURRAY. Thank you. 

Senator Whitehouse? 

Senator WHITEHOUSE. Thank you, Chairman. Welcome, Administrator Burwell. It is good to see you again. 

I want to ask about health care, but before I do, let me point out, 

as you evaluate my colleagues’ alarms about the debt and deficit, 
259 

I think we should all bear in mind that those concerns seem to 

have an interesting characteristic, which is that they evaporate in 

proximity to billionaires and big corporations tax goodies. And if 

you raise the question of the low rates that hedge fund operators 

pay or offshoring tax schemes or special interest loopholes, well, we 

have got to protect those at all costs. 

So when you hear these concerns about the debt and the deficit, 

do bear in mind that for a great number of my colleagues, the debt 

and the deficit is in practice much less important than protecting 

carried interest, much less important than maintaining Cayman Islands offshore shelters, and much less important than keeping big 

oil subsidies rolling. And I think that context is important in the 

context of this discussion. 

I think we could get a lot done on the debt and the deficit if it 

was not more important to protect the carried interest loophole, to 

protect the big oil subsidies, and to protect offshoring in the Cayman Islands on the part of some of my colleagues. 

You point out in your testimony that we have over $1 trillion in 

baseline reduction in Medicare and Medicaid, CMS. And when I 

look at your Table S.3, the cumulative deficit reduction that adds 

up all of the different steps that have been taken to reduce the deficit, I do not see that $1 trillion there. 

Would it add to this in its practical effect on the deficit? 

Ms. BURWELL. Because it is incorporated in the baseline, these 

numbers reflect everything. So it is in the baseline, and what S.3 

reflects is in addition to the baseline. 

Senator WHITEHOUSE. Additional. Well, if you are looking at the 

actual deficit— 

Ms. BURWELL. So the savings that we see—so it would be reflected in the higher—in the upper bank of numbers. 

Senator WHITEHOUSE. Yes, so it washes through this, but in 

practical effect, that $1 trillion does lower our out-year deficits and 

our liabilities. 

Ms. BURWELL. It does. 

Senator WHITEHOUSE. Okay. You have proposed a variety, the 

President has proposed a variety of reforms to Medicare and Medicaid that save a little over $410 billion, and most of that, as I 

think we have pointed out on both sides of the aisle here, is in the 

form of reduced payments to providers and pharmaceutical companies and so forth. There are only two that appear to be in the category of delivery system reform: one is bundled payments for postacute care for $8.7 billion in savings, and the other is to have 

skilled nursing facilities contribute to the readmissions problem at 

$1.9 billion in savings. So that is a little over $10 billion out of 

total of over $400 billion in proposed savings. 

I think that the delivery system reforms have much more potential than that. The Institute of Medicine has said it is $750 billion 

a year systemwide in potential savings. The Lewin Group puts it 

at $1 trillion a year in savings. You have got RAND with a new 

study that puts it somewhere between 700 and 900 at a midpoint, 

depending on how much you adjust for fraud. And I understand 

that there is a scoring problem with trying to get that into a document like this. 
260 

What concerns me is that the administration has never set a 

goal, it has never set a target, it has never set a concrete desire 

beyond bend the health care cost curve, which to me is kind of accountability free and meaningless. 

So I would love to have the administration actually say, look, we 

cannot predict exactly what this is going to be, but we are in 

charge of this, and we are going to direct these changes, and we 

are going to force the bureaucracy to come up and try to—you 

know, meet a savings target. 

Why would you not want to set a savings target in the context 

of such huge potential savings and such small actually identified 

savings in your budget? 

Ms. BURWELL. In terms of making the kinds of changes in the 

system in terms of the health care delivery system, I think that is 

something that we are interested in, and you see some, as you reflect, perhaps not as aggressive as you are indicating that you believe we should be. I think we are open to those ideas. 

With regard to the question of setting a specific goal, that would 

be something I would want to have the conversation with Secretary 

Sebelius, because I think the question of the delivery changes that 

you need and those savings and how that relates would be something that I would consider her more expert than myself in, in 

terms of what kinds of impact it would have in terms of the delivery system, in terms of what it provides for those in the system, 

individuals receiving care. 

Senator WHITEHOUSE. Would you agree that bureaucracies tend 

to work better when they are given a specific goal to target rather 

than just operating without that? 

Ms. BURWELL. I do believe that targets and goals are generally 

helpful things in terms of disciplining mechanisms. In this particular case, understanding the underlying changes and what it 

means to those receiving care is something I am just not close 

enough to to comment on this specific case, but in general take 

your point. 

Senator WHITEHOUSE. Thank you. 

Chairman MURRAY. Senator Graham. 

Senator GRAHAM. Thank you, Madam Chairman. Welcome. 

What percentage of GDP are we spending on defense in the 

President’s proposed budget? 

Ms. BURWELL. As a percentage of GDP, I know that in terms of 

the numbers that we are over $500 billion. In terms of our overall 

spending, it is about $3 trillion as a percentage of GDP. I would 

have to get back on the exact number. 

Senator GRAHAM. Okay. Could you do me a favor and report back 

to the Committee— 

Ms. BURWELL. Yes. 

Senator GRAHAM. —the historical average of GDP spending on 

defense in times of peace and the historical average in times of conflict—and I know there are pretty wide variations there, depending 

on level of conflict—and give me the number we are spending. And 

when you look at sequestration, in year 10 of sequestration, if nothing changes, what percentage of GDP will we be spending on defense and compare the historical averages? Could you do that for 

us? 
261 

Ms. BURWELL. I would be happy to get it. I think it is reflective 

of why we believe that sequestration needs to be replaced, because 

we do not agree that those are the appropriate levels over the 10 

years. 

Senator GRAHAM. Do you agree with me that if nothing dramatically changes, President Obama will have added more debt held by 

the public on his watch than all Presidents combined before him? 

Ms. BURWELL. Because we do not analyze it in terms of those 

numbers, you know, I have not done the historical averages in 

terms of adding all the numbers. When we think about this issue 

of the debt and the deficit, we think about where we are as a Nation and where we need to go and the slope of that line. 

Senator GRAHAM. Well, where are we as a Nation? 

Ms. BURWELL. Right now, in terms of debt to GDP, we are at a 

number that is in the 74 range, and this budget and these policies 

take us down to a range that is about 69. So it stabilizes in 2015, 

and then we decline to those numbers over time. 

Senator GRAHAM. Over time does our deficit go up? 

Ms. BURWELL. The deficit-to-GDP number actually goes down, 

and goes down to 1.6 in the end of the 10-year window in 2024. 

So it goes down as a percentage of GDP, which most economists 

and markets believe are the right— 

Senator GRAHAM. Okay. When President Obama came into office, I think there was about $10.5 billion—trillion publicly held debt, 

17 now. At the end of the 8 years—and this is all a guesstimate— 

could you report back to us whether or not the statement that on 

President Obama’s watch his administration has added more publicly held debt than all previous Presidents combined? Could you 

report back to me and see if that is a true statement or not? 

Ms. BURWELL. I would be happy to. 

Ms. BURWELL. I think one of the important questions is, Why do 

we care about debt and deficit? And how— 

Senator GRAHAM. Apparently we do not. None of us do. I am not 

just beating on you. Apparently none of us seem to be caring that 

much about it. 

Let me ask you about the deficit and debt. Do you agree we need 

to adjust the age of retirement for Social Security and Medicare to 

sustain these programs over time? 

Ms. BURWELL. What I believe is that we need to have a conversation and a bipartisan approach to thinking through the long-term 

issues with regard— 

Senator GRAHAM. I am not asking you to unilaterally raise the 

age of retirement. I am not asking you to do that. I am asking you 

from—you are a very smart person. You are supposed to be telling 

the country the state of affairs through the budget. Is it fair to say 

to the American people that we as a Nation need to adjust the age 

of retirement for Medicare and Social Security because people are 

living a lot longer, there are fewer workers, and this is really driving our long-term debt? 

Ms. BURWELL. At this time, in terms of our budget and what it 

reflects, our proposal reflects what we think are the better options 

to turn to in terms of reducing Medicare costs. 

Senator GRAHAM. I am just asking you—you gave me a 10-year 

outlook here. It is a simple question. I mean, Ronald Reagan and 
262 

Tip O’Neill adjusted the age of retirement for Social Security back 

in the 1980s. Should we look at doing that yet again and harmonizing Medicare with the Social Security age retirement as a Nation? Should we be doing that, Republicans and Democrats? 

Ms. BURWELL. I think the question is coming together on what 

are the first-order things that people should change. In our budget 

we propose what we believe are the first— 

Senator GRAHAM. How about this as a good answer: Yes, we 

should. Republicans and Democrats need to make structural 

changes to entitlements. Ten thousand baby boomers a day are retiring. It is politically tough, but if you did it together, the country 

would be better off. So why don’t we just admit that eventually we 

are going to have to adjust the age of retirement. We are going to 

have to change CPI and do some means testing to save these programs from oblivion. Is that not generally true? 

Ms. BURWELL. On the means-testing point, I think you know it 

is in our budget. On the CPI issue, I think you know that while— 

Senator GRAHAM. Is it generally true that entitlement reform has 

to be accompanied by revenue increases? It is called the ‘‘grand 

bargain,’’ right? 

Ms. BURWELL. We believe that you need both in order to meet 

the numbers. 

Senator GRAHAM. So let us say that you had—you know, you got 

$600 billion in revenue increases about a year ago. You upped the 

tax rates. I do not know how much revenue is enough. If you took 

every dollar from every billionaire, would that balance the budget? 

Ms. BURWELL. If you every dollar from every billionaire, would 

it balance the budget? I have not ever done that analysis. 

Senator GRAHAM. Okay. Well, I will end with this thought: The 

flattening of the Tax Code, eliminating deductions for groups, billionaires, whatever group you want to include, I think is an exercise that Republicans have to embrace. And in return we have to 

have meaningful entitlement reform. My problem with your budget 

is that you eliminate deductions in the Tax Code and you do nothing on the entitlement reform structurally, nothing that really matters, and there will be no money left for the grand bargain. 

So my disappointment is—and I will just end with this thought— 

that the President has got a couple of years left. After this election, 

he is still going to be President. I just hope we could sit down as 

a Nation, challenge the Republican Party to come up with a reasonable amount of revenue through Tax Code reform, and have the 

Democratic Party come up with some real structural changes to entitlements before it is too late. That would be a good legacy for the 

President. We will see what happens. 

Do you agree with that general thought? 

Ms. BURWELL. What I agree with is that I am still hopeful that 

the idea and concept of a larger bargain that goes beyond what we 

did to improve our discretionary spending, which I think Senator 

Portman mentioned, is, you know, we were able to make progress, 

some progress there, that that can happen. And I think part of why 

we believe that can happen is we reflected that the things that we 

put forward, we still stand by in our budget. 
263 

Senator SESSIONS. Senator Graham, would you yield just briefly? 

You would assume that that tax revenue increase would be used 

to save Social Security and Medicare, not spent on other things? 

Senator GRAHAM. I would say this, Mr. Chairman, that Social Security and Medicare—Medicare is being heavily subsidized by the 

general treasury. Three out of four dollars, almost 60 percent at 

least, is coming from the general treasury. So I want to save Medicare from bankruptcy, and the reason we have long-term debt is 

the general treasury is going to be the funding source for Medicare. 

As to Social Security, eventually you get in that same boat. I am 

willing to put some of the revenue to retire debt to entice my 

Democratic friends to reform entitlements. 

Chairman MURRAY. Thank you very much. 

Senator King, you have been very patient. You will be the wrapup questioner here. 

Senator KING. Thank you. The good news, Administrator, is I am 

the last—but you have not heard my questions yet. 

[Laughter.] 

Senator KING. I am very interested in what Senator Graham just 

talked about, and I think it is a discussion that we should have 

and continue to have. I think one of the—the good news is we have 

got a budget, we have got a 2-year budget. The bad news is it has 

sort of lowered the level of intensity and interest in trying to find 

larger solutions to the longer-term problems, which, as has been 

pointed out today, generally do involve many of the mandatory 

spending programs. 

A couple of short points. One is a lot of the discussion today of 

health care, and I think, frankly, some of the discussion is misplaced because it focuses, for example, on Medicare. What can we 

do to solve the health care cost that is driving Medicare. I think 

that is the wrong question, because if you focus on that question, 

inevitably you end up shifting those increasing costs to either the 

providers or the beneficiaries. There is no place else to go. 

I believe that the emphasis ought to be lowering health care 

costs everywhere for everybody because it is a drag on our economy. As you know, we pay more than twice as much as anybody 

else in the world. Our results are 17th to 20th in the world, and 

it is just preposterous, the amount that we are paying for Medicare 

in light of what—I mean, for medical costs in light of what we are 

getting. 

So I would urge the administration to continue to really look and 

work with us on structural changes, and there are promising results coming out of the Affordable Care Act. We are seeing in 

Maine a significant lowering in accountable organizations of emergency room visits and readmissions. They are a big savings, and 

that is where we need to be talking. You are nodding. I will take 

that as a yes. 

Ms. BURWELL. Yes, that is. I mentioned the 130,000 reduction in 

readmissions earlier. 

Senator KING. But that is where we have got to go, and to me 

the narrow focus on just Medicare is really misplaced. We have got 

to lower health care costs for everybody, and there is plenty of 

room to do it given what we see around the world. 
264 

Next question, different topic. Failing to support infrastructure is 

debt. It is debt just as sure as it is on the national books as the 

debt and deficit that we all talk about, and we are kidding ourselves if we beat our chests about lowering the deficit and lowering 

the debt if we are neglecting infrastructure because eventually it 

is going to have to be built, it is going to have to be repaired, and 

somebody is going to have to pay for it, and it is going to cost more 

money. Do you agree with that? 

Ms. BURWELL. I agree. Pay now or pay later. 

Senator KING. A different point, and that is, I am very concerned 

about interest and interest rates. And I think all of us are sort of 

whistling past the graveyard on that. If interest rates went back 

to 6 percent on the national debt, which it was in the year 2000, 

just the interest on the debt would be $1.02 trillion. If that number 

rings a bell, it should, because that is the amount of the budget 

that we just passed. In other words, the interest on the debt would 

equal the entire discretionary budget that was just passed in this 

body. And I believe we have to really be worried about that because 

we have been lulled by these low interest rates over the last few 

years. 

I would like to ask your reaction to a proposal that would do tax 

reform. Everybody is talking about tax reform and where to get it. 

Chairman Camp and everybody else is. The difference is: What do 

we do with the money? And just like Senator Graham, I would invite my colleagues on the other side to talk about a tax reform 

package where the revenues were dedicated—I hate to use the 

term ‘‘lockbox.’’ I am old enough to remember that ill use of a 

phrase—but were dedicated strictly to reducing the deficit. Because 

if we do not get those $17 trillion back, it is going to destroy our 

ability to do anything. It is going to eat up Pell grants, national 

parks, the defense budget, everything that we want to do around 

here. 

Would you concur that there is some—how would you react to a 

proposal to do tax reform and dedicate it specifically to deficit reduction, not new spending? 

Ms. BURWELL. So a large portion of our tax proposals actually 

are dedicated to deficit reduction, and you are right, that is the distinction. In terms of 600 

Senator KING. But I am talking about a legal mechanism, not 

just precatory language. 

Ms. BURWELL. Well, we team our—because we make clear where 

our tax offsets are used to pay for spending, the rest of our tax 

changes are dedicated to, as you are reflecting, deficit reduction. 

And I would also say, having been a part of the creation of the 

lockbox, when we had a balanced budget, that actually was the objective, is by using the construct of a lockbox, it went towards deficit reduction, which was about extending the life of the trusts. 

Senator KING. Well, I think that is something that we really 

need to consider, because otherwise all of us, Democrats and Republicans and Independents, are going to be struck by the oncoming train of interest rates. 

Finally, why don’t we have a capital budget in the United States? 

It strikes me as odd that we equate building highways with paying 

park rangers, and we are borrowing for both. It seems to me it 
265 

would make a lot more sense, we could understand our budgets 

better, if we had a capital budget and an operating budget. And 

then we could have a better—I do not mind borrowing for building 

highways and schools and bridges. I do mind borrowing to pay ongoing operating costs. And if we had that distinction in our budget, 

wouldn’t everybody understand better what is going on? 

Ms. BURWELL. You know, I am open to conversations about how 

to think and talk about budgeting. When one is thinking about capital budgeting, one of the things I think that is challenging is the 

question because we do not do multi-year commitments over a period of time in terms of how one pays back things. And so I think 

there are complexities in any of these things, whether it is capital 

budgeting or some of the other budgeting ideas. But as always, 

open to any conversation about understanding ways that you think 

you can get around— 

Senator KING. I would urge you to think about that, because it 

is one thing to owe $17 trillion, the question is what do you owe 

it for and what part of that is legitimate capital, which future generations should help pay for because they are going to enjoy it. But 

future generations should not be paying our costs of the ongoing 

budget of the EPA or the FAA or that kind of thing. So I would 

urge you to give that some thought. 

Thank you, Madam Chair. 

Chairman MURRAY. Thank you. Thank you very much. 

I want to thank all of our colleagues for participating today, and 

I especially want to thank you, Director Burwell, for your testimony and your responses and just let you know that the Committee really does appreciate the hard work that you and your staff 

put in on the budget and helping Congress with our work throughout the year. 

As a reminder to all of our colleagues, additional statements or 

questions for Ms. Burwell are due in by 6:00 p.m. today. 

And, finally, for the information of everyone, we will reconvene 

a week from today to hear from Treasury Secretary Jack Lew on 

the President’s budget proposals within the Department of Treasury. 

With that, this hearing— 

Senator SESSIONS. Madam Chair, if we—the witness suggested 

maybe Secretary Sebelius could answer some questions. Maybe in 

the future we could have—Senator, maybe in the future we should 

have her here because her Department does impact the budget significantly. 

Chairman MURRAY. Senator Ayotte, we were just going to call it 

to a close. I think the vote has been called. We will give you a few 

minutes here if Director Burwell is willing to stay. 

Ms. BURWELL. Happy to, Madam Chairman. 

Senator AYOTTE. Thank you, Director Burwell, and thank you for 

the last-minute run-in. We have had, as you know, a lot of hearings 

going on at once today, so I very much appreciate that. 

I guess what I wanted to ask you about is this: The President’s 

budget request seeks to improve the impact of Federal investments 

in STEM, which is obviously an important issue that we care 

about. And so we have had this outstanding GAO report out there 

that has talked about the overlapping and duplication in STEM 
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programs, and essentially found that 83 percent of them are overlapping, also reporting that there was an inconsistency in figuring 

out which ones work best and what is the measurement of those. 

So are you incorporating that in these budget requests? And do 

you plan to actually take up some of these GAO reports that, unfortunately, have been sitting on the shelf? Because it seems to me 

that is something that I hope we could agree on a priority on a bipartisan basis. 

Ms. BURWELL. So in terms of the GAO reports, a couple of things. 

First, in the specific area of STEM, there is STEM reform in this 

budget. It is proposed—we proposed it last year. It was not accepted by the Congress in terms of the changes that we proposed and 

the consolidations that we proposed. We have re-proposed it. We 

hope that it will gain support this year. 

Second, in terms of the GAO, we have included GAO analytics 

in how we think about some of our Medicare changes in terms of 

places where they believe that there are over-expenditures, and 

some of that is in a number of places. 

And so the last thing is in our cuts and consolidations, as we review those lists each year, some of those have been enacted, and 

we are pleased by that, and there is some alignment there with 

GAO. 

Senator AYOTTE. Well, I think this is an area where I hope that 

you certainly would do more, because I believe that there is a 

whole host of areas—if I had a list—I am actually the cosponsor 

of the Duplication Elimination Act that is bipartisan, and essentially what it would require is for the executive branch, as a GAO 

report is issued, within a certain time frame to make the legislative 

recommendations to the Congress on implementing them. So, not 

just STEM areas but also we have seen duplication in areas of the 

Pentagon, we see duplication in areas of even drug prevention 

areas, which, I think is a very important mission, but you have got 

multiple agencies doing a lot of the same work. And, you know, 

there are lists of these areas, basically. And I am hoping that you 

will be more aggressive on that in terms of making proposals that 

will help us really review which programs are effective and which 

are not, and to make it actually easier to deal with the Federal 

Government on important issues. 

Ms. BURWELL. And I hope that you will see that in the budget 

there are a number of areas in addition to STEM where we do that. 

And also hopefully you will also see an increase in the OMB–GAO 

conversations about not just in areas of duplication but other areas 

where the management function of OMB can build on some of the 

work of GAO. 

Senator AYOTTE. So as I understand the President’s budget proposal overall, we are still on the path to be at a point of close to 

$25 trillion in debt over the 10-year window. Is that true? 

Ms. BURWELL. When we look at—I am not sure if you are using 

publicly held debt or just—we are at— 

Senator AYOTTE. Right now we are at over $17 trillion, right? So 

as I look at the President’s budget request, based on the amount 

of debt, where we would be in 2024 would be about $25 trillion, 

using that measure of right now what we understand, not unfunded liabilities, nothing like that. 
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Ms. BURWELL. So I think putting aside the question of gross or 

publicly held debt, I think what we believe is the most important 

measure is considering the debt in the context of the size of the 

economy, the debt to GDP. And as you look at the numbers in our 

budget and our policies, what we do is stabilize that debt-to-GDP 

ratio in 2015 and then take it on a declining path. 

Senator AYOTTE. Well, I understand that measure, and certainly 

we could have a dispute over how we measure that total debt, unfunded liabilities. But I am just asking you this straightforward 

question. Even if you think the better measure is as compared to 

GDP, right now we are over $17 trillion in debt; by 2024, as I understand it, under this proposal we get to $25 trillion. Yes or no? 

Ms. BURWELL. Yes, in terms of the measure that you are using. 

Senator AYOTTE. Right. Well, that is the question that I asked 

with that measure, $25 trillion. 

Ms. BURWELL. With that measure. 

Senator AYOTTE. Yes. So as I view this budget, this is one that 

continues on the path that is dangerous for our Nation in terms of 

the fiscal challenges that we face as we see mandatory spending 

growing at even higher levels. So I think for us to get to $25 trillion in debt is not where this country should be, what the Nation 

should be, and certainly presents significant risks for us in terms 

of the fiscal challenges facing the Nation. 

So we can dispute the measure, but I just want people out there 

to understand where we are going. It is not a downward trajectory. 

It is an upward trajectory. 

Ms. BURWELL. Actually, I agree that helping folks understand 

the importance of these numbers is quite important. And when one 

thinks about the deficit, which is what contributes to the debt, that 

is on a downward trajectory. It has the steepest slope of decline 

that we have seen on a continuous basis since World War II. And 

as Nation, I think what the American people are most interested 

in is the tradeoffs that our fiscal policy is not about a number, it 

is actually about what it means for them in terms of economic 

growth, job creation, and people coming into the middle class. And 

when you have a decline that is the steepest slope that we have 

seen since World War II, I think the real question that we should 

be discussing is: Do you want that slope to be more steep? And if 

you do, what are the costs in terms of the deficits that were mentioned by your colleagues in terms of infrastructure and other 

things? And what does it mean for job creation and— 

Senator AYOTTE. But, Director Burwell, do you dispute that the 

deficit goes up again? 

Ms. BURWELL. In our budget window, all of our numbers, the 

debt to GDP and the deficit to GDP, are on a declining path. 

Senator AYOTTE. You say declining. So the deficits under your 

proposal are going to continue going down? 

Ms. BURWELL. That is— 

Senator AYOTTE. In real numbers. 

Ms. BURWELL. In terms of the debt to GDP, which over the— 

Senator AYOTTE. No, not debt to GDP. In real numbers. In other 

words, I am not asking you debt to GDP. I am asking you if I have 

a $500 billion deficit this year, does it go to a $400 billion the next 

year, then $300 billion, then $200 billion? As I understand it, it ac-
268 

tually increases—that you have actually a situation where—you 

have several years of declining deficits, but then you go back to increasing deficits. 

Chairman MURRAY. Senator Ayotte, I am going to let Director 

Burwell answer, and we have votes, and we are going to have to 

adjourn. 

Ms. BURWELL. The number stays—in terms of the number that 

we are at the beginning of the window, it is 564. At the end of the 

window it is $434 billion. During that period of time, it vacillates 

around a $503 billion level, but over the period of the trajectory, 

in real numbers, not as a debt to GDP or deficit to GDP, it is a 

decline. 

Senator AYOTTE. Is there any point where there is no deficit? 

Chairman MURRAY. Senator Ayotte, we are going to have to adjourn here, which we already did 5 minutes ago, but I appreciate, 

Director Burwell, you staying and really appreciate your testimony, 

and with that, we adjourn this Committee. 

Ms. BURWELL. Thank you, Madam Chairman. 

Senator AYOTTE. Thank you. 

Chairman MURRAY. Thank you. 

[Whereupon, at 11:54 a.m., the Committee was adjourned.] 
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(299) 

THE PRESIDENT’S FISCAL YEAR 2015 BUDGET 

AND REVENUE PROPOSALS 

WEDNESDAY, MARCH 12, 2014 

UNITED STATES SENATE, COMMITTEE ON THE BUDGET, Washington, D.C. 

The Committee met, pursuant to notice, at 10:02 a.m., in Room 

SD–608, Dirksen Senate Office Building, Hon. Patty Murray, 

Chairman of the Committee, presiding. 

Present: Senators Murray, Whitehouse, Kaine, King, Sessions, 

Graham, Portman, and Toomey. 

Staff Present: Evan T. Schatz, Majority Staff Director; and Eric 

M. Ueland, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN MURRAY 

Chairman MURRAY. This hearing will come to order. 

Secretary Lew, glad to have you here today. Thank you for all 

the important work you are doing to boost our economy and 

strengthen our middle class. 

Thank you to my Ranking Member Senator Sessions and all of 

our colleagues who will be joining us today. 

I want to just start by talking a few minutes about where we are 

today in terms of the budget and our economic outlook and why I 

think there should be some opportunities for bipartisanship when 

it comes to creating jobs and encouraging growth through our Tax 

Code. 

We have a 2-year budget agreement in place, and we have taken 

the possibility of another fiscal crisis off the table through 2015. 

This was a very important step forward for families and businesses 

who expect some certainty from Washington. D.C. 

But it cannot be the last step we take, because while the economy has come a long way since the Great Recession began in late 

2007, we all know we are still not where we need to be. We need 

to do everything we can to get more people back on the job and 

build a foundation for broad-based economic growth now and in the 

future. 

When it comes to our debt and deficits, we have also made a lot 

of progress over the last few years. Since August of 2010, we have 

put in place $3.3 trillion in deficit reduction. This year our deficit 

will be about a third of what the Congressional Budget Office expected it to be just 5 years ago, and the long-term outlook has improved somewhat as well. 

