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WHY DEBT MATTERS 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

MARCH 25, 2014 

Printed for the use of the Committee on Financial Services 

Serial No. 113–71 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

March 25, 2014 ................................................................................................. 1 

Appendix: 

March 25, 2014 ................................................................................................. 55 

WITNESSES 

TUESDAY, MARCH 25, 2014 

Bernstein, Jared, Senior Fellow, the Center on Budget and Policy Priorities ... 15 

Cote, David M., Chairman and Chief Executive Officer, Honeywell International ................................................................................................................. 10 

Holtz-Eakin, Douglas, President, the American Action Forum ........................... 13 

Rivlin, Hon. Alice M., Senior Fellow, Economic Studies, the Brookings Institution ........................................................................................................................ 12

APPENDIX 

Prepared statements: 

Bernstein, Jared ............................................................................................... 56 

Cote, David M. .................................................................................................. 65 

Holtz-Eakin, Douglas ....................................................................................... 89 

Rivlin, Hon. Alice M. ........................................................................................ 97 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Fitzpatrick, Hon. Michael: 

Letters from 8th grade students Tia Farese, Elyse McMenamin, and 

Alexander Frischmann discussing their concerns about the national 

debt ................................................................................................................ 103 

List of additional 8th grade students who submitted letters ....................... 109 

(1) 

WHY DEBT MATTERS 

Tuesday, March 25, 2014 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:07 a.m., in room 

2128, Rayburn House Office Building, Hon. Jeb Hensarling [chairman of the committee] presiding. 

Members present: Representatives Hensarling, Bachus, Capito, 

Garrett, Neugebauer, McHenry, Bachmann, Pearce, Posey, 

Fitzpatrick, Luetkemeyer, Huizenga, Duffy, Hurt, Grimm, Stivers, 

Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Barr, Cotton, 

Rothfus; Waters, Maloney, Capuano, Clay, Lynch, Scott, Green, 

Cleaver, Ellison, Perlmutter, Himes, Carney, Foster, Kildee, 

Delaney, Sinema, Beatty, and Heck. 

Chairman HENSARLING. The committee will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the committee at any time. 

This hearing is entitled, ‘‘Why Debt Matters,’’ and is the first of 

a series of hearings I expect our committee to hold on the subject 

of the pending national debt crisis. 

I have one short announcement. If Members have not seen the 

announcement, Secretary Lew was scheduled to testify before our 

committee tomorrow on his annual state of the international financial system testimony. His office has announced that he is having 

minor surgery today. We wish him well. He expects to recoup for 

the rest of the week and be back at Treasury next week, so it is 

our hope that we can reschedule Secretary Lew sometime in the 

next several weeks prior to the Easter break. 

I now recognize myself for 4 minutes to give an opening statement. 

Recently, I saw in the newspaper a headline that read, ‘‘Debts, 

deficits, once a focus, fade from the agenda.’’ Shame on us if we 

allow that headline to prove accurate. 

In the last 6 years, we have accumulated more national debt 

than we did in our Nation’s first 200 years. We are experiencing 

debt-to-GDP ratios not seen since the aftermath of World War II. 

That level of debt was episodic and temporary. Today’s is structural and unsustainable. 

As a veteran of the supercommittee, Simpson-Bowles, and now 

Chair of this committee, my laptop is regrettably full of reports describing our debt as unsustainable. Yet denial, justification, and inaction continue to rule the day. 

2 

We have had many sobering warnings that our Nation is headed 

for a crisis. Renowned economics writer Robert Samuelson has 

written that our failure to solve this dilemma could ‘‘trigger an economic and political death spiral.’’ Erskine Bowles, co-chairman of 

President Obama’s fiscal commission said, ‘‘This debt is like a cancer. It is truly going to destroy the country from within.’’ 

We need not look much further than Detroit or Greece to see just 

how hurtful and harmful a debt crisis can be. In Greece, according 

to the latest official report, the unemployment rate is almost 30 

percent. With unemployment so high, according to press reports, 

many college graduates have had to turn to subsistence farming in 

the country. Closer to home, a report from Detroit last year indicated that approximately 40 percent of the City’s streetlights did 

not function. Only a third of the City’s ambulances were working. 

And approximately 78,000 buildings were vacant. 

Will our Nation as a whole ever experience a debt crisis comparable to Detroit or Greece? I do not believe so, but I do not know 

for sure. And I am greatly troubled by the fact that there are few 

instances in world history of republics existing much beyond 200 

years, and most most met their demise through some type of fiscal 

crisis. 

But unsustainable levels of debt are not just the stuff of apocalyptic nightmares for some yet to be born and unknown future generation of Americans. No, unsustainable levels of debt are harming 

our country today as we speak. Just look at our lackluster economy. 

Bernie Marcus, former chairman of Home Depot, spoke for many 

job creators when he said, ‘‘If we don’t lower spending and if we 

don’t deal with paying down the debt, we are going to have to raise 

taxes. Even brain-dead economists understand that when you raise 

taxes, you cost jobs.’’ 

Small business owners all over America feel likewise. As one of 

them told me, ‘‘Jeb, I know somehow, someway, I am going to have 

to pay for all this debt, so now is not the time that I am going to 

buy a bunch of new equipment or hire a bunch of folks.’’ 

The national debt is clearly keeping people unemployed and underemployed. And it is estimated that we will spend $233 billion 

this year on interest payments alone. That $233 billion is more 

than 7 times larger than the requested annual budget for the National Institutes of Health. Let us reflect upon all of the childhood 

cancer studies going unfunded today because of the national debt. 

Regrettably, the situation will get worse. The Congressional 

Budget Office projects as much as $630 billion a year of additional 

interest payments to be added to the debt. And interest payments 

on the debt are cannibalizing our discretionary budget, including 

our national defense. 

As interest rates rise, it is not just the Federal budget that will 

be squeezed. It will be the family budget, as well, especially as 

more Federal borrowing crowds out private borrowing on everything from credit cards to mortgages to student loans. In short, it 

has an adverse impact on almost every issue within this committee’s jurisdiction. 

And that is why, as chairman, I am launching a series of hearings to be focused on our pending debt crisis. There is much at 

3 

stake. We can no longer allow the debt-deniers among us to mask 

the threat or to change the subject. I believe any reasonable examination of history and economics will show that we are, indeed, 

headed for a debt crisis. It is the most foreseeable crisis in our Nation’s history. 

As Members of the House of Representatives, we can certainly 

disagree about the solutions to avert the crisis, but we should 

unanimously agree that debt matters and that debt matters today. 

I now recognize the ranking member, Ms. Waters, for 5 minutes 

for an opening statement. 

Ms. WATERS. Thank you, Mr. Chairman. I ask for unanimous 

consent to speak out of order for 1 minute to recognize— 

Chairman HENSARLING. Without objection. 

Ms. WATERS. —the distinguished services of a member of the 

committee staff. Thank you very much. 

I would like to take this time to express my sincere gratitude for 

the dedication offered by Lawranne Stewart to our committee since 

2001. She has offered her expertise in all facets under the committee’s jurisdiction to members of this committee, including Ranking 

Member LaFalce. Then, we had Chairman Barney Frank and myself. 

Over the course of her service, she has played a lead role in 

crafting key reforms, not the least of which is the Dodd-Frank Wall 

Street Reform and Consumer Protection Act, and I am pleased to 

say that she will be continuing her excellent record of public service at the Commodity Futures Trading Commission. 

Lawranne, we wish you all the best. Please stand for a moment 

so everybody can see you. 

[applause] 

Ms. WATERS. Thank you very much, Mr. Chairman, for scheduling today’s hearing to discuss the important role that fiscal policy 

plays in contributing to full employment and economic growth. 

As we continue to climb out of the worst recession since the 

Great Depression, it is essential that we get our fiscal policies right 

and that we hold firm our commitment to promoting growth and 

reducing economic inequality. And while my colleagues on the 

other side of the aisle endlessly use the national debt as an excuse 

to slash funding for important government programs, the fact remains that putting America back to work in an economy that 

works for everyone is undoubtedly the most effective and efficient 

way to reduce our debt and deficit. 

With that in mind, I am pleased to see that many of the witnesses here agree that Congress can best tackle the long-term deficit and national debt by pursuing short-term increases in discretionary fiscal stimulus. I similarly urge such an approach and 

would suggest the chairman consider similar proposals in the 

President’s Fiscal Year 2015 budget request. 

As we have learned in recent years, both at home, as well as in 

Europe, government austerity during a recession such as the sequester impedes growth. Unfortunately, we have learned this lesson the hard way. In contrast to previous recessions when the government provided much-needed fiscal stimulus, the recent drastic 

cuts to discretionary programs have been a headwind to our full recovery. 

4 

Regardless, our progress toward shrinking the deficit in recent 

years leads me to believe that the timing of this series of hearings 

seems to be more inspired by politics than enhancing good policy. 

Especially given the fact that since President Obama took office, 

the budget deficit has fallen from 10 percent of GDP in 2009 to 3 

percent, which is the average size of the deficit over the past 40 

years. President Obama’s new budget proposal will help grow the 

economy even faster, reducing the deficit to 1.6 percent of GDP by 

the year 2024. 

As further cuts are made to the deficit they must be balanced 

with spending priorities that boost growth and fulfill our moral obligation to those in need. The social safety net has proven to be a 

crucial tool in lowering poverty rates by half. Pretending that cutting these programs would somehow magically lift people out of 

poverty is neither sensible nor fair. 

This committee should also advocate for a strong and stable financial system that protects consumers and safeguards the savings 

of working Americans. Doing so requires full funding for our Nation’s regulators, the Securities and Exchange Commission (SEC), 

and the Consumer Financial Protection Bureau (CFPB), to ensure 

that the financial services industry adheres to the rules of the road. 

And we should provide stability to our Nation’s business community by quickly reauthorizing the Terrorism Risk Insurance Act, 

known as TRIA, and the Export-Import Bank, both of which increase employment and investment. 

We should support initiatives to reduce poverty by fully funding 

HUD’s programs that provide public housing, work to end homelessness, and preserve access to affordable rental housing. 

And this committee should focus on sensible housing finance reform, not the radical remake of our housing finance system as 

called for by the PATH Act. 

And finally, Mr. Chairman, this Congress must avoid self-inflicted wounds that have become all too commonplace, like the recent Republican shutdown of the government, threats of defaulting 

on our debts, and the sequester, all of which hurt economic growth, 

slowed job creation, and widened the gap between rich and poor. 

I think we can do better. 

I thank you, Mr. Chairman, and I yield back the balance of my 

time. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the chairman emeritus of the committee, Mr. Bachus, for 1 minute. 

Mr. BACHUS. Thank you. I appreciate the panelists being here. 

I think we all agree that some of the measures that Congress has 

taken have helped in the short term in funding our deficit, but in 

the long term I think we would all agree that the debt is a threat 

to our economic growth, that it is not sustainable, and that it actually is, as the Chairman of the Joint Chiefs of Staff, Michael 

Mullen, says, a threat to our national security. 

Now, I would say that Chairman Bernanke probably has come up 

with the best advice, and he says we have to reform our entitlement programs—Social Security, Medicaid, and Medicare—and 

that is probably the biggest step, and he said that if we act immediately, with long-term structural changes that don’t even have to 

5 

take effect now, that it would pay immediate benefits. He has also 

said that has to come from Congress and the Executive Branch. 

That is not monetary policy by the Fed. 

I think my time has expired, but I think it is simply whether 

Congress and the President have the will to act on our entitlement 

program. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Massachusetts, 

Mr. Lynch, for a minute and a half. 

Mr. LYNCH. Thank you, Mr. Chairman. 

The focus of today’s hearing, ‘‘Why Debt Matters,’’ is certainly an 

important topic, and I thank the chairman for raising it. If the purpose of this hearing is to make the point that our national debt is 

on an unsustainable long-term trajectory, and we need to craft reforms to address the main drivers of that debt, I think you would 

find unanimous support for that proposition on this committee, in 

the House, and, indeed, in all of Congress. 

What makes this a challenging topic is not that we disagree 

about whether debt is a serious threat. It is that we fundamentally 

disagree about the best way to reduce our long-term debt. Sequestration, which was the result of a deal cut to defuse a debt limit 

showdown in August of 2011, has significantly slashed domestic 

discretionary spending, slowing the growth of the U.S. debt, and 

our deficits have correspondingly declined from $1.4 trillion to a 

projected $514 billion in this fiscal year. And Congressional Budget 

Office projections show that our deficit will be about 2.6 percent of 

GDP in the next fiscal year. 

But while this deficit reduction is important, it has been accomplished in a way that is in itself unsustainable and dangerous over 

the long term. We cannot simply cut ourselves to prosperity, and 

we certainly can’t achieve a sustainable fiscal path when we attempt to balance our budget by slashing programs that invest in 

our future, programs like Head Start, medical research, housing 

programs, and infrastructure. 

I look forward to working with my colleagues on both sides of the 

aisle to find a solution to our fiscal challenges. And I look forward 

to hearing the thoughts of the witnesses about how we can best 

reach one of those solutions. Thank you, Mr. Chairman, and I yield 

back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from New Jersey, the 

chair of our Capital Markets Subcommittee, Mr. Garrett, for 1 

minute. 

Mr. GARRETT. Thank you, Mr. Chairman. I would like to begin 

by thanking you for holding this hearing on our Nation’s 

unsustainable fiscal path. I would also like to thank all of the witnesses for appearing today, as well. 

It is fitting that this hearing takes place as the House Budget 

Committee is preparing the Fiscal Year 2015 budget blueprint. 

Basic math dictates that you cannot fix the debt problem until you 

get your budget under control. As many have long said, we need 

a balanced budget plan to prevent further dipping into the red. 

Our Nation has long enjoyed something akin to an ultra-platinum credit card status. Our credit limit is continually increased. 

6 

Interest rates remain very low, at so-called introductory promotional levels. However, we know this deal is too good to be true. 

At some point, if we remain on our current course, reality will set 

in, and the bill will become due. 

So it is my hope that this hearing will underscore the fiscal 

threats on the horizon, that the horizon is not too far away, so that 

the American people will recognize the urgency of the situation 

and, most importantly, this Congress will, as well. 

With that, I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Colorado, Mr. 

Perlmutter, for 1 minute. 

Mr. PERLMUTTER. Thanks, Mr. Chairman. 

I think today’s hearing should be titled, ‘‘Why Revenue Matters.’’ 

And there are two sides to a balance sheet—we all know that—the 

expense and revenue. And this requires us to consider both of 

these, not just the expense side, and we know that when President 

Clinton left office, we had a budget surplus. Revenues exceeded expenses. 

But due to two wars, two tax cuts, and a crash on Wall Street, 

all under the Bush Administration, we added trillions to our national debt. Now, thanks in large part to the efforts of the Obama 

Administration, our economy is recovering from the depths of the 

worst recession since the Great Depression. 

So I appreciate the panelists being here today, and I thank you 

for your work on trying to look at both sides of the ledger, not just 

the expense side or the debt side, because it takes both things. Our 

revenue is lower now than it has been in 40 years in terms of a 

percentage of GDP. We need to have both sides in sync. We have 

to watch our expenses, but we have to have revenue for the priorities of this Nation. And I thank you for your service and your testimony today. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, the chairman of our Housing and Insurance Subcommittee, Mr. Neugebauer, for 1 minute. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman, for holding this important hearing titled, ‘‘Why Debt Matters,’’ talking about the Nation’s excessive spending and debt, and how it impacts and impairs 

the Americans’ confidence in the future. 

One of the things that I do as I travel around the country and 

around my district is, when I am in the audience, I ask everybody 

in the room this question: How many people in here are living a 

bigger, more prosperous life than their parents and their grandparents? And almost everybody raises their hand. 

The next question I ask them is, how many people in this room 

think that if we keep spending and borrowing at these excessive 

amounts that your children and your grandchildren will have a bigger and more prosperous life than you do? Nobody raises their 

hand. 

You see, what is going on right now is with all of this spending 

and borrowing, we are mortgaging the future of our children and 

our grandchildren, and the people who are in this generation today 

7 

realize it. And it causes a lot of uncertainty, uncertainty with families, uncertainty with businesses, and so debt does matter. 

And, Mr. Chairman, I am so glad that you are holding this hearing, because I think it could be one of the most important hearings 

going on, on the Hill today. And with that, I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Connecticut, Mr. 

Himes, for 2 minutes. 

Mr. HIMES. Thank you, Mr. Chairman. And thank you for holding this hearing. I would like to thank the witnesses who are here 

who have spent years now, I think, advising this Congress on the 

challenges that we face with respect to our fiscal sustainability. 

I am actually very hopeful that we might have a good hearing 

today in which we discuss this in an honest fashion, where we acknowledge that very significant progress has been made in the last 

5 years against an unsustainable budget. Almost $4 trillion by 

some estimates found that we will acknowledge that has not come 

free, that the workers at Sikorsky in my district, that people who 

rely on food stamps, that our infrastructure in this country has suffered dramatically because of those choices. And I hope that we will 

acknowledge that the fix here is actually not that challenging mechanically, that if we just find some targeted cuts and some egregious preferences in the tax code, we could get there on the current 

budget, and that if we are willing to do the hard work to make 

Medicare, Social Security, and Medicaid sustainable in an equitable 

way in the future, we will have solved this problem. 

