U.S. GOVERNMENT PUBLISHING OFFICE

35–565 WASHINGTON : 2019

THE CONGRESSIONAL BUDGET OFFICE’S 

BUDGET AND ECONOMIC OUTLOOK 

HEARING 

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED SIXTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD IN WASHINGTON, D.C., JANUARY 29, 2019 

Serial No. 116–1 

Printed for the use of the Committee on the Budget 

( 

Available on the Internet: 

www.govinfo.gov 

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(II) 

COMMITTEE ON THE BUDGET 

JOHN A. YARMUTH, Kentucky, Chairman 

SETH MOULTON, Massachusetts, 

Vice Chairman 

HAKEEM JEFFRIES, New York 

BRIAN HIGGINS, New York 

BRENDAN BOYLE, Pennsylvania 

RO KHANNA, California 

ROSA L. DELAURO, Connecticut 

LLOYD DOGGETT, Texas 

DAVID PRICE, North Carolina 

JAN SCHAKOWSKY, Illinois 

DANIEL KILDEE, Michigan 

JIMMY PANETTA, California 

JOSEPH MORELLE, New York 

STEVEN HORSFORD, Nevada 

ROBERT C. SCOTT, Virginia 

SHEILA JACKSON LEE, Texas 

BARBARA LEE, California 

PRAMILA JAYAPAL, Washington 

ILHAN OMAR, Minnesota 

ALBIO SIRES, New Jersey 

SCOTT PETERS, California 

JIM COOPER, Tennessee 

STEVE WOMACK, Arkansas, 

Ranking Minority Member 

ROB WOODALL, Georgia 

BILL JOHNSON, Ohio, 

Vice Ranking Minority Member 

JASON SMITH, Missouri 

BILL FLORES, Texas 

GEORGE HOLDING, North Carolina 

CHRIS STEWART, Utah 

RALPH NORMAN, South Carolina 

CHIP ROY, Texas 

DANIEL MEUSER, Pennsylvania 

WILLIAM TIMMONS, South Carolina 

DAN CRENSHAW, Texas 

KEVIN HERN, Oklahoma 

TIM BURCHETT, Tennessee 

PROFESSIONAL STAFF

ELLEN BALIS, Staff Director 

DAN KENIRY, Minority Staff Director 

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CONTENTS 

Page 

Hearing held in Washington D.C., January 29, 2019 ........................................... 1 

Hon. John A. Yarmuth, Chairman, Committee on the Budget .................... 1 

Prepared statement of ............................................................................... 4 

Hon. Steve Womack, Ranking Member, Committee on the Budget ............. 8 

Prepared statement of ............................................................................... 9 

Keith Hall, Ph.D., Director, Congressional Budget Office ............................ 11 

Prepared statement of ............................................................................... 13 

Visual Summary submitted for the record .............................................. 18 

Hon. Janice D. Schakowsky, Member, Committee on the Budget, letter 

and response submitted for the record ........................................................ 34 

Hon. Robert C. Scott, Member, Committee on the Budget, fact sheet 

submitted for the record ............................................................................... 66 

Hon. Chip Roy, Member, Committee on the Budget, question submitted 

for the record ................................................................................................. 68 

Hon. Janice D. Schakowsky, Member, Committee on the Budget, questions submitted for the record ..................................................................... 69 

Answers to questions submitted for the record .............................................. 70 

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(1) 

THE CONGRESSIONAL BUDGET OFFICE’S 

BUDGET AND ECONOMIC OUTLOOK 

TUESDAY, JANUARY 29, 2019 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE BUDGET, 

Washington, D.C. 

The committee met, pursuant to call, at 9:45 a.m., in Room 1334, 

Longworth House Office Building, Hon. John Yarmuth [Chairman 

of the Committee] presiding. 

Present: Representatives Yarmuth, Higgins, Khanna, DeLauro, 

Doggett, Price, Schakowsky, Kildee, Morelle, Scott, Jayapal, Omar, 

Lee, Boyle, Horsford, Womack, Johnson, Holding, Stewart, Norman, Roy, Meuser, Timmons, Crenshaw, Hern, Burchett, Woodall, 

and Smith. 

Chairman YARMUTH. So we will now proceed immediately to the 

CBO budget. We are going to now proceed immediately to the CBO 

Budget and Economic Outlook hearing. We invite Dr. Hall to join 

us at the witness table. Welcome, Dr. Hall. 

I now yield myself 5 minutes for the opening statement. Oh, yes. 

I’ve gotten to use the gavel. The hearing will come to order. Once 

again, welcome, Director Hall. Thank you for joining us today and 

for all of the work you and everyone at CBO has done to update 

the baseline and economic outlook that will help guide our work 

this year. Since today was supposed to be the original day of the 

President’s State of the Union address, let’s start by acknowledging 

what should be obvious: The State of our Union is unsustainable. 

Deficit projections over the next decade are unrivaled by any time 

in our Nation’s history, save for World War II and the immediate 

aftermath of the Great Recession. Only this time, we weren’t responding to an emergency; we created one. We are not in this situation because we were forced to make a tough choice to save the 

American people. 

No, we are facing this bleak fiscal reality because this President, 

and the so-called fiscal conservatives in his party, chose to squander our Nation’s wealth and solvency, to exacerbate record income 

inequality, to take resources from those in need so they could bolster the already wealthy with reckless tax cuts for millionaires and 

multinational corporations. 

Director Hall, you project a deficit this year that is $118 billion 

higher than last year. Average deficits over the next decade are 

projected to rise. The national debt is expected to reach 93 percent 

of GDP by 2029 before rising to an unprecedented 150 percent of 

GDP in 2049. This is despite the fact that the economy is underBU00-A363290 with DISTILLER

2 

going the second longest expansion on record, 114 months of economic growth since 2009. 

Beginning under President Obama, we have had 99 months of 

uninterrupted job creation with unemployment falling to historic 

lows. But despite all this good news, our fiscal future is getting 

darker, not brighter, and the reason is clear. 

Just over a year ago, Congress passed a tax bill that showered 

the bulk of its benefits on corporations and the wealthy. My Republican colleagues didn’t mind that our economy was healthy and the 

wealthy were doing just fine. They promised these tax cuts would 

trickle down to everyone else, unleashing miraculous economic 

growth and long overdue raises for workers. Even better, we would 

get all of this for free. The reality: a burst of welcome, but very 

brief economic growth, followed by greater income inequality, and 

exploding deficits. 

This outcome was not a surprise. Republicans have cut taxes and 

sent deficits soaring time and time again. But this time around, 

they hit a new record. Corporations took the tax cuts handed to 

them and bought back more than $1 trillion worth of their own 

stock. Not $1 trillion worth of worker bonuses, or $1 trillion for 

raises when wages have been stagnant for decades, not even $1 

trillion of new investment to expand business operations. 

In last year’s report, CBO put the cost of the tax law at $1.9 trillion over 10 years even after accounting for macroeconomic effects. 

Those numbers indicated that had we not passed it, the deficit outlook would have improved considerably, and the economy would 

likely be stronger. In fact, your report, Director Hall, confirmed 

that the tax cuts will reduce our economic growth rates by the end 

of the decade. This new forecast further confirms that inescapable 

reality. 

And we know how this story continues. My friends on the other 

side of the aisle will point to Social Security, Medicare and Medicaid as the culprits of the deficit. They will call for deep cuts to 

these and other vital programs in order to reduce the deficit they 

exploded. They will call for a balanced budget and ignore the role 

their tax cuts played in damaging the fiscal outlook. 

Make no mistake: as this and previous CBO reports have 

warned, we face serious challenges, serious fiscal challenges going 

forward. From caring for an aging population to mitigating the financial costs of a warming climate, to making the investments we 

need to compete in a global economy and help American families 

succeed, the Federal budget will be increasingly strained. 

These are the real problems that demand real solutions, and they 

will require a fair and responsible approach that includes revenue, 

that tackles the causes of high healthcare costs, and that improves 

efficiency of Federal spending without harming seniors’ retirement 

security or imposing more burdens on struggling families. 

Returning us to a sustainable fiscal trajectory will require smarter use of the Nation’s fiscal resources, and that is what I hope to 

do this year as Chairman of the Committee. I want our committee 

to help shine a bright spotlight on the reality of the situation we 

face, to fully vet the choices we have, and then set the stage to 

make the most responsible decisions as a Congress. 

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3 

Director Hall, thank you for helping us begin that conversation. 

I look forward to hearing your testimony, and I now yield to the 

Ranking Member for his opening statement. 

[The prepared statement of Chairman Yarmuth follows:] 

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Yarmuth Opening Statement 

The Congressional Budget Office's Budget and 

Economic Outlook 

January 29, 2019 

Welcome Director Hall. Thank you for joining us today, and 

for all of the work you and everyone at CBO has done to 

update the baseline and economic outlook that will help guide 

our work this year. 

Since today was supposed to be the original day of the 

president's State of the Union address, let's start by 

acknowledging what should be obvious. The State of our 

Union is unsustainable. Deficit projections over the next 

decade are unrivaled by any time in our nation's history save 

for World War II and the immediate aftermath of the Great 

Recession. Only this time, we weren't responding to an 

emergency, we created one. We're not in this situation 

because we were forced to make a tough choice to save the 

American people, no. We're facing this bleak fiscal reality 

because this president and the so-called fiscal conservatives in 

his party chose to squander our nation's wealth and solvency, 

to exacerbate record income inequality, to take resources from 

those in need so they could bolster the already wealthy with 

reckless tax cuts for millionaires and multinational 

corporations. 
5 

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Director Hall, you project a deficit this year that is $118 billion 

higher than last year. Average deficits over the next decade 

are projected to rise. The national debt is expected to reach 93 

percent ofGDP by 2029, before rising to an unprecedented 

150 percent ofGDP in 2049. 

This is despite the fact that the economy is undergoing the 

second-longest expansion on record- 114 months of economic 

growth since 2009. Beginning under President Obama, we 

have had 99 months ofuninterruptedjob creation, with 

unemployment falling to historic lows. But despite all this 

good news, our fiscal future is getting darker, not brighter -

and the reason is clear. 

Just over a year ago, Congress passed a tax bill that showered 

the bulk of its benefits on corporations and the wealthy. My 

Republican colleagues didn't mind that our economy was 

healthy, and the wealthy were doing just fine. They promised 

these tax cuts would trickle down to everyone else, unleashing 

miraculous economic growth and long-overdue raises for 

workers. Even better: we would get all of this for free. 

The reality. A burst of welcome- but very brief economic 

growth. Followed by greater income inequality, and exploding 

deficits. 

This outcome was not a surprise. Republicans have cut taxes 

and sent deficits soaring time and time again. But this time 

around, they hit a new record. Corporations took the tax cuts 

handed to them and bought back more than $1 trillion worth of 
6 

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their own stock. Not a trillion dollars worth of worker 

bonuses, or a trillion dollars for raises when wages that have 

been stagnant for decades. Not even a trillion dollars of new 

investment to expand business operations. 

In last year's report, CBO put the cost of the tax law at $1.9 

trillion over 1 0 years - even after accounting for 

macroeconomic effects. Those numbers indicated that had we 

not passed it, the deficit outlook would have improved 

considerably. And the economy would likely be stronger. In 

fact, your report confirmed that the tax cuts will reduce our 

economic growth rates by the end of the decade. This new 

forecast further confirms that inescapable reality. 

And we know how this story continues. My friends on the 

other side of the aisle will point to Social Security, Medicare, 

and Medicaid as the culprits of the deficit. They will call for 

deep cuts to these and other vital programs in order to reduce 

the deficit they exploded. They will call for a balanced budget 

and ignore the role their tax cuts played in damaging the fiscal 

outlook. 

Make no mistake: As this, and previous, CBO reports have 

warned, we face serious fiscal challenges going forward. 

From caring for an aging population to mitigating the financial 

costs of a warming climate, to making the investments we 

need to compete in a global economy and help American 

families succeed, the federal budget will be increasingly 

strained. These are real problems that demand real solutions. 

And they will require a fair and responsible approach that 
7 

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includes revenue, that tackles the causes of high health care 

costs, and that improves efficiency of federal spending without 

harming seniors' retirement security or imposing more 

burdens on struggling families. 

Returning us to a sustainable fiscal trajectory will require 

smarter use of the nation's fiscal resources and that is what I 

hope to do this year as Chairman of this Committee. I want 

our Committee to help shine a bright spotlight on the reality of 

the situation we face, to fully vet the choices we have and then 

set the stage to make the most responsible decisions as a 

Congress. 

Director Hall, thank you for helping us begin that 

conversation. I look forward to hearing your testimony. 
8 

Mr. WOMACK. I thank the gentleman. Good morning, and thanks 

to everyone for being here as we discuss the CBO’s annual budget 

and economic outlook report. The goal of today’s hearing is to analyze the CBO’s latest baseline projections. These findings shed light 

on our Nation’s current fiscal challenges and guide us in mapping 

out a sustainable path for the future. This year’s baseline brings 

daunting news with deficits projected to be $1.37 trillion by 2029 

and debt reaching almost $34 trillion. While these numbers paint 

a sobering picture, it does not have to be America’s future. Without 

question, we must create a new path forward. 

Mandatory spending is clearly driving up deficits and debt. Our 

Nation’s fiscal trajectory will remain unchanged if we don’t address 

this sobering fact. And this is not only my deduction. CBO has stated in the past that revenue alone will not solve this problem. 

In his testimony last year, Director Hall said that increases in 

entitlement spending are the largest drivers of the increase in the 

deficit going forward. Unfortunately, it seems that my colleagues 

on the other side of the aisle don’t recognize the severity of this 

problem, or if they do, I haven’t seen their plan to fix it. 

So my question is pretty simple: What is your plan? I am curious 

to learn how can you reconcile your desire for astronomical spending increases with a need to address the issue of our ballooning national debt. Medicare for all, free college, and other initiatives touted by my Democratic colleagues will exacerbate our Nation’s fiscal 

problems. 

Rather than encouraging spending that will financially drive our 

country to the ground, Congress needs to face mandatory spending 

head on. Here is the reality: Our largest entitlement programs are 

facing insolvency. If we do nothing, they go under. Let me say that 

again. If we do nothing, if we maintain the status quo, they fail. 

Now instead of fixing these programs, the new majority wants to 

expand them. This is irresponsible. We are facing a sovereign debt 

crisis that we know is coming. So again I ask, what is your plan? 

I assume it is to raise taxes. I have heard some would like to raise 

individual rates to 70 percent, possibly increase the corporate rate 

from 21 to 28 percent. Is that the plan, to drastically increase taxes 

to pay for out-of-control spending? Let me be clear, we cannot tax 

our way out of this problem. 

Again, as CBO previously outlined, the biggest budget challenges 

lie in mandatory spending. If we don’t address these drivers of 

debt, our march towards fiscal insolvency will not stop. My guess 

is that Director Hall will reiterate this point in this morning’s 

hearing, as well as the fact that revenue isn’t the solution. We need 

to work together to confront our growing debt burden and mandatory spending issues. 

So I ask one last time, do you think the deficit and debt projection released by the CBO is concerning? If you do, and I hope you 

do, what is your plan to address these issues? 

We have a moral obligation to future generations to get our fiscal 

house in order. I hope all committee members agree with that. I 

look forward to productive conversations today with Dr. Hall and 

my colleagues. Thank you, and with that, I yield back to the distinguished Chairman. 

[The prepared statement of Steve Womack follows:] 

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Ranking Member Womack Opening Remarks for 

CBO Budget and Economic Outlook Hearing 

Remarks As Prepared For Delivery: 

Good morning, and thank you to everyone for being here as we discuss the 

Congressional Budget Office's annual Budget and Economic Outlook Report. The goal of 

today's hearing is to analyze the CBO's latest baseline projections. These findings shed 

light on our nation's current fiscal challenges and guide us in mapping out a sustainable 

path for the future. 

This year's baseline brings daunting news, with deficits projected to be 1.37 trillion 

dollars by 2029, and debt reaching 33.7 trillion dollars. While these numbers paint a 

sobering picture, it does not have to be America's future. Without question, we must 

create a new path forward. 

Mandatory spending is clearly driving up deficits and debt. Our nation's fiscal trajectory 

will remain unchanged if we don't address this fact. This is not only my deduction. CBO 

has stated in the past that revenue alone will not solve this problem. In his testimony 

last year, Director Hall said that increases in entitlement spending are the largest 

drivers of the increase in the deficit going forward. Unfortunately, it seems that my 

colleagues on the other side of the aisle don't recognize the severity of this problem --

or if they do, I haven't seen their plan to fix it. 

So my question is, what is your plan? 

I'm curious to learn, how can you reconcile your desire for astronomical spending 

increases with the need to address the issue of our ballooning national debt? Medicarefor-All, "free college" and other initiatives touted by my Democratic colleagues will 

exacerbate our nation's fiscal problems. Rather than encouraging spending that will 

financially drive our country to the ground, Congress needs to face mandatory spending 

head on. 

Here is the reality: Our largest entitlement programs are facing insolvency. If we do 

nothing they will go under. Now, instead of fixing these programs, the new majority 

wants to expand them. This is irresponsible. We are facing a sovereign debt crisis - we 

know it's coming. 

So again I ask, what is your plan? 

I assume it is to raise taxes. I've heard some would like to raise individual rates to 70% 

and possibly increase the corporate rate from 21% to 28%. Is that the plan? To 

drastically increase taxes to pay for out-of-control spending? Let me be clear, we 

cannot tax our way out of this problem. Again, as CBO previously outlined -- the biggest 
10 

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budget challenges lie in mandatory spending. If we don't address these drivers of debt, 

our march towards fiscal insolvency won't stop. My guess is that Director Hall will 

reiterate this point, as well as the fact that revenue isn't the solution. 

We need to work together to confront our growing debt burden and mandatory 

spending issues. So I ask one last time, do you think the deficit and debt projection 

released by the CBO is concerning? If you do -which I hope you do -what is your plan 

to address these issues? 

We have a moral obligation to future generations to get our fiscal house in order. I 

hope all committee members agree with that. I look forward to productive 

conversations today with Dr. Hall and my colleagues. Thank you, and with that, I yield 

back to Chairman Yarmuth. 

### 
11 

Chairman YARMUTH. Thank you, Mr. Womack. And now it is my 

great honor to formally introduce, once again, Director Keith Hall 

of CBO. And, Director Hall, the floor is yours. You are recognized 

for 5 minutes. 

STATEMENT OF KEITH HALL, PH.D., DIRECTOR, 

CONGRESSIONAL BUDGET OFFICE 

Mr. HALL. Thank you. Chairman Yarmuth, Ranking Member 

Womack, and members of the committee, thank you for inviting me 

to testify about the Congressional Budget Office’s most recent analysis of the outlook for the budget and the economy. 

I would like to draw your attention to important information in 

that report about the amount of debt that the Federal Government 

will incur if we continue on the current budgetary path. I want to 

focus on four questions. 

The first question: What does CBO project? Let me highlight a 

few key numbers. At the end of 2018, the amount of debt held by 

the public was equal to 78 percent of gross domestic product. In 

CBO’s projections, debt equals 93 percent of GDP by 2029, and 

about 150 percent of GDP in 30 years. Even at its highest point 

ever, just after World War II, debt was far less than that, at just 

106 percent of GDP. 

Second question: Why does debt become so large in CBO’s projections? I hopefully—we used something new this time. You can see 

the answer in the summary of the report. We have given you a 

handout that has a visual summary. Hopefully you have got that 

in front of you. I am going to refer to a couple of pictures. I apologize if you don’t have it, or I apologize for it being difficult to see. 

This year, we summarized it in some charts to try to be helpful. 

The figure on the bottom of the first page indicates why debt is 

growing. Federal spending and revenues both grow through 2029, 

yet the gap between them persists. 

Third question: What would happen if the economy grew more 

quickly? If GDP grew more quickly than it does in CBO’s projections, revenues will increase more than spending would, and deficits would be smaller than projected. If economic growth was fast 

enough, deficits could actually shrink and debt could stabilize, or 

even fall as a percentage of GDP rather than continuing to grow. 

But such an outcome is unlikely. 

In 2018, the real growth rate of the economy, that is growth with 

the effects of inflation removed, was 3.1 percent, the highest rate 

since 2005. Nevertheless, the deficit equaled 3.8 percent of GDP, 

and debt increased as a percentage of GDP. Furthermore, this year, 

the boost that recent tax legislation gave to business investment 

wanes in CBO’s projections. Also, Federal purchases dropped 

sharply under current law starting in the fourth quarter of the 

year. As a result, economic growth is projected to slow in 2019. 

Over the longer term, output growth is projected to be lower than 

its long-term historical average because the working age population 

is expected to grow more slowly than it did in the past. Real GDP 

grows by an average of 1.8 percent per year in CBO’s 10-year projection. In short, the economy isn’t likely to grow quickly enough 

to shrink the budget deficit. 

