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22–604 2016

GROWING RISKS TO THE BUDGET AND THE 

ECONOMY 

HEARING 

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD IN WASHINGTON, DC, SEPTEMBER 14, 2016 

Serial No. 114–21 

Printed for the use of the Committee on the Budget 

( 

Available on the Internet: 

www.gpo.gov/fdsys/browse/committee.action?chamber=house&committee=budget 


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(II) 

COMMITTEE ON THE BUDGET 

TOM PRICE, M.D., Georgia, Chairman 

TODD ROKITA, Indiana 

SCOTT GARRETT, New Jersey 

MARIO DIAZ-BALART, Florida 

TOM COLE, Oklahoma 

TOM MCCLINTOCK, California 

DIANE BLACK, Tennessee 

ROB WOODALL, Georgia 

VICKY HARTZLER, Missouri 

MARLIN STUTZMAN, Indiana 

FRANK GUINTA, New Hampshire 

MARK SANFORD, South Carolina 

STEVE WOMACK, Arkansas 

DAVE BRAT, Virginia 

ROD BLUM, Iowa 

ALEX MOONEY, West Virginia 

GLENN GROTHMAN, Wisconsin 

GARY PALMER, Alabama 

JOHN MOOLENAAR, Michigan 

BRUCE WESTERMAN, Arkansas 

JIM RENACCI, Ohio 

BILL JOHNSON, Ohio 

CHRIS VAN HOLLEN, Maryland, 

Ranking Minority Member 

JOHN A. YARMUTH, Kentucky 

BILL PASCRELL, JR., New Jersey 

TIM RYAN, Ohio 

GWEN MOORE, Wisconsin 

KATHY CASTOR, Florida 

JIM MCDERMOTT, Washington 

BARBARA LEE, California 

MARK POCAN, Wisconsin 

MICHELLE LUJAN GRISHAM, New Mexico 

DEBBIE DINGELL, Michigan 

TED LIEU, California 

DONALD NORCROSS, New Jersey 

SETH MOULTON, Massachusetts 

PROFESSIONAL STAFF

RICHARD MAY, Staff Director 

THOMAS S. KAHN, Minority Staff Director 


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C O N T E N T S 

Page 

Hearing held in Washington, D.C., September 14, 2016 ...................................... 1 

Hon. Tom Price, M.D., Chairman, Committee on the Budget ............................. 1 

Prepared statement of ...................................................................................... 3 

Submissions for the record: 

CBO: An Update to the Budget and Economic Outlook: 2016–2026 .... 8 

CBO: The 2016 Long-Term Budget Outlook ........................................... 91 

Hon. Tim Ryan, a Representative in Congress from the State of Ohio .............. 4 

Prepared statement of ...................................................................................... 6 

John H. Cochrane, Ph.D., Senior Fellow, Hoover Institution .............................. 204 

Prepared statement of ...................................................................................... 206 

Jared Bernstein, Ph.D., Senior Fellow, Center on Budget and Policy Priorities ........................................................................................................................ 220 

Prepared statement of ...................................................................................... 222 

Douglas J. Holtz-Eakin, Ph.D., President, American Action Forum ................... 238 

Prepared statement of ...................................................................................... 240 


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(1) 

GROWING RISKS TO THE BUDGET AND THE 

ECONOMY 

WEDNESDAY, SEPTEMBER 14, 2016 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE BUDGET, 

Washington, DC. 

The Committee met, pursuant to call, at 10:04 a.m., in room 210, 

Cannon House Office Building, Hon. Tom Price, M.D., (chairman of 

the Committee) presiding. 

Present: Representatives Price, Rokita, Grothman, Renacci, 

Johnson, Womack, Woodall, Palmer, Blum, Sanford, Hartzler, Brat, 

Ryan, Pascrell, and Norcross. 

Chairman PRICE. The hearing will come to order. 

We want to welcome everybody to the Budget Committee and our 

hearing this morning on growing risks to the budget and the economy. We have got a lot of folks here. 

And I especially want to welcome a delegation from the country 

of Sri Lanka. We welcome you to our budget hearing today. Thanks 

for joining us. Maybe you can teach us a few things about getting 

a budget on track. 

This morning’s hearing is entitled ‘‘Growing Risks to the Budget 

and the Economy.’’ Regardless of one’s political posture, there are 

clearly some warning signs before us. In many ways, the current 

budget and the current economy are, in fact, risks that are intimately related to each other. The Congressional Budget Office 

itself provides all of us with some sobering information, demonstrating that policymakers have ample evidence and information 

revealing just how severe the risks are and how much riskier they 

will become in the not-too-distant future. 

Today, the Nation’s total debt tops $19 trillion. At the end of the 

10-year budget window, over the next decade, CBO projects we will 

borrow another $8.6 trillion, accumulating a total level of publicly 

held debt equivalent to more than 85 percent of our economy. That 

is twice the average level of the past century. It is the highest our 

Nation has had since the end of World War II. 

And, of course, unlike the 1940s, today’s debt is not being driven 

by a massive temporary mobilization of military might. In 2016, 

our debt trajectory is being driven by a chronic imbalance in our 

Nation’s budget for which there is no end in sight under current 

policy or current law. 

In fact, today’s growing debt is not so much the result of defeating a threat to America’s national security—it is, indeed, the threat 

itself. The fiscal imbalance that we face, the uncertainty that is 


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sown into our economy by a looming fiscal crisis, all of this weakens our Nation. 

And, yet, despite all of this, there are many who are saying that 

just because interest rates are so low, that we just ought to keep 

borrowing more and more money—run up the credit card while 

credit is relatively cheap. This is, as most folks understand and appreciate, horribly shortsighted thinking. Publicly held debt is over $14 trillion, more than three-quarters 

the size of our economy. We are already past what economists say 

is a sustainable debt burden, let alone advisable or fair to leave our 

kids and our grandkids. 

The fastest-growing component in our budget is not national security spending; it is not health care; it is not research and development; it is not infrastructure to repair roads or bridges; it is not 

aid to the Nation’s poor; it is interest on our Nation’s debt. Unless 

something is done to change course, in 2026 America will pay $712 

billion a year in interest payments alone, just shy of what we are 

projected to spend on our entire national defense. 

And interest payments, interest dollars, are dollars that can’t be 

used to pay the rent or to send a kid to school or to buy a car or 

to buy a house or to start or to expand a business. All the things 

that the American people say they want to do with their money 

will be harmed by the enormous interest payments. Annual deficits are projected to exceed $1 trillion in that same 

time period. These deficits will come at a time when Washington 

will be taking in higher-than-average tax revenue. This means that 

we will be taking in more tax money and going further in the hole, 

further into debt. Clearly, the government is not being starved of 

revenue. 

That being said, a stronger economy that creates higher revenues 

is truly the key to addressing our fiscal crisis. If our economy were 

growing today at just the historical average, roughly 3 percent annually, instead of 2 percent that is projected over the next decade, 

we would be in a much better fiscal position than we are right now. 

According to the Congressional Budget Office, if economic growth 

were just 0.1 percentage points higher per year than currently projected, annual deficits over the next 10 years would be reduced by 

$327 billion. Just through better economic output, we could reduce 

future deficits by as much as $3.3 trillion over the next decade if 

we were growing at our historical average. 

In short, economic growth is a vital ingredient to any coherent 

strategy to get the Nation’s fiscal house in order. Poor economic 

policies contribute to the poor fiscal health of the Nation, and today 

we are experiencing the worst economic recovery of the modern era. 

The macro effects of slow economic growth, however, are only one 

side of the story. The uncertainty that the country as a whole has 

experienced, due in part to lackluster economic growth, is also experienced by millions of individual Americans—families, entrepreneurs—in their own lives and in their own ways. Many Americans are struggling to make ends meet at a time when opportunities are fewer and the cost of basic necessities like health care and 

education are rising. 

And while the headline unemployment rate has dropped to under 

5 percent, the underemployment rate, that which takes into acVerDate Sep 11 2014 01:29 Dec 20, 2016 Jkt 022604 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 E:\HR\OC\A604.XXX A604

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count those who are working part-time because they can’t find fulltime work and those who have just given up looking for work, is 

currently 9.7 percent. That is higher than where it was prior to the 

recession. 

Meanwhile, the rate of participation in America’s labor market, 

the percent of the population who are able to work who are working, is at levels not seen since the late 1970s, and the rate of worker productivity has declined for the last three quarters. 

At a time when over 60 percent of the country believes the Nation is on the wrong track, it is time we adopted a pro-growth policy agenda. And when that is coupled with sound budgetary strategy, it will jump-start America’s economic engine and put us on a 

sustainable fiscal trajectory. 

House Republicans, led in part by this committee’s efforts on fiscal and economic matters, have been championing bold solutions to 

achieve those goals. 

And to further this discussion, we are joined today by Dr. John 

Cochrane, a senior fellow at the Hoover Institution; Dr. Jared 

Bernstein, who is a senior fellow at the Center on Budget and Policy Priorities; and Dr. Doug Holtz-Eakin, who is president of the 

American Action Forum. 

I want to thank each and every one of you for taking part in today’s hearing. 

And I am pleased now to yield to the current temporary ranking 

member of the day, Mr. Ryan from Ohio. 

[The prepared statement of Chairman Price follows:] 

CHAIRMAN PRICE OPENING STATEMENT: GROWING RISKS TO THE BUDGET AND THE

ECONOMY

Good morning. 

The title of this hearing is the ‘‘Growing Risks to the Budget and the Economy.’’ 

Regardless of one’s political posture—there are clearly some warning signs before 

us. In many ways the current budget and the current economy are in fact risks unto 

each other. 

The Congressional Budget Office (CBO) provides all of us with some sobering information—demonstrating that policymakers have ample evidence and information 

revealing just how severe the risks are now and will become in the not too distant 

future. 

Today, the nation’s total debt tops $19 trillion. At the end of the ten year budget window, over the next decade, CBO projects we will borrow another $8.6 trillion— 

accumulating a total level of publicly-held debt equivalent to more than 85 percent 

of our economy. That is twice the average level of the past half century. It is the 

highest our nation has had since the end of World War II. 

Of course, unlike the 1940s, today’s debt is not being driven by a massive, temporary mobilization of military might. In 2016, our debt trajectory is being driven 

by a chronic imbalance in our nation’s budget, for which there’s no end in sight 

under current policy and current law. 

In fact, today’s growing debt is not so much the result of defeating a threat to 

America’s national security—as it is the threat itself. The fiscal imbalance we face; 

the uncertainty that is sown into our economy by a looming fiscal crisis—this all 

weakens our nation. 

And yet, despite all of this, there are many who are saying that because interest 

rates are so low that we ought to borrow even more money—run up the credit card 

while credit is relatively cheap. 

This is horribly short-sighted thinking. Publicly held debt is over $14 trillion— 

more than three-fourths the size of our economy. We are already past what economists say is a sustainable debt burden—let alone advisable or fair to leave our kids 

and grandkids. 

The fastest growing component in our budget is not national security spending; 

it’s not health care; not research and development; not infrastructure to repair roads 

and bridges; not aid for the nation’s poor. It is interest payments on our nation’s 


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4 

debt. Unless something is done to change course, in 2026 America will pay $712 billion in interest payments alone—just shy of what we are projected to spend on our 

entire national defense. And interest payments are dollars that can’t be used to pay 

the rent, send a kid to school, buy a house, buy a car, start or expand a business— 

all of the things Americans want to do with their money will be harmed by the ever 

increasing interest payments. 

Annual deficits are projected to exceed $1 trillion in that same period of time. 

These deficits will come at a time when Washington will be taking in higher than 

average tax revenue. This means that we’ll be taking in more tax money—and going 

further in the hole—further into debt. Clearly, government is not being starved of 

revenue. 

That being said, a stronger economy that creates higher revenues is the key to 

addressing our fiscal crisis. If our economy was growing today at just the historical 

average—roughly three percent instead of the two percent projected over the next 

decade—we would be in a better fiscal position than we are right now. According 

to CBO, if economic growth were just 0.1 percentage points higher per year than 

currently projected, annual deficits over the next 10 years would be reduced by $327 

billion. Just through better economic output, we could reduce future deficits by as 

much as $3.3 trillion over the next decade if we were growing at our own historical 

average. 

In short, economic growth is a vital ingredient to any coherent strategy to get the 

nation’s fiscal house in order. Poor economic policies contribute to the poor fiscal 

health of the nation, and today we are experiencing the worst economic recovery in 

the modern era. 

