S. HRG. 113–519 

MID-SESSION HEARINGS FOR FISCAL 

YEAR 2015 

HEARINGS 

BEFORE THE

COMMITTEE ON THE BUDGET 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

April 1, 2014–OPPORTUNITY, MOBILITY, AND INEQUALITY IN 

TODAY’S ECONOMY 

APRIL 8, 2014–SUPPORTING, BROAD-BASED ECONOMIC GROWTH AND 

FISCAL RESPONSIBILITY THROUGH A FAIRER TAX CODE 

MAY 1, 2014–INVESTING IN WHAT WORKS: EXPLORING SOCIAL 

IMPACT BONDS 

MAY 13, 2014–EXPANDING, ECONOMIC OPPORTUNITY FOR WOMEN 

AND FAMILIES 

JUNE 4, 2014–THE IMPACT OF STUDENT LOAN DEBT ON 

BORROWERS AND THE ECONOMY 

JULY 29, 2014–THE COSTS OF INACTION: THE ECONOMIC AND 

BUDGETARY CONSEQUENCES OF CLIMATE CHANGE 

( 
MID-SESSION HEARINGS FOR FISCAL YEAR 2015 
S. HRG. 113–519 

MID-SESSION HEARINGS FOR FISCAL 

YEAR 2015 

HEARINGS 

BEFORE THE

COMMITTEE ON THE BUDGET 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

April 1, 2014–OPPORTUNITY, MOBILITY, AND INEQUALITY IN 

TODAY’S ECONOMY 

APRIL 8, 2014–SUPPORTING, BROAD-BASED ECONOMIC GROWTH AND 

FISCAL RESPONSIBILITY THROUGH A FAIRER TAX CODE 

MAY 1, 2014–INVESTING IN WHAT WORKS: EXPLORING SOCIAL 

IMPACT BONDS 

MAY 13, 2014–EXPANDING, ECONOMIC OPPORTUNITY FOR WOMEN 

AND FAMILIES 

JUNE 4, 2014–THE IMPACT OF STUDENT LOAN DEBT ON 

BORROWERS AND THE ECONOMY 

JULY 29, 2014–THE COSTS OF INACTION: THE ECONOMIC AND 

BUDGETARY CONSEQUENCES OF CLIMATE CHANGE 

( 
COMMITTEE ON THE BUDGET 

PATTY MURRAY, WASHINGTON, CHAIRMAN 

RON WYDEN, OREGON 

BILL NELSON, FLORIDA 

DEBBIE STABENOW, MICHIGAN 

BERNARD SANDERS, VERMONT 

SHELDON WHITEHOUSE, RHODE ISLAND 

MARK R. WARNER, VIRGINIA 

JEFF MERKLEY, OREGON 

CHRISTOPHER A. COONS, DELAWARE 

TAMMY BALDWIN, WISCONSIN 

TIM KAINE, VIRGINIA 

ANGUS S. KING, JR., MAINE 

JEFF SESSIONS, ALABAMA 

CHARLES E. GRASSLEY, IOWA 

MICHAEL B. ENZI, WYOMING 

MIKE CRAPO, IDAHO 

LINDSEY O. GRAHAM, SOUTH CAROLINA 

ROB PORTMAN, OHIO 

PAT TOOMEY, PENNSYLVANIA 

RON JOHNSON, WISCONSIN 

KELLY AYOTTE, NEW HAMPSHIRE 

ROGER F. WICKER, MISSISSIPPI 

EVAN T. SCHATZ, Staff Director 

ERIC UELAND, Republican Staff Director 

(II) 
iii 

C O N T E N T S 

HEARINGS 

Pages 

April 1, 2014–Opportunity, Mobility, and Inequality in Today’s Economy ........ 1 

April 8, 2014–Supporting, Broad-Based Economic Growth and Fiscal Responsibility Through a Fairer Tax Code .................................................................... 57 

May 1, 2014–Investing in What Works: Exploring Social Impact Bonds ........... 113 

May 13, 2014–Expanding, Economic Opportunity for Women and Families ..... 193 

June 4, 2014–The Impact of Student Loan Debt on Borrowers and the Economy ........................................................................................................................ 329 

July 29, 2014–The Costs of Inaction: The Economic and Budgetary Consequences of Climate Change .............................................................................. 411 

STATEMENTS BY COMMITTEE MEMBERS 

Chairman Murray.............................................................................. 1, 57, 193, 329, 411 

Senator Sessions ........................................................................................ 4, 60, 195, 413 

Senator Warner ........................................................................................................ 113 

Senator Ayotte ......................................................................................................... 116 

senator Whitehouse ................................................................................................. 117 

Senator Johnson ...................................................................................................... 332 

WITNESSES 

Heather Boushey, Ph.D., Executive Director and Chief Economist, Washington Center for Equitable Growth, and Senior Fellow, Center for American Progress..................................................................................................... 197, 200 

John L. Buckley, Former Chief Tax Counsel, House Committee on Ways 

and Means, and Former Chief of Staff, Joint Committee on Taxation....................................................................................................................... 62, 65 

Raj Chetty, PH.D., William Henry Bloomberg Professor of Economics, Harvard University..................................................................................................... 15, 18 

Rohit Chopra, Assistant Director and Student Loan Ombudsman, Consumer 

Financial Protection Bureau............................................................................ 340, 342 

Annmarie Duchon, Associate Director of Accommadion Services, University 

of Massachusetts, Amherst.............................................................................. 214, 216 

Mark Fisher, CBE, Social Justice Director, Department for Work and Pensions, United Kingdom..................................................................................... 125, 127 

Mark Fisher, Delegate, Maryland House of Delegates ..................................... 131, 133 

Diana Furchtgott-Roth, Senior Fellow, Manhattan Institute for Policy Research..................................................................................................................... 92, 94 

Alfredo Gomez, Director of Natural Resources and Environment, US Government Accountability Office............................................................................... 428, 430 

Sherri W. Goodman, Executive Director, CNA Military Advisory 

Board ................................................................................................................. 447, 450 

Jane G. Gravelle, PH.D., Senior Specialist on Economic Policy, Congressional 

Research Service................................................................................................... 74, 77 

Keith Hall, PH.D., Senior Research Fellow, Mercatus Center............................. 27, 30 

Brittany Jones, Former President, Student Virginia Education Association..................................................................................................................... 334, 337 

Jeffery B. Liebman, Malcolm Wiener Progessor of Public Policy and Director, 

Social Impact Bond Technincal Assistance Lab, John F. Kennedy School 

of Government, Harvard University ............................................................... 118, 124 

Bjorn Lomborg, Adjunct Professor at Copenhagen Business School and Director of the Copenhagen Consesus Center......................................................... 476, 479 
Page

iv 

Mindy Lubber, President, CERES...................................................................... 415, 418 

Kyle McKay, Analyst, Texas Legislative Budget Board ................................... 135, 137 

David Montgomery, PH.D., Senior Vice President, NERA Economic Consulting................................................................................................................ 455, 458

Sabrina L. Schaeffer, Executive Director, Independent Women’s 

Forum ................................................................................................................ 220, 223 

Joseph Stiglitz, PH.D., University Professor of Economic, Columbia University ........................................................................................................................... 6, 10 

Richard K. Vedder, PH.D., Distinguished Professor, Emeritus of Economics, 

and FacultY Association, Contemporary History Institute, Ohio University, 

and Director, Center for College Affordability and Productivity.................. 358, 360 

QUESTIONS AND ANSWERS AND ADDITIONAL MATERIALS 

Questions and Answers.................................. 54, 157, 326, 390, 529 
(1) 

OPPORTUNITY, MOBILITY, AND INEQUALITY 

IN TODAY’S ECONOMY 

TUESDAY, APRIL 1, 2014 

UNITED STATES SENATE, 

COMMITTEE ON THE BUDGET, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:06 a.m., in Room 

SD–608, Dirksen Senate Office Building, Hon. Patty Murray, chairman of the committee, presiding. 

Present: Senators Murray, Sanders, Whitehouse, Merkley, Kaine, 

King, Sessions, Crapo, and Johnson. 

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

M. Ueland, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN MURRAY 

Chairman MURRAY. This hearing will come to order. 

I want to thank my Ranking Member, Senator Sessions, and my 

colleagues who are joining us here today, and I especially want to 

thank our panel of distinguished witnesses for being here, Nobel 

Laureate Joseph Stiglitz and Senior Research Fellow at Mercatus 

Center, Dr. Keith Hall. We have a third witness. He is John Bates 

Clark Medal Recipient Dr. Raj Chetty. His flight was canceled coming in today. I believe he is landing at National shortly, so he will 

join us as soon as he can get here. 

Today’s hearing is really going to focus on mobility, inequality, 

and opportunity, but really at the heart of the discussion is the 

basic promise of America, the idea that no matter where you come 

from or who you are or your circumstances, if you work hard and 

play by the rules, you have the chance to live out the American 

dream. 

That basic promise is why I sit in this chair today. When I was 

15, my father was diagnosed with multiple sclerosis, and within 

just a few years, he could not work anymore and all of a sudden, 

without any warning, my family fell on very hard times. But the 

country did not turn their back on us. For several months, we relied on Food Stamps. With the help of a government program, my 

mom was able to attend Lake Washington Vocational School so she 

could get a job, help put food on the table, and take care of my dad. 

My brothers and sisters and I were all able to go to college and 

stay in college because of student loans and support from what we 

now call Pell Grants. We had lost our footing, but because of this 

great country, we never lost hope that with hard work, we would 

have the opportunity to live out that American dream. 
2 

But, something happened to our economy over the last three decades or so. Instead of rewards from hard work and innovation 

being shared broadly, those rewards began to flow overwhelmingly 

to those at the very top while everyone else was getting left behind. 

But stagnant economic mobility and soaring inequality are not inevitable. We can expand opportunity to more Americans and ensure people have the tools that they need to succeed, and that is 

what Congress should be focused on in the coming years. 

We know that our economy thrives when America’s middle class 

can earn enough to raise a family and save up for their kids’ college and put some money away for a secure retirement. But in recent decades, the middle class has been squeezed. Wages have 

stagnated. Workers cannot find jobs. Homeowners worry about 

making their next mortgage payment. That has happened even as 

incomes for the country’s top earners have increased. That trend is 

simply unsustainable and unhealthy for our economy. 

A recent study by the International Monetary Fund shows that 

countries with higher inequality have slower growth and more turbulent business cycles. As you have written, Dr. Stiglitz, the 

United States has one of the highest levels of inequality among the 

advanced industrial countries. 

Making matters worse, as inequality has grown, it has not gotten 

any easier for people to climb the economic ladder, as we will hear 

from Dr. Chetty, who is joining us as we speak. Thank you very 

much for being here. That research finds that the birth lottery, or 

a child’s parents’ socio-economic standing, matters more today than 

it used to because economic mobility is stagnant while inequality 

is on the rise. 

That is a very alarming trend because it goes against America’s 

basic promise. Right now, there could be a child with the potential 

to go on to make new medical breakthroughs or start a new business or innovate new technologies, but even if she did not win that 

birth lottery, our economy and the world might never benefit from 

her talents and skills. But, Dr. Chetty, you also found in your research that some areas in the U.S. have greater economic mobility, 

notably places that have less inequality and good school systems. 

So, we can overcome these challenges. Government alone cannot 

solve the problem of inequality. Of course, businesses that create 

good-paying jobs help people reach the middle class and build a 

stable and secure life. But we in Congress can create the conditions 

so that all Americans, from the top income earners to those in the 

middle class and those struggling to get there, can succeed, and to 

do that, we need to do some foundational things to help today’s 

workers. 

I believe that starts a with a minimum wage increase. Working 

full time should not leave a family in poverty. Congress can and 

should act to ensure that hard work pays off by raising the minimum wage for millions of workers. 

Last week, I introduced the 21st Century Worker Tax Cut. That 

bill would update our tax code to help today’s workers and families 

keep more of what they earn. It would give working families with 

children a 20 percent deduction on a second earner’s income and 

expand the Earned Income Tax Credit, or EITC, for workers without dependent children who are just starting out or whose children 
3 

have already left home. Based on estimates from the Treasury Department and 

the Joint Committee on Taxation, those simple changes to our 

tax code would help more than 13 million childless workers and 

more than seven million working families climb the economic ladder. 

My bill is paid for by closing corporate tax loopholes that both 

sides have proposed closing. I know there are differences when it 

comes to our parties, how we would use those savings. My bill 

would close those loopholes to give workers and families some tax 

relief, while Chairman Camp has proposed closing those loopholes 

to pay for lower rates for corporations. I am hopeful that, especially 

when they consider the kinds of challenges we are discussing 

today, my Republican colleagues will rethink their approach and 

join our effort to give a tax break to struggling workers who really 

need it. 

We also need to address all of our deficits fairly and responsibly. 

Our country faces serious long-term fiscal challenges. So while this 

year our deficit is expected to be about a third of what it was just 

five years ago, I want to continue to build on the $3.3 trillion in 

deficit reduction we have already put in place. But at the same 

time, creating opportunity means we cannot lose sight of the other 

deficits that our country faces. Too many people cannot find work. 

Our economy is still recovering after the worst economic downturn 

since the Great Depression. So, we have to do more for people who 

are struggling to find a job. 

We have to also address our infrastructure deficit. Infrastructure 

is what makes our economy move. It helps our businesses grow. It 

makes our communities thrive. We need to make those investments 

to spark economic growth and to create more jobs for more workers. 

We have to also give our kids the best education and training 

they need to compete and lead the world, and that means investing 

in early learning all the way up to college and job training programs. 

And, we have to maintain a strong safety net. Programs like food 

assistance and affordable housing help make sure families do not 

fall into deep poverty or hunger or homelessness. Instead, it gives 

families more opportunity to climb the economic ladder. 

And the last point I will mention is the need to reform our tax 

code. Our system is riddled with tax loopholes and special interest 

carve-outs that benefit the wealthiest Americans and biggest corporations, and that is unfair. Instead of spending billions on those 

tax loopholes, we should be investing in national priorities that 

benefit American families. 

We have lots of work to do for families in our country, and in 

our divided government, getting anything done is going to take bipartisanship and compromise. Thankfully, here in Congress, we 

proved just a few months ago that is possible. Democrats and Republicans can break through the bitterness and rancor, work together, and reach an agreement. 

When Chairman Ryan and I sat down together after the government shutdown last year, we faced a lot of skepticism that we 

would be able to get anything done. But, we listened to each other, 
4 

we searched for common ground, and we made some compromises. 

We knew we were never going to agree on everything, but we did 

not think that should mean that we could not agree on anything. 

And when we got a deal just a few months ago, the vast majority 

of the Congress put partisanship aside to do the right thing for the 

American people. 

Our two-year budget deal was a strong step in the right direction. It rolled back some of the damaging across-the-board cuts and 

prevented a government shutdown. It restored some certainty by 

setting budget levels, not just for 2014, but also for 2015, so our 

Appropriations Committees in the House and Senate can do their 

work on time using bipartisan numbers. 

Now, we need to build on that. We should not relitigate our bipartisan budget deal or create needless uncertainty again in a 

budget process that should finally be free of crisis. And I will certainly fight back against any attempts to move our country backwards, with deeper cuts to investments for our families and seniors 

or unfair and irresponsible budget proposals that protect the 

wealthiest Americans and biggest corporations from paying a 

penny more of their fair share. 

But, we do owe it to our constituents to keep working together 

towards policies that create jobs, increase economic mobility, and 

gives more people opportunity. Every child growing up today deserves the same shot at the American dream that my family had, 

and I am ready to work with anyone, Democrat or Republican, to 

get that done. 

With that, I will turn it over to my counterpart, Senator Sessions, and then we will hear from our experts on this. 

OPENING STATEMENT OF SENATOR SESSIONS 

Senator SESSIONS. Well, thank you. Thank you very much, Senator Murray, and for your leadership. 

This is an important discussion, an important issue that we are 

facing, and I would note that the Ryan-Murray spending limits 

that we agreed on was violated again yesterday, $6 billion more 

spent in 2014 than we agreed, to in that legislation that you 

worked hard on to pass. 

So, a sober review of the data reveals that the economic situation 

for too many Americans remains unacceptable. Household incomes 

have declined for five years. The number of households at the lower 

end of the distribution grew by 1.7 percent, while the number of 

households in the middle income decreased by 0.7 percent. In other 

words, the middle class lost members to the lower-income group. 

That is not the trend we want. I think we do need to understand 

that and recognize it. 

Our unemployment rate remains stuck around seven percent, but 

this statistic obscures much of the real picture. Millions of Americans have left the workforce entirely, bringing the workforce participation rate to its lowest level since 1978. We were told that 

massive debts accumulated over the last five years would lead to 

prosperity, but we are now left with none of the prosperity and all 

of the debt. Growth last year was half what the White House predicted it would be, and the White House estimates have consistently been too high. 
5 

So, I agree, Dr. Stiglitz, with one of the remarks that you have 

in your statement that what matters is whether citizens see their 

living standard rise year after year. A pure GDP analysis is not 

sufficient. We are government officials. We have responsibilities to 

the people of this country and it is appropriate to consider what is 

happening and what policies might be exacerbating this condition. 

Both the President and Chairman Murray have proposed as one 

remedy to expand the Federal support for adults without children. 

However, the President’s proposal to expand the Earned Income 

Tax Credit—and this is a real tax subsidy, colleagues, not a tax deduction—it interacts with the Obamacare subsidies in a way that 

surely would, contrary to expectations, penalize work. Because the 

Earned Income Tax Credit and the Affordable Care Act phase-out 

schedules correspond with one another, an adult without children 

whose income goes from $14,700 to $17,700 would lose 75 cents in 

higher taxes and reduced benefits for every dollar they earn. So, 

this creates an incentive not to earn. To grow employment, we need 

to affirm work rather than punish it. 

So, it is time for a compassionate reform, indeed. First, EITC 

would appear to be a better method of helping the poor than 

straight government assistance. I agree with that. This can be a 

point of bipartisan agreement. But, it cannot be one more program 

that traps Americans in poverty, and we do not have the money to 

create a new welfare program, colleagues. We do not have the 

money. So, any new program can and should be paid for out of savings from existing welfare programs. The government spends more than $750 billion a year on a mazelike welfare bureaucracy. This money is spread across more than 

80 programs in dozens of agencies with little oversight and no guiding vision. Imagine how much better it would be if we combined 

these programs into a single credit with strong oversight and a 

greater emphasis on job training and work placement, where an individual prosperity plan could be developed for each unemployed or 

underemployed worker that would help move them into a better 

life financially. 

So, we continue to hear about many of the government spending 

projects our friend on the other side would like to fund. But, a 

major reason there is no money for these new projects is because 

of the huge rising interest payments on our massive debt. We have 

squandered our financial inheritance and are fast moving to destroy the American self-reliance and work ethic that has made our 

nation so dynamic. 

Let us put things in perspective. Last year, we paid out $221 billion in interest, but the Congressional Budget Office says that payment will rise in 2024 to $880 billion. The President says it will 

rise in his budget to $812 billion. That single year’s interest payment is 300 times what we spend today on our National Parks. It 

is 20 times what we spend today on highways. It is enough to fund 

our Federal education programs for ten years. And the President 

and many in the Senate, in a time of slow growth and low job creation, want to double the number of guest workers to take jobs that 

are needed for our unemployed. If we care about economic growth, 

if we care about prosperity, than we have got to recognize these rising interest payments threaten to drown our economy. 
6 

We need to create more growth, more jobs, and better pay. Some, 

I think, in this country believe higher wages are bad. I do not believe higher wages are bad. It seems to me we have a surplus of 

labor because wages are falling. In this economy, if we actually 

have a shortage of labor, a tight labor market, wages would be 

going up. 

Here is how to get this economy on the right track, it seems to 

me, without adding to the debt. Produce more American energy, 

creating jobs right here in America, keeping wealth at home. Eliminating all costly and non-productive regulations, and there are lots 

of them. Make the tax code simpler and more growth oriented. Ensure fair trade for U.S. workers by holding our foreign trading 

partners accountable. We cannot allow this continued massive currency manipulation, either. Adopt an immigration policy that 

serves our national interests and the interests of working poor in 

America. And last week, our House Democrats endorsed a plan 

that would double the flow of new immigrant workers into America—double the flow—which would further reduce wages and job 

prospects. 

We need to turn the welfare office into a job training center. 

Streamlining the government itself, make our government leaner 

and more productive to lessen the wealth it extracts from America. 

And, finally, let us balance the Federal budget and create confidence in our financial future and security for our children. 

All of these steps would create jobs and growth without adding 

to the debt. All of these steps would create rising incomes and 

wages. All of these steps would grow the middle class, not the government. 

Thank you, Madam Chair. 

Chairman MURRAY. Thank you. 

With that, we are going to turn to our three witnesses, and 

again, thank you all for coming here today. 

Dr. Stiglitz, we will begin with you. 

STATEMENT OF JOSEPH STIGLITZ, PH.D., UNIVERSITY 

PROFESSOR OF ECONOMICS, COLUMBIA UNIVERSITY 

Mr. STIGLITZ. Well, thank you very much. It is a great pleasure 

for me to discuss with you one of the critical issues facing our country is growing inequality, the effect it is having on our economy, 

and the policies that we might undertake to alleviate it. 

America has achieved the distinction, as you pointed out, of becoming the country with the highest level of income inequality 

among the advanced countries. Matters have become worse in 

every dimension. More money, more than a fifth of all income, goes 

to the top. More people are in poverty at the bottom. And the middle class, long the core strength of our society, has seen its income 

stagnate. Median household income adjusted for inflation today is 

lower than it was a quarter-century ago. There is a vicious circle. 

Our high inequality is one of the major contributing factors to our 

weak economy and our low growth. 

Data describing the other dimensions of America’s inequality are 

even worse. Inequalities in wealth are even greater than income, 

and there are marked inequalities in health. The most invidious as-
7 

pect of U.S. inequality, however, is the inequality of opportunity 

that you referred to earlier. 

America has become the advanced country not only with the 

highest level of inequality of outcomes, but is among those with the 

least equality of opportunity. The statistics show that the American 

dream is a myth. The life prospects of a young American are more 

dependent on the income and education of his parents than in 

other advanced countries. We have betrayed one of our most fundamental values. The result is that we are wasting our most valuable 

resource, our human resources. Millions of those at the bottom are 

not able to live up to their potential. 

This morning, I want to make eight observations concerning this 

inequality. The first is that this inequality is largely the result of 

policies, of what we do and do not do. The laws of economics are 

universal. The fact that in some countries, there is so much less 

inequality and so much more equality of opportunity, the fact that 

in some countries, inequality is not increasing, it is even decreasing, is not because they have different laws of economics. Every aspect of our economic, legal, and social frameworks helps shape our 

inequality. In virtually every domain, we have made decisions that 

help enrich the top at the expense of the rest. 

The second observation is that much of the inequality at the top 

cannot be justified as just desserts for the large contributions that 

these individuals have made. Disproportionately, they are those 

who have excelled in rent seeking and wealth appropriation, in figuring out how to get a larger share of the nation’s pie rather than 

enhancing the size of that pie. 

Thirdly, the idea that one should not worry about inequality because everyone will benefit as money trickles down has been thoroughly discredited. While the top has been doing very well, the rest 

has been stagnating. 

Fourthly, this recession has, in turn, made inequality much 

worse. Ninety-five percent of the gains since the so-called recovery 

have gone to the top one percent. 

Fifth, it is not the case that our economy needs this inequality 

to continue to grow. One of the popular misconceptions is that 

those at the top are the job creators and giving more money to 

them will, thus, create more jobs. America has both creative and 

entrepreneurial people throughout the income distribution. What 

creates jobs is demand. When there is demand, America’s firms will 

create the jobs to satisfy that demand. This growing inequality is, 

in fact, weakening demand, one of the reasons that inequality is 

bad for economic performance. 

Sixth, we pay a high price for this inequality, for the extremes 

to which inequality has grown in the nature of inequality in America, both in outcomes and opportunities. A divided society does not 

function well. Our democracy is undermined as economic inequality 

translates into political inequality. America’s politics are increasingly better described as a result of a system not of one person, one 

vote, but of one dollar, one vote. 

Greater inequality leads to lower growth and more instability. 

These ideas now have become mainstream. Even the IMF, as you 

mentioned, has embraced them. We used to think of there being a 

trade-off. We could achieve more equality, but only at the expense 
8 

of giving up on overall economic performance. Now, we realize that 

greater equality and improved economic performance are complements. 

This is especially true if you focus on appropriate measures of 

growth, focusing not on what is happening on average or to those 

at the top, but how the economy is performing for the typical American, reflected, for instance, in median income. For too many, perhaps even a majority, the American economy has not been delivering. 

And if our economy is not delivering, it not only hurts our people, 

it undermines our position of leadership in the world. Will other 

countries want to emulate an economic system in which most individuals’ incomes are simply stagnating? We pay a price, not only 

in terms of weak economy today, but lower growth in the future. 

With nearly one in four American children growing up in poverty, 

many of whom face a lack of access to adequate nutrition and education, the country’s long-term prospects are being put into jeopardy. 

The seventh observation is that the weaknesses in our economy 

have important budgetary implications. The budget deficits of recent years are a result of our weak economy, not the other way 

around. 

The final observation I want to make is that the role of policy 

in creating inequality means there is a glimmer of hope. There are 

policies that could reduce the extremes of inequality and increase 

opportunity. In the last chapter of my book, The Price of Inequality, I outline 21 such policies affecting both the distribution of income before taxes and transfers and after. Most of the policies are 

familiar: More support for education, including preschool; increasing the minimum wage; strengthening the Earned Income Tax 

Credit; giving more voice to workers in the workplace, including 

through unions; more effective enforcement of anti-discrimination 

laws; better corporate governance; financial regulations and antitrust laws more effectively enforced; and a fairer tax system. 

The special provisions for capital gains and dividends not only 

distort the economy, but with the vast majority of the benefits 

going to the top, increase inequality. At the same time, they impose 

enormous budgetary costs of the kind that Mr. Sessions has emphasized, almost $2 trillion, if we include the provisions of step-up 

of basis from the special provisions for capital gains and dividends. 

If we are to avoid the creation of a new plutocracy in the country, 

we have to retain a good system of inheritance and estate taxation. 

We need to make sure that everyone who has the potential to go 

to college can do so, no matter what the income of his parents, and 

to do so without undertaking crushing loans. 

In the past, when our country reached these extremes of inequality at the end of the 19th century, in the Gilded Age or in the Roaring ’20s, it pulled back from the brink. It enacted policies and programs that provided hope that the American dream could return 

to being a reality. We are now at one of those pivotal points in history. I hope we once again will make the right decisions. You and 

your committee and the budget decisions that you will be making 

play a vital role in setting the country in the right direction. 
9 

I would like to also submit for the record the paper that I wrote 

on reforming taxation to promote growth and equity, where I show 

that we can actually raise the revenue that we need to address the 

problems of inequality and address the problems of the budget deficit in ways, as I say, that will reduce inequality and promote economic growth. 

Chairman MURRAY. Okay. Thank you very much. Without objection. 

[The prepared statement of Mr. Stiglitz follows:] 
10 
11 
12 
13 
14 
15 

Chairman MURRAY. Dr. Chetty, thank you very much. 

STATEMENT OF RAJ CHETTY, PH.D., WILLIAM HENRY 

BLOOMBERG PROFESSOR OF ECONOMICS, HARVARD UNIVERSITY 

Mr. CHETTY. Chair Murray, Ranking Member Sessions, and 

members of the committee, it is my pleasure to speak to you today 

about opportunity and inequality in the United States. 

As you know, America is often hailed as the land of opportunity, 

a society in which children can succeed regardless of their family 

background. However, opportunities for upward income mobility in 

the U.S. are actually lower than in other countries. 

To take one statistic, a child born to parents in the bottom fifth 

of the income distribution in America has a 7.5 percent chance of 

reaching the top fifth of the income distribution, as you see here 

on the slides. In contrast, if you look at Denmark, a child born in 

the bottom fifth of the income distribution there has an 11.7 percent chance of reaching the top fifth. So, that is, children in Denmark have a 50 percent higher rate of realizing the American 

dream than children growing up in America. 

Now, this low social mobility in the U.S. is not a new or temporary problem. Mobility has been low in the U.S. for the past several decades. However, because of the increase in inequality discussed by Professor Stiglitz, the lack of mobility is a much more 

pressing problem today. In a society without much inequality, mobility would not matter very much because everyone would have 

similar incomes regardless of whether they moved up or not. But 

in a society with very high levels of inequality, a lack of opportunity is a severe problem and can substantially hamper economic 

growth. 

Now, the stability and mobility over time has led some to question whether social mobility can be meaningfully influenced by policy. I think the answer to this question is, yes, mobility can be improved by changes in policies that you can shape. The reason I am 

confident that mobility is malleable is that there are substantial 

differences in mobility across communities within America, as illustrated in this map here, which I am going to turn to next. 

So, this is a heat map which shows you the chance that a child 

born to parents in the bottom fifth of the distribution, the income 

distribution, reaches the top fifth across areas of the United States. 

Lighter colors are areas with higher levels of upward mobility. So, 

what you can see from this map is that in some parts of the U.S., 

such as the Southeast or the Rust Belt, children who are born in 

the bottom fifth of the distribution have less than a five percent 

chance of reaching the top fifth. In contrast, in other areas, such 

as the Great Plains and the West Coast, the odds exceed 15 percent. 

Now, one thing you have to remember is no matter what policies 

you enact, you are never going to have more than 20 percent of 

people in the top 20 percent, right. So, the fact that you have odds 

of 15 percent versus five percent, you know, these are really big 

differences in rates of upward mobility across places within the 

U.S. 
16 

Now, there is substantial variation in upward mobility even 

among the largest cities. So, to take some examples here shown in 

this table, in cities like Salt Lake City and San Jose, you have 

rates of mobility that are comparable to Denmark and the most 

mobile countries in the world. But in contrast, if you look at other 

cities, like Milwaukee or Charlotte, North Carolina, the odds of 

reaching the—rising from poverty to the upper parts of the income 

distribution are much, much lower, lower than any developed country for which we currently have statistics. 

Now, this variation in economic mobility across areas in the U.S., 

in my view, is actually some reason for optimism, because if we can 

make every city in America have mobility rates like San Jose or 

Salt Lake City, the United States would become one of the most 

upwardly mobile countries in the world and this would dramatically change economic growth and the structure of the economy. 

So, this naturally leads to the next question which we have investigated in our research. What makes some places in America 

have much higher rates of upward mobility than others? So, we 

find five key factors that are correlated with differences in upward 

mobility across areas. 

The first is segregation. Areas with more racially integrated 

neighborhoods and more mixed-income neighborhoods tend to have 

higher rates of upward mobility. 

The second, as Senator Murray mentioned, is inequality. Areas 

with greater inequality, in particular, a smaller middle class, have 

less opportunity for mobility, as well. 

Third, as you might expect, areas with better schools, for instance, better teachers, smaller classes, better funding, tend to 

have higher levels of upward mobility. 

Fourth, areas with greater social capital, which are proxies for 

the strength of social networks and community involvement in an 

area, also tend to have higher levels of upward mobility. 

And finally, mobility is much higher in areas with stronger family structures, areas with fewer single parents, for example. Now, 

a very important thing to note there is that even children of married parents have higher rates of upward mobility if they live in 

a community with fewer single parents. So, this is something about 

the structure of the community and not, per se, whether you have 

single or married parents. 

So, these correlations do not necessary tell us what causes the 

differences in mobility across areas, but the results of the research 

that I have been describing point to certain types of policy solutions, and that is the last set of issues that I would like to discuss. 

First, since rates of upward mobility vary widely across cities, as 

I have shown you, place-based initiatives that focus on specific 

areas, for instance, improving mobility in Charlotte or Milwaukee, 

may be more effective than addressing the problem at a national 

level. Such policies might include targeted tax credits, efforts to revitalize local communities such as Promise Zones, or funding for 

improvements in local schools and investments in infrastructure. 

Second, much of the spatial variation in children’s outcomes 

emerges before they start working. We find that children in areas 

with low-income mobility also have higher teenage birthrates and 

lower college attendance rates. So, by the time they are in their 
17 

teenage years, you are seeing children in Charlotte and in Milwaukee falling behind if they are from disadvantaged families. This 

tells me that it is important to improve childhood environments 

rather than focusing exclusively on providing jobs and ladders for 

opportunity as adults. I think both are very important. 

Third, there is clear evidence that improving primary education 

can have substantial effects on mobility. For example, in a recent 

study tracking one million students over 25 years, my colleagues 

and I find that a high-quality, excellent teacher generates more 

than $1.4 million in earnings gains for a single classroom of students over their lives. Hence, programs that increase teacher salaries and provide incentives for local school districts to retain and 

recruit higher-quality teachers are likely to have very large payoffs. 

Importantly, such investments in education have substantial returns throughout childhood, not just in the earliest years. 

Finally, perhaps the simplest and most cost effective way to improve mobility may be to construct and publicize local statistics on 

economic mobility. For instance, offering awards or grants to areas 

that have substantially improved their rates of upward mobility 

could spark local policy changes. I think that shining a spotlight 

on the communities where children do have opportunities to succeed can enable others to learn from their example and increase opportunities for economic mobility throughout America. 

Thank you. 

[The prepared statement of Mr. Chetty follows:] 
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Chairman MURRAY. Thank you very much. 

Dr. HALL. 

STATEMENT OF KEITH HALL, PH.D., SENIOR RESEARCH 

FELLOW, MERCATUS CENTER 

Mr. HALL. Chairwoman Murray, Ranking Member Sessions, and 

members of the committee, thank you for the invitation to discuss 

income and equality and today’s economy. I appreciate the opportunity to testify today. 

Nearly five years after the end of the Great Recession, the labor 

market today is still far from full recovery. The share of the working-age population with employment remains lower today than at 

the end of the recession in 2009. At the heart of this poor labor 

market recovery lies weak economic growth. 

I want to talk about three things in my testimony. First, I want 

to talk about disengagement from the labor force. I believe that our 

unprecedented disengagement from the labor force is the biggest 

ongoing economic challenge that we face today. 

Second, I want to talk about jobs and income inequality. Because 

of the impact of employment on income inequality, particularly on 

poverty, I believe that our current disengagement from the labor 

force is a real concern for income inequality in the U.S. in the near 

term and we should not lose sight of this fact. 

Third, I want to talk about economic policy and income inequality. We need to be keenly aware of what impact current policies 

and proposed policy changes are likely to have on the size of the 

U.S. labor force and, therefore, on income inequality in the United 

States, and this is in the near term, in particular. 

First, labor force disengagement. We have had an unprecedented 

disengagement from the labor force in the United States. This is, 

I believe, the biggest ongoing economic challenge that we face 

today. We should, therefore, be very cautious about how our current policy choices may contribute to this problem. 

Since the beginning of the recession, participation in the labor 

force has fallen to a 35-year low of just 63 percent. While some of 

this decline was expected and is due to an aging population, most 

was not. In 2013, labor force participation was at a 20-year low or 

longer for every age range between 20 and 54 years old. If you look 

at my written testimony and see Figure 1, you will see the data 

on that. 

The adverse effects of this are real for American families. It is 

well established that individuals experiencing job loss will have 

large and persistent earnings losses for years afterwards. Also, the 

young graduating from school into a bad labor market will remain 

behind in their careers for well over a decade. Further, the longer 

an individual is out of the labor force, the less likely they are to 

return to employment. With four million long-term unemployed 

and likely millions more long-term jobless, this disengagement may 

already be permanently affecting the size of our labor force going 

forward. 

Fully eliminating the effect of our aging baby boomers reaching 

retirement, I estimate that the labor force is currently short over 

4.5 million people. Last year alone, this amounted to a loss of $500 

billion in potential national income. 
28 

Second, jobs and income inequality. Let me start with a simple 

statement. Government spending does not move people out of poverty. Jobs do. I am not suggesting that the government social safety net is not important. However, despite a dramatic increase in 

government spending on means tested programs, there were a 

record 46 million people living in poverty in 2012. Lack of employment is the primary cause of this poverty. Most of those aged 18 

to 64 years old who were in poverty did not have as much as a single week of employment during 2012. Only about 11 percent had 

full-time employment. 

Further, we have never had a decline in the poverty rate that 

was not associated with a rise in the rate of employment. And, 

since the late 1990s, employment appears to be the only thing that 

reliably reduces poverty. If you look again at my written testimony, 

Figure 2 shows this relationship. For this reason, I believe that 

this disengagement from the labor force is our biggest threat to improving income inequality in the United States in the near term. 

Third, I want to talk about economic policy and income inequality. Because of the current state of the labor market and its impact 

on income inequality in the short run, I want to emphasize that 

policies that either raise the cost of hiring or make it more difficult 

for individuals to return to the labor force are counterproductive to 

our labor market recovery. They can even contribute to income inequality through encouraging continued disengagement from the 

labor force. 

I want to briefly mention three examples. First, the proposal to raise the Federal minimum wage from $7.25 to $10.10 an hour may 

have the perverse and unintended effect of increasing income inequality. It is, of course, a laudable goal to see wages increase, particularly for those who could benefit the most from the raise. However, forcing employers to pay more to low-skilled workers could 

mean job losses for a group that is already having trouble finding 

work and fewer hours for a sector of the labor market that mainly 

works part-time. 

No matter what you have heard about the effects of raising the 

minimum wage, there is a significant amount of economic research 

that finds raising the minimum wage only benefits some workers 

at the expense of jobs for others, particularly the least skilled and 

experienced workers. 

The current proposal represents a huge 39 percent increase in 

the hourly wage cost of hiring for many. Common sense dictates 

that raising the cost of hiring the least skilled workers will force 

employers to look to substitutes like higher skilled workers or rapidly advancing technology. The Congressional Budget Office recently agreed, estimating that half-a-million people will lose their 

jobs as a result. The least skilled and experienced workers will pay 

this price in job loss. 

A second example is the Affordable Care Act. CBO’s recent finding that the Affordable Care Act will significantly reduce the incentive to work by the equivalent of more than two million full-time 

workers in just a few years is deeply concerning. 

And, third, a broader example of a counterproductive policy is 

raising the regulatory burden for companies while we still have a 

struggling labor market. While new regulation may be important, 
29 

they raise the cost of production and, therefore, the cost of hiring 

production workers. Many of those workers have below-average 

wages to begin with, and in a bad labor market, job loss is much 

costlier for affected families. 

So, in conclusion, our current very low rate of labor force participation needs to be a central focus of policy makers. We should 

focus on what the government is doing that makes it harder for 

companies to increase hiring and avoid policies that discourage individuals from reentering the labor force. Government assistance to 

the low-income and jobless is important, but the reemployment of 

the jobless is what we need to reduce poverty and lower income inequality. 

Thank you. 

[The prepared statement of Mr. Hall follows:] 
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Chairman MURRAY. Well, thank you, all of you, for your testimony today. 

I want to start with a question about the types of policies that 

we here in Congress should consider if we want to create more opportunity and improve economic mobility and strengthen our middle class. 

Over the last several years, we have made significant progress 

towards addressing our medium-term budget deficits, and while I 

certainly believe that we need to build on the foundation we laid 

with the Bipartisan Budget Act and continue to address our longterm debt challenges, I also really worry that we have not done 

nearly enough to address the many other deficits that our country 

faces today, which I believe are a big part of the reason why economic opportunity is so scarce for so many families these days. I 

know my colleagues on the other side of the aisle tend to argue 

that rather than invest in education or fix our crumbling infrastructure or patch the holes in our social safety net, that we should 

reduce taxes for those at the top and cut back on those services. 

So, Dr. Stiglitz, I want to ask you your thoughts today on the importance of public investments—education, infrastructure, scientific 

research—and ask you if these types of public investments are an 

important part of improving economic mobility in this country. 

Mr. STIGLITZ. Yes, I very strongly believe they do. Let me try to 

emphasize a couple points. One, if we focus—we need to focus on 

both sides of the nation’s balance sheet. When we talk about the 

debt, every company looks at both its liabilities, what it owes, and 

its assets. And the fact that in the government, you only look at 

one side, is a big mistake. We should be looking not only at what 

we owe, but also the assets. And what are the assets? The assets 

are human capital, the investments in people, our infrastructure, 

investments in technology. 

So, if we were looking at this like a company, it would be clear 

that these were good investments. We can borrow today at a negative real interest rate, and there are lots of studies that show that 

the returns on these investments are enormous. So, that is one aspect. 

The second one is that in making those investments, we would 

create demand. The real problem today with our economy is lack 

of aggregate demand. That is why there are not jobs. In the sectors 

of our economy where there is demand, jobs are being created. So, 

it is lack of demand that is really holding the economy back. 

So, if we started investing in areas like you mentioned, infrastructure, education, we would increase demand in those areas. We 

would create jobs. And that would strengthen our economy. 

Now, what is very clear is that one of the sources of inequality 

is the lack of demand. It is hurting the poor, people in the middle, 

because both directly because of the unemployed, but indirectly, 

the unemployment is driving down wages. It is one of the things. 

But we have to remember, this is a quarter-century problem. It is 

not just something that has been post the recession. It has gotten 

worse. That is what I emphasize. But, it has been there for a long 

time. 

And part of the reason it is there for a long time is the underinvestment in education. Professor Chetty pointed out the impor-
35 

tance of, for instance, those childhood investments, preschool education, recognized by Professor Heckman in his research. 

So, it is the failure to make these investments that both lead to 

the weak economy today, will contribute to a weak economy tomorrow, and both through the macroeconomic and through the effects 

on the children, are going to create more inequality. 

Chairman MURRAY. Dr. Chetty, you have been studying the relationship between different factors in economic mobility. Let me ask 

you sort of the same question, and in your research, have you 

found that lowering taxes for the wealthiest Americans helps improve mobility? 

Mr. CHETTY. Thank you. No. So, we have studied, as I mentioned, various factors that are correlated with differences in mobility across areas and over time, and we do not find any evidence 

that lowering tax rates on the wealthiest Americans would increase 

mobility. In fact, I would say to the contrary, as Professor Stiglitz 

was saying. You have got to think about where you are spending 

the revenue that you collect. 

So, if you raise taxes and collect additional revenue that you 

then invest in better schools or better infrastructure, given the 

rates of return that we found on such investments, I would think, 

actually, precisely the opposite, that in a situation such as the one 

we are in today, where many people think we are under-investing 

in basic infrastructure that is going to have a huge long-term payoff for the American economy, we need to find, as Senator Sessions 

said, we need to fund those investments in some way. And, on net, 

I would say, increasing the taxes on the wealthiest and closing certain loopholes, for instance, in the corporate tax system, as you 

suggested, would, if invested well, have very large returns. 

Chairman MURRAY. Okay. Thank you. My time is up. 

Senator SESSIONS. Senator SESSIONS. Thank you. 

Dr. Hall, I did not realize that your chart shows something surprising to me, and that is that the dropout or the decline in the 

workforce participation is much higher from the historical average 

among younger workers than it is among the older workers. You 

actually have, from 60 to 65 and over, about a two percent increase 

in participation, whereas from age 20 to 24, there is a 6.7 percent 

decline in workforce participation. From 50 to 54, a four percent 

decline in workforce participation. You expressed concern about all 

this. Would you share with us a little more your thoughts on those 

numbers. 

Mr. HALL. Well, sure. You know, there has been lots of talk 

about the effect of the aging baby boomers, that that is the reason 

for labor force— 

Senator SESSIONS. Madam Chairman, Senator Johnson needs to 

go, and I told him I would let him go first and I just blithely went 

right on in asking questions. Could I yield to him, and I will try 

to reduce my time by a minute when I get to my time? 

Chairman MURRAY. Absolutely. Of course. 

Senator SESSIONS. He has another meeting, and I am glad he 

could be here. 

Senator JOHNSON. Thank you, Senator Sessions and Madam 

Chair. 
36 

I would like to go to Mr. Hall right off the bat, a similar type 

of question. Mr. Hall, you talked about our workforce being 4.5 million people short. Can you just tell me where you are getting that 

from and explain that. 

Mr. HALL. Well, sure. If you look at what is typical participation 

rates by age, for example, the participation rates in 2007 were 

rather different than they are right now, and so, really, what I just 

did is I look at every single age and look at what the participation 

rate was in 2007 and what the participation rate is right now, and 

you find that we are short in terms of the average participation at 

every single age rage between 20 and 54 right now, and this is 

pretty significant. 

So, the part of the issue, I think, that we really need to face is 

getting people back engaged in the labor force. It is not just baby 

boomers that are retiring. This is every age. The young in particular, actually, have really dropped out of the labor force, and I 

think that is a real concern going forward. 

Senator JOHNSON. Okay. You are just talking about a shortage 

in the labor force. You are not saying that there are 4.5 million jobs 

available that are not being filled. 

Mr. HALL. Well, that is right. That is right. In fact, if you were 

to look at where we are short in jobs, we are short in jobs probably 

10.5 million people—jobs, actually. 

Senator JOHNSON. We had a pretty interesting witness before the 

Budget Committee here last year, Gary Alexander, who is the Secretary of Public Welfare in Pennsylvania. He had a pretty interesting study that he conducted on single moms which showed the 

disincentive nature—disincentivizing nature of all the assistance 

programs. Basically, his conclusion was that a single mom was better off only earning up to $29,000 because her combination of earnings plus benefits, a total of $57,000, versus earning $69,000 where 

her combination income and benefits would be the same amount, 

basically, $57,000 after tax. In other words, she had a 100 percent 

maximum tax rate from $29,000 to $69,000 with increased taxes as 

well as reduction in benefits. Can you just speak to that type of 

problem in terms of the incentives not to continue working. 

Mr. HALL. Sure. You know, I do not want to—we need a social 

safety net. That is an important thing. But we need to be very 

aware of what sort of incentives that creates with our policies. 

Keeping people—making it hard for people to reenter the labor 

force and making it hard for businesses to rehire people, I think, 

really creates a problem. And so many people out of the labor force 

for so long is a problem because the longer people are out, the less 

likely they are to ever return to the labor force. So, to some degree, 

we can make people unemployable by keeping them out of the labor 

force for a long period, like we have seen. 

Senator JOHNSON. You know, I agree. We are a compassionate 

society. We all want a strong social safety net. But the problem is, 

how do you design that social safety net where it really stays confined to those people that really need it and does not start creeping 

into populations where it creates this kind of disincentive for participation in the labor force. 

My final question really has to do with mobility. We are always 

talking about income mobility. What about geographic mobility and 
37 

what effect—there are jobs going wanting up in North Dakota, up 

in those energy fields. In the State of Wisconsin, we have 18,000 

welding jobs that are unfilled. So, what is the effect—I mean, why 

do we no longer have that mobility? Why do people feel like they 

really should not go to the areas where there really are lucrative 

jobs for the taking? 

Mr. HALL. Well, certainly, sort of fiscal location mobility would 

be something that would slow down a recovery and make it difficult for folks to recover, and that is really a good point, that we 

have a very weak labor market, but not everywhere in every industry. There are industries where you can see some real issues with 

difficulty finding workers, qualified workers. That is the sort of 

thing we ought to worry about, is mobility of all different types, because that is a real strength for an economy. 

Senator JOHNSON. I would just like to ask the other witnesses, 

do you have any comment on that lack of mobility, or the fact that 

we simply—people are not moving to where the jobs are. 

Mr. STIGLITZ. Yes. One of the problems is that when people have 

very little wealth, because the people at the bottom have no 

wealth—in fact, a lot of them have negative wealth—they cannot 

afford to just take the risk of moving somewhere else. There is a 

piece of legislation, I do not know whether it is in the House or the 

Senate, that has been introduced to try to provide assistance to 

help people move, mobility assistance, and it has gotten bipartisan 

support and I think it is an important kind of measure, because 

people do not have the resources to up and move. 

Part of the reason is the severity of the housing crash. People at 

the bottom had a very large fraction of their wealth in their housing—always—but then the house prices came down. They were 

over-indebted. They had been sold wrong mortgages. And so this 

has exacerbated, which is something that is always a problem—the 

Great Recession has exacerbated, and the data that has recently 

come out from the Fed about the wealth at the bottom has really 

highlighted this particular problem, and I think it is something 

that Congress ought to be doing something about. 

Senator JOHNSON. Okay. Well, thank you. 

Thank you, Madam Chair and Senator Sessions. 

Chairman MURRAY. Thank you very much. 

Senator KAINE. Senator KAINE. Thank you, Madam Chairwoman, and to the witnesses, thank you for your testimony. 

We are in an interesting centennial that I just discovered this 

morning, and I just want to read something before I ask a couple 

of questions. Quote, ‘‘After the success of the moving assembly line, 

Henry Ford had another transformative idea. In January 2014 

[sic], he startled the world by announcing that Ford Motor Company would pay $5 a day to its workers. The pay increase would 

also be accompanied by a shorter workday. While this rate did not 

automatically apply to every worker, it more than doubled the average auto worker’s wage. Henry Ford had reasoned that since it 

was now possible to build inexpensive cars in volume, more of them 

could be sold if employees could afford to buy them. The $5 day 

helped better the lot of all American workers and contributed to 

the emergence of the American middle class. In the process, Henry 
38 

Ford had changed manufacturing forever.’’ That is from a Ford 

Motor Company press release issued earlier this year celebrating 

the 100th year anniversary of that wage increase. 

The question I want to ask all of you is really about tax policy. 

As a general matter, we have made the policy decision to tax salary 

from labor at significantly higher rates than earnings from investments. To what extent does that contribute to inequality, and to 

what extent does it affect our economy? I would like to hear from 

all of you about that. 