No topic, of course, activates the moral high dudgeon of my colleagues quite as much as this one, and I would like to just offer 

a couple of thoughts, having spent a lot of time in rooms with the 

witnesses. Number one, if you can’t agree that defense, where we 

currently outspend all of our conceivable enemies combined by a 

factor of 4 to 1, if you don’t see that as an opportunity to reduce 

spending, you are not serious. If you can’t find a single tax preference in the code to eliminate, you are not serious. If you voted 

against raising the debt ceiling and preserving the full faith and 

credit of this country, you are not serious. If you don’t acknowledge 

that Medicare and Social Security in the long run need some equitable reform, you are not serious about this conversation we are 

having today. 

I hope we can be serious, because this is important. Let’s use this 

to continue this discussion, not to pillory the President, not to score 

partisan points, not to suggest that it is my way or the highway. 

Mr. Chairman, if I may close with a quote from your editorial 

this morning in the Dallas News: ‘‘This is America. We can and 

must do better.’’ 

I yield back the balance of my time. 

Chairman HENSARLING. I am always happy to yield the gentleman more time if he wishes to quote the chairman. 

[laughter] 

The Chair now recognizes the gentleman from Illinois, Mr. 

Hultgren, for 1 minute. 

Mr. HULTGREN. Thank you, Mr. Chairman. 

Our Nation faces a massive debt crisis, as our debt surpasses $17.5 trillion, as we can all see, or around $55,000 per person, and 

8 

that is not to mention my home State of Illinois’ debt of almost 

$25,000 more per person. 

Unfortunately, many of our Nation’s policymakers are ignoring 

this crisis, despite its real consequences for Illinoisans and Americans. This crisis translates into higher interest rates as we spend 

more money on interest to service the Federal debts and less, for 

example, on national defense and vital services. 

It also hurts working families, as mortgage costs go up and companies pass their increased borrowing costs onto consumers who 

pay more for daily staples of life and life becomes less affordable. 

And make no mistake. This debt crisis is a spending crisis. I 

have four children, and I refuse to stand by while Congress sacrifices their future and that of my constituents because it didn’t address our spending addiction or place our entitlements system on 

a sustainable footing. That is why I am looking forward to this 

hearing. 

Thank you, Mr. Chairman. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now yields 30 seconds to the gentlelady from Ohio, Mrs. 

Beatty. 

Mrs. BEATTY. Thank you, Mr. Chairman and Ranking Member 

Waters. And thank you to the witnesses for being here. 

Today’s debate, as you have heard, is about how to balance the 

budget, spending, and taxation with that of future obligations and 

expectations. Although it seems that Democrats and Republicans 

agree that increasing the public debt is unsustainable in the long 

term, the disagreement always comes back to how to achieve the 

same goal of reaching a balanced budget. 

I tend to believe that there is a need to address this problem 

from both sides of the equation by increasing the revenue and cutting where appropriate. 

Thank you. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Florida, Mr. Ross, 

for 1 minute. 

Mr. ROSS. Thank you, Mr. Chairman, for calling this important 

hearing. 

In these discussions, we toss around a lot of numbers, like the 

fact that we are over $17.5 trillion in debt, but what do these numbers really mean for Americans? Let me tell you. 

Young families in central Florida are struggling and sacrificing 

to make ends meet under the burden of high taxes and slow economic recovery. Every day I receive letters and phone calls from 

constituents I serve telling me about their financial struggles in 

this economy. The average family, in my home of Polk County, makes $37,000 

a year. Yet if you divided up the country’s debt, the amount of debt 

that each taxpayer owes would be $151,000 a year. That is more 

than 4 times their annual salary. 

These families are struggling already, struggling to get jobs, 

struggling to make ends meet for basic necessities like food and 

electricity. In 10 years, these same families will continue to struggle, even more so if we fail to enact meaningful spending reforms. 

Federal programs have been arbitrarily expanded without improvVerDate Nov 24 2008 11:16 Nov 04, 2014 Jkt 088533 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\88533.TXT TERRI
9 

ing the efficiency or effectiveness of taxpayer dollars. The solution 

isn’t spending more money. The solution is spending money more 

wisely. 

Republicans aren’t looking simply to eliminate lifetime programs. 

We are looking to solutions and reforms to very real problems with 

potentially large consequences for inaction. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Kentucky, Mr. 

Barr, for 1 minute. 

Mr. BARR. Thank you, Mr. Chairman. I want to thank you for 

calling this important hearing and refocusing all of us on the consequences of our massive and growing Federal debt. Like you, I reject the premise that concern about the debt is fading. As I travel 

my district in central and eastern Kentucky, people consistently 

tell me that restoring fiscal responsibility is their top priority. 

And the reason is simple: People in my district are smart. They 

know it is a problem that the Federal Government spends significantly more than it takes in. They know that Washington’s spending problem only gets worse the longer we delay honestly confronting it. And they know that future generations will have to 

work longer and harder in order to receive less as they shoulder 

the burden of debt that our Federal Government is now creating. 

In addition to reforming unsustainable mandatory spending programs, which are crowding out critical investments in education, 

medical research, transportation, and national security, our focus 

needs to be on durable, long-term economic growth and job creation. And we cannot create that job creation and growth if we are 

in a debt crisis that automatically imposes austerity on the American people. 

I yield back the balance of my time. 

Chairman HENSARLING. The time of the gentleman has expired. 

We will now turn to our panel of witnesses. First, Mr. David Cote 

is the chairman and CEO of Honeywell International, where he has 

served for 12 years. Prior to his tenure at Honeywell, Mr. Cote held 

positions at other manufacturing companies, including 20 years at 

GE. 

Mr. Cote was appointed by President Obama to serve on the National Commission on Fiscal Responsibility and Reform, also known 

as the Simpson-Bowles Commission. He serves on the Steering 

Committee of the Campaign to Fix Debt, a bipartisan effort. He 

serves as the vice chairman of the Business Roundtable, and holds 

a bachelor’s degree from the University of New Hampshire. 

Second, Dr. Alice Rivlin is clearly no stranger to our committee 

or Capitol Hill. She is a senior fellow in the economic studies program at the Brookings Institution. She also served on the SimpsonBowles Commission. Prior to that, Dr. Rivlin has served in a number of very important roles in public service, including Director of 

the Congressional Budget Office, Director of the Office of Management and Budget, and Vice Chair of the Federal Reserve Board of 

Governors. She holds a Ph.D. in economics from Harvard. 

Third, Dr. Douglas Holtz-Eakin serves as the president of the 

American Action Forum. Like Dr. Rivlin, Dr. Holtz-Eakin previously served as Director of the Congressional Budget Office. He 

10 

also served on the Financial Crisis Inquiry Commission in 2009. He 

earned his Ph.D. in economics from Princeton. 

And last but not least, Dr. Jared Bernstein is a senior fellow at 

the Center on Budget and Policy Priorities. From 2009 to 2011, Dr. 

Bernstein served as Chief Economist and Economic Advisor to Vice 

President Biden. Dr. Bernstein currently sits on the Congressional 

Budget Office’s advisory committee. He earned his Ph.D. in social 

welfare from Columbia University. 

Without objection, ladies and gentlemen, your written statements 

will be made a part of the record. Each of you has testified before 

Congress before, so hopefully, you recall the green, yellow, and red 

lighting system, and I would respectfully ask that each of you observe the 5-minute rule. And due to the acoustics of our room and 

the less-than-desirable AV equipment, please pull the microphone 

very, very close to you as you speak. 

Mr. Cote, you are now recognized for 5 minutes. 

STATEMENT OF DAVID M. COTE, CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, HONEYWELL INTERNATIONAL 

Mr. COTE. Chairman Hensarling, Ranking Member Waters, and 

distinguished members of the committee, it is my pleasure to appear before you today to discuss the importance of our long-term 

debt, and thank you for doing this. 

As a country, we have a lot of strengths, but the world isn’t 

standing still. We need to recognize: one, that we are in a different 

global economy than we were 20 years ago; two, that the global 

economy will change substantially over the next 20 years; and that 

three, it will move forward with us or without us. 

The chart above shows that in 1990, the United States represented 27 percent of world GDP. By 2010, it was 26 percent. And 

over the next 20 years, the percentage declines to 24 percent. Other 

developed countries—Western Europe, Japan, Canada, et cetera— 

declined from 50 percent in 1990 to 41 percent in 2010 and will decline further to 29 percent of by 2030. And importantly, highgrowth regions, or what some call developing economies, have 

grown from 23 percent of world GDP to 33 percent in 2010 and will 

continue growing to 47 percent of world GDP by 2030. 

In other words, what we think of as developing countries in 20 

years will account for almost half of world GDP. That is a big deal. 

If we are going to compete and win in this new world, we need to 

have an American competitiveness agenda. 

There are eight areas where we can make a difference now to ensure our future competitiveness: long-term debt; infrastructure; 

math and science education; immigration; tort reform; patents; energy; and free and fair trade. And for the purpose of today’s hearing, I am going to focus on the long-term debt. 

We should look at our debt, our spending, and our tax profile in 

terms of increasing global competitiveness. While we can put our 

heads in the sand for a few years and talk about declining deficits, 

the demographic freight train caused by Baby Boomers is still coming. If we just focus on this decade, on this chart, we can probably 

argue there is no issue, even though we are at a debt level comparable to some of the troubled European countries. If we expand 

11 

this to the next decade, though, we can see it doesn’t look as 

bright. 

And, remember, this doesn’t predict any recessions. In the course 

of the next 20 years, there is a good chance of at least 2 or perhaps 

3 recessions that will worsen this picture. Additionally, in 2025, we 

will be spending $1 trillion a year just in interest. 

So how do you put a trillion dollars into perspective? You can see 

on this chart, if you had spent a million dollars a day since Jesus 

Christ was born 2,013 years ago, you still would not have spent a 

trillion dollars. And that will be our annual interest bill. It is unconscionable. 

To put our debt in further perspective, our debt as a percentage 

of GDP is about the worst in our history, only eclipsed by World 

War II, when we had a really good reason to borrow. 

Now, for those who think this is just a Wall Street problem, look 

at it this way: When 10-year Treasury notes go to 7 percent, and 

as a result home mortgages go to 10 percent and car loans to 13 

percent, families will have fewer dollars, and that is a Main Street 

problem. 

In addition to the amount of spending, the composition of spending changes over the next 10 years, with mandatory spending on 

autopilot, going from about two-thirds to three-quarters of our total 

budget. Another way to think about it is that government spending 

overwhelmingly focuses on transfer payments, not investment. 

Transfer payments help perhaps to equalize distribution, but investment is what grows the pie. 

Changes made now can have a big effect in the second decade 

and allow people and systems time to adjust so it is much less onerous. Entitlements need to be reformed and a revenue increase is 

needed as a reasonable compromise. Revenue should be approached 

through tax code simplification. And Congressman Dave Camp’s efforts to get this effort going should be applauded. 

If we had set out to create a system that was unfair, confusing, 

and globally uncompetitive, we couldn’t have done this good a job. 

We need to rid ourselves of tax expenditures and significantly reduce rates. Then, we can raise revenue through a slight increase 

in those rates. 

To compete effectively in this increasingly competitive stage, we 

have to have a strong balance sheet. We don’t have a strong balance sheet today. If you want another way to think about the impact of our debt in this new world, think of it this way: In 25 years, 

at current rates, China will eclipse the United States as the biggest 

economy in the world. At that same time, at current projections, 

U.S. debt will be over 100 percent of GDP. Is that the legacy we 

want to leave our kids and grandkids? 

There is an economic Olympics going on right now. We can’t just 

focus on beating the other Americans on the team. We need to look 

at all the other teams that are competing, and we have to beat 

them. It is important to have a vibrant democracy. At the same 

time, we can’t let our commitment to democracy evolve into an excess of discordant pluralism and infighting that incapacitates our 

ability to make a collective decision. 

12 

I do believe our form of government is the best there is. We 

shouldn’t wait for a crisis to act on our long-term debt. We should 

start acting now. 

Thank you. 

[The prepared statement of Mr. Cote can be found on page 65 of 

the appendix.] 

Chairman HENSARLING. Dr. Rivlin, you are now recognized for 5 

minutes. 

STATEMENT OF THE HONORABLE ALICE M. RIVLIN, SENIOR 

FELLOW, ECONOMIC STUDIES, THE BROOKINGS INSTITUTION 

Ms. RIVLIN. Thank you, Mr. Chairman. 

I, too, am very glad you are holding this hearing. A couple of 

years ago, we all seemed obsessed by deficits and debt, and now 

the issue has dropped from conversation. People sort of say, ‘‘Oh, 

didn’t we solve that?’’ Well, no, actually, we didn’t. 

We still have a very high level of debt in relation to the size of 

our economy, and that ratio is increasing, and we still have a practical problem looming at us. I like to think of it as a practical problem rather than a crisis. We have the number of old people increasing dramatically in the next couple of decades. We have to figure 

out how to pay for commitments to older people, especially in 

health care, and provide other essential services of government at 

the same time. We have to figure out how to increase the productivity of younger people, people who will be in the workforce, so 

that it is easy to pay for government, as well as all the other things 

we want. I believe strongly that this practical problem will be 

solved only by bipartisan compromise and cooperation across party 

lines. 

Now, admittedly, the projections look better than they did back 

in 2010, when Dave Cote and I were serving with you, Mr. Chairman, on the Simpson-Bowles Commission. Then, we had a very 

fragile recovery, unemployment close to 10 percent, and deficits 

around 10 percent of the GDP. Those deficits were necessary, and 

we knew they would come down. But the scary part was that as 

the economy recovered and resumed normal growth, this demographic surge would start driving Federal spending up by the end 

of this decade. 

We were especially worried about Medicare and Medicaid, because historically, health spending has grown much faster per capita than GDP. Multiplying those rates of health spending by more 

older people would widen the wedge between spending and revenues, the revenues from our creaky tax system. 

Debt was on track to rise faster than the economy could grow. 

And all the bipartisan groups, including Simpson-Bowles, had the 

same prescription: Don’t emphasize austerity right now, because 

the economy is fragile, but put in place reductions in the rate of 

growth of entitlements and raise more revenue from our creaky tax 

system by reforming it. 

Now, we have a short-run and a long-run budget outlook that is 

a little less scary. The economy is recovering. Deficits have plummeted. But looking ahead, we still see the rise in the 2020s of the 

debt faster than the GDP can grow. We bought time in this recent 

agreement to work on this practical problem. 

13 

But we also have to remember that the improvement in the projection is due to two factors that may not last: cuts in nonentitlement spending, especially discretionary spending, which account 

for most of the smaller projected debt increase; and slower assumed 

increases in health care costs. Both of those may be temporary. 

Yes, debt matters. We have to pay interest on it. We have been 

living in a fool’s paradise with low interest rates. Debt, high debt, 

and high interest payments make us more vulnerable to foreign 

holders. They constrain our fiscal policy flexibility in the future. 

And if we don’t do something, we might have a debt crisis—ably 

described by my colleague on the left—a spike in interest rates. I 

don’t think that is the most likely consequence. More likely is slower growth squeezing out public and private investment. 

The practical problem of an aging population is that we have 

more dependents and fewer people in the labor force. So we have 

two choices, and we have to do both. We can grow the labor force 

with immigration and encouraging people to work longer, or we can 

invest in productivity of the labor force, modernize our infrastructure, and upgrade skills. We have to do both. 

And I think, Mr. Chairman, it is time to end the blame game. 

Stop pointing at the Bush tax cuts or the Obama stimulus. Those 

may have played a role in the past, but going forward, the problem 

is managing our way through this aging population. We need both 

higher growth and a declining ratio of GDP to debt. That is going 

to take delivering on slower growth of entitlements and more revenue from a reformed tax code. 

Our system requires compromise and bipartisan cooperation to 

get anything serious done. The parties have common long-run objectives—higher growth and lower debt. The budget truce buys us 

some time to work together on how to solve those problems. 

[The prepared statement of Dr. Rivlin can be found on page 97 

of the appendix.] 

Chairman HENSARLING. Thank you. 

Dr. Holtz-Eakin, you are now recognized for 5 minutes. 

STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, THE 

AMERICAN ACTION FORUM 

Mr. HOLTZ-EAKIN. Thank you, Mr. Chairman, Ranking Member 

Waters, and members of the committee, for holding this hearing 

and for the privilege of appearing before you today. 

In my opening remarks, I will be brief and repeat some of the 

dire things that are true about the fiscal outlook and then emphasize that inaction on the long-term fiscal outlook is not costless. It 

harms the structure of the U.S. budget. It threatens the financial 

stability of this Nation. It leads to a situation in which the policy 

actions necessary to fix it are more draconian and undesirable. And 

ultimately, it visits great costs on the American people, and I 

would urge the Congress to begin addressing this problem immediately. 

As everyone knows, there is a brief window of stability in the 

debt as a fraction of GDP and the deficit as a fraction of GDP for 

the next couple of years, but that the fundamental problem remains and that, as we move forward over the 10-year budget winVerDate Nov 24 2008 11:16 Nov 04, 2014 Jkt 088533 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\88533.TXT TERRI
14 

dow, the debt-to-GDP ratio rises continuously and dramatically in 

an unsustainable fashion upward. 

This is driven primarily by the large mandatory spending programs, in particular the health programs that Dr. Rivlin mentioned, and even with above-average revenue, we are going to have 

the deficits and debts rise. That is the core problem, and it leads 

to some real costs. 

The first, which has already been noted, is that mandatory 

spending and interest costs rise dramatically. Mandatory spending 

rises to be 62 percent of the budget. Interest costs rise from about 

6 percent now to about 15 percent of the budget in 2024. So now 

you have 77 percent, almost 80 percent of the budget locked up in 

those, and that crowds out everything else which is in the discretionary accounts, which is everything our founders would have recognized as the role of government: national security; infrastructure; 

and basic research. And the structure of that budget fundamentally 

has the legacy programs of the past crowding out our future. It is 

unfair to the next generations, and it is a disservice to those trying 

to be more productive in the labor force. 