The macro effects of slow economic growth, however, are only one side of the 

story. The uncertainty that the country as a whole is experiencing due—in part— 

to lackluster economic growth is also experienced by millions of individual Americans, families, and entrepreneurs in their own lives and in their own ways. Many 

Americans are struggling to make ends meet at a time when opportunities are fewer 

and the cost of basic necessities like health care and education are rising. 

While the headline unemployment rate has dropped to under five percent, the 

‘‘under-employment rate’’—that which takes into account those who are working 

part-time because they cannot find full-time work and those who have given up 

looking for work—is currently 9.7 percent. That’s higher than where it was prior 

to the recession. Meanwhile, the rate of participation in America’s labor market— 

the percent of the population who are able to work—who are working—is at levels 

not seen since the late 1970s, and the rate of worker productivity has declined for 

three straight quarters. 

At a time when over sixty percent of the country believes the nation is on the 

wrong track, it is time we adopted a pro-growth policy agenda—and when that is 

coupled with a sound budgetary strategy, it will jumpstart America’s economic engine and put us on a sustainable fiscal trajectory. House Republicans—led in part 

by this committee’s efforts on fiscal and economic matters—have been championing 

bold solutions to achieve those goals. 

To further this discussion we are joined today by Dr. John Cochrane, Senior Fellow at the Hoover Institution; Dr. Jared Bernstein, Senior Fellow at the Center on 

Budget and Policy Priorities; and Dr. Douglas Holtz-Eakin, President of the American Action Forum. 

Thank you for taking part in what I hope will be a healthy and enlightening conversation. 

And with that, I yield to the Ranking Member, Mr. Ryan. 

Mr. RYAN. Thank you, Mr. Chairman. I would like to thank our 

witnesses for being here. Please excuse my voice. I got a little cold 

from my 2-year-old son after his first week at school. Germ factory. 

We need a hearing on that, I think, Mr. Chairman. 

There are few tasks more fundamental to the function of this 

Committee than to discuss the budget and economic outlook, and 

I think this is really one of the few committees that is still having 

very, very serious discussions about the future of the country. In 

this charged political climate, it is hard to get a rational discussion 

in many quarters these days. So I hope today’s panel will shed 

some light for us on approaches Congress should consider to improve the lives of Americans going forward. 


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5 

We have all known for some time that we are facing a daunting 

fiscal future. Baby boomers are reaching retirement age, and our 

retirees, current retirees, are living longer. So this demographic 

shift drives the increases in the cost of health care, retirement programs, and budget deficits projected by CBO over the next 10 years 

and beyond. 

Similarly, CBO’s projected slowdown in economic growth is driven by slower-than-past growth in the labor force and productivity. 

Again, we have seen these trends coming for decades. 

These are major concerns that deserve our attention. We must 

get the economy moving so our hard-working Americans can enjoy 

a rising standard of living. And we must adjust our fiscal policies 

to lessen future budget deficits, which are unsustainable without 

responsible action. So I am glad we are all in agreement here, as 

Democrats and Republicans, that this is a major issue that we need 

to address. 

Now, Congress has the fiscal policy tools, I believe, that we need 

to act. And we did it at the start of the recession. President Obama 

inherited the weakest economy since the Great Depression, and, together, we acted swiftly to turn things around. 

Within 6 months, the economy began to grow again. We are now 

in the fourth-longest economic expansion in American history. We 

have added 15 million private sector jobs and cut the unemployment rate in half. Economists have estimated that without the aggressive policy response implemented by the President and Congress and the Federal Reserve, the recession would have lasted 

more than 3 years, cost twice as many jobs, and pushed the unemployment rate to 16 percent rather than the 10 percent we actually 

saw. 

Had we not employed the fiscal policy tools in our toolkit, we 

would have a weaker economy and larger deficits today. 

So if we look at the economic situation in Europe, which our panelists know all too much about, Europe responded to the economic 

crisis with austerity, and this approach undermined their recovery, 

the deep cuts. And, unfortunately, Congress has also undermined 

our economy over the past 6 years by blocking additional proposals 

by President Obama and insisting on spending cuts, the kind of 

austerity measures that have failed elsewhere. President Obama’s 

jobs bill still languishes here in Congress. 

Democrats have a different approach. We want to enact forwardlooking policies that will strengthen the main drivers of our strong 

economy. We want sustained investment. And while we have to 

make tough choices to deal with the deficit and the debt, we must 

remain committed to responsibly funding our national priorities, 

because these priorities lead to the growth that the chairman was 

talking about. 

We must promote long-term job growth by modernizing transportation networks—that takes investment; repairing aging infrastructure—that takes investment; investing in workforce education— 

that takes investment; and supporting the research and development of advanced manufacturing technologies which will lead to 

the next generation of good-paying jobs in America. 


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6 

This will create the millions of jobs, this will grow our economy, 

facilitate American exports, create a level playing field for American workers, and increase the return on taxpayer investment. 

By contrast, our Republican colleagues continue to push an agenda that returns to the same failed policies that created and prolonged the recession: deregulation, new tax breaks for the wealthy, 

and austere spending cuts. And under President Bush, we actually 

lost private sector jobs. Under President George W. Bush, who fully 

implemented the supply-side economic theory, we lost private sector jobs. 

These tactics do little to expand the workforce or improve productivity. I think we can all agree that a stronger economy is the single most important factor that would improve the budget and fiscal 

outlook, even if we differ on the best approach to stimulate growth 

across the economy. 

Democrats are eager to discuss this, Mr. Chairman, and any additional efforts to reduce future deficits, but we need a willing partner, not a party that seeks to disinvest in America’s future and 

threaten our vital society and our social safety net without regard 

to the damaging impact of austerity on our economy and its recovery. 

[The prepared statement of Tim Ryan follows:] 

REPRESENTATIVE TIM RYAN OPENING STATEMENT

Thank you, Mr. Chairman. I would like to thank our witnesses for being here. 

Please excuse my voice. I got a little cold from my 2-year-old son after his first week 

at school. Germ factory. We need a hearing on that, I think, Mr. Chairman. 

There are few tasks more fundamental to the function of this committee than to 

discuss the budget and economic outlook, and I think this is really one of the few 

committees that is still having very, very serious discussions about the future of the 

country. In this charged political climate, it is hard to get a rational discussion in 

many quarters these days. So I hope today’s panel will shed some light for us on 

approaches Congress should consider to improve the lives of Americans going forward. 

We have all known for some time that we are facing a daunting fiscal future. 

Baby boomers are reaching retirement age, and our retirees, current retirees, are 

living longer. So this demographic shift drives the increases in the cost of health 

care, retirement programs, and budget deficits projected by CBO over the next 10 

years and beyond. Similarly, CBO’s projected slowdown in economic growth is driven by slower than past growth in the labor force and productivity. Again, we have 

seen these trends coming for decades. 

These are major concerns that deserve our attention. We must get the economy 

moving so our hard working Americans can enjoy a rising standard of living. And 

we must adjust our fiscal policies to lessen future budget deficits, which are 

unsustainable without responsible action. So I am glad we are all in agreement 

here, as Democrats and Republicans, that this is a major issue that we need to address. 

Now, Congress has the fiscal policy tools, I believe, that we need to act. And we 

did it at the start of the recession. President Obama inherited the weakest economy 

since the Great Depression, and, together, we acted swiftly to turn things around. 

Within 6 months, the economy began to grow again. We are now in the fourth 

longest economic expansion in American history. We have added 15 million private 

sector jobs and cut the unemployment rate in half. Economists have estimated that 

without the aggressive policy response implemented by the President and Congress 

and the Federal Reserve, the recession would have lasted more than 3 years, cost 

twice as many jobs, and pushed the unemployment rate to 16 percent rather than 

the 10 percent we actually saw. Had we not employed the fiscal policy tools in our 

toolkit, we would have a weaker economy and larger deficits today. 

So if we look at the economic situation in Europe, which our panelists know all 

too much about, Europe responded to the economic crisis with austerity, and this 

approach undermined their recovery, the deep cuts. And, unfortunately, Congress 

has also undermined our economy over the past 6 years by blocking additional proVerDate Sep 11 2014 01:29 Dec 20, 2016 Jkt 022604 PO 00000 Frm 00010 Fmt 6633 Sfmt 6621 E:\HR\OC\A604.XXX A604

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7 

posals by President Obama and insisting on spending cuts, the kind of austerity 

measures that have failed elsewhere. President Obama’s jobs bill still languishes 

here in Congress. Democrats have a different approach. We want to enact forward 

looking policies that will strengthen the main drivers of our strong economy. We 

want sustained investment. And while we have to make tough choices to deal with 

the deficit and the debt, we must remain committed to responsibly funding our national priorities, because these priorities lead to the growth that the chairman was 

talking about. 

We must promote long term job growth by modernizing transportation networks— 

that takes investment; repairing aging infrastructure—that takes investment; investing in workforce education—that takes investment; and supporting the research 

and development of advanced manufacturing technologies which will lead to the 

next generation of good paying jobs in America. 

This will create the millions of jobs, this will grow our economy, facilitate American exports, create a level playing field for American workers, and increase the return on taxpayer investment. 

By contrast, our Republican colleagues continue to push an agenda that returns 

to the same failed policies that created and prolonged the recession: deregulation, 

new tax breaks for the wealthy, and austere spending cuts. And under President 

Bush, we actually lost private sector jobs. Under President George W. Bush, who 

fully implemented the supply side economic theory, we lost private sector jobs. 

These tactics do little to expand the workforce or improve productivity. I think 

we can all agree that a stronger economy is the single most important factor that 

would improve the budget and fiscal outlook, even if we differ on the best approach 

to stimulate growth across the economy. 

Democrats are eager to discuss this, Mr. Chairman, and any additional efforts to 

reduce future deficits, but we need a willing partner, not a party that seeks to 

disinvest in America’s future and threaten our vital society and our social safety net 

without regard to the damaging impact of austerity on our economy and its recovery. 

Chairman PRICE. I thank the gentleman. 

As background for this hearing, the Congressional Budget Office 

has their August update as well as their long-term budget outlook. 

And I ask unanimous consent to insert into the record the CBO reports ‘‘An Update to the Budget and Economic Outlook: 2016 to 

2026,’’ published on August 23, 2016, and the ‘‘2016 Long-Term 

Budget Outlook,’’ published on July 12, 2016. 

Without objection, so ordered. 

[The information follows:] 


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204 

Chairman PRICE. Dr. Cochrane, Dr. Bernstein, Dr. Holtz-Eakin, 

we want to welcome you. We thank you very much for taking time 

today. Your prepared remarks will be made part of the record. 

Each of you will have 5 minutes to present your opening statement. 

And, Dr. Cochrane, you may begin when ready. 

STATEMENTS OF DOUGLAS J. HOLTZ-EAKIN, PH.D., PRESIDENT, AMERICAN ACTION FORUM; JOHN H. COCHRANE, 

PH.D., SENIOR FELLOW, HOOVER INSTITUTION; AND JARED 

BERNSTEIN, PH.D., SENIOR FELLOW, CENTER ON BUDGET 

AND POLICY PRIORITIES 

STATEMENT OF JOHN H. COCHRANE 

Mr. COCHRANE. Chairman Price and Mr. Ryan and members of 

the Committee, it is a real honor to talk to you today. 

Yes, sclerotic growth is our country’s most fundamental economic 

problem. If we could get back to the 3.5 percent postwar average, 

we would, in the next 30 years, triple rather than just double the 

size of the economy, and also tax revenues, which would do wonders for our debt problems. 

So why has growth halved? The most plausible answer is, I 

think, simple and sensible: Our legal and regulatory system is 

slowly strangling the golden goose of growth. 

How do we fix it? Harder. Our national economic debate just 

makes the same points louder, over and over again, and is going 

nowhere. So let’s look together to find novel and effective policies 

that can appeal to both sides of the argument. 

Let’s get past too much regulation or too little regulation and fix 

regulation instead. Regulation is too discretionary. People can’t 

read the rules and know what to do. Regulatory decisions take forever. Regulation has lost its rule of law protections. Agencies are 

cop, prosecutor, judge, jury, and executioner all in one. And most 

of all, regulation is becoming more politicized. 

Congress can fix this. Let’s get past spending more or spending 

less on social programs and fix the programs instead. 

Often, if people earn an extra dollar, they lose more than a dollar 

of benefits. No wonder people get stuck. If we fix these disincentives, we will help people better, we will encourage growth and 

economy, and, in the end, we will spend less. 

