S. HRG. 115–589 

CONCURRENT RESOLUTION ON THE 

BUDGET FISCAL YEAR 2019 

HEARINGS 

BEFORE THE

COMMITTEE ON THE BUDGET 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

JANUARY 24, 2018—OVERSIGHT OF THE CONGRESSIONAL BUDGET 

OFFICE 

FEBRUARY 13, 2018—THE PRESIDENT’S FISCAL YEAR 2019 BUDGET 

PROPOSAL 

MARCH 7, 2018—DEPARTMENT OF DEFENSE AUDIT AND BUSINESS 

OPERATIONS REFORM AT THE PENTAGON 

MARCH 21, 2018—THE ECONOMIC REPORT OF THE PRESIDENT 

APRIL 11, 2018—CBO’S BUDGET AND ECONOMIC OUTLOOK: FISCAL 

YEARS 2018-2028 

MAY 23, 2018—GAO’S ANNUAL REPORT OF ADDITIONAL OPPORTUNITIES TO REDUCE FRAGMENTATION, OVERLAP AND DUPLICATION 

IN THE FEDERAL GOVERNMENT 

SEPTEMBER 13, 2018—AN UPDATE ON TRANSPARENCY AT THE 

CONGRESSIONAL BUDGET OFFICE 

( 


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CONCURRENT RESOLUTION ON THE BUDGET FISCAL YEAR 2019 


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U.S. GOVERNMENT PUBLISHING OFFICE

35–700 WASHINGTON : 2019

S. Hrg. 115–589 

CONCURRENT RESOLUTION ON THE 

BUDGET FISCAL YEAR 2019 

HEARINGS 

BEFORE THE

COMMITTEE ON THE BUDGET 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

JANUARY 24, 2018—OVERSIGHT OF THE CONGRESSIONAL BUDGET 

OFFICE 

FEBRUARY 13, 2018—THE PRESIDENT’S FISCAL YEAR 2019 BUDGET 

PROPOSAL 

MARCH 7, 2018—DEPARTMENT OF DEFENSE AUDIT AND BUSINESS 

OPERATIONS REFORM AT THE PENTAGON 

MARCH 21, 2018—THE ECONOMIC REPORT OF THE PRESIDENT 

APRIL 11, 2018—CBO’S BUDGET AND ECONOMIC OUTLOOK: FISCAL 

YEARS 2018-2028 

MAY 23, 2018—GAO’S ANNUAL REPORT OF ADDITIONAL OPPORTUNITIES TO REDUCE FRAGMENTATION, OVERLAP AND DUPLICATION 

IN THE FEDERAL GOVERNMENT 

SEPTEMBER 13, 2018—AN UPDATE ON TRANSPARENCY AT THE 

CONGRESSIONAL BUDGET OFFICE 

( 


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(II) 

COMMITTEE ON THE BUDGET 

MICHAEL B. ENZI, Wyoming, Chairman 

CHARLES E. GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

LINDSEY O. GRAHAM, South Carolina 

PATRICK TOOMEY, Pennsylvania 

RON JOHNSON, Wisconsin 

BOB CORKER, Tennessee 

DAVID A. PERDUE, Georgia 

CORY GARDNER, Colorado 

JOHN KENNEDY, Louisiana 

JOHN BOOZMAN, Arkansas 

TOM COTTON, Arkansas 

BERNARD SANDERS, Vermont 

PATTY MURRAY, Washington 

RON WYDEN, Oregon 

DEBBIE STABENOW, Michigan 

SHELDON WHITEHOUSE, Rhode Island 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

TIM KAINE, Virginia 

ANGUS S. KING, JR., Maine 

CHRIS VAN HOLLEN, Maryland 

KAMALA D. HARRIS, California 

ELIZABETH MCDONNELL, Republican Staff Director 

WARREN GUNNELS, Minority Staff Director 


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(III) 

C O N T E N T S 

HEARINGS 

Page 

January 24, 2018—Oversight of the Congressional Budget Office ...................... 1 

February 13, 2019—The President’s Fiscal Year 2019 Budget Proposal ............ 45 

March 7, 2018—Department of Defense Audit and Business Operations Reform at the Pentagon ........................................................................................... 193 

March 21, 2018—The Economic Report of the President ..................................... 245 

April 11, 2018—CBO’s Budget and Economic Outlook: Fiscal Years 2018- 

2028 ....................................................................................................................... 297

May 23, 2018—GAO’s Annual Report of Additional Opportunities to Reduce 

Fragmentation, Overlap and Duplication in the Federal Government ........... 343 

September 13, 2018—An Update on Transparency at the Congressional Budget Office ................................................................................................................. 411 

STATEMENTS BY COMMITTEE MEMBERS 

Chairman Michael B. Enzi ............................................... 1, 45, 193, 245, 297, 343, 411 

Ranking Member Bernard Sanders ................................................. 3, 47, 195, 299, 346 

Senator Charles E. Grassley ................................................................................... 241 

Senator Chris Van Hollen ................................................................................... 247, 412 

WITNESSES 

Dodaro, Hon. Gene L., Comptroller General of the United States, U.S. Government Accountability Office ............................................................................. 348 

Prepared Statement of ..................................................................................... 350 

Questions and Answers (Post-Hearing) from: 

Senator Patty Murray ............................................................................... 403 

Senator Chris Van Hollen ........................................................................ 404 

Senator Mark R. Warner .......................................................................... 408 

Gibson, Hon John H. II, Chief Management Officer, Department of Defense ... 207 

Prepared Statement of ..................................................................................... 210 

Hall, Hon. Keith, Ph.D. Director, Congressional Budget Office................... 5, 301, 414 

Prepared Statement of ............................................................................. 8, 304, 416 

Questions and Answers (Post-Hearing) from: 

Chairman Michael B. Enzi ............................................................. 36, 330, 433 

Ranking Member Bernard Sanders ......................................................... 332 

Senator Kamala D. Harris ...................................................................... 39, 334 

Senator Chris Van Hollen....................................................................... 42, 337 

Senator Bob Corker ................................................................................... 333 

Senator Ron Johnson ................................................................................ 335 

Senator Tim Kaine .................................................................................... 337 

Senator Mark R. Warner .......................................................................... 338 

Senator Ron Wyden ................................................................................... 340 

Senator Mike Crapo .................................................................................. 435 

Hassett, Hon. Kevin, Chairman, Council of Economic Advisers .......................... 248 

Prepared Statement of ..................................................................................... 251 


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IV 

Hassett, Hon. Kevin, Chairman, Council of Economic Advisers—Continued 

Questions and Answers (Post-Hearing) from: 

Chairman Michael B. Enzi ....................................................................... 283 

Senator Kamala D. Harris ........................................................................ 284 

Senator Chris Van Hollen ........................................................................ 286 

Senator Ron Wyden ................................................................................... 289 

Mulvaney, Hon. Mick, Director, Office of Management and Budget ................... 49 

Prepared Statement of ..................................................................................... 52 

Questions and Answers (Post-Hearing) from: 

Chairman Michael B. Enzi ....................................................................... 95 

Ranking Member Bernard Sanders ......................................................... 147 

Senator Charles E. Grassley .................................................................... 100 

Senator Kamala D. Harris ........................................................................ 101 

Senator Jeff Merkley ................................................................................. 108 

Senator Patty Murray ............................................................................... 111 

Senator Debbie Stabenow ......................................................................... 168 

Senator Chris Van Hollen ........................................................................ 171 

Senator Mark R. Warner .......................................................................... 173 

Senator Ron Wyden ............................................................................... 174, 192 

Norquist, Hon. David L, Under Secretary of Defense (Comptroller) and Chief 

Financial Officer, Department of Defense .......................................................... 197 

Prepared Statement of ..................................................................................... 199 

Questions and Answers (Post-Hearing) from: 

Senator John Boozman ............................................................................. 238 

Senator Charles E. Grassley .................................................................... 239 

Senator Chris Van Hollen ........................................................................ 240 


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OVERSIGHT OF THE CONGRESSIONAL 

BUDGET OFFICE 

WEDNESDAY, JANUARY 24, 2018 

U.S. SENATE, COMMITTEE ON THE BUDGET, Washington, DC. 

The Committee met, pursuant to notice, at 10:31 a.m., in room 

SD–608, Dirksen Senate Office Building, Hon. Michael B. Enzi, 

Chairman of the Committee, presiding. 

Present: Senators Enzi, Johnson, Perdue, Gardner, Kennedy, 

Boozman, Cotton, Sanders, Whitehouse, Kaine, Van Hollen, and 

Harris. 

Staff Present: Elizabeth McDonnell, Republican Staff Director; 

and Warren Gunnels, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN ENZI 

Chairman ENZI. I am going to gavel us in so that the Chairman 

of the Homeland Security Committee can be assured that he will 

be the second Republican to get to ask questions. 

Senator JOHNSON. I appreciate that. 

Chairman ENZI. We will be waiting just a few moments, though, 

for Senator Sanders’ arrival. 

[Pause.] 

Good morning. Welcome to the Senate Budget Committee’s oversight hearing of the Congressional Budget Office. I am proud to say 

that, after a 30-year drought, this is the third such installment of 

this Committee’s continued oversight of CBO under my chairmanship. I am glad to see that the House Budget Committee will follow 

our lead with additional oversight hearings later this month. 

Section 102(a) of the Congressional Budget Act of 1974 provides 

the Budget Committee with the authority to review on a continuing 

basis the conduct by the Congressional Budget Office of its functions and duties. These oversight hearings present the Committee 

with an opportunity to review CBO’s performance and serve as a 

forum of discussing ways in which CBO can be more effective and 

attentive to the needs of Congress. Congressional oversight of an 

office like CBO should also work at clarifying the Office’s mission 

while improving its operations. 

Alice Rivlin, the first Director of CBO, instructed staff in a 1976 

memo when she said, ‘‘Our work and our publications must always 

be balanced, thorough, and free of any partisan tinge.’’ 

More than 40 years later, Congress, other policymakers, and the 

public still depend on CBO to provide objective, accurate, transparent, and timely budgetary and economic analysis. 


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Now, one of the difficulties with the Office, of course, is that they 

have to forecast, and that is especially difficult. We do want to 

have the best possible answers. Of course, we always want them 

phrased in our own way. I have been exploring the request for 

more transparency, for getting to see the models. I think that we 

are mostly asking for the main assumptions used to reach your 

conclusions. If the assumptions are good and pretty comprehensive, 

I think we will have more confidence in the results. 

This will be the first of many hearings this year. In 2016, we 

held many hearings to find a better way to budget. 

The ones I could do without legislation are done. The main one 

was to give the budget to the minority 5 days before the budget 

markup with amendments then to be submitted early so that sideby-sides could be developed, and better yet, ones that came from 

both sides of the aisle with similar amendments could get together 

for even better solutions. I still have a lot of hope for that, and I 

anticipate doing that again. 

Now, last year was a busy time for the Senate Budget Committee. We approved two budget resolutions and facilitated consideration of two budget reconciliation bills—one related to health 

care and one that resulted in the tax reform legislation. This legislative activity, in addition to all the other proposals considered by 

our authorizing and appropriations committees, put intense demands on CBO. In 2017, CBO produced more than 700 formal cost 

estimates, several thousands informal cost estimates, nearly 130 

appropriations scorekeeping tabulations, and 86 analytical reports 

and working papers. That is a lot of work for an agency that is 

about one-tenth the size of the Government Accountability Office. 

While I am appreciative of all of CBO’s hard work, I also believe 

we must take the time to review these efforts. We need to look 

back at what went right, but also what may have gone wrong. 

It is crucial that CBO keep its mission firmly in mind. 

The Budget Act clearly lays out that mission in Section 202 

where we can read, ‘‘It shall be the primary duty and function of 

the Office to provide to the Committees on the Budget of both 

Houses information which will assist such Committees in the discharge of all matters within their jurisdiction.’’ 

This important section refers to CBO’s role in assisting and supporting the committees and members in the execution of their duties, and it is always helpful to remember that CBO exists for this 

purpose. 

Testifying before us today is CBO Director Keith Hall. 

Dr. Hall oversees all eight CBO divisions which are tasked with 

producing statutorily required budget and economic forecasts, thousands of cost estimates of proposed legislation, and special reports 

as requested by Congress. 

CBO’s budget analysis is an integral part of the legislative process. Dr. Hall, when you last appeared before this Committee in 

September 2016 to discuss CBO’s operations, you gave us an update on the agency’s progress toward several important goals. In 

addition to reviewing CBO’s work in support of recent legislative 

initiatives, we also remain interested in those goals to increase the 

transparency of agency analysis and operations and your agency’s 

responsiveness to congressional needs. 


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I am specifically interested in learning how CBO’s views regarding modeling transparency and ways the agency can more clearly 

communicate the methods, assumptions, and data that underlie 

budget analysis. Dr. Hall, I also welcome your thoughts on how 

CBO can more efficiently allocate existing resources, including staff 

responsibilities, to satisfy these congressional requests and expectations. 

In 2018 and beyond, CBO will continue to play a key role in supporting Congress as we consider the budget and economic effects of 

proposed legislation. Its objectivity, accuracy, transparency, and 

timeliness is essential to help Congress make informed decisions. 

Just as CBO’s role in the Federal budget process is crucial, so, too, 

is this Committee’s statutory responsibility to oversee CBO. 

I would like to thank Dr. Hall for joining us today, and I look 

forward to our discussion. 

Senator Sanders. 

OPENING STATEMENT OF SENATOR SANDERS 

Senator SANDERS. Thank you, Mr. Chairman. And, Dr. Hall, 

thanks for being here. 

I think before we do oversight over the CBO, it might be a good 

idea to do oversight over this Committee. It might be a good idea 

for the Budget Committee to actually produce a budget. I know 

that is kind of a radical idea, but maybe that is what we want to 

do. And maybe it might be a good idea for the Republican leadership, 116 days into the fiscal year, to actually do something more 

than giving us short-term continuing resolutions. 

The truth is, as any businessperson in America will tell you, you 

cannot run any kind of entity on a month-to-month basis. We are 

a $4 trillion entity. That is what the U.S. Government is. There are 

some agencies clearly that need more funding. There are some 

agencies that need less funding. And the idea that we are saying 

that every agency of Government every month is going to get exactly the same amount of money as they previously got because of 

a continuing resolution is insane. And I suspect if anyone looked 

at it, you would find that we are wasting tens and tens and tens 

of billions of dollars funding agencies that perhaps do not need that 

money or funding agencies that are clearly inefficient. 

So we are not addressing that, and we keep kicking the can down 

the road. That is the most important thing that we have got to do, 

and that is not Dr. Hall’s responsibility. He is doing his job. His 

people are doing their job. It is our responsibility. 

So, Mr. Chairman, it seems to me that we have got to address— 

maybe this Committee can play a more active role in pushing our 

colleagues forward on this thing. We have got to address the budget crisis that we have. Let me just address some of the issues 

which I think we are all familiar with that have got to be addressed as we desperately try to come up with a 2018 annual budget. 

First of all, we have the moral issue of 800,000 young people in 

this country who were raised in this country, who only know the 

United States as their home, who are on the verge of facing deportation. And let me be very clear about this. If we do not address 

this issue, I think history will look back at this particular moment 


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and see an incredible moral stain about doing this to these young 

people. 

What we have also got to do is create a budget which provides 

parity. Now, I know there is a great desire to see more money for 

defense, and we could argue about that. But the bottom line is for 

every dollar that we spend on defense, we have got to spend on the 

needs of working families. Five minutes ago, I just came from my 

office where I talked to parents and administrators in the Head 

Start program in Vermont, and they are telling me, as I am sure 

that they are telling you in your offices, that children all over this 

country, little kids, 3, 4 years of age, are being impacted by the 

opioid crisis. Kids are being taken out of their homes because their 

parents are addicted to opioids going into foster homes. We have 

got a crisis. We are not dealing with that crisis. 

Unbelievably—unbelievably, Mr. Chairman—we have 27 million 

people in this country who utilize community health centers to get 

their health care, the dental care, the low-cost prescription drugs, 

the mental health counseling that they need, 27 million people, one 

out of four people in my own State. We have not reauthorized the 

Community Health Center Program. We have got 30,000 vacancies 

at the Veterans Administration. So instead of us giving speeches 

about how much we love veterans, why don’t we make sure that 

the VA is adequately funded and adequately staffed? 

Some of you may have seen the piece in the Washington Post last 

month. Unbelievable. Ten thousand people with disabilities died 

last year while they were submitting claims to a Social Security 

Administration that does not have the staff or the funding to process those claims. Ten thousand Americans with disabilities died. 

Are we going to adequately fund the Social Security Administration? Or are we going to pass another continuing resolution leaving 

them grossly underfunded? 

In parts of my State and in parts of your State, Mr. Chairman, 

I am sure, there are communities that do not have adequate 

broadband. How do you bring businesses into those communities? 

How do kids do their homework if there is not adequate 

broadband? In other words, there are enormous needs facing the 

American people, and those needs are not just giving huge tax 

breaks to billionaires or trying to throw 30 million people off of 

health care. There are needs that we have got to address. 