Mr. STIGLITZ. Okay. Well, very briefly, it obviously creates a lot 

of—contributes to inequality, because the distribution of capital, 

wealth, is much more concentrated than the distribution of wage 

income. So, what you are doing—if you look at the data in the CBO 

study that recently came out, if you look at the data of who benefits from that lower taxes of capital gains, who benefits from the 

lower preferential treatment of dividends, who benefits from the 

step-up of basis on death, it is disproportionately money all at the 

top. So, this is a provision that creates more inequality. 

At the same time, the next one I referred to, the cost over ten 

years of these special provisions is basically $2 trillion. That is a 

lot of money that would go a long way to putting our budget in better shape. 

The evidence that this leads to more investment just is not there. 

You know, when they are keeping their money in the Cayman Islands or, you know, it is not there because of the greater sunshine 

makes the money grow faster than for the lack of sunshine, and 

they often take that money and are not reinvesting it in America. 

So, we could have a tax program that would incentivize investment 

in America, job creation in America, but that is not what these special provisions are really doing. 

Senator KAINE. Dr. Chetty. 

Mr. CHETTY. Yes. I would agree with everything Professor 

Stiglitz said. I think the key issue here is that capital income is 

much more concentrated than labor income. 

Another point that adds onto that is because you have to meet 

a given budget, if you have lower capital income tax rates, you naturally have to have higher labor income tax rates and that potentially leads to more of the disincentive effects that were mentioned 

before, where people feel like their net return to working is smaller 

and it is harder—it is more costly for companies to hire workers. 

So, in my view, a reform that moved towards increasing capital 

income tax rates, either investing that money, again, coming back 

to infrastructure, education, or lowering labor income tax rates, 

would likely improve the strength of the American economy. 

Senator KAINE. Dr. Hall. 

Mr. HALL. I am not an expert in tax policy. I will not speak too 

much on it, other than I do feel like we try to do too much with 

our tax policy. You know, I think when you try to conduct policy 

through taxes, you create a lot of incentives and you create a lot 

of problems with that. 

Just in general for me, I think, I would rather see tax policy 

there to generate revenue and not try to manipulate things in the 

economy. Just simplify the tax code. Get rid of loopholes. Make it 

basic. 
39 

Senator KAINE. You know, I think the history would show that 

we taxed earnings from capital at higher rates than earnings from 

labor for a very long time, and then we attempted to begin to manipulate and moved the taxation on capital and labor to approximately an equivalent, and now we have moved the taxation on 

earnings from capital to significantly less. So, I think there has 

been a manipulation of the tax code in the ways you described. 

The traditional answer has been that education is one of the 

great lifters and levelers in that opportunity. What are the barriers 

to that being the case today, and answer quickly, because I have 

pretty much used up my time. 

Mr. STIGLITZ. Okay. I mean, really, we focus on higher education. 

It is getting very expensive, particularly with the recession, the 

cutback in State aid. Tuition has soared. We mentioned before that 

median income is at a quarter-century low, so incomes are going 

down. Tuition is going up. The only way to make it is debt. And 

the form of debt the United States has is really crushing, because 

bankruptcy law, you cannot get forgiveness of that even in bankruptcy. Other countries, like Australia, have come up with really 

good proposals like income-contingent loans, where the amount you 

repay depends on your income. So, it is not the crushing effect, and 

it has worked very well. It is one of the reasons why they have succeeded in getting more equality of opportunity in Australia than in 

the United States. 

Senator KAINE. Thank you, Madam Chairwoman. 

Chairman MURRAY. Thank you very much. 

Senator Sessions, we will go back to you. 

Senator SESSIONS. All right. Thank you. 

Dr. Hall, you indicated three things that would actually—I think 

it is indisputable—would reduce jobs in America. That is the minimum wage increase that the CBO has told us. There is no doubt, 

I think, that the Affordable Care Act has been a detriment. Twothirds of the jobs last year that were created were part-time. Some 

of that clearly was Affordable Care Act. And that more regulations, 

excessive regulations. Maybe regulation is good for one industry, 

but it applies to too many industries. That is unhealthy. 

Let me ask you a few things that might be healthy and helpful 

without adding to our debt. If the United States were to exploit 

this new ability to produce energy, both onshore and offshore and 

on Federal lands, would that help create jobs and wealth in America and tax revenue for the government? 

Mr. HALL. Absolutely, and actually, it already has. The job 

growth in, for example, the natural gas industry has really been 

pretty impressive, despite the job loss in the rest of the private sector since 2006. 

Senator SESSIONS. And you mentioned the tax code simpler, and 

I agree with that. It needs to be more growth oriented and simpler, 

it seems to me. Can we do that? Could we retain this current level 

of revenue and create a tax code that is, in fact, simpler and help 

create more growth than we are seeing today? 

Mr. HALL. Well, absolutely. I do not want to go too far beyond 

my expertise, but I think that is right. I think the efforts to look 

at the tax code and look at just sort of simplifying it, getting rid 

of loopholes and getting a simpler basic tax code whose real goal 
40 

is just to collect taxes, not to do all sorts of things, has real potential benefit. 

Senator SESSIONS. Dr. Stiglitz, the problem about loopholes is 

something we have gone around about a good bit here. I think 

there is not support in Congress to close loopholes to fund new 

spending, but there is a belief that we can create a tax code that 

is more growth oriented. In fact, Chairman Baucus was clear that 

we ought to close loopholes, have a simpler system, but use that 

to keep the rates more competitive worldwide. How would you analyze that issue? 

Mr. STIGLITZ. Actually, mean, obviously, we need a better tax 

system. I referred to the special provisions on capital gains and 

dividends that, I think, do not lead to stronger growth. The way we 

treat foreign income of multinationals and American companies 

that operate abroad, that they can keep the money abroad, reinvest 

the money abroad and not bring it in the United States, is an incentive to create jobs abroad. So, we have a perverse tax system 

which encourages job creation abroad. 

But, the actual effect of the corporate income tax, lowering that 

would not help, I believe, because, remember, at the margin, firms 

can borrow and debt on the part of firms is tax deductible. In fact, 

most evidence is that most firms finance the marginal investment 

by debt. It is tax deductible. So, the income is taxed at the same 

rate that the interest is tax deductible. There is no significant adverse effect, in fact, from the corporate income tax. So lowering the 

corporate income tax would provide no benefit. 

What we should do is to say, if you invest in America, you can 

get a lower rate. If you do not invest in America, you actually 

should pay a higher rate. So, I would argue that get rid of the corporate loopholes, raise the corporate income tax, but give a break 

for those who invest in America. 

Senator SESSIONS. Well, that is pretty much the government directing a lot of things that I am not sure we are able to do. 

Dr. Chetty, thank you for your participation. I do think moving 

from the bottom quintile to the top is a big move, and maybe culturally, we have already done so much of that that we will not expect to see that. I would like to see people move from lower income 

levels to middle income levels, the middle income level to move up 

a level or two in a system that is fair. I think that would be better 

for America, and it was within our grasp. My time is up, but— 

Mr. CHETTY. If I could just say one thing on that, I absolutely 

agree. So, the statistics I presented were just one example, focusing 

on moving from the bottom fifth to the top fifth. But you see exactly the same patterns that I showed you if you look at, say, moving from the bottom fifth to the middle class. The places that look 

better in terms of helping kids move up all the way to the top also 

are better in terms of helping kids reach the middle class. And I 

agree that that would be a great goal. The U.S. falls behind other 

countries in achieving that goal, as well. 

Senator SESSIONS. Well, our numbers that I just said show we 

are dropping from middle income to lower income, unfortunately, 

a little bit. 

Chairman MURRAY. Senator Sanders. 
41 

Senator SANDERS. Thank you, Madam Chair, and thanks for 

holding this important hearing, and thank you very much for our 

guests for being here. 

I do not have a whole lot of time. Let me just focus very briefly, 

if I could, on three issues. While we are dealing today with economics and finances, ultimately, we are dealing with a moral issue of 

what kind of nation we want to become. From a moral perspective, 

Dr. Stiglitz and other members of the panel, do you have a problem 

that the top one percent owns 38 percent of the financial wealth 

of America while the bottom 60 percent owns all of 2.3 percent? Do 

we have a problem that one family, the Walton family of Wal-Mart, 

owns more wealth than the bottom 40 percent of the American people, one family? Should Congress begin to address income and 

wealth inequality from a moral perspective? Dr. Stiglitz, very briefly, because I have a couple of other questions. Yes or no, do you 

think? 

Mr. STIGLITZ. Yes. Yes, but it also has strong economic— 

Senator SANDERS. I am going to get to that in a second, within 

my two minutes here. 

Dr. CHETTY. 

Mr. CHETTY. Yes. I certainly agree that inequality, and to the extent it creates inequalities in opportunity, which I believe it does, 

it is a moral issue. 

Senator SANDERS. Okay. Dr. Hall. 

Mr. HALL. My expertise is in economics, but I will just say, I 

think we should be focusing more on raising the incomes of the low 

and focusing on those, increasing mobility for the low. That should 

be the focus and not so much worrying about whether the wealthy 

make a lot or not. 

Senator SANDERS. So, you do not have a concern that the top one 

percent own 38 percent— 

Mr. HALL. Well, what I want is I want to see a better outcome. 

I want to see a better outcome for the low-income folks, and I think 

the way to do that is to focus on their situation. 

Senator SANDERS. Let me ask this, and again, I know I am a little bit off subject here and I apologize for that, but it is important. 

I think, Dr. Stiglitz, you touched on this. When we talk about unfair distribution of wealth and income, what we are seeing, especially in recent years, is the wealthiest people in this country are 

not simply reinvesting their money in business or putting it under 

their mattress. They are, in a very significant way, putting that 

money into politics, to elect politicians who will represent their interests. 

Do you have a concern with, say, the Koch family spending what 

we think will be hundreds and hundreds of millions of dollars on 

the political process, that Sheldon Adelson just the other day had 

a primary which he brought potential Republican candidates to audition in front of him? Is that a problem for American democracy? 

Mr. STIGLITZ. Very much so, and I think it also is a problem for 

America’s confidence in its political system. If Americans come to 

believe that the political system is bought, they will lose faith in 

one of our fundamental values. 

Senator SANDERS. Right. Dr. Chetty, is that a problem, do you 

think? 
42 

Mr. CHETTY. Yes, I certainly agree with that view. 

Senator SANDERS. Dr. Hall, is that a problem? 

Mr. HALL. Well, first of all, again, it is not my area of expertise— 

Senator SANDERS. I do realize that. 

Mr. HALL. —but this has always been an issue. This has always 

been part of free speech, is people get to do what they want to do 

to impact politics and outcomes in government. 

Senator SANDERS. Okay. So, you think free speech is the ability 

to buy elections? 

Mr. HALL. Well, I did not say buy elections. 

Senator SANDERS. But that is the practical implication of that— 

Mr. HALL. No, and— 

Senator SANDERS. I appreciate it. Okay. 

Mr. HALL. And singling out people—you know, there are lots of 

folks who contribute— 

Senator SANDERS. There are. 

Mr. HALL. and lots of folks who try to have an influence. 

Senator SANDERS. There surely are. 

Third question, which is something you guys do know something 

about, and that is economics. When so few—my understanding is 

that about half the American people have less than $10,000 in savings. It is rather extraordinary. That means one car accident, one 

illness, you are in financial ruin. But, the bottom line is, when so 

few have so much and so many have so little, can you create—and 

when 70 percent of the GDP is based on consumer consumption, 

can you create the jobs you need, or is this really—this inequality 

an impediment to job creation? Dr. Stiglitz. 

Mr. STIGLITZ. Yes. As I said before, one of the major problems in 

the United States right now is a lack of adequate demand, insufficiency of demand, and people at the top spend less than those at 

the bottom. And it is one of the problems, not only in the United 

States but globally, that is contributing to the weak recovery that 

we are experiencing. 

Senator SANDERS. That so many folks have just no money to buy 

anything and— 

Mr. STIGLITZ. Exactly. 

Senator SANDERS. Yes. 

Mr. STIGLITZ. And before the crisis, remember, what we—the 

way we kept our economy going was on an artificial life support of 

a bubble. 

Senator SANDERS. Right. 

Mr. STIGLITZ. And it was only the bubble that was able to offset 

the adverse inequality— 

Senator SANDERS. That was debt, borrowing money and— 

Mr. STIGLITZ. Exactly. 

Senator SANDERS. Right. Dr. Chetty, what do you think? 

Mr. CHETTY. Yes. So, I think the low savings rates of low-income 

people is potentially a problem. And coming to your question about 

what would stimulate jobs and aggregate demand, there is good 

evidence that if you give a dollar to a person with below-median 

income, much more of that is spent than if you give a dollar to a 

person at the top end of the income distribution. So, if you are trying to raise aggregate demand, these things are intricately linked— 
43 

Senator SANDERS. Such as extending long-term unemployment, 

putting money in the hands of people who desperately need that 

money. 

Mr. CHETTY. The marginal propensity to spend out of unemployment benefits is extremely high, so that, I think, would have a 

stimulative— 

Senator SANDERS. Dr. Hall. 

Mr. HALL. Well, the thing I want to emphasize is the inverse of 

that relationship. Economic growth helps reduce income inequality. 

You do not change the poverty rate unless people get jobs and you 

get stronger economic growth. That relationship, I think, is clear. 

Senator SANDERS. But, let me ask you this on that point. If 95 

percent of all new income generated in recent years went to the top 

one percent, is that, in fact, true, that economic growth is going to 

impact poverty? 

Mr. HALL. Well, let me just talk about just the general facts, 

okay, about economic growth. We have had very weak economic 

growth. The last three years, new growth has averaged about 2.2 

percent a year, all right. We have been very lucky to get 190,000 

jobs a month over that time period. That is actually very strong job 

growth given that weak economy. 

So, I still think at the heart of our labor market problems is a 

weak economy. It is not— 

Senator SANDERS. I think you are right, but my point would be 

that even if you had more economic growth, if you had this kind 

of incredible inequality in terms of income, if 95 percent of all new 

income went to the top one percent, you can have six percent 

growth and still see an increase in poverty. 

Mr. HALL. The sort of thing I am worried about is that we have 

a very large number of long-term unemployed or long-term jobless 

and these folks are not just long term, they are very long-term jobless. These folks are going to have a really, really hard time getting 

back into the labor market unless we focus on these focus and get 

stronger growth. Actually, what really happens in a typical business cycle is once you get stronger growth, once you get three percent-plus economic growth, then you finally rehire those long-term 

unemployed— 

Senator SANDERS. Do we extend long-term unemployment benefits to help those folks? 

Mr. HALL. I do not object to a long-term unemployment benefit. 

I do not object to that. That is part of the safety net. Now, there 

are some effects, of course, disincentive effects of that, but you have 

got to sort of weigh the two things. I am worried about other policies, though, that really do impact this cost of hiring and incentive 

to work. 

Senator SANDERS. Okay. Thank you very much. 

Chairman MURRAY. Thank you. 

Senator KING. 

Senator KING. Thank you, Madam Chair. 

A couple of quick observations. One is, this is important. It is important for economics, this distribution, because the middle class 

are the customers. And the biggest problem with this economy now 

is a lack of demand, and it is because the middle class does not 

have money. They masked their declining standard of living in the 
44 

1980s and early 1990s by women going into the workplace. It was 

then masked by debt in the late 1990s and early 2000s and there 

are no masks left and we are stuck with an economy that is stagnant because of a lack of demand. 

It is also important because of an issue of social stability. We do 

not want to become a country of gated communities, a country 

where the rich live behind walls with barbed wire. You go to some 

Latin American countries and that is exactly what you see. 

Senator Kaine mentioned Henry Ford. Henry Ford was the ultimate capitalist, but who realized he needed customers. And I worry 

today that with the concentration of wealth, that those at the top 

have forgotten that they need customers. So, I think there are very 

serious implications of this for the long-term strength not only of 

our economy, but of our political economy, of our political system, 

which is based on the premise that people have hope of moving up. 

And if people lose that hope and decide that the system is entirely 

rigged against them, that is going to produce instability and a level 

of political and economic resentment that we have never seen in 

this country and I think it is very dangerous. 

Secondly, I want to identify myself with Senator Sessions, his 

points about interest costs. I think we are whistling by the graveyard on interest costs right now. It is two percent. If it goes to 4.5 

percent, just the cost of interest is going to exceed the entire defense budget. It is going to sink all of the priorities of everybody 

sitting around this table. 

Finally, I want to get to a couple of honest to goodness questions, 

and I do not expect answers now, but I would like to see, Mr. Hall, 

particularly, data on what is causing lower labor force participation. You know, what are the factors? And, by the way, I believe 

that is a problem. I talk to tradesmen in Maine, people, plumbers, 

carpenters. They cannot get help even in a time of high unemployment. They say these guys come to work, they work three days, 

and then they do not show up on Thursday and they wonder why 

I fire them. There is a problem. There is a subterranean problem 

going on about people, particularly young people, who do not 

seem—now, there are millions that want to work, that desperately 

are looking for jobs, but there is a problem there and I would love 

to see some data or studies, at least, on what is causing that. 

Second, I am a great believer in regulatory reform and the cost 

of regulation to our society. It would really help me to have data 

on that. If you guys could do some case studies or know of studies 

in real live cases where regulatory drag has significantly impaired 

economic growth, profitability, ability to hire, I think that is very 

important. 

Mr. Hall, a question for you. I go to a lot of—I am all over Maine 

on weekends, talk to a lot of people. Put yourself in my shoes. I 

am at the gates of Bath Iron Works. There is a guy there who 

works hard every day. It is really backbreaking work, and he pays 

35, almost 38 percent on his income tax. And a guy down the street 

who is getting dividends pays 20. How do you explain to that guy 

why he is paying almost twice as much taxes as this guy that gets 

his money out of the mailbox? 

Mr. HALL. Well, I will just go back to my general comment about 

tax policy. Tax policy should be for revenue generation and we 
45 

should be collecting revenue with that. We should not be trying to 

do all sorts of little manipulations— 

Senator KING. So, does that not argue for the same rate on all 

forms of income? 

Mr. HALL. It does. You know, like I say, I am not a tax expert— 

Senator KING. Did you hear him say, ‘‘It does.’’ Let the record 

show. 

[Laughter.] 

Senator KING. Go ahead. 

Mr. HALL. You know, I just—for example, I do not know what 

the facts are, for example, on tax rates. I could not tell you how 

much distortion we wind up getting— 

Senator KING. Well, it is 39.5 at the top end for income and it 

is 20 for capital gains. It was—and I just cannot explain that to 

a working man, why what he is doing gets taxed at almost twice 

the rate as the other guy. I have never—help me out here. 

Mr. HALL. Well, I think the sort of thing that I find bothersome, 

one of the reasons we have such a low savings rate is our tax policy 

encourages people to spend. We get a tax break for housing. We get 

a tax break for a lot of things. And that is almost certainly one of 

the reasons why the savings rate is so low, is because our tax policy distorts people’s behavior with things like that. 

Senator KING. Well, I would argue that— 

Mr. HALL. Our housing boom—go ahead. 

Senator KING. —encouraging people to buy houses is encouraging 

investment, not spending. I would see that— 

Mr. HALL. Well— 

Senator KING. That is the source of wealth for most American 

families. 

Mr. HALL. It is hard not to see that a lot of our troubles are a 

housing bubble where, perhaps, people over-purchased housing. 

There is too much investment in housing. That is certainly something that differs in the United States to in other countries. 

Senator KING. Dr. Chetty, this is a question, I think, for the 

record, because I am running out of time, but you do a scale of upward mobility by county around the country. I am going to submit 

a question for the record of we have our--I look at it—counties that 

are different levels, and I would just like some explanation, background on what that really means, county to county, and how we 

deal with that. 

I think, finally, the question is, how do we as government policy 

makers improve this issue of income inequality without turning the 

government into Robin Hood? I do not think we have a responsibility to take from the rich and give to the poor. I think the question is, how do we improve—how do we build policies that provide 

incentives and also the opportunities for greater growth. I like your 

ideas about looking at student loans and how we deal with that, 

because right now, we have thousands and millions of kids graduating from college with what amounts to a mortgage and no house 

and I would like to see you supply us some—with help. We need 

proposals for solutions. This is a problem. We need data and we 

need proposals for solutions. 

Thank you very much, gentlemen. Thank you, Madam Chair. 

Chairman MURRAY. Thank you very much. 
46 

Senator WHITEHOUSE. 

Senator WHITEHOUSE. Thank you, Madam Chair. 

In any discussion of taxes, I cannot help but point, particularly 

after we have heard more of the ardent commentary of our Republican friends about the debt and the deficit, that the tax loopholes 

that contribute to that debt and that deficit, they appear to defend 

with a rare and special passion, whether it is the carried interest 

exemption that allows billionaires to pay lower tax rates than brick 

masons, whether it is the offshore tax havens that allow American 

corporations to pay essentially no taxes, use our roads, use our 

courts, enjoy the benefit of a free society that everybody else pays 

for, and then run their money offshore and avoid the tax man, or 

letting the richest companies in the history of the planet continue 

to enjoy oil subsidies. 

Every time we try to address those, it is the very same people 

who like to give these ardent statements on the debt, then defend 

all of those loopholes, and it causes me to take with a grain of salt 

how serious we are about the debt if we are willing to—if we would 

prefer to maintain those tax preferences than to deal with it. And, 

clearly, they are political. It is very wealthy people and very 

wealthy corporations and very wealthy interests that are behind all 

of those. 

So, to my friend from Maine, if he wants to explain to the guy 

at Bath Iron Works why the tax code works that way, I would ask 

how many people who work at Bath Iron Works are big political 

donors, whereas the folks who are getting the big capital benefits 

are the billionaires, and they are the ones who are pouring money 

into elections and they are getting things their way. And it is important for us, I think, to stand up against that in order to have 

this run more fairly. 

Mr. Stiglitz, I read in your paper on reforming taxation to promote growth and equity the following. ‘‘A tax on carbon emissions 

has even more benefits. It encourages firms to make carbon-reducing investments, to retrofit their firms to reflect the true costs of 

the pollution that they generate. A tax on pollution has a triple 

dividend because it leads to a better environment which can itself 

lead to stronger economic performance, and it raises revenue even 

as it reduces the bad externalities spilling over on the rest of us. 

Moreover, it incentivizes firms to retrofit, thus encouraging investment that leads to higher output and employment.’’ 

Could you comment a little further on that, and particularly on 

the value of a revenue-neutral carbon fee. 

Mr. STIGLITZ. Yes. The point you quoted is exactly right. This is 

an example of— 

Senator WHITEHOUSE. I should hope you think so, since I was 

quoting you. 

Mr. STIGLITZ. Yes, I know, but— 

[Laughter.] 

Mr. STIGLITZ. People often say that taxes have to depress the 

economy, and what I wanted to emphasize there was that this is 

a kind of tax that can actually stimulate the economy at the same 

time that it is raising revenues and improving our environment. 

Senator WHITEHOUSE. And you won a Nobel Prize. 
47 

Mr. STIGLITZ. Yes. This is, you know, very commonly accepted, 

and— 

Senator WHITEHOUSE. Including among economists— 

Mr. STIGLITZ. Among economists— 

Senator WHITEHOUSE. —who negotiated with Republican Presidents— 

Mr. STIGLITZ. Most would say, yes, there is a distortion in our 

economy because there is something that is imposing a cost on our 

society and people are not paying for it. It is like a subsidy, in a 

sense. They are not paying a real cost that they are imposing on 

the American economy, the American society. 

Senator WHITEHOUSE. So, having price match cost actually helps 

make markets work better, correct? 

Mr. STIGLITZ. That is right. So, this is an example of trying to 

make markets work like markets, and the point is that there is a 

cost to society that they are getting away with, and if we impose 

that charge, we would get more revenue and create more employment. 

Senator WHITEHOUSE. Well, thank you very much. I am afraid in 

the same way that concern about the debt seems to vanish in front 

of the tax benefits for special interests, concern about properly operating markets is going to vanish in the face of the subsidies to 

those special interests, so wish us luck in getting that done. 

[Laughter.] 

Senator WHITEHOUSE. Thank you. 

Mr. STIGLITZ. Thank you. 

Chairman MURRAY. We have all decided that we get a lightning 

round here, one additional question for each Senator who is remaining, and Dr. Chetty, I wanted to ask you. There has been a 

lot of discussion here in Congress about whether or not the actual 

programs that are there to support families who are struggling 

today are the problem or whether or not the economic downturn 

and the changes that occurred to that are it, and I wanted to ask 

you about one example that is very timely and that is the unemployment insurance extension that we are discussing. From your 

research, what can you tell us about the effect of unemployment 

benefits on families and the economy? 

Mr. CHETTY. So, the concern that many people voice is that when 

you extend unemployment benefits, as has been voiced here, you 

potentially reduce the incentive for families to return to work, and 

that is, theoretically, a concern that economists have noted for a 

long time. It could be something that is important. 

The same exact issue arises in another context that we have 

been discussing, the EITC. Senator Sessions pointed out that when 

you have large phase-out tax rates, you potentially create a disincentive for families to work. Now, while theory says that that effect could be small, it could be large, we now have good data that 

allows us to actually study what happens empirically in practice, 

and the best data—there are now numerous studies using millions 

of data points which indicate that these disincentive effects, while 

they exist, are quite small. 

So, when you extend unemployment benefits by, say, ten weeks, 

you extend the amount of time that people stay out of work quite 

modestly. And even the small amount of longer time out of work 
48 

that occurs appears to be driven by things like people trying to find 

a better job, a job that might work better for their skill set, taking 

advantage of those longer benefits to find the right match that is 

ultimately going to help the economy grow rather than just idling 

their time and living off the system, as some people perceive. 

So, I think, theoretically, those issues are important and economists talk about them, empirically, the data says those effects are 

not nearly as big as you might have worried about. 

Mr. STIGLITZ. Could I just add one point to that, which is that, 

right now, the problem is a lack of jobs. And having more people 

applying for the same few jobs does not make the labor market 

work better. So, if you have five applicants per job, or three applicants per job, that is not going to affect the actual level of employment in our economy. 

So, right now, the issue is, you know, if we were at full employment, these issues of whether people search for a job would become 

more important. But right now, they are totally irrelevant. 

Chairman MURRAY. Or they are in a different place than somebody is available to get to them, and when you have got a mortgage 

on a house you have got to pay, it is hard to move, and we had 

that discussion. I actually met a woman this weekend—you have 

been watching the mudslides that occurred in my State that has 

just been devastating, horrible, and was up there this weekend visiting the town at one end of it that has now been cut off from our 

main economic corridor, and a woman said to me that she is three 

weeks away from losing her unemployment. She now has no opportunity to get to the employment center, which is down the road, 

and she is desperate. She is not sitting at home saying, well, I just 

want to sit on—you know, keep getting this check. She wants a job, 

but she also wants to be able to put some food on the table for her 

kids, so a point well taken. 

Senator SESSIONS. 

Senator SESSIONS. Well, thank you all for a very important discussion, and I believe Congress has gone down the Keynesian road 

as far as we are going to go. One of the problems is— 

Senator KAINE. What is wrong with the Keynesian road? 

Senator SESSIONS. Well, we have gone from— 

Senator KAINE. I am joking. My name is Kaine, so— 

Senator SESSIONS. Oh. 

[Laughter.] 

Senator SESSIONS. I am a little slow there, Senator Keynesian— 

I mean, Kaine. 

[Laughter.] 

Senator SESSIONS. Thank you for correcting me, or helping me. 

Going down that road of borrowing more has put us at a point 

where we cannot borrow any more. I remember the former Federal 

Reserve Chairman testified before—talked to a group of Republicans and he said, ‘‘Well, we could borrow more,’’ and we were at 

35 percent of GDP. Debt was 35 percent of GDP. Now, it is about 

100 percent, gross debt, of GDP. And things changed. And so we 

have done all these borrowing and spending. The Agriculture Secretary told us, ‘‘Oh, if we quadrupled Food Stamps, oh, if we just 

spend more on Food Stamps, we would get $1.75 in economic 

growth from it.’’ So, why do we not just quadruple that again? Why 
49 

do we not provide people free shoes, just borrow the money? We 

have been told now the interest rate is going to be $880 billion in 

ten years by the Director of CBO sitting right there. So, this day 

is over. 

We spend $750 billion on welfare programs. We have no vision, 

no coherence, no driving ability to move people from poverty to productivity. We spend enough money on it. We are just not doing a 

very good job on it. And we are going to spend more money on education. That is going to fix our future. We know that money does 

not prove—is not a direct correlation in improving education. 

So, I just would have to say to you, there are things we can do. 

I do think—we have added five million jobs from abroad, and that 

is about the same number that have been created in the last number of years. So, I would just say we are—you want me to hush and 

go and wrap this up. 

Chairman MURRAY. No, I just want to— 

Senator SESSIONS. This is a very good panel and we are talking 

about something important, and I thank you, Madam Chairman, 

for doing it, because it is not healthy when we are seeing these 

things happen in our economy. And the National Review had a 

piece and said we are a nation with an economy, not an economy 

with a nation. So, we do have a responsibility to our people. I think 

that is correct. 

So, I think there is a conservative view, too, on how do we help 

the American people prosper and get back on the road to growth. 

We should consider all the comments we have had today and keep 

working on it. But just taxing more, borrowing more, spending 

more, regulating more, I believe, is the wrong direction, and that 

is, in some degree, where we have a difference of opinion. Thank 

you. 

Chairman MURRAY. All right. Thank you. 

Senator KAINE. 

Senator KAINE. Thank you, Madam Chairwoman. 

Something I am confused about, and as long as we brought John 

Maynard Keynes into the conversation, many economists—Keynes, 

Schumpeter, and others—have written about the capacity of technology to destroy jobs. So, in Virginia, we mine as much coal as we 

did 50 years ago, but with one-tenth the coal miners. They did not 

propose that we not be innovative, because they would assume that 

technology would also create jobs, and hopefully the net creative 

over destructive would be positive. 

Is there any research currently about whether that sort of net result of technological advancements is still for the American economy a positive in terms of creating more jobs than destroying, or 

is the pace of technological change or productivity advances at a 

place now where it is destroying more work than it is creating? I 

am just curious about the status of the research. 

Mr. STIGLITZ. Well, I guess it is really an open question. A lot 

of people would use the metaphor of what happened back with— 

you were mentioning Henry Ford. The car replaced blacksmiths 

and buggy whips, but created more jobs with car repairmen. But, 

we do not know whether the next round, which is pretty fundamentally different—you know, we have robots creating robots creating 

robots, and the question is, will the job creation be there? 
50 

It will not be—well, I mean, the real issue is, it will not be there 

unless there is some help, and I think from the government, in 

making the structural transformation. The new jobs will be in 

areas like the service sector, and people that were in manufacturing will not necessarily have the skills for the new sectors, and 

they do not have the capital to move into those sectors. 

The reason we made the structural transformation from an 

agrarian economy to a manufacturing economy was through the 

help of the Federal Government through things like the G.I. Bill 

that really worked and created real opportunity for Americans. It 

really transformed the country. It moved people from the rural to 

the urban sector and created this huge opportunity. For the first 

time, people could go to college. So, that was a real example of a 

successful government intervention that, through that whole period 

of the 1950s, 1960s, we created lots of jobs. 

It was a period where we grew faster than any other period and 

we grew together. Every part of our economy grew, but the bottom 

grew more than the top. That is, I think, what we should be aspiring for. And the success of that period was based on a strong role 

for the government to make this structural transformation, which 

markets do not do well on their own. 

Mr. CHETTY. So, just to echo that, you know, I think the answer 

to that question depends fundamentally on whether workers are reskilled when technology changes. So, clearly, if you have changes 

in technology and the miners you described are continuing to be in 

the same profession, if their jobs are being done by machines, then 

they obviously are not going to be employed at the same rates. 

And so the question is whether the economy and the investments 

we are making give workers the diverse set of skills that they need 

to be able to transition to changing jobs, and I would say some of 

that comes from things like job training programs that might help 

workers adapt to the structural shift, but some of it also comes 

from earlier investments, echoing a theme we talked about earlier, 

where when there are more college-educated workers or workers 

who have had a strong background in school, they are going to be 

able to adapt more naturally to changes in the demands of the 

economy. And so I think the answer would be favorable if you have 

that. 

Mr. HALL. Well, once upon a time, I spent some time working at 

the Council of Economic Advisors and helping with the administration forecasts, and one of our big issues was figuring out when the 

baby boomers were going to retire and pull out of the labor force, 

because we are going to have to significantly lower our forecast for 

economic growth, and that is a big issue. And we had better hope 

we get a boost in productivity, because the baby boomers are going 

to retire, and especially if our labor force does not get back to growing, if we are going to maintain our standard of living and our incomes and growth, we need a boost in productivity. We need continued gains in productivity. 

Senator KAINE. Thank you. 

Chairman MURRAY. Senator— 

Senator SESSIONS. Can I ask a follow-up on this point? 

Chairman MURRAY. We are going to be here for a long time, but 

one quick follow-up and then short questions— 
51 

Senator SESSIONS. We keep hearing from business that we have 

got a shortage of labor, but wages are down. You believe, Dr. Hall, 

in a free market, do you not? 

Mr. HALL. Absolutely— 

Senator SESSIONS. If there is a shortage of labor, why are wages 

down? 

Mr. HALL. Well, first of all, I do not know that there is a broad 

shortage of labor. I think there is a shortage of labor in certain 

areas. I think there is a growing concern that there is a skills mismatch going on that may hold us back. I am not sure I am a believer quite in that yet because we just have not gotten strong 

enough economic growth to push us to higher hiring. And I think 

if we had had stronger economic growth and still had this disengagement from the labor force, I would be more worried about 

that. 

Senator SESSIONS. Well, if we had stronger economic growth and 

the wage market got tighter, maybe we would have some economic 

growth for working Americans. 

Mr. HALL. Well, absolutely. I mean, that would be— 

Senator SESSIONS. The problem is, we seem to have this view 

that, somehow, we have a constitutional right to have low wages 

among some of our business friends, and I am not for that. I think 

our job needs to be helping our people in America get higher wages 

and better jobs. 

Chairman MURRAY. Senator King. 

Senator KING. Professor Stiglitz, a question about the Affordable 

Care Act. I had a couple in my office last week for a coffee. They 

were touring Washington. At the end of our conversation, the lady 

said, ‘‘By the way, thank you for supporting the Affordable Care 

Act.’’ And I said, ‘‘Well, that is very nice. Why do you say that?’’ 

And she said, ‘‘Because I have been in a job for the last 15 years 

that I really hate and I have had to stay in it because it had health 

insurance. My husband does not have it. And the Affordable Care 

Act has allowed me to leave that job and start my own business, 

which is something I have always wanted to do.’’ 

I understand there is an economics accepted principle called job 

lock, and I think one of the most significant effects of the Affordable Care Act will be releasing job lock and having people have the 

ability to start new businesses. And, by the way, those are the job 

creators. Hedge fund managers are not the job creators. It is people 

who start businesses. Do you believe that this is—I think this is 

sort of a hidden benefit that does not get talked about very much. 

Is there anything to this idea of the ACA unlocking job lock? 

Mr. STIGLITZ. Yes, very much so. And, let me say, it also increases productivity because the people can go from employment 

where they are less productive to where they are more productive. 

So, not only are they creating jobs, they can be more productive. 

And I want to highlight one other thing, that GDP, I have emphasized, is not a good measure of well-being. So, she may have 

been getting an income, but we were not appropriately taking into 

account the effect that she was in a job that she was unhappy. She 

now gets to be more creative in creating a new business, create 

more jobs, and have a higher income. And the increase in wellbeing is well in excess of the dollar income that she gets. 
52 

So, we do not—one of the benefits of the Affordable Care Act that 

is not fully appreciated and not reflected in GDP statistics is that 

and the fact that it gives more security to an awful lot of people. 

And again, our GDP statistics do not capture the value of this insecurity that so many Americans have felt. 

Senator KING. Thank you. Do either of you gentlemen want to 

comment on that phenomenon? 

Mr. CHETTY. Again, just to say that there are empirical studies 

which show that the job lock phenomenon is important, and people, 

in particular, when they are in a job previously that provided 

health insurance, were much less likely to transition out of it for 

fear of losing health insurance. So, I do think the ACA will have 

an impact in terms of increasing the flow of workers across jobs 

and potentially lead to more entrepreneurship, as well. 

Senator KING. Dr. Hall, do you accept the idea of job lock and 

is the ACA going to help with that? 

Mr. HALL. It may well. I do not know a lot about the ACA, do 

not know a lot about the job lock, but just keep in mind that you 

create all sorts of incentives with this. You know, the one I pointed 

out was a different incentive and that is the incentive to keep people out of the labor force when, in fact, they probably should get 

back into the labor force, especially if you want to see long-term 

improvement in inequality. 

Senator KING. But my visitor was not leaving the labor force. 

Mr. HALL. Right. 

Senator KING. She was changing places. 

Mr. HALL. Right. Now, I understand. 

Senator KING. And there may be some people, a mom who says, 

‘‘I do not have to keep this job anymore and I am going to be able 

to take care of my kids.’’ I am not sure that is a bad thing. 

Mr. HALL. It may not be a bad thing, but it is also—like I say, 

it is also a concern when you have all these things going on, right. 

And part of the idea with any sort of policy is try to design it as 

carefully as you can so you get less of these sort of bad side effects 

and more of these good side effects. 

Senator KING. Right. Thank you. Thanks, gentlemen. 

Chairman MURRAY. Last question, Senator Whitehouse. 

Senator WHITEHOUSE. Thank you. 

I would note that the ancient Egyptians did a pretty good job at 

getting everybody engaged in the labor force, but they did not do 

it in ways that I think we would find very humane right now. 

[Laughter.] 

Senator WHITEHOUSE. Does the term disengagement from the 

labor force in your testimony, Dr. Hall, include people who were 

chucked out of their jobs as a result of the recession? It sounds 

from the terminology that you use as if they all kind of went for 

a walk in the woods and this was a voluntary disengagement. 

Mr. HALL. Right. 

Senator WHITEHOUSE. Did you mean to imply that, or am I reading that wrong? 

Mr. HALL. No, I will sort of define it for you. These are people 

who are jobless and they are not currently looking for work. So, 

they are not considered— 
53 

Senator WHITEHOUSE. And they may very well be jobless because 

they lost their job in the recession involuntarily. 

Mr. HALL. Exactly. 

Senator WHITEHOUSE. Okay. 

Mr. HALL. They may simply be discouraged, and if the labor market improves, they will get back. Or, they may have retired. 

Senator WHITEHOUSE. And back to the question of the carbon fee, 

you put that, Dr. Stiglitz, into the category you call corrective 

taxes. We have some corrective taxes, like on liquor and on cigarettes, where we tax it and people do less of it, and that is to 

everybody’s benefit, including the taxpayer, because you are paying 

less for health care and car wrecks and so forth. 

But, we also tax work, income, earnings. Could you speak generally about what value difference there is between a corrective tax 

and a tax on productive activity, just as a general proposition. 

Mr. STIGLITZ. Yes. P.S., and it goes back to the previous question 

I did not fully answer about revenue-neutral taxation. So, the point 

is, if you tax things that are, quote, ‘‘bad,’’ that means you have 

more revenue which you can then use to reduce the taxes on things 

that are good. So, you can get—another way of saying the same 

thing is that you get the benefit of discouraging the pollution, discouraging the externality, the bad activity, and because you can 

then lower the taxes on work or savings, you get more of the good 

things, which means more economic growth, more benefits. 

So, that is why—and let me emphasize, there is a lot of revenue 

we are talking about here. The social cost of these environmental 

externalities—carbon—are very, very large. It will impose a very 

large cost on our society and our economy in the future years. So, 

what we are talking about is not a little bottle tax, which is an important tax, but we are talking about something, when we are talking about carbon, that is very large for our economy. 

Senator WHITEHOUSE. So, hypothetically, if you were to add—let 

us just pick round numbers—a trillion dollars in revenue to the 

country as the result of a carbon fee and you offset that with halfa-trillion reduction in the corporate tax rate and half-a-trillion reduction in the personal income tax rate, either through the EITC 

or rate reduction or otherwise, you do not end up with a net-zero 

benefit to the economy. You end up with a positive for the economy 

because of how you have shifted the tax burden, correct? 

Mr. STIGLITZ. Doubly positive, because on the one hand, you have 

less of the pollution, and secondly, because now you have more 

work, more savings, more economic growth. 

Senator WHITEHOUSE. Thank you. 

Chairman MURRAY. Thank you very much. That was one question with five parts, but it was taken. 

[Laughter.] 

Chairman MURRAY. I want to thank all of our colleagues who are 

participating today. 

I especially want to thank our three witnesses who have traveled 

here today and for your testimony. 

And as a reminder to all of our colleagues, additional questions 

are due by 6:00 p.m. today. 

With that, I close this hearing. Thank you. 

[Whereupon, at 11:50 a.m., the committee was adjourned.] 
54 
55 

(57) 

SUPPORTING BROAD–BASED ECONOMIC 

GROWTH AND FISCAL RESPONSIBILITY 

THROUGH A FAIRER TAX CODE 

TUESDAY, APRIL 8, 2014 

UNITED STATES SENATE, 

COMMITTEE ON THE BUDGET, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:36 a.m., in Room 

SD–608, Dirksen Senate Office Building, Hon. Patty Murray, chairman of the committee, presiding. 

Present: Senators Murray, Whitehouse, Sessions, and Crapo. 

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

M. Ueland, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN MURRAY 

Chairman MURRAY. Good morning. This hearing will come to 

order. 

I want to thank my Ranking Member, Senator Sessions, and all 

of our colleagues who are joining us today. 

We have a great group of witnesses here to speak with us: John 

Buckley, who is the former Chief Tax Counsel on the Ways and 

Means Committee and a former Chief of Staff of 

the Joint Committee on Taxation; Dr. Jane Gravelle, a Senior 

Specialist in Economic Policy at the Congressional Research Service; and Senator Sessions has invited Diana Furchtgott-Roth, a 

Senior Fellow at the Manhattan Institute for Policy Research. 

So, welcome to all of you and thank you so much for being here 

and participating today. I appreciate the opportunity to hear from 

all of you about how we can use our tax code to expand opportunity 

and encourage broad-based growth and tackle some of our budget 

challenges. 

Our country has seen a lot of changes over the last several decades, and one of the most striking is the widening gap between 

those at the top and everybody else. In the last 30 years, the top 

one percent of the income distribution has seen their earnings rise 

by more than 250 percent. But earnings for those in the middle 

class and those struggling to make ends meet has stayed stagnant 

or even declined. Costs for everything from health care to college 

tuition have gone up, and especially coming out of the financial crisis and the Great Recession that began in 2007, the good, middleclass jobs that helped so many families climb the economic ladder 

in the past are fewer and farther between. 
58 

All of this adds up to a 21st century economy where even though 

those at the very top continue to prosper, it has become more and 

more difficult for many families to afford the middle-class lifestyle 

they are working so hard for. I think we can all agree that is not 

the kind of economy we want now or in the future. 

Changes to our tax code cannot solve this problem alone, but 

there is no question tax reform can and should be a powerful tool 

in the fight, especially because, right now, inefficiency and unfairness in our tax code is actually making things worse. 

Today, our tax code is riddled with wasteful loopholes and special 

interest carve-outs. In 2014 alone, tax expenditures, or the countless special tax breaks in our code, will cost us $1.4 trillion. That 

is more than we are expected to spend on Medicare, Social Security, or our national defense this year. And far too many of these 

tax breaks are skewed to benefit those who need them the least. 

There is a real need for reform when it comes to those unfair tax 

breaks, and I am grateful, in particular, to Senator Whitehouse, 

who is here today, for his focus on this issue, because by letting 

them continue, we are spending a lot of money through our tax 

code on wasteful and inefficient give-aways to people and businesses who do not need help at a time when investing in better 

schools and infrastructure repairs or medical research would benefit a lot of families who really do. On top of that, we are also missing an important opportunity to help tackle our long-term budget 

challenges without burdening seniors or the most vulnerable Americans. 

Our economic, fiscal, and demographic situation is very different 

than what it was in 1986, when the last major overhaul of the tax 

code took place. While the near-term budget outlook has improved 

significantly, we still need to tackle the long-term debt that grew 

sharply as the result of two unpaid wars, the massive 2001–2003 

tax cuts that were skewed towards the wealthiest, and the lingering effects of this recession. And, as our population ages in the 

coming decades, more and more seniors will rely on Medicare and 

Social Security benefits they are owed. 

When you add all that up, it is very clear, tax reform that does 

not ask the wealthiest Americans and biggest corporations to pay 

their fair share is simply fiscally irresponsible. And, every bipartisan group that has examined our budget situation has reached 

that same conclusion. 

Now, I know many of my Republican colleagues prefer a different 

approach. Chairman Camp’s recent tax reform proposal would put 

every dollar of savings back into lower rates, primarily for corporations and those at the top of the income scale, and protect the 

wealthiest Americans and biggest corporations from paying their 

fair share towards reducing our deficit and boosting our economy. 

The House Republican budget that is being debated this week 

would do all this, as well, but even goes a step further. Their budget would push the top tax rate down to 25 percent, which would 

mean that middle-class families would have to pick up the tab for 

the new tax cuts for the wealthy. Giving tax breaks to millionaires 

while doing nothing to help working families keep more of their 

hard-earned income is not only wrong-headed in terms of our budg-
59 

et, it is also unfair to families across the country who are up 

against a decades-long trend of rising costs and stagnant wages. 

Now, I know everyone here is well aware of the differences between the two parties when it comes to comprehensive tax reform, 

and I do want to express my appreciation to Senator Wyden, who 

in his new role as Finance Chairman will be tackling these very 

tough issues. 

As we look for opportunities to move forward on the larger effort, 

I am hopeful we can also look for opportunities to compromise in 

areas where there is some more agreement right now. Chairman 

Ryan and I were able to reach a compromise on the budget agreement to avoid another government shutdown and create some economic certainty. 

Now, I think it is time for the two parties to build on that bipartisan foundation by coming together and finding ways to make the 

tax code more fair for working families. We can do this by getting 

rid of some of the wasteful loopholes I mentioned earlier and putting the savings towards helping working families keep more of 

their money and making job-creating investments in areas like infrastructure and R&D that both sides agree are important. 

The 21st Century Worker Tax Cut Act that I recently introduced 

is a great example. This bill would complement critical reforms like 

raising the minimum wage by updating our tax code to help today’s 

workers and families keep more of what they earn. It would give 

working families with children a 20 percent deduction on the second earner’s income, and it would expand the Earned Income Tax 

Credit, or EITC, for workers without dependent children, like those 

who are just starting out or those whose children have already left 

home. The proposal builds on work incentives in the EITC that 

both Republicans and Democrats agree have been effective, and it 

is paid for by closing wasteful, unfair corporate tax loopholes that 

Chairman Camp and Democrats have proposed eliminating. 

Opinion leaders from across the political spectrum have said it 

would provide much needed relief to workers and families. One 

conservative commentator wrote in the National Review that the 

21st Century Worker Tax Cut Act is, quote, ‘‘a serious proposal 

that has the potential to better the lives of a large number of workers.’’ And, a New York Times editorial columnist said it would be, 

quote, ‘‘a huge benefit to low-income childless families and twoearner families.’’ So, I am hopeful that here in Congress we will see 

similar support on both sides of the aisle. 

We will also be looking to close wasteful corporate tax loopholes 

when it comes to addressing the looming shortfall in the Highway 

Trust Fund. That fund supports transportation projects that ease 

congestion and make much needed repairs to our roads and 

bridges. But, in just a few months, at the height of the construction 

season, the Highway Trust Fund is going to reach critically low levels. That could lead to a construction shut-down across the country 

this summer, which would halt critical projects and put construction workers out of jobs. Some States are already anticipating this 

crisis and planning to stop construction projects in their tracks if 

Congress does not act. 

Fortunately, President Obama and Chairman Camp have both 

proposed using corporate revenue to rescue the Highway Trust 
60 

Fund, so we should be able to find a bipartisan solution to that 

challenge and I am hopeful that we can work together over the 

coming weeks and months to give the Highway Trust Fund some 

multi-year certainty and do it in a bipartisan way that also closes 

wasteful tax loopholes and makes the tax code more fair. In the 

21st century economy, these kinds of changes to our tax code, ones 

that help workers and families in a fiscally responsible way, are opportunities we cannot afford to pass up. 

We all know reforming our tax code will not be easy. The difference between Republicans and Democrats when it comes to making these changes are serious. But I also know, when both sides are 

willing to come together and make some tough choices, we can deliver. So, I am hopeful we will be able to move forward on some 

of the proposals I have laid out today, and I hope, going forward, 

we can build on them to achieve the kind of comprehensive tax reform that will offer more workers and families a fair shot and really help us build the foundation for broad-based economic growth in 

the future. 

With that, I want to thank our witnesses for joining us again 

today and I will turn it over to my Ranking Member, Senator Sessions, for his opening remarks. 

OPENING STATEMENT OF SENATOR SESSIONS 

Senator SESSIONS. Thank you, Chairman Murray, and thank you 

for your hard work and for this hearing with good witnesses on economic fairness. 

American workers are, indeed, right to believe that Washington 

actions are stacking the deck against them. As Senator Murray 

noted, Washington and Wall Street are booming. The greatest 

growth area in the United States is 

Washington, D.C. The highest home values and incomes are in 

this beltway area, sucking wealth out from middle America. So, 

finding out what these issues are and how to fix the problem we 

have is an important and valuable thing, and hopefully, we can 

reach some bipartisan agreements on a number of areas that can 

improve our situation. 