Now, spending is a serious problem, but just moving spending off 

the books doesn’t help. For example, we allow a mortgage interest 

tax deduction, but that is exactly the same thing as collecting taxes 

and then sending checks to homeowners, but larger checks for 

high-income people, larger checks for people who borrow a lot, and 

larger checks for people who refinance often. You would never do 

that. 

Suppose we eliminate the mortgage deduction and put housing 

subsidies on budget instead. The resulting homeowner subsidy 

would surely be a lot smaller, help lower-income people a lot more, 

and would be better targeted at getting people in houses. You 

would both be happy. The budget would look bigger, but in reality, 

we would be spending less and growing more. 

Taxes. Tax reform fails because arguments over the level of 

taxes, subsidies, or redistribution torpedo sensible simplifications 


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we all know we should do. We could achieve tax reform, then, by 

separating the four confounding issues. 

First, determine the structure of taxes, just to raise revenue with 

minimal economic damage, but leave the rates blank, then separately negotiate the rates, put all the tax incentives and deductions 

in a separate subsidy code, and preferably as visible on-budget expenditures, and then separately add an income redistribution code. 

If you did these four things separately, the necessary big fights 

over each one need not derail progress on the others. 

I should say, a massive simplification of the Tax Code is, I think, 

more important than the rates and easier for us all to agree on. 

Debt and deficits. Each year, the CBO correctly declares our 

long-term debt unsustainable and not much happens. Yelling louder won’t work. 

So let’s, first, face the biggest problem, a debt crisis, when the 

U.S. really needs to borrow trillions of dollars and suddenly can’t; 

a debt crisis, not a predictable rise in interest rates or something 

we can see coming. Crises are always sudden and unexpected, like 

earthquakes and wars. Even Greece could borrow at remarkably 

low interest rates—until, one day, all of a sudden it couldn’t. 

The answers are straightforward. Sensible reforms to Social Security and Medicare are on the table. Address underfunded pensions, huge credit and bailout guarantees, and other things that 

might force the U.S. to need a lot of money suddenly. 

Buy some insurance. Every homeowner shopping for a mortgage 

chooses between a floating rate, lower initially, and a fixed rate, 

higher initially, but forever stopping the chance of interest rates 

going up and blowing their budget. 

The same for the U.S. Fixed rates, borrowing longer, would forever insulate the budget from interest rate risks, and those are the 

essential ingredients of a debt crisis. 

Above all, undertake simple pro-growth economic policies and 

grow out of the debt. 

You may object that fundamental reform of this sort is not politically feasible. Well, what is politically feasible changes fast these 

days. Winston Churchill once said, Americans can be trusted to do 

the right thing after we have tried everything else. Well, we have 

tried everything else, so let’s do the right thing. 

[The prepared statement of John H. Cochrane follows:] 


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Chairman PRICE. Thank you, Dr. Cochrane. 

Dr. Bernstein, you are recognized for 5 minutes. 

STATEMENT OF JARED BERNSTEIN 

Mr. BERNSTEIN. Thanks very much, Chairman Price, and thank 

you, Mr. Ryan, for the invitation to speak to you today. 

My testimony makes three simple points. First, as recent labor 

market, income, poverty, and health coverage data reveal, the 

American economy actually has significant strengths. The U.S. 

economy is in the seventh year of a recovery that began in the second half of 2009, meaning that we are in the midst of a relatively 

long expansion. Businesses began adding jobs on net in late 2010, 

and since then, private sector employment is up 15 million jobs, the 

longest streak of total job growth on record. 

The tightening job market has meant faster wage growth, and 

not just for high-wage workers, but for middle- and low-wage workers as well. As my first figure shows, the real wage of blue collar 

workers in manufacturing and for non-managers and services is up 

5 percent since its trough in late 2012. 

My second figure uses data from the New York Federal Reserve 

to show another favorable shift in the recent job market: Middleskill job growth is now outpacing that of job growth in low- and 

high-wage occupations. 

Now, these labor market trends helped to generate remarkably 

positive real income gains last year as reported just yesterday by 

the Census Bureau. My figure 3 shows these real gains were largest at the low end of the income scale, a characteristic pattern of 

tightening labor markets as they disproportionately lift the incomes 

of the least advantaged. 

I should note that contrary to some of the very negative comments that have been made so far today, the 5.2 percent increase 

you see in this figure is the fastest 1-year growth in real median 

household income on record in the Census Bureau series, which 

dates from the mid-1970s. 

Poverty also fell significantly last year, though the poverty rate, 

at 13.5 percent, is still above its 2007 level. 

Figure 4 shows the dramatic decline in the share of Americans 

without health coverage that began with the implementation of the 

Affordable Care Act. These very positive developments for middleand low-income households derive from the one-two punch of tighter labor markets and progressive healthcare policy. 

My second point, however, is that trend productivity growth is 

too slow, and that suggests the need for an investment agenda. 

Though the U.S. economy is growing faster than most other advanced economies, real GDP growth has been slower in this recovery than in prior ones. An important reason for this outcome is 

that productivity growth has also slowed. And one reason that productivity growth has slowed is due to less capital deepening, as in 

not enough investment in capital per hour worked. 

Now, recent Congresses, including the current one, have been extremely reluctant to plan and execute public investment in needed 

areas, including basic research, water quality, human capital, including preschool, and transportation infrastructure. 


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This is a bipartisan complaint, one I hear regularly from the 

business community that depends on productivity-enhancing infrastructure. 

My final point is that while we face serious fiscal constraints, 

lower interest rates and slower-growing healthcare costs, even as 

many more people have health coverage, are providing desperately 

needed fiscal oxygen. Together, these two factors explain five-sixth 

of the improvement in the long-term forecast of the debt ratio. 

My last figure underscores the health savings point. It shows a 

4 percentage point decline in projections for public health spending 

as a share of GDP between the 2010 projections and the most recent ones, savings that are partly attributable to healthcare delivery efficiencies promoted by the Affordable Care Act. 

Given the investment agenda I recommend, I want to express my 

concern regarding sequestration cuts to nondefense discretionary 

programs, including education, job training, infrastructure, scientific and medical research, veterans health care, and more. Such 

funding is projected to fall to historical lows as a share of the economy in coming years. 

Similarly, the budget of the House majority features particularly 

severe cuts in programs to help poor families and others of limited 

means. Sixty-two percent of its spending cuts come from programs 

that serve low- and moderate-income families, including Medicaid, 

nutritional support, and Pell Grants. 

Such budgeting would not only lead tens of millions of people to 

lose health coverage and basic food support, but it would also undermine the positive public investment agenda we very much need. 

Thank you. 

[The prepared statement of Jared Bernstein follows:] 


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Chairman PRICE. Thank you, Dr. Bernstein. 

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

STATEMENT OF DOUGLAS J. HOLTZ-EAKIN 

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

Ryan, and members. It is a privilege to be here today. My written 

statement makes three points at length. I will make them quickly 

and then look forward to your questions. 

Point number one is that the U.S. can and must do better on 

both the Federal fiscal outlook and the economic growth outlook, 

and they are intimately related. 

Point number two is that one part of doing better is to change 

the kind of policy mix away from temporary targeting measures associated with stimulus to long-term structural changes to help the 

economy grow at a faster trend rate growth. 

And then number three is a list of key structural reforms that 

I think are important for the Congress to consider. 

Let me talk about each in turn. 

On the growth and budget challenges, there are many ways to 

characterize this. You have heard some already. I think on the 

growth front, the key fact is that from the end of World War II to 

2007, the U.S. economy grew fast enough on average, about 3.2 

percent, that even with population growth, total GDP per person, 

a rough measure of the standard of living, would double on average 

every 35 years. 

And so in one person’s working career, you can imagine the 

standard of living doubling, and that would be the route to whatever your version of the American dream might be—sending a child 

to school, to college for the first time, or a vacation home, whatever. 

At current projected rates of growth, 2 percent, combined with 

projections of population growth, that measure of the standard of 

living would double roughly every 70 to 75 years. And so the pace 

at which we achieve the American dream has cut down dramatically and is disappearing over the horizon. I think this is the preeminent policy challenge of our time. 

It is closely related, of course, to the budget challenge, because, 

as the chairman pointed out, every tenth of a percentage point of 

faster growth translates into about $300 billion in budgetary improvement over the 10-year budget window. 

And we have a dire fiscal outlook, one in which, the CBO correctly points out again and again, the debt levels are rising at 

unsustainable rates, one where, over the next 10 years, we are 

going to have the deficit rise to be $1.2 trillion in 2026, where interest will be $700 billion, over half of that deficit, where the debtto-GDP ratio is going to continue to climb and be 80 percent. 

All of these things are quite troubling and something that the 

Congress should take on. And in doing so, they will have to do 

some structural reforms, and those reforms will have to start with 

the entitlement programs. 

There are really three reasons to worry about the entitlement 

programs. The first is genuinely the budget outlook. These are programs that are growing at, say, Social Security 6 percent, or Medicare a little under 6 percent, 5.9 percent, when the nominal econVerDate Sep 11 2014 01:29 Dec 20, 2016 Jkt 022604 PO 00000 Frm 00242 Fmt 6633 Sfmt 6602 E:\HR\OC\A604.XXX A604

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omy is going to grow at something like 4 percent. So they are growing faster than resources can permit to support them. But that is 

the green eye shades argument, and it will, I promise you, having 

made it my entire career, resonate not one bit with anyone. 

So the second reason to fix them is that these programs on their 

merits are not good programs. Our Social Security program is kept 

solvent on the books, and the trustees are permitted to issue reports, because we have promised to cut benefits 25 percent across 

the board when the trust fund exhausts in a little under two decades. That is a horrific way to run a pension program. 

And so if you go through Social Security, Medicare, Medicaid, the 

Affordable Care Act, the large drivers of the spending increase that 

is our deficit problem, those programs all could be improved, they 

are not delivering at sensible costs the services that we have promised. 

And the third reason is that the explosion in entitlement spending and the associated rise in debt invites economic problems. 

If you are an investor looking at the United States and you see 

a fundamental mismatch between spending growth and revenues, 

you know one of three things is going to happen. 

One, the U.S. could do nothing, there will be a predictable fiscal 

crisis, and that is not a pro-growth policy. 

Number two, you could try, as that crisis approaches, to close 

that gap quickly by raising a trillion dollars in taxes each year, and 

that is hardly a pro-growth policy. 

Or three, you can take on the spending challenge that is the entitlement programs, and that would be a way to, in a pro-growth 

fashion, address the fiscal challenge and invite investment and expansion in the United States. 

So this is something that is central to our success. It is also the 

way to free up the resources for national security, basic research, 

infrastructure, education, all of the things the Founders saw as the 

basic role of the Government of the United States. Those are being 

squeezed out of the budget as we speak. 

So I think that is where it starts, and it goes through a list of 

tax reforms, regulatory reforms, education reforms, trade agreements, immigration reforms, all of which could allow the economy 

to perform much better and which should be on the agenda for the 

Congress. 

So I look forward to your questions. I would be happy to elaborate on any of those. 

[The prepared statement of Douglas J. Holtz-Eakin follows:] 


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Chairman PRICE. I thank all three of you for your opening statements. And I think that the prepared remarks that you had are 

very enlightening in many, many ways, and we appreciate that. 

We will start questioning with Mr. Rokita. You are recognized for 

5 minutes. 

Mr. ROKITA. I thank the gentlemen for their testimony. Good 

morning. 

Dr. Holtz-Eakin, starting with you. Picking up where you left off, 

it seems like you have the right recipe there. Let’s reform these 

programs. Let’s get spending under control. Let’s drive the debt 

down. Let’s continue pro-growth policies of getting regulations 

under control, as Dr. Cochrane mentioned, and reforming our Tax 

Code, et cetera, et cetera. 

Mr. Ryan, my good friend, the ranking member today, complained, though, that Europe committed the crime of austerity. 

How is what you are saying different from austerity? 

Mr. HOLTZ-EAKIN. So I think you want to recognize that—— 

Mr. ROKITA. ‘‘Crime’’ is in quotes, by the way. 

Mr. HOLTZ-EAKIN. Yes. Looking forward, the key issue is not recovery from a recession. The bulk of that has been accomplished— 

at a slow pace, but it has happened. The key issue going forward 

is what can raise the trend long-term rate of economic growth. And 

that is not a matter of stimulus or austerity, that is a matter of 

what will enhance productivity, what will enhance the rate of labor 

force participation, and the kind of components that go into GDP 

growth. Those are issues associated with structural reforms, as I 

said, to have better incentives, whether they are in our social safety net or in our Tax Code. 