The second thing that happens is that it harms economic growth 

right now. This is a contentious issue in the economics literature, 

but if you look at the U.S. budget as an investor thinking about 

whether to build a factory in the United States or hire in the 

United States or expand in the United States, you have a trajectory 

that says there are three possible futures: one, a crisis; two, draconian tax increases to close the budget gaps; or three, control the 

mandatory spending programs. 

The first two of those are decidedly anti-growth. It is simply not 

a pro-growth strategy to sail straight into a crisis or to promise the 

kinds of tax increases that are necessary. The third is something 

that needs to be done. 

If investors come to the conclusion that number three is off the 

table, it will make the United States a completely inhospitable 

place to invest and expand. It will harm our competitiveness, as 

has been noted, but the chance of that happening is harming our 

growth now. How big it is, we don’t know. But taking action can 

improve the economic outlook and improve growth in the near 

term. That is really important. 

Failing to do it puts us in a very undesirable situation. No one 

knows when such a crisis would actually rise, but for purposes of 

illustration in my testimony, we said, what happens in 2024? Suppose credit markets send the signal to the United States that this 

is it, we are going to downgrade you, we have had enough. Simply 

to keep the debt-to-GDP ratio constant, not to get it to come down, 

but just keep it at 78 percent means that in that year we have to 

get about $885 billion in deficit reduction. 

Now, that is not going to come out of the programs that are the 

problem. We can’t change Social Security, Medicare, Medicaid, or 

the Affordable Care Act that fast. It is going to come out of discretionary spending and sharp tax increases. That means a 9 percent 

across-the-board increase in taxes, if that has half of it. It means 

a 30 percent across-the-board cut in discretionary spending, if you 

put half of it there. These are draconian policy moves that would 

15 

harm the structure of our government and harm the people in the 

economy. 

And that would just keep it there for a year. You would need another $8 trillion of such actions over the succeeding decade just to 

stabilize debt-to-GDP. Waiting puts us in a very untenable position. It also raises the chance that we get the sharp spike in interest rates, which turn a mortgage from a 4 percent interest rate to 

a 14 percent. That means monthly mortgage payments go from 

something like $1,200 to $3,600. It means that car loans go from 

$350 to $450. Student loans go from $350 a month to $641 a 

month. 

These are the kinds of things we cannot risk imposing on the 

U.S. economy and the families who live and work there. It is time 

to take action now to reduce the costs we are seeing in our budget 

structure, the drag on the economy, and the risk we run of financial instability coming from the Federal Government. 

Thank you for the chance to be here, and I look forward to your 

questions. 

[The prepared statement of Dr. Holtz-Eakin can be found on 

page 89 of the appendix.] 

Chairman HENSARLING. Thank you. 

Now, Dr. Bernstein, you are recognized for 5 minutes. 

STATEMENT OF JARED BERNSTEIN, SENIOR FELLOW, THE 

CENTER ON BUDGET AND POLICY PRIORITIES 

Mr. BERNSTEIN. Thank you, Chairman Hensarling and Ranking 

Member Waters, for the opportunity to testify before you today. As 

we have heard today, it is common for some policymakers to label 

our debt as unsustainable. This is only the case if policymakers fail 

to undertake further steps to put the debt on a sustainable path, 

reinforcing the significant improvements in recent years. Those 

steps must involve a balanced fiscal policy that includes both new 

revenues and spending cuts, as well as building on recent progress 

in slowing the rate of growth of health care costs. 

Increases in the national debt do not automatically signal a fiscal 

problem and, in fact, are necessary in special situations. There 

have been numerous times in our Nation’s history, times of war 

and of large market failures like the recent Great Recession, where 

temporary expansions of deficit and debt have been essential to 

meet the challenges we faced. 

In fact, austerity measures that seek to reduce deficits and debt 

too quickly undermine the economy’s ability to recover from the 

downturn, leading to reduced job and wage growth for the vast majority of households. Historically, the last time the debt was falling 

consistently within the latter 1990s, when strong growth and more 

balanced fiscal policy contributed to low deficits, declining debt ratios, and ultimately budget surpluses. In the 2000s, large tax cuts 

and weak growth reversed these fiscal gains. Those tax cuts, most 

of which were made permanent in 2012, are clearly implicated as 

a major factor driving deficits and debt since they were enacted. 

Now, since 2010, policymakers have legislated considerable financial consolidation, and the budget deficit has fallen very quickly 

in historical terms, as we have heard from Representative Waters. 

16 

This decline, however, has led to fiscal headwinds that have significantly slowed economic growth and hampered the expansion. In fact, projected 10-year deficits have decreased by $5 trillion since 2010. Now, a bit more than $4 trillion of those deficit savings 

have come from legislation, including the Budget Control Act and 

other measures. Importantly, 77 percent of that $4 trillion in deficit 

savings has come from spending cuts, meaning only 23 percent are 

from higher revenues. 

Now, these facts have at least two important implications for policy. First, the oft-cited notion that the current Administration has 

been profligate spenders is demonstrably wrong. Outlays adjusted 

for inflation and population growth are up 3 percent relative to 

2008, 3 percent, thus including the significant anti-recessionary 

ramp-up in 2009. If we go from 2009 to 2013, outlays are down 12 

percent. 

Second, future fiscal consolidation much be more balanced with 

significant contributions from new revenues. The optimal time to 

reduce the budget deficit is when private sector economic activity 

is generating enough demand to fully utilize our economic resources, including human capital. With elevated unemployment, 

particularly long-term unemployment, weak labor force participation, only moderate job growth, and large holdings of investment 

capital on the sidelines, the economy still needs fiscal support, not 

fiscal consolidation. 

Expanding unemployment insurance to the long-term unemployed is warranted as the expiration of extended benefits at the 

end of last year occurred, even though the long-term unemployment rate was significantly above its level at past expirations. But 

considering this committee’s jurisdiction, a number of programs 

that support low- and middle-income families, as well as the broader economy, have been cut through the various budget deals noted 

above, including the sequestration cuts from the Budget Control 

Act. 

These programs include regulatory functions of the Consumer Financial Protection Bureau, the government-sponsored enterprises 

supported the secondary mortgage market and the backstop for an 

affordable 30-year fixed-rate mortgage, financial oversight to avoid 

systemic risk, housing support for veterans, the elderly, and the 

disabled, rental assistance for low-income households, and neighborhood stabilization programs that remove blight, while creating 

jobs. 

Finally, turning to the long term, it is clear that our long-term 

debt picture has significantly improved in no small part due to the 

deficit savings that have been legislated since 2010 as I referenced. 

Also, one of the main factors driving the long-term debt is the 

intersection of our aging demographics and the growth of health 

care costs. 

However, in recent years these costs have slowed significantly 

thanks, in part, to measures introduced by the Affordable Care Act, 

and that, too, has lowered our debt projections, although as Dr. 

Rivlin says, we don’t know if these are here to stay. 

However, while our debt forecasts are improved, they still reveal 

significant pressures with debt projected to exceed 100 percent of 

GDP before 2040. This projection strongly supports the need to conVerDate Nov 24 2008 11:16 Nov 04, 2014 Jkt 088533 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\88533.TXT TERRI
17 

tinue to implement the efficiency-enhancing measures of the Affordable Care Act, continue to monitor and build on the recent 

progress we have seen in health care costs, and to pursue the balanced fiscal measures that I have discussed so far. 

Thank you very much. 

[The prepared statement of Dr. Bernstein can be found on page 

56 of the appendix.] 

Chairman HENSARLING. Thank you, Dr. Bernstein. And I thank 

all of the panelists. 

The Chair now yields himself 5 minutes for questions. Dr. HoltzEakin, we have heard much discussion today about a balanced approach to dealing with the pending debt crisis. I was struck by your 

testimony about—assuming GDP levels and CBO’s baseline, the 

balanced approach in the fiscal consolidation split evenly between 

tax increases and spending cuts would require a 30 percent discretionary spending cut. Do I read that correctly? 

Mr. HOLTZ-EAKIN. That is correct, in 2024. 

Chairman HENSARLING. Within the 10-year budget window. Dr. 

Rivlin, I read a piece recently—perhaps you saw it—from Robert 

Samuelson in the Washington Post. Let me quote from it: ‘‘Something strange is happening in Washington. We are slowly dismantling the Federal Government, even as spending is growing larger. 

An aging population and higher health spending automatically increase budget outlays, which induced the President and Congress 

to curb spending on almost everything else, from defense to food 

stamps.’’ 

So we have heard many argue about a dichotomy between addressing the unsustainable debt and spending on certain discretionary programs, Section 8, LIHEAP, WIC. Is entitlement spending going to be the blob that ate discretionary government, Dr. 

Rivlin? 

Ms. RIVLIN. Mr. Chairman, I think it already has been. In my 

opinion, we have cut discretionary spending to unsustainable levels, from 8 percent of the GDP, if you believe where it is going in 

the CBO projections, to 2.3 percent. I don’t know that we can run 

our government and do the things that we need to do, all the 

things we are agreed we need to do, national defense and national 

parks and all that— 

Chairman HENSARLING. So you would say the national debt 

today, as we speak, is harming discretionary government, including 

national defense? 

Ms. RIVLIN. I think that the measures taken to control the debt 

have focused on discretionary spending and some other mandatory 

programs, which are not the big part of the problem. We haven’t 

addressed either entitlement reform or tax reform. We need to do 

both. 

Chairman HENSARLING. Mr. Cote, in my opening statement, you 

heard me quote the former chairman and founder of Home Depot 

about the connection between the debt and jobs and economic 

growth. I know the CEO of AutoNation has also said, ‘‘The best 

thing that this town could do to help economic recovery become 

sustainable is to deal with the deficit and to see tax reform.’’ 

In my very unscientific survey of speaking to small 

businesspeople in the Fifth Congressional District of Texas, when 

18 

I ask them what is impeding the growth of your small business, 

what is preventing you from hiring more people, frankly, 

Obamacare comes up number one, but this is not the place or the 

time to have that debate. Other regulations in general use comes 

in number two, but I can always tell you, the debt certainly makes 

the top five and also comes in three. 

I am not asking for you to speak on behalf of Honeywell and 

what you do on behalf of the shareholders of Honeywell, but given 

your vast business experience from your position at the Business 

Roundtable, is the size and unsustainability of our debt impacting 

current hiring decisions in America today? 

Mr. COTE. The way I would describe it— 

Chairman HENSARLING. Could you pull the microphone a little 

bit closer? 

Mr. COTE. The way I would describe it is, I pulled together our 

top 300 global leaders at Honeywell every year. And for the fourth 

year in a row, the theme of the conference was growing in a slowgrowth economy. And I just don’t see us taking the actions that we 

need to as a country to get growth above that 2.5 percent to 2.8 

percent range. And so far, despite forecasts from a lot of economists, that is the way it has pretty much worked. 

And when we plan for our own company, we look at it and say, 

over the next 3 years, this is the right way to think about it, because something like the debt, which I think is an overwhelming 

issue, just isn’t being addressed. So, yes, it does have an impact, 

because that is how we plan for a slower growth economy. 

Chairman HENSARLING. My time is winding down, and I occasionally attempt to set a good example, but in the few seconds I 

have remaining, if we don’t change the course we are on—and I understand, Dr. Bernstein, I thought it was an interesting choice of 

words to say we are not on an unsustainable path if we basically 

fix it, again, something is not broken if we fix it, something isn’t 

dead if we resurrect it, but at the moment, it is unsustainable. 

If we do not change the path we are on, who will be hurt most, 

high-income individuals, middle-income individuals, or low-income 

individuals? I am already over my time, so, please, a one-word answer. Low, middle, or high? 

Mr. Cote, do you have an opinion on the matter? 

Mr. COTE. Yes. My view is it is low-income people who will be 

hurt the most. 

Chairman HENSARLING. Dr. Rivlin? 

Ms. RIVLIN. Yes, I agree with that. 

Chairman HENSARLING. Dr. Holtz-Eakin? 

Mr. HOLTZ-EAKIN. Yes, low. 

Chairman HENSARLING. Dr. Bernstein? 

Mr. BERNSTEIN. Probably middle- and low-income people. 

Chairman HENSARLING. Middle and low. My time has expired. 

The Chair now recognizes the ranking member for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

I certainly believe—and I think it has been either said or alluded 

to today—that recent increases in the debt held by the public reflect costs associated with the Bush-era tax cuts, the wars in Iraq 

and Afghanistan, and the economic downturn following the financial crisis. 

19 

However, I really don’t want to dwell on that. I want to talk 

about how we stimulate the economy. Republicans have been highly critical of the ability to grow the economy through fiscal stimulus, even in response to a recession. Similarly, my Republican colleagues have been highly critical of any effort by the Federal Reserve to stimulate growth. 

If we took their advice and eliminated both of these tools, how 

would you expect the economy to fare through the business cycle 

or through a devastating downturn, such as the one we experienced 

in 2008? Mr. Bernstein? 

Mr. BERNSTEIN. I think the economic outcomes would have been 

considerably worse than they have been. And, in fact, one of the 

things that I mentioned in my testimony is the extent to which fiscal headwinds—that is, this very quick decline in the budget deficit 

from 10 percent of GDP calendar year 2009 to 3 percent calendar 

year 2013, is widely agreed upon to have created fiscal headwinds 

that have slowed the economy’s growth. Chairman Bernanke has 

made that point many times testifying before Congress, because 

when the private sector is still down on the mat, has yet to recover 

fully from the expansion, the gap in aggregate demand needs to be 

replaced by fiscal policy on one hand and by stimulative monetary 

policy on the other hand to lower the cost of borrowing. 

Ms. WATERS. The Honorable Ms. Rivlin, would you respond to 

that? I am talking about stimulating the economy. Basically, I have 

said that the Republicans have been critical of the ability to grow 

the economy through fiscal stimulus even in a response to the recession and they have been critical of any effort by the Federal Reserve to stimulate growth. 

What would happen if we took their advice and if we eliminated 

both of these two? How would you expect the economy to fare 

through the business cycle or through a devastating downturn such 

as the one we experienced in 2008? Yes? 

Ms. RIVLIN. I agree with what Dr. Bernstein has just said. I 

think we have had too much near-term austerity and not enough 

attention to the long-run growth of debt. 

What I would prescribe now is not so much more stimulus as 

more investment in future growth. I don’t think it should be seen 

as a job-creation program as much as a productivity-creation program, maybe do some of both, but that involves infrastructure, research, and upgrading the skills of the labor force by major 

amounts. 

Ms. WATERS. Thank you very much. 

I have a little time left. Mr. Cote, would you weigh in on that 

question about stimulating the economy? 

Mr. COTE. I would agree with Alice. The only thing I would add 

is that we should be taking the time now to address our long-term 

issue, which is very real. That demographic freight train is coming. 

Ms. WATERS. You mention actions we need to take to stimulate 

the growth. Do you have any specific recommendations? 

Mr. COTE. Yes. In my written testimony, I have eight areas, one 

of them being the debt, that I think we should focus on. 

Ms. WATERS. Okay. What is the most important thing we should 

do? 

20 

Mr. COTE. In the short term, I think things like immigration and 

infrastructure. In the longer term—and I would refer to it as seedplanting—I agree with Alice on just basic education, specifically 

math and science. 

Ms. WATERS. So you believe immigration reform is good for this 

country— 

Mr. COTE. Yes. 

Ms. WATERS. —that it would help stimulate the economy? 

Mr. COTE. Yes. 

Ms. WATERS. Oh, thank you very much. Does everyone agree that 

immigration is good for the economy and would help to stimulate? 

Ms. Rivlin? 

Ms. RIVLIN. Yes, I do. And there is a good CBO report on that. 

Ms. WATERS. Mr. Holtz-Eakin? 

Mr. HOLTZ-EAKIN. I do, and there is a good Holtz-Eakin report 

on that. 

Ms. WATERS. And— 

[laughter] 

Mr. BERNSTEIN. I do, as well, and I like the Holtz-Eakin and the 

CBO reports on that. 

Ms. WATERS. Okay. 

Mr. BERNSTEIN. I think that these issues—by the way, when we 

were talking about infrastructure and education and immigration 

reform, what we are really talking about is improving the supply 

side of the economy, improving the economy’s capacity to grow its 

labor force in terms of immigration and its productive capacity in 

the terms of investing in our public good infrastructure, widely 

agreed upon— 

Ms. WATERS. Mr. Chairman, this is a good panel. Can we hold 

them over and keep talking? 

[laughter] 

Chairman HENSARLING. That works for me. 

Ms. WATERS. Thank you very much. I yield back. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the chairman emeritus of the committee, Mr. Bachus from Alabama, for 5 minutes. 

Mr. BACHUS. I thank the panelists. I think we all agree it is the 

calm before the storm. We have a short window of opportunity. I 

am going to go through something, and when I get through, I am 

going to ask if I have missed anything major. 

First, reform our entitlement programs, Medicare, Medicaid, Social Security. That is at least half the battle. And I think that both 

sides should agree that we are not talking about cutting spending. 

We are talking about slowing the growth of spending. 

And I also think that what Ms. Rivlin has said, and others, is 

that we can talk about job training, when we talk about Social Security, people on unemployment, people’s Social Security, disability, 

because they are not—they don’t have the skills, and I think because of the demographics, it is very important that we maximize 

the labor force we have. 

