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21–129 2017

THE DEBT LIMIT 

HEARING 

BEFORE THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JANUARY 22, 2013 

Serial No. 113–FC01 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

ALLYSON SCHWARTZ, Pennsylvania 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 


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C O N T E N T S 

Page 

Advisory of January 22, 2013 announcing the hearing ........................................ 2 

WITNESSES 

Lee A. Casey, Partner, BakerHostetler, Washington, DC .................................... 6 

J.D. Foster, Ph.D., Norman B. Ture Senior Fellow in the Economics of Fiscal 

Policy, The Heritage Foundation, Washington, DC .......................................... 26 

G. William Hoagland, Senior Vice President, Bipartisan Policy Center, Washington, DC ............................................................................................................. 16 

Simon Johnson, Ph.D., Ronald A. Kurtz Professor of Entrepreneurship, 

Massachusetts Institute of Technology Sloan School of Management, Boston, MA ................................................................................................................. 44 

SUBMISSION FOR THE RECORD 

Billy J. Spiva ............................................................................................................ 91 


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THE DEBT LIMIT 

TUESDAY, JANUARY 22, 2013 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

Washington, DC. 

The Committee met, pursuant to call, at 1:34 p.m., in Room 1100, 

Longworth House Office Building, Hon. Sam Johnson presiding. 

[The advisory announcing the hearing follows:] 


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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3625 

Tuesday, January 15, 2013 

No. FC–01 

Camp Announces Hearing on the Debt Limit 

House Ways and Means Committee Chairman Dave Camp (R–MI) today announced that the Committee will hold a hearing on the statutory debt limit. The 

hearing will take place on Tuesday, January 22, 2013, in Room 1100 of the 

Longworth House Office Building, beginning at 1:30 p.m. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

The U.S. Constitution grants Congress the authority to fund government, including the power to ‘‘lay and collect taxes,’’ and to ‘‘borrow [m]oney on the credit of the 

United States.’’ Congress provided the President with a limited delegation of borrowing authority in 1917, and created the first statutory aggregate debt limit in 

1939 to pay obligations authorized by Congress. 

As of December 2012, the public debt is currently at the statutory limit of $16.4 

trillion, and the U.S. Department of the Treasury (Treasury) is currently operating 

under ‘‘extraordinary measures’’ that give it additional, but limited, means to manage funds. According to Treasury, it is expected that the government’s ability to 

meet its current obligations will be exhausted between mid-February and early 

March of this year. 

In announcing the hearing, Chairman Camp said, ‘‘The Congress created the 

debt limit as a check on the delegated borrowing power of the President 

and it is critical that all parties understand the implications of increasing 

the debt limit. This hearing will examine the role and purpose of the debt 

limit, review past practices regarding its increase, and explore solutions 

that ensure responsible management of the government’s finances.’’ 

FOCUS OF THE HEARING: 

This hearing will examine the history of the debt limit, how past Congresses and 

Presidents have negotiated and raised the limit, and whether the Constitution provides options to the Executive Branch when the debt limit is reached. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit written comments for the hearing record must follow the appropriate link on the hearing page 

of the Committee website and complete the informational forms. From the Committee homepage, http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you would like to submit, and click on the link entitled, ‘‘Click here 

to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance with the formatting requirements listed below, by the close 

of business on Tuesday, February 12, 2013. Finally, please note that due to the 

change in House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical 

problems, please call (202) 225–3625 or (202) 225–2610. 


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FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word format and MUST 

NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised 

that the Committee relies on electronic submissions for printing the official hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TDD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://www.waysandmeans.house.gov

f 

/. 

Mr. JOHNSON OF TEXAS. We are expecting votes, so we are 

going to go ahead and get started. The Chairman is on his way. 

He will be landing in a couple of minutes. But we are going to get 

started. 

Good afternoon. Welcome to today’s hearing on the debt limit. 

The Chairman has been delayed, but given the votes this afternoon, he asked we go ahead and start the hearing so Members may 

have as much time as possible with our distinguished witnesses. 

Before hearing from our witnesses, I will read Chairman Camp’s 

prepared opening statement and then turn it over to Mr. Levin for 

his usual opening statement. 

Good afternoon. Thank you for joining us today, all of you. 

The topic of today’s hearing is the debt limit, which has increased higher and faster under President Obama than any President in our Nation’s history. Since the President first took office in 

2009, there have been four increases in the statutory debt limit, totaling more than $5 trillion, a 55 percent increase. 

As of December 31, 2012, our Nation reached the current debt 

limit of nearly $16.4 trillion, and the Treasury Department has 

been using extraordinary measures to avoid exceeding the debt 

limit. According to a letter from Secretary Geithner, those measures will be exhausted between mid-February and early March. 

In the simplest of terms, the debt limit helps hold Washington 

accountable to hardworking taxpayers, who ultimately foot the bill 

for Washington’s spending habits. Without a limit, Washington 

would be free to borrow as much as it wanted without even a reVerDate Sep 11 2014 06:20 Feb 06, 2017 Jkt 021129 PO 00000 Frm 00007 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\21129\21129.XXX 21129

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view of the bills we have racked up and those that are still coming 

due. 

Now, as I have said many times before, no one party is solely to 

blame. During 8 years of the previous Bush Presidency, deficits increased by $2.4 trillion. President Obama ran up twice that much 

during just his first term. 

The debt is not just some number; it has a direct impact on 

American families. During the President’s fiscal commission, we 

heard nonpartisan testimony that stated when the debt is this 

large in comparison to the economy, it costs the country the equivalent of about 1 million jobs. Think about that. If Washington got 

its debt and spending under control, 1 million more Americans 

would be working today. 

As if that wasn’t sobering enough, the staggering size of our debt 

and lack of a plan to deal with it also threaten to drive interest 

rates up. The Fitch Ratings agency recently warned that the failure to make progress on our structural debt would likely still result 

in a downgrade of the U.S. credit rating. A lower credit rating is 

sure to mean higher interest rates, which means families will face 

higher credit card payments, higher car payments, higher student 

loan payments, and certainly higher mortgage payments. 

In 2006, when speaking in opposition to increasing the debt 

limit, then-Senator Obama said, ‘‘The fact that we are here today 

to debate raising America’s debt limit is a sign of leadership 

failure.’’ Those comments hold true today. That is why it is 

disappointing that the President has declined to engage in a meaningful dialogue to identify a responsible, balanced approach to reducing spending and, by extension, reducing the deficit, which the 

President promised to cut in half during his first term. 

Of course, it is tough to cut the deficit when the Senate, which 

is controlled by the President’s own party, will not or cannot even 

produce a budget. It has been 4 years since the Democrat-controlled Senate has passed a budget. That is a disgrace. 

I fully expect Republicans and Democrats will disagree about 

what the budget should look like. Even when one party has a majority in both the Senate and the House, the two bodies often disagree. Disagreeing isn’t the problem; the failure to resolve those 

differences is the problem. And how can we even start to find common ground if Senate Democrats won’t tell us where they stand? 

In the first place, having the House and Senate pass a budget 

is the first step toward getting our finances back in shape. 

I want to thank the witnesses for agreeing to testify today and 

sharing your expertise on the debt, the debt limit, and what it 

means for the country. I thank you for your being here. 

And I would also like to welcome and thank our witnesses for appearing before us. Before we hear from them, I recognize now the 

Ranking Member, Mr. Levin, for his opening statement. 

Mr. LEVIN. Thank you. 

Welcome to all four of you. 

Today’s hearing appears to have been originally designed to give 

the veneer of credibility to the notion that it might be appropriate, 

thinkable, or manageable to default on our debt. It is none of these. 

The debt ceiling is about paying the bills of the United States of 

America, for spending that this institution authorized. ManipuVerDate Sep 11 2014 06:20 Feb 06, 2017 Jkt 021129 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\21129\21129.XXX 21129

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lating it today, next week, or in 3 or 4 months damages our economy and our credibility. 

In the summer of 2011—and I urge we all try to remember it— 

Republicans in this Congress pushed our Nation toward default. 

There were clear consequences—clear consequences. Today, they 

are prolonging another debt-ceiling showdown instead of a longterm extension. This continues and increases the economic uncertainty. 

Our Nation’s economic wounds from 18 months ago are simply 

too fresh to ignore. August 2011 was the single worst month for job 

creation in the last 3 years. The Dow Jones plunged 2,000 points 

in July and August of 2011, including one of its worst single-day 

drops in history, tumbling 635 points on August 8th. The Treasury 

was forced to spend $1.3 billion more in interest payments, according to GAO. The Bipartisan Policy Center estimates that the higher 

costs will be almost $19 billion over the next decade. 

And, of course, who could forget that the U.S. credit rating was 

downgraded for the first time in our history? One Standard & 

Poor’s senior director said shortly after the credit agency downgraded the U.S. credit rating that the stability and effectiveness of 

American political institutions were undermined by the fact, and I 

quote, ‘‘that people in the political arena were even talking about 

a potential default.’’ 

The Washington Post unequivocally stated in a story this week 

that, and I quote, ‘‘In 2011, the debt-ceiling dispute traumatized 

the economy.’’ A senior principal economist with IHS Global Insight 

was one of the many economists who have warned against a repeat. He wrote in a report last week, and again I quote, ‘‘If the political bickering over the debt-ceiling issue reaches a fever pitch, as 

it did in the summer of 2011, then consumer confidence will nosedive further into recession territory.’’ 

We are hearing today that instead of quickly enacting a clean increase to the debt ceiling, there may be some other options. Some 

of the witnesses seem to suggest that it might be possible to instruct Treasury to pay bondholders while delaying payments to 

others. Whose bills should be delayed or cut? The Social Security 

checks of 56 million seniors and people with disabilities? The salaries of more than 2 million American personnel, many of whom are 

currently in harm’s way? 

The idea is so troubling that it drew a strong rebuke from The 

Post Fact Checker last week. And he said, I quote, ‘‘By available 

evidence, it appears all but impossible for the Treasury Department to pick and choose among payments.’’ It is reported, as I read, 

that our Chairman, Chairman Camp, also cautioned his colleagues 

last week that such an approach is unworkable. 

I also urge—and I went back and checked it—that it embellishes 

history to imply that threatening to default has historically been 

used as leverage for deficit reduction, such as with Gramm-Rudman, which I voted for. In the House in both cases, the debt-ceiling 

bill was deemed passed, and the Senate then used it as a vehicle, 

not as a threat, for deficit-reduction legislation. 

Over the past 2 years, we have achieved $2.5 trillion in deficit 

reduction—I repeat: $2.5 trillion in deficit reduction—and set an 

important precedent for future further balanced deficit reduction 


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that includes both spending cuts and new revenue. And I close 

firmly urging we should proceed with this effort, focusing further 

on economic growth and jobs, not damaging this effort by attempting to use the debt ceiling for political leverage. 

Thank you, Mr. Chairman. 

Mr. JOHNSON OF TEXAS. Thank you, Mr. Levin. 

It is my pleasure to welcome the panel of witnesses before us 

today. We have four witnesses on today’s panel. 

We will first hear from Lee Casey, a partner at the law firm of 

BakerHostetler. Mr. Casey is a former official in the Department 

of Justice Office of Legal Policy and Office of Legal Counsel. 

Second, we will welcome William Hoagland, Senior Vice President of the Bipartisan Policy Center. Mr. Hoagland is also the 

former Director of Budget and Appropriations for the Senate Majority Leader, Bill Frist, and former Staff Director of the Senate 

Budget Committee. 

Third on the panel is Dr. J.D. Foster, the Norman B. Ture Senior 

Fellow in the Economics of Fiscal Policy at The Heritage Foundation. 

Finally, we will hear from Dr. Simon Johnson, the Ronald A. 

Kurtz Professor of Entrepreneurship at the Massachusetts Institute of Technology’s Sloan School of Management. 

I appreciate all of you being here with us today. The Committee 

has received your written statements. They will be made part of 

the formal hearing record. Each of you will be recognized for 5 minutes for your oral remarks. 

Mr. Casey, we will begin with you. You are recognized for 5 minutes. 

STATEMENT OF LEE A. CASEY, 

PARTNER, BAKERHOSTETLER, WASHINGTON, DC 

Mr. CASEY. Thank you, Mr. Chairman and Members of the 

Committee. It is an honor and a privilege to appear here today to 

discuss the critical issue of the Federal debt ceiling. 

Although there are many important policy questions raised by 

the current debate over the debt ceiling, I would like to address the 

more fundamental constitutional questions of whether there must 

be a congressionally mandated limit to Federal borrowing and the 

extent to which the President may ignore these restraints or simply 

raise that limit and borrow money on his own authority. 

I believe that the answer is clear: Under the Constitution, Congress alone has the power to decide how, when, and why Federal 

spending should take place, and the extent to which that spending 

may be supported by taxation and/or borrowing. 

The debt limit is, of course, a statutory device that dates to the 

First World War. Although the debt limit in its current form is not 

constitutionally mandated, some type of congressionally controlled 

limit on executive branch borrowing is required and, whatever precise form that limitation takes, it is constitutionally protected. The 

President can neither ignore nor alter the debt limit without fundamentally subverting the Constitution’s separation of powers and 

violating his oath of office. 

There are two principal mechanisms by which the Federal Government may obtain resources in order to operate: through taxation 


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and through borrowing. The Constitution makes both of these 

mechanisms the peculiar province of the legislative branch. Congress alone is granted the authority to lay and collect taxes, to pay 

Federal debts, and to borrow money on the credit of the United 

States. The executive branch then carries out these functions; that 

is, its role is to execute what Congress has enacted in these areas. 

The President has no independent authority to raise taxes or to 

borrow on the Nation’s credit. 