Mr. ROKITA. Thank you. 

And setting up for my next question, could you, please, just for 

the record, give us and folks watching at home, millions of readers 

who will be reading the transcript of this hearing, what is the definition, what is the difference between public debt and total debt? 

Mr. HOLTZ-EAKIN. There is debt in the hands of the public, and 

then there is total debt, which includes, debt in, for example, the 

Social Security trust fund within the government. And the total 

debt is larger as a result. 

Mr. ROKITA. Right. So then the question is, since the projected 

rise from an already elevated 76 percent of public debt to GDP will 

become more than 85 percent in 2026, twice the average level of 

the past 50 years, which was only 39 percent, and considering that 

CBO’s long-term projections show the public debt level would jump 

to 141 percent in 2046 under current law, the highest debt we have 

ever had, what would be the impact on the economy and the average American family if this fiscal future became a reality, realizing 

that the 141 percent is still not even the total debt? 

Mr. HOLTZ-EAKIN. There is a large literature that, regardless of 

which way you measure the debt, demonstrates that if you have a 

high debt-to-GDP ratio you pay a growth penalty. And the U.S. is 

now in the range—there is a fight about what the range is, obviously—but it is now in the range of paying that growth penalty, 

and we have slow growth. 

So every American family is getting less in the way of income increases, has had a harder time finding a job because of slower ecoVerDate Sep 11 2014 01:29 Dec 20, 2016 Jkt 022604 PO 00000 Frm 00257 Fmt 6633 Sfmt 6602 E:\HR\OC\A604.XXX A604

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nomic growth. That is a very tangible loss in economic opportunity, 

and that is what I alluded to in my opening remarks, the pace at 

which you see the standard of living rise. That is the price. It will 

get worse as the debt gets higher. 

Mr. ROKITA. Turning to you, Dr. Cochrane, regarding the slow 

growth, we are estimated to have 1 percent growth this year, the 

last several years have been 2 percent growth, the average growth 

for this mature economy is, prerecession, is 3 percent. What do you 

think is weighing on the economy? You mentioned regulations. You 

mentioned tax reform. You want to go in any more detail, or is 

there something else? 

Mr. COCHRANE. Well, I did want do want to emphasize what 

Doug just said, which is we are in a very slow-growth moment, and 

this seems to be emerging as the new normal. What counts here 

is not a little year or 2 stimulus or whatever, but it is the new normal of 2 percent rather than 3.5 percent, which compounds forever. 

Growth comes from productivity, and productivity, unfortunately, 

mostly comes from new ideas, new companies, new ways of doing 

things, not just government investment. 

So ask businesses why things are slowing down. Well, they can’t 

get the permits anymore. 

Mr. ROKITA. Right. So it is just regulations? 

Mr. COCHRANE. No. We have sand in the gears of the economy 

all over the place, regulation, law, taxes. Look for lots of places 

where, unfortunately, the government is getting in the way of this 

unpleasant process. Remember, when somebody invents a new 

idea, has a new company, puts the old guys out of business, it is 

unpleasant. That is why they come to Washington asking for protection. But it slows down the process of growth. 

Mr. ROKITA. So we shouldn’t settle for 2 percent, 3 percent 

growth, even though this is, like I said, a mature economy. We are 

not a new republic anymore, we shouldn’t expect 10 percent growth 

a year, anything like that. What should be our goal? 

Mr. COCHRANE. I think we can do much, much better. A precise 

number is hard to come by. But if you look across the world, notice, 

for example, the World Bank’s ease of doing business index is correlated with astonishingly large levels in the difference of people’s 

welfare. So unless you think this country is perfect, making the 

ease of doing business here could have similarly large effects. 

Chairman PRICE. The gentleman’s time has expired. 

Mr. Pascrell, you are recognized for 5 minutes. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

Mr. Chairman, you have really assembled three great testimonies today. We have three great economists. I trust each one of 

them. I may not agree with them, but that is immaterial. I say that 

with a full heart. 

So Mr. Bernstein referred to the U.S. Census report yesterday. 

I think that is important, significant stuff, because, Mr. Chairman, 

if we are ever going to come to a resolution of any of these problems, we have to look at the pluses and minuses. Sometimes I listen to you folks on the other side of the aisle, and then we are 

ready to throw in the towel. And I know you are not a throw-inthe-towel guy. But in order for us to get resolution, we have to 


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come to an agreement, we have to come to a resolution. Would you 

agree? Very good. 

So I reject the doom and gloom. There is no denying America is 

getting stronger economically. The budget projections reflect that 

as we see more revenue from individual taxes, as working Americans make more money. 

But what you don’t see going up are revenues from anywhere 

else. They are flat and they are declining. Corporate income tax 

revenues in 1952 accounted for 33 percent of all revenue. In 1986, 

it was down to 23 percent, Mr. Chairman. Today, it is 11 percent. 

Now, that is a, to me—I will stand corrected—a huge shift on 

where we get our revenue in order to run the government. Despite 

U.S.-based corporations seeing record profits, they are contributing 

very little to the Federal revenue, when you look at those numbers. 

I didn’t make them up. 

Tax reform in 1986 also made it more appealing for our businesses to structure themselves as pass-through companies. You 

have written, you have talked about this, I know, a few of you on 

the panel. You pay lower than individual tax rates. 

[Chart] 

Mr. PASCRELL. Now, I am going to put a chart up here. You tell 

me. And this is revised every year. It is my favorite, favorite, favorite chart of all time. This chart shows what contributes to our deficit. It destroys the myths that we hear many times in this very 

room. 

So what is the major part of our problem since we, as Democrats 

and Republicans, have reduced the deficit in the past few years? 

And look at this chart. The situation from the tax cuts of 2001 and 

2003 are going to be contributing proportionately a greater portion 

of the problem that exists with the deficit that we have in this 

country. You cannot deny where our budget and where our policy 

priorities are. 

I think that this is a very revealing chart. I don’t put charts up 

much when I speak, but I think this is a very revealing chart of 

where we are heading that highlights the need for comprehensive 

tax reform and modernizes our Tax Code and catches income 

earned by U.S.-based companies in a way that is fair and puts us 

on a path to fiscal sustainability. And I think that is the key word. 

Each of you mentioned it in manner, shape, or form. 

We can modify the funding stream for Social Security, as an example. I would agree. We have to address it. I mean, we can hide 

it. We can hide under the desk. When you are a mayor of a town, 

you don’t hide under the desk, they will come and get you. And we 

do that in Congress, we hide under the desk. 

I support the Social Security 2100 Act. I ask you all to look at 

it, tell me where it is wrong, where it is right. John Larson, many 

people are cosponsoring it. It would reinstitute the employment tax 

for Social Security at incomes above $400,000 to shore up the trust 

fund. Representatives Sanchez and Honda and Pocan are leading 

another bill to phase out the cap on taxing income above $118,000. 

As income inequality grows, the rich pull away from everyone 

else in terms of income. It no longer makes sense to cap the Social 

Security. 


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And in conclusion, simply say this. When you examine what we 

taxed 30 years ago, 40 years ago, and to see the shift to attacking 

personal income and taxing personal income, we have to work on 

this. To me, I believe we are going in the wrong direction on this. 

Chairman PRICE. The gentleman’s time has expired. 

Mr. PASCRELL. Thank you, Mr. Chairman, for your courtesy. 

Chairman PRICE. Thank you, sir. 

Mr. Renacci, you are recognized for 5 minutes. 

Mr. RENACCI. Thank you, Mr. Chairman, and thank you for holding this important hearing to remind us of the consequences of an 

unsustainable fiscal path. 

As the father of three, I believe that we are responsible to leave 

our children and grandchildren with a country that is financially 

stronger than the country we inherited. Unfortunately, though, 

Washington too often chooses to kick the can down the road and 

not address the challenges we face. 

Absent serious reforms, these challenges aren’t going away. However, I am very concerned that many here in Congress still don’t 

understand the seriousness of this problem. 

Dr. Cochrane, your testimony discussed the dangers of this 

mindset. You said: ‘‘Debt crises, like all other crises that really 

threaten an economy and society, do not come with decades of 

warning. Do not expect slowly rising interest rates to canary the 

coal mine. Even Greece could borrow at remarkably low rates. 

Until, one day, it couldn’t, with catastrophic results. 

‘‘The fear for the U.S. is similar. We will have long years of low 

rates. Until, some day, it is discovered that some books are cooked 

and somebody owes a lot of money that they can’t pay back, and 

people start to question debts everywhere.’’ 

Mr. Cochrane, you also stated: ‘‘Debt crises are like earthquakes. 

It is always quiet. People laugh at you for worrying. Buying insurance seems a waste of money. Until it isn’t.’’ 

I agree that we need to tackle problems now before the debt 

earthquake hits. But before tackling the problem, Members of Congress must really start fully understanding it. 

That is one of the reasons why I introduced a piece of legislation, 

a Bipartisan Working Group, entitled the Fiscal State of the Nation, to provide Members of Congress and the American people an 

annual update on the long-term financial health of the country. 

Our Nation’s finances are one of the most important pieces of information that lawmakers should consider when setting policy agendas for each Congress, but too often I believe that many here in 

Washington are willfully blind to the subject. 

I was a businessman for 28 years. I can tell you that every year, 

along with every month, I looked at balance sheets and income 

statements to determine what policies we were going to move forward with, and those became one of the most important reasons 

that we made decisions we make. We don’t do enough of that. 

The Fiscal State of the Nation resolution is simple. It just requires the Comptroller General of the United States to present the 

financial report of the United States to a joint session of Congress 

on an annual basis. It allows lawmakers and the American public 

to receive the information in an accurate and timely manner within 


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45 days of when our country’s audited financial statements are 

issued. Many members on the panel are already cosponsors. 

Dr. Cochrane, you note in your testimony that every year the 

Congressional Budget Office declares our long-term promises are 

unsustainable. I hear it all the time as well. Yet, Congress continues to just kick the can down the road. 

Do you agree that a Fiscal State of the Nation would better help 

all Members of Congress to understand the pressing financial 

issues facing our country? 

Mr. COCHRANE. You are asking me to comment on a bill I haven’t 

read. The general idea, from what you have described, sounds very 

useful, in particular because a lot of the accounting for the U.S.’s 

fiscal situation is quite murky, even by private sector standards. 

In addition to what is written down, we have our promises of Social Security and Medicare, which are many times the actual national debt. We have implicit guarantees that we are going to stand 

behind a bunch of loans and credits and bail people out that pose 

a danger to the fiscal stance of the United States. 

So, yes, being clearer about the numbers might help a lot. Unfortunately, like wars, an army seems like a very expensive thing 

until suddenly you need it, and the same is true of debt. Our interest rates are very low right now, so it is hard to marshal a campaign that we have to worry about interest rates rising. Well, like 

wars, keep that powder dry, because you may need it some day. 

Mr. RENACCI. Sure. It is interesting, you used the word ‘‘murky.’’ 

I have been here 51⁄2 years. I have tried to understand the 700, 800 

pages of financial information presented. I have tried to get it simplified to a simple balance sheet so people could understand it. 

That has been a difficult charge after 51⁄2 years. It is one of the 

reasons why I just want somebody to come and explain it all to 

Members of Congress, because I do think it is an important place. 

You also said the rising interest rates on our debts would be less 

likely the canary in the coal mine but rather more like a looming 

earthquake. Can you explain that? 

Mr. COCHRANE. Yeah. There is a picture that large debt sort of 

slowly, inexorably drives up interest rates and you can see what is 

happening. That is a possibility. But I think the larger danger is, 

one, the U.S. borrows relatively short term, we roll over our debts 

about every 2 years. 

So we are sort of like a household that has taken the floating 

rate mortgage, and then if interest rates go up, all of a sudden our 

payments double and our income hasn’t changed. And typically, 

that is going to happen at a moment when the U.S. also has to borrow a lot of money to fight a recession, fight a war, bail out of a 

bunch of banks, and whatever we want to do. 

So we are in that situation that the rising interest rates could 

make the deficit much less sustainable than it already is. That is 

the key of what happened in Europe in many ways. You are fine 

with low interest rates. If interest rates go up, you can’t afford anything. So you are very vulnerable to a sharp rise in rates. 

Chairman PRICE. The gentleman’s time has expired. 