But there is much more we will need to do to tackle our debt and 

deficits over the coming decades. As we are looking for ways to ad-
300 

dress each of these challenges—getting more Americans back to 

work and bringing down our debt over the long term—we are going 

to have to take a close look at our Tax Code because right now it 

is getting in the way. It is incentivizing activities that do not help 

growth in the United States, and we are missing opportunities to 

end wasteful spending in our Tax Code and bring down our longterm debt. 

Our Tax Code is riddled with wasteful loopholes and special interest carveouts. In 2014 alone, tax expenditures, or the countless 

special tax breaks in our code, will cost us $1.4 trillion. That is 

more than we are expected to spend on Medicare, Medicaid, Social 

Security, or our national defense this year. 

And far too many of these tax breaks are skewed to benefit the 

wealthiest Americans and biggest corporations, who need them the 

least. In other words, we are spending a lot of money through the 

Tax Code on wasteful and inefficient giveaways to people and businesses who do not need help, at a time when investing in better 

schools, infrastructure repairs, or medical research could strengthen our economy and help a lot of families who really do. 

The good news is there are members on both sides of the aisle 

who would like to eliminate wasteful expenditures in our Tax Code. 

House Ways and Means Chairman Dave Camp recently released a 

new House Republican tax reform proposal that would get rid of 

many of them. 

Now, I do have some serious concerns about Chairman Camp’s 

plan. It puts every dollar of savings from closing loopholes back 

into lower rates, primarily for corporations and those at the top of 

the income scale, and continues to protect the wealthiest Americans and biggest corporations from paying their fair share toward 

reducing our deficit and boosting the economy. 

Chairman Camp’s plan does nothing to help tackle our long-term 

budget challenges and, in fact, depends on gimmicks just to stay 

deficit neutral over the next 10 years and would increase deficits 

in the decades beyond. 

That is truly disappointing because the fact is, when you take a 

serious look at our debt and deficit in the coming decades, tax reform that does not help stabilize our debt is simply fiscally irresponsible. 

But with that said, I am very pleased there appears to be some 

agreement about getting rid of wasteful, unfair tax loopholes. 

Chairman Camp would close a loophole—sometimes called the 

‘‘John Edwards’’ or ‘‘Newt Gingrich’’ loophole—that enables some 

wealthy business owners to get out of contributing their fair share 

to Medicare and Social Security. 

He would eliminate special tax breaks for oil companies and 

bring an end to Wall Street gaming in derivative contracts, which 

cheats taxpayers out of billions of dollars every year. 

And Chairman Camp would close the carried interest loophole 

that allows hedge fund managers to pay lower taxes on their income than many middle-class Americans do. 

These are just a few of the unfair special breaks that both Democrats and Republicans agree we need to eliminate. In fact, every 

one of these provisions also appears in the President’s budget. 
301 

As we continue to work towards comprehensive tax reform, moving forward on any of them could help us do a lot to tackle our 

long-term debt challenges, and we could put some savings towards 

investments in job creation and economic growth. 

One option I think there is a lot of interest in exploring is an expansion of the earned income tax credit, which President Obama 

proposed in his budget. The EITC helps lift millions of Americans 

out of poverty each year by rewarding work. But right now, workers who do not have children and workers whose children are no 

longer dependents are being left behind. 

The President’s proposal could really help them out because currently they are eligible for a maximum EITC that is only a tiny 

fraction of the maximum credit available to workers with dependent children. 

President Obama’s proposal would boost the credit for childless 

workers, further incentivizing work and expanding economic opportunity for more Americans who are trying to make ends meet. 

To pay for it, President Obama would close a number of loopholes 

Chairman Camp also agrees we should close, like the carried interest loophole for hedge fund managers. 

Chairman Camp unfortunately proposed cutting EITC in his 

plan, but many other Republicans and conservative experts agree 

it has been effective. 

One expert from the American Enterprise Institute said recently, 

and I quote, ‘‘Look, I have been doing public policy since the 1970s, 

and this program worked.’’ 

Chairman Ryan said that the earned income tax credit ‘‘gives 

families flexibility’’ and ‘‘lets them take ownership of their lives.’’ 

The bottom line is there is bipartisan support for the EITC, and 

there is bipartisan support for closing the kinds of loopholes that 

could help us expand it to more struggling workers. So I hope my 

Republican colleagues will be interested in working with us on this 

because I think it is very critical. 

Another issue I am going to be very focused on in the next few 

months, and I know a lot of our colleagues are as well, is making 

sure the Highway Trust Fund can pay its bills. The fund is facing 

a $60 billion shortfall over the next several years. As soon as midAugust, this could stall construction projects and put jobs across 

the country in jeopardy. If it is not resolved, it would place an unnecessary drag on our recovery this year and would put off muchneeded repairs to our roads and bridges, costing us a lot more down 

the line. 

So I was pleased both President Obama and Chairman Camp 

proposed using one-time corporate revenue to help tackle this fastapproaching infrastructure deficit. 

In the past, both parties have been able to agree that repairing 

critical infrastructure is a good way to create jobs and encourage 

growth. Helping to create jobs here at home rather than letting corporations send them overseas to avoid paying taxes makes a lot of 

sense. 

So between now and August, there is no reason we should not 

be able to work together on closing just a few corporate loopholes 

that both sides agree are unfair, in order to make sure planned repairs to our roads and bridges continue, and prevent any further 
302 

hardship for workers in an industry that is just now getting back 

on its feet. 

Now, even though closing wasteful loopholes is something many 

of us agree on, and even though many of us also agree that work 

incentives for struggling Americans and investments in our infrastructure make sense, I know moving the ball forward will not be 

easy. 

Everyone here is well aware there are fundamental differences 

between our parties when it comes to making tax reforms. But as 

we saw in December, when both sides join together ready to make 

some tough choices and compromise, we really can deliver. 

I think there are important opportunities to build on that bipartisan foundation by encouraging growth and job creation through 

our Tax Code. And I hope colleagues on both sides of the aisle 

agree. I am ready to get to work. 

With that, let me turn it over to Senator Sessions for his opening 

remarks. 

OPENING STATEMENT OF SENATOR SESSIONS 

Senator SESSIONS. Thank you very much, Madam Chairman, and 

thank you, Secretary Lew, for being with us. You are a key player 

in this administration’s financial and economic policy. 

Let me give a brief perspective from my view. In 2009, the administration wagered America’s financial future on the idea that a 

record increase in Government spending, funded by borrowing— 

debt—would revive the economy. Nobel Laureate Gary Becker 

wrote an editorial at that time that said it would not work. It was 

not sufficiently stimulative in the long run, and he was correct. It 

has not worked. 

Growth is critical to America’s progress. We all understand that. 

We know that is the big issue. And it is not an academic matter. 

Growth is not. It is real for workers in America. Will their wages 

go up? Will they have a better chance for having a job for themselves, their spouse, their children or grandchildren, or a lack of 

jobs because of a lack of growth? 

CBO said that the stimulus bill would have a temporary boost, 

for the economy, but over 10 years we would have less growth than 

if we had had no stimulus bill at all. And that is where we are 

today. The growth is gone, and we are now slipping into the drag. 

Since then, our Government debt has increased 64 percent and 

is on track to double by the end of the President’s second term. 

Now, what are the results? America is in the midst of the slowest 

recovery since the end of World War II. Workforce participation has 

shrunk to a nearly 40-year low. The Labor Department reports that 

most occupations pay less today than they did when the President 

took office. There has been a slide for over a decade, really, but it 

has accelerated in recent years. 

Government debt has leaped from roughly $10 trillion to $17 trillion, yet with investors in the market doing well, median income 

has dropped $2,268 per household over the same time, and the decline has accelerated. 

So this is a huge disaster. This is really bad. Working Americans 

are having their wages decline and unemployment remain exceed-
303 

ingly high, and two-thirds of the jobs last year that were created 

were part-time. 

The justification for this unprecedented accumulation of debt was 

the claim it would lead to prosperity, and yet we have none of the 

prosperity and all of the debt. The plan has proven to be one of the 

most costly, failed gambits in American history. The White House’s 

average growth projections for 2013—in their through 2009 

through 2012 budgets was 3.9%. You were participating in that, 

Mr. Lew. You projected an average of 3.9 percent growth, and 2013 

came in at 1.9 percent growth, a half of that. And that is a huge 

difference with real impact on millions of Americans. 

So what does the President propose now in his new budget? Well, the plan increases spending growth again by almost $1 trillion, 

over $800 billion, bursting through the Ryan-Murray spending caps 

that he signed into law just 2 months ago. So while the military 

gets hammered, other agency budgets are soaring. We are surprised to see these numbers, Mr. Secretary. The budget proposes 

the following increases next year: a 45-percent increase for the Department of Housing and Urban Development; an 18-percent increase for the Legal Services Corporation; a 15-percent increase for 

the Department of Energy; a 30-percent increase for the Commodity Futures Trading Commission; and a 7-percent increase for 

the Bureau of Consumer Financial Protection. 

So what is your cut in spending? I do not see it, frankly. But 

what we do see is a claim that we need to eliminate loopholes and 

that loopholes are spending. And we can cut spending by closing 

loopholes, and this is through the looking glass because closing 

loopholes, as we all know, is an increase in taxes. That is not a cut 

in spending. That is an increase in taxes. So the plan raises taxes by more than $1 trillion in addition to the $1.7 trillion taxes that have already been raised during this administration’s term. The new taxes include: limit the value of 

itemized deductions to raise taxes by $600 billion; raise the death 

tax by over $100 billion, after we agreed on the death tax numbers 

not long ago; increase taxes on unemployment insurance, $78 billion; increase taxes on energy production, $49 billion. 

So the President raises taxes to increase spending. It is a taxand-spend budget. It just is. It is not going to pass. It will never 

pass. So all together the White House budget plan would add another, by your own numbers, $8 trillion to the $17 trillion debt we 

have today. 

So I think we need to focus on the seriousness of this situation, 

and I believe it is demonstrated most clearly by this fact: Last 

year, we paid our creditors $221 billion in interest on our Federal 

debt. That is a lot of money. The Federal highway bill is $40 billion 

or so. The aid to education is a little under $100 billion. We spent 

$221 billion first, the first thing we had to pay last year, in interest 

on our debt, and this is payments outside the Government to people who hold our debt, the public debt. 

Under the President’s plan, according to his own numbers, annual interest payments, though, will quadruple to $812 billion. Ten 

years from today, 1 year you calculate in your own numbers, Mr. 

Lew, that we would pay interest of $812 billion. CBO said it would 

be $880 billion in 10 years from today. I think their number is clos-
304 

er to correct. And rising interest payments represent, arguably, the 

greatest threat to our Nation’s financial security. 

Should interest rates increase even slightly over these projections, the cost of financing our debt would quickly surge to emergency levels. As Director Elmendorf told us, we face the risk of a 

fiscal crisis. 

Clearly we must pursue a new course that creates jobs and does 

not add to the debt. That is what we have got to look to consider 

work on. And there are some ideas that are plainly there, and I 

have said before—I just listed them—that will work to create 

growth without debt. I will not repeat them today. 

The Chair mentions the earned income tax credit. I think there 

is some possibility that we could make some progress and utilize 

that more effectively to fight poverty. I think it should absolutely 

be considered, but it cannot be just another social assistance program on top of the programs we have today. And we will have to 

ask how we can pay for it. We will have to consider carefully the 

impact that it will have on our budget. 

So I guess I would just conclude to say you increase taxes and 

you increase spending. When you talk about a balanced budget, I 

asked a group of people from my cities today, when we had—when 

you hear the phrase from Washington, ‘‘a balanced plan to deal 

with our Nation’s financial situation,’’ do you think a balanced plan 

means there will be some raise in taxes and some cut in spending? 

And they said yes. But what we have here essentially from your 

plan is a tax situation where we raise taxes and raise spending. 

That is the wrong direction for America at this critical time. 

I look forward to further discussions. Thank you, Madam Chair. 

Chairman MURRAY. Thank you very much. 

Secretary Lew, your testimony. 

STATEMENT OF THE HONORABLE JACOB J. LEW, SECRETARY, 

U.S. DEPARTMENT OF THE TREASURY 

Secretary Lew. Thank you, Chairman Murray, Ranking Member 

Sessions, members of the Committee. I appreciate this opportunity 

to testify today on the President’s budget. 

Before I begin, if I might, I would like to say a few words about 

Ukraine. Today the President will meet with the Ukrainian Prime 

Minister at the White House, and we are ready to do what we can 

to help Ukraine during this fragile period. Our ultimate goal, of 

course, is to work with all parties to de-escalate the situation in 

Ukraine, and we call on Russia to take the necessary actions to resolve this crisis. 

It is in all of our interests to have a stable and prosperous 

Ukraine, and as the Ukrainian Government prepares for elections 

in May, it is critical that the international community support the 

government’s efforts to restore economic stability. 

We have been working closely with Congress to develop an assistance package that will help the Ukrainian Government meet 

some of its most pressing economic needs and lock in the fundamental reforms that will provide financial stability and put 

Ukraine on a path to long-term economic growth. This package includes a $1 billion loan guarantee, and we are ready to work with 
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the Ukrainian Government to adopt the necessary reforms in conjunction with that assistance. 

Our loan guarantee will supplement the core financial backstop 

from the IMF, and we are already engaging with our colleagues at 

the State Department and USAID to lay the groundwork. 

As important as our assistance is, the IMF is the world’s first responder in a crisis of this kind. That is why we are encouraged by 

the work in the Senate to approve the 2010 IMF quota reforms so 

that the IMF can provide the necessary resources to Ukraine and 

the United States can maintain its leadership within the Fund. 

While the United States will not increase our total financial commitment to the IMF by approving the 2010 reforms, it is important 

to note that for every dollar of support the United States provides 

to the IMF, other member countries provide $4 more. At a time 

when the United States is at the forefront of international calls for 

urging the Fund to play a central and active first responder role 

in Ukraine, it is imperative that we secure passage of IMF legislation now so the IMF can provide the most effective assistance to 

Ukraine in its vulnerable moment and we can preserve our influential voice in this indispensable institution. 

I want to be clear that even as we deal with the unfolding events 

in Ukraine, we continue to focus on our central objective: expanding opportunity for all Americans. Over the past 5 years, we have 

accomplished a number of important things to make our country 

stronger and better positioned for the future. In fact, since 2009, 

the economy has steadily expanded. Our businesses have added 8.7 

million jobs over the last 48 months. The housing market has improved, and rising housing prices are pulling millions of homeowners out from under water. 

At the same time, household and business balance sheets continue to heal, exports are growing, and manufacturing is making 

solid gains. The truth is, as the President said in his State of the 

Union, we are more ready to meet the demands of the 21st century 

than any other country on Earth. 

Nevertheless, our economy was thrown against the ropes by the 

worst recession in our lifetimes, and while we are back on our feet, 

we are not yet where we want to be. Everyone here understands 

that. The question is: What are we going to do about it? 

The President’s budget lays out a clear path to move us in the 

right direction. It not only fulfills the President’s pledge to make 

this a year of action, it offers a framework for long-term prosperity 

and competitiveness. This budget addresses the critical issues we 

face as a Nation. It recognizes that while corporate profits have 

been hitting all-time high, middle-class wages have hit a plateau, 

with long-term unemployment an ongoing challenge. 

It recognizes that while the stock market has been vibrant, saving for retirement and paying for college is little more than a 

dream for millions of families. It recognizes that while our national 

security threats are shifting and we are bringing the war in Afghanistan to a responsible end, soldiers, military families, and veterans are struggling to success in our economy. And it recognizes 

that while work is being done to put the final pieces of financial 

reform in place, reforms like the Volcker rule have made our financial system strong and an engine for economic growth once again. 
306 

The solutions in this budget flow from a frank assessment of the 

challenges. They are carefully designed to show the choices we can 

make to increase opportunity and bolster the middle class. For instance, a cornerstone of these proposals is to expand the earned income tax credit so it reaches more childless workers. We know this 

credit is one of the most effective tools for fighting poverty, and it 

is time to adjust it so it does an even better job of rewarding hard 

work. This tax cut, which would go to more than 13 million Americans, will be fully offset by ending tax loopholes that let high-income professionals avoid the income and payroll taxes other workers pay. 

Another initiative that will make a difference for hardworking 

men and women is myRA. This retirement security program will be 

available later this year, and it will allow Americans to start building a nest egg that is simple, safe, and can never go down in value. 

While this budget puts forward essential pro-growth initiatives, 

it also calls on Congress to reinforce our growth-enhancing strategies by passing measures like comprehensive immigration reform 

and trade promotion authority. 

But even as it does those things, make no mistake. This budget 

is also serious about building on the success we have made together to restore fiscal responsibility. 

The fact of the matter is the deficit as a share of GDP has fallen 

by more than half since the President took office, marking the most 

rapid decline in the deficit since the period of demobilization following the end of World War II. The deficit is projected to narrow 

even more this year, and today we are charting a course that will 

push the deficit down to below 2 percent of GDP by 2024 and rein 

in the national debt relative to the size of the economy over 10 

years. 

Last year, the President put forward his last offer to Speaker 

Boehner in his budget as part of a balanced compromise. This 

year’s budget reflects the President’s vision of the best path forward. While the President stands by his last offer, he believes that 

the measures in his budget are the best ways to strengthen the 

economy now. 

As this budget demonstrates, the President is firmly committed 

to making tough choices to tackle our fiscal challenges, and our fair 

and balanced solutions represent a comprehensive approach to 

strengthening our Nation’s financial footing. This approach shrinks 

the deficit and debt by making detailed, responsible changes to 

Medicare, while eliminating wasteful corporate tax loopholes and 

subsidies that do not help our economy and scrapping tax breaks 

for those who do not need them. 

Increasing basic fairness in our Tax Code is not just about improving our Nation’s fiscal health, though. It is about generating 

room so we can make investments that will strengthen the foundation of our economy for years to come. That means helping to create more jobs by repairing our infrastructure, increasing manufacturing, boosting research and technology, and fostering domestic 

energy production. It means training Americans so they can get 

those jobs by promoting apprenticeships and upgrading worker 

training programs. It means improving our education system by expanding access to preschool and modernizing high schools. And it 
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means making sure that hard work pays off by creating more 

Promise Zones, increasing college affordability, and raising the 

minimum wage to $10.10 an hour and indexing it to inflation. 

In closing, let me point out this budget represents a powerful 

jobs, growth, and opportunity plan. It is carefully designed to make 

our economy stronger while keeping our fiscal house in order. What 

is more, it offers Washington a real chance to work together. 

As everyone on this Committee knows, for far too long, 

brinksmanship in Washington has been a drag on economic growth. 

But thanks in large part to the work that you, Madam Chairman, 

have done, we have seen significant progress in making bipartisan 

progress in recent months, and that has helped to improve economic momentum. 

Some cynics say it is fleeting. Some call it ‘‘election year posturing.’’ But I do not agree. I believe this progress is real. I believe 

we can keep finding common ground to make a difference. And I 

believe we can continue to get serious things done on behalf of the 

American people by working together. 

I thank you and look forward to answering your questions. 

[The prepared statement of Secretary Lew follows:] 
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Chairman MURRAY. Thank you very much, Mr. Secretary. 

Let me start with the fact that about 2 years ago the White 

House released a Framework for Business Tax Reform that lowered 

the top corporate rate to 28 percent on a revenue-neutral basis. 

That framework was updated last year, I think in a good way, to 

devote one-time revenues towards job-creating investments in our 

infrastructure. 

I support asking some of the biggest beneficiaries of our infrastructure system to contribute to rebuilding that system in ways 

that will improve the productivity of business, both large and 

small, and relieve congestion for our workers. And I should add 

this is a fiscally responsible approach to corporate reform. We 

should not devote temporary revenues to permanent tax rate reductions. 

The President’s budget adopts this model. It devotes $150 billion 

in corporate revenue to the next surface transportation reauthorization and ensures the near-term solvency of our Highway Trust 

Fund that I mentioned in my opening remarks, a $60 billion shortfall. I wanted to ask you this morning if you can elaborate on the 

administration’s—why they feel this is a strong approach and what 

your objectives area. 

Secretary Lew. Senator Murray, I would love to. The President 

gave a speech in July where he laid the idea out, and the budget 

obviously carries that forward. And the idea is a simple one. 

There is a convergence of thinking on business tax reform, and 

the outline that Congressman Camp put out, the administration’s 

white paper, ideas that have been circulating in the Senate, they 

are not identical. But they are all moving in a similar direction. 

And the proposition is a simple one. It says let us work on business tax reform and let us use the one-time revenues that come in 

in the initial 5, 10 years, and you really can only do two things 

with that if you are going to have a revenue-neutral bill: you either 

can reduce the deficit, or you can use it for one-time investments. And we say put $150 billion into one-time investments, particularly in infrastructure, to get a jump-start on meeting the needs we 

have as a country to have a strong economic foundation for the future. 

We actually think that there is a potential to work together here, 

and I say business tax reform because it is not just corporations. 

We have things in our white paper that actually would help businesses, whichever side of the Tax Code they are on. So it would 

give small business of any type the ability to deduct $1 million of 

expenditures in the first year that they make the expenditures, 

which is a huge benefit to small businesses as well as corporations. 

So I hope that there is the basis for a conversation to go forward. 

It would make our country more competitive to have a lower statutory rate and fewer loopholes, and building our infrastructure— 

when I talk to CEOs around this country, the two things that they 

say we need to do is we need to make sure our infrastructure 

works and we train our young people to have the skills that they 

need. Those are the two things that they ask about. 

Chairman MURRAY. I agree, and I do think there is room for us 

to start looking at how we can come together on that really critical 

issue. So I appreciate your addressing it. 
316 

Also, you mentioned in your opening remarks at the top the situation that is unfolding in Ukraine, which we all know is nothing 

short of a tragedy. Like everyone, my heart really goes out to those 

that continue to fight for a democratic Ukraine and for those who 

hope to see Crimea free from Russian forces. 

The House, as you know, passed legislation providing $1 billion 

in loan guarantees last week to help stabilize the economy in 

Ukraine. I know that there are a number of our colleagues here in 

the Senate who are working on a larger package of reforms as well 

to respond to that, including legislation that would increase the 

amount of resources available to the International Monetary Fund. 

You mentioned this in your opening remarks as well. 

But I wanted to ask you this morning while you are here if you 

can tell us why it is important for Congress to act quickly to pass 

comprehensive legislation that includes both financial assistance to 

the nation of Ukraine and language fulfilling the United States’ 

commitment to increase the resources available to IMF. 

Secretary Lew. Senator, I think if you look at what Ukraine 

needs, they need many things. They need to have a foundation to 

rebuild their economy. It is going to have to come from the IMF. 

It is going to be a package that could be as large as $15-plus billion. There is no one country, certainly not the United States, that 

could provide that level of support. That is why the IMF is so important. It is the first responder. It is the foundation. We as the 

leading voice, the only one with a veto power in the IMF, have an 

ability to help drive the IMF to do what it needs to do in situations 

like this. Approving the reforms strengths our voice. Not approving 

them weakens our voice. 

We are already hearing calls by some to say if the United States 

does not approve its reforms, we should maybe move on without 

them. That is not a good place for the United States to be. 

Specifically with regard to the Ukraine, Ukraine increases the 

amount that it can draw from the IMF in terms of flexible funds, 

from $1 billion to $1.6 billion when the reforms were approved. So 

it is, in general, important for us to be able to have the powerful 

voice that we have in the IMF, and it is specifically important to 

Ukraine in terms of how much they have access to. 

Chairman MURRAY. Okay. Thank you very much. I think that is 

extremely important for us to understand here, so I appreciate it. 

Senator Sessions? 

Senator SESSIONS. Director Lew, with regard to Ukraine, I do believe that we need to assist, and I would look forward to working 

with you and the administration to achieve the kind of loan guarantee that has been discussed. It needs to be paid for, and it cannot 

be paid for by borrowing more or taxing more, in my view. There 

are plenty of monies that we can find for it. 

Secondly, I think the plan, if it is tied to IMF reform, will create 

a lot of complications. I think you would be better off at this point 

not asking for that, because that has been on the agenda for a 

number of years. The administration has pushed for it, and it has 

not happened, and I think it could jeopardize this agreement. 

Director Lew, last week Budget Director—Secretary Lew, former 

Director Lew. 
317 

Secretary Lew. I am proud of having been OMB Director, so I do 

not consider it— 

Senator SESSIONS. It is the most August position maybe in the 

Government. She was here and she acknowledged really that the 

President’s budget does change the Ryan-Murray law that he 

signed recently, and it would even within this year spend—even 

next year’s budget of 2015, would spend $56 billion more than was 

agreed to under that law. Is that your understanding? 

Secretary Lew. Senator, if I may just respond on the IMF, we 

think that without the IMF being the foundation, we will not be 

able to provide the level of support we need for Ukraine. So we 

view them as integrally connected, and we look forward to having 

conversations— 

Senator SESSIONS. Well, there is some uncertainty from my perspective, and we will be glad to look at it. 

Secretary Lew. Yes, and appreciate the importance of paying for 

it and are working to do that. 

Chairman MURRAY. Before you respond, Senator Sessions, the 

votes have been called. There is a series of them. I am going to go 

vote right now. When you are done with your questions, I am going 

to turn to Senator King. I will try and be back as quickly as I can. 

We will just have to rotate. But if you want to continue. Thank 

you. 

Senator SESSIONS. [Presiding.] Thank you. It is unfortunate. I 

wish we could have started a little earlier. Maybe we could have 

had less interruptions. 

Secretary Lew. With regard to your question, you asked about 

the investments in our budget. We very much appreciate the importance of the budget agreement reached. We supported it. We 

built a budget that was based on it. And we said, as we have said 

before, that it is important to—as was outlined in the Budget Control Act—look for alternatives to the across-the-board cuts and the 

level of discretionary cuts that came out of that by putting other 

policies on the table so that we could still invest in the things we 

need for our country. 

So we have a budget that has an investment fund that is paid 

for. We may not agree on how to pay for it, and obviously if we cannot agree on it, then the caps cannot be raised. 

Senator SESSIONS. Well—thank you. 

Secretary Lew. But we think it is consistent. 

Senator SESSIONS. Well, I am not going to repeatedly argue with 

you about this, as I felt I needed to do with Director Burwell. It 

is not a question of being paid for. We agreed how much money we 

would spend next year, 2015. That was the agreement. And you 

want to spend more than that. If you want to raise taxes, then we 

ought to stay at that spending level and use the taxes to pay down 

the debt, reduce the deficit. That is the difference we have. And, 

fundamentally, we have a big question here, and you know it. I 

think the American people need to understand it more clearly. 

