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89–892—PDF 2014

S. HRG. 113–411 

INNOVATIVE IDEAS TO STRENGTHEN AND 

EXPAND THE MIDDLE CLASS 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

MARCH 13, 2014 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

RON WYDEN, Oregon, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

MARK R. WARNER, Virginia 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JOSHUA SHEINKMAN, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

(II) 

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee on 

Finance .................................................................................................................. 1 

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 4 

WITNESSES 

Swonk, Diane, chief economist and senior managing director, Mesirow Financial, Chicago, IL .................................................................................................... 7 

Packer, George, staff writer, The New Yorker magazine, and author of ‘‘The 

Unwinding: An Inner History of the New America,’’ Brooklyn, NY ................ 11 

Dunkelberg, William C., Ph.D., chief economist, National Federation of Independent Business, Washington, DC ................................................................... 14 

Lindsey, Lawrence B., Ph.D., president and CEO, The Lindsey Group, Fairfax, VA .................................................................................................................. 16 

Burman, Leonard E., Ph.D., director, Tax Policy Center, The Urban Institute, 

Washington, DC ................................................................................................... 19 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Burman, Leonard E., Ph.D.: 

Testimony .......................................................................................................... 19 

Prepared statement .......................................................................................... 45 

Responses to questions from committee members ......................................... 60 

Dunkelberg, William C., Ph.D.: 

Testimony .......................................................................................................... 14 

Prepared statement .......................................................................................... 67 

Responses to questions from committee members ......................................... 71 

Hatch, Hon. Orrin G.: 

Opening statement ........................................................................................... 4 

Prepared statement .......................................................................................... 77 

Lindsey, Lawrence B., Ph.D.: 

Testimony .......................................................................................................... 16 

Prepared statement .......................................................................................... 80 

Responses to questions from committee members ......................................... 92 

Packer, George: 

Testimony .......................................................................................................... 11 

Prepared statement .......................................................................................... 95 

Swonk, Diane: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 100 

Responses to questions from committee members ......................................... 107 

Wyden, Hon. Ron: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 109 

(1) 

INNOVATIVE IDEAS TO STRENGTHEN AND 

EXPAND THE MIDDLE CLASS 

THURSDAY, MARCH 13, 2014 

U.S. SENATE, 

COMMITTEE ON FINANCE, 

Washington, DC. 

The hearing was convened, pursuant to notice, at 10:09 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Ron Wyden 

(chairman of the committee) presiding. 

Present: Senators Stabenow, Carper, Brown, Bennet, Casey, 

Warner, Hatch, Grassley, and Thune. 

Also present: Democratic Staff: Adam Carasso, Senior Tax and 

Economic Advisor; Joshua Sheinkman, Staff Director; Michael 

Evans, General Counsel; Laura Berntsen, Senior Domestic Policy 

Advisor; and Todd Metcalf, Chief Tax Counsel. Republican Staff: 

Mark Prater, Deputy Staff Director and Chief Tax Counsel; Chris 

Campbell, Staff Director; Jeff Wrase, Chief Economist; Preston 

Rutledge, Tax Counsel; and Jim Lyons, Tax Counsel. 

OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR 

FROM OREGON, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The Finance Committee will come to order. 

A century ago, shortly after the Ford Motor Company introduced 

its Model T, Henry Ford shocked the business world by increasing 

his workers’ pay to $5 a day. It was more than double the going 

rate, but Ford knew it would guarantee he would have the best 

workforce in Detroit. It also meant his employees could afford to 

buy the cars that they built with their own hands. It ensured that 

they could own homes, send their kids to schools, and accumulate 

wealth. 

It was the birth of the middle class in the United States. And 

in the 100 years since then, that middle class has defined the 

strength of America. Yet today, the middle class is under siege. In 

spite of the work ethic, ingenuity, and productivity of millions of 

Americans, globalization, technological change, and flawed tax policies have contributed to a steep decline in manufacturing jobs and 

wages. 

Since 2000, employment in manufacturing has dropped by nearly 

a third, and those same forces are putting pressure on service industries. The portion of our economy made up by wages and salaries, the lifeblood of the middle class, is now at the lowest level on 

record, leaving many hardworking families struggling from paycheck to paycheck. And because consumer spending drives 70 perVerDate Mar 15 2010 16:49 Oct 16, 2014 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 R:\DOCS\89892.000 TIMD
2 

cent of the American economy, that is a prescription for slower economic growth. 

Today, this committee is going to begin, on a bipartisan basis, a 

drive to develop policies that get more Americans inside the 

middle-class winner’s circle. And we need to focus on this, because 

the alternative is unacceptable. If working families fall further behind now, fewer will be able to climb America’s ladder of economic 

mobility and secure better futures for their kids. 

As those who fight our wars, educate our children, and hold our 

communities together, the middle class deserves better. I believe 

this committee, working on a bipartisan basis, has the ability to 

produce policies that can help buck those trends, build new pathways into the middle class, and expand the winner’s circle for all. 

And here are just several ideas for getting started. First, America has to find fresh policies to improve education and lifelong 

learning and use them as springboards to economic opportunity. It 

is critically important that our students not only have access to 

higher education, but also the ability to prosper once they have gotten in the door. 

Senators Warner, Rubio, and I have offered a bipartisan proposal 

that would get up-to-date and accurate information to students, allowing them to compare schools and programs based on completion 

rates, debt, employment, and earnings. 

With today’s technology, it seems almost unbelievable that students are being denied access to that information. And, in addition 

to that step, additional efforts need to be launched to improve the 

rigid structure of Federal aid so that students can put that information to good use. 

It has been said that one of the best ways to raise wages for the 

middle class is to have businesses compete for skilled, educated 

workers. Our bipartisan bill helps promote that. 

Any effort to improve education also has to include people outside the school system, such as workers who want to learn new 

skills and find unique pathways to new careers. In my home State, 

I often talk with small business owners who want to hire carpenters or electricians, but cannot find people with the skill sets 

that are needed. So there is real potential here for apprenticeships 

to help bridge that gap as a pathway to the middle class. Our colleague, Senator Cantwell of Washington, here on the committee, 

has done good work on this issue, and I look forward to bipartisan 

efforts to partner with her on that. 

A second boost for the middle class would be finding policies that 

encourage people to save and especially get started saving early in 

life. I have been struck by the interest conservatives and liberals 

have shown in creating child savings accounts, and I am interested, 

again, in working with colleagues on both sides of the aisle to explore that. 

What is indisputable is that giving everybody in America the opportunity to save and get ahead—and especially those who are 

struggling today—is something that will help sustain and expand 

the middle class. 

Our third focus is going to be retirement security. Too often, our 

families save money for a lifetime only to have it wiped away by 

chronic conditions like diabetes, cancer, and heart disease. Millions 

3 

of Americans of all generations suffer from these conditions, and it 

is not just the government that bears the cost. 

I have been pleased to partner with Senator Isakson of Georgia, 

another outstanding member of this committee, to come up with a 

bill that would bring health care providers together to keep these 

chronic care patients as healthy as possible in their homes and in 

our communities. 

Fourth, steps ought to be taken to make the tax code more 

friendly to the middle class and not put up barriers to its growth. 

Right now, a nurse who is married to a police officer in Medford, 

OR could be paying a higher tax rate than someone who makes a 

living entirely off investments. Any tax reform plan needs to narrow that gap. 

Over the years, I have had a bipartisan proposal with Senator 

Gregg, Senator Begich, and Senator Coats, and we would do just 

that. And, on a bipartisan basis, we have sought to triple the 

standard deduction to put more money into the pockets of our families. 

A bedrock principle for tax reform ought to be to give the middle 

class and everybody else in America the chance to get ahead. Right 

now, despite good intentions, it does not always work that way. 

Take, for example, the child and dependent care tax credit. Because of the way that credit is structured, a young family just 

starting out might not get any meaningful benefit. Even with a 

meager level of assistance, child care could still be unaffordable, 

and a parent might have to sacrifice a career to stay at home. It 

is an obvious flaw in tax policy that, again, prevents our families 

from climbing up America’s economic ladder. 

Our people have proven time and time again that they are an almost endless fountain of ingenuity and innovation. American ideas 

and the businesses built on them have transformed the world. 

Mr. Packer, who will be here with us shortly, writes about Americans like Dean Price and Peter Thiel, who want nothing more than 

to build a business from the ground up and nourish its growth. Our 

tax code should create a pathway for innovators and entrepreneurs 

and not erect barriers to their success. Millions of Americans 

dream of being the next Elon Musk or Mark Zuckerberg, and our 

focus should be on policies that lay the groundwork for bringing 

those dreams closer to reality. 

And too often, tax policies that should encourage innovation and 

entrepreneurship do not deliver. Far too often, conversations about 

tax reform focus on the big businesses, the big, successful businesses, and ignore the rest. But economic growth and the jobs that 

follow so often flow from our small businesses. So, as this committee continues to consider the best ways, again, on a bipartisan 

basis, to fix this broken tax code, let us ensure that young startups 

and green-shoot entrepreneurs have the opportunity to succeed. 

Working taxpayers, I would also point out, face an obvious double standard with respect to enforcement of the tax law. It is more 

likely that people working their way out of poverty will have their 

Earned Income Tax Credits reviewed and denied than wealthy taxdodgers will have their tax shelters audited. 

Finally, the government has an obligation to maintain and 

strengthen the social safety net. The promise to hardworking 

4 

Americans ought to be twofold. Just as it helps them climb into the 

middle class when times are good, let us also take steps to prevent 

our people from falling into poverty needlessly when times are bad. 

That means boosting the minimum wage, extending unemployment 

insurance, and updating the workforce programs that connect our 

people with the jobs of the future. 

The safety net needs to be strong and modern in order to sustain 

a thriving middle class. The best way to reinvigorate the American 

economy is with a thriving, educated middle class that can find 

good-paying jobs, afford homes and cars, and be able to accumulate 

wealth over a lifetime. That is the ideal Americans have aspired to 

since, in effect, the middle class was born in Detroit a century ago. 

Our challenge is to take the policies I have mentioned—education, savings, retirement savings, taxes, and a strong safety 

net—and come together as a committee and help retool these policies into a stronger economic engine for lasting economic prosperity. 

I am going to turn it over to Senator Hatch now. I also want to 

thank our panel. We have a superb panel of witnesses. And, Senator Hatch and Senator Grassley, both of whom I have had the 

pleasure of working with often, I look forward to pursuing innovative ideas with you on these issues in a bipartisan way. 

[The prepared statement of Chairman Wyden appears in the appendix.] 

The CHAIRMAN. Let me recognize Senator Hatch. 

OPENING STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH 

Senator HATCH. Thank you, Mr. Chairman. I do want to thank 

you for holding today’s hearing. I also want to thank our witnesses 

for being here. It is really important that you took time out of your 

busy schedules to be with us and help us to understand these 

issues better. 

Now, this hearing is on ideas to strengthen and expand the middle class, and focusing on the middle class is, of course, always a 

safe political landing spot. A host of surveys reveals that many 

Americans see themselves as residing in the so-called ‘‘middle 

class,’’ including those who, to an outside observer, would appear 

to reside elsewhere. 

That being the case, when politicians say they are working for 

the middle class, there is clearly a large constituency. Yet I do not 

believe that the motivation for today’s hearing is politics or class 

warfare, at least I hope that is not the case, and I am quite sure 

it is not, with our distinguished chairman. The motivation, I trust, 

is to explore the evolution of middle-income families in America 

over the past few decades, to discuss what can be done to enhance 

their prosperity in the future, and to find ways to allow lowerincome Americans to climb into the middle class or beyond. 

There are two ways to analyze the condition of middle-income 

Americans. One way is to cherry-pick economic data that conform 

to the policy or political points that one wants to make without 

checking to see if the position is also supported by other evidence. 

The other way is to analyze data to see if they are consistent with 

5 

one’s position and to compare the findings with different measurements, datasets, or economic models. 

If you are only interested in making a political point, you are 

likely to choose the first option. But if you really want to see what 

is happening with the middle class, the second option is the better 

one. 

I mention this because, in debates concerning things like inequality and middle-class incomes, people often tend to choose the first 

option, utilizing only the data that confirms their preconceived notions. For example, if you try to measure median income using a 

measure that is pre-tax and pre-transfer, and with the tax unit as 

the unit of measurement, you find growth of only around 3 percent 

between 1979 and 2007, which is consistent with the common 

claims of middle-class stagnation. 

However, if you look at post-tax, post-transfer income data that 

includes valuation of health insurance benefits and take a sizeadjusted household as the unit of measurement, you find that, over 

the same period, median income has grown by close to 40 percent, 

which is decidedly less stagnant. There are similar measurement 

issues when it comes to data commonly used to analyze income inequality. 

Mr. Chairman, I know that I make these observations at great 

risk of being accused of denying stagnation, inequality, or any 

number of struggles facing the middle class. However, given what 

I think is the spirit of this hearing, I believe that we should fully 

examine the issues and measures surrounding the middle class, including income growth and income inequality. That is the only way 

we can get to the heart of the problems that exist. And we should 

be addressing these problems, and we should be addressing what 

our priorities should be. 

Mr. Chairman, I can point to positive examples very close to 

home. The latest data from Harvard’s Equality of Opportunity 

Project ranked Salt Lake City as the number-one city in America 

in terms of upward mobility. 

Keep in mind that, in terms of policy, the vast majority of Utahans support a vibrant private sector. We seek lower taxes, individual responsibility, and less intrusive government, and we take 

a backseat to no one in terms of caring for the less fortunate in our 

communities. The means by which we care for the less fortunate 

is, by and large, through strong charitable institutions. I think 

Utah’s story is instructive on what we can do to help grow the middle class. 

Finally, Mr. Chairman, I must say that, while there has been a 

lot of rhetoric in recent years about the middle class, I believe that 

the Obama administration’s focus has been misplaced and that its 

policies have actually been hurting the middle class. Four and a 

half years after the end of the recession, economic growth remains 

sluggish, and the labor market remains depressed. Yet, in all that 

time, what has the administration been focused on? 