This was, of course, the purpose and intent of the Constitution’s 

Framers. In a basic division of governmental power, they gave Congress the power of the purse, a grant they viewed as especially empowering the House of Representatives, where all revenue bills 

must originate. 

Moreover, as James Madison explained in the Federalist No. 58, 

the Framers fully anticipated and intended that congressional 

power over Federal taxation, borrowing, and spending would be 

used as a political weapon. I quote, ‘‘This power over the purse 

may, in fact, be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people, for obtaining a redress of every grievance, and 

for carrying into effect every just and salutary measure.’’ 

It follows, of course, that the President cannot raise the debt ceiling on his own authority and is bound to respect this limitation on 

Federal spending, even if this requires him to make difficult decisions and take actions he would not otherwise support. Claims that 

section 4 of the 14th Amendment grants the President such power 

are mistaken. Section 4 forbids repudiation of Federal debts lawfully incurred. Permitting the President to raise the debt ceiling on 

his own authority under section 4 would upset the Constitution’s 

basic separation of powers. And it is also plainly inconsistent with 

the 14th Amendment’s language that, I quote, ‘‘The Congress shall 

have power to enforce, by appropriate legislation, the provisions of 

this article.’’ 

It is also important to understand that the public debt guaranteed by section 4 does not include ordinary Federal spending programs but extends only to debt instruments issued in exchange for 

money on the credit of the United States. 

Thus, as a constitutional matter, Congress has the authority and 

obligation to regulate Federal borrowing. It can exercise this power 

in a number of different ways, including by voting on individual 

debt issues as was the case before the First World War, or by establishing an overall limit on the amount of debt the Federal Government may incur without further congressional action. 

The President is bound by such limits. He can neither ignore the 

debt ceiling, nor can he raise it on his own authority. 

And I would be pleased to answer any questions the Committee 

may have. And thank you. 

[The prepared statement of Mr. Casey follows:] 


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Mr. JOHNSON OF TEXAS. Thank you, Mr. Casey. I appreciate 

your comments. 

Mr. Hoagland, you are recognized for 5 minutes. 

STATEMENT OF G. WILLIAM HOAGLAND, SENIOR VICE 

PRESIDENT, BIPARTISAN POLICY CENTER, WASHINGTON, DC 

Mr. HOAGLAND. Thank you, Mr. Chairman, Mr. Levin, and 

Members of the Committee. It is a privilege for me to be here this 

afternoon. 

Fundamentally, the debt-ceiling discussion emerges from the 

most basic tenet of our legislative sovereignty, and that, of course, 

is the power of the purse. 

I began my career here on Capitol Hill with the Congressional 

Budget Office in 1975. Later, as staff on the Senate Budget Committee and in the Senate Majority Leader’s office, I witnessed and 

participated in many budget standoffs. But one of the first and 

most memorable was the one that the Ranking Member mentioned, 

the 1985 Gramm-Rudman-Hollings Act. I believe Mr. Levin and 

Mr. Rangel were the only two who were here at that time in 1985. 

That legislation came about because of the need to raise the statutory debt limit over $2 trillion for the first time in the country’s 

history. 

The debt-limit bill has always been politically sensitive, but as 

the country’s debt has continued to increase, the need to legislate 

an increase has become more frequent—78 times since 1940—and 

more difficult. Further, based on the actions that the 112th Congress took at the end of the 112th, I estimate that the debt held 

by the public will continue to rise, reaching 77 percent of GDP by 

2022, and the debt subject to limit will exceed $27 trillion. 

My statement addresses two issues: First, what we call the X 

date, the date at which extraordinary measures will run out and 

there will be insufficient cash to pay our Nation’s bills; and, second, 

one of the foci of this hearing, what options are available to the Executive when that X date is reached. 

On the first question, the cash flows of the past week have largely been, as we have anticipated, with no large fluctuations. And we 

at the BPC base our estimates of those cash flows on known cash 

flows and scheduled payments during this time period and on previous years’ patterns of payments. And at this point, we are projecting the windows of the X date between February 15th and 

March 1st, the same as Treasury. 

On the second issue, what actions might the Treasury take postX date, the President and Treasury officials will face two potential 

scenarios: First, the Treasury could prioritize payments, choosing 

to pay some and not others. In 1985, the Comptroller General 

issued a letter to the then-Chairman of the Senate Finance Committee, Bob Packwood, concluding that the Secretary of the Treasury does have the authority to choose the order in which to pay obligations of the United States. I asked the GAO general counsel 

last week if this opinion has changed and have been told that GAO 

has not issued an opinion on this question since 1985. It stands. 

Now, while prioritization may be legal, the actual implementation of it may not be practical. Treasury must make over 5 million 

payments on each business day. Treasury’s computer systems are 


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set up to confirm and process all payments as they come due. Implementing prioritization would be a dramatic overhaul and extremely difficult. Further, should Congress take to itself the responsibility of setting payment dates, possibly having to overturn 

the Prompt Payment Act or Title X of the Budget Act dealing with 

impoundment and other existing laws, one must be realistic as to 

how long such a legislative debate would last. 

The second scenario, should the Treasury deem prioritization to 

be implausible, the Secretary could instead announce that the government will make payments on daily obligations but in the order 

in which they come due on a delayed schedule. Assuming, as we 

do, that the X date is February 15th, the Treasury enters that date 

with precisely enough cash to fund the $30 billion interest payment 

due that day, and all other interest payments are prioritized and 

paid on time. 

In this situation, there would be $22 billion of noninterest payments owed on February 15th, which include military pay and unemployment benefits. They would be delayed until February 20th. 

Similarly, over $30 billion of payments due on February 20th, 

which include Social Security benefits, would have to be delayed 

until February 25th. These delays would continue to cascade. Payments due March 1st, which include Social Security benefits, military salaries, and veterans benefits, among others, would be delayed until March 15th, half a month late. The government could 

face legal challenges under the Prompt Payment Act, not to mention the real impact on individuals and businesses across the country. 

Finally, under normal conditions, Treasury issues new debt to 

the public in order to raise cash to pay off outstanding securities 

as they mature. However, in a situation where Treasury has begun 

to delay payments on noninterest obligations, there is a possibility 

that such auctions would be disrupted. Investors might demand a 

significant premium on their debt purchases or, in the worst-case 

scenario, Treasury could find itself with insufficient buyers for an 

auction. 

Were this to occur, it would force Treasury to step in with 

enough cash to pay off the redeeming bondholders or face a default 

on the U.S. debt, and it would further delay noninterest obligations—a vicious circle. We expect that there will be over $500 billion of debt that will need to be rolled over from February 15th to 

March 15th. 

In conclusion, Mr. Chairman, the Bipartisan Policy Center 

strongly believes that the imbalance in our Federal budget ledger 

does need to be addressed. Risks are risks, and while no one can 

know for sure what ramifications the largely unprecedented scenario of passing the X date would have, those risks clearly grow 

day by day and eventually could become catastrophic. These are 

considerations I know the Members of this Committee will keep in 

mind as you deliberate this important issue. 

Thank you. 

[The prepared statement of Mr. Hoagland follows:] 


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Mr. JOHNSON OF TEXAS. Thank you, sir. I appreciate that. 

Dr. Foster, you are recognized for 5 minutes. 

STATEMENT OF J.D. FOSTER, PH.D., NORMAN B. TURE SENIOR 

FELLOW IN THE ECONOMICS OF FISCAL POLICY, THE HERITAGE FOUNDATION, WASHINGTON, DC 

Mr. FOSTER. Thank you, Mr. Chairman, Mr. Levin, Members of 

the Committee. Good afternoon. It is nice to be back. 

My name is J.D. Foster. I am the Norman B. Ture Senior Fellow 

at The Heritage Foundation. The views I express today are my own 

and should not be construed as the position of The Heritage Foundation. 

Mr. Chairman, once again we find ourselves in dire straits. The 

President’s position on the debt ceiling I believe could be summed 

up simply as: Kick the can, and then we will have a conversation; 

we will engage in a dialogue. The Senate’s position can be summed 

up simply as: Hoping not to be noticed. And so it falls, as it so often 

does, on the House to lead. 

On the debt ceiling, I believe we face basically three options—two 

drastic, and one, which is sound. The first drastic one: Congress 

could simply leave the debt ceiling in place. While perhaps tempting to some, and understandably so, I think we all know this would 

be unwise and irresponsible, with consequences we can only begin 

to imagine—consequences that do not include, however, defaulting 

on the Nation’s debt, a suggestion the President frequently makes 

in awesome irresponsibility. 

Second, Congress could raise the debt ceiling by some large 

amount or repeal it altogether, as the President has suggested, and 

do nothing else. Raising it substantially and doing nothing else 

would continue a pattern of reckless, irresponsible fiscal policy with 

no end in sight and, for this reason, would with certainty also bring 

terrible consequences. To be sure, the date of onset of these consequences is uncertain, which makes this course so appealing in a 

political environment often favoring perfect myopia. 

The Federal Government’s debt trajectory is dangerous—dangerous to our economy, dangerous to our future as a Nation. And 

surely that, at least, we can all agree on. Fiscally, the rise in the 

debt means more of the government’s resources will be crowded out 

in the future into paying interest expense, making less resources 

available for other priorities. Americans generally are willing to 

pay taxes, but they expect services in return. Servicing the government’s debt is not what they have in mind. 

Economically, it also means that savings that would otherwise be 

available for productive investment in the private sector have been 

captured by the government. Less private saving means a smaller 

economy and lower wages. Soaring public debt also means that 

when interest rates begin to rise—and rise they most assuredly 

will—they are now set to rise much farther and much faster. The 

consequences of these higher interest rates will be the most terrible 

of all, for families, for businesses, for the economy. And there will 

be nothing then that Congress can do to stop them. 

What Congress should do is raise the debt ceiling while enacting 

concrete programmatic spending reforms, especially to entitlements, to reduce the deficit in the short run and especially the long 


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run. There are sound, bipartisan, commonsense, options for restraining entitlement spending while ensuring these programs preserve economic security for the elderly and the poor. Indeed, it is 

possible through reform to remedy key failings, such as the woefully inadequate minimum benefit in Social Security and the lack 

of a catastrophic benefit in Medicare, while doing these reforms. 

Our mantra should be ‘‘reform and improve’’ while slowing the 

growth of spending. 

If the President led on these issues, he could help shape these 

vital programs to ensure their sustainability and effectiveness and, 

in the process, transform himself from the most fiscally irresponsible President to arguably the most fiscally responsible President 

in our history. 

Which brings us back to the debt limit. Modern history provides 

fertile ground for doubt when process solutions substitute for concrete decisions, such as the House is considering. Thus, I have my 

qualms over the course the House leadership has set. But I understand the difficulties the House faces, and I accept as sincere assurances that there is a firmer strategy. I accept this. 

I agree entirely that if we are to make sustained progress in restraining spending and deficits, Congress must return to the regular order in a budget process, however much the other body would 

like to do otherwise. The House is correct to press for a regular, 

disciplined budget process. 

I don’t know whether the House can compel a change in course. 

I acknowledge the difficulties. For all our sakes and the sake of my 

children and yours, I fervently hope you succeed. 

I do know the House can take a stand to present the American 

people a clear alternative to soaring debt and a dimmer future: To 

choose to stand with deficits and debt and decline, or to stand with 

the economic security and prosperity of future generations of Americans. The American people deserve at least to know this much 

from the U.S. House of Representatives: Where the Nation is heading and what the House would do differently. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Foster follows:] 


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Mr. JOHNSON OF TEXAS. Thank you, Dr. Foster. 

Professor Johnson, you are recognized for 5 minutes. Please proceed. 

STATEMENT OF SIMON JOHNSON, PH.D., RONALD A. KURTZ 

PROFESSOR OF ENTREPRENEURSHIP, MASSACHUSETTS 

INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT, BOSTON, MA 

Mr. JOHNSON. Thank you very much, Mr. Chairman. 

I find it frightening and also hard to believe that we are having 

this conversation in general and that you are having a hearing on 

this matter. 

Among other things, I am the former Chief Economist of the 

International Monetary Fund, and I would remind you that the 

United States is not just the center of the world’s economy; our financial assets, our government debt serves as a linchpin of the 

world’s financial system. 

From 1948 to 1968, foreigners held as reserves U.S. Government 

debt worth about 2 percent of our GDP. Their reserves now, their 

rainy-day funds, the basis of their financial calculations, are now 

at least 15 percent of our GDP. These are assets they hold willingly. They hold them because this has in the past been regarded 

as the world’s safest asset. You are calling this into question when 

you raise the issue of not increasing the debt ceiling. This, to the 

world, to the world’s investors, is just unbelievable, that you would 

even have this conversation. 

Could I show, please, the first slide? 

I testified before this Committee and I made these exact same 

points in the summer of 2011. And the point I tried to communicate to you then was that if you continued to have a confrontation around the debt ceiling, you would create an unprecedented 

level of uncertainty regarding economic policy in the United States. 

This chart is taken from the work of Professors Baker, Bloom, 

and Davis. The full reference is in my written testimony. And they 

have measured policy uncertainty since 1985—not, I would say, at 

my behest or particularly focusing on the debt ceiling. But what do 

they find? What do you see in this chart? 

Matching exactly with what Mr. Levin said at the beginning, August 2011 stands out as the moment since 1985 when we had the 

greatest uncertainty, the most lack of clarity for everyone—not just 

for the government, everyone in the private sector. Consumers, 

businesses cannot make decisions if they don’t know what is going 

to happen to the government debt. 

And listening to the testimony just now, I was further frightened 

by the extent to which leading experts disagree or vary in opinion 

with regard to exactly what may happen if we are to breach or 

come up against or somehow play with this debt ceiling. 