So, Mr. Chairman, I would hope that we have a serious debate 

about the budget of the United States of America and we do it as 

soon as we can. 

Dr. Hall, thanks again for being with us. 

Chairman ENZI. Thank you, Senator Sanders. I appreciate your 

remarks and have made a number of notations here. We will have 

more hearings during this year, and I think that I would be interested in what different members of the Committee would be interested in particularly pursuing in some depth as kind of a task force 

for oversight for us so that we can do a better job of budgeting. 

Our witness this morning is Dr. Keith Hall, the ninth Director 

of the Congressional Budget Office. Director Hall is no stranger to 

this Committee, having served as CBO Director since April 2015. 

Since that time he has appeared before this Committee to discuss 

the CBO’s work and its projections for the Nation’s fiscal situation. 


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He has more than 25 years of public service with the International 

Trade Commission, with George Mason University, with the Bureau of Labor Statistics, with the White House Council of Economic 

Advisers, with the Department of Commerce, and an international 

economist for the ITC. He was also an assistant professor at the 

University of Arkansas and an international economist at the Department of Treasury. In those positions he worked with a wide variety of topics, including labor market analysis and policy, economic 

conditions and measurement, macroeconomic analysis, and forecasting international economics and policy, and computational partial equilibrium modeling—which I hope he will not explain this 

morning. 

[Laughter.] 

Chairman ENZI. He has a Ph.D. and a master’s in economics 

from Purdue University. This morning Dr. Hall will be talking with 

us about CBO’s work over the last year and the goals he set out 

for this critically important agency. We look forward to receiving 

your testimony. 

For the information of colleagues, Director Hall will take up 7 

minutes for his opening statement, followed by questions. 

Welcome, Dr. Hall. Please begin. 

STATEMENT OF THE HONORABLE KEITH HALL, PH.D., 

DIRECTOR, CONGRESSIONAL BUDGET OFFICE 

Dr. HALL. Chairman Enzi, Ranking Member Sanders, and members of the Committee, thank you for inviting me here to discuss 

the work of the Congressional Budget Office. As you know, CBO’s 

mission is providing nonpartisan budgetary and economic analysis 

to support the work of this Committee and the Congress as a 

whole. My colleagues and I are devoted to that mission, and I appreciate the opportunity to discuss how CBO has executed it this 

year and how we plan to expand our work in the future. 

I also want to take this opportunity to thank you for your support and guidance. We at CBO have long relied on the Budget 

Committees to explain to others in the Congress what our role is, 

to provide constructive feedback on how we can best serve Congress, and to provide guidance on what legislative developments 

are occurring and what the Congress’ priorities are. That work on 

your part has been key to our success over the years. 

In the past year, we have provided Congress with 740 formal cost 

estimates and mandate statements. We have also provided thousands of hours of technical assistance to committees, which have 

included thousands of informal cost estimates, probably more work 

than our formal cost estimates. We have provided 128 scorekeeping 

tabulations, 86 analytical reports and working papers, dozens of 

files of data underlying budget and economic projections, and numerous other publications. Many of the cost estimates were produced under very tight time constraints and required extraordinary 

efforts by our staff to meet legislative deadlines. 

We also undertook new initiatives to enhance our responsiveness 

and transparency. We reorganized work processes and shifted resources to areas of high demand. We published more evaluations 

of our projections about the economy, spending, and health insurance subsidies. We documented more of our analytic methods— 


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about flood insurance, pension benefit guarantees, and health care 

for the military, for example. And we gave more examples of 

changes in our estimates, addressing issues ranging from Social Security to options for changing Medicare. 

In the next 2 years, CBO plans to continue to support the Budget 

Committees and the Congress by producing budget and economic 

baseline projections, reports about those projections, and cost estimates for many proposals, including all legislation reported by 

committees. Other major products will include a volume of policy 

options that would reduce budget deficits, reports on the long-term 

budget outlook, analyses of the President’s budget proposals, 

monthly budget reviews, and policy analyses on a broad array of 

topics of interest to congressional committees. CBO is reviewing 

and updating every aspect of its simulation model of health insurance coverage, which forms the backbone of its budget projections 

related to Federal health care spending for people younger than 65. 

In addition, CBO will further develop its capabilities to assess the 

macroeconomic effects of fiscal policies and the ways that changes 

in Federal regulations affect the agency’s baseline budget projections. 

Responsiveness and transparency are top priorities of mine, and 

we have plans to bolster them further. We will make greater use 

of team approaches to handle surges in demand for analysis of particular issues. We will increase public documentation of our computer models. We will also do more to explain how analysts employ 

those tools as part of the process for producing estimates. I like to 

think of this as documenting our processes as well as our models. 

For a cost estimate, for example, an analyst identifies the ways 

in which a proposal might affect the budget and assesses which of 

them would probably have substantial effects. The analyst also 

consults experts and examines the most relevant data and research 

to form a basis for the estimate, which includes determining which 

models to use, if any, what information to put into those models, 

and how to use their output in combination with other available information. In short, CBO models do not produce estimates; CBO 

does. The models are just a few of the tools that we use in producing our estimates. 

We will be able to make significant progress on our plans to 

boost responsiveness and transparency if we receive funding for fiscal year 2018 within the range that the Senate and House Appropriations Committees have recommended. If we receive the funding 

available under the continuing resolution currently in effect for this 

year, we will make less progress. Moreover, CBO’s ability to buy 

data and research and to pay for other standard activities would 

be severely limited under the funding specified in the continuing 

resolution, and the agency’s performance of its mission would be 

degraded. 

Many initiatives of great interest to Congress could be undertaken only if CBO had more employees, so we have submitted a 

budget request to hire 8 new staff members in 2019 to bolster our 

responsiveness and transparency, as part of a plan to hire a total 

of 20 additional people by 2021. The new staff would help CBO respond to requests for information more quickly when there is a 

surge in demand. They would also allow CBO to supply more inforVerDate Sep 11 2014 13:37 May 06, 2019 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 H:\GPO\PDF\OUT\35700.TXT PAT

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mation about its analysis and models without reducing the valuable services it provides to Congress at its current staffing level. 

In the next 2 years, CBO also proposes to expand analytical capacity by adding new health care analysts and creating additional onsite capacity to use sensitive data securely. 

I am delighted to talk with you about our work today and would 

be at any time in the future as well. I am happy to meet with 

Members of Congress or to chat on the phone. In addition, our employees meet frequently with congressional staff to explain our 

analyses and to answer questions individually and in groups, and 

we have plans to be in still better contact. 

For instance, earlier this month, in collaboration with the Congressional Research Service, my colleagues gave presentations to 

150 congressional staff members about how CBO develops estimates of health insurance costs and coverage. We are constantly 

looking for ways to serve your needs better, and I welcome your 

suggestions. 

[The prepared statement of Dr. Hall follows:] 


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Chairman ENZI. Thank you, Dr. Hall. 

Now we will turn to questions. Let me take a moment to explain 

the process. Each member will have 5 minutes for questions, beginning with myself and then Senator Sanders. Following the two of 

us, we will alternate questions between the Republicans and the 

minority. All members who were in attendance when the hearing 

started will be recognized in order of seniority on their side. For 

those who arrived after the hearing began, you are on the list in 

order of arrival. If it is your turn to be on the list to be recognized, 

but you are not available, you move to the bottom of the list and 

I turn to the next Senator to ask questions. With that, I have a 

few questions. 

A recent legislative proposal introduced in the House and Senate 

would require CBO to publicly disclose its models and data. You 

mentioned that in your testimony. The intent of this legislation is 

to increase transparency and allow for outside analysts to reproduce and replicate CBO projections. While you have made significant strides to open up CBO’s work to the public, what efforts are 

currently underway at CBO to increase the transparency further, 

both to Congress and the public? Do you think that disclosing CBO 

models and data would improve the legislative process and the 

public confidence in the final products? And how would that vary 

from sharing more assumptions that are used? 

Dr. HALL. Well, thank you. We are committed to transparency, 

and we have certainly been trying to increase transparency. One of 

the things that we have tried to do is we have tried to do this intelligently, treat our decisions on transparency as good business decisions for us. 

There are lots of ways of being transparent. Different ways of 

being transparent have different benefits to Congress and have different costs. With respect to benefits, who we direct the transparency to, are we being more transparent to Members or staff? 

Are we being more transparent to outside experts who can evaluate 

what we are doing? And then, of course, costs. There can be significant time and resources used to become more transparent. So we 

have to make this sort of benefit-cost tradeoff analysis when we do 

this. 

Part of what we are doing, for example, is we have some ideas 

on being more transparent. We are calling them pilots in a sense 

because we want to try them and sort of see how that is received 

by Congress, see if that is the sort of transparency that you are 

most interested in. 

One of the things that we are doing, for example, is we are doing 

a complete rewrite of our main model for doing health care insurance estimates, the so-called HISIM model. That rewrite will happen over the next year, but to give you an idea, since I have been 

on board, we had plans to completely redo this model, and so it has 

been 3 years. We would have been finished by now if over the past 

year we had not gotten so many health care-related requests, so 

the same people who would be updating the model were busy doing 

cost estimates. 

Chairman ENZI. That fits in with my next question, which is one 

complaint that I often hear from colleagues, that they are unable 

to receive estimates on their legislation in a timely manner, but 


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CBO has plenty of time to release a number of other products and 

reports. How would you respond to that complaint? Are these reports the result of congressional requests or are they agency—initiated? Can CBO provide a list of published reports that did not 

originate due to a specific congressional request or not directly attributed to a single requesting office? 

Dr. HALL. Well, thank you for asking that. As I recall, when I 

first came on board you expressed concern about that. We have not 

started a single analytical report since I have been the Director 

without having specific congressional interest from a congressional 

committee, expressed interest from a committee with jurisdiction. 

So we simply do not do analytical reports just on our own. We 

square that away first. 

And, second, of course, is we have lots of different areas of expertise, so when we are really busy on health care, we only have so 

many people we can pull into health care. So we have time for 

other people, people that work on other reports. We do our best to 

not let our analytical reports at all interfere with our work on cost 

estimates, for example, our work on developing models for cost estimates and that sort of thing. 

Chairman ENZI. How do you prioritize those requests for reports, 

though? 

Dr. HALL. Well, we look to committees. We try not to prioritize 

things ourselves. We get way more work that we could possibly 

handle, so what we do is we look to committees of jurisdiction and 

ask them what are their priorities, and we follow their priorities. 

One of the more frustrating things that I have to do is——I get 

calls from Members sometimes who have a piece of legislation they 

would like CBO to look at, and if we are really busy with committee work, we have to ask the committee, ‘‘Can we make this a 

priority?’’ And quite often the answer is, ‘‘No. Our work takes priority.’’ So we have to put off work. And I know that is frustrating, 

but, again, we are trying to take direction from committees as to 

how to direct our resources. 

Chairman ENZI. We will be looking into whether there is a role 

for the Ranking Member and the Chairman of the Budget Committee to have more of a role in that ranking. My time has expired 

almost, so I will turn it over to Senator Sanders. 

Senator SANDERS. Thank you, Mr. Chairman. 

Dr. Hall, as we contemplate maybe someday passing a budget 

here, could you help me refresh my memory here? My recollection 

is that in the Budget Control Act of 2011, one of the cornerstones 

of that bill was parity, equal funding for defense and nondefense. 

And if I am correct, the next three budget deals that were passed 

also had parity as a cornerstone. Is that correct? 

Dr. HALL. That sounds right, yes. 

Senator SANDERS. Dr. Hall, my Republican colleagues have spent 

a lot of time this year on health care, and if my recollection is correct, your agency has been criticized a bit for the analyses that 

they provided us on various health care proposals. So let us go over 

it again because I think the consensus is that you were right in 

your analyses. But the bottom line is that on January 17, 2017, 

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dom Reconciliation Act—Mr. Chairman, we have got to do something about these titles. 

[Laughter.] 

Senator SANDERS. There should be truth in advertising, too. 

Which was vetoed by President Obama. CBO found that 32 million 

fewer people would have health insurance after 10 years and that 

average premiums in the non-group market would almost double 

by 2026. Does that sound correct? 

Dr. HALL. That is correct. The only thing I would say, that is also 

relative to a baseline, so an expected change in coverage and that 

sort of—— 

Senator SANDERS. Right. 

Dr. HALL. Yes. 

Senator SANDERS. On May 24th CBO scored the American 

Health Care Act as passed by the House. CBO found that 23 million fewer people would have health insurance after 10 years. Does 

that sound about right? 

Dr. HALL. Yes, it does. 

Senator SANDERS. Okay. So, in other words, what CBO did is 

made the obvious conclusion that when you substantially cut Federal funding on health care, lo and behold, people lose their health 

insurance. And I will not ask you to comment on this, but I think 

you came up with the obvious conclusion, but because you came up 

with that conclusion, which was not terribly palatable to some of 

my colleagues, you were criticized, and I think that is unfortunate. 

And I think we should let these guys do their jobs and come up 

with their objective conclusions without attacking them because we 

do not like the conclusions that they have. 

Let me go to another area. After trying to throw tens of millions 

of people off of health insurance, my Republican colleagues then 

took a look at taxes in the United States. Am I correct in saying 

that CBO’s analysis said that the legislation that was finally 

passed would add more than $1.7 trillion to the deficit when interest costs are included? Does that sound about right? 

Dr. HALL. Yes, although I would have to give credit to our colleagues on the Joint Committee on Taxation who did the actual 

hard work. 

Senator SANDERS. Right, I know that. But that sounds about 

right, yes? 

Dr. HALL. Yes. 

Senator SANDERS. Am I correct in saying that the JCT’s analysis 

determined the legislation would add more than $1 trillion to the 

deficit even when we use dynamic scoring? Is that a fair representation? 

Dr. HALL. That is right. 

Senator SANDERS. Now, I will not ask you to comment on this, 

but I will comment. But day after day, month after month, I have 

heard about the world collapsing when we add to the deficit and 

the national debt. That is not your issue. Some of my colleagues 

apparently forgot about the lectures that they gave us over and 

over again about deficit spending. 

Dr. Hall, on November 8th, CBO re-estimated the effects of repealing the Affordable Care Act’s so-called individual mandate. 

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insured people by 13 million within 10 years and increase premiums by about 10 percent in any given year. Does that sound consistent with what you told us? 

Dr. HALL. It does. 

Senator SANDERS. Okay. More recently, on January 11th, CBO 

estimated the cost of extending the Children’s Health Insurance 

Program for 10 years, you projected that a 10-year extension would 

actually save the Government $6 billion. Does that sound about 

right? 

Dr. HALL. Yes, it does. 

Senator SANDERS. Okay. All right. Let me just conclude by saying, you know, I think under a lot of pressure your agency is trying 

to do the objective work that is expected of you and that I hope 

that some of my colleagues would refrain from attacking the agency because the results that you produce are not something that 

they are comfortable with. 

Thank you, Mr. Chairman. 

Chairman Enzi. Senator Johnson. 

Senator JOHNSON. Thank you, Mr. Chairman. 

Dr. Hall, I want to go to kind of the line of questioning the 

Chairman was engaged in terms of who decides what you score 

and, I guess who do you report to. The reason I am asking the 

question is that, after the election, knowing that we were going to 

be bringing up health care, I started through staff informally requesting scores on what would happen if we would repeal the market reforms. It did not get very far, so on March 23, 2017, I sent 

a letter to you signed by the Chairman and 20 of my other colleagues, 22 Republican Senators, requesting—pretty simple. We requested the Congressional Budget Office, in consultation with the 

Joint Committee on Taxation, estimate the budgetary effects of repealing the Obamacare insurance regulations. 

Now, you are aware the reason we need that—well, first of all, 

just to understand what policy might cause, but also there is no 

way that we can even bring it in front of the Senate if we do not 

have a score to present to the Parliamentarian. So this is a basic 

piece of information we needed. I want to know why didn’t we ever 

get that score. Again, this is 4 months before this really came to 

a head. The only response we got was, ‘‘Cannot do it.’’ 

Now, you do all kinds of different things. You make all kinds of 

estimates, and I am going to talk next about the estimate of the 

number of people losing insurance. Just simple, why didn’t we get 

an answer? Twenty-two Republican Senators asked for this analysis. What would it cost the Government if we repealed those market reforms? 

Dr. HALL. Well, I can tell you that our health group was just 

working flat out for months. 

Senator JOHNSON. This was in March. 

Dr. HALL. Even in March we were working flat out for months. 

One of the things that is underrated, one of the reasons I tried to 

make a point about it, is we do a tremendous amount of what I call 

‘‘technical assistance’’ where we are getting draft legislation from 

a committee of jurisdiction and—— 

Senator JOHNSON. Okay. 


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Dr. HALL [continuing]. That is going to ultimately wind up being 

real legislation. 

Senator JOHNSON. Again, I will follow this in private with you. 

Okay. I want to find out exactly why we did not get this, Okay? 

I want to move on to the question of insurance coverage. 

Your scores under Obamacare used the March 2016 baseline, 

which, again, by law you had to do that. But it is also true that 

in January 2017 you created another baseline in terms of people 

in terms of insurance coverage. Correct? 