What do you do about our financial condition? What do we do about 

the budget? What is the way to have prosperity? Is it to raise 

taxes, to increase all these agencies’ and departments’ spending? Is 

it to extract more money from the private sector? Has that worked? 

Has it made life better for working Americans? I say not. 
318 

So this is—we have an honest disagreement. I am concerned 

about working Americans. I do not think they are doing well. I do 

not think the plan has worked. I did not believe it would from the 

beginning. Dr. Becker said it would not. I think he has been proven 

correct. 

And one of the things that is really worrying me, having talked 

to the former Prime Minister of Canada, who produced five consecutive balanced budgets after being in a critical financial state, 

he said you have to focus on interest payments. That is the danger 

to the economy. That is what they did in Canada. They talked 

about it. 

Isn’t it true that our interest payment last year was $221 billion 

and, according to your estimates, it would move $812 billion in one 

year 10 years from today? 

Secretary Lew. Senator, I do not disagree that we were on a better path when we were paying down the debt in the 1990s. It is 

a long time since then. We had decisions made that built up the 

deficit: a tax cut that was not paid for, wars that were not paid for, 

we had the worst financial crisis since the Great Depression. And 

we are now on a path towards digging our way out. We have cut 

the deficit in half. We are on a path to bringing the deficit to less 

than 2 percent of GDP. And we look forward to working together 

to make more progress, but we have to simultaneously invest in 

making sure we have the foundation for economic growth in the future. 

Senator SESSIONS. Well, you have to watch it. What the Prime 

Minister of Canada, the Liberal Party Prime Minister, told us, told 

me yesterday was they cut spending and people—and a lot of 

spending, and they worked their way through it. And the people of 

Canada felt good when they saw the deficits falling rapidly and felt 

really good when they had a surplus. You have not led; the President has not led. All we have heard is we want to invest more at 

a time when deficits are huge and the interest rate is a stunning 

challenge for us. 

The cost of the legislative branch, all of Congress, is $5 billion. 

From 2016, interest on the debt is one year will increase $66 billion. The judicial branch, including—and Department of Justice 

and the prisons is $38 billion. Interest rate would increase in one 

year $66 billion. The Department of Homeland Security budget is 

$49 billion. Interest would increase $66 billion just 3 years from 

now. It will average over $60 billion increases in interest payments 

per year. If interest were to surge higher than—not just returning 

to the mean, but went above the mean, wouldn’t that place us in 

fiscal danger? And shouldn’t we take action, like Canada did, now 

before it is too late? 

Secretary Lew. Senator, I think the interest rate assumptions in 

the budget are prudent assumptions. They build in a path that has 

interest rates returning to normal levels in the period— 

Senator SESSIONS. Well, that is what we hope, and CBO is close 

to the same numbers you are using. But we do not know. You predicted last year we would have almost twice the economic growth 

that we had. That was a huge miss. What if you miss on interest 

rates? 
319 

Secretary Lew. We could be over on some things and under on 

other things. There are a lot of moving pieces in economic projections. Obviously we try to get it right on everything, but I think 

that it is a prudent set of economic assumptions. It is a proper 

foundation for building a budget, and we revisit it every year, as 

every administration does. 

Senator SESSIONS. Well, I think we are in the red zone, we are 

in the danger zone. We need to get out of it. If we have an international crisis of some kind that we do not predict or other things 

might happen we cannot foresee at this point, this Nation could 

find itself at great risk. And I believe you are pushing the envelope 

far too far. 

I believe the Senator from Maine would be next. 

Senator KING. Thank you, Senator Sessions. 

I want to follow up and echo Senator Sessions’ concerns. I think 

interest rates are a ticking time bomb, and if they return to 5 or 

6 percent, which is where they were at the year 2000, we would 

be paying over $1 trillion a year in interest, and it would squeeze 

out everything. No matter what our priorities are around this 

table, it would squeeze them out, whether it is Pell grants, student 

loans, national parks, defense, air defense, whatever. And I believe 

we have to have a plan to start not to reduce the deficit, because 

you are reducing the deficit, you are still adding to the debt. And 

we need to think about reducing the debt itself, and certainly reducing the deficit. 

So I believe that when we talk about tax reform and tax expenditures and reducing tax expenditures, we need to talk about interest 

rates, because $1 trillion a year of interest would just squeeze out 

everything else. So I think this is not something we can whistle by. 

First, I want to thank you, Mr. Secretary, for the work that I 

know you have done on the Affordable Care Act regulations. I hope 

you will keep at that, keep after that, make them as simple, clean, 

streamlined, unburdensome as possible. I think it is very important 

for American business and for the success of the Affordable Care 

Act. I know you have been working hard on that, and I just want 

to say I appreciate that. 

One of the issues is, the long-term large issue is: What is the 

right percentage of GDP for revenues? And it is argued that it 

should be the historic level of 17.5 to 18 percent. I would like to 

ask you—and you can take this for the record—to provide us with 

some data on the cost of the demographics in terms of GDP. In 

other words, it seems to me that saying it should be at the 40-year 

average does not make sense because of the demographic babyboom retirement phenomenon that we have headed toward us. And 

is that 1 percent, 2 percent, 2.5 percent? That, it seems to me, 

gives us a better database to decide what the right percentage of 

GDP is for taxation. Is that something you could talk about? 

Secretary Lew. Senator, I am happy to talk about it and happy 

to provide more in response for you after. 

I think that, you know, there is no secret that with the baby 

boom approaching retirement, the demographics are changing, and 

the number of people eligible for Social Security and Medicare are 

growing. I mean, that was predictable 60 years ago, just as it is 

predictable today. We were building up reserves to pay for it. That 
320 

was one of the notions of the 1983 Social Security reforms. As we 

ran a surplus in the 1990s, we were reloading the fiscal cannon to 

improve our fiscal health. 

A lot of things happened between 2001 and now that caused the 

deficit to grow. So I think we have to separate what is our fiscal 

condition because of non-demographic factors and then what is the 

proper way to plan. 

I think that, you know, there is no doubt that between 2001 and 

2008 there were a lot of policy decisions that were made to take 

the surplus and reduce it. There were tax cuts enacted that were 

not paid for. We for the first time I think in our history fought two 

wars and did not pay for them in real time. 

Senator KING. I do not disagree. We can—absolutely, there is 

plenty of fault to go around. 

Secretary Lew. I actually was not doing it to ascribe fault. That 

is why we are now dealing with the demographic issue on top of 

the fiscal issue. I am just trying to separate them. 

And we have funded the Social Security Trust Fund to deal with 

the retirement of the baby boom over the next several decades, and 

I think the problem is largely on the other side of the budget, that 

we have not run our fiscal policy so that we can keep those commitments. And I think it is a mistake to look just at the demographics, 

and we have to ask: What do we do to have a balanced approach 

to putting our fiscal house in order? And as part of that, we for a 

long time said balanced entitlement reform and tax reform have to 

go together, but they both have to contribute to deficit reduction. 

And that is kind of where they start to come together. 

We have in this budget $400 billion of savings in Medicare. That 

is actually more savings than the 10-year window that the BowlesSimpson Commission had in the same time frame. So it is not actually—we have not at all ignored the issue. There is still more that 

would require a different political context to deal with it. There has 

to be a willingness to move on multiple fronts in a balanced and 

fair way. 

Senator KING. I agree. Changing the subject, we managed to 

raise the debt ceiling this year with a minimum of drama, but 

there has been—it has been rather dramatic in the past. I understand some years ago there was something applicable called the 

‘‘Gephardt rule’’ that said when you increase spending, you automatically increase the debt ceiling. I think that makes a lot of 

sense. To me, it is too easy for us sitting around here to vote for 

spending and then later vote against the debt ceiling when the debt 

ceiling increase is implicit in the spending we just voted for. 

What would you think about trying to reimpose something like 

the Gephardt rule so a budget resolution contained within it a debt 

ceiling? 

Secretary Lew. Senator, I could not agree more that bringing together the decisions on fiscal policy, what we tax, what we spend, 

and how many commitments we make ought to be more integrally 

connected to our borrowing authority, because once we have made 

the commitments, it is really more of a ministerial act to raise the 

debt limit. We cannot not pay our bills. 

You know, in full disclosure, I worked for the Speaker of the 

House when the Gephardt rule was put into place. I thought it was 
321 

a good thing at the time because it made it less of a political hurdle 

and tied substantively the issues together where they belonged. 

There are a lot of ways to make it easier to do the debt limit. 

We are one of very few countries that separates the policy decisions 

of how much to spend from the borrowing authority issue. And I 

think the closer together they are, the better. And I would be 

happy to work with you and others on exploring ideas. 

Senator KING. I am working on a legislative version of the Gephardt rule and would be delighted to consult to have your expertise 

and what I now know is your historic knowledge. Thank you, Mr. 

Secretary. 

Thank you, Madam Chairman. 

Chairman MURRAY. [Presiding.] All right. Thank you very much. 

Secretary Lew, we have a number of Senators who are returning 

to ask questions, and I will go ahead and ask a few while they do. 

Secretary Lew. Sure. 

Chairman MURRAY. And then I will yield to them as soon as one 

of them returns. 

As you know, the earned income tax credit is really critical to 

providing economic opportunity for our low-income working families. As I said earlier, it lifts millions of families and children out 

of poverty every year by rewarding work. You have to earn wages 

to get the benefit of the EITC. That I think is something that appeals to both Democrats and Republicans. 

The benefits to society are intergenerational. Studies have shown 

that kids in families who get the EITC go on to have higher educational outcomes, work more hours, earn more income. 

But as effective as it is at encouraging work and reducing poverty and improving outcomes for kids, the credit is leaving low-income workers without dependent children behind, and I wanted 

you to comment on this idea that we have been talking about in 

terms of the EITC leaving behind a critical segment of our economy. 

Secretary Lew. Yes, Senator, our budget proposes to fix that by 

making single childless workers eligible and increasing the amount 

for which they would be eligible. I think it is extremely important. 

You know, we are talking about low-income working people who 

are struggling to get started, who where the incentive to work 

should be strong, where early attachment to the workforce in some 

cases can be part of a career-shaping life experience. 

You look at the history of the earned income tax credit, it has 

been a history of bipartisanship. It was started in the Nixon-Ford 

years, and in almost every administration, Republican or Democrat, it has been expanded because there has been a consensus that 

encouraging work, making work pay, is something we actually all 

can agree on. 

I hope that the proposal that we put forward is the basis for that 

kind of a conversation and that, you know, young workers, single 

workers who are low-income workers, are able to get the benefit of 

the earned income tax credit and the incentive to be part of the 

workforce and stay in the workforce. 

Chairman MURRAY. Good. Well, I look forward to having that 

conversation with you and with everyone as we move forward. 

Senator Whitehouse? 
322 

Senator WHITEHOUSE. Thank you, Chairman. Welcome, Mr. Secretary. 

I do this virtually every time, but I really have to point out yet 

again that our friends on the other side talk a good game on the 

deficit, but whenever it is crunch time, they will stick up for the 

carried interest exemption for billionaires instead of deficit reduction; they will stick up for corporate offshoring of revenues and hiding from the tax guy offshore instead of dealing with the deficit; 

they will protect oil subsidies rather than deal with the deficit. So 

don’t just look at their words when you hear this. Look at their actions, because over and over again they have showed that the special interest loopholes are preferred to dealing with the deficit. 

And, indeed, you heard the Ranking Member say today that closing 

loopholes is just a way of increasing taxes, and I guess they want 

to continue to defend this stuff. I do not see how that is defensible, 

and we are going to continue to have that conversation. 

Your testimony says that the administration’s position is that tax 

reform should raise revenue, and yet you recommend corporation 

tax reform that is revenue neutral. Could you explain why you are 

not doing what you say you should with corporate tax reform? 

Secretary Lew. Well, Senator, we have said overall comprehensive tax reform should be part of the solution. On the business side, 

we are very concerned that the high statutory tax rate in the 

United States is a real problem in terms of our competitiveness, in 

terms of our ability to retain and attract corporate headquarters 

and job creators in the United States. And we think the way to resolve that is to eliminate loopholes in the business Tax Code and 

to lower the statutory rate. 

There has been a lot of debate about how low the statutory rate 

can be. We have not been able to come up with a plan that would 

get it below 28 percent without using the revenue from closing 

loopholes to lower the statutory rate. So it was really a pragmatic 

conclusion that we believe the statutory rate needs to come down 

and we need to pay for that. And on the individual side is where 

most of the revenue is. It is where the loopholes that are available 

for mostly very high income taxpayers are most profound. And in 

the process of comprehensive tax reform, we believe that it has to 

be part of an overall fiscal plan, which is why we think you can 

separate business tax reform and do it on its own. 

Senator WHITEHOUSE. I know you are not there and I do not 

want to put you in the position of saying that you are there or are 

going to be there, but for the record, a carbon fee at the level of 

the previous social cost of carbon, if applied to corporate tax rates, 

could reduce it, I believe, all the way to 25 percent before you even 

get into loophole closing and, in addition, would rev up the green 

energy economy, which creates more jobs right now than oil and 

gas do anyway and would help us reduce the really terrible longterm liabilities associated with adapting to and mitigating the 

changes that climate change is going to cause us. 

Is there a place where the United States Government tries to 

look forward to those liabilities and put them on the books someplace, the cost of coastal damage, the cost of— 

Secretary Lew. It is actually an interesting question that you 

ask. In the context of our budget this year, we tried to look at how 
323 

do you deal with the questions of resilience and building a capability to respond to the increasingly frequent kind of natural disasters that result from climate change. I think that is a conversation 

we need to have, and figuring out a way to pay for it is very important. The President suggested that we need to think about that. 

I think that we are all in the relatively early stages of thinking 

that through, and it is something that we— 

Senator WHITEHOUSE. Well, my time is running out, so let me 

just make one last point, which is that I would—I continue to urge 

the administration on health care to set a target for delivery system savings. You know that health care expense is probably the 

number one part of our budget problem. Health care expense is 

largely the result of health care cost. Health care cost in America 

is unjustifiably and uniquely high compared to the rest of the 

world. And there is a lot of effort that is being put into reducing 

that cost, and people are being given a direction by the administration, which is to bend the health care cost curve. But that is only 

a direction. That is not a goal. And being told which way to go 

versus how far to go are two very different things. And I think that 

the failure to produce an articulable goal for health care savings 

from delivery system reform is a really serious failing, and I urge 

you to keep looking at that. 

Secretary Lew. Senator, we have over the years discussed this, 

and I compliment the work you have done in this area. I think that 

what we have done is we have made policy changes in the Affordable Care Act in particular that are having a real impact on bending the cost curve. We are seeing the slowest increase in health 

care costs in a long time. 

I do not disagree with you that we need to get more progress in— 

Senator WHITEHOUSE. I am over my time, so I do not want to get 

into a debate, but the good things that you have done make it all 

the more frustrating that there is still this gap. 

Chairman MURRAY. Senator Toomey. 

Senator TOOMEY. Thank you, Madam Chairman, and thank you, 

Mr. Secretary, for joining us. 

I wanted to follow up on a concern raised by Senator Sessions 

about the IMF reforms. I understand the administration wants to 

get this done. I share his view. Frankly, I would like us to move 

forward on a well-crafted package of aid for Ukraine. I think that 

makes a lot of sense. I am concerned that this unnecessarily complicates it, so I want to make sure that I am clear about this. 

It is my understanding that the reforms are not actually necessary for the IMF to proceed with the $15 billion loan package 

that is under consideration. And while that amount is far in excess 

of the normal limit that would apply for Ukraine’s quota, the IMF 

has a framework in place for those kinds of circumstances, the Exceptional Access Framework. It has been used in the past. It could 

be used again. 

So am I correct in understanding that it is not actually essential 

to complete that $15 billion package to have the reforms adopted 

by the United States? 

Secretary Lew. Senator, there is a distinction between the flexible window, which would go from $1 billion to $1.6 billion, and the 
324 

extraordinary package. And the extraordinary package is not governed by quota share. 

What is very much the case is that our voice in the IMF is affected by whether or not we approve quota reform, and our ability 

to drive that package in the direction that we think it needs to go 

is diminished if we do not act on it. 

Senator TOOMEY. Okay. Fair point. 

Secretary Lew. And one point I should make is in terms of the 

complication, we are working very closely with the Government of 

Ukraine. I have talked to the Prime Minister a number of times. 

I will be meeting with him today and tomorrow. Ukraine has sufficient cash for the immediate future. Their need is not today or tomorrow. It is in Ukraine’s interest that we get this right. And if 

we do the three-part package that is being developed in the Senate 

Foreign Relations Committee, that will be the best way to help 

Ukraine. 

Senator TOOMEY. Okay. And I just—you confirmed—you would 

like to have it. I understand that. And you believe it enhances our 

ability to influence the composition of the package. I get that. But 

it is not actually— 

Secretary Lew. Yes, Senator, I have conversations with my counterparts every day, Foreign Ministers from other countries. 

Senator TOOMEY. Right. 

Secretary Lew. I am in one part of the conversation urging them 

to do what we want, and in the other part of the conversation answering when are you finally going to do the quota reforms. We 

need to not be on the defense. We need to be the strongest country 

in the world. 

Senator TOOMEY. Well, the other thing that is just a little peculiar about the reforms is, it seems to me, an unfortunate timing in 

some respects since this is in response to the outrageous behavior 

of the Russian Government to some degree, and yet the reforms actually diminish American voting power and increase Russia’s voting power. So it sort of looks like it sends a bit of a mixed signal. 

But I wanted to raise another issue, and that is the Government’s role with Fannie and Freddie. As you know, when the Government stepped in and bailed out Fannie and Freddie, the Government signed a very specific agreement with the Board of Directors, which they entered into voluntarily. It involves the Government providing guarantees and a line of credit and a very specific 

return, that the Government would get a 10-percent return on 

money extended and options to purchase 79.9 percent of the equity. 

In August of 2012, just as it was becoming apparent that Fannie 

and Freddie were going to return to significant profitability, the 

Government came along and negotiated a new deal with itself. 

With the Treasury Secretary on one side and a Government-appointed regulator on the other side, they wrote a new agreement 

whereby the Government now gets 100 percent of the profits when 

the previous agreement stipulated that they would have ownership 

of just under 80 percent. 

Isn’t this a serious breach of the sanctity of contracts? And 

doesn’t this undermine our commitment to the rule of law to have 

done this? 
325 

Secretary Lew. Senator, you know, we have had a very clear policy on Fannie and Freddie, which is that we are winding them 

down, and that is why it is so important that we are making 

progress in a bipartisan basis to work on housing finance reform. 

I think that when you look at the agreements that were made for 

the Federal Government to step in and become a conservator and 

the subsequent agreements that were made, it serves the public interest, and the sooner we get on with the debate of housing finance 

reform, the better. 

We have sent clear signals of what our policy intent was so no 

one was not warned of what the goal was. And, you know, I think 

the damage done to our economy because of the failures of Fannie 

and Freddie were deep, and I think that the policies in place are 

right. 

If I could just respond, though, on the point you made about Russia, just a technical matter— 

Senator TOOMEY. I would like a quick follow-up on the Fannie 

and Freddie question, but go ahead. 

Secretary Lew. As just a factual matter, Russia’s share goes up 

a trivial 0.2 percent, from 2.4 to 2.6. The important thing about the 

2010 agreement is the United States maintains its veto authority 

and the reallocation of shares did not reduce the U.S. influence on 

the IMF, which is why it is so important that we get it done. 

Senator TOOMEY. Well, I am happy to have that conversation. I 

just think it would be better to do it on a different vehicle. 

And just a final word on Fannie and Freddie. Whatever policies 

have been signaled—and I am one that believes we absolutely cannot go back to the status quo ante. I think that was a very bad 

model that we had. I criticized it in the past. I certainly do not 

want to return to that. And, by the way, I will be the first to acknowledge that the taxpayers have not yet gotten the return on the 

money that they have extended. They have back an amount about 

equal to the principal amount, no return, no interest, none of the 

10 percent. So— 

Secretary Lew. Nothing close to the damage to the economy. 

Senator TOOMEY. By no means has that occurred. But whatever 

signals you have sent about policy cannot be more important than 

a contract that has been signed. And when the American people— 

and that includes savers, investors, pension funds, community 

banks—all across the country cannot have confidence in a contract 

that they have with the United States Government, I think that 

has a chilling effect on our economy as well, and our ability to attract the private capital to reform Fannie and Freddie. So I am 

very concerned about that. 

Thank you, Madam Chairman, for the indulgence. 

Chairman MURRAY. Thank you very much. 

As I said, we have a series of votes, so people are racing to the 

floor and back. I know we have several people who want to return. 

The second vote has just been called. I am going to go ahead and 

put us into recess. 

Secretary Lew. Sure. 

Chairman MURRAY. So we will hold temporarily until we get 

someone back here. I know Senator Portman wanted to return. We 

will make an assessment of how many people— 
326 

Secretary Lew. Senator, since once of those votes is to confirm 

my Deputy, I encourage the votes to go on. 

[Laughter.] 

Chairman MURRAY. Okay. We will work on that. 

Secretary Lew. Thank you. 

Chairman MURRAY. So a temporary recess, and we will return. 

[Recess.] 

Chairman MURRAY. We will bring this hearing back into session. 

We have one final questioner for Secretary Lew. Senator Graham? 

Senator GRAHAM. I am last and least, so I appreciate it. 

IMF—you are making an argument to the Congress that the reform package, the expansion of contribution, could really help our 

economic and national security interest. Is that the message you 

are delivering to us? 

Secretary Lew. Yes, it is. 

Senator GRAHAM. In terms of the Ukraine, it could have an exponential effect in terms of providing economic support to the Ukrainian people at the time they need it the most. Right? 

Secretary Lew. Absolutely. 

Senator GRAHAM. For a relatively small cost to the American taxpayer. 

Secretary Lew. It is truly a technical cost. 

Senator GRAHAM. It is not even a rounding error. So to those of 

us who believe the world is rapidly changing and we need to be influential, being a member of the IMF—and Ms. Lagarde is doing 

a terrific job, I think. Would you share that view of her? 

Secretary Lew. Yes, I do. 

Senator GRAHAM. It is a reformed organization, so the Congress 

has an opportunity here to increase the effect of an international 

organization to provide economic stability in troubled regions, and 

that is what you are urging us to do, is to seize the moment. 

Secretary Lew. Indeed it is. 

Senator GRAHAM. Okay. Thank you. 

Now, as to our overall problems as a Nation, am I correct that 

by year 10 of sequestration, if nothing changes, we will be spending 

2.3 percent of our GDP on defense? 

Secretary Lew. I would have to look up the number. It sounds 

right. 

Senator GRAHAM. Okay. Let me know if I am wrong. Sequestration, I think you have said in the past, was a very bad idea. Do 

you still concur with that? 

Secretary Lew. Yes, it was designed to be so bad that nobody 

would let it happen— 

Senator GRAHAM. Yes, so only we could do that, design something so bad that we would not let it happen. 

Secretary Lew. Correct, and so we would do something sensible 

instead. 

Senator GRAHAM. Right. Okay. So let us talk about how sensible 

we could possibly be. If you left $100 billion intact over the next 

7 or 8 years, what is left of sequestration, on the defense and the 

non-defense side, how much would we have to replace? Around 

$400 billion, is that right? 

Secretary Lew. If you left how much? I am sorry. 
327 

Senator GRAHAM. $100 billion on the defense side and the nondefense side. 

Secretary Lew. Well, if it was $100 billion and $100 billion, you 

would have $200 billion if it was over 10 years. Obviously it depends on what the annual amount was. 

Senator GRAHAM. But what I am saying is that we could leave 

some sequestration intact. 

Secretary Lew. Sure, and that is consistent with the agreement 

that Senator Murray and Congressman Ryan reached. 

Senator GRAHAM. Right. 

Secretary Lew. Where they backed out a part of sequestration 

with a balanced package of savings. 

Senator GRAHAM. Well, let us see if we can back out some more. 

Secretary Lew. And that is what the President has proposed to 

do, to have an equal 50 percent of the increases that he would pay 

for would go to defense and half for non-defense. 

Senator GRAHAM. Okay. So if we could figure out how much to 

leave on the table for sequestration that our defense community 

could absorb and the non-defense sector could absorb without doing 

structural damage, the deal would go something like this: We 

would have entitlement reform as part of the replacement. Do you 

agree with me if you did that, you would want to look at a 30-year 

window in terms of reduction in spending, not 10? 

Secretary Lew. Well, I think for entitlements and revenues, looking at— 

Senator GRAHAM. I am talking about doing both. I am talking 

about doing both. 

Secretary Lew. I understand, but for both, looking outside the 

10-year window makes sense because they tend to arc up over 

time. 

Senator GRAHAM. Right. So if we looked at whatever we did to 

generate revenue over a 30-year period and whatever we did on entitlement reform over a 30-year period— 

Secretary Lew. Yes. 

Senator GRAHAM. —that would probably be a better indicator of 

how it would benefit the country. 

Secretary Lew. With the obvious caveat that our estimates are 

weaker as we get into the out-years. 

Senator GRAHAM. I agree. But the concept— 

Secretary Lew. The concept, the direction—you certainly need to 

know the trajectory. 

Senator GRAHAM. Okay. So is the President willing to sit down 

and try to accomplish that goal? 

Secretary Lew. Senator, the President not only is willing, he has 

sat down and tried very hard— 

Senator GRAHAM. I have sat down for weeks over there, and we 

could not get there. 

Secretary Lew. We have not gotten there, and I think some Senators on your side, some representatives on your side are willing 

to think about a balanced package. But we have not gotten to the 

point where we have had a consensus. 

Senator GRAHAM. Now, that is going to require structural reform 

to entitlements, right? 
328 

Secretary Lew. Yeah, I think that the President has made clear 

and by putting in his budget last year his last offer to Speaker 

Boehner he made clear that he was willing to do that. When that 

did not go anywhere— 

Senator GRAHAM. Okay. I got— 

Secretary Lew. —he just is starting the conversation with what 

he thinks is the best— 

Senator GRAHAM. Ten thousand baby boomers a day retiring. 

Secretary Lew. Yes. 

Senator GRAHAM. Do you believe it is smart to eventually adjust 

the age for retirement for Social Security and Medicare and to 

means-test benefits as part of a balanced package? 

Secretary Lew. Well, we have included in our budget the— 

Senator GRAHAM. Some means testing. 

Secretary Lew. —the means testing as—you know, the incomerelated premium— 

Senator GRAHAM. Yeah, absolutely. 

Secretary Lew. —as a form of means testing. 

Secretary Lew. But to do more— 

Secretary Lew. In terms of— 

Senator GRAHAM. If we could do the revenue side. 