Now, the second component is economic growth. Tax reform has 

been mentioned. Trade agreements hadn’t been mentioned, but I 

think that is a tough one, and I think we have to address that. A 

third one, immigration reform—the Senate did pass something. I 

21 

have been on record as saying that I am for a pathway to legalization. The demographics there are also key. We need young, highly 

skilled workers. And I think we have to come together, and that 

may be more of a problem for Republicans. 

The fourth one is regulations. And Dr. Holtz-Eakin has done a 

lot of research on this. The Small Business Administration said 

that 14 percent of our national income is absorbed by complying 

with Federal regulation. Now, I think the first thing that we have 

to agree on is that all regulations aren’t created equal. They are 

not all bad; they are not all good. 

But surely—and, again, I have heard Mr. Cote and Ms. Rivlin 

talk about velocity. We are growing at 2.5 percent. We need to 

grow at 4 percent, 4.5 percent. If Federal regulations absorb 14 

percent of our national income, surely we can find 2 percent—or 

one out of seven—of those regulations that don’t have a good costbenefit or actually are a drag on our economy. 

And, recently, we sort of turned the corner on this energy thing, 

because of what has happened in the Ukraine, and I think that is 

going to be positive. But I would ask you, is there anything I have 

missed of a big nature. Is aging population going to overwhelm us 

if we don’t solve these problems? 

Mr. BERNSTEIN. Can I just give a quick answer? On the reforming entitlements, I agree with the points you have made. I wanted 

to add one point. The median income of the typical Social Security 

or Medicare beneficiary is about $24,000, $25,000. So I don’t think 

there is much we can do in terms of slowing the growth of their 

benefits without hurting vulnerable retirees. I do think there is 

something to be done for wealthy retirees, in terms of slowing the 

growth of their benefits, but there is less there than meets the eye 

when you actually look at the economic circumstances of the median beneficiary. 

Mr. BACHUS. Right, and I agree. Social Security, I think, is less— 

less savings than Medicare and Medicaid. Anyone else? 

Mr. HOLTZ-EAKIN. Congressman Bachus, I agree with your list. 

Not on your list was education reforms. I think those are crucial. 

We have documented the failure of the U.S. K–12 education system 

down to the student, teacher, principal, school, district, county. We 

have the data, but we have yet to turn the corner and improve outcomes. We need to do that and improve, at the same time, lifelong 

learning and skills training. I think the quality of our labor in the 

end will be how we compete internationally, and we need to do 

that. 

Mr. BACHUS. Education—I think maybe that should have been 

the first thing out of the box for the Administration. I agree. 

Ms. RIVLIN. I would agree with the list, too. Let me make two 

quick points. One is, we need smarter regulation. Often, the goal 

of the regulation is a good thing; we just do it in an unnecessarily 

costly way. 

And second, the biggest thing in slowing the growth of entitlements is delivering health care services more efficiently and effectively. That is hard to do, but it is where the money is. 

Mr. BACHUS. Thank you. 

22 

Mr. COTE. And I agree substantively with everything you said. 

The trade point is one of the eight areas that I put in my written 

statement, and I agree on TPA. 

The only other thing I would add is putting all of this into context. And I oftentimes say that in Honeywell, you can’t formulate 

a strategy and not look at what your competitors are doing, what 

your markets are doing, what is happening in technology. And that 

is a thing that seems to be missing in a lot of our discussions, is 

looking at what is going on in the world around us. 

And that first chart I showed is one that I show throughout the 

company that says this is how we need to start thinking. Our competitive world has changed. We need an American competitiveness 

agenda, and we ought to be thinking about all our actions in that 

context, because 75 percent of world GDP is outside the United 

States and it is changing rapidly. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Clay, for 5 minutes. 

Mr. CLAY. Thank you, Mr. Chairman. 

And let me start with Dr. Bernstein. Is it realistic to balance the 

budget in the next few years by cutting spending? Or do increases 

in revenue have to be a part of the equation? 

Mr. BERNSTEIN. I think the latter. Increases in revenues have to 

be part of the equation, in part because of the $4 trillion in deficit 

savings accomplished thus far since 2010 in the various programs 

I mentioned in my testimony; 77 percent of those cuts—70 percent 

of those deficit savings have come from spending cuts, only 23 percent from revenues. There is a real imbalance there. 

And as one of the Representatives said earlier—I believe it was 

Mr. Perlmutter—revenues as a share of GDP are historically low. 

Part of that is the economy, but part of that is the legacy of tax 

cuts that I think were irresponsible in the context of trying to 

achieve a sustainable path. 

Mr. CLAY. Ranking Member Waters mentioned the comprehensive immigration reform. And just this morning, the CBO issued a 

report on it about—should not the—do all of you think that the 

Congress should be more proactive about pushing legislation and 

policies that help stimulate the economy? 

The CBO said this morning that over the next 2 decades, if we 

pass H.R. 15, we would reduce the deficit by $900 billion, and $200 

billion in the first decade. That would be significant, don’t you 

think? And anyone can address it. 

Ms. RIVLIN. I haven’t seen this report, but, yes, clearly, that is 

significant. 

Mr. CLAY. Let me ask Ms. Rivlin. At a recent Monetary Policy 

and Trade Subcommittee hearing, Josh Bivens, one of the witnesses, wrote in his testimony that it was too bad that the Fed’s 

actions to stimulate the economy have not also encouraged higher 

levels of Federal spending. Do you share the view that it is unfortunate that lower rates have not resulted in more accommodative 

fiscal policy in recent years? 

Ms. RIVLIN. As I said earlier, I think that in the last couple of 

years, Federal fiscal policy has been too austere. It is a mark of the 

resilience of the U.S. economy that we have survived this and the 

23 

economy is growing. I think it would have been better to do less 

deficit reduction in the near term, especially on the spending side, 

and more in the longer term. 

Mr. CLAY. Ms. Rivlin, what could the Congress do with respect 

to fiscal policy to complement the Federal Reserve’s monetary policies and grow the economy? What productive steps can be taken to 

lessen the burden on the Federal Reserve? 

Ms. RIVLIN. The Federal Reserve has been aggressive in easy 

money, and is now realizing that it can pull back a little bit. I 

think that is right. And the Congress, I think, needs to think about 

how to create jobs in the long run, which I think is investing in 

growth and infrastructure and skills development, and how to reduce the growth of the long-run debt, which requires tax reform 

and entitlement reform. 

Mr. CLAY. And if the Congress and the Federal Reserve push 

stimulative policies at the same time, is there any inherent reason 

this would call the Fed’s independence into question, as some have 

suggested? 

Ms. RIVLIN. No, I don’t think so. And former Chairman Bernanke 

has been very clear, it would have helped them if the fiscal policy 

had been less of a drag on the economy. 

Mr. CLAY. Thank you for your responses. 

And, Mr. Cote, what do you consider to be the major drivers of 

the current deficit today? 

Mr. COTE. This is one where I think there are a lot of places to 

point to, and I would not point to any single item that has caused 

us to get to where we are today. The recession obviously had a 

huge impact. But instead, there is a phrase I use a lot in the company that says we are where we are, and I think it is more important for us to look at, what do we have to do going forward? And 

I completely agree with Alice’s prescription. 

Mr. CLAY. Thank you so much. 

Mr. Chairman, I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Texas, the chairman of our Housing and Insurance Subcommittee, Mr. Neugebauer, for 5 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Dr. Holtz-Eakin, one of the things that concerns me is that the 

dirty little secret here is we have had historically low interest 

rates. And we have had the Fed basically printing money at a fairly rapid rate. 

And so, one of the things that has kind of masked the consequence of these huge deficits is the fact that the Fed has bought 

down the yield curve to nearly zero and is furnishing about half the 

money to support these deficits. 

The question I have is—and I think you kind of started down 

that road—what happens if we then go to a more typical rate period and the Fed starts to unload their portfolio? I have seen some 

estimates where at some point in time, here in about 10 years, the 

interest at more historic rates would eclipse what we are spending 

on discretionary spending. 

Mr. HOLTZ-EAKIN. There is no question. The CBO baseline, for 

example, is a good—is illustrative of this. They show rates essentially normalizing to historical levels. The interest costs go to $1 

24 

trillion. It exceeds what we would be spending on the Pentagon, 

national defense, for example. Interest is by itself over 3 percent 

of GDP, so it is an unsustainable deficit all by itself. 

And I think the important thing is not to focus on the numbers, 

right? It is the risks that you incur. And that is with normal interest rates—anything above that quickly may even double the interest costs, that gives you no flexibility in your budgetary activities 

and really hamstrings the Congress and the Administration in trying to execute any future policy. 

It is a disservice in a democracy, quite frankly, to tie the hands 

of the future in that way. And that is the risk we are running with 

our current budget policies. 

Mr. NEUGEBAUER. Yes. And I think to just kind of amplify on 

that, Mr. Cote, you pointed out the fact that the U.S. GDP portion 

of the global economy is diminishing, and that these emerging markets that—China and other countries. So if you have a country that 

is on the pathway that we have all agreed is on here, and you are 

looking at not only what percentage of the economy—of the global 

economy is produced in the United States, the question is, is what 

about investment—are people going to want to invest in a country 

that has these potential liabilities? 

Because it is a deferred liability. If we are not recognizing those 

today, at some point in time, we have to pay for those. So how does 

that impact our global competitiveness to kind of stem the tide of 

the chart that you presented there, that is showing diminished activity in the United States? 

Mr. COTE. To be clear on the chart, it is the percent of world 

GDP. We are still growing during that time. And for the next 20 

to 25 years, we should still be the world’s biggest market. If the 

growth rates continue, though, with us at about 2.5 percent, China 

at about 6 percent, in about 25 years, China is the world’s biggest 

economy, and then things really start to change. 

There are a lot of things we need to improve our competitiveness 

and to attract people to the biggest market in the world, and that 

includes infrastructure, math and science education, immigration, 

trade, and all of the stuff we talked about. But debt has to be one 

of the biggest items. 

I just don’t see how a company or a country competes if they 

have a bad balance sheet. And, again, if we take a look at the 20- 

year outlook, there is no assumption of any recessions in there, and 

we are not done with recessions, and my guess is everybody here 

would agree with that. There will be some other ones. If we don’t 

have the firepower to address them when that time comes, I just 

don’t know where things are going to go. 

Mr. NEUGEBAUER. So is there a concern right now—we are the 

world’s reserve currency, people want to hold dollars—that at some 

point in time people are concerned about, and has that already 

started? 

Mr. HOLTZ-EAKIN. I think this is an important issue. People are 

starting to wonder about that. Having a reserve currency is good 

for international trade, and to have the United States no longer be 

a reserve currency would harm the global trading system. I think 

that is a real concern. The bad news has been, because we are a 

reserve currency, we are given more rope than other countries, and 

25 

we have unfortunately used it and put ourselves in a very dangerous position. 

Mr. NEUGEBAUER. Ms. Rivlin? 

Ms. RIVLIN. I agree with that. It is sort of a fool’s paradise, as 

I said in my testimony, that we have been living in, because we 

could borrow essentially without limit at very low interest rates, 

and we need to worry about what happens when that is no longer 

true. 

But I think one can exaggerate the problem of China being the 

biggest economy—with all due respect, Dave—they have a lot more 

people than we do, and their per capita income is still quite low. 

We are doing pretty well as a developed economy. We just have to 

do better. We have to invest more and reduce our long-run debt. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. Scott, 

for 5 minutes. 

Mr. SCOTT. Thank you. Thank you, Mr. Chairman. 

Let me just say at the outset that I think we are really going to 

have to, as a Nation, understand that we just cannot cut our way 

out of this deficit and our debt problem. 

The other thing is that we cannot solve our deficit and debt problem by omitting the very people who owe more to the greatness of 

the country and the sacrifice of this country, of the middle class, 

of the poor, of our veterans, and that is our multibillionaires and 

our multimillionaires. 

And my good friends on the other side of the aisle—my dear Republican friends, many of whom I love very dearly; they are wonderful, wonderful people—we cannot solve this debt problem on the 

backs of the middle class, on the backs of the poor people, on the 

backs of our veterans, while not asking the very, very wealthy to 

just make a sacrifice. 

The jobs deficit is part of the way out of this. But we have this 

overemphasis on cutting entitlements. We are a growing Nation. 

Social Security for our elderly is important. This is not so much an 

entitlement. These seniors paid into this. They sacrificed into it, 

many of them from when they were 9 and 10 years old working. 

Their paycheck was taken. This is no giveaway. 

And when we look at unintended consequences, I think the best 

point I can make on this is the cutting of our military so haphazardly at this time, to cut our military below the manpower in 

the Army of below 430,000 soldiers, back at the time of the 1930s. 

Now, why do I say that? Because no thought has been given to the 

impact of what is going to happen to those veterans. What is going 

to happen to those who are going to be unloaded onto the system? 

Right now, 6,000 veterans are committing suicide every year; that 

is 17 every day. 

The fastest growing group of food stamp recipients, one of those 

programs that the other side wants to cut, 1 million veterans are 

on food stamps feeding their families. No thought is given to that. 

And when we dump all of these other veterans out of the Afghanistan war, and the Iraq war, we are coming home, is there any 

wonder, but nobody raises a question, where are we going to find 

jobs when the highest rate of unemployment in this country is on 

young veterans, 22 percent of whom can’t find jobs? 

26 

My friends of the other side of the aisle, when we look at this, 

I want you to say, yes, these billionaires and millionaires who have 

made their billions on the backs of our veterans over there dying 

on the battlefield, to protect their wealthy interests, need to begin 

to pay their fair share, because, folks, we can’t solve this problem 

of our debt without increased revenue. And you are going to get it 

from the poor lady on Social Security? 

You are going to get it from the person who needs health care, 

while many right now can’t get health care, because many of our 

Republican governors are stopping the Medicaid expansion? That 

would bring billions of dollars and jobs to the very people who need 

it the most. 

So, this bothers me greatly. Three weeks ago, I think, when Ms. 

Yellen was in here, I asked her about the dual mission, about the 

Fed; 90 percent of the American people don’t even know that the 

Fed has a dual mission, employment. Where is the emphasis on 

jobs? That is the way that we are going to solve this debt problem, 

putting our veterans to work, stopping them from having to commit 

suicide because they have lost hope, and then telling our billionaires to help pay the cost. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, 

the chairman of our Oversight and Investigations Subcommittee, 

Mr. McHenry, for 5 minutes. 

Mr. MCHENRY. Thank you, Mr. Chairman. And this has certainly 

been an interesting hearing. I commend the ranking member for 

her words. She now sounds like a supply-sider. And I am grateful 

for that. 

In terms of the discussion today, we have seen some columnists 

around the country, Dr. Rivlin, who say that debt doesn’t matter, 

that we don’t have a debt problem. What would you say to those 

who don’t believe that we have a debt problem? 

Ms. RIVLIN. I would say they are wrong. All of us today have emphasized that a debt rising faster than your economy can grow is 

a big problem. 

Mr. MCHENRY. Can we just resolve this on the revenue side of 

the equation? 

Ms. RIVLIN. No, but I don’t think we can resolve it on the spending side entirely, either. And up to now, we have been doing more 

spending cuts than revenue increases. But I think of it as managing our way through the problem of the baby boom and retirement and longevity. We have to do that. We have to figure out how 

to pay for that and how to reduce the growth of the debt in the 

long run. 

Mr. MCHENRY. Dr. Holtz-Eakin, do you agree? Can we do this 

purely on the revenue side of the equation? 

Mr. HOLTZ-EAKIN. No. No, you cannot tax your way out of this 

problem. 

Mr. MCHENRY. Okay. Now, in terms of Social Security, I believe—as the panel does, and most Members of Congress, as well— 

that Social Security is a very important program that we have to 

protect. We have to preserve it for those who are receiving the benefits today and those who are at or near retirement age, as well. 

27 

But for my generation, who have time to plan, look, I am due to 

retire long after the Social Security system is broke. And under 

current law, it is going to be my generation that receives a fraction 

of the benefits they have been pledged. And so, I believe the insolvency of Social Security in 2023 to be real. Dr. Rivlin, would you 

agree? 

Ms. RIVLIN. Yes, and 2023 isn’t so long from now. People who 

will retire in 2023 are not our great-grandchildren. They are already in their mid-40s and need to know that the system is there 

for them. 

Mr. MCHENRY. Thanks. Dr. Holtz-Eakin? 

Mr. HOLTZ-EAKIN. I just want to emphasize that you can look— 

the debt is a real problem and the mandatory spending programs 

are driving that debt, but the programs themselves need to be fixed 

for the beneficiaries. It is a great disservice to run a pension system that says, we are going to keep it solvent by cutting benefits 

25 percent across-the-board for people in retirement. No one runs 

a pension system that way. That is terrible. It should be fixed right 

now on behalf of those people trying to make retirement plans. And 

Medicare is worse. Right now, the gap between money going in and 

money going out, payroll taxes and premiums and then spending, 

is about $300 billion. We have 10,000 new beneficiaries every day. 

That is not a program that will survive. 

And so, we have a big debt problem. It is hurting our competitiveness, but we have problems with our problems that are not 

going to serve these beneficiaries well. So, it is not just a matter 

of cutting. We have to fix their structure. We have to reform them 

so that they survive. 

Mr. BERNSTEIN. Can I make a point to that? 

Mr. MCHENRY. I have one final question for Dr. Holtz-Eakin. So 

in terms—moving back to the revenue question, you have written 

about the need for tax reform. You praised Chairman Camp’s—the 

chairman of the Ways and Means Committee—tax reform draft. He 

has asked for feedback from Members. I have provided it, along 

with over 55 of my colleagues signing on to a letter pointing out 

one of the flaws of his proposal and asking him to fix it, and that 

is a new tax within this tax reform draft, the only new tax in the 

draft, and it deals with a quarterly excise tax on banks and financial institutions generally. 