Over the last five years, Washington has surged our debt from 

$10 trillion to $17 trillion, promising all the time that this borrowing and spending would create a better economy for the very 

people that we are now lamenting who are hurting. Now, that is 

just the bottom line. I do not think these policies are working, will 

work, or will ever work. You cannot borrow your way to prosperity. 

Lobbyists, consultants, and politicians are doing quite well, but 

median household incomes have declined by $2,268 since 2009. 

This is a stunning statistic. It is very real. I have not heard it disputed. Both parties seem to agree with that. 

What policies have we been using that have created this? Is 

there anything we could have done better? The Federal Reserve 

has pursued an aggressive easy money policy that has been great 

for the investor class, but at last week’s hearing, where we heard 

from Dr. Keith Hall, the former Commissioner of the Bureau of 

Labor Statistics. He explained, quote, ‘‘We have seen an unprecedented worker disengagement from the labor force since the end of 

this recession.’’ I think that is an undisputed fact. 
61 

Among workers without a high school diploma, nearly one in four 

are unemployed, under-employed, or discouraged from working. 

And African Americans and Hispanics, as a group, are hurting 

more than any other groups in America. 

Meanwhile, the U.S. logged a trade deficit of $42 billion in February, the highest in six months. Overall, there are 1.7 million 

fewer manufacturing jobs today than there were in December of 

2007. Yes, robotics are a part of that, but we need to have more 

growth and we are still not seeing the growth that we need. Last 

year, growth came in at 1.9 percent GDP growth, well below experts’ projections and well below what we need to create an economy that is healthy. Yet, Washington continues to place new barriers to work. 

It is fundamentally a vision, colleagues, of a redistribution of 

wealth. Just tax more of people who have wealth and pass out 

more to people who do not have it and this will somehow fix our 

problems. I reject that. That will not fix this economy. We need a 

tighter labor force. We need a growing economy that is creating 

jobs. And it is hard for us all to agree, but there are ways, I think, 

we can agree on this. 

Now, CBO tells us that the President’s health plan will eliminate 

the equivalent of 2.5 million full-time jobs over the next decade, 

eliminate those jobs. How can a proposal that is supposed to help 

America is going to eliminate 2.5 million jobs? 

And the President has proposed more subsidies for adults without children. But, this proposal, when interacting with Obamacare, 

the Affordable Care Act subsidies, creates a disincentive to work. 

For example, because EITC and the Affordable Care Act have 

phase-out schedules as your income rises, an adult without children whose income goes from $14,700 to $17,700 would lose 75 

cents in higher taxes and reduced government benefits for every 

dollar they earn. That creates a disincentive to work. 

The Federal Government spends more than $750 billion each 

year on more than 80 means-tested income support programs. We 

need to consolidate and reorganize these programs in a way that 

affirms work, that does not punish it. Work is central to life. It is 

central to character. It is central to self-esteem. It is central to the 

ability of a nation to provide better things for people. We need to 

reaffirm work. We need to insist that every American work. It is 

good for them and good for the country. 

We need a tax policy that allows our industries to compete. We 

have the highest tax rates in the world. How can that be good for 

business growth in America and job creation? Yet, when it is talked 

about that we would reduce those rates to a more competitive level, 

members are attacked. They say, you do not care about poorer people. We want to attack the businesses more. Real tax fairness 

should remove the competitive disadvantage faced on American 

workers and businesses. 

But, our friends in the majority believe that tax fairness means 

more money for Washington. They propose to eliminate popular deductions, not for the purpose of lowering rates, as a Democratic 

witness told us a few months ago, or as Chairman Baucus says, but 

for new government programs, new government spending. 
62 

What we cannot do is borrow our way to prosperity. Our excessive borrowing has already inflicted a painful toll. Right now, it is 

hurting the economy now, this debt is. It is slowing growth. Last year, we paid our creditors $221 billion in interest payments on the debt last year. That is five times the entire Federal 

highway budget that Senator Murray mentioned that we need to 

work on and see if we cannot fix. Five times that amount of money 

went to interest on the debt last year alone. But CBO now estimates that annual interest payments will grow to $880 billion in 

ten years. That means one year’s interest payment ten years from 

now will be almost 12 times greater than what the Federal Government spends on education. 

Tax, spend, borrow, regulate is not only dangerous, but it will 

not create jobs and higher wages. We must act to create more jobs 

and rising incomes without adding to the debt. Here are things 

that I think clearly will all improve the situation. Let us produce 

more American energy. Let us eliminate all wasteful regulations 

that do not produce benefits. Let us make the tax code more competitive and more growth oriented. Let us ensure fair trade, stand 

up for our trading partners and insist on fair trade and end the 

cheating. Let us adopt an immigration policy that serves the American workers’ interest, that creates rising wages, not falling wages. 

We need to turn the welfare office into a job training center, where 

people come there for help temporarily and they are helped and assisted into a way to produce more and have a higher income. We 

need to streamline the government to make it leaner and more 

competitive and productive. We need to balance the Federal budget 

to restore economic confidence. 

All of these would create more jobs for American workers. All of 

these steps would empower the individual, not the bureaucracy. 

And all of these steps would grow the middle class and not the government. 

Thank you, Madam Chairman. I look forward to hearing from 

our witnesses. 

Chairman MURRAY. Well, thank you very much, and with that, 

we will turn to our witnesses. Again, thank you all for being here. 

Mr. Buckley, we are going to begin with you. 

STATEMENT OF JOHN L. BUCKLEY, FORMER CHIEF TAX COUNSEL, HOUSE COMMITTEE ON WAYS AND MEANS, AND 

FORMER CHIEF OF STAFF, JOINT COMMITTEE ON TAXATION 

Mr. BUCKLEY. Thank you, Madam Chairman and Ranking Member Sessions, for the opportunity to participate in your hearing 

today. 

It is clear that tax reform will not be on the agenda this year, 

but I believe that, ultimately, we will see a reform of our tax system. It is inevitable. How that reform is structured, however, will 

have a major impact both on our economy and on long-term budget 

issues faced by this committee. So, clearly, the committee is correct 

to start examining the impact of tax reform. 

For many people, tax reform is defined by reference to the model 

of the 1986 Tax Reform Act: Lower rates, broadened base, distributional neutrality, and revenue neutrality. I think the Chair quite 

accurately points out that there are big demographic and fiscal 
63 

changes since 1986 that no longer make that model the appropriate 

one for tax reform. Also, I think it is very important to understand 

that although the 1986 Act was an enormous accomplishment, and 

I take great pride from being part of that, it failed in two major 

respects. 

First, it did not result in a stable rate structure. Fairly quickly 

after 1986, there were a series of substantial increases in the top 

marginal rate, the first one signed by President George Bush. In 

my opinion, it was the structure of the 1986 Act that made those 

rate increases inevitable and that offer a caution about tax reform 

going forward. 

In no small part, the rate reductions in the 1986 Tax Reform Act 

were financed by revenues from timing changes to our tax law. 

Timing changes do not affect the ultimate size of a deduction or income inclusion. They merely affect the year in which that item is 

taken into account. 

If you repeal a timing benefit, and most tax preferences are timing benefits, you have a one-time temporary increase in revenues 

during the budget window due to the transitional effects of moving 

to the new system. If you finance a rate reduction with revenue 

from a timing benefit, which is exactly what the Camp tax reform 

plan does, you will end up with a bill that appears to be revenue 

neutral during the budget window because of those temporary transitional taxes, but will result in large and growing deficits outside 

the budget window. That is exactly what I believe happened in the 

1986 Act. 

Second, the economic benefits predicted from the 1986 Act never 

materialized. In that respect, the 1986 Act was not unique. Almost 

all of the economic predictions, which are largely based on supply 

side economics, of the major revenue acts enacted after 1981 were 

simply wrong. They never provided the economic growth that was 

predicted when they were being considered. Indeed, the 1993 tax 

increase was preceded by predictions of extraordinary economic dislocations that simply never happened. 

I would argue, instead of following the 1986 model, I think the 

goal for—there should be three goals for future tax reform. 

First, it should result in a stable revenue structure. I think much 

of the debate over tax reform ignores the fact that the fundamental 

purpose of our tax system is to raise revenue to cover reasonably 

expected government expenditures. Tax reform should initially 

focus on that goal, not an arbitrarily selected top rate. Given the 

long-term fiscal challenges that we face, I believe that means tax 

reform must result in additional revenues. 

Also, the Congress should not be bound by the ten-year budget 

window in assessing the impact of tax reform. I assure you, based 

on my experience, the ten-year budget window is easily manipulated. I think the Camp tax reform plan is a particularly artful manipulation of the ten-year budget window. Proponents of substantial changes to our entitlement programs point to concerns largely 

outside the budget window. Proponents of tax reform should not be 

able to avoid the impact of their proposals outside the ten-year 

budget window. 

But, above all, tax reform should not worsen the long-term budget projections. I see no benefit from repeating the 1986 reform ex-
64 

ample, and that is unsustainably low rates followed by very politically painful decisions to reverse the impact of those rates. 

Second, I think tax reform should be designed with the goal of 

increasing economic opportunities. I have to say that I agreed with 

much of what Senator Sessions said about the lack of job opportunities in this country. I believe it is the lack of job opportunities 

that is the biggest challenge facing this government, not the lack 

of willing and able workers. The projections of economic growth 

from tax reform are largely based on their expansion of the labor 

force, not their expansion of work opportunities. Indeed, I think 

that you should have a different focus in tax reform. 

Finally, tax reform should not increase the growing inequality in 

income and wealth in this country. A tax reform that is based on 

temporary tax increases to finance rate reductions could become 

quickly regressive outside the budget window when those temporary tax increases end. 

Thank you, Madam Chairman. 

[The prepared statement of Mr. Buckley follows:] 
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Chairman MURRAY. Thank you very much. 

Dr. GRAVELLE. 

STATEMENT OF JANE G. GRAVELLE, PH.D., SENIOR SPECIALIST IN ECONOMIC POLICY, CONGRESSIONAL RESEARCH 

SERVICE 

Ms. GRAVELLE. Thank you very much for inviting me here today. 

The United States, due to the growth of programs to serve an 

aging population, which we have known is coming for a long time, 

faces an unsustainable debt. Now, tax reform might serve as a vehicle to raise revenue to reduce this debt as well as for lower rates 

or to pay for alternative, more desirable tax benefits. A small 

change in tax revenue could close much or all of the fiscal gap and 

prevent the debt from rising as a percent of GDP. 

Although raising taxes to reduce deficits might cause a modest 

initial reduction in GDP in the short run, those effects are expected 

to be offset by the benefits of reducing the crowding out of private 

investment. That is, increasing taxes to reduce the debt is expected 

to contribute to positive economic growth. 

Revenue-neutral tax reform is often argued to cause economic 

growth through rate reduction, however, the same base-broadening 

provisions that you use to finance these rates can have effects on 

effective marginal tax rates. Just think of the State and local tax 

deduction. If you reduce the deduction for it, you have raised the 

marginal tax rate, and that happens with a lot of provisions. So, 

the overall effects of this are really very uncertain and probably 

negligible. 

A study by two prominent economists found that the tax reform 

of 1986, which lowered rates and broadened the base, had little effect on the economy in the aggregate. Pursuing base broadening, 

because revenues can be used to lower statutory rates, with the objective of spurring economic growth is unlikely to achieve its goals. 

Although base broadening simply to permit rate reduction is unlikely to achieve a growth objective, tax reform can potentially improve fairness, efficiency, and simplicity. Tax reform can also eliminate or limit existing benefits, but it might also add or expand provisions. The Tax Reform Act of 1986, for example, expanded the 

Earned Income Tax Credit. And the provision that Chairman Murray, that you have recently proposed for the EIC and the second 

worker, there are a lot of merits in this. 

I actually wrote a paper about some of this in 2006, where, basically, I showed with my co-author, who is my daughter, that you 

would improve horizontal equity. The most important thing to increase horizontal equity in the tax law is to increase the EIC for 

couples, married couples without children and single individuals. 

There is very little EIC for them. 

Despite tax expenditures that are 80 percent of individual tax 

revenues, potentially enough to decrease rates by 43 percent, a 

CRS study suggested the difficulties in broadening the tax rate, because these tax expenditures, in most cases, are viewed as serving 

an important purpose. I mean, among the large tax expenditures 

are taxing Medicare to the recipients, taxing capital gains at death, 

and taxing defined benefit pension plans, all of which technically 

are very difficult to do. 
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So, we kind of went through the top 20 tax expenditures and 

found—we suggested that base broadening would—feasible base 

broadening would be likely no more than six percent to nine percent of revenues. The individual revenues in Chairman Camp’s proposal were of this magnitude, about six percent. Now, this amount 

would not fund significant rate reduction, but if used to raise revenue, would largely close the fiscal gap. 

It is particularly difficult to find provisions that would lower the 

top individual tax rate to 25 percent without shifting the burden 

of the middle class. In the Tax Reform Act, top rate cuts were financed, in part, by taxing capital gains at ordinary rates and restrictions on tax shelters, options that do not appear to be feasible 

now. Both of the fully specified tax reform proposals that I mentioned in my testimony both have a top rate of 35 percent. 

Corporate tax expenditures are much smaller relative to corporate tax revenue. Setting aside the treatment of foreign source 

income, repealing every corporate tax expenditure would, according 

to my estimates, prevent [sic] a reduction in the corporate rate to 

29.5 percent. If deferral of foreign source income is eliminated, the 

rate could be reduced to 27 percent. So, that is every tax expenditure that I am talking about. 

While it might be more feasible to eliminate corporate tax expenditures, there are also trade-offs. For example, financing a rate 

cut with accelerated depreciation, which might be desirable on 

other grounds, would nevertheless increase the cost of capital. Circumstances are very different for corporate rate reduction than 

they were in 1986. The 12 percentage point reduction in the corporate rate at that time was financed largely by the repeal of the 

investment credit. Accelerated depreciation today would allow only 

a 2.2 percentage point reduction. 

One area where I believe revenue could be raised without increasing the domestic cost of capital is increasing the tax on foreign 

source income. Measures could also be taken against artificial profit shifting, which is not an issue of the treatment of investment but 

of tax avoidance. There are also some other provisions, both individual and corporate, that might be classified as loopholes—examples are carried interest, inherited IRAs, there is a whole series of 

these—that might be easier to address than a lot of tax expenditures. 

A budgetary risk in tax reform is the use of provisions that have 

transitory revenue gains to finance permanent tax cuts, which 

would increase the deficit outside the budget window. I describe in 

my testimony examples of these practices in the Tax Reform Act 

of 1986, significant transitory provisions and a number of revenueraising provisions in current proposals that produce less revenue 

loss outside the budget window. 

The Budget Committee has discussed including macroeconomic 

estimates. I believe that economic science and research is not at 

the stage that we could get reliable estimates for macroeconomic effects. However, we are certainly able to get reliable estimates for 

the steady state effects, and it would be very easy for the JCT to 

estimate any of these tax proposals as they would appear had they 

been in place for many years, and that is something I think the 

Budget Committee might consider. 
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Thank you. 

[The prepared statement of Ms. Gravelle follows:] 
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Chairman MURRAY. Thank you. 

Ms. FURCHTGOTT-ROTH. 

STATEMENT OF DIANA FURCHTGOTT–ROTH, SENIOR FELLOW, 

MANHATTAN INSTITUTE FOR POLICY RESEARCH 

Ms. FURCHTGOTT-ROTH. Thank you very much, and I believe I 

have some slides that you said were on a computer somewhere. 

Ms. GRAVELLE. They are right behind you. 

Ms. FURCHTGOTT-ROTH. So, thank you very much for inviting me 

to testify. I would like, with your permission, to submit my entire 

testimony for the record and then summarize it. 

Chairman MURRAY. Without objection. 

Ms. FURCHTGOTT-ROTH. Thank you. So, I would like to really 

agree with my co-witness here, John Buckley, that the lack of job 

opportunities is the major problem facing America. We have a labor 

force participation rate that is around 1978 levels, before the millions of women started moving into the workforce in the 1980s. And 

the way to fix this problem is with—through different types of tax 

reform, both at the bottom end, so fixing entitlements so people 

leaving unemployment do not face such high tax rates, and at the 

top end, because right now, for top earners and small businesses, 

State and Federal taxes are over 50 percent. 

While taxes do matter—if they did not matter, America could 

double them and buy everybody a Prius, and in study after study, 

we find that taxes do have an effect. So, I do not want to go 

through all these studies. I mention some of them in my testimony. 

Professors Jonathan Gruber of MIT and Emmanuel Saez found 

that people in the upper end of the income distribution are highly 

responsive to tax rates. Edward Prescott got a Nobel Prize for 

showing the effects of taxes on different countries, including the 

United States. Professors William Gentry of Williams College and 

Glenn Hubbard of Columbia found that high taxes discourage entrepreneurship. Princeton University Professor Harvey Rosen—the 

list just goes on.. 

I would like to just focus on a couple of slides from Professors 

Christina and David Romer. As you know, Christina Romer was 

the Chairman of President Obama’s Council of Economic Advisors 

and she concluded that a tax increase of one percent of GDP reduces output over the next three years by nearly three percent. 

And in Figure 1, you can see the estimated effect of an exogenous 

tax increase of one percent of GDP on GDP, and you can see that 

it is going down. 

If you look at Figure 2, you can look at the effect of a tax increase of one percent on the inflation rate, and the Romers find 

that it makes inflation rise. The Romers took data from the 1940s 

to the present and did a very thorough effect of the increases of 

taxes on GDP. 

And what is most startling and also related to the testimony of 

my friend John Buckley over here is the effect of a tax increase of 

one percent of GDP on the unemployment rate, and it shows that 

there is a—that the unemployment rate actually does decline under 

this. 

But what they find is that with the increase in taxes, then GDP 

actually does go down, and the reason is that, as all of you know, 
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when the government takes a dollar of your money, then it spends 

it less efficiently than you do. 

Well, one objection that we have heard today is that reducing 

taxes leads to more inequality, and inequality decreases economic 

growth. There has been an International Monetary Fund study 

about this, and I think that a lot of this is misstated. The IMF 

study used pre-tax, pre-transfer income to measure inequality and 

many of these studies looking at inequality do not take into account the taxes paid by the top percent and the transfers that go 

to the bottom. So, for example, the top five percent paid 57 percent 

of all Federal individual income taxes in 2011, the latest year that 

data are available, and the top half of earners paid 97 percent of 

these taxes. So, the idea that inequality can be measured just looking at these issues is very—just does not make sense at all. 

Well, mismeasurement of income is not the only flaw. Many 

changes occurred between 1980 and 2012. For example, as we can 

see in Table 1, women streamed into the workforce in the 1980s, 

and by 2012, most families in the top fifth of the income distribution had two earners. So—and in the middle of the distribution, the 

average was 1.3 earners. So, one thing we could do to increase income equality is to say that only one person in a family can work. 

One of the things that we are looking at when we observe more income inequality is more women in the workforce. 

We have also had, over the past 20 or 30 years, more people living alone, and that has contributed to the perception of income inequality. So, if you look at Table 2, you can see that men and 

women living alone are more likely to be in the lowest income 

quintiles, and with increasing life expectancy and more divorces, 

we can see that there are more people living alone than there used 

to be and this also contributes to the perception of income inequality. 

So, that is why it is important, when you look at income distribution, to look at it on a per person basis so that you can adjust for 

that, and also looking at consumption rather than income, because 

when you look at taxes and transfers, the taxes go from the top 

part of the income distribution and they go to transfers to the bottom. 

So, in Table 3, where I have done that, you can see that the ratio 

of top to bottom income quintile spending is about the same. It is 

about 2.5 in 1987 and about 2.5 in 2012. It has not changed that 

much, and that is because even though looking by certain measures, income inequality, it seems as though the top—there is a lot 

more income inequality based on income measures that do not include taxes and do not include transfers. When you take out taxes 

and transfers, you have a very different situation. 

So, the answer is to do tax reform and not be concerned about 

these measures of inequality, which are frequently incorrect, and 

thank you very much. 

[The prepared statement of Ms. Furchtgott-Roth follows:] 
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Chairman MURRAY. Thank you to all of you. 

Let me start with a question about House Ways and Means 

Chairman Dave Camp’s tax reform plan. That plan attempts to pay 

for lower tax rates by closing loopholes and reducing tax expenditures. Chairman Camp even imposes a new excise tax on big banks 

and places a surtax on the income of wealthy individuals. All told, 

his plan raises more than $4.2 trillion in new revenue to pay for 

lower tax rates. And he tried to make all these changes without increasing or decreasing revenues or shifting tax burdens among taxpayers at different income levels. 

Mr. Buckley, you noted that despite all of his efforts, Chairman 

Camp’s plan would still lead to both bigger deficits and tax cuts for 

the wealthy beyond the ten-year budget window, and let me just 

say again, this is an approach to tax reform we cannot afford, given 

our current budget window. But, can you explain to us why Chairman Camp’s plan would lead to bigger deficits down the road. 

Mr. BUCKLEY. It is fairly simple. If you just look at the revenue 

table of Chairman Camp’s bill and look at what I call permanent 

changes in the law—changes other than timing changes—he has 

well over a trillion dollars in permanent tax reductions. That is offset by a series of pure one-time revenue increases—the tax on the 

unrepatriated profits of U.S. multinationals, release of reserves 

from repeal of LIFO accounting methods. Those are purely onetime revenue increases. They are in the range of a couple hundred 

billion dollars. 

He also, you know, forces many into Roth IRAs and claims that 

to be a revenue increase. It is not a revenue increase. It is a tax 

benefit disguised as a revenue increase in the budget window. 

And then, finally, he has a whole series of pure timing changes— 

repeal of accelerated depreciation, repeal of expense treatment for 

R&D, you could go on, repeal of expense treatment for advertising 

expenses. Those are all pure timing changes and they will disappear to a very large extent—I have seen as much as two-thirds 

disappear outside the budget window. 

So, it is fairly simple math. He results in growing deficits outside 

the ten-year window. Also, all of those one-time and temporary tax 

increases are taken into account for distributional purposes. During 

the ten-year window, these are changes affecting businesses. The 

way the Joint 

Committee on Taxation distributes tax burden, they will flow almost all to upper-income taxpayers. That is what enables his distributional table to look distributionally neutral in the ten-year 

budget window. 

Chairman MURRAY. But it is in the out-years that the wealthy 

benefit. 

Mr. BUCKLEY. Those revenues disappear and the upper incomes 

will get a substantial net tax cut, and you only have to look at the 

Joint Committee distributional tables to find that people making 

more than a million dollars get a significant tax reduction in the 

last year of his ten-year budget window. 

Chairman MURRAY. Okay. Dr. Gravelle, you recently wrote that 

in 2008, U.S. companies reported profits in Bermuda, a tax haven 

with no corporate income tax, that exceeded the size of that country’s GDP by almost 650 percent. Many of us are aware, of course, 
105 

of the infamous five-story building in the Cayman Islands that 

houses something like 18,000 companies. But, no doubt, really, our 

government is losing billions of dollars every year to offshore tax 

abuse. Let us be clear. Those schemes give big companies an unfair 

business advantage over companies that only operate domestically, 

and I think that is important to remember, as well. 

I talked in my opening statement about the bill that I introduced, the 21st Century Worker Tax Cut Act. My bill actually borrows from Chairman Camp’s to combat profit shifting and tax 

haven abuse, uses those savings to invest in targeted tax cuts for 

childless workers and two-earner families. 

First of all, Dr. Gravelle, I wanted to get your perspective on the 

magnitude of offshore profit shifting and tax avoidance. 

Ms. GRAVELLE. Actually, I think my 650 percent number has 

grown. It is really more like over a thousand percent by now, probably. 

Chairman MURRAY. Really? 

Ms. GRAVELLE. I need to update my paper. So, the estimates that 

I look at would say that I think that the profit shifting, sort of the 

best estimates, amount to probably about $70 billion in fiscal year 

2015. That is profit shifting, not revenue we could raise from it. 

But it is growing. It seems to be growing all the time. But, you 

know, if you put out a 35 percent rate, you could get a substantial 

revenue gain from that, and I think there are certainly ways to collect that money effectively. A lot of countries tax currently income 

from countries that have low taxes. That is very common. But we 

do not do any of that. 

Chairman MURRAY. Right. And, Mr. Buckley, would you agree 

that providing targeted tax relief to struggling workers is a better 

use of taxpayers’ resources than allowing these tax havens to continue unabated? 

Mr. BUCKLEY. I absolutely agree. I think, of the barriers to employment faced by two-worker married couples are significant when 

they have children, and so that anything that is done to address 

those barriers, make it easier for them to get quality day care, to 

afford the cost of that, is positive. 

I am deeply troubled when you see tax reform plans like Dave 

Camp’s that repeal the Dependent Care Credit and that will result 

in a net tax increase on many of the two-earner spouses that you 

are concerned about. We should make it easier for them to enter 

and remain in the workforce. 

Chairman MURRAY. And we want people to work. I know my 

counterpart here has talked about that before. But, it is a disincentive to the second worker when they start working and they have 

to pay for child care and clothes and transportation and are not 

getting that tax credit, correct? 

Mr. BUCKLEY. That is correct. 

Chairman MURRAY. Okay. My time is out. I will yield to Senator 

Sessions, and thank you all very much. 

Senator SESSIONS. Thank you. 

Ms. Gravelle, you indicated you discussed new taxes, that they 

would be used to pay down the debt, or reduce the annual deficits, 

maybe more correctly. If taxes were to be increased, is that what 

you would propose should be done with the money? 
106 

Ms. GRAVELLE. Well, I cannot recommend a policy. CRS never 

makes recommendations. 

[Laughter.] 

Ms. GRAVELLE. Just basically, what I wanted to say in my statement is—and, in fact, I would go on to say I have written a paper 

on the long-run debt outlook where it seems to me, if you put all 

the numbers together, it is very hard to deal with that long-run 

debt without relying on some increase in taxes. But, mainly, what 

I was saying— 

Senator SESSIONS. But it does not improve the long-term debt if 

you increase taxes to fund new spending. That is the point. 

Mr. Buckley, thank you for your comments. I would just say 

that—well, CBO tells us that the marginal rate tax increases do reduce economic growth. I think most people would agree. We do 

have to have a certain amount of money to run this government. 

There is just no doubt about it. But, I think that it is clear that 

a marginal rate increase on the private sector weakens the private 

sector and increases the Washington sector and that is pretty clear. 

I have got just a minute and I will let you respond. I see you 

would like to. 

Mr. BUCKLEY. Well, I think you should look, carefully look at the 

economic models that predict economic growth from tax reform. 

They are what I call supply side models. Many of them assume— 

if you could look at the Joint Committee analysis of Dave Camp’s 

bill, one of the models used that shows big increases in growth assumes that the two major problems faced by this country are already solved. They assume that the Federal budget is sustainable, 

no long-term problems, and there is no unemployment in this country. They are modeling the effects— 

Senator SESSIONS. Well, I doubt that they say there is no unemployment— 

Mr. BUCKLEY. Well, that is what the model assumes. 

Senator SESSIONS. Do you mean zero unemployment? 

Mr. BUCKLEY. I mean zero unemployment. 

Senator SESSIONS. That would be unrealistic, I would agree. 

Mr. BUCKLEY. It is unrealistic, but that is where the projections 

of economic growth come from. 

Senator SESSIONS. Well, Ms. Furchtgott-Roth, you refer to studies. There are a number of studies that have shown that in Europe, 

IMF and some sophisticated analytical studies by professionals who 

say that in reducing the deficits they were facing, that the nation 

benefits more from reducing government spending than it does 

from increasing taxes to reduce the deficit. Is that your understanding of the state of the economic analysis? 

Ms. FURCHTGOTT-ROTH. I think it is important to reduce the deficits by cutting spending. Increasing taxes to reduce the deficit, especially in the system of government that we have right now, 

seems to result in higher taxes and higher spending, and I really 

agree that it is a great problem that companies are putting profits 

abroad and one reason for this is that we have a much higher tax 

rate than other countries around the world and we need to lower 

our corporate tax rates to average OECD levels and start taxing 

not on a worldwide but on a territorial basis. OECD averages about 

24 percent. So, it is no surprise that since our rate, Federal and 
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State, is 39 percent, our companies are keeping profits offshore 

rather than bringing them back where they would be taxed. 

Also, I am surprised that we have not had any discussions of 

cuts in spending. We are just assuming that spending cannot be 

cut, and there are a lot more efficient ways of dealing with the 

spending that we have. For example, we talked about the Highway 

Trust Fund. If that were devolved to the States, for example, instead of sending all the gas tax to Washington, then sending it 

back to the States, if we let the States keep their gas tax revenues 

and spend it themselves on what highway projects they wanted 

without having to have the required 15 percent for mass transit, 

which is not much good in places like Nebraska, where they do not 

use mass transit, States could make much more efficient uses of 

these revenues and they would not be hamstrung by project labor 

agreements and other kinds of Federal rules on this highway construction and that could go a lot further. 

There are many ways we could be cutting spending, such as the $12 to $15 billion we spend every year making electricity more expensive, and I think we really need some discussion of that, not 

just assume we need to raise taxes to reduce the deficit. We also 

need to be looking at entitlements out in the long run, how we can 

trim those down, because those are the major source of government 

spending. 

Senator SESSIONS. Well, I think that is exactly right. It is the 

equivalent of a tax to pass an environmental regulation or a global 

warming regulation that raises the price of everybody’s energy for 

people alike. It is the equivalent of a tax, in my opinion. It is equivalent to the government taxing those same people and then paying 

for the CO2 reduction ideas. 

Ms. FURCHTGOTT-ROTH. Right. And what is really— 

Senator SESSIONS. Economic sense, it is not much difference, is 

it? 

Ms. FURCHTGOTT-ROTH. Yes— 

Senator SESSIONS. I would just say this— 

Ms. FURCHTGOTT-ROTH. —and what is really interesting is that 

when extended unemployment benefits ended in December, between December and March, the labor force participation rate went 

up by four-tenths of a percentage point. That is the fastest increase 

since 2010. And that was because, in essence, the effective tax rate 

for working at lower income levels had disappeared when people 

were not losing that extra unemployment benefit by going out to 

work. 

Senator SESSIONS. Could I ask you this, Ms. Furchtgott-Roth. 

University of Chicago Professor Casey Mulligan has said that the 

penalty on working, that, in effect, for low-income workers, can be 

much higher than those for upper-income earners because of the 

phase-out of different benefits they are receiving from the government. 

Ms. FURCHTGOTT-ROTH. Right. He had speculated about 40 to 60 

percent, and that is why we really need to work on trimming back 

these entitlements and making the phase-outs different. That is 

why it is particularly interesting that when extended unemployment benefits ended in December, we saw this movement of people 

into the workforce, and also, the percent of long-term unemployed 
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went down from 37 percent—the long-term unemployed, that is 26 

weeks or longer—went from 37 percent of the unemployed to 35.8, 

just last month. 

Senator SESSIONS. Thank you, Madam Chair. I would just say 

that the argument over taxes and economic growth is complex, but 

in 1981, the Reagan plan took the marginal tax rate from 70 percent to 50 percent, and I think that was a positive step for the 

economy. The economy did recover. And then in 1986, it was taken 

to 28 percent. Perhaps that was lower than the country could sustain, Mr. Buckley, I do not know. But, when it went back up—it 

went up, what, to 39—and you still ended up with far less marginal tax rate imposition on the private economy than you had in 

1980. And, I think all of that did help create growth and prosperity. 

All of us are guilty. Something changes in policy and we run out 

and say the next month, whatever good or bad happened was a result of that event. And it may just be a smaller event in the longterm shape of things that helped shape it. 

So, anyway, these are important issues. Thank you for your leadership, and this is a valuable discussion. 

Chairman MURRAY. Thank you. 

Senator WHITEHOUSE. Senator WHITEHOUSE. Thank you, Chairman. 

Let me get a sense—I think the Chairman used one of the numbers that I want to use already, but I would like to hear it from 

the witnesses. The revenue that comes into the Federal Government has two ways of being spent. One is it can be spent through 

the budget and through appropriations, and you could describe that 

as going out the front door, and everybody gets a look at it when 

it is on the porch because the appropriations process looks on a 

regular basis at all of that. 

And the other is by tweaking the tax code to give people advantages and deductions and so forth. You can send revenues that 

would otherwise be collected for spending in the traditional sense, 

that would otherwise go out the front door, you can send them out 

the back door, and that can also be very beneficial to special interests, and, indeed, there are huge lobbying professions that are designed to make sure that industries maximize their benefit of that 

expenditure out the back door. 

In terms of the scale of how much money is lost through tax 

avoidance, tax deductions, tax specialized rates, things like that, 

compared to what gets actually spent, how would you compare the 

two, generally? And on the corporate side and on the individual 

side separately, if you would. 

Mr. BUCKLEY. Senator, I think you have to divide what are called 

tax expenditures into different pockets here. 

Senator WHITEHOUSE. Let me put it this way. Are they called tax 

expenditures for a reason? 

Mr. BUCKLEY. They are called tax expenditures for a reason. 

Senator WHITEHOUSE. And what is that reason? 

Mr. BUCKLEY. That they are spending through the tax system. 

Senator WHITEHOUSE. Okay. 

Mr. BUCKLEY. But, many of the tax expenditures are items like 

the Dependent Care Credit, per child credit, charitable deductions, 
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home mortgage interest deductions, State and local tax deductions— 

Senator WHITEHOUSE. Yes. 

Mr. BUCKLEY. Those type of tax expenditures on the individual 

side are somewhere between 80 and 90 percent of total tax expenditures. So, there clearly is a lot of special interest things here. 

Senator WHITEHOUSE. Particularly on the corporate side. 

Mr. BUCKLEY. Particularly on the corporate side—on the business side— 

Senator WHITEHOUSE. Yes. 

Mr. BUCKLEY. Not just corporations, but businesses. But, if you 

look at the overall numbers that are being tossed around, the bulk 

of the tax expenditures are things that you really could not accomplish through a spending program. They are called tax expenditures, but you cannot replicate the charitable deduction through a 

spending program. I do not think the Congress would want to replicate— 

Senator WHITEHOUSE. My point is, the scale of it, because I think 

most people think, when they think of Federal spending, that what 

we see through the appropriations process is a very, very big number— 

Mr. BUCKLEY. Right. 

Senator WHITEHOUSE. and whatever happens with the tax code 

is sort of a lesser thing. And, in fact, on the corporate side, it is 

70 to 80 percent of all revenues that actually goes— 

Ms. GRAVELLE. No, it is smaller than that. 

Mr. BUCKLEY. No. 

Senator WHITEHOUSE. Smaller than that? 

Mr. BUCKLEY. Yes, very much. 

Ms. GRAVELLE. It is smaller. It is about—I think it is—it seems 

to me it was about 40 percent—35 percent, 40 percent. The biggest 

tax expenditure, I think, is comprised partly of what I think is a 

loophole, and that is the revenue loss on the deferral of foreign 

source income. 

Mr. BUCKLEY. Correct. 

Ms. GRAVELLE. Some of that might be real activity, but I think 

a large part of it is these profits that have been shifted through 

various schemes to, you know, to the Cayman Islands or to Bermuda or— 

Senator WHITEHOUSE. And some of that, we do not see at all because the income is hidden, so you never know that— 

Ms. GRAVELLE. We are capable of collecting that if we want to. 

Senator WHITEHOUSE. If we want to, yes. 

Ms. GRAVELLE. But, it is the biggest tax expenditure and it is 

worth—I do it in percentage points of the rate—it is worth about 

three percentage points. The one that is talked about all the time, 

the next biggest one, is worth about 2.2 percentage points. So, 

those are the two biggest tax expenditures, and accelerated depreciation only accidentally became a tax expenditure because we set 

the rates where they should be in present value terms in 1986, but 

we set them with the wrong expectation of inflation. That is what 

happened there. 

Ms. FURCHTGOTT-ROTH. But, that is on the corporate side. If you 

look at the individual side, the mortgage interest deduction, the de-
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duction for health care expenses on the employer side, the deduction for State and local taxes, I mean, all these really are the major 

tax expenditures and they are very difficult to get rid of for political purposes. 

Senator WHITEHOUSE. Ms. Furchtgott-Roth, while I have got you 

here, I think the last time we saw each other was in the Environment and Public Works Committee, and we do not often have witnesses who show up in both the Budget Committee and the Environment and Public Works Committee, and so I have looked at 

some of the areas where you have testified, and you have testified 

on climate change in the Environment and Public Works Committee. 

You have testified on the impact of Obamacare on America’s 

health insurance in the House Energy and Commerce Subcommittee. 

You have testified on sequestration in the House Education and 

Workforce Subcommittee. 

You have testified on energy in the House Energy and Commerce 

Subcommittee. 

You have testified on Bureau of Labor Statistics employment 

data on the House Oversight and Government Reform Committee. 

You have testified on the individual mandate in the Affordable 

Care Act in the House Ways and Means Subcommittee. 

You have testified on national ocean policy in the House Natural 

Resources Subcommittee. 

You have testified on a balanced budget amendment in the Senate Judiciary Subcommittee, which actually makes three of my 

committees that you have testified on. 

You have testified on something called Obama’s hidden marriage 

penalty in the House Oversight and Government Reform Subcommittee. 

You have testified on the future of union transparency on the 

House Education and Workforce Subcommittee. 

You have testified in the Joint Economic Committee on the gender pay gap for women. 

You have testified in the House Natural Resources Subcommittee 

on American Samoa fisheries subsidies. 

You have testified in my Senate Judiciary Subcommittee on medical bankruptcy reform. 

You have testified on the nomination of John Roberts to be an 

Associate Justice of the Supreme Court. 

You have testified in the confirmation hearings in Senate Banking, Housing, and Urban Affairs. 

You have testified on estate and capital gains tax levies on farmers. 

And, you have testified on being compensated for overtime by 

taking time off rather than receiving additional pay. 

Ms. FURCHTGOTT-ROTH. Oh dear. You are showing everybody 

how old I am. 

Senator WHITEHOUSE. And, fair to say that in every single one 

of those testimonies, you were the Republican witness? 

Ms. FURCHTGOTT-ROTH. Absolutely. I worked also for three Republican White Houses and I have written five books, the latest 
111 

being Regulating to Disaster: How Green Jobs Policies are Damaging America’s Economy. 

Senator WHITEHOUSE. Is there any area where you will not testify? 

Ms. FURCHTGOTT-ROTH. Yes. Yes. I do not testify on anything 

legal. I only testify on economics because I am an economist. I am 

the former Chief Economist of the U.S. Department of Labor, and 

labor issues overlap many of these things that you mentioned. For 

example, in my testimony on behalf of John Roberts, I was testifying on the theory of comparable worth, not on his qualifications 

to be a Justice. But, yes, I will testify on— 

Senator WHITEHOUSE. We will see you in the Judiciary Committee again and we can see whether we are not talking about 

legal issues. 

Ms. FURCHTGOTT-ROTH. Only if it is an economic issue. For example, I do not testify on things like banking or telecom because 

I do not have expertise in those areas and they do not really overlap with labor economics. 

Senator WHITEHOUSE. Very well. 

Thank you, Chairman. 

Chairman MURRAY. Thank you. I want to thank all three of our 

witnesses for participating today, all of our colleagues that are 

here. 

As a reminder to my colleagues, additional statements or questions for the witnesses are due by 6:00 p.m. today, to be submitted 

to the Office of Chief Clerk in Room 624. 

With that, thank you again for all of you participating. 

With that, I call the hearing to a close. 

[Whereupon, at 11:38 a.m., the committee was adjourned.] 

(113) 

INVESTING IN WHAT WORKS: EXPLORING 

SOCIAL IMPACT BONDS 

THURSDAY, MAY 1, 2014 

UNITED STATES SENATE, COMMITTEE ON THE BUDGET AND THE GOVERNMENT

PERFORMANCE TASK FORCE, Washington, D.C. 

The committee met, pursuant to notice, at 10:01 a.m., in Room 

SD–608, Dirksen Senate Office Building, Hon. Mark Warner, chairman of the Task Force, presiding. 

Present: Senators Warner, Whitehouse, and Ayotte. 

Also Present: Senator King. 

OPENING STATEMENT OF CHAIRMAN WARNER 

Chairman WARNER. Good morning, everyone, and welcome to today’s hearing of the Budget Committee’s Government Performance 

Task Force on a very interesting subject, ‘‘Investing in What 

Works: Exploring Social Impact Bonds.’’ 

I mentioned to the panel this morning, we are going to go ahead 

and get started. I know Senator Ayotte is going to join us in a few 

minutes. Senator Whitehouse is on the committee, as well—actually, whose idea for the hearing it was—is in a Judiciary Committee markup and will be here. So, I particularly mention to our 

guest from the U.K., please do not be offended if people float in and 

out. We often have very short attention spans, but when we are 

here, we are going to be very focused on what you say. 

I want to, before we get to our subject, just do a quick review 

for staff and others who have followed this Task Force. At our last 

Task Force hearing, we discussed the need to expand financial 

transparency, and I am happy to report that since that last hearing, we have actually made some real progress. This month, both 

the Senate and the House passed our bipartisan Digital Accountability and Transparency Act, or DATA Act, and I would like to 

thank all the members of the Task Force for their support of the 

DATA Act, and I do not think he is going to be with us this morning, but particularly Senator Portman, another member of the committee who was my lead cosponsor on this bill. We are soon going 

to get, actually, a Presidential signing ceremony. 

Recognizing that these are sometimes a bit obscure topics that 

we deal with here, but we all talk about how we can try to bring 

better accountability to the government, the DATA Act will actually improve transparency and accountability by requiring that 

agencies post all Federal spending data on a single easily accessible 

website. This bill will also require agencies to develop financial 
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data standards so that spending data is reported to the public in 

a consistent and accurate way. 

I am not sure, Mr. Fisher, whether in the U.K. it is the same, 

but we have, for example, in the Department of Defense, 200 different financial accounting systems. It is ludicrous, trying to push 

the bureaucracy to get a common standard, common data. 

Darrell Issa from the House, who was a lead sponsor, said if— 

and, again, apologies to our guest from the U.K.—but if you were 

in baseball and every baseball team had a different way of measuring what a hit was or what an error was or what a person’s averages were, you would be very hard pressed to determine who were 

the good players and who were not. 

This DATA bill, which has been called the most significant piece 

of government transparency work since the Freedom of Information 

Act, I think is going to really give us a tool. 

What we also do in this bill is reduce reporting burdens for the 

recipients of Federal funds, because we have clearly learned—and 

Senator Ayotte and I are working together on legislation in this 

area—we ask agencies to report time and again in different forms. 

If we can cut back on that, we can save resources. Actually, Senator Ayotte and I have legislation to try to eliminate some of the 

duplicative reporting requirements. 

Probably not all members of the public would realize that we do 

an annual Dog and Cat Fur Violations Report, which I know the 

public is hanging on each day waiting for that Cat and Dog Fur 

Report that comes out. If there was ever a case of a meaningless 

report— 

Senator AYOTTE. Yes, it is riveting. They are waiting. 

[Laughter.] 

Chairman WARNER. And it is costing and costing. So, we are actually trying to eliminate some of that. This is what, really, this 

Task Force was set up for back in 2009, to say, how can we drive 

down, in tight fiscal times, better performance. 

And we have passed the Government Performance and Results 

Modernization Act, again, an obscure piece of legislation that most 

people do not know, but it actually requires agencies for the first 

time to identify not only their best performing programs, but their 

least performing programs, which is always hard to get anyone in 

government to acknowledge that certain things may not be working. 

We have also looked at Federal customer service reporting, and 

again, as I mentioned, with Senator Ayotte, we are looking at getting rid of some of the duplicative reports. A lot of time and money 

is spent on reports that are not very useful. 

Today, we are going to go into a different area that is really very, 

very brand new. It was suggested, as I mentioned, by Senator 

Whitehouse. We are here to learn more about social impact bonds, 

a new approach to financing government services designed to ensure government only pays for what works. 

Frankly, the Federal Government does a poor job of understanding what works. Federal agencies often talk a good game 

about measuring results and delivering value for the taxpayers, but 

the truth is that evaluating what works and what does not really 

work is really something the Federal Government does not do very 
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well. Maybe we can learn from others about this. It is done better 

elsewhere. But part of that was because there is lack of common 

data standards. Part of that is because there is really not a lot of 

transparency. But this idea of social impact bonds is something 

that may be a new tool. This is especially true when linking resources to outcomes, something that a lot of us talk about, but, 

again, we do not have very good standards. 

The Federal Government has a practice of what is called base 

budgeting, where discussion and analysis of resource allocation is 

framed by the prior year’s funding level rather than the outcomes 

that those resources achieved. We simply start with that baseline 

and build from there rather than looking back and saying, did we 

actually get value for our dollar in terms of what was spent in the 

preceding year? 

Now, we all know that we are going to continue to be faced with 

tight budget times. In these times, we need to make sure that we 

are allocating limited resources to the programs that actually deliver results. That is why the recent development of social impact 

bonds is of importance. 

Social impact bonds are not really bonds, but they are probably 

better described as a new type of performance-based contracts. 

Governments use social impact bonds to finance social service 

projects with private and philanthropic capital and only repay this 

investment after an independent evaluation confirms the project 

has achieved the goals. The key here is that government does not 

pay if the project fails to deliver. 

Initially pioneered in the U.K., social impact bonds—and I think 

this was in 2010, Mr. Fisher, when it started—social impact bonds 

have expanded to several States in the United States, including 

Utah and New York, targeting such issues as juvenile recidivism 

and early childhood education. 

The appeal of this approach is growing, in large measure because 

it achieves several important policy goals. It ensures accountability, 

again, making sure that we actually pay for what works. It supports evidence-based investments. The tool promotes use of highquality program evaluation to inform investment decisions and add 

to the information based upon what works. It incentivizes publicprivate partnerships. Social impact bonds create a mechanism to 

leverage private and philanthropic capital to fund programs that 

lack sufficient funding. And, finally, it results in savings. This has 

the potential to yield long-term savings from reductions in social 

problems that rely heavily on government services. 

Now, this is a new idea and I think we are going to have probably a spirited discussion on the panel, where some are advocates, 

some question this tool, and I think coming from, at least me, coming at this relatively new, I am excited by the concept, but I am 

also concerned about if we were to embark on this on a broader 

basis, what we should be careful about. So, I am again looking forward to the discussions that will happen. 

So, let me very quickly introduce the panel and then call on my 

friend, Senator Ayotte, for her opening comments, and we will get 

right to the testimony. 

First, we welcome Mr. Jeffrey Liebman, the Malcolm Wiener Professor of Public Policy at the Harvard Law—Harvard Kennedy 
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School. Obviously, it would not be at the Harvard Law School. 

They are not very good at performing results, having been a graduate there. 

[Laughter.] 

Chairman WARNER. The Director of the Kennedy School’s Social 

Impact Bond Technical Assistance Lab. That is a fancy title. The 

SIB Lab provides technical assistance to State and local governments exploring the use of SIBs. Mr. Liebman previously served at 

the Office of Management and Budget, first as Executive Associate 

Director and Chief Economist and subsequently as Acting Deputy 

Director. 

And now, we have got the first of two Mark Fishers. This may 

be the first time we have had a panel where we had two witnesses 

with the exact same name. Mark Fisher Number one is Social Justice Director with the United Kingdom Department for Work and 

Pensions. In his role, Mr. Fisher heads the Department’s Innovation Fund, which has entered into ten social impact bonds to date 

that examine different types of social investment and delivery models supporting disadvantaged youth and those at risk of disadvantage. We particularly thank Mr. Fisher from coming all the way 

from the U.K. 

Next, Mark Fisher number two, who is a member of the House 

of Delegates from Maryland, where he serves on the Ways and 

Means Committee and also from Calvert County, a neighbor of ours 

in Virginia. Again, welcome, Mark. Also, he has got a great background in telecom. 

And our final witness is Kyle McKay, an analyst with the Texas 

Legislative Budget Board who previously, again, worked for Maryland’s Department of Legislative Services. 

We are very excited to have you all here, gentlemen, and look 

forward to a spirited discussion in your statements and then in our 

questions. 

With that, I would like to call on my partner and colleague, Senator Ayotte, for her opening statement. 

OPENING STATEMENT OF SENATOR AYOTTE 

Senator AYOTTE. I want to thank Chairman Warner for holding 

this important hearing. I want to thank all the witnesses for being 

here. 

And I certainly want to echo some of the comments of Senator 

Warner at the top. I was very glad to be a cosponsor of the DATA 

Act. I am glad that has passed. I think that is a very important 

transparency measure that will help us as we try to root out waste, 

duplication, fraud in the government. 

And I am also very proud to cosponsor our Report Duplication 

Act because it is astounding, the amount of reports that often are 

requested by Congress, but sit on shelves and no one is reading, 

and people put a lot of work into them. So, our goal is to—the data 

we need, we want and we are going to get, but we want to eliminate the reports that people are wasting their time on that no one 

is reading. So, I really appreciated cosponsoring that with you and 

your leadership on that. 

And, finally, there are a couple other pieces around here that I 

think are important, as well. I am the cosponsor of a bill with Sen-
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ator Manchin that—you know, GAO does a lot of fantastic work 

identifying duplicative programs, performance issues within our 

government, and often—too often—these reports sit on the shelf. 

And so our act is pretty straightforward. It would actually require 

the executive branch within 90 days of the receipt of the annual 

report card to submit to the Congress what recommendations the 

executive branch has for eliminating duplicative programs, consolidating for performance measures, and then actually require us, the 

House and the Senate, to vote on it within a very short time frame 

so that we can start acting upon some of these things. 