Secretary Lew. In terms of adjusting the CPI, you know, our 

view is that it was never an easy thing to do, but— 

Senator GRAHAM. What about adjusting the age for retirement? 

Secretary Lew. See, I— 

Senator GRAHAM. If I am willing to do revenue, would you be 

willing to do that? 

Secretary Lew. I think what the President made clear in all of 

his negotiations that he is willing to put together a balanced package, doing hard things. I think it is probably not the right time for 

me to say which of the things that we would do, but I think his 

bona fides are clear. He showed he was willing to do it. 

I think that this is probably not the 6-to 9-month window when 

we are likely to get that done. 

Senator GRAHAM. I agree with that. 

Secretary Lew. And we have a lot of other things we need to 

make progress on, so this is a budget that is really to do some of 

the other things we can do to build our economy. But we know this 

is a conversation— 

Senator GRAHAM. Hopefully we will see you after the election. 

Secretary Lew. And I just want to thank you, Senator, for the 

leadership you have shown on this IMF issue. It is just critically 

important that we increase Ukraine’s access to an additional $600 

million of flexible financing and that we restore and maintain our 

leadership in that critical institution. I thank you for your help. 

Chairman MURRAY. Thank you very much. And, Secretary Lew, 

thank you for your flexibility, and to all of our colleagues today. We 

really appreciate the hard work that you and your staff put into 

all of this at the Department of Treasury. 

As a reminder to my colleagues, additional statements or questions for Secretary Lew are due by 6:00 p.m. today. 

With that, I will call this hearing to a close. 

Secretary Lew. Thank you, Senator. 

[Whereupon, at 11:36 a.m., the Committee was adjourned.] 
(329) 

THE PRESIDENT’S FISCAL YEAR 2015 

EDUCATION BUDGET REQUEST 

TUESDAY, MAY 6, 2014 

UNITED STATES SENATE, COMMITTEE ON THE BUDGET, Washington, D.C. 

The Committee met, pursuant to notice, at 10:32 a.m., in Room 

SD–608, Dirksen Senate Office Building, Hon. Patty Murray, 

Chairman of the Committee, presiding. 

Present: Senators Murray, Whitehouse, Sessions, Grassley, 

Crapo, and Wicker. 

Staff Present: Evan T. Schatz, Majority Staff Director; and Eric 

M. Ueland, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN MURRAY 

Chairman MURRAY. Good morning. This hearing will come to 

order. 

I want to welcome everyone and thank Ranking Member Sessions and all of our colleagues for joining us here today. And I especially want to thank Secretary Duncan for taking time to be here 

to detail the administration’s vision for investing in a world-class 

education system. 

A quality education opens up opportunities and can give people 

a shot at living out the American dream, and a strong education 

lays the groundwork for economic growth and prosperity for our future. 

But right now, our Nation is facing an education deficit. College 

is becoming more and more unaffordable for American families; 

workforce training and adult education programs must do a better 

job of lining up our workforce with the skills needed to succeed in 

our economy; and many schools are struggling to get students 

ready for success in the classroom and in future careers. 

In a recent assessment, U.S. students ranked below average in 

math compared to students in other developed countries, and our 

students ranked only average in science and reading. As we struggle to prepare our students, other countries are gaining a significant and potentially lasting advantage. 

We also see gaps in achievement between African American and 

Latino students with their counterparts. While a quality education 

can be a pathway toward success, the inverse is also true. Failing 

to make important investments so that every child has access to a 

world-class education can weaken opportunities for Americans, and 

it hinders our Nation’s ability to lead on the world stage. Where 

there is an education deficit, there is also an opportunity deficit. So 
330 

one of the challenges for this Committee is to find ways to better 

invest in education. 

The Murray-Ryan deal was a strong step in the right direction. 

For far too long, Congress had been lurching from one budget crisis 

to the next. But as you know, at the end of last year, Chairman 

Ryan and I finally sat down to negotiate in a budget conference. 

We put ideas on the table, we made some tough compromises, we 

put partisanship aside, and we reached a deal. 

Our bipartisan 2-year budget rolled back some of the most damaging cuts from sequestration. It prevented a Government shutdown in January. And it will help avoid another one this October. 

And it set spending levels for fiscal years 2014 and 2015. Nobody 

thinks our 2-year budget deal was perfect. It was a compromise. 

And now we need to look at ways to build on that agreement by 

focusing on bipartisan areas of investment like education and 

workforce training. 

The President’s budget proposal would do just that by expanding 

education opportunities from early learning all the way to college 

and career training. I was pleased to see this budget continues the 

administration’s commitment to expand early learning. As a former 

preschool teacher, I have seen firsthand how early learning can 

give kids a strong foundation, not just to start kindergarten ready 

to learn but to succeed later in life. 

But it is not just educators who recognize the importance of early 

learning. I have heard from sheriffs in Washington State, business 

executives, and military leaders who all support early learning because of the long-term benefits it provides. 

In Congress, Democrats have proposed a bill to expand early 

learning programs across the country. Early learning should not be 

a partisan issue, and I am hoping that Republicans will support 

that legislation to expand high-quality preschool programs. 

We also need strong K–12 schools to make sure our kids can 

compete in a global economy. That starts with basic skills like 

reading and writing. 

Several years ago, Senator Sessions and I worked on that national priority, and together we introduced a bill to boost literacy 

programs in schools around the country. In the President’s budget 

proposal, I was glad to see it includes strong support for a program 

I have championed called the ‘‘Striving Reader’s Comprehensive 

Literacy Program.’’ Boosting literacy will help students get the 

skills they need to succeed in a 21st century economy. 

Right now, K–12 schools are facing a very difficult situation in 

my home State of Washington. Secretary Duncan, as you well 

know, it is the first State to lose its waiver from some requirements mandated by No Child Left Behind. As you and I have now 

talked about several times, I am very disappointed by the loss of 

this waiver, and I am extremely concerned about the impact it is 

going to have on our students, our teachers, and our families. 

Now it is critical for all of us at the State and Federal level to 

come together to rectify this situation and put our students first. 

At the Federal level, my focus will be on reauthorizing the Elementary and Secondary Education Act. It is long overdue, and it is time 

for Congress to work on that legislation and strengthen our K–12 

schools. 
331 

The President’s budget also includes proposals to support all students who want post-secondary education, and that includes job 

training. Expanding apprenticeship programs would help train 

workers in the skills that businesses need and would help those 

workers secure good middle-class jobs. 

The proposal also include ability to benefit, which has been one 

of my priorities. Budget cutbacks in 2012 eliminated student aid 

for those who did not have a GED or high school diploma. But any 

student who wants to pursue higher education should have that 

chance, so I am glad the budget would restore job training opportunities for low-income students. 

One in six adults in our country score below average in literacy 

and basic math skills, according to a study by the OECD. That is 

why I am a strong supporter of a program in Washington State 

called I–BEST that helps students gain basic skills like reading as 

well as skills for the workplace. We need more support at the Federal level for programs that strengthen our workforce. 

I also look forward to hearing from the Secretary about higher 

education and college affordability. Specifically, I have very serious 

concerns about recent allegations that student loan servicers have 

been violating the law when it comes to how they are treating our 

men and women in uniform who are deployed abroad. I hope to 

hear today, Secretary Duncan, how you are handling this situation, 

ensuring that we keep our promises to our servicemembers. 

More broadly, I believe getting a college degree should not be as 

cost-prohibitive to so many families as it is today. The average student today graduates from college with more than $29,000 in debt. 

So I hope to hear from the Secretary today about the ongoing discussion in Congress to give students the option to refinance their 

school loans as well as how we are going to maintain Pell grants 

that help low-and middle-income students get the chance to go to 

college. 

But student debt and grants are not the only factors we need to 

talk about. The cost of college is too high, and it is only getting 

more expensive. That is prompting students to take out hefty loans 

that have serious impacts on their financial security after they 

graduate. I look forward to hearing today about how we are going 

to tackle both sides of the equation here—the rising cost of college 

in the first place and what that means for families and students 

who are being forced to take out more and more debt—because, unfortunately, in recent years States have reduced their investments 

in higher education. Forty-eight States now are spending less on 

higher education than they did before the recession hit in 2007. 

That is according to the Center on Budget and Policy Priorities. 

We know that education is fundamental to expand opportunities 

to more Americans. That is why students at every stage of their 

learning, from preschool to college and career training, deserve a 

quality education. The President’s education proposal is a strong 

plan to build on our 2-year budget deal. Now it is time for Congress 

to work together to make investments in a world-class education 

system. If we do that, we will lay the groundwork for economic 

prosperity. We will help students get the skills they need to lead 

in the 21st century, and we will give our kids a better shot at living out the American dream. 
332 

So, Secretary Duncan, thank you again for being here. I look forward to your testimony, and before I turn to you, I will turn to my 

counterpart, Senator Sessions, for his opening remarks. 

OPENING STATEMENT OF SENATOR SESSIONS 

Senator SESSIONS. Thank you, Madam Chairman. We appreciate 

your leadership and your expertise in matters of education. 

Secretary Duncan, you came to this job with some real experience in it, having battled on a lot of important issues, and we appreciate your service. And I do think it is a little unfair, some of 

the rankings nationally, because does anybody doubt that China 

does not count a lot of the rural areas where education is weaker? 

We are more honest in the way we account for our progress in education, and I really respect our teachers. I know they work hard 

every day, and helping them do their job better is something we 

all should focus on. 

I am proud of Alabama’s education program. With very little new 

money, using their reading initiative and their math and science 

initiative that they developed based on scientifically proven methods to help children learn, they have achieved remarkable success. 

And, Mr. Secretary, thank you for examining that and looking at 

it at my request. Using good techniques can help education without 

a lot of new money. 

Washington does not educate children. More money alone does 

not improve learning. Better results, I know you agree, must be the 

goal. So you must know, Mr. Secretary, that your Government is 

running out of money. Congress and the President agreed to certain spending limits in the Ryan-Murray legislation that I think 

did get us past a difficult time. But you simply are proposing now 

spending well above that with your Oppurtunity Growth and Security Initiative, some $56 billion above what we agreed to spend. 

You are violating the spending limits that we agreed to and the 

President signed into law. And so that is just not going to be possible. We just cannot and we will not, I believe, do that. 

So if you and the administration want to spend more money on 

education, you must make it a priority within the discretionary accounts, reducing spending somewhere else. Simply proposing to 

break the spending limits is irresponsible. It is more of a political 

gesture and not a serious policy proposal. We must and will, I 

think, stick to the Ryan-Murray spending limits. The very future 

of our country and the quality of our children’s future depends on 

wise management of our money today. 

Overall, the President’s budget would add about $8 trillion to our 

debt, our current $17 trillion debt. It would add $8 trillion to that 

over the next 10 years. According to the Congressional Budget Office, this massive debt accumulation means annual interest payments will nearly quadruple over the next decade. You get less 

than $60 billion a year, I guess, on your base budget, less than $70. 

Last year, we paid our creditors $221 billion in that year alone in 

interest on our debt. That is more than 6 times what we spend on 

Pell grants. 

Accordingly, in 2024, 10 years from today, one single year’s interest payment, according to CBO, will be $876 billion. Again, that is 

just one year’s payment. The one-year debt interest payment in 
333 

2024 will be greater than the amount we will spend on your Education budget over the next 10 years total. 

So interest has got to be paid. The huge demands that interest 

places on us will steal money from all accounts, including the Education account. So deficits matter. Debts have consequences. If you 

truly want to support our Nation’s children, then we have got to 

live within the limits that we have set for ourselves. 

At the same time, we must recognize that more money does not 

always produce better results. Some of the worst-performing 

schools in the country are some of the best-funded. Base education 

spending has increased 15 percent from 2008 through 2014 without 

a corresponding increase in education scores, and you propose another increase of $1.3 billion next year, not counting the initiative, 

the new Opportunity Growth and Security Initiative that I mentioned earlier. 

So more Federal money is not a substitute for the support of 

family or community for the value of a role model or mentor or the 

quality of a great teacher. More money cannot make a student do 

his homework or show up on time for class. More money will not 

ensure that a teacher will use the best methods. 

So we also owe our students a secure future when they graduate. 

We must work to ensure there are jobs waiting for them. 

The Pell grant program and college loans that you supervise, 

those programs—well, Pell grants have received no reductions in 

the Budget Control Act or the sequester. But we have to ensure 

that they work well. 

Nearly one in two recent college graduates are unemployed, but 

the administration proposes to double the number of guest workers 

to fill jobs throughout our economy, including a large increase in 

STEM guest workers where, it is said, a crucial shortage of workers exist. But contrary to the claims of various technology corporations, we actually appear to have a surplus of STEM-trained American students who are looking for work. 

As Professor Hal Salzman of Rutgers recently wrote, ‘‘The Nation 

graduates more than 2 times as many STEM students each year 

as find jobs in STEM fields. For the 180,000 or so openings annually, colleges and universities supply 500,000 graduates.’’ That is 

what he said. And I think other data tends to confirm that. 

Meanwhile, many of those guest workers’ visas were used to offshore American jobs, and it is not a healthy trend, and we have 

to examine, I believe, in utilizing our resources for higher education, ways to make sure that the positions we train people for are 

actually out there. So across the board, we must do more to ensure 

that American youth find good jobs. 

But here is what I think we should fundamentally do to improve 

the opportunities for our graduates, and I guess the first one today 

we should talk about is we should reform education to make it better prepare students for jobs that exist at the lowest possible cost 

and try to implement the policies we know will help education help 

students to the maximum degree. And we have got to produce more 

American energy, eliminate costly and unnecessary regulations, 

make the Tax Code more growth oriented, turn the welfare office 

into a job training office to help people who are hurting today get 

jobs on a path to prosperity and streamline Government to make 
334 

it better, and balance the Federal budget, which I believe our failure to do so is threatening growth today. 

Thank you, Madam Chairman. I look forward to hearing from 

our guest. 

Chairman MURRAY. Thank you very much. 

Secretary Duncan, we will turn to you, and, again, thank you for 

being here today. 

STATEMENT OF THE HONORABLE ARNE DUNCAN, SECRETARY, U.S. DEPARTMENT OF EDUCATION; ACCOMPANIED 

BY THOMAS SKELLY, ACTING CHIEF FINANCIAL OFFICER, 

U.S. DEPARTMENT OF EDUCATION 

Secretary Duncan. Thank you so much, Chairman Murray, Ranking Member Sessions, and other Senators. 

Let me first begin by thanking you for your work on the 2014 

budget, which increased our investment in education over the previous year. Your ability to overcome partisan disagreements in the 

interest of America’s children has provided both stability and clarity that serve America’s families and schools well. That investment 

is a vital part of the good news in America’s educational good-news 

and bad-news story. 

On the good-news side first, our students are making substantial 

progress in both graduating from high school and enrolling in college. Our Nation’s on-time high school cohort graduation rate 

reached 80 percent in 2012—the highest in our Nation’s history. 

And that is a testament to the hard work of our Nation’s teachers, 

school leaders, students, and their families. College enrollment is 

up substantially as well since President Obama took office. 

The bad news is that we still have unacceptable opportunity gaps 

in America, and it will be very difficult to close these gaps when 

Federal discretionary funding for education, excluding Pell grants, 

remains below the 2010 level. 

Our international competitors are simply not making the mistake 

of disinvesting in education, and their students are making more 

progress than America’s students, endangering our competitiveness 

and our prosperity. 

In a knowledge-based global economy, closing these opportunity 

gaps and strengthening our competitiveness are among our most 

urgent challenges. Falling further behind would hurt our country 

economically for generations to come. So I appeal to all of you to 

continue America’s longstanding bipartisan commitment to investing in education. 

Despite the real educational progress we have made as a Nation, 

large opportunity gaps remain at a time where education is more 

important than ever to accelerating economic progress, increasing 

upward mobility, and reducing social inequality. 

President Obama’s budget would increase investigation in education to boost that progress and close those insidious opportunity 

gaps. Sadly, these opportunity gaps start with our youngest learners and early childhood education. Chairman Murray, this is where 

you began your career, and no one knows better than you how 

formative, how critical those early years are. 

But the brutal truth, the honest truth, is that America is only 

25th in the world—25th in the world—in our enrollment of 4-year- 
335 

olds in preschool. Four in ten public school systems in the United 

States do not even offer preschool, setting the stage for a huge gap 

in school readiness, and that gap, as we know, too often never gets 

filled. 

Outside of Washington, this has become a truly bipartisan issue, 

and, in fact, last year, in a very tough budget climate, 30 Governors—17 Republicans and 13 Democrats—increased funding for 

preschool in their State budgets. We applaud that leadership and 

that courage, and we need to help every State be able to make that 

same claim. 

Ranking Member Sessions, obviously Alabama has done a fantastic job of increasing by about, I think, 50 percent their funding 

for preschool. And Mississippi, Senator Wicker, I think for the first 

time in its State’s history, is investing in high-quality preschool. 

So, again, this has become an absolutely bipartisan issue in the 

real world away from the dysfunction here in Washington. That is why the President’s request for $500 million for preschool development grants and $75 billion in mandatory funding for the 

Preschool for All program are so essential. They would support the 

State-led efforts to provide access to high-quality preschool for all 

4-year-olds from low-and moderate-income families. 

State’s attorneys, sheriffs, and police associations have come together to support high-quality early learning because it reduces 

crime when kids grow up. In fact, we have a letter here from over 

5,000 leading law enforcement officials around the Nation supporting this effort. 

Military leaders, admirals, and generals support it because a 

staggering three-quarters of young adults today are not fit to serve 

in a voluntary military because of educational shortfalls, poor physical fitness, or a criminal record. High-quality early learning reduces all of those problems. 

Hundreds of tough-minded business leaders, CEOs, and chairmen of the board are big advocates as well because they know 

high-quality early learning produces a better workforce and has a 

high return on investment. That is a language that our Nation’s 

CEOs absolutely understand. 

Nobel Prize-winning economist James Heckman found a return 

of $7 to every $1 of public investment in high-quality preschool programs. I would ask everyone gathered here today, how many other 

uses of scarce taxpayer dollars have such a high rate of return for 

the American people? 

Unfortunately, opportunity gaps in early learning continue all 

the way through high school, as new data from our civil rights data 

collection show. Today, students of color, students with disabilities, 

and English language learners simply do not get the same opportunity as their white and Asian American peers to take the basic 

math and science courses that figure so importantly in preparing 

for both college and careers. Often, this lack of access means students cannot take the classes they need to apply to a 4-year college. 

Black and Hispanic students are close to 40 percent of high 

school students nationwide, but just over a quarter of students are 

taking AP classes and only 20 percent of those enrolled in calculus 

classes. And most schools today have nowhere near the bandwidth 

speed they need to support current applications and instruction. 
336 

Fully two-thirds of our Nation’s teachers wish they had more technology in their classrooms. 

In South Korea, which we all know is a very high performing nation educationally by every measure, 100 percent of schools have 

access to high-speed Internet. Here in the United States it is only 

about 20 percent. So 100 percent South Korea, 20 percent United 

States. As a result, our students, our teachers, and our schools 

often lack the bandwidth to take advantage of new technologies 

that could help to close those insidious achievement gaps and help 

to individualize instruction. 

How is that fair to our children or to our hard-working teachers? 

How is that in our Nation’s self-interest? Closing these opportunity 

gaps is the ribbon, it is the theme that runs throughout President 

Obama’s 2015 education budget request. It is the overarching goal 

of the preschool development grants and Preschool for All. It is behind our request for a $300 million Race to the Top Equity and Opportunity Fund to help States and districts develop road maps to 

ensure that all students can reach their potential, and also our 

$200 million ConnectEDucators initiative to provide teachers with 

the expertise they need to use technology effectively. 

By contrast, the Ryan budget in the House would widen, would 

increase opportunity gaps, cutting funding for education by an estimated 15 percent in 2016, or about $10 billion. If that 15-percent 

cut were applied this year, Title I funding for high-poverty schools 

and disadvantaged students would be cut by $2.2 billion. IDEA 

grants to States for students with disabilities would be cut by 

about $1.7 billion. That is exactly the wrong direction to go for our 

children and for our Nation’s future. And that is absolutely contrary to the spirit that you have set to work through partisan 

issues in order to serve America’s children well. You have shown 

that we can do better together. 

The American dream has always been about opportunity. Today 

our Nation is failing to live up to that core American ideal for all 

of our citizens. We must do more to level the playing field and 

make a great education available to every child. That is who we 

are. 

As former Florida Governor Jeb Bush says, the sad truth is that 

equality of opportunity does not exist in many of our schools, and 

that failure is the great moral and economic issue of our time, and 

it is hurting all of America. So let us get back to working together 

to close those opportunity gaps. 

Thank you so much, and I look forward to your questions. 

[The prepared statement of Secretary Duncan follows:] 
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Chairman MURRAY. Thank you very much, Mr. Secretary. 

Let me talk, first of all, about one of my top priorities, which is 

protecting servicemembers and veterans. I was really troubled by 

some recent allegations that Sallie Mae violated the 

Servicemembers Civil Relief Act with regard to student loans of 

military members, forcing servicemembers who are being deployed 

to pay higher interest rates on their loans and really ignoring the 

law altogether. And I understand now that several Federal agencies are investigating these accusations. 

The Department of Education spends millions to contract with 

Sallie Mae. The Department has not yet levied any fines against 

the company and last fall indicated that it will renew Sallie Mae’s 

contract despite these allegations. 

Is that still the plan? 

Secretary Duncan. Well, obviously all of us, I think, have not just 

an educational but a moral responsibility to provide our veterans 

with the best education possible. They have given up so much. 

They have sacrificed so much. The least we can do is to give them 

a chance to transition back to civilian life, get the education they 

need, and move on to the workforce. So there is an active investigation underway. I am not at liberty to comment on that at this 

point. Just know that we are partnering—we are working with the 

Department of Justice on that, and when that investigation is concluded, we will take those findings very, very seriously and act accordingly. 

Chairman MURRAY. If Sallie Mae violated the law, will you pull 

the servicing loan contract? 

Secretary Duncan. Obviously we will look at every avenue if laws 

are broken. 

Chairman MURRAY. Okay. Is someone looking at the other student loan servicing companies to make sure this is not happening 

in other places? 

Secretary Duncan. We absolutely have to do that, and our Federal Student Aid Office is doing that. 

Chairman MURRAY. Okay. I will continue to watch that very 

closely. It is a high priority. 

Secretary Duncan. It is a really important issue, and I appreciate 

your attention to it. 

Chairman MURRAY. Okay. Mr. Secretary, after reviewing the administration’s entire fiscal year 2015 budget request, it is pretty 

clear that education is one of the President’s top priorities. In fact, 

your budget requests an increase of $1.3 billion, as you mentioned. 

I really applaud that focus. However, you and I both know that 

investments in education are trending downwards at the Federal, 

at the State, and at the local levels. So can you just talk to us a 

little bit about the long-term economic impact that could occur if 

our country continues to disinvest in our students? 

Secretary Duncan. I just think, again, Senator Murray—and everyone here knows this, Chairman Murray—that we live in a globally competitive economy; we live in a flat world, and high-paying, 

middle-class, high-wage, high-skilled jobs are going to go to where 

the most educated workforce is. And I think everyone here desperately wants that to be in our communities, in our States, and 

in our country, and not in other countries. 
348 

But businesses can move where those knowledgeable workers 

are, and I look at every level, and, quite frankly, at no level right 

now are we as a Nation where we need to be. So we talked about 

the early childhood side where we rank about 25th in the world in 

providing that opportunity. Again, no one knows this better than 

you, but for so many of our children coming from disadvantaged 

communities, the average child coming from a poor community 

starts kindergarten in the fall a year to 14 months behind—the average child. And far too often, frankly, we never catch up. 

So we have to, you know, get out of the catch-up business. We 

have to level the playing field. The fact that we are 25th in the 

world, that is no badge of honor. That is early childhood. 

On the K–12 side, on the math and science rankings, we are 

somewhere usually between 15th and 30th. We are nowhere near 

where we need to be, again, if our goal is to be number one. 

And then, finally, I think we can all unite behind the goal of 

leading the world in college graduation rates. That seems to be in 

all of our mutual self-interest. One generation ago, we were first 

in the world. Today we are 12th. And it is interesting. It is not that 

we have dropped. It is that we have stagnated, we have flat-lined, 

and 11 other countries have passed us by. 

So you look at early childhood, you look at K–12, you look at 

higher education. None of these—none of these—are where we need 

to be. Now, we are making some progress. I talked about how high 

school graduation rates are up, college enrollment is up. Those are 

positive trends. But we are so far from where we need to be. All 

of us, regardless of politics, regardless of ideology, all of us have 

to work together to lead the world in education success, and to do 

that it cannot just be a little tweak. We have to get better faster. 

We have to work together in ways that put aside politics and ideology. 

Chairman MURRAY. Thank you. I really appreciate that response, 

and you are continuing to give that message everywhere. I think 

that by ignoring what is happening globally, we are going to lose 

out dramatically in the future, so I appreciate that. 

You have talked about early childhood education. You know that 

is a passion of mine. I really believe that an expansion like the one 

that we do envision in the Strong Start for America’s Children Act 

would make significant strides in helping us close the opportunity 

and achievement gaps that we are seeing. But I continually hear 

from some of our friends on the other side that we have too many 

Federal learning programs. 

I wanted you today to talk and give us a little better understanding of the current unmet need for early learning opportunities 

and how the proposal in your budget is not duplicative of existing 

Federal programs. 

Secretary Duncan. And I think, again, all of us can unite that 

where we have, you know, duplicative efforts, where we are wasting money, we should not do that. But at the end of the day, we 

want to go from about a million young children with access to highquality pre-K to 2.2 million, so we want to double that. And you 

cannot do that without increased investment. And, we have to 

make sure this is not just access. We have to make sure this is 

about high quality. We have to hold ourselves accountable. I am ac-
349 

tually proud of HHS and my friend Kathleen Sebelius. They are 

making folks recompete on the Head Start side, so it is not business as usual there. But there is tremendous unmet need. 

This would not be any kind of Federal mandate or top-down 

thing. We simply want to partner with those Governors—again, 

more Republicans Governors than Democrats today, and we think 

that is fantastic—who are investing. What breaks my heart, Chairman Murray, as I have traveled the country and we do these very 

unusual meetings, public meetings with CEOs and military leaders 

and heads of the chambers of commerce, faith-based community, in 

virtually every State I go to where Governors are putting their 

scarce tax dollars behind increasing access to early learning, there 

are still waiting lists of 6,000, 10,000, 12,000, 15,000 kids. So these 

are families who want to do the right thing, who are looking to 

have their children be prepared to enter kindergarten, and we collectively as a Nation simply are not providing those opportunities. 

This is not good enough. 

Chairman MURRAY. So expanding the Federal program will help 

support those Governors who are providing it to make sure that 

more kids get served. 