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12 

We have posted an interactive workbook on our website that lets 

you specify different economic scenarios and see the results. For example, if productivity growth turned out to be half a percentage 

point higher in every year than CBO projects, real GDP would 

grow by 2.4 percent per year over the coming decade instead of 1.8 

percent. Deficits would average 3.7 percent of GDP instead of 4.4 

percent of GDP, and debt would stabilize at roughly 80 percent of 

GDP by 2029. Such economic growth is possible, but it is not likely 

under current law in our assessment. 

CBO aims for its projections to be in the middle of the potential 

outcomes, so there is about the same chance that productivity 

growth could turn out to be half a percentage point lower than our 

projection. If that happens, real GDP growth could average 1.1 percent over the decade and average deficits would be 5.2 percent of 

GDP. Debt would swell even more than it does in our current projections. 

Fourth question: What are the consequences of high and rising 

debt? If debt rose to the amounts that CBO projects, there would 

be troubling consequences. 

First, as interest rates continue to rise towards levels more typical than today’s, Federal spending on interest payments would increase, surpassing the entire amount of defense spending by 2025 

in our projections, for example. 

Second, because Federal borrowing reduces national savings over 

time, the Nation’s capital stock would ultimately be smaller and 

productivity and total wages would be lower than would be the 

case if debt were smaller. 

Third, lawmakers would have less flexibility than otherwise to 

use tax-and-spend policies to respond to unexpected challenges. 

And fourth, the likelihood of a fiscal crisis in the United States 

would increase. 

In closing, I will emphasize that debt is on an unsustainable 

course in CBO’s projections. To put it on a sustainable one, lawmakers will have to make significant changes to tax and spending 

policies. 

I am happy to answer your questions. 

[The prepared statement of Keith Hall follows:] 

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Testimony 

The Budget and Economic Outlook: 

2019to 2029 

Keith Hall 

Director 

Before the 

Committee on the Budget 

United States House of Representatives 

january 29, 2019 
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Chairman Yarmuth, Ranking Member Womack, and 

Members of the Committee, thank you for inviting me 

to testifY about the Congressional Budget Office's most 

recent analysis of the outlook lor the budget and the 

economy, which we released yesterday. 111is testimony 

includes infOrmation about that report and answers to 

some related questions. 

Information About the Report 

TOday I'd like to draw your attention to important 

information in our report about the amount of debt 

that the federal government will incur if we continue on 

the current budgetary path. I'm going to focus on fOur 

questions. 

What Does CBO Project? 

Federal debr is already large, and budget deficits over the 

next decade and beyond arc projected to keep pushing 

it up in relation to the size of the economy. Eventually, 

debr as a share of economic output would reach its highest level in our nation's history. Let me highlight a few 

key numbcrs: 

• At the end of 2018, the amount of debt held by the 

public was equal to 78 ptTcent of gross domestic 

product (GOP). 

• In CBO's projections, debt equals 93 percent of GOP 

by 2029 and about !50 percent of GOP by 2049. 

• Even at its highest point ever, just after World War II, 

debt was frr less than that: !06 percent ofGDP 

Why Does Debt Become So I.arge in CBO's Projections? 

You can sec the answer in rhc summary of the report. 

This year we've summarized our findings in a new way, 

using the charts in the report tO illustrate some key 

messages. lhe figure on the bottom of the first page of 

the handout in front of you indicates why debt grows: 

Federal spending and revenues both grow through 2029, 

yet the gap between them persists. 

On the spending side, growth is driven by benefits for 

older people and by interest costs. 

• Outlays ti:1r Social Security and Medicare increase 

significantly in CBO's baseline projections. As members of the baby-boom generation age, the number 

of people at least 65 years old-who arc rhc main 

beneficiaries of that spending-is expected to grow 

by about one-third, and their health care costs will 

continue to rise. 

• Interest costs are also projected to rise, primarily 

because of increases in federal borrowing and higher 

interest rates. 

As tOr revenues, they roo arc projected to increase 

through 2029, partly because of the scheduled expiration of some tax cuts at the end of202S. However, that 

growth in revenues is not enough to keep deficits from 

being significantly larger than they have been over the 

past 50 years. 

In CBO's projections, the average deficit ovt·r the next 

10 years equals 4.4 percent of GOP. 1hat average deficit 

is not only large but also unusual for times oflow 

unemployment~~in contrast ro times of high unemployment, when the government sometimes implements 

policies aiming to stabilize the economy, causing deficits 

robe larger. 

What Would Happen If the Economy 

Grew More Quickly? 

If GOP grew more quickly than it docs in CBO's projections, revenucs would increase more than spending 

would, and deficits would be smaller than projected. If 

economic growth was f..tst enough, deficits could acmally 

shrink, and debt could stabilize or even fall a.<> a percentage ofGDP rather than continuing to grow. 

But such an outcome is unlikely. In 2018, the real 

growth rate of the economy-····that is, growth with 

the effects of inflation removed-was 3.1 percent, the 

highest rate since 2005. Nevertheless, the deficit equaled 

3.8 percent ofGDP, and debt incrcascd as a percentage 

ofGDP 

furthermore, this year the hoost that recent tax legislation gave to business investment wanes in CBO's 

projections. Also, federal purchases drop sharply under 

current law, starting in the fourth quarter of the year. As 

a result, economic growth is projected to slow in 2019. 

Over the longer term, output growth is projected to be 

lower than its long-term historical average because the 

working-age population is expected to grow more slowly 

than it did in the past. Real GOP grows by an average 

of 1.8 percent per year in CBO's 1 0-year projections. In 

short, the economy isn't likely to grow quickly enough to 

shrink the budget deficit. 
15 

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4 THE BUDGET AND ECONOMIC OUTIOOK: 1019 TO 1019 

We have posted an interactive workbook on our website that lets you specifY different economic scenarios 

and sec the results. For example, if productivity growth 

turned out to be half a percentage point higher in every 

year than CBO projects, real GDP would grow by 

2.4 percent per year over the coming decade instead of 

by 1.8 percent. Deficits would average 3.7 percent of 

GOP instead of 4.4 percent. And debt would stabilize 

at roughly SO percent ofGDP by 2029. Such economic 

growth is possible, but it is not likely under current law, 

in CRO's assessment. 

CBO aims for its projections to be in the middle of 

potential outcomes. So there is about the same chance 

that productivity growth could turn out to be haifa 

percentage point lower than CBO projects. lf that happcnl'd, real GOP growth would average 1.1 percent over 

the next decade, average deficits would be 5.2 percent 

ofGDP, and debt would swelt even more than it docs in 

CBO's projections. 

What Are the Consequences of High and Rising Debt? 

If debt rose to the amounts that CBO projects, there 

would be troubling consequences. 

• First, as interest rates continued to rise toward levels 

more typical than today's, federal spending on interest 

payments would increase-surpassing the entire 

amount of defense spending by 2025 in CBO's baseline projections, fOr example. 

• Second, because federal borrowing reduces national 

saving over time, the nation's capital stock ultimately 

would be smaller, and productivity and total wages 

would he lower, than would be the case if debt was 

smaller. 

• l1lird, lawmakers would have less Aexibiliry than 

otherwise to usc tax and spending policies to respond 

ro unexpected challenges. 

• Fourth, the likelihood of a fiscal crisis in the United 

States would increase. 

In closing, I will emphasize that debt is on an unsustainable course in CBO's projections. To put it on a 

sustainable one, lawmakers will have to make significant 

changes to tax and spending policics·-making revenues 

larger than they would be under current law, making 

spending for large benefit programs ~ma!ler than it 

_______ JA~l!r\RY 19, .WI9 

would be under current law, or adopting some combination of those approaches. 

What Are the Effects of the Partial 

Government Shutdown? CBO has estimated the effects of the five-week partial 

shurdown of the government that started on December 

22,2018, and ended on January 25, 2019.' CBO's findings include the following: 

• CBO estimates that the five-week shutdown delaved 

approximately $18 billion in federal discretionar; 

spending for compensation and purchases of goods 

and services and suspended some federal services. 

• As a result of reduced economic activity, CBO estimates, real GDP in the fourth quarterof20l8 was 

reduced by $.1 billion (in 2019 dollars) in relation to 

what it would have been otherwise. (Such references 

are in calendar years or quarters.) In the first quarter 

of 2019, the level of real G DP is estimated to be 

$8 billion lower rhan it would have been-an effect 

reflecting both the five-week partial shutdown and 

the resumption in economic activity once funding 

resumed. 

• As a share of quarterly real GDP) the level of real 

GOP in the fourth quarter of20l8 was reduced by 

0. 1 percent, CBO estimates. And the level of real 

GDP in the first quarter of2019 is expected to be 

reduced by 0.2 perccnt.2 (The effect on the annualized quarterly growth rate in those quarters will be 

larger.)5 

• In subsequent quarters, GDP will be temporarily 

higher than it would have been in the absence of 

a shutdown. Although most of the real GDP lost 

during the tOurth quarter of 2018 and rhe first 

I. 

2. "fhe etonomic f(lrccast that t:BO released in 7be Budget and 

.Ei:onomit' Outlook: 2019 to 2029was comp!ered bdOre the 

partial shutdown of the "!hereft,re, 

that for('c;Jsr does 

3. TO annualize an amount is to adjusr it so rhar it applies to an 

emireye;lr. 
16 

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TESTIMON) __________ ___:TI~IE:.::-B::.:UDGETAND ECONOMIC Ol!Tl.OOK: .W!fJTO 202!} 5 

quarter of 2019 will eventually be recovered, CBO 

estimates that about $3 billion will not be. ~I11at 

amount equals 0.02 percent of projected annual GDP 

in 2019. In other words, the level ofGDP for the full 

calendar year is expected to be 0.02 percent smaller 

than it would have been otherwise. 

• Underlying those efFects on the overall economy are 

much more significant effects on individual businesses 

and workers. Among those who experienced the largest and most direct negative cfl-Ccts are tCderal workers 

who faced delayed compensation and private-sector 

entities that lost business. Some of those privatesector entities will never recoup that lost income. 

• All of the estimated cffc<.:rs and their timing are subject to considerable uncertainty. In particular. CBO 

is uncertain about how much discretionary spending 

was affected by the partial shutdown, how atfCcted 

federal employees and contractors adjusted their 

spending in response to delayed compensation, and 

how agencies will adjust their spending on goods and 

services now that funding has resumed. 

In CBO's estimation, the shutdown dampened economic 

activity mainly because of the loss of furloughed federal workers' contribution to GDP, the delay in federal 

spending on goods and services, and the reduction in 

aggregate demand (which thereby dampened privatesector activity).4 

CBO's estimates do not incorporate other, more indirect 

negative effects of the shutdown. which are more difficult 

to quantifY hut \vcre probably becoming more significant as it continued. For example, some businesses could 

not obtain federal permits and certifications, and others 

faced reduced access to loans provided by the federal government. Such factors were probably beginning to lead 

firms ro postpone investment and hiring decisions. In 

addition, risks to the economy were becoming increasingly significant as the shutdown continued. Although 

their precise effects on economic output are uncertain, 

the negative effects of such factors would have become 

increasingly important if the partial shutdown had 

extended beyond five weeks. 

4. In CB<Ys estimates, workers who were required ro wnrinue m 

work at agencies that did not have to real 

GDP during the .~·hurdown, whik 

an approach that accords wirh 

What Are the Effects of Recent Changes in 

Trade Policy? In 2018. the United States imposed new tariffs on 

12 percent of imported goods. Some of those tariffs 

were on goods and commodities, such as solar panels 

and steel, imported from most countries, and orhcrs 

were only on various products imported from China. 

lbe new tariff'i range from 10 percent to 30 percent of 

the imports' assessed customs values. In response, U.S. 

trading partners imposed tariff., on 9 percent of all goods 

exported by the United States. 

CBO's baseline projections incorporate the assumption that all newly implemented changes to trade policy, 

both domestic and foreign, are permanent and that 

scheduled changes to trade policy do not take effect. 

'l11e Administration possesse~ broad authority to adjust 

tariff policy without legislative action, but CBO did not 

attempt to predict those adjustments. 

On net, CBO estimates that the new tariff<; on both 

imports and exports will reduce U.S. real GDP by about 

0.1 percent, on av~;;rage, through 2029. The changes in 

trade policy also increase uncertainty among investors, 

which may further reduce U.S. omput. CBO's estimates 

of rhe economic effects of the new tariffs are subject to 

considerable uncertainty, particularly over the longer 

run. 

In addition to their broad effCcts on the economy, the 

new tariff<> are projected to boost customs Juries. Such 

duties have equaled 0.2 percent ofGDP in recent years, 

amounting to $11 billion in 2018. In CBO's basdim: 

projections, they increase to 0.3 percent ofGDP in 2019 

and remain between 0.3 percent and 0.4 percent of GOP 

through the next decade. (For additional details, see Box 

2-l in yesterday's report.) 

How Does CBO Make Projections of 

Immigration and Its Effects? 

Underlying CBO's baseline projections are estimates 

of many demographic factors, including immigration. 

CBO estimates the annual net flows of three kinds of 

immigrants: legal permanent residents, legal temporary 

residents, and foreign-born individuals without legal 

status. 1l1e agency's estimates are informed hy analyses 

of recent trends and current immigration policy. CBO's 

baseline projections incorporate the following estimates: 
17 

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6 TII_E B_l'_lX_IEl_'A_,_D_H_:O_N(~~~~~~~?K: 2019TO 2!L::c"'~------------- JANCARY 29, 1019 

• Annual ner flows oflcgal permanent residents grow at 

an average rate of about 0.4 percent per year over the 

next 10 years, averaging approximately 860,000 per 

year. 

• Annual net flows oflegal temporary residents remain 

steady at approximately 80,000 per year over the next 

decade. 

• Annual net flows of fOreign-born individuals withour 

legal status increase over the next five years, tfom zero 

in 2019 (meaning that immigration is offset bv emigration) to about 170,000 in 2024. After that,' annual 

net flows remain about the same through 2029. 

All told, in CBO's projections, net immigration ro the 

United States--a measure that accounts for all people 

who either enter or leave the country in any year~grows 

by an average of 2.0 percent per year over the next 

decade. 

In estimating the budgetary effects of propmed legislation related to immigration, CBO and the staff of 

the Joint Committee on Taxation start with the baseline projections and then examine many aspects of the 

legislation, including the immigration status of affected 

people, where they currently live, and factors related to 

their employment and their use of federal benefits. Such 

factors include the ways in which the legislation would 

change people's eligibility for federal benefits and ability 

to work, whkh arc defined in current law. 'Thcv also 

include the ways in which the legislation woul~{ afft·ct 

people's behavior. 

The Budget and t'conomic Outlook: 2019 to 2029 is 

one in a series of reports on the state of the budget 

and the economy that CBO issues each year. 1l1e 

report satisfies the requirement of section 202(e) of 

the Congressional Budget Act of 197 4 for CBO to 

submit to the Committees on the Budget periodic 

reports about fiscal policy and ro provide baseline 

projections of the federal hudgcr. This testimony 

highlights key issues related to that report. 

In accordance with CBO's mandate to provide 

objective, impartial analysis, neither that report nor 

this testimony makes any recommendations. Both 

publications arc available on CBO's website, at 

Keith Hall 

Director 

and\\ \\\\.cho.g()\'1 
18 

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In a report issued each year, the Congressional Budget Office provides projections of the federal budget and the U.S. 

economy under current law for that year and the following decade. The deficits projected in the latest edition are smaller 

than those in the projections that CBO published last spring, primarily because funding for emergencies is now projected to 

be lower. The agency's economic forecast has changed little since it was last updated in August 2018. 

Deficits CBO projects a 2019 deficit of about $900 billion, or 4.2 percent of gross domestic product (GOP). The 

projected shortfall (adjusted to exclude the effects of shifts in the timing of certain payments) rises to 

4. 7 percent of GDP in 2029. 
19 

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Debt 

Revenues 

Federal debt held by the public is projected to reach $16.6 trillion at the end of 2019. Relative to the size of 

the economy. that amount-at 78 percent of GOP-would be nearly twice its average over the past 50 years. 

By 2029, debt is estimated to reach $28.7 trillion, or 93 percent of GOP-a higher level than at any time since 

just after World War II. It would continue to grow after 2029, reaching about 150 percent of GOP by 2049. 

In CBO's baseline projections, revenues toto I $3.5 trillion in 2019, or 16.5 percent of GOP, and rise to 

18.3 percent of GDP in 2029. Over the past 50 years, revenues averaged 17.4 percent of GOP. 
20 

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Spending In 2019, outlays in CBO's baseline projections total $4.4 trillion, or 20.8 percent of GOP. They rise to 

23.0 percent of GOP in 2029 (after an adjustment to exclude the effects of certain timing shifts). Over 

the past 50 years. outlays averaged 20.3 percent of GOP. 
21 

BU00-A363290 with DISTILLER


The Economy In CBO's economic forecast, which underlies its budget projections, the economy expands more slowly 

over the next decade than it did in 2018, averaging annual growth of 1. 7 percent over the 2020-

2029 period. The slowdown begins in 2019 as the positive effects of recent tax legislation on business 

investment are expected to wane and federal purchases under current law are projected to drop 

sharply starting in the fourth quarter of the year. Over the longer term, growth is below its historical 

average, primarily because the labor force is expected to grow more slowly than it has in the past 
22 

Chairman YARMUTH. Thank you very much, Director Hall. I appreciate your testimony. Pursuant to the policy that the Ranking 

Member and I actually used in the last Congress, we are both 

going to defer our questioning until after all of our members have 

been recognized. So in light of that, I now recognize Mr. Khanna 

of California for 5 minutes. 

Mr. KHANNA. Thank you, Chairman Yarmuth. Thank you, Director Hall, for your work and leadership. You are a distinguished 

economist, and I hope this Congress, everyone on both sides of the 

aisle will recognize that. 

Your report stated that the tax bill paid for about 30 percent of 

itself rather than 100 percent of itself, the tax bill that the Republicans passed last Congress. Would that suggest that any person 

who claims that the tax bill was going to pay for itself is wrong? 

Mr. HALL. Well, obviously projecting the future you can be 

wrong, we can be wrong. We did a really careful analysis of the tax 

bill. We looked at research. We tried to base it on real data, real 

evidence. And our estimate did, in fact, show that the GDP benefits 

of the tax bill would increase revenues, but not enough to fully 

cover the bill. As you said, it covers about 30 percent of the tax bill 

with respect to the deficit. 

Mr. KHANNA. Director Hall, I am not suggesting that you are 

wrong, I am suggesting that people around the President when 

they claim that this tax cut is going to pay for itself with the magical 4 percent or 5 percent growth, is it fair now that we can say 

they are just—that is economic nonsense? 

Mr. HALL. Well, that is certainly a much bigger effect than we 

would estimate. It is well outside our forecast for the effects of the 

tax bill. 

Mr. KHANNA. And one of the things—I mean, you are obviously 

a distinguished economist. I don’t have a Ph.D., but as I understand it, on the other side, they always talk about these deficits. 

Now, correct me if I’m wrong, this is a bit of a simplistic theory, 

but does this make economic sense? 

My understanding is that when Bill Clinton left the presidency, 

we had budget surpluses. And then three things happened: George 

Bush passed large tax cuts to the very wealthy; Trump passed 

large tax cuts to the very wealthy, and we got into a lot of foreign 

wars. If none of those three things had happened, would we still 

have budget surpluses? 

Mr. HALL. The answer, I think, is no. We had really unexpectedly strong productivity growth during that time period. Also, it 

was also a time period where the labor force was growing much 

quicker than in the past, and that was particularly because of 

women entering the labor force in greater numbers. So women’s 

labor force participation sort of closed a gap at that time period. 

So we had much stronger labor force growth. We had unexpectedly 

big productivity. Neither of those things we are projecting going 

forward. 

Mr. KHANNA. What do you think accounted for the strong labor 

force growth and productivity, other than you said women entering 

in the 1990s accounted for that? 

Mr. HALL. Well, it wasn’t women entering the labor force, it was 

also the baby boomers were in sort of in their prime working ages 

BU00-A363290 with DISTILLER

23 

during that time period. They still sort of are, but near the end. 

So the aging population, at some point, is going to start working 

against us. And so we see, for example, the labor force growing 

much slower now from this sort of demographic handicap going forward than happened in the late 1990s. 

Productivity is harder to project. You know, we see productivity 

heading back to somewhere near its normal range. Productivity has 

been very low the last 7 or 8 years, the past decade, and it has 

been unexplained, unexplainable. So we sort of have hopes on the 

productivity. Also, it is really hard to forecast productivity going 

forward. 

Mr. KHANNA. You said that it wouldn’t have wiped out all of the 

debt. Do you have a rough estimate if we didn’t have the Bush tax 

cuts and Trump tax cuts, and we didn’t have a perpetual war in 

Afghanistan and Iraq, how much money we would have saved? 

Mr. HALL. We haven’t done that sort of analysis. 

Mr. KHANNA. Could we do that analysis? 

Mr. HALL. We could look at it to get a feel for what difference 

it would make. A lot of things have changed since then, as well, 

but we could take a look a little bit, give you some idea. 