So, I think that we share the goal in this committee of making 

sure that we can find ways for the government to work better for 

taxpayers, and so I appreciate all of you being here today and appreciate the Chairman’s focus on this issue. 

And for me, this committee hearing today really is a learning opportunity. I do not know a lot about social impact bonds, so my 

focus is going to be, as the Ranking Member of this Task Force, 

pretty simple. I want to know if and why social impact bonds are 

feasible and advisable for the Federal Government, what evidence 

we have that they work in practice and not just in theory, and how 

or if they could help the government weed out waste, fraud, and 

abuse, and have actual accountability for the dollars that we would 

spend to address problems. 

In addition, I certainly would like to know whether these bonds 

would further enhance transparency and accountability for taxpayers. Government can always use more innovation, and so whenever we can get the private sector engaged to helping us address 

important problems, I think that is a very positive step for us and 

we need to be open to new, inventive approaches. But, I think we 

owe it to the taxpayers to understand how effective these approaches are to make evidence-based decisions and to understand 

if we bring a third party into a complex contract arrangement, how 

will this work to save money for the government. 

So, I look forward to hearing from all of you today. I think this 

is an important hearing to really bring this issue to the forefront 

in the Congress and I look forward to hearing each of your perspectives on this issue, so thank you. 

Chairman WARNER. Thank you, Senator. 

This hearing was born because of Senator Whitehouse’s interest, 

and we do want to get to the panel, but, Sheldon, do you want to 

make a comment? 

OPENING STATEMENT OF SENATOR WHITEHOUSE 

Senator WHITEHOUSE. Sure. I would like to join my colleagues in 

welcoming all of you to this discussion. I want to thank Chairman 

Warner for his leadership. 

I think Senator Ayotte asked the right questions. I would add 

one, not just if and why social impact bonds make sense, but also 

when. And I think that there is at least the prospect of a real opportunity here when new theories of ways to save money can meet 

the standard of a private investor but cannot meet the standard of 

our dear friends at CBO or OMB, and it provides a mechanism for 

taking a trial and giving it a shot with private capital both willing 

to make the bet and setting down the measures of accountability 
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to test whether the results have really been achieved. I think it has 

the capacity to be a very significant breakthrough technology, if 

you will. 

I think once you get past that first stage and the case has proven 

itself, the likelihood that private investors need to make money off 

of regular government operations begins to diminish. But, I really 

do think that that leading edge of innovation is where the action 

is and this could be a very useful tool in that regard. 

So, again, my thanks to all the witnesses for being here. My 

thanks to Chairman Warner for his leadership. I would point out, 

the way I always do in this room, that we are spending 50 percent 

more on health care than all the other industrialized countries in 

the world and we are not getting better results and we are not insuring more people, so there is clearly room for some very, very big 

innovation gains in that sector and I hope we can talk a little bit 

about that. Thank you. 

Chairman WARNER. Gentlemen, we are very interested in this 

idea and look forward to your testimony. Dr. Liebman, why do you 

not start us off. 

STATEMENT OF JEFFREY B. LIEBMAN, MALCOLM WIENER 

PROFESSOR OF PUBLIC POLICY, AND DIRECTOR, SOCIAL IMPACT BOND TECHNICAL ASSISTANCE LAB, JOHN F. KENNEDY SCHOOL OF GOVERNMENT, HARVARD UNIVERSITY 

Mr. LIEBMAN. Thank you. Chairman Warner, Ranking Member 

Ayotte, Senator Whitehouse, thank you for inviting me to testify 

this morning about Pay for Success contracts and social impact 

bonds. 

Despite spending hundreds of billions of dollars each year, our 

country is not making rapid enough progress in addressing social 

problems, from recidivism to school readiness, and obesity to workforce development. And for the vast majority of the spending, we 

have little to no evidence about which programs actually improve 

social outcomes. Instead, governments continue to fund the same 

services year after year, paying based on the number of people 

served regardless of whether the programs make a difference in the 

lives of the people they aim to help. We can and must do better 

to produce more value with each taxpayer dollar. 

Starting with the GPRA Modernization Act of 2010, the Government Performance Task Force has been at the front lines of the effort to strengthen performance management and improve how our 

government works. I believe that Pay for Success contracts could 

be a critical next step in this Task Force’s efforts. 

Under the most common PFS model, the government contracts to 

obtain social services from a local service provider. The government 

pays entirely or almost entirely based upon the provider achieving 

performance targets, such as a ten percent increase in employment 

or a 50 percent reduction in emergency room visits. Performance is 

rigorously measured by comparing the outcomes of individuals referred to the service provider relative to the outcomes of a comparison group that is not offered the services. If the program fails to 

achieve minimum performance targets, the government and taxpayers do not pay. Above the minimum, payments occur on a sliding scale, with greater payment for better performance. 
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Under this model, there is often a several-year lag between when 

services are delivered and when performance can be measured and 

performance related payments made. Private investors bridge this 

gap, providing capital to fund the up-front operating expenses of 

the service provider. The private investors get repaid only if the 

provider achieves the required level of performance. This financing 

arrangement is known as a social impact bond. 

Over the past two years, we have observed the Pay for Success 

model improve government performance in three ways. First, it improves decision making by bringing market discipline to government decisions about which programs to expand, as investors will 

only put their dollars behind programs with a strong evidence base. 

Second, it shifts government resources to pay for preventative 

services rather than pay for the remedial costs associated with bad 

outcomes. 

And, third, it fosters multi-year collaborations to tackle challenging social problems, something that is very difficult to accomplish with conventional annual government budgeting and standard government management techniques. 

Dozens of State and local governments around the country are 

exploring this model. My Harvard Kennedy School SIB Lab is providing pro bono technical assistance to ten State and local governments that are developing PFS projects. These include the States 

of Colorado, Connecticut, Illinois, Massachusetts, Michigan, New 

York, Ohio, and South Carolina, as well as the Cities of Chicago 

and Denver. These governments are developing PFS contracts to 

address a wide range of policy issues, from early childhood education to homelessness, and from prison recidivism to diabetes prevention. And there are four U.S. Pay for Success contracts that are 

already delivering services, including projects in Utah, New York 

City, Massachusetts, and New York State. 

If the Pay for Success model is going to achieve its full potential, 

the Federal Government will need to play a larger role than it has 

played to date. First, in collaborating with States in projects that 

produce Federal budgetary savings. Many of the most promising 

PFS projects being developed by State governments will produce 

Federal budgetary savings along with the State savings. This is 

particularly true of interventions that reduce future Medicaid costs. 

For most of these projects, the total Federal and State benefits exceed the project costs, but the State savings alone do not. These 

projects are viable only if the Federal Government partners with 

the State government and enables performance payments to be 

based on the combined government benefits. 

Second, the Federal Government has an important role to play 

in areas where nearly all the benefits accrue to the Federal Government, because there is little impetus for State and local governments to get involved in these sorts of projects. Take, for example, 

an initiative that would enable individuals with health impairments to remain in the workforce, thereby reducing Federal spending on SSI and Disability Insurance. Unless the Federal Government initiatives Pay for Success projects in policy areas like this, 

they are just not going to happen. 

I want to emphasize that the President’s proposal for a Pay for 

Success Incentive Fund at the Treasury Department is quite prom-
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ising, as is the draft legislation that was released this week by Republican Indiana Congressman Todd Young, because both envision 

a range of Federal strategies matched to the particular needs of 

different types of PFS projects. 

Pay for Success is based on the simple premise that governments 

should pay for demonstrated results rather than for unverifiable 

promises. I look forward to working with members of this Task 

Force to further explore how the Federal Government can best encourage the use of this promising approach. 

Thank you. 

[The prepared statement of Mr. Liebman follows:] 
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Chairman WARNER. Thank you, Dr. Liebman. 

Mr. FISHER. 

STATEMENT OF MARK FISHER, CBE, SOCIAL JUSTICE DIRECTOR, DEPARTMENT FOR WORK AND PENSIONS, UNITED 

KINGDOM 

Mr. FISHER. Thank you, Senator. I should say, it is a pleasure 

to be here. I am Mark Fisher. I am Director for Social Justice at 

the Department for Work and Pensions in the U.K. 

My particular role, which stems from Mr. Ian Duncan Smith’s 

tenure as Secretary of State, is the prevention of worklessness. 

How do you stop people drifting onto welfare in the first place? 

How do you prevent those with the most long-term conditions simply staying in life on welfare? And to us, social investment, social 

impact bonds, have been a powerful part of the solution to that for 

a number of reasons. 

Firstly, they actually are a way of getting investment upstream, 

you know, into the things that stop long-term costs happening later 

in people’s lives. Secondly, they bring about innovation. And, thirdly, they bring about a powerful partnership between the states, investors, and small voluntary and community sector charities, people who do the work on the ground, all of which are really important to us if you are going to prevent welfare dependency. So, right 

from the start, we were very keen to see if we could increase social 

investment and try out some of these social impact bonds. 

Now, the U.K. is trying a number of social impact bonds, the famous one in Peterborough Prison, which was the first, which was 

about finding a way of preventing ex-prisoners reoffending. We 

have social impact bonds to increase levels of adoption, to increase 

numbers of adopted children. You end up saving taxpayers down 

the line. We are trying to help prevent kids going into care. Again, 

care is very expensive. If you can put an intervention in early that 

stops a child going to care, you are going to save the taxpayer 

money. 

And the particular one I want to talk about is the Innovation 

Fund. We launched in my team ten social impact bonds which are 

designed to intervene with disadvantaged kids, kids who are falling 

out of school, becoming detached from school, who are likely to 

have a low education attainment. Can you do something about 

those children to increase their educational attainment, to reengage them in work or in an apprenticeship or training such that 

they simply do not drift into welfare when they get to 18 but actually end up in employment? If you do that successfully, you will 

save the taxpayer money. 

So, we built ten social impact bonds to test that principle. We 

produced some more results yesterday. We have something like 

10,000 of these children being helped through our ten social impact 

bonds and we are going to evaluate this thoroughly to see if it 

works. 

They rely on a risk share between the taxpayer and the provider. 

The taxpayer is taking a bit of risk if we have not got the calculations right. The provider is taking a bit of risk if they do not actually deliver results. 
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A lot of it depends on this rate card that we produced, which was 

in my testimony, which sets out the precise sums of money that we 

pay for results. For example, if a child’s attendance improves in 

school, we think that will end up in a long-term saving to the taxpayers. We pay 1,400 pounds for that. Sustained employment and 

entry into employment, several more thousand pounds, we pay. 

And those are all based on calculations of what the long-term saving to the taxpayer actually is. 

That requires a lot of data. You referred to data. Data is key. 

Data sharing is key. We have had to match data between the education system and the welfare system to actually do these calculations in the first place. But, obviously, we are now going to evaluate it and see if it works. 

We are seeing a growth in the social investment market in the 

U.K. Only yesterday, the Deputy Prime Minister, Mr. Nick Clegg, 

announced an expansion of our scheme and a further scheme for 

young homeless people on the basis, again, that these are not only 

good for—good in themselves, but actually do end up saving taxpayers money down the line from this sort of preventive activity. 

And the final thing I would say is I think the fundamental lessons from us about these schemes are they do bring about innovation. They do help social problems. But they can be inherently 

quite complicated. 

And I think the lessons from us, if we are going to see expansion, 

is, that one, you have to find a social problem. You have to find 

a social problem which captivates commissioners as well as investors. In our experience, there is no shortage of investors wanting 

to invest in these schemes. The shortage is the number of commissioners who are willing to actually organize themselves to run contracts with the investors and put their own money at risk in terms 

of results payments. 

Second, you have to make them simple. There are a number of 

complicated ways of doing social investment. I you want to get traction with these schemes, you have to keep them simple. Our rate 

card is not perfect. We are going to have to evaluate it and change 

it over time, but at least it is relatively simple and the market can 

understand it. 

I think if you do expand these things, you will see that emphasis 

on prevention, which is really helpful. I think it is one of those 

things that it is a really good thing just to start and get going and 

see how it works and evaluate it over time, and I think this thing 

will get traction simply the more you try it and the more you do 

it, and certainly the practice in U.K. does seem to be working. 

Thank you. 

[The prepared statement of Mr. Fisher follows:] 
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Chairman WARNER. Thank you, Mr. Fisher. I was just saying to 

Senator Ayotte that we share a common language, but usage of 

words would be the difference. I am not sure if we had some successful project here we would ever call it a scheme, but— 

[Laughter.] 

Chairman WARNER. That may be the right lead-in for Delegate 

Fisher, who may be more critical of some of these, but Delegate 

Fisher, thank you for being here. 

STATEMENT OF HON. MARK FISHER, DELEGATE, MARYLAND 

HOUSE OF DELEGATES 

Delegate Fisher. I actually like that word, Mr. Chairman. 

[Laughter.] 

Delegate Fisher. Yes, I am Mark Fisher number two. I feel like 

I am on Austin Powers, you know. I am number two. I am a member of the Maryland House of Delegates and I serve on the House 

Ways and Means Committee. I reside in Prince Frederick, Maryland, and I am pleased to provide testimony today concerning social 

impact bonds. 

In the 2013 regular session of the Maryland General Assembly, 

Delegate Sandy Rosenberg of Baltimore City introduced House Bill 

517. Delegate Rosenberg is a professor at the University of Baltimore School of Law and served on the House Ways and Means 

Committee. His bill, heard in that committee, introduced the idea 

of social impact bonds. As stated in the bill’s synopsis, H.B. 517 

would enable the State of Maryland to issue an RFP for social impact bonds. The goal of the legislation was to improve pre-K to 12 

public education in Maryland. 

Many non-Marylanders might ask a simple question: Why would 

a Delegate introduce legislation for SIBs when his State has a toprated public education system? The answer to this question is not 

so transparent. You see, amongst all of the celebrating of Maryland’s public education achievements, what may be true of a State 

is not the case in Baltimore City. 

Baltimore City has some of the worst outcomes in public education in the United States, yet the city has the second-highest per 

pupil spending in the U.S., second only to New York, according to 

the Bureau of the Census. Baltimore spends almost $15,500 per 

pupil, or about double the cost of a private or parochial education 

in the city. It is understandable as to why the SIB alternative, 

given these facts, to the status quo was offered. 

In their analysis of H.B. 517, the Maryland Department of Legislative Services analyzed numerous factors. They researched a program for prisoner recidivism in Great Britain and they worked 

with the Maryland Department of Public Safety and Correctional 

Services. 

In January of 2013, the Department of Legislative Services advised against SIBs for the following reasons. SIBs cause an increase in budgetary pressure compared to direct program financing 

due to the necessity of funding contingent liabilities and the added 

expense features unique to SIBs. SIBs do not produce cost savings 

when outcomes are achieved, even under highly optimistic assumptions. SIBs could effectively exclude new providers and program 

types that do not have a well established record of success with in-
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vestors seeking to minimize risk. And, SIBs potentially distort evidence used in policy decisions. 

As a member of the Maryland House Ways and Means Committee for four years, I have had an opportunity to listen to many 

proposals seeking to improve outcomes in public education. While 

I understand that SIBs could leverage public dollars, my concern 

is that alternative models already exist. 

In the case of public education, why not take a pragmatic approach. In those jurisdictions where outcomes are acceptable, public dollars keep flowing. But in those jurisdictions where outcomes 

repeatedly are substandard, such as in Baltimore City, why not 

provide tuition vouchers and a school choice program. Since Maryland spends twice the amount on public education in Baltimore per 

pupil than private education, why not try a voucher system. The 

cost savings from less spending per pupil would more than offset 

the expenditures of tracking student progress, something the State 

already does. 

In conclusion, SIBs are well intended, but they unnecessarily 

bloat bureaucracies. Moreover, they have the potential of leading to 

crony capitalism. And, as the Maryland Department of Legislative 

Services concluded, they do not save money. 

Thank you, Mr. Chairman, for the opportunity to provide this 

testimony, and I would be happy to answer any questions. 

[The prepared statement of Delegate Fisher follows:] 
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Chairman WARNER. Thank you, Delegate Fisher. 

Mr. MCKAY. 

STATEMENT OF KYLE McKAY, ANALYST, TEXAS LEGISLATIVE 

BUDGET BOARD 

Mr. MCKAY. Chairman Warner, Ranking Member Ayotte, and 

members of the Task Force, my name is Kyle McKay. I am currently an Analyst with the Texas Legislative Budget Board and 

was previously an Analyst with the Maryland Department of Legislative Services, though the views here today are my own. Thank 

you for the invitation to appear before you today to discuss social 

impact bonds. 

For governments facing revenue constraints, social impact bonds 

may appear to be the silver bullet for social services. However, the 

benefits may be based largely on wishful thinking, yet the risks 

and cost to governments from engaging in this type of model are 

real, which is why an in-depth study that I led at the Maryland 

Department of Legislative Services resulted in a recommendation 

that the State not pursue social impact bonds. 

Based on my research in Maryland, I think it is important to 

closely examine some of the common claims made about social impact bonds, the first of which is that social impact bonds will provide new capital for programs. Forgive me for stating the obvious 

here, but if a program funded by a social impact bond works, the 

government will have to pay for the program. Thus, governments 

should budget for this potential payment by appropriating funds in 

advance. 

Though it may be technically possible to appropriate funds after 

outcomes have been demonstrated, in spite of fiscal best practices 

and balanced budget rules in States and local governments, investors will likely seek a secured source of income for repayment. This 

is why the governments of Massachusetts, New York City, and the 

U.K., among others, are pre-funding their potential outcome payments with government funds. 

Because the government may have to pay back investors with interest and a bonus or a return on investment and the mechanics 

of this model require a large number of consultants and intermediaries, the government must budget for the potential payment 

using an amount that is greater than the investors provide to the 

program. 

In Massachusetts, for example, the State is liable for up to $27 

million in payments for their social impact bond pilot program, yet 

the investors are providing only $12 million in funding. The social 

impact bond will, therefore, add pressure to a cash-strapped budget. 

The second claim is that governments pay only for success. The 

investors must face a real risk, as a program with a very high likelihood of success would result in a risk premium to investors bearing no risk. In addition to the challenge of selecting a program with 

something approximate to a 50 percent chance of success, the government must also have a high degree of confidence in the commitment of the private investors to realize a loss if the program fails. 

However, as the consulting group RAND found in the Peterborough 
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pilot, the complexity of the model means that, in some instances, 

that, quote, ‘‘the actual transfer of risk is not clear.’’ 

Attempting to manage social services through an all or nothing 

payment to a host of intermediaries will inevitably produce a contract that is complex and, therefore, subject to unforseen weaknesses, so I am not sure this is an escapable problem. 

And the third claim is that the programs will save governments 

money. Proponents argue that social impact bonds will result in decreased expenditures and, thus, cost savings to the State. There is 

a basic mathematical problem with this claim, though. Pilot programs do not operate at a scale large enough to produce significant 

cost savings to the government. In Maryland, we used well established cost estimation techniques with our State agencies to model 

a high impact pilot program. The program came nowhere close to 

paying for itself, which is consistent with RAND’s finding that 

Peterborough is too small to produce savings. 

Though the benefits may not be as obtainable as advocates claim, 

the appeal of innovation may still attract many. But it is important 

to consider a number of significant risks to governments engaging 

in this model before making a decision to experiment. These risks 

have been shown to be persistent and problematic across a large 

number of policy areas following decades of attempts to link payments to outcomes. Whether it is teaching to the test in education 

or creaming in health care, we have seen over and over again that 

heightened levels of pressure on outcome indicators can backfire. 

Not only can the pressure reduce the validity of the indicator, it 

can produce unintended consequences that overshadow the benefits 

of, quote, ‘‘paying for success.’’ 

In all of these historical experiences, the percentage of payment 

at risk represented less than 50 percent of the income to the actors. 

Simply adding an investor will not erase these problems. Instead, 

there is a risk that the introduction of an investor will just exacerbate the problems typically experienced as the amount of funding 

at risk increases and the investors assume a primary role for establishing what constitutes evidence. 

Now, these risks are substantial, but the one that should be the 

most concerning is the opportunity cost. Building a highly sophisticated contracting and financing mechanism to focus on one small 

program may impede the capacity of agencies to engage in broader 

policy evaluation and change. 

In short, it is my personal opinion that social impact bonds are 

expensive and risky. They may also distract governments from a 

more comprehensive, sustainable approach to improving public policy. Across a variety of policy areas, we have learned that measuring outcomes and using monetary payments to incentivize behavior change is difficult and often produces mixed results. Simply 

throwing investors into the fray will not resolve the ongoing limitations and problems. Instead, it may very well exacerbate the challenges. 

Thank you. 

[The prepared statement of Mr. McKay follows:] 
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Chairman WARNER. Well, thank you, gentlemen. 

I have to tell you, I am a little surprised how the responses are 

lining up, if there is kind of a left to right or conservative to liberal 

on this. I would have actually thought that we might have had the 

reverse kind of opinions, because I think about many of the advocates, and, for example, in our State government we outsourced 

private collections and other things which kind of fell more on the 

traditional--would be viewed as a more conservative approach that 

was maybe not a social impact bond, but the same concept of a pay 

for performance. I would have thought there would have been 

maybe people more on the kind of view of the Democrats as government advocates, that this has the possibility of being much more 

disruptive, and consequently might have been feared more from the 

kind of establishment. And, so, it is curious how people are lining 

up. 

I understand, Mr. McKay, your view that you have got to get the 

contracting right and you have got to have the expertise, and I 

would argue on some level, that would argue that—you know, we 

have used in Virginia, for example, a great use of public-private 

initiatives in the transportation field. Some of those projects work. 

Some of those projects, we get skinned because we do not have the 

expertise to go toe to toe with Wall Street. So, having some concentrated—if you are going to go down this field, you are going to 

have to have some level of concentrated expertise. 

I would also think that one of the things that government does 

not do well, and one of the purposes of this panel has been how 

do we get more transparency? How do we push agencies to identify 

what is working and what is not working? And the notion of private capital coming in there, putting their, in effect, money where 

their mouth is in terms of trying to deliver would seem to me inherently a more market-driven approach. 

So, I am going to start with Dr. Liebman, I guess. One, since this 

is also happening in Utah, it does not sound like it is following— 

it is just in more liberal States, number one. Number two, what are 

the general size and character of the people who are putting up the 

private capital? Are they generally advocates for a particular 

cause? What is their rate of return expected? Why do we not start 

with some of those. 

Mr. LIEBMAN. Thank you, Mr. Chairman. I think you are right 

that there is not a consistent alignment between the left-right partisanship and people’s interest in this tool. At the Kennedy School 

SIB Lab, we are working with Republican Governors in South 

Carolina, Ohio, and Michigan, and with Democratic Governors in 

Colorado and Illinois and Connecticut. I think if you know the 

story of the U.K., the initiative originally was the Labor Government, but just as it was leaving office, the Conservative Government said, we want to take credit for this, essentially, and has 

been expanding it greatly. So, I do not think there is any particular—and I think that is probably—your committee already 

knows this, that that interest in making government more efficient 

and in trying innovation is not a particularly partisan issue. 

The particular projects that are being done, in some States, they 

knew from the beginning what issue they wanted to tackle. South 

Carolina knew they wanted to do early childhood education. In 
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other cases, they knew they wanted to innovate and they started 

a process where they both did a public request for information to 

get ideas for projects from the public, and then, also, internally, the 

government met with all the people in the human service areas 

and said, where is it that we are missing opportunities to invest 

in prevention and save money. 

And what typically happens in those processes is you end up 

with 35 ideas, and about half of them basically run into trouble for 

one of the good critiques that Mr. McKay put up. For one reason 

or another, they are not a good fit for this model, and you are down 

to about 18. And then what happens is you say, you know, we are 

really only going to be putting in the effort on something like this, 

just as Mr. McKay said, because there is an opportunity cost, if it 

is a top priority of the Governor or the mayor, and that whittles 

it down to three or four. And then you really do the hard numbers 

on those and make a choice about which ones to do. And part of 

that discussion has to do with, do you think you can raise enough 

private capital in that policy area— 

Chairman WARNER. And who usually makes up—are the private 

capital usually—I do not want to use a term that would sound pejorative, but social do-gooder capital? Is it kind of— 

Mr. LIEBMAN. It is about—in the U.S. project now, I would say 

it is about half and half. So, both in New York State and in Massachusetts, there was big commercial involvement. In the New York 

State one, Bank of America, Merrill Lynch basically did the total 

investment and then they did not keep it on their own books, they 

actually sold it to their high net worth individuals. And the particular high net worth individuals who got involved, I would say, 

are a mix of people who— 

Chairman WARNER. And what was the rate of return they were 

looking for, if there were— 

Mr. LIEBMAN. The rate of returns are in the high single digits 

or low double-digits— 

Chairman WARNER. Let me just make one last comment, because 

I want to make sure everybody gets their shot here. 

Mr. LIEBMAN. Yes. 

Chairman WARNER. I would think—I could understand Mr. 

McKay’s concern when it is such a large purpose as overall student 

achievement. But, it would seem to me that if you had a narrow 

focus on some of these—recidivism, or actually workforce training 

programs where you have way too many—and there are areas 

where, if we narrowed the focus, I just think this has some value. 

I know Senator Whitehouse, I am sure, is going to get into discrete 

areas in health care, which is his passion. 

Senator AYOTTE. 

Senator AYOTTE. Thank you, Chairman. 

So, we heard a pretty divergent set of views from the panel here 

on the efficacy of the social impact bonds and performance bonds, 

so can you help me understand. The example that was given in 

Massachusetts, the $12 million is really the investment given, and 

then a $27 million cost to the government. Why is that, and how 

would you contrast—I am not sure what they were doing in Massachusetts in terms of what the performance measures were or what 

they were trying to accomplish, but how does that compare to—in 
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terms of rate of return and how much the taxpayers are paying 

versus what is invested, compared to some other projects you would 

deem more successful on this side? 

So, I want to hear the sort of side first on how do you get in this 

situation, because that does not seem like a good value to me, as 

you describe it, and why do you think that that ends up being the 

way it was in Massachusetts, whatever they were trying to accomplish. And then, also, you are being an advocate over here. I would 

love to hear some examples of where you felt that there was a 

value to it, that there was a cost savings, that there was a contrast 

to what they are presenting over here, I mean, because, ultimately, 

if it is going to cost us more to do this, then I do not see a value 

in doing it. So that is an issue I am trying to get at. 

Mr. MCKAY. Yes. So, the government does not know in advance 

whether or not it has to make an outcome payment, and in an operating budget, it is not a good idea to create a speculative debt 

instrument or a contingent liability without budgeting for the potential of making that payment. 

So, in Massachusetts, I put a reference to the appropriations bill 

in my written testimony where it basically shows that, each year, 

the government has to appropriate in advance of each year that the 

program operates, before they know whether or not the outcomes 

have been demonstrated, and because they may have to make a 

payment that includes a return on investment to the investors and 

the service providers, the government has to budget more money 

than the investors are providing. So, that is why the government 

is liable for up to $27 million worth of payments but they are only 

getting $12 million from investors. 

Senator AYOTTE. So, what is your counter to that, because, obviously— 

Mr. MCKAY. I do not know— 

Senator AYOTTE. —you are probably familiar with the project, because you— 

Mr. LIEBMAN. Absolutely. We were involved in the Massachusetts 

project. I do not think Mr. McKay is giving you the right perspective on that project. Basically, what is happening in the Massachusetts project is about 90 percent of the funds are going directly to 

deliver services and there is maybe ten percent that is going to 

things that you might call extra costs because we are using this 

model, but those are things that would have value. 

So, for example, the fact that it is being rigorously evaluated 

costs some money, but I would say spending two or three percent 

of the amount you are spending on a project to find out whether 

it works or not so that if it does not work, you can stop spending 

money on it, that is a bargain. 

And, similarly, the intermediaries that are helping to manage 

the project and bringing private sector expertise into the project, 

and, frankly, more human capital into the project than the government has on its own side, typically, they are adding two or three 

percent to this project, but they are also delivering value and—or, 

at least we are going to find out. If the project works and we suddenly are getting much better results than we have had before, 

then we will know this model is working. If it does not give us good 
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results, the taxpayers do not pay and we should not be doing any 

more. 

Senator AYOTTE. Can I ask you a question? So, when a project 

is undertaken, you have to have some expertise on the government 

end to be able to manage this kind of project, because I know that 

Mr. Fisher has talked about the complexity of the projects as a 

challenge on the government end. So, as we look at sort of resource 

efficacy, when you are undertaking this type of project, are you actually saving resources on the government end? So, in other words, 

you are getting an influx of resources on the private sector end, but 

limit resources and what we can spend our hours on on the government end also. Are you then saving the work done on the government end? Or are we putting in the same amount of work on the 

government end and then also investing in the private end? 

I do not know if I am asking this question properly, but thinking 

about all the things we could spend our time on, if we are spending 

the same amount of government time and also investing the private time and then we are paying more, that is what I am trying 

to get at, is are we actually leveraging—what does it take in terms 

of resources to manage this kind of thing on the government end? 

Mr. FISHER. Okay. Should I answer that? I would also like to just 

say something about the resourcing issue. I mean, we—our Innovation Fund, which are these ten social impact bonds for kids’ disadvantaged education, we are putting 30 million pounds in to pay 

the returns. Investors have put ten million pounds up front. But, 

the 30 million is not a net cost to the taxpayer. If this works, the 

saving to the taxpayer in the longer run exceeds 30 million pounds, 

even on a discounted basis. So, there is a net saving to the taxpayer for doing this. The risk is that we have not got those calculations quite right. There is a quite large margin of error in that. 

On the resources we put in, the resources, basically, are resources actually of my own team. We ran this—I have got about 

three people running this scheme on an ongoing basis and there 

was a commercial team of about ten who actually did the contracting at the point in time when we actually had to let the contract. So, these were not hugely resource intensive as far as the 

public sector was concerned. I think they can get resource intensive. Here we are talking about one single scheme, you know, just 

one single scheme, which goes to the importance of doing them at 

reasonable scale. 

So, if you do them at reasonable scale, A, it helps the commissioners, in this case, the Department of Work and Pensions, and 

it also helps the investors, because one of the biggest bits of feedback we had from investors were they did not like putting a costbenefit on their side for one small scheme in one place. They like 

to see scale. So, I think scale is important, if that is helpful. 

Senator AYOTTE. Thank you. Thank you. 

Chairman WARNER. Senator Whitehouse. 

Senator WHITEHOUSE. Although there is some disagreement on 

the panel on a number of issues, there seems to be agreement on 

two points that I would like to confirm. One is that it is possible 

for a State, a government, to get in over its head if it has not chosen the program wisely and then the investors know more about 

the project than the government does and they start to get spun 
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because the investigators have a different motivation. That is a 

risk. Everybody concedes that? 

[Witnesses nod.] 

Senator WHITEHOUSE. Yes, everybody concedes that. Okay. 

The second is that there appears to be a common understanding 

that there is, or may be, a value during what you might call an 

innovation period for bringing in private capital to do something. 

But once the model has proven itself, assuming the model has 

proven itself, then you should move that capital on to other innovations and not leave it in that area because it is less efficient to run 

a program with private capital that has to be paid than simply to 

do it through regular government services. Is that also agreed by 

everyone? 

[Witnesses nod.] 

Senator WHITEHOUSE. Yes, with one hesitation from Mr. Fisher 

one, Mr. Fisher the first. Go ahead. 

Mr. FISHER. Should I just say something about that? I think the 

fundamental principle is possibly right in the sense that, for example, if our ten social impact bonds work, then— 

Senator WHITEHOUSE. Why would you go back to have more investors do it— 

Mr. FISHER. Government does have choices about what it then 

does. It might simply decide, aha, we have—we are simply underinvesting in children’s education at that time in their lives and 

there are then other ways of addressing that issue. 

On the other hand, the benefit of the social impact bond is you 

have schools and voluntary community sector bodies doing the 

work on the ground as opposed to state employees, which it may 

well be a positive. And, also, you do have the discipline of the investor working with a charity and there is a benefit to that, too. 

So, this is one of the issues that we— 

Senator WHITEHOUSE. I guess my theory is that the innovation 

that is sponsored by the social impact bond, if it proves itself, will 

then naturally migrate into policy, and once it has migrated into 

policy, it no longer needs a social impact bond to support it. It just 

becomes the way the system works. And investing in the trial to 

try to make that move is what makes sense. Do I have agreement 

on that? 

Mr. MCKAY. Yes. I would add one thing, which is that the Center 

for Law and Social Policy, they just released a report where they 

looked at most of the social impact bonds that have been implemented to date and what they found is that, quote, ‘‘investors appear to be sticking to models that have already been extensively 

evaluated,’’ which is sort of consistent with what you would expect 

if investors are trying to minimize their risk. 

Senator WHITEHOUSE. But, that does not necessarily dispute my 

proposition, because this is Congress. We have lots of things that 

have been consistently evaluated and most people of good sense 

and good motivation believe them to be true. And yet, for a variety 

of reasons, we cannot get them done in Congress. There is politics 

involved. There are scoring issues with CBO involved. 

There are hazards—just because something has been evaluated, 

I think it is, frankly, good if something has been well evaluated, 

private capital comes behind it, they move that evaluated practice 
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into government in a way that probably makes them money and 

shows that this is a savings technique, and then, boom, we have 

proven the proposition and it is way easier to pass that reform because, frankly, you might even find from CBO you have got some 

savings that they will now document based on that government experience. So, I take your point, but I do not think it rebuts the, at 

least the window of utility that I see this potentially having. 

Dr. LIEBMAN. Mr. LIEBMAN. Senator, I think your premise is 95 percent right. 

The one thing I would add is, often, when we evaluate something, 

we do a single snapshot that tells us something worked in one location 15 years ago. And an important feature of the social impact 

bond projects is it gives you ongoing, real-time assessment of how 

things are performing. 

Senator WHITEHOUSE. Yes. 

Mr. LIEBMAN. And if the conversion from the social impact bond 

back to traditional government funding loses that ongoing monitoring and learning, things could be changing so that the program 

is no longer as effective because circumstances are different or how 

it is being implemented and we might not know. 

Senator WHITEHOUSE. Got it. 

Mr. LIEBMAN. And so— 

Senator WHITEHOUSE. You can flub the transition— 

Mr. LIEBMAN. Exactly. So, government has to learn not only— 

Senator WHITEHOUSE. —or we might never have gotten to that 

transition— 

Mr. LIEBMAN. Exactly. 

Senator WHITEHOUSE. —if you did not have the social impact 

bond in the first place. 

Mr. LIEBMAN. You have got it. 

Senator WHITEHOUSE. Okay. You seem to have agreement there. 

I would ask you guys, if you do not mind, this is a question for 

the record, but it is an option one. If you have other things to do, 

do not feel obliged. But if you do, I would be interested in having 

you reflect a little bit on our health care system. We run the most 

disgracefully wasteful health care system in the world, probably by 

a factor of 50 percent, maybe more. Norway and Switzerland are 

the two most expensive health care systems in the world per capita. We beat them both by 50 percent. And we do that leaving a 

lot of people uninsured. We do that leaving hundreds of thousands 

of people dead from hospital-acquired infections and other medical 

errors. If you want to find a place where there is room for improvement, take a look at the American health care system. 

So, if you have any ideas about what might be good points of 

entry, because what we find is it is very hard to get anything 

scorable until it is up and running, and then by then, they tend 

to have kind of built it into the baseline, and so the government 

support for innovation is challenging at the legislative level. So, 

that is my QFR, and thank you, Chairman. My OQFR, optional 

question for the record. 

Chairman WARNER. Senator King, who has also been a leader, as 

a former Governor, in trying new things. 

Senator KING. Thank you. I am— 

Senator WHITEHOUSE. Is his State as well managed as Virginia? 
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Senator KING. I am trying to think this through, and I have a 

radical idea. Instead of contracting out and social impact bonds and 

everything else, why does not government try to get it right? I 

mean, this whole scheme—I take your term—is a gigantic admission that government cannot do stuff, and I think that is a valid 

criticism. But, to me, the answer is not to go through—the only 

thing government does worse than execute programs is execute 

contracts. That is—and I know that as a Governor. This whole idea 

of contracting out is the worst of both worlds. It costs as much or 

more and you lose accountability and control. 

I just—I do not get this at all. I think this is an admission that 

government cannot do what it is supposed to do, and I think it is 

an admission that we, as political leaders, generally pay more attention to passing the bill than executing it. In my view, execution 

is as important as vision, and this is an admission that we do not 

do that, and I think we ought to start doing it. And instead of the 

contract holding the contractor accountable, how about the President or the Governor holding the Superintendent of Schools accountable? 

This just strikes me as—it is a fancy way of contracting out, and 

as I say, I do not believe government contracts very well. And defining the outcomes are going to be very difficult and they are 

going to be—and it just—I am just—why does the President not 

pay for results, you know. I mean, Mr. Liebman, what do you—I 

just do not get this. 

Mr. LIEBMAN. Yes. I think— 

Senator KING. I come to this unburdened by knowledge, by the 

way, which is— 

Mr. LIEBMAN. No, I think you are onto something here, which is 

that if government—a lot of the things being accomplished by this 

model could in theory be accomplished if government operated the 

way we wish it operated. But, in fact, it does not. We have been 

trying for years and years to get it to do a lot of the things like 

measure outcomes and allocate resources to things that work and 

it is not. And what people are finding in these State governments 

is that this is a leadership tool that is allowing Governors and 

State Budget Directors to shake things up and actually get people 

to do the things that, you are probably right, they should be doing 

anyway, but we cannot get them to do anyway. And so let me give 

you— 

Senator KING. But, you are inserting a whole level of cost, of consultants and analysts, and the government is always going to be 

outfoxed on the contracts, in my experience. 

Mr. LIEBMAN. I do not think that is what we—I mean, my role 

is to give pro bono assistance on the government side so they do 

not get outfoxed, so maybe I do not have the completely neutral 

view on this— 

Senator KING. Pro bono is good. 

Mr. LIEBMAN. Yes, exactly. But, here is an example. In one of our 

States, we put a bunch of options in front of a State Budget Director for a social impact bond, and one of the options was that there 

was an intervention, which was a health care intervention, where 

they thought that if you put caseworkers in senior centers, making 
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sure that people took their medicines and made it to their doctors’ 

appointments, you could save on Medicaid costs down the road. 

And we put this on the table as a potential social impact bond 

project and the State Budget Director said, ‘‘Can I not just put this 

in the budget?’’ And we said, ‘‘Yes.’’ And he said, ‘‘Done.’’ And that 

is great. If social impact bonds cause that to happen and we do not 

do social impact bonds, that is just as good. I mean, what we need 

to do is shake things up and have those kind of conversations such 

that this kind of innovation happens. 

Senator KING. Yes. Okay. Any other thoughts? 

Mr. FISHER. If I may, I think your premise is entirely right. I 

mean, just another example. I think when we evaluate the social 

impact bonds for disadvantaged school children, we will find that 

we may well prove the fact that the taxpayer is simply under-investing in this particular part of the system, and if schools and the 

taxpayer invested more in disadvantaged children, that might also 

achieve the benefit. We might find other practical things, too. 

But, the point is, at the moment, that is not happening at the 

moment for various reasons. Too many children in our country are 

turning 18 and going straight into welfare. That is happening because that part of the school system is not working well enough to 

address that issue. So, this does give a boost to a particular problem at a particular point when something can be done about it. 

But, I do want to agree, in the longer run, it may not be the right 

answer to that particular social problem. But, in a short transitional way, it can be a really helpful boost, and it may well be, 

also—the evaluation might prove this is also a more efficient way 

of spending this particular money for results than, you know, just 

giving the money to schools. I mean, there are a number of ways 

which will come forward in the evaluation. So, the jury is slightly 

out, I think. 

Senator KING. Well, I understand what you are saying, but it 

just seems to me that a good administration would say, okay, we 

have this problem and we need to do some pilots in different cities 

and see what works and then go from there. In other words, the 

same result could be achieved without the complexity. I mean, the 

only way this works in terms of the taxpayers is if the funders take 

a substantial risk of not getting paid. But if they take that risk, 

their risk premium is going to be so high that it cannot—it really 

cannot work out for the taxpayers very well. 

I am a great believer—for example, in terms of the Federal Government funding education, I do not think the Federal Government 

has a big role in funding education. I think what the Federal Government ought to be doing is funding pilot and experimental programs and then disseminating the results across the country and 

finding out what works. If somebody really found a great way to 

teach social studies in Boise, Idaho, the Federal Government can 

have an important role in acting as a clearinghouse so every other 

school district in the country does not have to reinvent that program. 

But this, the idea—I mean, I just, like I say, I think we are essentially throwing up our hands and saying, government cannot do 

it right, so we are going to try something else. It may be more expensive, but what the heck. I just— 
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Chairman WARNER. Everybody is going to get another bite at the 

apple very quickly, but let me just quickly try to respond. Again, 

everybody is surprising me here this morning in terms of where I 

thought they were coming from, because I spent a lot of time in the 

private sector. We created, for example, in greater Washington 

something called the Venture Philanthropy Partners to try innovative models on delivery of services for at risk youth in greater 

Washington, a very cool project. 

We had a series of initiatives. What we did not have was common evaluation across those. What we did not have was the ability 

to say, since we did not have the common evaluation, how do you 

take to scale? And I guess that in enormously constrained budget 

times, my fear is that—you cannot take a dollar away from any 

school right now, because, oh my gosh, that is going to cause a 

huge decrease in services, or we cannot try any innovation at all, 

and this may be a tool to leverage innovation—and I think Mr. 

McKay and Delegate Fisher put forward some good points—if the 

project is too big—we are going to solve all of K–12’s problems— 

I would have some qualms about that. Mr. McKay’s questions 

about the ability to contract and evaluate, but we do not do a very 

good job on that, as well. 

If there is some private capital in there, there is discipline, I 

think, that private capital brings on evaluation that maybe we do 

not have on the public capital side, and this may be a way to leverage, more experimentation, and if it is done within this kind of— 

some upside model, and I agree with Sheldon that if it proves out, 

then it ought to become governmental policy. But it would seem to 

me this would be a way to leverage more ideas and perhaps have 

the common evaluation standards that we lack. 

The votes start in about ten minutes, so this is going to turn into 

less questions— 

Senator WHITEHOUSE. Mr. Chairman, the one point that I would 

add on what you said is that one of the things I do not think we 

do very well in government anywhere is the prototyping function, 

and it is even harder to do a prototyping function when it costs 

money and you are trying to go into an existing budget and compete for funds that are already being used. So, you can facilitate 

the prototyping function if you can find other capital to kick it off. 

I would also expect that private capital would bring a business 

perspective to their provision of funds that could be actually a helpful defense against prototypes, so-called, that are, in fact, driven by 

ideology, or loyalty to an interest group, or some of the other things 

that kind of infect politics. So, you might actually find value in it 

as a screener of really bad ideas that nobody would put money behind, but in our political world could get momentum because an interest group or a lobby group or an ideology selects them. So— 

Chairman WARNER. One of the things— 

Senator WHITEHOUSE. —anyway, I think this has been a great 

hearing— 

Chairman WARNER. Well, let me let Senator Ayotte get the last 

word, and if any of the panelists want to, too. I do not know how 

we get enough kind of venture capital ideas into government. This 

would seem to be a way. 
153 

Senator KING. How about by the leaders of government doing it? 

I mean— 

Chairman WARNER. But you also know, as a Governor, there is 

always that resistance. Trying something new in today’s constrained environment, since there is no new capital, means you 

have got to take something away from an existing initiative. And, 

when we think about evaluation, I remember—the last point I will 

make and then turn to Kelly--is that when I was Governor, we 

tried something that said, at some national level, we spend billions 

and billions of dollars on education, yet our evaluation budget in 

education on a nationwide basis is less than one percent of the dollars we spend on education. From any business background, that 

is a stupid basis going forward. 

Kelly. 

Senator AYOTTE. Kelly is fine. You know, I really have to agree 

with the comments of Senator King, because as I sit here and I 

think about this, we have—what we do very little of in government 

is actually measure the effectiveness of the programs. And rather 

than eliminating a program that has never achieved a result, we 

just keep adding the layers on instead of saying, you know, make 

the call. It has not gotten a result. We have not gotten achieved 

what we needed to from it, so we need to do something different. 

So, I think that we need performance measures on the government programs, and also, you know, I think that phrase that Ronald Reagan once said, there is nothing closer to eternal life than 

a government program, I mean, we have got to get beyond that, because I see why the private sector innovation in terms of looking 

at new ways to do things and more measurement-focused ways of 

what comes from these proposals is so critical. It is just that, I 

agree, this is what we need to work on as leaders, to do things differently. Thanks. 

Chairman WARNER. Does not private capital bring some of that 

discipline? Everybody, we have only got a couple more minutes, but 

if everybody, and we will start with Mr. McKay and go in reverse 

order this time, if each of you want to make kind of a closing out— 

Senator WHITEHOUSE. Final sentence. 

Chairman WARNER. —final minute comment apiece, or minute 

and a half— 

Mr. MCKAY. Sure— 

Chairman WARNER. And thank you all. 

Mr. MCKAY. I guess the thing I would add is that you need to 

be really careful that the investors are bringing a discipline that 

is valuable to the government, because if the investors are telling 

the government what it should already know to implement programs that have already been proven, then you are going to privatize the savings of that program to the investors. And so if you 

are going to go down this path, you really have to make sure that 

there is a substantial risk that the investors bear in piloting a program that has not already been proven to work. But what we have 

seen so far, according to several analysts, is that most of the programs are focusing on things that already work, or we know already work, because investors do not want to take that large of a 

risk in a pilot program. Thank you. 
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Chairman WARNER. That would mean that you are really defeating—the investor is not willing to be the tip of the spear on experimentation. I think your premise is right. 

Delegate Fisher. 

Delegate Fisher. Yes. Thank you, Mr. Chairman. Senator King 

said something, I think, that I have seen in Maryland that really 

kind of underscores the problem, and that is, is that coming from 

the private sector and serving just my first four years in Annapolis, 

it is remarkable how poor government negotiates contracts, and 

that expertise is needed now more than ever. You know, in Maryland, it is not a secret about our health care exchange. I mean, we 

are going to scrap our quarter-of-a-billion dollar health care exchange and adopt Connecticut’s. 

But, notwithstanding that, I have always admired Virginia’s P3 

idea on highways and even put in legislation to try to outsource 

Maryland’s Welcome Centers and Maryland’s rest stops. But, the 

problem in Annapolis is that is completely against the institution 

to try to outsource those. There is no contractual knowledge in the 

bureaucracy to know how to do those kinds of contracts, and as a 

result, when we have done that in Maryland, when we have engaged in these kinds of outsource projects, they have, unfortunately, not done so well, and that is my primary reason. So, thank 

you. 

Chairman WARNER. Are you mentioning Virginia, the nationally 

best managed State in the country? Is that the one you are— 

[Laughter.] 

Delegate Fisher. Well, it— 

Chairman WARNER. Started by a certain Governor. 

Delegate Fisher. Yes, Senator, and Maryland losing $5.5 billion 

of taxable income, so I actually agree with you. 

[Laughter.] 

Chairman WARNER. The only thing is, we have not always got it 

right, and it is one of the challenges. When we think about P3, 

though, and one of the reasons, again, off topic a little bit, but I 

think there needs to be a—since we have an office in the Treasury 

Department that advises American pension funds how to invest in 

Europe, because we do not have the expertise in America to go toe 

to toe with Wall Street. 

Mr. Fisher, you have come a long way, and then Dr. Liebman. 

Mr. FISHER. All I would add is that our schemes are being fully 

evaluated. We are spending over a million pounds on evaluation of 

the ten social impact bonds we are running. That evaluation will, 

I think, help answer some of the questions about, you know, is this 

better value than alternative ways of spending the same amount 

of money? Have we got the calculations right? And, obviously, we 

will share those observations with colleagues here as they emerge, 

because I think this is a debate that will run and run, actually, and 

I think some schemes are going to be more effective than other 

schemes. 

The only thing I would finally say is, to me, the key is, if we are 

going to make a success of this, we have to keep these things relatively simple. I think there are quite a few social impact bonds 

out there which, in my humble opinion, are simply too complicated. 
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I think if these are getting any traction at all, keeping the models 

basically simple is going to be quite important. 

Mr. LIEBMAN. I think the bottom line here is we have about a 

dozen Governors from both parties that are finding this tool useful 

for breaking through the political, financial, and bureaucratic obstacles to doing the kinds of reforms, the venture capital and prototyping activities that you described. And they are coming up with 

projects that are going to produce Federal savings, particularly 

through Medicaid, and unless the Federal Government partners 

with those innovators, the projects are not going to happen. And 

so whether or not you think this is the perfect tool or the only tool 

to change government, we have this opportunity right now. We are 

on the ground and people are trying to innovate and they need 

some Federal help. And so I hope your Task Force will think hard 

about whether you can partner with these States that are trying 

these things on the projects that have these Federal payoffs. 

Chairman WARNER. Can you get us data on the status of those 

12? 

Mr. LIEBMAN. Yes, absolutely. 

Chairman WARNER. And then, colleagues, last word, anybody? 

Senator KING. I want Mr. Fisher to realize that we are not the 

same as the House of Lords. 

[Laughter.] 

Senator KING. Welcome. We are delighted that you came, and 

thank you very much, all of you. This is a very interesting discussion, and I think provocative and very helpful. Thank you. 

Senator WHITEHOUSE. I agree. This has been a very useful discussion. I thank the Chairman and the Ranking Member for holding it. 

Senator AYOTTE. Thank you. I appreciate it, and I look forward 

to further discussions from this. So, I think we all share the same 

goal. We want government to actually achieve things in a measurable way and the most cost effective way, so thank you. 