The United States has never threatened to default, not since the 

1780s. That has been the key element of U.S. fiscal policy since the 

Constitutional Convention in Philadelphia. That is actually a lesson that President Madison learned the hard way in and after the 

War of 1812, the importance of being very careful with your public 

debt and very careful with all communications around your public 

debt management. 


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If you don’t raise the debt ceiling now or if you postpone this conversation, if you say, every 60, 90, or 100 days we are going to 

again have the same kind of conversation about the debt ceiling, 

you will continue to have this sort of spike in policy uncertainty, 

you will continue to undermine the private sector, you will continue 

to delay investment and to reduce employment relative to what it 

would be otherwise. 

I urge you—I understand you have many difficult fiscal conversations to come. I appreciate that. I realize there is a range of reasonable opinion here. But I urge you, as I urged you in the summer 

of 2011: Take the debt ceiling off the table. Do it for our sakes. Do 

it for the world economy. Do it for the global financial system, 

which has still not recovered from the problems of 2007–2008. 

If you want to destabilize the European economy, if you want to 

put pressure on all those sovereigns in Europe who are right now 

struggling fiscally, then you should have exactly this confrontation, 

pushing up the yield on risky assets around the world. But you 

don’t want to do that. You don’t want to destabilize Europe. You 

don’t want another downgrade of U.S. debt. You don’t want another 

spike in policy uncertainty. 

Please, take the debt ceiling, once and for all, completely off the 

table. 

Thank you. 

[The prepared statement of Mr. Johnson follows:] 


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Mr. JOHNSON OF TEXAS. Thank you, sir. 

We have a vote going on right now, and it appears to me that 

we are not going to be able to continue as we are. So I think we 

will recess until the vote is over, which will be about half an hour, 

they say, and return. So the meeting stands in recess—— 

Mr. LEVIN. Mr. Chairman, let me just mention, there is going 

to be a Rules Committee meeting on the bill, so I may not be here 

for the questioning. I think my colleagues will be pressing the issue 

of a 3-month delay and the potential harm it can do. 

We went through this once, Dr. Johnson. I remember your testimony so well. And to think of going through it again, my hope is 

that there will be questions that can elicit your view as to why we 

should not be playing with fire once again. 

Thank you. 

Mr. JOHNSON OF TEXAS. The Committee stands in recess. 

[Recess.] 

Chairman CAMP [presiding]. The Committee will come back to 

order. 

I want to thank our witnesses for being here today. 

And I think we will move into the question and answer period. 

I am going to reserve my question time for a minute, and I will 

go to Mr. Brady. 

You are recognized for 5 minutes. 

Mr. BRADY. Thank you, Mr. Chairman. 

And thank you to all those who were here for the testimony 

today. It was very helpful. 

First, clearly, America will pay its debts. That has been made 

clear by Republicans and Democrats in Congress. We always have. 

And I hope that those who choose to be melodramatic about it 

these days to gain political advantage, if you could please stop, that 

would be helpful. 

Second, there is absolutely no chance that the President’s request 

to have a permanent unlimited debt ceiling will occur. This is the 

constitutional prerogative of the House and the Senate. As we have 

seen in the past, it has also been a helpful tool, not only on checks 

and balances, but to enact spending reforms and restraints that 

can be helpful, although, in my view, have not been as helpful as 

they have in the past. 

And a third point is that the claim we heard earlier today, that 

a short-term extension of the debt limit may raise our U.S. Government debt service cost, that is highly speculative. The 2011 GAO 

study showed mixed results, with no significant impacts in 40 percent of the extensions. So three out of every five had no impact. 

The 2012 report was based on only one event, so it is statistically 

inconclusive. The Bipartisan Policy Center estimates are based 

upon both of these questionable GAO studies, and they miss the 

point. 

The fact of the matter is, unsustained spending over time, without doubt, will raise the cost of our borrowing in America. That is 

why we are all here today to deal with this issue or attempt to give 

our best insight. 

I would like to ask Dr. Foster a question because it relates to the 

debt ceiling. Many of us see the other side of that coin as a credit 

downgrade, a second one, which has serious consequences not just 


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for our borrowing but for borrowing of small businesses and consumers at home. 

My question to you—and I know there are different opinions, but 

what do you think Congress has to do? What steps should we take 

to create not just medium-term fiscal consolidation addressing that 

issue, but long term, dealing with our long-term drivers of debt and 

spending? What do we need to do to avoid a second downgrade, or 

a downgrade by a second credit rating, to be accurate? 

Mr. FOSTER. To avoid another downgrade, which on our current 

path is almost assured, we really need to do two things. And they 

are pointed out in the letter expressing the first downgrade. 

One, don’t raise any question about not raising the debt ceiling; 

ultimately, we have to do that. And the second is we have to get 

our long-term fiscal house in order. That means we have to get the 

entitlement programs under control, achieving two goals: One, the 

reforms necessary to make sure they achieve the result intended, 

which is protecting at-risk populations, while spending moneys 

that we can afford to spend and no more. 

There are simple entitlement reforms—straightforward, and wellvetted—that this Congress could adopt, I believe, fairly quickly. 

They are not even legislatively complex. And these are the kinds 

of reforms that have received bipartisan support in the past. They 

are sort of commonsense changes. 

It is frustrating, in fact, that we don’t take these reforms more 

seriously and move on them because they would have profound impacts in the long run, where the fiscal problem really lies. Yes, we 

have a serious problem with a trillion-dollar budget deficit today, 

but, really, as large as that is, that problem is dwarfed by our longrun fiscal problems from the entitlement programs. 

We know some of the basic reforms, bipartisan reforms that can 

be enacted that will go a long way to getting Medicare and Social 

Security, in particular, on a more sustainable path. And that is 

where the Congress should be looking as we debate fiscal policy 

this year, beginning with the debt ceiling. 

Mr. BRADY. Do you think investors look beyond that debt-ceiling 

issue to those fundamentals you talked about, answering the question, is America serious about getting its financial house in order 

over the long term? Do you think that really creates the most uncertainty going forward over the long term? 

Mr. FOSTER. It is certainly a tremendous source of uncertainty. 

There are others, but that is a major source of uncertainty that 

credit markets most assuredly look at, as indicated by the letter 

transmitting the credit rating downgrade the last time. 

Mr. BRADY. All right. 

Thank you, Mr. Chairman. I yield back. 

Chairman CAMP. Thank you. 

Mr. Rangel is recognized for 5 minutes. 

Mr. RANGEL. Thank you. And welcome back, Mr. Chairman. 

Chairman CAMP. Thank you. 

Mr. RANGEL. I am under the impression that the debt ceiling 

is to give the authority to the President to assure our creditors that 

each and every nickel that we would borrow will be paid back. I 

also believe that we have to have some guidelines on the spending 

in order to share with creditors and Americans alike the fact that 


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we are going to reduce unnecessary spending. Having said that, 

there are some people who believe that we have to have to be involved, this debt ceiling, and with the deficit. And, of course, that 

is controversial. 

Under the system of prioritizing payments, as some people are 

pushing forward, they would believe that we can determine just 

who we were going to pay out interest to while we get a better handle on the spending part of this dilemma. And I just want to ask 

Dr. Johnson some questions. 

These programs, I think you pay your interest on your debt as 

the number-one priority. I think every family would like to pay off 

interest; Social Security; and then third, somewhere active duty 

military. And I think that is patriotic as well as political. 

But under this scenario, Dr. Johnson, will we be paying the people that we borrowed from in China, the debt that we owe China, 

the biggest creditor, or one of the largest, before we would pay our 

American military that got caught, like I did, in Korea, fighting the 

Chinese? Does this work out, that in terms of avoiding the payment 

of our debt, that we would pay off our debtors before we pay off 

our military? Is that part of this plan? 

Mr. JOHNSON. Well, Mr. Rangel, it is hard to know. I mean, I 

don’t think these plans are very detailed, worked-out, credible 

plans. They are vague notions, the ones I have seen. 

But, yes, I have seen the notion expressed that the United States 

would pay its debts in the form of interest and principal on bonds, 

a substantial fraction of which are held by the Chinese Government, for example, ahead of payments that it would make of other 

kinds, which would include, presumably, the way that is framed, 

payments to active service military personnel, for example. 

Now, that just seems like a very strange notion—— 

Mr. RANGEL. It seems to me, if you owed anybody any money, 

no matter whether it was the country or your company, and you 

were not giving the executive director the authority to pay what 

has already been borrowed, that that shouldn’t make our lenders 

feel comfortable. 

But about the question of reducing spending, is there a vehicle 

that the Congress can exercise its ability without jeopardizing the 

reputation of credit? I mean, we have to deal with it, but you say 

and I think most people believe, don’t attack the debt ceiling and 

integrity of the United States of America, but use the constitutional vehicles you have. What can the Congress do to express 

America’s concern about spending? 

Mr. JOHNSON. Well, Congressman, as you know far better than 

I do, you have a wide range of tools, and, in fact, you have more 

than 200 years of fiscal history in which the Congress did exactly 

that. Congress exerted for many, many years both a reasonable tax 

base that was consistent with the spending that they wanted, and 

nobody ever put the debt ceiling or the U.S. willingness to pay its 

obligations on the table in the way that it was placed in the summer of 2011 and the way that I fear it is now being placed on the 

table again. 

It was a big mistake in 2011 to create this degree of uncertainty 

and fear in the United States and around the world, and it is a big 

mistake to do it again today. 


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Mr. RANGEL. Why would any good-thinking, patriotic American 

who loves the country as well as we all do want to use the debt 

ceiling as a vehicle to reduce spending rather than the other legislative opportunities we would have? What would their reasoning 

be? Certainly not to embarrass the United States of America. 

Mr. JOHNSON. I have no idea, Mr. Rangel. But I can tell you 

that—— 

Mr. RANGEL. Well, if you don’t have any, then maybe it is to 

defeat the objectives of this President at whatever cost, as some 

leaders or so-called leaders have said: That they want to stop this 

President, and they were unsuccessful in that measure. So maybe, 

maybe they have decided to change tactics. And maybe this discussion is unnecessary and we find some other way to get a handle 

on the deficit. 

Let me thank you for your contributions to this hearing, as you 

have contributed so many times before. 

Mr. Chairman, I yield back the balance of my time. 

Chairman CAMP. Thank you. 

Mr. Johnson is recognized. 

Mr. JOHNSON OF TEXAS. Thank you, Mr. Chairman. 

Mr. Foster, in his famous farewell address, President Eisenhower 

said, ‘‘We cannot mortgage the material assets of our grandchildren 

without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not 

to become the insolvent phantom of tomorrow.’’ 

In your testimony, you say that with respect to our fiscal future, 

‘‘a change of course is inevitable.’’ The question is, what kind of 

change? You warn that one such change may be brought by credit 

markets increasingly intolerant of Washington’s fiscal imprudence. 

In essence, you are saying, if we don’t do anything, it is only a 

matter of time that financial markets will, so to speak, blow the 

whistle on Washington and say, ‘‘The game is over.’’ In other 

words, we are on borrowed time here, aren’t we? 

Mr. FOSTER. Yes, sir, I am afraid we are. 

And this is rather an unusual posture for Americans to be in. We 

are not used to thinking in these terms because, traditionally, even 

though we have had a fair amount of government debt, it has 

ranged in the order of 40 percent of our economy, which is completely manageable. It has since shot up dramatically and is going 

to continue to shoot up under current policies. 

And the evidence is very clear in the academic literature; it is 

very clear in international observation. There comes a point where 

your debt, as a share of your economy, reaches levels at which 

credit markets become noticeably disturbed. They become very worried. And it is expressed, in part, as rising interest rates, which 

then spread throughout the economy. We are not just talking about 

Treasury interest rates but mortgage rates and consumer rates and 

so forth. 

Mr. JOHNSON OF TEXAS. Well—— 

Mr. FOSTER. This is a certainty. And it is a path that we are 

on that will have extreme consequences that we are not used to 

thinking about in this country. 

Mr. JOHNSON OF TEXAS. Well, I ask the question, how much 

time do we really have? You know, with the U.S. per-person debt 


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now 35 percent higher than that of Greece, when do you think we 

face our Greek moment if we fail to take meaningful action to get 

our fiscal house in order? 

Mr. FOSTER. Well, right now we are having a good news/bad 

news situation. The good news is that, despite all that we have 

done wrong, we are still one of the safest places in the world to invest. And there are a lot of places around the world that capital 

wants to avoid. So it keeps coming into this country, driving down 

our interest rates, even as we are raising debt rapidly. 

Well, at some point that is going to reverse, and that capital will 

flow out again, and interest rates will rise rapidly. When that will 

happen I cannot say because I don’t know when, for example, Europe is finally going to get its fiscal house and monetary houses in 

order. But once they do, this process will reverse and we will see 

the consequences of what we have done. 

Mr. JOHNSON OF TEXAS. Yeah, Germany is making moves 

now. 

Mr. Hoagland, would you care to comment? 

Mr. HOAGLAND. I agree with Dr. Foster that we are probably 

the best-looking horse in the glue factory today. That may not last. 

I would also say that I am very worried about, as I said in my 

opening statement, the fact that we are looking at debt-to-GDP 

that is close to 77 percent. And while in the past we have had debtto-GDP after World War II at that level, we didn’t have 50 percent 

of it being owned by foreign investors. And that is what scares me 

in terms of our sovereignty. We think we have to deal with this 

going forward. 

I agree also that the real issue here is mandatory spending and 

putting in procedures, processes, and building upon a regular-order 

process up here of getting budget resolutions adopted, conference 

agreements, a reconciliation bill, and working it through the regular order. And that is why I would say that while this is not the 

perfect solution in terms of the 3-month extension, it puts you back 

closer to what would normally have been a regular-order process. 