We have seen a massive expansion of our national debt due to 

policies like the failed stimulus. What little deficit reduction we 

have seen has been, by a factor of 9-to-1, due more to increased 

taxes than reductions in spending. And to date, the administration 

6 

is unwilling to do much of anything else unless there is yet another 

tax hike attached. 

We have seen the effort to pass and implement the Affordable 

Care Act, which further increased taxes and health care costs for 

middle-class families and is, according to the Congressional Budget 

Office, having an adverse impact on labor market incentives. We 

have seen a vastly expanded Federal bureaucracy through the 

Dodd-Frank Act, which has failed entirely to address known significant contributors to the recent financial crisis. And we have seen 

a regulatory effort from the EPA to the Department of Labor to the 

NLRB that has imposed costs on American businesses that will 

surely be passed along to employees and consumers in the middle 

class. 

I do not see a laser focus on job creation or growing the middle 

class anywhere in these policies. 

Now, Mr. Chairman, if we are serious about helping and expanding the middle class, and I think we should be, it needs to be more 

than just a slogan. Sadly, I believe that over the last 5 years, the 

talk about helping the middle class has not translated into policies 

that would actually do the job. 

I look forward to working with you, Mr. Chairman, to explore 

other ideas that will lead to a strong middle class and an economy 

with robust growth in jobs, private investments, and prosperity for 

all American families. And I think you are on the right track in 

raising these issues, but I hope that today’s hearing will provide us 

with some insights on how we can do better. I appreciate your efforts in having this hearing and creating this dialogue and discussion that I think may be very beneficial to our country. 

The CHAIRMAN. Thank you, Senator Hatch. I thank you for your 

kind words about me. And without making this a bouquet-tossing 

contest, let me just say how much I have appreciated your leadership on several of the issues that really undergird this topic. 

[The prepared statement of Senator Hatch appears in the appendix.] 

The CHAIRMAN. As you know, we have the CHIP bill for our kids 

coming up. That would not have become law if it were not for your 

leadership. And the reality is, every year in America, there are millions of visits to community health centers now that are not costing 

taxpayers an additional penny because you are willing to work 

with me on a bipartisan basis to get those community health centers out from under needlessly excessive liability costs. 

So I thank you for it, and I appreciate having you and Senator 

Grassley and Senator Stabenow here. We have worked together in 

a bipartisan fashion in the past, and we are going to do so again. 

We are going to call a little bit of an audible, since Mr. Packer 

is still on the train, and I thought we might begin, if we could, with 

you, Ms. Swonk. You are the chief economist and senior managing 

director of Mesirow Financial, and I think it would be ideal if you 

could, in your testimony, give us a sense of the lay of the land, the 

challenges for middle-class people. 

We have an excellent panel. And why don’t we begin with you, 

Ms. Swonk? 

7 

STATEMENT OF DIANE SWONK, CHIEF ECONOMIST AND SENIOR MANAGING DIRECTOR, MESIROW FINANCIAL, CHICAGO, 

IL 

Ms. SWONK. Thank you so much for having me here, both Chairman Wyden and Ranking Member Hatch. I am honored to be here 

with my colleagues, who have incredible expertise behind them, 

and, looking over their testimonies, I am humbled and, again, honored. 

I really thought what I could do best and most prudently in this 

hearing is to provide some sense of the direct result of the Great 

Recession and the subpar recovery that followed on the middle 

class, and where I think things are likely to get worse before they 

get better with regard to income inequalities and the potential for 

growth in the United States. 

I will not read any notes I have, because I am dyslexic. So I 

apologize in advance for that. I also flip numbers. So I will try not 

to—— 

The CHAIRMAN. God has a special place in Heaven for those who 

do not read their statements. [Laughter.] 

Ms. SWONK. There you go. It means that sometimes things come 

out of my mouth that probably should not, as well, but I am sure 

you are all familiar with that too. 

The crisis has revealed and exacerbated income and wealth inequalities and set in motion some shifts that I think, if unaddressed, are likely to compound the problems and undermine potential growth in the U.S. economy. 

We have seen substantial healing in the aggregate in credit markets. We have seen things like the debt-to-income ratio get down 

to 2003 levels, which is a great improvement, prior to the housing 

market boom, but still well above the already-elevated levels of 

both the 1980s and 1990s, which were both debt decades for the 

U.S. consumer. 

We have seen debt service burdens and debt financial obligation 

ratios fall to record lows in recent years, although I would argue, 

and the data supports it, that we have seen homeowners more than 

account for all that improvement as they have restructured their 

debt either by force or by choice. And, on the flipside of it, renters 

have seen an increase in their financial service burdens. And, as 

we know, we have seen more people move into the rental category 

in recent years, and I think that is going to continue. There are 

reasons for that, but it is something that disturbs me all the same. 

Wealth, net worth, has hit new highs both in absolute and nearly 

relative terms. Of course, that is concentrated, depending on what 

studies you look at, in the top 7 percent of households, while the 

bottom 93 percent are still trying to regain ground lost to the Great 

Recession. 

Now, home values have come back, but not to the previous equity 

we held in our homes prior to the housing market bust; not that 

that is what it should be, but clearly people measure themselves 

on a relative basis. 

Also, median income, as you noted—there are problems with the 

data—has stagnated and declined since 1999 and continues to decline. I think there are some real issues in that, although I do recVerDate Mar 15 2010 16:49 Oct 16, 2014 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 R:\DOCS\89892.000 TIMD
8 

ognize, Senator Hatch, your important issues on data, and I will 

address those in a minute. 

One of the things that also is very important is that income inequalities within the top echelons of income have also intensified. 

And you are seeing in many areas what would be considered very 

high income households actually having to pay up and compete 

with the uber-wealthy in the .01 percent, say, and they are finding 

that their pace of spending has slowed and their living standards 

have been compromised. 

So ‘‘middle-income’’ is kind of a relative term. I am always 

amazed at people who think they are middle-income where I would 

look on the numbers charts and say, ‘‘Boy, you are at the very top, 

in the top 5 percent or at least the top 10, if not the top 1.’’ But 

it is interesting to see how those stresses are distributed. 

I would also argue—and this is one of the more important issues—that the stresses that these households are seeing are being 

intensified. Student debt is one of my greatest concerns, something 

I have been noting for many years, the rapid rise in student debt. 

I followed consumer credit markets and the banking industry— 

thank God, I am out of it now—for 19 years, and I was in the middle of it, and I watched this happen. And I warned people that the 

best way to die is in debt, and that was the incentive, because they 

died above their means, living above their means their whole lives. 

And now we have student debt as the fastest-growing component 

of consumer debt, with default rates at 11.5 percent, which grossly 

understates the defaults. Now, some of this is because some of 

those students—and you noted them earlier, Senator Wyden— 

many of these students should not have gone to college or did not 

know what their earnings potential was. 

They turned around and tried to sue their colleges because they 

could not earn enough to pay for it when they came out. Also, a 

lot of these people maybe should not have been in college in the 

first place, but they were given access. They should have been in 

training programs or in what I consider more 18-month training 

programs with community colleges. Where the labor shortages are 

now, particularly in construction, that is a difficult thing to do, because the employers are very diverse and cannot pair up with community colleges to create the kind of apprenticeship programs that 

are necessary. 

I also think it is very important—we talk a lot about labor force 

participation. And a lot of people want to discount this, but when 

it comes to our young people, labor force participation rates have 

fallen precipitously, and not just on the soft skills among our teenagers. I do worry about my own daughter, who is 19 years old and 

in college right now. She has had unpaid positions, which I encouraged her to do, but not many paid positions. She thinks she can 

go out and earn a good paycheck. She wants a good job with good 

hours. I say, get in line, there are another 115 million people in 

the labor force, but anyways—— 

I think it is important, this decline in labor force participation 

among, not just teens but those into their 20s, what I call our 

learners and our earners, those who are 35 to 44 years old. We are 

losing people in that bracket. And guess where they are living? 

They are living at home with their parents in multigenerational 

9 

households. Some research by the Pew Research Institute suggests 

it is the worst situation since 1940 on multigenerational families 

living within a household, causing economic stresses there, with 

many people not fully employed and grandparents taking care of 

their grandchildren, as well as their adult children. 

Over 31 percent of 18- to 34-year-olds are currently living with 

their parents. Again, the data is a little bit elusive on that, because 

some of those people are just still in college. They are not actually 

living at their parents’ home continuously, but their parents presumably are having to deal with the overhang of that debt. 

The result has been dramatically reduced pools of both current 

and future first-time home buyers and vehicle buyers. And why is 

this so critical? In January, first-time home buyers, as existing 

home sales plummeted, that was not the weather in January. 

The important point is that we are seeing that these people are 

diminishing the current pool of first-time buyers, just 26 percent in 

January. Forty percent is the norm on the existing home market. 

Without first-time buyers, you do not have trade-up buyers to trade 

up. They cannot sell their home to trade up. You do not have churn 

in the housing market, and you also do not have the path to saving 

and wealth that has been long considered the American dream. I 

hate to use the term. It is a little trite. But let us face it, we are 

losing some of the pathways that we once saw to generating wealth 

and saving in the United States, which means we are undermining 

the actual backbone of our future and potential growth going forward. 

I will end my comments. I know I speak quickly, but I know that 

I also am longer-winded on time. You give an economist a minute, 

we will take 10, and I am supposed to take 5. I apologize. 

But we have seen an extraordinary bifurcation of consumer 

spending in the United States. Initially in the Great Recession, nobody escaped. Everybody was hit, and we saw consumer spending 

across income strata and across business lines hit all the way 

across the board, and an extraordinary migration down what I call 

the retail food stream. Now we see divisions, the hollowing out of 

what were previously middle-market retailers. We are now seeing 

more and more middle-income households searching for value and 

not allowing any price increases. 

One of the most disturbing trends is the pooling at the very top. 

Actually, as I came here yesterday through O’Hare and all the 

delays that were present because it snowed in Chicago—of course, 

they do not know how to deal with that there—one of the things 

that came through on my e-mail was a bubble in the luxury market, that everybody is trying to feed off of this very small percentage and very small number of consumers, and they have bid up 

these prices very high. 

In the rest of the economy, you are not seeing any pricing power. 

And one of the things that I find most striking is sales in grocery 

stores. Today’s retail sales data showed we have seen some weakening, particularly since some of the food subsidies have been lifted 

as well, but some weakening in spending at grocery stores. 

There is a difference between the cost of healthy and hungry 

spending. It strikes me that during the polar vortex, which I lived 

through and you had to live through here, some of the biggest worVerDate Mar 15 2010 16:49 Oct 16, 2014 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 R:\DOCS\89892.000 TIMD
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ries were about children missing their one meal a day that they 

were going to get in school and, also, those people who use school 

as day care who could not work. 

I believe weather has redistributive effects. But clearly those 

waitresses and waiters and people who are hourly who are getting 

the influx of people migrating rather than hibernating from the 

cold weather to ski resorts and sunny locations are not the same 

people losing it, as those are the people who lost it to the weather 

in this particularly harsh winter. 

But the issue in grocery stores, I think, really does highlight this. 

Dominick’s, a mid-market store chain in Chicago, went bust. 

Mariano’s, which wants to be the new Nordstrom’s of the grocery 

world, is growing right now. I have my doubts. Whole Foods has 

seen increased competition. You are going to see a lot more competition at the high end as well. And what you are seeing is the 

lack of pricing power at the low end, which is exacerbating the 

slowdown in inflation, which some would say is welcome. But if it 

becomes deflationary, that is a spiral we do not want to get into 

in any way. 

The CHAIRMAN. Ms. Swonk, I am reluctant to stop you, because 

I think not only has this been good, but you are going to probably 

get conscripted to come before a lot of other committees, because 

it has been that good. 

Could you perhaps—— 

Ms. SWONK. I have a last sentence, and I will finish it up. 

The CHAIRMAN. Great. 

Ms. SWONK. I apologize. I told you, if you give me a minute, I 

do not keep time either. I apologize. 

The CHAIRMAN. It has been terrific. 

Ms. SWONK. My greatest concern, as I have outlined, is that— 

well, I will end it on a personal note. My son is 16 years old, and 

I live in a highly income-diverse area. He has not bought a pair of 

shoes in 2 years—he is 16 years old—because his friends, who are 

in his honors and AP classes, cannot afford a pair of shoes, and he 

will not buy a pair of shoes until they can. He has grown 6 inches 

in those 2 years, thankfully, not in his feet. Kind of like puppies 

growing into their feet. 

But I think the narrative of the Hartzell family that we are going 

to hear from Mr. Packer is, unfortunately, going to be more the 

norm than just a narrative going forward. And, if we do not get the 

money to support our statistical agencies, you are going to kill the 

messenger as well. 

The CHAIRMAN. That was a really superb way to help us get this 

started, and, particularly, your message is something that I think 

is going to appeal to elected officials of both parties, and I appreciate it. 

[The prepared statement of Ms. Swonk appears in the appendix.] 

The CHAIRMAN. Mr. Packer, if you are not out of breath, because 

I know you have sprinted here, I think it would be very helpful to 

have you follow Ms. Swonk, who has really given us an overview 

of the challenge of Americans trying to climb the economic ladder. 

Are you sufficiently situated there and not out of breath? Can we 

go to you next? 

Mr. PACKER. Ready to go, Mr. Chairman. 

11 

The CHAIRMAN. We look forward to your testimony, and your 

book is spellbinding. And having a spouse in the bookstore business, I know a little bit about the challenge of writing books, and 

we commend you, and we are glad you are here. 

STATEMENT OF GEORGE PACKER, STAFF WRITER, THE NEW 

YORKER MAGAZINE, AND AUTHOR OF ‘‘THE UNWINDING: AN 

INNER HISTORY OF THE NEW AMERICA,’’ BROOKLYN, NY 

Mr. PACKER. Thank you, Mr. Chairman. I apologize for being 

late. It was Amtrak’s fault, not mine. 