Dr. HALL. Right. 

Senator JOHNSON. Now, in your score—and, of course, this was 

the grenade that the CBO threw into the health care debate that 

pretty well poisoned the well. You said that in 2018, 15 million 

Americans would lose health insurance because of the Senate bill. 

That is broken down 7 million in the individual market, 4 million 

Medicaid, 4 million employer. 

The problem with that is that it’s comparing against the March 

baseline. If you compared it to your most recent baseline, January, 

the individual market, there had been no additional uninsureds. 

That 7 million would have gone away. We would have been left 

with 8 million—4 million dropping Medicaid coverage, 4 million on 

employer. 

Now, I can understand without a mandate why people might lose 

employer coverage. Why would people drop free Medicaid? Now, 

fast forward in terms of your estimate for 2026. The 15 million 

grew to 22 million. But, again, 7 million of that should just be excluded because you already updated your estimate that there would 

be nobody losing coverage on the individual market based on your 

January 2017 baseline. So that leaves 15 million people—22 minus 

7, 15 million people—all losing Medicaid. 

Now, again, you can say people are going to drop basically free 

coverage because there is not an individual mandate. It makes no 

sense whatsoever to me. It makes no sense. 

So I had a conversation, one of the most frustrating ones I have 

ever had, with Mark Hadley. Now, in that I asked for the CBO in 

our latest replacement piece of legislation to break out Medicaid expansion versus Medicaid, and you did that and I appreciate that. 

I think that was very helpful. It certainly helped my analysis of it. 

But I also asked a very simple thing. I said, fine, you know, compare your coverage estimates with your March 2016 baseline. But 

because you also have a new baseline, why don’t you just put that 

as an alternate scenario? 

Now, the response I got, ‘‘Well, it was take 2 weeks.’’ You have 

got the baseline right here showing 19 million people uninsured on 

the individual, 19 million under the Senate bill, 19 minus 19 is 

zero. I could do that in seconds. Why did you refuse to provide the 

American people the information that would not have been freaking them out, where we could have really looked at this analysis 

and go, well, Okay, 8 million people losing, 4 on the employer, 4 

Medicaid. Really we are probably looking at 4. Why didn’t you provide that alternate scenario? 

Dr. HALL. Well, first of all, it is not clear that the alternate scenario would have gotten the different numbers that you suggest— 

let me just put it that way—because changing the baseline had sort 


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of two effects, right? Because the premiums were higher while at 

the same time the coverage was lower. 

Also, when we talk about the 15—let us go back to the 15 million 

drop in Medicaid. That is really—most of that is not a decline in 

Medicaid, but that is a—the legislation ended the expansion of 

Medicaid. So those were people primarily who do not have Medicaid, will not get it over the next 10 years, who would have under 

current law at the time. So we are not really talking about people 

dropping from Medicaid, but people from—— 

Senator JOHNSON. Again, this is just simple math. You come up 

with an estimate. You compared it against a baseline, and you are 

not providing the American people with the information they need. 

Thank you, Mr. Chairman. 

Chairman ENZI. Thank you, and there will be an opportunity at 

the end to submit additional questions, too, that we might want to 

have answered. 

So next would be Senator Van Hollen. 

Senator VAN HOLLEN. Thank you, Mr. Chairman. Dr. Hall, welcome. And Senator Sanders covered some of the issues I was going 

to ask you about, but I wanted to ask you about the impact of CRs, 

continuing CRs, on the work of the Congressional Budget Office. 

We heard from the Pentagon spokesperson a few weeks ago that 

going from CR to CR—we have now had four—results in wasteful 

spending at the Defense Department and has negative consequences for our defense. 

Does going from CR to CR make your work at CBO harder? And 

what are the consequences of it? 

Dr. HALL. Well, it does make things harder. We have actually 

put off some things. We are tending to put off some computer work 

and some things like that. If we continue under a CR, right now 

I think we will have to curtail our hiring. We will have to move 

down a few slots. We will probably have to cancel some training 

and travel and that sort of thing. So it does have a consequence 

for us. It does sort of degrade our—— 

Senator VAN HOLLEN. In terms of your planning, does it make 

your planning harder? And does that lead to some inefficiencies in 

terms of your ability to hire when you need to hire? 

Dr. HALL. Yes, it does. 

Senator VAN HOLLEN. Okay. Let me ask you about the CHIP program and the scoring, because the good news is the Congress reauthorized the Children’s Health Insurance Program for 6 years, and 

as was referenced, the Congressional Budget Office estimated that 

it would actually save money, I think you said $6 billion, compared 

to the earlier baseline. Is that right? 

Dr. HALL. Yes. 

Senator VAN HOLLEN. Okay. And your analysis of savings was 

not as a result of the cost of providing health care services to these 

children going down, was it? 

Dr. HALL. No, it was not. 

Senator VAN HOLLEN. It was the cost of the alternative going up, 

right? 

Dr. HALL. That is right. 


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Senator VAN HOLLEN. And the alternative is the health care provided in the Affordable Care Act exchanges primarily. Is that 

right? 

Dr. HALL. Yes. 

Senator VAN HOLLEN. Okay. And the reason, the primary reason 

those costs went up was as a result of the fact that the elimination 

of the individual mandate resulted, according to CBO, in the cost 

of premiums going up by 10 percent. Is that right? 

Dr. HALL. Yes. 

Senator VAN HOLLEN. All right. So I think this is an important 

point for people to understand. The reason the cost of providing 

services to CHIP went down is because those children, if they were 

denied that alternative through the Children’s Health Insurance 

Program, would have gone into the Affordable Care Act exchanges, 

and as a result of the individual mandate removal being the primary cause, the cost to the taxpayer would go up because when 

those premiums go up, we all pay a higher tax credit to help meet 

the needs of those individuals. Is that right? 

Dr. HALL. That is correct. 

Senator VAN HOLLEN. So that really is my—it just shows that 

when you do one thing to pull the rug out of the Affordable Care 

Act, when you get rid of the individual mandate, you increase the 

premiums by 10 percent, and so that meant that if you did not extend the Children’s Health Insurance Program, those kids coming 

into the Affordable Care Act exchanges would have been paying 

higher premiums. As a result, the tax credits that we provide people to make sure that that health care in the exchanges is affordable would have gone up. So, yes, it is great we extended the Children’s Health Insurance Program and we saved $6 billion, but the 

savings was relative to the baseline, and the baseline costs went 

up primarily because of the move in the tax bill to get rid of the 

individual mandate. 

So I just hope members will understand the consequences of 

their action with respect to actually saving taxpayers’ money and 

providing an important benefit to our kids’ health. And I really do 

appreciate the Congressional Budget Office because sometimes, you 

know, some of us agree with your analysis, sometimes we disagree 

with the analysis. But, my goodness, if we did not have some kind 

of referee here in the U.S. Congress, we would have even more of 

a free-for-all than we already have. And we already have a hell of 

a free-for-all. 

So I am grateful for somebody being able to take an objective 

look at this and provide an analysis that we can use. There are too 

many—we are already having a dispute nationally over what is 

fact and what is fiction. I am grateful that you provide us some 

baseline for what is fact, at least as it regards to the budget. 

Thank you, Mr. Chairman. 

Chairman Enzi. Senator Perdue. 

Senator PERDUE. Thank you, Mr. Chairman. Thank you, 

Dr. Hall, for being here. 

I want to talk about partisanship just a minute. I found three 

things this morning in a bipartisan way that I agree with the 

Ranking Member today, and I want to put that in the record. 


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Number one, I agree with his first opening comment about we 

need to be serious about the budget process and recognize that it 

is broken. 

The second thing is we all want to find a way to solve the DACA 

issue. 

And, third, and maybe most important, we need to find a way to 

simplify our titles of bills around here. 

But I also want to agree with my colleague Senator Van Hollen. 

You know, thank you that you are attempting to be an objective 

source for information for modeling and anticipation and projecting 

the impact of potential legislation. But I want to talk about how 

to achieve that. 

First of all, this is one of the most partisan committees that I 

have seen. I was on Judiciary as well. It is very partisan as well. 

But this is a very partisan Committee, and unnecessarily so. But 

it is partisan because of the budget process. Members of the other 

side of the Committee, several members there, Senator Whitehouse, Senator Kaine, members of this side, I think we all agree 

the process is broken, and it creates a situation here because the 

budget is not a law, it is a resolution; therefore, the majority crams 

down the throat of the minority their political statement about 

what they think that they should do in spending. You get caught 

in the middle. One side likes your opinion; the other side does not 

like your opinion. This will change at some point in the future. 

They will be in the majority; we will be in the minority. Nobody 

is going to like it. This is a broken process. We have to fix it. 

But in the meantime, you play an important role, and I think it 

is absolutely critical that you be as nonpartisan as you can be. I 

have two questions for you very quickly. 

One is I agree with the Chairman and the Ranking Member that 

they should be involved in the priorities of what you are allocating 

time and resources to. You heard very important questions being 

asked during the health care debate as well as the tax debate that 

did not get answered. How do you respond to that? And then I 

want to talk about how you are assuring that we maintain a nonpartisan position in here? Very quickly. Just on hiring—I mean, I 

am sorry, on the priorities, would you address that very quickly? 

Dr. HALL. Sure, sure. 

Senator PERDUE. Then I want to go to one more question real 

quick. 

Dr. HALL. One of the difficult things for us is we do so much 

technical assistance, which often leads to a formal cost estimate, 

but by technical assistance, we are looking at legislation, we are 

giving feedback and formal estimates. That is so often done by a 

committee or leadership, and they want it done confidentially because it is sort of technical assistance. So we wind up doing a lot 

of work over time where the Budget Committee would not know 

what we are working on and we cannot tell them that. 

And so what we have done is we have developed what we think 

is a pretty—the most effective thing we can do, and that is when 

we have—when we are jammed up on topics, we look to the committee of jurisdiction to tell them, hey, we have got these things 

going on, tell us what your priorities are. 


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Senator PERDUE. But the ultimate priority really exists in the— 

or resides in the Budget Committee, right? 

Dr. HALL. Yes, that is right. 

Senator PERDUE. Okay. So let me go back to one other thing 

then. In terms of this partisanship—and this is before your time, 

so I think you can be objective to the response. The question is how 

to avoid this in the future. It is one thing to disagree with the projection. It is another to look at reality and compare it back to the 

projection, which is what we do in the real world in business. 

In 2013, CBO predicted that Obamacare enrollment in the individual market for the years 2015, 2016, and 2017 would be 13 million people, 24 million people, and 26 million people, respectively. 

The actual enrollment was 11 million, 12 million, and 10 million. 

Now, when you see 100 percent error like that, it raises questions in my mind about impartiality, particularly when the author 

of those estimates, the head of the CBO’s health analysis group, 

was formerly part of Hillary Clinton’s 1993 Health Care Task 

Force, I have to ask the question: How do you ensure—you were 

not there then. Going forward, how do we assure ourselves that we 

are getting a nonpartisan, objective viewpoint, to Senator Van 

Hollen’s point earlier? 

Dr. HALL. Well, we do a lot to try to seek guidance and advice 

from experts on both sides. We try very hard. We actually do our 

best to go back and look at how we did. We went back and looked 

at how the estimates turned out there. 

The only thing I would say, you know, in defense, of course, is 

sometimes it is really hard to estimate these things. 

Senator PERDUE. Sure. 

Dr. HALL. And I think one of the conclusions I would make in 

going back is certainly with the exchanges we were off. We were 

not as far off on things like the actual spending and some other 

things. But everybody else was as well. In fact, we were probably 

more accurate than most others. 

Senator PERDUE. That does not give me a lot of comfort. 

Dr. HALL. I know it does not. But it goes to the issue of bias, 

right? We can be off and we can be wrong, but hopefully we are 

not consistently wrong. I am a little disturbed that we are consistently overestimating, for example, the exchange participation. We 

tried to fix it. We still overestimate. Try to fix it—you know, I have 

a background in economic data. When you are doing economic data, 

you do not want to have revisions all one way. You want to revise 

it up and down. 

Senator PERDUE. Right. 

Dr. HALL. That is what we would like to have. But we try very 

hard to do that. We try it with the processes and try to do it that 

way. We try to be transparent. That is why I approved this transparency push. 

Senator PERDUE. Thank you. 

Thank you, Mr. Chairman. 

Chairman Enzi. Senator Whitehouse. 

Senator WHITEHOUSE. Thank you, Chairman. 

First, let me echo what my friend Senator Perdue has just said. 

We have seen the Budget Committee become 100 percent partisan 

and zero percent meaningful. In fact, the most important work that 


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we do here is not even budget work. It is simply the political task 

by the majority of opening the procedural gateway to another partisan political effort down the road in the Senate. Short of that, we 

do not need Dr. Hall; we do not need staff. We do not need anything because we do not do anything in this Committee. There is 

a reason that over and over again we have Committee hearings, 

even nominally on the budget of the United States, and nobody 

even bothers to show up in the audience, because people know perfectly well that what we do here has exactly zero effect. Once appropriators got accustomed to beating a 60-vote margin in the Senate on appropriations bills, the Budget Committee’s penalty for 

breaking our budget, which is you have to get 60 votes, made us 

useless. The fact that we only look at appropriated funds, not the 

far larger amount of money that goes sloshing out through the back 

door of the Tax Code, not the health care expenditures of the country, just contributes to my sense that we have made ourselves a 

useless Committee, and it is something I am extremely eager to 

correct on a bipartisan basis. 

The issue that bedevils us, I think, the most here is the health 

care cost issue, and, Dr. Hall, I think you have seen me do these 

before. This is one of my least favorite graphs that has life expectancy in years among the leading developed countries and cost per 

capita in health care, and basically all of our major competitors are 

here in this kind of bolus of competition. We are way the heck out 

here. We cost a fortune more per capita than any other industrialized country, and we have life expectancy comparable to Chile 

and the Czech Republic. So it is not like we are gaining these massive health gains from that massive expenditure. 

So you guys do some really good work, and this is to me one of 

the more interesting things that I have seen. The red line on the 

top is the projection for Federal health care spending that was 

made back here. That was in August 2010. In January 2017, this 

experience, the actual green line, then got baked into a new projection, and the new projection for this 10-year period is lower by the 

amount of this green block than what CBO had previously estimated. That reduction is $3.3 trillion in health care savings. If we 

could pass something in the Senate and in the House that gave us 

$3.3 trillion in health care savings, that would be one of the most 

significant things that we could do. 

The problem is we do not know exactly why that happened. That 

is a combination of early experience and then algorithms that you 

guys run to make your projections with that we do not have a lot 

of transparency into. So, to me, if you are looking at the possibility 

of multiple trillions of dollars in future health care savings, it 

ought to be an absolutely critical priority, a bipartisan priority of 

this Committee and of your office, to be trying to figure out and 

explain what are the things that can help make that happen. What 

are the things that might even dial it up a little bit? If you can 

get $3.3 trillion, why not $6.6 trillion? 

So I hope if we are going to spend more money on staff, this becomes a really important priority, explaining why. Because if you 

can explain why, we can try to do more of it. 

Now, I will say that we have accountable care organizations, provider accountable care organizations in Rhode Island. It is basically 


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doctors’ offices that have agreed to sign up for placing a bet that 

they can give better care at lower cost to their patients. In return, 

they do not just get paid for doing procedures and prescriptions. 

They get a bonus from CMS for doing a good job. 

Some of the best ones in the country are in Rhode Island, and 

they are seeing their cost per patient actually go down year over 

year. And they are generating millions of dollars in savings just in 

their little local practices. 

So somehow there is a connection between being able to save $3.3 trillion just over 10 years in health care expense and these 

local experiences that we are all seeing in our provider and other 

ACOs. How to maximize that to me I think is a job worth doing 

in a Committee that otherwise appears to have no purpose. 

So I look forward to working with you on that, Dr. Hall. 

Dr. HALL. Let me say that falls right into our category of analytical reports that we do, and that is exactly the sort of thing that 

we like to look at that is really of interest budget-wise but explains 

things. 

Chairman ENZI. Thank you. And at the beginning of 2016, we 

said the budget process was broken, and we did 13 hearings and 

had a number of things that we had hoped that we would pass before the election so we would not know who the President was 

going to be or who the majority was going to be. But we did not 

have enough people involved in that process, so it got stopped before the election. I thought we—— 

Senator WHITEHOUSE. Do not give up hope, Mr. Chairman. 

Chairman ENZI. I will not, and I am planning on doing some 

hearings based on some task forces led by individuals on this Committee, bipartisan ones, and I suspect that you have an intense interest in health care. 

Senator Cotton, welcome to the Committee as our newest member. 

Senator COTTON. Thank you. It is good to be here. I am saddened 

to hear the Senator from Rhode Island and the Senator from Georgia agree that it has become very partisan. I suppose I was added 

to make it more bipartisan. And I want to start with a bipartisan 

conversation. I think it will matter to both sides of the aisle, because it is just about the way the CBO interacts with members of 

this Committee and Members of Congress as a whole, the way they 

respond to requests for information from us. 

I want to use as an example the analysis CBO did last fall about 

Medicaid coverage losses under one version of our health care bill. 