Secretary Duncan. It would just be a partnership. States would— 

you know, if they want to extend their reach, leverage our resources with their resources, they will have that opportunity. If 

they do not want to do that, they would have the right not to do 

that. But I cannot tell you how many Governors have said, you 

know, ‘‘We are working hard here. We are trying. We need help.’’ 

And, again, this is Republican and Democrat. 

Chairman MURRAY. And I think sometimes we forget how mobile 

our families are today, so if you have a couple States or half a 

dozen States that do really well, they have got kids coming in every 

day that have come from States that have not focused on this, and 

that is why I think we have a national level. I assume you would 

agree. 

Secretary Duncan. And, again, I meet with these education ministers from all over the globe, met with the minister from Japan 

last week, met with the minister from Finland yesterday, and quite 

honestly, it is embarrassing, it is humiliating. They are stunned 

that we do not care more about our babies than we do, and they 

sort of ask me, ‘‘Why isn’t this a national value?’’ And I do not have 

a good answer for them. 

Chairman MURRAY. Okay. Thank you. I really look forward to 

working with you on all these issues. 

Senator Sessions? 

Senator SESSIONS. Thank you. I would yield to Senator Grassley. 

Senator GRASSLEY. I only have two questions, so I may not take 

the full 7 minutes. 

Secretary Duncan, I have written to you before about the fact 

that the waiver provisions in No Child Left Behind do not authorize you to add requirements that do not exist anywhere in the law. 

And I still believe that that exceeds your authority. 

Now, I am not going to get into that here, but I do want to ask 

you about one of those waiver requirements. Your Department’s 

waiver application requires States to have ‘‘college-and careerready standards’’ in place. That is defined as either ‘‘standards that 
350 

are common to a significant number of States, or standards that 

are approved by a State network of institutions of higher learning.’’ 

As you know, the first option can only be met by adopting the 

Common Core standards. However, you or others in the administration have made a point of saying that adopting Common Core 

is not a requirement for a waiver because of Option 2. 

My question: What happens if a State pulls out of Common Core, 

as Indiana just did, given that you have pointed to this other option to argue that you are not pushing Common Core on States? 

Will States that pull out of Common Core automatically get to keep 

their waivers, assuming they are able to get the required sign-off 

from their State higher education institutions and continue to meet 

other criteria? If not, why not? 

Secretary Duncan. Yes. 

Senator GRASSLEY. Okay. The second question: As you know, the 

No Child Left Behind Act requires schools to bring all students up 

to a proficient or higher level of achievement by the end of the 

2013–14 school year. While no State is in a position to attain this 

goal, Iowa is one of a few States that were not granted waiver of 

this requirement by your Department. We are now at a point 

where virtually every school will be labeled ‘‘a school in need of assistance’’ and required to undertake corrective action. That will put 

the Iowa Department of Education in the impossible position of 

having to assist hundreds of schools in Iowa with reforms, not to 

mention the administrative burden on many Iowa schools that 

have high levels of achievement but short of the 100-percent goal. 

What guidance will you give to non-waiver States like Iowa on 

how to prioritize actions and minimize disruption to student learning, given an impossible task? 

Secretary Duncan. So we are happy to work with Iowa and with 

your Governor, whom we have a great relationship with, going forward. As you know, we have provided waivers to about 44 States, 

again, across the political spectrum—left, right, Republican, Democrat. We have worked with virtually everybody. That was always 

Plan B. So we will partner with Iowa in the current situation. 

I would just urge you to join with Chairman Murray and with 

your fellow Senator from Iowa, Tom Harkin. The best thing we can 

do as a Nation would be to fix the law and to fix it together in a 

bipartisan way. 

Senator GRASSLEY. I agree with you on the latter point. 

Secretary Duncan. We have had to step in due to Congress’ dysfunction, and if Congress could do their job, we would back right 

out in a heartbeat. 

Senator GRASSLEY. Now, I hope that when you say you will work 

with States, that is something that is practical to do, because I 

think you have been a little bit vague in this whole advice to 

States, if they do not have the waiver, what they can do. 

Secretary Duncan. So I beg to differ, and we will be as clear as 

we can. Talk to your Governor, talk to your State education agency. 

We have, I think, had very, very good relationships with the overwhelming majority of Governors and SEAs across the country and 

have partnered, honestly in a pretty remarkable way. Given all the 

dysfunction here in Washington, to have 44 States partnering directly with us is a big accomplishment and you hear very little 
351 

noise, you feel very little drama. We listen, we work together, we 

challenge each other, we hold each other mutually accountable. 

And I am pretty proud of—we have not done it perfect, we make 

mistakes every day, but we are actually pretty proud of how we 

have functioned so well. 

Senator GRASSLEY. Okay. I will look forward to you working with 

our State. Thank you very much. 

Secretary Duncan. We will continue to do that. 

Senator GRASSLEY. Thank you. I am done. I yield back my time. 

Chairman MURRAY. Okay. Senator Whitehouse? 

Senator WHITEHOUSE. Thank you, Chairman. Welcome, Secretary 

Duncan. 

Secretary Duncan. Good to see you. 

Senator WHITEHOUSE. I am not an education expert. I was a 

prosecutor, and my first connection with the education system was 

the realization that our middle schools were the opening to a pipeline that ended in my office and in a courtroom with a juvenile 

prosecution. And so for a long time, I have tried to learn more 

about this, and I have a group of friends and colleagues and advisers in Rhode Island who live education. They work in charter 

schools. They lead reform initiatives. They are involved with public 

school teacher unions. They are classroom teachers. It is a broad 

array of experience from a variety of different perspectives. 

And what has struck me now is that one area of agreement 

across all that array of people is that the education oversight establishment as a collective creature has become so burdensome that 

it is now interfering with classroom teachers’ ability to manage 

their classrooms and local schools’ ability to direct their local affairs. And I was a little bit surprised by that because I did not expect that to be so uniform and so forceful a belief. 

But it is not outside of the human experience for an industry or 

a bureaucracy to come to the point where it begins to propagate 

itself and the mutualist relationship becomes a parasitic relationship. 

What are you doing to analyze that question? And are you committed to a model where control comes from the top down? And 

how much room is there to maneuver with really local, like schoolspecific innovation as opposed to innovating with Governors who 

are, you know, responsible for a massive amount of the bureaucracy and deal at a very high level in the system? 

Secretary Duncan. So it is a real issue, and as you know, what 

teachers and parents and students feel is not just one bureaucracy 

but multiple bureaucracies. 

Senator WHITEHOUSE. Yes. Wherever they look, there is more 

being thrown at them. 

Secretary Duncan. There is State and Federal, and they do not 

care where it is coming from. It is just more of whatever. So it is 

a real issue. We are absolutely committed. 

I say everywhere I go, where people have specific challenges with 

our bureaucracy, to let us know when we are asking for redundant 

information, when we are asking for useless information, to please 

let us know. We have tried to do lots of things ourselves. We have 

streamlined the waiver process in direct response to hearing from 

folks. In IDEA, the burden of data collection has been pretty high. 
352 

Under our revised SPP/NPR, we have eliminated reporting on 4 

compliance indicators and th e need for States to develop 20 separate improvement plans instead of a single comprehensive plan. So 

we are really working. 

I am sure we have a long way to go, so, again, where folks have 

concrete recommendations, please feed those to me directly, hold 

me accountable. This work is so important, it is so serious. I love 

that we have an 80-percent graduation rate. I stay up at night worrying about those 20 percent of young people who are not graduating and what they are going to do with their lives. And I want 

teachers and principals, all their time and energy, thinking about 

how to improve educational outcomes, not how to fulfill some request from me or someone else. So we want to be a good partner. 

We have tried to take some very concrete steps, we are open to 

more. 

The other one that we are early on, but just to talk about for a 

minute, is I think part of what we see in funding-silos at the State 

and local level. Those silos reflect silos that we have had in our 

agency, so a Title I funding source and a Title II funding source 

and a Title III funding source. And what we are trying to do is 

move away from funding streams, we are trying to move to a model 

of State desks and State support for the entire State or for the district, and have a much more holistic approach to this. And so we 

are hoping—and we are early on in this, you know, in our infancy, 

so we are still trying to map it out. But we are hoping if we can 

change our behavior and model to something different that that 

will have pretty significant ramifications at the State and the local 

level and start to remove some of those real barriers, those impediments. 

Senator WHITEHOUSE. In addition to the direct burden of compliance with that whole array of oversight burden, schools and school 

districts also often have to spend scarce resources on consultants 

and experts who they bring in to help negotiate all that bureaucracy for them. And I am wondering if you are aware of anyone who 

is looking at what the total burden is, not just of the schools’ internal compliance with it and not just of the cost of all of that bureaucracy, but also of that private sector component that exists to 

help schools navigate that bureaucracy, but is in itself a burden to 

those schools. 

Secretary Duncan. Yes, there are a couple—let me come back to 

you on the details. There are a couple States that are looking at 

that. And this is a little bit off topic, but I just want you to know 

sort of where our thinking is. 

So one area—two quick areas. Sorry. One is in the area of special 

education. That has been, in my mind, a very compliance-driven 

entity, and it is interesting to me that once you are labeled as a 

special needs child, that label almost never gets removed. That 

stays with you for life. So how do we help move children out of special ed; how we prevent more children from going into special ed? 

The person who is leading our shop there, Michael Yudin, is very, 

very thoughtful, and he is moving towards results-driven accountability and also looking at what we are doing around high school 

graduation rates and to help more young people to go on either to 
353 

the workforce or to higher education. So we feel very, very good 

about that. 

And the area where I think that there has been way too much 

emphasis on the private side is our Title II money, professional development money for teachers. We are asking so much of teachers. 

We owe it to them to give them great professional development, 

and that is absolutely the exception. That rarely happens. We 

spend at the Federal level $2.5 billion each year that goes out 

there. When I say that to teachers, they usually laugh or cry. They 

are not feeling the impact— 

Senator WHITEHOUSE. I have got about 10 seconds left. 

Secretary Duncan. Okay. 

Senator WHITEHOUSE. So let me just say that I hope that you 

keep in your heart, as you go about your job, these teachers and 

these local school administrators who are feeling stifled and frustrated by this compliance-driven regime that they are forced to live 

in. And if we can unpack some of that, I think we will do them a 

lot of good. 

Secretary Duncan. So we are trying to unpack it, and, again, any 

concrete recommendations you or your team has, please feed them 

to me directly. 

Chairman MURRAY. Senator Sessions. 

Senator SESSIONS. I will yield to Senator Wicker. 

Senator WICKER. Thank you. Thank you very much. And, Mr. 

Secretary, thank you for your participation today. I have had to be 

in and out of the room. I understand while I was out of the room 

you mentioned Mississippi’s new preschool program. It will begin 

this September with a relatively modest $3 million State investment. I assume you meant that as a compliment. 

Secretary Duncan. Highest compliment. 

Senator WICKER. Thank you, 

Secretary Duncan. And thrilled you guys are in the game. We 

would love to see you do more. You and I know the challenges of 

children there, and getting them off to a better start, I cannot overemphasize how important that is. 

Senator WICKER. Thank you. 

Secretary Duncan. We really appreciate the Governor’s leadership. 

Senator WICKER. It is my understanding that the Governor proposes to do that without additional Federal funds, and I would just 

observe, before I go on to my question, that it is my understanding 

the President’s Preschool for All program would add to some 45 existing Federal early childhood programs. Let me just make that observation. You can respond later, if you would like to. 

You also quoted with approval former Governor Jeb Bush, I believe, and saying that we have a real problem with opportunity in 

our education system. And, of course, so much of that comes from 

failing school districts. Those are districts I would not send my 

children to. Those are districts that the President of the United 

States chooses not to send his children to, in so many areas, whether it is achievement or just basic safety of the children. And it just 

seems to me that we are more and more a society that believes in 

choices. And from consumer goods to Internet providers to flavors 

of coffee to whatever, we want a wide variety of our choices. And 
354 

one of the areas in which we have not empowered families and parents to make the best choices for their children is in the area of 

choosing to place their children in better opportunities without 

having to pull up and move the whole family. So I would make that 

observation. 

But here is my question, and it deals with the proposed rule the 

Department of Education released in March on the issue of gainful 

employment. Now, it is my understanding this has been a statutory 

phrase for some 40 years, but the new rules, an 845-page regulation, proposing to define the phrase ‘‘gainful employment’’ seems to 

many of us, Mr. Secretary, that you are discriminating against vocational programs, you are discriminating against for-profit colleges, and some community colleges by defining meeting the gainful employment requirement as a program in which students have 

a debt-to-earnings ratio below 12 percent 2 years after graduation. 

I think this singles out the sort of for-profit college and university that is a gateway to the middle class for minorities, for veterans, for other underserved demographics. And so I would like you 

to respond to that. Why do we single out vocational? Why do you— 

and do you, as I understand, exempt the more traditional colleges? 

For example, if this metric were used at private nonprofit colleges, 39 percent of students would not meet this metric. If it were 

used at the traditional 4-year public institutions which I attended, 

26 percent of graduates would not meet this metric. 

There were other metrics which could have been used, and I 

would like for you to comment about why you did not go in that 

direction, such as placement rates, graduate study, passage of licensure exams, things of that nature. So why that metric? Aren’t 

you, in fact, discriminating against for-profit colleges? And why not 

use these other definitions. 

Secretary Duncan. Two good questions. Let me start on early 

childhood first, and, again, just give your Governor, Governor Bryant, tremendous credit for investing. 

Senator WICKER. Thank you. 

Secretary Duncan. The question I would have for you and for the 

State is, what is the unmet need in Mississippi. How many additional 3-and 4-year-olds do not have access to high-quality early 

learning? And you and I know that by virtually every measure, 

sadly, Mississippi ranks near the bottom nationally—you know, 

48th, 49th, 50th on many, many measures, and I just do not think 

that is fair to your children or to your State or to your State’s economy. And whatever we can do to work together to have more children entering school ready to be successful, we want to do that. So 

I’mm thrilled with the investment. As you said— 

Senator WICKER. Thank you for that bit of highest praise. 

Secretary Duncan. But let us work together. Great starting point 

but not a finishing point, and let us figure out how we do that. 

Just quickly, the challenge on the gainful employment side is obviously Congress defined ‘‘gainful’’ there, and we just want to make 

sure that the right thing is happening for taxpayer dollars. To be 

very clear, where for-profits institutions are helping to prepare people for real jobs that have good wages and help move them up the 

economic ladder, we want to see them grow, we want to see them 
355 

thrive, we want to see them prosper, we want to see them serve 

more students. 

But the fact of the matter is that today students at for-profit colleges represent about 13 percent of total higher education population but almost half, 46 percent, of loan defaults. So 13 percent 

of enrollment, 46 percent of loan defaults. So we need to just make 

sure that we are rewarding those players that are acting in good 

faith and helping them do well. But the challenge I think we have, 

Senator, is when people are taking advantage of the disadvantaged, 

burdening them with debt, and there are no jobs or no high-wage 

jobs, and they end up in a worse economic position than when they 

started, that is something I think none of us can support. 

I want to read you a quick quote. It says, ‘‘You will find accounts 

of semi-literate high school dropouts lured to enroll in expensive 

training programs with false hopes for a better future cruelly 

dashed. You will read of falsified scores on entrance exams, poorquality training, and harsh refund policies. The pattern of abuses 

revealed in these documents is an outrage perpetuated not only on 

the American taxpayer but, tragically, upon some of the most disadvantaged, most vulnerable members of society. The kids are left 

without an education and with no job and the taxpayer holding the 

bag for a kid who got cheated.’’ 

That did not come from me or this Administration. That came 

from Secretary Bennett, who was President Reagan’s Secretary of 

Education in 1988. And so I think this is something to be addressed in a bipartisan way. Scarce taxpayers dollars are funding 

these programs—where we get a good return on investment, we 

should help them. Where we do not have a good return, we should 

challenge the status quo and do that together. 

We are at a time right now of public comment. We put out a 

draft. We put out the draft with great humility. And where folks 

have better ideas, we are absolutely willing to listen. But to do 

nothing, to accept the status quo where 13 percent of enrollees are 

leading to half of our Nation’s defaults, I think we can do better 

together. 

Senator WICKER. It seems to me—and we have a vote on, so I 

have to be very, very brief. 

Chairman MURRAY. We do have a vote, and we want to finish. 

Senator WICKER. But when you do not apply it to every institution of higher learning, and when there is a 26-percent failure rate 

in 4-year institutions, 39 percent in private nonprofit colleges, it 

seems to me we are singling out one sector. And I would trust consumers to sort this out over time and choose the good colleges 

which get placement, graduate study, and licensure— 

Chairman MURRAY. Senator Wicker— 

Senator WICKER. —and leave it to the private sector. 

Chairman MURRAY. Senator, I really appreciate your— 

Senator SESSIONS. Thank you. 

Chairman MURRAY. But we want to make sure Senator Sessions 

has a chance to speak before the vote ends here and we both get 

called out. So, Senator Sessions, you will be our last— 

Senator SESSIONS. Thank you. Thank you, Madam Chairman. 

I was looking at some of your reforms in the Department of Education, and not a lot of money, but you did eliminate a number of 
356 

programs that looked like some politician passed 25 years ago that 

do not really contribute to the overall improvement of education in 

America, so I salute you for doing that. We need more of that in 

Government. We have just got to eliminate some of these small 

niche programs that do not provide national impact. 

With regard to priority setting, I would say to you, Mr. Duncan, 

that the President has signed a limit on spending. I would say to 

you that if you need more education funding, the President should 

propose altering his discretionary spending accounts and put more 

in education. But just to spend more above the limits we have 

agreed to is not going to be good. 

Now, we are in a tight budget time, as you know, and we looked 

at the interest rates that I just mentioned to you, the size of our 

deficits. Dr. Elmendorf in your chair a few months ago told us we 

are on an unsustainable path financially. 

Okay. So I do not think it is fair to say we are disinvesting in 

education. If you look at Pell grants, which make up about a third 

of what we spend, Pell grants went from $18 billion in 2008 to your 

proposal of $32 billion next year. That is an entitlement program, 

not a discretionary program, but are those numbers accurate? 

Mr. SKELLY. Those numbers are accurate, Senator. The number 

of recipients also went up over 50 percent. That is the driver of the 

cost. 

Secretary Duncan. And just one quick point on that. We went 

from about 6 million Pell recipients to almost 9 million, a 50-percent increase, a $40 billion investment, without going back to taxpayers for a nickel. We simply stopped subsidizing banks, made the 

loans ourselves. That was wildly controversial here in Washington. 

We thought it made common sense. That is an additional almost 

3 million young people who may not have had the chance to go to 

college without those dollars. 

Senator SESSIONS. Well, we will test that out, and maybe it will 

work. I hope so. 

Secretary Duncan. It is working. 

Senator SESSIONS. All right. And in 2008, the Department of Education budget was $59.2 billion. That is your base budget. And 

you are proposing next year a $68.6—increasing to $68.6 billion, 

which is, I think, a 15-percent increase. But there was only one 

year, last year I guess, where you had an actual reduction. 

Now, that is a result of the Budget Control Act and the seques- ter. So in 2012, you were at $60 billion; at 2013, you were at $68.3; 

post-sequester, you were at $65.7, about a $2.6 billion reduction. So 

that was a cut in your base budget. Pell grants going up, but your 

base budget did take a reduction. 

Now, isn’t it true that after next year your budget will increase 

at 2.5 percent a year under the Budget Control Act? 

Mr. SKELLY. Unfortunately, in 2016, we revert to the sequester 

levels, the bipartisan— 

Senator SESSIONS. I know, but the sequester level—maybe 2016 

is flat again. But 2017, under the sequester, you get a 2.5-percent 

increase each year thereafter? 

Mr. SKELLY. I wish we did get that. My understanding, Senator, 

is that we will drop down, almost off another cliff, in 2016 and future years in discretionary appropriations. 
357 

Senator SESSIONS. We will have to look at that number. My impression is under the Budget Control Act that after the cuts were 

impactful in the last 2, 3 years, this year, you have got tight budgets, you do begin to have some inflationary rate of increase in the 

future. 

Secretary Duncan. I think your understanding is wrong there. I 

wish it was, but I do not think that is correct. 

Senator SESSIONS. All right. 

Chairman MURRAY. We can make that happen. 

[Laughter.] 

Senator SESSIONS. Well, you have improved the budget for—we 

spent more in the Ryan-Murray than we originally agreed. But it 

was a tight time because this was the worst year in the whole 

Budget Control Act period, and it was definitely a painful process. 

I guess my first point is, as of to date and expecting next year, 

you are not really taking big cuts. Since President Obama has been 

in office, you have increased spending. And that does not count the 

stimulus bill, which was $97 billion for the Department of Education. Divided over this 6-year period, that would be another $14 

billion above what your base budget is. 

So I just want to say, first of all, the Education Department has 

not been savaged. You are having some tough times. The growth 

rates you would like to see have not been accomplished. But this 

is not a savaging of the Education budget, in my opinion. 

Now, you and I talked previously about Alabama’s reading initiative and its math and science initiative. It was developed inState—Madam Chairman, it is really interesting. Katherine Mitchell studied all the studies about reading, and she crafted a reading 

program that emphasized proven techniques to improve reading. 

And they would have a reading coach for a school. It would start 

in kindergarten through the sixth grade. And all the teachers were 

coached in how to build on the previous year’s teacher’s processes. 

And they were taught to use these techniques. 

And, you know, people do not like testing, but the way they did 

it was they are testing constantly, and they are knowing where a 

child is falling behind immediately and helping them up, not just 

at the end of the year and say, ‘‘You failed.’’ 

So it seems to me that did not cost a lot of money, but Alabama 

led the Nation in improved reading scores statewide several years 

ago. 

Could we do more of that? Couldn’t you use more of the Federal 

money to research techniques of teaching to help teachers in that 

classroom do better? 

Secretary Duncan. So if we had more research money, we would 

be happy to do that. Just to be very clear, I think what Katherine 

and her team did was remarkable. And I talked earlier about how 

poorly teacher professional development money is often used. Well, 

I think they used their State money and our Federal money in 

some very thoughtful ways. 

As you know, we cannot mandate that. We do not want to do 

that from Washington. That is best done at the State level. But 

this was strong State leadership. This was not let a thousand flowers bloom. It was we are going to work together, we are going to 
358 

be on the same page, this is going to be tough-minded. And the results speak for themselves, and the State should be proud of that. 

Chairman MURRAY. All right. Thank you to everyone who participated today. Secretary Duncan, thank you very much. We are late 

for a vote. We are going to run. But I appreciate what you have 

contributed and look forward to working with you on these critical 

investments. 

I want all of our Committee members to know that Federal Reserve Chair Janet Yellen will be here Thursday to testify. The 

hearing starts at 9:30 a.m. Any additional statements or questions 

for the record are due in today. 

Thank you very much. 

[Whereupon, at 11:33 a.m., the Committee was adjourned.] 
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(369) 

THE U.S. ECONOMIC AND FISCAL OUTLOOK 

THURSDAY, MAY 8, 2014 

UNITED STATES SENATE, COMMITTEE ON THE BUDGET, Washington, D.C. 

The Committee met, pursuant to notice, at 9:30 a.m., in Room 

SD–608, Dirksen Senate Office Building, Hon. Patty Murray, 

Chairman of the Committee, presiding. 

Present: Senators Murray, Nelson, Stabenow, Whitehouse, 

Merkley, Coons, Kaine, King, Sessions, Grassley, Graham, 

Portman, Johnson, Ayotte, and Wicker. 

Staff Present: Evan T. Schatz, Majority Staff Director; and Eric 

M. Ueland, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN MURRAY 

Chairman MURRAY. This hearing will come to order. Thank you 

to my Ranking Member, Senator Sessions, and all of our colleagues 

who are here and many who will be joining us. 

Today we have the great opportunity to hear from the Chair of 

the Federal Reserve, Dr. Janet Yellen. Dr. Yellen, I want to start 

by thanking you for your leadership in encouraging stronger economic growth, stability, and job creation throughout your tenure at 

the Federal Reserve as Vice Chair and now as Chair. It really is 

wonderful to have you here. 

I also do want to take a moment and recognize your predecessor, 

Chairman Ben Bernanke, for all the work he did on behalf of the 

country through some extraordinarily difficult times. 

I am glad that we do have the opportunity today to talk about 

our economic and our fiscal outlook and the steps we can take to 

continue creating jobs and broad-based growth now and over the 

long term. 

Dr. Yellen, your new role at the Fed comes at a very dynamic 

time. Just a few years ago, the economy faced its biggest crisis 

since the Great Depression. We were hemorrhaging jobs, business 

faced a massive liquidity crisis, and markets were in a free fall. I 

think we all remember how grave the situation was and how much 

fear and uncertainty there was throughout the country. 

As all of this unfolded, the Fed stepped in. They acted boldly and 

aggressively. They cut interest rates, launched new emergency programs, and played a very key role in coordinating the crisis response. Thanks in no small part to the decisive work of the Federal 

Reserve, our economy is much stronger than it was 5 years ago 

when the Great Recession hit. More workers are getting back on 
370 

the job. The unemployment rate has declined to 6.3 percent, the 

lowest level since September of 2008. 

But as you have noted before, Dr. Yellen, the unemployment rate 

is only part of the story. Across the country there are still far too 

many men and women who simply gave up hope finding a job and 

dropped out of the labor force. There are millions of workers who 

would like to take on more hours but are stuck in part-time jobs 

that leave them really struggling to get by. 

Millions more have been hoping for a much deserved raise for 

years, and they are still waiting. And as a result of decades of rising prices and stagnant or declining wages, families are now finding it more and more difficult to buy a home, send their children 

to school, and save for retirement, the opportunities that I know 

everyone in this room wants them to have. 

So while we have made some real progress, there is still a lot we 

need to do to not only get Americans back to work, but to encourage the kind of economic growth that leads to higher-wage jobs, 

more opportunity, and a stronger middle class. 

Taking a responsible approach to our budget challenges will be 

a critical part of this effort. Since August of 2010, Congress has put 

in place roughly $3.3 trillion in deficit reduction over the 10-year 

window. Some of that deficit reduction came from letting the Bush 

tax cuts expire for those at the top of the income spectrum. But the 

majority came from deep spending cuts as a result of fiscally austere policies fought for by many of my Republican colleagues. That 

includes the across-the-board cuts from sequestration which impacted so many of our families and communities across the country. 

Today our near-term budget outlook has improved significantly. 

We have stabilized the deficit as a share of the economy for the 

next several years. And the deficit for this fiscal year is expected 

to be about a third lower than what the Congressional Budget Office projected it would be 5 years ago. It is important to keep in 

mind, however, that as many economists and experts have noted, 

fiscal austerity, like the steep spending cuts from sequestration, 

has actually hurt our recovery, slowed growth, and cost jobs. 