Chairman Wyden, Ranking Member Hatch, and members of the 

committee, I am honored to have been asked to testify before the 

Senate Finance Committee today. 

I am a staff writer at The New Yorker magazine, and last year 

I published a book called ‘‘The Unwinding: An Inner History of the 

New America.’’ I conceived it as a 30-year history of the political 

and economic upheavals that have transformed America during my 

adult lifetime. 

I might have added another policy book to the long shelf of such 

tomes or written a conventional work of American history, but I did 

not feel very qualified to do either. I am a journalist, and I wanted 

to write about this generational change through the lives and stories of a handful of unknown Americans in some of the more forgotten corners of the country. So, from 2009 to 2012, I spent a lot of 

time in the Piedmont region of North Carolina, in Youngstown, 

OH, and in the unincorporated subdivisions around Tampa Bay. 

Here is what I learned from some of the people with whom I 

spent many weeks and months. First, everywhere I went, I heard 

again and again there is no more middle class here. There is just 

rich and poor. Even if this was not statistically true, it felt true to 

the people I talked with. 

The disappearance of jobs in manufacturing, small-scale agriculture, and construction, depending on where I was, has been 

going on for a long time, since the late 1970s in the case of the 

steel industry in Youngstown. And any long-term trend can begin 

to seem normal and even becomes unnoticeable. 

But the financial crisis and the Great Recession seemed to focus 

people’s minds on how far things had gone. I remember walking 

along Main Street in Madison, NC with Dean Price, the son of tobacco farmers and a native of the area. 

He had grown up thinking of himself as middle class, but just 

about every store he had known as a kid was closed down. And he 

said, ‘‘If you think about it, the people who ran the hardware store, 

the shoe store, the little restaurant that was here, they were the 

fabric of the community. They were the leaders. They were the Little League baseball coaches. They were the town council members. 

They were the people everybody looked up to. We lost that.’’ 

How many Madison, North Carolinas are there around America? 

When you leave the more prosperous areas of the country, it becomes almost routine to see deserted Main Streets in town after 

town. 

In Rockingham County, NC, population 93,000, three Walmarts 

opened up in one 6-month period a few years back, with almost 10 

applicants for every position, which paid an average of $16,108 a 

12 

year. Those were just about the only jobs available to workers who 

had once held manufacturing jobs in the textile mills and furniture 

factories before those moved overseas. 

Dean Price told me that with the housing bust, a lot of people 

in his area had to choose between paying the mortgage and putting 

gas in the car to drive ever longer distances to ever lower-paid 

work. 

Again, this is not the exceptional case. It felt closer to the norm. 

It is the economic success stories that we hear about so much in 

the media in Silicon Valley and on Wall Street that felt more like 

the exceptions. As Dean Price said to me, how many investment 

bankers and software designers are there around the country? 

Then think of how many farmers. 

The second thing I kept hearing was that the game is rigged. 

People who were trying to play by the rules found that no matter 

how hard they tried, they could not get out of debt or lift themselves out of an impoverished life, while they watched more fortunate people with the right educations and connections pull away, 

be granted second or third chances, even get away with murder. 

I heard this from people of all races, backgrounds, and political 

views. And, while they had different explanations and placed the 

blame in different ways—some blamed big business, some blamed 

big government, some blamed Wall Street, some blamed all of 

you—this widespread cynicism struck me as a dangerous sign 

about the health of American democracy. The idea that hard work 

and effort can lead to better prospects for one’s self and one’s children is at the heart of the American dream. It is one thing to read 

statistics about income inequality and social immobility. It is another to see the dream vanishing in the minds of ordinary Americans. 

For example, in Tampa, I met the Hartzell family, Danny and 

Ronale and their young kids, Brent and Danielle. Danny worked as 

a welder, then at a packaging plant, but when those blue collar 

jobs disappeared with the recession, he spent months looking for 

work, with no luck. Then the Hartzells’ daughter, Danielle, was diagnosed with bone cancer, and the parents put all their energy into 

her treatment and recovery, made possible by the charity of local 

hospitals. 

Finally, Danny got a job stocking produce at Walmart for $8.50 

an hour, which, because the store had him working part-time and 

his hours kept going down, put Danny at about $10,000 a year. Try 

supporting a family on that. By the end of the month, they had as 

little as $5 on hand. The only time they had extra cash for any purchases beyond the basics was when they received their Earned Income Tax Credit. 

And yet, the Hartzells were not doing any of the things that poor 

people are rumored to do. They did not drink or do drugs. They 

obeyed the law. The kids were loving and respectful. The family 

stayed together through everything, even three periods of homelessness. 

The parents continued to put their kids, who bounce between 

schools and miss out on their education because of the family’s instability, ahead of every other consideration. The last time I saw 

the Hartzells, Danny said to me, ‘‘My view on everything? If you 

13 

want to change this country, you have to put a person in office who 

has never done it for a day. Put a regular old guy like me, someone 

who has lived it and never done nothing else but live it.’’ 

I think Danny was saying something like ‘‘the game is rigged.’’ 

The Hartzells have made their share of mistakes, but they are 

the kind of people who used to do okay in America—not rich, but 

okay. There was a place of dignity for them in our society. 

Today, without good educations or successful connections or other 

resources, the Hartzells are barely surviving. They feel themselves 

to be disposable, and it is hard to be optimistic about their or their 

children’s future. 

Just last week, Ronale Hartzell e-mailed to tell me that they 

have left Tampa, where they have lived most of their lives, to try 

their luck in Orlando. ‘‘We just want a little happiness, just a little,’’ she wrote. ‘‘We’re trying so hard since day one.’’ 

How many people like the Hartzells are there in America? 

I am not the policy expert in this room. You have heard from others who are. But I have become a sort of expert on the people I 

wrote about in ‘‘The Unwinding.’’ I can tell you that the institutions that used to support the aspirations of middle-class Americans, from Federal, State, and local governments to corporations, 

banks, public schools, and the media, are no longer seen as positive 

forces in the lives of the people I spent time with. These institutions are either very distant to the point of irrelevance, or else they 

are seen as negative. 

There is no simple or single solution to this state of affairs, but 

it is real, it is out there, and every day it corrodes the sense of fairness and opportunity that is essential to our democracy. The people 

I wrote about do not have lobbyists or trade associations or public 

affairs firms to represent their interests here in Washington. The 

only voice they have is yours. For that reason, I hope that the 

members of this committee will put the Americans I have been describing and others like them at the center of all of the legislative 

work you do. 

Thank you very much. 

The CHAIRMAN. Mr. Packer, thank you very much. And I think 

your testimony is going to help us get that done, get it done in a 

bipartisan way. And I intend to make sure that those kind of cases, 

like Dean Price and the Hartzells, really drive home the economic 

tightrope that these middle-class families are walking, where you 

just point out how they have to make these choices between different bills, and any big expense literally pushes them off the tightrope altogether. 

[The prepared statement of Mr. Packer appears in the appendix.] 

The CHAIRMAN. So thank you. And I know you are going to get 

questions from Senators here in a few moments. Particularly, I can 

tell you have a big cold. You faced a late train, and I very much 

appreciate your—— 

Mr. PACKER. Sorry for the sniffling. 

The CHAIRMAN. No. We are glad you are here. 

Dr. Dunkelberg, thank you. Why don’t we go to you next? And 

we have very much enjoyed working with you all at the National 

Federation of Independent Business, and we welcome your testimony. 

14 

STATEMENT OF WILLIAM C. DUNKELBERG, Ph.D., CHIEF 

ECONOMIST, NATIONAL FEDERATION OF INDEPENDENT 

BUSINESS, WASHINGTON, DC 

Dr. DUNKELBERG. Thank you, Chairman Wyden, Ranking Member Hatch, and members of the committee. I am pleased to be here 

as chief economist for the National Federation of Independent 

Business, the leading representative for small business organizations, with over 350,000 members. 

I now have been NFIB’s chief economist longer than I have been 

a professor, which is kind of interesting, but I started with them 

back when I was teaching at Stanford University in 1970. And I 

retired from teaching a couple of years ago, but I am still the chief 

economist. So I appreciate the fact that you recognize the importance of the small business sector to the whole issue about the socalled middle class. 

There are an estimated 6 million employer firms in the United 

States, and beyond that, of course, there are tens of millions of 

other people who make a living individually, like my electrician, 

Charlie, who, over the past 20 years, I have encouraged from time 

to time to hire somebody and train them. And he says, in response, 

‘‘Half of my time would be used up complying with the regulations 

that I have to deal with if I hire one worker.’’ So he does not hire 

anyone, and he does not train anyone, because of the regulatory 

burdens that are out there. 

Just to give you some perspective, 25 percent of our members 

have annual sales under $200,000. That is gross sales. About 70 

percent of those sales, on average, go to employee compensation. So 

we are talking about a $50,000–$60,000 bottom line here. I think 

that is definitely middle-class. So, not only are the small business 

owners middle-class people, for the most part, they also provide 

tens of millions of jobs for middle-class workers. 

So an estimated, according to the SBA, half of the private sector 

workforce works for what they characterize as a small business. So 

the health of the small business economy is really important to 

what is happening in the middle class. 

If you look at employment today, it is over 1 million below where 

it was back at the peak in January of 2008, and those people, I 

think, were probably not from the top 1 percent or even the top 

one-third. These people were out of the middle class and, of course 

now, are below that, and just getting a job would help put them 

into the middle class again rather than being unemployed. 

So every 4 years, the NFIB looks at a random sample of its 

350,000 members and gives them a list of 75 really important problems and asks, what are the top problems that your business faces; 

what are the things that are in the way for your growth and hiring? 

And I will just share with you the most recent one, which we finished late in 2012. No surprise, top of the list is health insurance 

costs, number one—lots of confusion and uncertainty there. 

Number two, uncertainty about the economy. That is what they 

told us. They are so unsure about where the economy is going to 

go, they are not going to bet their money, put their money on the 

table, and make the kinds of bets that they have to make with 

15 

their own money. They cannot issue Facebook stock and so on. It 

is their money, and they are going to be very careful with it. 

Number three, energy costs. 

Number four, uncertainty about government policy. The Fed, the 

EPA, health care costs, tax policy, all of these kinds of things are 

very concerning to them. 

The next, number five, is the cost of regulation and red tape, and 

we have done a lot about that. Keep in mind that the most valuable asset that a small business has is the time of the entrepreneur, the person who thought this up and runs it and makes it 

happen and creates the jobs, and all this compliance stuff just 

drains away that most important piece of capital. Not a very good 

thing. 

Six, seven, and eight on the list are: Federal taxes, which take 

away the capital that small businesses use to grow their business, 

frequent changes in the tax code, and tax code complexity. 

That is the top eight, and then the remainder of the 75 things 

follow that. So you can get an idea about what that list must look 

like, and we would be glad to provide that study to you. We have 

done it for a lot of years now. You can take a look. And I appreciate 

your focus on the whole tax code issue. It is very, very important. 

So, as we look at that, as you look at the menu of possible things 

to do—you have suggested many. We certainly would like to see 

things that are more focused instead of comprehensive. That is 

pretty scary. So we like that, like making section 179 more permanent, because that is bottom-line capital for these firms. Things 

like that would be very helpful. 

Worrying about the banking side, I am the chairman of a little 

bank in New Jersey. We lend to small businesses, and the complication coming down in the banking system is making my life 

very difficult. I spend 90 percent of my monthly board meeting worrying about complying rather than how to grow the bank and the 

business. That is not helpful. 

These people are very important to providing capital to the little 

firms on Main Street, and I worry about the fact that the regulations for these big banks are very important, but to apply them to 

the small banks is probably not a good idea. 

So I think that restoring the vitality to the small business sector 

is very important. If you look at the BLS data on new business 

starts, you will see that, of course, not only did we build too many 

houses in 2003 through 2007, we built too many strip malls, too 

many restaurants, and we lost a lot of them. And right now new 

starts are at a very low level relative to where they had been historically. 

That is where jobs come from. A lot of new jobs come from just 

new barber shops, et cetera, that we have to have to help 3 million 

new people every year who come into our economy. 

So I think that that is a very good place for us to go, and I commend you and the committee for the good work you are going to 

do to help revitalize this source of jobs and middle-class consumers. 

Thank you. 

The CHAIRMAN. Dr. Dunkelberg, thank you very much. And you 

raise a number of important issues, and, as you know, I have followed up on a number of them with you. And I think what is parVerDate Mar 15 2010 16:49 Oct 16, 2014 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 R:\DOCS\89892.000 TIMD
16 

ticularly relevant is, as we go into tax reform, every time you hear 

people talk about it, it is always about what are the C corporations, 

these big corporations, and, obviously, we want them to be competitive. They employ a lot of Americans. 

But as you said, the barber shop, the cleaners, the Main Street 

businesses, somehow get left out because they, in effect, pay taxes 

as individuals, as pass-throughs. And I very much want to work 

with you on that in the days ahead so we do not leave these small 

businesses behind. 

[The prepared statement of Dr. Dunkelberg appears in the appendix.] 

The CHAIRMAN. Mr. Lindsey, why don’t we go to you next? 

STATEMENT OF LAWRENCE B. LINDSEY, Ph.D., PRESIDENT 

AND CEO, THE LINDSEY GROUP, FAIRFAX, VA 

Dr. LINDSEY. Thank you, Mr. Chairman. I would like to thank 

you and Senator Hatch for inviting me today. 

Mr. Chairman, you said that there was a special place in Heaven 

for those who do not read their statements. I need all the help I 

can get to get there, and so I will not read my statement. 

The CHAIRMAN. Thank you. 

Dr. LINDSEY. But I would like to refer to the charts that are attached to the statement. 

The CHAIRMAN. Absolutely. Absolutely. 

Dr. LINDSEY. I am in sympathy with everything I have heard 

today, and I think one of the themes we need to think about in 

terms of the middle class is really a psychological one, which is, it 

is one where self-reliance is key. These are all individuals who 

want to support themselves, and I think that is actually why most 

people think of themselves as middle class. 