Mr. KHANNA. And my final question is about the shutdown. Your 

office estimated that it cost us about .2 percent the first year. We 

have the President going on television saying, well, we may have 

a shutdown again. And as someone who studied rational expectations knows that investors and people take into account what we 

can expect. Do you think when he does that, he is hurting confidence in the markets and hurting our economy because people 

don’t know what to expect? 

Mr. HALL. Well, when we did our estimate of the shutdown, we 

essentially didn’t take that into account, we just looked at the effect of having the labor force idle for a while, and then the addon effects. But there is certainly other effects that you mentioned 

that we think were getting stronger as the shutdown continued, 

and we think if the shutdown were to recur and continue for a 

while, we would have some additional changes. 

You know, one of the things I think that is underappreciated is, 

we would have a higher risk for low probability/high cost events 

happening, at from security. We would also have a lack of economic 

data that would, over time, could possibly lead to households and 

businesses holding back because of business confidence and because of consumer confidence. Federal permits and certifications, at 

some point, that is going to start to have an effect perhaps on business investment. 

So there are these additional impacts that could occur if the 

shutdown recurs and it gets harder, not to mention it is really hard 

to measure, but the impact on the morale of the Federal workforce. 

The ability to hire high quality workers could be impacted—and 

contractors. Contractors could actually cost us more money going 

forward. 

Chairman YARMUTH. The gentleman’s time has expired. I now 

recognize the gentleman from Ohio, Mr. Johnson, for 5 minutes. 

Mr. JOHNSON. Thank you, Mr. Chairman, and I, too, look forward 

to serving with you and our colleagues to address our Nation’s 

spending and budget issues. 

BU00-A363290 with DISTILLER

24 

Director Hall, you have previously told our committee here that 

tax increases will not come close to covering this Nation’s ballooning deficits, and it is clear from your newly released report that 

that fact remains true even today. Yet even in light of our inability 

to cover existing deficits, my Democratic colleagues are proposing 

massive new spending programs, which would dramatically increase our future deficit. 

Take a look, if you would, at this series of charts behind me, 

which shows existing projected deficit down at the bottom in navy 

blue. Under your current baseline, if Congress was to do nothing 

for the next 10 years, that is, pass no laws, enact no new revenue 

or spending, the result would be a deficit of $1.43 trillion by fiscal 

year 2028. That is a lot of money. But it is dwarfed by the spending my Democratic colleagues would enact on top of it. 

For example, if we add expanded Federal housing, the deficit 

would be $1.48 trillion in 2028, an increase of $50 billion from the 

baseline. Pile on the expanded opportunity credits, expansion of the 

earned income tax credit, and universal child care, and you are 

looking at a deficit of $1.92 trillion in 2028. Then we get to the 

really expensive part of their proposals, free college for all, establishment of the LIFT credit and a guaranteed Federal job results 

in a deficit approximately $3 trillion by 2028. 

Finally, there is the pinnacle of budget busting proposals, Medicare for All, which, with an estimated 2028 deficit of $6.78 trillion 

required us to break the scale on the chart just to fit it all on one 

page. 

So my question to you, Director Hall, given that our revenues 

can’t come close to covering our existing deficit, how then should 

we cover the deficit created by these new spending programs? 

Mr. HALL. Well, I will start with the track that CBO has always 

taken is we don’t make policy recommendations, but I will say that 

some pretty big changes would need to be made in tax policy or 

spending policy or both things. 

Mr. JOHNSON. Like a good lawyer then, I will rephrase my question. 

Mr. HALL. Okay. 

Mr. JOHNSON. Under current law, can we cover these massive increases in spending with current law? 

Mr. HALL. Under current law—— 

Mr. JOHNSON. Given the assumptions that you made—— 

Mr. HALL. Right. 

Mr. JOHNSON.——in your proposal—I am sorry, in your report, 

would we come even close to covering these massive new spending 

programs and reduce the deficit? 

Mr. HALL. No, no. Under current law, without these programs we 

are heading towards 93 percent of GDP, almost 100 percent of GDP 

in just 10 years. That is a pretty big challenge. 

Mr. JOHNSON. And if I read your report correctly, I would have 

to pull it out to look at the exact number, but by 2028, we are looking at a deficit that exceeds the highest peak in American history, 

which was right after World War II, correct, if we keep going in 

the direction that we are going. 

Mr. HALL. Right. If we keep going, the highest peak was about 

106 percent of GDP. 

BU00-A363290 with DISTILLER

25 

Mr. JOHNSON. Right. 

Mr. HALL. So it is not far from the 93 percent. 

Mr. JOHNSON. And these are going to take them—these programs, if enacted, would take it so much higher than even that. 

Mr. HALL. That is likely correct, although we would have to look 

at the programs carefully to have an estimate. 

Mr. JOHNSON. Well, these are huge numbers, and they can, you 

know, sound very abstract if you don’t study this stuff every day. 

What are the concrete impacts of unsustainably increasing deficits 

on average Americans? 

Mr. HALL. Well, one of the problems I would like to point out 

about the deficit is, I didn’t highlight, is when it is occurring. Every 

time we go through a business cycle—I don’t know if the graphs, 

if you all did get the graphs, but if you look at the debt the cycle 

of the debt going up and down, after every recession, deficits and 

the debt go way up. And for example, in the Great Recession debt 

was about 35 percent of GDP. When the Great Recession was over 

it doubled, the debt doubled to about 75 percent. Right now we are 

starting at 93 percent, right, so one of the big impacts is the risk 

going forward. 

If you go through another business cycle, have another recession, 

debt is going to be piled up on top of 93 percent debt, and that is 

going to get to a very high level. 

Another thing is the deficit, the borrowing, raises the cost of capital to the private sector. So the cost of capital goes up, the cost 

of business investment goes up, and there is less in the private sector. So productivity is lower, which means wages are lower. 

So it is a drag on productivity, it is a drag on wages, and it is 

a drag on GDP growth going forward. Those are two of the effects 

that I think are very straightforward and very clear. 

Mr. JOHNSON. Mr. Chairman, it sounds like all the work that we 

have done to increase wages for the American people under these 

scenarios with this massive debt added on, we would be depressing 

wages for the American people, and thank you for indulging the 

extra time. I yield back. 

Chairman YARMUTH. Absolutely. The gentleman’s time has expired. I now recognize the gentlelady from Connecticut, Ms. 

DeLauro, 5 minutes. 

Ms. DELAURO. Thank you very much, Mr. Chairman. I am delighted to be back on the Budget Committee, and welcome, Director 

Hall. It is always good to hear from you, and thank you for your 

thoughtfulness. 

My questions have to do with healthcare. New polling from Gallup suggests that the U.S. uninsured rate has risen to a 4-year 

high. At the same time, the Trump administration has repeatedly 

taken steps to sabotage our Nation’s healthcare system by weakening consumer protections and causing premiums to skyrocket. 

First question here is how does CBO estimate the effects of this 

Trump administration’s sabotage on enrollment and spending in 

the marketplaces? I will ask the follow-up. 

Mr. HALL. Okay. 

Ms. DELAURO. CMS has also approved unlawful Medicaid work 

requirements in seven States, despite mounting evidence that they 

cause significant harm. Arkansas, the first State to implement the 

BU00-A363290 with DISTILLER

26 

work requirements, and the State reports that more than 18,000 

people have lost coverage since they were implemented last June. 

That is about 23 percent of those subject to the requirement. 

What have you learned from the Arkansas experience that informs CBO’s estimates of the number of people who will lose coverage due to Medicaid work requirements? 

So enrollment—sabotage in enrollment and spending in the marketplace, the effects of your calculating those effects, and the Arkansas experience. 

Mr. HALL. Okay. Let me start with the rule changes. We, of 

course, have been studying the effects of the rule changes on 

healthcare coverage. As it turns out, some of the rule changes encourage enrollment, some discourage enrollment. So it is not really 

clear yet what the net effect is going to be. So we will continue to 

sort of watch that effect. 

The information that you mentioned, the Gallup poll, is maybe 

an indication that coverage is going down, but let me just say that 

that is a private poll, it doesn’t meet the usual standards of a Federal Government poll. It doesn’t have the sample size and et cetera, 

so we wait for a poll that is done by the CDC to get those numbers. 

We do expect enrollment to drop, though. We expect it to drop 

in 2019 because of the elimination of the penalty in the individual 

mandate. So we wouldn’t be surprised to see the enrollment start 

to drop. It is just too early to tell if it is really dropping in 2018 

yet. 

Ms. DELAURO. I would be very, very interested in following that 

up with you, because we look at the reduction and the cost-sharing 

payments in addition to looking at the cutback in navigators, in enrollment times, in periods of time, thereby circumscribing the effort 

to be able to enroll people to expand the opportunity, so I would 

love to have a continued dialogue, the Arkansas experience and 

Medicaid work requirements. 

Mr. HALL. That is another one we are watching the effect. We 

don’t understand what the effect is going to be. So we will watch 

the Arkansas experience. Every year we change our forecast of enrollment, and it will be based in part on that experience to see how 

that affects things. But, of course, you are right in the sense that 

that could change enrollment over time. 

Ms. DELAURO. 18,000 people have lost coverage already, so. 

Thank you. 

Let me just, on the shutdown, we talked about $11 billion short 

term, $3 billion long term. The President has talked about another 

multiweek shutdown, and, you know, the question, I think, has 

been asked about what that effect would be, but people are very, 

very uncertain at the moment, and they will not be spending in the 

next 3 weeks, so it is not a 5-week shutdown, it is going forward. 

And we also have created a climate of instability, and there is caution, whether it is businesses, et cetera, but I am talking about individuals’ caution about spending. Does that have an economic effect, in your view, and because it goes beyond the Federal workforce, and what kind of an economic effect, in your view, will that 

have? What is the economic effect? 

Mr. HALL. Sure. Well, we certainly do think that those things 

would have an economic effect, and would potentially slow down 

BU00-A363290 with DISTILLER

27 

economic growth. We just weren’t able to sort of measure that over 

just a 5-week period, but I do think that that is right that those 

things were getting to be more important, and those things might 

affect economic growth more in the future. This increased uncertainty, to the degree it impacts household and business decisions 

can slow down things. Reducing the efficiency of government is 

never a good thing. So I think all those things are things that have 

a potential impact. We just weren’t able to really get our hands and 

measure those yet. 

Ms. DELAURO. Will you be doing that? 

Mr. HALL. If the shutdown recurs, we would be happy to take a 

look at that. 

Ms. DELAURO. Well, but you are looking at—it is beyond 5 

weeks. 

Mr. HALL. Oh, I see. 

Ms. DELAURO. You have a longer lasting period of uncertainty—— 

Mr. HALL. Right. 

Ms. DELAURO.——and instability—— 

Mr. HALL. Right. 

Ms. DELAURO.——that is really captured in the public, and the 

data shows that in terms of people who rely on their paychecks, it 

is paycheck to paycheck. 

Mr. HALL. We will certainly look at the data and look to see if 

there is more an effect there that is measurable. 

Ms. DELAURO. Okay, what I would love to do is to be able to follow up with you on measurability. Thank you very much. 

Chairman YARMUTH. The gentlelady’s time has expired. I now 

recognize the gentleman from Utah, Mr. Stewart, for 5 minutes. 

Mr. STEWART. Thank you, Mr. Chairman, and to the Chairman 

and Ranking Member, as the new member of the committee representing Appropriations, I am honored to work with you and look 

forward to doing something productive, I hope. And, Mr. Hall, you 

and I have several things in common. You have a Ph.D. in economics. I took Econ 101 when I was a freshman. Actually, I have a degree in economics, as well, although not an advanced degree. I read 

your computational partial equilibrium modeling. I don’t know 

what that is. It sounds very cool, though. And one other thing we 

have in common is I think you are serious about the deficit and 

recognize the problem. You must feel like a lone man in the wilderness, and I am sure that frustrates you because it is an enormous 

challenge. I would argue is, if not the most, it is one of the two 

most single greatest challenges facing our future. It is the reason 

I ran in 2012 was because of our debt and our spending. 

And just very quickly, because I want to ask you a question 

many of us have been kind of torn by this, because I also work on 

the Intel Committee. I am a former Air Force pilot. I recognize national security is a concern, but I try to balance these two all the 

time. 

And it is interesting to my colleagues on the committee as well 

to hear how, you know, in just a few minutes, we become tribal on 

this. You know, one side wants to blame tax cuts, the other side 

wants to blame spending, and at the end of the day, after all the 

politics and pontificating, the thing about economics is there is a 

BU00-A363290 with DISTILLER

28 

number, and the number is pretty obvious, and you can also understand where that number came from. And I hope as a committee, 

we can make serious and sincere efforts to try to address it, because if we don’t, then we are in a world of hurt, and we mess up 

our children’s future, and there is just no question about that, 

which brings me to my question to you. And that is, I love the part 

of your written testimony here. 

What are the consequences of high debt, because most Americans, if they don’t understand what are the consequences, then 

they go what difference does it make? I have been hearing about 

this for a long time, and my life seems to be okay. What difference 

does it make? 

To go through them quickly, I want you to emphasize the last 

one, increased interest payments. Obvious, you have talked about 

that. Decrease in national savings. Again, obvious how that impacts people. A decrease in flexibility of government, of Congress, 

to address those problems. That should be important to all of us 

here. 

And then the last, the fourth one is the likelihood of a fiscal crisis. I would like you, if you could, to give us kind of your worstcase scenario, because I know you have to work within the margins 

of we think it might be this, but tell us what happens, worst-case 

scenario, what does this mean to people so that maybe we can get 

their attention and why we need to address it? 

Mr. HALL. Well, sure. I think one of the things that we try to 

do is try to give you some feel for the uncertainty in our forecast, 

what a reasonable range is for the outcomes. You know, for example, in the near term over the next 10 years, we see deficits being 

at something over 4 percent. Not hard to imagine deficits becoming 

6 1⁄2 percent, getting larger, and that is without a recession going 

forward. That sort of effect would raise the debt after 10 years from 

93 percent of GDP to a record, could be 120 percent after just 10 

years, something like that. I don’t have the numbers right in front 

of me, but we try to do some of that, and again, that is without 

a fiscal crisis. We aren’t forecasting a fiscal crisis, but the one thing 

we do know is the chances of that happening increase. 

Mr. STEWART. So I am going to narrow your response if I could, 

because seeing your clock, you only have a few minutes. Talk to me 

about the word you just said, a ‘‘fiscal crisis.’’ Help people understand what that means. I know you are not projecting that. 

Mr. HALL. Right. 

Mr. STEWART. I know, you know, heaven help us, we all want to 

avoid that. But if it isn’t avoided, what does that mean to people? 

Talk to me about what that means to people. 

Mr. HALL. The most important part of that is that the borrowing 

cost to the Federal Government goes up. Because of a lack of trust 

or whatever if people start asking for premium to lend the government money to run the government, interest rates could be much 

higher than we project at the moment. 

I will give you a—for example, if interest rates—we think interest rates will go up to around 3.7 percent, 10-year treasuries. That 

a pretty low historical level. If they went up a whole percentage 

point higher than that, we are talking about an extra $2 trillion 

in debt, if they go up an extra—you know, a debt crisis would be 

BU00-A363290 with DISTILLER

29 

more than a percentage point. If it is 2 percentage points higher, 

we are talking about $4 trillion in extra debt over the next 10 

years. So the debt of the Federal Government gets to be really significant, and the basic punch line is, in that case, if you want to 

fix that, now you are talking about really draconian measures. You 

are talking about really decreasing spending or really increasing 

tax revenues or both things if you let this get out of hand. 

Mr. STEWART. And we are out of time, so I will just conclude with 

this: I appreciate your answer, although it frustrated me just a little because most Americans, once again, well, what does that mean 

to me? I remember at the end of Jimmy Carter, and I am not blaming Jimmy Carter, it just happens to be that was the time, but we 

were borrowing money at 20 percent at that time. And that is the 

thing I want to talk about. This is what it means to you. Borrowing 

money at 20 percent, a 20 percent mortgage, an 18 percent mortgage, a 21 percent car loan, those are the numbers we need to be 

talking about with people so they understand this matters to me. 

Thank you, sir. 

Chairman YARMUTH. The gentleman’s time has expired. I now 

recognize the gentleman from North Carolina, Mr. Price. 

Mr. PRICE. Thank you, Mr. Chairman. I also am happy to be 

back on the committee after a number of years away. I appreciate 

your leadership, Mr. Womack. I look forward to working with all 

of you. And thank you, Director, for a helpful report. 

I want to revisit your line of questioning with Mr. Khanna having to do with not so ancient history of the 1990s and those years 

when we saw budget surpluses and actually paid off something like 

$400 billion of the national debt, I believe. You talked about the 

factors that had produced a strong economy in those years, and, of 

course, that tends to address the budget deficit in a positive way, 

but those were also the years of comprehensive budget agreements. 

There were comprehensive agreements in 1990 and 1997 on a bipartisan basis. There was an important agreement in 1993 with 

democratic heavy lifting alone. And if Mr. Stewart is worried about 

tribalism, those were not tribal agreements, they were—in the 

sense that they offended everybody. Something in those agreements 

for everybody to hate because they did raise some taxes, they did 

restrain some mandatory spending, and they did impose some discipline on discretionary spending across the board. 

Yet, I think the consensus of economic opinion is that they are 

at least an important ingredient in the discipline that was achieved 

and the period of surpluses that we enjoyed. 

Now, we are far from that now. We are far from that economically, we are far from it politically. We have had, from our Republican friends, $1.5 trillion in tax cuts, mainly benefiting the 

wealthiest people, and groups in this society, totally unpaid for. Restraint, the only restraint that seems to be proposed these days is 

on domestic discretionary spending, leaving the rest of the budget 

aside. That strikes me as a lose-lose proposition. You are not really 

addressing the overall fiscal crisis with constraining only domestic 

discretionary spending, but at the same time, you are starving our 

country of needed investments. 

So, all that by way of asking you, what should we be looking for 

in the way of a comprehensive approach to this, is sometimes we 

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30 

call it a grand bargain. Is that still the best bet if our politics could 

ever come around to achieving that? Are there any different ingredients that would need to be achieved? 

So I am interested in the impact of such comprehensive budget 

policies in the past, and what the implications are for the dilemma 

that you very well outlined. 

Mr. HALL. Well, I want to steer a little clear of recommending 

policy changes, so I will try to talk generally about this. The debt 

problem now is really large, and under current laws we are going, 

it is going to be a bigger and bigger problem, so the longer we wait, 

the more draconian the measures would have to be to fix it. 

So one of the things that is an important thing is to think about 

something early. And second is, the debt is at a high level, so you 

need something big to change. You talked about discretionary 

spending. One of the reasons that I often make the point about just 

the net interest costs of the current debt is on its way to exceed 

all of defense spending, and it is on its way, after 30 years, of 

maybe exceeding all of discretionary spending, just the interest 

cost, that is not fixing the problem, that is just holding it still. So 

the problem is getting much bigger than discretionary spending, for 

example. 

So if you have to think about things, you need to think big, and 

you think in terms of revenues, you need to think in terms of 

spending. One or the other, or both things, are perfectly fine. I 

think it is helpful. This is—I don’t want to make recommendations, 

but having some sort of plan, I think, would be a good signal. 

Mr. PRICE. Well, what quickly can you say about the history of 

this? Were those three agreements an important ingredient of the 

fiscal discipline achieved in the 1990s? 

Mr. HALL. Those things all contributed. I haven’t done a detailed 

analysis of that, but I do want to point out that that was a different time than now. All right. There were a couple things we had 

going for us that we don’t have going for us now. One was that productivity surge, and the other was a more quickly growing labor 

force. 

Heading forward, you know, unless we have an unexpected surge 

in productivity, or I don’t know what would happen on the labor 

force side. We have an aging workforce. Those things are going to 

be big drags going forward, and it is going to make it more difficult 

to deal with this than perhaps was the time in the late 1990s. 

Mr. PRICE. Thank you. Thank you, Mr. Chairman. 

Chairman YARMUTH. The gentleman’s time has expired. I now 

recognize the gentleman from Texas, Mr. Crenshaw, for 5 minutes. 

Mr. CRENSHAW. Thank you for being here. I appreciate what the 

CBO does. You have the most difficult job imaginable, which is giving apolitical advice to Congress. I can’t even imagine that. The 

reason we are here, I believe, is because we have a fundamental 

difference in questions of why deficits exist, whether it is spending 

or too little taxes, and—but it is really a fundamental question of 

why government exists in the first place. 

If you believe government exists to sustain itself and fund pet 

projects for politicians, well, then it, therefore, makes sense to simply tax the people in order to fund that. If you believe that government exists to protect inalienable rights and freedoms, well, then 

BU00-A363290 with DISTILLER

31 

we have a difference of opinion. And so the question then becomes, 

okay, and as my colleagues have pointed out, you know, what has 

actually caused these deficits? So we are going to go through some 

numbers specifically on the tax cuts from last year. According to 

CBO’s projections right now, the debt in 2029 is projected to be 

$33.7 trillion, correct? 

Mr. HALL. That sounds right. 