These cuts also crippled critical Federal investments that make 

our workforce more competitive and expand economic growth in the 

long term. And while the cuts did contribute to an improved fiscal 

outlook in the next few years, they did very little to tackle the real 

drivers of our debt in coming decades. 

Over the last few years, the conversation about these two challenges—boosting our economy, getting our fiscal house in order— 

took place within a cycle of lurching from crisis to crisis on our 

budget. Those crises created a lot of economic uncertainty and put 

the focus on getting through the next crisis rather than reach an 

agreement on measures to help the economy recover in the near 

term and tackle our debt in the long term. 

With the 2-year budget agreement that Chairman Ryan and I 

reached in place, we finally have a chance to look at these challenges without one budget deadline after another hanging over us. 

I am very hopeful we can take advantage of this opportunity and 

be able to build on the Bipartisan Budget Act by working together 
371 

on a balanced approach that puts job creation and growth first and 

continues to address our debt and deficit. 

This means even as we look for ways to tackle our long-term 

budget challenges, we need to address the other deficits that we 

face in areas like education and innovation and infrastructure and 

research, which are very critical to job creation and broad-based 

economic growth now and over the long term. 

It means we will need to follow the recommendation of the bipartisan experts and include both responsible spending cuts and new 

revenue from those who can afford it most in our deficit reduction 

efforts. 

And as we have seen in the last few years, we will need to protect our economy by phasing in deficit reduction over time rather 

than allowing deep, immediate spending cuts like those in sequestration to slow growth and hurt our recovery. 

I strongly believe that if we can take this kind of balanced approach, our economic growth will be stronger and more broadly felt 

right now for the millions of workers and families still struggling 

and for workers and families in the decades to come. 

All of this will be especially important as the Federal Reserve begins to scale back its most recent round of quantitative easing. For 

most of the last 3 years, the Federal Reserve has had to step up 

its efforts because of the counterproductive austerity measures pursued by some in Congress. But in this more stable budget environment, I hope Congress will be able to work together to encourage 

job creation and growth in a bipartisan way. 

I know there are serious differences between our two parties 

when it comes to the best ways to encourage growth and fiscal responsibility. But really our work on the Bipartisan Budget Act has 

shown that when Democrats and Republicans come to the table 

ready to make tough choices and compromise, we can find agreement and take some sensible steps towards addressing the Nation’s 

near-and long-term economic and fiscal challenges. That is what 

the American people expect of us. 

So I am very hopeful we will be able to continue to make 

progress. Dr. Yellen, thank you again for the critical work you are 

doing and for taking the time to be with us at this Committee 

today. 

With that, I will turn it over to my colleague, Senator Sessions. 

OPENING STATEMENT OF SENATOR SESSIONS 

Senator SESSIONS. Thank you. Thank you, Chairman Murray, for 

your courtesy. Thank you, Chairman Yellen, for appearing before 

us today for an important discussion, and I know you had one yesterday. 

I must say that I do not think we can say our economy is where 

we want it to be. It has some very serious problems. 

Like the foundation of a home, America’s economy must be built 

on something real, solid, and something firmly planted. Neither 

Federal stimulus in the form of easy money nor fiscal stimulus in 

the form of Government borrowing can produce real lasting prosperity or a sound financial future long term. 

Millions of Americans face the economic future with great unease 

today. A large majority think the Nation is on the wrong track. No 
372 

Government regulator, you or your predecessors, no matter how intelligent, can see into the future and micromanage the economy. 

Let us consider the testimony of former Chairman Alan Greenspan at that table before this Committee in January of 2001. 

Chairman Greenspan came to alert Congress about an urgent policy decision that we would have to make. And what was that decision? Whether to raise the interest rates, reduce subprime lending, 

reform entitlements? No. Chairman Greenspan came to warn us 

that we would have to decide how to spend all of the surplus 

money after we soon paid off the entire Federal debt of the United 

States of America. 

He predicted budget surpluses ‘‘well past 2030, despite the budgetary pressures from the aging baby-boom generation.’’ And he said 

that, ‘‘The highly desirable goal of paying off the Federal debt is 

in reach before the end of the decade.’’ 

Greenspan warned that after ‘‘continuing to run surpluses beyond the point at which we reach zero or near zero Federal debt,’’ 

we would need to eschew private asset accumulation. He added for 

emphasis that, ‘‘The emerging key fiscal policy need is to address 

the implications of maintaining surpluses beyond the point at 

which publicly held debt was effectively eliminated.’’ 

So forgive us if we cannot—we as policy leaders ought not to assume everything you tell us is always correct. The maestro was certainly wrong in that. 

The Federal Reserve is not infallible. Our responsibility as legislators is to provide oversight. We are one small voice for the American people in watching the organization that you head. 

In 2011, the Fed forecasted growth last year between 3.5 and 4.3 

percent. Actual growth was an anemic 1.9 percent, roughly half of 

what you predicted. This is a drastic overestimation, not a small 

miss. And the Fed overestimated 2013 growth in every formal 

quarterly prediction for each year since 2011. For the people’s representatives, your performance in that regard, the Fed’s performance before you became Chairman, is not good. 

Let us consider whether the stimulus policies of the last 5 years 

have produced the results predicted. Since 2007, interest rates 

have been near zero, and the Federal Government has added $8.3 

trillion to the debt. But where do we stand? The population has 

grown by 15 million since 2007, yet we are still 500,000 fewer people working today than in 2007. 

The workforce participation rate has fallen to 63 percent of the 

civilian population, which is the lowest level in 36 years. Median 

household income has fallen an average of $2,268 per household. 

That is huge for working Americans, almost $200 a month less median household income. And the low-income cohort has grown while 

the middle-income group has shrunk. The middle class is getting 

smaller in America. 

While the stimulus mind-set in Washington has at least so far 

been better for the investor class and the political class, it has not 

been good for the working class. Not only has the stimulus failed 

American workers, but it has left us with regard debt and an economy dependent on unprecedented policies that you and I know cannot continue. 
373 

One of your two statutory duties is to advance full employment. 

While the good job numbers last month are a positive sign, it was 

fully offset, it seems to me, by the fact that 988,000 people dropped 

out of the labor market entirely, and the large numbers that did 

get jobs were part-time jobs. 

So the time has come, I think, to assume and return to first principles. Spend what you have. Plan for the future carefully. Lay out 

policies that are prudent and can be maintained long term. Do not 

borrow what you cannot pay back. 

So here are some ways I think would improve the economy without adding to the surplus, without adding to the debt, and I think 

each and every one of these absolutely would help create jobs and 

prosperity: more American energy; eliminate all costly and wasteful 

regulations that do not provide benefit; make the Tax Code flatter, 

simpler, revenue neutral; help our companies be globally competitive; ensure that fair trade protects our workers from unfair trade; 

adopt an immigration policy that serves American workers; turn 

the welfare office into a job training center; streamline the Government, make it more productive; and balance the Federal budget to 

restore economic confidence. These are concrete steps that will 

work. We need to return to those principles and move this country 

forward, and I look forward to discussing with you any other ideas 

you might have that would help the country prosper. 

Chairman MURRAY. Thank you very much, Senator Sessions. 

With that, we are very delighted to have the Chairman of the 

Federal Reserve with us today. Dr. Yellen, we will turn it over to 

you for your testimony. 

STATEMENT OF THE HONORABLE JANET L. YELLEN, CHAIR, 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Ms. YELLEN. Thank you. Chairman Murray, Ranking Member 

Sessions, and other members of the Committee, I appreciate the 

opportunity to discuss the current economic situation and outlook 

along with monetary policy before turning to some issues regarding 

financial stability. 

The economy has continued to recover from the steep recession 

of 2008 and 2009. Real gross domestic product growth stepped up 

to an average annual rate of about 3–1/4 percent over the second 

half of last year, a faster pace than in the first half and during the 

preceding 2 years. Although real GDP growth is currently estimated to have paused in the first quarter of this year, I see that 

pause as mostly reflecting transitory factors, including the effects 

of the unusually cold and snowy winter weather. With the harsh 

winter behind us, many recent indicators suggest that a rebound 

in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter. One 

cautionary note, though, is that readings on housing activity—a 

sector that has been recovering since 2011—have remained disappointing so far this year and will bear watching. 

Conditions in the labor market have continued to improve. The 

unemployment rate was 6.3 percent in April, about 1–1/4 percentage points below where it was a year ago. Moreover, gains in payroll employment averaged nearly 200,000 jobs per month over the 

past year. During the economic recovery so far, payroll employment 
374 

has increased by about 8–1/2 million jobs since its low point, and 

the unemployment rate has declined about 3–3/4 percentage points 

since its peak. 

While conditions in the labor market have improved appreciably, 

they are still far from satisfactory. Even with recent declines in the 

unemployment rate, it continues to be elevated. Moreover, both the 

share of the labor force that has been unemployed for more than 

6 months and the number of individuals who work part time but 

would prefer a full-time job are at historically high levels. In addition, most measures of labor compensation have been rising slowly—another signal that a substantial amount of slack remains in 

the labor market. 

Inflation has been quite low even as the economy has continued 

to expand. Some of the factors contributing to the softness in inflation over the past year, such as the declines seen in non-oil import 

prices, will probably be transitory. Importantly, measures of longerrun inflation expectations have remained stable. That said, the 

Federal Open Market Committee recognizes that inflation persistently below 2 percent—the rate that the Committee judges to be 

most consistent with its dual mandate—could pose risks to economic performance, and we are monitoring inflation developments 

closely. 

Looking ahead, I expect that economic activity will expand at a 

somewhat faster pace this year than it did last year, that the unemployment rate will continue to decline gradually, and that inflation will begin to move up toward 2 percent. A faster rate of economic growth this year should be supported by reduced restraint 

from changes in fiscal policy, gains in household net worth from increases in home prices and equity values, a firming in foreign economic growth, and further improvements in household and business confidence as the economy continues to strengthen. Moreover, 

U.S. financial conditions remain supportive of growth in economic 

activity and employment. 

As always, considerable uncertainty surrounds this baseline economic outlook. At present, one prominent risk is that adverse developments abroad, such as heightened geopolitical tensions or an 

intensification of financial stresses in emerging market economies, 

could undermine confidence in the global economic recovery. Another risk—domestic in origin—is that the recent flattening out in 

housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery. Both of 

these elements of uncertainty will bear close observation. 

Turning to monetary policy, the Federal Reserve remains committed to policies designed to restore labor market conditions and 

inflation to levels that the Committee judges to be consistent with 

its dual mandate. As always, our policy will continue to be guided 

by the evolving economic and financial situation, and we will adjust 

the stance of policy appropriately to take account of changes in the 

economic outlook. In light of the considerable degree of slack that 

remains in labor markets and the continuation of inflation below 

the Committee’s 2-percent objective, a high degree of monetary accommodation remains warranted. 

With the Federal funds rate, our traditional policy tool, near zero 

since late 2008, we have relied on two less conventional tools to 
375 

provide support for the economy: asset purchases and forward guidance. And because these policy tools are less familiar, we have been 

especially attentive in recent years to the need to communicate to 

the public about how we intend to employ our policy tools in response to changing economic circumstances. 

Our current program of asset purchases began in September 

2012 when the economic recovery had weakened and progress in 

the labor market had slowed, and we said that our intention was 

to continue the program until we saw substantial improvement in 

the outlook for the labor market. By December 2013, the Committee judged that the cumulative progress in the labor market 

warranted a modest reduction in the pace of asset purchases. At 

the first three meetings this year, our assessment was that there 

was sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions, so further 

measured reductions in asset purchases were appropriate. I should 

stress that even as the Committee reduces the pace of its purchases of longer-term securities, it is still adding to its holdings, 

and those sizable holdings continue to put significant downward 

pressure on longer-term interest rates, support mortgage markets, 

and contribute to favorable conditions in broader financial markets. 

Our other important policy tool in recent years has been forward 

guidance about the likely path of the Federal funds rate as the economic recovery proceeds. Beginning in December 2012, the Committee provided threshold-based guidance that turned importantly 

on the behavior of the unemployment rate. As you know, at our 

March 2014 meeting, with the unemployment rate nearing the 

threshold that had been laid out earlier, we undertook a significant 

review of our forward guidance. While indicating that the new 

guidance did not represent a shift in the FOMC’s policy intentions, 

the Committee laid out a fuller description of the framework that 

will guide its policy decisions going forward. Specifically, the new 

language explains that, as the economy expands further, the Committee will continue to assess both the realized and expected 

progress toward its objectives of maximum employment and 2 percent inflation. In assessing that progress, we will take into account 

a wide range of information, including measures of labor market 

conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. In March and again 

last month, we stated that we anticipated the current target range 

for the Federal funds rate would be maintained for a considerable 

time after the asset purchase program ends, especially if inflation 

continues to run below 2 percent, and provided that inflation expectations remain well anchored. The new language also includes information on our thinking about the likely path of the policy rate 

after the Committee decides to begin to remove policy accommodation. In particular, we anticipate that even after employment and 

inflation are near mandate-consistent levels, economic and financial conditions may, for some time, warrant keeping the target Federal funds rate below levels that the Committee views as normal 

in the longer run. 

Because the evolution of the economy is uncertain, policymakers 

need to carefully watch for signs that it is diverging from the baseline outlook and respond in a systematic way to stabilize the econ-
376 

omy. Accordingly, for both our purchases and our forward guidance, 

we have tried to communicate as clearly as possible how changes 

in the economic outlook will affect our policy stance. In doing so, 

we will help the public to better understand how the Committee 

will respond to unanticipated developments, thereby reducing uncertainty about the course of unemployment and inflation. 

In addition to our monetary policy responsibilities, the Federal 

Reserve works to promote financial stability, focusing on identifying and monitoring vulnerabilities in the financial system and 

taking actions to reduce them. In this regard, the Committee recognizes that an extended period of low interest rates has the potential to induce investors to ‘‘reach for yield’’ by taking on increased 

leverage, duration risk, or credit risk. Some reach-for-yield behavior may be evident, for example, in the lower-rated corporate debt 

markets, where issuance of syndicated leveraged loans and highyield bonds has continued to expand briskly, spreads have continued to narrow, and underwriting standards have loosened further. 

While some financial intermediaries have increased their exposure 

to duration and credit risk recently, these increases appear modest 

to date—particularly at the largest banks and life insurers. 

More generally, valuations for the equity market as a whole and 

other broad categories of assets, such as residential real estate, remain within historical norms. In addition, bank holding companies 

have improved their liquidity positions and raised capital ratios to 

levels significantly higher than prior to the financial crisis. Moreover, recently concluded stress tests mandated by the Dodd-Frank 

Act have provided a level of confidence in our assessment of how 

financial institutions would fare in an extended period of severely 

adverse macroeconomic conditions or a sharp steepening of the 

yield curve alongside a moderate recession. For the financial sector 

more broadly, leverage remains subdued and measures of wholesale short-term funding continue to be far below levels seen before 

the financial crisis. 

The Federal Reserve has also taken a number of regulatory 

steps—many in conjunction with other Federal agencies—to continue to improve the resiliency of the financial system. Most recently, the Federal Reserve finalized a rule implementing section 

165 of the Dodd-Frank Act to establish enhanced prudential standards for large banking firms in the form of risk-based and leverage 

capital, liquidity, and risk management requirements. In addition, 

the rule requires large foreign banking organizations to form a U.S. 

intermediate holding company, and it imposes enhanced prudential 

requirements for these intermediate holding companies. Looking 

forward, the Federal Reserve is considering whether additional 

measures are needed to further reduce the risks associated with 

large, interconnected financial institutions. 

While we have seen substantial improvements in labor market 

conditions and the overall economy since the financial crisis and severe recession, we recognize that more must be accomplished. 

Many Americans who want a job are still unemployed, inflation 

continues to run below the FOMC’s longer-run objective, and work 

remains to further strengthen our financial system. I will continue 

to work closely with my colleagues and others to carry out the important mission that Congress has given the Federal Reserve. 
377 

Thank you. I will be pleased to take your questions. 

[The prepared statement of Ms. Yellen follows:] 
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Chairman MURRAY. Thank you very much for your testimony. 

And for our Committee members, we are going to keep our questions to 5 minutes each for this since we have a number of members here and votes that are coming up. 

Over the past several years, you, your predecessor, and your 

many colleagues on the Federal Reserve System worked really tirelessly to put the economy back on track using all the tools of monetary policy at your disposal. I wanted to ask you about the role that 

fiscal policy played and should play in healing the economy. We 

have been having a very robust debate here in Congress about the 

direction of near-term fiscal policy, and some of my colleagues have 

been urging very large and immediate cuts to a wide swath of public investments, programs, services, and, in fact, Government 

spending and the overall budget deficit have both shrunk at or 

near historic rates over the last several years. 

I wanted to ask you this morning about the effect of these fiscal 

policies. Do you think that near-term spending cuts are beneficial 

for our economy’s recovery? 

Ms. YELLEN. I think that fiscal policy, while it has accomplished 

a very meaningful reduction in the budget deficit, as you pointed 

out, has served as a drag on the economy, on spending and aggregate demand in the economy, and in a sense, this has been part 

of the headwinds that the Federal Reserve has had to confront in 

designing our own monetary policy. 

My predecessor asked in a sense that fiscal policy should do no 

harm. We are looking at a significant reduction during this year in 

the amount of drag we are likely to see from fiscal policy. According to CBO’s estimates, last year tightening fiscal policy both on 

the spending and tax side subtracted about 1–1/2 percentage points 

from GDP growth, and that drag is projected to diminish to something on the order of half a percent. And so that is really one of 

the reasons that my colleagues and I are forecasting stronger 

growth and continued improvement in the labor market. 

Now, I do want to agree with my predecessor in emphasizing, 

though, that long-run sustainability of fiscal policy and the debt is 

something that is very important. As you mentioned, this is something, a set of changes, further changes, as we look at CBO’s 

longer-term budget projections, we can see that going out 20, 30, 

50 years without some further shifts in fiscal policy, it is projected 

that the ratio of debt to GDP will rise to unsustainable levels. And 

I would join my predecessor in saying that I do think it is important that the Congress address that issue, that having a long-run 

sustainable fiscal policy and debt-to-GDP path that can be maintained over time does require changes. But it does not require 

changes that would come into effect so quickly that it would impede the recovery. 

Chairman MURRAY. Do you think the various stand-offs and crises that we have had surrounding the debt limit had negative consequences for our broader economy? 

Ms. YELLEN. It is hard to put a number on what the impact of 

all of those crises has been, but I think probably all of you have 

had the same experience that I have had as you talk to business 

people around the country and to households as well, who do talk 

about uncertainties surrounding fiscal policy and that crisis atmos-
387 

phere along with other elements of regulation and uncertainty 

about the outlook as something that has diminished their willingness to hire and invest. And I do think that mentality is beginning 

to change, and I consider it a good sign for the economy going forward. 

Chairman MURRAY. Okay. I only have a few seconds left, but I 

did want to ask you about the discussion we are having about 

wealth and income inequality. We have had some hearings on that 

here. I know you have thought a lot about the role that opportunity 

plays in growing our economy and talked about the enormous positive impact from opening up more economic opportunities for 

women. And I just would love to have you comment on that in my 

last 20 seconds here. 

Ms. YELLEN. I am very concerned about rising inequality. It is 

a long-term trend that I think is very disturbing, and it is something that public policymakers should focus on. 

I do think that opportunity for women has been very important, 

not only recently but really over the last century, increasing opportunities for women and their expanding role in the workforce in 

promoting a strong economy and really a century of very solid economic performance and growth, and I hope that will continue. 

Chairman MURRAY. Thank you very much. 

Senator Sessions? 

Senator SESSIONS. Thank you. 

Dr. Yelllen, we have had unprecedented stimulus in the fiscal side, including $1 trillion almost in one single piece of legislation. 

We did have a containment of spending last year, but it will begin 

to go back up again soon. So we are far from austere. And Dr. Elmendorf has told us that whereas the interest on our debt last year 

was $221 billion, he projects it to be $876 billion in 10 years. So 

this is a threat to our future, and we simply have to get our fiscal 

house in order, and I hope you understand that. And you are not 

going to be able to call over from the Fed and tell Congress now 

is the time we would like for you to cut spending this month, but 

not cut it next month. 

Now, since 2009, the United States has borrowed $8 trillion and 

added $8 trillion in new debt. Since 2008, the Federal Reserve has 

increased its balance sheet debt five-fold from $900 billion to $4 

trillion, over $4 trillion. So let me ask you first: Who has benefitted 

most so far in this process of stimulating the economy: investors, 

CEOs, or everyday working middle-class Americans? 

Ms. YELLEN. So I would say that there have been widespread 

benefits from the policies that we have followed. Since the low, we 

have created, the economy has created over 8 million jobs. And 

monetary policy has sought to foster that and I believe has made 

some contribution there. 

Senator SESSIONS. But could I ask you on the job creation, we 

talk about jobs created. We created 288,000 last month, which was 

the best month, supposedly, we have had since—I guess one of the 

best since the recession. But 988,000 dropped out of the labor market, and we have got fewer people working today than there were 

in 2007. So how can we tell the American—and the population has 

increased by 15 million, 8 million in the work age group. So how 

is this progress, please tell me? 
388 

Ms. YELLEN. First of all, I would caution you not to emphasize 

too much one month’s fluctuation, things like that. 

Senator SESSIONS. I agree with that. 

Ms. YELLEN. I guess if we look over the last 6 months or so, I 

would describe the labor force participation rate as roughly stable. 

However, looked at over a longer span, the labor force participation 

rate has declined very substantially. And I would say that there 

are two reasons for that. One is demographic, and it is something 

that we should expect to continue going forward. As I look forward, 

I am envisioning in coming years a continued secular decline in 

labor force participation, and that is due to the fact that the baby 

boomers are entering the retirement years. And as the fraction of 

the population in the retirement years rises, it is very natural— 

Senator SESSIONS. But, Dr. Yellen, the data show, at least this 

recently, that the over 55 are participating at a higher rate than 

the under 55. Do you not agree? 

Ms. YELLEN. Yes, it— 

Senator SESSIONS. One columnist in Barrons said it is because 

daddy has got to take care of the unemployed son in the basement. 

Ms. YELLEN. It is absolutely true what you say, that younger cohorts, more recent retirees, are working more than their predecessors did, and we have seen their rate of labor force participation 

rise. But in looking at the overall trend, that is dominated by the 

fact that there is an increasing fraction of the labor force in these 

retirement years. But I do want to emphasize that there is more 

that is going on here, at least in my view, than simply demographics, because labor force participation has also declined among 

prime age workers and among young people, in part because they 

are in school a lot more. 

But I think that some of those declines—and a portion probably 

of the decline among retirees as well—is because we have a weak 

labor market, and— 

Senator SESSIONS. Well, I think we have a weak, slack labor 

market. I agree with that. You said yesterday we have never seen 

a situation where long-term unemployment is so large a fraction of 

unemployment. 

Ms. YELLEN. I agree. 

Senator SESSIONS. That is a very significant concern, would 

you— 

Ms. YELLEN. Yes, we are on the order of 35 percent, and that is— 

of all those unemployed more than 6 months, and that is a very 

disturbing trend and something that we would like to be able to 

do something about. 

Senator SESSIONS. Well, thank you for your service. You have undertaken a tough job. We want to be positive and helpful, but from 

the point of view of working Americans, this is the slowest, most 

anemic recovery we have seen maybe ever, since the Great Depression at least. And we have had median income fall by $2,300 per 

family. We have had a 15 million increase in population and a decline in people actually working. And we have got more people 

working part time. This is not a good trend. Whatever we are 

doing, we need to get better at it. 

Thank you, Madam Chair. 

Chairman MURRAY. Thank you. 
389 

Senator Whitehouse? 

Senator WHITEHOUSE. Thank you, Madam Chair. Welcome, Chair 

Yellen. Thank you for being here with us today. 

Many reports on the economy show continuing improvement. The 

stock market is higher, unemployment continues to go down. There 

are elements to the economy that are flourishing. But I urge you 

to remember that there are locations in the country where the recovery really has not been experienced much. One is my home 

State of Rhode Island where unemployment is still at 8.7 percent, 

and although that puts us in unhappy position of being the leading 

State in the country, there are similar geographic areas in larger 

States that are experiencing similar difficulties. 

We are a long way from the boom of Wall Street. We are a long 

way down the pipeline from the natural gas boom. We are a long 

way from the big interventions, like the auto industry rescue, that 

were so beneficial in the Midwest. And I guess two things: 

One, I urge you to not be beguiled by the national numbers into 

forgetting the areas where it is still very difficult locally; 

And, second, to ask you what policies you think might be helpful 

for those States and areas, geographic areas, that are still suffering 

economically. 

Ms. YELLEN. I agree completely with your characterization of the 

national situation. There are pockets of the country that are doing 

extremely well, in part the areas where energy production is very 

strong, and some other areas as well. 

But I think your description of the situation in Rhode Island, 

many areas of the country share the problems that you describe. 

Our objective in monetary policy is to continue to maintain an accommodative monetary policy for as long as necessary to see recovery of the labor market to a state—it is hard to know exactly how 

to characterize it quantitatively, but what the Federal Reserve Act 

calls ‘‘maximum employment’’ or we used to call ‘‘full employment’’ 

for short. And in many ways, we are far from that, and that is part 

of the reason why not only is there a shortage of jobs but also I 

think wages are rising as slowly as they are. And our mission is 

both to make sure that inflation moves back up to our 2-percent 

objective, but also to want to foster continued recovery in the labor 

market to help Rhode Island and other places like it. 

Senator WHITEHOUSE. One of the ways that I find I can help at 

home is to help support infrastructure projects, particularly since 

we have a national infrastructure deficit in a great number of 

areas—highways, water facilities, so forth. 

From the sort of high perch that you look down on the economy 

from, is there a difference between spending that goes out the door 

in the form of essentially expense and spending that results in a 

tangible asset that remains in the United States of America as a 

highway or a water treatment plant or some other facility? 

Ms. YELLEN. The way I would look at it in the short run, in 

terms of creating jobs in the economy and for trying to get output 

back up to the potential of what we can produce, it does not matter 

where the spending occurs; it does not matter whether it is for a 

capital investment or something else— 

Senator WHITEHOUSE. It is valuable either way in that sense. 
390 

Ms. YELLEN. But from the standpoint on long-run growth, it does 

make a great deal of difference what the spending is on, and investment spending and capital formation helps not only create jobs 

in the short term, but to promote growth in the long term. 

Senator WHITEHOUSE. So there is an immediate value to spending in either direction in terms of economic recovery, but the longterm value is for the spending that is on infrastructure that creates 

a lasting asset. 