Chairman WARNER. I believe this is the first time this subject 

has been raised at the Federal level, so you are getting first impressions, and again, I think it has been very curious. On the traditional ideological front, I would have expected almost the reverse, 

so I think that is provocative, as well, which I am—so, if you have 

got more information, if you have got more data, help us. 

I do think Dr. Liebman’s point that if there is real value savings, 

but because of the State-Federal match on Medicaid, States are not 

doing it because there is not that ability to kind of garner savings 

on both sides of the ledger, that is a bad business proposition. Now, 

you have got to prove that there is a savings, but that might be 

an area, and Sheldon left already, but I know he is passionate 

about. 

I think all of us—I do not want to be presumptive here—we are 

open to ideas. This group, by virtue of being on this committee, are 

willing to be a little more disruptive. I think we all realize there 

is a lot we can do better, and we are going to be in constrained 

times. And with $17 trillion in debt going up $4 billion a night, you 

know, if we do not find a better way, we are really up the creek. 

That is a technical political term. 

[Laughter.] 
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Chairman WARNER. With that, the hearing is adjourned. 

[Whereupon, at 11:18 a.m., the committee was adjourned.] 
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(193) 

EXPANDING ECONOMIC OPPORTUNITY FOR 

WOMEN AND FAMILIES 

TUESDAY, MAY 13, 2014 

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

The Committee met, pursuant to notice, at 10:31 a.m., in Room 

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

Chairman of the Committee, presiding. 

Present: Senators Murray, Wyden, Baldwin, Kaine, King, and 

Sessions. 

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

Ueland, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN MURRAY 

Chairman MURRAY. Good morning. This hearing will come to 

order. I want to thank my Ranking Member, Senator Sessions, and 

all of our colleagues who have joined us. And thank you to our witnesses. We have AnnMarie Duchon, the associate director of accommodation services at the University of Massachusetts, Amherst; Dr. 

Heather Boushey, the executive director and chief economist at the 

Washington Center for Equitable Growth; and Sabrina Schaeffer, 

executive director of the Independent Women’s Forum. 

We are glad you are able to join us today to discuss ways we can 

help working women succeed in today’s economy and the reasons 

why their success is so important to family, economic security, and 

to the economy as a whole. 

Over the last four decades, the economy has seen a lot of change. 

American businesses and workers have had to compete on an increasingly global scale. Far too many of the middle-class jobs workers could support a family on have moved overseas, and the gap 

has widened between those at the very top of the income scale and 

everyone else. 

All of this has put an increasing burden on working families, but 

in the face of these challenges, one of the most significant shifts we 

have seen in the last few decades has actually eased some of the 

burden, and that is the increasing participation of women in the 

workforce. 

As working families have felt more and more strained, women’s 

economic contributions have made a huge difference, both to family 

budgets and to our broader economy. Federal Reserve Chair Janet 

Yellen, who attended our hearing last week, has called the increasing participation of women in the workforce ‘‘a major factor in sustaining growing family incomes.’’ And Dr. Boushey found in a re-
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cent study that between 1979 and 2012, the U.S. economy grew by 

almost 11 percent as a result of women joining the labor force. And, 

of course, that kind of economic growth has important outlooks and 

implications for our budget as well. 

As we think about ways to support growth in the 21st century, 

it is absolutely clear our country’s economic success and that of 

middle-class families goes hand in hand with women’s economic 

success. This means we have a lot more work to do because, despite 

all the progress that has been made, all the glass ceilings that have 

been broken, women still face barriers that are holding them, their 

families, and the economy back. 

Even though the majority of women are now full-time workers 

and two-thirds of mothers are either earning all or a big part of 

what their families depend on to make ends meet, women overall 

still earn 70 cents to the dollar for doing the same work as men. 

Over just 1 year, that adds up to $11,600 in lost wages per household. I believe AnnMarie will be speaking about what kind of difference it means to her family’s budget. 

And because women are still more likely to be the primary caregiver in a family, the lack of paid leave at most jobs means they 

experience higher turnover and lost earnings and are more likely 

to be passed over for promotions that would help them advance. 

In addition, our outdated Tax Code works against married 

women who choose to go back to work as a second earner. Because 

their earnings are counted on top of their spouse’s, they can actually be taxed at a higher rate. This can deter some mothers from 

choosing to re-enter the workforce, especially when you consider 

the high costs and lack of access to high-quality child care and 

other costs associated with work. 

These kinds of challenges are especially pronounced for women, 

and particularly mothers, who are struggling to make ends meet. 

Two-thirds of minimum wage earners are women, and their jobs 

are disproportionately unlikely to offer any flexibility when, for example, a child gets sick and needs to be picked up early from 

school. And their earnings are quickly swallowed by costs associated with work like child care and transportation. 

It is also important to note that our outdated policies disproportionately affect women when it comes to their retirement security. 

Because women on average earn less than men, accumulate less in 

savings, and receive smaller pensions, nearly three in ten women 

over 65 depend only on Social Security for income in their later 

years. I think all of my colleagues and I are alarmed that the average Social Security benefit for women over 65 is just $13,100 per 

year. That is hardly enough to feel financially secure. 

The impact of these barriers is increasingly clear. Over the last 

decade, the share of women in the labor force has actually stalled, 

even as other countries have continued to see more women choosing to go to work. Experts believe that a major reason for this is 

that, unlike many other countries, we simply have not updated our 

policies to reflect our 21st century workforce and help today’s twoearner families succeed. 

At a time when we need to be doing everything we can to grow 

the economy and strengthen our middle class, that is unacceptable. 

Women need to have an equal shot at success. First and foremost, 
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that means we need to end unfair practices that set women back 

financially. We took a good step forward with the Affordable Care 

Act, which now prevents insurance companies from charging 

women more than men for coverage. 

But we need to do more to make sure women are getting equal 

pay for equal work. My colleague Chairwoman Mikulski has led the 

way on the Paycheck Fairness Act, which would provide women 

with more tools to fight pay discrimination. Giving the millions of 

women earning the minimum wage a raise would also go a long 

way toward that effort. And we also need to update our Tax Code 

so that mothers returning to the workforce do not face a marriage 

penalty. 

In addition to expanding the earned income tax credit for childless workers, the 21st century worker tax cut that I introduced 

would provide a 20-percent deduction on the second earner’s income for working families with young children to help them keep 

more of what they earn. 

As we get rid of discriminatory practices, we should also recognize the challenges that working parents face and put in place a 

set of policies that help them at work and at home. A big part of 

this is investing in expanded access to affordable, high-quality child 

care. Parents deserve to know that their children are safe and 

thriving when they are at work. 

So I hope our witnesses today will share some thoughts about 

steps Congress could take through our Tax Code and by building 

on successful programs like Head Start to give them some peace of 

mind. 

Finally, we need to build on and strengthen Social Security with 

policies that make it easier for women and their families to build 

a secure retirement. 

There is, of course, much more we need to do in addition, but any 

of these changes would make a huge difference for working women 

and their families. Acting to expand economic opportunity for 

women is the right thing to do. It is part of our ongoing work to 

uphold our country’s most fundamental values. But as our country’s recent history shows, it is also an economic necessity, both for 

those families and for our broader economy. I hope that in the coming weeks and months we will be able to work together on some 

of these ideas which would do so much to strengthen our country 

right now and into the future. 

So, again, I thank all of our witnesses for joining us today. We 

look forward to your testimony. But first I will turn it over to my 

Ranking Member, Senator Sessions. 

OPENING STATEMENT OF SENATOR SESSIONS 

Senator SESSIONS. Thank you, Madam Chairman. We appreciate 

the witnesses that will be before us today. This is an important 

issue, and we look forward to your testimony. 

There is no question that the state of our economy remains poor 

and that millions of American families are barely scraping by. And 

despite some progress, women do still face challenges, unique challenges, and discrimination. We must have in America a fair and 

equal workplace for all our citizens. 
196 

The workforce participation rate for women is now at its lowest 

level in 23 years. We had a surge of women coming into the workforce in the 1970s and 1980s. That is being altered today. For every 

one job added last month, nearly three people left the workforce entirely. Real wages for women have been stagnant since 2009. 

I think, Madam Chair, there is a marriage penalty on a spouse 

who decides to go to work. We need to look at that. 

Median household income in America has dropped a stunning 

$2,268 since 2009 after adjusting for inflation. And Chairman 

Yellen told us last week lamenting twice in her remarks that we 

are facing a slack labor market. 

So these statistics paint an alarming portrait of economic hardships facing Americans. Working moms are struggling valiantly 

every day to support their kids, pay bills, and raise a family, often 

by themselves, and to set aside a little money for the future. That 

is very difficult. They are heroes in the American economy. There 

is no doubt about that. 

Every day this administration, however, every day it continues 

to advance policies that make it more difficult for Americans to 

find a job, to earn a living, to see their wages go up is a detriment 

to all, including women. 

Women especially are rightly concerned about the economic futures facing our young people. The statistics there are grim. Nearly 

one in two recent college graduates is underemployed. The unemployment rate for Americans age 20 to 24 is 10.6 percent. Teenage 

unemployment has been at or above 20 percent since 2009. Hispanic youth unemployment is 21.7 percent. African American youth 

unemployment is 36.8 percent. 

We have borrowed $8 trillion, running our debt past $17 trillion 

total, and yet incomes are down, wages are down, and workplace 

participation is down. 

Over the past year, we have held a number of informative hearings in the Budget Committee, all leading to one conclusion, it 

seems to me: American workers are suffering under President 

Obama’s economy. Every major policy action, virtually every major 

policy action tends to weaken job creation and wage progress, lowering wages. 

Here is the economic agenda that we are facing today: an antienergy policy that drives up prices of energy and sends good-paying 

jobs overseas; excessive Government regulation that always destroys jobs and weakens productivity; a burdensome Tax Code that 

undermines the ability of American workers and industry to compete on the world stage; a Government health care expansion that 

is shrinking the workforce and forcing people, too many, into parttime jobs; a weak trade policy that fails to defend the American 

worker effectively on the world stage and insists that our trading 

partners comply with their agreements; and an immigration plan 

that would import twice as much new guest workers at a time 

when record numbers of Americans are not working at all, pushing 

down wages and increasing unemployment; and a massive mazelike welfare state that helps Government bureaucrats but traps 

families in poverty; out-of-control deficit spending and debt undermine economic confidence and erode stability. 
197 

So these policies, I suggest, are hurting Americans, not helping 

us, all ages, women particularly, and in all walks of life. We must 

stop this. Everyone agrees American workers are suffering. We 

need a new economic strategy that grows the middle class, and not 

the Government, and puts the needs of women and all workers 

first. 

Madam Chair, thank you for the hearing, and I look forward to 

hearing from the witnesses. 

Chairman MURRAY. Thank you very much. 

With that, we will turn it over to our witnesses. Dr. Boushey, we 

will begin with you. 

STATEMENT OF HEATHER BOUSHEY, PH.D., EXECUTIVE DIRECTOR AND CHIEF ECONOMIST, WASHINGTON CENTER 

FOR EQUITABLE GROWTH, AND SENIOR FELLOW, CENTER 

FOR AMERICAN PROGRESS 

Ms. BOUSHEY. Thank you. Thank you, Chairman Murray, Ranking Member Sessions, and the rest of the Committee for inviting 

me here today to testify. 

My name is Heather Boushey. I am executive director and chief 

economist of the Washington Center for Equitable Growth. The 

center is a new project devoted to understanding what grows our 

economy, with a particular emphasis on understanding whether 

and how rising levels of economic inequality affect economic growth 

and stability. 

It is an honor to be invited here today to discuss how working 

women are critical for economic growth and the role of Federal policy in advancing their economic progress. My testimony highlights 

the many aspects of our economy where gender inequality and economic inequality go hand in hand, and also where economic inequality among women threatens family well-being and economic 

growth. Government policies can address these gaps in order to 

help women succeed so our economy can succeed. 

There are three conclusions I want to highlight from my testimony. 

First, women, their families, and the economy have greatly benefitted from women’s entry into the labor force. 

Second, barriers to women’s work manifest themselves differently 

across the income distribution. 

Third, there are a variety of ways that Federal policy can encourage women’s labor force participation, among them tax credits, 

family leave, early childhood education programs, all of which can 

increase women’s contribution to family income and grow our economy. 

Today most women work and they work full time. About twothirds of mothers are family breadwinners, bringing home either 

all of their family’s earnings or at least as much as their partners 

or co-breadwinners. 

Women’s increased work is important for family incomes and for 

economic growth. My colleagues and I found that between 1979 and 

2012, our Nation’s gross domestic product increased by almost 11 

percent due to women’s greater hours of work. This translates into 

about $1.7 trillion in output in today’s dollars, roughly equivalent 
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to our combined Federal spending on Social Security, Medicare, 

and Medicaid in 2012. 

Over the past few decades, women have made enormous economic gains. Between 1960 and 2000, women’s labor force participation steadily grew, and the gender pay gap steadily shrank. But 

progress on both has stalled for more than a decade. The United 

States has fallen from being the 6th highest country in terms of female labor participation among developed economies to the 17th in 

2010. And while some women have made gains in the workforce, 

too many have been left behind. Between 2000 and 2007, higherwage women saw their real wages increase by four times the 

amount of women with poorly paid jobs. 

One reason for these kinds of disparities is that while some 

women have made progress entering into professional or maledominated occupations, many women continue to toil in femaledominated jobs that still pay low wages. But also within occupations, there are disparities, in no small part due to differences in 

flexibility in terms of hour and location. 

Policies to address conflicts between work and family are too 

often available only to women at the top of the wage distribution, 

and too often women have to quit their jobs in order to provide 

care, which harms their future earnings potential and limits their 

retirement benefits. 

Policies such as paid sick days, paid family leave, and scheduling 

flexibility would fill an important inequality gap for workers, especially women and especially caregivers. 

It is important to recognize that employers have not on their own 

stepped in to provide these important benefits. Last year, only 61 

percent of workers had employer-provided paid sick days, and only 

12 percent of workers had access to employer-provided paid leave 

which could be used to recover from a serious illness or care for a 

family member. These are issues that are especially important for 

low-wage workers who disproportionately lack these benefits. 

Federal budget policies can encourage women’s work and increase family income. The Murray-Ryan budget agreement has 

helped to promote women’s economic progress in the workforce, but 

there will be more to do after that deal expires. 

In my written testimony, I focus on six policies that have been 

tailored to achieve the results we need for our families and our 

economy. Here this morning I want to just highlight three. 

First, the earned income tax credit, child tax credit, and child 

independent care tax credit are very important to the financial security for all American families, especially low-income families. But 

we must expand them and, importantly, make the child independent care tax credit refundable. 

Second, the 21st Century Worker Tax Cut Act would let twoearner families keep more of what they earn and increase the 

earned income tax credit for childless low-wage workers. Importantly, it will encourage mothers’ workforce participation and help 

them to better financially support their families and give low-wage 

workers a better shot at entering the middle class. It is estimated 

that this tax cut would benefit 7.3 million working families and 13 

million childless workers. 
199 

Finally, the Family and Medical Leave Insurance Act of 2013 will 

create an insurance program for nearly every U.S. workers when 

they need leave to care for a child, a seriously ill family member, 

or to recover from a serious illness. It draws on what we have 

learned from three States that have family leave insurance: California, New Jersey, and Rhode Island. From their experiences we 

know what an effectively run program looks like. Paid leave makes 

it easier for women to work, improves their lifetime earnings, and 

can help close the wage gap between workers who provide care and 

those who do not, while having benefits in terms of productivity 

and business outcomes. 

To conclude, Federal policy can do more to help all women realize 

their full economic potential. But policies must acknowledge that 

barriers to women’s work manifest themselves differently across 

the income distribution, because when all women succeed, America 

succeeds. 

[The prepared statement of Ms. Boushey follows:] 
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Chairman MURRAY. Thank you very much. 

We will turn to Ms. Duchon. 

STATEMENT OF ANNMARIE DUCHON, ASSOCIATE DIRECTOR 

OF ACCOMMODATION SERVICES, UNIVERSITY OF MASSACHUSETTS, AMHERST 

Ms. DUCHON. Thank you, Chairwoman Murray, Ranking Member 

Sessions, and all the Senators and staff here today. My name is 

AnnMarie Duchon, and I am a member of MomsRising. I am honored to be here today to tell you my story and to give voice to the 

women who cannot be here today to share their experiences. 

My work environment is not the sort of place where you would 

think we would have a problem with unfair pay practices. I work 

at a progressive public university that prides itself on its commitment to diversity. I am the associate director of an innovative disability services office, and I love my job. I am continuously learning 

and growing, and I get to work collaboratively with colleagues that 

I greatly respect. Every day I oversee programs that we have designed to assist people with disabilities gain full access to the university environment. However, even in an environment like this, 

wage discrimination based on gender still existed. 

I am telling my story not because I hate my job or because I have 

any ill will toward my employer or toward the male colleague who 

made a higher salary than I did. In fact, we are very good friends. 

But this story is not about him; it is about me. And it is a story 

that is all too common for women, and moms in particular, who 

face gender wage discrimination. It is unfair, it is bad for our economy, and, to borrow a phrase, it is time to put an end to the ‘‘Mad 

Men’’ era policies. 

I began working for the disability services office at the University of Massachusetts, Amherst in 2004. I was originally hired as 

a member of a team of consumer managers. From the moment I 

was hired, I made less than a male coworker doing the same job. 

This was the case even though our resumes were nearly identical. 

We both have master’s degrees and comparable professional experience. In fact, we even graduated from the same University on the 

very same day. 

When I became aware of this wage disparity, I asked my employer if I could be paid more. She said no. I was told that because 

my male coworker had accepted a pay cut to take this job, he 

should be paid more. But here is a fact: I, too, had taken a pay cut 

to accept this position, and my family depends just as much on my 

wages as my coworker’s family depends on his. This is the sort of 

ridiculous stereotyping—the assumption that because my male coworker needed the higher salary and I did not—that is still prevalent in too many workplaces today and is used to justify wage discrimination. My raise was denied, and I was being paid less because I am a woman. 

After 5 years, my male coworker and I were promoted at the very 

same time. Since 2009, we both have held the position of associate 

director. And although I do love my work, it really hurt to know 

that my contributions were worth less than his were. Initially, I 

was hopeful at the time of the promotion that my employer would 

finally acknowledge my work and equalize my pay. But instead, I 
215 

was disappointed to learn that the wage gap increased by approximately $1,400. 

Recently, my husband’s teaching job was threatened due to budget cuts. This situation made me really think about what those lost 

wages were costing my family. When I added those lost wages up 

and calculated that my family had lost over $12,000 in income, it 

was heartbreaking. My husband and I are both first-generation college students. We have crushing student loan debt. On paper, we 

look like we are doing just fine. But in reality, money is tight. We 

pay as much on our student loan payments each month as we do 

for our mortgage. Our daughter Gracie is in full-time daycare because neither of us can afford not to work. $12,000 in lost wages 

accounts for a year’s worth of child care or 10 months’ worth of our 

mortgage or 10 months of student loan payments—all our expenses 

that we struggle to pay for. 

So I tried again. I approached my employer again this time with 

a visual chart that showed the stark salary difference between my 

coworker and me. And I repeated my case that I should be paid 

fairly. This time, my employer agreed to raise my salary to equal 

my male coworker’s. And 5 months later, I received a paycheck 

that finally reflected equal pay. 

I was eventually able to get paid fairly, but it took more than 7 

years of difficult conversations and cost me thousands in lost 

wages—all of this in an environment where I could have open conversations about my salary without fearing repercussions. 

I was thrilled last month when President Obama took Executive 

action to ensure that Federal contractors are barred from retaliating against employees who discuss their salary information. But 

we still need Congress to pass the Paycheck Fairness Act, which 

would allow all workers to talk about their salaries to their coworkers without the fear of being fired. 

Millions of women trying to raise families while working minimum wage jobs have not seen an increase in years. Congress has 

the opportunity to right these wrongs. It is time to increase minimum wage, time to do something about the student loan crisis, 

and it is long past time to pass the Paycheck Fairness Act. 

I hope that by the time my daughter Gracie is able to understand 

what wage discrimination is all about, it will have long since been 

resolved. According to recent research, at the rate we are going, if 

we do not take action, the wage gap will not close on its own until 

my 5-year-old girl is 48. Forty-eight. Instead, I hope that the idea 

of Mommy being paid less than a man while working at the same 

job will be a relic concept for her, kind of like life before the 

iPhone. 

I am honored to be here today, and I thank you again for the opportunity to testify. 

[The prepared statement of Ms. Duchon follows:] 
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Chairman MURRAY. Thank you very much. 

Ms. Schaeffer? 

STATEMENT OF SABRINA L. SCHAEFFER, EXECUTIVE 

DIRECTOR, INDEPENDENT WOMEN’S FORUM 

Ms. SCHAEFFER. Chairman Murray, Ranking Member Sessions, 

and members of the Committee, thank you for inviting me here 

today to discuss what I view as a serious shortcoming to the proposed Paycheck Fairness Act. 

My name is Sabrina Schaeffer, and I am the executive director 

of the Independent Women’s Forum. We are a nonprofit organization, and our mission is to increase the number of women who 

value and understand free markets and personal liberty. And we 

respond to those who portray society, and especially the workplace, 

as inherently unfair to women because we know it is simply not 

true. 

I come to this issue not just as the head of IWF but also as a 

working mother. I have three young children ages 6, 5, and 2, and 

I understand the very real need for plentiful jobs, fair wages, and 

workplace flexibility. And I am aware of the different factors 

women weigh when making decisions about what types of jobs to 

pursue and how to balance work and family responsibilities. 

It is those decisions and tradeoffs that should be at the heart of 

the discussion about workplace fairness. But proponents of the 

Paycheck Fairness Act usually begin their argument by citing the 

faulty 77-cent wage gap statistic—that women only make 77 cents 

for every dollar a man earns. But to have an honest conversation 

about the workplace and about women’s earnings, we need to stop 

blindly repeating this number. 

We all know that this statistic is grossly overstated, as every serious study has demonstrated, including those done by liberal 

groups like the American Association of 

University Women and the 2009 CONSAD Research commissioned by the Department of Labor under this administration. 

The Department of Labor statistic compares the earnings of average full-time working man to average full-time working woman, 

which shows that women actually earn about 81 percent of what 

men earn. But this is not the equivalent of comparing coworkers 

performing the same job. It is a comparison of averages, and it is 

like comparing apples to oranges. 

This number does not take into consideration any of the many 

important factors—from college major, work history, industry, specialty, hours spent working each day, to name a few—which have 

a significant impact on how much someone earns, because when 

those factors are taken into account, the pay gap shrinks to as little as 4 cents. 

Discrimination may explain some of this remaining gap, and 

there are bad employers out there, although there could be other 

causes, such as women being more reluctant than men to negotiate 

starting salaries and to ask for raises. And knowing this is important so I can help close that small remaining wage gap by being 

more proactive on my own behalf and by teaching my daughters to 

be comfortable talking about money. 
221 

Even the White House conceded on Equal Pay Day this year that 

the wage gap statistic is misleading. Betsey Stevenson, a member 

of the White House Council of Economic Advisers, said she ‘‘completely misspoke’’ when suggesting that gap was evidence of discrimination. 

Still, President Obama, Democrats here in Congress, and progressive women’s groups continue to use this statistic to try to convince women that they are routinely suffering massive wage discrimination to justify growing Government in the name of protecting women. 

And that is how they sell the Paycheck Fairness Act. They suggest that it would advance the cause of pay equity and help women 

earn more. But the bill’s sponsors rarely mention what the legislation would actually do and whom it would really benefit. And that 

is probably because the legislation’s focus is not on increasing economic opportunity for women, which we all want, but it is on facilitating more lawsuits against employers. 

Consider what would happen if this law were to pass. Employees 

would be forced to opt out of, rather than into, class action lawsuits, making it easier for lawyers to get a class certified and increasing the potential for a jackpot award. 

Currently, victims of workplace discrimination can receive back 

pay for the earnings they were denied, as well as punitive damages 

of up to $300,000. The Paycheck Fairness Act would allow unlimited punitive damage awards, including for unintentional discrimination. This dramatically increases the motivation for both lawyers 

and employees to sue in hopes of windfall payouts. 

Most importantly, the proposed law would severely limit how employers could justify compensation decisions. Currently, businesses 

can justify differences in pay on factors like experience and job responsibilities. But under the Paycheck Fairness Act, employers 

would only be justified in paying men and women differently if 

they can prove to the Government that it is a ‘‘business necessity.’’ 

Such ambiguity would be an open invitation to trial lawyers. Employers would be targets of potential lawsuits for essentially any 

compensation decision—whether it is giving a bonus for superior 

performance or offering an employee more flexible hours in exchange for reduced compensation. 

Ultimately, employers would have the incentive to create rigid, 

one-size-fits-all compensation packages which would hurt both men 

and women. 

The Paycheck Fairness Act is not necessary because equal pay is 

already the law. The Equal Pay Act and the Civil Rights Act protect employees from gender-based wage discrimination. The Lily 

Ledbetter Fair Pay Act extends the amount of time a worker has 

to bring a suit against her employer. 

So what is the alternative? Well, women make up nearly 50 percent of the workforce today and are incredibly valuable to businesses. The workplace is changing quickly and for the better. Providing fair pay, sensible leave policies, and more generous benefit 

packages are increasingly being used to attract and retain women. 

And where businesses lag behind, there is a robust industry devoted to not just helping women sue, like the Paycheck Fairness 

Act does, but to overcoming remaining hurdles in the workplace. 85 
222 

Broads, Negotiating Women, She Negotiates—these all help women 

maximize their success at work. 

The goal of public policy ought to be to give women and men 

equal opportunities to pursue their vision of happiness. But we 

should not be fixated on creating equal outcomes. Some people will 

choose to take lower-paying jobs they find personally fulfilling; others will be willing to work 80-hour weeks to maximize their pay. 

That is why job creation and growth—not more lawsuits—is the 

real key to expanding economic opportunity for women and their 

families. 

Thank you. 

[The prepared statement of Ms. Schaeffer follows:] 
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Chairman MURRAY. Thank you. Many of you know I care a lot 

about making sure that children have access to high-quality early 

childhood education, including child care. And I often talk about 

the long-term benefits that these programs have for the children 

who experience them. But it is really important to remember that 

child care is a vital work support for mothers as well. We know 

that mothers who have access to reliable child care have less absenteeism and tardiness from work and they are more productive. 

However, we also know that child care is still prohibitively expensive for many families. For example, in every State in the U.S., 

center-based care for an infant exceeds 25 percent of median income for single parents. 

So, Dr. Boushey, I wanted to ask you, can you speak to the economic impacts of these challenges that families face in accessing 

child care? 

Ms. BOUSHEY. Certainly. Thank you. I believe, you know, in some 

ways AnnMarie here to my left actually very eloquently described 

her own challenges that I think are important to sort of recognize, 

that child care is so costly for families. I believe you said it was 

$12,000 a year. When you look across the country, you see that the 

average cost for a 4-year-old in center-based care ranges from less 

than about $4,000 to more than $15,000 or even $20,000 a year. 

And with most working women earning less than $30,000 a year, 

that is an enormous cost for families to have to bear. 

But let us also put this into a bit of a broader context. Most families that need child care for very young children are young families. 

Half of women have their first child by the age of 25. When people 

enter the labor force, that is when their wages are lowest. It is also 

when they have their biggest student loan debt if they went to college, regardless of whether or not they graduated if they started 

college. And I will note that women are more likely than men to 

take out student debt, and when they do, they take on larger 

amounts of loans. 

So all of this compounds for workers at the start of their careers, 

making it very difficult to afford child care and pushing a lot of 

families into this very false dichotomy between her working and 

not working, and the impact on the family budget. 

Let me be very clear. Those years that women lose in the labor 

force, if it is not by choice—or even if it is by choice—have a lifetime impact on their earnings, on their retirement security, on 

their ability to grow and develop their careers. This is not just a 

choice that families make when that child is 2 or 3 and that mom 

is young and that family is young. This is a decision that affects 

the rest of her career, their family economic security, and feeds 

right into how we think about whether or not Social Security is 

providing that family with enough benefits. Those are years that 

she has lost paying into. So that is on the work side. 

I also want to stress that, as an economist, one of the things that 

we now is that early childhood education is one of the most important things we need to do to be developing our Nation’s human capital. And the fact that we are leaving this unattended to in such 

a large way and so different than other developed countries is 

shooting ourselves in the foot for the next generation of workers. 

Chairman MURRAY. Well, thank you very much. 
229 

Ms. Duchon, I assume that your experience reflects what you just 

heard. 

Ms. DUCHON. Absolutely. I just want to add, one of the ways that 

we have tried to keep costs down is we have my mom watch my 

daughter once a week. It sort of keeps our cost down by about 

$2,400 a year. But she does not live close, so she drives almost 4 

hours a day to do that. 

Chairman MURRAY. So child care access impacts on lots of people 

there. 

Dr. Boushey, I also wanted to ask you about retirement security. 

About half of our workers in the private sector have access to an 

employer-based retirement plan. That is a figure that drops to 

about 30 percent for workers and businesses with fewer than 100 

employees. And, surprisingly, in such a wealthy Nation, about 45 

percent of all workers report that they have no retirement assets 

at all. So that is pretty bad news for everyone, but in particular, 

it leads to worse retirement conditions for women. Among people 

65 and older, women have less retirement income, face a greater 

risk of poverty than men, and one in three women depend on Social 

Security as their sole source of income. 

So I think it is no exaggeration to say that we face a retirement 

crisis, particularly for women, and, Dr. Boushey, I wanted to ask 

you, there are a lot of policy steps that could be proposed. Give me 

your top two to address this. 

Ms. BOUSHEY. Well, I would start by looking at women’s labor 

supply, so I would focus on policies that help women move up the 

job ladder and stay in the labor market—policies such as addressing child care, policies such as the family and medical leave insurance legislation that has been put on the table, policies that make 

it possible for women to earn a fair day’s pay. So that basket, if 

you care about retirement security, you have to care about what is 

happening when people are in the labor market. 

But then, of course, we also need to attend to making sure that 

Social Security is a vibrant and strong program. There are a lot of 

new proposals out there that people are talking about to make sure 

that people that have their savings in 401(k)s are getting a good 

deal. That is one of the challenges. We have moved from a pension 

system which got a pretty good deal for workers and their families 

to these 401(k)s where often there are exorbitantly high fees and 

where people are sort of left on their own to make decisions about 

investments that are challenging even for a Ph.D. economist to 

know what kinds of investments you should be focusing on. 

So the USA Retirement Funds Act and the SAFE Retirement 

Plan that the Center for American Progress has put together, both 

focus on how is it that we can make 401(k)s a better financial tool 

for families. So I would focus there as well. 

Chairman MURRAY. Thank you very much, and I am out of time. 

Senator Sessions? 

Senator SESSIONS. Thank you. Senator Wyden is a member of 

this Committee and chairs the Finance Committee. He and I have 

been talking about retirement savings and the need for that and 

the importance of it, Ms. Boushey, so I think it is something to look 

at. And I am concerned about fees. Fees can erode significantly a 

person’s savings over time, and I do not think a lot of people under-
230 

stand that. The Federal thrift program is probably one of the best 

because it has such low fees, and I would like to see more of that. 

Senator Wyden believes that we can start saving younger and 

that would help everybody learn more about savings. And he and 

I are talking about some of the things that we could do there. 

Ms. Schaeffer, you have been frank about some of your concerns 

about the way we have approached this issue. I think some of the 

points you make are valid and should be heard. As we establish 

public policy, it is awfully difficult to do so. I am confident there 

are women being taken advantage of today, and there are men 

being taken advantage of sometimes, too, not really knowing, like 

Ms. Duchon, to stand up and defend themselves. 

But tell us what you think are some of the things that would be 

most helpful to allow women to fulfill their highest values to make 

the choices they would like to make for themselves or their families. And are there any policies that the Government could carry 

out that would help that? 

Ms. SCHAEFFER. Thank you. And I agree that discrimination occurs. I agree that there are bad employers out there. But I do not 

think that the Paycheck Fairness Act will solve that problem. 

I think the very best thing for women, for men, and their families is strong economic growth and job creation. This gives all workers flexibility, right? If you are in a bad job, you have the opportunity to look for a new job. So I think it is much better for us to 

focus our resources and our attention on growing our economy so 

that people have more choices. Because as I tried to identify, everybody is going to want to lay out their life plan in a different way, 

and we cannot have sort of these top-down Government-run solutions because it simply will not work. 

I think better than many of these Government-run ideas is to 

allow a market in education so that women can more easily get 

educated themselves and have more choices for their children at an 

earlier age. We currently do not have that. Most supporters of the 

Paycheck Fairness Act have stood up and blocked most educational 

freedom bills in their States. 

I think we need to stop picking winners and losers in the energy 

industry so that women can afford quality goods that are at lower 

prices, so that they can afford to fill up their car and get to work 

every day. 

We need to streamline our Tax Code so that women and men are 

taking home more of their take-home pay. 

We need to make sure that women and men own and control 

their health care dollars, so I would call for repealing Obamacare. 

These are all real solutions that would require reining in what 

I view as the progressive State and allowing individual families 

and individuals to have more control over the choices in their lives. 

Senator SESSIONS. Ms. Boushey, as you look at women and the 

choices they make, which are good for America if they choose to invest a lot of their time and effort in raising children in the next 

generation, that can put them behind financially. Do you have any 

thoughts about how we can deal with that in a realistic way? 

Ms. BOUSHEY. Well, I think a couple of things. Certainly it is important—right, we have to start from the premise that family is, 

of course, very important, and raising the next generation is a criti-
231 

cally important job both for families but also for our economy more 

generally. 

The United States stands alone in not supporting families as 

they actually live and work today. The reality is that most parents 

are in the labor force, most children are being raised by a family 

that does not have a stay-at-home caregiver, and that poses challenges for children. But, of course, at the other end, it means that 

most families do not have someone at home who can help when an 

elder may need a little bit of help. Somebody has got to take time 

off work. And we have not thought enough deeply about how to update our labor standards and our social insurance programs and 

our child-care systems to really help families. 

So I would focus on making sure that families actually have a 

choice, that child care is high quality and accessible to everybody, 

not just the very wealthy. And one of the things we forget about 

child care is you cannot scrimp on it. You cannot, you know, get 

cheaper-cost child care and think that that is just going to be okay 

for your kids, right? The kind of care is the kind of care that you 

need. You need a qualified teacher. It has got to be of sufficient 

quality. And we do not go far enough to make sure that every child 

in America and every family in America has access to that kind of 

quality at a cost that families can afford, again, when they are 

young and they do not have a lot of money. This is something that 

we need to step in and really help them with so they can make 

those choices honestly. 

Senator SESSIONS. Thank you. 

Chairman MURRAY. Senator Kaine. 

Senator KAINE. Thank you, Madam Chairwoman, and thank you 

to the witnesses. A lot of topics of interest. Let me just ask about 

one that I am really focused on, which is sort of nontraditional career fields and career and technical education. Senator Baldwin 

and I, Senator Portman and others are doing some work in this 

area, and we are having a fascinating debate now in the Armed 

Services Committee about the opening up of all these combat MOSs 

that have heretofore been gender exclusive for men, opening them 

up to women and providing women opportunities to meet the same 

standards that men meet in those areas. 

Traditionally, women have been underrepresented in some of 

what we call ‘‘nontraditional fields’’—construction, engineering, 

manufacturing areas. The Perkins Career and Technical Education 

Act requires States to set targets for representation of women in 

these nontraditional career fields. 

But I would like just each of you to talk about kind of workforce 

training as advancing employment opportunities for women, and 

particularly, you know, what we could do in the career and technical education or workforce training area that would help women 

be more equitably represented across the whole spectrum of professions and jobs. I just would like each of your thoughts on that. 

Ms. BOUSHEY. I will go first and be brief. I think that is an enormously issue. It is one that we have been working on for quite a 

long time, trying to get women into a wider array of occupations. 

And I would just sort of add one other point to that, and I am 

happy to also follow up in writing on some specifics on what we can 

do in that area. But one of the things that we are learning from 
232 

the literature is that it is not just about getting women into different occupations. It is that inequality is actually occurring within 

occupations. 

Claudia Goldin, who is a professor at Harvard, has written an 

enormously important new study that just came out documenting 

how it is actually the working conditions in terms of hours and 

flexibility that make all the difference for inequality within occupations. So I do think we need to make sure that we are opening up 

all sorts of professions to women. 

Just one more stat, and then I will stop. There is a Stanford professor and some folks from the University of Chicago that had this 

amazing study that came out a year and a half ago that found that 

between 1960 and 2008, a fifth, a full fifth of U.S. economic growth 

was because of the opening up of professions to women and minorities. This is enormously important, and I can follow up in writing 

with some specifics. 

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Senator KAINE. Thank you. 

Ms. DUCHON. Well, as the mom of a young girl, I would like to 

say that knowing that those opportunities are available from the 

start and having young people grow up in good-quality educational 

environments where they see women taking on those roles and 

they can imagine that for themselves, just the sheer modeling of 

that both from a parental perspective as well as an education perspective I think is truly important. 

Senator KAINE. Ms. Schaeffer? 

Ms. SCHAEFFER. Thank you for that question, because I actually 

think this is a very interesting one. I tend to be careful that we 

do not characterize sort of our schools as somehow providing one 

thing for the male students today that is different from the girls. 

I have two girls and a son, and I know that they are all being 

treated the same way. 

That being said, I know that for many, many years now, we have 

been pouring money into the STEM field and trying to encourage 

more women to go into it. And recently I took a look at MIT and 

what the female students and the male students were majoring in. 

And I thought, of any school out there, MIT, we have some of the 

brightest science and math minds. And it was very interesting to 

see the way men and women are sort of falling. Men were still 

overrepresented in areas like petroleum engineering and computer 

science, while women were overrepresented in the social sciences 

and biology and architecture. 

So I think that there is a point at which we have to accept that 

men and women are different, they are going to make different 

choices, and that might be okay. And we have to maybe also ask 

ourselves, is there a reason that we are not looking at sort of the 

underrepresentation of men, for instance, in nursing or in English 

or in psychology? Should we be concerned on that side of things? 

And one last thing is just that we have a lot of women now who 

are in these leadership positions, and I agree it is not as high as 

with men, but we have women who have come up the ranks, like 

a Virginia Rometty at IBM. We know that 75 percent of veterinary 

students are now women. These are numbers that we should not 

ignore because I think it is sometimes painted as sort of black or 

white, women go into the humanities, men go into the sciences, 

that is the problem. So I think it is a little bit—a little grayer. 

Senator KAINE. Thank you, Madam Chairwoman. 

Chairman MURRAY. Thank you. 

We do have a vote called, and I am going to give Senator King 

and Senator Baldwin 5 minutes each, and we should be able to 

wrap up before we get over there. Senator King? 

Senator KING. Thank you. Before getting into some questions, 

Ms. Boushey, could you supply that Goldin study to us? That 

sounds very interesting, the one that you mentioned. I would appreciate that. 

Senator KING. As I have traveled abroad, and did so particularly 

as Governor, going on trade missions, it was one of my conclusions 

that one of the parts of the secret sauce of America’s success is the 

openness of our business community to women. You go to other 

countries, you go to business meetings, chamber of commerce meetings, zero women. And you realize that these societies are missing 
322 

a huge part of the talent. That is what America is all about, is giving this opportunity. 

The challenge, it seems to me—there are two challenges. One is 

how do we harness this enormous power that half of our population 

brings to the table, at the same time accommodating the special 

needs, particularly around motherhood. 

Now, part of it is the tradition that it is moms who are responsible and not dads. I mean, that is something we ought to be thinking about and talking about. You know, why is it assumed that the 

woman has to deal with the child care and the sick child and all 

of those kinds of things? 

I guess the question is: What are the factors, the flexibility policies that are most important for us to adopt? And the secondary 

question is: Does this have to be by Federal law or will this take 

place in the marketplace as companies say, hey, we want this talent, we have, therefore--a company I visited in Maine a few weeks 

ago has an in-house daycare center. Why? Because they want to 

have good people working there, and that is one of the things that 

they have had to do. 

So two questions. What are the important policies? And, two, do 

they have to be mandated by Federal law or can the marketplace 

take care of it? And if so, how long will that take? Ms. Boushey, 

do you want to take a crack at that? 

Ms. BOUSHEY. Yes, thank you. That is an excellent question. I 

have a bunch of answers for you. 

So, first, you know, thinking in terms of workplace flexibility, 

there are a lot of things that we could do. San Francisco and 

Vermont have both just implemented new policies that give workers the right to request a flexible schedule. It is a soft-touch law, 

meaning that it is not a mandate, but it says that a worker can 

go to their boss and say, ‘‘Hey, I need this kind of flexibility,’’ and 

the employer is obligated to respond to that request and give a 

good reason why they want to deny it. 

We have seen this to be enormously successful in the United 

Kingdom and in New Zealand and other countries, and it is something that might be able to be effective here, and I am very excited 

that these two places are doing this so that people like me can 

study it. So I encourage you to look at that, and that is something 

that is happening at the State and local level. 

Second, there is an experimentation in States right now with 

family leave insurance. California, New Jersey, and Rhode Island— 

Senator KING. You mentioned that. Who pays—when you say ‘‘insurance,’’ it implies somebody is paying a premium. 

Ms. BOUSHEY. Yes. So this is employee paid for, so it is a new 

small tax on employees. 

Senator KING. Like unemployment insurance. 

Ms. BOUSHEY. Like unemployment insurance, or in those--there 

are five States that have longstanding temporary disability insurance programs that provide up to a year in some places, benefits 

when you get sick, and those three States have added family leave 

onto that benefit. And it is paid for entirely by employees. 

The FAMILY Act, the family and medical leave insurance bill 

that Senator Gillibrand has introduced, would create a Federal system for that. The big challenge of doing that one at the State level 
323 

is beyond these five States that have these longstanding systems, 

the startup costs are very high. And so the Federal Government 

could play a role there in helping with startup costs. 

Senator KING. I want to get Ms. Schaeffer into this discussion. 

You had trenchant comments about the Paycheck Fairness Act. Are 

there other policies that could be adopted, flexibility policies, 

daycare flexibility, hours, those kinds of things that you think are 

important, and your thoughts on whether these should be Federal 

law, marketplace? And the problem with—I suspect you are going 

to say marketplace, but then we get to Ms. Duchon’s comment that 

it will take 43 years to get there. 

Ms. SCHAEFFER. Well, you know, I am not sure if it will take 43 

years, and the reason is because I think women are beginning to 

outpace men. We know that women are now earning 57 percent of 

bachelor’s degrees, 59 percent of master’s degrees, the majority of 

Ph.D.s. They are overrepresented in law schools as well as medical 

schools. So the demand is—the workplace is really changing. The 

demand for flexibility, not for just women but for men as well, is 

changing. And, you know, as one of my colleagues says, I think 

that toothpaste is out of the tube, right? People have sort of gotten 

a taste of what flexibility means and what it looks like, and they 

like it. And employers want to respond to that, so I will give you 

two examples. 

One is very small, and that is the Independent Women’s Forum. 

We are a very small organization. We used to have very fancy office 

space. We are now a virtual office. And one of the reasons for that 

is that we have a lot of moms, and it simply did not make sense 

for them to waste an hour getting into the office and parking and 

getting settled at a desk and wasting another hour at the end of 

the day when we realized that we had a team of very hard workers 

who could do their job from home. Now, it works for us. It might 

not work for the next think tank, but it does work for us. 

Another example, though, is Walmart, a much larger example. 

They started in their legal department with a flexible work arrangement. What they found is that people really liked it. They 

were more productive workers, and to the extent that they could 

integrate that into other departments, they were trying. Obviously, 

you always have to have somebody at the checkout line, but that 

does not mean that other parts—there are other ways in which you 

could have job sharing and flexible work arrangements. 

So I think that the marketplace is going to respond to both women’s and men’s needs for flexibility. 

Senator KING. Thank you very much. We are running close— 

Chairman MURRAY. Yes, I want to make sure that Senator Baldwin has a chance. 

Senator KING. I will follow up with some questions. 

Chairman MURRAY. And we do not want to miss the vote, so, 

Senator Baldwin? 

Senator BALDWIN. Thank you. I really appreciate your holding 

this hearing. 

There are a number of non-compensation barriers to economic 

opportunity for women that have come up. One that I do not believe has come up but yet is a major barrier to economic empowerment of women is the unacceptable reality of workplace discrimina-
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tion, including harassment and sexual harassment specifically. And 

I think it really continues to limit the opportunity to succeed at the 

workplace. 

According to the Equal Employment Opportunity Commission, 

annually there are average claims of about 10,000 cases of sexual 

harassment, yet according to numerous studies, this is supposed to 

be drastically underreported, so in reality there is a belief that it 

occurs in much higher levels. 

Last summer the U.S. Supreme Court in my opinion worsened an 

already difficult situation by stripping away some crucial protections for people who are harassed in the workplace in a case called 

Vance v. Ball State University. What happened in Vance is the 

Court made it harder to hold employers accountable when harassment is being perpetrated by a supervisor who does not have specifically hiring and firing authority. So if you have a supervisor 

who is directing all of your daily activities, choosing what hours 

you have to report, whether or not you get overtime or can get absences, you know, all sorts of conditions of your work, but that person expressly does not have hiring and firing authority, there is no 

employer accountability. And I fear what that is going to do in 

terms of people’s recourses and weakening of Federal workplace 

protections. 

So with that quick introduction, Dr. Boushey, I would like to ask 

you how does workplace harassment limit the economic opportunities of women and their families. I know that is a very broad question, but how will this case, the weakening of these workplace protections make it more difficult for women to succeed economically? 

Ms. BOUSHEY. Well, we live in a country where employees, you 

know, most of the rights that they get they get from the Federal 

Government. Very few workers—7 percent of private sector workers these days—are represented by a union, so that means that 

these laws are incredibly important in protecting workers. And I 

think AnnMarie’s story for me is so compelling in some ways because she was able to talk to her colleagues and her employer 

about what was going on. But for so many people, they cannot do 

that, and they fear being laid off or they fear being fired. Most people—you know, so many Americans work in States—you know, 

right-to-work States, and you do not have a lot of recourse. 

So I actually think this is fundamentally and profoundly important, and I think there are a variety of ways of getting at it. I think 

now you have talked about some legislation, the Fair Employment 

Protection Act, which I think would be very important. There are 

also some new policies going on at the State level and something 

that just happened a couple of days ago. Massachusetts became the 

fourth State to pass a Domestic Workers’ Bill of Rights, which 

gives domestic workers, in-home workers, rights that they do not 

have under the Fair Labor Standards Act, and one of them, of 

course, importantly, are issues around harassment, where I think 

that this could actually play—this could actually be one of the more 

important areas where we could see this happening. 

So I think that understanding the importance of jobs in people’s 

lives and that if you do not have choices and you are stuck, well, 

then, you are going to put up with it, and that is just not right or 

fair. 
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Chairman MURRAY. Thank you very much. I really want to thank 

our colleagues for participating today, and I especially want to 

thank our three witnesses for your time today. 

As a reminder to our Committee members, additional statements 

and questions are due in by 6:00 p.m. today. We will submit these 

to you for your response. And, again, thank you so much. 

With that, we will call this hearing to a close. Thank you. 

[Whereupon, at 11:28 a.m., the Committee was adjourned.] 
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(329) 

THE IMPACT OF STUDENT LOAN DEBT ON 

BORROWERS AND THE ECONOMY 

WEDNESDAY, JUNE 4, 2014 

UNITED STATES SENATE, 

COMMITTEE ON THE BUDGET, 

Washington, D.C. 

The Committee met, pursuant to notice, at 10:01 a.m., in Room 

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

Chairman of the Committee, presiding. 

Present: Senators Murray, Wyden, Nelson, Stabenow, 

Whitehouse, Warner, Merkley, Baldwin, Kaine, King, Johnson, and 

Ayotte. 

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

Ueland, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN MURRAY 

Chairman MURRAY. This hearing will now come to order. I want 

to thank Senator Johnson, who is filling in today for my Ranking 

Member, Senator Sessions. Welcome to you and to all of our colleagues who are joining us today, as well as a room full. Welcome 

to all of you on a really important topic today. 

We are going to be talking about a challenge that 40 million people around our country face today. And for many Americans who 

want to further their education and build their skills, taking out 

student loans has become a college prerequisite. But that debt can 

have lasting consequences for borrowers and weaken their chances 

of getting ahead. 

Ensuring more Americans get a fair shot is something many of 

us here in the Senate are very focused on. And a bill that is coming 

to the floor very soon, which will allow borrowers to refinance their 

school loans, is an important part of that Fair Shot Agenda. 

I will be discussing that legislation a bit more later. But first I 

want to thank our witnesses who are here with us today who will 

help shed some light on the challenges that mounting student debt 

can pose for borrowers and for our economy. 

Today we are going to be hearing from Rohit Chopra. He is the 

student loan ombudsman for the Consumer Financial Protection 

Bureau. 

And I am very pleased to welcome Brittany Jones today. She is 

a recent graduate and the former president of the Student Virginia 

Education Association. 

We are also going to be hearing from Richard Vedder. He is a 

Distinguished Professor Emeritus of Economics at Ohio University. 
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A college degree is a worthwhile investment, and for many it can 

be a ticket to the middle class. We know that on average, college 

graduates earn more, and they tend to have lower unemployment 

rates than their less educated peers. 

A highly educated workforce is also good for our country. It 

strengthens our middle class. It strengthens the workforce we will 

need to compete in the 21st century global economy. 