Mr. CRENSHAW. The tax cuts cost $1.5 trillion, and was that with 

or without dynamic scoring? 

Mr. HALL. Well, it was $1.9 trillion with everything included 

with dynamic scoring. 

Mr. CRENSHAW. Okay. Well, let’s just leave it at 1.5 then. It is 

the—— 

Mr. HALL. Yeah. That just doesn’t include the extra interest cost 

of the debt. 

Mr. CRENSHAW. Okay. So 33.7 minus 1.5 is 32.2. So without the 

tax cuts, our debt in 10 years would still be $32 trillion. With the 

tax cuts, it would be $33 trillion. It is not a huge difference. 

The tax cuts also did what they were designed to do. They have 

increased job growth. They have increased wages. And it is also 

worth highlighting, and according to the graph you gave us, revenues continue to increase every year. Do you know off the top of 

your head what they are projected to increase just next year? This 

is government revenue. 

Mr. HALL. Right. I don’t off the top of my head. 

Mr. CRENSHAW. Okay. It is over $100 billion increase from the 

year before. 

Also worth noting, according to this graph you gave us, as a percentage of GDP, meaning relative to the size of the economy, revenues have basically stayed around the same. In fact, they have 

been on an upward trajectory, again, with the tax cuts. The government continues to make more money as a percentage of GDP. Is 

that correct? 

Mr. HALL. That is right, although I will caution, a little bit of 

that is the expiration of the reduction in individual income taxes. 

So that—— 

Mr. CRENSHAW. Right. Yeah, if politicians decide to increase people’s taxes, 

Mr. HALL. That is right. 

Mr. CRENSHAW. Correct. So when my colleagues say that it is absolutely clear that tax cuts from last year are the only reason that 

we have these deficits, is that really true? 

Mr. HALL. Deficits are much larger. 

Mr. CRENSHAW. Okay, that is what I figured. So it brings us to 

our next issue then, which is mandatory spending. It is true that 

70 percent of our spending in government is mandatory side, right? 

Mr. HALL. Yes. 

Mr. CRENSHAW. And it is also accurate that mandatory spending 

on health programs alone will double from $1.3 trillion in 2019 to 

$2.4 trillion in 2029? 

Mr. HALL. Yes. 

Mr. CRENSHAW. That is according to your estimates. So in the little time we have, the CBO does analysis on certain policy considerations. You are not recommending policies, but you do do analysis 

BU00-A363290 with DISTILLER

32 

on certain policy recommendations. When it comes to mandatory 

spending programs like Medicare and Social Security, what are 

some of the top recommendations that you all analyze? 

Mr. HALL. Well, I will tell you, I will point you to a report that 

we recently finished, Options to Reduce the Deficit. It is a rather 

big volume. It is about 120 different options that Congress could 

take, all of which would reduce the deficit on the spending side, 

revenue side. We give you actual estimates. You get some idea of 

how much bang for the buck you would get. 

Mr. CRENSHAW. My last question, how much would you have to 

raise taxes—without changing spending, how much would you have 

to raise taxes in order to not even balance our budget but get our 

deficits on par with our growth, meaning that debt-to-GDP ratio 

would actually stay the same? 

Mr. HALL. I think if you raised everybody’s taxes, all the tax 

rates by about 10 percentage points, 10 percent, that would generate enough revenue to reduce the deficit down to about zero, not 

fixing the debt. 

Mr. CRENSHAW. Okay. Ten percent, which would be a pretty 

enormous raise—— 

Mr. HALL. It would. 

Mr. CRENSHAW.——for quite a lot of people. 

And what is the main—what is the best indicator of your wealth 

in a group of people? Would you say it is age? Would age be a good 

indicator of wealth if you had a random group of people? 

Mr. HALL. Well, sure, age is definitely associated. 

Mr. CRENSHAW. My last closing comment in this amount of time 

would be to say that what we are talking about when we are talking about expanding entitlement programs is taxing the poor to pay 

for the rich. That is what we are actually talking about, because 

you are taxing people of my generation to pay for people who have 

their entire lives to save, and we have to question whether that is 

fair. 

Chairman YARMUTH. The gentleman’s time has expired. 

I now recognize the gentlelady from Illinois, Ms. Schakowsky. 

Ms. SCHAKOWSKY. Thank you, Mr. Chairman, Ranking Member, 

and Mr. Hall for being here. 

You know, one of the things that the shutdown I think illustrated, many people think about Federal jobs as middle-class jobs. 

And what we actually saw was that these are workers who live 

paycheck to paycheck, and a couple of them gone means that they 

are in serious sometimes crisis, going to food pantries. But it also 

reflects, I think, what the majority of workers face. We find out, 

there has been research that even a $500 accident or something 

happening, that most families can’t afford that. 

One of the benefits that was promised in the tax cuts or projected in the tax cuts was that it would spur rapid wage growth 

for workers. But it actually appears that instead of delivering 

raises for workers, that corporations use their windfall to enrich 

their shareholders through stock buybacks. In fact, 2018 set a 

record, with companies spending more than $1 trillion on buybacks. 

And so my question to you is, how do these buybacks affect the 

economy? And do you see their effect in your most recent estimates 

BU00-A363290 with DISTILLER

33 

of economic growth? And do those buybacks actually then interfere 

with wage growth? 

Mr. HALL. Well, let me first say we expected stock buybacks. It 

was part of our forecast. And what we have seen happen so far is 

not at all inconsistent with what we expected. So buybacks actually 

aren’t bigger than we thought they would be. 

Ms. SCHAKOWSKY. No, I just want to say I am not surprised either about the buybacks. 

Mr. HALL. I am warming up here to get to your question. 

Ms. SCHAKOWSKY. Okay. 

Mr. HALL. The wage impact of that is less clear to us, whether 

the stock buybacks will impact wage growth or not. And we think 

the labor market is tightening up and we think wages are starting 

to rise and we think they will rise in the future. You know, it is 

hard to say what the effect of stock buybacks, if that has had or 

that is going to have an effect on wage growth. 

Ms. SCHAKOWSKY. Did you expect any higher wage growth as a 

result of the tax cuts? 

Mr. HALL. I think we did in the long run, because the tax cuts 

lowered the cost of capital, lowered the cost of work. So we did expect more people to reenter the labor market like has perhaps been 

happening. We expected higher investment. We thought that would 

raise wages some. We did forecast that. But we expect that over 

10 years. 

Ms. SCHAKOWSKY. Another claim was that the Republican tax 

bill would increase investment, which in the case of an industry 

like Pharma, like the pharmaceutical companies, could, in theory, 

lead to lower costs for consumers. And we would all agree that that 

would be a good thing. 

But last summer, I wrote to the CEO of Eli Lilly, and actually 

of some other companies as well, asking him about the impact on 

consumers’ out-of-pocket cost for different drugs. And their response left a lot to be desired. 

And, Mr. Chairman, I ask unanimous consent to submit for the 

record my letter as well as the response from Eli Lilly. 

Chairman YARMUTH. Without objection. 

[The information follows:] 

BU00-A363290 with DISTILLER

34 

BU00-A363290 with DISTILLER


David A. Ricks 

Eli Lilly and Company, 

Lilly Corporate Center, 

Indianapolis, IN 46285 

Dear David A. Ricks: 

<!ongrt~~ of tbt itnittb ~tate~ 

mlasbinnton, ~.Qt':. 20515 

October 15, 2018 

Your company is one of the largest pharmaceutical corporations producing many 

lifesaving and life-sustaining drugs, but a life-saving drug is I 00% ineffective when it is 

unaffordable. Eli Lilly, like many other pham1aceutical manufacturers, benefits from taxpayer 

assistance through publicly funded research and corporate tax breaks. We write on behalf of our 

constituents who are paying multiple times over for their prescription drugs with questions to 

ensure that the products they help pay to develop are affordable. 

Despite resounding pleas from the American public to lower prescription drug prices, an 

AARP analysis found that the prices of 268 brand name drugs increased at least 15% a year from 

2013 to 2015. 1 A recent Americans for Tax Fairness (ATF) report found retail prices for a 

sample of leading American drugs had soared by 40% to 70%, or increased 14 times the rate of 

inflation, between 2011-2015.2 In that time period, Eli Lilly raised its prices on Ilumalog and 

Humulin, insulin drugs used to treat Type 1 Diabetes. A TF also found that over that same period 

profits for the ten largest pharmaceutical corporations rose by almost 40% and a report from 

Oxfam found that large pharmaceutical corporations may be dodging $3.8 billion in taxes each 

year through off-shore tax havens3 This is especially troubling to tax-payers (our constituents) 

as publicly funded research contributed to every new drug that was approved from 2010-2016.4 

The Republican Tax Cuts and Jobs Act was introduced in November and signed into law 

December 22, 2017, the corporate tax rate was reduced by 40% and it is estimated that Eli Lilly 

would receive nearly $164 million in tax cuts in 2018s In addition, Eli Lilly will receive an 

1 Rx Price Watch Report: Trends in Retail Prices of Prescription Drugs Widely Used by Older Americans: 2006 to 

20 15, htUI?":L!V~-~L~~m~ ~)rg 'pnJ.~inH)-.~_QJ f2Ltr~llt13!:i~J.:r:~tail.:rrrJ~c..?::-!' t~9.rJtg~_,_bJml 2 The Pharma Big 10: Price Gougers, Tax Dodgers, December 2017, l)i)l1~:il'lm~ric_al_tsfmtaxfaimoss.org:)l·Pcm•tcnllunlo~ds'l'h_ijrn!il:lln•g-l'ri<:c:_~1_o_l!gm-I~x:Qmjgt:_Q!-K~o_rt-f]J'{!\1.:J~-5 _ _. l].pdf 3 Prescription for Poverty, https:;C<gll!nti[ib_r~r;:.opc_nr~p()_s_ito!'Y-!'0'11;J?iJstrc_'!llJi1>i!ll<llcil 05:16 6cO:i48!cr-presuiplionti_,r-povcny,_p)EliJ!]\l:18Q_9 J S.:J;!lJJ.<lf 4 Contribution ofNlH funding to new drug approvals 2010--2016, February 2018, 

hi[p;:.\v\~'W,Jl!l\1~,nigit;!)Jl!CD,lic.ill'JY:J.0_!1cO~i!)6! 1_71j]Q~_f_Jj 5 Trump Tax Law and the Health Care Industry: A $100 Billion Bonanza, April 17. 2018, 

hJJp~:. ·.:.!~:~~J1!la1}~-~.1)~.!la~t;!~Q.!:dms!tl!l~<~lgg~{~\LJQgo~(9_2J}R~P5!!1~~4-9: 

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35 

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estimated one-time tax cut of $4.4 billion on offshore profits6 Given these large windfalls, we 

ask that you respond in writing to the following questions: 

I) Since November 28, 2017, has your company changed the list price of any 

pharmaceuticals~ If so, please list every dmg that had a price increase or decrease along 

with the original prices and the percentage change. 

a. Despite severe problems in access to affordable insulin, a recent study showed 

that Eli Lilly prices its insulin product, Humalog, 5.6 to 7.8 times higher than its 

production cost. 7 Why has the price of Humalog continually risen and priced 5.6 

to 7.8 times higher than its production cost? 

2) Since November 28, 2017, how much have you invested in: 

a. each clinical trial sponsored or funded by the company, 

b. preclinical data development, 

c. acquisition costs of startup firms, patent license or other dmg development assets 

from third parties, 

d. direct-to-consumer advertising including television, digital, and any other 

platform, 

e. direct to prescriber marketing including all costs for Continuing Medical 

Education, provider office visits, and company sponsored trips and speaking fees. 

3) Since November 28, 2017, have you discontinued certain drug development portfolios? If 

so, what dmg development products were discontinued and why? 

4) What is the median and of annual total compensation for all executives at present? 

5) What is your country-by-country financial report? 

Thank for you the attention to this matter. We respectfully request that you answer us no later 

than November 12, 2018. 

Sincerely, 

~ Member of Congress 

6 BAD MEDICINE: How GOP Tax Cuts Are Enriching Drug Companies, Leaving Workers & Patients Behind, 

April 20 18, btt:RiJffi.IJltill.~l!!!~fuJl<:t~tl!icn~-~~Qfg/~Q~~QJJ~~fl.tl up!9~d'jfPlmrn.1.a- J~\-f-: ttt:B~lWft-_:t2fJ.J~--Fj N.A L- .p~ f 7 Production costs and potentia[ prices for biosimilars of human insulin and insulin analogues, BMJ Journal, 