They do not think of themselves as part of some over-class which 

sets the rules and runs things. They do not think of themselves as 

an underclass, which is dependent on others. They want to be selfreliant. 

With that in mind, let me refer you to chart 1. My theme today 

is going to be something one almost never hears in Washington, 

and certainly never hears or almost never hears from a policy 

wonk, which is a request for modesty. We have done a lot, but we 

are not doing a very good job. 

So the first chart tracks two measures that the Bureau of the 

Census has for tracking inequality. And what I did was, I looked 

at each administration. The data only ran through the first 2 years 

of the current administration. But what you will note—by the way, 

these are called the GINI coefficient and the mean log coefficient, 

which you probably learned about in freshman economics, and I 

hope you have brain cells to put to use to remember how they are 

calculated, and I will not go into them today. 

But what you will notice is that both rise under every administration, both measures. It does not matter. Neither party has done 

a very good job. In fact, the biggest rise in inequality was under 

President Clinton, where, in those 8 years, inequality rose under 

both measures more than it did under 8 years of Reagan and 8 

years of Bush combined. 

17 

So I think, from a partisan basis, we all have to be very, very 

modest about our ability to influence things. So both parties have 

not done a very good job. But it is not for want of trying. And so— 

if I could ask you to turn to the second chart. So what do we do 

to try to make things more equal? Well, one thing we do is we try 

to make the tax code more progressive. 

Now, I know it is not conventional wisdom that the tax code has 

become more progressive, but it has become more progressive. And 

what I did was I looked at IRS data. I also looked at Bureau of the 

Census data. 

I looked at the share of income and the share of income taxes 

paid by the top 5 percent and everyone else in various years. And, 

as you will see, the share of income, according to Census, going to 

the top 5 percent has gone up since 1980, between 1980 and 2010. 

It went from 16.5 percent to 21.7 percent. 

The share of income taxes paid by that group has gone from 

roughly 37 percent to roughly 60 percent. The point here is that 

the share of income taxes paid at the top has risen faster than the 

share of income at the top. That is mainly because all of the big 

tax cuts we have had have primarily been focused at cutting taxes 

on middle-income families, this in spite of the fact that we have 

this view out there that the middle class is shrinking. 

And you can see it in the next two columns. If you compare the 

tax share paid by the top 5 percent to their income share versus 

everyone else, we started at a ratio of about 3-to-1 back in 1980. 

This was under Bill Clinton, when the top rate was 70 percent. In 

2005, the top rate was half that, and the ratio of the tax share to 

income share of the top 5 percent was 5 times what everyone else 

was paying. 

So, in fact, in spite of the conventional wisdom, in spite of all the 

rhetoric, the income tax has become more progressive. A greater 

share is paid at the top, and it has grown faster at the top than 

has the income share. This should be a cause for modesty that we 

do all this and it does not have the effect we think. 

Chart 3 compares what is happening on the other side, which is 

with transfer payments. And these are government payments to individuals, a variety. Right now, they are primarily medical, but 

they also include direct cash income. 

Back in 1960 when, actually, we had the most equal income distribution that we have seen in a long time, transfer payments were 

just 6 percent of personal income. Today, they are roughly 18 percent of personal income. So the share of personal income and transfers has tripled, thanks to the efforts of the government, in spite 

of what we have seen is the trend. 

On the other hand, the share of income from interest and dividends, what the people call property income, has dropped since 

1980. So, again, my lesson from this is modesty. It is not like we 

are not doing a lot. We have moved around a full 12 percent of personal income, which is a lot, $2 trillion, in the form of transfer payments, and yet we still have the inequality situation we do. 

We should be very modest about our efforts to do things. 

The fourth thing I would like to point out, and the next chart, 

is the decline in middle-age labor force participation. This is something Diane mentioned earlier, and I think it is very, very imporVerDate Mar 15 2010 16:49 Oct 16, 2014 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 R:\DOCS\89892.000 TIMD
18 

tant. This is not the people in my generation, which I think of as 

the mature people, wise people with lots to contribute. [Laughter.] 

We all actually have higher labor force participation than we did 

at the peak of the last business cycle. This is middle-aged. They are 

just leaving the labor force. 

If you compare middle-aged labor force participation today versus 

what it was in 2007, we have lost 2 million middle-aged men and 

1 million middle-aged women. And by definition, you are not going 

to build the middle class, if you do not have people participating 

in the labor force. It is as simple as that. The key is self-reliance. 

These people are choosing not to be self-reliant. 

Now, the choice may be that there are not good alternatives out 

there. I am not criticizing these people. They are facing the world 

as it is in front of them. But we are not going to solve the problem 

as long as people leave the workforce, and the problem seems to 

be getting worse. And I was struck by the report of the CBO, for 

example, looking forward to another 2.3 million people leaving the 

labor force as the Affordable Care Act takes effect. 

I think the reason we failed, in spite of our efforts, is complexity, 

and this was something that Bill Dunkelberg talked about. And I 

would like to turn to chart 5, which was actually put out by the 

Urban Institute. 

I call this the benefits mountain. They looked at a number of different people, but this one has to do with a single parent with two 

kids. And you can see how complicated the benefit structure is. You 

cannot say this is a well-targeted transfer process. It just is not. 

And the phase-out ranges are different, and the standards for each 

one are different. And we here in Washington—policy wonks, Senators, staff—we have done this. This is our fault. 

So, if we were to do anything, I would urge you to look at the 

complexity. And one thing they did at the Urban Institute was, 

they took this and they put it into a summary statistic, which is 

in chart 6, which is the effective marginal tax rate on the single 

parent with two kids. So this is the effect if he or she works a little 

bit more, tries to improve their own standard of living, how much 

of it does the government take from them, either in taxes or lost 

benefits. 

And you will see that, for what most of us would call the middle 

class, say $25,000 to $50,000, we are talking about a tax rate over 

50 percent. The tax rate is actually 82 percent for this single mom 

with two kids in the $30,000 range. We did this, policy wonks, 

staff, Senators; you did it, we did it. 

We have a higher marginal tax rate on single moms making 

$30,000 a year than President Hollande has put on French millionaires. It is dumb French policy, and it is even dumber here. 

And so the one thing I would urge us all to do is be very modest 

about our ability to tinker with things, because when we tinker, we 

make the world more complex. And these are people who are bestoff when the world is simple and they are self-reliant and are given 

the means to solve their own problems and not told how to do it. 

Thank you. 

The CHAIRMAN. Dr. Lindsey, thank you very much. 

[The prepared statement of Dr. Lindsey appears in the appendix.] 

19 

The CHAIRMAN. And I thought it would be very helpful to have 

you and Dr. Burman, in effect, as bookends at the end, because, if 

we can find common ground between the two of you on some of 

these issues, that will go a long way to coming up with a bipartisan 

tax reform proposal that will give everyone in America the chance 

to get ahead. 

We are going to probably talk about it, but one of the kind of key 

numbers—and I appreciated your using a number of charts to document your points, Dr. Lindsey—is in the 2 years after Democrats 

and Ronald Reagan got together in the 1980s, and Dr. Burman was 

involved in it, our country created 6.2 million new jobs. 

Now, nobody can say that every one of those jobs was due to tax 

reform, but it sure helped. And it helped particularly give all Americans the chance to get ahead. That is the operative phrase: all 

Americans—Dean Price, the Hartzells, everybody in America—got 

the chance to get ahead. 

Dr. Burman, I am not going to put much pressure on you to try 

to find some common ground with Dr. Lindsey and the other three 

outstanding panelists, but you did it in 1986. You also helped Senator Coats and Senator Gregg and Senator Begich and I write a bipartisan bill. So, no pressure, but let us see what we can do to 

wrap up with some common ground on helping the middle class get 

up that ladder. 

STATEMENT OF LEONARD E. BURMAN, Ph.D., DIRECTOR, TAX 

POLICY CENTER, THE URBAN INSTITUTE, WASHINGTON, DC 

Dr. BURMAN. Thank you, Chairman Wyden, and it is a great 

pleasure to be testifying before your committee, at the first hearing 

you are having without Jack Lew. And thank you, Ranking Member Hatch, and members of the committee. 

Senator Wyden and Senator Hatch, you have both been my heroes, because you have spent so much of your careers trying to 

work on a bipartisan basis, trying to solve important issues, and 

I look forward to seeing what you can accomplish together. 

Today, I want to talk about this important issue of what is happening to the middle class. There is a chart in my testimony showing real median earnings over time, and this is something, I think, 

Senator Hatch referred to earlier. The real median earnings, the 

earnings for somebody right in the middle of the distribution of 

pay, working full-time for a full year, after adjusting for inflation, 

have stayed virtually flat over the last 35 years. 

At the same time, productivity has exploded. The amount that 

the average worker is producing has more than doubled. As Senator Hatch pointed out, part of the difference is attributable to 

health care costs and other fringe benefits. Payroll taxes have gone 

up over that interval. 

And Senator Hatch also pointed out that, after taxes and transfers, we have actually been helping the middle-income people more, 

but the key point is that the market is not really rewarding work 

for people at the middle of the distribution the way it used to. 

There are a number of reasons why. Globalization has often been 

targeted. Larry Summers gave a talk at the National Bureau of 

Economic Research last year, and he talked about how the traditional economist’s view of the economy is that there is capital and 

20 

labor, and capital makes workers more productive, which means 

they get paid more. He said now you need to think of a new kind 

of production function, which is that there is the old kind of capital 

that makes workers productive, but there is a new kind of capital 

that substitutes for some kinds of workers. 

Every time you go to the grocery store and you go into the selfcheckout line and look at the lonely cashier who is the only one left 

there, you are seeing the effect of this kind of capital that is not 

augmenting labor, it is replacing labor. 

One obvious solution is not on the tax side. It is to train people 

so that they cannot be replaced by machines. And, Senator Wyden, 

your bipartisan efforts to make higher education more transparent 

and to actually produce real value for people is extremely important. 

President Obama has proposed for the last 2 years to encourage 

community colleges to collaborate with local employers to train 

workers to use high-tech machines in manufacturing. That is an 

enormously promising approach and very cost-effective. I think 

making college, making retraining activities affordable for workers 

and accessible, without leaving them with a crushing debt burden, 

is probably the most important thing you can do. 

You talked a little bit about savings. Senator Wyden, you have 

promoted the idea of child savings accounts, which I think are a 

really promising approach. 

In the nature of recycling, I want to remind people of something 

I worked on in the Clinton administration, which was universal 

savings accounts, which involved restructuring the subsidies for 

savings so that low-income people would get an automatic contribution, kind of like what they would get from their employer if they 

actually worked in a job that was good enough to make a contribution to savings, and then a generous match that phased down with 

income. I think that is also very promising. 

Obviously, encouraging savings and education will fit well into a 

bipartisan opportunity agenda. My most innovative proposal, and 

you might say radical, would be to change the way we do indexing 

for the income tax. 

So in the 1980s, we changed the income tax so that rising price 

levels did not push up people’s average tax burdens. So when the 

price level goes up by 3 percent, all of the tax bracket thresholds, 

the standard deduction, personal exemptions, some other parameters, would increase by 3 percent. 

The idea that I put forward in my testimony is, well, maybe what 

we should do is think about the indexation as something we could 

use to redress inequality at the same time. We would not raise the 

real tax revenues that are collected by the government. We would 

make the same overall adjustment, but we could tailor it so that 

if the middle class continues to be falling further behind, we could 

increase the standard deduction by more, increase personal exemptions by more, maybe push up the credit rate for the Earned Income Tax Credit. 

If income gains were widely shared, then basically you would be 

doing the same thing as we are doing with price indexing now. I 

think this is a very promising approach. I do not think the income 

tax is the solution to economic inequality. I think structural issues, 

21 

like education, savings, things like that, are much more important 

over the long term. 

But in the short-term, especially as the market economy is basically not sharing much of the gains of productivity with middleincome workers, this is something that could help. 

I would be happy to answer your questions. There are a number 

of other issues I talked about in my testimony, but I would like to 

end close to on time. 

The CHAIRMAN. Thank you. And all of you, I think, have been 

very helpful in sort of illustrating our challenge. 

[The prepared statement of Dr. Burman appears in the appendix.] 

The CHAIRMAN. I thought I would start—I know Senator Grassley is on a tight time schedule—with a question for all of you. 

Let us say, as unimaginable as it is in this town, that we will 

set aside the politics for just a minute. I would be interested in 

having each of you give the committee a fresh idea that you would 

like to see us pursue to try to help struggling Americans climb the 

economic ladder. 

Ms. Swonk, we will start with you. Just give us your sense, if 

you could take one idea that has not just been politicized, shoedover in the battle, the partisan battle, what would you pursue? 

Ms. SWONK. Well, mine is just the obvious one that I concluded 

in my own remarks, and that is that we need to have a way to restructure out of student debt so that we do not keep these generations committed to an overhang of debt and the status that goes 

with that, which means they do not have access to other ways of 

building wealth and saving going forward. 

So an ability to restructure that debt is, I think, one of the most 

critical issues. Some people do make mistakes, and they will pay 

the price for what they did. They should not have gotten the credit. 

It is not forgiveness, but just being able to restructure it. 

The CHAIRMAN. Dr. Dunkelberg? 

Dr. DUNKELBERG. Well, that is a challenge. As an educator for 

most of my life, or all of my adult life I guess, one of the things 

I see is that, as I look at our education system, lots of times, we 

are blaming teachers for not doing a good job, and there are certainly a lot of issues around that that we all know about. 

But the more fundamental problem that I have observed kind of 

firsthand, working all the way from grade school to college level is 

parenting. And the kids show up not ready to learn, not understanding discipline. But I do not have a good policy recommendation for dealing with parenting other than that we just need to give 

these young people more guidance with more structure so that, 

when we do get our hands on them in the educational system, we 

can be much more productive in turning them into good, solid citizens. 

The CHAIRMAN. Dr. Lindsey? 

Dr. LINDSEY. I go back to the problem—my generic solution is 

less complexity, because I think complexity moves power up to the 

governing class and moves it away from the middle class. 