More and more, jobs of the future will require postsecondary credentials or degrees. And, in fact, in the coming years, as many as 

two-thirds of all jobs will require at least some college education, 

according to the Center on Education and Workforce. 

But to afford college, many people have to turn to student loans 

to help finance their education. In just a few moments, you are 

going to hear from Brittany Jones. She is going to be talking about 

how taking out student loans made it possible for her to get a college degree. And, Brittany, I look forward to hearing more about 

your experience, as you have now worked to start a teaching career 

and at the same time paying down that student loan that got you 

through college. 

Of course, Brittany is not alone. Dealing with overbearing student debt has become a reality for a growing number of Americans. 

The statistics are staggering. Today the average college graduate 

will have to pay back around $30,000 in student loans. And a 

record number of young households owe student debt. 

Back in 1989, 16 percent of young households had student debt. 

By 2010, that figure had more than doubled, according to the Pew 

Research Center. More young people than ever before are dealing 

with more student debt than ever before, and that can have lasting 

consequences. 

Americans who took out school loans can find it difficult to save 

and accumulate wealth. A recent study found that college graduates without student debt had accumulated seven times more 

wealth than those who are paying back school loans. 

Crushing student debt is not just hurting borrowers. There is 

mounting evidence that student debt is also holding back our economy. Historically, young Americans have been a source of economic 

activity as they set up their households and start their own careers. But today many are finding it difficult to save even for a 

downpayment on a home. And the high monthly bills to pay back 

student loans can disqualify many people from even getting a mortgage. 

When first-time homebuyers are not able to get a mortgage, it 

can adversely affect the housing industry as a whole. That is why 

groups like the National Association of Realtors and the Homebuilders Association have expressed concern about the overbearing 

financial weight of student loans. 

Student debt can stifle entrepreneurship. Young people who 

dream of starting up their own businesses are not able to take the 

risks and the business loans that are usually needed when they 

launch a startup. 

Paying off student loans can prevent young people from saving 

for retirement or making the kinds of purchases that help further 

our economic recovery. 
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Mr. Chopra, I know these economic consequences are what you, 

and others at the Consumer Financial Protection Bureau, have 

called the ‘‘domino effect,’’ and I am looking forward to hearing 

more details in your testimony about those negative economic impacts. 

To address these challenges, as a starting point, we need to ensure that student loan servicers—those are the companies who 

handle billing and track borrowers’ payments—are treating those 

borrowers fairly and responsibly. 

Unfortunately, there have been alarming reports of student loan 

servicers mistreating borrowers. Some people have discovered their 

student loan servicer has not properly processed payments. There 

have also been complaints that private student lenders have put 

borrowers into default if a cosigner dies, despite the borrower being 

current on their loan payments. 

And I was very troubled to hear recent reports that Sallie Mae 

was overcharging military members on their student loans. Sallie 

Mae now has agreed to pay nearly $100 million in fines after 

charging military members higher interest rates. And I have asked 

Secretary Arne Duncan to investigate to make sure other student 

loan servicing companies are not doing the same. 

But we can do more to help borrowers. The Bank on Student 

Emergency Loan Refinancing Act is a bill from Senator Elizabeth 

Warren that I have cosponsored, along with several of our Democratic colleagues. That bill will allow borrowers to refinance their 

Federal student debt. The Congressional Research Service estimates that this bill would let borrowers save $4,000 on average. 

Passing that legislation would put more money in borrowers’ 

pockets so they can make ends meet, make downpayments homes, 

or start new businesses and help grow our economy. 

Right now, people can refinance their home loans or their business loans when interest rates drop. This bill will let borrowers 

with Federal student debt do the same. And this should be a bipartisan issue. 

Just last year, for example, Republicans and Democrats came together to pass the Bipartisan Student Loan Certainty Act. That bill 

allowed new borrowers to take advantage of lower interest rates established by the free market. This refinancing legislation would use 

those same free market principles to help those with existing student loans. 

At a time when higher education is more important than ever to 

our Nation’s long-term competitiveness, a college degree should not 

drown borrowers in debt. 

Now, and in the future, we need to make sure that people who 

choose to further their education and build their skills are better 

able to afford college and manage their student debt. It is an economic imperative. 

To strengthen our middle class, to strengthen our workforce, and 

to help spark economic growth, Congress needs to address these 

challenges. 

So I am very delighted to have this hearing today, and before I 

turn it over to our panel of witnesses, we would like to hear from 

Senator Johnson. 
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OPENING STATEMENT OF SENATOR JOHNSON 

Senator JOHNSON. Thank you, Madam Chair. I appreciate you 

holding this hearing. This is, I think, an extremely important issue. 

I think it is a tragedy that we have enticed our children to incur 

now about $1.2 trillion in student loan debt collectively. 

I had a finance professor in college who, before he would ever 

talk about cost of capital and all the complex issues with corporate 

finance, would spend a day just talking about personal finance. He 

said, ‘‘The reason they call a debt instrument a bond is because 

when you go into debt, you put yourself into bondage. And you 

want to really avoid that.’’ So I certainly took that to heart. 

I, of course, had the advantage of growing up and going to college 

in the 1970s when college was a whole lot cheaper. I worked fulltime, and rather than leaving college with close to $30,000 in debt, 

I actually left college with $7,000 in the bank. So I wish that were 

more possible. 

I would like to start with a chart that I have prepared, and I 

have actually been using this in my PowerPoint presentations as 

I travel around the State of Wisconsin. Just laying out some facts 

and a little food for thought here. 

What this chart shows is that in 1963 the total cost of a 4-year 

undergraduate degree in a public college was about $929 per year. 

That is room, board, and tuition. Now, by 1988, the actual cost had 

risen to $4,678, which was 27 percent higher than had it just 

grown at the rate of inflation. But you can see as of 2012 the cost 

of college outstripped the rate of inflation by almost two and a half 

times. So rather than costing about $7,000, which is what it would 

have been if it just would have grown by the rate of inflation, one 

year of college now is about—in 2012, it was $17,474, two and a 

half times the rate of inflation. 

I guess the question I am asking is, ‘‘Why?’’ What is so different 

about what colleges and universities spend their money on that 

their costs would outstrip the rate of inflation by 2.5 percent? And, 

by the way, two of the components, room and board, you know, food 

and shelter, in the rest of the economy—not necessarily on college 

campuses. In the rest of the economy, those have actually grown 

at a lower rate than inflation because we have become so much 

more productive in those sectors of our economy. Obviously ‘‘productivity’’ is not exactly a word we use in education, which is a real 

shame. 

So, again, just kind of asking the question of, you know, why. All 

of our good intentions—and let us face it, what we spent in college, 

around college in terms of student aid, which is about $2 trillion 

since 1963, was all well intentioned, but it had a very serious negative unintended consequence. In other words, in trying to make college more accessible, did we actually make it less accessible because we have made it so much more unaffordable? 

Oh, by the way, just, you know, to add a little more detail to that 

chart, of the $2 trillion we have spent over that time frame, about 

$200 billion was spent between 1963 and 1988; $1.8 trillion was 

spent as college costs really skyrocketed and soared. Again, cause 

and effect, I will leave that for the reader to judge. And I think Mr. 

Vedder is going to talk a little bit about that as well. 
333 

Madam Chair, you were correct. It is a shame that in 2011, 

which is the latest figures I have from the College Board, average 

student loan debt after 4 years of college is $25,000. Of those, 57 

percent of the students that actually incurred debt in a private institution it is about $29,900, and 65 percent of private college students incurred debt. 

Another interesting statistic is how long it is taking our students 

to graduate. About half graduate pretty much in the 4-year time 

period. In other words, they graduate within 52 months, about 4.3 

years. But the other half raises the average time to graduate to 6.3 

years. Again, just asking the question: Why is that, particularly 

when you have so many kids leaving high school with college credits in the bag? Have we made college funds available so readily 

that people can dither in college? It is just a question I am asking. 

Now, I know part of this hearing is to talk about, you know, 

other types of pieces of legislation to supposedly solve the problem. 

One thing I think is important for us to talk about, though, is how 

those proposals might be scored. Currently the CBO is constrained 

by having to score the cost of these college aid programs under the 

Federal Credit Reform Act, and under that scoring, for the 10-year 

period 2015–24, because it does not account really for varying economic conditions or loan defaults, it is actually showing that the 

student loan program saves the American taxpayer, in other words, 

reduces the deficit by $135 billion over 10 years. 

But if you use a fair-value basis, if you actually account for 

tougher economic times, varying economic times, and defaults, it 

would actually cost the Federal Government $88 billion over that 

10-year time frame. 

So I think it is important, if we are looking at pieces of legislation, that we actually take a look at the fair-value cost and the effect it has on the deficit. 

And then I think finally the only thing I want to talk about is 

another potentially unintended consequence of some of these programs designed to forgive loans. In 2007, Congress passed into law 

the College Cost Reduction and Access Act of 2007. It established 

a new public service loan forgiveness program that discharges any 

remaining debt after 10 years of full-time employment in the public 

service. The borrower must have made 120 payments a part of the 

direct loan program in order to obtain this benefit. In other words, 

they have to keep their—you know, they cannot be in default over 

the 10-year period while they are working for the public sector. 

Now, Politico wrote a column on this and said that law schools 

looked at the new laws and saw an opportunity. Income-based 

monthly statements are lower than standard payments so the 

schools could cover graduates’ payments entirely for the first 10 

years. The money for law school repayment assistance programs 

usually comes out of tuition mostly paid with Federal student 

loans. Do you understand what I am saying there? So the law 

school is gaming the system. They are saying, ‘‘Oooh, so all we 

have to do is we will make the loan payments for our graduate students for 10 years, and at that point the American taxpayer will 

pay for our law degrees?’’ 
334 

At Berkeley, for example, it is part of the fee that all professional 

degree students pay. At Georgetown, 350 borrowers are taking advantage of this program. At Berkeley, there are 263. 

By the way, the average student debt of a law graduate of Georgetown is $150,000. At Berkeley, it is $115,000. 

And the Wall Street Journal wrote about this, too. It is not just 

Berkeley and Georgetown. Columbia University and University of 

Chicago are also doing that. And until recently, Georgetown had on 

its law school website basically talking about how the school’s aid 

combined with the Federal plan ‘‘means public interest borrowers 

might not pay a single penny on their loans ever!’’ A school spokesman has said the statement was removed this year. So, again, I understand that this $3.5 trillion a year entity called 

the Federal Government and the student loan program and all 

these aid packages are all well-intentioned programs. But I think 

we have to honestly take a look at the reality of the situation and 

look at the very severe and serious negative unintended consequences of our good intentions, part of that being that we have 

collectively enticed our children to incur $1.2 trillion in student 

loan debt that now we are trying to figure how to solve that problem that the Government has caused. 

Thank you, Madam Chair. 

Chairman MURRAY. Thank you. 

We are going to turn to our witnesses. Again, Ms. Jones, thank 

you for coming and sharing your personal experiences. We are 

going to start with you. 

STATEMENT OF BRITTANY JONES, FORMER PRESIDENT, 

STUDENT VIRGINIA EDUCATION ASSOCIATION 

Ms. JONES. Good morning, Chairwoman Murray, Senator Johnson, and members of the Committee. My name is Brittany Jones, 

and I thank you for inviting me here today. 

My story starts as a second grade student at Birdneck Elementary School, when the decision was made. I, Brittany Jones, selfproclaimed mathematician and resident drama queen, declared to 

the world that I would become a second grade teacher. With little 

deviation, I pursued this plan throughout my studies, then as a 

teacher intern in Henrico County Public Schools, followed by receiving my bachelor’s degree from Virginia Commonwealth University in early and elementary education. 

It was during high school when our counselors first began the 

conversations about attending college. They talked in detail about 

scholarships and grants and financial aid awards. Naturally, I assumed everyone could attend college. It was not until I was accepted and learned the amount of financial aid I would be offered that 

I feared I could not attend. After conversations with my financial 

aid counselor and various chats with my parents regarding the necessity of a college degree, I made the decision to enroll with the 

assistance of student loans and pursue my dream of becoming a 

teacher. Unfortunately, the cost of attendance constantly increased 

while the grant funds decreased. 

Upon graduation in 2011, the joy of completing the first portion 

of my program was overshadowed by the truth that I had borrowed 

well over $70,000 in student loans from various sources—Federal 
335 

subsidized, unsubsidized, Perkins, and personal loans. And still, I 

needed to complete another year of school, which was required to 

get my teaching certification. I, like many of the students I encountered as the Student Virginia Education Association President, was 

facing the difficult decision of whether to continue my education 

and follow my dream of being a teacher or seek immediate employment. 

I recall one student who, having borrowed the maximum amount 

of student loans allowed for one school year, was unable to fill the 

gap in his cost of attendance. He later withdrew from the university and never returned. Another student, who, ironically, served as 

our chapter treasurer, also left school for financial reasons. A fulltime student in the master’s program, she also had a job in sales 

and was offered the position of store manager. Faced with the decision of incurring more student loan debt, she decided becoming a 

teacher was no longer the career path she would follow. For me 

personally, when confronted with the decision to borrow another 20 

grand, $20,000, to complete my program, I decided it was best to 

postpone attendance. 

Immediately after commencement ceremonies, I drove to an 

interview for a preschool teaching job, got it, and began teaching 

the following Tuesday. I was excited to have a position, despite the 

low wage of $10 an hour, because unlike many of my colleagues, 

I was working in my desired field. I was the lead teacher in my 

own classroom. I was elated—until the loan statements started to 

come. 

Because I owed approximately $60,000 in Federal loans at the 

time and I was working full-time, I had to start paying them back. 

This proved problematic. They figured I would be able to afford 

paying $600 a month. I was making $10 an hour and paying over 

$900 in rent and insurance and other expenses a month Fortunately, my parents were able to help with some of the payments 

to keep the loan in good standing. 

This continued for a few more months until I lost my job. In 

2012, I received notice that I had defaulted on the remainder of my 

Federal loans, totaling approximately $58,000. A nice gentleman 

from the loan company called and requested the date by which I 

could send the $58,000 check or money order. After a laugh or two, 

he then said he would be happy to help set up a payment plan. He 

put in the calculations and determined I would be able to pay $653 

a month. At this time I was working as a pre-kindergarten teacher 

making $13 an hour and paying $783 in rent, with more payments 

for utilities and insurance bills. Again, simple math: the numbers 

did not add up. I worked as many as three jobs at once just to 

make my monthly payments. 

Now, 2 years later, I was finally cleared to apply for financial aid 

and return to school to pursue my master’s. As you can imagine, 

the ordeal I went through with my student loans made this decision a weary one. So the search for alternative programs began. I 

did not want to collect any more student debt. My goal is to become 

a classroom teacher, not a teacher with more loan debt than she 

makes in a year. 

This search led me to find the Denver Teacher Residency program. Through this program, which I will begin this summer, I will 
336 

become a highly qualified educator with a master’s degree. All fees 

associated with the cost of attendance will be repaid upon completion of the program, which includes 4 years teaching in Denver 

Public Schools. 

This program is promising, and it is an exciting time in my life. 

Yet almost $50,000 still awaits repayment. Student loan debt has 

been the driving force of my decisions for the last 8 years of my 

life, and according to my current repayment plan, it is projected to 

be for the next 25 years of my life, well into the years for which 

I should be planning a retirement. It should not be this way. 

Senators, you have the power to make sure that it is not this 

way any longer. You can take actions to help make college more 

affordable so that students have a fair shot at pursuing their 

dreams. Degrees not debt should be our collective goal. I urge you 

to help increase student aid, especially for those who need the most 

financial help. I urge you to help make student loans more affordable, including by allowing refinancing of those loans, as legislation 

from Senator Warren would do. And I ask you to look for ways to 

make careers in public service, like teaching, more attainable by 

expanding loan forgiveness programs. 

Thank you, Chairwoman Murray, and the members of this Committee for the opportunity to share my story today. 

[the prepared statement of brittany jones follows:] 
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Chairman MURRAY. Thank you very much for coming and sharing that with us. 

Mr. Chopra? 

STATEMENT OF ROHIT CHOPRA, ASSISTANT DIRECTOR AND 

STUDENT LOAN OMBUDSMAN, CONSUMER FINANCIAL PROTECTION BUREAU 

Mr. CHOPRA. Chairman Murray, Senator Johnson, and members 

of the Committee, thank you for the opportunity to testify today 

about the potential impacts of student debt. 

You know, the financial crisis destroyed trillions in wealth for 

families preparing to send a child to college and contributed to 

large increases in student debt owed by Americans who have already graduated. 

In addition to considering how to make college affordable for fu- ture students, we cannot ignore the impact of the $1.2 trillion already owed by more than 40 million Americans. There has been growing consensus that today’s $1.2 trillion can 

have repercussions that threaten the broader economy. The Treasury Secretary remarked that student debt is ‘‘hampering our economy across multiple sectors of society,’’ and the Federal Reserve 

identified student debt as a risk to aggregate household spending. 

Executives in the banking industry have also cautioned that the 

condition of the student loan market ‘‘is now having a significantly 

negative impact on students, the economy, and taxpayers.’’ 

According to a survey by the National Association of Realtors, 49 

percent of Americans cited student loan debt as a ‘‘huge obstacle 

to homeownership.’’ And the National Association of Home Builders 

noted that student debt can impair the ability for graduates to 

qualify for a mortgage. 

Higher debt burdens might not only delay household formation 

but also other large purchases. America’s largest auto maker has 

cited the overhang of student debt as a key factor explaining the 

low levels of car purchases by young people. 

Student debt can hamper entrepreneurship. Preliminary research on student debt and small business formation finds a negative correlation between changes in student loan debt and formation of certain small businesses. 

It may also have a longer-term effect on future retirement security. Young workers who save early for retirement can generate significant retirement assets over the course of their careers. But student debt may be stopping workers from even contributing at all. 

The same can be said about the impact on labor market outcomes. The American Medical Association noted that high debt burdens can impact the career choices of new physicians, leading some 

to abandon primary care altogether. Student debt can impact the 

availability of other professions critical to the likelihoods of farmers 

and ranchers in rural communities. For example, veterinary students are graduating with debt averaging over $150,000 per borrower, making it less likely they can make ends meet in a dairy 

medicine or livestock management practice. And the list goes on 

and on. 

There are several areas that warrant attention: servicing, loan 

restructuring and refinancing, and data availability. 
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First, to servicing. As the financial crisis unraveled, many Americans faced improper foreclosures due to mistakes from their mortgage servicer. And I am concerned that inadequate servicing may 

be contributing to our growing student loan default problem, now 

topping 7 million Americans in default on over $100 billion in balances. 

Last month, after referrals from the CFPB, regulators ordered 

Sallie Mae to pay nearly $100 million for violating multiple laws, 

including illegal treatment of servicemembers with student loans. 

Second, unlike other markets, refinance opportunities for student 

loan borrowers are few and far between. When mortgage borrowers 

see broader interest rates plummet, their own incomes rise, and 

their credit profiles improve, they try to refinance. Responsible student loan borrowers rarely have these options. 

Third is student loan market transparency which we must address. As Fed Chair Janet Yellen has noted, regulators ‘‘missed 

some of the important linkages whereby problems in mortgages 

would rebound through the financial system.’’ Currently, financial 

regulators and the public lack fundamental information on student 

loan origination and performance. Unsurprisingly, the drivers of 

prepayment, delinquency, and default in the student loan market 

are not well understood, and we must work to close the transparency gap. 

In conclusion, we must ask ourselves: How do we preserve the 

drive to succeed for so many who feel that the dream is just now 

out of reach? Ignoring the warning signs may prove to hold back 

not only the future growth and dynamism of our economy but also 

our entrepreneurial spirit. Addressing these concerns in the near 

term may pay dividends for many years to follow. 

Thank you again for inviting me to participate today, and I look 

forward to your questions. 

[The prepared statement of Mr. Chopra follows:] 
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Chairman MURRAY. Thank you very much. 

Dr. Vedder? 

STATEMENT OF RICHARD K. VEDDER, PH.D., DISTINGUISHED 

PROFESSOR EMERITUS OF ECONOMICS, AND FACULTY ASSOCIATION, CONTEMPORARY HISTORY INSTITUTE, OHIO 

UNIVERSITY, AND DIRECTOR, CENTER FOR COLLEGE AFFORDABILITY AND PRODUCTIVITY 

Mr. VEDDER. Thank you, Senator Murray, Senator Johnson, and 

other members of the Budget Committee. I wish to make three 

points. 

First, the current student loan debt crisis would never have happened had college costs increased at the general rate of inflation. 

The primary cause of the student debt problem is increased university fees. You must deal with the root cause of this, namely, runaway college cost inflation. 

Second, there are many reasons for this university price inflation, several of which I mention in my written statement. But one 

that is relevant here is that rising tuition fees are partially caused 

by Federal student financial assistance programs themselves. The 

programs themselves are part of the problem. Any significant successful solution to the problem of rising college costs will work only 

if you radically change the nature and magnitude of Federal finance. 

Third, we are at or near a tipping point, where fundamental 

change will come to higher education. These changes are starting 

to happen. I believe many policy proposals gaining prominence 

these days do not fundamentally address the broader problems 

and, indeed, would likely worsen rather than improve the situation. 

Now, Table 1 looks at the inflation-adjusted increases in tuition 

fees for various years over the last 75 years, along the lines of Senator Johnson’s earlier comments. We see that for the first half of 

that period, tuition fees tended to rise about 1 percent more than 

the overall inflation rate; but since 1978, inflation-adjusted tuition 

growth has about tripled to well over 3 percent a year. 

If college tuition inflation since 1978 were what it had been before that day, say 1 percent a year, tuition levels today would be 

almost 60 percent lower than they actually are. Public 4-year university tuition levels would be in the $3,000 to $5,000 range instead of $7,000 to $12,000. Student loan volume would be dramatically less. 

It is a bigger burden, for example, for a citizen of Indiana to send 

their child to Purdue University today than at the end of the Great 

Depression. Even room and board charges far outdistance food and 

housing inflation rates. Solve the tuition fee problem, you will dramatically reduce the student loan debt crisis. 

Now, there are many explanations for rising tuition fees, and 

three are discussed in my written testimony, but the most relevant 

here is the explosive growth in Federal student financial aid, and 

this has contributed importantly to rising tuition fees. There will 

be no permanent solution to the debt crisis without reining in Federal programs. 

There are many ways to downsize these programs to make them 

more progressive, which liberal Democrats should like, but also 
359 

smaller and cheaper, which Republicans should like. Existing programs have failed miserably in providing greater access for lowerincome Americans. The proportion of recent college graduates coming from the lowest quartile of the income distribution is smaller 

than it was in 1970—before Pell grants or huge student loan programs. Rising income inequality has been associated with more 

Federal student financial aid assistance, and I do not think that is 

coincidental. 

In my written testimony, I show concerns about several administration initiatives, including the college rating system and gainful 

employment regulations. But I want to briefly comment on the proposal of Senator Warren to lower interest rates on loans to past 

borrowers. I think this is a bad idea, for several reasons, beginning 

with the fact that it does utterly nothing to address college tuition 

inflation. Conscientious payers of debt obligations end up getting 

punished relative to non-payers who get lower interest rates. A bad 

message. It will also add tens of billions of dollars to the deficit and 

national debt. There are other objections as well. 

We may be, as Senator Johnson hinted, overinvesting in some 

ways in higher education. The advantages of getting a degree are 

actually starting to decline, not increase, particularly for young 

graduates. We need to reduce our aid programs, probably doing 

away with tuition tax credits and PLUS loans and constraining 

other grants. 

There are no painless solutions, but merely doing more of the 

same, lower interest rates, more loans, will worsen this situation 

and probably enhance, not reduce, income inequality in America. 

Thank you very much. 

[The prepared statement of Mr. Vedder follows:] 
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Chairman MURRAY. Thank you very much. I really appreciate all 

of our witnesses today. 

For your information, there is a lot of attendance today, obviously a discussion that many people are interested in. We do have 

a series of four votes beginning in about a half-hour, so I am going 

to be very strict with the time clock today and allowing 5 minutes 

to each Senator, and we will be calling on people in order of arrival. 

So, with that, Ms. Jones, I wanted to start with you, and thank 

you for sharing your story and being here today to testify. Your 

story really resonates with me. All of my brothers and sisters and 

I went to college on Pell grants and student loans to finance our 

education, and I taught young children early on in my career, 

which is what got me into politics. But the financial burden of student loan debt is considerably more than when I graduated, so I 

share your understanding and appreciate your being here. In your testimony, you said that you paid over $600 a month to 

cover your Federal student loans. How much was your monthly 

take-home pay at that time? 

Ms. JONES. At that time my monthly take-home was roughly 

$1,500. 

Chairman MURRAY. Okay. And do you have any money saved? 

Ms. JONES. I do not. I have been using my savings to pay back 

the loans that I have taken out for my undergraduate degree. 

Chairman MURRAY. When you ran into difficulty repaying all of 

your loans, did your servicer offer any alternative repayment plan, 

like the income-based repayment option? 

Ms. JONES. They did not. I did not learn of the program until 

very recently, and I believe had I been offered that program, my 

payments would have been roughly $150 a month as opposed to the 

$600 a month I was paying. 

Chairman MURRAY. So if you had been able to take advantage 

of the IBR, you would have reduced that payment to $150? 

Ms. JONES. Yes. 

Chairman MURRAY. Do you know how much you would save if 

you had been allowed to refinance your student loan? 

Ms. JONES. Over 10 years, I would have been able to save more than $4,000. 

Chairman MURRAY. More than $4,000. How would that have impacted your life? 

Ms. JONES. Well, as educators, you know, we always have to buy 

materials for the classroom because funding is limited, so I think 

having the extra funding available would make life easier. Definitely I would be able to save for the future, and I would be able 

to plan for retirement as opposed to wondering if it will be possible. 

Chairman MURRAY. So I have to speculate that if you had known 

about IBR, you would be in a much better place today. But nobody 

told you. 

Mr. Chopra, thank you for being here as well. You have worked 

directly with a lot of student loan borrowers, and your reports have 

talked about some of the macroeconomic consequences. But let me 

ask you, have you encountered a lot of stories like Brittany’s? 

Mr. CHOPRA. Yes. One of the top issues that a borrower has identified is difficulties repaying, restructuring, and rolling in loan 
374 

modification programs and staying current to avoid delinquency 

and default. 

Chairman MURRAY. So our servicers are not reaching out and 

helping young people, or even adults, learn what their options are 

today? 

Mr. CHOPRA. Well, we learned a very painful lesson in the years 

around the financial crisis and the mortgage servicing market. 

There is some fundamental incentive misalignment where what 

may be good for the loan owner or the investor and what may be 

good for the borrower is not actually the outcome. And market 

forces, due to modern structured finance, can often cause terrible 

outcomes for everybody. 

Chairman MURRAY. I have heard from a lot of people today who 

are paying back loans that they do not know how much they owe; 

they are having trouble getting that information; they do not get 

yearly statements. Brittany is nodding her head. Is that something 

that you hear a lot as well? 

Mr. CHOPRA. Well, I think it is not actually just not knowing 

about it. It is also—we hear from many borrowers, and we see it 

in the data, that a number of borrowers are reaching out and are 

seeking help, but are often told to choose forbearance. You know, 

we have continued to hear complaints from servicemembers and 

military families that they call about their Servicemembers Civil 

Relief Act benefits and are simply told, ‘‘Well, you know, you just 

do a military forbearance.’’ That option will keep interest accruing. 

It will make the debt burden harder. But it is certainly easier for 

the servicer to accomplish rather than actually walking them 

through the steps to enroll in their legal entitled benefits. 

Chairman MURRAY. So it is hard for them to get good information personally about what they should be doing. Okay. I have 

about 50 seconds left. Tell me, in the last 50 seconds, some of the 

larger implications for our economy. 

Mr. CHOPRA. Well, in our discussions with the banking industry, 

particularly the housing industry, there is general concern about 

increasing debt-to-income ratios. So while the advantages of going 

to college, the differential between college graduates and non-graduates, is growing, most of that is growing because non-college graduates’ wages are slipping. So if college graduates’ wages are still 

much higher but generally flat when controlling for inflation, but 

debt, which is growing actually even faster than tuition costs, that 

means that less ability to create new credit, whether it be for mortgages or to use those funds for other productive purposes. 

Chairman MURRAY. Okay. Thank you, and my time is out. 

Senator Johnson? 

Senator JOHNSON. Ms. Jones, first of all, thanks for coming to 

testify, and to all the witnesses. Did any either high school or college counselor ever go through the calculation of taking on student 

loan debt and how you would be able to repay it based on the type 

of profession you were looking at? 

Ms. JONES. They did not. Actually, when we started the conversations about college, they simply, you know, let us know you 

can apply for millions of dollars in scholarships and grants; they 

are available, you just have to apply for them, and you can talk to 
375 

your financial aid counselor about the other options for paying for 

college. 

Senator JOHNSON. So did you ever talk to a financial aid counselor that talked about, you know, the ability to repay? 

Ms. JONES. Not in the initial stages. They simply were saying 

you have this much of a balance, you can pay with it using this 

financial aid package of your subsidized or unsubsidized loans, and 

you can take them if you want, or you can borrow from your family. 

Senator JOHNSON. Do you wish you would have had, like I had, 

a finance professor kind of talk about—I mean, in other words, if 

you could go back in time, would you do the same thing over again? 

Would you incur this much debt? Would you try and figure out 

maybe a different solution? 

Ms. JONES. In my experience and for my profession, a college degree was absolutely necessary. There was not—the option to not 

get a degree was not available. So I would do it because ultimately 

my goal is to become a teacher. 

Senator JOHNSON. Have you ever heard of the College of the 

Ozarks? They go by the moniker of ‘‘Hard Work U.’’ It is basically 

a college university set up where all the students work, and it is 

really set up so that nobody incurs debt. Does that sound like kind 

of a good idea to you? Would you like—again, to get a college degree, I agree with you, we are all talking about it is a great investment. But if it is a great investment, the amount of loans ought 

to match it so you ought to be able to handle those when you get 

all done. 

Ms. JONES. It should, and that is why I think being able to refinance the loans that we have would be a great benefit for students 

like me because the loans made it possible. There was no other 

funding available to go to school. And, of course, we have to have 

our degrees to teach. 

Senator JOHNSON. Right. 

Ms. JONES. You do not want an unqualified teacher in the room, 

and I do not see myself doing anything else. So whatever it takes 

to get to a classroom, that is what I will do. But I think we need 

to look at what we can do to make it possible for everybody to get 

the degree they want and not the loan debt to go along with it. 

Senator JOHNSON. First of all, God bless you for being willing to 

teach our kids, and, you know, we certainly all wish you the best 

of luck. 

Mr. Chopra, you said that student debt is hampering our economy, hampering entrepreneurship, hampering a lot of good stuff. 

How would shifting this debt from a select few to all of our kids 

and grandkids, how would that help our economy, help entrepreneurship? Because that is all we would be doing here, right? Really 

shifting the debt burden from those that incur the debt to all of our 

kids and grandkids, because we are already in deficit and we cannot afford it and it is just going to be piling additional debt on our 

kids and grandkids, correct? 

Ms. HOOVER. Well, being able to refinance a loan in other product markets, such as the mortgage market, when broader interest 

rate environments change, it is common not only for homeowners 

but also for the corporate sector as well as the Government to be 
376 

able to match their debt to something that potentially reflects better their own broader interest rates, their credit profile— 

Senator JOHNSON. Let me interrupt. Let me interrupt. Are you 

supportive of the—I am trying to think what—that act I was talking about, the 2007 act that basically forgives student loan debt 

after 10 years of working in the public sector? Are you in favor of 

that? 

Mr. CHOPRA. We do not know the results of that yet. Nobody has 

actually received forgiveness from that program. 

Senator JOHNSON. But, again, forgiveness will come on the backs 

of the American taxpayer or additional debt burden on our kids 

and grandkids, correct? 

Mr. CHOPRA. Well, that is Congress’ decision about how to allocate— 

Senator JOHNSON. I understand. I am just asking, are you supportive of that program? And, again, I am going to your comment. 

How does that not hamper our economy, not hamper entrepreneurship, if we shift the debt burden from a select few to all of our kids 

and grandkids? I am just trying to point out what is actually happening here. 

Mr. CHOPRA. Well, the distribution of the debt burden, it will 

come in multiple different sectors, but I think the marginal propensity to consume for young people who are at prime ages of homeownership, who are at prime ages of purchases of durable goods, 

this is something that is of great worry to the financial sector, to 

a number of other industries— 

Senator JOHNSON. But our debt burden is not—so there may be 

higher propensity to spend in some sectors, but there will be a 

lower propensity because of the debt burden. 

Let me ask you, are you disturbed about the Politico and the 

Wall Street Journal stories I was reading about, how the law 

school graduate schools are gaming that program? Does that concern you? Because it sure concerns me. 

Mr. CHOPRA. As we saw in the run-up to the financial crisis, the 

incentive misalignment between those who broker loans or offer 

loans and their alignment with investors or others can lead to very 

disastrous consequences. I do not know the specifics of the schools 

that you mentioned, but aligning incentives between schools, between financial services providers, and others is critical to ensure 

that market outcomes are efficient. 

Senator JOHNSON. Okay. Thank you. 

Thank you, Madam Chair. 

Chairman MURRAY. Thank you. 

Senator Whitehouse? 

Senator WHITEHOUSE. Thanks very much, Chairman. 

One of the noteworthy things about student loans—and they 

stand out from virtually all other debt in this respect—is that 

somebody wangled a provision into the Bankruptcy Reform Act 

years ago, a somebody who has left no fingerprints on the amendment—I think it was actually snuck in in conference—and to this 

day nobody takes credit for it. But it snuck in and became the law 

of the land, and it provides that student loan debt is not dischargeable in bankruptcy. Bankruptcy is provided for in the Constitution. 

It is one of the sort of elemental principles of American entrepre-
377 

neurship and success, that you have the ability to fail, to pick yourself up and get back in there and do it again. And virtually every 

type of debt is dischargeable in bankruptcy except student loan 

debt. 

Mr. Chopra, is there an economic justification for bankruptcy 

debt being treated differently than any other kind of debt in that 

respect? Or was that more in the nature of an unexpected blessing 

to the then largely privately held student loan industry? 

Mr. CHOPRA. Well, pursuant to a report that was required by 

Congress for CFPB and the Department of Education to publish, 

we analyzed data related to student loan originations, particularly 

private student loans, throughout the past 15 years or so. And the 

2005 change in the Bankruptcy Code, one would anticipate that in 

an ordinary marketplace prices would come down as Bankruptcy 

Codes become more strict. But, in fact, we saw that prices actually 

went up, and this suggests that broader capital markets’ conditions 

may be larger contributors to pricing in some of these markets. 

And it also suggests that as a general matter the Bankruptcy Code 

is operating in a very different way in the student loan market as 

it compares to other consumer financial product markets. 

Senator WHITEHOUSE. We have had representatives from the private student loan industry come in and testify that it would be 

wrong to unwind this stealth provision that was snuck in the dark 

into this provision because it would upset the settled expectations 

of the loan industry, which is—I mean, Congress is a hall of irony 

from time to time, but it is particularly ironic that an industry that 

snuck this in in the middle of the night, upsetting every settled expectation of borrowers as to how their loans would be treated, now 

try to defend themselves by the rule of settled expectations. I hope 

that this is an issue that we can address, because I do not believe 

that there is any rational distinction between student loan debt 

and other kinds of debt. 

Ms. Jones, thank you for your testimony. You have been a terrific 

witness that has brought a real dose of reality to this hearing. How 

has your student loan debt affected other personal decisions in your 

life, like to own a home, to have a family? How has that burden 

of debt changed what you might do with your life? 

Ms. JONES. I have this conversation with my mother a lot, because she has now asked maybe 15 times why is it that I am still 

pursuing the education field. Actually to pay for some of my college 

education, she borrowed against her own retirement so that I 

could, in fact, become the teacher I want to be. And the decision 

to stick with education was driven because of the desire to want 

to see the future generations have the same chances we had. 

I will say the decisions to take out more student loans made 

going back to school a hard decision to make, as referenced in my 

testimony. I could not justify using more of my mom’s retirement 

even just to pay for the master’s. 

Senator WHITEHOUSE. And what has it done to your likelihood of 

owning a home? 

Ms. JONES. Well, considering I do not have any funds right now 

for a downpayment, that has been put off for a few years. But 

hopefully in the future I can work something out or we can work 
378 

something out with the refinance bill so that I can start saving 

again. 

Senator WHITEHOUSE. Thank you, Ms. Jones. 

Thank you, Chairman. 

Chairman MURRAY. Senator Ayotte. 

Senator AYOTTE. I want to thank the Chair. 

I wanted to just ask, Mr. Chopra, do we know—do we have an 

estimate by the administration yet as to how many student loan 

borrowers would actually take up the potential option to refinance 

their pre-July 2013 student loans? And so do we have a sense of 

what numbers we are talking about? And, also, do we have an estimate of what that will cost? I just think it is important so we understand given the challenges we are facing as a Nation as we look 

at this piece of legislation. Do we know what those numbers are 

yet? 

Mr. CHOPRA. Senator, the CFPB is actually an independent agency, not part of the administration, so I do not have that type of 

analysis available. What I can say is that we do know from our experience in various mortgage financing programs that the economic 

impact of individual mortgage refinancings, according to a study by 

the Department of Housing and Urban Development, led to approximately $25,000 of economic impact per homeowner who was 

able to refinance. 

Now, that being said, a mortgage is a much larger loan, but then, 

again, a younger person with student debt may have a higher likelihood to be in prime age for certain purchases. But, again, I cannot speak to that. 

Senator AYOTTE. Yes, I mean, what I am just trying to get at are 

the basics. How much more are we going to add to the debt? How 

much more is this going to cost? I mean, we ask this important 

question about every piece of legislation because it is basic information. 

Dr. Vedder, perhaps with your background, let us start with 100 

percent of borrowers. And we do not know that 100 percent of borrowers will adopt this, and certainly there will be some ratio to 

that effect. But if 100 percent of borrowers were to refinance their 

pre-July 1, 2013, loans, or a large percentage, what kind of impact—do we have any numbers that we can think about here? 

Mr. VEDDER. I have not personally done any estimation of that. 

However, you can do—the math suggests the numbers could be 

very large. We have, what, 40 million borrowers, not all of them 

prior to 2013, but most of them. So you have close to 40 million 

borrowers borrowing on average $25,000 or $30,000. So you are 

talking over $1 trillion. 

Just say for the heck of it you lowered interest rates 2 percent- age points on $1 trillion, that is $20 billion a year. That is real 

money. It is probably less than that. 

I have seen one estimate of the deficit effects measured in the 

tens of billions of dollars over a long period of time. So I think it 

is a consequential amount of money. 

Senator AYOTTE. I think it is an important piece of information 

that I would hope we would have. 

Mr. Chopra, I wanted to ask you about this issue that Dr. Vedder 

raised because I think it is a very important issue. In fact, it is an 
379 

issue that I hear from parents and students. We are going to get 

to a point where if the rate of increase of what it costs to get a college education keeps going up at that rate, no matter what we invest, the Federal Government, if we are thinking that we are going 

to be able to help, you know, the debt burden of someone like Ms. 

Jones, then if it is going up higher than—you know, I do not know. 

It may not be going up higher than health care, but, you know, this 

is a big issue in terms of how high it is going. How do we get at 

that issue? And if we are going to with our investment, how do we 

get to more accountability for these institutions to actually have to 

really be market-based, think innovatively, and deliver quality education at a more reasonable price? Because to me this is a big issue 

that is going to just hit us all no matter what we do here. 

Mr. CHOPRA. Senator Ayotte, I completely agree. The rise in college costs is an American tragedy, and we should do everything we 

can to make sure that those people who are going to college this 

fall, the class of 2018, the class of 2019, that they do not incur a 

lot of debt. But we cannot ignore the class of 2008 and the class 

of 2009 who graduated almost by no fault of their own when they 

were—started as freshmen in 2004, they could not probably imagine that they would graduate into a financial crisis. And that is 

something that we have to work on both ends, and it is not just 

looking at one of those issues but both. 

Senator AYOTTE. Well, I appreciate that. But obviously we are 

going to look back on all of pre-July 1, 2013, loans as a large number of people, and it seems to me I would like to take that—have 

you answer that question for the record. We are investing already—regardless of what we do in legislation—a lot to help students in this country get a good education. And I would like to 

know what your thoughts are on how we hold these institutions 

more accountable, how we force them to actually make— 

Chairman MURRAY. Senator Ayotte, we have a lot of Senators 

and votes coming, so I will have him answer for the record. 

Senator AYOTTE. I appreciate that. Thank you. 

Chairman MURRAY. Senator Baldwin. 

Senator BALDWIN. Thank you, Chair Murray and Senator Johnson. I appreciate both of you for hosting this hearing on such a critical issue. 

The statistics are staggering nationally with $1.2 trillion in student debt. I look at the statistics for my home State of Wisconsin: 

70 percent of students in Wisconsin are graduating with an average today of $28,000 in debt. And these numbers I think starkly 

demonstrate that there is a student loan debt crisis facing our Nation. 

Again, in Wisconsin, individuals with a bachelor’s degree report making average monthly payments of about $350; graduate and 

professional degrees are making average monthly payments on 

their student loans of $448. And that is just an average figure. Obviously it varies below and above. 

The length of student loan debt obligations was nearly 19 years 

for persons with bachelor’s degrees and over 22 years for persons 

with professional degrees. And as we have heard through your testimony and the questions so far, this fact, these statistics are underscored by millions of personal stories and anecdotes, and they 
380 

affect personal decisions, as I have heard testimony in roundtables 

that I have held in Wisconsin on this issue, people literally deciding whether and when to start a family because of the impact of 

this debt, the career decisions that Ms. Jones has talked about. You 

know, there are a lot of folks who are getting a higher education 

because they want to teach or because they want to do public service or work for a nonprofit or a community-based service organization. And yet the level of debt constrains their career decisions and 

career choices. 

And then financial decisions, we have heard a little bit of testimony and discussion on that. You know, you get out of college and 

start a business or put that off. Do you get out of college and do 

you rent? Do you buy? Do you move back home with your parents? 

I have heard a lot of people facing those choices in their late 20s, 

early 30s. Do you buy a used car? Do you buy a new car? All of 

those have rippled effects throughout our entire economy. 

And so I am glad, Ms. Jones, that you have been talking about 

it in, you know, your own—sharing your own story, and so many 

have stepped forward to do that, because this is a crisis we need 

to confront. 

I have in my very limited time just sort of two questions I wanted to pose to Mr. Chopra about a couple of realities in our current 

law on student aid. I have heard from a number of students who 

have to hold down part-time work, sometimes almost full-time 

work, while studying. And they are hit with something that is 

known commonly as ‘‘the work penalty’’ because their incomes may 

exceed the income protection allowance that is part of the eligibility 

calculation for Federal financial aid under the Higher Education 

Act. 

I am working on legislation that deals with this work penalty, 

that would raise the income protection allowance, but I wonder if 

you can speak to the importance of the availability of financial aid 

to working students. 

Mr. CHOPRA. Well, there is no question that an enormous number of people return to higher education after being displaced from 

the labor force in the Great Recession and took on part-time jobs 

to support their families, and that is something we would be happy 

to discuss with you further. 

Senator BALDWIN. Okay. Well, I certainly know that that has 

been a reality in my home State, and many of the factories that 

were closed, you know, there were not a supply of a jobs without 

significant retraining. So we have heard a lot about that. 

The other thing I wanted to follow up on is the work you have 

done regarding servicers, you know, anything from simply failing 

to provide quality customer service to ignoring some of the legal obligations around notice and payment options and fees to certain 

borrowers. I have heard from people in Wisconsin about the challenges about getting quality information and the frustrations and 

the additional costs that come along with simply trying to pay back 

what they owe. 

A constituent from Marshfield wrote me recently about loans she 

took out for her daughter’s education and believed that she had finished paying it off years ago, only to find out of the blue that there 

were claims that she still owed money. 
381 

I am wondering if you can speak to how stronger requirements 

for student loan servicers like the ones—could give students valuable information? 

Mr. CHOPRA. Well, as I mentioned earlier, we learned a valuable 

lesson from the breakdowns in the mortgage servicing market. But 

I would also add we have learned as financial regulators from the 

past 10 years another very important lesson. In 2004, the Student 

Loan Marketing Association was privatized and operated as a private company for the past 10 years. It has since restructured and 

is a different entity. But despite the significant public benefits and 

subsidies that the successor corporation received, Sallie Mae was 

ordered in 2008 to stop breaking multiple laws. They continued to 

break those laws— 

Chairman MURRAY. Mr. Chopra, I am going to have to move on. 

We have got a lot of Senators who are waiting to ask questions, 

and votes are going to be called shortly. So if we could get an answer in writing on that, I would really appreciate it. 

Chairman MURRAY. I want to thank both Senator Warner and 

Senator Kaine for helping us get a witness from Virginia today, 

and I know that you both have questions, but we are going to go 

to—we still have Senators Merkley, Stabenow, Kaine, Warner, 

King, and Wyden, and a vote is going to be called shortly. So if any 

members want to go vote and come back, we will keep going as the 

votes are called. But we will go to Senator Merkley now. 

Senator MERKLEY. Thank you very much, Madam Chair. 

Mr. Chopra, one of the statistics that I find very interesting is 

that, in comparison to Germany, a year of college in Germany costs 

4.3 percent of the country’s median income. Here it is 51 percent 

of the country’s median income. How does that affect kind of the 

aspirations of students in those two nations? 

Mr. CHOPRA. Well, you know, the lack of affordability of college 

may not only impact the students themselves, but it also might impact the broader family balance sheet. 

As we saw, the rise in student loan debt was not only because 

college was increasing in cost, it was also because students themselves are bearing a larger share of total college costs compared to 

their parents or other sources. That means that because people had 

less equity, they had less savings, they dealt with unemployment 

themselves, those costs got shifted to students, so it may actually 

impact not only the student but the family’s aspirations themselves 

about how they will prosper economically over the long term. 

Senator MERKLEY. Does this reflect kind of a philosophical issue 

over whether education is a public good that not only benefits individual children but strengthens society as a whole? 

Mr. CHOPRA. Well, I am not a philosopher, but I believe—I get 

your point there, that the positive externalities of a more educated 

population benefits all of us. There is some empirical literature to 

suggest that. But at the same time, we need to make sure that people are completing, people are able to repay their student debt and 

their student debt does not displace other productive spending. 

Senator MERKLEY. Let me put it a different way. If colleagues of 

Ms. Jones are looking at the challenge of debt and are deciding, ‘‘I 

cannot pursue a path where I have the possibility of a millstone, 

a debt equal to a home mortgage, a millstone of debt around my 
382 

neck pulling me down because of the consequences of the struggle 

that is seen,’’ that not only impacts the individual, but doesn’t that 

impact the future prosperity of our entire society if folks in our own 

generation, in our student generation do not reach the fullness of 

their potential and their contribution back to the economy? 

Mr. CHOPRA. Yes, I think behind all the facts and statistics is a 

broader question about, you know, the American tradition of 

entrepreneurialism and risk taking, and, unfortunately, too many 

people feel that they cannot take those risks; they cannot start that 

small business out of their garage; they cannot start a family. And 

that is something we should think about. 

Senator MERKLEY. Well, let us think about how this amplifies, if 

you will, the inequality of wealth. If our students are unable to 

begin purchasing a home early in their life and, therefore—and 

homeownership is the major builder of personal family wealth for 

working Americans, doesn’t that amplify the inequality of wealth 

in our society? 

Mr. CHOPRA. Well, as I note in my testimony, there is a large gap 

in certain simulations of graduates who do have student debt and 

those who do not in terms of what those final outcomes might be 

for their retirement balances. So traditionally younger workers 

have been able to stash cash away for a home downpayment or 

saving for retirement, but if they are not able to make those early 

contributions, they lose those compounding effects. And so student 

debt, if it is soaks up some of that ability to invest and save, the 

long-term repercussions could be real. 

Senator MERKLEY. May amplify the inequality in wealth. Thank 

you. I just wanted to make that point. 

The thing that I am most concerned about is the impact on aspirations. I live in a working-class community. My children go to the 

same public high school that I went to. And what I am hearing is 

a feeling among high school students that there is not a path in 

which they have an opportunity to thrive, that is, to pursue their 

potential, which then affects actually their behavior in high school 

as to whether or not they are going to—how hard they are going 

to work to make that path possible. 

My concern here is that this is the heart of the American dream, 

that there is a full opportunity to thrive for every American, 

whether they are the child of a mechanic or the child of a janitor 

or the child of a CEO. Given this huge hurdle of college debt, is 

that really compromising that vision? 

Mr. CHOPRA. I mean, the change in aspirations from the stories 

that we are constantly submitting to the public record illustrate 

many of the themes you just discussed. 

Senator MERKLEY. Ms. Jones, would you like to comment on 

that? 

Chairman MURRAY. And I am going to have to interrupt because 

we do have votes occurring right now, and we will let you answer 

that for the record. But I appreciate the question. 

Chairman MURRAY. The Senators next to be recognized are in 

this order: Stabenow, Kaine, Warner, King, and Wyden will be returning. I am going to go vote and come back. I would suggest anybody who is on the end of that list go with me and come back, and 

we will continue this through the votes. 
383 

Senator Stabenow? 

Senator STABENOW. Thank you very much, Madam Chair, for 

hosting this critically important hearing. 

First, Ms. Jones, thank you for working hard and sticking in 

there and doing what is right, what everybody says, to work hard. 