And I think that is positive. 

Mr. JOHNSON OF TEXAS. Well, I would like to know what both 

of you think, if we don’t get it in order, you know, to our smallbusiness owners, to our young families, to our aspiring college students, what kind of future are we looking at for these folks? Either 

one of you. 

Mr. HOAGLAND. I think the standard of living that we experienced and enjoyed, we have to be honest with ourselves that we are 

lessening that standard of living for future generations, our children and our grandchildren. I don’t think there is any question 

that this level of debt would lower that standard of living that we 

enjoyed. 

Mr. JOHNSON OF TEXAS. Yeah, and people will stop wanting 

to come here, won’t they? 

Thank you, Mr. Chairman. I yield back. 

Chairman CAMP. Thank you. 

Mr. McDermott, you are recognized for 5 minutes. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

I have to tell you, listening to this hearing is like we are living 

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ing us how to use default creatively or use it to get some leverage 

or something. And simply talking about it here is destructive. The 

whole world is watching this hearing. It is the first hearing on this 

issue. 

And the whole point of a society is to create and run a government in order to make order for people. People don’t like chaos. 

And this hearing is about how to create chaos to get what you can’t 

get politically with votes. Businesses and workers in my district 

think this kind of talk is crazy. 

Today we are talking about a crisis manufactured by the Republicans, a crisis they have manufactured to achieve policies that the 

voters wouldn’t vote for at the ballot box. The Republicans are taking the economy hostage every single time they get a chance. There 

are threats for workers and businesses, investors, retirees. And job 

growth stops every time the Republicans have a crisis; the economy 

falters. This is the Republican governance and economic policy at 

work—or not working, really. 

The biggest problem with the Republican arguments that are before us—and we just heard it again—is that spending and debt are 

problems. And this is a misdirection. Republican Congresses and 

Republican Presidents were happy to run up huge deficits to wage 

wars they didn’t pay for, or take tax cuts for individuals and industry and give billions to oil companies. 

Now, deficits aren’t what the Republicans care about. What Republicans want to do is end the guarantees on Medicare and Social 

Security. We just heard somebody say it is the entitlement payments that are the problem. I disagree. I think this country can 

have a social safety net that covers people and pay for it. 

And that ought to be happening, but what is happening on the 

other side of the aisle here is that they want everybody who is 

lucky and doing well to just do well, and if you aren’t doing well, 

well, you have to deal with it. It is your problem. It is social Darwinism; it is survival of the fittest put into public policy in this 

Committee. 

That is the Republican policy. And I respect that they want a different policy than I do, but we ought to be honest about the debate. 

Instead, we just watch people say ‘‘spending’’ in the TV cameras 

again and again and again. ‘‘Spending’’ is just a term that the polls 

like. Republicans won’t say what they want to cut because the public doesn’t want their policies. But the word ‘‘spending’’ polls very 

well, so we hear a lot of it. But we don’t hear debate because the 

Republicans want crisis but no solution. 

If we were serious about having a debate here, we would start 

talking about what in Medicare should be cut, or how are we going 

to change it, or how are we going to finance physicians. All those 

things would be on the table. But we don’t hear that. What we say 

is, ‘‘Let’s just cut.’’ And when you start talking across the board, 

you are talking about medical research, and you are talking about 

NASA, and you are talking about NOAA, and you are talking about 

all these government agencies as though they don’t do anything 

that add anything to this society. 

So when we are spending our time here talking about this deficit 

stuff and raising the debt limit, we are simply saying to the world, 

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Now, my question to you, Mr. Johnson, is this: If this was such 

a good idea, why haven’t we done it before? We could have saved 

a lot of money by not paying our debts. Why have we suddenly decided that this is the time to do it? 

Give me some understanding so the American people can understand why, after all these years since the First World War, we have 

paid our debts under Republicans and Democrats. I voted under 

George Bush—both of them—to raise the debt limit. But now we 

are going to stop paying. Please tell me why they are doing it. 

Mr. JOHNSON. Well, Congressman, it is not a good idea, and it 

is not the way fiscal policy was run not just since World War I, but 

going back to 1789, after the initial assumption of debt at the Federal level and the restructuring of debt with which Alexander Hamilton began fiscal policy in this country; policy has absolutely been 

to always pay your debts and your other obligations. And it took 

a long time to convince the world that the United States was the 

safest place to put your reserve assets or your rainy-day money. 

And it was a great achievement. And now it is being squandered 

and thrown away for, I presume, some negotiating purpose. It 

makes no sense from a broader economic perspective. 

Chairman CAMP. Thank you. Time has expired. I would ask 

unanimous consent to place in the record a Statement of Administration Policy on H.R. 325, the temporary suspension of the debt 

ceiling, where the Administration says, ‘‘For these reasons, the Administration would not oppose a short-term solution to the debt 

limit and looks forward to continuing to work with both the House 

and the Senate to increase certainty in the stability for the economy.’’ 

Without objection, so ordered. 

[The submission of The Honorable Dave Camp follows:] 


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Mr. Tiberi, you are recognized for 5 minutes. 

Mr. TIBERI. Thank you, Mr. Chairman. 

Thank you, gentlemen, for coming and testifying. 

Let me expand a little bit on Mr. McDermott’s line of questioning 

and just get a quick response from the four of you. Back in 2006, 

speaking on the Senate floor, then Senator Obama announced that 

he intended to vote no on the debt-ceiling increase. He went on to 

say, and I quote, to oppose the effort—‘‘I oppose the effort to increase America’s debt limit. We now depend on ongoing financial 

assistance from foreign countries to finance our Government’s reckless fiscal policies. Over the past 5 years, our Federal debt has increased by $3.5 trillion dollars to $8.6 trillion.’’ Oh, to have those 

numbers today. Since then, we now have a $16.4 trillion debt, 

nearly doubled in 6 years. In fact, since this President has become 

President in 2009, he has added more than four times, more than— 

more debt in 4 years, excuse me, than the previous President did 

in 8. 

So, to the four of you, a quick question. Was the President right, 

is this a failure of leadership? And is there a better direction? 

Mr. Casey. 

Mr. CASEY. Well, I certainly think he was right that we oughtn’t 

to continue to run the store based on borrowing. There is a lot of 

ways you can pay your debts, and they don’t all include incurring—— 

Mr. TIBERI. But since he made that speech, it has gotten worse; 

we have done nothing to change the trajectory. 

Mr. CASEY. I agree. 

Mr. TIBERI. It has gotten worse. So is the President right, it is 

a leadership failure? 

Mr. CASEY. Yeah, I would agree with that, it is. 

Mr. HOAGLAND. Congressman, it didn’t say that he was right 

to say what he said. I would be careful to point out that some of 

that increase in that debt that took place was a result of obligations that were incurred long before he was ever President of the 

United States or he—— 

Mr. TIBERI. Oh, right. 

Mr. HOAGLAND. Or wherever. And I just would make that very 

clear. 

Mr. TIBERI. Oh, sure. 

Mr. HOAGLAND. Also, I would simply say, the House-passed 

budget resolution last year under Congressman Ryan, which was 

going in the right direction of controlling spending, still had a debt 

for the end of this year at $17.1 trillion. 

Mr. TIBERI. Right. It is getting worse. 

Mr. HOAGLAND. It is—and getting worse. It is built into the 

pipeline. 

Mr. TIBERI. Thank you. Agreed. 

Mr. Foster. 

Mr. FOSTER. Yes, sir, thank you. There is no question that allowing debt to continue to build more rapidly as a share of GDP 

is reckless; it is irresponsible. Under some circumstances, it is inevitable. Those circumstances are not what we have today. We should 

be getting it under control and doing so quickly. 

Mr. TIBERI. Mr. Johnson. 


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Mr. JOHNSON. Congressman, figures 2 and 3 in my written testimony address this issue directly; where did the debt come from? 

These are the Congressional Budget Office numbers. This is figure 

2, and you can see the impact of the tax cuts; the two foreign wars; 

Medicare Part D, which was not paid for; the 2008 Bush tax cut; 

and then, of course, the financial crisis. The largest swing, if you 

move to figure 3, this shows you the swing in medium-term debt 

projected by the CBO before and after they realized the severity of 

the financial crisis. 

Mr. TIBERI. Let me ask you a quick question. 

Mr. JOHNSON. That is a 50 percent of GDP increase in debt. 

Mr. TIBERI. Was the President right, yes or no? 

Mr. JOHNSON. The President was right when he spoke of the 

reckless fiscal policies at the moment. What he didn’t realize was 

how bad it was going to get as a result of reckless financial policies—— 

Mr. TIBERI. And so the President is right today, then, you are 

saying as well. Even though the debt has nearly doubled and we 

had a deficit actually that was on the decline with what you talked 

about, two wars, prescription drug benefits, tax cuts, it was actually less than $200 billion the year that Rob Portman, now Senator, 

was budget director and has now since gone over a trillion dollars 

4 years in a row. 

Mr. JOHNSON. Congressman, we had the largest financial crisis 

since the Great Depression. 

Mr. TIBERI. I have heard this before. 

Mr. JOHNSON. We lost a huge amount of revenue, according to 

the Congressional Budget Office that is 70 to 80 percent of the 

swing in debt. These are the CBO’s numbers. 

Mr. TIBERI. We are not going to solve it. I have another question for Mr. Hoagland. 

Mr. Hoagland, I notice that you have some experience on budget 

issues in the Senate. How many years did you work in the Senate, 

and when you worked in the Senate on budget issues, did they pass 

budgets when you were there? How many times? Or did they fail 

to pass a budget 1 year, 2 years, or maybe 3 years? 

Mr. HOAGLAND. I was with the Senate Budget starting with 

the CBO in 1975, with the Budget Committee since 1982, and left 

the Senate after Majority Leader’s Office in 2007. Over the 33 

years that we have had budget resolutions, beginning in 1979, 

seven times have we failed to get a conference agreement on a 

budget resolution. Unfortunately, over that 33 years, three of those 

times have been in the last 3 years. There is one time when I 

was staff director of the Senate Budget Committee with Chairman 

Pete Domenici that we did not get a concurrent resolution on the 

budget, and that had to do in 1998 when John Kasich was Chairman of the House Budget Committee, and we had just finished the 

19—but one time. 

Mr. TIBERI. One time. 

Mr. HOAGLAND. The Senate not—— 

Chairman CAMP. Time has expired. Thank you. 

Mr. TIBERI. Thank you. 

Chairman CAMP. Mr. Doggett. 

Mr. DOGGETT. Thank you very much, Mr. Chairman. 


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I know opinions clearly differ about where we are headed in the 

future, but I think as Mr. Johnson’s chart demonstrates, when we 

concluded the Clinton Administration, we had a surplus for the 

first time in recent memory, and a huge tax cut, where Alan 

Greenspan sat where you are sitting, Mr. Johnson, and told us that 

the justification for this tax cut in part was that we were reducing 

the debt too fast, that we would create some uncertainties in the 

bond market because we were moving so quickly, but an unpaid 

tax cut, unpaid prescription benefits, two unpaid wars. Now we are 

told we can no longer afford, by some of our Republican colleagues, 

to provide health security for people at 65 or 66 that you just—you 

would like to do it, but we just can’t afford to do it anymore. 

And as it relates specifically to the proposal we just heard the 

Administration’s statement on, I gather your opinion, Mr. Johnson, 

is, you know, better than have a Valentine’s Day cliff to at least 

have some additional time to help resolve this, but if we keep moving in 3-month or 1-month or 6-month spurts, the effect on economic growth will be very damaging. 

Mr. JOHNSON. Absolutely, Congressman. If we could pull up 

figure 1 from my written testimony—— 

Mr. DOGGETT. Please. 

Mr. JOHNSON [continuing]. What you would get is the spike, 

this is the spike from August 2011, you are going to have that 

every 3 months. That was a disastrous month for hiring because 

who wants to hire when you don’t know if there are going to be 

payments made by the government or if various other disruptions 

are going to take place? These are big numbers for the U.S. economy. You are going to do this every 3 months, for how long? Until 

you have another election? That is far too long for the health and 

sanity of the American people. 

Mr. DOGGETT. And at the same time we had that phenomenon, 

I believe the General Accountability Office has estimated that the 

direct cost of Republicans taking us right up to the brink on the 

debt, on the full faith and credit of the United States last time was 

over a billion dollars in increased interest costs. We could also expect to see an increase in borrowing costs for taxpayers if we don’t 

get this debt ceiling resolved. 

Mr. JOHNSON. That is a definite possibility, Congressman. To 

the extent we disrupt debt markets, if we worry investors, if we 

create risk, and we are hurting not just the Federal Government; 

this has implications for State governments and for local governments that, of course, do not generally borrow at the low interest 

rate the Federal Government borrows at, so they have a risk premium in there. You are driving up risk premia around the world 

when you generate this kind of uncertainty. 

Mr. DOGGETT. Your written testimony indicates that, for a decade, actually for a couple of decades, we have seen income inequality increase dramatically with little change in income for 90 percent of wage earners and a 50 percent increase for those at the top. 

What are the policies that you think we most need to address other 

than getting stability on this full faith and credit of the United 

States to change that and to ensure that there is a more equitable 

share in the success of the American economy? 


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Mr. JOHNSON. Well, the evidence is completely compelling that 

education, human capital, the ability of people to work with information technology, these are huge determinants of what has happened to income inequality. And many people in American society 

today cannot afford by themselves to get that kind of education. 

To the extent that you can make resources available to support 

younger people, support families in the pursuit of high productivity 

human capital, that is good for them, that is good for the economy, 

and that is good for the tax base, so over the medium term, that 

is absolutely going to strengthen the budget. 