Mr. RENACCI. Thank you, Mr. Chairman. 

Chairman PRICE. Mr. Ryan, you are recognized for 10 minutes. 

Mr. RYAN. Thank you, Mr. Chairman. 


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Dr. Bernstein, you talked a little bit about research, water quality, transportation. Can you explain to us, in a very elementary 

way, why you believe that those investments will lead to growth? 

Because that is the big rub here. We have tax cuts. And I think 

Mr. Pascrell showed it. I talked about it a little bit. We saw the 

Bush tax cuts, two rounds of them, we saw deregulation, and we 

didn’t grow jobs. 

You are saying make these investments, that is a better approach. Can you tell us why? 

Mr. BERNSTEIN. Yeah. Thank you for the question. 

There are well-established needs and uses for what economists 

call public goods in an economy like ours, and these are investments that the private sector, left onto itself, won’t make optimally 

deep enough investments. 

Now, when it comes to investing in private production, no question that is by definition a private sector function. But when it 

comes to education, for example, or basic research, basic R&D, 

which I should note is at historically low levels in terms of Federal 

expenditures, or when it comes to safety net programs or the kind 

of countercyclical programs that you articulated in your opening 

statement, there is no private firm that will provide them. And extensive work has shown that these are complementary investments 

to private sector productivity growth. 

And to make it very simple, the private sector is going to do lots 

of applied research. They won’t do basic research. The private sector is going to invest in private plants. They are not going to build 

roads and bridges. The private sector will invest in some worker 

training, but a suboptimal amount, and they certainly won’t invest 

in public education to the extent that we need it. 

So if Congress does not appropriate the dollars for adequate investments in public goods, that will show up as slower productivity 

growth. 

Now, we have two things going on: suboptimal investments in 

public goods and slower productivity growth. I am not saying by 

any means that is the only reason. Economists actually are hard 

pressed to explain these changes in productivity growth. But I am 

convinced it is an important one. 

Mr. RYAN. So when we talk about basic research, why does the 

public need to do that? Why doesn’t the private sector, we will cut 

taxes, and let them go do basic research? 

Mr. BERNSTEIN. That it is a good question. The reason the private sector suboptimally invests in all of the things I mentioned— 

I will get to your basic research point—is because there is no way 

for them to either make the scale of the investment needed or to 

claim the kind of returns on those investments with any certainty 

that they can be assured of. 

So the Internet. The Internet was a project that began in government, in the Defense Department, specifically. There is no private 

sector firm that could have on their own funded that kind of seed 

research. Now, once it takes off, the private sector joins in. But I 

think it is a pretty classical example of an investment that has ultimately been very important to our economy and our growth. 

Mr. RYAN. Dr. Holtz-Eakin, do you agree with that on the basic 

research side, that the government has some role in doing these 


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kind of things that the private sector can’t do, they just don’t have 

enough money to do it on their own? 

Mr. HOLTZ-EAKIN. Yes. I think, qualitatively, Jared has summarized the economic argument in favor of the provision of public 

goods exactly right. My only caution would be to harness your expectations appropriately for the kinds of rates of return and actual 

impacts on economic growth that you will get. 

If you were, for example, to fix the roads between my home and 

my workplace, something I really would like to see the District of 

Columbia think about, I would be able to leave later and get to 

work on time, and I could leave work and get home earlier, and my 

life would be quite good. But my measured productivity, what I do 

at the office, wouldn’t change a bit. You wouldn’t see any impacts 

in economic growth. 

And in my written research, I have a long summary of the research on the productivity effects of public infrastructure. It is usually touted as something we can just do real quick and we will get 

these great returns. I would urge you to think it won’t happen 

quickly and you won’t get great returns. You will have to pick 

projects sensibly, not through the typical political process, and you 

will have to target them effectively at the Federal level. 

Because the really big returns that you find in a lot of public infrastructure comes when Connecticut steals firms from Massachusetts or vice versa. That doesn’t help the Nation as a whole. And 

so national productivity growth through this route, the impacts are 

going to be very small. 

Mr. RYAN. Well, I think of, like, the space race, right? I think of 

NASA in the early days. I can’t even fathom a President today saying, ‘‘Hey, let’s go to the moon and spend a bunch of money,’’ what 

would happen politically, no matter how good looking you are, how 

pretty your wife is, and how much money you have. I just don’t 

think it would fly today. But if you look at the economic impact of 

NASA and the spinout of technologies and companies and quality 

of life and all the rest, that seems to me like a pretty worthwhile 

investment. 

And I would say even the example that you used, from your 

house to your work. I mean, if you have terrible roads, your car 

breaks down, you are not showing up to work, you have to go get 

it fixed, it is money out of your pocket that you could have put 

somewhere else and spent in the economy, on and on and on, I 

think there is an argument to be made these are very important 

investments. And it is not just about you, it is the about the multiplier effect, and you are basically subsidizing businesses in a lot of 

ways too, right? 

Mr. HOLTZ-EAKIN. So three things, probably in reverse order. 

Number one, ignore multiplier effects. Those common, if at all, only 

when you are recovering from recession. And this is about longterm trend growth, not about business type of fluctuations. 

Number two, yes, there are lots of things that we do in the public 

sector that make the quality of life better, and that is important, 

but they don’t show up as GDP growth. And if you want to make 

the argument you want to go from 2 percent to 3 percent or 3.5, 

this isn’t the route to doing that. 


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Mr. RYAN. How can you say that? Mr. Bernstein’s example of the 

Internet, which was billions of dollars, how can you make the argument that that does not have long-term growth effects on the 

broader economy? 

Mr. HOLTZ-EAKIN. Looking back and picking the big successes 

isn’t what we are going to do going forward. We are going to fund 

lots of things, including failures. And the average rate of return is 

not going to look like the Internet or NASA. It is going to look like 

those plus a lot of failures, at best. So you have to be realistic 

about what you will get out of this. And I think that is the key. 

And, remember, at every point when you do this, you are taking 

money from the private sector, and it has genuine investment opportunities with rates of return, and the things you get out of public infrastructure should have at least that good a rate of return, 

if not better, to make it worthwhile. Otherwise, you are actually 

subtracting. Even if you get a positive rate of return, it has to be 

positive enough to make it worthwhile to take the money from the 

private sector. That is the key test. 

Mr. RYAN. Mr. Bernstein, your response? 

Mr. BERNSTEIN. So a number of responses. I mean, first of all, 

I agree with a lot of what Doug said, particularly about expectations and investing cautiously. Certainly, no one would challenge 

the statement that government investments can be—or no one 

should challenge that government investments can be productivity 

enhancing or they can be wasteful. We want to do more of the 

former and less of the latter. 

However, there is some really low-hanging fruit. For example, 

the transportation example is a good one, because while quality of 

life isn’t the same as GDP, if you apply that to moving goods 

through the supply chain, that really does have a productivity effect. It really does matter if trucks sit on the expressway, not getting their goods to market. It really does matter if our ports are 

not as functional as they could be. 

But, secondly, here is the thing I want to talk about. Preschool, 

quality preschool education, has been shown to have a particularly 

large bang for the buck in terms of much later, by the way—obviously, you are not going to help a 4-year-old today and see productivity results tomorrow. But we are, I think all of us, talking about 

the importance of long-term investments. 

There is no question in my mind, I believe this is a bipartisan 

consensus, at least among researchers, that that kind of investment will be undermade, particularly by low-income families who 

can’t afford the quality kinds of preschool education that they need. 

That is a great example of not only low-hanging fruit, but in contrast to Doug’s taking from the private sector. The private sector 

will underinvest in quality preschool, particularly with low-income 

families who don’t have the kinds of deep pockets needed for that. 

Mr. RYAN. I have a question for you. 

Are we going to do another round of questions, you think? 

So I have a question, Dr. Cochrane. You talked about new innovations, new ideas, new efficiencies. We have so many people—and 

I represent Ohio, old Rust Belt—we have got business incubators 

that are publicly funded, they are kicking out companies. We have 

business accelerators. We have the first invasion manufacturing 


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center, public-private partnership. We have a lot of these burgeoning companies that don’t have access to capital, the valley of 

death that everyone talks about. 

Is there a role for the government in these areas to help grow 

these new ideas, these new companies? 

Mr. COCHRANE. So access to capital is an important problem. 

And I think I would point to a lot of the restrictions of the DoddFrank Act, which are really making it hard to get capital to companies like this. 

Mr. RYAN. This was a problem well before the Dodd-Frank Act. 

Mr. COCHRANE. And the Dodd-Frank Act is just cream on the 

cake of too much financial regulation getting in the way of exactly 

the problem you are pointing to. 

On the bigger question, we all agree that basic science is worth 

subsidizing, economists in particular, but basic science is a drop in 

the bucket of Federal spending. You could double, triple it, and not 

even notice it in Federal spending. 

There, too, the problem is you tend to invest in junk science 

sometimes. 

Mr. RYAN. Can you say that again for my Republicans friends? 

Mr. COCHRANE. Basic science is a drop in the bucket of the Federal—— 

Mr. RYAN. So we wouldn’t even notice it if we doubled or tripled 

it? 

Mr. COCHRANE. Absolutely. However, there is a tendency to invest in things like demonstration programs and getting things up 

to scale. That is very expensive and has proven not nearly as effective as basic science. 

I think the big argument we all have that we should talk about 

is how investments are made, not just how much. There is a tendency to build roads and bridges to nowhere, not the needed roads 

and bridges. Preschool might be useful, but education is a place 

where we have all seen you can pour money down rat holes and 

not improve the process. 

So if you improved how you spend infrastructure money, I think 

you might get a lot more of it more willingly. 

Chairman PRICE. The gentleman’s time has expired. 

Mr. Johnson, you are recognized for 5 minutes. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

And thank you, gentlemen, for joining us today. 

I share the concerns that have been expressed by other of my colleagues. You know, I can remember as far back as 2010 or 2011 

when then Chairman of the Joint Chiefs of Staff Admiral Mullen 

said that the greatest threat to our national security is our national debt. In spite of that, it continues to go in a vertical direction 

at an alarming rate. 

Publicly held debt is projected to rise from an already elevated 

76 percent this year to more than 85 percent by 2026, twice the average level of the past 50 years, which was 39 percent. CBO’s longterm projections show that level will jump to 141 percent in 2046 

under current law, and that would be the highest debt burden in 

our Nation’s history. 

So, Dr. Cochrane and Dr. Holtz-Eakin, is this fiscal path sustainable? 


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Mr. COCHRANE. No. 

Mr. HOLTZ-EAKIN. What he said. 

Mr. JOHNSON. What he said. Both emphatically no. Okay. 

What would be the impact—and I will give you a chance to expand on that—what would be the impact on the economy and the 

average American family if this fiscal future were to become our reality? 

Dr. Cochrane, you can go first. 

Mr. COCHRANE. Yeah. What is unsustainable eventually isn’t sustained. And the question is, how does it blow up? And as soon as 

you fix it—— 

Mr. JOHNSON. What does the blowup look like? We have never 

had a blowup of that magnitude. I mean, we have never been in 

this kind of debt. You know, 141 percent will be the largest in our 

Nation’s history. 

What, in your opinion, does a blowup look like at that point, and 

what would the impact be on the American people? 

Mr. COCHRANE. If it leads to a debt crisis where suddenly interest rates spike, the U.S. needs to borrow, and bond markets say 

‘‘no,’’ it looks a lot like Greece, or Greece with inflation, take your 

pick. That is unpleasant. 

The danger of focusing on deficits too much is it leads to ‘‘let’s 

raise taxes.’’ This is what Europe did. Its austerity was not cutting 

government spending. Its austerity was raising taxes, and, as 

usual, raising—marginal tax rates—adding the disincentives to, 

God forbid, hire somebody or start a new company. And no wonder 

that didn’t work. 

So the temptation would be massive increase in taxes, which just 

slows the economy down even more. You don’t get the revenue. And 

you end up in a very slow economy for a long time. 

Mr. JOHNSON. Yeah. 

Dr. Holtz-Eakin. 

Mr. HOLTZ-EAKIN. I would concur in that. I would also point out 

that it undermines the ability of the Congress to do its job, which 

is to respond to what voters want this country to try to accomplish. 

If you are locked into spending the money on interest, because you 

must honor those obligations, and you are locked into spending on 

entitlements, there is no room for discretion. And it seems quite 

wrong in a representative democracy to, in 2016, dictate exactly 

what we are going to be doing in 2026, 2036, and 2046, even in the 

absence of a crisis, which will also then happen. 