And like most people, most of us when I was school, I did not have 

the capacity to turn to my parents and say, hey, can I borrow 

$20,000 or $30,000 or $5,000, or whatever it was. So most people 

are not in a situation where they have a lot of other options, I assume. And from what you are saying, you would be in the situation 

that I was. Fortunately for me, in the 1970s, we did a whole lot 

more on scholarships. I would not have gone to college. I was fortunate to get a bachelor’s and master’s, but top of my little 93-person 

graduating class in Clare, Michigan, my dad was very sick, we did 

not have a lot of money, and I qualified for a tuition-free scholarship for 4 years, and that got me to college. We do not have those 

anymore. 

When I look at the numbers, you know, unfortunately, the State 

of Michigan now is one of the highest in the country at cutting 

higher education, over 32 percent of the funding to universities and 

community colleges. 

Interestingly, the public universities have not increased tuition 

by that same 32 percent. Now, they have increased it about 19 percent, and that is more than we certainly would like to see. But they 

are taking significant cuts. 

What I find interesting is that the for-profit universities actually 

have increased their tuition twice as much as public universities. 

Twice as much. And 57 percent of the for-profit school grads are 

coming out with $30,000 or more in debt—57 percent rather than 

12 percent of public schools. 

So there are a lot of things involved in this, all of which we need 

to be looking at. But I do not think that we should say that in the 

meantime students should not have the same opportunity that all 

the rest of us have had when we want to finance a house, which 

is to get the lowest interest rates that are out there today. And I 

do also want to say before asking questions that the good news for 

this refinancing bill, unlike other things that Congress has done 

over the years—the bank bailout, all kinds of other things--you 

know, this is paid for. That is the good news on this one. So this 

is not adding to the deficit. What we are proposing is actually to 

ask everybody to chip in, pay their fair share to grow the economy 

and create a fair shot for everybody. So it is fully paid for. 

Dr. Vedder, I just have to say—I have to turn to you and say I 

am so very surprised at your testimony in terms of saying that we 

should reduce the Federal role and that we have too many graduates in our economy. Wow. I have to tell you, in Michigan, for 

Michigan, the Georgetown Center on Education and the Workforce 

has said there is going to be—out of the 1.5 million jobs expected 

to be created in Michigan alone in the next 6 years, a million of 

the million and a half will take education beyond high school. 

When I look at the National Association of Manufacturers who 

say there are 600,000 jobs available right now that we cannot 

match up skills, not all those are 4-year, maybe 2-year, in terms 

of community college, but when we look at the need on STEM, on 
384 

science and technology and engineering and match, and where we 

are going as an economy and so on, I am amazed that you think 

that we have too many graduates going into our economy. And I 

wonder if you might speak about that. 

Mr. VEDDER. Certainly. If you look at the Bureau of Labor Statistics data, of people who are working with college degrees in the 

United States today, nearly half of them are in jobs that the BLS 

at least has characterized as jobs that do not require 4-year degrees. 

Now, that statistic has to be taken with a little bit of a grain of 

salt. I am the first to admit there are judgment calls of what is and 

what is not. The unemployment rate among college graduates 21 

to 24, just right out of college, last year was above the overall U.S. 

unemployment rate. 

Ms. Jones’ story, which I think is a compelling story, is a story 

of someone who has worked hard and so forth, but she is making 

$10 an hour or $13 an hour. And this goes back to actually Senator 

Wyden’s great bill that wants to bring more information to the students before they make these wrong decisions. I think there is a 

huge information problem here. I see we are out of time— 

Senator STABENOW. Yes. 

Mr. VEDDER. Although I do not know who is running the hearing 

now, so maybe we are not out of time. 

Senator STABENOW. I think Senator Wyden is. 

[Laughter.] 

Senator STABENOW. Let me just say in conclusion that I do not 

hear anywhere from any business or anybody that I work with 

right now that we need less education for folks. But thank you 

again, Ms. Jones, and we are going to do everything we can to give 

you a fair shot to lower those costs so you can actually buy a house. 

Senator WYDEN. [Presiding.] Senator Kaine. 

Senator KAINE. Thank you, Senator Wyden, and thanks to the 

Committee members. 

Ms. Jones, as a Richmond resident like you, I really appreciate 

your testimony, and let me just read for the record again something you read, but I do not want it to pass unnoticed: ‘‘Student 

loan debt has been the driving force of my decisions for the last 8 

years of my life, and according to my current repayment plan, it 

is projected to be for the next 25 years of my life well into the years 

for which I would be planning for retirement.’’ That is a powerful 

statement. That is a powerful statement. 

I would like to be a student in your class because somebody who 

wants to be a teacher as much as you do, somebody who has been 

willing to take on your shoulders that much debt and still fight to 

achieve your dream of being a teacher, somebody who is willing to 

move halfway across the country to get a master’s degree, you are 

going to be—I know you are and are going to be one fantastic 

teacher. So I thank you for your commitment. 

I really want to focus on the cost of this equation, as Dr. Vedder 

did, bringing down the cost of higher education. I support so many 

of the issues on loans, the ability to refinance a student loan, but 

I really am focused on these cost issues. And I think we probably 

have done a disservice to students and their families by not laying 
385 

out in a more clear fashion as a public policy matter lower-cost 

ways to get the kinds of skills or degrees that you need to succeed. 

So, for example, one kind of skill you can get is not a college degree but a license or a professional credential. The Georgetown 

Workforce Center says that 27 percent of young workers with licenses or certificates earn more than those with bachelor’s degrees. 

It is not that you do not get education after high school, but sometimes the right education is an American Welding Society certificate—my dad was a welder—a Cisco Systems Administrator certificate. I do not think we coach and counsel our young people that 

there are ways to get the credentials to enable you to work that 

are not the same as higher education degrees. And most of our financial aid policies, you know, you cannot use, for example, military tuition assistance benefits, $4,500 a year to active-duty military, for college or community college courses, you cannot use those 

benefits to pay a $300 certification exam. It is foolish. 

Second, we have dual enrollment possibilities for students, and 

more and more States are embracing the notion that students 

while they are in high school should be able to get dual enrollment 

credits. You cannot use Pell grant credits, you cannot use the current Pell grant program to pay for college credits that you can obtain for a really cheap cost in high school with dual enrollment. 

That is a cheaper way to get college credit. I was able to graduate 

from college in 3 years because of dual enrollment, and it was enormously helpful to my family. My family could not afford the colleges I got into when I first applied, and they had to tell me when 

everybody else was celebrating their colleges, ‘‘You are going to 

have to go talk your way into someplace late, because everywhere 

that accepted you is too expensive for us.’’ 

But dual enrollment is a way to reduce college costs. AP credits 

are a way to reduce college costs. Two Plus Two programs, Ms. 

Jones, you know, a lot of students now today—this was not happening so much for me, but a lot of students now in your shoes are 

going to J. Sergeant Reynolds for 2 years and then going to VCU. 

And when they do that, their total cost shrinks. But for them to 

do that, somebody has had to sit down with them and counsel them 

about this as a path. You can get a 4-year degree from the same 

college you did, and it will be 25 or 30 percent cheaper if you start 

at the local community college. 

What this tells me is—I am concerned about debt, but I am probably most concerned about this college cost issue. And I do think 

there are already a number of pathways for people to get college 

degrees or the credentials and certificates that will enable them to 

work. But we have an obligation to provide better information. And 

we also have an obligation to provide policies that do not discourage or treat as sort of second-class education some of the things 

like the professional certificates and certifications. 

I would like to ask both Mr. Chopra and Dr. Vedder, in terms 

of the information provision—I know, Dr. Vedder, you have some 

concerns about the grading system, and I do, too, because I think 

grades could obscure more than they reveal in terms of quality. But 

in terms of providing students and parents with information earlier 

in their lives so they can make decisions, what more can we do at 

the Federal level using the leverage of the investment we make? 
386 

Mr. CHOPRA. Well, one of the things that we have noted is that 

it is also very difficult to even compute what the cost, true cost of 

college is for many families. Not only do tuitions change from year 

to year, but also it is a challenge to project what your monthly payment will be when you take on a certain amount of debt this year. 

So just like we saw in the mortgage market, where interest rates 

might reset or conditions change, people really are rolling the dice. 

The CFPB has created a number of tools to assist with this, but, 

of course, there can be more that should be done. 

Senator WYDEN. The time of the gentleman has expired. 

Our Chair has come back, and, Angus King, you are up. 

Senator KING. Thank you, Senator Wyden. Very good testimony. 

Thanks to all three of you. 

It seems to me that one of the things that we have talked 

about—and, Ms. Jones, you touched on this in your answer to questions from Senator Murray—is that there are programs like the income-based repayment that apparently have a very low uptake 

rate. Isn’t one of the things we should do, regardless of what we 

do about interest rates or refinancing, to make more information 

available to borrowers, both at the beginning and at the end of 

their schooling so they know what these options are? Ms. Jones, 

that would have helped you dramatically, apparently. 

Ms. JONES. It definitely would have helped in the beginning to 

know instead of—well, to know what I was getting into when I 

signed my promissory notes. I think at the beginning you are so— 

you were told, ‘‘This is what you need to get through college, and 

if you use this, then you can deal with it afterwards. But right 

now, you will not be incurring interest on your subsidized loans, 

take those first. Then you will take your unsubsidized loans, and 

we will talk about that more once you take your exit exam and 

your exit counseling upon graduation.’’ But what I realize is that 

in doing—even in not knowing, we are losing potentially great 

teachers. They are walking away from the profession because they 

cannot afford the education they need. 

Senator KING. Right, but there may be options that they have 

that they do not even know that they would have that would help 

them stay in the profession, which is absolutely what we want. 

Mr. Chopra, what about it? You have worked in this field. There 

are something like seven different repayment options. How about 

streamlining those, making it more available, making more information available? Isn’t that one thing we ought to do regardless of 

what else we do here? 

Mr. CHOPRA. Yes, simplicity of how to repay your loans I think 

is a very important goal. I am also struck by—I recently heard 

from a former employee, a student loan servicer, and they had told 

me that, you know, they are evaluated partially on how quickly 

they can get someone off the phone who calls them for help. So that 

can lead to very quick interactions or being transferred, and you 

might get the short cut answer rather than the answer that ultimately is better for the owner of the loan, for the borrower, and 

maybe even the economy more broadly if it avoids default. So addressing those incentives is also a major concern. 

Senator KING. I think that is something we really need to look 

at regardless of what else we do. 
387 

Mr. Vedder, I enjoyed your testimony. I will share with you a 

story that you can use next time. 

Mr. VEDDER. Okay. 

Senator KING. In a former life, I was a talk-show host, and I 

interviewed in the late 1970s a financial aid officer at one of our 

colleges in Maine. And we talked about college tuition and how it 

goes, and he said an interesting thing. He said, ‘‘You know, for the 

past 40 years, the cost of a good private college has been about the 

same as a new Ford.’’ In the 1940s, it was $1,000, and it gradually 

went up in the 1960s to $3,000. But something happened, because 

a new Ford today is about $20,000, and the cost of a private college 

education is approaching $60,000. 

I think we need to explore, Madam Chair, why that happened, 

have colleges come and tell us why what they sell has increased 

two and three times the rate of inflation and what it is they are 

buying that costs so much that is causing college costs—because we 

are talking about the financing costs, but the real underlying problem is the cost of the product. And as you pointed out, if tuition 

had risen at the rate of inflation since 1978, we would not be having this hearing. 

Mr. VEDDER. Exactly. 

Senator KING. And so we have got to be focusing on that. But 

I am concerned, and part of it is accountability. But I want to be 

sure when we talk about accountability and holding schools accountable that we apply standards such as gainful employment and 

graduation rates and those things, that we do not penalize those 

institutions that are taking higher risks with lower-income and 

not-college-experienced students. 

Mr. Chopra, would you comment on that? 

Mr. CHOPRA. The CFPB is not—we are not exploring that specific 

regulation. That is the Department of Education. What I can say 

is, though, aligning the incentives between the schools, whatever 

loan programs or financial services institution, and the students 

are important. And we want to examine how we can increase accountability so that outcomes are improved for everybody, regardless of where they come from. 

Senator KING. I think we all want to increase accountability. All 

I am saying is I think we have to be careful how we do it, that we 

do not inadvertently penalize the very students we want to get into 

the system by placing requirements that would be—that would disincentive—that is not really a word, that would punish schools that 

are taking the risks to bring those students—to give those students 

an education. 

Thank you all very much. Thank you, Madam Chair. 

Chairman MURRAY. [Presiding.] Thank you very much. 

Senator Wyden? 

Senator WYDEN. Thank you, Chair Murray, and thank you for 

your years of passion and commitment to this effort. And it is particularly timely right now. I think we understand that our students 

are just getting smothered with these costs and these bills. They 

are up to their eyeballs in debt, and this is having a huge effect 

on their ability to have the productive life that they would want, 

and it takes a toll in a myriad array of ways. 
388 

Recently, I was making a tour of college campuses in Oregon and 

talked about a piece of legislation I will describe in a minute, and 

a young woman came up to me and said, ‘‘You know, I owe 

$50,000, $60,000. What I want to do more than anything else is I 

want to have a family, and I am not convinced somebody will 

marry me when I am carrying around those kinds of debts.’’ 

And, you know, she teared up, and we talked about various kinds 

of options. But I think that is pretty representative of what is going 

on out there. This is taking an enormous toll, in effect putting students and young people in shackles. And it seems to me there are 

two kind of pieces to the puzzle. The first is we have got to help 

the students who are underwater, and I appreciated what you and 

other students have had to say about that, Ms. Jones, and whether 

it is refinancing, income-based repayments, I am open to a variety 

of different approaches. 

The second is a different kind of issue, and that is, making sure 

that not only do we get students in the door, but they get more 

value for their education. And Senator Rubio, Senator Warner, and 

I have introduced a piece of legislation called ‘‘The Student Right 

to Know Before You Go Act.’’ So for the first time it would be possible for students to get this information in one place and, heaven 

forbid, when students and families find out about a school that is 

doing a good job in terms of graduation rates, a lack of needed remedial education which you earn at a school, if a school is doing 

a good job and another school is not doing a good job, the other 

school better clean up its act or, you know, heaven forbid, market 

forces would kick in and that would, in effect, advance the schools 

that are doing a good job. 

My understanding—and I want to start with you on this, Dr. 

Vedder, but I know all three of you have views on this. To get the 

kind of data you need to really do this right, it is going to take a 

piece of legislation, whether it is the bill that Senator Warner, Senator Rubio, and I have or something close to it—and, by the way, 

other Senators have bills that, you know, for purposes of Government work it is close enough. And I think this is what is needed. 

Are we going to be able to get the data that we need to really set 

up this kind of seamless opportunity for students to get more value 

for their education along the lines of what I have kind of capsulized 

here this morning? 

Mr. VEDDER. Well, Senator, first of all, let me say I am very, very 

pleased that you have introduced this legislation, and I have written on it publicly on several occasions. It is ironic that the universities that are in the knowledge business are sometimes very reticent about providing knowledge about their own students, what 

they are learning, what they are earning after they graduate. Of 

course, the colleges themselves do not often have that information. 

The IRS could provide enormously useful information on the 

earnings of graduates by majors, by institutions, and so forth, in 

this modern age without violating privacy or anything. Why don’t 

we do that? I mean, we collect all this data. The Social Security 

Administration has the capacity to provide a lot of information. 

If part of the problem is student financial burden, shouldn’t the 

students know at least what is the probability they are going to 

earn a certain amount of money when they graduate? And so I 
389 

think information bills are important. I think they are low cost. 

They are consumer friendly. Markets work better when there is 

more information around by all parties, and I think the efforts that 

you and Senator Rubio and Senator Warner and others are making 

is one of the few positive developments in this area right now. 

Senator WYDEN. I want to let Senator Murray have a chance to 

summarize, because we are going to have a vote in a minute. I am 

something of a privacy hawk around here. You can see that with 

the NSA and a whole host of other issues. So we have tried very 

hard to have significantly stronger privacy protections than you 

have today under a variety of these programs. And my last request, 

you know, Ms. Jones, I have followed your good work. We would 

very much like to work with you and the other students on this so 

we really get this right, we lock in the privacy that your generation 

deserves, we deal with the refinancing or repayment or whatever 

is necessary, and we in particular get the counsel you students 

who, as I described it, are getting smothered and really facing 

these problems because there has been so much foot dragging here. 

And I think now is really the time. And, Chair Murray, again, for 

all your leadership, my thanks, and I look forward to working with 

you. 

Chairman MURRAY. Well, I want to thank our witnesses for being 

here today. I really appreciate your input on this. I want to thank 

all of our members. There was a very high participation rate today 

I think because this is an issue that is impacting so many families 

and communities and future economic possibilities for our country. 

It is one we have got to address. I am looking forward to working 

with all of you to do that. So, again, thank you. 

Thank you to Senator Johnson for filling in today. I gave him an 

A as a former teacher for how he performed today. 

[Laughter.] 

Chairman MURRAY. But thank you again to all of our witnesses, 

and this is a topic that we will continue to have much discussion 

around. Thank you. 

[Whereupon, at 11:30 a.m., the Committee was adjourned.] 
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(411) 

THE COSTS OF INACTION: THE ECONOMIC 

AND BUDGETARY CONSEQUENCES OF CLIMATE CHANGE 

TUESDAY, JULY 29, 2014 

UNITED STATES SENATE, 

COMMITTEE ON THE BUDGET, 

Washington, D.C. 

The Committee met, pursuant to notice, at 10:03 a.m., in Room 

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

Chairman of the Committee, presiding. 

Present: Senators Murray, Stabenow, Whitehouse, Coons, Kaine, 

King, Sessions, Crapo, Johnson, and Wicker. 

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

Ueland, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN MURRAY 

Chairman MURRAY. Good morning. This hearing will come to 

order. And I want to thank the Ranking Member, Senator Sessions, 

and all of our colleagues who are joining us here today. And I 

would especially like thank all of our witnesses for taking the time 

to be here as well. 

Today we are going to hear from Mindy Lubber, the president of 

Ceres, Inc., an organization that works with businesses, investors, 

and other groups on issues like climate change. 

Alfredo Gomez joins us from the Government Accountability Office, where he leads the Natural Resources and Environment Division. 

Sherri Goodman is senior vice president and general counsel at 

CNA Corporation, and she is also the former Deputy Under Secretary for Defense for Environmental Security. 

We also have Dr. David Montgomery. He is senior vice president 

for NERA Economic Consulting. 

And Dr. Bjorn Lomborg also joins us, the director of the Copenhagen Consensus Center. 

Again, thank you to all of you for taking the time to do this 

today. 

It is well established, from the overwhelming majority of climate 

scientists, that climate change is for real. And, in fact, today we are 

already seeing its negative effects in the United States. 

Warming temperatures are disrupting weather patterns, causing 

our sea levels to rise, and creating the conditions for destructive extreme weather events. 
412 

But we are not here today to have a discussion on the settled 

science of climate change; rather, today we are going to be focusing 

on some of the consequences that have not received as much attention: the economic and fiscal impacts of climate change. 

This is not just an environmental issue. It poses serious risks to 

our economy and the Federal budget. And if we fail to address 

these threats, it will weaken economic growth and increase costs 

for our Federal Government. 

These costs are too important to ignore, and it is time for the 

Budget Committee to begin to assess the damage climate change 

will have on our budget and our economy. 

I know there are skeptics who do not believe the climate is 

changing, or believe that addressing this issue will be too expensive 

in the short term. 

But what we are hearing from a growing chorus of experts, including the White House Council of Economic Advisers, the Risky 

Business Project, former Secretaries of the Treasury, as well as our 

witnesses today, is the costs of inaction will be far greater. 

A recent report by the Risky Business Project found that climate 

change will have, and I quote, ‘‘specific, measurable impacts on our 

Nation’s current assets and ongoing economic activity.’’ 

It will increase risks and add costs for businesses, making it 

more difficult for them to succeed, which is something that Mindy 

Lubber and her organization have been looking into for years. And 

I look forward to hearing more of her testimony about the risks to 

businesses and investors. 

Budget experts are also starting to see rising costs on our Federal balance sheet. Take disaster relief, for example. Climate 

change is causing more destructive and costly extreme weather 

events—such as Hurricanes Sandy and Katrina. Those two disasters alone cost the Federal Government about $100 billion. 

The Government Accountability Office has been investigating the 

ways climate change would add costs for the Federal Government, 

and I know Mr. Gomez from GAO will discuss those findings in 

more detail during his testimony today. 

I think every member of this Committee should be worried about 

the vulnerability of our Nation’s roads and bridges and waterways 

due to rising sea levels and changing weather patterns. 

In addition to the vulnerability of our infrastructure, U.S. military installations and operations are also threatened. 

Bases on the coast in my State and across the country face rising 

sea levels and will need significant adaptation and mitigation 

measures to remain viable bases and meet their operational needs. 

Climate change will also disrupt vulnerable populations’ access 

to basic resources like food and water. Because of this, the 2014 

Quadrennial Defense Review identified effects of climate change as 

‘‘threat multipliers’’ that will aggravate stressors abroad such as 

poverty, environmental degradation, political instability, and social 

tensions. 

Climate change will increase the resources our military will need 

to meet these new challenges, maintain its readiness, and carry out 

its mission. So, Ms. Goodman, I am looking forward to hearing 

more during your testimony about the findings in your organization’s report. 
413 

Taken together, the impacts of climate change will have major 

implications for our Nation’s economy and budget. Across Federal, 

State, and local governments, it will further strain budgets that are 

already being stretched. And its threat to our economy and budget 

will only add to an already challenging fiscal picture. 

While budget projections have improved significantly in the near 

and medium term, we still face long-term fiscal challenges. But the 

added costs of climate change impacts are not adequately accounted for in current long-term budget outlooks. And the longer 

we wait to address climate change, the worse its impacts will get. 

Failing to act now will only make it more difficult to solve this 

problem later and will force us to divert resources away from other 

priorities. 

So let me be clear on this point. Anyone who, like me, wants to 

tackle our long-term fiscal challenges fairly and responsibly needs 

also to worry about the impacts of climate change. 

There are those who say tackling climate change will cost too 

much. But given what we know about the consequences of a warming planet, inaction is far more costly. 

Curbing emissions to prevent the more severe impacts of climate 

change and adapting to the impacts that we cannot avoid are our 

lowest-cost options. And if we want to fulfill our responsibility to 

leave behind both a strong and stable fiscal foundation and a safe 

and healthy environment for our children and our grandchildren, 

we need to move forward with those options now. 

So I really want to thank all of our witnesses for coming today. 

We look forward to your testimony and appreciate the time that 

you are spending with us today. 

With that, let me turn to my Ranking Member, Senator Sessions, 

for his opening remarks. 

OPENING STATEMENT OF SENATOR SESSIONS 

Senator SESSIONS. Thank you, Madam Chairman. This is the 

first hearing I am aware of that we have had in the 

Budget Committee on global warming. I think it is not a bad 

idea. We need to talk about it. We are spending right now indeed 

a significant amount of money on this project, and even more, we 

are requiring huge expenditures of the private sector. Why? Because greater costs are ahead if we do not act now, we are told. 

We need to spend more money now. That means an impact on our 

budget. 

So today we will openly, I hope look at some of the costs and the 

benefits that would accrue from such a policy. Surely if one has 

money, some wealth, that money should be applied for the maximum benefit for the maximum number of people. We certainly are 

not unlimited in the amount of wealth that we have in our country 

that we can apply to any problem. 

So ‘‘The Costs of Inaction’’ is the hearing title. Maybe the better 

title should be ‘‘The Costs of Action and Inaction.’’ Inaction costs 

may be real, but certainly they are distant and somewhat uncertain. But the costs of action are certain right now. They are real 

and immediate. 

Government expenditures, economic slowdown, higher prices all 

result from many of the proposals that are out there today. These 
414 

are indisputable costs right now. The economy is not healthy. 

Wages are down; workforce participation is at a rate as low as the 

1970s; and we cannot hammer this economy, in my opinion, with 

any unnecessary costs. 

So, first, the temperature is not matching the computer models. 

It is just not. It has been going on for a good long time now, maybe 

15 years, basically flat. We have had fewer storms, not more 

storms. It has been 3,100 days since we have had a Category 3 hurricane. That goes back to 1900. We are not having more hurricanes. 

And, actually, tornadoes are flat or down also. 

So Dr. Lomborg believes that there is some warming occurring 

in our country as a result of human activities, but says let us not 

panic, let us be careful; let us consider wisely what we do before 

we allocate a large part of our wealth to the problem and how we 

should handle it. And costs can be huge. Regulations like a tax impose burdens on the economy. Economically, there is no difference—there is no difference—in the Government taxing the 

American people to replace a coal-fired plant than the Congress 

and the Government just telling the company to spend the money. 

We act like it does not cost anything to mandate these changes, 

and it absolutely does cost to do this. And we have to consider this. 

These costs for businesses and people, they reduce profits, reduce 

tax revenues to the Government, and drive up costs for everybody. 

So the point is this: Every global warming action has costs, often 

hidden but very real, and we must acknowledge those costs and decide whether the wealth expended gets the maximum results considering all the needs of America—and all the needs of humanity, 

for that matter. That is why we get paid the big bucks around 

here. 

So there is some common ground. Let me say this: There are 

places we can do. We can reduce CO2 in a way that is rational, I 

think. More energy efficiency. We have made some real progress on 

that. There is some more progress that can be done. But it is not 

as easy. The low-hanging fruit has been taken in many areas. 

We need less and can unite around less harmful pollution—the 

particulates, the NOX and SOX. 

We need more American energy. I believe all of us can agree on 

that. 

We need more nuclear power. I think we all can agree on that. 

But consistently we keep throwing up blocks, blocking more nuclear power and driving up costs. 

We need more cost-effective alternative sources, absolutely, but 

we need to maybe do more research. I think we can work on that 

to have better research and understand what we can impose that 

makes sense economically. Prove technology before mandating it. 

So it is important, Madam Chairman, to consider our budget, the 

cost of aggressive U.S. policy in this area and the benefits we 

might reasonably expect and when we might see those benefits. 

Government expenditures, taxes, and regulation all fall ultimately on the American people, the people of this country. It is not 

enough just to say the danger is great; therefore, we are free to demand the Nation spend whatever is necessary, whatever the cost, 

to be a leader in the world on these issues. 
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So I disagree with that policy. I believe that Dr. Lomborg and Dr. 

Montgomery are cooler heads, and we should listen to some of their 

practical advice. 

The predictions of experts have not been proven true so far. They 

are off pretty significantly when it comes to temperature. The basis 

for dramatic demands on our budget and economy have been these 

computer prognostications that have been produced by wizards. If 

they for 15 years have been off, then it is time for us to be a bit 

cautious, I suggest. Those who raise questions, who challenge some 

of the orthodoxy cannot be and will not be silenced. This is a free 

country. We need to have the best advice we can get from whatever 

area it comes from. 

So I felt it reasonable to assume that CO2 and other human activities cause warming. It seems to be. Scientists tell us so, and I 

do not see any reason to dispute that fundamentally. But this Nation and the world have many challenges in working to make life 

better in our country and on this planet. 

So I propose we work harder to work together to find things that 

can improve our planet, improve the quality of our life, that we can 

do in a way that is bipartisan and actually get done. 

Thank you, Mr. Chairman. 

Chairman MURRAY. Thank you very much, Senator Sessions. 

We will now turn to our witnesses for their comments, and I just 

want to remind everybody that we are not here to debate the 

science. We are here to talk about the fiscal costs of climate 

change. So I appreciate, again, everybody coming to this hearing. 

STATEMENT OF MINDY LUBBER, PRESIDENT, CERES 

Ms. LUBBER. Thank you. Chairman Murray, Ranking Member 

Sessions, and members of the Committee, it is delightful to be here. 

I am honored. 

My name is Mindy Lubber. For the last 10 years, I have been 

running an organization called Ceres that works directly with 110 

investors, some of the largest asset owners, public pension funds, 

as well as asset managers, and with 70 companies who understand 

that climate is a risk, a financial risk, as well as an opportunity, 

and are beginning to act on that. 

The companies are firms like Nike and Mars and Starbucks, 

Owens Corning, Jones Lang LaSalle, eBay, VF Corporation, and 

General Mills. It is not just small green companies. And the investors and the rating agencies who are looking at climate as a fiduciary and a financial risk with us are some of the largest investors 

in the country. This is no longer just an environmental issue, although that it is. 

And the risks are across our economy. For apparel giants like VF 

Corp. and Nike, climate change poses risks to cotton and other 

commodities that are being affected by reduced water availability 

and drought. And for Jones Lang LaSalle and Owens Corning, climate change poses risks to buildings and their enormous use of 

electricity and growing vulnerability to coastal flooding and insurance costs. And for General Mills and Starbucks, climate change 

poses risks to coffee, to corn, and to other crucial crops that are experiencing more volatile growing conditions, oftentimes meaning 

higher food prices, which I will get to in a moment. 
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Climate risk is a risk across our economy. The hundreds of companies and investors we work with believe that it is not a choice 

between protecting the climate and protecting the economy. We 

cannot build a stable—without a stable climate, we cannot build an 

economy that is stable. Surprises, massive storms, not enough 

water depletion of natural resources are not good for business. 

They are not good for our economy. 

We have done extensive research over the years. I am going to 

try and zero in on a few areas. One is the public resources that are 

being spent due to climate change. 

On the public side, we have identified five Government disaster 

relief and recovery programs where the costs of inaction on climate 

change are pronounced and profound. 

First, Federal disaster assistance appropriations. One conservative estimate puts the average bill that taxpayers can expect to 

pay at $20 billion a year. That is funding to help our communities 

from storms and hurricanes. And one storm could push that up to 

$100 billion. Hurricane Sandy was a $60 billion price tag. 

Secondly, our National Flood Insurance Program, currently in debt to the U.S. taxpayers for approximately $30 billion. This vital 

program collected about $3.6 billion in premiums and paid out over 

$7.8 billion in Hurricane Sandy losses and other losses. We are seeing more storms. There will be more of a pull on our National 

Flood Insurance Program. 

Or our Federal Crop Insurance Program, vital to our farmers. From the year 2001 through 2010, we saw a record- setting $10.8 

billion in 2001. And the devastating heat waves and drought in 

2012 shattered even those records when the program paid out 

$17.3 billion in crop losses. 

And our wildfire protection costs have grown, tripled since the 

1990s. 

And our State-run insurance plans. In the insurance sector, we 

are seeing private companies pull out of markets that are most at 

risk, and State and Federal programs have to step in. State-run 

programs, backstopped by State taxpayers, ultimately have seen 

loss exposure grow from $54 billion in 1990 to $884 billion in 2011. 

Insurance companies are seeing the risks. Where it is too risky, 

they pull out. When they pull out, the State governments and Federal Government step in, costing our taxpayers and costing our 

consumers. When insurance companies stay in, the prices rise. 

And it is not only through these increases of Federal programs. 

We are paying for it at the grocery store. Let us take this down 

to our homes. Prolonged droughts in California, the Great Plains, 

and the Southwest have diminished the U.S. cattle herd to its 

smallest since 1951, causing beef prices to increase by 10 percent 

from a year ago. 

In decisions which have devastated many Texas communities, 

Cargill and other major livestock producers have been forced to 

shut down feedlots. As a Cargill spokesman put it, the drought-depleted beef cattle supply is devastating. 

Extreme weather is also contributing to prices for fresh fruits 

and eggs, rising by 5 to 6 percent, twice the 2.8 percent of food 

price rises over the past 20 years. And when agriculture dies and 

cattle die, it is not only increased costs to all of us at our homes, 
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at our grocery stores, at our restaurants; it is lost jobs, farm workers, truckers, and many others in those industries. 

And that is going to keep growing. Our corn industry, which is 

the bedrock of our food supply, needs water and, climate change is 

creating more drastic water problems as we see every day. 

As climate change increases the risks of extreme weather events, 

our Federal and State disaster relief and insurance programs will 

become increasingly unsustainable. By one estimate, the net 

present value of the Federal Government’s liability for unfunded 

disaster assistance over the next 75 years could be greater than the 

net present value of the unfunded liability for the Social Security 

program. We have got to take this out from the closets and into the 

public discussion, as you all are doing, and look at what are the 

real costs of action and the real costs of inaction. 

And the risks, while very real, are starting to be addressed. Financial leaders, investors, and businesses understand these risks. 

They are starting to act. Sixty percent of the Fortune 100 companies have goals for renewable energy or greenhouse gas reductions. 

Chairman MURRAY. Ms. Lubber, if you can wrap up real quick, 

we want to make sure everybody has a chance. 

Ms. LUBBER. Thank you. Companies and investors are acting. 

They are making a difference. They are factoring this into their 

portfolio assessments, their analysis. The rating agencies are looking at climate risk because this is real, it is profound, and it is 

now. And in each case, from the public sector to the private sector, 

the risks are causing greater economic impacts, and the data shows 

they are growing every single year. 

Thank you very much. 

[The prepared statement of Ms. Lubber follows:] 
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Chairman MURRAY. Thank you very much. 

Mr. Gomez? 

STATEMENT OF ALFREDO GOMEZ, DIRECTOR OF NATURAL 

RESOURCES AND ENVIRONMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. GOMEZ. Good morning, Chairman Murray, Ranking Member 

Sessions, and members of the Committee. I am pleased to discuss 

GAO’s work on Federal fiscal exposures posed by climate change 

and extreme weather events. 

Last year, we added limiting Federal fiscal exposures from climate change to our list of high-risk issues needing transformation. 

According to the latest U.S. National Climate Assessment, extreme 

weather has become more frequent, more intense, including heat, 

heavy downpours, floods, and droughts. In addition rising sea levels pose risks to coastal areas. While scientists cannot link individual events to climate change, observed changes in recent years 

have shown that these events can affect the economy, including 

governments’ budgets, as it has already been stated. 

Implementing resilience measures now creates additional costs 

but could also provide benefits later. For context, the U.S. spends 

hundreds of billions of dollars on infrastructure each year, so making good choices now could prevent future losses. 

My testimony today discusses two areas: first, fiscal exposure to 

critical infrastructure and public lands; and, second, the need for 

improved Federal technical assistance to all levels of Government. 

First, regarding infrastructure and public lands, DOD has about 

a half million facilities with replacement value of about $850 billion. DOD’s 2014 Quadrennial Defense Review said that the impacts of climate change may undermine the capacity of domestic installations to support training. 

In May, we reported on the impact of wildfires and extreme 

weather on military readiness and infrastructure. We found that 

drought contributed to wildfires in an Alaskan base that affected 

readiness because of delays in training. We also described an extreme rain event at a base in the desert Southwest where a year’s 

worth of rain fell in 80 minutes, damaging 160 facilities and causing $64 million in damage. 

Hundreds of thousands of other large Federal facilities face similar vulnerabilities. For example, NASA has 5,000 buildings and 

other structures valued at $32 billion, and many are located in vulnerable coastal areas. 

Regarding public lands, the Federal Government manages nearly 

30 percent of the Nation’s land. These assets are vulnerable to 

changes in the climate, including the possibility of more frequent 

and severe wildfires. 

Our work has found that appropriations for wildland fire management activities have tripled, averaging approximately $3 billion 

annually in recent years, up from about $1 billion in 1999. 

My second main point focuses on the need for the Federal Government to improve climate-related technical assistance to all levels of Government. With respect to the information needs of Federal agencies, we have found that agencies have started to assess 
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their vulnerabilities, but they still need assistance building resilience into their infrastructure and planning processes. 

For example, we reported that DOD personnel conducting infrastructure planning efforts did not have information necessary to accounts for the risks of climate change. We recommended that DOD 

provide more information to installation planners, and DOD 

agreed. 

Regarding State and local governments that spend billions of dollars on infrastructure, our 2013 high-risk designation described 

challenges in developing a cohesive Federal approach to information sharing that can inform all levels of Government. Providing 

the best available information to State and local governments can 

help them address climate-related impacts when planning and 

building infrastructure. 

Much of this infrastructure is designed to last long into the future, but may have to be rebuilt or replaced if planners do not account for future risks. 

We have ongoing work assessing governmentwide options to 

meet the climate-related information needs of all levels of Government. We also have work underway that may identify other steps 

the Federal Government could take to limit its fiscal exposure. 

It is worth noting that our work has not involved forecasting or 

modeling the specific budgetary impacts of these events. Instead, 

we have identified examples of actual and potential vulnerabilities 

that we should consider to minimize any future adverse impacts. 

Chairman Murray, Ranking Member Sessions, members of the 

Committee, this concludes my statement. 

[The prepared statement of Mr. Gomez follows:] 
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Chairman MURRAY. Thank you very much. 

Ms. Goodman? 

STATEMENT OF THE HONORABLE SHERRI W. GOODMAN, 

EXECUTIVE DIRECTOR, CNA MILITARY ADVISORY BOARD 

Ms. GOODMAN. Thank you very much, Chairman Murray, Ranking Member Sessions, and Committee members. It is a privilege to 

be with you today. 

I am Sherri Goodman with the CNA Corporation, a not- for-profit, independent— 

Chairman MURRAY. Can you pull your microphone closer? 

Ms. GOODMAN. —research and analysis organization supporting 

national security and public sector leaders and organizations. I am 

privileged to serve as the founder and executive director of CNA’s 

Military Advisory Board. In this capacity, I am here today representing not only my own views but the collective wisdom of the 

16 generals and admirals who serve on CNA’s Military Advisory 

Board. 

The board first convened in 2006 to look at pressing national security issues, including climate change. Our first report, published 

in 2007, identified climate change as a threat multiplier, especially 

in fragile regions of the globe. Since that first report, we have had 

over 30 generals and admirals serve on the on the board, collectively with more than 1,000 years of experience in evaluating security threats and mitigating risks. 

Our most recent report, which I submit for the record along with 

my written testimony, identifies the accelerating risk of climate 

change and observes that in some circumstances climate change 

has and will increasingly serve as a catalyst for conflict. 

From a national security framework, the costs of inaction on climate change can be grouped into three areas: 

First, how climate change may cause increased instability around 

the world, which will likely lower economic prosperity and trade 

opportunities while increasing demand for U.S. military and diplomatic involvement; 

Second, changes we are seeing in the Arctic today as a special 

case, an important case; 

And, finally, how climate change will impact our military. 

My discussion today is informed by the MAB and reflects our 

most recent findings, but what follows are my own views and observations. 

In the 7 years that have passed since our initial assessment, we 

have witnessed more frequent and intense weather events, including heat waves, sustained heavy downpours, floods in some regions, 

and droughts in other areas. Nine of the ten costliest storms to hit 

the United States have occurred in the past 10 years, including 

Hurricane Katrina and Superstorm Sandy. Speaking for the MAB, 

we assess that the nature and pace of observed climate changes 

post severe risks for our national security. 

Having served for 8 years as Deputy Under Secretary of Defense 

for Environmental Security, and 8 more years as executive director 

of the Military Advisory Board, I have learned how our senior military leaders approach risk and uncertainty. To them, managing 

risk is seldom about dealing with absolute certainties but, rather, 
448 

involves careful analysis of the probability of an event and the consequences, should the event occur. When it comes to our national 

security, even low-probability events with dire consequences must 

be considered and addressed. 

Today the risks posed by predicted climate change in the MAB’s 

judgment represent even graver potential than they did 7 years ago 

and require action today to reduce risk tomorrow. 

It is undeniable that the world around us in changing. In recent 

years, we have observed changing weather patterns manifest by 

prolonged drought in some areas and heavier precipitation in others. In the last few years, we have seen unprecedented wildfires 

threaten homes, habitats, and food supplies—not only across the 

United States, but also in Australia, Europe, Central Russia, and 

China. Low-lying island nations are preparing for complete evacuation to escape rising sea levels. Globally, we have seen recent prolonged drought act as a factor driving both spikes in food prices 

and mass displacement of populations, each contributing to instability and eventual conflict. 

The MAB is concerned about the projected impacts of climate 

change over the coming decades on those areas already stressed by 

water and food shortage and poor governance. In the medium term, 

those areas threatened by rising sea level are most at risk. There 

will be only so much we can do to keep the sea out, and in some 

areas the sea will not flow over the walls we build. It will flow 

under or around and make the land and aquifers not usable. Lowlying islands in the Pacific and great deltas, including the Mekong, 

the Ganges, the Nile, and the Mississippi are at increasing risk of 

not being able to support the populations that live there. Migration 

will become a larger form of adaptation. 

The Arctic is a case that deserves special attention. Allow me to 

tell a short sea story to illustrate. 

While serving as Deputy Under Secretary of Defense in the aftermath of the Cold War, I led the U.S. team that worked with Russia, Norway, and others to manage waste streams from decommissioned Russian nuclear submarines, including some that had been 

dumped into the Kara Sea, north of the Arctic Circle. In the course 

of that work, I became acutely aware of the unique Arctic environment. Today, with increased shipping and greater opportunities for 

extraction of resources in the Arctic, the risk for a manmade crisis 

or disaster, such as a major oil spill, is rising. 

A recent report by the National Research Council finds that a 

spill the size of Deepwater Horizon would have devastating effects 

and last for decades. The world is not yet prepared to respond to 

a major accident in the Arctic. 

Some great work has been done to plan for increased future operations in the Arctic. The problem is that the increased human presence is happening now. Seventy-three ships sailed through the 

Northwest Passage in 2013, up from just four in 2007. And preparations for energy exploration are well underway. My colleagues 

on the MAB warn that today we do not have the communications 

equipment, navigation aids, and sufficient hardened-hull ships to 

respond to natural or manmade disasters in that fragile area or to 

protect our vital interests in the region. 
449 

Finally, the MAB has found that projected climate changes will 

have three major impacts on the military: more demand, challenges 

to readiness, and new and harsher operating environments. 

We expect to see an increased demand for forces across the full 

spectrum of operations. Domestically, responses to extreme weather events and wildfires in the U.S. will increase demand for the 

National Guard and Reserves. The frequency, severity, and probability that these events may happen simultaneously will also likely increase demand for active-duty forces to provide defense support of civil authorities. This concerns us— 

Chairman MURRAY. Ms. Goodman, if you can wrap up, we want 

to make sure we have time for questions. 

Ms. GOODMAN. Sure. All right. In a leaner military, many of our 

capabilities reside in the Guard and Reserve, and if they are being 

used domestically, they are less available to respond to worldwide 

crises. 

In addition to more demand, this will itself stress readiness. Our 

bases will be increasingly at risk from the effects of climate change. 

Our bases are vulnerable to sea level rise and extreme weather, including drought and wildfire. These vulnerabilities were assessed 

in that recent GAO report. 

On the positive side, we have seen increased awareness of climate risks in communities around the U.S. and constructive planning underway in various regions— 

Chairman MURRAY. Ms. Goodman, I am going to have to have 

you wrap up. 

Ms. GOODMAN. Okay. 

Chairman MURRAY. We have two more witnesses and a lot of 

questions. 

Ms. GOODMAN. I will conclude by quoting the foreword to the 

CNA MAB report, written by former Secretary of Homeland Security Mike Chertoff and former Secretary of Defense Leon Panetta, 

our most important message for this Committee is that this is a bipartisan call to action. We make a compelling case that climate 

change is no longer a future threat. It is happening now. Actions 

to build resilience against the projected impacts of climate change 

are required today. 

Thank you. 

[The prepared statement of Ms. Goodman follows:] 
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Chairman MURRAY. And I would remind everyone, all of your testimony is printed in the record. All the members have had a chance 

to see it as well, so, again, thank you. 

Dr. Montgomery? 

STATEMENT OF W. DAVID MONTGOMERY, PH.D., SENIOR VICE 

PRESIDENT, NERA ECONOMIC CONSULTING 

Mr. MONTGOMERY. Thank you, and thank you for your invitation 

to appear before the Committee today. 

I am senior vice president at NERA Economic Consulting. I have 

spent most of the past 25 years working on studies of climate 

change issues, ever since I was Assistant Director for Natural Resources and Commerce at CBO and we did a study of the economic 

impacts of the carbon tax. And I have continued with that kind of 

work since then. I was the principal lead author of the Second Assessment Report of the IPCC. I and my team have been part of the 

Integrated Assessment Modeling Consortium. We have published a 

number of studies on climate change issues. 

And what I would like to do today, as I tried to do when I appeared before the Committee for CBO, is to clarify some policy 

choices that I think the Budget Committee in particular faces in 

dealing with climate change. 

I do not think it is helpful to catalog all of the terrible things 

that climate change might do. The question for designing policy is 

what damages would be avoided by particular policy choices and at 

what cost, and that involves looking at real alternatives, including 

inaction. 

The example that I took in my testimony is something that is not 

exactly a fully fleshed out plan, but it is clearly stated and present. 

That is the Climate Action Plan announced by the President. Its 

goal is to reduce greenhouse gas emissions from the United States 

to 17 percent below 2005 levels by 2020. 

It and the kind of actions of the past few years by the administration make it clear that the approach will all be regulatory. It 

will be command-and-control regulations from EPA on the electric 

power sector, fuel economy standards, renewable fuel standards on 

transportation, energy efficiency standards. 

I understand that Dr. Lomborg is going to talk about the potential costs and avoided damage from an ideal global policy. Well, we 

have found in our research that this kind of a regulatory approach 

would cost four times or more what that ideal policy would cost. 

And so the estimates that I have made for this hearing today are 

that by 2010 implementing the Climate Action Plan goals in this 

way would reduce Federal tax revenues by about $150 billion. It 

would cost households about $1,000 per year in real disposable income. It would probably involve a 7-percent or more increase in 

electricity prices. And I would be happy to supply the Committee 

with more details of this analysis. 

And that is not even taking into account the revenue effects of 

potentially extending tax breaks for renewable energy, potential 

impacts of loan guarantees on the budget, all of which are rationalized as part of climate policy. 

Now, what would the effects of this be? I have to say even the 

IPCC has concluded that it is not possible in the current state of 
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the art to do a calculation that goes from changes in emissions to 

changes in global damages. It is just beyond the state of our empirical knowledge and modeling capability. Nevertheless, I think we 

can tell the difference between big numbers and small numbers. 

When I calculate the cumulative emission reduction that the U.S. 

would achieve through the Climate Action Plan achieving its goal 

versus cumulative global emissions over the next 50 years, I see 

what we would achieve with the Climate Action Plan is about a 2- 

percent reduction in global cumulative emissions. 

That is assuming, and I think quite realistically, that China, 

Russia, and India continue on the course that they are already 

committed to for economic growth, in Russia’s case territorial expansion and use of exports of fossil fuels to fund its adventurism. 

Anyway, this 2-percent change in global emissions would at 

most, based on the IPCC’s own calculations, produce about a difference of a tenth of a degree in global average temperatures. It is 

beyond the capability of any model of impacts to tell the difference 

that that would make in the global impacts. 

So based on this, I think it is a very good idea to focus on adaptation, and the Climate Action Plan does. We do not face the obstacles that poor countries around the world face to adaptation, but 

we do have policies in place that increase our vulnerability. In particular, flood insurance, crop insurance, our method of disaster relief all create moral hazards, and they, I think, make a substantial 

contribution to what the IPCC itself recognizes as being the cause 

of the concern about weather events that we have been talking 

about for the last 15 or 20 minutes. 

In its Fifth Assessment Report, the IPCC states, ‘‘Economic 

losses due to extreme weather events have increased globally, 

mostly due to increase in wealth and exposure, with a possible influence of climate change (low confidence in attribution to climate 

change).’’ 

So it is the choices that we have made as private citizens to put 

our residences at risk. And if we are going to adapt effectively in 

the U.S., I think we need to pay careful attention to what is the 

proper role of Government and what is it that can be done best by 

the private sector and needs to be left to the private sector. 

I think that we can protect ourselves and our property quite well 

if we are not insulated by Government programs from the consequences of our choices. I live on the Chesapeake Bay, and I know 

the risks that I am taking there. And I get very cheap flood insurance from the Flood Insurance Program that I should pay a lot 

more for. 

And once this is sorted out, then I think there certainly are public goods. There is public infrastructure that only the Government 

can invest in efficiently. But I would simply here issue a warning 

that we are looking at things—we are looking at public investments in things like roads, public health, bridges and dams, flood 

protection, fire protection. All of these have their own constituencies, agencies that carry them out, and congressional appropriators who deal with them. And I would just suggesting it would be 

a very good role for the Budget Committee to look critically at 

these proposals for increased spending for adaptation to make sure 
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that they are not just agency creep and really are focused on doing 

something. 

Thank you, and I will stop. 

[The prepared statement of Mr. Montgomery follows:] 
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Chairman MURRAY. Thank you very much. 

Dr. LOMBORG. 

STATEMENT OF BJORN LOMBORG, ADJUNCT PROFESSOR AT 

COPENHAGEN BUSINESS SCHOOL AND DIRECTOR OF THE 

COPENHAGEN CONSENSUS CENTER 

Mr. LOMBORG. Thank you very much, Chairman Murray and 

Honorable Members. I was asked and I think we were all asked to 

talk about the cost of inaction, and so I have tried to look at one 

of the global integrated models that actually tried to estimate and 

approximate an answer to your question. So let me just take you 

through. 

You know, first of all, as you point out, global warming is manmade; it is a long-term problem. Just to give you a sense of proportion, this particular model from Yale, the Nordhaus model, the socalled RICE model that indicates what is the cost for climate 

change, also for the U.S., indicates that the total cost of global 

warming to the U.S., discounted back until today, for all the next 

five centuries, is on the order of 1.2 percent. 

Now, again, I think we should be very careful. This is an order 

of magnitude. There is no way this is the absolute correct number, 

but it is one model, and I actually argue why this is probably a 

slightly pessimistic model, so it does give us an impact. 