This is what I regard as an asset tax. And assets for banks are 

loans. So it runs counter, I believe, to our economic interest. Do you 

concur? 

Mr. HOLTZ-EAKIN. I do. I have been supportive of the process of 

tax reform. It is very important that we get this done. Our tax system is harming us in both growth and competitiveness. 

But this excise tax on the very large—on a handful of very large 

financial institutions is at odds with tax reform, which should treat 

all economic activity more equally and not single out an industry 

or a size for a special tax. That seems very bad to me. 

This is going to hit the institutions that have about half the deposits in the United States. The implications are going to be found 

in households as much as anywhere else. 

Mr. MCHENRY. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

28 

The Chair now recognizes the gentleman from Massachusetts, 

Mr. Capuano, for 5 minutes. 

Mr. CAPUANO. Thank you, Mr. Chairman. I apologize for missing 

some of the hearing, but, well, we all have other things to do. 

I have read the testimony, but I would like to hear from the 

panel. Does anybody here think that we can—first of all, I want to 

be really clear. I don’t know who said the debt doesn’t matter. 

Whoever said debt doesn’t matter doesn’t have a credit card, 

doesn’t have a mortgage, never bought an automobile—a car is 

what we call it, but I figured I would say automobile so you would 

know what I was talking about—and didn’t have any kids who 

went to college. Debt matters. Of course it matters. 

For me, that whole issue is—I guess it is good politics, but it is 

a useless discussion. There are two questions. Number one is, what 

do we do about it? And the other part of that, I think history is 

important. How did we get where we are today so that we don’t 

make the same mistakes or at least we know what the truth is? 

And does anybody here think that we can handle our debt situation on—and, Mr. Holtz-Eakin, I look at you, because I presume 

you might be the closest who might say yes to this—can we handle 

the debt problem just on the spending side? You don’t think we 

should look at the revenue side at all? 

Mr. HOLTZ-EAKIN. I think we should look at the revenue side in 

tax reform, and it will generate more revenue. I think that would 

be great. 

Mr. CAPUANO. Fair answer. We can always have the debate of 

what does and what doesn’t, but I think that is a fair answer. So 

I think that kind of—and I assume none of the other panel would 

disagree with the concept that we have to look at the revenue side. 

So that kind of gets that off the table. So now the question is, 

okay, details. First of all, how did we get here? And do people disagree that there are a million ways, but from what I see, the most 

important—if I had to pick one thing that put us in the situation 

we are here at the moment is the tax decisions we made in the 

early part of this century. Does anyone disagree with that? 

Again, Mr. Holtz-Eakin, I look at you, because, again, you are 

the most likely to disagree with me. 

Mr. HOLTZ-EAKIN. We were asked this question again and again 

and again during my tenure at the CBO, and if you look at the 

changes in the forecasted surpluses—that was what I inherited and 

that turned into deficits—the tax cuts are not the majority of that. 

It is, in the end, economic performance, which has been subpar, 

and the spending side, which are the dominant increases in the 

debt over that period. 

Mr. CAPUANO. Okay, so you don’t think that—you think it is the 

spending side? 

Mr. HOLTZ-EAKIN. I don’t think that is a fair characterization— 

Mr. CAPUANO. Mr. Bernstein, what do you think, if you had to 

pick one item? 

Mr. BERNSTEIN. I disagree on the facts there. And there is a 

chart in my testimony, figure three, which tries to answer that 

question by apportioning the growth in the debt to the wars, the 

Bush-era tax cuts, recovery measures, and the economic downturn, 

29 

and if you look at figure three, you will see that, in fact, the Bush 

tax cuts are the primary factor there. 

If I may, can I speak to your question? 

Mr. CAPUANO. Hang on a second, Mr. Bernstein. I need to get to 

the others. 

Mr. BERNSTEIN. Okay. 

Mr. CAPUANO. Ms. Rivlin, what do you think is the single most 

important factor that got us to where we are at the moment? 

Ms. RIVLIN. At the risk of disrespect, I don’t think that is a good 

question. I think we are where we are. 

Mr. CAPUANO. There are lots of bad questions on this panel. 

Ms. RIVLIN. There is lots of blame to go around. Repealing the 

Bush tax cuts now is not an option, and we need to think about 

going forward. 

Mr. CAPUANO. Why is it not an option? 

Ms. RIVLIN. Because a big tax increase on everybody, including 

low-income people, right now would be a disaster. 

Mr. CAPUANO. So, that is a political judgment. Very interesting, 

Ms. Rivlin. 

Ms. RIVLIN. That would be an economic decision. 

Mr. CAPUANO. Fair point. Yes, I think you are sitting a little too 

close to Mr. Holtz-Eakin. Maybe we should split you two up. 

Mr. Cote, what do you think, if you had to pick one? 

Mr. COTE. First, coming from New Hampshire, you sound like a 

very smart guy to me. 

Mr. CAPUANO. There we go. 

[laughter] 

Mr. COTE. At the end of the day, I am not sure that it is a useful 

exercise. I am kind of with Alice on this one. 

Mr. CAPUANO. Fair enough. 

Mr. COTE. We are where we are, and we need to look at it as, 

where do we go from here? 

Mr. CAPUANO. Fair enough. 

Mr. COTE. And that is what we ought to be focusing on. 

Mr. CAPUANO. I think those are fair answers. I do want to point 

out, me trying to figure this all out and trying to figure out—getting ready for today, I did run across one interesting study by the 

Heritage Foundation that kind of ranked both debt—and, again, I 

accept the fact that we have a debt problem, so that kind of becomes null and void to me, but I also—they ranked a whole bunch 

of things. They do it—they seem to do it regularly, an index of economic freedom, they call it. And they rank tax burden as a percentage of GDP, which to me is more important than actual numbers. 

And they rank the United States of America as number 60 in 

taxes as a percentage of GDP. France is 65 percent, ahead of us. 

Italy is 58 percent. Germany is 51 percent, ahead of us, on and on 

and on. Russia has a higher tax burden. China does have a lower 

tax burden than we do. 

So the question is, when we are talking about competitiveness, 

which I think is what is important when it comes to taxes, who are 

we competing against? And I don’t mean to be rude about it, but 

I really don’t think that, for the most part, the United States is 

competing against Mauritius or Panama or Kenya or Malawi. 

Those are not countries we are competing against. The countries 

30 

we are competing against, other than China, all have—or pretty 

much all have equal or larger tax burdens. 

And on China, the one thing nobody wants to talk about, the 

Heritage Foundation also ranks other things. And I don’t get a 

chance to do it, because I let you answer my questions. I will have 

to come back to this. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from New Jersey, the 

chairman of our Capital Markets and GSEs Subcommittee, Mr. 

Garrett. 

Mr. GARRETT. Thank you, Mr. Chairman. 

I will start with Mr. Cote. In looking over your testimony, you 

draw the real connections between debt and interest rates and the 

impact on the economy, that more debt can mean less economic 

growth and fewer jobs at home on Main Street. 

And when you look at our current job recovery, such as it is, 

CBO recently reported that the Nation is significantly lagging behind the average job recovery, and the most striking factor is rather than closing that gap, our job market is actually getting worse, 

relative to the average recovery. 

Now, the President has been in office for 51⁄2 years now. And we 

have seen during that time what some of us would call the tidal 

wave of spending. In light of all that, could you just comment on 

how does debt and spending, specifically entitlement spending, 

which brings us to, some of us would say, the brink of a bankruptcy, how does that affect a major corporation such as yours? 

And how does the fiscal instability that we have because of this 

looming debt affect you and your hiring decisions? 

Mr. COTE. It affects the way I think about how we run the company and how are we going to hire going forward. And when I put 

all this together, including all the other things that we are not 

doing anything about, whether it is math and science, infrastructure, immigration. There is a lot of stuff where we are not doing 

anything. 

As a result of that, I look at it and go, I need to plan for a lowgrowth environment. And when you look at a low-growth environment, we will say in the 2.5 percent range, companies generally 

don’t need to hire, because they can be just that little bit more productive every year. And in a low-growth environment, you just 

don’t need to bring any additional people on. In my view, we need 

to get growth up above 3 percent. And one of the ways to do that 

is to start addressing our debt now. 

Mr. GARRETT. Thank you. 

Moving on, Dr. Rivlin, when I was out of the room, you mentioned our need to do smarter regulation, right? So I want to ask 

you to elaborate on just one specific thing. We passed a bill that 

I spent a lot of time on to improve cost-benefit analysis over at the 

SEC. 

I just want your opinion on that. We also introduced a bill that 

would require cost-benefit analysis over at the Fed on all of the 

regulations that they do now that they are encompassing the entire 

financial marketplace. 

Is that the smarter type of regulation to which you are referring? 

31 

Ms. RIVLIN. I think cost-benefit analysis can be useful in figuring 

out where to go in regulation. It is very hard to do well, so I think 

just passing a bill to say we have to do it is just the beginning. It 

is really very hard to do well. But the basic spirit, yes, we need to 

look at, what is the cost of regulation compared to the benefits that 

we get out of it? That is important. 

Mr. GARRETT. Yes, we are just trying to do the first step, just by 

getting the bill passed, and we are hoping that the SEC and then 

eventually the Fed will do the right thing. 

So moving down, as I said, the President has been in office now 

for 51⁄2 years, and you hear a lot of people outside this room and 

inside this room who say that the solution to the problem, the debt 

problem, is what, is just raising revenues, raising taxes, and if you 

do that, that will right the proverbial ship of state. 

Wearing your former hat, I guess, or coming from where you did 

at the CBO, can you explain what the real-world impacts are once 

we get down the road, not too long from now, when we are going 

to hit over $800 billion in interest payments—and maybe you can 

estimate as to when we will be hitting that again—and what will 

be the impact on the economy when that day comes? 

Mr. HOLTZ-EAKIN. When that day comes, you will have the Federal Government competing with the private sector for scarce investment funds. And we hope that we don’t hit $800 billion until 

we are back at full employment, but from that point forward, those 

$800 billion in interest payments are going to—about a third of 

that is going to crowd out private investment. And that will hurt 

productivity. It will hurt the incomes and the job prospects of people in 2019, 2020, 2021, whatever year it is we hit that, and those 

are real-world costs. 

It will also impede the flexibility of the Congress, which won’t be 

able to spend the money on something else. It is locked into the 

budget. And if something untoward should happen, if we have another recession at some point, the ability to respond will be quite 

limited. And so it is a very negative, predictable impact. Plus, it 

impedes your risk management. 

Mr. GARRETT. So hearing all that, but also hearing what some 

of the folks on the other side said during their opening comments, 

is it really credible to say that we are addressing our fiscal crisis, 

that we have been doing the right things over the last 51⁄2 years, 

if that is the—what did you say—predictable pathway? 

Mr. HOLTZ-EAKIN. We haven’t addressed our problems in the 

past 5 years, not at all. Our problem is in the mandatory spending 

programs. And I have been saying the same thing for 10 years. 

This town loves to talk about tax policy. Great. Have a ball. Once 

you spend the money, you have to pay for it one way or another, 

and the spending is on the mandatory side. That is what we have 

to deal with. 

Mr. GARRETT. Thank you. Thank you very much. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Green, 

for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. I thank you and the 

ranking member for the hearing. I thank the witnesses for appearing today. And I would like to thank all of them, because some of 

32 

your testimony, candidly speaking, has been a little bit surprising, 

but it has been pleasant to hear. 

And, Ms. Rivlin, I would like to thank you for something that 

you said. You seem to have a little bit of consternation as to whether or not we will eventually do the right thing. And I want to assure you, ma’am, this Congress will do the right thing, after we 

have tried everything else. We will do it. So today, hopefully, will 

get us closer to the right thing. 

Let me start with poverty prevention, if I may. There are programs, according to what the staff has accorded me, that have 

helped us prevent poverty from going to 29 percent compared to 

16.1 percent in 2011. Let me pause and thank the staff, also, because the information that I have today is excellent, and I never 

want to neglect them, because they do outstanding work. 

But I do want to ask this about poverty prevention. Do you consider Social Security as a part of the poverty prevention effort in 

this country? Has Social Security kept people out of poverty? Is Social Security a program, a safety net program worthy of maintaining because of the way it impacts poverty? 

Mr. Bernstein, would you like to take that? 

Mr. BERNSTEIN. Yes, very much so. If you took away Social Security from the elderly right now, their poverty rate would be 44 percent. That is a pretty scary thing to imagine. Adding Social Security back in, as we do in the real world, their poverty rate is 9 percent. Now, 9 percent seems high to me for our elderly population, 

but the fact that 44 percent of the elderly poor would be poor absent Social Security gets to the point that I was trying to make earlier, which is that while there is an appetite, I believe, from folks 

in this room today, and even some on the committee, to slow the 

growth of entitlement payments—and I share some of that appetite—it has to be done in a way that doesn’t hurt economically vulnerable recipients, and most recipients are economically vulnerable. 

This notion that you can balance these programs by significant 

benefit reductions is illusory, because once you go down that path, 

you are going to very quickly hit the very folks we are talking 

about right now. 

Mr. GREEN. Thank you. Let’s also talk for just one moment about 

the regulators. How important is it to fully fund the regulators, Mr. 

Bernstein? And what impact might fully funded regulators have on 

an economy? 

Mr. BERNSTEIN. I think it is extremely important. And I noted 

in my testimony, as I tick through some of the areas that this committee oversees, talking about financial stability and consumer financial protection, I think we tend to have very short memories 

when it comes to regulation in this country. And as Alice said a few 

minutes ago, there are definitely costs, but there are also benefits. 

And the reason we are here talking about large debt levels and 

climbing out of the deepest recession since the Great Depression is 

because we had a housing bubble that was driven by financial practices that were, I think, widely recognized at this point to be terribly underregulated and got us into this mess in the first place. 

So the notion of regulating systemic risk and consumer protection 

in financial areas under this committee’s purview is essential. 

33 

Mr. GREEN. Thank you. And I will use the remaining time to 

make this brief comment, Mr. Chairman. 

I think that when we sent our troops into harm’s way, we did 

it off-budget and there was no question as to how we would fund 

it. I am picking up on something that Reverend Scott to my right 

said, with our veterans. When they return, it really is sinful to talk 

about, how are we going to fund the programs that are necessary 

to reintegrate them into society? 

I am not saying that is not a good discussion to have, but if you 

are going to have it, you should have it when you send them and 

you should have it when you bring them home. To treat them with 

anything other than that level of respect, in my opinion, does not 

serve us well. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Luetkemeyer, for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

Mr. Cote, you have an international company, and you do business on an international basis, and I am sure you compete with 

other businesses around the world. How do you believe that whenever you are competing for business in other countries, they take 

our debt into consideration, when they are looking at doing business with you, doing business with other companies? Is that a factor in your business at all, do you believe? 

Mr. COTE. Do you mean in terms of how other countries look at 

us? 

Mr. LUETKEMEYER. Right. 

Mr. COTE. At Honeywell as a competitor? 

Mr. LUETKEMEYER. Right. 

Mr. COTE. No, I don’t think so. 

Mr. LUETKEMEYER. Okay. You do business with them, though. Do 

you have a sense that they have a consideration of our debt as a 

concern? 

Mr. COTE. That part they definitely do, not so much in, say, dealing with us, but I do get comments in other countries that I go to 

wondering when we are going to do something. They all recognize 

that it needs to happen. 

Mr. LUETKEMEYER. Okay. Can you elaborate a little bit further? 

Okay. How many of them talked to you about this, all of them, 

some of them, just a few? 

Mr. COTE. I think some of them. I travel extensively. In this job 

alone, I have been to over 100 countries over the last 12 years, so 

I end up in all kinds of conversations with all kinds of people. But 

I would say, it is certainly something that they are all aware of. 

Mr. LUETKEMEYER. I know, sitting on this particular committee, 

we have the opportunity to meet with a lot of foreign finance ministers around the world, and these finance ministers, especially 

from Europe, sometimes come in and they—one of the questions I 

always ask is, when do you get your economies going? Because you 

can keep stretching out your debt forever, but until you get your 

economy going, you can’t pay it down. 

And we are in the same situation. We have to get our economy 

going so we start paying it down. But I think all of you this mornVerDate Nov 24 2008 11:16 Nov 04, 2014 Jkt 088533 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\88533.TXT TERRI
34 

ing have sort of hit on what I believe we have to have—I don’t necessarily like the words ‘‘balanced approach,’’ but I think you have 

to both cut spending and you also have to generate revenues. That 

is pretty obvious. 

But I think, as I go back home each weekend—and we have a 

district workweek each month—you talk to the small business people, even some of the larger businesses in my district, they are sitting on a lot of cash, but they are not going to do anything because 

the uncertainty that is in our economy right now. And most of it 

is caused by the Federal Government, either with our tax policy, 

our regulatory policy, some of them trade policy. For the bigger 

guys, it is trade policy. But for most of the small folks, regulatory 

policy is their biggest concern. 

And as the chairman indicated in his opening remarks, 

Obamacare is a big part of it, but it is all of the regulation together, whether it is DOL, the tax situation, it just is continual intrusion into their business that causes a level of uncertainty. 

And so until we get our heads wrapped around that and kind of 

stop this nonsense, I am not sure we are going to see any progressive improvement in our economy. The growth that we have experienced is basically all due to the energy sector of our economy. The 

rest of it has been flat over the last year, 2 years, 3 years. 