September 25, 2018, bl1P?~,~'gbJ~glj..~Q...mifQ:rH£nJL3:..~~_cD_Q9~5Q 
36 

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-

~ 

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Member of Congress 

,;(/tit¥/ 

Member of Congress 

~ /l.l'lthrEleanor Holmes Norton 

Member of Congress 

Member of Congress 

£ IZ.~.--- TimRy~ :vi ember of Congress 

Peter Welch 

Member of Congress 

Steve Cohen 

Member of Congress 

R. 

~~~ . Rosa L. De Lauro 

Member of Congress 

~ilaJaya~--~....__. ~~--P. Member of Congress 

Ro Khanna 

Member of Congress 

Chellie 

~~ Pingree 

Member of Congress 

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/Member of Congress 
37 

BU00-A363290 with DISTILLER


November 14, 2018 

The Honorable jan Schakowsky 

United States House of Representatives 

2367 Rayburn House Office Building 

Washington, D.C. 20515 

Dear Representative Schakowsky: 

Eli lilly and Company 

o55 Twelfth Street NW 

Washington. DC 20004 

U.S.A 

'1202434 1015 

www.lilly.com 

Eli Lilly and Company (Lilly) appreciates the opportunity to respond to your letter dated 

October 15, 2018. Affordable access to medicines is an issue that Lilly takes very seriously. 

We have delivered new ways to reduce patient costs and welcome further constructive 

dialogue that can reduce out of pocket costs for more people with diabetes while ensuring 

research can continue for newer therapies and better management of this lifelong 

debilitating condition. 

I. Investing in Discovery and Innovation 

Lilly, a 142-year old company headquartered in Indianapolis since its founding in 1876, is 

one of the country's leading innovation-driven, research-based pharmaceutical and 

biotechnology corporations, employing over 18,000 employees in the United States. Our 

company is devoted to seeking answers for some of the world's most urgent medical needs 

through discovery and development of breakthrough medicines and through the health 

information we offer. 

We operate in approximately 120 countries around the world. In 2017, approximately 

56% of our global revenue was generated in the United States, and 44% was generated 

outside of the United States. With respect to the 2017 Tax Cuts and jobs Act, American 

companies like Lilly can now deploy more of our foreign earnings here in the U.S. The new 

law also places American companies on a more level playing field with our foreign-owned 

peers and, thereby, helps enhance our ability to acquire and develop new medicines that 

benefit people with a variety of conditions. 

Supporting patients and the U.S. economy alike, biopharmaceutical companies must make 

long-term commitments to remain viable generators of new therapies and cures. Indeed, 

discovering, developing and manufacturing innovative medicines is scientifically and 

technically precise, difficult, and capital-intensive, requiring billions of dollars in long-term 

investments and years of research. For example, in 2017, Lilly spent more than $5 billion 

on research and development, accounting for nearly 23 percent of total revenues, one of 

the highest commitments to research amongst all public companies. The vast majority of 

our research investment occurs in the United States. 

We also continue to make significant U.S. investments that enhance our mission to deliver a 

reliable and high quality supply of diabetes products, investing more than $1 billion over 
38 

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The Honorable jan Schakowsky 

Page 2 

the past five years to expand our U.S. diabetes manufacturing operations. Last year, Lilly 

announced an $85 million expansion of our U.S diabetes device assembly facilities, a $90 

million expansion of our biotechnology center in San Diego, and we dedicated our $140 

million insulin cartridge production plant in Indianapolis. Lilly is also looking to bring in 

more innovation from outside our company. just this year, Lilly announced two 

acquisitions of companies developing cancer therapies. Additionally, we made a significant 

investment in a Boston-area company developing potentially breakthrough technology for 

Type 1 diabetes. Ultimately, Lilly's goal through these investments is to develop medicines 

that save and improve patients' lives. 

For over 140 years, Lilly has been committed to developing innovative medical 

breakthroughs for patients. We believe that finding a balance between investing in 

innovation and providing affordable medicines is key to bettering the health of the world. 

It is critical that patients have access to our products, which improve- or more importantly 

save- lives. This hope for improving patient outcomes crystalizes not only why the risk is 

worthy of the associated investment, but it also fuels the greatest disappointments when 

investment in best-in-class research and development risk falls short of our therapeutic 

goals. A recent and heartbreaking example of the risk that our company undertakes can be 

seen in solanezumab, a potential treatment for Alzheimer's disease that did not succeed in 

its last stage of clinical testing. Had it succeeded, solanezumab would have been the first 

disease-modifying drug to treat Alzheimer's. Nevertheless, Lilly remains committed to 

Alzheimer's research, and our portfolio includes other potential approaches, including a 

BACE inhibitor in clinical trials. It is important to know that today's medicines, and the 

revenues from them, support the kind of complex and high risk research that creates 

tomorrow's breakthroughs. 

II. Focus on Access and Affordability 

We fully understand that some patients experience access and affordability challenges and 

can face financial and other barriers adhering to prescription drug treatments. To this end 

-and while no single, simple solution will alleviate these challenges- we will continue to 

work with Congress and the Administration to propose public policy solutions to help 

address health care affordability for people using our medicines, employees and the 

health care system, as a whole. 

Lilly provides rebates and discounts- which have continued to increase in recent years- to 

payer customers and supply chain entities. Because of these significant discounts, the 

increases in list prices for Lilly medicines do not reflect increases in the net amount Lilly 

ultimately receives (sometimes referred to as a "net price"), especially for insulins. Indeed, 

Lilly's net prices have grown at a significantly lower rate than medical inflation over the 

last decade, and in 2018, we made no changes to our insulin product list prices. In the case 

of Humalog®- Lilly's most commonly used insulin product- while Lilly has increased the 

list price during the past several years, the average net price has remained relatively stable 

during that same period. Overall, average discounts on U.S.list prices have grown from 30 

percent to 51 percent in the past five years, with rebates for our insulin products 
39 

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The Honorable jan Schakowsky 

Page 3 

substantially above these rates. For instance, mandatory U.S. government discounts in 

state Medicaid- now more than 20% of U.S. insulin volume- and other mandated 

programs result in costs amongst the lowest in the world, and lower than developed 

markets with single-payer, direct-purchase models. We estimate that the average Medicaid 

rebate for Lilly insulin exceeds 99%, prices far below manufacturing costs. 

Although the current health care system largely ensures affordable access to medicines, we 

recognize that the system does not work for everyone. As our U.S. health insurance system 

has increasingly shifted the cost burden onto the growing number of patients in high 

deductible health plans, some patients may incur relatively higher out-of-pocket costs for 

their medicines depending on the design of their insurance benefits. In these instances, 

patients may not receive the benefit of the more than $130 billion in rebates paid by 

prescription drug manufacturers to health plans and pharmacy benefit managers (PBMs). 

Consequently, patients with high deductible plans may have to pay some or all of the retail 

price for medicines before their deductible is met and their insurance begins paying for 

their care. We believe this is both financially unfair and medically unsafe, as patients with 

diabetes are subsidizing artificially low premiums for those without chronic disease and 

too often discontinue use of essential medication to save money- even though they are 

participating in an insurance program. We are employing multiple strategies to address 

this trend. 

Most recently, to help address the ongoing issue of insulin affordability that some patients 

experience, Lilly launched the Lilly Diabetes Solution Center.1 Under this program, Lilly 

provides point-of-sale savings on our insulins through the dedicated helpline, donates 

Humalog® and Humulin® to approximately 150 free clinics across the U.S., and provides 

short-term and long-term solutions for patients with immediate Lilly insulin needs. While 

anyone experiencing difficulty affording a Lilly insulin is encouraged to contact the 

helpline, the program is intended for those most in need, particularly low-income, the 

uninsured, and those in the deductible phase of a high deductible commercial plan. 

One of Lilly's public policy priorities is to seek solutions that help patients with high 

deductible health insurance who share a disproportionate amount of their health care 

costs. Pending bi-partisan, bi-camerallegislation championed by Lilly (H.R. 4978/S. 2410) 

would allow high deductible health plans to cover chronic disease prevention services on a 

pre-deductible basis. In the case of Lilly employees, preventative medications by-pass the 

deductible, achieving similar goals for our employees as we continue to advocate for policy 

changes at the Federal level. Further- for other expenses- we limit the deductible to $550 

(for single) coverage and $1,100 for (family coverage) by contributing to our employees' 

HRAs and HSAs in january to offset their deductible. While these programs only benefit 

Lilly employees, we encourage other companies to consider similar programs to help their 

employees, too (see https: I /www.lilly.com /annualreport2_0 17 for additional information 

on Lilly employee compensation and benefits). 

1 Additional information is available at https:/ /www.lilly.com/diabetessolutioncenter. 
40 

BU00-A363290 with DISTILLER


The Honorable Jan Schakowsky 

Page4 

Another policy solution consists of point-of-sale rebates. For example, beginning this year, 

Lilly employees see their out-of-pocket pharmacy costs for their non-preventative 

medications reduced by the applicable price rebates paid to their health plan. This is 

especially beneficial for employees in the deductible phase of their prescription drug 

coverage. 

As the debate continues regarding health care and pharmaceutical innovation, we are 

committed to participating in the public policy process. l sincerely appreciate your 

thoughtful consideration of the issues presented above and look forward to working with 

you in the future. Please do not hesitate to contact me at (202) 393-7950 or jbk@lilly.com 

with any questions. 

In responding to your letter, Lilly has used its best efforts to be as accurate and responsive 

as possible based on our understanding of the terms used in your letter. The 

representations herein are based on current information and belief. 

Sincerely, 

Joseph B. Kelley 

Vice President, Global Government Relations 
41 

Ms. SCHAKOWSKY. So my question to you, Mr. Hall, is have you 

analyzed the impact of pharmaceutical companies’ decision to invest in buybacks rather than lowering out-of-pocket costs for consumers on the trajectory of our out-of-pocket healthcare spending 

for middle class Americans? 

Mr. HALL. Well, we do keep track of pharmaceutical prices and 

we do try to monitor, and we have done some looking at that. 

Relying on my memory now is not very good, but we can follow 

up and talk to you about what we see with the pharmaceutical 

prices and talk about what we think could be an impact going forward, if you like. 

Ms. SCHAKOWSKY. In general, did you see that we had any lowering of consumer prices as a result of the tax cuts that many big 

industries enjoyed with the tax cut? 

Mr. HALL. I think that is something that right now would be impossible to tell in such a short time period. And it would require 

us to do a little more research than we have done. 

Ms. SCHAKOWSKY. I think I don’t have time for a third question. 

Thank you, Mr. Hall. 

Chairman YARMUTH. The gentlelady’s time has expired. 

I now recognize the gentleman from Oklahoma, Mr. Hern, 5 minutes. 

Mr. HERN. Director Hall, it is great to be here. It is great to be 

a freshman, with all the challenges we have ahead of us here. As 

a small business owner for over 34 years in various industries, having the privilege of serving as the CFO for a large franchise group, 

all over the country I have seen the problems we have across the 

country and the various issues we have when intrusion in the job 

creators and trying to put people to work. So I have been on the 

other side of these policies that I am going to venture now to create 

or to unwind, if you will. 

You know, if I ran my businesses like we run the Federal Government, we would be out of business a long time ago. And so I 

would have to assume that in that realm, it is not like a business, 

but it is about how we get after growing and stimulating our economy and controlling spending. It is math. You are a math guy. I 

happened many years ago to get an MBA from the University of 

Arkansas, so I am familiar with that area, familiar with the economics. There is no other solution. No matter how much we try to 

color it up, we have to get after both. 

Much has been made about the 1996 welfare to work. Not much 

has been made about that, but a lot has been talked about the results of that act that President Clinton signed when we had a Republican House and Republican Senate. And the results of that 

were is that we encouraged people that were able-bodied to go back 

to work into a growing workforce, job market, and we saw budget 

surpluses in 1997, 1998, 1999 and 2000. We had a tech burst in 

2000 that caused that to start unwinding a little bit, because we 

were focused on one industry. 

We did have labor participation hit 67 percent, the highest in recorded history that we know of. Today, we are at 4 percent less 

than that, roughly, 63 percent. We are pretty much maxed out on 

who can go to work in this economy. We have an aging population. 

We have employment rates that are considered beyond full, that I 

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42 

question whether they are looked at the same way as they were 50 

years ago. 

The mandatory spending levels are growing at a rate that is 

unsustainable. The amount of money that we all appropriate and 

argue over and fuss over up here is diminishing quite rapidly as 

compared to the GDP, so that we are only after just a small portion 

of our budget that we are talking about. The rest of it is on auto 

pilot. 

The fertility rates in this country to maintain a population that 

will keep this country as we know it today is woefully low. It is 

below the 2.1 percent. 

So with all that said and the dire note that you made that the 

interest rate very quickly is going to—or the interest on our debt 

is going to surpass our ability to protect ourself or the money we 

spend to protect ourself, I am always looking at this is what we 

know. And you have the ability to look at various things, because 

at the end of the day, it is just math and behavior. 

What are some of the ideas—and you alluded to the 120 different 

options we have to change some of our trajectory. But in my short 

period of time that is left here, could you share with us just a couple of things that are imminent or does that get into the policy 

side? 

Mr. HALL. Imminent as in which—— 

Mr. HERN. What we could change. As an example—— 

Mr. HALL. Sure. 

Mr. HERN.——what would be the impact—there has been much 

said about the $15 an hour minimum wage. What would that do 

to us both in the short term and long term? There has been much 

made about legal immigration. How much legal immigration do we 

need to get us back on—to make up for the 2.1 differential? 

Mr. HALL. Well, with respect to minimum wage, we would have 

to see a proposal. We have certainly been thinking about that. We 

did an analysis in 2014 of a 10 percent minimum wage. We are 

thinking about the 15 that has been talked about. So I don’t want 

to guess as to what the numbers are going to look like in something like that. 

And I am sorry, the other thing was the—— 

Mr. HERN. How much legal immigration do we need to add to replace our aging workforce so that we can sustain our mandatory 

spending levels? 

Mr. HALL. Yeah. I don’t know the answer to that one. You know, 

generally, if you increase immigration, first of all, the impact depends upon what kind of immigration you are talking about. It is 

not just any immigration that it is all the same. It differs a little 

bit. If you talk about it broadly, if you increase the labor force, you 

increase GDP, because you have a bigger labor force. But it does 

matter what kind of immigration you have and that sort of thing. 

So it is hard for me to give you some idea of what would fix things. 

Mr. HERN. But as it relates to immigration, it would be some 

combination of skill versus wages for those skills across the entire 

spectrum, correct? 

Mr. HALL. Right. Yeah. The research suggests that the higher 

skilled immigrants actually can raise productivity in an economy. 

The lower skilled more basic ones probably don’t as much, and they 

BU00-A363290 with DISTILLER

43 

actually probably crowd out wage increases for the lower skilled 

folks who are here now. 

Mr. HERN. And also would crowd out the ability for younger 

Americans to get that first-time job to start learning the process of 

work? 

Mr. HALL. Right, right. That is actually one of the concerns if you 

look at labor force participation by age right now. Once you get the 

baby boomers, past the baby boomers, the rates are still pretty low 

even today, lower than they were for the baby boomers. 

Mr. HERN. Thank you. I could spend like 4 or 5 more days asking 

you questions, but thank you so much for your time, and thank you 

for the difficult job that you have. 

Chairman YARMUTH. The gentleman’s time has expired. 

I now recognize the gentleman from New York, Mr. Morelle. 

Mr. MORELLE. Thank you, Mr. Chairman. First of all, congratulations, and thank you for the opportunity to serve on this committee. 

Dr. Hall, thank you for your testimony. I appreciated the materials that were sent over. I only had a brief chance to look at them 

since you released them yesterday, but I am anxious to pore 

through them. 

But I had a couple of very basic questions. The first is—and I 

have asked a number of people this and I have a hard time getting 

an answer, maybe you could take a whack at it—what, in your 

opinion, should the optimal debt level be as a percentage of GDP? 

Mr. HALL. Well, CBO has very intentionally avoided making recommendations like that, what is the optimal debt level. We 

wouldn’t offer an opinion on that. We can give you some idea of 

where the debt level is, what some changes, that if you suggested 

some changes being made, we could tell you what it would likely 

be as a result, but I wouldn’t want to tell you what I think the optimal is. 

Mr. MORELLE. It is hard to figure out from a policy point of view 

where you want to be when the folks that you rely on have a difficult time coming to it. Obviously, you are concerned about the increasing debt as a percentage of GDP, but it is curious just because 

it is hard to guide your thinking when you don’t know where the 

target is. But I may want to pursue that line of questioning with 

you further offline. 

I did want to—first of all, thanks for the report, which was very 

helpful. And as I pored through it in the last day and a half, much 

like I think my colleague Mr. Hern expressed, I see this, in part, 

as something of a function of demographics. And I have been thinking about the U.S. population. 

So the percentage of people over the next 10, 20 years and beyond that are in the workforce as a percentage of all Americans 

versus the number of retirees is clearly changing, and that is driving a fair amount of this. Am I reading that effectively the right 

way? 

Mr. HALL. That is right. Yes. 

Mr. MORELLE. And also, Mr. Hern mentioned fertility rates and 

the replacement of workers. So as I think about this, if you have 

enough people in the workforce who are working as a percentage 

of the number of people retired, then essentially part of your probBU00-A363290 with DISTILLER

44 

lem goes away. Even the mandatory spending just becomes a fixed 

number. If you could maintain the percentages that had been in 

force 30 years ago, you would have a much different picture, 

wouldn’t you? 

Mr. HALL. Yes. 

Mr. MORELLE. And that is what is driving a lot of this. 

Mr. HALL. Yes. 

Mr. MORELLE. Which does lead us to have the conversation about 

immigration, because it is clear that, given the incumbent population, we don’t have enough people and the fertility rate is not 

enough, as I understand it from reading. 

So that does—in terms of the imperatives around debt and debt 

burden in the out years, immigration policy will play a very significant role in how we address debt. Is that correct? 

Mr. HALL. That is right, to the degree it affects the labor force. 

And labor force is an important sort of part of the recipe for growth 

and revenues and budget spending. 

Mr. MORELLE. I do want to come back to you at some point about 

that. I am also inclined to be concerned about the impact that climate change is having on debt loads. 

And one of the things that I thought about a couple months ago 

when we were doing an orientation for freshmen members and we 

were talking about debt, it occurs to me that unanticipated international engagements, unanticipated natural disasters, which are 

certainly occurring at a higher rate with concerns by the scientific 

community and many of us about climate impacts, that those will 

have a much greater impact, and we are going to be in a much 

more precarious position related to how much we can address those 

through debt because of the situation we find ourselves in. And to 

me, those are two very, very grave dangers looking forward. 

Do you factor that in here? 

Mr. HALL. Yes, it is implicitly in there. That is right. And I can 

give an add. We have done some work, for example, of we do have 

a nice piece on the impact of increased hurricane frequency because 

of climate change. It will give you some idea of how much we think 

that will impact the economy and the budget going forward. 

Mr. MORELLE. Yeah. And the last point, I just wanted, I think 

I am reading this right in terms of the charts. I looked at 1969 and 

2029, and it is hard to tell exactly on the charts with these numbers, but it looks to me, though, outlays in 1969 were about 18 3⁄4

percent of GDP. In 2029, they are expected to be 23 percent, whereas revenue has actually dropped as a percent of GDP over that period of time. 

But even if you look at just today, those outlays have gone from 

18 3⁄4 to about 20 percent, in looking at your line; whereas, on the 

revenue side, 18 3⁄4 to about 17 percent. So I want to come back at 

some point to talk about the immigration policy and having more 

people in the workforce, and appreciate all your great work, sir. 

Mr. HALL. Sure. 

Chairman YARMUTH. The gentleman’s time has expired. 

I now recognize the gentleman from Tennessee, Mr. Burchett. 

Mr. BURCHETT. Thank you, Mr. Chairman. It is Burchett, Birch 

like the tree and et like I just et lunch. Thank you so much. I appreciate that. Thank you, Ranking Member, for your indulgence. 

BU00-A363290 with DISTILLER

45 

Chairman YARMUTH. Thank you very much for you so graciously 

were willing to defer to your senior colleagues, and they said they 

wanted me to—— 

Mr. BURCHETT. Yes, sir. Well, thank you. I appreciate that. 

As a freshman, I would like to say I still don’t have a door on 

my bathroom, but I understand that Mr. Hall has little or nothing 

to do with that, so I will not bring that up during our conversation. 

Although my daughter did say I could put a curtain across there, 

and I told her, I said, baby, this isn’t church camp, we got to have 

a little more prestige here in the United States Congress. 

Dr. Hall, I want to thank you so much for indulging us with your 

questions, and I want to ask you a question about tariffs. It seems 

the President mentioned tariffs and, you know, the dark clouds are 

looming. But I remembered I think it was either my first or second 

sophomore year in college in the eighties that we were one of the— 

well, the only American motorcycle manufacturer was about to go 

out of business because the Japanese were, in fact, dumping motorcycles, and it was primarily 1,000 cc bikes and above, onto the market for cheaper than they could actually produce them. And then 

they would drive everybody else out of business and then they 

would jack the prices up. 

And I have noticed that we are now exporting to China rice now. 

It seems that some of these talks of tariffs have brought some of 

our sometimes friends and sometimes enemies to the table. And I 

wonder if you could comment on that and the effects that that has 

on our economy. 

Mr. HALL. Sure. Sure. Let me say how tariffs are working into 

our forecast here. Right now, tariffs imposed are impacting about 

11 percent of imports. We think that that is reducing GDP by 

maybe a tenth of a percent, on average, over the next 10 years. But 

it is generating about $34 billion in customs duties next year. 

So we have assumed that those stay in place forever or they stay 

in place for the time period. We have not assumed the scheduled 

tariff increases, that those occur yet, because the President seems 

to have a lot of discretion on that. So we are going to wait to see 

if actually that, in fact, gets done. 

The effect of just tariffs themselves are kind of like any other 

tax. It is a tax on imports. It is a tax paid by domestic importers. 

And then they burden, the price can be borne by foreign producers, 

U.S. businesses, U.S. consumers, that sort of thing. And then you 

have the retaliations probably affecting exports. 

So those are all sort of the direct effects. It is not the strategic 

aspects of the tariffs, which I think is a bit of what you are talking 

about. But we have talked about that, and I would say the effects 

are—the kinds of effects are well-known. The actual numbers are 

a little bit hard to come by, because it is hard to know how much 

will be passed forward and not passed forward. 

Mr. BURCHETT. Sort of an aftereffect. I mean, you see it after it 

is already done and then you come back and tell us, and then—— 

Mr. HALL. That is right. That is right. 

Mr. BURCHETT. All right. Another question I had is, at least in 

Tennessee, the tax cuts are working. Revenue is growing. If you 