Also, let us just remember it is not just GDP, but it is impacts 

on a lot of other things, as we were told before. Agriculture, wetlands, storms, even catastrophic climate change is in included in 

this. 

So it gives us a good sense of what is the damage impact we are 

talking about. So I think it is important, perhaps first marker, to 

say this is a problem; it is not the end of the world. So let us try 

and remain calm, and also I think David made a good point in saying we need to think not just about, oh, there are all these terrible 

things happening, but we need to talk about what can we do. 

So the Committee asked me, What is the cost of inaction? This 

is likely the cost of inaction in this century. So over the next 100 

years, this is a percentage cost of GDP for the U.S. This very clearly shows that by the end of the century, the cost will be about 1.8 

percent of global—sorry, of U.S. GDP. That is a significant impact. 

That certainly would make a lot of say we should do something 

about it. But, of course, we need to think about what are the alternatives. 

Now, let me show you, because the beauty of these models is that 

you can actually try and see what are the ways that we can make 

smarter policies. A lot of us would like to believe that we can cut 

carbon emissions, and quite cheaply. But I would like to point out, 

as the Ranking Member also pointed out, there is also a cost to action. This is one graph, one data point, I think it summarizes very 

clearly that there is a strong correlation between more CO2 emissions and higher GDP growth. So we have—and this is in all the 

economic models. You can cut your CO2, but it has a cost. 

Now, it does not mean you go down to zero growth, but it means 

you have a lower growth. And I think this is very well established 

in the track record for all nations across time. 
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So there is a cost. That is the cost the models indicate. So this 

was the cost of inaction I just showed you. 

If we manage to get the best possible policy for the entire world, 

we can get this action cost instead. Notice it is slightly higher in 

the first half of the century because we actually have to take action. But it also rewards us by having slightly fewer damages in 

the far future. It will actually overall be a net benefit. 

The problem, of course, is this requires pretty much everyone in 

the world to do all the smart things all the way through with no 

policy changes that have any negative externalities. That is probably fairly unrealistic. 

Let me show you another—and I describe it more in my paper— 

a more realistic option where the U.S., European Union, Japan, a 

few other of the rich countries take the lead and also do so in the 

way that the European Union—we have good data for how much 

that costs in the European Union. This is the cost, I would surmise, 

for realistic action. 

So my point here is simply to say there is a small space where 

you can actually achieve a net benefit if you make action, but there 

is a huge space where action can end up making everyone worse 

off. And that I think is the real danger we need to talk about. 

If I could just show you this as a summary point, this is the cost of inaction to climate change. The first bar, you see the $3.4 trillion 

it is going to cost. But the cost of action, as you can see, is both 

the remaining climate damage and the climate policy. 

If you look at the first one, you can actually achieve to cut the damage from $3.4 trillion to just $3.2 trillion. that would be wonderful, but it would require you to get China, India, Namibia, and 

every other country in the world to implement an efficient carbon 

tax in the next couple of years. In some ways, good luck with that. 

I do not think that is going to happen. 

And so we need to look at the fact that if we approach, for in- stance, a more realistic action, we could end up spending $7.6 trillion instead over this century, and that is really—and let me just 

skip behind this. That is why I think we need to have a conversation about how do we fix global warming in the longer run. 

We do need to fix global warming in the longer run. I help run 

the Copenhagen Consensus where we bring together more than 100 

of the world’s top economists, seven Nobel Laureates. We looked 

also on climate policy, and basically what we found was the solution cannot be to try to make fossil fuel so expensive nobody wants 

it. It is infeasible. Certainly we have seen that in the U.S. But it 

is also very, very hard to do in China and India and elsewhere. It 

is also bad economics. 

What we need to do is to make green energy so cheap that everyone will want it, and that happens to be about innovation. Yes, it 

is going to take more time. We would all love to get started today. 

But I think the real value of this exercise and looking at the cost 

and benefits is to recognize that there is not just costs from inaction, there are also costs from action. And we need to make sure 

that we make smart decisions, and that is, of course, up to you to 

hopefully make the smart decisions that will actually make us all 

better off. 

Thank you very much. 
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[The prepared statement of Mr. Lomborg follows:] 
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Chairman MURRAY. Thank you very much to all of our witnesses 

today. 

We will now start a round of questions, and, Ms. Lubber, I wanted to start with you. You talked in your testimony about some of 

the issues that businesses and investors will face as a result of climate change. What reasons do companies that you work with cite 

when they decide to address climate change? 

Ms. LUBBER. Companies and investors are averse to risk. I mean, 

risk, as we all know, is an intimidating factor for companies and 

for the investors who invest in them, when they look at the depletion of natural resources. Can you run a manufacturing facility if 

there is not enough water? From the west coast and certainly California, where this is not about models, it is not about the future, 

it is about today, companies, ranches, agricultural farms do not 

have enough water. They are seeing catastrophic risks, financial 

risks today to companies, to consumers, to shareholders, and to investors. So certainly physical risks is a big issue. 

For large landowners, for people who are worried about the impacts, whether you are Jones Lang LaSalle or any other large company, the fact of the matter is the impact on real estate matters, 

depending on where the real estate it. 

So it varies sector by sector, but some of the largest issues are 

physical risks, certainly some reputational risks, litigation risks. 

Chairman MURRAY. So they are looking at their bottom lines. 

Ms. LUBBER. It is all about the bottom line. The investor network 

that we run is 105 investors, $13 trillion in assets under management, who say climate risk is an issue they need to address, they 

need to analyze, and they need to begin to invest taking advantage 

of. None of them are environmental. They may be environmentalists, but they have got shareholders, they go to work having to 

make money and beat the guy down the block, and they are focusing in a way different than we have ever seen before on climate 

risk as a financial risk. 

Chairman MURRAY. Thank you. 

Ms. Goodman, my home State of Washington is home to a lot of 

military installations that, as you know, are vital for our military 

operations, both in the Pacific and the Arctic regions. We have 

Naval Base Kitsap, which is the Nation’s third largest naval base, 

by the way, and it is an essential element of the Nation’s Strategic 

Defense Command and will need to address threats that are now 

posed by rising sea levels. And as you discussed, the Coast Guard’s 

entire ice-breaking fleet and other key assets for operations are in 

the Polar region. Those are based in my State as well. 

Based on what you have seen at other facilities, what kind of resources will be needed to ensure these facilities and others across 

the Nation are protected from the increasing threat of climate 

change and are able to continue to support the men and women in 

uniform? 

Ms. GOODMAN. Thank you very much, Senator. The types of resources that will be needed across our military and our force structure will be, first and foremost, to maintain the vital and critical 

infrastructure such as those in Washington State, in Alabama, in 

Virginia, throughout all of our States, where we have critical military installations that are at risk from rising sea levels and ex-
512 

treme weather events. So we need to build in now those metrics 

that will allow us to sustain that military infrastructure, and that 

work is beginning to be underway. I have seen it begin to happen 

in the Pacific Northwest, in Virginia where there are efforts underway to develop the new standards that will support that infrastructure, and then new types of training as well to ensure that our men 

and women have the types of training they need, they can train 

under various and different conditions. 

There is a very rigorous adaptation effort underway in the Department of Defense today to identify those vulnerabilities. The 

GAO report cited some additional methods. The challenge is going 

to be ensuring in a very tight budget time that there are the resources needed to support that. 

Chairman MURRAY. Well, with the increased traffic and competition in the Arctic and with the variety of worsening threats actually in the Asia Pacific region, how critical, in your opinion, is it 

to maintain a strong presence at facilities like Naval Base Kitsap 

and Fairchild Air Force Base and Joint Base Lewis-McChord if the 

U.S. is going to be able to respond effectively to those challenges? 

Ms. GOODMAN. Well, it is vitally important that we maintain and 

augment our ability to respond to the changes of the Arctic region, 

first and foremost, by addressing navigation and communication 

needs; secondly, by looking at the types of infrastructure we will 

need there; and then, thirdly, by looking at the types of capability 

in terms of ice-hardened vessels and related capability that we will 

need in the future. 

Chairman MURRAY. So we need to maintain our presence there, 

and in order to do that, we need to deal with the effects of climate 

change soon. 

Ms. GOODMAN. Yes. Yes, Senator. 

Chairman MURRAY. Thank you. 

Senator Sessions? 

Senator SESSIONS. Thank you. 

Colleagues, I really think we are going to have to do a better job 

of dealing with science, and the three Democratic witnesses here 

continue to say things like ‘‘Superstorm Sandy.’’ Well, Sandy was 

not even a hurricane when it hit shore. It was a tropical storm. We 

have not had an increase in hurricanes. And I am going to ask 

some questions about it. I want to see the data that shows we have 

had an increase in hurricanes. We have had a decrease in Hurricane Sandy. While temperature projections were going up, they 

have not gone up. Tornadoes are not up. The IPCC says that 

droughts are not up worldwide and that the soil moisture content 

under the Palmer Index is better than it was previously. 

So I do not—what is that? Do you speak to speak? 

Senator WHITEHOUSE. I was talking to Senator Stabenow, but I 

am happy to say what I said— 

Senator SESSIONS. All right. No, that is okay. 

Senator WHITEHOUSE. —if you want me to say it to the group. 

Senator SESSIONS. So those are things I have not heard disputed, 

and so maybe Senator Whitehouse has data that would dispute 

those facts. So now we have to decide what our policy is going to 

be. We can ask a lot of serious questions about it, what we should 

do, what we can do, what will work, and what is cost-effective. 
513 

Dr. Montgomery, I understood you to say that the model of action 

to deal with the threat of global warming is inefficient and could 

cost four times as much as it ought to cost. Is that what you indicated? 

Mr. MONTGOMERY. Yes, it is, and that I think is something that 

we have found consistently in doing research on climate policy for 

many, many years, that as Dr. Lomborg said, the consensus among 

economists is that in order to achieve reductions, substantial reductions in greenhouse gas emissions, it takes a price on carbon that 

applies to every way that carbon dioxide is generated, and that 

means basically a tax on fossil fuels; that moving from such a politically infeasible approach to a regulatory program will increase 

the cost by ranging from, you know, several times to orders of magnitude, depending on how well the program is developed. We see 

this in California, where studies have shown that California’s reliance on ‘‘complementary measures,’’ as they call them, to achieve 

90 percent of the reductions in their Climate Action Plan have substantially increased the cost over what it would have been if they 

had gone with a cap-and-trade program. And that is just talking 

about implementing in the United States. If we talk about doing 

something worldwide, once again, it is—you know, we have always 

used the phrase, ‘‘where flexibility.’’ Unless everyone is involved, 

every source of emissions, trying to cut—do something about climate change with either narrowly focused regulations or by focusing just on a couple of countries multiplies the cost by four times 

or more. 

Senator SESSIONS. Dr. Lomborg, you produced a chart that shows 

the action that we take would have a minimal impact. And using 

models that are pessimistic, which by that I think you mean that 

more severe projections in the future than many think are likely 

to occur, that is pretty interesting to me. I would ask you to comment a little bit more about that, and also as to whether or not you 

think the United States is more or less vulnerable than other 

places in the world if climate change continues as projected. 

Mr. LOMBORG. Well, to answer your last question first, there is 

no doubt that rich countries are less vulnerable, and the U.S. is 

probably also less vulnerable. For instance, much of Southern Europe is more vulnerable; Australia is more vulnerable; and very 

clearly, most poor nations are much, much more vulnerable to climate change. So you actually have, as I also indicated, the global 

cost of global warming is probably on the order of 1.4 percent of 

GDP; whereas, the cost for the U.S. is 1.2. So you are less vulnerable. 

If we look at the costs of action and inaction, it really is a question—as David also pointed out, it is a question of realizing we 

need to get very careful legislation. And in some ways, we can use 

the European Union as a good example of how not to do this. 

The European Union obviously has large amounts of leg— I cannot say that word, sorry. Leg—sorry about that. Yeah, that approach. But they have—but, clearly, they are not as integrated as 

the U.S., and yet they have managed to make an incredibly inefficient climate program. Fundamentally, instead of having one carbon tax across all areas, they have at least 29 different carbon 

taxes, and that still only covers quite a few of the sectors. So you 
514 

have a number of other ways that you have, so you probably have 

hundreds, maybe thousands of different carbon taxes. That leads to 

huge inefficiencies because obviously where you have high carbon 

taxes, you cut more, and where you have low carbon taxes or negative carbon taxes, you cut a lot less, or you even start to emit more. 

So the reality here is the costs are needlessly expensive. We have 

good estimates that indicate the European Union’s costs are at 

least twice what they need to be. And that goes back to the point 

of realizing between action and inaction there is a very small gap 

where you can actually make good policy and achieve a lower outcome where you can reduce climate impact so much more that the 

increased costs of the policy will not outweigh that entirely. But 

that requires all of you to be really, really good. And I would urge 

you, if you want to take a look, the OECD has done a study for 

all of their member countries looking at all of the energy policies 

in all of these areas and looking at what is the implicit carbon tax 

on all of these areas, and basically all countries, including the U.S., 

have incredibly varying carbon taxes across all these different 

areas. 

So we are fundamentally very, very inefficient, and it is very 

hard to get it right. 

Senator SESSIONS. Madam Chairman, thank you for the hearing. 

Colleagues, I think Dr. Lomborg’s paper and that of Dr. Montgomery would be valuable to us to study. If we are going to enter 

this field, we have got to know what it is going to cost and how 

best to achieve the goals. Dr. Montgomery noted his background. 

Mr. Lomborg is cited as Time Magazine’s one of the 100 Most Influential People in the World. So we are glad that you are here. Esquire Magazine has you as one of the 75 Most Influential People 

and 50 People Most Likely to Save the Planet by the U.K. Guardian. And so you, Dr. Lomborg, have been an international voice of, 

I think, common sense and wisdom on these issues, and thank you 

for coming to the United States today to participate at this hearing. 

Chairman MURRAY. Thank you. 

Senator Stabenow? 

Senator STABENOW. Thank you, Madam Chair, and thank you to 

all the witnesses. This is an incredibly important topic to all of us, 

obviously in the short run and in the long run. 

Let me just start by—I do not know where to start, actually, 

Madam Chair. There are so many things here. 

Let me just start by saying that if 97 percent of the climate scientists surveyed in the proceedings of the National Academy of 

Sciences agreed that climate change is real, probably real. If 97 

percent of the doctors said I was sick, I would probably pay attention to that. So I think that we need to start from that knowing 

there may be some variations on how we got here. 

As Chair of the Agriculture, Nutrition, and Forestry Committee, 

I also want to start by just saying that, Ms. Lubber, you are talking my song here about what is happening in agriculture. We just 

wrote a 5-year farm bill, and the very first thing we had to do was 

use the permanent Livestock Disaster Assistance Program because 

of the droughts all over the country. And we have forestry provisions to look long term at preventing forest fires and dealing with 
515 

disease. We are stealing all the money from those preventative efforts to fund fires. And so there is a huge cost. 

I do have to say, Dr. Montgomery, I was very surprised to hear 

you say that things like crop insurance have caused the problem. 

You could also say farming has caused the problem. If we did not 

eat, did not farm, we would not need to worry about these things. 

But crop insurance is there to make sure we actually have the 

safest, most affordable, most reliable food supply in the world, 

which we do, and the costs, yes, are going up. But they are going 

up because— not that we have never had storms, but as we heard 

testimony in the Agriculture Committee, and we now have a USDA 

Climate Office we never used to have before because of impact on 

agriculture and forestry, but what we heard is it is more intense, 

it is more volatile, it is longer term. It is not that we have never 

had storms, but the storms are different now and more intense and 

causing more damage. 

But I want to take my time to ask a question regarding how we 

deal with this. I mean, we are dealing in the Agriculture Committee with paying for crises, which we are doing every day now, 

and we better all care about that if we are care about food for our 

families and the food industry, which is a huge job creator. Sixteen 

million people work because of agriculture. 

But let us say that we just put aside the debate on climate 

change and just talk about how to create jobs, how to move forward, clean energy because it would create jobs. And I guess I 

would ask Ms. Lubber about that, and first say this: We have had 

in place since at least 1916 permanent incentives for the oil industry, oil and gas industry, embedded in the Tax Code. It worked 

well. Folks say do not pick winners and losers. We picked a winner, 

and they won, and so for 100 years we have given tax incentives 

at, for 30 years now, for the last 30 years, about $166 billion after 

adjusted for inflation that we have invested in the fossil fuel industry. And then we now go to the fact that DBL Investors Report 

says that Federal spending on oil in the first 15 years of deployment was five times greater than what we are spending on renewables, and certainly renewables are stop-start, stop-start. 

So could you give us more detail about the investments you see 

businesses making in new energy technologies, energy efficiency, 

why on its own—I should say, by the way, I say so many times 

there are 8,000 parts in a big wind turbine. Somebody has got to 

make every single one of those. That is manufacturing jobs. We, by 

the way, can do that in Michigan. But why is it from an economic 

standpoint important that we get these tax incentives right, with 

or without talking about climate change? 

Ms. LUBBER. Right. Well, I do think markets and the economy 

respond to honest pricing signals, so starting with the pricing signals and then getting to the fossil fuels versus renewables. 

The pricing signals right now are distorted. Fossil fuels have had 

huge subsidies for decades and decades, and every time we want 

to consider the wind energy tax credit or the production tax credit, 

we renew it every year—some years we do, some years we do not. 

Every person in that industry says the stop and the start, the not 

knowing is there going to be a tax credit or not, has hurt them. 

Now, despite that we are seeing progress. But without question, we 
516 

need to either cut back fossil fuel subsidies or certainly equalize 

them with renewable energy. 

The second pricing signal—and I am not here today to talk about 

a price on carbon, but the reality is when you price something appropriately, capital markets work beautifully. And if things are 

priced inappropriately, they do not. We know that carbon pollution, 

regardless of whether we think it is 99 percent or 97 percent likely, 

carbon pollution has a price, an enormous price to society. We have 

talked about that today. But we do not put a price on carbon pollution. When something is free—carbon pollution is—you get more of 

it. So we are seeing carbon emissions in different parts of the world 

go up. So I do think we have got to get those pricing signals and 

fossil fuels right. When we look at now, right now, $860 billion is going into looking for new fossil fuels, fossil fuels that we may never be able to 

burn. There may be stranded costs because we are going to stay 

at a 2-degree world, we already have more fossil fuels mined than 

we will ever be able to burn. But we are about to invest $860 billion a year into more fossil fuels, much of which will become 

stranded if we do not stop and think. 

So what we are seeing, though, which is the good news side of it, the International Energy Association says we need $1 trillion in 

investments in renewables by the year 2030. That means a half a 

trillion by 2020. Right now we are at a quarter of a trillion dollars 

of investments in renewable energy, and that is growing. Solar energy is now cost competitive, price competitive. It is growing enormously all around the country. Wind energy is growing. And let us 

look at who is producing it. It is Siemens, it is General Electric. 

These are not anymore only the small, little shops in somebody’s 

garage. 

And whether it is a small solar company, though, or a large, the 

installations are local. They are in our country. They are jobs that 

are here on the ground. They are not jobs in other parts of the 

world, and they are productive. 

I sit on an advisory board to Jeff Immelt, to GE. The largest producing revenue stream at GE is Ecomagination, their line of products that are about renewable energy or about greener technology. 

So there is growth. We need to see more of it. We will see more 

of it if we adjust the subsidies and we get the market signals correct. If we continue to say carbon pollution is free or price it as if 

it is free, free things, we get lots more of it. We need to get less 

of it. 

Chairman MURRAY. Thank you. 

Senator Whitehouse? 

Senator WHITEHOUSE. Thank you, Chairman. 

Mr. Lomborg—first, one question. It appears to me that everybody on this panel agrees that climate change is real, it is really 

happening, and it relates to carbon emissions. Is that true across 

the board of all five of you? Yes? Okay. Very good. That is a start. 

That is a start. 

Mr. Lomborg, let me ask you to look at Figure 1 in your testimony, which is a graph that shows, even using your numbers, that 

by 2070, the cost of global warming turns negative, and my question to you is: On that graph, once you get past 2070, there is a 
517 

very apparent trajectory of that line downward, and then the graph 

ends at 2100. What is your expectation for the continued trajectory 

of that graph further? 

Mr. LOMBORG. It will definitely go down and further down. We 

do not— 

Senator WHITEHOUSE. At a similar rate, do you think, roughly? 

Do you have any reason to think it will vary from that angle of descent? 

Mr. LOMBORG. Well, it depends a lot on the projections of what 

are we going to do in the 22nd and 23rd century, which is probably 

very, very hard to make any, you know, reasonable estimates on. 

But that is obviously why I say we do need to fix global warming. 

The question is not whether we should do it. The question is 

whether we should do it now or whether we should do it with better technology. 

Senator WHITEHOUSE. And, of course, what you are representing 

there is a net harm. 

Mr. LOMBORG. Yes, there is the net harm— 

Senator WHITEHOUSE. So a farmer in Siberia will do better as 

things get warmer up there. Africa, Asia, places like that, will suffer a great deal. Correct? 

Mr. LOMBORG. Yes. 

Senator WHITEHOUSE. Turning to your Figure 4, there is a lower 

line, a curve that you describe as the cost of unavoidable global 

warming. I assume that is the cost we have already baked in by 

not having taken action already. Is that correct? 

Mr. LOMBORG. Yes. 

Senator WHITEHOUSE. And then you have a higher cost, which is 

the cost of unmitigated global warming, if we do nothing. And at 

2100 those two graphs end. It is denominated in percentage of 

GDP. Could you give me a U.S. dollar equivalent value for the gap 

between the bottom line and the top line at 2100? 

Mr. LOMBORG. I am trying to think. It is like 1.6, 1.8 percent, 

and the U.S. GDP is about $100 trillion. So it is a little less than 

$2 trillion. 

Senator WHITEHOUSE. A little under $2 trillion, all right. And 

then similarly, in Figure 6, there is a cost- benefit curve on the difference between an optimal climate policy cost and benefit, and by 

2100 would that be the same number if you were to translate the 

gap between your cost line and your benefit line into a U.S. dollar 

equivalent— 

Mr. LOMBORG. No, not at all, because that is one of the points, 

that— 

Senator WHITEHOUSE. So what would that number be? 

Mr. LOMBORG. It would be about—and, again, I am just making 

this on the fly, but about $400 billion. 

Senator WHITEHOUSE. $400 billion. 

Mr. LOMBORG. Because most of the damage will still be there. 

Senator WHITEHOUSE. And we are not exactly certain how this 

unprecedented change to our atmosphere and oceans is going to 

work out entirely, are we? 

Mr. LOMBORG. You are asking me whether these numbers are absolutely true? No, of course they are not. It is a model. 
518 

Senator WHITEHOUSE. In some of the hypotheticals as scientists 

look forward, there is a credible view that in the out-years there 

are really actually potentially catastrophic effects, are there not? 

Mr. LOMBORG. Well, there is a lot of conversation on the catastrophic impact, and this has actually been incorporated in an economic perspective into this model. 

Senator WHITEHOUSE. That is my question, because when you incorporate a catastrophe for humanity in out-years, do you discount 

that? 

Mr. LOMBORG. You both discount it and you also look at what is 

the probability. And can I just— 

Senator WHITEHOUSE. No, stop, because you have gotten me 

right to the point that I want to get to, which is the question that 

I have. An American family living in this country in 2114, let us 

say, 100 years from now, if they are experiencing the effects of climate change and if it is a harsh effect, will they be experiencing 

a discounted effect or they will be experiencing the full-on effect 

that we will have caused them? 

Mr. LOMBORG. They will be experiencing full-on effect, but, of 

course, they will also be experiencing the benefits of all the technology and all of the leftovers that we have left them with, the 

technology that will make them—you know, we will have— 

Senator WHITEHOUSE. Do you agree— 

Mr. LOMBORG. —$100 trillion— 

Senator WHITEHOUSE. Do you agree that there is at least a moral 

choice being made when we discount harm to future—there is 

something selfish about discounting that because we are not going 

to be around for it. It is going to be other people suffering— 

Mr. LOMBORG. Oh, we do that all the time. I believe the U.S. has 

a very, very high debt, which, of course, is a very explicit way of 

saying we do not care all that much about the people who are going 

to be paying that debt later on. 

Senator WHITEHOUSE. It is a little bit different when you are 

dealing with a financial characteristic that you can invest against 

versus a change in the very operation of the planet’s oceans and 

atmosphere, no? 

Mr. LOMBORG. Unless we are talking about something that basically eradicates humanity, I would say, you know, we have looked 

and we have good models, for instance, on what is the impact, for 

instance, of a 5-meter sea level rise. If I could just give you another 

example— 

Senator WHITEHOUSE. My time has expired, so I will have to let 

the other Senators take on the rest of the time. Thank you. 

Mr. LOMBORG. Madam Chairman, can I just make a very short— 

Chairman MURRAY. If you can do it very short, because we have 

a number of Senators who are waiting. 

Mr. LOMBORG. Professor Nordhaus has actually looked at a similar issue where we know that there is a chance that asteroids are 

going to hit us, and we know what is the cost of ensuring that we 

can find another 9 percent of those asteroids. We have not paid 

that price. So we have a very clear example. We pay for finding 90 

percent, but we do not want to pay for finding 99 percent. That is 

an indication of how much we care about the planet. 
519 

Senator WHITEHOUSE. Not only an international celebrity, but an 

expert on asteroids. I am impressed. 

Chairman MURRAY. Senator Johnson. 

Senator JOHNSON. Thank you, Madam Chair. 

I am certainly somebody on this Committee that has tried to look 

out 30 years in terms of our own debt and deficit, and with a fair 

amount of humility, realizing even 30 years is pretty hard to predict. And I also come from the State of Wisconsin, though, and 

when we are looking at literally 100 years out and beyond in terms 

of what is going to be the mean temperature, you know, what is 

climate going to look like, I think it is just kind of hard to predict, 

and I am not buying into the consensus myself. 

What I would like to do is I would like to just take a look at what 

we know what has happened in the past. And we did get this slide 

up here for me. I appreciate that, the Budget staff. This is a chart, 

a graph showing temperature differences from the Vostok ice core 

data description, conducted in 1999, which shows over the last 

422,000 year— and that is what we are talking about here, geologic 

time. I am not a scientist. I am not quite sure how they do this. 

They have got their methods. I believe this has been pretty well 

verified that this is about as good as we can do, trying to determine 

this. But whether you buy the complete accuracy, it shows one, 

two, three, four—and we are in the fifth cycle of mean temperature 

change, somewhere in excess of 15 degrees over the last 422,000 

years. 

I mentioned I am from Wisconsin. Twenty-three thousand years 

ago, Wisconsin was covered by a glacier, kind of estimates somewhere in the 5,000 to 6,000 feet thick—23,000 years ago. 

Now, something caused that glacier to recede. I know there were 

men back then. I do not think there were enough men building 

campfires to create fossil fuel CO2 emissions to cause it. Something 

else caused that. I think this is just common sense. 

Now, if you take a look at this chart, we are up on an upswing 

over this 422,000-year period. I guess I am just asking, anybody 

else ask themselves this question: What caused this? I know there 

are a number of theories. I know everybody kind of raised their 

hand and said, oh, this is for sure manmade. Again, I will not 

doubt that—I will not deny that man has an effect on our environment. But what caused this? 

And with these types of long-term climate change trends—I get 

accused of being a climate change denier. I am no denier. I fully 

acknowledge we have had climate change over geologic time. Other 

things are at play here. 

So I will just kind of go down the line. What is your response 

to this type of chart, these types of long-term facts? Not trying to 

project out 100 years but really taking a look at the last 422,000 

years, we have seen some pretty dramatic changes in climate. Let 

us start at the very end there. 

Ms. LUBBER. Sure, thank you. And I am on my way to Wisconsin 

following this testimony to the SC Johnson Wingspread Conference 

Center, so I will be in your State. 

As I said at the beginning, I am a lawyer; I am not a scientist. 

I am cognizant of the 99 percent of the scientists who say that cli-
520 

mate change is now, it is manmade, it is happening, and we are 

seeing increased changes in our climatic— 

Senator JOHNSON. Okay. Is there anybody here with a little bit 

more of a scientific background, or is it all pretty much—sir? 

Mr. MONTGOMERY. I am not a scientist, but I have been participating in work— 

Senator JOHNSON. Turn your microphone on. 

Mr. MONTGOMERY. I have been participating in the work of the 

integrated assessment modeling community and talking to effects 

researchers and the MIT climate scientists for a long time. I think 

what I would say is, yes, there is general agreement among climate 

scientists that anthropogenic emissions affect greenhouse gas concentrations in the atmosphere and that affects temperature. 

I think there is a lot less agreement about whether what we are 

observing—and I think there is general agreement, yes, what we 

are observing today is probably associated with manmade—anthropogenic emissions. But I think if you got the climate scientists to 

be honest about it, they would all agree that but right now it is 

making very little difference. And I think if you eyeball the data, 

you see that. It is still very hard to distinguish the signal from the 

noise. 

Senator JOHNSON. That is what—I am trying to just put things 

in perspective here. I mean, over geologic time, yeah, we have had 

climate change. Glaciers have receded. Water levels have risen. 

And that is always going to happen whether—you know, it is going 

to happen long past man, the time of man on Earth. Isn’t that 

true? Okay. That is all the questions I have. Thank you. 

Chairman MURRAY. Senator King. 

Senator KING. Senator Johnson, I will see your 422,000 and raise 

you a million. I am asking my staff guy to bring over to you—I do 

not have the chart that you have, but the answer to your question, 

why does it change? Over the last million years, as you will see on 

the chart that I am about to give you, it is almost an exact correlation with levels of CO2 in the atmosphere. CO2 goes up, temperature goes up. CO2 goes down, temperature goes down. 

On the other side of the chart, what you see is the last million 

years of CO2, and, yes, CO2 over the last million years has varied 

widely, just as your chart does, up and down, for all kinds of reasons. It was not people making campfires. It was probably volcanoes and all other kinds of natural forces that were going on. 

But the real point is that in about 1860 that variation that you 

see was always between about 200 and 300 parts per million of 

CO2. In 1860, it took off, and this summer, for the first time in 3 

million years, it reached 400 parts per million. 

And if, in fact, the correlation between CO2 and temperature 

holds that your chart demonstrates over into the short-term future, 

we are in a crisis situation. It is all about CO2 and the relationship 

with temperature, and I think the data is pretty clear. Yes, there 

has been a variation, but about the time we started burning fossil 

fuels in large quantities, it goes up very dramatically, from a top 

level prior of about 320 parts per million to this past spring 400. 

That is the dig deal. 

And I think Mr. Lomborg’s testimony is fascinating, and I think 

it really gets to the question of inaction versus action. And to me 
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it comes down to a formula. Divide the cost of inaction times some 

kind of X factor for risk divided by the cost of action. If the result 

of that formula is 1.0 or better, then we need to act. 

You would argue that it is below 1.0, at least under various considerations. And, of course, the big question here is: What is the 

rest of the world going to do? 

I have a hard time telling people in Maine they have got to pay $6 for a gallon of gas if China and India do nothing. 

On the other hand, the question is: What is going to provoke 

them to do something? And I am sure that our doing nothing is not 

going to provoke them to do something. This is a global issue, and 

it has to be dealt with on a global basis. 

But somebody has got to lead, and it seems to me, as you have 

pointed out, we are the wealthiest country in the world; we are in 

the best position to lead, but not be stupid. I think your analysis 

is very interesting. 

There is another factor, though, and that is, the risk of catastrophic climate change. The scientists at the University of Maine 

that study this, we have a school, a division studying climate 

change, studying Greenland ice cores. The last time I was there, 

they used a word that scared me. The word was ‘‘abrupt.’’ And apparently in history things like the Ice Ages did not start—I always 

thought it took thousands and thousands of years. In fact, it took 

decades. And if we have abrupt climate change that is triggered by 

this extraordinary rise in CO2 that does something like, for example, the melting of the Greenland ice cap and that changed the 

route of the Gulf Stream, your country would be uninhabitable 

along with Britain, Scotland, and all the rest of Scandinavia. That 

is what worries me, is the X factor. 

And I guess, Mr. Montgomery, here is my question: Do have 

homeowners’ insurance on that house at the Chesapeake? 

Mr. MONTGOMERY. Yes, I do. 

Senator KING. And what do you reckon the risk of your home 

burning down is? Once every how many years? A hundred years? 

Fifty years? 

Mr. MONTGOMERY. My wife worries about it more because she actually had her home burn down around her when she was a little 

girl. But it is—I think that the insurance is actuarially worth it. 

It covers enough risk. 

Senator KING. But it is a pretty remote risk, but you are paying 

$500 to $1,000 a year—and I do not know what your GDP is, but 

$1,000 is probably a measurable percentage of it—to ensure 

against a remote but yet enormously consequential risk. It seems 

to me that is the analysis that we have to go through here. 

Dr. Lomborg, your thinking? 

Mr. LOMBORG. You are absolutely right. The question and the 

crucial part of that analogy is you have to actually get your money 

back. That is what you do from the home insurance. But we are 

actually more likely— 

Senator KING. But you never get it back if your home does not 

burn down. 

Mr. LOMBORG. No, no, no. But you do get it back if it does burn 

down, and, unfortunately, the risk insurance—it is better seeing 

this as a risk reduction because there is nothing paying back. We 
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are simply reducing the risk of, for instance, catastrophic climate 

change if we make more action. So we are reducing the risk, but 

we are not actually getting a premium. There is nothing, you know, 

paying back the Earth if it burns, if you will. 

Senator KING. But I guess—we know that there are costs, but we 

also know that there are risks. And I guess the question is: Who— 

don’t you sometimes make expenditures in the short term to avoid 

a drastic, unlikely but very dire consequences risk rather than 

hope that that does not happen? I mean, it seems to me that is the 

calculus. And, again, I come back to my failure. It is cost of action 

divided by cost of inaction. But you have got to multiply the cost 

of inaction by this X factor for catastrophic risk. 

Mr. LOMBORG. Of course. And if you will allow me to trivialize 

the metaphor a little bit, my problem is that there is a real risk 

we will end up paying more than what the house is worth, but actually to get less than the house back if it burns. 

Senator KING. And I think that is a very valid point, and what 

you are saying is—and I think you used this term— we have to be 

smart about this. 

Mr. LOMBORG. Yes, yes. 

Senator KING. We cannot just throw the kitchen sink at it. We 

have got to really think about what are the costs and the benefits. 

Mr. LOMBORG. And, Senator, could I just briefly point out, I 

think the U.S. has one thing to really show the Chinese and everybody else, because you have actually invested over the last 30 years 

about $10 billion in fracking technology, and fracking technology— 

now, let us leave aside all the other issues that I am sure we can 

come up and talk about. It has dramatically reduced U.S. carbon 

emissions. And it is probably—we estimated in 2012 it reduced 

about 300 megatons of CO2. Remember, all the solar and wind in 

the entire world has cut 275 megatons. So you have actually cut 

more with fracking. 

So, you know, the short-term solution over the next 10, 15 years 

and the only realistic way, if we could get China and Argentina 

and many other countries to frack, they would switch from coal to 

gas, and we would see a dramatic reduction in CO2. 

Senator KING. I am so glad you said that because—let the record 

show that hydrofracking was invented using Federal subsidies and 

Federal loan guarantees, and it is, as you say, a dramatic benefit 

both for our economy and our environment. So thank you very 

much for your testimony, and I just want to end by saying I 

thought Senator Whitehouse made a very important point. We 

have got agreement here that climate change is real and that people have something to do with it. That is progress. Now we are arguing about how to fix it. I am all in on that discussion. 

Thank you very much, all of you. 

Chairman MURRAY. Thank you. 

Senator Kaine? 

Senator KAINE. Thank you, Madam Chairwoman, and to the witnesses, and I want to pick up with the same point. We so rarely 

have a hearing in this place where the majority and minority witnesses agree on an important threshold question, especially one 

that is as controversial on the floor of this body as this question 

is. But the five of you have basically agreed that climate change 
523 

is real, that it is a legitimate problem that needs to be solved, that 

it is significantly manmade. I mean, it is just not that hard. It is 

just not that hard to say it. And I am so happy that the witnesses 

were willing to come and agree on that basic proposition, because 

we cannot even have a meaningful debate about that. People will 

not even use the phrase ‘‘climate change’’ on the floor of this body. 

Now, questions remain: How serious? What to do about it? Over 

what period of time? But what you have just said is what my constituents believe. Virginians are science people. The person we 

most admire, the Virginian we most admire was the preeminent 

scientist of his day—Thomas Jefferson. We are pro-science people. 

And those who attempt to argue against the scientific consensus 

and pretend that mankind does not have anything to do with these 

climate issues, they do not get very far in my Commonwealth. And 

they should not get far here. 

And so I am really refreshed to hear—I mean, when—I am just 

looking at Dr. Montgomery’s testimony. When one of the minority 

witnesses says, page 2, ‘‘In the past few years I have taken a particular interest in the relative merits of mitigation and adaptation 

as responses to climate change risks, and in particular in the role 

of political and economic freedom in making it possible for poor 

countries to grow economically and at the same time to reduce 

their carbon intensity and become more resilient in adapting to climate change.’’ You are working with poor countries to help them 

be less carbon intense. Good on you. To be more resilient to climate 

change, good on you. I hope we have these kind of witnesses, 

Madam Chairman, at every hearing we have. 

So the question is: What do we do? What do we do? 

Dr. Lomborg, I am going to start with you. I think the last bullet 

on your last slide was basically kind of ‘‘Make green cheap,’’ right? 

Figure out—and I think you are a pro- innovation, pro-technology 

guy. And I understand from your answer to Senator King that 

maybe you are saying natural gas to do fuel switching is the shortterm, next-20-year strategy, while we continue to plow investments 

into lower carbon—either low- or non-carbon energy alternatives. Is 

that essentially your pitch? 

Mr. LOMBORG. Yes, the fundamental point is if we could make 

solar and wind so cheap everybody wanted them, you know, we 

would get China and India to do it in a day. 

Senator KAINE. And is there any reason to doubt that solar and 

wind will follow other—the computer example, other kinds of technological examples? When they are new technologies battling 

against mature incumbent technologies, their per unit cost will be 

higher, but the more we deploy the investments and learn from 

them and then make refinements and adjustments, the gap in per 

unit cost drops. Is there any reason to doubt that the same thing 

would happen with wind and solar, that the costs of these energies, 

these low- and no-carbon energies, will continue to come down? 

Mr. LOMBORG. There are two caveats to that argument. One is 

if you take the computer analogy, it is a question of when do you 

subsidize it. Remember, the computer—we subsidized the research 

and development for a very long time. We did not go out and say 

everybody in America should have a computer in 1960. Sure, it 

would have made it a lot cheaper, but it would probably have been 
524 

phenomenally costly to do that, to produce all those computers. So 

we bought a few of them, and we put a lot of money into research 

and development. 

The second part is to remember— 

Senator KAINE. So but the notion of a subsidy to some degree, 

that was necessary, doing the subsidy the— 

Mr. LOMBORG. Yes, but the subsidy was to the research. 

Senator KAINE. To the research. 

Mr. LOMBORG. But the point is to make them efficient so that— 

Senator KAINE. So we should not be cutting research budgets if 

we are going to be going after. 

Mr. LOMBORG. No. The second part is that there is a significant 

problem with solar and wind and other that they are intermitting. 

Senator KAINE. Episodic. 

Mr. LOMBORG. And so basically we need to have much more battery technology if solar and wind is going to cover a large proportion. Remember, right now—and this I think is some of the numbers that we do not generally recognize. The world gets 0.25 percent of its energy from wind. The rich world gets 0.7 percent of its 

energy from wind. Very, very low proportions. Even the International Energy— 

Senator KAINE. But I think I heard a stat that about 35 percent 

of the power added to the grid in the United States since 2005 has 

been wind. So it was not an technology that was really used. It still 

as a proportion of the total is pretty small, but it is coming on 

quickly. 

Mr. LOMBORG. It definitely is rising, but just to give you a sense 

of proportion, the International Energy Agency estimates that by 

2035, which very optimistic assumptions, we will get like 3 or 

maybe even 4 percent of our energy from wind and solar. 

Senator KAINE. I want to ask Dr. Montgomery a question. You 

mentioned the Chesapeake Bay, so I just cannot resist since I am 

a lover of the bay. So you are focusing on—we all have a consensus 

here, but what is the right way to do it, and you say adaptation 

rather than mitigation, or at least that may be the most cost-effective way. How would you restructure the Flood Insurance Program? 

Mr. MONTGOMERY. I do not have a specific design for it, but I 

think that the first thing would be to make the insurance premiums actuarially fair; that is, the more we think climate change 

is going to increase the severity of storms, the higher the premiums 

get, so that people make— 

Senator KAINE. Make everybody who lives in a floodplain, even 

though those floodplain maps are dramatically expanding, pay the 

full freight. 

Mr. MONTGOMERY. Pay the full freight. 

Senator KAINE. That would be your proposal. 

Mr. MONTGOMERY. That would be—I mean, I am sure other 

things need to be done, but that would be the basic principle. 

Senator KAINE. You talked about politically infeasible on some of 

the other things up there. I think making a whole lot of people, including, you know, poor people who live in places that were not 

floodplains when they bought the house, suddenly bear the full 
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freight of flood insurance. That is as politically infeasible as a carbon tax. We have got a lot of tough choices coming up here. 

Senator WHITEHOUSE. More so, say some of us. 

Senator KAINE. All right. Thanks. Great testimony. 

Thank you, Madam Chair. 

Chairman MURRAY. Senator Coons. 

Senator COONS. Thank you, Madam Chair. Thank you for the opportunity to have a robust and hopefully constructive conversation 

on this difficult issue, but one that really does have an impact on 

the long-term Federal budget, on State and county and local budgets, on family budgets, on our national security, and one that we 

really on the Budget Committee should be engaging in and taking 

seriously. 

On the train down this morning from Delaware, I got a chance 

to talk to my Governor, Jack Markell, who is testifying at one of 

the EPA public hearings about the new Climate Action Plan today. 

He and I represent the lowest mean elevation State in America, so 

while Florida and Louisiana certainly have their exposures, we are 

one of the first to go as sea level rise becomes a reality. And Delaware has invested a great deal in actually mapping out and understanding what the impacts of climate change may well be to our 

State, and under some scenarios, rising sea levels will submerge 

more than 10 percent of our State by the end of this century. This 

is not hundreds of years away or—it is, frankly, within the lifetime 

of my children, and the areas that will be submerged are really significant because—since they are along our major rivers and at the 

center of our major cities, they are concentrated areas of major economic impact. 

If I could, to Director Gomez, to what extent do you think it is 

important for the Federal Government to help States and localities 

model and predict and prepare for what are, I think, likely significant impacts on their economy, on their infrastructure? We can get 

to the issues of sort of global security and competition later. I used 

to be a county executive. Our Governor and I spent a lot of time 

hardening our State against incidents like Superstorm Sandy. Here 

on the Budget and Appropriations Committees, I have been very 

concerned about our coastline. What kind of role do you think the 

Federal Government ought to have in helping prepare for these impacts? 

Mr. GOMEZ. Sure. Thank you for that question. So that is a very 

important thing to make sure that it happens. There are about 

$300 billion that are invested annually across the country on infrastructure. About 25 percent of that is Federal dollars. But it is very 

important for the Federal Government to provide technical assistance to those local and State decisionmakers that are making decisions about how to build that bridge, for example, or that seawall. 

The Federal Government produces a lot of information. GAO currently has ongoing work looking at ways in which the Government 

can organize itself in terms of data that can be useful to these communities. So I would say—and that is also an area that we have 

in our high-risk designation, the need for good technical assistance, 

not only to provide it but to translate it to these officials who may 

not know exactly how to use the information or where the find it. 

But also important is for these officials, local and State officials, to 
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start integrating and using the information in their planning processes so they can build resilience into their structures, whether it 

is maintaining them or building new structures. 

Senator COONS. That is right. In my county government role, one 

of the challenges we faced was the future expense of health care 

and pension plans. One of the greatest challenges we face in our 

Federal budget is the future growth in entitlement costs. And as 

we have often debated around this hearing room, the sooner we 

begin to tackle long-term costs and the rate of growth in costs, the 

easier the difficult choices will be. 

Isn’t there a clear parallel here with climate change, the sooner 

that State and local government, the Federal Government gets serious about tackling this issue, the less burdensome and difficult the 

long-term consequences will be of those changes in direction? 

Mr. GOMEZ. Again, in our high-risk designation, it is very much 

focused on limiting the Federal Government’s fiscal exposure by 

better managing climate change risks. And so we identify a variety 

of areas, which you have all spoken about already, whether it is 

the Federal Government as the property owner of facilities, whether it is the Federal Government as the provider of property insurance or flood insurance, crop insurance, the Federal Government as 

the provider of disaster assistance which is not incorporated into 

the budget. So we are very focused on finding places and ways in 

which the Federal Government can limit these exposures. 

Senator COONS. I am very struck, Ms. Goodman, by your testimony where you cite that the QDR, the Quadrennial Defense Review, has literally identified climate change as a threat multiplier 

and a catalyst for conflict. In my role as the Africa Subcommittee 

Chair on Foreign Relations, I have seen the steadily increasing 

challenges of growing famine, of changes in climate in a lot of different ways on the African continent. 

Do you think this poses a long-term security risk to the United 

States if we do not deal with it responsibly now? 

Ms. GOODMAN. Yes, Senator. Thank you for your question. Yes, 

we do. The Military Advisory Board believes that climate change 

is both a threat multiplier and a catalyst for conflict, particularly 

in Africa, a region already racked by poor governance, terrorist 

threats, and now increasingly natural resource strains from 

drought that have pitted herders against farmers and exacerbated 

conflict in a number of regions, from Sudan to Mali to other parts 

of Africa. Yes, it is a serious concern and one that needs to be addressed to face our own threats to our own country. 

Senator COONS. Thank you. And the last question, if I might. In 

the exchange you had with Senator King, the metaphor I think you 

were working through Senator King was home insurance—I am 

sorry. It was with Dr. Montgomery, forgive me—how much home 

insurance do you pay for fire even though the risk of a fire burning 

your house down is right in—and the conversation and the back 

and forth was about risk mitigation. 

I would suggest, Ms. Lubber, the constellation of companies that 

are involved in Ceres might give you better insight into this than 

I Have. That is really not the right metaphor. A slightly more complicated metaphor is the one that I think we ought to be looking 

at, because this is not just risk avoidance, it is also seizing an op-
527 

portunity. Because in the same way that climate change poses real 

security threats to the United States and to our national security 

infrastructure, to our communities and our States and our physical 

infrastructure, it poses those same threats to our competitors globally. And in my view, the country that invests in the research and 

the development and the deployment of climate change adaptation 

and climate change mitigation technologies will dominate the global marketplace for everything, from transportation to infrastructure, power generation in the future. 

And so if we invest, it is really more like investing and figuring 

out how to make the next generation fire truck that puts out the 

fire faster so that we do not just have passive insurance that we 

are investing in and we get no return unless there is a catastrophic 

event. But it is literally proactively investing in the technologies 

that will mitigate our losses and create new market opportunities 

for us globally. 

Is that what the companies that have helped form Ceres see, is 

a market opportunity for us? 

Ms. LUBBER. We are seeing it not only— 

Chairman MURRAY. You have to turn your microphone on. 

Ms. LUBBER. We are seeing that magnified every day. Let me 

give you a few examples. 

In a recent report we did on clean energy, we are seeing it becoming the mainstream for U.S. corporations, some of the largest 

corporations; 60 percent of the Fortune 100 companies have goals 

for renewable energy and greenhouse gas reductions. Through the 

initiatives, 53 of 100 Fortune 100 companies said that through 

their own energy saving and investing in renewable energy, they 

have saved for themselves $1.1 billion annually, and their collective 

reduction in emissions decreased their annual CO2 emissions by 

the equivalent of retiring 15 coal-fired power plants. 

Companies are seeing this is an opportunity to save money and 

to look at resources. When they invest in renewable energy, their 

employees love it. Their shareholders are starting to love it. Their 

consumers like it. Even the utility sector that makes up a third of 

the carbon emissions, we just released a study showing how major 

utility companies in every part of the country can both live with 

regulations and are starting to act even now to increase massive— 

massive increases in selling energy efficiency to their customers 

and renewable energy. 

And think about it. It hedges our bets against erratic oil and gas 

markets. It is saving utility companies money as well as the largest 

companies. And it is being passed on to consumers in many instances. 

It is no longer whether they should do it, from Microsoft to Dell 

to Time Warner. Companies are looking at reducing their carbon 

footprint and saving money and investing in renewable energy. 

Senator COONS. Well, thank you. And in my own home State, 

DuPont, one of our longest established— 

Ms. LUBBER. Major leader. 

Senator COONS. —and major manufacturing and innovation company, they have a chief sustainability officer, a sustainability plan. 

This is not just something they do to sound good in the press or 

to satisfy environmental critics. This is a bottom-line, performance- 
528 

enhancing business opportunity for them, and I am pleased to hear 

bipartisan enthusiasm for energy efficiency, an area where I really 

think the United States can competitively grow our market opportunities. 

Thank you so much for your testimony. 

Chairman MURRAY. Thank you very much. 

I want to thank all of our colleagues and our witnesses. This has 

been a very important and interesting discussion today, and I especially want to thank all of our witnesses for coming here and joining us and giving your expertise as well. 

As a reminder to everyone, additional statements and questions 

for the witnesses are due by 6:00 p.m. today, submitted to our chief 

clerk. 

Thank you again to all of your for participating. With that, this 

hearing is closed. 

[Whereupon, at 11:45 a.m., the Committee was adjourned.] 
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