So I am just kind of curious, Dr. Holtz-Eakin, you have a tremendous background in this area. Can you tell me, at what point do 

these regulations become so punitive that it drives everybody out 

of business? We are close to that already, I think. But do you think 

they can hold on for a while yet? Or where do you see us headed 

with the small businesses, especially? 

Mr. HOLTZ-EAKIN. I am deeply concerned about the burden cumulatively on them from the spending that leads to the debt, the 

regulatory environment. I think Dr. Rivlin has it right. This is a 

very resilient economy. I am stunned again and again at the capacity of it to recover and grow, but you have to be respectful of the 

burdens that we are placing on it. 

And so when I think of the idea of doing cost-benefit analysis, I 

applaud that. Even though it can’t always be done as well as we 

would like, the discipline of sitting down and saying, ‘‘What are the 

costs and what are the benefits of this? And does it make sense to 

launch into this?’’ is very useful. The thing I would urge the Congress to do would be for the first time to look back at existing regulations and take off the books some things that don’t merit inclusion anymore. We never get rid of regulations. And that is a problem. 

Mr. LUETKEMEYER. If we don’t get our economy going, at what 

point—whenever we passed our budget resolution back in December, a lot of the ratings agencies were ready to downgrade us if we 

didn’t do that. And at what point do you believe that they will start 

downgrading us or the markets will stop buying our debt? 

Mr. HOLTZ-EAKIN. I believe that our most likely scenario is we 

go out 10 years and we are a slow-growth economy still, low wage 

growth, a very, very frustrated populous. And at that point, 10 

years from now, the rating agencies are going to have to be concerned about our ability to service our debts, no question. 

35 

Mr. LUETKEMEYER. But they are already raising alarms. We just 

need to be listening to them. 

Mr. HOLTZ-EAKIN. Yes, I think the thing to worry about is not 

the apocalyptic crisis hitting in the next 10 years, but the consequences of doing nothing after a bad economic performance for a 

decade. 

Mr. LUETKEMEYER. Very good. Thank you. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

And with all due respect to the earlier opinion of the gentleman 

from Texas, we will now yield to the real reverend in the room. The 

Chair now recognizes the gentleman from Missouri, Mr. Cleaver, 

for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Dr. Bernstein, in response to Congressman Green’s question 

about Social Security, the number of elderly, was that 44 percent 

on top of the existing percentage of seniors or Social Security recipients? Or is that the total, 44 percent of— 

Mr. BERNSTEIN. That is the total percentage of seniors, 65-plus, 

who would be poor if we took Social Security out of the picture. Instead, the actual poverty rate for them is 9 percent. 

Mr. CLEAVER. Right, yes. Yes, that would include my 91-year-old 

father. My three sisters and I were trying to figure out if he ever 

missed a day at work that we can remember. He remembers too 

much. But one of the problems we are having is—I don’t think people realize who we are talking about when we talk about the poor. 

And all of them are Americans, but one of the interesting 

things—my district was changed with redistricting. I now represent 

three of Ike Skelton’s former counties. And one of the things that 

I have discovered—in fact, there was a chart in Sunday’s New York 

Times, the highest growing areas of poverty in the United States 

are the rural areas. And in my three rural counties, the percentage 

of individuals on some kind of Federal food programs, SNAP and 

so forth, the percentages are higher than in Kansas City, which is 

the largest city in my district. 

I don’t think people realize that there is a symbiosis with rural 

and urban. And so because we have in our heads decided that 

when we talk about poverty, we are talking about urban centers, 

I think it does some damage, some distortions to the conversation. 

And prior to the 2008 expiration of the farm bill, the Department 

of Agriculture made 400,000 payments in terms of safety net payments, 400,000, and if they had had the money, it would have gone 

another $500 million. These are farming areas, rural areas. And so, 

I think we have to re-design the discussion. 

Minimum wage is $7.25, $2.13 for tipped individuals. So I would 

like to hear from all of you—is there a need for—I really would like 

if we had more time for you to talk about the need to change the 

discussion to Americans, but I want to find out if you can—if you 

can talk about the minimum wage and the need for raising the 

minimum wage. 

This year, the value of the minimum wage is scheduled to drop 

1.7 percent. And if it continues to go in that direction, we are going 

to make more and more poor people who work every day. Can I 

just get a response from all of you? 

36 

Mr. BERNSTEIN. I think it would be very helpful to raise the minimum wage to boost the earnings of some of the very constituents 

you are talking about. A recent analysis by the Congressional 

Budget Office found that an increase of the type that you are describing would lift the pay of 24.5 million people. Now, it would 

also displace 500,000, but once those persons got a new job, that 

job would be a better job. 

Mr. HOLTZ-EAKIN. I would just politely disagree. I think it is a 

case of someone’s heart being in the right place, but it is a bad policy. The dividing line between poverty and non-poverty in the 

United States is having a job. And the minimum wage does not 

help people get jobs. It harms their chances to get jobs. It is also 

not targeted very well on poor people. 

In the same CBO study, of the $31 billion that would be generated, only 19 percent went to people in poverty. So we can do better in worrying about the poor than to raise the minimum wage. 

I think it is a mistake at this point in time. The evidence is in the 

teenage unemployment rate that is over 20 percent. We continued 

raising the minimum wage through the Great Recession, and those 

workers are now priced out of the labor market. We can’t do that 

again. 

Ms. RIVLIN. I favor raising the minimum wage, which hasn’t 

been raised in a long time, but I think even more important is to 

raise the Earned Income Tax Credit, which is a more effective, 

more targeted way of reaching low-income people. And I also think 

it is a mistake to think that anybody who is in favor of controlling 

future deficits is against poor people. That is not what this is 

about. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Huizenga, for 5 minutes. 

Mr. HUIZENGA. Thank you, Mr. Chairman. I appreciate that. 

And if I could just revisit very briefly with Ms. Rivlin here, what 

you were just saying, a long-term—if you could just maybe repeat 

or repackage what you just said about long-term deficit restraint 

not being an attack on the poor. I don’t want to mischaracterize. 

I just want to make sure I was clear and understood what you said. 

Ms. RIVLIN. Yes, that is what I did say. I think we have a serious 

poverty problem in the United States which needs to be attacked 

by raising incomes of low-income people and the opportunities to 

get out of poverty, but also the bad effects on the economy, which 

we have been discussing here for a long time, of not addressing our 

long-run debt, the increase in debt faster than the economy can 

grow, will injure the low- and middle-income people most, much 

more than higher-income people. 

Mr. HUIZENGA. All right, good. I just wanted to make sure I understood that, and I would wholeheartedly agree. And I had the 

pleasure and the opportunity to serve a former member of the 

Budget Committee, Peter Hoekstra. I served as his District Director for 6 years. It was early 1997 when I sat down with Pete and 

a guy named Mark Neumann from Wisconsin. John Kasich was 

Chair of Budget at the time. And I clearly remember Congressman 

Neumann at the time saying, ‘‘Pete, we are going to come into balVerDate Nov 24 2008 11:16 Nov 04, 2014 Jkt 088533 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\88533.TXT TERRI
37 

ance this year. And if not this year, it is going to be by the second 

quarter next year of where we are going.’’ 

And as these policy wonks were diving into the numbers and all 

those things, it came to light and it came very apparent that it was 

mostly based on two things. First, our restrained—not cut, but restrained—rate in the government growth. And second, economic activity. The economic activity that was being spurred along, some 

of—I remember the debate well. A lot of it was pent-up demand. 

A lot of the same things that we are even talking about now, seeing 

some of the economy going in, in where we are currently. What I am concerned about is when we are using $230 billion, $240 billion to service our long-term debt, how long before we see 

interest rates go up—we have had Chair Yellen in those very seats. 

We had Ben Bernanke prior to that. Every person on the Fed has 

indicated which direction those interest rates are going, which is 

up. And I am concerned that with that level of debt that we have, 

as we see on the debt clock over here, servicing that debt, when 

we just go to where Germany is, much less Greece and Italy and 

Spain, that we are going to swamp the boat here. Is that not fair? 

A fair characterization, at least? 

Ms. RIVLIN. No, I think that is a fair characterization, if we don’t 

act, but we need to act sensibly and on both sides of the budget 

and to phase in reforms, in both taxes and entitlements, that will 

reduce the debt over the long term. 

Mr. HUIZENGA. The other thing that I am very concerned about— 

and I just met with someone who is in the venture capital space 

and management space—and we were having this discussion about 

what is going to pull us out of this debt situation, what is going 

to pull us out in the long term? I have seen some projections that 

anywhere from a 6 percent to an 8 percent growth rate would need 

to happen here in the United States for us to take care of what our 

spending problem has created. 

And I know China is going into a tailspin because they are going 

to drop to a 7 percent or 8 percent. We could only dream to be at 

that kind of growth rate. Dr. Holtz-Eakin, would you mind maybe 

addressing that a little bit? And, Mr. Cote, I would like to hear 

from you, as well, what that would mean for your business, really 

quickly? 

Mr. HOLTZ-EAKIN. It is very simple, and it has been true for a 

decade. We won’t grow our way out of this problem. We will not 

tax our way out of this problem. The problem is the growth in the 

spending programs driven by demography and health care costs, 

and you have to get that. That is it. 

Mr. COTE. And I would agree. There is no way we can grow our 

way out of this. And getting back to your first point, with $20 trillion in debt and a 5 percent rate, which is not a crazy number, that 

is $1 trillion a year in interest, and it starts to feel more like a 

credit card where you just can’t get ahead of it at that point. We 

are better off addressing it now. 

Mr. HUIZENGA. I appreciate that. And my time has expired, but 

that is exactly where, when I talk to especially the younger generation, they are just starting to figure out that the math isn’t adding 

up. 

So thank you, Mr. Chairman. 

38 

Chairman HENSARLING. The time of the gentleman has, indeed, 

expired. 

The Chair now recognizes the gentleman from Delaware, Mr. 

Carney, for 5 minutes. 

Mr. CARNEY. Thank you very much, Mr. Chairman. And thank 

you for having this hearing today. It is very interesting and very 

important. 

The title is, ‘‘Why Debt Matters.’’ We seem to have lost a little 

bit of focus on this issue recently, because of the agreement, the 

budget agreement for this year and for next, all the focus when we 

had deadlines, the deadline on the debt ceiling, the deadline on 

shutting down the government, kept a really, I thought, important 

focus on solutions to this issue, so now we don’t—there is not a lot 

of discussion, so this has been very helpful. 

I am fairly new to the body. I was elected in 2010, one of the few 

Democrats. And when I first arrived here, I learned pretty quickly 

that we had a big fiscal problem. I am a former secretary of finance 

for the State of Delaware. We had to balance our budgets every 

year, and we had to make the difficult decisions in order to do that. 

We don’t have to do that at all here, in terms of making those 

difficult decisions. There is a group—some of you are part of that 

or are aware of it, certainly—called Fix the Debt. And they have 

a spreadsheet of things that Congress could do to address some of 

these fiscal imbalances. I have been doing that as part of a group 

that I chair with Democrats and Republicans in going down the individual list. 

It is not easy, particularly when you get people in the room who 

have different perspectives on taxing, on spending, on how to address the issue of the poor and the like. One of the things that 

struck me over the last couple of years, Ms. Rivlin, is your co-chair, 

I guess, former Senator Domenici, who said that it is really all 

about health care. And I remember in a session with Maya 

MacGuineas, I asked her, so what are the solutions for health care? 

And she didn’t have any good ones. Do you? Does anybody at the 

table have any suggestions with respect to what we do to bend the 

cost curve down for health care? 

Ms. RIVLIN. Yes. I think there are quite a lot of things that we 

can do. And some of them are in process already and I think are 

already having an effect. A really important thing is to move away 

from the fee-for-service system of compensating providers, which 

incents them to provide more services, rather than better services. 

And accountable care organizations— 

Mr. CARNEY. We talk about that all the time, by the way, pay 

for performance and all that. It is hard to do. 

Ms. RIVLIN. It is hard to do. 

Mr. CARNEY. Practically. 

Ms. RIVLIN. And that is why it is a work in progress. 

Mr. CARNEY. Right. 

Ms. RIVLIN. But I think payment reform and more competition 

in the health system are both part of the solution. 

Mr. CARNEY. Thank you. 

Dr. Bernstein? 

Mr. BERNSTEIN. A few ideas that kind of hitchhike off of where 

Alice stopped. What seems to be helping so far—and, again, we 

39 

don’t know how deep this is, in terms of whether it will stick, but 

we have seen very notable progress in recent years in slowing the 

growth. We have actually bent the curve. Whether it stays bent remains to be seen. 

Efficiencies have occurred in bundling care, reducing unnecessary testing, and reducing hospital readmissions. All of those have 

made a notable difference in moving, as Alice suggested, from 

quantity to quality. The one area where we haven’t done nearly 

enough is in the price of medication. There have been some extremely, I think, compelling exposes of the amount that we spend 

on medicine that in other advanced economies is a fraction of ours. 

I think that is a rich area of pursuit, and it will be— 

Mr. CARNEY. One of the targets, by the way, on that list, all the 

things that you mentioned are on the list that Fix the Debt is— 

Dr. Holtz-Eakin, did you have— 

Mr. HOLTZ-EAKIN. I would just say two things. The first is, I 

think it is important to continue on this and not to get complacent. 

It is true that health care spending has grown more slowly recently, but that happened in the mid-to late-1990s for 4 years, and 

it came right back. 

We are coming out of a recession. The Affordable Care Act is intended to have people spend more on health care, so there are a 

lot of things that could go the other direction. 

The second is, the strategy cannot be just cutting reimbursements to providers. We have done that before. It has always failed 

and been unwound. And then I think in the things that the Congress is looking at right now, there are two places where we are 

making a mistake. 

One is too aggressively cutting Medicare Advantage payments. It 

is the one thing that is not fee-for-service. It is not perfect. A lot 

of things are wrong that could be fixed, but it is not fee-for-service. 

We need to move people in that direction. And home health, where 

it is the one place with a very elderly and frail population, we get 

the care coordination that keeps people out of the hospital. 

Mr. CARNEY. Mr. Cote, last word, really quick? 

Mr. COTE. Yes, Erskine Bowles and Alan Simpson issued Simpson-Bowles 2.0 specifically for this, and that is about 20 line items, 

and I would be happy to forward them to you. 

Mr. CARNEY. Great, thanks very much. 

Thank you, Mr. Chairman. 

Mr. HUIZENGA [presiding]. The gentleman’s time has expired. 

And with that, we go to the gentleman from Wisconsin, Mr. 

Duffy. 

Mr. DUFFY. Thank you, Mr. Chairman. 

I thank the panel for coming in today and, frankly, to see the bipartisanship, all agreeing that we have a problem with our debt is 

nice to hear. 

Many people on this committee have a majority of their constituents who are not millionaires and billionaires. Most of them are 

middle-class Americans. Many of them are poor Americans. And so, 

I think there is a consensus that we want to look out for those who 

are less fortunate in our districts and middle-class Americans in 

our districts. 

40 

So I just want to get all of your opinions, that if we stay on the 

current course, we don’t change, no modifications, can we just raise 

taxes on millionaires and billionaires, bring in enough revenue, and 

sail on our merry way? Is there enough money with millionaires 

and billionaires to fix our problem? Can we fix the problem there, 

Mr. Holtz-Eakin? 

Mr. HOLTZ-EAKIN. No. 

Mr. DUFFY. Mr. Bernstein? 

Mr. BERNSTEIN. No. 

Mr. DUFFY. Ms. Rivlin? 

Ms. RIVLIN. No, but that doesn’t mean that we shouldn’t reform 

our tax system in a way that gets rid of a lot of special privileges 

for upper-income people. If we do that, we can lower the rates. 

Mr. BERNSTEIN. It is a good place to start. But you can’t finish 

there. 

Mr. DUFFY. Mr. Cote? 

Mr. COTE. I would say the answer may not always be as credible 

coming from me, but the answer is still no. It is not. 

[laughter] 

Mr. DUFFY. Point well made. And I think—my point for bringing 

that up is, we can’t get a consensus about changing the drivers of 

our debt, modifying it, and I think some who don’t want to change 

the current system continue to argue that we just go after millionaires and billionaires and we are fine. And I think the point that 

you all are agreeing to is that you can go there, but you can’t get 

all the money there if you don’t change. You are going to go for 

middle-class Americans, aren’t you? You are going to go for poor 

Americans, correct? Mr. Holtz-Eakin? 

Mr. HOLTZ-EAKIN. Yes, I think it is very important to recognize 

that if you sort of follow that line of reasoning, so you go get the 

millionaires and billionaires first, that staves off a little bit of the 

problem, the deficit narrows, you put off fixing the spending program, but the problem hasn’t been solved, so now the mandatory 

spending ramps up and you have a big deficit again. What are you 

going to do? 

As I pointed out in my testimony, in the end, you are going to 

raise a lot of taxes. You have already used up the rich people. 

Mr. DUFFY. Who is next, right? 

Mr. BERNSTEIN. Can I just say, I don’t disagree with that analysis. Actually, I agree with it. The one thing I will say, though, is 

that if you look at where all the growth in this economy over the 

last, say, 4 or 5 years, even going back further has accumulated, 

it has been at the top of the scale. Middle-class people, the folks 

you are talking about, really have gotten very little out of the 

economy’s growth going back a few decades. And so in that sense, 

there is a logic to that is where you start. That is all. 

Mr. DUFFY. Sure. And I am not going to go there, because I could 

talk about what is happening to our forestry industry in Wisconsin, 

what we are doing with energy exploration, what we are doing with 

mining, rules and regulations that impact manufacturing in my 

community. We will stay away from that. We are having a debt 

hearing here. 