A specific recommendation—since I wrote it, I will suggest it. I 

put out a book last year called ‘‘The Growth Experiment Revisited.’’ 

22 

I had a very radical tax reform in it which would simplify things 

dramatically, and I would commend that book. 

The CHAIRMAN. Giving people back their springtime so that they 

do not have to spend March and April tortured is pretty appealing. 

Dr. LINDSEY. I just spent the other day with my accountant, and 

I told him what I was doing, and he said that it is now impossible 

for any accountant to do the tax form unassisted. 

Now, I spent my life in taxes. Until 3 years ago, I took great 

pride in being able to do my own taxes. It took several days, but 

I did it. And then I got stuck on one of your new rules. I had a 

foreign account, which I did not want to have, I was given it because it was an ESOP, and, oh my God, I could not figure out for 

the life of me how on earth to comply. 

And so he and I sat down, and he said, well, he would try three 

different ways. Finally I decided, all right, enough is enough. 

And here is something you can fix, and I promised him I would 

pass it on. On foreign taxes, you, the Congress, and the President, 

have now mandated that we have to fill out yet another form if we 

have a foreign account, and we cannot submit it with the rest of 

our tax forms. It has to be submitted separately on June 30th, not 

on April 15th. Why you did that, I do not know. 

So here he is, he is saying, ‘‘You know, I will fill it out for you, 

Larry, and just sign this paper and authorize me to fill it out. One 

problem. You have severe penalties if you don’t fill out this form, 

but the IRS hasn’t generated the form yet.’’ 

So come on, right, this is complexity that is not being followed 

through on your side, on the part of the government. If you are 

going to make life complex, at least make it doable. Complex and 

impossible is unacceptable. 

The CHAIRMAN. Well, Dr. Lindsey, for you and everybody else 

paying attention to today’s hearing, I have been chair of the committee for about 9 working days. So I have not yet figured—— 

Dr. LINDSEY. And you have not fixed it yet, Senator. [Laughter.] 

The CHAIRMAN. I have not fixed it, but, by God, we are—— 

Senator HATCH. That is no excuse. 

The CHAIRMAN [continuing]. We are all going to be on a bipartisan mission to do it. 

Dr. Burman, and then, appropriately, wrapping up with Mr. 

Packer. 

Dr. Burman? 

Dr. BURMAN. Well, I completely agree with Larry that complexity 

is a major issue, and you have actually proposed tax reform bills 

that would make things much simpler. 

Larry is focused on complexity for rich people—like him—which 

is a problem, but—just kidding. The tax code is too complex for 

lower- and middle-income working people as well. 

Those marginal tax rates that Larry showed from a study by my 

colleague, Elaine Maag, have to do with the phase-in and phaseout of the Earned Income Tax Credit. We do not want to lose that, 

because, yes, EITC is the single-most effective anti-poverty program there is. It is an important part of the safety net. 

When middle-income people fall on hard times and their earnings 

fall, they can get up to $5,000 in credits to help them if their earnVerDate Mar 15 2010 16:49 Oct 16, 2014 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 R:\DOCS\89892.000 TIMD
23 

ings decline. But yet, you see it is needlessly complex, and you 

could make it much, much simpler. 

One idea which I and other people have put forward is just turning it into a wage credit that maybe would provide a subsidy for 

the first $10,000 worth of earnings that anyone could get, and it 

could be provided through a payroll tax adjustment, if you wanted, 

and, then, a child credit that just depended on having children but 

did not phase in with income, did not phase out. 

Basically, the IRS would have no problem administering that 

child credit, because all they would have to do would be to determine that only one person was claiming each child, and, as long as 

no more than one person claimed the child, they would be eligible. 

It would be so much simpler. 

Right now, a majority of low-income people pay people to fill out 

their income tax returns using money they cannot afford. We 

should make things simple enough that people just with wage income can fill out their returns themselves. 

The CHAIRMAN. But between the two of you, you have now made 

it clear that tax simplification is needed for the low-income, the 

high-income, and everybody in between, and I very much appreciate that. 

We will wrap up with Mr. Packer. You have had a chance to see 

sort of Washington in action, and to have you bring it back to what 

you saw as you made your travels, I think, is an appropriate way 

at least for me to wrap up. 

Mr. PACKER. So my idea is neither new nor particularly modest. 

It is campaign finance reform. It is giving Dean Price, the Hartzells, millions of people like them, a bit more of a level playing field 

here in Washington with the Chamber of Commerce and the National Association of Manufacturers. 

I think one reason why we have the incredible level of growing 

inequality that we do, beyond anything you see in similar industrialized countries, in Europe, is because we accept it. We accept it. 

And our system of campaign finance is one aspect of that acceptance. 

So I would say if you were to begin anywhere, it would be in convincing Americans that the game is not rigged by making our system of financing campaigns at least a little more equal and more 

fair. 

The CHAIRMAN. I would be setting off a truly spirited discussion 

if I got into this. I will tell you, after we are done, Senator Murkowski and I have proposed a bipartisan proposal to start leveling 

the playing field. 

Let us go with Senator Grassley, and I very much appreciate his 

involvement in these issues. 

Senator GRASSLEY. Thank you. 

Dr. Lindsey, I am going to start with you. Your testimony points 

to the labor force participation as the greatest challenge to increasing the middle class, but, also, to reducing income inequality and 

increasing economic growth. 

You point out that many of our well-intended transfer payment 

programs aimed at helping low-income individuals can actually create a strong disincentive to work. Your testimony cites marginal efVerDate Mar 15 2010 16:49 Oct 16, 2014 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 R:\DOCS\89892.000 TIMD
24 

fective rates as high as 80 percent. But as I understand it, in certain circumstances, that could be 100 percent. 

During the debate on the Affordable Care Act, I requested the 

Joint Committee on Taxation to do an analysis of marginal effective tax rates, looking at all transfer payments, and the thenproposed premium tax credit. The JCT analysis actually said that, 

in certain circumstances, you could have what they said was an infinite marginal effective rate. 

Now, before I ask you your question, I kind of add all this up, 

and Congress, over a long period of time, passes a lot of wellintended government programs, and they turn out to have some 

unintended negative consequences. And when we try to do something about income inequality, maybe we are spending too much 

time on that and not enough time on inequality of opportunity. 

So here is my question. What suggestions do you have to ensure 

Federal programs intended to be a bridge to the middle class do not 

become an insurmountable wall? 

Dr. LINDSEY. First of all, let me say, since we are trying to build 

bipartisanship, I agree with everything Dr. Burman said. The one 

thing you heard from us was complexity, and my chart here shows 

this is not the rich right here. And what we have done is, we have 

passed hopelessly, hopelessly complex rules so that the individual 

who wants to comply with the government’s rules has a strong disincentive to work. 

A lot of the people who are nominally out of the labor force 

may—may, we do not know—be participating in the gray economy. 

We should not be proud of that accomplishment either. But there 

is no question that when you have complex programs that ordinary 

people cannot follow, that punish them with very high rates when 

they try to work harder, you are making things worse. You are 

building a barrier to the middle class. 

I am not saying that we should do away with these programs, 

and I agree with the Earned Income Tax Credit. I think it is a 

great program. I am saying if you put in this hodgepodge, which 

is what you have done, and you have no idea what the marginal 

tax rate is or what the complexity is for that middle-class person, 

that is what the problem is. 

We could sit down and we could simplify this and we could agree 

on a simplified program that would be a win-win for the middle 

class. This is not what the Congress and the President have done. 

They have made it worse. And some of those infinite marginal tax 

rates you referred to come straight from the Affordable Care Act. 

We know there are two different phase-outs. We do not have to 

go into that. Why that is there, I have no idea. Did anyone not figure it out when you passed the Act—no, I know the answer to that. 

You cannot do things like that and expect to have government 

policy be on the side of the middle class. 

Senator GRASSLEY. My next question is for Dr. Dunkelberg. Obviously, because of time, it is going to have to be the last question, 

although I do have other questions I may submit in writing. 

As you mentioned in your testimony, small businesses are vitally 

important to building jobs for the middle class. So I would ask a 

couple of questions about the Affordable Care Act, because I have 

heard this from small businesses in Iowa. 

25 

Among the top concerns in an NFIB survey is the uncertainty 

over government actions and regulations. How is a haphazard implementation of the Affordable Care Act adding to the uncertainty 

facing many small businesses? 

Dr. DUNKELBERG. Senator, thank you for that question. It is nice 

to see you again. 

Obviously, there is a huge amount of confusion surrounding the 

Affordable Care Act, and the rules, of course, are changing. I do not 

know how many changes we have had in the implementation so 

far. 

So people are very unsure. Again, these are not Ph.D.s running 

these little firms out here. They are trying to run a business, and 

they are trying to figure out where this thing fits in, what taxes 

apply to them, when will they be penalized, will they be penalized, 

how will that be changed in the future. 

There is a 50-employee thing now, but we know that Congress 

may well make it 40, 30, 20. There is so much uncertainty about 

it that they cannot make hiring decisions. 

Small business owners view hiring as an investment. It is not 

like a 1-year thing. You hire an employee, you train them, and the 

story is, it takes a year to get your investment back before they are 

really productive in the job you have them in. 

So those are investments that owners are very unwilling to make 

now. They are very expensive. Hiring is very expensive, and, if you 

cannot be sure what the cost is going to be or whether you can 

even afford them, you do not make the hire. 

So we are waiting. Everybody is waiting for some more clarity 

before they spend any more money, and that is the difficulty we 

have. 

The CHAIRMAN. Thank you, Senator Grassley. 

Senator Hatch? 

Senator HATCH. Thank you, Mr. Chairman. 

This has been a particularly interesting panel, and I really enjoyed every one of you here. Let me direct some questions to Dr. 

Lindsey, though, and I wish I had time to direct to everybody. 

By the way, you mentioned your book. I turned around and I 

said to my staff, ‘‘I’ve got to get a copy of that,’’ and they said, 

‘‘Well, he sent you a copy, but we kept it so we can read it.’’ I guess 

they figured we cannot read. [Laughter.] 

But you may have to send another copy, but I will be happy to 

pay for it. How is that? 

Dr. LINDSEY. Senator, I will be happy to send you one, and, in 

honor of your public service, you do not have to pay for it. 

Senator HATCH. Now, that is the kind of language I like to hear. 

[Laughter.] 

Now, Dr. Lindsey, your testimony identifies effective marginal 

tax rates facing low-income earners that can rise to as much as 80 

percent or more, and your testimony identifies that there are elements of our entitlement and transfer systems that help impose 

those rates. One result is that the structure of the entitlements and 

transfers puts in place some significant disincentives to work more 

or advance up into the middle class. 

Indeed, I would remind the committee of the nonpartisan Congressional Budget Office’s recent findings which indicate that the 

26 

construction of the Affordable Care Act, with generous subsidies, financed by increased taxes, will discourage economic activity, including work and efforts to earn more, such as getting more education or training. 

Now, Dr. Lindsey, can you give us some of your thoughts on 

whether high marginal tax rates and disincentives to labor supply 

and other economic activity inherent in many of our redistribution 

and entitlement programs, including the Affordable Care Act, are 

inhibiting economic growth? 

Dr. LINDSEY. Yes, Senator. Even though I am about to turn 60 

and old people are not supposed to change their minds, I changed 

my mind about this one. 

I tend to follow the Federal Reserve very closely, and I think the 

labor force participation issue has been a conundrum for them. And 

their view, which I agreed with until December, was that the people who have left the labor force are likely to come back. 

That had been my view. And then I actually began to do the kind 

of research on an anecdotal basis, and that led me to a statistical 

analysis, and I switched my view. I do not think they are coming 

back. 

Senator HATCH. Why is that? 

Dr. LINDSEY. Well, the Hamilton Project, for example, which is 

Mrs. Clinton’s outfit, did a very careful look at this. Suppose you 

are a construction worker who has been laid off, and you are married to a nurse who has not been laid off. The question is, all right, 

do you want to go back to work? 

Well, what they found was that, in most cases, the effective tax 

rate on the second spouse going back to work was on the order of 

80 percent because of lost benefits and higher taxes. And that goes 

on top of the fact that you have just arranged a certain child care 

arrangement and now, oh my gosh, you have to turn that upside 

down. 

So I do not think these people are going to come back, and that 

means that we are not going to get the GDP from them, we are 

not going to have the employment, and we are not going to have 

them move into the middle class. They are going to be getting by 

on one income. 

And, if you look at the incentives for them to go back, the government has taken them away. I am sorry, but people do not go back 

to work when they lose 80 cents on the dollar of what they are 

going to earn. 

And so, no, I do not think we are going to see a reversal in the 

rate of participation, unfortunately. That is bad for the economy, 

and it is bad for the middle class. 

Senator HATCH. Well, as the economy sluggishly recovers from 

the 2009 recession, labor markets remain persistently sluggish, 

with the employment-to-population rate remaining stubbornly low 

at around 59 percent and the labor force participation rate down 

to 63 percent relative to an average of close to 67 percent between 

1990 and 2007. Some people argue that most of the persistence of 

the low employment-to-population numbers and the persistently 

low and declining labor force participation reflects aging of the population. 

27 

Yet, even a recent analysis of the economy’s long-run growth potential by the nonpartisan Congressional Budget Office, which they 

have ratcheted down, says that, ‘‘Changes in people’s incentives 

caused by Federal tax and spending policies set in current law are 

expected to keep hours worked and potential output during the 

next 10 years lower than they would be otherwise.’’ Now, that is 

in the CBO’s view. The persistent sluggishness of the labor market 

does not stem solely from demographics. Policies also have played 

a role. 

Now, what have you seen and heard about changes in people’s 

incentives caused by Federal tax and spending policies since the recession that CBO thinks are contributing to and will continue to 

contribute to the sluggishness of the labor markets and the economy? 

It is a little along the same line of what you have been saying. 

Dr. LINDSEY. I think the CBO analysis is right. And yes, the population is aging. But one thing that you can do is, you can control 

for age, and my chart in there, chart 4, does that. 