Mr. DOGGETT. And in terms of competitiveness worldwide, 

building a stronger workforce from, as you mentioned, early childhood education to access to a college education is really vital to 

American competitiveness, isn’t it? 

Mr. JOHNSON. It is the number one determinant of both our 

competitiveness, the extent to which we can compete with other 

countries, and our productivity, how much do we actually produce 

per person in this economy. The number one determinant looking 

forward is human capital; that is about education. It is about ability to innovate, ability to work with those new technologies. 

Mr. DOGGETT. And over the short run, what is the effect of 

across-the-board cuts on early childhood education, on Pell grants, 

on research funding for medical research and other basic scientific 

research? 

Mr. JOHNSON. It is all going to be negative for growth and for 

human capital, and it is going to impact equality, and to the extent 

that you don’t have a progressive tax system, it is also going to give 

you negative impact on the budget. 

Mr. DOGGETT. While the most immediate concern, I know, and 

the main focus of your testimony is upholding the full faith and 

credit of the United States, is it your feeling that at this time in 

our economy, we need to see a contraction of government spending? 

Chairman CAMP. All right, time has expired, I am sorry. 

Mr. Reichert. 

Mr. REICHERT. Thank you, Mr. Chairman. 

My first question is to all the panelists. Thank you for being 

here. There are a lot of—there is a lot of talk across the aisle about 

raising revenue to solve our debt problem. Is it possible to raise 

taxes enough to permanently sustain programs such as Social Security and Medicare without reforming the programs themselves? 

And what sort of tax increase would this be on the middle class, 

and what would this sort of tax increase do to our broader economy? 

Mr. CASEY. I would ask the Committee if I may pass on that 

since it goes beyond my legal expertise. I will defer to the economists. 

Mr. HOAGLAND. I believe that it would require a balance between both spending, controlling entitlement spending, mandatory 

spending, and revenue increases to lower the debt-to-GDP figure to 

a goal of about 60 percent. I believe the last proposal that was on 

the table before the fiscal cliff discussion was that the House Republican leader’s proposal was $800 billion in tax increases; the 

President’s was $960 billion. You get $600 billion; there is $200 billion there that you are still looking at for this next 10-year window, 


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but I think that has to be coupled with changes to mandatory 

spending programs. 

To Mr. McDermott’s position, there are specific proposals as it relates to changing the Medicare program that does not harm current 

recipients of Medicare but protects the program for the future 

beneficiaries out there. 

Mr. FOSTER. There is an illusion that you can solve all these 

problems with tax increases without getting into the question of 

whether or not you should, or that you could. The answer is you 

can’t. The costs in these programs are rising so rapidly over the 

next decades, not 2014 or 2015, but over the near future, that you 

can’t solve them with tax increases. We would not have much of 

an economy left if we tried that. 

So you must understand, the starting point for getting our fiscal 

house in order is reducing the growth in the entitlement spending, 

just as Mr. Hoagland suggested. Then it is a political point, a debatable point, as to whether or not you want to mix in tax increases as part of that solution. That is a political decision at that 

point, not an economic decision, understanding that the tax increases we tend to enact tend to be those most harmful to the economy, thereby slowing the growth of the economy as well as the tax 

base. But you have to start with the entitlement reform, slowing 

the growth of that spending. That is a necessary and unavoidable 

component of getting our fiscal house in order. 

Mr. JOHNSON. Congressman, I actually wrote a book on this 

topic, which I would be happy to send you. 

Mr. REICHERT. Congratulations. 

Mr. JOHNSON. Thank you. And the bottom line is that Social 

Security you could rebalance relatively easily with new revenue, 

and some relatively minor—— 

Mr. REICHERT. What kind of impact would that have on the 

middle class, just using revenue, just taxing people? 

Mr. JOHNSON. The impact on the middle class would be relatively small, and again, I can send you the numbers. The key 

issue there is that they are raising the cap on earnings subject to 

Social Security, which was not indexed last time that was changed 

by this Congress in the mid 1980s. 

The big problem is healthcare spending, Congressman, but it is 

not Medicare, per se, it is healthcare spending. If you shift that, 

the responsibility of health care from Medicare on to families, individuals, and companies, you will raise healthcare spending as a 

percent of GDP, that is the CBO scoring of that issue. And that is 

not going to help American families. You need to find a way to control, limit healthcare spending as a percent of GDP. That is the key 

variable to focus on, how the healthcare system functions, how it 

delivers, and what it costs. 

Mr. REICHERT. If tax increases were the only solution that you 

are talking about here, you are just relating the tax increase to Social Security. Medicare, Medicaid, what is the impact there? What 

is the impact of just raising taxes on the broader economy totally? 

Mr. JOHNSON. The problem, Congressman, is the healthcare 

spending. If healthcare spending increases, you can either pay that 

out of the budget, in which case it would be very high cost, or you 

can shift that on to individuals, in which case it ruins them. Either 


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way, it doesn’t make much difference. It is the healthcare costs 

that you have to focus on. 

Mr. REICHERT. I want to go to some of the discussion that was 

occurring earlier. Why are we focusing on spending today, now? 

Why now? I may not have enough time to get to that question. I 

see the yellow light is on. So, Mr. Chairman, I will yield back before. It is a long question. 

Chairman CAMP. All right. Okay. 

Mr. Larson, you are—I am sorry, Mr. Neal has come back in. 

Mr. Neal is recognized for 5 minutes. 

Mr. NEAL. Thank you, Mr. Chairman. 

As we debate increasing the debt ceiling this afternoon, I think 

a bit of history is important as we acknowledge the current fiscal 

situation. In January 2001, CBO estimated that the total budget 

surplus for 2002 to 2011 would be $5.6 trillion, surplus. Instead, 

after years of reckless spending and tax cuts, the Federal Government ran deficits from 2002 until 2011. The total deficit over that 

10-year period amounted to $6.1 trillion, a swing of $11.7 trillion 

from January 2001 and its projections. 

We began down this path by enacting tax cuts that cost the government $2.3 trillion. The other major expenditure during those 

years that contributed mightily to these deficits is the engagement 

in two wars. By the time we got to January of 2009, the debt was 

$10.6 trillion, setting a record for debt for any Administration. Pursuing two wars and massive tax cuts was the reason, and Mr. 

Johnson, while he was temporarily holding the chair for Mr. Camp, 

indicated that we were all responsible for many of those positions. 

Having voted against the war in Iraq and having voted against the 

Bush tax cuts in 2001 and 2003, I think I have earned an element 

of credibility on these questions. 

So today we are debating another increase in the debt limit. I 

don’t understand how anyone who voted for the Iraq war could now 

vote against raising the debt ceiling. In reality, arguing over the 

debt ceiling is essentially an argument over whether or not we 

should pay our bills. We should pay our bills. 

This debt is about the past, not about the future. If you voted 

for the war in Iraq and the Bush tax cuts, the bill is here. Remind 

our colleagues and friends: 1.7 million new veterans, 45,000 of 

whom have served us honorably, as the other 1.7 million have, but 

they have been wounded. Half of the 45,000 have claimed disability. 

So we hear from some of our friends, the default deniers, that 

they think hitting the debt ceiling is no big deal, that we could 

raise the debt ceiling only if we cut government spending as well. 

But where were they during those years, those very difficult years? 

And incidentally, I have compiled the voting records on the debt 

limit increases that President Bush requested during those years. 

And I hope, Mr. Chairman, I could insert that into the record. 

Chairman CAMP. Without objection. 

[The submission of The Honorable Richard Neal follows:] 


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f 


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Mr. NEAL. Thank you, Mr. Chairman. 

Many of the most senior Members of this Committee routinely 

voted to raise the debt ceiling during those years, even though the 

money for the tax cuts and the wars was put on emergency basis 

for the purpose of hiding the costs. So I am pleased that we are 

coming around to a more reasonable position today, and I hope that 

we are going to find a common path forward on many of these 

issues. 

Mr. Johnson, you state in your testimony that low—unemployment depresses tax revenue, and this is the major reason for our 

current deficits and why they are so large. Once the economy recovers fully and the unemployment rate is lowered, it certainly will 

take some of the pressure off of these discussions, acknowledging 

there are long-term challenges that we have to address. I have 

been making this point inside of my own caucus, not to overreact 

to the situation in which we find ourselves, and if we could only 

find that common path forward that I referenced, we would find 

that you could have a conversation that would be worthwhile past 

the political talking points. 

Now, getting Americans back to work should be the number one 

priority, and as we address this fiscal situation, toying with the 

debt, considering that American companies are estimated to be sitting on $1 trillion domestically and more than $1.8 trillion offshore. 

If we offered a picture of stability, and again a conversation worth 

having, we might be able to ameliorate some of the tension that 

surrounds this issue. 

Would you comment, Mr. Johnson? 

Chairman CAMP. You have 8 seconds. You can follow up with 

a letter, but we are going to stay on time here. 

Mr. JOHNSON. We should pay our bills. That is the number one 

priority. If we don’t pay our bills as a government, we will disrupt 

the economic recovery and push unemployment higher. 

Mr. NEAL. Thank you. 

Chairman CAMP. Thank you. 

Mr. Boustany, Dr. Boustany is recognized. 

Mr. BOUSTANY. Thank you, Mr. Chairman. 

I want to put this in perspective for a moment. The former 

Chairman of the Joint Chiefs of Staff, Admiral Mullen, was quoted 

as saying the debt of the United States is a threat to our national 

security, and while it might not rise to that level acutely immediately, it certainly is a serious strategic restraint on the ability of 

the United States to operate in an international environment. And 

it is clearly a threat to our economic prosperity. 

I want to make it clear, nobody on this side of the aisle is talking 

about default, none of us are talking about default. We are talking 

about a serious solution going forward with a big problem, which 

is widely acknowledged to be a spending problem. 

Now, several of you made a number of points. Mr. Casey, you 

talked about Congress having the power of the purse and using it 

wisely, with discretion, to enact spending reforms which are desperately needed. 

Mr. Hoagland talked about going back to regular order, something we all believe needs to happen. You also mentioned temporary extraordinary measures that are currently being used and 


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talked a little bit about prioritization, and I want to bring that up 

again in a moment. 

Mr. Foster, you spoke about process not being a substitute for 

real policy reforms. We all agree with that, I think both sides could 

agree with that. 

But the bottom line is this: We have a spending problem, and we 

have to also recognize that in the context of how it plays out in the 

economy, it is not just spending, but it is also a need for growth. 

This is why we want to do tax reform, real tax reform, fundamental 

tax reform that puts our Tax Code on a 21st century basis that promotes American competitiveness and growth. 

Now, historically, and I went back and I read a CRS report, 

short-term debt limit increases have been used just to buy time in 

order to get to a point where you couple it with real spending reforms. This has happened historically. Am I correct? 

Mr. HOAGLAND. Yes, sir. 

Mr. BOUSTANY. So we are not talking about something out of 

the ordinary as we talk about this current proposal on the table. 

But I want to go back, Mr. Hoagland, to prioritization because 

we know there are extraordinary measures already being done by 

Treasury, and prioritization, we wouldn’t have to be in this crisis 

if the President had come forward with a real plan. He has had opportunities with four budgets and hasn’t done that and has continued to perpetuate the problem. 

Now we are caught in a situation where we are waiting with the 

budget and the timing, but the bottom line is this: We don’t need 

to be in this. We didn’t need to be in this crisis, but we find ourselves in it. Now if prioritization is going to be used as one of these 

extraordinary measures, talk a little bit more, elaborate a little 

more on the fact that we have uneven receipts coming in and how 

this plays out. I want this to be real clear for the public that might 

be paying attention to this. 

Mr. HOAGLAND. The Treasury has estimated that the cash 

flows in are very unprecise. Even in a 1-week forecast out, the estimate is that varies on statistically plus or minus $18 billion, just 

1 week out, just estimating the receipts coming in. Two weeks out, 

the estimates are a $30 billion variation plus or minus. When you 

combine that with the requirements, in terms of statute, the payments going out, you create a tremendous level of difficulty in 

terms of being able to set the timeframe in which you should pay 

those when you don’t know exactly, when you are doing prioritization, paying with income coming in with the degree of variation 

that exists in the receipts coming in. It is just very, very difficult. 

Mr. BOUSTANY. For the interest payments, there is a different 

computer system, right, than what is used for the other payments? 

Mr. HOAGLAND. Correct. The interest payments is a separate 

computer system. It is possible that you could just prioritize those 

interest payments, but I think the Fitch report last week said that 

you could avoid an actual default, default being defined as paying 

the interest, but then those other noninterest obligations will be 

looked at as another form of default, which would also affect Fitch’s 

rating. 

Mr. BOUSTANY. I see. How much time do you think we would 

have with prioritization? How much time could be bought? 


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Mr. HOAGLAND. Congressman, I mentioned in my report that 

we are talking about the pay-fors, the Prompt Payment Act, the 

Impoundment Act; I think you have a long time in terms of you determining prioritization. 

Chairman CAMP. Time has expired. 

Mr. Larson, you are recognized. 

Mr. LARSON. Thank you very much, Mr. Chairman, and it’s always good to see you back here and in good health. Let me start 

by saying thank you to our panelists for their testimony and thank 

you for your service to your institutions and the country and I 

thank the Chairman for this hearing. 

I think it is a good news/bad news story. On one hand, the good 

news is that we have avoided yet another immediate crisis. The 

bad news is that we are just kicking the can down the road for 3 

months and, in essence, then are dealing with default and not paying on our bills just 3 months later. That creates an enormous 

problem and one I think that—I would hope that this Committee, 

above all others, could solve because I do believe in this Committee 

and its bipartisan membership in our ability to address this issue. 

We know that what we have to do is both stabilize this economy, 

invest in this economy, reform this economy, and grow it in terms 

of what everyone has testified and what the people on this Committee believe in. 