I am not sure which one it was. Some of your analysts came to a 

Republican conference meeting to explain, I think it was, a 5-million-person loss under Medicaid, and that analysis turns out to 

have assumed that some number of the 18 non-expansion States 

would expand Medicaid despite their previous decisions not to since 

the 2010 law, and then if our bill had passed, those States would 

then decide to drop Medicaid. 

When asked which States would be doing that, and especially if 

Texas and Florida would be doing it, the two largest non-expansion 

States, since if you did not have one of those two expand, you could 

not even get to 5 million in total population, the analysts told us 

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diction. They were just going on past programs and so forth. I 

found that pretty astonishing. At root, that is more of a political 

judgment than it is an economic assessment. And there is just no 

good explanation for why they reached that conclusion. And I found 

that to be fairly consistent with my study of CBO reports, which 

are usually pretty good when it comes to Government revenues and 

outlays, but leave something to be desired when it comes to things 

like political judgments or market forces and incentives, or the incentives of private individuals. And I believe that those assumptions are rarely made adequately public or explained, and it makes 

it harder for us to do our job and certainly harder for the public 

to understand the kind of projections you are making. 

Let me stop there and see if you would like to respond to that. 

Dr. HALL. Sure. We are not particularly happy about having to 

make that sort of assumption, but it was absolutely key to understanding the proposal how many States will choose to expand or 

not expand. If we choose no more would expand, that is an assumption that would affect our numbers. If we chose that some would 

expand, we are trying to do that. We tried our best to look at past 

history, and what we did is we put States into buckets. We had different buckets, you know, more likely to expand, less likely, in the 

middle. And we actually really did put the States in there, but our 

thinking was we did not want to talk about particular States, because if you are wrong about a State in the wrong bucket here, it 

should be over here, there might be some State here that should 

be over there. So the errors can somewhat cancel out. 

Senator COTTON. If I could, Dr. Hall, I do not want to get into 

the details of that particular analysis. My point is, though, that 

was a very small universe of data. 

Dr. HALL. Sure. 

Senator COTTON. Eighteen data points. It is not millions of data 

points, as are often used. 

Dr. HALL. Right. 

Senator COTTON. The kind of analysis and assumptions you just 

made was not explicit in the reports we received. It took four of 

your analysts coming to explain that to us in detail for Senators 

to understand it and certainly for the American people to understand it. Why not just make that kind of thing public, you know, 

do something like different scenario analysis, making your assumptions more explicit, both for us and for the public? 

Dr. HALL. We are happy to start trying to do more of that. My 

only defense at this point is we only have so many people, so much 

times, and these are tradeoffs. But if Congress, if you all want 

more time spent on that sort of transparency, we will do it. 

Senator COTTON. How many people do you have? 

Dr. HALL. Well, on health care, let me just do health care first. 

Health care, complete health care, we have 40 people. So the people 

who are really engaged were probably less than 20 people on all 

these estimates. So, you know, we have 230 people total. We have 

about 40 on health care. We have lots of other buckets we have to 

cover. So we are not huge. But we do have some people, and I tell 

you, they were working full out on things. 

Senator COTTON. Let me conclude with a story. In the summer 

of 2013, I was a new Congressman, and there was an immigration 


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debate going on at the time. The CBO had produced an immigration estimate, and it was controversial I think on all quarters for 

the estimates it made about future immigrant flows, legal versus 

illegal, impact on population, impact on wages and so forth. I wanted to get a little more information about that. I spoke with your 

predecessor. After some time he offered to come by. I said, ‘‘I do 

not want to just get the wave tops here. I want to get down into 

the details.’’ He said they just do not have the resources to do that. 

I said, ‘‘I will come to you. You do not have to come to my office.’’ 

He said that it was not a finished product. I said, ‘‘Look, 2 years 

ago I was modeling complex economic and business problems at a 

private consulting firm. I understand how to work a spread sheet. 

I will sit with your analyst at her desk and go through everything.’’ 

And that was refused to me. Is that an appropriate response to 

make to Congress? 

Dr. HALL. No, no. We would like do a lot better. 

Senator COTTON. So if I have a similar question about a future 

analysis, then I would be welcome to come and sit at someone’s 

desk and walk through assumptions and modeling? 

Dr. HALL. Absolutely. I have never refused to go and talk with 

a Member and bring staff and talk about something. 

Senator COTTON. Thank you. 

Chairman ENZI. Thank you. 

Senator Kaine is not here, so Senator Kennedy. 

Senator KENNEDY. Dr. Hall, thanks for coming today. 

Dr. HALL. Thank you. 

Senator KENNEDY. CBO has a well-deserved reputation, I think, 

as being a neutral arbiter. And I understand you work under a lot 

of pressure. I get that. You and all your people are very, very, very 

bright. That much is clear to me. 

You are serving us, but you are also serving the American people. And I am going to make just a couple of suggestions about 

what we need but, more importantly, I think, the American people 

need. 

Number one, you have got to move more quickly. I know that is 

easy for me to say, but for a variety of reasons, I think the pace 

has quickened in many respects when we get in the middle of discussing an issue. 

Number two, you have got to be clearer. It does not do any 

good—and I do not want to overstate this, please. That is why I 

prefaced what I am saying here with how extraordinary I think the 

work you do is. But the analysis has to be thorough, but it has got 

to be written in non-Swahili so that the American people and the 

press can pick it up and say, Okay, here are the conclusions, here 

is why CBO reached the conclusions, and here are the assumptions 

that they are making, understanding that you are not clairvoyant 

and in predicting the future you have to make certain assumptions. 

Now, you can accompany that with a long, detailed Ph.D. dissertation type document, and I am not being critical, which I can 

assure you more Members of Congress than get credit for it will 

read. But what is important, it seems to me, is that we get it 

quickly and that the American people have an opportunity to understand it better. 


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Now, that is not because the American people are stupid. They 

are not. I have said this before. Most Americans do not read Aristotle every day because they are too busy earning a living. But they 

will figure it out. I am just suggesting that we can all do a better 

job of helping them do that. 

That is my only comment. I know it is easy to criticize and Monday morning quarterback, and you work under a lot of pressure. 

But we have got to have it faster, and I think the American people, 

given your well-deserved reputation, deserve a little more clarity. 

And I say that gently and with a spirit of gratitude for the good 

work you do. 

Dr. HALL. Well, thank you. I think you have identified the two 

biggest problems I think that we have: the responsiveness and the 

transparency. And, unfortunately, they sometimes collide with 

fixed resources. 

Senator KENNEDY. I know. 

Dr. HALL. And so we have been working hard to sort of think of 

some ways we can improve that process-wise. And it is also part 

of why we are asking for some more resources. 

Senator KENNEDY. Thank you. 

Dr. HALL. But I appreciate the feedback. Thank you. 

Senator KENNEDY. I am not leaving because—well, I am way 

over—no, I am not. I have got to go back to another committee, but 

I want to thank you for being here today. 

Dr. HALL. We appreciate any more ideas you have on how we can 

do our job better. 

Senator KENNEDY. Will do. Thank you. 

Chairman ENZI. Thank you, Senator Kennedy. 

Senator Boozman. 

Senator BOOZMAN. Thank you, Mr. Chairman. And thank you, 

Dr. Hall, for being here. I know that you all do work awful hard, 

and our purpose is to help you get the job done. 

You know, one of the things that—as you know better than anybody, you are kind of in the central position that we simply cannot 

do things many times without you all weighing into it. One of the 

things that somebody ought to look at, yourself or GAO or whatever, would be how much—not getting information, how much that 

adversely affects the ability of Congress to do its job. Again, that 

is a huge deal. 

The other thing that I do think is important—and I know that 

you have problems with resources and things like that, but we 

need to measure things. And you all weigh in on bunches of stuff. 

Many times that is accurate. Sometimes it is not as accurate. And 

sometimes it is not because of the fact that, you know, there is a 

mistake to be made. It is just very difficult to do these things. I 

think it would be helpful for us to know the areas that we can truly 

rely on the information versus it is a guess. But you can only do 

that through metrics. You know, you have to have the ability to 

check yourselves out, and I do not think that that is happening 

right now. 

Can you talk about that? And if you do not have the resources 

to do that, then, you know, what would it take for us to give you 

that ability? Because I do think, regardless of what we do, you 


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know, you simply—you need to have that information; we need to 

have that information as we make really important decisions. 

Dr. HALL. Well, I can say one of the things that we do every 

year, we call it an ‘‘analysis of actuals,’’ where we sit down and 

look at all the budget categories and see what happened during the 

year and what we predicted during the year. How did we do? How 

far were we off? We actually sit down and go through that, and I 

have a meeting. How close are we? How far off? How are we going 

to adjust our view of this going forward? 

One of the things that we have been thinking about—it sounds 

like it may help with this—is we are going to maybe start publishing our analysis of actuals so you can actually see how we did 

in one of these budget categories. 

Senator BOOZMAN. I think that would be helpful. 

Dr. HALL. The tricky part, of course, is sometimes the budget categories are larger than pieces of legislation, so it is hard to know 

about a small piece of legislation. But this will give you an idea of 

where we are being more accurate and less accurate. 

Senator BOOZMAN. And I think at times, too, we run into disagreements. You know, there are areas where I think the Committee staff truly are experts in particular areas, have significant 

disagreements, and I would hope that, you know, there is dialog to 

try and work out the differences and at times maybe change your 

perspective as to what is going on. 

Dr. HALL. Yes, well, one of the things that we now do—we have 

always sort of done it, but we are now sure to do—is when we get 

pieces of legislation and a committee has some data that they have 

looked at, has some analysis that they have looked at, we ask for 

that and we be sure we look at that. We always go further to do 

an independent look. 

Senator BOOZMAN. Sure. 

Dr. HALL. But we want to be sure that a committee feels like we 

have given them a fair look at what they have looked at. I think 

that is an important starting point for us to be sure that we are 

unbiased and objective. 

Senator BOOZMAN. I very much agree. One of the things I think 

you talked about when you were talking when you were here last 

time, you talked about the problems of retaining qualified people, 

and then also I think you said in your testimony that over the past 

3 years, back then, more than 60 percent of those to whom CBO 

had made offers had chosen to stay in academic positions. So, you 

know, it sounds like that is a huge problem, acknowledging the 

funding constraints that we are under and things like that. What 

do we do to help you get the people that you need and retain people? 

Dr. HALL. Well, one of the things—— 

Senator BOOZMAN. Be a more competitive employer. 

Dr. HALL. Sure. Actually, one of the things that has changed is 

we had been capped so that all the salaries had to be basically 

below a Member’s salary, below my salary, while a lot of the people 

were competing for senior managers in the executive branch, they 

have a higher pay scale. They can make as much as $30,000 more 

than I make or anybody at CBO. 


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We have now got a change, so we are allowed now—going forward, we are going to be allowed to start paying our senior managers as much as the executive scale. Not that we are going to do 

it, but I think that will make us more—— 

Senator BOOZMAN. But you have got that flexibility? 

Dr. HALL. We now have that flexibility. I think that is going to 

be an important thing for retaining our top people. So that actually 

was a really good move. We are trying to be careful on how we use 

it. 

Senator BOOZMAN. So retaining and then also recruiting? 

Dr. HALL. That is right. 

Senator BOOZMAN. Very good. 

Well, thank you, Mr. Chairman. 

Chairman ENZI. Thank you. I appreciate all the input from members today. I have got a lot of notes. There are a lot of things that 

we as well as CBO need to do to improve the process. 

One thing, though, that kind of is—you had it in your opening 

comments, and it kind of stuck with me, and I think it has been 

echoed a little bit here but not directly. Have you considered serving as kind of the aggregator collecting estimates from a number 

of outside think tanks and things and reporting that are part of the 

transparency, as well as the answer that you come up with? Is that 

a potential solution? 

Dr. HALL. I am not sure it is. We are happy to do what we are 

asked to do, but one of the things you get with CBO is you get consistent quality. We do high-quality work, and we work very hard 

to be unbiased. And this is one of the issues, for example, where 

we make models available. Part of the advantage of CBO is not just 

that we have these models, but we are the ones who run the models. 

If we want to get input from think tanks, et cetera, I think that 

is a good idea, and I think we do, in fact, go and talk to think 

tanks and get their views on this, get their feedback on how we do 

things. We are happy to try to do that more and see if that helps. 

As to whether think tanks will spend a lot of time producing 

competing estimates on so many of the small things we do, that is 

probably not realistic. But I do think that there is value in having 

us assure you at least that we go and talk to think tanks and 

spend some time getting their views on things. 

Chairman ENZI. Okay. I appreciate that. I have learned a lot 

today. I think there was kind of general agreement that we have 

a broken budget process. I have watched this for years now and 

chaired it for a while, and I know that most of the budgets never 

last more than 40 days before there is a waiver of the budget. And 

as Senator Whitehouse pointed out, it only takes 60 votes to overcome it, which is usually the same amount that it takes to pass the 

legislation. So it is virtually 100 percent assured. 

One of the things we had from our hearings, the 13 hearings that 

we did while Senator Whitehouse was the Acting Ranking Member, 

was that there ought to be a higher threshold for higher numbers. 

And I think we should consider that if we are going to have any 

possibility of this making a difference. 

I will continue to hold some hearings, and we will go back and 

review the material from those hearings that we had. From today, 


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some of the other things that I—I did hear that this is the most 

partisan Committee, and I want people to know that it has been 

the most partisan Committee since 1974 when it was first initiated. 

And the process has been for the majority party to hold opening 

statements so that the other side can comment on the budget and 

then let them see the budget. And I never considered that to be 

fair, so we have changed that process. They now get it 5 days in 

advance, and I think it helped to expedite the markup and the 

hearing. 

Of course, in exchange for giving it 5 days earlier, everybody has 

to turn in their amendments. And one of the things I learned working with Senator Kennedy when I chaired the Health, Education, 

Labor, and Pensions Committee was that when those amendments 

come in early, there is a seed of possibility in every one of those 

amendments. And sometimes you have got to let them grow, and 

more often what you need to do is look at the same seed being 

planted by both sides of the aisle and see if the people cannot get 

together and come up with the common one that will work. And 

that is what I am hoping will come out of this budget process and 

make it less partisan. When it does not exist, when the results do 

not exist more than 40 days, then reconciliation becomes the most 

important part. And reconciliation has its shortcomings, too, because every amendment has to have a budgetary impact of some 

significance. And so the rules that follow that make actual legislation very difficult. But if that is the only way to move forward, then 

that becomes the method of choice, and both sides have used it. I 

think there are better ways to legislate, and I hope that we can get 

to that. 

Now, on the things that we did today, I think one of the key messages was also that assumptions matter. And, you know, when we 

talk about transparency, there are not many people that are going 

to follow a model, you know, with all the different arrows and 

things that would be involved in that, which are even tougher to 

explain verbally. But assumptions, I think that they do have a 

pretty good ability to understand, and if they know what assumptions go into it, that might make the kind of transparency that we 

are talking about for particularly non-economists, which I would 

assume is almost everybody on the Committee and almost everybody in the U.S. Senate. 

I also like the idea that everything should be written in plain 

English. And we should have some better titles for our bills that 

are not quite as biased as what they might be but tend to get people to not be able to vote against them based on how good they 

sound, whether the text that follows does that or not. 

And I appreciated your comment about allowing people to be able 

to sit down with the analysts and get a little better understanding 

of where the information came from. I think that particularly for 

people that have been an analyst, that would be very helpful. 

So thank you for being here today and for your comments, and 

we will continue to work with you, and I will be trying to engage 

the Committee in doing more oversight work in particular areas 

that we can—not that we would legislate in, but that we would 

pass the information on to the committees of jurisdiction. 


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So thank you, and with that, this hearing is concluded. As a reminder people can turn in lists of questions if they wish, and we 

will send those over, and I am sure we will get a response. Thank 

you. 

Dr. HALL. Thank you. 

[Whereupon, at 11:51 a.m., the committee was adjourned.] 

ADDITIONAL COMMITTEE QUESTIONS 

[The following submitted questions were not asked at the hearing but were answered by the witness subsequent to the hearing:] 


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THE PRESIDENT’S FISCAL YEAR 2019 BUDGET 

PROPOSAL 

TUESDAY, FEBRUARY 13, 2018 

U.S. SENATE, COMMITTEE ON THE BUDGET, Washington, DC. 

The Committee met, pursuant to notice, at 10:01 a.m., in room 

SD–608, Dirksen Senate Office Building, Hon. Michael B. Enzi, 

Chairman of the Committee, presiding. 

Present: Senators Enzi, Grassley, Crapo, Graham, Toomey, Johnson, Corker, Perdue, Gardner, Kennedy, Boozman, Sanders, Murray, Stabenow, Whitehouse, Merkley, Kaine, King, Van Hollen, and 

Harris. 

Staff Present: Elizabeth McDonnell, Republican Staff Director; 

and Warren Gunnels, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN ENZI 

Chairman ENZI. Good morning. I will call to order this Senate 

Budget Committee hearing. 

Good morning and welcome to the Senate Budget Committee’s 

hearing on the President’s budget proposal for fiscal year 2019. 