And so what you have had is 2 million middle-aged men and 

1 million middle-aged women not participating. Not participating 

means not only not having a job, but saying, ‘‘I don’t want to work.’’ 

And, as an old-fashioned guy, I have problems thinking about a 45- 

year-old man saying, ‘‘Not only do I not have a job, but I don’t want 

to work.’’ And that is what got me to look into why that was possible. How could that possibly be happening? And the same thing, 

by the way, is true for a lot of middle-aged women. It is now the 

case that people do not want to go out there and work. 

The answer that came up over and over again, came out across 

the political spectrum—I mentioned the Urban Institute, I mentioned the Hamilton Project, I mentioned the CBO—so this is not 

a controversial finding. The policies enacted in our tax and our 

transfer system are creating a huge disincentive for people to work. 

It is as simple as that, and that is a burden on economic growth. 

Senator HATCH. My time is up, Mr. Chairman. 

The CHAIRMAN. Senator Brown? 

Senator BROWN. Thank you. 

I guess, Dr. Lindsey, I meet a whole different group of people 

from the people whom you seem to talk to. I want to talk about 

something different. 

Clearly, people on this panel have promoted their books. I want 

to promote Mr. Packer’s for a moment, if I could. You have written 

poignantly about the tragic history of Youngstown, what has happened in one of the most important cities in my State. You trace 

the life of a woman named Tammy Thomas, a single mother, trying 

her best to raise children. 

Her story and her speaking through your eloquent words made 

two important points. First, manufacturing has been a long-time 

ticket to the middle class, especially between the coasts, but really 

including up and down the east and west coasts too. A factory job 

meant a steady income, a secure retirement, and often a pension 

that was a defined benefit, and some ability to send children to 

school, buy a car, buy a house, all of that. 

Second, when communities lose these jobs, and you know what 

it has done to the Mahoning Valley, Youngstown, it is absolutely 

28 

devastating for that family who may be foreclosed on, the family 

next door whose home is devalued, and the entire tax base and all 

of that. 

So just walk through what we ought to do about that. What do 

you do to encourage and build upon the manufacturing renaissance 

in places like Youngstown, which is beginning to happen? How do 

we reach into these communities and help people like Tammy? 

Mr. PACKER. In her case, she worked for 20 years in an auto 

parts assembly plant. It was one of the last good manufacturing 

jobs in the Mahoning Valley. And then Delphi declared bankruptcy, 

got out of its contracts, and moved all but a tiny number of jobs 

to Mexico. It was part of a whole North American restructuring on 

the part of Delphi, and that was pretty much the end of Tammy’s 

career as a blue-collar worker. 

She remade herself. She went back to school. She got a degree 

in social work. She became a community organizer, which is what 

she was when I met her in Youngstown, and she was essentially 

working with people whom she knew, people in her old neighborhoods, to try to rebuild, to get vacant houses torn down by the city, 

basic things, things that seem like—they are not about creating a 

shiny new economy. They are about making life livable in neighborhoods that had become pretty much unlivable. 

I think one of the biggest challenges in bringing jobs to people 

in the Mahoning Valley is, there is this incredible ethic of work in 

Youngstown because of the history of the steel mills. People there 

know about work. But there is also a missing generation that did 

not have jobs and that probably did not get very good educations 

and that may have spent time in prison, which was almost a part 

of the education of people that Tammy knew, including her own 

brothers. So how do you get the jobs in things like natural gas and 

manufacturing that are beginning to trickle back into the old manufacturing parts of Ohio to people who do not have a history of 

working? 

I have seen her stand up in front of a group of ex-cons, felons, 

who were desperate to find a job, but also felt hopeless about finding a job because of their record. And so she sort of worked with 

them to figure out how to tell their story to a potential employer 

in a way that they would be given a chance, and it is partly a matter of training and of education, but it is also a psychological problem. 

There is a huge barrier between people of the next generation 

after hers and the people who are beginning to hire in the Mahoning Valley. As of now, what I heard is, a lot of those jobs are going 

to people with very specialized skills or people from outside the region who know how to do those jobs. So it is not yet becoming a 

part of the rebuilding of Youngstown. 

Senator BROWN. Thank you. And I appreciate Dr. Lindsey’s affirmative head nods as you were talking about much of that. 

Last question, Dr. Burman. I do not have a lot of time. 

You discussed using the tax code to combat wage stagnation. 

Talk to us about the importance of not just the Earned Income Tax 

Credit, but our efforts on this committee. Chairman Wyden is a 

sponsor; pretty much a number of us are. 

29 

It started with President Ford, as you know. President Reagan 

said it was the best pro-family, anti-poverty thing the Federal Government can do. 

Talk about the expansion, the permanence, the importance of a 

permanent, predictable EITC—we talk about predictable taxes 

here, but we seem to leave out EITC and CTC as something that 

should be predictable long-term—and the expansion to people, to 

men and women who are childless, and the importance of all of 

that. If you would, just give us your thoughts. 

Dr. BURMAN. Thank you, Senator. I think the EITC and the 

Child Tax Credit and other subsidies for lower-income working people, as Larry pointed out, they are too complicated, but they have 

been enormously valuable. 

The evidence shows that the Earned Income Tax Credit does encourage people to work, particularly single parents. It raises the reward to work. You can work at the minimum wage, and, with the 

EITC, you can get close to an adequate level of income to support 

your family. 

The President has proposed and Marco Rubio has talked about 

this as bipartisan support for the idea of increasing the Earned Income Tax Credit for people without children. Right now, there is 

a tiny, tiny credit that phases out at a very, very low income. 

And I think that would be tremendously important, because it 

would encourage, for one thing, noncustodial fathers to go into the 

workforce, to be in the above-ground economy, by raising the reward to work, making it easier for them to make child support payments and stay connected with their children. 

And education and being in the workforce are important avenues 

into the middle class, and the EITC does encourage that. There are 

some disincentives created by the phase-out, but, on balance, the 

empirical evidence shows that this is a very strong pro-work program, and it helps people who are really struggling, who are trying 

to get by and support themselves. 

Senator BROWN. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. All of my colleagues have been very patient. Senator Brown, I am looking forward to going with you to Ohio soon 

to meet some of those people, and I appreciate it. 

Senator Bennet? 

Senator BENNET. Thank you, Mr. Chairman. And I appreciate 

very much your holding this hearing. 

As we sit here today, we face income inequality that is greater 

than it has been since 1928 in this country. If you are a child living 

in poverty in the United States, your chances of getting a college 

degree or the equivalent of a college degree are roughly 9 in 100, 

which means the situation is getting worse and worse and worse, 

and 91 out of 100 of our kids are constrained to the margin of the 

economy, the margin of the democracy, from the very beginning. If 

we do not change what we are doing as a country, the gap is only 

going to get a lot worse. 

Mr. Packer, I want to thank you for this book. It is one of the 

most extraordinary things I have read in a long time. I read it 

without knowing you were coming to the committee. My brother 

made me read it. 

Mr. PACKER. Thank you, Senator. 

30 

Senator BENNET. And John Dos Passos, I think, would be proud 

of what you have done here. If people listening to this do not read 

any other part of it, please read the chapters about—is it the 

Hartzell family in Tampa? 

Mr. PACKER. Yes. 

Senator BENNET [continuing]. Which is one of the most shattering accounts I have ever read of something happening in America. 

I wonder whether you could—I just want to give you the opportunity to share with the committee some of the things that you saw 

that might be least obvious to the people in Washington who are 

making policy, the chapters about Jeff Connaughton and what he 

learned while he was here on Capitol Hill. Because to me, the 

power of what you recount is the extraordinary disconnect that exists among the working Americans you are describing and their 

government, and their sense that the priorities here have nothing 

to do with the priorities that they have or the things that would 

be essential for them to be able to get ahead. 

So, I apologize for the long-winded question, but I would love to 

give you the rest of my time. 

Mr. PACKER. That is very kind of you, and thanks for your really 

kind remarks, Senator Bennet. 

As I said in my testimony, the people I spent time with, I spent 

a lot of time with. This was not going and doing a half-hour interview. It was staying in their houses, eating their dinners, driving 

around the State with them. So I got to know them really well, and 

I just got to understand a little bit about what it is like to be inside 

their skin. 

Washington felt very far away and utterly unresponsive, but so 

did Wall Street, so did Silicon Valley, so did corporate America, so 

did my profession, the media—and so did even the schools, even 

the local schools. So there was a sense in which they were on their 

own. Over and over again, I kept running into the same feeling 

that people had that there is no support out there, that there is no 

institutional structure that they can turn to that sort of understands what it is like to not have a strong voice. 

So you mentioned Jeff Connaughton. The book has all these different characters, and one of them is a Washington guy, because 

I think to understand—— 

Senator BENNET. He is not a Washington guy anymore. 

Mr. PACKER. No. He has burned those bridges completely. He has 

done the unthinkable. He has actually named names and told tales, 

and now he is in some kind of retirement at the age of, what, 53. 

He is one of those middle-aged men who has left the labor force voluntarily. 

His story is the story of a guy who goes from being a Senate aide 

to a White House aide to a lobbyist. And of those three, the thing 

that makes him happiest is being a lobbyist, because he knows 

more about what is happening to legislation, and he is making 

more money, and he is more successful. He is someone who is doing 

things. And then comes the financial crisis, and there is a sort of 

moral crisis that comes for him, which is perhaps advanced by the 

fact that he loses half his net worth. 

31 

He goes back into government. Some of you may have known 

him when he was Chief of Staff to Senator Kaufman. And his mission is to make sure that the financial crisis is never repeated, by 

enacting strong Wall Street reform and by prosecuting some of the 

top executives who might have been behind the fraud that led to 

the financial crisis. 

In his view, neither of those things happens. And the reason they 

do not happen is because of people like him. He sees how little 

voice ordinary people have in Washington when he goes from one 

side of the revolving door to the other in a hurry, and suddenly it 

becomes clear to him that the position he was in and that his partners from the firm are still in, is a much better position to be in 

in Washington than to be a Capitol Hill aide who thinks he is acting in the interest of, broadly speaking, the public, where he feels 

he has very little power. 

So that is why, when I was asked by Chairman Wyden to name 

one idea that I would have for supporting the middle class, it is not 

a Finance Committee idea, but it is campaign finance reform. 

Senator BENNET. My time is up, but I want to thank you again, 

Mr. Chairman. I want to thank all the panelists today. 

If we do not figure out how to educate our kids better, and if we 

do not figure out how to recouple job growth and wage growth to 

economic growth, we are not going to recognize ourselves in the 

middle of the 21st century, and this is what we should be focused 

on 24/7. 

The CHAIRMAN. Thank you, Senator Bennet. 

Senator Thune is next. Senator Stabenow has been exceptionally 

patient, and I am looking forward to getting her in as soon as possible. 

Senator THUNE. Thank you, Mr. Chairman. Thank you to you 

and Senator Hatch for covering and having a hearing on this important subject, and thanks to all our witnesses for being willing 

to testify today. 

I think we have two kind of contrasting views about how to improve the plight of middle-class Americans in this country. And 

over the past several years, we have sort of tried the government 

approach, the redistribute income approach, and what we got is 

sluggish growth, stagnant wages, and a middle class that feels increasingly squeezed by health care costs and taxes and everything 

else. 

The other approach, I think, looks at a vibrant, growing small 

business economy, where we incentivize work and really try to encourage small businesses to hire. Sixty percent of the jobs that are 

created in this country, I think—and I think the number may be 

even higher than that, but I know that that is the number that I 

have seen quite a bit—come from small businesses. So I would 

argue that the best thing that we can probably do in terms of improving the overall status and conditions for middle-class Americans in this country is to get a vibrant, growing, robust small business economy. 

And to Mr. Packer’s point, if people feel disenfranchised from 

Washington and big government, feel disenfranchised from big 

business and Wall Street, in most cases, they do feel a connection 

to the small businesses in their community, and that is where most 

32 

of the jobs are created. That is why I think the focus of our policies 

ought to be on that. 

And so I would ask Dr. Dunkelberg, because we are having a debate around here right now about the minimum wage and other 

types of policies that I think are intended to improve the plight of 

the middle class and to address the issue of income inequality, but 

I am interested in knowing if there might be some other types of 

policies, tax policies, that you can think of that would help small 

businesses grow and hire, maybe increasing small business expensing limits or expanding the use of cash accounting, those types of 

things that would be helpful, that would really encourage small 

businesses to hire and to grow and to get the economy expanding 

again. 

That really is ultimately, I think, the best way to lift people 

higher up in the middle class. 

Dr. DUNKELBERG. Thank you, sir, for that question. I think you 

put your finger on a couple of interesting issues, all of them pointed to the bottom line. That is where small business funds its 

growth. That is the source of capital. 

So, whether it is a change in tax rates or expensing or any of 

these kinds of things, and, in particular, a reduction in the compliance costs that they have, with all the regulations that are coming 

out—I think I saw a statistic that said we had a new regulation 

in the Federal Register last year every hour and a half or something like that, some absurd number. I do not even know how 

small business owners find out what regulations they have to comply with, much less comply with them. It is very expensive. 

So this is the important capital, the owners’ capital, the intelligence and the smarts of the entrepreneur, as well as the financial 

capital. Those are the kinds of things that should be fixed. Simplification, as a number of our testimonials have suggested, would 

be really important here. 

The other thing, of course, is that a lot of what Congress does 

for these things are temporary provisions. So it is not just complexity. A lot of our members do not use the investment tax credit, 

for example, because it is too complicated, or they will not use, say, 

some tax credit, like, we will give you $5,000 if you hire a worker. 

Well, the worker costs $25,000, and you get $5,000 after a lot of 

paperwork, later and maybe, and those kinds of temporary things 

do not help either. 

Small businesses are investing for the long run, and they need 

a set of policies that are long-run policies, that are simple and that 

they can understand and comply with and still spend most of their 

time running the business and creating jobs rather than trying to 

figure out how to comply with all these regulations that are coming 

down on their heads. 