No less than Speaker Gingrich said on ‘‘Face the Nation’’ that, 

look, take the debt ceiling off the table, at least provide the American people with a modicum of security that they know we are not 

going to hold this hostage, too. We ought to be adults about it, as 

the former Speaker said, and take that off the table. That doesn’t 

mean to desert the issue or back away from the issue of dealing 

with debt. And there are still appropriate opportunities, as he 

pointed out, whether through sequester or continuing resolution to 

do it, but we owe it to the American people to make sure we take 

this uncertainty away from them. We saw what that uncertainty 

does in terms of impacting their pensions and their 401(k)s, and 

they look to this Congress, and frankly, I think the Congress looks 

to this body to return to regular order. And I know we have the 

leadership on this body to do that, and by returning to regular 

order, we can go after the difficult things. 

Mr. Johnson pointed out that the issue is healthcare costs. That 

is true. Mr. Ryan, who serves on the Budget Committee and this 

Committee, has pointed out the issue is healthcare costs. How do 

we go after those costs? It just simply isn’t entitlements, aka insurance that people have paid. They have paid for that; that is their 

insurance. What are the actuarial assumptions around that? What 

do we have to do to change and alter that? We ought to be able 

to carry that out in regular order, not in meetings in the White 

House, not in meetings in the Senate, where they won’t do a 

budget and where they will wait to do some kind of bill themselves. 

We ought to be doing it in this Committee. 

Mr. Johnson, I was confronted in my hometown by our CFO, who 

said, ‘‘Listen, if you guys don’t provide us some certainty again, we 

have to go out to the bond market again in this very difficult time, 

and what happens to us is we end up in a situation where we have 

to raise people’s property taxes because Congress twiddles and didVerDate Sep 11 2014 06:20 Feb 06, 2017 Jkt 021129 PO 00000 Frm 00079 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\21129\21129.XXX 21129

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dles and plays hostage politics.’’ What is your experience with respect to the impact that this will have on local municipalities, our 

cities, and our communities? 

Mr. JOHNSON. Well, Congressman, the impact is going to be 

bad, and it could be dramatically bad, depending on what happens 

in 3 months. I don’t agree with Mr. Gingrich on many fiscal issues, 

but I think on this one, he is right. Take the debt ceiling off the 

table permanently. Investors around the world are watching this 

hearing. They are looking at your words. They are trying to understand, what does prioritization mean? How does this not involve 

default? The degree of uncertainty that is being multiplied by this 

conversation is extraordinary, the impact on municipalities is going 

to be tough. They will face higher borrowing costs to the extent 

that risk premia rise in the United States and around the world 

and that means either they are going to fire people or they are 

going to raise property taxes or they are going to face some other 

problems. So this is a very bad route to go down from that perspective. 

Mr. LARSON. I have great respect for Dr. Boustany, but we are 

talking about default. And whether we are talking about immediate default or default 3 months from now, that is a policy issue. 

Mr. Hoagland, you also talked about bringing balance to this 

issue. I thought that was an excellent point, and you said that it 

ought to be done through regular order. How do you see that proceeding? 

Mr. HOAGLAND. I see that proceeding by the President submitting a budget. I see that proceeding by the Budget Committee passing budget resolutions. I see that by a conference agreement between the House and Senate on a budget resolution. I see that by 

including a reconciliation instruction to achieve the savings over 

the time period, and I see that working through the normal course. 

Mr. LARSON. I have been in Congress 14 years; we have not 

completed that once since I have been here in full complete order. 

That is why I think it is incumbent upon our Committee, and I 

know the great integrity that our Chairman and Members of this 

Committee have. I think that we can achieve those goals. I know 

my time is up. 

Chairman CAMP. Thank you. Thank you very much. 

Mr. Paulsen is recognized for 5 minutes. 

Mr. PAULSEN. Thank you, Mr. Chairman, also for holding the 

hearing. 

I want to thank each of the witnesses for being here. You know, 

it is pretty clear to me that there is actually broad bipartisan consensus that our country is on a fiscally unsustainable path right 

now. The 2010 report by the Bipartisan Policy Center’s Debt Reduction Task Force—Mr. Hoagland, I believe you were a member 

of that Task Force—included the very sobering warning that the 

Federal budget is on a dangerous, unsustainable path. Federal 

spending is projected to rise substantially faster than revenues, 

and the government will be forced to borrow ever-increasing 

amounts. Federal debt will rise to unmanageable levels, which will 

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tions whose interests may differ from ours. We have talked a little 

bit about that earlier from some of the other questions. 

My constituents are, quite honestly, very perplexed that Washington continues to borrow 40 some cents of every dollar it spends. 

They can’t get their arms around that. And there is a recognition 

now that without significant changes to our fiscal policy, the national debt itself is going to become an existential threat. I would 

like each of the panelists, if you could, just comment what are the 

implications of current debt levels? What are the consequences of 

increased levels? And what really is the turning point where our 

debt becomes unmanageable, where it becomes an unmanageable 

situation? 

Mr. Casey. 

Mr. CASEY. Well, I think on most of that question, I will defer 

to the economists, but I will say that one thing I think we need 

to keep in mind is that we are not—we fling around the term debt 

ceiling. What we are talking about here is Congress’ power to borrow money and how we should be paying our bills based on that 

or based on some other method of raising revenue, so I think it is 

very important to keep that clearly in mind. 

Mr. PAULSEN. Mr. Hoagland, you were a member of that Task 

Force as well. 

Mr. HOAGLAND. Yes, and in fairness, Congressman, that Task 

Force also recommended a balanced plan that included tax increases as well as spending cuts going forward, more on the spending side than on reduction of the rate of growth. The implications 

of the debt level, that we are headed at 77 percent going into the 

future, I think has a major—will jeopardize, quite frankly, our 

standing in the world. When we have about 40, 50 percent of this 

debt owned by investors outside of the United States, we are questioning, we are raising questions about the sovereignty of this 

country going forward. 

In terms of, where is the turning point, I think that is the problem; most economists would say they can’t answer that question. 

Who knows when that last drop into the test tube turns the water 

blue? But it will turn at some point, and that is the problem. When 

it turns, it will turn fast. That is why I think you have to have a 

plan going forward to avoid that date coming. I don’t know. There 

is a book out on this called, ‘‘This Time is Different.’’ This time is 

not different. Something will happen. We just want you to control 

that so it has some process behind it. 

Mr. PAULSEN. Now, knowing that the United States is still a 

safe haven in terms of money flocking here, based on what is happening in Europe, I mean, can we learn anything of what is happening in Europe basically on how capital—— 

Mr. HOAGLAND. We are not Greece. We are not Italy. We are 

not Spain, but I think when you look at the level of spending there 

relative to their assets, I think you end up with a situation where 

you do create social disorder which is very dangerous. 

Mr. PAULSEN. Mr. Foster. 

Mr. FOSTER. There are three basic things. The first is that with 

all that debt, you are going to see in the future a lot more of government’s resources, the Federal Government’s resources being 

used just to pay off the interest on the debt from the past. As I said 


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in my testimony, Americans expect services from the taxes they 

pay; they don’t expect just that you service the debt from previous 

deficits. 

Second, interest rates are going to rise. We have now increased 

the debt sufficiently that all previous debates about whether deficits matter for interest rates can be set aside. It has now risen 

enough that it will matter, and it will matter a lot. Interest rates 

will rise and they will rise a lot faster and further than they ever 

would have otherwise. 

Third, as my colleague was just saying, it is like a family or any 

business, if you take on far too much debt, you lose control of your 

own future. You lose control of your path forward. Somebody else 

is going to be able to dictate the terms to you as to what you are 

going to do. The dictator in this case will be the bondholders and 

the credit markets. We lose control of our future as a Nation. Ask 

these countries in Europe, Mr. Hoagland knows, we are not Spain 

or Italy or Greece, but we will have one thing in common if we 

keep this path: We will lose control of our future as they have lost 

control of theirs. 

Mr. PAULSEN. Can you comment in terms of if there is even a 

1 percent or a 2 percent increase in interest rates what the effect 

is going to be on interest payments, on a dollar amount? 

Mr. FOSTER. Well, if you think about it, 1 percent payment, and you have $15 trillion out there, that’s $150 billion—— 

Chairman CAMP. All right, thank you, time has expired. 

Mr. Kind is recognized for 5 minutes. 

Mr. KIND. Thank you, Mr. Chairman. 

I want to thank you for holding this hearing and thank the panelists for your input and your discussion today, which is important. 

I think we all understand what the ultimate solution is of the debt 

ceiling: We need a long-term, bipartisan deficit reduction agreement in this place that is comprehensive and that will get our fiscal house in order, especially dealing with the demographics and 

the aging population. That is the answer. I equate this to the Middle East peace plan. We all know where we need to end up; it is 

just finding the political process and the will to get there. Every 

bipartisan commission that has met and been tasked to come up 

with a solution has reached the same conclusion, there is going to 

have to be some additional revenue and some major spending reforms in the budget for this to make sense in a balanced and a fair 

fashion. 

Mr. Foster, I appreciated your testimony here today where you 

said there is some additional room on the revenue side, even given 

where we ended up with the fiscal cliff, a little over $600 billion 

over 10 years in new revenue, but that was short of where things 

stood during the previous conversations. 

But, Mr. Johnson, in your written testimony and also your oral 

testimony here today, I think you have been fairly clear that the 

greatest if not the chief contributor to the deficits and the fiscal 

shortfall today has been the underperforming economy and the 

high unemployment rate, so I would assume then that one of the 

responses if not the response to help with the fiscal situation is to 

get the economy back fully functioning with good-paying jobs and 

lowering the unemployment rate. Is that right? 


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Mr. JOHNSON. Absolutely, Congressman, and it would be, in 

that context, disastrous if you were either not to extend the debt 

ceiling or create a lot of uncertainty about who is getting paid and 

how they are getting paid because of the debt ceiling or because of 

the sequester or because of some sort of government shutdown. All 

of those things are bad for the recovery. They are bad for revenue, 

and all those things would tend to push up interest rates, which 

has the adverse consequences that my colleague just described. 

Mr. KIND. So I really don’t understand the argument for holding 

the debt ceiling hostage and jeopardizing the full faith and credit 

and possibly defaulting on our financial obligations for the first 

time in our Nation’s history, given the safe haven that we have enjoyed. In fact, the great irony in this recession is the fact that people have been willing to pay us to take their money, which is, in 

effect, what has been going on. It has been a lifesaver for us economically, and all that, I assume, would be in jeopardy overnight 

if we do default on our financial obligations. Would you agree? 

Mr. JOHNSON. Absolutely. The most obvious risk we face is that 

we will, through our own deliberate irresponsibility, undermine the 

safe haven status of the United States. The world is a complicated, 

dangerous place; people look to the United States as a safe place 

to keep their reserves, keep their money, but we can throw that out 

the window very, very quickly if irresponsible actions are taken 

around the debt ceiling. 

Mr. KIND. I would also submit that, you know, both sides, both 

political parties need to be a little more realistic in our approach 

to this whole discussion, and not to sound too partisan, but we 

have just come off two national campaigns where my colleagues on 

the other side accused Democrats of taking $700 billion out of 

Medicare and promising to restore that money while at the same 

time promising to increase defense spending by $2 trillion over the 

next 10 years. Those are the two largest spending programs we 

have in the Federal deficit, and that is a $2.7 trillion proposition 

of new spending that they were offering in two national campaigns, 

and now they want to sit back and criticize the President for not 

being realistic in his budget choices? They lose me on that argument. 

But, Mr. Hoagland, you have had a lot of experience and especially with Dr. Frist, and we do understand that the largest and 

fastest growing area of spending is rising healthcare costs. I think 

there is a solution to getting enhanced quality of care but at a better price. We need to change the way we pay for health care in this 

country, so it is value- and outcome-based and no longer volumebased, which fee-for-service brings. Would that help improve the 

fiscal outlook if we can make that conversion to a different payment system? 

Mr. HOAGLAND. Yes, Congressman. I don’t want to scoop my 

bosses. Senator Frist, Senator Daschle, Senator Domenici, and 

Alice Rivlin will be coming out with a report here in the middle of 

March, where we are looking specifically at this question, and one 

of the areas where we are focusing, we have to move away from 

the fee-for-service payment system to a more orderly system and 

move it away, and we believe that in the long run will help control 


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costs overall in the Medicare area, but that also some 50 percent 

of health care is—— 

Mr. KIND. Well, I knew you guys were involved in that work because the Institute of Medicine is doing a comparable report coming out in a couple months. I also appreciated Mr. Brady’s comment, he is going to be the new Chair of the Health Subcommittee, 

about getting away from SGR and moving to a quality-based physician reimbursement system, too. I think that is going to be key to 

the fiscal outlook as well, but there is a lot here we can follow up 

on. 

But, Mr. Chairman, thanks again for this hearing and the feedback here today. Thank you all. 

Chairman CAMP. Mr. Reed is recognized for 5 minutes. 

Mr. REED. Thank you, Mr. Chairman. 

I have been listening to this testimony all afternoon, and I just 

have to say, I am embarrassed to hear some of the comments that 

have been made today about what I believe to be the biggest threat 

to the future security of our country, the security of our country, 

when it comes to our kids and our grandkids, and that is the debt. 

So I am going to ask you, point blank, each and every member of 

this panel, is the present debt path sustainable? Does anybody 

think that it is? 

Mr. HOAGLAND. No. 

Mr. REED. Mr. Casey. 

Mr. CASEY. No. 

Mr. REED. Mr. Foster. 

Mr. FOSTER. No, sir. 

Mr. REED. Mr. Johnson. It is a yes or no question. 