want a job, you can find a job in Tennessee. And it seems obvious 

that the increased mandatory spending is the problem. In fact, our 

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46 

Ranking Member speaks very eloquently on this. I am not quite at 

that level. 

But, in your opinion, what is the source of that problem? 

Mr. HALL. The mandatory spending I think is relatively clear. 

We have an aging population, and there is no way around that. 

That is driving a lot of, including the healthcare costs. And even 

the aging population aside, we have rising healthcare costs that 

rise faster than GDP. They have for a long time. We think they are 

going to continue to rise faster. It is those two things that are really driving this big increase in the deficit in spending going forward. 

Mr. BURCHETT. All right. I have one more question, if that would 

be all right. Mandatory spending programs, it seems like they are 

approaching unsustainable levels. And could you share your 

thoughts on being a little more fiscally responsible with those programs? I realize you have to be careful about opinions. I understand that. 

Mr. HALL. Yeah. Sorry if it sounds—but read our book, our Options to Reduce the Deficit. We really do have a number of options 

there. 

Mr. BURCHETT. Is this like in college where I have to buy the 

professor’s book that actually is teaching the class? 

Mr. HALL. That is right. And we are happy to follow up and talk 

about any of those things and how, you know, the scale and that 

sort of thing. 

Mr. BURCHETT. I will warn you about that. My buddy Sheddy 

Ward found a bunch of those at the used book store, and he went 

and bought them and sold them back to the University of Tennessee at the full cost. So just remember that. 

Thank you, Mr. Chairman. 

Chairman YARMUTH. The gentleman’s time has expired. 

I now recognize the gentlelady from California, Ms. Lee, 5 minutes. 

Ms. LEE. Thank you very much. Thank you, Mr. Chairman, for 

this hearing. Thank you, Ranking Member Womack, and good to be 

back on the committee. 

Thank you, Director Hall, for being here. Let me ask a couple 

questions and following up, really, from Mr. Hern’s line of questioning from a different perspective. 

First of all, we know that Americans not only need jobs, but they 

need to be paid a living wage to lift themselves and their families 

out of poverty. Unfortunately, wages have remained very stagnant, 

with the Federal minimum wage still at $7.25 an hour. Yet the cost 

of living has increased, on average, I think it is by about 12 percent. Now, at the same time, the value of the minimum wage has 

fallen by 20 percent and there is not a single county in the country 

where a minimum wage matches the local cost of living. 

And so let me ask you, in terms of just economic impacts, what 

would raising the Federal minimum wage to a living wage, so people can take care of their families, what type of impact would that 

have on economic growth and the budget outlook? 

Secondly, let me just ask you—I want to ask my questions in one 

block—in terms of just strong wage gains. I don’t see any predicament—or prediction, excuse me, for unemployment in communities 

of color, which at least, and I just have to say in the African AmerBU00-A363290 with DISTILLER

47 

ican community is still double that of White unemployment. It is 

6.6 percent in the Black community. In my home State, the unemployment rate among African Americans is at 10.7 percent. 

So how do you address this disparity in unemployment rates, 

which are very large in the African American community, as well 

as the impact of a living wage on economic growth and the outlook 

for our budget? 

Mr. HALL. Sure. I need to be a little careful in talking about minimum wage, because, you know, we would need to see exactly what 

the minimum wage was if there was a proposal and work through 

the impacts. 

On the most basic level, right, raising the minimum wage raises 

the cost of hiring somebody. So one of the really key things is, does 

that discourage employment or not? So a relatively modest increase 

in minimum wage will have less likelihood of that if a very large 

one could have a labor market impact like that. But if it does not 

discourage employment, then, of course, wages go up and you 

have—— 

Ms. LEE. So we don’t know historically if it has or has not encouraged or discouraged employment? 

Mr. HALL. Well, I think we did a report on raising the minimum 

wage 10 percent in 2014, and we did talk about the effect, especially on low-skill workers, as having an effect on lowering employment in some places. A lot of that depends upon local cost of living, 

local wages, that sort of thing. 

So the result is almost mixed by part of the country, because, you 

know, if local wages are already pretty close to minimum wage, 

then that is much less of an impact, both good and bad. If it is well 

off that, then the impact really depends a lot on the labor market. 

We really do look carefully at the literature and see what sort 

of reaction in the past has happened. For example, if we were to 

look at minimum wages now, we would look at the recent experience at the State level, sort of see how those impacted employment 

and et cetera. 

But the concern on it would be the low-skilled end of things, because those would be the people who would be most likely to be adversely affected, but also they are the ones you are looking to help 

at the same time. I am trying to give you—I am trying to give you 

a bit of a wishy-washy answer on purpose. 

Ms. LEE. Yes, I understand that, but also I do understand that 

the 12 percent cost of living increase, you would look at that as 

compared to the Federal minimum wage. We have got to figure out 

how to address that, because people shouldn’t have to live at $7.25 

per hour with a 12 percent cost of living increase throughout the 

country. 

Mr. HALL. Yeah. And with the differential unemployment rates, 

you know, that is a tough one that has been around for a long time. 

One of the things that really has always jumped out at me is when 

we go into recession, the people who are most hurt are people who 

already have high unemployment rates. So you actually see, for example, the African American unemployment rate really increasing 

during recessions, more so than for other groups. 

Ms. LEE. But, Director Hall, I want to know, though, how you see 

this gap being closed because, again, 6.6, 7 percent unemployment 

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48 

rate in the African American community, in my State 10.7 percent 

in the golden State of California, that is unacceptable. And so we 

have got to come up with a specific strategy as it relates to communities of color, the African American and Latino community, in 

terms of how to begin to close that gap. 

Mr. HALL. I will beg off, because we don’t make policy recommendations. 

Ms. LEE. I understand that. But you can tell us what some of the 

economic assumptions are and how we could begin to look at policy 

recommendations. 

Mr. HALL. We are happy to talk about what we think would be 

the effect of particular policy proposals. That is sort of what we do. 

Ms. LEE. But you couldn’t tell us what—— 

Chairman YARMUTH. The gentlelady’s time has expired. 

Ms. LEE.——policy proposals make sense or not? 

Mr. HALL. No, I would back off from doing that. Happy to follow 

up and talk about some of the proposals, if you like. 

Ms. LEE. Okay. Thank you very much. 

Thank you, Mr. Chairman. 

Chairman YARMUTH. Absolutely. The gentlelady’s time has expired. 

I now recognize the gentleman from Pennsylvania, Mr. Meuser. 

Mr. MEUSER. Thank you, Chairman. Thank you, Ranking Member Womack. 

Chairman YARMUTH. Microphone. 

Mr. MEUSER. Maybe I am not the only one making a rookie mistake. All right. My first hearing with the Budget Committee, I am 

very happy to be here. I hope our work on this committee results 

in a more balanced, effective budget for the people and the taxpayers that are counting on us to bring accountability and return 

on investment of their money. 

Dr. Hall, you have undoubtedly heard the saying, we don’t have 

a revenue problem, we have a spending problem. I served as secretary of Department of Revenue in Pennsylvania, and I always 

felt that the statement beared a lot of truth, and I also know that 

job creation and wage increases was the best revenue generator. 

Currently, our national unemployment rate is 3.9 percent. Two 

years ago, it was 4.7 percent. This is an increase of 4.8 million jobs 

across the country. Can you provide an estimate of the revenue increase of a .8 percent decrease in the unemployment rate? 

Mr. HALL. We would have to think about that. We could probably 

work through something with that. 

Mr. MEUSER. And on wages as well. Do you have an estimate of 

what the wages increase were over the last 2 years or just over the 

last year? 

Mr. HALL. Well, wages have been surprisingly unexplainably flat, 

and they are starting to rise now. The labor market is generally 

getting tight, and we do forecast that wage growth is actually going 

to continue and strengthen going forward. We don’t have sort of a 

budgetary impact of that sort. 

Mr. MEUSER. That is what I expect as well. And was it in the 

neighborhood of about 4 percent over the last 6 to 8 months or two 

or three quarters? 

Mr. HALL. I would have to check. That number is not—— 

BU00-A363290 with DISTILLER

49 

Mr. MEUSER. And I would also be curious as to what your revenue numbers show for new revenue coming from wages, if that 

was something that we could get. 

Mr. HALL. Yes, we can follow up and probably give you a feel for 

that. 

Mr. MEUSER. Great. I mean, that certainly provides some guidance as to what needs to be focused on in order to best raise revenues, of course. 

The GDP has improved over the last 2 years. 2017, we were at 

2.3 percent. 2018, we were at 3.1, 3.2. What is projected for 2019, 

GDP? 

Mr. HALL. We have it slowing a bit to 2.3 percent. 

Mr. MEUSER. Okay. So what would you estimate—and it may be 

in your summary here—the level of revenue increase for a 1 percent increase in GDP? 

Mr. HALL. We would have to look that up. You know, we have 

some—those interactions we have got, you can vary productivity, 

and that is pretty close to varying GDP and that will give you some 

idea of the budgetary impact of that. 

Mr. MEUSER. All right. Well, it is fair to say we have a strong 

economy, we are growing jobs, and we are increasing revenue. 

What was the percentage of revenue increase over the past 2 years 

or even just the past year, in 2018 or 2017? 

Mr. HALL. Yeah, I don’t know offhand. I am sorry. 

Mr. MEUSER. All right. What I have what is projected for 2019 

is 5.6 percent. That is very high. When I was revenue secretary a 

4-year period, we grew revenues by about 10.5 percent in the Commonwealth of Pennsylvania. That is 2.5, 2.6 percent a year. So we 

are projected to grow revenues next year by $186 billion or 5.6 percent. That is strong. Would you agree? 

Mr. HALL. Yes. Is that from our numbers? 

Mr. MEUSER. It is. 

Mr. HALL. Oh, okay. Then I will stand by those. 

Mr. MEUSER. Now, the percentage of spending increases over the 

past 2 years was my next question, but we will forego that. And 

we do have a projected revenue in 2019 of 7.4 percent or $304 billion. That is extraordinarily high, 7.4 percent increase in spending. 

In fact, I was surprised to see that. The most that we ever had 

when I served as revenue secretary for the sixth largest State and 

the 19th largest economy in the world was about 4 percent, which, 

frankly, was about a point and a half too high, since we had to 

have a balanced budget. 

So I would just add, based upon these numbers, and if you go 

back 5 years, where our spending levels were in 2013, in 2013, our 

spending levels were equivalent to where they were in 2018. So I 

look at that—and not to mention the fact that prior to 2013, we 

had 4 years of the largest unprecedented level of spending, as you 

are well aware, $5.4 trillion over a 4-year period. And yet, even 

that, even with that prior, the 2013 levels of spending are equivalent now to where our revenue levels were. 

And it is data like this that tells me that—look, we always want 

to try to increase revenues. We want the strongest economy and 

the most competitive tax rates that has the largest max/min posBU00-A363290 with DISTILLER

50 

sible, but we really have continue to have a huge spending problem. 

So clearly, these numbers show that. And what we are hearing 

today, I am looking at things like this with enormous levels of 

spending, with no chance that a higher rate of taxes unless it was 

near 100 percent would cure. Would you agree that we largely have 

a—one side of the ledger is more of a problem than the other, 

meaning spending? 

Mr. HALL. I would try to avoid, in a sense, taking sides. You 

know, obviously, one needs either less spending or more revenue or 

both to fix this problem. 

Chairman YARMUTH. The gentleman’s time has expired. 

I now recognize the gentleman from Virginia, Mr. Scott. 

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

Mr. Hall, I appreciate your presence. And I remember in the 

opening comments we were challenged to state what our plan was. 

And I can tell you that our plan is to resort to PAYGO, where you 

don’t have $1.5 trillion in unpaid-for tax cuts. In fact, if you go 

back, as Mr. Connor was asking, to 2000, when we had a significant surplus—I remember in 2001, after President Clinton left office, Chairman Greenspan was peppered with questions at a hearing as to what would happen when there is no government debt, 

because we were projected at that time to pay off the entire debt 

held by the public by 2008 and by 2013 return all the money to 

the trust funds. But we had massive tax cuts, fought two wars 

without paying for it, passed a prescription drug benefit without 

paying for it, violating the PAYGO principle, and all of a sudden 

we are back heavily in the ditch. 

If we had paid for everything we have done since 2000 and 

hadn’t cut taxes without paying for them, we would be in a lot better shape than we are now. 

One question I had, have you been following the multi-pension 

employer crisis? 

Mr. HALL. Yes. We do have some work on that, yes. 

Mr. SCOTT. We have noticed that if these pension funds—well, 

there is an old saying, if you don’t change directions, you are going 

to end up where you are headed. We are headed to many of these 

funds going bankrupt, taking down people’s pensions and taking 

down a lot of businesses. 

Have you calculated what impact that would have on the Federal 

budget, in terms of increased food stamps, Medicaid, lower taxes? 

Mr. HALL. I am not sure. We have a report on it. I would have 

to take a look at that. We can get you that report. I am not sure 

if that would be in there or not. I think we do talk about some proposals to help fix the problem, at least. 

Mr. SCOTT. The proposals to fix the problem, best we can determine are actually cheaper than letting the problem occur. So that 

doing nothing is about the stupidest thing that we can do, because 

the effect on the budget would be profound. And there are a lot of 

suggested proposals that are cheaper than to the hit on the Federal 

budget ignoring all of the pain and suffering. 

Can you tell me a little bit about what the effect immigration has 

on Social Security, immigration policy? 

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51 

Mr. HALL. Sure. Sure. We would have to—changes in policy, we 

would have to know what the change is and do an evaluation of 

that, that sort of thing. Immigration, I think right now we have 

settled into something like a little under 1 million legal immigrants 

a year coming in. That contributes to the labor force growth. I don’t 

know that we have done anything in particular about what if that 

immigration didn’t happen. 

Mr. SCOTT. If you have people coming in working, they would be 

contributing to Social Security. 

Mr. HALL. Right. 

Mr. SCOTT. And that would actually help the Social Security crisis. Is that right? 

Mr. HALL. Yes, I think we have done some work on that. I am 

not remembering exactly what we found. If I could follow up with 

you, I could give you some idea of what we found with the effects 

of that. 

Mr. SCOTT. You indicated that the tax cut was helping to pay for 

itself. I understand that the later years in this decade, the tax cut 

actually is a drain on revenues. Is that right? 

Mr. HALL. Well, our analysis is that the tax bill does leave GDP 

over 10 years at a higher level, on average. It is about seven-tenths 

higher, the level, on average, through the decade. So there is that 

going forward. I am not sure about the pay-for aspect at the end. 

I would have to take a look. 

Mr. SCOTT. I thought in your testimony you said it actually had 

a drag on the economy in the last few years. 

Mr. HALL. Well, no, no. The lower taxes on investment in particular probably is helping economic growth in the near term. I 

think perhaps the part that I referred to was the end of the stimulus from the tax bill going away is going to leave us with slower 

growth in the next couple of years. So that is the drag, I think. 

Mr. SCOTT. Right. Slower growth because of the tax cut? 

Mr. HALL. Right. The stimulus effects will wear off. 

Mr. SCOTT. And there will be slower growth because of the tax 

cut? 

Mr. HALL. Right. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Chairman YARMUTH. The gentleman’s time has expired. 

I now recognize the gentleman from Georgia, Mr. Woodall. 

Mr. WOODALL. Thank you, Mr. Chairman. Thank you for holding 

the hearing. You have always been one of my top two choices to 

chair this committee, and I am glad to see you in that chair today. 

Mr. Hall, you were talking about inexplicably flat wage growth. 

I am not an economist; I am a lawyer. Help me to understand what 

we call wage growth. I think about when we went into the Great 

Recession and folks who would have been working in a top financial institution in my community were now working the customer 

service desk at Macy’s. They were making the top wage there at 

the Macy’s customer service desk, but they were making substantially less than they were making in the financial services industry. 

Does that count as a wage drop? Is that reflected in wage growth 

statistics when you move from one job type to another? 

Mr. HALL. It does. It depends a little bit on which measure you 

are talking about. Something simple like just wages, it doesn’t capBU00-A363290 with DISTILLER

52 

ture that very well. One of the things that we look at is something 

called the Employment Cost Index, which sort of holds the composition of the labor force constant and look at how wages drop. 

So different wage measures tell you different things. Some of 

them include full compensation. Some don’t include all the compensation. So there are a lot of measures that sort of can tell you 

sometimes a little bit different pictures of things. 

Mr. WOODALL. Because when we look at the who is quitting their 

job index, more Americans leaving the job they had to pursue new 

opportunities, it just stands to reason to me that if more Americans 

are taking advantage of a superior opportunity, more Americans 

are acting in their own economic self-interest, we should see a positive bump in those remuneration measurements somewhere, but 

we are not, as you pointed out, in wage growth. Help me to understand why. 

Mr. HALL. Sure. Well, we are not really sure, because we didn’t 

expect this. And I think the profession didn’t expect wages to take 

quite so long to get going. But they are starting to get going now. 

We have seen some growth. 

The ECI in particular, I mentioned, was one that we look at. And 

we think that it is going to continue going forward, because the 

labor market is still pretty tight. We still think the unemployment 

rate, even though it is very low, we still think it can go down from 

here. So we do think it is going to increase going forward. 

Mr. WOODALL. Thinking about Mr. Scott’s question about longterm economic growth, as long as I have been on this committee 

and as long as you’ve been in your position, you have come and 

made that same testimony. There are things we can do early that 

will benefit us early, but they will cost us later, or there are things 

we can do that will cost us early that will benefit us later. We are 

always in that tradeoff. 

I look at the long-term growth numbers, your projections this 

year from the 2017 projections 2 years ago, and we are about onetenth of a percentage point off in long-term growth from your projections 2 years ago in the out years, but we are a trillion dollars 

higher in GDP 10 years out from there. We have had growth in 

these near-term years 50 percent higher than what you would have 

anticipated 2 years ago. 

What is the long-term measure that we look at to say, yes, there 

is a tradeoff between what we do early and what we do late, but 

it is worth it? What do the economists look at to say it is worth 

it? 

Mr. HALL. Well, one of the ways to think about it is we have 

really kind of two distinct models that we use to forecast growth. 

One is a demand side model. It sort of looks in detail about where 

we are now and where we are going that has all the detail about, 

you know, consumer behavior and investment and that sort of 

thing. But we also have a second model, which is our long-term 

model, which is a supply side model. And it generates something 

we call potential GDP, potential growth, which is that supply side. 

And that is the one that tells you where we are going, we think, 

in the long run. So we then focus on things like labor force growth 

and productivity and capital investment and that sort of thing. And 

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53 

those are the things that are going to be the big determinants of 

long-run growth and long-run prosperity. 

Mr. WOODALL. And you use the term ‘‘long-run’’ to describe what 

time window? 

Mr. HALL. Yeah, by long-run, I really kind of mean—I kind of 

mean once the economy reaches its potential. You know, what is— 

by potential, I mean the supply side constraint on where we can 

go. We only have so many workers. We only have so much capital. 

That is sort of what I mean by the long-run, when that constraint 

becomes binding. 

Mr. WOODALL. So as I look at the projections you have made this 

year versus those you have made prior to the tax cuts, I see a larger GDP than you had expected in the 10-year window—— 

Mr. HALL. Right. 

Mr. WOODALL.——suggesting cumulative growth greater than 

you had expected in the 10-year window. 

I recognize the concerns that folks have about we are trading 

away prosperity tomorrow for prosperity today, but it seems like 

we have increased prosperity relative to your expectations just 2 

years ago over the entire 10-year window. 

Mr. HALL. Well, when we looked at the effect of the tax cut, we 

expected the tax cut raised GDP last year by about three-tenths of 

a percentage point. So it did have an impact on growth there. We 

think the impact continues going forward so that, on average over 

10 years, we think the GDP level will be seven-tenths of a percentage point higher. So we do think we have a bigger economy this 

next 10 years because of the tax cut. 

Chairman YARMUTH. The gentleman’s time has expired. 

Mr. WOODALL. Thank you, Mr. Chairman. 

Chairman YARMUTH. I now recognize the gentleman from Pennsylvania, Mr. Boyle. 

Mr. BOYLE. Thank you. And congratulations, Mr. Chairman. 

Thank you, first and foremost, for the work that the CBO does. 

Especially at this point in history of this institution, the history of 

our country, to have public servants who are attempting to call the 

balls and strikes is an incredibly important public service. I want 

to say thank you to you and everyone who works at CBO. 

With respect to the deficits, it appears that the latest projection 

is that the deficit will reach just under $1 trillion in this fiscal year 

and then exceed $1 trillion for a number of years to come. The deficit has spiked dramatically this past year, specifically because of 

a GOP tax cut that wasn’t paid for. 

Can you cite for me—and I should add, we are approximately 9 

years into this economic expansion. Can you cite for me any other 

time in American history during an economic expansion where you 

have seen such a dramatic increase in the deficit? 

Mr. HALL. No, not really. And, in fact, the visual summary that 

I handed out, if you sort of look at that visual summary, you sort 

of get to see deficits historically. 

And one of the interesting things to me is if you look at this and 

look at, gee, 1980 was a recession, we saw a deficit spike. 1990, 

they spiked. 2001, they spiked. 2008, they spiked. And now they 

are not spiking, but they are at a really high level for such a low 

unemployment rate and for such strong growth. That is different. 

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54 

Mr. BOYLE. Yes. And given the previous examples you cited, and 

you can go back even before 1980 and it would show the same 

thing—— 

Mr. HALL. Right. 

Mr. BOYLE.——typically, budget deficits dramatically increase 

when there is a recession. 

Mr. HALL. Yes. 

Mr. BOYLE. So when inevitably this economic expansion ends and 

there is another recession, what would you expect to happen to this 

already large budget deficit? 

Mr. HALL. We think the deficit would likely increase. Now, we 

do, in the long run when we do forecast, we do have a little bit 

lower growth in there because we think, okay, there might be a recession in there. And so growth, on average, is lower than we 

would forecast without a recession. So there is a recession sort of 

in there over 10 years, but it is not actually visible. But you are 

absolutely right, if we did hit a recession, we would expect the deficits to spike more than where they are now, which is already a 

high level. 

Mr. BOYLE. Let me just shift quickly to the longest government 

shutdown in American history. I was struck by the fact that the 

equity markets reacted almost not at all to this and to the effect 

on first quarter growth, presumably under the belief that anything 

we lost in the first quarter will then just be added back on in the 

second quarter. It is hard for me to understand how that squares 

with so many contractors who now will permanently lose the pay 

that they lost over the last month. 

Can you help me try to understand that? And do you agree with 

what seems to be the perception out there that this government 

shutdown, as awful as it was, somehow we would make back up 

the revenue and growth that was lost? 

Mr. HALL. Well, first of all, when we did our estimate, we do 

think that Federal spending—that Federal agencies will spend 

their appropriations. So their spending stopped, but they will continue and they will spend all the money. And we think that people 

who were not paid for a while, they will get back maybe to normal 

patterns. 

Part of what is not captured by that is the distributional effects, 

right. So we are looking at the effect over in the context of the entire economy, which is really huge; but if you look at the impact 