Senator THUNE. I appreciate that. 

Mr. Lindsey, there has been a good amount of discussion about 

the EITC. I think you were around when that was created during 

the Reagan administration. And it was designed, I think, to help 

reward hard work by offsetting some portion of payroll taxes. 

As someone who served on President Reagan’s Council of Economic Advisors, I would be curious to know what you think about 

the EITC and whether it was intended to be primarily a spending 

33 

program that makes payments, in many cases, above and beyond 

both income tax and payroll tax liability. And do we need to consider reforms to the EITC as opposed to an expansion of it, which 

is what the President is proposing? 

Dr. LINDSEY. I think the EITC is a very good program, and I 

think—let us put it in a little historical context. 

It was intended as an alternative to an old program called 

AFDC, which was Aid to Families with Dependent Children, which 

basically put a 100-percent marginal tax rate on someone who was 

on welfare so he could return to work, and this actually reversed 

that. It was a very successful supply-side program and is now embraced by everyone. 

I really do not want to do you all’s job here. So I am going to 

tell you the pros and cons and try and get out of here alive. 

I think the first decision you have to make is whether or not you 

want to stick to the basic premise that this was an alternative to 

AFDC; that the intent here was to help families with children who 

have unique problems and unique issues over and beyond those of 

childless individuals. 

I think that is a very important decision. I am probably in agreement with you on it, but that is not a decision for me to make. I 

think that is something you do not want in an age of scarce dollars. 

My preference would be to focus those scarce dollars on families 

with children. That would be where I would go. But I think that, 

first, the same decision, whether or not you extend it to childless 

individuals or not—and here is where Dr. Burman and I agreed— 

you can do it so much easier than you do it now. You really can, 

and that is where you want to go. 

There are a lot of people who do not get it who should, and there 

are a lot of people who do get it but should not, and that is also 

well-documented. Let us admit that there is fraud in the program, 

but there are also people who do not get it. 

Well, that has to do, let us be honest, with complexity. It is done 

in a very inefficient manner. So I do think that no matter what you 

do about expanding it and reaching out to childless couples, please, 

please, please, whatever you do, make it simpler. 

The CHAIRMAN. Thank you, Senator Thune. 

Senator Stabenow? 

Senator STABENOW. Thank you very much, Mr. Chairman. I want 

to thank you for your first hearing being on what is the most important issue today, which is whether or not we are going to have 

a middle class in this country, and I thank you very much for that. 

There are so many pieces to this. Ultimately, I think, in a broad 

economic picture, we do not have an economy, and we do not have 

a middle class, unless we make things and grow things. We need 

to focus on that in manufacturing, small business, all of the things 

being talked about. 

But I am concerned that not much of the discussion that seems 

to be happening today is focused on how we reverse cuts in job 

training. And the number-one thing I hear from manufacturers is, 

we are not matching up the right job right now with the right 

skills, and that means job training and education and so on. 

It is very much about somehow blaming people who are out of 

work, which, I have to say, coming from Michigan, boy, is not what 

34 

I see. I do not see people—unfortunately, Dr. Lindsey, when you 

say people are choosing not to be self-reliant, that surely does not 

speak to anybody whom I know in Michigan. 

Dr. Burman, when you talk about the market not rewarding 

work, that is more what I see. And I want to just speak for a 

minute—when we have a minimum wage right now that allows 

people to work 40 hours a week and still be in poverty, there is 

something wrong with that, I think. 

And we have a bill on the floor right now, Mr. Chairman, that 

we all support, on child care. 

The CHAIRMAN. A bipartisan Mikulski–Burr bill. 

Senator STABENOW. Exactly. And what is interesting about that, 

though, is that the average child care costs for families today equal 

somebody working 40 hours a week for a year at minimum wage. 

It is basically the same: $14,000, $15,000. 

So I am very concerned about how we reward work and do not 

take away from someone who is 50 years old whose job went overseas or their plant closed down or we are more efficient and we do 

not need this type of work anymore, and they are out of work and 

they cannot afford to go back to school, to the community college, 

because they have no work, and we are not extending unemployment benefits so that they can go back and get job training and so 

on. 

I think my first question just would be, Dr. Burman, in your testimony, you said that income concentration has not arisen because 

the middle class is working less. The opposite is true. 

So is the average family working more or less? What is happening here? Is this people choosing not to work? 

Dr. BURMAN. If you look at the data over time, labor force participation overall is much higher. It is a little bit lower among men. 

It is much higher among women. There are many more 2-earner 

couples than there used to be. 

So for the average household, I think it was something like 20 

percent more—in terms of labor force—hours in the workplace than 

there had been 20 or 30 years ago. Americans work really hard, 

and a lot of them are still struggling to get by. 

Senator STABENOW. Would you agree with what I hear so often? 

I do not know if you are seeing this, but I know an awful lot of 

folks who are trying to piece together two or three part-time jobs, 

and they are actually working a whole lot more, just not getting 

ahead very well. So I do not know how that factors into what you 

see, but we have a lot of folks working awfully hard. 

Mr. Packer, from your perspective, do you think folks just do not 

want to work, do not want to work as hard? 

Mr. PACKER. The people I was with always seemed to be working 

or always seemed to be looking for work. 

There is a demoralizing effect when you are working part-time 

because you cannot get a full-time job. Danny Hartzell wanted fulltime work. He could not find it. All he could get was 35 hours a 

week at Target and Walmart, which then became 30 and then became 25 and by the end was down to 20—$10,000 a year. It is just 

untenable. And he did, in his mind, go through the calculation. If 

I somehow lost this job, I could probably make more from unemVerDate Mar 15 2010 16:49 Oct 16, 2014 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 R:\DOCS\89892.000 TIMD
35 

ployment and food stamps than I am making working in the 

produce department at Walmart. 

Then his daughter got sick and he had to go take her to a doctor’s appointment. He did not call in, probably because he was 

pissed off at his employer, and he lost his job and did not get unemployment benefits because it was not found that the employer 

had laid him off. 

So there is a little gray area—— 

Senator STABENOW. So it is a cycle. 

Mr. PACKER. But, honestly, the cycle starts with a man who 

wants to work and cannot find a job that allows him to do anything 

more than allow his wife to pay $2.99 for six Salisbury steaks and 

cook them in the toaster oven or whatever. That is the level of life. 

And this is a family that worked, that worked all their lives and 

that has stayed together. They have not broken up and gone their 

separate ways and fought over the kids and started drinking and 

taking drugs. 

They have done the things that society asked them to do, and 

they still cannot really survive in our economy, and I think the effect has been, to some degree, a demoralization about whether 

there is a job out there for him. 

Senator STABENOW. Just very quickly, I know my time is up, but 

very quickly, what leads to that—and I want to say, again, we are 

never going to get out of debt with 10.5 million people out of work. 

This is about jobs, it is about the economy, it is about supporting 

small business, investing in innovation, manufacturing, job training, all of it. But we have people right now who are stuck here in 

this transition. 

Ms. Swonk, just very, very briefly, we are both from Michigan. 

You know how hard things have been there. We are coming back 

right now. But your testimony discusses some of the permanent 

damage caused by people who are on the sidelines for too long, 

which is a concern of mine—the long-term unemployed. 

I wonder if you might elaborate on that for just a moment. 

Ms. SWONK. Sure. There are plenty of labor force studies that 

have looked at long-term unemployment, most of them from the 

early 1980s, actually, in places like Pittsburgh. Chicago Fed Director of Research, Dan Sullivan, and, actually, Mary Daly at the San 

Francisco Fed, have done some of this as well. 

And I disagree with Larry a little bit on the permanence of unemployment, but I would argue that these problems compound over 

time. We know that for the long-term unemployed, particularly 

among men, not only is their earning potential—when they finally 

do get back in, if they are out more than a year—permanently reduced, but the earning and educational attainment of their sons, in 

particular, is reduced. So you are generationally setting these people back, and they are from those manufacturing jobs like we had 

in Michigan with a controlled, unionized workforce. 

We do know that in the 1990s, they came out of the woodwork 

and came back, but they never earned what they did before. They 

were on a completely different trajectory. 

And we also know that mental health, physical health, which are 

both intimately combined, in my view, in my own experience with 

what I see, but also, the data now supports it, they are intricately 

36 

combined, and things like mortality rates among the long-term unemployed went up quite dramatically as well. 

So there is a whole issue here that I think it is compounding. 

That said, we do know that in much better economic times, they 

do come back. They just never achieve what they once did. 

So I do not completely disagree that these workers are permanently sidelined, but some of them are people who have taken disability, very few ever come back, and they are younger than they 

used to be. 

Senator STABENOW. Thank you. And, Mr. Chairman, thank you 

for your patience. 

I think when we look at extending unemployment benefits so 

folks have a roof over their head and food on the table and can go 

back and get the job training they need so that they can lift themselves up, that is all a very, very important part of this, and we 

need to get unemployment insurance extended so more people have 

the opportunity to be able to focus on getting themselves back on 

track. 

The CHAIRMAN. Thank you, Senator Stabenow. And before Senator Stabenow leaves, I am pretty sure I heard you mention the 

words, Ms. Swonk, mental health. 

Ms. SWONK. Yes. 

The CHAIRMAN. And Senator Stabenow and a Republican colleague, Senator Blunt of Missouri, are the champions of the effort 

to expand mental health coverage, and I am very hopeful that we 

are going to be able to do that here very shortly. And our farm bill 

is also going to be helpful in terms of creating some of the agriculture jobs of the future, the jobs that are going to get our agricultural products into export markets. 

So before she leaves, I just want to thank her for her leadership. 

I have a couple of other questions, and I know my colleague, Senator Hatch, does as well. 

I want to ask the panel a question on this issue of savings accounts and particularly child savings accounts. 

There seems to be more agreement than might initially meet the 

eye. I have looked at some of the statements, for example, that our 

former colleague, Rick Santorum, has made on this issue, and Senator Santorum makes the point that he is sympathetic to child savings accounts because he sees them as part of an ownership society. Many of my Democratic colleagues support the idea of a child 

savings account because they would like to increase the tools for 

those with modest incomes to be able to accumulate wealth. 

So my question for the panel would be, what, in your view, might 

be an appropriate role for government? And Senator Hatch and I 

already have begun discussing a lot of these issues, and, when we 

talk, the question always comes back to, what is the appropriate 

role of government? In some instances, on some issues, there simply is not an appropriate role for government. 

But given the fact that conservatives and those who have a different place on the political spectrum seem now to be coming together around the idea of child savings accounts—making it possible for young people to accumulate wealth—I would be interested 

in whether the panel—and I am not going to conscript you into 

37 

duty here, but what might be an appropriate role for the government on child savings accounts? 

Would any of you like to take a crack at that? 

Dr. Burman, you are moving cautiously toward your microphone. 

Dr. BURMAN. The concern I have about child savings accounts is 

the idea that you just put a little bit of money in an account and 

then somehow people will get to be 18 years old and they will have 

a nest egg and that will give them a chance. 

They, obviously, need to know how to manage the money, but I 

think it is a promising idea. What I would look for would be ways 

to actually teach people when they are quite young about the value 

of savings and not just put money in the account and say, read the 

statement and see how it grows but, also, encouraging them and 

maybe their parents to contribute, provide them with the kinds of 

match that upper-income people can get through their employers 

now, and then see how the account balance grows. 

I think, actually, people want to save. My parents were quite 

poor, and my mother still would hide money and put it away, because she wanted to have something set aside. But we need to 

make it easier for people to do that. 

The CHAIRMAN. You are absolutely right. There are a number of 

pieces to the puzzle, and that is why the committee is going to look 

at this. We are going to look at it in a bipartisan way. There is not 

going to be any kind of rush to address it. 

But I am struck by the numbers, that young people who have a 

savings account are more likely by many times the ratio to those 

who would not attend college, they would move on. They clearly 

benefit, and the financial education you are talking about is a key 

part of it and particularly for those of modest means. 

Any of the rest of you—Dr. Dunkelberg? And so the question is 

really the appropriate role of government, and if you think I am 

just off-base and you do not think there is any role for government 

at all, so be it. But that, to me, would be the initial question in 

terms of trying to see how Democrats and Republicans might come 

together behind it. 

Dr. DUNKELBERG. Well, it could be a Federal-level issue, although lots of times we are doing things at the Federal level that 

we probably should leave to the States. 

The American Financial Services Association has developed a 

program called Money Skill. It makes it available free to high 

schools. It is totally self-contained, because high schools have a lot 

of people who do not know how to teach personal finance. 

But the States are requiring it. They are starting to ask for it. 

And Money Skill is made available, and, as I say, it is a selfcontained, self-teaching kind of an instrument. But the kids in high 

school need to get this kind of an education to see what saving 

means and what it means over time and why you want to save. All 

they think about is, I want to spend. 

I think there are good efforts underway, and anything we could 

do to encourage that would, I think, be very, very helpful, because 

once these kids get through this stuff and go through all the examples and the work, it is amazing what they learn and how much 

retention they have once they get out. 

38 

And that is a good time, I guess, when you graduate from high 

school, you are going to get your first job, maybe, to have had those 

skills pounded into your head. 

The CHAIRMAN. Ms. Swonk, did you want to get into this? 

Ms. SWONK. I just wanted to add one point of caution, as the cautionary tale here of complexity, agreeing that we all believe in simplification. 

One of the things we saw during the 1990s—and I remember 

reading these studies and being quite moved by them—was that 

people who owned a home had a higher chance of people living in 

that house going to college, lower rates of high school dropouts, and 

higher rates of high school attainment. 

The problem was, we ignored self-selection in the process. And 

what I worry about is, when we look at these students who have 

already saved—I had my first savings account at 5 years old. I had 

a little book. We had a savings book back then. But there is a selfselection involved among the family and among the children. And 

so, when we try to expand those ideas to a Federal level, we have 

seen already some dangers of unintended consequences by wellintended policies, despite the bipartisan nature of it. 