This budget submission comes to us on the heels of a very busy 

first year for President Trump. I am proud of all the hard work and 

leadership that went into passing the Tax Cuts and Jobs Act, a historic pro-growth tax bill that is already bringing investments back 

to America and boosting take-home pay for workers. With the 

President’s new budget submission, I am interested in learning 

how the administration proposes to build on this momentum and 

further strengthen our economy. 

One of my greatest concerns as a United States Senator is our country’s national debt, a figure that has now eclipsed $20 trillion. 

To secure our economy long term for future generations, we must 

tackle this growing problem. While lowering taxes is proving to bolster our economy, which will bring in new revenue, we must more 

closely examine the spending priorities and habits of the Federal 

Government. We have a spending problem in America, and so I 

look forward to hearing from our witness which ways the administration believes we can use taxpayer dollars more efficiently. 

Today we have the opportunity to hear from Office of Management and Budget Director Mick Mulvaney. Director Mulvaney, 

thank you for coming this morning to discuss the President’s fiscal 

year 2019 budget request. We look forward to your testimony and 

the opportunity to discuss possible solutions to the Nation’s budgetary woes. I also want to congratulate you on the documents that 


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came yesterday. I want to congratulate you on how concise they 

are, how explicit they are, and the difficulty that you went to to 

not only explain the budget but also to very specifically point out 

the major savings and reforms that are being suggested. It is one 

of the clearer presentations that I have seen, and I have seen a lot 

of them. 

The submission of the President’s annual budget proposal marks 

an important first step in what should be an orderly budget process. Over the years, however, under successive Congresses and administrations, this process has broken down, leaving behind a confusing, illogical, wasteful maze of legislation and ad hoc governing, 

a perfect example of which was on display last week with the latest 

budget—busting spending deal. Instead of funding the Federal 

Government week by week or month by month, we must address 

the structural deficiencies of our budget process, returning to a system that actually works. 

Serving on the Budget Committee for 15 years, I have tried to 

work to solve our fiscal problems. In 2016, I devoted much of the 

year to working on bipartisan ideas to fix America’s broken budget 

process. We were able to get a conversation started through hearings and meetings with experts. While we made some good 

progress at the Committee level, for a variety of reasons we did not 

succeed in advancing the kind of reforms we need. I am hopeful 

that, learning from our recent experience with continuing resolutions and caps deals, the time to really reform the budget process 

is now. To be successful, we have to have bipartisan support, which 

is why I am again extending my hand to the other side of the aisle 

looking for willing partners to join me. 

I hope this renewed call for budget reform receives support from 

my colleagues in the Senate and even from Director Mulvaney this 

morning. I welcome all my colleagues’ ideas on budget process reform, even on budget, and on the programmatic proposals in the 

President’s budget. While these issues often divide, I believe we 

can find common ground and make progress. This is the way the 

legislative process is supposed to work. The way to approach the 

task ahead for us is to focus on what I call the 80-percent rule, focusing on the 80 percent of issues that we have general agreement, 

rather than the 20 percent that not only lack consensus but we 

have been fighting over for years. That way we are not sidetracked 

and can achieve real results. That is the way that Ted Kennedy 

and this former shoe salesman from Wyoming were able to get 

things done on the Health, Education, Labor, and Pensions Committee in years past. 

The American people are counting on us to work together to fix 

the Nation’s fiscal mess. We must start now because one thing is 

clear: Ignoring the tough problems today will not make them disappear, and the longer they persist, the more difficult they will be 

to fix. 

Every year, we spend $4 trillion—I do not think anybody really 

knows how much that is, but it is a lot of money, and we try to 

spend that amount, make the decisions on spending that amount 

every year. We really do not make changes. We just increase for 

inflation and what I call the ‘‘panic factor.’’ Well, that is not quite 

true. We do make changes. We add new programs. But we do it 


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without eliminating or even consolidating existing programs or 

even updating the old programs. 

The spending deal has a provision for fixing the broken budget 

process. The budget is supposed to be our road map to the future. 

We talk about the need for infrastructure. The budget is one of 

those infrastructures that we better be working on if we are going 

to have a better budget process. It is a tough road ahead, but I am 

confident that we can find success together. 

Senator Sanders. 

OPENING STATEMENT OF SENATOR SANDERS 

Senator SANDERS. Mr. Chairman, thanks very much for holding 

this hearing, and, Director Mulvaney, thanks very much for being 

with us this morning. 

I do not have to tell anybody that in America today there is a 

lot of political demoralization. Congress has held one of lowest favorable levels today than at any time in history. The vast majority 

of the people think we do a terrible job. President Trump’s favorable ratings are the lowest, I believe, for any President who has 

served the length of time that he has served. 

So people look at Washington, and they do not see much that 

they feel very good about. And I think there are a couple of reasons 

for that which this budget really demonstrates. 

Number one, there are politicians who run for office, and they 

say one thing. President Trump, when he was a candidate, ran for 

office, and he said, ‘‘I am a different type of Republican. I am not 

the Mick Mulvaney type of Republican. I am different. I am going 

to stand with working families. We are going to take on the establishment,’’ and so forth and so on. Well, it turns out he did exactly 

the opposite, and this budget is a clear manifestation of him doing 

exactly the opposite. 

And, second of all, I think what the American people understand 

is their one vote, their one voice matters relatively little in a Congress which is dominated by big—money, wealthy campaign contributors. The Koch brothers are going to spend some $400 million 

in the coming campaign. And you know what? This budget is the 

budget of the Koch brothers. It is the budget of the billionaire 

class. And the American people understand it. 

This is a budget which will make it harder from our children to 

get a decent education, harder for working families to get the 

health care they desperately need, harder to protect the air that we 

breathe and the water we drink, and harder for the elderly to live 

out their retirement years with dignity and respect. 

This is not a budget, as Candidate Donald Trump talked about, 

that takes on the political establishment. This is a budget of the 

political establishment. This is the Robin Hood principle in reverse. 

It is a budget that takes from the poor and gives to the very 

wealthy. 

During the campaign, as we will all recall, Donald Trump told 

us that ‘‘the rich will not be gaining at all’’ under his tax reform 

plan. ‘‘The rich will not be gaining at all.’’ But as President, the 

tax reform legislation Trump signed into law a few weeks ago provides 83 percent of the benefits to the top 1 percent, raises taxes 


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on millions of middle-class families, and drives up the deficit by 

$1.7 trillion by the end of the decade. 

And if you are wondering how President Trump plans to pay for 

his massive tax cuts to millionaires, billionaires, and large corporations, this budget answers that question for you—by breaking his 

campaign pledge not to cut Medicare, Medicaid, and Social Security. In fact, President Trump’s budget would slash Medicaid by 

over $1.3 trillion, cut Medicare by over $500 billion, and reduce Social Security by nearly $25 billion. 

Mr. Chairman, as you know, Medicaid now pays for more than 

two-thirds of all nursing home care in our country. What happens 

to senior citizens who have their nursing home coverage paid for 

by Medicaid if that program is cut by $1.3 trillion? Think about it. 

People now in nursing homes with Alzheimer’s, serious illnesses, 

massive cuts, what happens to them? What happens to their families? 

And it is not just seniors. Today Medicaid covers millions of children with special needs. We are the only major country on Earth 

not to guarantee health care to all people, and this budget would 

then throw millions more people off the health insurance they 

have. 

We have an opioid epidemic that every person up here talks 

about every day, but when you slash Medicaid by $1 trillion, you 

make it infinitely harder for communities, cities, and States to deal 

with this terrible crisis. 

During his campaign Donald Trump told the American people 

that he was going to provide, and I quote, ‘‘health insurance for everybody’’ with much lower deductibles. But President Trump’s 

budget would throw an estimated 32 million people off the health 

care they currently have. Thirty-two million people. And at the 

same time, it would substantially raise premiums for older Americans. 

Mr. Chairman, what this budget is about is a massive transfer 

of wealth from working families, the elderly, the children, the sick 

and the poor, and the most vulnerable people in our country to the 

top 1 percent and large corporations. As a candidate, Trump said 

that he understood the pain that working families across the country were feeling. Well, Mr. President, you are not responding to 

that pain when you propose a budget that would throw over a million children off after-school programs. You are not a champion of 

working families, you are not responding to pain when your budget 

would kick half a million families out of their homes by gutting affordable housing. We have a massive crisis in affordable housing 

from coast to coast. This budget would make it much, much worse. 

You do not help working families, Mr. President or Mr. 

Mulvaney, by throwing more than 100,000 children off of Head 

Start. We need to move to universal pre-K. Every family in America should know that their kids have good-quality child care. You 

do not throw 100,000 children off of Head Start. 

You do not help working families when your budget would eliminate financial aid to more than a million and a half low-income college students. Kids are graduating school $30,000, $40,000, 

$100,000 in debt. This budget makes their problems even worse. 


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You are not a ‘‘different kind of Republican’’ by proposing a budget that would eliminate heating assistance to nearly 7 million families in this country. Let me tell the President, Mr. Mulvaney, it 

gets cold in Vermont and many other parts of this country, and 

many of our elderly people keep warm in the wintertime through 

the Low-Income Heating Assistance Program. Do not eliminate it. 

Mr. Chairman, while President Trump tells us we do not have 

enough money to help the working people of this country, he does 

believe that we have enough money to provide a massive, massive, 

massive increase in the Pentagon, an agency of Government that 

has not been able to do an audit and where study after study 

shows us that there are hundreds and hundreds of millions of dollars in waste. 

So, Mr. Chairman, the good news is this budget is going nowhere. Everybody knows that. But it does indicate where Trump 

and his friends are coming from, and the American people have got 

to understand that, and we have got to stand up and say no, these 

are not the priorities of this country. 

Thank you, Mr. Chairman. 

Chairman ENZI. Thank you, Senator Sanders. 

I will now introduce the witness. Our witness this morning is 

Mick Mulvaney, the Director of the Office of Management and 

Budget. Director Mulvaney has held this office since February 2017 

and is charged with assisting the President to fulfill his vision 

through the production of the Federal budget and its implementation across the executive branch. Prior to his time as Director of 

the Office of Management and Budget, he served the people of the 

5th District of South Carolina as their Congressman, where he was 

first elected in 2010. During his time in Congress, he has served 

on both the Budget Committee and the Joint Economic Committee. 

For the information of colleagues, Dr. Mulvaney will take less 

than 7 minutes for his opening statement, followed by questions. 

We look forward to receiving your testimony, Director Mulvaney. 

Please begin. 

STATEMENT OF THE HONORABLE MICK MULVANEY, 

DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET 

Mr. MULVANEY. Thank you, Mr. Chairman, Ranking Member 

Sanders. Thank you for the promotion. My mother would be glad 

to know I finally did get that doctorate. 

[Laughter.] 

Mr. MULVANEY. I appreciate the opportunity to be here. 

Chairman, I have already submitted a formal opening statement 

for the record. I am going to depart from that substantially just to 

say a few things before I start taking your questions to explain 

really what we have sent you in the last 24 hours. 

Last year, when I sat here, I had sort of half a budget. We had 

what was called the ‘‘skinny budget’’ at the time, the very first time 

I came before you, which was just the discretionary side of spending, which is not unusual during a transition year. 

This year, I have sort of come down with two budgets. What we 

have sent you in the last couple of hours—actually, just since yesterday—takes our 2018 budget and makes an effort to bring that 


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budget from last year sort of into compliance or at least into line 

with the caps deal that you all cut on Friday. 

In addition, we also have sort of two 2019 budgets. We have the 

2019 budget that we have been working on at the Office of Management and Budget since last summer, which we have also tried 

to sort of bring up to speed in light of the caps deal. 

Let me make it very clear that the numbers that you get are extraordinarily good. They are solid numbers. There is no question 

about it. But it is impossible to do 6 months’ worth of work in a 

weekend, especially when we also had a brief Government shutdown on top of that. So the numbers I will talk about today, they 

are solid numbers, there is no question, but still expect over the 

course of the next couple of weeks and months to see additional 

tweaks. The example that I give, gentlemen, is that the caps deal, 

for example, extends the mandatory sequester by 2 years. It will 

take us several weeks, if not months, to run that number through 

the system. Instead of, however, waiting until April or May to give 

you this budget, we decided to come forth with these numbers here 

today. 

What have we done with the 2018 and the 2019 budgets? We 

have tried to deliver two messages—two messages at the same 

time. And the message from the administration is this——and I 

recognize the fact that a budget is a messaging document. We can 

sort of beat you to the punch and ask the question whether or not 

it is dead on arrival. I will never forget Senator Leahy called me 

last year right after I sent down the first budget, and he said, 

‘‘Young man, do not feel bad. This budget is no more or less dead 

on arrival than the other 40 I have seen since I have been here.’’ 

But it remains a messaging document. 

So what are those messages? There are two primary messages in 

what we bring to you today. 

Number one, you do not have to spend all of the money that you 

just allocated or provided for in the caps. But if you do, here is how 

the administration would prefer to spend it. You do not have to 

spend it all. And that is what we put in the 2019 budget. Yes, we 

have added money back to the 2019 budget, money in addition to 

what we would have sent you if there was no caps deal. But we 

do not spend all the way up to the caps on the 2019 budget. 

The second half of that first messages is but if you do spend it, 

here are the administration’s priorities. That is the 2018 budget. 

We have taken the 2018 budget and added back, I think, $117 billion worth of nondefense spending to 2018, to spend up to the caps 

in 2018 in addition to the $26 billion we add to our 2018 budget 

for defense spending. So that you have in front of you the administration’s two positions. You do not have to spend it all, and if something happens between now and the appropriations bill that you 

pass in March or the appropriations bill that you pass for 2019 between the end of March and September of this year, if you decide 

not to spend all the way up to the caps, then you have the administration’s guidance on how we would prefer to do that, and that is 

in our 2019 budget. 

Conversely, if you decide in 2018 or 2019 or in both to spend all 

the way up to the caps and you are curious as to how the administration would prefer to spend that money, that is the 2018 budget. 


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That is what we have sent to you, and we do believe that that message still has value even though you folks changed the numbers in 

the last 3 days. And we signed it. So it is not like you did it to us. 

We all did it together. We respect that. 

Also, interestingly—and I say this to my Democrat colleagues— 

folks have asked us if the 2019 budget is evidence of the administration reneging on the implied agreement regarding the caps deal. 

No. Again, I say that if you are interested in spending all the way 

up, which is what the caps deal contemplates, the 2018 budget is 

there. 

Keep in mind, the 2018 and 2019 caps numbers are only $10 billion difference. The difference between—I think the 2018 number 

is 80 for defense and 63 for nondefense; the 2019 numbers were 85 

and 68. So it is only a $10 billion difference in the caps deal between the 2 years. So the two things do stand as information from 

the administration as to how we would spend it. 

I will close by saying this: It does not balance. It does not balance within the 10-year window. I think I said to you folks, I know 

I said to my members in the House last year that I worried that 

when I came to you last year that it would be the last chance I 

would have to bring to you a budget that balanced in 10 years. And 

I said at that time that if Congress did not take steps last year and 

the administration did not take steps last year to change the trajectory of our spending, that I would not be able to balance the 

budget within 10 years this year, and that has been the case. I 

would contend to you that the numbers this year are even more 

solid. I know that my good friend Senator Van Hollen from Maryland and I like to go back and forth about the solidness of the numbers, and I can tell you, Senator, that I am even more comfortable 

this year that the numbers are more solid, that there are fewer 

plugs this year because we have had a chance to digest a year’s 

worth of information, to put policies to numbers. And as the numbers firmed up, it would have been possible to probably bring you 

today a balanced budget if I had fudged the numbers. But I would 

rather bring you numbers that are true and honest, that set forth 

a better picture of our fiscal condition, than lie to you and tell you 

the budget would balance in 10 years. So it does not balance within 

10 years, and we’ll talk about that today as well. 

Anyway, Mr. Chairman, I appreciate the opportunity to make an 

opening statement. I look forward to answering questions from the 

members of the Committee. 

[The prepared statement of Mr. Mulvaney follows:] 


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Chairman ENZI. Thank you, Director. 

Now we will turn to questions. Let me take a moment to explain 

again the process. Each member will have 5 minutes for questions, 

beginning with myself and then Senator Sanders. Following the 

two of us, we will alternate questions between Republicans and the 

minority. All members who were in attendance when we started 

will be recognized in order of seniority. For those who arrived after 

the hearing began, it will be in order of arrival. And if you are not 

here at the time that you are called on, you will move to the bottom 

of the list. So, with that, I will begin my questions. 

The broken budget process that I discussed in my opening statement was on full display last week with the latest caps deal. This 

legislative action occurred too late to incorporate in the President’s 

budget proposal. I appreciate your explanation. You did release an 

addendum with supplemental information on the administration’s 

vision for spending in light of the Bipartisan Budget Act. Can you 

explain how the administration proposes to adjust spending levels 

as a result of the legislation passed last week and to what extent 

it is using this opportunity to address some of the more egregious 

budget gimmicks? 