Mr. JOHNSON. Sure. I agree. 

Quickly, with interest rates at historically low levels, some are 

calling for more borrowing and deficit financing of government 

spending—for example, infrastructure spending—to get the economy turned around. With interest expenses poised to become the 

fastest-growing segment of the Federal budget, do you think that 

adding to the debt by borrowing more is the answer to our economic ills? Quickly. 

Mr. COCHRANE. If the borrowing really did lead to positive rate 

of return projects, you could pay it back. And I would encourage 

borrowing to be long term so that if interest rates go up, you are 

not exposed to it. 


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The danger is borrowing that, then, gets thrown down the rat 

hole of stimulus rather than actually investing something that produces higher tax revenues in the future. 

Mr. JOHNSON. Okay. 

Dr. Holtz-Eakin. 

Mr. HOLTZ-EAKIN. A way to think about it is, they are saying 

now is a good time to do something because interest rates are low. 

First ask: Is that something you want to do? Is that an infrastructure investment that generally has productivity effects that are 

larger than what you get out of the private sector? That is the key 

question, not the timing issue, and we are making bad choices all 

the time in the infrastructure area. 

Mr. JOHNSON. Okay. I have got 5 seconds to ask this question. 

Is every dollar that we spend, that we borrow, that is a dollar no 

longer available for economic growth? Is that a safe statement? Yes 

or no? 

Mr. COCHRANE. Yes. 

Mr. HOLTZ-EAKIN. Yes. 

Mr. JOHNSON. Okay. 

Chairman PRICE. The gentleman’s time has expired. 

Mr. JOHNSON. Thank you, gentlemen. My time has expired. 

Chairman PRICE. Mr. Grothman, you are recognized for 5 minutes. 

Mr. GROTHMAN. I will give you a general question. And we actually had a panel on a similar topic on Joint Economic recently. 

Part of our problem is that income growth is not as rapid as it 

should be. And I would like you guys to comment on the degree to 

which that is caused by us currently discouraging work. I got home 

a couple weekends ago, ran into a CPA, telling me about all the 

people who were intentionally working less to get their ObamaCare 

subsidy. And, clearly, the ObamaCare subsidy was designed to encourage people not to work very hard. 

The same is true about the wide variety of what you call welfare 

programs, earned income credit, clearly designed to discourage people from working hard, food share, low income, everything. 

I would like you guys to comment on that and the degree to 

which the slow growth of our economy and, as a result, lower 

growth in revenues than anticipated, is caused by this seeming policy of the Federal Government today to discourage work. 

Mr. COCHRANE. I will start, and I will be quick. 

I think ‘‘designed’’ is unfair. It is an unintended consequence that 

when you phase out a benefit, then that gives a disincentive to 

work. 

More than just work versus not work, it gives you a disincentive 

to invest in human capital, to make hard investments today that 

will pay off tomorrow. 

Even the CBO report mentioned the ACA as one of the many disincentives to be in the labor force. And the labor force participation 

rate, I think, is one of our biggest worries. Even prime age males, 

the numbers of them who are even looking for a job is very low. 

I think a lot of people are stuck in social programs because of those 

cliffs. Yes, it would help a lot to get people back to work and back 

into better jobs. 


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Mr. BERNSTEIN. So I would like to challenge the premise a bit. 

In my testimony, which you may not have heard initially, we 

learned that yesterday, from the Census Bureau, that median 

household income grew 5 percent last year—real terms. That is the 

largest growth in household income in the full history of this series 

that starts in 1967. We have the longest period of job growth on 

record, 15 million jobs. It started growing in 2010. We have real 

wages growing, the unemployment rate down by half. 

So I don’t think that the actual empirical data would bear out 

some sort of story that says there are disincentives that are discouraging work when we have a job market that is not only generating historical job gains, but historical income gains as well. 

Mr. HOLTZ-EAKIN. And I am kind of—— 

Mr. GROTHMAN. Well, go ahead. I am sorry. 

Mr. HOLTZ-EAKIN. I just have to yell at my good friend, Jared, 

for a while, if you would let me. 

Take the report actually with a grain of salt. Remember, this is 

one data point in a sea of zeros. And it is just hard to understand 

where you get 5 percent real in this report where there is nothing 

else growing at 5 percent real in the economy. 

If you dig into that report and you look at the increases in earnings of full-time full-year workers, for men, it is 1.6 percent real, 

for women, it is 2.2 percent real. That is the economy that we are 

in. We are in a 2 percent economy. The rest, the 5 percent, comes 

from some additional workers in each household, part-time work, 

things like that. That is not going to persist. That is not a route 

to success in the future. 

On the question you asked, there is a large literature of the disincentive effects of phaseouts of benefits and other parts of our social safety net, and I think this merits a close examination, because 

the dividing line between poverty and nonpoverty in the United 

States is work. If you are working, your probability of being in poverty is low; if you are not, it is 25 percent. 

So everything that we do should be pro-work. We have low labor 

force participation, we have a low employment-to-population ratio, 

and we ought to think hard about work incentives. 

Mr. GROTHMAN. I will have to respond and ask Dr. Bernstein 

here. Do you ever talk to any accountants out in the real world to 

tell you, or maybe people in the income maintenance area, or employers who deal with people in the $10 to $15 an hour range? I 

mean, if you just talk to a few people in that area, you will again 

and again and again find employers or accountants who will tell 

you stories in which people are not taking a second job or turning 

down overtime or turning down wages because it will affect all 

their benefits. You can do a study, and who knows whether the 

study is done accurately or not. All you have to do is talk to people 

and the stories just come like a waterfall out of them. 

Mr. BERNSTEIN. If I can respond, I would like to, but if not, I 

can—— 

Chairman PRICE. The gentleman’s time has expired. 

You may quickly respond if you would like. 

Mr. BERNSTEIN. Yeah, I do talk to those people, and one of the 

things they tell me is the earned income tax credit, which is a very 

important low-wage subsidy, is very pro-work, and they find that 


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that very much pulls people into the job market and increases their 

incentives to work. So it kind of pushes the opposite way of some 

of the ideas you are suggesting. 

Chairman PRICE. Time has expired. 

Mr. Woodall, you are recognized for 5 minutes. 

Mr. WOODALL. Thank you, Mr. Chairman, and thank you for calling the hearing. I knew it was going to be a good one when Mr. 

Pascrell rejected doom and gloom right from the outset. 

I have not been disappointed. There has been a lot of head nodding going on up there. And candidly, I was feeling a little bad 

about us as an institution, because I thought, golly, if these guys 

can all get along on these topics, why can’t we? And then you all 

start arguing about data points in the census report. And I think 

that is right, that we spend so much time around here arguing 

about data points too. 

But the truth is folks didn’t disagree with Dr. Holtz-Eakin’s point 

on transportation. Yes, we don’t need to improve his commute 

through the suburbs, we need to improve the 2 of the top 10 most 

congested freight byways in the country, which run through metro 

Atlanta, and that is going to have a real productivity increase. And 

we agree, let’s do double National Institutes of Health. 

For Pete’s sake, you call yourself the grumpy economist, Dr. 

Cochrane, but every time the agreement comes up, I see a big smile 

come across the face, that there is opportunity there. Newt Gingrich and Bill Clinton did it. We can do it too. 

Tell me this, Dr. Cochrane. When I was with the Bureau of Public Debt, they said, we are going to push out maturity as far as we 

can. I know we are at record highs now north of 70 months. But 

they say, we can’t push it out too far, because liquidity is going to 

become a problem if we do. Do you have any concerns about us 

pushing it out too far too fast? 

Mr. COCHRANE. I think we can push it out a lot farther a lot faster. We are actually in the strange position that the Treasury has 

started to lengthen the maturity to debt, and the Fed turned right 

around and bought that stuff back up again. 

We need Treasury and the Fed to get together on who is in 

charge of this crucial question. And even the Treasury is not that 

clear that part of their job is to manage the risks to the budget of 

what if interest rates go up. They kind of think of their job as try 

to borrow at the lowest level possible, but not really this crucial 

question every household faces. 

The fixed-rate mortgage, we know what we are paying; the floating-rate mortgage, it looks a little lower, but we could really be in 

trouble. And not even the Treasury is really in charge of that question. 

I think liquidity is overstated. Queen Victoria raised her money 

on perpetuities that were an infinite maturity debt, and those were 

very low interest rate. Markets get used to stuff pretty quick. 

Mr. WOODALL. Dr. Cochrane mentioned in his opening statement 

that he thought getting to tax simplification was going to be easier 

than getting to lower rates. I have found the opposite to be true. 

I can talk to folks about a percentage point, but if I try to take 

away your cutout, your carveout, your exemption, your exception, 

suddenly the pillars begin to rumble. 


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Dr. Holtz-Eakin, I know you have been active in terms of how 

we can—we don’t have to compete on low wages, we don’t have to 

compete on a dirty environment, we can compete on a competitive 

international tax code. I feel like this is our opportunity to get that 

done, I feel like we are getting that consensus on both sides of the 

aisle. How high does that rank? 

I listened to Mr. Ryan’s opening statement. I am thinking, for 

Pete’s sake, I don’t like paying taxes either. Let’s just have WalMart and the big guys pay them all and everything will be great. 

But I know we can’t compete that way in a global economy. 

How important is fundamental tax reform and increasing the incentive to perform those tasks in America rather than elsewhere? 

Mr. HOLTZ-EAKIN. I think tax reform is extremely important. 

Fixing the corporate code is top of the list. The corporate code has 

reached this sort of trifecta of failures, where it is a big impediment to growth and competitiveness, it is impossible to administer 

and comply with, and it raises almost no revenue. So it makes no 

sense in its current form. 

Lots of evidence that if we could get the rate down to something 

like 20 percent, internationally competitive, get the base to look 

like every other one of our competitor countries, that that would 

benefit workers in America, because increasingly they pay the price 

of a bad corporate code by losing jobs that have good wages and 

good benefits, and it would benefit the attractiveness of the U.S. 

as a location for investment. It would end this inversion nonsense 

overnight. It is something that you just should do. 

Mr. WOODALL. I know you opened your comments with saying 

you always say it and nobody ever pays any attention, so you move 

on to point number two. 

Mr. HOLTZ-EAKIN. I have been at this for 30 years. I haven’t 

changed one thing. 

Mr. WOODALL. Absolutely. I just feel like it is not hot air this 

cycle. 

Mr. HOLTZ-EAKIN. I hope you are right. 

Mr. WOODALL. I feel that necessity is pushing us there. 

And, Dr. Bernstein, I will ask you, again, lots of head nodding 

going on up there at the panel, from my side of the side of the 

aisle, we may have called you here to be the antagonist, but there 

is lots of agreement in the space. 

Is there a short list, as you look at your peers from the left to 

the right in the economic structure, that say, you know what, if 

Congress—not if Congress, Congress can, the American people are 

in a place where we can go through steps one, two, and three right 

now? 

Mr. BERNSTEIN. I think it is a great question. I think some areas 

where we agree, investment in basic research. Maybe, I am not 

sure how much we agree, but I think investment in productive 

transportation would be a useful place to go. And I think there was 

some consensus on the idea that investment in particularly education, maybe at the preschool level, where families don’t often 

have the resources, that has a long-term payback. And I know that 

folks around here didn’t necessarily want to look at the President’s 

budget, but he does have, I think, a very smart preschool program 

in there. 


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Chairman PRICE. The gentleman’s time has expired. 

Mr. WOODALL. I thank the panel. 

I thank the Chairman for his indulgence. 

Chairman PRICE. Mr. Blum, you are recognized for 5 minutes. 

Mr. BLUM. Thank you, Chairman Price. 

And thank you to our distinguished panel of economists. As I sit 

today looking at you all, I am reminded of Harry Truman’s famous 

line of asking to be sent a one-armed economist, because he grew 

tired of economists saying, ‘‘On the other hand.’’ So I have not 

heard that much today, so much to your credit. 

Dr. Cochrane, the grumpy economist, I guess, to be called, people 

have said that politics has become a joyless profession. I didn’t 

know economics was the same. 

Our economy, as someone said in their opening remarks, is growing at 50 percent of the post-World War II average—50 percent. 

What do you think is holding back the economy? 

Mr. COCHRANE. Lots of sand in the gears. Every single market—— 

Mr. BLUM. Give me some of those grains of sand, briefly. 