Ms. YELLEN. Right. And I think one of the reasons we have seen 

a decline in the productivity growth over the last several years is 

that firms have been spending less and doing less capital formation. So this holds not only on the public investment side; it holds 

on the private investment side as well. And that is in a way one 

of the ways in which this shortfall, this recession that we are still 

recovering from has served to harm the growth of the economy over 

the medium or longer term. 

Senator WHITEHOUSE. My time is up. Thank you for being with 

us. 

Thank you, Chairman. 

Chairman MURRAY. Thank you. 

Senator Johnson? 

Senator JOHNSON. Thank you, Madam Chair. 

Welcome, Madam Chair. It is nice to meet you. 

Ms. YELLEN. Thank you. 

Senator JOHNSON. My background is in education, as an accountant, and as a manufacturer, so it is in my DNA to go to root cause 

analysis and I also like numbers. You mentioned earlier the 20-, 

30-, 40-year outlook and how that is unsustainable from a debt-toGDP ratio. Have you looked at just the dollar amounts of deficits 

that is going to be driving that debt? 

Ms. YELLEN. You know, I guess I have. I often focus on what is 

the ratio of debt to GDP and is it stable or rising. 

Senator JOHNSON. Well, one of the reasons I go to dollar deficits 

is it is something I think people can understand a little better. 

CBO seems to be kind of resistant to put their projections, so I 

have done it for them. They like percentage of GDP; I like dollars. 

So their baseline projection over the next 30 years—and I think 

that is a pretty relevant time frame; we have that demographic 

bubble—shows $66 trillion of deficits. That is the baseline. The alternate fiscal scenario is $127 trillion of deficits, so let me just 

break that out by decade for the alternate fiscal scenario. It is $8 

trillion the first decade, $31 trillion the second decade, $88 trillion 

the third decade. 

Does that comport with basically what your understanding is of 

the unsustainable nature of our debt and deficit over the 30 years? 

Ms. YELLEN. Yes. I mean, my understanding of the core problem 

is that as the population ages—and, of course, it depends on the 

trend in health care costs relative to other prices in the economy 

as well, which had historically been one of rising relative— 

Senator JOHNSON. That is—again, but my point, that is pretty 

accurate in terms of the numbers I am looking at, and that is completely unsustainable. By the way, my daughter just turned 31. 

That just kind of went by like that, so this is not that far out in 

the future. We need to address this sooner rather than later. 
391 

I want to hone in on Social Security. Whether you take a look 

at the trustees’ report or CBO’s, somewhere between $13 and $15 

trillion will be paid out in benefits that exceed the payroll tax over 

the next 30 years. Is that pretty much your understanding? 

Ms. YELLEN. So I do not have those numbers at my fingertips, 

but— 

Senator JOHNSON. That seems about correct. 

Ms. YELLEN. But eventually that begins to occur. 

Senator JOHNSON. Okay, because I have been trying to get people—and I actually had CBO Director Elmendorf admit this, but I 

just want to ask you if you agree with this statement in an OMB 

publication talking about the trust fund. It says, ‘‘...these trust balances are assets of the program agencies and corresponding liabilities of the Treasury, netting to zero for the Government as a 

whole.’’ Do you agree with that assessment? In other words, you 

have $2.6 or $2.7, $2.8 trillion of the U.S. Government bonds in the 

trust fund, but the Treasury has the offsetting liability. Is that correct? 

Ms. YELLEN. Yes. 

Senator JOHNSON. And so when you consolidate the books of the 

Federal Government, that nets to what? 

Ms. YELLEN. Well, it nets to zero. 

Senator JOHNSON. Zero. So the trust fund really has—to the Government as a whole, has no value. Do you agree with that? 

Ms. YELLEN. The way I look at it, what is the ratio of spending 

on programs like Social Security— 

Senator JOHNSON. No, again, I want to hone in on Social Security—really I want a very simple answer. Social Security will pay 

out $15 trillion in benefits over the next 30 years more than it 

takes in in payroll tax, and the trust fund has no value to the Federal Government. That is a correct statement, is it not? 

Ms. YELLEN. Well, no, I would not have phrased it exactly that 

way. I mean— 

Senator JOHNSON. Well, that is the way I am phrasing it, and I 

am phrasing it correctly, am I not? 

Ms. YELLEN. The Government has essentially provided the Social 

Security fund with IOUs that says that we will make— 

Senator JOHNSON. Right, asset offset by— 

Ms. YELLEN. —these payments and— 

Senator JOHNSON. —liability netting to zero, okay. 

Ms. YELLEN. —the rest of the Government needs to come up 

with— 

Senator JOHNSON. Let me move on to jobs. Do you agree with 

CBO’s assessment that an increase to the minimum wage, the one 

proposed, would cost us jobs? Up to a million is what CBO estimates. 

Ms. YELLEN. I do not know what the exact number is. I— 

Senator JOHNSON. But it will cost jobs. 

Ms. YELLEN. It will help individuals who benefit from a higher 

wage at the expense— 

Senator JOHNSON. But it will hurt individuals that do not have 

a job, correct? 
392 

Ms. YELLEN. It is likely to have some negative effect on jobs, and 

it is a question mark exactly how large that impact is with different studies coming up with different numbers. 

Senator JOHNSON. So with the Fed’s dual mandate looking at trying to improve the employment situation, does the Fed ever consider the effect that its low interest rates—the incentive it creates 

for manufacturers to automate? Because I am seeing that. As I 

visit factories around Wisconsin, I am seeing functions that I never 

thought would be automated. For example, just a hand tow motor 

truck, automated. So now there is not a person that has to operate 

that anymore. It is just flying around the factory by itself, or maneuvering. Do you consider the harmful impact of these very low 

interest rates on the incentives to automate and also reduce employment? 

Ms. YELLEN. Those investments raise productivity, and in the 

long run, that is good for the economy. And in order to have 

enough jobs in this economy to put people to work, we do not have 

to ask firms to avoid making investments that are profitable for 

them, that improve productivity. We need to expand demand in the 

economy so that there is enough economic activity, even if it is capital-intensive economic activity, that creates jobs for people who 

want to work. So that is what we are trying to do. 

Senator JOHNSON. My point is just the misallocation of capital 

being caused by the very low interest rates, but my time is up. 

Thank you, Madam Chair. 

Chairman MURRAY. Senator Nelson. 

Senator NELSON. Good morning. Thank you for your public service. I am concerned that we are getting too much in a trend of the 

haves and the have-nots, with a shrinking middle class. The political and economic stability of this country for two and a quarter 

centuries has been because we have had a broad middle class and 

an aspiring middle class. Could you comment on the direction of 

the country’s economy? 

Ms. YELLEN. I agree with you, I am very concerned about trends 

toward rising income inequality in the country and trends that 

have affected the middle class. Partly this reflects a weak economy 

and a weak job market that is only gradually beginning to get back 

to normal. So a downturn in the economy tends to have a disproportionate impact on middle-income and lower-income families, 

and we have seen that. And putting in place policies that promote 

recovery will help, I believe, in that dimension. 

But there are also longer-term trends that are contributing to 

what you are describing that are quite disturbing, and I think some 

of them have to do with technology, with technological trends that 

have shifted the demand for labor to very high skilled workers and 

away from those with less education, and, in addition, trends in 

globalization and the global economy. And these are longer-run 

structural shifts that I do think policymakers, it is something the 

Fed cannot address all of the causes of this, but a broader range 

of public policymakers, including Congress, I think should be focusing on policies that could help. I find this a very disturbing trend 

as well. 

Senator NELSON. If the rich are getting richer and the poor are 

getting poorer and the broad middle class is constricting, it sounds 
393 

like from a policy standpoint that we need to reverse those trends 

to encourage what has caused the political and economic stability. 

Do you want to suggest any policy changes that we in the Senate 

should consider? 

Ms. YELLEN. I do not want to give you detailed policy advice, and 

there are a long list of things you could consider. But I would say 

that on anybody’s list, training, education, a wide range of policies 

that make it possible for people to obtain the kind of education 

they need to have the skills to succeed in this economy, there is 

a great deal of work on the benefits of early childhood education 

and, of course, access to loans that enable people to obtain a good 

college education, a wide range of job training programs, and so 

forth I think would be on anyone’s list of things to consider. 

Senator NELSON. Amen to all of that. Thank you. 

You no doubt are aware of the Tax Code provision that has expired that Senator Stabenow and I are trying to remedy where, if 

someone who has been very unfortunate, the only way out in losing 

their home is a short sale, that is the least painful way, and then 

lo and behold, they now find that that is considered as income, taxable income. 

Just to give you three quick examples from my State, which, of 

course, the housing market was hit enormously hard in Florida, 

but here is someone that, after they exhausted all their savings, 

had to sell their home, and they happen to sell the home in 2014, 

not before the end of the year in 2013, and so they have got to pay 

income tax. 

Another one, they lost their family business, bankruptcy, now 

losing the home due to foreclosure and a short sale, they were able 

to work out. But lo and behold, now they have an additional financial obligation of the income tax. 

And so, too, in a third example, they had a contract to sell before 

the end of 2013. It got delayed, and that delay of a few weeks then 

causes them this additional thing. 

Now, we are trying to remedy that. Do you want to comment on 

that? 

Chairman MURRAY. Very quickly, because, again, we have a lot 

of Senators and a short time frame. 

Ms. YELLEN. I think that in my role it is important for me not 

to weigh in on detailed specific changes in fiscal policy or taxes, 

but, of course, the recovery of the housing sector is very important, 

to see that ongoing is important to our recovery and has been, a 

very important factor in the downturn. 

Chairman MURRAY. Thank you. 

Senator Ayotte? 

Senator AYOTTE. Thank you. I want to thank you for being here. 

I wanted to ask you about, according to reports, FSOC is considering designating asset managers as systematically important financial institutions. And as I understand it, two companies have 

already advanced to stage two of the designation process. And what 

I would like to understand is that I believe that asset management 

business is completely different from the banking business or in 

many ways very different, and that the risks are different. 

So I guess I would ask you, do you agree that asset management 

and banking are different? And can you help me understand also, 
394 

as I understand it, the designation of asset managers as systematically important financial institutions that the FSOC council announced it is going to hold a public forum on asset management, 

but they have already moved two companies to stage two, so it 

seems like the cart got before the horse there. So if you can help 

me understand that as well. 

Ms. YELLEN. To start off, I would say certainly asset managers 

have very different characteristics than banking organizations. 

FSOC does not comment publicly on individual firms or where they 

might be in the process, and so I do not want to comment on what 

firms are under consideration or where they might be in the process. But it has been FSOC’s procedure all along to do extremely detailed analysis of the specific characteristics of the firms that they 

are looking into and considering for designation. There is no one 

size fits all in terms of analysis, and what they are looking to see 

is, is there some way in which the distress of a particular firm 

could give rise to systemic risk for the financial system and the 

economy? And that can occur through a number of different mechanisms that they have specified, and it will be necessary, if they consider such firms, to really identify clear ways in which the failure 

of these firms could trigger systemic risk. 

Senator AYOTTE. And if they are designated that way, asset managers potentially—I know that this was one of the issues that has 

been raised—that would serve as a designation of potentially too 

big to fail, which could, as we have seen historically, make them 

eligible for taxpayer assistance in a crisis situation. And what we 

do not want is that to encourage them to take on more debt or 

more risk. 

So can you comment on that criticism of putting asset managers 

perhaps in that category? 

Ms. YELLEN. They are not, to my understanding, really eligible 

for taxpayer assistance in a crisis. The Federal Reserve is authorized to lend to depository institutions, and we are not authorized 

except in a systemic risk situation through our 13(3) powers to— 

we can design broad programs to cover sectors of the economy that 

may be impacted by difficulties in gaining access to credit. But we 

have no authority to lend to individual firms, and if these firms are 

systemic, their failure can cause financial instability problems, that 

is a reason for them to be designated and subject to risk standards 

and potentially capital and liquidity standards that would reduce 

the odds that they could fail. 

Senator AYOTTE. Well, one of the things we want to just ensure 

is that hopefully we are not encouraging more risk by saying, you 

know, you have got that taxpayer backdrop, given the history of 

where we have been. 

I wanted to ask you about an important issue that I know you 

have already made some comments on. You know, I am hearing so 

much from our community banks that they feel incredibly burdened by Dodd-Frank. And as you look at the history, the number 

of banks is decreasing in the country. And it seems what I hear is 

a one-size-fits-all solution. And I know that you recently commented about this issue at the Independent Community Bankers 

conference. 

Ms. YELLEN. Yes, I did. 
395 

Senator AYOTTE. Can you tell me what your thoughts are about 

how we can address this concern for community banks, smaller 

banks, so that they do not get swallowed up with the regulations 

that may not fit necessarily because they were not the big systematic institutions that caused some of the—or put us in a situation 

we were concerned about? 

Ms. YELLEN. I completely agree with you that community banks 

were not the source of the financial crisis, and my colleagues and 

I do not want to see them caught up in unnecessary regulatory burden. We are very attentive to the need to reduce regulatory burden 

for these institutions to make clear that most of the regulations 

that we are putting in place to address systemic risk that affect 

larger institutions do not apply to these smaller institutions. Whenever we put out a regulation—an example would be our recent capital regulations implementing Basel III—we put out a special guide 

to show what is relevant to community banks, that they can ignore 

and are not affected by the rest. I know that they—there is no 

question they do feel that banking regulation has become more burdensome, but I pledge that I will continue to work with my colleagues to do all that we can to make sure that we reduce the burdens on these community banks and do not in any way have a onesize-fits-all approach. I do not think that would be appropriate. 

Senator AYOTTE. Thank you for that. 

Chairman MURRAY. Thank you. 

Senator King? 

Senator KING. Dr. Yellen, thank you very much for being with 

us. I would urge you to search YouTube and put in ‘‘Jimmy Stewart Wonderful Life.’’ The very first 2-minute clip is an exchange between George Bailey and Mr. Potter that captures so much of what 

we are talking about here today. And I would just say, ‘‘Gosh, Ms. 

Yellen, gee whiz,’’ channeling Jimmy Stewart, ‘‘how about putting 

a community banker on the Federal Reserve Board? Don’t you 

think that would be a good idea? 

Ms. YELLEN. I am in favor of that. 

Senator AYOTTE. I agree. 

Ms. YELLEN. I certainly am in favor of that. We just lost two individuals who were very familiar with community banking: Governor Duke, who ran a community bank in Virginia and had a lifetime of experience in community banking; and Governor Raskin, 

who has now moved to become Deputy Treasury Secretary, who 

served as Commissioner of Banking in Maryland and got to know 

the community banks and the community bank regulatory issues 

very closely. They made huge contributions, and I would love to see 

a replacement. 

Senator KING. I hope you will convey that sentiment to the White 

House, please. 

Ms. YELLEN. I have done so. Thank you. 

Senator KING. By the way, I met with a group of bankers from 

Maine, just to underscore the point you made earlier about a little 

weakening in the housing market, that is what I was hearing from 

them. They are seeing a marked decline in new mortgages, and I 

realize the plural of anecdote is not data, but it is getting close, 

and I think that is something we need to pay attention to. 
396 

I was at a panel recently on economics, and there were two questions that were unrelated to each other, but it seems to me they 

are related. One was about why is this recession recovery so sluggish, and the other was about the gross income inequality, the data 

of 95 percent of the income growth in the last few years has gone 

to the top 1 percent of the population. 

It seems to me those two things fit together. If two-thirds of the 

American economy is driven by consumer spending and the income 

is going to the top 1 percent and not to the people who do the 

spending, isn’t that a contributing factor itself to the sluggishness 

of the economic recovery, the lack of demand? 

Ms. YELLEN. We have been trying to stimulate demand. Greater 

spending is the key to trying to get the economy to operate— 

Senator KING. But what I am saying is the consumers who generally drive the economy do not have the—are not getting the income. 

Ms. YELLEN. That clearly is a factor that is relevant, the pace of 

expansion we have seen, yes. 

Senator KING. And the famous book that has just recently come 

out by Mr. Piketty that talks about the drag worldwide by income 

inequality, have you had time to digest that? It is only 1,000 pages. 

[Laughter.] 

Ms. YELLEN. I cannot say I have to the last page of it, but I am 

certainly familiar with the book. 

Senator KING. Well, it just seems to me it is something—again, 

going back to the basic principle that two-thirds of our economy is 

driven by consumer spending, Henry Ford, 100 years ago this year, 

had this insight, doubled the pay of his workers so they could buy 

his cars. And we have got to start thinking that way again. 

Ms. YELLEN. Many economists have argued that the distribution 

of income does matter to the pace of spending, and, I do not know 

with any utterly clear evidence on this topic, but it makes sense 

to assume that households that would tend to spend a great deal 

of their income when income distribution shifts in the direction of 

those who are wealthier and likely spend at the margin less of 

their income that creates a drag on the economy. And a number of 

economists have certainly made that argument. 

Senator KING. In the 1 minute left, I want to turn completely 

and talk about the issue of debt, which several of your questions 

have talked about. I think you have articulated an intelligent strategy, which is be careful about short-term, abrupt fiscal changes to 

deal with the debt, because that, in effect, as you characterize it, 

is a headwind for the recovery. 

Ms. YELLEN. Right. 

Senator KING. On the other hand, we cannot ignore this. I mean, 

the debt, just the interest on the debt, if we have a 1-percent increase in the interest we are paying on our current Federal debt— 

1 percent—which I think everyone agrees is likely within the foreseeable future, that will suck more money out of the Federal budget than the sequester. 

Ms. YELLEN. I would agree that interest does matter to spending 

and to the accumulation of debt. I would also want to point out, 

though, that interest rates are unlikely to begin rising until we are 

in a strong economic recovery. So we eventually will start to raise 
397 

interest rates. I mean, I am assuming the economy will continue 

to recover, and at some point that will become appropriate. But in 

thinking about what will happen with deficits and the debt, it is 

important to keep in mind that a stronger economy will be very 

good for the Federal budget deficit. There will be stronger revenues 

coming in and a decline in social safety net spending, and that will 

be an offset, and probably the most important element for the deficit and the evolution of the debt. Yes, interest payments will go 

up, but I believe the larger piece of it is likely to be that a stronger 

economy will improve the budget. So both of those things are operative. 

Senator KING. So a long-term strategy, not a short-term emergency strategy, is what we really need to be looking at. 

Ms. YELLEN. That is what I would urge. 

Senator KING. Thank you. 

Thank you, Madam Chair. 

Chairman MURRAY. Thank you. 

Senator Graham? 

Senator GRAHAM. Thank you. Let us continue. That was a very 

interesting conversation. 

So it is good news if interest rates go up? 

Ms. YELLEN. It is likely good news if interest rates go up. I 

mean— 

Senator GRAHAM. Compared to historical averages, how would 

you say interest rates are today? Are they unusually low? 

Ms. YELLEN. Absolutely. 

Senator GRAHAM. Okay. So what you are saying is sort of like a 

cocktail. Interest rates go up. That means more interest payments 

on the debt. It affects long-term and short-term indebtedness, 

right? 

Ms. YELLEN. That is correct. 

Senator GRAHAM. But it would be offset by a stronger economy. 

Ms. YELLEN. Right. We— 

Senator GRAHAM. Would it be one for one? 

Ms. YELLEN. I think most projections would suggest that, as 

growth picks up and we are getting the economy moving back toward full employment, the effect—I believe this is the case—of 

higher output on the economy, that the impact of that on the Federal budget deficit would be larger than the likely impact, the negative impact of higher interest rates. 

Senator GRAHAM. So it would be actually a net positive. 

Ms. YELLEN. I believe it probably would for a time. You know— 

Senator GRAHAM. Okay. I got you. I got you. We got to move on. 

Sequestration—if it is fully implemented as envisioned beginning 

in 2016, what effect will it have on our long-term national debt— 

small, medium, large, insignificant? 

Ms. YELLEN. What matters is the overall size of budget— 

Senator GRAHAM. Sequestration itself. Would you agree with me 

it would have very little effect because it is not reforming entitlements, it is just all discretionary spending? 

Ms. YELLEN. I guess I would say that it is not something that 

addresses the long-term problems that are— 

Senator GRAHAM. Well, what are the long-term problems? 

Ms. YELLEN. I think what shapes the long-run trajectory of— 
398 

Senator GRAHAM. Isn’t it the retirement of the baby boomers? 

Ms. YELLEN. Yes. It is the fact that— 

Senator GRAHAM. Like 80 million of us are going to retire in the 

next 20 to 30 years and we are going to swamp Medicare and Medicaid and—Medicare and Social Security. Is that— 

Ms. YELLEN. The projections are that Medicare, Medicaid, and 

Social Security would roughly double as a share of GDP. 

Senator GRAHAM. And the projections said that about 2042 all 

the projected revenue would go just to pay those payments and no 

money left for anything else? 

Ms. YELLEN. That is the dominant trend. It depends on— 

Senator GRAHAM. Okay. So the real long-term effect— 

Ms. YELLEN. —health care costs as well. 

Senator GRAHAM. Right. The long-term effect on the country, 

what makes this grease, what puts us in an unsustainable situation is the baby boomer is going to retire, and it is just going to 

take all the money to generate to pay the bills with the entitlement 

systems there are today. That is generally—and if you do not reform entitlements, you are not going to fix this problem. Do you 

agree with that? 

Ms. YELLEN. I think both revenues and spending matter— 

Senator GRAHAM. I did not say how. I just said— 

Ms. YELLEN. —Congress to— 

Senator GRAHAM. Well, can you raise enough taxes to fix this 

problem? 

Ms. YELLEN. That is really a decision for you to make. 

Senator GRAHAM. I mean, is it possible to raise enough taxes to 

fix this problem? What if you took every penny from everybody that 

made over, you know, the top 1 percent? Could you get us out of 

debt? 

Ms. YELLEN. I do not know the answer to that and— 

Senator GRAHAM. Well, I do. No. 

Now, when it comes to our tax system, would you support a territorial tax system? 

Ms. YELLEN. I do not intend to weigh in on particulars about— 

Senator GRAHAM. Do you agree with me that under the current 

Tax Code trillions of dollars of money held by American corporations that do business overseas are not coming back into this country with a 35-percent tax rate? 

Ms. YELLEN. We have seen some trends toward— 

Senator GRAHAM. Why don’t you ask them? Why don’t you just 

go to the top people and say, ‘‘Are you going to bring the money 

back?’’ Pfizer is going to move their headquarters overseas. I mean, 

this is not that hard to figure out. Just call up somebody who has 

got one of these big companies and say, ‘‘What would happen if we 

had a one-time good deal where we could take the money and apply 

it to infrastructure spending, something we all agree, would you 

bring the money back?’’ Would you call up some of the major companies and ask them that question on my behalf? 

Ms. YELLEN. We talk to business executives— 

Senator GRAHAM. I am asking you to ask them that question. If 

we had a one-time good deal to repatriate money held overseas, 

would they take advantage of it? Okay? 
399 

Now, let us talk about Obamacare. Do you believe that if the incentive in the law is to, if you are not covered, if you hire somebody 

for 29 hours versus 40, a lot of people are going to wind up with 

29 hours of pay? Is that a likely possibility that an employee who 

works 29 hours, is not covered by the mandate of an employee who 

works 40, can you see a scenario where a lot of employers will reduce hours? Do you think that is a likely possibility? 

Ms. YELLEN. The magnitude of that effect is something that one 

has to look at empirically. 

Senator GRAHAM. Very quickly, if you have over 50 employees in 

the future, every employer will be covered by the mandate, could 

you see a scenario where a company of 48 employees would not 

hire 3 more? 

Ms. YELLEN. Such incentives are present. I do not know how 

large they are. 

Senator GRAHAM. Well, you need to talk to people about this, because I can tell you, I do not think I would. If I had 48 employees, 

I do not think I would hire 3 more if everybody was covered by 

Obamacare. 

Last, if you make $46,000 as an individual, you are entitled to 

a subsidy somewhere in that range, 46, 47. Would you take a promotion for $50,000? 

Ms. YELLEN. So— 

Senator GRAHAM. You would lose your subsidy, or at least part 

of it. Thanks. 

Chairman MURRAY. Senator Kaine. 

Senator KAINE. Thank you, Chairwoman Yellen. Great to have 

you here today. 

I want to ask a first question about the management—economic 

wisdom about the management of debt. I was a mayor and Governor, and we had debts for capital purchases. We did not manage 

our debt either in a city or State by a total debt number, we will 

not go over this number. We managed it by ratios. Usually ratios 

of debt service payment to annual budget or in some instances total 

debt to gross city or State product. 

There has been controversy about the study most discussed, this 

Reinhart-Rogoff study. We have talked about it a lot here in this 

Committee over the last year and a half. 

In your work with the Fed, what is the current sort of best economic wisdom about the levels of debt and what ratios we should 

be looking at to keep debt within acceptable levels in Federal budgeting? 

Ms. YELLEN. There has been, as you mentioned, a great deal of 

controversy over Reinhart and Rogoff, so I do not have a number 

to give you about what is a safe level of debt to GDP. But I think 

it is essential that the path of debt to GDP be one that is sustainable over time. And we can see, as we have seen in the case of 

some European countries over the last couple of years, that when 

a country is seen to be on a path where debt to GDP is not only 

high but is projected with current spending and tax policies to be 

rising unsustainably, that can have an exceptionally negative effect 

and begin to drive lenders away, and we see interest rates rise. 

Now, the United States has never seen anything like that. I 

think for us it is known that changes have to be made to put our 
400 

debt to GDP on a sustainable course, but that we have enough time 

and have a good enough record as a country in making these policy 

changes that we have not seen any impact in our own financial 

markets I am aware of. 

Senator KAINE. I think the discussions we have been having 

around here generally sort of focus on publicly held debt as a percentage of GDP. You would rather be in the low 70s rather than 

the high 70s. We have been trending downward, which is positive. 

There are some demographic trends that you have discussed that 

we would have in out-decades. It is starting to trend back up in a 

pretty significant way. 

If we are sort of using that as sort of our rough strategy to try 

to manage—did that and better to be trending toward the low 70s 

than the high 70s, does that set off, you know, red lights in your 

head like, no, that is probably the wrong way to approach this? 

Ms. YELLEN. It does not set off red lights. 

Senator KAINE. Okay. 

Ms. YELLEN. But as you go out and you see the trend is heading 

up, that is what is worrisome to me. 

Senator KAINE. And that is a little bit like the back and forth 

you had with Senator King about short-term versus long-term and 

the different challenges in each time horizon. 

Ms. YELLEN. That is right. 