Mr. MULVANEY. Thank you, Senator. I will deal with the gimmicks separately. We took advantage of the caps deals, ladies and 

gentlemen, in both 2018 and 2019 to do a couple things. We moved 

a tremendous amount of money off of the OCO budget and into the 

base. We did that in both defense and nondefense. I think it was 

$12 billion in nondefense for this year. I cannot remember what the 

total number was in nondefense, but we started transition off of 

OCO and into the base. As part of our longer-term projections, you 

will see in the budget that we actually dramatically reduce OCO 

beginning in 2020. I think we take the total OCO budget down to 

no more than $20 billion in our projections beginning in the outyears. 

We also got rid of a lot of the CHIMPs, which I know immediately puts everybody to sleep, the gimmicks, for lack of a better 

word, that both Houses and administrations have used in the past 

to justify additional spending. So we took as much opportunity as 

we could given the additional money that was available under the 

caps to try and give a more transparent view into our actual spending. 

As regards to the actual spending priorities, Mr. Chairman, as I 

mentioned, in the 2018 budget, when we went back to plus-up the 

budget from last year to match the caps, we added $26 billion for 

defense, $117 billion to nondefense; $34.5 billion of that was for infrastructure, of which roughly 20 contemplates the President’s infrastructure package that was introduced yesterday. An additional 

$15.7 billion went for border security. That would bring, gentlemen, the total for the border wall for 2018 and 2019 to about $18 

billion, which is the actual cost of the physical structure. Keep in 

mind you may have heard the number of $25 billion for southern 

border security. The $18 billion is for the wall. The rest of it is for 

technology, personnel, and so forth. 

What does that mean? That means that the proposal that we 

have sent you actually contemplates a DACA immigration deal 

being done, because we recognize the fact that you have no interest 


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in giving us money for the full border wall unless it is part of a 

larger comprehensive immigration bill. So we fully contemplate 

that that deal is reached. 

Yes, we have asked for small amounts in 2018, $1.6 billion in 

2018, $1.6 billion in 2019, as part of the ordinary appropriations 

process. But we fully anticipate in these proposals that a DACA 

deal is reached and that we have full funding for the wall. 

We have $3 billion additional in opioid spending for 2018, an additional half a billion dollars for IT modernization, not very glamorous, not very sexy, but something that I think we all take very 

seriously. We spend about $80 billion a year—that is $80 billion 

with a ‘‘b’’—on IT in this administration or in this Government. 

The overwhelming majority of it is for maintenance of outdated 

systems. 

We have an additional $9 billion for research and development, 

keeping in mind that in both the 2018 and the 2019 budgets, R&D 

total spending increases. Do not be misled by some of the nondefense discretionary reductions. Overall, R&D is increased in both 

of the budgets. 

We have mentioned already the OCO to base shifts, and the 

budget gimmicks that I talked about represent almost $18 billion 

for the changes. 

In the 2019 budget, Mr. Chairman, I will not take a lot of time 

to go down, but the biggest increases would include an add-back of 

almost $16 billion in Health and Human Services, of which over $9 

billion is the NIH budget. I came to last year—I do not know if you 

are aware you did this or not, but I came to you last year with a 

proposal to reduce the NIH budget as an effort to try and get them 

to look at their administrative budgets. And I tried to make the 

case that if the NIH only allocated or only spent as much money 

on their administrative portion of their grants as they did from private grant money, we could actually reduce their spending by $9 

billion but actually get the same amount of research. Not only did 

that not sway very many people in the legislature, but you all actually added something in the April omnibus that said that it is 

against the law for us to go in and look at the administrative costs. 

So I know when I am beaten, and we have actually added back the 

$9 billion to the NIH budget. But there is a long list, Senator, of 

the other add-backs to 2019 as we try and reprioritize, given the 

additional moneys that were made available during the caps. 

Chairman ENZI. Thank you for being that concise. 

Mr. MULVANEY. Sorry. 

Chairman ENZI. Well, that is fine. I appreciate the information. 

Senator Sanders. 

Senator SANDERS. Thank you, Mr. Chairman. You know, budgets 

deal with trillions of dollars and thousands of pages and words 

after words after words and numbers after numbers after numbers. 

But the truth is, as I am sure Director Mulvaney knows, these 

numbers have real meaning to the lives of ordinary people. 

Mr. Chairman, I want to put into the record, if I might, an article from PolitiFact dated June 27, 2017. 

Chairman ENZI. Without objection. 

[The article follows:] 


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Senator SANDERS. Without going into all of what the article says, 

it basically confirms that when you throw many millions of people 

off of the health insurance they have, thousands of them will die. 

This budget calls once again for the repeal of the Affordable Care 

Act. The estimate is that some 32 million Americans will lose their 

health insurance. And what study after study shows is that when 

you throw 32 million people off of their health insurance, tens of 

thousands of them will die. Will die. 

Director Mulvaney, tell me about the morality of a budget which 

supports tax breaks for billionaires, throws 32 million people off 

the health insurance they have, resulting in the deaths of tens of 

thousands of fellow Americans. Do you really think this is something that we should be doing in the year 2018. 

Mr. MULVANEY. Actually, I do not think it is something that we 

are actually doing, Senator. Again, I am not familiar with the article that you have mentioned. My guess is that it references the 

CBO report regarding various Republican proposals to repeal and 

replace Obamacare. I do remember one of the major points of contention regarding the way the CBO scored the proposals was that 

it would assume that several tens of millions of people would be, 

to use your terminology, ‘‘kicked off’’ of health insurance by the repeal of the individual mandate. And when we drilled down into 

that, Senator, what we found was that the CBO assumed that if 

we got rid of the individual mandate, that millions of people would 

voluntarily give up Medicaid expansion, which is—— 

Senator SANDERS. Mr. Director, I apologize. We just do not have 

a whole lot of time. This is not—— 

Mr. MULVANEY. Well, if you want me to answer your question— 

but go ahead. 

Senator SANDERS. And I understand the individual mandate. 

This goes beyond. You are proposing a cut of over $1 trillion in 

Medicaid, and independent analyses have indicated—we can argue 

about nobody knows for sure, is it 25 million people who are going 

to be thrown off? Thirty million? I do not know to be honest with 

you. You do not know. But what we do know is when you throw 

tens of millions of people off, they will die. Some of them will die. 

Studies show that thousands of them will die. And I would just 

suggest that in the United States of America, the only major country not to guarantee health care to all people, we should not be 

making a very bad situation worse by throwing tens of millions of 

people off of health insurance. 

Let me ask you another question. Mr. Director, according to 

Americans for Tax Fairness, the Koch brothers, the third wealthiest family in America, worth $94 billion, and a family dedicated 

with a few of their billionaire friends to put hundreds of millions 

of dollars into the coming election, will receive a tax break of up 

to $1.4 billion a year from the Trump tax plan. Meanwhile, this 

budget eliminates funding, as I indicated earlier, for the LIHEAP 

program that keeps almost 7 million families warm in the wintertime, and the vast majority of these families have children or they 

are senior citizens or they are people with disabilities. 

Explain to me the morality of a process by which we give the 

third wealthiest family in America—a major contributors, I might 

add, to the Republican Party—over $1 billion a year in tax breaks 


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and yet we cut a program which keeps children and the elderly 

warm in the winter. 

Mr. MULVANEY. Here is the morality of the LIHEAP proposal, 

Senator. Eleven thousand dead people got that benefit the last time 

the GAO looked at it. That is not moral, to take your money, to 

take my money, to take the money from the people of—— 

Senator SANDERS. Eleven thousand people got it who should not 

have, correct that. But 7 million people get the program. To say 

that 11,000 out of 7 million—deal with that. I agree with you. 

Mr. MULVANEY. All 50 States now have individual programs designed to prevent the cutoff of utilities either during the summer 

in the South or the winter in the North, which is exactly what the 

LIHEAP program was originally designed to do. So the program—— 

Senator SANDERS. Mr. Mulvaney, when it gets 20 below zero— 

I come from a State which tries to do its best. Vermont and other 

States around this country, including Wyoming, do not have the resources to keep people warm when it gets 20 below zero. You have 

just created a situation—not you; the President must take responsibility for this budget—created a situation where people will go 

cold, some may freeze to death, and that is not what we should be 

doing in America. 

Chairman ENZI. Senator Grassley. 

Senator GRASSLEY. In all my years in the United States Senate, 

I have never seen such positive results just because we passed a 

tax bill so soon. I have seen positive results down the road a ways, 

but not within a month of the passage of the bill. So I want you 

to know that I appreciate the administration’s focus on maximizing 

economic growth as part of its first two budgets. We simply cannot 

settle for the anemic growth of under 2 percent experienced under 

the last administration. 

The passage of the tax bill in December is a key component of 

this administration’s effort to achieve annual average economic 

growth of about 3 percent, which is the average of the 50 years before 2008. We have already started to see the positive effects. Many 

businesses have announced pay raises, employee bonuses, and increased investment in the U.S. Additionally, this month employees 

are beginning to see bigger paychecks as less tax is withheld. 

So, you know, under reconciliation we can only pass tax legislation for 10 years. So, Director Mulvaney, can you speak to the importance of tax permanence in achieving long—term sustainable 

growth envisioned in the President’s budget? 

Mr. MULVANEY. I can. Thank you, Senator. And, in fact, we assume that for the largest portions of the tax bill, we assume that 

in our budget, even though the tax bill that passed ends the individual tax rate reduction after 5 years, we assume its permanence. 

In fact, you will see that there is a variation between the CBO 

baseline for revenues over the course of the next 10 years and our 

budget, fully half a trillion dollars of that is associated with that 

extension. We do not extend some of the smaller tax reductions. I 

think there were some specific 1-and 2-year programs that are not 

extended. But under the proposals in this budget, the individual 

tax rates and the corporate tax rates would be permanent. 


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Senator GRASSLEY. I have heard the rule that the administration 

put out that for striking—or implementing regulations, two have to 

be repealed. I have heard the President speak about hundreds of 

regulations being reduced. I would like to have you give me some 

data that will show the benefits of such, because maybe you reduce—you are eliminating regulations that have not been enforced 

for the last 20 years. What good does that do? I am not bad— 

mouthing what the President is trying to accomplish here because 

I think less regulations has had a great deal to do with increasing 

the economic growth. But can you put some quantifiable terms so 

we can see what this is doing to benefit the economy? 

Mr. MULVANEY. I can. I can do it a couple different ways. 

First of all, I want to thank Congress for taking up under the 

CRA revision, I think it was 15, 16, or 17 different regulations, and 

I want to reinforce the fact that while the administration can take 

steps to undo regulations, it can be slow, it can be tedious, and it 

might not be permanent. When you all take it up under the CRA, 

you make sure that no future administration ever makes a similar 

rule. So I want to thank you on behalf of the administration for the 

work you have undertaken there. 

The actual ratio that we have achieved, Senator, this year instead of 2:1 was 22:1 on major regulations. We had 22 major rules 

and regs revoked versus, I think, only three or four brand-new ones 

total. The total number of rules, regulations, and other limitations 

that were either withdrawn, made inactive, or delayed is approaching 1,600. 

The net present value benefit of that to the economy last year 

was $8 billion, and that will go forward now. So we really do believe—in fact, I think if you go back—you talked about economic 

growth, Senator. We actually saw increases in economic growth, 

improvements in economic growth, before the tax bill was even actually fleshed out, let alone passed. And we absolutely believe the 

work the administration and Congress did to roll back the regulatory burden had an immediate impact on the economic health of 

this country, and that that is sustainable and structural. It is not 

stimulus. It is not a sugar high. It is something that fixes the economy long term, so it is something we look forward to continuing. 

The President continues to make it a priority for the administration, and we will continue to make it a priority as we move forward 

next year. 

Senator GRASSLEY. I have got 3 seconds left. I do not expect you 

to answer this question, but I want to make sure that you know 

it is important to me, instead of putting it in an email to you. As 

you know, the Senate has been working to try to stabilize the durable medical equipment Medicare benefit. This benefit is important 

because it allows patients to remain in their homes, avoiding hospitalization. The Obama Administration put in place a rule that 

applied competitive bidding rates to rural and other areas that 

were expressly excluded from the competitive bidding program. In 

some cases these changes resulted in rates being below the cost 

suppliers incur for providing services and equipment. And I was 

encouraged in August last year when I saw that CMS sent an interim final rule to OMB that would mitigate these changes. However, this rule has been pending since then. So I want you to tell 


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me in writing specific steps you are taking to make sure that the 

OMB reviews and releases that rule. 

Senator GRASSLEY. Thank you. 

Mr. MULVANEY. Thank you, Senator. 

Chairman ENZI. Senator Stabenow. 

Senator STABENOW. Thank you very much, Mr. Chairman. And 

welcome. 

First, I have to start, Director Mulvaney, and say I cannot believe here you go again on the Great Lakes. I cannot believe this. 

Last year, the administration zeroed out the Great Lakes Restoration Initiative, which is a bipartisan initiative strongly supported 

in the House and the Senate to make sure that we have dollars 

available for emergencies as well as water quality issues and so on. 

And after you zeroed it out last year, we put the full funding back 

in, strong support from the entire region, and now you are back 

again with almost zeroing it out. 

And so I just do not understand it. I know that last year you said 

this was a local issue, but believe it or not, there is another country 

that cares about this right next to us called Canada. And we have 

a Great Lakes Initiative with eight States. It is funded Federal, 

State, local, and internationally. But the administration does not 

seem to understand that 20 percent of the world’s fresh water surrounding the Great Lakes is important. So please explain this to 

me. 

Mr. MULVANEY. Thank you, Senator. And you are absolutely correct. We did zero that out last year. I believe that after the caps 

deal, one of the add-backs we made either to 2018 or 2019—I cannot remember which one it was—was for $30 billion split between 

that and some of the work we are doing in the Chesapeake Bay. 

What our research indicated over the course of the last year— 

and you did raise this with our office, as did many members of the 

area, both the House and Senate from both parties—was that there 

is some Federal long-term monitoring programs ongoing, and we 

propose to continue to fund that, but also to send the message at 

the same time that it is just not something that we are interested 

in doing long term. We do consider it to be regional. We do consider 

it to be something that the States are capable of doing and that 

we would very much like to see us get out of that business in the 

long term. 

Senator STABENOW. This is a major resource for our country, I 

would just say. Have you seen the Great Lakes? Have you ever 

been? 

Mr. MULVANEY. Yes, ma’am. 

Senator STABENOW. So we are like the ocean without the salt. It 

is pretty big. One out of five jobs in Michigan comes from the 

water. It is a very big deal—a $16 billion boating industry, $7 billion fishing industry. I could go on and on. And that is just Michigan. And so the idea of taking what is a commitment every year 

of $300 million to be able to tackle things like Asian carp, which 

we are trying to keep out of the Lakes, and instead put in $30 million, again, we are going to go right back at it again and do our 

level best to make sure that this does not happen. But I do not understand why this major natural resource for our country, where 

40 million people get their drinking water from the entire region, 


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is something that this administration does not understand. So we 

are going to go back at it again and hopefully be able to keep the 

funding going. 

Something else I wanted to ask you about, and that relates to 

Michigan and Canada again. We trade everything across a bridge 

and tunnels and so on, except prescription drugs. We are not allowed, and we have probably the highest prices for prescription 

drugs in the world, and we can drive 10 minutes across a bridge 

and lower the prices oftentimes 40 percent to 50 percent for seniors 

and others. So we are not talking about luxuries here. We are talking about in many cases whether or not people are going to get 

their cancer medicine, their insulin. It is life and death. 

So President Trump has made promises about lowering the cost 

of prescription drugs, and the administration could open the border 

right now to safe importation. And Senator Sanders is offering a 

bill that I am a cosponsor of. I have taken bus trips with seniors 

to Canada over the years, and I am wondering—we have not seen 

any action so far, so is it fair to say the President does not support 

opening up the border to reimport safe prescription drugs into the 

United States? 

Mr. MULVANEY. I will say this, Senator. I believe that it is a 

promise that the President has already started to keep. The things 

that we have done in the administration already this year, part of 

the changes at CMS, have actually already saved our seniors this 

year, 2018, over $300 million. And the budget—— 

Senator STABENOW. Have prices been going down? I am sorry. I 

am just not aware of prices going down. 

Mr. MULVANEY. Prices went down either within Medicare or 

Medicaid in 2017 for the first time since 2012. So—— 

Senator STABENOW. On reimportation, which would—— 

Mr. MULVANEY. No, ma’am, not on reimportation. We do not address that in the budget, but there are other ways to get at this 

issue. I believe you may have heard that the President actually 

mentioned lowering drug prices in the State of the Union address. 

The budget contains a series of proposals, including a doubling of 

the funding for the FDA, an extra $100 million this year in order 

to work on generics. We have had successes there already. We look 

forward to continuing those. 

Senator STABENOW. Yes, and I do support generic drugs and 

more competition in that area, and I think that that is very important. But I also know there are things that he could do right away. 