on just Federal workers, it is much higher. If you look at the impact on private contractors, it is higher. And some of that effect is 

going to be permanent for those contractors. Even if the Federal 

Government goes ahead and spends the money, they aren’t necessarily going to spend it the same way that they did before. 

So there is that distributional effect. And we also don’t see it entirely recovering. We think that, on the whole, we will see some recovery over the next three quarters, but we will still be—GDP output will still be short about $3 billion. You won’t make up for that 

government output. 

Mr. BOYLE. So just to underscore that point, we won’t be, as you put it, entirely whole, and that is $3 billion that we lost because 

of this government shutdown? 

Mr. HALL. That is our estimate, yes. 

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Mr. BOYLE. Thank you. 

Thank you, Mr. Chairman. 

Chairman YARMUTH. Thank you. The gentleman’s time has expired. 

I now recognize the gentleman from Missouri, Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chair. Mr. Hall, great to have you 

today. In 2016, I believe the yearly GDP was 1.5 percent. In 2017, 

it was 2.3 percent. And it is estimated 2018 is going to be 3.3 percent. So definitely, why would you say that it went from 1.5 in 

2016, 2.3 in 2017, and now 3.3 in 2018? 

Mr. HALL. Well, part of it is the continued recovery from the 

Great Recession. The recovery was really quite slow. But we do 

think a lot of it was the stimulus from the Tax Act. We do think 

that that has had an impact and there has been a bit of stimulus 

out there. 

Mr. SMITH. So what happened in 2003—I mean 2017? Because 

the Tax Act was passed in December of 2017. 

Mr. HALL. Right. We just sort of had a strengthening economy. 

You know, it is quite possible—— 

Mr. SMITH. Could it have been President Trump’s regulatory relief? 

Mr. HALL. That may have had an impact. You know, it may have 

been—I do think there were probably some signs that people anticipated a Tax Act coming up. 

Mr. SMITH. Or optimism by consumers? 

Mr. HALL. That is quite possible, yes. 

Mr. SMITH. Because of President Trump’s policies? 

Mr. HALL. Well, I would say anticipation of a Tax Act. 

Mr. SMITH. Of his policies, because he pushed tax reform, right? 

Mr. HALL. Right. 

Mr. SMITH. Okay. Also, we have heard some discussion in here 

earlier that said that tax revenues are up for last year. Is that correct? 

Mr. HALL. I believe that is true, yes. 

Mr. SMITH. So after passage of the Tax Cut and Jobs Act, what 

did we lose in revenue? Because the prior discussion from the gentleman from Pennsylvania said we have the highest deficit now because of the tax cut. So how much did we lose last year because 

of the tax cuts? 

Mr. HALL. I would have to look. I would have to look that up. 

Mr. SMITH. I think that is a pretty important issue. You made 

that—you know, you didn’t counter that statement. 

Mr. HALL. Right. 

Mr. SMITH. So I would like that number of how much revenue 

we lost. 

Mr. HALL. Okay. I can give you some idea. We will follow up. But 

if you look at the second graph on the visual summary, you will 

see that the revenues as a share of GDP sort of fell below 50-year 

averages. That is, in part, because of the Tax Act. 

Mr. SMITH. What your report did say—and correct me if I am 

wrong—that because of the Tax Cut and Jobs Act, we added 

900,000 new jobs. Is that correct? 

Mr. HALL. That is right, over a 10-year period—— 

Mr. SMITH. Over a 10-year period. 

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Mr. HALL. That is right. 

Mr. SMITH. And also, your report says that wages raised by $1.2 

trillion over 10 years? 

Mr. HALL. I don’t know that number in my head, but if it is our 

estimate. 

Mr. SMITH. Those were the numbers that you gave us in spring 

of last year, and they also are in this report. 

Mr. HALL. Well, we still stand by those numbers. We are still 

happy with the estimate. 

Mr. SMITH. So that is good, because that is a highlight. And I 

think that we need to talk about wages increasing instead of your 

statement just earlier saying that they have been flat. 

Also, in your report in spring, and you just highlighted again, 

you said that the Tax Cut and Jobs Act will create $1.7 trillion in 

GDP. Is that correct? 

Mr. HALL. What’s that? 

Mr. SMITH. Over 10 years. 

Mr. HALL. Over 10 years? I am not sure of that raw number. I 

have got the seven-tenths of a percent higher, on average, over 10 

years. That may work out to be that number. 

Mr. SMITH. Yes, seven-tenths over 10 years. Those were the numbers you gave us on the Ways and Means Committee, so I just 

wanted to highlight it. It shows the successes of the Tax Cut and 

Jobs Act, of how it is growing the economy and how we are affected. 

I clearly believe that your report highlights that the policy that 

was pushed by President Trump and the Republican House and 

Senate for tax cuts clearly has showed a growth in the economy. 

And also, you made a statement earlier that you said that the 

economy would slow down at the expiration of the Tax Cut and 

Jobs Act, correct? 

Mr. HALL. Of the individual income tax rates, if they go back up. 

Mr. SMITH. When they expire in a couple years? 

Mr. HALL. Yes. 

Mr. SMITH. So you are basically testifying that by increasing 

taxes will slow the economy, correct? 

Mr. HALL. That is right. 

Mr. SMITH. No further questions. 

Chairman YARMUTH. The gentleman’s time has expired. 

I now recognize the gentleman from Nevada, Mr. Horsford. 

Mr. HORSFORD. Thank you very much, Mr. Chairman. I am looking forward to serving with you and the other members of the committee. 

Dr. Hall, I would like to ask you to expand on your office’s report 

on the economic effects of the recent partial government shutdown. 

I would specifically like to focus on the economic impact of missed 

pay by Federal workers. There are 3,520 Federal employees in Nevada who were furloughed or forced to work without pay during the 

35-day government shutdown. That is 35 days of money that they 

could not buy groceries, repair their cars, pay for childcare, or other 

contributions to Nevada’s economy. 

In total, Nevada has 19,117 Federal employees, and those are 

employees who are impacted by President Trump’s recent executive 

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order, which will prohibit them from receiving their scheduled pay 

increases this year. 

Mr. HALL. Let me give you just a little context. There were 12 

departments or agencies affected by the partial shutdown, which is 

not trivial. It impacted about 800,000 people, which is about 40 

percent of the Federal workforce. 

And you are right, the lack of pay was something to the tune of 

$9 billion that those workers didn’t get for that time period. And 

we think the effects, of course, are really strong on those workers. 

It is also there is an indirect effect of their spending patterns 

change for a while. So you have impact on the rest of the economy 

as well. 

Mr. HORSFORD. So in addition to the impact from the shutdown, 

will the CBO release any kind of estimate on the public and private 

sector revenue loss as a result of the freeze in pay for these workers, both in Nevada and across the country? 

Mr. HALL. Yeah. We haven’t looked at the freeze in pay part, and 

I don’t know that we have any plans to look at that. 

Mr. HORSFORD. Can I ask why not, since that is such a big part 

of the economic stimulus, both in the public and private sector? 

Mr. HALL. Sure. It is not something we would normally—in a 

sense, we will take it on board when we look at our forecast, budget forecast going forward. You know, we will update this in the 

spring. So we will take that into account. 

It is a little different for us to actually get down and do sort of 

a real detailed analysis on the impact of just that, but that is something that we will take on board and look at when we look at Federal spending and then the economic growth aspects. 

Mr. HORSFORD. I think it is incredibly important. As you note, 

$9 billion of lost economic activity just in 35 days from people being 

furloughed. 

Mr. HALL. Right. 

Mr. HORSFORD. The impact of people not receiving, you know, a 

pay increase of 2.9 percent in their pay is quite a significant loss, 

both in the public and the private sector. And that has lost again 

an ability for people to meet their individual needs, family needs, 

community needs. And I think that, for whatever reason, there has 

not been enough discussion about the fact that Congress appropriated those funds for that pay increase and that the President 

unilaterally froze those pay increases. So I would like to request 

your office to provide that information once it is available. 

Mr. HALL. Okay. We will circle around and talk about it, if you 

like. 

Mr. HORSFORD. Thank you, Mr. Chairman. I yield back. 

Chairman YARMUTH. The gentleman’s time has expired. 

It is now my honor to yield for the first time to the Ranking 

Member, Mr. Womack, for 10 minutes. 

Mr. WOMACK. Thank you very much to the chair, and thank you, 

Director Hall, for your continued work at CBO. And I think we 

have had a pretty good discussion today on your economic outlook, 

and there have been a lot of, I think, really substantive questions 

raised here. I will try to amplify on some of those. 

It is obvious to—my friends on the other side have targeted the 

corporate tax rate. They believe cutting the corporate tax rate 

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down to 21 percent was ill-advised, and I think the plan right now 

is to move it to 28 percent. Can you give me a quick assessment 

as to what CBO thinks would happen in the event that the corporate rate went from 21 to 28 percent? 

Mr. HALL. Sure. I suppose without doing the estimate, I suppose 

we would see sort of the inverse of what we saw from having it 

lowered to begin with. It would likely have an impact on investment and lower levels investment, meaning lower capital stock. So 

we might take a hit on—GDP might take a hit actually in wage 

growth a little bit from having that increase. 

Mr. WOMACK. Without a model in front of you, what kind of a 

hit on GDP? 

Mr. HALL. It is hard—it is hard to know. I don’t want to sort of 

guess on that. We would have to do some thinking on it. You know, 

I don’t know that we separated out the effect of lowering the corporate tax rate to begin with really separated that out really carefully. I would have to take look and see what we have done. 

Mr. WOMACK. Well, I know the Tax Cuts & Jobs Act has been 

assailed by my friends on the other side quite frequently. Economic 

growth of 3.1 percent in 2018, best since 2005. Unemployment projected to be 3 1⁄2 percent in 2019, the lowest since the 1960s. I think 

it would be a stretch to say that the effects of the Tax Cuts & Jobs 

Act did not have an impact on those two statistics. Would that be 

correct? 

Mr. HALL. Well, that is right, and I think that was actually in 

our original forecast. I really do think we suggested that GDP was 

going to be at three-tenths higher in 2018, so some of that we think 

is from the Tax Act and the same with the wage growth. 

Mr. WOMACK. So assuming that is correct that the growth rate 

and the unemployment rate coming down are—have been impacted 

by the Tax Cuts & Jobs Act, then is it fair to say that the Tax Cuts 

& Jobs Act from that standpoint, growth in the economy, lower unemployment is, in fact, working? 

Mr. HALL. Well, I think—let me put it this way, I don’t want to 

sort of take sides, but I think it is—— 

Mr. WOMACK. Well, I am not asking you to take sides. I am just 

simply asking the CBO director to opine whether the effects—based 

on your modeling, whether the effects of the Tax Cuts & Jobs Act— 

we can set aside the argument of does it pay for itself. I mean, that 

is an entirely different subject, because you have to look at tax 

rates instead of in a vacuum as a total package. I mean, we have 

got deregulation that is happening. That is having an impact on 

the confidence of the job creator out here. That is just one example 

of many. We have got portfolios that are going up on the stock exchange where a whole lot of people have their 401(k)’s, et cetera, 

invested, and so that is a consideration. We have some companies 

that are investing in healthcare now for their employees as a result 

of the Tax Cuts & Jobs Act that had not been previously provided. 

So using the metrics CBO has given us growth in the economy, 

low unemployment. Again I ask, is it fair to say that from those 

standpoints the Tax Cuts & Jobs Act is working? 

Mr. HALL. I think we stand by our estimate, and I think our estimate is consistent with that, that there would be stimulus effect, 

there would be higher growth. There would be an increase in labor 

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force participation from the Tax Act. And so far after a year, I 

think our estimate is looking pretty good. 

Mr. WOMACK. So then would the inverse be true that if you raise 

the corporate rate from 21 to 28 percent and allow the individual 

rates to expire in whatever that eighth year is from the inception 

of the Tax Cuts & Jobs Act, that it would have an impact? 

Mr. HALL. I think it would have an impact, and some of that 

would be on investment and capital stock and growth. 

Mr. WOMACK. I want to pivot now to mandatory spending. We 

have talked a lot about it. It is one of my chief concerns, because 

as you have already said today in your testimony and has been covered in your economic outlook, as a percentage of GDP, as a percentage of GDP, mandatory spending in your 10-year window in 

your analysis goes higher and discretionary spending as a percentage of GDP goes lower. 

In your opinion as a director, is there a better argument or a better example of what the—on the spending side; we can set revenues aside, but on the spending side is there a better example to 

illustrate the point that this country has a spending problem and 

it is not discretionary, it is mandatory? 

Mr. HALL. Well, I won’t offer an opinion on what the biggest 

problem is, but it is certainly true I think discretionary spending 

right now is at a low level historically. You know, the lowest level 

I think ever historically is about 6 percent of GDP. We are at 6.3 

percent, and we are heading for only 5 percent. So discretionary 

spending is heading towards its lowest level ever. Mandatory 

spending is growing, and it is growing towards its highest level. I 

don’t think we are going to hit it in 10 years, but we are going to 

get pretty close. We are talking about having it get up to about 15 

percent of GDP. So that is making a big contribution to the deficit. 

Mr. WOMACK. In my opening, I asked my friends on the other 

side what is your plan based on the notion that deficits and debt 

just continue to be piled on to future generations, and that given 

what I just said about the percentage of GDP tied up in mandatory 

versus the declining side on the discretionary, I am not real—I am 

not real confident that there is a plan out there, except maybe to 

try to tax our way out of it. By itself, are taxes going to solve the 

problem? 

Mr. HALL. Taxes or spending or both. Obviously—— 

Mr. WOMACK. Now, wait a minute, Director Hall. The question 

is can we reasonably—you are an economist. Can we reasonably 

tax our way out of this problem? 

Mr. HALL. Well, the problem is what is reasonable. We can give 

you some idea of the effect of raising taxes, how much revenue that 

would generate. You know, in our options we have the effect of 

raising—this is something that is worth looking at a little bit—of 

raising all tax rates 1 percent and give you some idea. So if you 

put in maybe a 10 percent raise in all tax rates, you get something 

where the deficit starts to close, it gets pretty much to being closed. 

I am not sure that solves the problem, because closing the deficit 

problem means, okay, now you have got the hold over debt problem 

to solve. So the tax change would have to be pretty large to overall 

fix the problem by itself. 

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Mr. WOMACK. We have been beat up on our side of the aisle because in our budget resolution last year, we did some reconciliation 

numbers and we had some proposals that we were ready to present 

to deal with mandatory spending, particularly on the Medicare 

side, which is growing, as you have already said, faster—healthcare 

costs, growing faster than the growth of the economy and that that 

program is exceedingly expensive. If we don’t do anything, if we 

just let things go as they are present, status quo, what happens to 

part A? 

Mr. HALL. It becomes a bigger and bigger part of our budget. 

Mr. WOMACK. Is there an insolvency date? 

Mr. HALL. Certainly the trust fund dates, we estimate those. I 

don’t happen to have that in front of me, but it would come up. 

Mr. WOMACK. 2026? 

Mr. HALL. Yes, that sounds right. 

Mr. WOMACK. What about Social Security? 

Mr. HALL. Same deal. 

Mr. WOMACK. 2033 maybe, 2032, 2033, 2034. DI, faster than 

that, but on—but at the end of the day, the point I am trying to 

make is that if we do nothing, if we just allow status quo, that 

these programs become insolvent on their own. So I think it begs 

that we do something, and that is where I think we are getting not 

necessarily crickets, but we just don’t have a plan from the other 

side that is purposed in addressing the true drivers of the deficit 

and the debt, and it is not that we tax too little, it is that we have 

promised way too much, and these programs are running out of 

control and becoming so expensive that they are unsustainable in 

the long term. 

And I know my time is out. I am not going to take any more time 

than my 10 minutes, and I yield back to the distinguished Chairman. 

Chairman YARMUTH. Thank you very much, Ranking Member. 

I now yield 5 minutes to the gentlelady from Washington, Ms. 

Jayapal. 

Ms. JAYAPAL. Thank you so much, Mr. Chairman. It feels good 

to say that. 

Welcome back, Mr. Hall. We appreciate your being here. If we 

are concerned about deficits, then let me just remind my colleagues 

that the Republican majority passed a $1.9 trillion tax giveaway to 

giant corporations and the wealthiest Americans. It included provisions that slashed the corporate rates, so the largest companies got 

giant windfalls; cut the top marginal tax rate for the richest Americans so that 83 percent of the benefits of the cuts went to the top 

1 percent of taxpayers; and there were additional handouts for the 

wealthiest Americans, like the $40 billion that were showered on 

the owners of so-called passthrough businesses. 

Let’s start with Treasury Secretary Steve Mnuchin’s promises, 

because there were a lot of promises made about how the tax plan 

was going to benefit workers. And so, Mr. Hall, as the director of 

the CBO, you studied the tax plan and the budgetary effects of the 

legislation. Steve Mnuchin said that, quote, not only will this tax 

plan pay for itself, it will also pay down debt. So let me just ask 

you if the tax bill lived up to Steve Mnuchin’s promise. Did the tax 

bill pay for itself? Just a yes or no is perfectly fine. 

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61 

Mr. HALL. No. 

Ms. JAYAPAL. It did not pay for itself. 

Now, let’s look at whether the tax plan delivered for workers. 

Shortly after he signed the bill, President Trump said that corporations were, quote, already giving billions and billions of dollars 

away to their workers. He was referring to the bonus pay that 

some companies announced shortly after the bill became law. 

Mr. Hall, based on your understanding of how bonus compensation has changed since the bill passed, how much did the average 

American make in bonus pay as a result of the tax bill? 

Mr. HALL. I don’t know. 

Ms. JAYAPAL. Well, I happened to do a little research into this 

topic for this hearing, and according to a recent study from the 

Economic Policy Institute based on 2018 data from the Bureau of 

Labor Statistics, after adjusting for inflation, the average worker 

got an increase of only 2 cents per hour. Workers literally got pennies. 

So Republicans passed a $1.9 trillion tax plan, the money didn’t 

go to workers, and it didn’t go to paying down the debt. So where 

did it go? 

For one, companies spent $1 trillion on corporate stock buybacks 

last year alone. That is companies using their profits to buy back 

their own stock, rather than paying their workers, investing in research and development, or making capital investments. And I 

think that is just a very important backdrop to have as we look at 

the economy and the effects of the Republicans deficit spending 

that simply benefited the wealthiest individuals. 

You spent some time in your summary talking about immigration, and I believe that you looked at current immigration policy 

and you calculated that net immigration flows would grow by an 

average of 2 percent per year. Is that correct? 

Mr. HALL. Yes. 

Ms. JAYAPAL. And so when you look at current immigration policy, did you not factor in the President’s proposal and Republicans 

proposal last year that would dramatically restrict legal immigration to this country? 

Mr. HALL. We did a current law estimate, so when we talk about 

it, we talk about it in terms of current law. 

Ms. JAYAPAL. Right. So if the President’s proposal were to go 

through or Republicans proposal restricting legal immigration, it 

would have dramatic effects on our economy and on our ability to 

continue to grow and our labor flows being supported. 

Mr. HALL. We would have to look at that specific proposal and 

do an analysis of it. I wouldn’t want to offer an opinion now. 

Ms. JAYAPAL. And, Mr. Hall, do you know that we have a near 

stagnant native born population if you look at our economy? 

Mr. HALL. I haven’t looked at that, but I am not surprised. 

Ms. JAYAPAL. You trust me. Thank you. I appreciate that very 

much. 

Let me ask you about one of my favorite topics, which is the Social Security contributions of undocumented immigrants. Do you 

know, if all undocumented immigrants were deported today, how 

much next year’s Social Security trust funds would be reduced for 

benefit payments? 

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62 

Mr. HALL. Yeah, I don’t offhand. 

Ms. JAYAPAL. Let me tell you how much that is according to a 

marketplace report that just came out. Approximately $13 billion 

less for benefit payments for existing Social Security recipients. 

And in 2016 alone, there were $13 billion paid into the retirement 

trust fund and $3 billion to Medicare. And so I just would like the 

American people to understand the tremendous contributions that 

immigrants, both documented and undocumented, make to our 

economy. 

Mr. Hall, thank you so much for your presence, and I yield back, 

Mr. Chairman. 

Chairman YARMUTH. The gentlelady’s time is expired. 

I now yield 5 minutes to the gentleman from Texas, Mr. Roy. 

Mr. ROY. Thank you, Mr. Chairman. I appreciate it. 

Thank you for being here and testifying with us here today. I 

just have got one quick question. As a Texan, as a former first assistant attorney general in Texas, you are aware that there is a 

large case pending, Texas v. The United States, involving 

ObamaCare regarding the constitutionality of that act, which 

would have huge implications for Medicaid for future mandatory 

spending. Did this case affect the development of the baseline or 

any projections with regard to the economy in future mandatory 

spending in you all’s calculations? 

Mr. HALL. It did not. Our practice is on something like this is 

you wait till the appeals court deals with it before we think about 

taking it on board. 

Mr. ROY. Okay. Thank you. 

No further questions, Mr. Chairman. 

Chairman YARMUTH. I thank the gentleman. 

I now yield myself 10 minutes. Director Hall, thanks once again 

for taking all of our questions and your statement and your work. 

I want to return to the issue of tax cuts for a second. Your report 

says and your testimony said that you estimate that about 30 percent of the tax cuts in the 2017 act were paid for. They paid for— 

30 percent of it paid for itself, but left 70 percent. Would you actually define what that means if only 30 percent of the tax cuts were 

paid for, explain what that means? 

Mr. HALL. Sure, sure. I am not doing anything really sophisticated. We made an estimate of the tax cuts without taking the economic growth aspects into account, and we found that the tax bill 

would increase the revenue—the deficit by about $2.3 trillion. Then 

we took the growth effects into account, which are generally positive, you have higher growth, higher employment, and we found 

that the net effect would be $1.9 trillion. So that difference between 

those two things sort of gives you an idea of how much it pays for 

itself. 

If it had gone down to zero, for example, from $2.3 trillion down 

to zero, that would have been 100 percent paid for. If it went down 

to 1.9, that is about 30 percent of the cost. That is how I got that 

number. 

Chairman YARMUTH. All right. And you said earlier, I believe you 

said that you did not break out those percentages for corporate tax 

cuts versus individual tax cuts. Is that correct? 

Mr. HALL. That is right. 

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63 

Chairman YARMUTH. Just an overall figure. 

Do you have any sense of whether individual tax cuts paid back 

a higher percentage or a lower percentage of corporate rates did 

one or the other? 

Mr. HALL. I don’t know offhand. We might be able to look at it 

later and give you an idea of what we think and what we did. 

Chairman YARMUTH. But the bottom line is that of the $1.9 trillion over 10 years, most of that was a cost to the taxpayers in 

terms of reduced revenue and increased deficits and not an increase to the taxpayers benefit. 

Mr. HALL. That is right. And by the way, after a year after that 

estimate, we are still comfortable with that estimate. Things have 

come in about as we expected, so we would still say that it is about 

a $1.9 trillion increase in the deficit over the next decade. 

Chairman YARMUTH. All right. So is it not logical to say that increasing the corporate tax rate, if only 30 percent of it was paid 

for, would improve the deficit situation by some percentage? 

Mr. HALL. We would have to look at that. I don’t want to—I don’t 

want to kind of try to guess on something like that. 

Chairman YARMUTH. What factors would make that not logical? 

Mr. HALL. Well, on the plus side, of course, is to the degree it 

increases investment, you have an increase in the capital stock 

when you lower corporate taxes. That is sort of on the positive side, 

the marginal costs. But the question is does it increase it enough 

that it stimulates enough growth that it pays for itself? So in the 

reverse, you have kind of got raising corporate taxes, will it discourage enough investment and lower the capital stock enough that 

it doesn’t increase revenue. We would have to work that through. 

Chairman YARMUTH. Okay. I would like to see that, that analysis. 

We have a date approaching, I believe it is in March, when the 

statutory debt ceiling arrives, and while we may have some fudge 