And, Ms. Rivlin, you are not considered a rabid conservative, are 

you? 

41 

Ms. RIVLIN. I hope not. 

[laughter] 

Mr. DUFFY. I would think not. And you agree that—listen, if we 

are looking to fix this problem, it is not inconsistent to say we are 

looking out for poor Americans and fixing a future debt crisis, 

right? As a nonconservative, you would agree with that statement? 

And you have made it here, right? 

Ms. RIVLIN. Absolutely. We all have a stake in this, especially 

people who don’t earn enough. 

Mr. DUFFY. And, Mr. Bernstein, you are making comments about 

what happens to our seniors today who make $24,000, $25,000 a 

year. I have a lot of those people in my district. I am concerned 

about what happens with these programs for them. 

But 15 years from now, there will be another group of seniors 

who are going to retire, right? And they are going to be making 

$24,000, $25,000, $27,000 a year. And if this system isn’t fixed, 

these programs won’t be available for them, will they? 

Mr. BERNSTEIN. No, they will be 75 percent available to them, 

but that is not adequate. So, I agree with your point. 

Mr. DUFFY. So we are cutting our future poor seniors, if we don’t 

fix— 

Mr. BERNSTEIN. My only point is, don’t break Social Security to 

fix Social Security. In other words, if someone says, fix Social Security, I am not sure what they are saying. If they are saying, let’s 

broadly cut benefits across the scale or slow the growth rate of benefits across the scale, you are going to end up hurting people who 

actually depend on that income. That is the point. 

Mr. HOLTZ-EAKIN. Can I— 

Mr. DUFFY. And by not fixing the problem, you are going to hurt 

poor people and those who haven’t saved as much as they should 

have either way? Mr. Holtz-Eakin, you have— 

Mr. HOLTZ-EAKIN. I think that is unnecessarily alarmist. There 

have been a lot of Social Security reform plans. Dr. Rivlin is the 

author of some of them. All of them involve raising the minimum 

benefit. People are very cognizant of the need to fix the system and 

take care of poor people, but I don’t think this is even on the table. 

Mr. BERNSTEIN. I think it is on the table, because it is not just 

the minimum benefit. Remember, I am talking about the median 

recipient. 

Mr. DUFFY. And just—I have to yield back in one moment, but 

when—maybe we have— 

Mr. HUIZENGA. Or right now. 

Mr. DUFFY. Or right now. I think— 

[laughter] 

Willie Sutton said he robs banks because that is where the 

money is. I think, as you said, Ms. Rivlin, in health care, that is 

where the money is, and I think that is where the conversation has 

to start. I yield back. 

Mr. HUIZENGA. The gentleman from Wisconsin kindly yields 

back. 

And with that, we go to the gentleman prepared for the snow 

today in his sweater, Mr. Himes from Connecticut. 

42 

Mr. HIMES. Thank you, Mr. Chairman. And let me thank you all 

again. We are deep into hour number 3, and I really appreciate 

your work. 

I sometimes joke that in the last 5 years, I have put on probably 

10 pounds in various dinners with Maya MacGuineas and Alan 

Simpson and Erskine Bowles and others. You have been in those 

rooms, too, really helping to educate us, and thank you for that 

commitment and for your time today. 

I have actually been encouraged by the fact that the conversation, I think, has been pretty real today. We have minimized the 

partisanship and the politicking. So I want to just ask three categories of questions. The first is, one of the things that I think has 

actually set us back, perhaps more on this side of the aisle than 

the other, is that for the last 5 or 6 years, we have heard these 

constant sort of apocalyptic warnings that we are 1 week from 

being Greece, that we are, as Alan Simpson—and don’t get me 

wrong, I have an immense amount of respect for him—labeled it, 

the moment of truth, the possibility that we are months away from 

skyrocketing interest rates. I understand this is a difficult question, but I think it is important. 

The kind of specter of skyrocketing interest rates, a loss of faith 

in the U.S.’s credit, is anybody willing to sort of offer a projection? 

Are we weeks, months, years, decades? How long do we have? Because I actually do think we will address this problem. How long 

do we have? 

Ms. RIVLIN. I think we are quite a long way from an apocalypse 

of a sovereign debt crisis, but that doesn’t mean we can wait to fix 

the problem, because the things you need to do to fix it take so long 

to phase in, if you do it sensibly, that we needed to start 2 years 

ago or 20 years ago to do them right, and now it is the time to 

start. 

Mr. COTE. I find it interesting, with a prediction of a crisis, that 

there is oftentimes a feeling that you can just start from where you 

are and then start drawing the line. Then it is just a linear growth 

of what the explosion possibility is, when in reality you can’t predict when the herd turns. And when the herd turns, it is too late. 

And to the extent that you wait to find out when that is, that 

is going to be extremely painful for everybody, so it is not predictable. The specter is there, but none of us knows exactly where it 

is and when that herd turns against you. And when it does happen, 

it is too late. 

Mr. HIMES. I appreciate that. So it is fair to say—and I completely agree—it is better to have addressed it long ago or now 

than to postpone. But it is fair to say that we are not a year or 

2 away from skyrocketing interest rates—and, Ms. Rivlin, you said 

apocalypse, but this is not a next week or a next month problem? 

Ms. RIVLIN. Yes, I agree with that. 

Mr. HIMES. Okay, all right. Let me—one of the really disheartening things that occurred in the last couple of years was the 

President, at great cost to his own standing with his party, in his 

last budget offered meaningful and uncomfortable entitlement reform, so-called entitlement reform, in offering up the chained CPI. 

It is real. That is real money. It hurt him with his party. It hurt 

him with progressives, because, of course, chained CPI means that 

43 

some of our least wealthy seniors will get a little less money in 

their Social Security checks in the months and years to come. 

That good-faith and costly attempt at entitlement reform was 

met with the head of the RNCC saying, ‘‘We will attack the President for hurting seniors.’’ So that gives you a sense for the challenge that we face when partisanship torpedoes costly and goodfaith efforts at entitlement reform. 

So my question is, I do actually believe that most people in this 

room want to see Medicare and Social Security reformed for the 

long run in a way that insulates the disenfranchised and the vulnerable. I only have a minute. But I am wondering if you could 

each perhaps give us 2 or 3 thoughts on those actual initiatives 

within Social Security and Medicare that we should be willing to 

embrace on both sides of the aisle to achieve this. 

Mr. HOLTZ-EAKIN. I would say just one thing. I think both sides 

of the aisle have to be very clear to the American people that these 

programs need fixed. And until we stop pretending they are fine— 

you can keep Medicare as you have and Social Security as we know 

it—then any attempt to change it proceeds to be either partisan or 

pernicious in its foundations. We have to explain to them that the 

changes are necessary, the number-one— 

Mr. HIMES. No, I hear that. I asked for specific measures. And 

I hear you. And, look, it is a tiny minority of my colleagues who 

actually will stand in front of anybody and say this is fine into perpetuity. I think it is a little bit of a straw man. 

I am asking, what two or three things should we embrace across 

the aisle to address this problem? 

Ms. RIVLIN. I think it is a package. And the mistake of the President was to pull out that one thing. I would favor chained CPI as 

part of a Social Security reform that included an increase in the 

minimum benefit and the benefit for people who live a very long 

time, but a reduction in the revenues over time—in the benefits 

over time of very high-income people, not to zero, but phase it 

down, and increase in revenues. I think we should raise the cap on 

the Social Security payroll tax going forward. 

Mr. BERNSTEIN. I was going to agree with raising the maximum 

cap, as well as another idea that was in Rivlin-Domenici, which 

had to do with taking some revenue from the employer tax exemption for health insurance. It is worth looking into. It is a little more 

than we can get into right now— 

Ms. RIVLIN. Yes, that is very important. 

Mr. BERNSTEIN. —but I think it is a good idea. 

Mr. COTE. Chained CPI is one that always made sense to me. On 

the other side, I have always wondered—20 years ago, I was saying, I can’t count on Social Security being there for me, yet I am 

going to receive it. Great. 

Mr. HIMES. Thank you for your forbearance, Mr. Chairman. 

Mr. HUIZENGA. Yes, it is a rookie Chair mistake. 

[laughter] 

I got caught up in trying to make sure that we were equitably 

distributing our time here, and you snuck one past me. I guess 

maybe that was a make-up for the sweater comment. 

So with that, we go to Mr. Mulvaney from South Carolina for 5 

minutes. 

44 

Mr. MULVANEY. I thank the chairman, and I thank the participants. I always enjoy the opportunity to do this. I always enjoy the 

opportunity to sit down and talk about these very important issues. 

Obviously, it is a pleasure to have a chance to listen to Ms. Rivlin 

and Mr. Holtz-Eakin, for whom I have a great deal of respect. 

I don’t know you, Mr. Cote. It is the first time I have met you, 

but I have enjoyed what you have had to say today. Mr. Bernstein, 

you know that you and I don’t agree on many things. And as someone who is trained in economics, not in music and social welfare, 

as you were, to hear your comments on economics is sort of like listening to somebody scratch a blackboard, but, still, I appreciate the 

opportunity. 

And then I sit here and I wonder, does it really make a difference? Are we really accomplishing anything? We are sitting here 

today. We are trying to make our points. The other side is trying 

to make their points. And we are not going to fix this. We have a 

leader in the White House who refuses to engage, someone who 

doesn’t even—many members of this committee don’t even know 

who the White House liaison is. 

You are not going to solve this problem without leadership. They 

are not going to convince us that Mr. Bernstein is right. We are 

not going to convince them that Dr. Holtz-Eakin is right. That 

takes leadership and the type of leadership that traditionally in 

this country has come from the White House. Whether it be Ronald 

Reagan or Bill Clinton, we have had a President who was willing 

to engage on the difficult issues to try and drive some sort of resolution to these very, very complicated issues. 

And if we don’t get that, then the really important thing is something entirely different we haven’t discussed here. The really important thing then is, if we don’t fix it, all that really matters is, 

who is in charge when it breaks, us or them? That is what it comes 

down to. That was the issue in 2008, when we had the Great Recession, and the other side was entirely in charge and we had stimulus and bailouts and monetary policy that makes many of us pull 

our hair out. 

So the question becomes, who is going to be in charge the next 

time the system breaks? Who gets to fix it, us or them? So I think 

it is important that everybody knows who we are and what we 

stand for, who they are and what they stand for, and then they can 

decide. 

So with that, Dr. Bernstein, if I utter the phrase to you, ‘‘From 

each according to his abilities, to each according to his needs,’’ do 

you look upon that generally favorably or generally unfavorably? 

Mr. BERNSTEIN. Generally favorably. 

Mr. MULVANEY. Thank you, sir. I have no further questions. 

Mr. HUIZENGA. The gentleman yields back in a very unusual 

move, giving up time, but I appreciate it. 

With that, we go to Mr. Foster from Illinois for 5 minutes. 

Mr. FOSTER. Thank you, Mr. Chairman. 

And, let’s see. I believe I had a slide coming up on the monitor, 

which maybe we caught the monitor operator golf cart. This is the 

graph that I hope—there it is. This is Peter Orszag’s graph of the 

year, which shows the bending of the cost curve. The fraction of 

GDP devoted to Medicare spending both current to the current law 

45 

projection and according to what is—what you would anticipate according to the measured growth rate from 2008 to 2012. 

As a scientist, I am very data-driven, and so I think it is very 

interesting to look at this and to see that, instead of rising from 

3.5 percent to roughly 7 percent, that actually if you look at the 

data for the last 4 years, you will see that it affects—it bumps up 

slightly as the boomers retire and need the Medicare, and then 

goes back to 3.5 percent. 

And so my question, if this is, in fact, the way things play out, 

if we have, in fact, bent the cost curve, with a combination of the 

stimulus spending and medical health records and everything in 

Obamacare, the restructuring of the medical industry simply to be 

more—you can argue about what the reason is, but if this is the 

truth, this is the way things play out, is it broken? Is it a crisis? 

Mr. BERNSTEIN. If costs truly grow in the health care system at 

3.5 percent instead of 7 percent for all those years— 

Mr. FOSTER. This is not a—this is the fraction of GDP, right? 

The— 

Mr. BERNSTEIN. Oh, okay. 

Mr. FOSTER. The Y axis is the fraction of GDP currently—roughly 3.5— 

Mr. BERNSTEIN. Same comment. As a fraction of GDP, if those 

costs stay there, Medicare spending stays there as opposed to the 

blue line, we have successfully bent the cost curve, which is—as I 

think all of us have said—an essential goal of achieving a sustainable budget path. I actually think there is no sustainable path that 

doesn’t pass through that gateway. 

The question is, the gains that have been achieved, 2008 to 2012, 

are assuming to continue to 2085. That is a very broad assumption. 

I very much hope it is correct, and I also very much—and I am a 

student of Peter’s work on this—believe that he is on the right 

track when he identifies the very mechanisms, some of which you 

ticked off, that appear to be working. 

So what I have said in my testimony and what I come from— 

and what I take away from that graph is that we have to monitor 

these gains and make sure that they stick. The last thing you 

would want to do is to repeal measures that have helped to generate them. 

Mr. FOSTER. Okay, thank you. Ms. Rivlin? 

Ms. RIVLIN. I agree with that, but I think we need to work very, 

very hard to make sure that curve doesn’t start accelerating again, 

because there are extreme upward pressures. Doctors are learning 

every day how to do more things and extend life, and some of those 

things are very expensive. So we have to keep working on, how do 

we keep that curve bent? 

Mr. FOSTER. All right. But if we succeed at bending the medical 

curve like this, then can we solve it much less painfully on the revenue side? 

Ms. RIVLIN. Yes. If health care spending isn’t going up faster 

than GDP, we have a much smaller problem to solve. 

Mr. FOSTER. Mr. Holtz-Eakin? 

Mr. HOLTZ-EAKIN. I would just worry about the timescale on 

that. You will notice that it keeps going up through—it looks like 

2035, and we are already at 78 percent debt-to-GDP at the end of 

46 

the budget window, Social Security is going up, this is going up, 

all the other health programs go up. I am not sure you get to the 

part where it goes down. We have a big fiscal problem, and we 

need to fix it. 

Mr. FOSTER. Yes, Mr. Cote? 

Mr. COTE. Yes, from my perspective, given the 30 years of history 

prior to that, I don’t know that I would bet on this unique 5-year 

period following the Great Recession as indicative of what the future is going to be. So I have all the same cautions that the other 

witnesses expressed. I hope it works out this way. It will clearly 

make it better. But I sure wouldn’t bet on it. 

Mr. FOSTER. Yes. In fact, it is my belief—this is only through 

2012—that 2013 numbers are, in fact, lower, so that we are, in 

fact, better off than the dashed red line. This plot is about a year 

old. 

Let’s see. If I could change subjects a little bit, there was some 

discussion about uncertainty. And there are several things that 

have come through this committee having to do with uncertainty 

generated by government. And one of the big things that people 

come to me with is the business of terrorism risk insurance and 

that there are a number of contracts that have this written into it. 

If it is not reauthorized, there is a big problem with a very large 

number of commercial agreements. 

And I was wondering if you agree that this is a significant contributor to uncertainty when these key programs, like terrorism 

risk insurance, like the Export-Import Bank, and whether even a 

30-year mortgage will exist, if this also contributes to uncertainty. 

Mr. BERNSTEIN. Absolutely. I would argue even more so than 

some of the other factors discussed today. 

Mr. FOSTER. Okay. Thank you, I will yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Kentucky, Mr. 

Barr, for 5 minutes. Oops, I’m sorry. Excuse me. Too quick. I recognize the gentleman from Illinois for 5 minutes, Mr. Hultgren. 

Mr. HULTGREN. Thank you, Mr. Chairman. I appreciate that. 

Thank you, Mr. Barr, too. 

Thank you for being here. This has been a very interesting hearing for me and an important start, and I think we would all agree 

that this is such an important start. So, Mr. Chairman, thank you 

for doing this. I look forward to these next months that we can 

hopefully really dig into this and see some significant steps. 

Mr. Cote, I want to start with you. First, I want to thank you 

for your great work. Another thing I am passionate about is STEM 

education and I appreciate you, I think, being recognized as one of 

the 100 CEO leaders on STEM education. Thank you for your great 

work there. That is very important for all of us, as well. 

I want to ask you—I know, with your role at Honeywell, you 

have had a great opportunity to meet with other business leaders 

around the world, world leaders. I know you have touched on this 

a little bit, but I wonder if you could talk a little bit more about 

how you hear for them, their perspective of our debt, impacting our 

competitiveness on the world stage. 

Mr. COTE. I think the way to think about it is that when you 

look at developed economies, everybody is looking to us to provide 

47 

leadership for how we are going to get out of this thing. And I am 

struck by a comment that the ambassador from Romania told me 

at one point, and this is when I was on the Simpson-Bowles Commission. His comment was, ‘‘We really hope you address your debt.’’ 

And I said, ‘‘Well, yes, I understand, and it is important for us.’’ 

And he said, ‘‘No, no, it is not just important for you. It is important for us, because in a lot of our countries, we look at it and say, 

if even the United States can’t figure this out and we count on 

them being the people to provide leadership, then what are we 

going to do? 

That really struck me at the time. And I said, that is a very good 

point. We need to provide leadership to the world. If you take a 

look at, whether it is Europe, the United States, Japan, or India, 

everybody is dealing with these big debt problems. This is an opportunity for us to provide leadership to the world. 

Mr. HULTGREN. Thank you. I agree. 

Let me—Mr. Cote, in your testimony, you talked about how this 

isn’t just a Wall Street problem, but also a Main Street problem. 