Senator KAINE. The pace of the recovery has been a topic we 

have been discussing today, and something that I wanted to get 

into is uncertainty is affecting the recovery, congressional budgetary uncertainty. So long periods of time without budgets, the imposition of a sequester that all Congress said, ‘‘We do not want this 

to happen. This will be a bad thing. We are setting it up as a punishment to force us to find a deal. But if we do not find a deal, we 

allow the sequester to occur after we have said it is going to be 

bad.’’ 

Government shutdown, continuing resolutions, which, as I describe to my constituents as spending by looking—it is like driving 

by looking in the rearview mirror rather than the windshield, we 

just do what we used to do. Flirting with debt ceiling default. 

To what extent has the kind of combined weight of congressional 

budgetary uncertainty been a factor in the slow pace of the economic recovery? 

Ms. YELLEN. It is just impossible to put a number on that, but 

in discussions that my colleagues and I have had with businesses 

and members of the public, this is a topic that comes up very frequently as contributing to an overall sense of uncertainty that I 

think inhibits spending, inhibits hiring and business investment. 

And while I do not know just how important it is, there certainly 

is work suggesting that policy uncertainty and uncertainty more 

broadly about the path of the economy has been something that 

has depressed the pace of the recovery. 

Senator KAINE. And so, for example, doing a 2-year budget deal, 

the Murray-Ryan budget deal in December, the first 2-year budget 

in Federal history to give people some certainty, doing a full appropriations set of bills in January, getting over a debt ceiling discussion with no flirting with default or gimmicks in February, those 
401 

are the kinds of things that—would you suggest we should be more 

like that in the future? 

Ms. YELLEN. That does seem like a positive in terms of providing 

confidence to businesses and the public. 

Senator KAINE. Thank you, Madam Chairwoman. 

Chairman MURRAY. Thank you. 

Senator Wicker? 

Senator WICKER. Thank you, Dr. Yellen. We have a national debt 

of $17 trillion. How much of that does China hold? 

Ms. YELLEN. I do not have the number at— 

Senator WICKER. If I have a chart here that says $1.3 trillion, 

that would be about right? 

Ms. YELLEN. That is probably right. 

Senator WICKER. And Japan next at $1.2 trillion. Let me ask 

you, I also have some information that with regard to this foreign 

debt, some 70 percent of it is actually held by governments and 

some 30 percent is attributed to private foreign investors, Japanese 

banks, for example. So we have got a $17 trillion debt, these big 

Asian countries with a lot of it. What should we worry about? Do 

you worry about the $17 trillion? Should we be concerned in this 

Congress about the fact that the Chinese and Japanese own so 

much of it? What do you worry about as Chairman of the Federal 

Reserve? 

Ms. YELLEN. I worry about, as we have discussed here, the longterm path of the debt and whether or not it is sustainable. U.S. 

Government debt is regarded as the safest of safe assets, and it is 

very much in demand globally among investors who want security. 

Senator WICKER. That is a good point. What rate of return do 

these investors receive today on U.S. debt? 

Ms. YELLEN. Well, a 10-year Government bond is a little bit over 

2–1/2 percent, and so this is a safe return, and— 

Senator WICKER. Why do they continue to purchase—why do 

these governments continue to purchase our bonds, Chairman 

Yellen? 

Ms. YELLEN. Because they have confidence that it is an extremely safe investment, and I hope it also suggests and believe it 

suggests that they have confidence in the Federal Reserve as an institution that is committed to maintaining price stability and a 

sound dollar. And so in addition to what Congress does with respect to future deficits, our management of the economy, our commitment to keep inflation as close as we can to our inflation objective of 2 percent, this is also an important factor. 

Senator WICKER. What alternatives do they have? And what 

could tip the balance away from them choosing to invest further in 

United States securities? 

Ms. YELLEN. I think— 

Senator WICKER. What is their next choice? 

Ms. YELLEN. They have many other choices of assets that they 

can purchase. I think if we were to lose their confidence, either by 

a failure to address long-term debt problems, fiscal problems, or by 

mismanagement by the Federal Reserve, then we— 

Senator WICKER. Well, let me ask you about the long-term issue, 

and Senator King mentioned this. If the economy improves as you 
402 

expect it to, the $221 billion we pay each year in interest on the 

national debt, that will double. Is that correct? 

Ms. YELLEN. It depends on what happens to interest rates, but, 

yes, as the economy recovers and as inflation moves back toward 

our objective, the Federal Reserve eventually will begin to normalize monetary policy and raise short-term interest rates. 

Senator WICKER. And so the 227 billion that we paid-the 221 that we paid in fiscal year 2013 or $227 billion that we expect to 

pay in this fiscal year would double to somewhere close to half a 

trillion in interest on the national debt under that scenario, would 

it not? 

Ms. YELLEN. Well, it certainly would go up. 

Senator WICKER. Let me ask you also, yesterday I had the opportunity in another committee to have a conversation with you. You 

expect the asset purchase program to end in the fall of 2014. What 

variables could occur to make the Fed alter that decision and continue the asset purchase program? 

Ms. YELLEN. What we need to see in order to follow that plan 

is continued improvement in the labor market and an overall pattern of growth that is sufficient to cause us to project continued improvement— 

Senator WICKER. Can you modify that improvement? What degree of improvement? 

Ms. YELLEN. Our objective is to make sure that the economy 

moves back to full employment or maximum employment, and we 

are making gradual progress. We have made considerable progress 

since we started the asset purchase program. Whenever we meet, 

we ask ourselves the question: Do we continue to believe that the 

economy is on a path that will take us toward our objective of 

reaching full employment or maximum employment? And we also 

think about inflation, which is running below our 2-percent objective, and ask ourselves: Does incoming evidence suggest that inflation will also be moving back up to 2 percent over time? And if the 

answer to those two questions is yes, we will continue to reduce the 

pace of our asset purchases. 

Now, if the economic outlook were to change in such a way that 

we no longer felt that the answer to those questions was yes, then 

we would reconsider our plans. 

Chairman MURRAY. Thank you. 

Senator Stabenow? 

Senator STABENOW. Thank you very much, Madam Chair, for 

holding the hearing, and, Dr. Yellen, thank you very much for 

being here. And let me first say thank you for being prudent as you 

move forward on decisions and for recognizing that jobs and the 

economy matter, so I appreciate very much your thoughtful, deliberate approach. 

I also wanted to associate myself with my colleagues Senator 

Ayotte and Senator King and others on community bankers, so let 

me just say we certainly appreciate and need there to be an understanding that they did not cause what happened and are very 

much at the front lines of helping us get out of any recession that 

we still have, which we do for many, many middle-class families. 

I want to speak just for a moment before asking a question. 

When we talk about why would people invest in the United States, 
403 

I think there are a lot of great reasons in terms of rule of law and 

stability and the manufacturing renaissance that is coming, the low 

natural gas prices that are helping to fuel that. We, in fact, have 

a deficit, Madam Chair, as you know, that since 2009, since the 

President came into office, is down by about two-thirds, about 66 

percent. Any other time there might be ticker-tape parades and 

speeches on the floor about bringing down the deficit that much. 

We are seeing stock markets double, basically double since the 

spring of 2009. Also at other times, if there was a different President, a different party, I think we would be hearing very different 

things about the economy improving. And so I just want to say for 

the record the economy is improving. 

My biggest concern—and I know many, of my colleagues share 

this—is that it is not improving for everyone. And we have an economy based on supply and demand, very focused on supply, waiting 

for things to trickle down, and too many people are still waiting for 

things to trickle down. And the demand part of this is critical. 

So before I ask any questions, I do want to also say that if we 

were to line up 774 people around this building, 774 people making 

minimum wage, which still keeps them below the poverty level, 

still keeps them on food assistance, still keeps them on additional 

health care help, you could line them up, and that would equal one 

average CEO’s salary in this country. That is a problem for us if 

we, in fact, have an economy based on two-thirds consumer spending. 

So when colleagues talk about raising the minimum wage or 

equal pay or giving folks a fair shot, I just want to one more time 

toot the horn of a great Michigan person, Henry Ford, 100 years 

ago, as Senator King mentioned. He doubled his workers wagers— 

which, by the way, if it was today’s minimum wage would be almost $15 an hour. Because of this small businesses thrived. He 

was heavily criticized by the Wall Street community saying the 

world was going to end. It did not end, and he became one of the 

wealthiest men of his generation. So I would take that any day. 

On to my question. As we see deficits coming down, there is one 

area of deficit that continues to go up which is of great concern in 

terms of the economy, and you mentioned education. We now have 

total student loan debt over $1 trillion, which is more than credit 

card debt. A huge issue. Seventy percent of the students have to 

borrow money to attend college and leave with nearly $30,000 in 

loans. Talk to a medical student, or others in grad school, it is 

much, much higher. 

So could you talk about what you would see as the estimate of 

the impact of student loan debt on the economy and the costs for 

us as we try to continue to come out of this recession and keep our 

middle class? 

Ms. YELLEN. I certainly agree with you that student loan debt 

has risen at a very rapid rate. I always start, though, by—I think 

it is important for us to recognize how important it is to be able 

to get education and to have access to loans that will improve earning power over time. 

That is always my starting point in thinking about this. But I 

do worry, for example, when students are taking on heavy burdens 

of debt, which cannot be discharged in bankruptcy, do they really 
404 

actually understand for starters what the benefits will be of the 

programs that they are involved in? Are they being given appropriate information about what the benefits of a particular program 

are in terms of placement, completion rates, and so forth? Do they 

have good knowledge about the returns from the debt that they are 

taking on? 

But the debt loads certainly are high enough that they may play 

a role, for example, in making it hard for people to buy first homes, 

to build a downpayment, and that may be an effect that we are 

seeing right now already in the housing market. I do not know of 

clear evidence of it, but there has been just a huge increase in debt. 

And for families that get into trouble with student debt, it is something that cannot be discharged in bankruptcy. And it can represent a very heavy burden for an individual if things do not go 

well. 

Senator STABENOW. And I might just add that it is also an area 

where we have not allowed refinancing at the low rates that you 

have created for other parts of purchasing in the home market and 

so on, which is why many of us have joined with Senator Warren 

in legislation that would allow those students to refinance at the 

lowest rate that we had all voted on last year, 3.86 percent, and 

get folks out of debt so they can buy that home, get that car, and 

be able to have the life that they want. So thank you very much. 

Chairman MURRAY. Thank you very much. 

We have three Senators who are left here in this order: Senator 

Grassley, Senator Coons, and Senator Portman. I have to go to another hearing, Sylvia Mathews Burwell’s confirmation hearing, so 

I am going to turn the gavel over to Senator King. This is how you 

get senior really fast, Senator King, if you want to come up here 

and take over the gavel, and I really appreciate your doing it. And 

I really want to thank you, Dr. Yellen, for your testimony today. 

We will finish with these last three Senators, and thank you very 

much, Dr. Yellen. 

With that, I will turn it over to Senator Grassley. 

Senator GRASSLEY. The American Enterprise Institute studied 

salaries of bank regulators and compared them to salaries of bank 

employees. They found that bank regulators on average made more 

than double the amount of their private sector counterparts. This 

study involved salaries of the Comptroller of the Currency office, 

the Federal Deposit Insurance Corporation, Consumer Financial 

Protection Bureau. The institute was not able to examine salaries 

of the Federal Reserve employees because the Fed refused to respond to Freedom of Information Act requests from Judicial Watch. 

I ask this question because I am quite an advocate for transparency and disclosure because I would think it creates accountability. You have been called a leader in transparency at the Federal Reserve. To what extent would you provide detailed information about the salary of Federal Reserve employees? 

Ms. YELLEN. Let me just start by saying with respect to general 

salary levels at the Fed, we benchmark what we pay very carefully 

on an ongoing basis to surveys of competition, including at other 

Federal regulators. We do release salary information. We have provided the names of individuals who are our top earners, individuals 

with salaries above $225,000. We have provided information on sal-
405 

ary grades, including officer grades, and salary ranges that go with 

those grades. We have provided information on benefits that employees at the Board and the Federal Reserve receive, and our annual report contains total salary and compensation expenditures, 

so that is information that we are already providing. 

Senator GRASSLEY. Then you must be telling me that Judicial 

Watch has been satisfied that they got the information that I was 

told they did not get from you? I guess my question is: What would 

be wrong with providing that information, a Freedom of Information request? What would be wrong with that? Wouldn’t that be the 

thing to do? I mean, you are a public servant; your organization is 

a public institution. It seems to me like it should’nt be any different than any other, like the Comptroller of the Currency, the 

Federal Deposit Insurance Corporation? 

Ms. YELLEN. We have provided this information in response to 

FOIA requests, including— 

Senator GRASSLEY. Well, if you have and I am wrong, I am willing to accept that. I will get back to the people that I read about 

and the reason for my question. Let me go on to another one. And 

if they tell me you are wrong, I am going to be writing to you, and 

I want an answer why. You are a public institution; you are public 

servant. Why are you different than any other part of the Federal 

Government that will make the same information available? 

On another question, in the past a conventional view among 

many economists was that there was an inverse relationship between inflation and unemployment. That is, rising inflation was associated with lower unemployment. Now, a couple decades ago, Milton Friedman challenged the view, claiming that over the long run 

this relationship actually breaks down as individuals begin to expect inflation. An example of his theory at work was the stagflation 

of the 1970s. 

So just one question: Do you have any concerns that the high inflation and high unemployment that we experienced in the 1970s 

could happen again should the Fed act too slowly in reversing its 

easy money policies? 

Ms. YELLEN. The Federal Reserve is very well aware of Milton 

Friedman’s theory, and I am not aware of anyone in the Federal 

Reserve who adheres to the notion that there is a permanent tradeoff between unemployment and inflation. We all recognize that inflation expectations matter and can shift over time. All of us lived 

through the 1970s where we saw that happen. None of us want to 

or would be willing to see that happen again, and it is why in our 

statements we constantly reference the importance of inflation expectations and their stability and the fact that they are anchored 

in terms of describing our policy and how it will be conducted. 

Senator GRASSLEY. How long will it take you to get your balance 

sheet down to $800 billion like it was in 2008? 

Ms. YELLEN. We all expect our balance sheet to gradually decline 

over time after we regard it as appropriate to begin to tighten policy. We have not decided and will probably wait until we are in the 

process of normalizing policy to decide just what our long-run balance sheet will be. But clearly it will be substantially lower than 

it is now, and it will take a period of a number of years. This could 

happen simply by ending our reinvestment policy at some point. If 
406 

we did that and nothing more, it would probably take somewhere 

in the neighborhood of 5 to 8 years to get it back to pre-crisis levels. 

Senator GRASSLEY. Thank you, Mr. Chairman. 

Senator KING. [Presiding.] Thank you. 

Senator Coons? 

Senator COONS. Thank you. Thank you, Dr. Yellen. Thank you 

for your leadership of the Fed, and thank you for your testimony 

here today and for your service. And thank you, Senator King, for 

chairing the hearing. 

There were some exchanges previously about community bankers, community banks, and their potential role that I just thought 

was constructive and would encourage your continued thought in 

that direction. 

Let me, if I might, move us towards a focus on inflation. Given 

that it is still well below the target of 2 percent, I would be interested in what you think are the consequences of it staying below 

2 percent. In your written testimony, you talked about a variety of 

factors that might lead to inflation either re-emerging or staying 

low. And do you think there is any risk of our entering a deflationary period and what would be the consequences if that were to 

happen? 

Ms. YELLEN. We have seen that deflation is associated with very 

weak outcomes, economic outcomes, in the rare situations where it 

has occurred. And it is something we absolutely want to avoid. 

But even ignoring the risk of deflation, inflation that runs persistently at levels that are lower than our 2-percent objective also 

has economic costs. First of all, it raises the real or inflation-adjusted cost of capital, and it also redistributes debt burdens in the 

sense that when individuals take on debt, they have an expectation 

for how rapidly prices and their own incomes, wages, will be rising. 

And when those expectations are frustrated by exceptionally low 

inflation, debtors find that the burden of their debts is really greater, and that is something that constrains their spending. 

So we want to avoid persistently having inflation both running 

higher than our objective, but also running lower than our objective 

on a persistent basis. 

Senator COONS. Referencing back to the question perhaps that 

Senator Grassley asked, folks who grew up in the 1970s or in the 

1980s implicitly, from your comments, have gut assumptions about 

inflation rates that are significantly different than the current period. Would there be some real benefits to having inflation exceed 

2 percent? 

Ms. YELLEN. We have to a point in this country we have now had 

a long period since the early or mid-1990s in which inflation has 

averaged 2 percent. And if you look at inflation expectations, they 

run around 2 percent. And they have been very stable and well anchored. And they have not moved around when actual inflation on 

some temporary basis has diverged from 2 percent, and that is a 

huge asset to this country, to have stable, well-anchored inflation 

expectations. 

For example, when we have undergone periods in which oil 

prices have risen and there were a number of years in which, contrary to our in-the-markets expectations, oil prices continued to go 
407 

up for a number of years, so headline inflation ran above 2 percent. 

With well-anchored inflation expectations, we did not see what 

happened in the 1970s. Namely, what should be a temporary period of inflation above our objective due to rising commodity prices,, 

in the 1970s, dislodged inflationary expectations—they rose. And 

then even when energy prices stabilized, we were left with permanently higher inflation. We have not seen that since the mid-1980s, 

and that is a huge asset to us in conducting monetary policy to be 

able to rely on it. So I would not favor trying to raise our inflation 

objective above where it is. 

Senator COONS. Let me ask one other question. There has been 

a lot of conversation here and work around deficits and deficit reduction in the last few years. The American Society of Civil Engineers has given our national infrastructure a rating of D-plus. My 

own home State has a number of bridges that fail safety standards. 

I would posit that we have a significant infrastructure deficit as 

well as an innovation deficit because we are underinvesting in 

R&D relative to our main competitors. We are underinvesting in 

maintaining and upgrading our infrastructure relative to our main 

competitors. 

Do you have any comment about what value it would be to our 

economy and to recovery of significantly increasing our short-term 

investment and then sustaining in a longer-term way our investment in infrastructure and in research and development? 

Ms. YELLEN. Spending in the short term on infrastructure would 

tend to create jobs or stimulate aggregate demand. From a longrun perspective, I believe it has benefits for long-term growth. 

Studies of the factors that determine long-term growth consistently 

point to R&D, which influences the pace of technological change, 

productivity growth, as well as investment or capital spending, 

both private and public. 

Senator COONS. Thank you. Thank you very much for your testimony. 

Thank you, Mr. Chairman. 

Senator KING. Senator Portman. 

Senator PORTMAN. Thank you, Mr. Chairman. And thank you, 

Chairwoman, for being here today. I know you have had to answer 

a lot of questions today and a lot of things have been discussed. I 

guess one that I have always been curious about is when you say 

that you are going to begin to reverse this quantitative easing, 

which I view to be at historic levels, one thing you talked about is 

interest rates. And you said that if interest rates are below 6.5 percent, you will begin that process— 

Ms. YELLEN. Unemployment. 

Senator PORTMAN. I am sorry. The unemployment rate at 6.5 

percent. First I look at the fact that people say we are at 6.3 percent unemployment now, but more to the point, are you taking into 

account the more fundamental weakness on the labor market side 

when you look at folks who have left the workforce altogether? As 

you know, if you were to take the labor force participation rate, 

which is the percent of folks who are actually looking for a job or 

working, and compare it to either before the recession or even 

when President Obama was sworn into office, the first one, if you 

compared those two rates, we would be at 10.8 percent unemploy-
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ment right now. If you take it back to when President Obama was 

sworn in, it would be 10.4 percent. 

So the 6.3 percent or 6.5 percent, for that matter, looks better 

than it actually is given the reality out there, and one of my colleagues said earlier that this is a weak recovery, another one said 

it is a real recovery, but not everybody is benefitting from it. I 

would tell you there are millions of Americans not benefitting, historic levels of long-term unemployment, who are counted in the unemployment numbers relative to any other recovery, and all these 

folks who have left the workforce altogether. 

So are you taking that into account when you choose an unemployment rate to begin backing off on the easing? 

Ms. YELLEN. Okay. If I could just clarify, 6.5 percent was an unemployment rate we named. It had the following significance. We 

said that as long as inflation was under control and the unemployment rate exceeded that level, we would not consider raising our 

target for short-term interest rates. So it was not something that 

we tied to our asset purchases. It was tied to the level of shortterm interest rates. 

Now, we did not say that we would start to raise our target for 

short-term interest rates when unemployment fell below 6.5. It was 

something we were simply trying to tell the public: Do not even 

think about the possibility the Fed will raise interest rates with 

unemployment in excess of that 6.5 percent level as long as inflation is not an issue. 

It was not a trigger to start raising the level of rates. And we 

recognize that as we get closer to our goal of full employment, we 

cannot look at any single statistic in describing the state of the 

labor market, and everything that you mentioned—the level of 

labor force participation, trying to understand why it has fallen so 

much, what part of that is due to demographics, and what part of 

that is a reflection of a weak labor market—the fact that you mentioned that long-term unemployment is so very high and there is 

so much part-time employment that is involuntary, that we would 

have to factor all of those things and other facts about the labor 

market— 

Senator PORTMAN. I understand that, and yet I would hope that 

you all would be looking at some of those other indicators of our 

economy, and— 

Ms. YELLEN. We are indeed looking at those indicators. 

Senator PORTMAN. And, by the way, I am not suggesting that you 

should not back off some of, again, what I view as unprecedented 

Federal Reserve quantitative easing, including setting interest 

rates at relatively low levels, because I do think there is some danger there. But in terms of the economy, I just do not think that the 

unemployment number reflects the reality. And, you know, in 

terms of the demographic changes you suggest, I would suggest— 

I am sure you have all looked at the Brookings study that talks 

about the fact it is not my generation, baby boomers, who are retiring early primarily. It is probably disproportionately young people, 

probably disproportionately men, probably disproportionately single 

men. And this economy is, therefore, in my view, not as strong as 

folks say. 
409 

Then the question is: What do you do about it? What should the 

Fed do? And I think there is this old saying, you know, if you have 

a hammer, every problem you see is a nail. And I worry that the 

Federal Reserve is trying to use its monetary policy hammer, in effect, to solve a problem that is really not a monetary problem, and 

at some risk by doing so. So that is my own view. When I talk to 

business leaders, I hear that the reason that they are not investing 

in plant and equipment and people has a lot less to do with interest rates and a lot more to do with the uncertainty in the economy. 

There is a study—you probably say it out there—of 500 CFOs, 

chief financial officers, around the country saying—68 percent of 

them said they would not increase their business investments, no 

matter how low interest rates go. And they said that they will not 

even though they have got $2.5 trillion right now in excess reserves 

in banks and businesses are hoarding about $2 trillion of their own 

cash as well, we are told, sitting on the sidelines. That is not happening because they say there is uncertainty. And what they tell 

me is that it is about the debt. You talked about this earlier in response to some of the questions. The fact that we are heading toward just about 100 percent GDP to debt, right now we are about 

74 percent, concerns them. And I hope it concerns us as policymakers. 

Tax increases, they are concerned about when the President 

keeps proposing more tax increases. Certainly the Affordable Care 

Act and its effect on costs of doing business, what the EPA is doing 

and other regulations that increasingly move from the legislative 

branch to the executive branch, creating even more uncertainty, 

not knowing what the regulators will do. And I would say one of 

the uncertainties is Federal Reserve policy. One, they do not know 

what you are going to do, as you say, so many different factors so 

you really do not have a trigger; but, second, concerned about the 

potential impact of the unprecedented expansionary policies, in 

particular the possibility of a bubble as more and more people, not 

being able to invest in stocks and bonds and getting any return because rates are so low, are going into the equity markets, taking 

sometimes more risky investments on the stock market side and 

creating the potential for a bubble. 

So that is a lot of, you know, commentary for you to respond to, 

but I would love to hear your response to that. Is, in fact, what the 

Fed is doing not responsive to the real problem based on the anecdotes that I am hearing, you are hearing, I am sure, in your various boards around the country and what these surveys are telling 

us, one? And, two, is what you are doing, in effect, making it even 

worse? 

Senator KING. Madam Chair, before you begin, we have just been 

notified a vote has begun on the floor, so if you can respond to the 

very broad question with a very precise answer. Thank you. 

Ms. YELLEN. Monetary policy is not a panacea, but I think maintaining a policy of low interest rates has been helpful in a number 

of ways. I think it has helped get housing back on track, helped 

the housing sector more broadly, house prices have risen. That has 

helped the financial situation of many households. We have seen 

a revival in car sales. For firms in terms of their investments, as 

you mentioned, many different factors matter, and interest rates, 
410 

low interest rates, may be less of a factor in stimulating capital 

spending. But I think there are a number of sectors of the economy 

that have responded favorably to a policy of low interest rates, and 

it has helped stimulate demand and job growth. It has been one 

factor that has been helpful. Again, I would not say it is a panacea. 

Senator PORTMAN. Thank you, Madam Chairwoman. 

Thank you, Mr. Chairman. 

Senator KING. Senator Sessions, closing? 

Senator SESSIONS. Well, thank you, Mr. Chairman. You look good 

in that job. 

[Laughter.] 

Senator SESSIONS. A rapid rise, meteoric rise, I have to say. 

Madam Chair, thank you for coming, and I know that you work 

hard at this job and take it exceedingly seriously. You were one of 

those more correct—the only one, I think, on the Board anticipating the severity of the housing crisis. So that is something that 

I express my appreciation for. 

But just let me say we are not happy. The average American is 

not doing well. I do not think we need to overspin the positive 

numbers that are there, because I agree with Senator Portman almost totally on his comments about what he is hearing in the business world. 

So thank you. You are challenged in your new position. We hope 

that you will lead us with wisdom and good insight. Thank you. 

Ms. YELLEN. Thank you, Senator. 

Senator KING. Chairman Yellen, thank you so much for joining 

us today. It has been delightful to meet you and to hear your, I 

think, very thoughtful comments. I want to thank my colleagues 

for the information. 

My colleagues will meet back here on Tuesday, the 13th, for a 

hearing on expanding economic opportunity for women and families. 

I also want to mention I was delighted, Chairman Yellen, to hear 

your comments about infrastructure. In 1832, a 23-year-old young 

man running for the legislature in Illinois talked about the key importance of infrastructure development—canals, riverways, and 

roads—for the development of the economy of the nascent United 

States. That was Abraham Lincoln at the age of 23. 

Finally, as a reminder to my colleagues, additional statements 

and questions for the witness are due by 6:00 p.m. today to be submitted to the Office of the Chief Clerk in Room 624. 

With that, and, again, our sincere thanks, Chairman Yellen, not 

only for appearing today but also for the work that you are doing. 

Ms. YELLEN. Thank you so much. 

Senator KING. I call this hearing to a close. 

Ms. YELLEN. Thank you. 

[Whereupon, at 11:27 a.m., the Committee was adjourned.] 
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