room in terms of being able to pay debt—pay obligations of the government past that, we still face that crisis once again. What would 

be the consequences of not addressing the debt ceiling in a timely 

manner? 

Mr. HALL. I guess the thing we would worry about is ultimately 

you worry about the believability of Federal debt, whether or not 

you affect the rating of the U.S. as a borrower, that sort of thing, 

I suppose. I don’t know that we have ever really projected what the 

impact would be if you missed that deadline. 

Chairman YARMUTH. All right. Well, I hope we don’t have to. 

Going to healthcare for a second. We saw the projections in your 

report. I think in Medicare you are projecting about a 7 percent 

growth over the window, the 10 years. And that is based on current 

law, right? So if we were to—and I don’t know, I can’t remember 

exactly what the 120 suggestions were from last year, but if we 

were, for instance, able to, through policy, to change the law and 

reduce prescription drug prices by 20 percent, you could have a 

considerable impact on that growth rate. Is that not correct? 

Mr. HALL. That is probably correct. We would have—again, we 

would have to sort of look at that and try to noodle it through. 

Chairman YARMUTH. But current law does not—I mean, were 

there any suggestions, by the way, in terms of healthcare policy 

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64 

that you made in that 120 that would help reduce the growth rate? 

I mean, I understand part of it is demographics. 

Mr. HALL. Right, right. You know, I haven’t refreshed my memory on that. Odds are we have got some things in there, because 

we made an effort to use proposals from committees, the things 

that they thought were interesting, so we tried to find interesting 

things. 

Chairman YARMUTH. Right. When I read through your report 

and your testimony, one of the things that I thought was particularly frightening was all the different ways in which the situation 

could get worse, and not just through policy but through economic 

factors, through all sorts of things. Would you say that the odds of 

the situation getting worse are higher, lower, or you can’t tell, than 

that they might get better? 

Mr. HALL. We actually really tried really hard to make those 

equal, that we are in the middle. We think there is likely things 

are worse, and it is just as likely things are better, to give you 

some idea as part of our effort to sort of be objective on this. So 

we think we are in the middle. 

Chairman YARMUTH. And what are the possibilities—what are 

the worst possibilities that might occur over the next 10 years, either policy wise—I know we are talking about the expiration of the 

tax cuts in a few years. I know that is a big factor. What would 

be the worst scenarios? 

Mr. HALL. Well, I would focus on nonpolicy things. I think our 

forecast with the interest rates included. Interest rates are really 

hard to forecast and interest rates have a really big impact on this. 

And because we have a large debt and the cost of borrowing is a 

big part of the Federal budget now, and so higher or lower interest 

rates makes a pretty big impact on this. So I would say that is one 

of the big important items. 

Chairman YARMUTH. Again, one final question, and that is we 

have talked about this innumerable times over the years, but how 

much does uncertainty as to probabilities grow the farther we go 

into the budget window, and obviously past that you have got a 

2049 projection as to overall debt? 

Mr. HALL. The uncertainty clearly in our forecast clearly increases pretty significantly the further we go into the future. You 

know, we have done some analysis of how accurate we are in projecting, and as you might expect, we are generally more accurate 

a year or two than we are 5 years down the line, so that is an important thing. We try to give you a feel for that sometimes in our 

uncertainty chapter of how much that grows, you know, 10 years 

out. 

Chairman YARMUTH. Has uncertainty increased over the last few 

decades or is it about the same? It seems to me there is a lot—the 

world is changing a lot more quickly than it used to. 

Mr. HALL. I am not so sure it is in our report so much, but it 

really does seem like that the level of policy uncertainty these days 

is higher than it has been, and that adds to, I think, to the uncertainty that we may not have captured. 

Chairman YARMUTH. All right. Well, I have no further questions. 

Once again, thank you so much. 

Mr. SCOTT. Mr. Chairman? 

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65 

Chairman YARMUTH. Oh, I am sorry. 

Mr. SCOTT. Unanimous consent request. 

Chairman YARMUTH. Go right ahead. The gentleman is recognized. 

Mr. SCOTT. Mr. Chairman, I ask unanimous consent that a fact 

sheet prepared by the Committee on Education and Labor on the 

multiemployer crisis, the cost and consequences of inaction pointing out that the PBGC may collapse and the revenues will go 

down, increased safety net spending will go up, costs as much as 

$275 billion over 10 years if we do nothing. I would like this entered for the record. 

Chairman YARMUTH. Without objection. So done. 

[The information follows:] 

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Fact Sheet 

[DLABOR.HOtJSLGOV 

The Multiemployer Pension Crisis: The Cost and Consequences of Inaction 

Doing Nothing is the Most Expensive Option on the Table 

Many multiemployer pension plans are in financial crisis and will soon be unable to pay out the benefits they owe to 

retirees. These impacted retirees earned their pensions in demanding industries, such as construction, trucking, and 

mining. Through no fault of their own, their pensions and their ability to retire with dignity are now in jeopardy. But the 

cost of inaction is not limited to retirees. Participating employers, regional economies, and communities across the 

country will suffer severe consequences as welL 

Additionally, according to one estimate, congressional inaction would cost as much as $100 billion in lost federal tax 

revenue and $175 billion in increased social safety net spending over the next ten years. 

What's at stake for retirees if Congress does not act? 

More than a million retirees involved in multiemployer pension plans are at risk of losing nearly everything they earned 

over their careers. If plans fail, retirees will not receive their promised benefits. Making matters worse, the Pension 

Benefit Guaranty Corporation (PBGC}, which insures private sector pension plans, is rapidly running out of money to 

backstop failed multiemployer pension plans. Unless the status quo changes, f!l?re'HUJ!§Pte[.than 90 percent chance 

the PBGC's multiempla'{Ji[J2!0qram_Q_~comes insolve~J!llyfiscal Year 2(1_?_2.. 

If plans fail, and if the PBGC's multiemployer program becomes insolvent, retirees will only receive a small fracti@ of 

their benefits, essentially pennies on the dollar. 

What's at stake for employers if Congress does not act? 

The multiemp!oyer pension crisis also carries severe risks for employers. A conservative economist at the American 

Enterprise Institute projects that the failure of the Central States Teamster Pension alone would cost 55,000 jobs by 

2025. That's just one plan in one year. There are more than a hundred plans that are at real risk offailing in next decade. 

What's at stake for taxpayers if Congress does not act? 

The US Chamber of Commerce noted that "insolvencies and the subsequent benefit cuts that follow also have deep 

impacts on the communities where participants live. Retirees will see their standard of living reduced ... This will cause 

many to become reliant on social programs that have to be funded by taxpayers at a time when tax revenue will be 

declining." 

According to one estimate. congressional inaction would lead to a dramatic increase in spending on federal social safety 

net programs- such as Medicaid, the Supplemental Nutrition Assistance Program (SNAP), HUD Housing Assistance, and 

the Low-Income Home Energy Assistance Program (LIHEAP). Spending would increase by more than $17 billion annually 

and $175 billion over ten years. That same estimate indicated that the U.S. Government would lose between $31 billion 

and $101 billion in tax revenue over the ten years if Congress fails to address this crisis. 

Is there some agreement on how Congress should act? 

Yes. A broad range of stakeholders have endorsed a loan program, which would prevent catastrophic cuts to retiree 

pensions. In fact, last fall, nearly 30 organizations- including the US Chamber of Commerce, the Business Roundtable, 

and National Association of Manufacturers- wrote to the Joint Select Committee and voiced support for a loan 

program. 
67 

Chairman YARMUTH. I want to thank Director Hall once again 

for being with us today. Please be advised members can submit 

written questions to be answered later in writing. Those questions 

and your answers will be made part of the formal hearing record. 

Any members that wish to submit questions for the record may do 

so within 7 days. 

Without objection, this hearing is adjourned. 

[Whereupon, at 11:59 a.m., the committee was adjourned.] 

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Question for the Record 

Congressman Chip Roy (TX-21) 

January 29, 2019 

Hearing: 'The Congressional Budget Office's Budget and Economic Outlook'' 

In your letter to Rep. Meadows of September 27, 2018, you claimed that, in changing the 

budgetary treatment of cost-sharing reductions (CSRs), CBO "analyzed how premiums for 2018 

had been affected by the lack ofCSR payments in all states and the implications for the agency's 

baseline projections before those projections were tlnalized in March 2018 ... However, in 

response to state public records requests, not only did the insurance commissioners' offices in 

North Dakota, Vermont, and the District of Columbia-states that did NOT adjust premium rates 

to ret1ect the lack of CSR payments in 20 IS-indicate that they had no documents related to any 

dealings with CBO on this issue, they each noted that no one rrom CBO had ever contacted their 

oftlces. 

Which officials did CBO consult with in these specific states about the impact of CSR payments 

on 2018 premiums--and when did it do so? If CBO cannot provide any evidence that it 

undertook due diligence about the impact ofCSRs in states that did NOT adjust premiums to 

ret1ect the lack of payments in 2018 prior to releasing its 2018 baseline projections, then it 

cannot claim to have upheld its statutory remit under 2 U .S.C. 907(b )(1 ), which requires CBO to 

assume that '"funding for entitlement authority is ... adequate to make ALL payments required.'" 

Moreover, a lack of due diligence surrounding these specific states would raise additional 

questions about whether CBO provided full, complete, and accurate responses to questions rrom 

Rep. Meadows and other Members of Con1,1fess about this issue over the course of the past year. 
69 

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Questions for the Record- Rep. Jan Schakowsky 

Budget Committee Hearing- The Congressional Budget Office's Budget and Economic Outlook- January 

29'h, 2019 

1. Your report released on January 28, 2019 reflected a shrinkage in the potential labor force due 

to this Administration's immigration policy. How would comprehensive immigration reform 

affect the labor force and in turn GDP? Does the CBO have updated evaluations of the economic 

implications of comprehensive immigration reform, and if not, does it intend to conduct an 

updated analysis? 

2. In 2013 you analyzed the Senate passed comprehensive immigration reform bill, the Border 

Security, Economic Opportunity, and Immigration Modernization Act, and found that it would 

decrease federal budget deficits by $158 billion over a 10-year period and would lead to a net 

savings of about $135 billion over the same period. If passed today, would a similar immigration 

reform bill have the same impact on the budget? 

3. In 2013 your report also found that the Senate immigration reform bill would lead to the 

increased solvency of Medicare and Social Security. The Social Security Trustee has additionally 

reported that as net immigration increases, the cost rate of Social Security decreases because 

increased legal immigration leads to an increase in the number of covered workers paying into 

the system. If passed today, would similar legislation have the same impact on Medicare and 

Social Security? 

4. Previous CBO reports have shown a correlation between taxing fossil fuels and the reduction of 

greenhouse gas emissions. Also, CBO's options for reducing the deficit published in December 

2018 show imposing a tax of $25 per metric ton on most emissions of greenhouse gases would 

raise $1.1 trillion of revenues over ten years. What would be the ideal carbon tax rate that raises 

the most net revenue accounting for the offsetting reductions in taxable business and individual 

income? What would be the reduction of total U.S. greenhouse gas emissions as a result? 

5. Additionally, what would be the cost estimate for rebating a portion of these tax revenues to 

households (specifically low-income households) to offset the additional costs they incur 

because of the carbon tax? 
70 

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Answers to Questions for the Record Following a Hearing 

Conducted by the House Committee on the Budget 

on The Budget and Economic Outlook: 2019 to 2029 

MARCH 20,2019 

On January 29, 2019, the House Committee on the Budget convened a hearing at which Keith 

Hall, Director of the Congressional Budget Office, testified about CBOs report The Budget and 

Economic Outlook: 2019 to 2029. 1 After the hearing, Congressman Roy and Congresswoman 

Schakowsky submitted questions for the record. 7his document provides CBOS answers. It is 

available at U'U'lcrbo.gNJpublimtiortl5'5()_)j, 

Congressman Roy 

Question. In your letter to Rep. Meadows of September 27,2018, you claimed that, in 

changing the budgetary treatment of cost-sharing reductions (CSRs), CBO "analyzed how 

premiums for 2018 had been affected by rhe lack of CSR payments in all states and the 

implications for the agency's baseline projections before those projections were finalized 

in March 2018." However, in response to state public records requests, not only did the 

insurance commissioners' offices in North Dakota, Vermont, and the District of Columbiastates that did NOT adjust premium rates to reflect the lack of CSR payments in 2018-

indicate that they had no documents related to any dealings with CBO on this issue, they 

each noted that no one from CBO had ever contacted their offices. Which officials did CBO 

consult with in these specific states about the impact of CSR payments on 2018 premiumsand when did it do so? If CBO cannot provide any evidence tbat it undertook due diligence 

about the impact of CSRs in states that did NOT adjust premiums to reflect the lack of 

payments in 2018 prior to releasing its 2018 baseline projections, then it cannot claim to 

have upheld its statutory remit under 2 U.S. C. 907(b)(l ), which requires CBO to assume 

that "funding for entitlement authority is ... adequate to make ALL payments required." 

Moreover, a lack of due diligence surrounding these specific srares would raise additional 

questions about whether CBO provided full, complete, and accurate responses ro questions 

from Rep. Meadows and other Members of Congress about this issue over the course of the 

past year. 

Answer. In preparing its baseline budget projections early in 2018, CBO analyzed how premiums for 2018 had been affected by the lack of payments for CSRs in all states. For many 

states, including North Dakota and Vermont, as well as the District of Columbia, CBO 

relied on information provided by the National Association of Insurance Commissioners 

and the Commonwealth Fund and on information in insurers' public rate filings for the 

l. See testimony of Keith Hall, Director, Congressional Budget Office, hefore the House Committee 

on the lhe Budget and t:'conomic Outlook: 2019 to 2029 (January 29, 2019), \\'W\\'.,_bo.gnl-1 
71 

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2 AXSWERS TO QUESTIONS FOR THE RECORD 

2018 plan year. 2 In a very small number of states, insurance regulators did not allow insurers 

to explicitly increase premiums for silver plans in the marketplaces to account for CSRs. 

However, CBO estimated that premiums in those areas were sufficient to cover the cost of 

CSR,. The approach CBO used allowed the baseline projections to reflect what was actually 

happening in insurance markets, rather than the alternative of assuming the continuation of 

direct payments that were not being made. 

Congresswoman Schakowsky 

Question. Your report released on January 28, 2019 reflected a shrinkage in the potential 

labor force due to this Administration's immigration policy. How would comprehensive 

immigration rdOrm affect the labor force and in turn GDP? Does the CBO have updated 

evaluations of the economic implications of comprehensive immigration reform, and if not, 

does it intend to conduct an updated analysis? 

Answer. CBO's reduced projection of the potential labor force in its January report reflects 

a reassessment of long-term immigration trends under current law rather than specific 

Administration policy. 

MARCH 20, 2019 

Estimating the effect of comprehensive changes to immigration polk-yon the labor force and 

on gross domestic product (GOP) is complicated and highly uncertain. The estimated effects 

would depend to a large extent on the details of the legislation, particularly on whether it 

increased or decreased the total amount of immigration and whether it increased or decreased 

the emphasis on economic skill levels in determining eligibility. Effects would tend to vary 

across industries as well, because foreign-born workers tend to be concentrated in certain 

industries. 

Broadly speaking, policies that changed the total number of foreign-born people would tend 

to affect total output, investment, and labor productivity-as well as interest rates-all in the 

same direction. 1hat is, an increase in net migration would raise them all, whereas a decrease 

would lower them. 

Because the effects of comprehensive changes to immigration policy depend so much on the 

details of the proposal, CBO cannot conduct an updated analysis until specific legislation 

becomes available. 

Question. In 2013 you analyzed the Senate passed comprehensive immigration reform bill, 

the Border Security, Economic Opportunity, and Immigration ModernizatJon Act, and 

found that it would decrease federal budget deficits by $158 billion over a 1 0-year period 

and would lead to a net savings of about $135 billion over the same period. If passed today, 

would a similar immigration reform bill have the same impact on the budget? 

Answer. CBO and the staff of the Joint Committee on Taxation QCT) have not completed 

any similar detailed analysis since the cost estimate for S. 744, the Border Security, Economic 

2. See National Association for Insurance Commissioners, "System for Electronic Rates & Forms Filing" 

(accessed most recently on February 25, 2019), \\WW.'>crtT.com; Sabrina Corlette, Kevin Lucia, and 

Maanasa Kona, "Stares Step Up to Protect Consumers in Wake of Cuts to ACA Cost-Sharing Reduction 

Payments," To the Point(blog entry, October 27, 2017), hnr://rinyurl.com/y728ro2y; and Centers 

for Medicare & Medicaid Services, "Rate Review" (accessed most recently on February 25, 20 19), 

httpdir.lr<.'revie\v.ht:<llthcarc.g•w. 
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ANSWERS TO QUESTIONS FOR THE RECORD HOUSE COMM11l'EE ON THE BUDGET 3 

Opportunity, and Immigration Modernization Act of2013, was completed.3 The estimated 

budgetary effects of a similar bill today would not necessarily be the same as the estimate for 

S. 744. Legislative and administrative changes in immigration, benefit, and tax policies in the 

past few years have affected CBO's baseline projections and would affect CBO's estimates for 

future immigration proposals. Additionally, the behavior of U.S. employers and foreign-born 

employees and students changes over time, and those changes could affect how CBO 

estimates changes in the effects of immigration proposals on the U.S. population. Finally, 

CBO and JCT continually incorporate new research and information into their baseline 

projections and estimates. 

Nevertheless, the major factors that underpinned CBO's estimate of S. ?44's population 

effects remain fundamentally unchanged: 

• American employers petition each year for hundreds of thousands of workers to receive 

temporary or permanent immigration status. 

• American citizens and lawful permanent residents (LPRs) petition each year for hundreds 

of thousands of their relatives to become LPRs. 

• Millions of noncitizens who arc the beneficiaries of approved LPR petitions await the 

availability of a green card--often for decades. 

• An estimated ll million to 12 million noncitizens are present in the United States 

without legal immigration status. 

Question. In 2013 your report also found that the Senate immigration reform bill would 

lead to the increased solvency of Medicare and Social Security. The Social Security Trustee 

has additionally reported that as net immigration increases, the cost rate of Social Security 

decreases because increased legal immigration leads to an increase in the number of covered 

workers paying into the system. If passed today, would similar legislation have the same 

impact on Medicare and Social Security? 

Answer. The 2013 estimate for S. 744 did not directly address the effect of the legislation 

on tbe long-term solvency of Social Security and Medicare. CBO estimates that, in general, 

a permanent increase in the level of net immigration would increase the ratio of workers to 

Social Security and Medicare beneficiaries and improve the long-term financial outlook for 

those programs. The magnitude of the financial effects would depend on the size, pattern, 

and types of changes in net immigration flows. Not all changes to immigration law would 

result in improved solvency. 

In 2013, CBO andJCT estimated that S. 744 would result in more people being admitted 

into the United States and in providing legal status, work authorization, or both, to many 

noncitizens who were unlawfully present in the country. CBO estimated that those changes 

would give rise to more future Social Security and Medicare beneficiaries. However, the 

additional workers were expected to be younger and healthier than the rest of rhe U.S. 

workforce, and most would not work in authorized employment for long enough-generally 

3. CBO used its 2013 estimate as rhe basis for projecting the effects of a proposal similar to S. 744 in the 

President's 2017 budget. After adjusting the cost estimate for that legislation to reflect changes in the baseline 

budget projections that had been made since 2013, and after taking into account other changes to the tax 

code proposed by the President, CBO and JCT projected that the proposal's effects on revenues and direct 

spending would reduce deficits by $101 billion over the 2017-2026 period (compared with $158 billion over 

the 2014-2023 period projected in the original cost estimate). See Congressional Budget Office, An Analysis 

of the Presitknt's 2017 Budget (March 2016), page 6, www.cbo.gov/publication/S l38J. 
73 

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4 ANSWERS TO QUESTIONS fOR THE RECORD 

10 years-to qualiJy for Social Security and Medicare within the 1 0-year budget window. 

Therefore, CBO projected that the bill would result in relatively few additional people 

receiving Social Security and Medicare benefits in the first decade of the projection period, 

though more people would qualifY in later years. Outlays for Social Security and Medicare 

would have increased by an estimated $3 billion over the 2014-2023 period. Over that 

I 0-year period, the bill would have resulted in more than $250 billion in additional Social 

Security and Medicare payroll tax revenues, due both to increases in the number of workers 

and to changes in legal status for some current workers, CBO and JCT estimated. 

CBO has not completed any detailed new analyses of proposals to make major changes to 

immigration law since 2013, and the estimated budgetary effects of a bill similar to S. 7 44 

might differ from those made six years ago. But in the initial decade after enactment of a 

similar bill, additional revenues to the Social Security and Medicare programs would significantly exceed additional outlays, CBO expects. 

Question. Previous CBO reports have shown a correlation between taxing fossil fuels and 

the reduction of greenhouse gas emissions. Also, CBO's options for reducing the deficit 

published in December 2018 show imposing a tax of$25 per metric ton on most emissions 

of greenhouse gases would raise $1.1 trillion of revenues over ten years. What would be the 

ideal carbon tax rate that raises the most net revenue accounting for the offsetting reductions 

in taxable business and individual income? 'What would be the reduction of total U.S. 

greenhouse gas emissions as a result? 

Answer. CBO has: not t.."Stimated the tax rate on greenhouse gas emissions that would maximize 

the revenue from a carbon tax; however, the agency expects that the rate would be high (substantially higher than the rate used in CBO's December 2018 budget option). In addition, the tax 

rate at which revenue would peak would depend on the cost oflow-carbon technologies. Because 

a carbon tax would spur innovations in such technologies, predictions about the cost of future 

technologies under a tax, particularly one with a high rate, are very uncertain. 

Question. Additionally, what would be the cost estimate for rebating a portion of these tax 

revenues ro households {specifically low-income households) to offset the additional costs 

they incur because of the carbon tax? 

Answer. 1he fraction of tax revenue that would be required to offset the average cost that a 

tax wouJd impose on lower-income households would depend on the share of the tax burden 

that would fall on those households. Estimates of that share, in turn, vary ba.<ied on how the 

tax would affect households. Analysts have considered two possibilities: The tax might raise 

the prices of the goods and services that households purchase, or it might lower the wages 

that workers earn and the returns on capital that businesses receive, rhus lowering households' income from those sources. 

MARCH 20, 2019 

CBO is in the process of reassessing how much such a tax might raise prices and how much it 

might reduce wages and returns. CBO expects that the cost of compensating the 20 percent 

of households in the lowest income quintile would be largest if the tax only raised prices. In 

a previous analysis of such a case, the agem:y concluded that the inflation-adjusted income of 

the lowest quintile would be unaffected if they received a transfer equal to roughly 10 percent 

of the revenue raised by the policy.4 The share of revenue that would be required to com pen~ 

sate the lowest quintile would depend on the details of the policies involved. 

4. See Congressional ouo~ge<vn>e,, 

(September 2009),