In my opening remarks, I mentioned something that I hear all the 

time from my constituents, that life is less affordable these days. 

Even people who have been working, haven’t lost their job, to them, 

life is less affordable. 

I wondered if you could—I would open it up to any of you for a 

quick comment on, how do you see this impacting costs of goods, 

daily goods that people use, the fact that the debt is as significant 

as it is? Is there a connection of it really flowing down and impacting consumers? And I would open it to any of you. 

Mr. BERNSTEIN. I don’t see a clear connection between consumer 

prices. One of the things that tends to happen in the history of 

these variables, the economy slows down, the debt increases, and 

because of the economic slowdown, inflation tends to taper off, and 

that is what we have seen. So certainly there are longer-run stories 

where pressures could occur on interest rates and on prices, but in 

the near term, no. 

Mr. HULTGREN. Does anyone else have any thoughts on this? 

Ms. RIVLIN. I suspect—though I don’t know—that many of— 

when many of your constituents say life is less affordable, they 

mean they aren’t earning as much as—their incomes haven’t gone 

up as fast as they expected them to. It is not so much the prices. 

It is the slow growth in wages. 

Mr. HULTGREN. I am hearing both. Certainly, filling up your gas 

tank is one of those things that people feel. Like going to the grocery store, you just don’t get as much, and I think all of this ties 

back together. 

Dr. Holtz-Eakin, did you have— 

Mr. HOLTZ-EAKIN. I think this is the key point. This has been a 

bad recovery from a jobs perspective, but it has been even worse 

from an income perspective. And so for those who have jobs, real 

wages aren’t rising. And then, when you get spikes in food and energy prices, it feels bad. I don’t think that is any—I think that is 

the key. 

Mr. HULTGREN. Let me cover one last thing. I have just a minute 

left. But Dr. Rivlin mentioned the idea that part of the problem we 

have in getting this on the national agenda is our short national 

48 

attention span. I wondered if you have any suggestions for us of 

how—what is one message that Americans need to hear from their 

Members of Congress so that they will focus more on this problem? 

Ms. RIVLIN. I think the message is, we can get together across 

the aisle and fix it, rather than just talking about it. We need to 

be working on solutions. 

Mr. HOLTZ-EAKIN. In my experience, no one cares about the Federal budget or the debt. They do care about the economy. And this 

is about better economic performance. 

Mr. COTE. I agree on the economy. And what I would love politicians to be doing out there is talking about this as a holistic issue, 

not just a tax issue, not just a spending issue. Not just, ‘‘They are 

trying to take advantage of you. These guys ate your lunch.’’ Rather, it should be a discussion about, ‘‘Look, we really have an issue 

here, and we have overextended ourselves, and we need to work together to figure it out.’’ 

Mr. HULTGREN. Yes, and my time is winding down, so I appreciate, again, all of you. Thank you for being here. And I do hope 

that this can be something we can come together on and find real 

solutions. 

With that, I yield back. Thank you, Mr. Chairman. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Maryland, Mr. Delaney, for 5 minutes. 

Mr. DELANEY. Thank you, Mr. Chairman. 

And, Mr. Cote, I liked the way you just talked about the holistic 

issue, because it seems to me that—and you touched on this, I 

think, beautifully in your comments—the issue we have is a competitiveness issue. And that competitiveness issue is informed by 

the big macro trends in the world, which are globalization and 

technology. 

Unless we position ourselves as a country to spread out the benefits of globalization and technology more broadly around our society, we will continue to have the kind of economic picture we have 

today, which is very barbelled. 

And that is really the central issue. Our debt is a problem. Our 

debt ultimately, we all know, threatens the republic, but it is a particular problem in that context, it seems to me. It is not a problem 

in terms of today, does it affect—and you have obviously—you are 

closer to this than I am, but does it affect hiring decisions? Or does 

it affect the cost of living of average Americans? Because the data 

would probably suggest that it doesn’t, because our interest rates 

are so low, so even though the number is really big, the actual cost 

of the debt that is trickling down to consumers is not a big number. 

So it seems to me this problem is, in part, being described incorrectly. And I used to say in, when I was in the private sector, that 

you can’t solve a problem unless you can describe it well. We are 

not necessarily describing this problem well, because the problem 

with the debt is, number one, it does now and it will prevent us 

for a long time from doing the things we need to do to get our economy growing. 

And it also puts us in a position that if something really bad 

were to happen at the same time rates were going up, and those 

things could actually correspond, we have very little financial flexibility, and that is just a risk factor that we are carrying with us 

49 

as a Nation that we don’t fully appreciate. In other words, we have 

no margin of safety right now. 

You want to run the country with a margin of safety. I am sure 

you think about the balance sheet of your—you don’t run at your 

maximum leverage all the time, because you never know what is 

going to come up, but part of the issue is I think we look at the 

$17 trillion number and we say, we have to get that to zero, right? 

And that is just a totally unrealistic way to look at this problem. 

I am just interested in the panel’s opinion on whether we are actually thinking about this the right way, because it seems to me 

what we should be focusing on is the ratio between our economic 

growth and our debt as a percentage of our GDP. If we could have 

economic growth at 3 percent, like, Mr. Cote, you optimistically 

mentioned earlier, and if we get our debt down to 1.5 percent of 

GDP, if we could do that, we are done, right? 

Because it seems to me, over 20 years, if our economy grows at 3 percent, it will go from like a $17 trillion economy to a $30 trillion economy. And if we have 1.5 percent debt as a percentage of 

GDP over 30 years, it will go from like $12 trillion to $18 trillion, 

and so these ratios will go from 72 percent to 60 percent. That 

should be our goal. 

Do you all agree that is the way we should be thinking? Because 

we don’t actually have to have zero deficit as a country. And I 

think to think that we are going to have a deficit of zero in light 

of the demographics of our Nation right now, I just think is almost 

an unrealistic goal. And if you set an unrealistic goal, you can’t 

achieve it, because people kind of give up before they start. 

I am just interested—maybe I will start with Mr. Cote, and go 

quickly down the line—if that is the right framing for us to be 

thinking about this question. 

Mr. COTE. I would have to run the math. Conceptually, what you 

said sounds interesting to me. My concern, though, would still be 

that we never forecast recessions. 

Mr. DELANEY. Right. 

Mr. COTE. And as I understand it, CBO is actually asked not to 

forecast recessions. 

Mr. DELANEY. Right. 

Mr. COTE. The thought that over the next 10 years there won’t 

be another one and how bad might it be and what kind of firepower 

we need and what kind of hole does that dig for us, over the next 

20 years with the demographic bubble really hitting us in the second decade, not this one, and the prospect of at least two recessions 

during that time, that needs to be factored into our consideration. 

And I am just fearful that it isn’t. 

Mr. DELANEY. Right. Ms. Rivlin? 

Ms. RIVLIN. I agree with the general spirit of your remark, which 

is what matters is the ratio of the debt to the GDP. And, remember, we have run this experiment. After World War II, that is exactly what we did. We grew the economy faster than the debt. It 

was a big success. 

Mr. DELANEY. But it seems to me, if we do what we all know we 

have to do—there is a screaming need in this country for us to reform the entitlement programs and the mandatory spending programs. We cannot get the debt as a percentage of GDP down to 

50 

that kind of 1.5 percent level, unless we do that. And we need to 

do things, Mr. Cote, you spoke about, in terms of a competitiveness 

agenda. 

And whether the number is 2 percent, 2.5 percent, or 3 percent 

economic growth, because you are right, 3 percent is good years, 

you get a couple of recessions along the way, it averages down to 

2.5 percent, that math still works, if we can get 1.5 percent to 2.5 

percent. 

Dr. Holtz-Eakin? 

Mr. HOLTZ-EAKIN. I am just going to agree with what has been 

said. The key indicator is debt relative to GDP. Our goal should be 

to stabilize it as quickly as possible and then send it south. And 

the— 

Mr. DELANEY. Where do you think across, say, the next 10 or 20 

years, the deficit as a percentage of GDP is a reasonable target for 

us? 

Mr. HOLTZ-EAKIN. I wouldn’t target the deficit. I would target 

the debt. Get the debt down, by either growing rapidly— 

Mr. DELANEY. To what percentage of our economy? 

Mr. HOLTZ-EAKIN. Get it back down to 30 percent, please, quickly. 

Mr. DELANEY. You think the— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Kentucky, Mr. 

Barr, for 5 minutes. 

Mr. BARR. Thank you, Mr. Chairman. And I appreciate my 

friend, the gentleman from Maryland’s, comments and questions 

relating to competitiveness and relating to the screaming need for 

entitlement reform, as he suggested. I agree with him, and I appreciate his perspective. 

To the point of competitiveness, Dr. Rivlin, I have a question for 

you. I wanted to ask whether you believe that raising taxes is a 

solution from a competitiveness standpoint or whether raising 

taxes would be a self-defeating effort. 

And I would reference a couple of observations about this, one 

from former CBO Director Peter Orszag, who said that tax rates 

would have to be raised substantially to finance the level of spending that we are projected to pursue on the baseline. The tax rate 

for the lowest tax bracket would have to be increased from 10 percent to 25 percent. The tax rate on incomes in the current 25 percent bracket would have to be increased to 63 percent. And the tax 

rate of the highest bracket would have to be raised from 35 percent 

to 88 percent. And the top corporate income tax rate, which by the 

way is the highest in the world right now, would also have to increase from 35 percent to 88 percent. 

And then, also, a second observation—the Third Way Foundation, which is, I believe, a liberal-leaning think tank in a 2012 report indicated that relying on taxes alone to hold long-term deficits 

at 3 percent of GDP would require phasing in a 60 percent tax increase on median-income families, raising their annual tax burden 

$6,200 in 2012 dollars. 

So with that in mind, is raising taxes a sound deficit reduction 

strategy? Or would it compromise American competitiveness and be 

self-defeating as we look to reduce the deficit? 

51 

Ms. RIVLIN. I think all of us have agreed that we can’t solve this 

problem by revenues alone or by spending alone or by growth 

alone. That is not controversial. And I am not personally in favor 

of raising tax rates at all. I think we can reform our Tax Code, and 

Chairman Camp has a good example of how to do this, by broadening the base, by getting rid of spending in the Tax Code or reducing it drastically, and that will allow us to lower the rate— 

Mr. BARR. Republicans often— 

Ms. RIVLIN. —and get us more revenue in the bargain. 

Mr. BARR. Dr. Rivlin, Republicans often talk about tax relief and 

Democrats often talk about focusing on raising revenue. Are there 

tax cuts, are there tax relief proposals which would also produce 

the kind of growth that would raise revenue? And could you identify those for us? 

Ms. RIVLIN. Yes, I think that the plan in Simpson-Bowles, and 

the plan in Domenici-Rivlin, which was even better, are examples 

of such an approach. 

Mr. BARR. Okay. And to Dr. Holtz-Eakin, Keynesians regularly 

and accurately, in my opinion, describe fiscal restraint as austerity. 

They criticize spending cuts as harmful to growth. Two questions. 

One, are the Keynesians right? Do spending cuts necessarily impair economic growth? And, two, are all spending cuts equal? And 

which spending reforms are the kind of reforms which would have 

less negative impact on the economy? 

Mr. HOLTZ-EAKIN. I will take the second one first. Not all spending cuts are created equal. Some are truly investments, and we 

genuinely need better infrastructure programs in the United 

States. I was on a commission that recommended some. I would be 

happy to get you the report. Those are very different—cutting those 

is very different than cutting a transfer program. And so, that is 

point number one. 

And the spending cuts we need to worry about. The spending we 

need to focus on is where the money is, in the mandatory spending. 

Mr. BARR. Mandatory spending. Thank you. And for any of the 

panelists here, I wanted to ask you about the impact that the national debt could potentially have on our foreign policy decisionmaking in this country. In an article in Barron’s last week on Russian holdings of U.S. Treasuries, an adviser to President Putin said 

that they hold a decent amount of Treasury bonds, U.S. Treasury 

bonds, more than $200 billion, and if the United States dares to 

freeze accounts of Russian businesses and citizens, they can no 

longer view America as a reliable partner, and they will encourage 

everybody to dump U.S. Treasury bonds, get rid of dollars in an unreliable currency, and leave the U.S. market. 

In evaluating possible responses to Putin, Putin’s aggression in 

Ukraine, how much weight should be put on the fact that Russia 

owns a material amount of U.S. Treasuries? 

Mr. HOLTZ-EAKIN. I don’t think you should look at that incident 

in isolation. The point is that the United States is a reserve currency, which helps us in all aspects of our international affairs. The 

U.S. Treasuries are the foundation of the global financial system. 

And liquid Treasuries are important. 

52 

Preserving that, the reserve currency and the liquid Treasury, 

means getting our fiscal house in order. If we do that, we negotiate 

in all circumstances from the high ground. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Fitzpatrick, for 5 minutes. 

Mr. FITZPATRICK. I thank the chairman for calling the hearing. 

Chairman Hensarling has really had a laser focus on the issue of 

the national debt since he took the chairmanship, which is really 

important, given the challenges in this town. And I agree that, 

when I came here in the class of 2010, there was an awful lot of 

focus on spending, debts, deficit, and the like, not so much anymore 

as issues sort of evolve around us, as Dr. Rivlin said in her opening 

comments. 

There is not as much attention today, although earlier this morning, the Peter G. Peterson Foundation issued a press release that 

says Americans remain troubled by the long-term fiscal outlook. 

Only 29 percent of Americans say the country is headed in the 

right direction in addressing our national debt, with 59 percent believing the country is heading in the wrong direction. It goes on to 

say that voters are deeply concerned about America’s long-term fiscal challenges. 

And although I don’t hear it as much as I used to, I still hear 

it when I go back into my district in Bucks County, Pennsylvania. 

Mr. Chairman, these letters have all been received in my office 

since January of this year. And they are all about the national 

debt. I would ask unanimous consent that they be submitted as 

part of the record, if I could. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. FITZPATRICK. I appreciate that. 

The interesting thing about these letters is that every one of 

them was written by a teenager concerned about the national debt. 

Alex Frischmann of Newton, which is in Council Rock School District, a great school district in south-central Bucks County, wrote 

to me in February. He said, ‘‘This enormous debt that our country 

is experiencing is depressing growth right now. For Americans, this 

means fewer jobs, lower incomes, and depressed behavior/attitude. 

I believe if our nation continues to go deeper into debt, unemployment rates will continue to increase, and businesses in our country 

will feel the effects.’’ 

Tia Farese, in January, wrote that, ‘‘I am worried because interest costs on debt takes away from the United States Government 

spending on important programs like education. I am especially 

worried about how increasing the national debt will affect future 

generations, including mine, because we will be paying off the debt 

and the interest for the spending by others today. I believe forcing 

future generations to pay for debt created today is not fair, because 

we were not the ones to cause our country to go into debt.’’ 

And we have had a great discussion here today in the hearing 

about debt-to-GDP and ratios and baselines. But there is a whole 

moral question, as well, that all of us need to address and need to 

think about as we go about making the important decisions. 

53 

And I would ask each of you, if you would, if Alex were here or 

Tia were here, what would you say to them about the future of 

their country? 

Mr. COTE. I would say their letters are right on the money, and 

I wish they would write to all the other teenagers in the country 

to do the same thing, because they are absolutely right. They are 

the ones who are going to be the most affected by this and the ones 

who are going to inherit all the problems that we are creating. 

Mr. FITZPATRICK. Dr. Rivlin? 

Ms. RIVLIN. I agree. And I do think it is a moral issue. But it 

isn’t a simple issue. We really have to work through this problem 

in a bipartisan way. 

Mr. HOLTZ-EAKIN. I am deeply concerned that we will default on 

the traditional commitment to leave behind an economy that is 

larger and stronger and a Nation that is more secure, because we 

will not take care of these problems. And I think that is a tremendous immorality visited on future generations. 

Mr. BERNSTEIN. I hope that they maintain that level of insight 

as they grow up. Those are some very precocious constituents you 

have there. 

Mr. FITZPATRICK. Elyse McMenamin suggests removing baseline 

budgeting from annual Federal budgets permanently. The theory is 

that you just—you start with a baseline, and you increase each and 

every year. Any thoughts on removing baseline budgeting? Dr. 

Bernstein? 

Mr. BERNSTEIN. I think baselines are—we have a couple of 

former CBO Directors up here. I think it has become incredibly 

confusing. There are numerous baselines, and I think the average 

person, even if they wanted to, would have a very hard time making sense of this, so somehow we have to do a better job of explaining it. 

Sometimes I think it would be good if we occasionally thought 

about zero-based budgeting, where we actually built the budget 

from the ground up and looked at every piece of it with a more 

careful eye. 

Mr. FITZPATRICK. Dr. Eakin? 

Mr. HOLTZ-EAKIN. I am not a big fan of zero-based budgeting, because realistically that is almost impossible to do. There are lots 

of improvements that can be made to the baseline budgeting, so 

build a better baseline. Don’t throw it out. 

Ms. RIVLIN. I agree with that. You have to start from where you 

are, and you need to know where you are. 

Mr. FITZPATRICK. I yield back. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

There are no other Members in the queue. 

I would like to thank our witnesses for their testimony today. 

And the Chair would note, notwithstanding the compelling nature 

of the testimony, the national debt clock increased roughly $385 

million during your testimony. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without obVerDate Nov 24 2008 11:16 Nov 04, 2014 Jkt 088533 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 K:\DOCS\88533.TXT TERRI
54 

jection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

This hearing stands adjourned. 

[Whereupon, at 12:53 p.m., the hearing was adjourned.] 

(55) 

A P P E N D I X 

March 25, 2014 

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