Mr. COCHRANE. Overregulation, tax—not just the tax rates. I 

think actually, if you could spend 5 minutes filling out your taxes 

and it was a high rate and it was a predictable rate, that wouldn’t 

be so bad. I think the complexity is, in fact, really hurting the 

growth, because lots of businesses are structured around taxes and 

everybody is in Washington coming to get their special deal as opposed to just the tax rate. 

So, yeah. Regulation. Regulation and economic law. Labor law. 

We put so many barriers between your desire to hire someone and 

how much money he or she takes home and their ability to work. 

There is just sand in the gears everywhere. 

I would like to come back for just a second, though. On the corporate taxes, we have got to remember, every cent of corporate tax 

comes from higher prices, lower wages, in theory lower returns to 

shareholders, but they just go overseas if they don’t get what they 

want. So almost all comes from people, higher prices or lower 

wages, and typically those aren’t high-income people. 

So, in fact, if you reduce corporate taxes and tax the people who 

get the profits, you even get a more progressive Tax Code, as well 

as reducing all the incentives for all of those guys to be here every 

December to come down and ask for some special credit or deal. 

Mr. BLUM. Dr. Holtz-Eakin, this is somewhat of a lightning 

round. I have got six quick questions for you. They are all about 

growing the economy. 

Would reducing the corporate tax rate—— 

Mr. HOLTZ-EAKIN. Yes. 

Mr. BLUM [continuing]. Which is the highest of developed nations, would it help grow the economy? 

Mr. HOLTZ-EAKIN. Yes. 

Mr. BLUM. Would reducing the regulations on the private sector 

help grow our economy? 

Mr. HOLTZ-EAKIN. Yes. Can I expand on that? 

Mr. BLUM. Yeah. Absolutely. 


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Mr. HOLTZ-EAKIN. I just want to emphasize, we do a lot of work 

on measuring the regulatory burden at AAF. Sam Batkins has that 

portfolio. 

If you just take what the agencies report as the cost of final regulation—I am not even saying they are right, I have good reason to 

suspect they are too low—and simply add up the cumulative costs 

of the regulatory burden since 2009, it is $800 billion in new burden costs. That is a $100 billion disguised tax increase every year 

for 8 years. 

I know there are benefits to regulation, but it is hard to imagine 

that that is not harming the growth rate of this economy. 

Mr. BLUM. Would reducing uncertainty in the private sector help 

grow the economy? 

Mr. HOLTZ-EAKIN. Yes. 

Mr. BLUM. Would reducing deficits help grow the economy? 

Mr. HOLTZ-EAKIN. Particularly the long-term deficits that lead to 

the unsustainable rise in the debt, yes. 

Mr. BLUM. Would fully developing all American energy resources 

help grow this economy? 

Mr. HOLTZ-EAKIN. Yes. 

Mr. BLUM. Would enacting tort reform—we are the most litigious 

society in the world—help grow the economy? 

Mr. HOLTZ-EAKIN. Yes. 

Mr. BLUM. Well, that was quick. Thank you for your answers. 

My last question, Dr. Bernstein. If we continue to increase our 

debt as a percentage of GDP, what is going to happen 10 years 

from now, 20 years from now? Because I think the American public, they hear us all talk about this, and they say: Hey, the sky 

hasn’t fallen today, I don’t see any negative impact of this, doesn’t 

seem nearly as bad as everyone says. 

What is going to happen. 

Mr. BERNSTEIN. So I actually—I am the opposition witness 

here—but I agree with my colleagues that it is an unsustainable 

trend when you start looking at numbers that are really in the 

stratosphere in the outyears. 

Mr. BLUM. What will happen? What will happen? What can I tell 

my constituents? 

Mr. BERNSTEIN. I think I am probably closer to John on this, that 

it is really hard to predict that there will be some sort of an interest rate spike, that is the traditional assumption, but I find that 

very hard to tease out of the data. 

I think you are just two things. You are more vulnerable to the 

kind of debt crisis that John talks about. But, secondly, when you 

do hit a rough patch—and there is a recession out there somewhere, we don’t know where, it is out there somewhere—it makes 

it much harder for Congress to implement the kinds of discretionary spending that is very much needed to offset that when you 

start from such a high debt level. 

But let me say one thing about this, sir, if I can just take half 

a second, I have this in my testimony. While we are all bemoaning 

the increase in the debt, we all agree on that, if you actually look 

at the improvement in the trend, say, since 2010, it is quite significant. The debt was, like, unbelievably unsustainable before; now it 

is unsustainable. 


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So I am not saying that that is a great outcome, but improvements have been made, and they have been made largely through 

the channel of low interest rates, but also from the slower growth 

of healthcare spending, which I attribute in part to the Affordable 

Care Act. Now, we may disagree on that, but that is a really important point, in my view. 

Chairman PRICE. The gentleman’s time has expired. 

Mr. BLUM. Thank you. I yield back the time I do not have. 

Chairman PRICE. Mr. Sanford, you are recognized for 5 minutes. 

Mr. SANFORD. Thank you, Mr. Chairman. 

And I know the focus of this hearing is on economic growth, but 

economic growth doesn’t wake people up. I want to go back to a degree what my colleague Mr. Blum was getting at, Mr. Johnson was 

getting at, which is people sort of lull themselves to sleep. I believe 

we are walking our way into a debt crisis. We are sleepwalking our 

way in that direction. 

And so I want to, again, bore down just as to where he was, into 

not just marginal difference in economic growth, but if you have a 

debt crisis, what happens to the economy overall, what happens to 

people’s savings, what happens to the worth of the currency? We 

may not be able to predict interest rates, to your point, but, I 

mean, frankly, what happens to our political infrastructure? 

I would like to hear from each one of you, do you know of an instance wherein there has been a soft landing, or a benign 

deleveraging, if you want to call it that, in the wake of a debt spiral and debt spike? 

Mr. BERNSTEIN. Can I start, because I will be very brief? Actually, I do, and that would be World War II. That was when we had 

our maximum debt-to-GDP ratio, 106 percent, and a relatively few 

years later, it was down in the 30 percent range, and that had to 

do with very much the kinds of growth in productivity enhancements, full employment economy that many of us are all arguing 

for. 

Mr. SANFORD. I will argue that point. I mean, wouldn’t that be 

as a consequence of Pax Americana? I mean, at the end of the day, 

we were in essence the only economy standing. If you look at American GDP as a percentage of world GDP right now, it is a very different picture than what we saw in the wake of World War II. And 

so I would argue that while that is certainly true, it is a very different example, given Pax Americana that existed and the rebuilding, in essence, that we did around the world at that time. 

Mr. BERNSTEIN. I think you make a great point, but my only 

point is that one of the themes of my testimony today is public investment can be helpful here. I actually think public investment— 

now, it happened to be around a military buildup—but public investment was demonstrably important back then. I am not saying 

the two examples are analogous, but I do think you can pull out 

that point. 

Mr. SANFORD. Let me ask one point, though. Prior to that, were 

we a debtor or creditor nation? 

Mr. BERNSTEIN. Well, we were much more of a creditor than a 

debtor nation, sure. 

Mr. SANFORD. Which is very different, again. Prior to that point, 

did the Fed have a balance sheet of about $4.5 trillion? 


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Mr. BERNSTEIN. No, that is new. 

Mr. SANFORD. So, in other words, I could go with a whole host 

of different examples that would say—so outside of that example, 

can you give me one? Can anybody give me one? 

Mr. COCHRANE. Yeah. So the U.K. grew out of, like, 200 percent 

debt-to-GDP ratio or more following the Napoleonic Wars. I mean, 

you can grow out of large debts if you are not running larger and 

larger deficits on the way. 

Mr. SANFORD. The case would be the case of Zimbabwe, Argentina, Venezuela go down the list. 

Mr. COCHRANE. Oh, yeah. 

Mr. SANFORD. I mean, I think there has been pretty interesting 

data, I think Berman actually wrote it up, that in the wake of 

every debt crisis there has been a fall in purchasing power by 99 

percent. So if you had a dollar of purchasing power, at the end of 

the debt crisis you got about a penny, which would fit with Venezuela. I mean, you could go down a long list of examples. 

Which is to say, how do we wake people up, whether we come 

from the left or right in our political perspective, to the fact that 

there is really serious threat, not just to a drag on the economy. 

And I think there is conclusive data from IMF, from the European 

Union, a variety of different folks that say, yeah, there is a drag 

on the economy when you get up and around certain levels with regard to debt-to-GDP. 

But I think the even more pronounced problem is the one that 

we are not talking about, which is if we play this thing out, we can 

end up in real trouble. And I would argue that maybe we are much 

closer than we think, because I saw some interesting numbers the 

other day. 

If you look at household net worth to GDP in this country, we 

have been at a band around—there has been sort of a trading 

range, if you want to call it that, 440 to 540, somewhere in that 

range. It has jumped up around 640 only three times in the last 

60 years, one, just prior to the tech bubble bursting; two, just prior 

to 2008 and the housing bubble bursting; and now we are up 

around 640 percent. 

In other words, I just think that there are a number of cards that 

could fall that could cause this thing to come much sooner than we 

think. 

You were about to say something. I apologize. 

Mr. COCHRANE. Well, I wanted to help you appeal to your colleagues on the other side of the aisle. 

What certainly will happen is a fairly chaotic cut in benefit. 

What happens to countries when they run out of their fiscal ability 

is people who are counting on Social Security, their cuts come big 

and heavy and unpredicted. Look at poor Russians, they are stuck. 

Those pensions went. Health care is going to get rationed and really cheap, and people who are counting on Medicare aren’t going to 

get it. 

So you want to reform those programs predictably ahead of time 

and not when you run out of the ability to borrow money and suddenly people who are counting on it are thrown out on their own. 

That is what will happen. 

Chairman PRICE. The gentleman’s time has expired. 


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Mr. Brat, you are recognized for 5 minutes. 

Mr. BRAT. Thank you, Mr. Chairman. I have to go testify on 

health savings accounts, but I just wanted to ask one quick question, and it will be suggestive, and then I have got to run out. 

But a lot of times up here we talk economic growth, and then you 

get the usual pattern of political responses tied to government programs that already exist instead of going back to first principles 

and what causes economic growth in the first place, and then asking yourself, are you in the ballpark on those fundamentals or are 

we just making up kind of new clever things that are trendy politically and trying to hit those in the short run. 

So we mentioned R&D, NIH funding, preschool initiatives, infrastructure. So those are examples of the in-vogue kind of things, 

right? Obama has been doing infrastructure for 7 years and the 

economy has grown at 1 percent the last couple quarters. So I am 

unconvinced. 

Sand in the gears, I think we are all agreed on that. The regs 

are huge, and how we overcome that is tremendously large. 

So I just want to ask you, if you go back to economic theory from 

scratch, give me just your top three causes of economic growth, the 

three variables on the right-hand side of an equation, in order, 

right, starting with number one, the number one proximate cause 

of economic growth, number two, number three. If they are cultural, if they are capital, if they are traditional economics, I don’t 

care. But just give me your top three, what do you got. 

Why don’t you start off, Dr. Cochrane? 

Mr. COCHRANE. There is a great quip: Growth started when ideas 

started having sex. So ideas, new processes, new products, new 

ways of doing things, from fundamental research, from applied research, but then that can translate into new companies, new ways 

of doing things. That is the hard part. 

Mr. BRAT. Good. 

Yep, Jared. Sorry, Dr. Bernstein. 

Mr. BERNSTEIN. Sure. Productivity growth, which relates to the 

kind of innovations you just heard about. Labor supply, so the idea 

of deporting 11 million immigrants is probably a bad idea. And, 

three, robust consumer spending fueled by a full employment job 

market, so middle class and lower-income people are also getting 

a slice of the pie. That is a problem when you have the kind of inequality we have seen in recent years. 

Mr. BRAT. Good. 

Mr. HOLTZ-EAKIN. I think the ideas innovation and turning that 

into new companies and high-quality competition. The biggest indicator of a problem we have right now is that the firm creation rate 

fell below the firm death rate for a couple years recently. That has 

never happened before. If you just keep your eye on startups and 

make sure we get adequate startups, a lot of things will take care 

of themselves. And past that, you need capital, access to capital. 

Mr. BRAT. Good. The immigration, in 30 seconds, I will just say, 

south of the border immigration, average tenth-grade education 

level on the human capital side. I am not aware of any growth 

studies that show average person at the Federal level, welfare benefits $37,000 a year, according to Heritage, $26,000 a year if you 

have got two kids in school. Productivity growth is low. 