And so I would just point that out as something to be cautious 

of. 

I also think dispelling myths is really important, and I am going 

to really get on a third rail of politics here, and I probably should 

not. My colleagues at home are probably getting angry already that 

I opened my mouth, but people believe that they are getting back 

in Social Security what they earned, and they do not believe—my 

grandmother died at 99, thankfully, and she took back more than 

she ever could have earned in the stock market or anything else, 

and that was lovely for her. 

But I think more people realize that they have to support themselves, as well as depending on these safety nets that we set up for 

a very small percentage of people initially. I think that is an educational issue for 28-year-olds and 25-year-olds, realizing they are 

going to have to support themselves, not because they might not 

get Social Security, but because it is not enough. 

I think those issues are really important, because we have to dispel some myths. People think of these things in a different way 

than they were intended to be, and they were not designed to support it. 

The CHAIRMAN. Your point is well-taken. And I think part of 

what I try to bring up at practically every town hall meeting is 

that I want to promote this ethic of private saving, particularly as 

it relates to Social Security, on top of Social Security, so that people do not walk out of there and immediately say, there is going 

to be a big brawl. 

My time has expired. The point is, we are going to be anxious 

to talk with you all about the details on this, because of your point 

about self-selection and analysis, particularly in one area or another that may or may not be comparable for young people. 

I have been struck, and we will get them to you, about the data 

that show that this does look like a path to upward mobility, particularly for those youngsters of the modest means that I am talking about. 

39 

Senator Hatch has been very patient. 

Senator Hatch, do you have other questions? 

Oh, let us see. We have our colleague, who may be out of breath. 

Senator Carper, would you like Senator Hatch to go and then you, 

or would you like to go now, because Senator Hatch, as usual, is 

being his collegial self? 

Senator CARPER. I would like for Senator Hatch to go, and I 

thank you very much for the offer. 

I just would say to all the witnesses, thanks very much. Welcome. Thanks for waiting for me. 

The CHAIRMAN. Let us have Senator Hatch ask any questions he 

would like on another round, and then we will go to Senator Carper. 

Senator HATCH. I just have to say, this has been a very interesting panel. I have to read your book, Mr. Packer, and I will try 

to do that. 

Mr. PACKER. Thank you. I have read yours. 

Senator HATCH. You have? 

Mr. PACKER. ‘‘Square Peg in a Round Hole.’’ Yes, I have. 

Senator HATCH. You did read that. 

Mr. PACKER. I did. Why are you so surprised? 

Senator HATCH. I have been surprised at anybody who read my 

book recently. Although, it actually sold quite a few books. 

That reminds me, it is hard for me to understand why anybody 

would not want to work. And to hear you, Dr. Lindsey, explain why 

they do not want to work, even then, it is hard for me to understand, although I understand what you are saying, because I was 

born in poverty. 

My family lost our home right after my birth. I always felt like 

I was responsible for that. And then my father borrowed $100 and 

bought an acre of land in the hills of Pittsburgh and tore down a 

burned-out building to build our home. We did not have any indoor 

facilities or anything. 

And from the time I was 6 years old, I was working. My dad did 

teach me his trade. I became a skilled tradesman. I was a member 

of the AFL–CIO for 10 years and worked at the trade. To get 

through school, I worked as a janitor. When Ted Kennedy found 

out that I had worked as a janitor, he said, ‘‘Orrin, you should have 

stuck with it.’’ [Laughter.] 

I will not tell you what I told him he should have stuck with. 

[Laughter.] We were good enough friends, we could really badger 

each other. 

But it is hard for me to get this concept of why people would not 

work at anything. 

Now, in your book, Mr. Packer, you have indicated that they cannot get anything. But I have always found you can if you move or 

if you have to. 

How do we get out of this mentality? You can hardly blame people for not working when, with the transfer of payment systems 

that we have in this government today and the welfare payments 

that we have, people can make, in some States, upwards of $55,000 

a year, which is a little bit more than the average wage, by staying 

home and just getting the transfer payments. 

40 

Am I wrong on that? I mean, I have been reading about that, and 

I get that from all sources. I am happy to have any of you talk 

about that. 

Let me direct it to you, Dr. Lindsey. You made the point. 

Dr. LINDSEY. Yes, Senator. And I think we—— 

Senator HATCH. Why can we not get people to work? 

Dr. LINDSEY. Senator Stabenow said that I said something that 

I do not think I said, and I think it is a way of answering your 

question. She said that I said people choose not to be self-reliant. 

I do not think anyone chooses not to be self-reliant. 

Senator HATCH. I do not either. That is one of the points I am 

making. 

Dr. LINDSEY. And what happens is, they lose their job, and they 

get into one of these programs. That program leads to another program and—— 

Senator HATCH. Or a whole bunch of programs. 

Dr. LINDSEY [continuing]. They need the program. It is that benefit mountain chart. 

There is nothing wrong with any of these programs if they need 

the help. But then comes the time when maybe a job does come 

along, and what they either get from personal experience or from 

their social network—it may be that their sister-in-law tried this. 

She says, ‘‘You know, I got a $15-an-hour job, and I thought I 

would be a lot better off, and I took home $3 more. I was better 

off by $3 more.’’ It is not that they are choosing not to be selfreliant. It is that it does not make sense for them to be self-reliant. 

Senator HATCH. Well, how do we solve that problem? That is 

what I am getting to. 

Dr. LINDSEY. Again, we are going to have to balance the generosity, and I think we are a generous Nation, and I am all for it, 

with the complexity and with the phase-outs. 

The fact is, people are not going to go back to work when they 

face 80-percent marginal tax rates. It is not because they do not 

want to be self-reliant. It is that even a self-reliant person is smart. 

They know whether or not they are better off if they go back to 

work. And, if the government says you are not better off if you go 

back to work, they are not going to go back to work. 

Senator HATCH. How do we solve the problem? Take away the 

transfer payments? How do we do it? 

Dr. LINDSEY. Dr. Burman was mentioning reforming EITC as one 

example. These are soluble problems. 

With all respect to this body, I think what happens, and the reason we have a chart that looks like this, with a mountain there, 

is, we pass a program and then we have a different Congress that 

comes along and somebody else wants their name on a bill and we 

put that program on top of that program and that program on top 

of that program, and they are all well-intended, but because there 

is never an effort to go back and really think through what we are 

doing, to think about the consequences, we build up a situation 

where you have 80-percent marginal tax rates. 

Senator, if I may just give one other example that just puzzles 

me—and this is from the implementation of ACA. We have mental 

health programs in the country, and I do not disagree they could 

be made more generous. We have rehabilitation programs. We have 

41 

programs for habilitation. They are paid for out of general taxation, 

which is progressive. 

One of the things Secretary Sebelius did was to put all three of 

those programs into a mandate for insurance. Now, what she has 

done by doing so is take programs that are financed by progressive 

taxation and turn them into programs that are financed by lumpsum taxation of the middle class. 

If I were thinking simply about a way to hurt the middle class— 

this is 20 percent, by the way, of the cost of a silver plan premium. 

Why on earth would the administration, if it is interested in helping the middle class, move 20 percent of health care costs from progressive taxation to lump-sum taxation? 

I have asked that question of everyone, and this is, again, an unintended consequence. The answer I get is, ‘‘Well, it got it off her 

budget and onto the insurance budget.’’ 

I do not know what else there is. We have to work smarter in 

Washington. 

I am sorry I am talking too long. 

The public is fine. Dr. Dunkelberg’s members are very smart people. They know how to run their lives. The people in Mr. Packer’s 

books are very smart people. They are able to run their lives despite very difficult circumstances. 

The people who are not being smart are the people here in Washington, and I will include myself in that, in how we design the programs that they have to live under. And we have to get smarter 

here. We have to get more efficient. It is not more or less. It is, 

come on, guys, there is plenty of money out there, let us deliver it 

in a way that is much more efficient. 

Senator HATCH. And we are going to need all of your help. 

The CHAIRMAN. Thank you, Senator Hatch. 

I know we have a vote going on. We want to get Senator Carper 

in before the vote. 

Senator Carper? 

Senator CARPER. Thank you very much, Mr. Chairman. 

Again, our thanks to each of you. 

I chair the Senate Committee on Homeland Security and Governmental Affairs. We just had a budget hearing with our new Secretary, Secretary Jeh Johnson. We just concluded that. So I have 

missed most of this hearing, and I apologize. 

I want to share a thought and then maybe ask for a response, 

maybe from Dr. Burman on this. 

On the Affordable Care Act, let me just say as a preamble here, 

for years, we spent more money for health care than a lot of the 

rest of the world, industrial nations; we spent way more money. 

I like to talk about Japan. I spent some time there when I was 

in the Navy. They spend about 8 percent of GDP. Up until a year 

ago, we spent about 18 percent. It actually came down a little bit 

last year, and we have seen a sort of leveling off and a slowing of 

growth in health care costs. 

But my view is, if we want to make sure that people have some 

money for their incomes and in their paychecks, we have to continue to bend the cost curve, make sure that we get better health 

care results for the same amount of money or less money. 

42 

The Affordable Care Act is not the answer, the be-all in terms 

of actually getting there. There are a lot of things that can be done. 

But among, I think, the good ideas in the Affordable Care Act, one 

is moving away from a sick care system to a healthy care system 

to try to encourage people to take better care of themselves and 

incentivize that behavior. 

I think it is moving toward Accountable Care Organizations, 

which is really cooperative care, collaborative care organizations— 

another good idea. Incentivizing people to lose weight, to stop 

smoking, that kind of thing, that is a good idea. Moving toward 

electronic health records, so we can better coordinate the delivery 

of health care, is a good idea. I think the exchanges, large purchasing pools, the Republican alternative to Hillarycare in 1993– 

1994, I think that is a good idea. 

The idea that came out of Massachusetts—thank you, Governor 

Romney—where we have an independent mandate to make sure 

that we had an insurance pool that was not just the sick, but we 

had some healthy people there too, I think that is a good idea, although those ideas are criticized by many. 

But let me just ask, if we want to make sure, at the end of the 

day, that employers do have some money to pay more money in 

wages to folks, trying to maintain the middle class, what are some 

further things that we need to do, can do, in terms of stuff that 

can be done outside of the Affordable Care Act? 

Dr. Burman, just share some thoughts with us, if you would. 

Dr. BURMAN. Thank you for your question. I am not an expert 

on health care, although I have written a fair amount about the tax 

aspects of health. 

One thing that clearly would be worthwhile would be to do more 

kind of cost-benefit analyses of health care procedures. We spend 

an enormous amount of money on procedures that do not even necessarily make people better off. People get old and sick, and doctors 

think, ‘‘Well, we’ll spend $1 million to keep you alive for another 

6 months and probably make your life a living hell while we are 

poking and prodding and medicating you.’’ 

One of the aspects of the Affordable Care Act was setting up— 

I do not remember exactly what it was called, but there was an 

agency that was going to look at the effectiveness of different kinds 

of procedures. And because of the demagoguery around the whole 

idea of death panels, it said, ‘‘Okay, we are going to look at whether things work, whether they are cost-effective, but this will in no 

way affect anything we do in terms of providing medical care.’’ I 

think you should take out that last part. 

If you are paying for care—we do not have an unlimited amount 

of money to pay for health care, and you should be making rational 

cost-benefit decisions. I think for people at the ends of their lives, 

we probably spend too little money keeping them comfortable. A lot 

of people are in really horrible nursing home situations, and we 

spend way too much money on acute care. 

So there are a lot of things we can do, but it has to be done on 

a bipartisan basis, because it is so easy to demagogue the issue. I 

think both sides have done that. 

Senator CARPER. I think living wills or health care directives— 

I have one for myself. I go to a doctor. That doctor may be aware 

43 

of my directive. If I go to a hospital, an acute care hospital, they 

may not be. If I go to a nursing home, they may not be. 

So it does not travel; it does not migrate. And one of the things 

that Senator Grassley and I are working on is an effort to make 

sure that that directive, my wishes, actually goes with me to where 

I am receiving the health care. 

The other thing I want to say is on defensive medicine. One of 

the things we did on defensive medicine—in Naval aviation, we 

used to call it watching our 6 o’clock, who is coming up behind us 

to shoot us down. 

And in the delivery of health care, doctors, hospitals, nurses, 

they are worried about somebody coming up and suing them. And 

so they order more tests, more visits, more MRIs, more everything, 

in order to cover their 6 o’clock, to ensure that when they are sued, 

they can say, ‘‘Look, I did everything I could have done.’’ 

There are actually some very exciting alternatives that are out 

there. One actually came out of the University of Michigan, ‘‘Sorry 

Works.’’ In a place called Illinois, there is some great work going 

on. They took ‘‘Sorry Works’’ and put it on steroids to actually do 

an even more interesting job in reducing the incidents of defensive 

medicine. 

They realized better health care results, fewer lawsuits, and 

greater patient satisfaction. It is like the trifecta. It is something 

to keep our eye on. I think we are going to try to spread it across 

the country, including in the first State of Delaware. 

Thank you so much. 

The CHAIRMAN. Thank you, Senator Carper. 

Senator Hatch and I want to thank all of you as well. And I am 

just going to wrap up with a quick minute. 

For the record, Ms. Swonk, we are going to ask you to expand 

a little bit on your notion about less traditional kinds of education. 

You talked about apprenticeships, and that is very good. 

The only other point I would make, really, I think, sums up what 

you all had to say. We talked a bit ago, 2 hours ago, about Henry 

Ford, and Henry Ford said, in effect, we are all in it together. And 

today, you have something of a Dollar Tree–Neiman Marcus economy, where you have the bargain stores and the high-end stores 

doing well. 

We have to find a way to come together in a bipartisan fashion 

to give all Americans the opportunity to get ahead. I am going to 

be working very closely with my partner on this, Senator Hatch, 

and all our colleagues. 

Thank you all. This has been a terrific way to begin my service 

on the Finance Committee. 

With that, the Finance Committee is adjourned. 

[Whereupon, at 12:24 p.m., the hearing was concluded.] 

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