Mr. JOHNSON. No, sir, not over the long term, Congressman. 

Mr. REED. Thank you. Why is it not sustainable? Can each of 

you briefly answer that question? 

Mr. Casey, starting with you. 

Mr. CASEY. Well, frankly, as a layman, there comes a point 

when they start cutting up your credit cards, and we will reach it. 

Mr. REED. Mr. Hoagland. 

Mr. HOAGLAND. And when the rate of growth in terms of payment on the interest of that debt is faster than the rate of growth 

of the economy, then you are, the country is defaulting. 

Mr. REED. Mr. Foster. 

Mr. FOSTER. That is the heart of it, sir, when your interest expenses are growing faster than your income, you are in trouble. 

Mr. REED. Mr. Johnson. 

Mr. JOHNSON. Healthcare costs, Congressman, it is the failure 

to control healthcare costs, as just discussed. 

Mr. REED. So that is the debt, but the debt crisis, why it is not 

sustainable, is eventually the interest on the debt becomes so large 

that you can’t pay that payment, correct? 

Okay, because I have done some calculations on that point, and 

I have looked at, what is our—if our present debt at $16 trillion, 

just close to 3 percent, what is the debt service payment on that 

for our interest costs? Do you guys know that off the top of your 

head? Well, it is $492 billion. Let’s say it goes to 6 percent. Does 

anybody know what that is? 

Mr. FOSTER. Twice. 


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Mr. REED. That is $985 billion. Do you know what that means? 

What are we presently paying on our debt service payment? Do any 

of you know that number off the top of your head? Mr. FOSTER. It is about $250 billion I believe. 

Mr. REED. Yeah, so if you take the difference between the two, it goes up to 6 percent, you have $765 billion of additional need for 

cash payments to service the debt. What do we pay on our national 

defense budgets in an annual year? Mr. HOAGLAND. We pay about $700 billion. 

Mr. REED. So overnight, because that is an annual number, we 

are going to have to find the amount that we pay on our national 

defense lines in our Federal budget, an equivalent amount of dollars to service our debt. Is my understanding correct? Does anyone 

disagree with that math? 

Mr. JOHNSON. You are right, Congressman, but if you have a 

big fight over the debt ceiling, that is going to push up interest 

rates and cause exactly the effect you are worried about. 

Mr. REED. So if we just take care of the debt ceiling, put our 

head in the sand and say, we are never going to worry about the 

debt ceiling, at what point in time does the debt become so large 

that our creditors say, you know what, we are going to charge you 

a little bit more interest, and that interest then goes up to 6 percent on the $16 trillion. Don’t we just get to the same problem that 

you are concerned about in the short term on a long-term approach 

by not dealing with the underlying problem at all? 

Mr. JOHNSON. Congressman, I am totally in favor of dealing 

with the budget, that is the point of the book we wrote called 

‘‘White House Burning,’’ a dramatic enough title I hope, but the 

point is you need a balanced approach, as Mr. Levin said at the beginning, and you have the forces to do it—— 

Mr. REED. Mr. Johnson, if I could, it is my time, it is my time. 

And I have heard the balanced approach now for a year and a half, 

and I heard it today from the panel. There has been $600 billion 

of additional revenue that—as a result of the fiscal cliff negotiations. A balanced approach to me was if you gave revenue, you got 

spending reforms. Has the President offered any spending reforms 

as of yet in regard to that $600 billion of additional revenue? 

Mr. FOSTER. We are hoping to see some in the budget, sir. 

Mr. HOAGLAND. When he, when the President put—when Secretary Geithner put forth his proposal on November 29th, he had 

spending reductions of like $400 billion. 

Mr. REED. So $400 billion in relationship to $600 billion of new 

tax revenue, and the President offered $400 billion in spending 

cuts. 

Mr. HOAGLAND. In fairness, the President proposed $1.6 trillion in revenues for $400 billion in spending cuts. 

Mr. REED. That doesn’t sound too balanced to me, in my opinion. So I will just end with this. It is clear that Admiral Mullen 

had it right; this debt—and I could care less about all the people 

here in Washington, D.C.—I am really concerned about the people 

back at home, my constituents, my kids, my grandkids. This isn’t 

sustainable, and to have this bickering over these issues without 

putting a real concrete proposal in front of the American people to 

say these are the visions of how we deal with this problem, that 


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is why I wholeheartedly support this 3-month extension, and I am 

glad to hear the White House supports it also because at least now 

we will put in black and white hopefully in the Senate and in the 

House a vision to deal with this number one threat to our national 

security. Thank you. 

With that, I yield back. 

Chairman CAMP. Thank you. 

Mr. Pascrell is recognized for 5 minutes. 

Mr. PASCRELL. Three-quarters of the deficit reduction to date 

has been spending cuts, and I would rather err on the side of what 

Roosevelt said in his second inaugural, and that was, ‘‘The test of 

our progress is not whether we add more to the abundance of those 

who have much; it is whether we provide enough for those who 

have too little.’’ He said that in 1937 in the second inaugural. 

I am more concerned about one-fifth of our children living in poverty, and I am more concerned about the guys who are working out 

there—male income compared from 1969 to the present, and what 

do we have? We have people making, males making $1,000 more 

back in 1969. That is what I am concerned about. We have had a 

redistribution of wealth, all right, in this country. It was all upward. It was all upward. Let’s get our facts straight here. 

This storied Committee, Mr. Chairman, is even discussing the 

idea that America will not pay our bills, that we will be a deadbeat 

Nation, as the President said, and that is unbelievable to me. Certain things are unbelievable to you. That is unbelievable to me because if you read Article XIV and Section 4, questioning whether 

or not to pay the public debt may be unconstitutional from this 

body. It is not a long section. It is the public debt. It is right there. 

And about the public debt, it also says—Mr. Foster, you didn’t 

read the whole section. It says, if the House—if the Congress 

doesn’t do it, the Executive must do it. It says that right in the bill. 

Am I not correct? 

Mr. FOSTER. I will leave that to the constitutional scholars. 

Mr. PASCRELL. I will read it to you. 

Mr. FOSTER. Go ahead. 

Mr. CASEY. No, sir, it doesn’t say that, but please read it. 

Mr. PASCRELL. I will. If Congress won’t pay them, then the Executive must. 

Mr. CASEY. In Section 4 of the 14th Amendment. 

Mr. PASCRELL. Well, I am talking about the interpretation of 

Section 4 of Article XIV. 

Mr. CASEY. Okay. 

Mr. PASCRELL. You disagree with that? 

Mr. CASEY. I disagree most wholeheartedly. 

Mr. PASCRELL. So the Executive has nothing to say about the 

debt? 

Mr. CASEY. Well, the Executive has no power to raise the debt, 

certainly. He has an obligation to pay the public debt, which is to 

say pay the amounts of money that have been loaned. 

Mr. PASCRELL. And how is he going to do that if the Congress 

does not give him the ability to do that? That is a little problem, 

isn’t it? 

Mr. CASEY. It is obviously a problem. 


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Mr. PASCRELL. Okay. Well, let me go on here. We are not going 

to default on our obligations and not just to our bondholders, because another thing that we are talking about, which is questionable, is whether we can prioritize the payments to make everybody 

happy. I have heard that here. Go ahead. 

Mr. HOAGLAND. I just want to be clear that I was not proposing prioritization. I was just pointing out the difficulties of prioritization. 

Mr. PASCRELL. So you understand it is questionable under the 

Constitution? 

Mr. HOAGLAND. Yes, sir. 

Mr. PASCRELL. We all saw the economic impact that the last 

debt ceiling had on the economy. The Dow dropped 2,000 points. 

We added $18.9 billion to our deficit just in that time, and for the 

first time in our history, we were downgraded for our credit rating. 

That was all when we didn’t default, either. The mere threat of default and irresponsible discussions of default is what I am talking 

about right now, like the one we are having today, were enough to 

do significant damage to our economy, just the discussion of it. And 

we saw that. 

So let’s give the American people some certainty. We have been 

saying that for the last 2 years. You have heard that. When are 

we going to solve that problem? When we solve this problem. How 

are people going to invest if they don’t really know what is coming 

toward them? So let’s end the talk of default, the irresponsible discussion. Responsibly default, could we responsibly default? Let’s 

get an end to that discussion. Let’s pass a long-term increase in the 

debt ceiling so that the phrase ‘‘backed by the full faith and credit 

of the United States of America’’ continues to mean something, and 

I believe it does mean something to all of you, and thank you for 

coming today. 

Chairman CAMP. Thank you. I would just note for the record 

that this discussion may not be as harmful as we think as the Dow 

S&P 500 just hit a 5-year high today. With that, I will—— 

Mr. PASCRELL. I am sure it is because of our discussion, Mr. 

Chairman. 

Chairman CAMP. Yes, I am sure it will be. 

With that, I would recognize Mr. Young for 5 minutes. 

Mr. YOUNG. Thank you so much, Mr. Chairman. 

I thank all our panelists for being here today. 

It is clear, based on all your testimony, that really the big issue 

here, I think Mr. Hoagland put it most succinctly, the real issue 

is mandatory spending, and, you know, we are entering budget season, what ought to be budget season here in Washington, D.C., and 

I am just curious. First, Dr. Foster, I will start with you. As the 

President submits his budget for fiscal year 2014, what do you anticipate the likelihood is that his request will include any reforms 

of significance to make sustainable Medicare and Social Security in 

that budget request? 

Mr. FOSTER. Well, sir, despite being an economist, I am also an 

optimist, so I am going to say I think he may take the opportunity 

and really choose to lead on this, and until he proves otherwise, 

that is what I am going to believe. 


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Mr. YOUNG. Well, good. I share your hope. I spent a couple of 

years on the Budget Committee before being on this Committee 

and was hopeful then, too, so I think that is the most important 

thing that certainly could be done because it is important that we 

act quickly. There is a cost to waiting, and perhaps, Mr. Hoagland, 

you could discuss the important benefits of acting quickly here, 

coming up with a clear, specific, comprehensible, and comprehensive plan to make these largest unsustainable programs of government sustainable. 

Mr. HOAGLAND. Congressman, I think it is necessary that a 

plan be put together that shows a path toward regaining sustainability in the Medicare program long term and in the Social Security program. The President back in November had proposed about 

$400 billion in spending reductions. I am, like Dr. Foster, I am optimistic he will come forth with that. The proposal here by the Republican leadership was $600 billion. This is over a 10-year period. 

The only comment I would have, Mr. Young, would be that the 

issue of controlling healthcare costs in a 10-year window is difficult. What we really should be looking at is a much longer window because some of the fundamental changes we have to make in 

the healthcare delivery system will take time to implement, such 

as Mr. Ryan’s proposal last year. 

Mr. YOUNG. Well, fair enough, and I supported Mr. Ryan’s proposal last year. I was encouraged that it received some bipartisan 

support. I would hope in the future it might get a bit more. 

But, Mr. Hoagland, to continue with you, the road map, if you 

will, in order to arrive at a spot where we can get concrete ideas 

from Democrat leadership, from the President of the United States 

about how to make these largest programs of government sustainable is through regular order. Could you bring us through that regular order as we have articulated it? 

Mr. HOAGLAND. I am a regular order guy. I have spent my career up here. I believe the power of making legislative decisions 

lies with committees such as this very powerful Committee here, 

and I think it is better that the decisions in terms of what legislation could flow forward come out of the committees. Therefore, that 

is why I believe a budget resolution that is put together that sets 

the broad parameters for how much you are trying to achieve in 

the way of deficit reduction worked through the committees of jurisdiction is the most salient way of achieving a goal and expressing to the American public we really are serious about a fiscal blueprint that puts us on a path of sustainability, and we are lowering 

that level of debt to GDP in the future. 

Mr. YOUNG. It strikes me as an orderly approach, a collaborative approach, one that ought to receive bipartisan support, and 

one that by design is set up to come together with some degree of 

consensus about what our Nation’s priorities are, and then give the 

markets a degree of certainty about what is going to happen in the 

future, allowing us to create more jobs, et cetera. 

Incidentally, this is exactly the approach that the House Republican Conference has taken with respect to the debt limit increase. 

We have tied increasing this debt limit contingent upon the Senate 

finally producing a budget for the first time in several years. It 

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ular among the American people. So I do agree that talk about default is irresponsible to characterize this hearing as about something other than an effort to bring us back into balance and to try 

to get a budget out of the U.S. Senate and a clear budget out of 

the President of the United States. I think it is irresponsible to 

characterize it otherwise. 

And I would just say to Mr. Johnson, I will give you a brief opportunity to respond, sir, that you spoke a great deal about policy 

uncertainty, but really it strikes me the greatest uncertainty longer 

term exists when you have Medicare, Medicaid, and Social Security 

unsustainable and no plan to make them sustainable. 

Chairman CAMP. All right. Mr. Johnson will have to respond to 

that question in writing as time has expired. 

Mr. Davis is recognized for 5 minutes. 

Mr. DAVIS. Thank you very much, Mr. Chairman. 

I certainly want to thank our witnesses for coming. You know, 

it appears to me that as we continue to raise the specter of possible 

default, that we undermine the confidence of our citizenry, and we 

certainly do a disservice to our country. You know, if you are living 

every day with the idea wondering, are we going to be able to make 

it until next week, or are we going to be able to make it for the 

next 3 months, I am not sure that that is the most effective way 

of convincing our citizenry that we are a stable, viable government, 

able to solve its problems, to meet its needs, and bring resolution 

to whatever crisis there might be facing us. 

Dr. Johnson, let me ask you, after the 2011 crisis, we had the 

worst job creation month in 27 months. Why? Why did that occur? 