His own commission that looked at the opioid crisis recommended 

that there be immediate negotiation to bring down the price of 

naloxone, and that could be done and has not been done. Opening 

up the border to be able to bring lower-cost prescription drugs can 

come back. I am very concerned that at this point we have seen— 

and I will conclude, Mr. Chairman—that when we look at what is 

actually happening in the marketplace for seniors—because folks 

are not talking to me about prices going down. They are talking 

about to me about prices going up. What I am concerned about is 

we have seen major windfalls from the tax cut. AbbVie now is 

going to have an effective tax rate cut to 9 percent, the corporate 

rate 35 to 9, and others as well. And I would just say I have not 

seen anybody lowering prices because they got a big windfall in the 


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tax cut. And that would be something that would be very nice for 

the President to focus on. 

Thank you, Mr. Chairman. 

Chairman ENZI. Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman. 

Director Mulvaney, welcome back. I do want to applaud you for 

creating a more real budget. It seems that every year we have 

these fake budgets that balance in 10 years. 

It does not matter who the administration is or what side of the 

aisle they are on. We have these fictitious budgets that create 

imaginary things that are never going to occur. And you did not do 

that, so I want to thank you for that. 

I know that you and I are of the same ilk. We care deeply about 

the deficits that our Nation has. I know you were a strong proponent of balanced budgets when you were in the House, and now 

you are in this position, and we as a Nation, as you know, are on 

an unsustainable path. And I do not want to get into specifics right 

now, and I think we all understand where we are as a Nation. I 

was somewhat discouraged that the cap deal that was reached last 

week was really far above what even the President had asked for. 

So I think we have to say that Congress in this particular case 

went way beyond what the President was even requesting. As 

strong of a military supporter as he is and I am, Congress went 

way beyond that, both on military spending and on the non-military spending. 

So you have had to actually jack your budget up, so as people 

are giving you a hard time today about deficits, you actually requested less money and at the last moment had to elevate everything to take into account what Congress on its own accord did to 

create even bigger deficits. 

And so what I would like to ask you is, just philosophically, 

where do we go? By 2028, we are going to be at 91 percent debt 

to GDP. I know that our military leaders would tell us that our 

deficits are the greatest threat to our Nation—not Russia, not ISIS, 

not the many things that we are dealing with in the Middle East 

and around the world, but our debt. I know that you care about 

that. So, just philosophically, tell me where we go from here. 

Mr. MULVANEY. Well, I think the budget gives some insight into 

that, Senator. Keep in mind even though it does not balance within 

the 10-year window, this budget still represents a $3 trillion reduction in spending over the course of the 10-year window. That is the 

second largest reduction in proposed spending of any budget ever. 

The only one that is larger was the budget that we introduced last 

year. In fact, but for the caps deal, it probably would have been 

larger this year. That is a $1.7 trillion reduction of that 3 in mandatory spending. 

To Senator Sanders’ point, I would contend to you that we absolutely keep our promises. We do not take a look at or make any 

reforms to Social Security retirement. We do not take a look at or 

make any reforms to Medicare recipients, services that they get. 

But there are other moneys that can be saved. We save $1.7 trillion 

in mandatory spending here by looking at things like the way 

drugs are priced within Medicare. We do some tremendous new 

ideas, I think, on things like food stamps and the farm bill, other 


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mandatory spending. There are some good ideas out there in this 

budget that the legislature could take up to get real long-term savings and that could make a dent in that GDP ratio. 

In fact, I think you see by the end of our budget, even though 

we do not balance, we are getting very close, and we do bend the 

curve down in terms of debt to GDP. I think we are down below 

1.5 percent debt to GDP by the end of this window. So that is a 

tremendous move in the right direction. 

Senator CORKER. And so over the longer term—I think most of 

us realize that with the baby-boomer generation this is going to go 

on for some time. Over the longer term, based on the way you see 

Congress acting and you see the other pressures that we have to 

invest in things like infrastructure, you are actually more hopeful, 

because it does not feel that way to me, that we are heading in a 

hopeful direction as it relates to solving our Nation’s deficits. 

Mr. MULVANEY. I consider myself to be an optimist. With no disrespect to my Democrat friends, I think one of the reasons I am 

a Republican is that I am an optimist. I will tell you, though, that 

there was a very interesting dynamic in going through the plussing 

up of the budgets. It is a lot more fun to spend money than it is 

to reduce. It is a lot harder to reduce spending in the long term 

than it is to spend. And I think that it is incumbent upon all of 

us to start making difficult decisions, to decide together as a legislature and as an administration are these deficits that we are really willing to tolerate. We are not as an administration, which is 

why we have a budget that bends that curve down in the appropriate direction. And we hope that the legislature takes us up on 

some of the ideas that we offer this year. 

Senator CORKER. One last question. My time is expiring. There 

is a huge plus-up in several areas that take some of the agencies 

that are plussed up per this last cap deal—including the Pentagon, 

which, you know, I support making sure that our military has what 

it needs. But the plus-up is so large that you could have a situation 

where people are just rushing to get contracts out the door to take 

advantage of the moneys that are available that year. What are 

you all doing to ensure that we do not end up doing multiple 

wasteful things in light of these massive plus-ups in one year? 

Mr. MULVANEY. I will give you one example. I think one thing 

the administration is extraordinarily proud of, in addition to increasing the spending at the Defense Department, for the first time 

ever, as of September, the DoD now tells us they are ready to be 

audited. We are starting that process. In fact, we have already seen 

the first fruits of that. You saw a report last week about the Pentagon’s inability to track about $800 million. That is a good thing because that was something that we have been able to expose and 

now we will be able to fix. So we absolutely take that risk seriously 

and hope to be able to do better with it now that we have made 

some improvements. 

Senator CORKER. Thank you, Mr. Chairman. 

Chairman ENZI. Senator Whitehouse. 

Senator WHITEHOUSE. Thank you, Chairman. I share Senator 

Corker’s frustrations with where we are, and I think you, Mr. 

Chairman, have expressed similar frustrations. We have a ridiculous budget process, and as a result of that, we end up with ridicuVerDate Sep 11 2014 13:37 May 06, 2019 Jkt 000000 PO 00000 Frm 00077 Fmt 6601 Sfmt 6601 H:\GPO\PDF\OUT\35700.TXT PAT

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lous budgets. This budget is going no place. We all know that. It 

was cooked up in the laboratories of the Koch brothers and a bunch 

of other creepy billionaires who want to remake America in Ayn 

Rand’s image. It was cooked up in the laboratories of polluters who 

want absolutely no regulation so they can despoil at will. It includes over $1 trillion in Medicaid cuts that are clearly going no 

place. 

It is completely out of step with the funding bill that the Presi- dent just signed and touted. It is off by $58 billion just from the 

nondefense discretionary part of the funding bill that the President 

just signed. 

It knocks down HHS with a 21-percent cut as opposed to the funding bill that we just passed, which has $6 billion in opioid 

funding that I think Americans desperately need. The funding bill 

we just passed added $20 billion in infrastructure-related investments. This cuts it by $40 billion, for a $60 billion delta going the 

wrong way on infrastructure. And part of the reason that these 

silly things are in here is because the process is so silly. It is completely partisan, which is why it ends up cooked up in extremist 

laboratories. And it is unrelated to the funding process because of 

its failures. We have a budget process over here that ends up producing nothing, and then we have a funding process that is led by 

leadership and the appropriators that ends up actually doing the 

work of putting the funding measures of Government together. And 

there is virtually no relationship between the two. The budget is 

like a firework that goes off with a big bang and everybody pays 

attention to it because it is noisy and bright, and it has zero effect 

on the people who actually make the decisions year in and year out 

on funding the Government. And I think it is a shame, and I think 

the signals that this is wrong are, first of all, that there is no bipartisanship whatsoever. That has been a problem for a long time. 

It is a vehicle for one party to express its political persuasion, to 

express its loyalty to its big funders, and to create a path for another purely partisan vote using the reconciliation measure. That 

is basically all it accomplishes. 

A budget process that worked would also look at tax expenditures. More money goes out the back door of the Tax Code than 

gets spent through most of these appropriations, and yet we do not 

look at that. The health care expenditure of the country, of the 

Federal Government, in the 10-year out-period has been estimated 

to have fallen by about $3 trillion. That is a big number, and we 

do not know why. I think it has something to do with ACOs and 

with payment reform and with changes in treatment by doctors at 

the local level that are actually driving down per patient yearover—year costs, but we do not know that. We ought to be vitally 

interested in trying to figure out why we got that $3 trillion and 

how we can make more of it if we are getting it by better patient 

care. 

My God, what could be more important than improving patient 

care and lowering costs at the same time instead of going after preposterous cuts? 

We have to have the budget have some parliamentary effect if it 

is going to be meaningful. Right now the budget has zero parliamentary effect because the 60-vote penalty is the 60-vote minVerDate Sep 11 2014 13:37 May 06, 2019 Jkt 000000 PO 00000 Frm 00078 Fmt 6601 Sfmt 6601 H:\GPO\PDF\OUT\35700.TXT PAT

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imum for appropriations. So we are shooting blanks. We have absolutely no effect here. We are a null factor. 

And, finally, we have got to look at revenues. I know it is torture 

for our Republican friends to look at revenues sometimes, but for 

crying out loud, we cannot have passion about deficits and then at 

the same time abandon our passion about deficits as soon as it 

runs up against the carried interest exception that protects the biggest billionaires on Wall Street. We cannot maintain a passion for 

deficits that evaporates as soon as it bumps up against tax benefits 

for big oil, for crying out loud, the companies that need the least 

tax relief of any companies in the world. And yet there is this 

magic disappearing passion about deficits when they bump up 

against some very obvious ways to raise revenue. 

Now, we each have our own politics on either side to bring to 

this, and we can keep ricocheting back and forth from one extreme 

to the other, but until and unless we have a meaningful bipartisan 

process that actually looks at tax expenditures and takes a responsible look at what is going on in health care so that we can reduce 

costs without cutting benefits and looks at revenues and has some 

parliamentary effect, all we are doing here is noisemaking and firing off fireworks into the sky that people look at and think, ‘‘Oh, 

that must be really interesting, look what this budget just did.’’ 

And, in fact, everybody who is in on the scheme knows that it has 

no effect whatsoever, and the appropriators and the leaders are 

going to get together and make a deal like they just did, and that 

is how this is going to continue. 

We have got, Mr. Chairman, to fix our broken budget process, 

and one of the best things in the recent funding bill that we just 

passed was to set up a bicameral committee to take a look at how 

we solve a broken process. The way to a budget that works is the 

path of bipartisanship. We have to create such a road. And here 

endeth my statement. Thank you, Chairman. 

And, by the way, I sincerely appreciate your leadership on this 

particular question. You may not agree with every word that I said, 

but I think we have common cause in believing that the budget 

process needs reform and improvement. And I appreciate your 

leadership in moving us in that direction. 

Chairman ENZI. Thank you. Thank you for your comments. 

Senator Gardner. 

Senator GARDNER. Thank you, Mr. Chairman, and thank you, Director Mulvaney, for your time and testimony today and your service to the country. 

I agree with my colleague Senator Whitehouse about the need for 

budget reform. In a process that has been in place since the 1970’s, 

it has worked two or three times. My gosh, this is a disaster that 

is unfolding to the American people, and we have got to find a reform that can actual hold stick and work for the American people. 

But I want to talk about something that is working, and that is 

the tax cut bill. And I think today some more crumbs were announced for the American people: $1,500 in bonuses from a developer in Maryland; MetLife increasing minimum wages; bonuses 

and benefit packages around the country are increasing. And I 

think this is important to talk about, the fact that people are earning more dollars, their wages are going up, benefit packages are inVerDate Sep 11 2014 13:37 May 06, 2019 Jkt 000000 PO 00000 Frm 00079 Fmt 6601 Sfmt 6601 H:\GPO\PDF\OUT\35700.TXT PAT

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creasing. I think our colleague from Vermont talked about utility 

rates. We have seen now people reducing—we have seen utilities 

reducing their utility rates because of the tax cut bill. 

Director Mulvaney, what happened when people earn more 

money from a revenue standpoint? 

Mr. MULVANEY. It goes up. In fact, that is exactly what our projections have shown. Senator Whitehouse has stepped out, but one 

of the things he mentioned was to look at the revenues, and one 

of the beneficial impacts of the tax bill is that the revenues are actually up on our projections versus the CBO baseline. In fact, in 

2027, we expect that the Government will take in almost $350 billion more than it otherwise would have. 

Senator GARDNER. Well, surely these are just crumbs, right? 

Mr. MULVANEY. I have often wondered if $1,000 would be a 

crumb if it came in the form of a Government check. 

Senator GARDNER. And so if you are looking at a utility rate that 

may average $120 for somebody, $120 a month I think is perhaps 

the Pepco region that we are in right here, 300,000 customers, 

$1,000-plus could cover a year’s worth of utility. Do you think that 

is crumbs? 

Mr. MULVANEY. I do not. 

Senator GARDNER. Do you think a minimum wage boost is 

crumbs? 

Mr. MULVANEY. I do not. 

Senator GARDNER. Do you think salary bonuses are crumbs? 

Mr. MULVANEY. Only a very wealthy person from San Francisco 

would think that was a crumb. 

Senator GARDNER. Thank you, Director Mulvaney. And I am excited for what we have here because you anticipate making this 

permanent, correct? 

Mr. MULVANEY. We do. Yes, sir. 

Senator GARDNER. I think that is important. 

Mr. MULVANEY. And our assumptions assume that. 

Senator GARDNER. It is important to talk about. 

I want to shift to some of the other ideas that are in the legislation. One of the most important things for Colorado’s economy is 

the outdoor economy. It is a huge economic driver. Last year, we 

passed a bipartisan bill to take a look at the outdoor economy, 

make sure that it is measured as a part of our overall economic activities, almost $1 trillion in terms of economic development that 

has taken place as a result every year of our outdoor recreation 

economy, consumer spending, et cetera, 7.6 million jobs, some $65 

billion in taxes. 

The budget does zero out land acquisition under the Land and 

Water Conservation Fund. I am concerned about that. Land and 

water conservation funding does not come from tax dollars. It actually is funded through other revenue mechanisms within the budget, so these are not taxpayer dollars being spent in this program. 

I would just like to better understand the administration’s thinking 

behind the budget request for something like the Land and Water 

Conservation Fund. 

Mr. MULVANEY. And, Senator, we have reached the point where 

I do not know that one off the top of my head. I apologize. 

Senator GARDNER. Okay. 


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Mr. MULVANEY. I would be happy to reach out to you. I know it 

is important to you and your district. We do a couple of other 

things that we think would be beneficial out West, including adding back some money for PILT, which I know is a big deal for Colorado. But I do not know the answer off the top of my head on that 

particular issue. 

Senator GARDNER. And that is very important for Colorado, and 

I thank you for that. And we would also save you some rent money 

if you moved the BLM office out of Washington, DC, and you reheadquartered out in Colorado, perhaps Grand Junction, Colorado. 

That would save a little bit of money, too. 

Mr. MULVANEY. If only we knew the Director of the Office of Interior. 

[Laughter.] 

Senator GARDNER. Thank you. 

Also, energy dominance, speaking of the Director of Interior. 

American energy dominance I think is a great, great thing to be 

proud of, to support, and to pursue. American energy dominance I 

think is a very strong and powerful diplomatic tool as well as economic driver. The budget does have about $1.3 billion cuts to the 

Energy Efficiency and Renewable Energy Office, and that could affect the National Renewable Energy Laboratory. I want to make 

sure that you view renewable energy as part of American energy 

dominance. 

Mr. MULVANEY. We do. A couple different things. I want to make 

very clear that we are absolutely satisfied that under the proposals 

we have, no labs will close, number one. 

Number two, what the budget does reflect, Senator Gardner, is 

a refocusing, a reprioritization of basic research, and there are 

places where we believe the Federal Government has moved out of 

the role of basic research into more applied research, stuff that is 

closer to market. And what we are simply doing is saying, ‘‘Look, 

that is the stuff the private sector should be able to take care of. 

Let us refocus our efforts on basic research in those areas.’’ 

Senator Gardner. Thank you. I am going to run out of time here, 

but I want to summarize a couple of questions that I was going to 

ask. 

On DACA, this week we are debating DACA. We are debating a 

very important solution. There are hundreds of thousands of workers legally right now in Colorado that are going to be affected by 

the decisions this Senate makes, this Congress makes over the next 

several weeks. Just back—of-the-page math, we are looking at a 

population in jobs right now that could be responsible for as much 

3.4 percent of GDP. And if that was a group of people that were 

to be eliminated out of the work force, I think that would have a 

detrimental effect on a budget projection of 3 percent growth or 

more, as we try to achieve that. So that is something to consider 

as we go forward, very important that we get this. 

NAFTA, critical to our economy, critical to growth, critical to that 

GDP assumption that we are building into our budgets. Obviously, 

trade overall is, and I think any kind of decision on NAFTA that 

could affect our trade dominance, so to speak, could negatively affect—if it is in a negative way, could negatively affect the GDP 

growth as well that we face. 


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And, finally, a quick question that you can get back to me on. 

When we are talking about concerns over revenues, have you given 

any thought or has the administration given any thought to monetizing Fannie Mae and Freddie Mac, something like that, what it 

would mean? 