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But let me go back to my first series of questions. So I love the 

ideas, right? One of my favorite economists, Chicago, I am going to 

blank on her name, virtue, she is the virtue one. Anyway, going on 

to your thing—— 

Mr. COCHRANE. Deirdre McCloskey. 

Mr. BRAT. Yeah. Deirdre, right. 

To get at this, what should the Federal Government be doing if 

we wanted to think way outside of the box, not at the margin, the 

margin is not working? What do we do to really reinvigorate the 

private sector in a big way using the limited tools we have right 

now? 

Mr. COCHRANE. A whole lot of get out of the way. 

Mr. BRAT. Yeah. 

Mr. COCHRANE. And I would add to your immigrants, highskilled immigrants want to come to this country, build new companies, hire Americans, and pay off Social Security, and we keep 

them out. At least we could agree on that. 

Mr. BRAT. Right. No, that is correct, right. 

Dr. Bernstein. 

Mr. BERNSTEIN. So I think that the sand in the gears idea that 

we are hearing a lot about, I think we have to be much more specific there. And I think somebody asked, give us some granular examples of what we are talking about. I wouldn’t want to leave this 

hearing with the suggestion that every regulation is a bad regulation and every regulation should be torn from—but you actually 

have to go one by one. And I haven’t seen nearly enough evidence 

to substantiate some of John’s claims that this is our biggest economic growth problem. 

In fact, one of the things you can observe is that we have had 

actually a boatload of these regulations over time, and growth has 

been fast and then slow. And so I think you have to kind of get 

much more granular and less broad. 

Mr. BRAT. Yep. Good. And then, Doctor. And I will just say, we have got $2 trillion in regulatory overreach that has been categorized already. 

Mr. BERNSTEIN. That is just not evidence. I take your point, and 

there may be a relation there, but correlation is not causation. 

Mr. BRAT. Right. Got you. 

Doctor, 5 seconds. 

Chairman PRICE. Quickly. 

Mr. HOLTZ-EAKIN. Ozone rule, clean power plan, fiduciary rule, 

overtime rule. I can go on. 

Mr. BRAT. Right. I know that well. 

Mr. HOLTZ-EAKIN. I will give you a list. 

Mr. BRAT. That is it. Good. Thank you all very much. Sorry to 

run. 

Chairman PRICE. The gentleman’s time has expired. Thank you. 

I want to visit a couple points that were made by Dr. Bernstein 

and our friends on the other side of the aisle, and to start with this 

infrastructure spending. I share an adjacent district to the one that 

Mr. Woodall has. I know that if those trucks that I am behind on 

the highway every single day got out of my way because they could 

move through faster, then I could get where I needed to get faster 

and they could too, and that would increase productivity. 


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But the fact of the matter is that a study done by the Congressional Budget Office in June of this year concludes that, quote, 

‘‘Productive Federal investment has an average annual rate of return of 5 percent, or half the agency’s estimate of the average rate 

of return on private investment,’’ and that if one assumed that $50 

billion was spent over 10 years, $500 billion total increase, the 

CBO concludes that the output would increase slightly, but it 

would also boost deficits. 

In fact, the quote is, ‘‘The negative effect on output from crowding out would be stronger than the positive effect from increased 

productivity.’’ 

So, again, we all, both sides of the aisle, want infrastructure 

spending, targeted, appropriate, wise, smart infrastructure spending. But when we look back on what was done in the stimulus, you 

talk about something that wasn’t targeted, wasn’t wise, wasn’t logical, didn’t have the results that our friends on the other side 

thought it was going to have—we predicted that it wouldn’t—then 

we are really suspect about this notion of infrastructure spending 

expanding the economy. 

Second, I want to touch on what my friend from New Jersey said 

at the beginning as he was bemoaning, almost crying over—even 

though he had lost his doom and groom—but he was almost crying 

over the fact that corporate taxes only result in 11 percent of the 

overall revenue coming to the Federal Government. 

So, Dr. Holtz-Eakin, what if we were to increase, let’s increase 

the percent of revenue to the Federal Government, let’s double it, 

let’s double the corporate income tax, what happens? 

Mr. HOLTZ-EAKIN. First, I would just echo the point that John 

Cochrane made about who is really going to pay that tax. It is not 

corporations, it is going to be lower-income Americans. And if that 

is the policy that people want, then fine, but that is what you are 

going to do. 

The second thing that will happen is you will accelerate the loss 

of headquarters companies from the U.S., without a doubt. This is 

the most tax-inhospitable place to be headquartered on the globe, 

and it is a matter of inevitability that headquarters are going to 

leave, you will just have that happen faster. 

Chairman PRICE. We have been trying to bring focus in this committee to the imperative of growth, part of the reason for this hearing, obviously, but the consequences of debt. 

[Slide] 

Chairman PRICE. And if you put up the first slide, I think, which 

demonstrates the growth in interest, we harken back to the halcyon days after World War II when we had a debt-to-GDP ratio of 

106 percent or whatever it was. But the fact of the matter is that, 

as Mr. Sanford cited, none of the other dynamics out there were 

the same as they are right now and things were trending in a good 

direction both from a spending standpoint and from a growth 

standpoint. 

This is the coming decade, this is the next 10 years of what happens to interest payments, an increase of 187 percent over that period of time, the largest increase in our spending here at the Federal level. 


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And, Dr. Cochrane, what are people able to do with those dollars 

that are spent on interest? 

Mr. COCHRANE. I think you are pointing it out. Now, somebody 

might look at that graph and say, well, maybe we would get lucky 

like Japan and interest rates would stay low and we wouldn’t 

spend that, to which I think you might ask, but what if interest 

rates are higher than that projection? Now we are in really deep 

trouble. 

A hundred percent debt-to-GDP ratio means that a 5 percent interest rate means the deficit every year is 5 percentage points of 

GDP higher. It is the risk, I think, more than the forecast. 

I would like to also put in another thing to something you said 

earlier. We have been talking about infrastructure and is it good, 

is it not. But our growth rate got cut in half. Now, there are potholes. I don’t like potholes. But there is no case that potholes and 

traffic jams are what cut the U.S. growth rate in half. I may have 

flubbed the question of did regulations really add up to it or not, 

but there is just no case that we have cut in half growth rate because the roads and bridges are bad. 

Mr. BERNSTEIN. That is true. 

Chairman PRICE. This is a little bit of a tangent, but let me 

touch on the issue of regulation, because I think it was you, Dr. 

Holtz-Eakin, who mentioned the $800 billion of new regulatory 

costs. 

We all, we jump up and down and sputter and spit about the corporate income tax rate and how it is harming growth in the economy, and it brings in, as Mr. Pascrell said, about 11 percent, about 

$320 billion dollars a year out of a $3.8 trillion budget or thereabouts. And the compliance costs of regulation in this country, the 

compliance costs of regulation in this country estimated to be $1.8 

trillion a year, six times the cost of the corporate income tax. 

I noticed that on this long laundry list of items each of you suggested would invigorate the economy and create growth, that regulation wasn’t one at the top of the list. But wouldn’t getting regulation—again, we all want regulation, smart regulation, wise regulation that does something that actually inures to the benefit of the 

American people instead of punish the folks who are out there trying to create jobs and institute their better ideas—wouldn’t decreasing the costs of regulation, compliance costs, Dr. Holtz-Eakin, 

have a significant effect on the economy? 

Mr. HOLTZ-EAKIN. I think so, yes. And one channel that doesn’t 

get talked about enough is that it is the large incumbent firms that 

are most easily able to deal with regulatory complexity and cost. 

They have been around, they get it, they have their lawyers. If you 

are trying to start a business, it is overwhelming. 

And I genuinely worry about the competitive pressures that are 

missing because firms aren’t starting up and the innovations that 

are not getting put into the economy because of the poor startup 

rate. 

Chairman PRICE. Yeah. 

Dr. Cochrane. 

Mr. COCHRANE. Oh, boy, how many horror stories of regulation 

do you want to hear. But I do think we need to get past the rhetoric of too much or too little to the broken structure of regulation, 


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not just the costs of compliance, as if you can just hire this out and 

fill out some forms, but the uncertainties. You put your drug application into the FDA, who knows when it will come in or out. 

That is something that changes the structure of the business and 

makes a whole idea unprofitable, not just there is this compliance 

cost, which bad enough as it is. 

Chairman PRICE. Yeah. No, we had a hearing last week on 

CMMI, Center for Medicare and Medicaid Innovation, that many of 

us believe is usurping a lot of the legislative authority, the policymaking authority. But the regulations that they are putting in 

place, the uncertainty of what they are doing, the capricious nature 

with which they act are the kinds of things that significantly harm 

growth in our economy. 

I was struck, Dr. Cochrane, by one of the statements you made. 

I think you said we could grow out of large debts with growth if 

we weren’t increasing our deficit at the same time. So it is just 

kind of a self-evident truth. 

Mr. BERNSTEIN. Chairman Price, may I make one comment about 

the regulation point? 

Chairman PRICE. Quickly, yeah. 

Mr. BERNSTEIN. So here is a horror sorry about regulation. The 

implosion of the housing bubble, which was very much a function 

of underregulated financial markets, that is the other side of the 

coin. And I just want to be clear that—and you said it yourself— 

I just want to be clear, we have to think about both sides. Underregulation can also be devastating to our economy. 

Chairman PRICE. Let me suggest that the housing bubble was 

created by the Federal Government, one could argue, by regulations that the Federal Government put in place that required the 

outlay of capital in a risky way. 

Mr. BERNSTEIN. Obviously, I disagree. 

Chairman PRICE. I suspect so. 

Dr. Cochrane, I want to put in my final minute and a half here, 

I want to put a face on all of this, because at some point the growth 

rates that are now down 50 percent, and the projections over a 10- 

year period of time are down by fully a third, and I suspect it will 

be less than that unless something changes, the fiscal crisis that 

we have talked about coming forward, and that you can’t read the 

tea leaves, you can’t predict when that is going to happen, but 

when it happens—because if we don’t change policy, it is going to 

happen—when it happens, what does that look like to Mr. and Mrs. 

American Public? 

Mr. COCHRANE. It already starts bad, because it happens because 

we failed to grow. So Mr. and Mrs. American Public’s income is 20, 

30 percent or more less than it would have been otherwise. We are 

talking about huge numbers when we talk about growth, more 

than anything else. Yes. 

And then you live in chaos. Look what happened in Greece after 

its debt crisis. You start with a sclerotic economy, you get a dysfunctional government, then all of a sudden the government grabs 

everything it can. 

Chairman PRICE. The promises that we have already made will 

not be fulfilled. Social Security. 

Mr. COCHRANE. You are going to default on something. 


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Chairman PRICE. Medicare. 

Mr. COCHRANE. Those things will have to get cut chaotically. 

Chairman PRICE. Medicaid. 

Mr. COCHRANE. Yes. Along with savings and businesses and everything else. Don’t let it happen. 

Chairman PRICE. The Budget Committee has a program ongoing 

called Restoring the Trust for All Generations, and it is trying to 

put a face on it, it is trying to say these are the consequences if 

we don’t get our fiscal house in order. And this is certainly a bipartisan project, and I was struck by some of the agreement that we 

had on the panel today. 

I want to thank each and every one of you for coming. 

Mr. RYAN. For 30 seconds. Dr. Holtz-Eakin said about startup 

businesses, and I would hope that this would be an area of agreement. We don’t need to talk about the big corporations who maybe 

have the wherewithal to work the Tax Code, and we all know the 

game. 

But if places like Youngstown, Ohio, or Akron, Ohio, are going 

to have any renaissance, we need startup businesses. And I agree 

with you with some of these regulations that some of the smaller 

startups have to deal with, including getting them capital. 

Chairman PRICE. As Dr. Holtz-Eakin mentioned, I think, we 

have gone through a period now where there are more small business deaths than births, and that is a dangerous place to be for an 

economy. 

So I look forward to working with you as we move forward, because we have to tackle this. The American people expect it and 

they have a right to expect it and have us get our job done. 

Dr. Cochrane, Bernstein, Holtz-Eakin, I want to thank you so 

very much for appearing before us today. Please be advised that 

members may submit written questions to be answered later in 

writing and that those questions and your answers will be made 

part of the formal hearing record. 

Chairman PRICE. Any member who wishes to submit questions 

or any extraneous material for the record may do so within 7 days. 

[Whereupon, at 11:43 a.m., the committee was adjourned.] 


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