Mr. JOHNSON. That occurred because of the additional uncertainty created for everyone, including companies that make the hiring decisions about what is going to happen next week or next 

month. This is a classic problem many countries have, but those 

are usually countries much poorer and less well organized than the 

United States. It was in 2001, extraordinary and unbelievable to 

people that we would come so close to default, and it is extraordinary again today that you would put the debt ceiling on the table 

in these negotiations when the last thing you surely want to do is 

get into any of these complicated games about prioritization, nonpayment or this or that creditor or potential default. 

Mr. DAVIS. Let me ask, how do business interests, how does a 

company respond to this short-term kick the can down the road, 

when they have to make decisions about their company, people 

they must hire, or products they must develop? How does the business community respond to that? 

Mr. JOHNSON. They delay decisions; they wait. That is the finding, overwhelming finding, for example, by Baker Bloom and Davis 

but also other people who studied uncertainty, the effects of uncertainty. We don’t know what is going to happen; therefore, we hesitate to make commitments. We are not going to buy that new 

equipment. We are not going to expand. We are not going to hire 

people. Let’s wait and see. And while uncertainty remains elevated 

as it is today, there will be hesitation in hiring and hesitation for 

the overall macroeconomic recovery. 

Mr. DAVIS. It is my position that one of the great needs that we 

have to get out of the economic crisis that we have been facing and 


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creating and wondering about is to create jobs. I mean, it seems 

to me that if more people were working, that that means more people would be paying taxes; they would be putting more money into 

the Treasury. And if jobs are not being created, then I don’t think 

we can just keep dallying around and dallying around and still 

there is no bottom line. How does this impact job creation and 

really provide the kind of assurance that people are going to be 

able to work and contribute significantly to further development of 

our economy? 

Mr. JOHNSON. Job creation is going to be impacted negatively 

by the uncertainty around fiscal policy, particularly any discussion 

of the debt ceiling, any of the debt-ceiling-related points that have 

come up today. Those are negative in terms of increasing uncertainty. Those are going to cause more hesitation in hiring. Those 

are going to slow employment growth below what it would otherwise be. And those are not helpful to the economic recovery or, as 

you say, Congressman, to the budget. 

Mr. DAVIS. So, in essence, we are kind of kidding ourselves 

about being able, without creating jobs, to solve economic problems; 

that just making decisions to shift thoughts and ideas and processes, and at the end of the day, there are still no more people 

working. 

Mr. JOHNSON. You need an economic recovery, Congressman, 

for everything else that you want to do. And that requires jobs to 

come back to where they were. We are still at least 3 percent below 

peak employment pre-financial crisis. This is the longest, worst recession in American history since the 1930s. 

Mr. DAVIS. Thank you very much. 

And thank you, Mr. Chairman. 

Chairman CAMP. Thank you, Mr. Davis. 

Mr. Griffin is recognized for 5 minutes. 

Mr. GRIFFIN. Thank you, Mr. Chairman. 

Thank you all for testifying today. I want to be really clear as 

well. I haven’t heard any talk on this side of the aisle about default, wanting to default, using default as leverage. That is a straw 

man. The only people I have really heard a lot about default from 

are on the other side of the aisle. So I just want to make that abundantly clear. 

And it reminds me of what now Majority Leader Reid said back 

in 2006. He is the one that was talking about default. He said, 

‘‘Americans know that increasing debt is the last thing we should 

be doing. After all, I repeat, the Baby Boomers are about to retire. 

Under the circumstances, any credible economist would tell you we 

should be reducing debt, not increasing it. Democrats won’t be 

making argument to support this legislation, which will weaken 

our country, weaken our country. We are being asked to do what 

shouldn’t be asked of us, to increase the debt to almost $9 trillion.’’ 

So there is a lot of politics going on here. And what I would like 

to do—and most of the questions I had to ask have been asked. So 

I would like to just go over a couple of things to clarify. We have 

heard a lot of talk about the Bush tax cuts and the wars adding 

to our debt. And I was looking here at revenue as a percentage of 

GDP. And it is interesting that in the mid-1990s, when taxes were 

higher—1995, for example—revenue as a percentage of GDP was 


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18.4 percent. During the Bush years, in 2007, after the economy recovered from 9/11, it was 18.5 percent. So the idea that revenue 

dipped significantly during the Bush years because of tax cuts is 

just not true. Sure, it went down after 9/11. 

I didn’t see 9/11 labeled on this chart, Mr. Johnson. 

But I think that that is a critical part of the equation. 

The other thing that I would point out, a key change—and Majority Leader Reid referred to it—the key change has been demographics. We all agree we have spent too much in Congress, a lot 

of it long before I got here. But the issue now is not who spent too 

much. The issue now is, who is willing to fix the problem and who 

is not? That is ultimately the issue. 

And we have heard a lot about a balanced approach, and we just 

had an agreement here in the House, in the Congress, that raised 

taxes. 

Now, from my calculations, before the taxes that were raised on 

the American people recently—a few weeks ago—we had a deficit 

of about $1 trillion. After those tax increases, we have a deficit of 

about $1 trillion. Does anyone disagree with that? 

Mr. Casey, do you agree that it had no significant impact on our 

deficit? 

Mr. CASEY. I agree. 

Mr. GRIFFIN. Mr. Hoagland. 

Mr. HOAGLAND. I agree that the deficit for fiscal year 2013 will still be about $1 trillion. 

Mr. GRIFFIN. Even after the tax increases? 

Mr. HOAGLAND. Yes. But of course those tax increases phase 

in over a longer period of time. Mr. GRIFFIN. If you take $60 billion a year and subtract it from a little over $1 trillion, you are still right at $1 trillion. Correct, 

Mr. Foster? 

Mr. FOSTER. That is the simple math, sir. 

Mr. GRIFFIN. And Mr. Johnson. 

Mr. JOHNSON. No, Congressman. Look, the way that you have 

discussed the budget and the way you argue about the budget 

is over a 10-year timeframe. Those were insufficient, I agree, to 

completely address the budget issue. I supported larger, stronger 

strengthening of revenue—not immediately, though. Phasing it in 

over time is the right way to do it. You don’t want to shock the 

economy too much. Phasing it in over 10, 15 years. 

Mr. GRIFFIN. I am running out of time. The bottom line is, I 

understand you look at things over 10 years. And we all know that 

in 10 years, there is no control over what is going to be spent and 

what is going to be coming in. But the bottom line is, the tax increases we got with no cuts did nothing to impact the deficit of any 

significance—it is still about $1 trillion. You could say it is $910 

billion. Okay. It is still about $1 trillion. The bottom line is, we still 

are about $1 trillion in the red every single year. And I will be 

waiting with optimism to see the President’s budget. 

Again, thank you all for coming today. And I yield back. 

Chairman CAMP. Mr. Hoagland, in your 33-plus years of dealing 

with budget issues in the Senate on the Senate Budget Committee 

and in other areas, have you ever known in the history of our country of four successive years of trillion-dollar deficits? 


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Mr. HOAGLAND. No, sir. 

Chairman CAMP. So it is an unprecedented position we are in, 

in terms of the annual deficits? 

Mr. HOAGLAND. I never thought I would see trillion-dollar deficits. 

Chairman CAMP. And the debt—and I tend to use gross debt as 

a percentage of GDP. 

Have you ever seen the gross debt as a percentage of GDP at the 

level that we are seeing right now? 

Mr. HOAGLAND. Only after World War II. But then we owed it 

to ourselves, and we brought it down rather substantially there. 

Chairman CAMP. So since World War II, the level of GDP—— 

Mr. HOAGLAND. Has averaged about 40 percent. 

Chairman CAMP. Okay. And I was on the President’s fiscal commission. And at that time, it was about 90 percent. Now it is over 

100 if you look at gross debt. And we had a presentation there by 

doctors—it was by Drs. Carmen Reinhart and Kenneth Rogoth— 

who indicated that a country’s economic growth would—and I am 

using their words—deteriorate markedly when its debt-to-GDP 

ratio was above 90. And obviously, we are at that point now. 

Mr. HOAGLAND. Correct. 

Chairman CAMP. What impact do you believe that will have on 

the economic growth and job creation in the United States in the 

future? 

Mr. HOAGLAND. I believe, again, that has a very negative impact upon the growth of this country going forward in terms of our 

credit rating around the world, in terms of our economic growth 

pattern will be negatively affected by that level of debt to GDP. 

While it is not a good example, all we have to do is look at what 

is happening in Europe and see the consequences that that has had 

over there. 

Chairman CAMP. We recently got a Fitch ratings report. And I 

am quoting from their report that said, ‘‘In the absence of an 

agreed and credible medium-term deficit reduction plan that would 

be consistent with sustaining the economic recovery and restoring 

confidence in the long-run sustainability of the U.S. public finances, the current negative outlook on the AAA rating is likely to 

be resolved with a downgrade later this year, even if another debtceiling crisis is averted.’’ 

How do you think the financial markets and the broader economy would react if Congress simply increased the debt limit and 

there was no credible commitment to addressing the current fiscal 

situation, as we have just discussed? 

Mr. HOAGLAND. Mr. Chairman, I think that the debt limit bill 

does not control or limit the ability of the Federal Government to 

run deficits or incur obligations. But I do believe there is a limit 

on our ability to pay obligations. So I think that while this is not 

the perfect solution, at least you do have the opportunity here by— 

if you simply raised it without some form of a process, which I hope 

would come about through going back to regular order, I think that 

would be looked upon very favorably. But if you simply raised it 

with no process involved, I think that would be looked upon negatively by the market. 

Chairman CAMP. All right. 


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Dr. Foster, any comment on that? 

Mr. FOSTER. I think that is exactly right. The markets are looking. They understand something of Washington and how Washington works. They understand there are only a few moments in 

a given year or 2- or 4-year period in which we have a forcing moment, a time when Congress must actually do something. And the 

critical value of the debt limit and the debate around the debt limit 

that is a simple enough issue that the American people can understand it. The budget is complicated. They don’t understand the 

budget. They do understand debt. They have debt. They understand. They don’t understand trillions. But the concept, they get. 

The second value is that it is a forcing moment. It forces Congress to act when the regular order of the budget process has 

failed. Mr. Hoagland talked about this—and I completely agree 

with him regarding the importance of the regular order. But Congress has a regular habit of ignoring the regular order. This is a 

forcing moment, and it is a critical time to take action. 

Chairman CAMP. And Mr. Hoagland, again, given your experience on budget, we have had other short-term extensions of the 

debt limit in the history of this country, have we not? 

Mr. HOAGLAND. Yes, we have a number of times. Looking it 

up, I think it was at least—in my career up here, we have had it 

at least seven or eight times, we have had a short-term limited increase. 

Chairman CAMP. And we have also had extensions of the debt 

limit that have had policy reforms attached to them as well, have 

we not? 

Mr. HOAGLAND. Oh, I think the most important one—I said my 

first experience here was with the 1985 Gramm-Rudman-Hollings 

Act, which was tied to debt limit increase because we were going 

over $2 trillion. 

Chairman CAMP. So when the President and many Democrats 

call for a so-called clean increase in the debt ceiling, which they 

mean has no other reforms or other proposals attached to that or 

changes in spending behavior, how do you see the path forward? 

And what should advocates of lower spending expect from the Administration? Or other budget reforms that might be attached with 

it? You mentioned Gramm-Rudman-Hollings. And I would like you 

to comment and then Dr. Foster. 

Mr. HOAGLAND. As I say, I don’t think the debt limit bill, per 

se, it controls spending. It controls—it is a limit. But I do think 

that there are other tools. And they are not pretty. But you do have 

a sequester. I would certainly argue—and this is just myself speaking, not BPC—that you would look at the sequester as something 

that really does reduce spending. And I would also argue that one 

thing to do there would be to modify the sequester so that it actually does affect more than just the discretionary portion of the 

budget and maybe, and with some trepidation, also tax expenditures. 

Chairman CAMP. All right. Dr. Foster. 

Mr. FOSTER. Yes, sir. As I mentioned, the debt limit is a forcing 

moment. And one of the things it can force is a shift in budget 

processes to make them more effective, to get Congress to take acVerDate Sep 11 2014 06:20 Feb 06, 2017 Jkt 021129 PO 00000 Frm 00093 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\21129\21129.XXX 21129

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tions that it might not otherwise take under the regular order as 

it then stands, Gramm-Rudman-Hollings being the great example. 

One of the things we should be looking for in this current debate 

is, how do we tighten up, make more rigorous the budget process 

regular order so Congress takes it seriously and then puts forward 

the kinds of resolutions and reconciliation bills that Mr. Hoagland 

was talking about? 

Chairman CAMP. Thank you. 

And Mr. Casey, I just want to clarify this point before we adjourn. The Constitution grants Congress the sole authority over fiscal powers to tax, spend, and borrow; is that correct? 

Mr. CASEY. Absolutely correct. 

Chairman CAMP. And because the power resides in Congress, 

the debt limit is not actually a limitation on the Executive’s power 

to borrow; is that correct? It is the statute that contains the debt 

ceiling is actually a grant of authority to the President. 

Mr. CASEY. It certainly can be read that way. I mean, it is a 

limit on the amount that Congress is permitting the Executive to 

borrow. 

Chairman CAMP. But it would be authority he would not otherwise have—— 

Mr. CASEY. Absolutely. Absolutely. Without it, he cannot borrow 

a nickel. 

Chairman CAMP. So when that authority runs out, it is actually 

the Constitution of the United States that is preventing the President from attempting to borrow on the credit of the United States? 

Mr. CASEY. Yes. 

Chairman CAMP. All right. Thank you. 

I want to thank all of our witnesses and certainly the Members 

for participating in this hearing today. 

And with that, this hearing is now adjourned. 

[Whereupon, at 4:36 p.m., the Committee was adjourned.] 

[Submission for the Record follows:] 


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