Mr. MULVANEY. Senator, that is a longer discussion for another 

day, but, yes, sir, there is considerable discussion going on within 

the administration, led in part by Treasury and HUD, as to what 

to do about the Government-sponsored enterprises. 

Senator GARDNER. Thank you. 

Chairman ENZI. Senator Van Hollen. 

Senator VAN HOLLEN. Thank you, Mr. Chairman. Welcome, Director Mulvaney. 

First, and I cannot talk about this at length, but very, very disturbed that the Trump administration reneged on the longstanding 

plan to consolidate the FBI campus in a way that would provide 

a more secure setting. We can have that conversation later. 

Back in 2016, during the campaign, Candidate Trump called 

himself the ‘‘King of Debt.’’ It is pretty clear that this is one of the 

promises he has kept as President of the United States. 

To my friend Senator Corker, who said this is the first time we 

have seen an ‘‘honest budget’’ because it does not balance in 10 

years, actually President Obama presented budgets that were very 

honest. They did not balance in 10 years, and you and our Republican colleagues raked him over the coals for that. But what we 

saw was borrowing, $1.5 trillion to give windfall tax breaks to corporations, and since Maryland was brought up, I would just point 

out our legislature is now having to try to pass laws to stop big tax 

increases on Marylanders; $350,000-plus Maryland households will 

see tax increases, including 123,000 Maryland households with incomes between $25,000 and $50,000. That is not a middle-class tax 

cut. That is a tax increase on hundreds of thousands of Marylanders. 

Now, I wanted to ask you about what you say in here about the 

Trump economy, because the more I look at these numbers, it looks 

like the Trump administration is simply benefiting from the continuation of the Obama economy. 

You say here that Trump economics is working. You cite the fact 

that 2 million jobs were added in calendar year 2017. That is on 

page 1 of your testimony. That is great that 2 million jobs were created. That is fewer jobs than were created the previous year in 

2016, isn’t it? 

Mr. MULVANEY. I do not have the numbers in front of me, Senator, but I believe you. 

Senator VAN HOLLEN. It is somewhat fewer than the year before, 

and it is fewer than in 2015, isn’t it? 

Mr. MULVANEY. Again, I do not have the historical data, but 

there is no reason for you to lie to me. 

Senator VAN HOLLEN. Well, the reality is it is fewer than in any 

year since 2011. So I am glad we saw 2 million jobs created, but 

it is interesting to herald this as a great new result of the Trump 

economy when it is less than in any year since 2011. 

I want to look at the rate of economic growth. Economic growth 

last year was actually slower than it was in 2015 and 2014. And 


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I went back and I looked at what the CBO projected, what the 

CBO projected for economic growth in 2017. Do you know what 

they projected in 2017? 

Mr. MULVANEY. Again, I do not have the historical numbers. I 

know that we projected 2.3 in last year’s budget, and you accused 

me of being way too optimistic. 

Senator VAN HOLLEN. Actually, I did not accuse you of being way 

too optimistic with respect to that number. That was the same 

number CBO had. 

Mr. MULVANEY. Okay. 

Senator VAN HOLLEN. I said what you did last year, and it 

sounded like you confessed a little bit to it, that last year’s budget 

was very overly optimistic with respect to out-years. But let me— 

my question here, Director Mulvaney, is this—— 

Mr. MULVANEY. I think we beat last year’s numbers, but go 

ahead. 

Senator VAN HOLLEN. Because I am just puzzled by these claims 

of how the first year of the Trump administration deregulation 

brought all this added economic growth. The CBO projected 2.3 

percent growth in 2017. That was not based on any assumptions 

about Trump economics. That was just based on where they saw 

the economy going. And, in fact, the economy grew at 2.25, a little 

lower than what CBO projected. So I am trying to figure out where 

your—the basis for your comment, you just made it again, that this 

first year, deregulation produced all this economic growth, when it 

was actually slightly lower than what CBO projected, and they did 

not take into account any of those claims. 

Mr. MULVANEY. Senator, I think if you look at the last three 

quarters, we had two quarters over 3 percent; the fourth quarter 

was just under 3 percent, including some tremendous financials. I 

think the Atlanta Fed just predicted first quarter someplace in the 

neighborhood of 5.4. So I think everybody, I mean left and right, 

has admitted that the economy grew faster last year than expected. 

Senator VAN HOLLEN. Well, I do not think so. CBO projected 2.3 

percent. I never quarreled with that number, and, actually, it was 

slightly lower than that. So this sounds a lot more like puffery 

than reality. 

My last question, putting your other hat on, CFPB, as you know, 

your predecessor at CFPB filed a lawsuit against some scam artists 

in the payday lending area. One of them was Golden Valley, which 

charged like 950 percent interest rates. I mean, this is higher than 

Mafia loan sharks. It is reported that you dropped that lawsuit, 

and the spokesperson for CFPB first said that you were not part 

of the decision and then said you were. A simple question. Were 

you part of the decision to drop the case against Golden Valley? 

Mr. MULVANEY. Yes, sir. 

Senator VAN HOLLEN. Okay. I will follow-up with that. I think 

it is an outrageous decision and an anti-consumer decision. 

Mr. MULVANEY. Keep in mind, Senator, because you and I are always very candid with each other, there is an ongoing investigation 

into Golden Valley, so it would be unlikely I would be able to answer many of your questions other than the one you have just 

asked. 


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Senator VAN HOLLEN. Well, it sounds like you dropped the lawsuit. 

Mr. MULVANEY. We dropped—again, let me be very clear in my 

wording because I have a lawyer sitting here behind me. There is 

an ongoing investigation against Golden Valley, and for that reason, it is not appropriate for me to comment on that work. I cannot 

answer the specific question that you asked me. 

Senator VAN HOLLEN. All right. Thank you, Mr. Chairman. 

Chairman ENZI. Senator Boozman. 

Senator BOOZMAN. Thank you, Mr. Chairman. Thank you for 

being here today, and we appreciate all of your hard work. 

The administration budget projects the debt-to-GDP ratio will 

begin to decline in 2023 and ultimately reduce below pre-recession 

levels over the 25-year horizon. Presumably, economic growth plays 

a role in this change of trajectory as well as restraining spending. 

Can you explain some of the key policies that Congress should consider in order to put our country back on a fiscally sustainable 

path? And then, also, what is a healthy debt-to-GDP ratio in your 

estimation? 

Mr. MULVANEY. I will deal with the second question first. I think 

a lot of the academic literature would suggest to you that 80 percent really is sort of that danger zone, so if we can keep it below 

that, that would be great. I would love to see it below 60, which 

is, I think, back below the pre-recession numbers. But we have too 

much now, I think is the short answer to your question. 

Regarding the policies that we would encourage the Congress to 

consider, on the revenue side, Senator, you may not have been here 

earlier when we mentioned that this budget assumes that the individual tax rates which expire, the reductions that expire 5 years 

into the current window, we assume those to be permanent. And 

I will tell you that our assumptions regarding long-term growth assume that they are permanent. 

So we encourage you to keep an eye on the revenues, and if the 

revenues do, in fact, turn out the way we expect them to be—and, 

again, we expect revenues to decline in the short term, as you and 

I discussed during the discussion of the tax bill, but start to increase, actually increase almost immediately and to turn positive 

compared to the baseline by 2023, and are almost $350 billion to 

the positive by 2027. So let us continue to watch the revenue line 

and to continue to tweak the tax bill to make sure we can maintain 

that. 

On the spending side, Senator, we have offered $3 trillion in long-term savings over the course of the budget; $1.7 trillion of that 

is on the mandatory side. I think you and I share a concern that 

the mandatory side of the budget continues to eat into a larger and 

larger share of our spending every single year. And while fiscal restraint in any form is to be encouraged, certainly taking a look at 

that mandatory spending would be helpful. 

Senator BOOZMAN. What is a healthy GDP to deficits? 

Where are we at now? 

Mr. MULVANEY. Senator, right now—oh, deficits? I think we are 

approaching 5 in the next year or two. We get down to 1.1, 1.2, I 

think, by the end of the 10-year window. That is better than zero. 

I would like to see a balanced budget in the long term. But if you 


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are going to run a little bit of a deficit, keeping it as low as possible 

would be advisable. 

Senator BOOZMAN. Okay. 

Mr. MULVANEY. Actually, let us put it to you this way: I would 

love to see revenues growing faster than expenses, and that allows 

us to shrink the size of the deficit as a percentage of GDP every 

single year. You run a business, and if your business’ expenses are 

growing faster than your revenues, you are in trouble, and so is the 

Government. 

Senator BOOZMAN. Right. That is a good point. 

Tell me, we are in the process now of the DACA voting and 

things, you know, trying to get that sorted out. One of the things 

that is very important to the President and very important to myself and so many others is securing the border. We would like to 

make it such that we have a significant amount of money, you 

know, going that way because it is going to take that. How do we 

do that in a way that we can get some money up front and yet protect that money into the future, but also very importantly, making 

sure that we have the oversight that we need going forward? 

Mr. MULVANEY. The good news, Senator, is that as we sat down 

to look at the caps deal that was just signed, it does provide considerable additional funding, and we actually take a big chunk of that 

and put that toward border wall security, border security including 

a wall, including the wall. In fact, I think you may have heard me 

say earlier that our budget assumes a DACA deal; it assumes an 

immigration agreement is reached. We want one to be reached. I 

want to make that very clear on behalf of the administration. And 

for that reason, we actually explicitly assume that a deal is reached 

and that the money for the wall is set aside. 

One of the early proposals that we sent down for you all to consider is to set up a trust fund so that while we have the money 

available with the caps being increased this year and next, that we 

set aside that money in that trust fund so that we do not have a 

situation like we had in 2006 where border security was authorized 

but was never appropriated. 

Senator BOOZMAN. I agree with that totally. And, again, as far 

as the oversight, how do you oversee the trust fund? What would 

be your proposal to—— 

Mr. MULVANEY. I do not know if we have gotten to the details 

yet on how to do that, Senator. All I can offer you is the examples 

that we have brought to some of the other agencies. I mentioned 

earlier that we have finally been able to bring the Defense Department to an auditable position after many years of trying. I give 

several administrations credit for doing that, but it was finished in 

September of this year. We would encourage at least that same 

level of oversight, if not more, on that trust fund. 

Senator BOOZMAN. I think it is really important. We do not want 

the border wall to be the new CFPB. 

Mr. MULVANEY. I absolutely agree with that, Senator. I think one 

of the risks that you run if you put it in the ordinary appropriations is not only that it is not spent, but that it is misspent in order 

to get that appropriation out the door that year as opposed to taking a longer-term view that you might be able to take with a trust 

fund. 


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Senator BOOZMAN. I agree, and that is why, you know, we need 

to be creative and create some sort of a hybrid to make sure that 

both of those are accomplished with the money being there, but 

also with the good oversight that it is going to require. 

Mr. MULVANEY. I absolutely agree. 

Senator BOOZMAN. Thank you. 

Chairman Enzi. Senator Merkley, 

Senator MERKLEY. Well, thank you, Mr. Chairman. 

So we have cuts in this budget, just to take four line items: 

health and Medicare and higher ed and food, that is, SNAP. There 

is $1.5 trillion right there. So, you know, a big outline for America. 

Let us give $1.5 trillion in the tax bill to the wealthiest Americans 

and proceed to cut our health, our commitment to our seniors on 

health as well; cut the affordability of college because, you know, 

the rich are Okay, they can pay their college, do not worry about 

the rest of Americans. And, oh, by the way, the hungry in America, 

too bad, let those children go hungry. They are from poor families; 

they do not matter. 

What kind of a message does this send about this administration? They say they are for working families. They are going to address the challenges, the challenges of living-wage jobs and health 

and education. And right here health and education get hit enormously, the foundations for families to thrive. 

Or we can take some others. There are more cuts than that. How 

about the $3.4 billion to heating and the offset of a tax cut to Wells 

Fargo of the same amount? What is more important, Mr. Director: 

the heating program or the tax cut to Wells Fargo, which has defrauded so many hundreds of thousands of people across this country? Which one is more important to you? 

Mr. MULVANEY. Actually, Senator, I am familiar with the $3.39 

billion in LIHEAP. I think I addressed that earlier with Senator 

Sanders. I am happy to review it, if you like. I am not at all familiar—— 

Senator MERKLEY. I am just asking which one is more important 

to you: the cut to heating or the tax cut to Wells Fargo, which has 

defrauded so many people? 

Mr. MULVANEY. Senator, I would have to challenge the—— 

Senator MERKLEY. Yes, I have noticed you never answer questions from Democrats, so I am not expecting you to answer. But I 

thought I would give you the chance. 

Or how about the $4.3 billion cut to rental assistance? We have 

people living on the streets in the cloverleafs and underpasses all 

across America because the cost of housing over the last four decades has gone up enormously compared to the living wage. But you 

want to do a $4.3 billion cut in rental assistance while giving $6 

billion to Exxon Mobil. Which is more important to you: people 

having housing or $6 billion to Exxon Mobil? Which one? 

Mr. MULVANEY. One of the things I mentioned during my opening—— 

Senator MERKLEY. It is a choice of the two—— 

Mr. MULVANEY [continuing]. Statement, Senator—— 

Senator MERKLEY [continuing]. You can answer one way or the 

other. I think the public would like to know. 


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Mr. MULVANEY. It is, but also I do not like to answer loaded 

questions that are simply rhetorical and may not be correct. I am 

not even sure that $4.3 billion number is right. As I mentioned—— 

Senator MERKLEY. That is the amount in your budget, and you 

should be aware of that when you testify here. 

Mr. MULVANEY. My opening statement—— 

Senator MERKLEY. Let us turn to something about the afterschool programs, the STEM programs, our ability to undertake 

high-tech advancements in our economy. You have got about $1 billion to $1.4 billion to the Koch brothers and a $1.2 billion reduction 

in after-school STEM programs. Which is more important: educating our children or more money for the Koch brothers? 

Mr. MULVANEY. Again, I cannot even see that part of your—— 

Senator MERKLEY. Do you think the Koch brothers consider it a 

good investment that they say they will spend $400 million on the 

next election and then they get you to give them a $1.4 billion reduction in their taxes? Is that a pretty good investment for the 

Koch brothers? 

Mr. MULVANEY. I have no clue where that $1.4 billion range 

comes from or if it is accurate. 

Senator MERKLEY. How about Chevron getting $2 billion while 

you cut development assistance by $2.8 billion? Everything we see 

in this budget is about help to the powerful and an assault on 

working Americans. And although I hear a whole lot of bragging 

about, ‘‘Oh, we are going to help lower-income Americans with a 

tax cut,’’ but you put a provision into the tax bill that will wipe out 

health care for 13 million people and raise health premiums more 

than 10 percent next year for the rest, that in itself wipes out any 

gains from the tax bill. 

I am really disappointed to see that the philosophy of this administration ran on of fighting for ordinary Americans became just this 

is an administration by and for the powerful and about undermining the opportunity of ordinary families to thrive. 

Now let us turn to your other role. You seem to take great pleasure in having wiped out the payday loan rule and allow interest 

rates of 500 to 1,000 percent, far more than the Mafia ever 

charged. Why is that a good thing for America? 

Mr. MULVANEY. Senator, I think it is inaccurate to say that we 

have wiped out the payday rule. We have simply given notice that 

we are going to take additional comments on additional rulemaking. 

Senator MERKLEY. Did you or did you not suspend implementation of the payday rule? 

Mr. MULVANEY. Again, we gave notice that—the payday rule, as 

far as I know, is still in effect. We have simply given notice that 

we were going to take additional comment for additional rulemaking. 

Senator MERKLEY. You delayed it. You can call it whatever you 

want, but you prevented it from going into effect. I am not sure 

why you are dancing around about it, because you seem pretty 

happy about having done so to help out these payday loan companies charging 500 to 1,000 percent. 

Mr. MULVANEY. I am sorry. Was there a question there, Senator? 


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Senator MERKLEY. Yes. The question is: When you are so happy 

about having helped out the payday loan companies, why don’t you 

own it now? Why do you want to dodge the question? 

Mr. MULVANEY. Again, Senator, we have given notice that we are 

going to take additional comments for additional rulemaking. 

Senator MERKLEY. How about Equifax? Millions of Americans, 

143 million Americans lost the integrity of their data, and you just 

let them off the hook. 

Mr. MULVANEY. I can—— 

Senator MERKLEY. No accountability. How about accountability? 

How about that concept being embedded in the work of what was 

our consumer watchdog that now is our consumer ‘‘roll over and let 

the big companies scratch its belly’’ organization? 

Mr. MULVANEY. On Equifax, I can tell you, Senator, that there 

has been no change in the position from the previous leadership of 

CFPB regarding Equifax. 

Senator MERKLEY. Yes, Okay. All right. If you are going to make 

these decisions, you might as well own them and defend them. 

Thanks. 

Chairman ENZI. Senator Graham. 

Senator GRAHAM. Thank you. Good morning. About priorities, I 

want to thank you and the President for negotiating a budget 

agreement that gives long overdue relief to the military on behalf 

of the men and women who have been serving who have been 

asked to do a lot with a little bit. Thanks. I just cannot tell you 

how important it is that we set aside the sequestration cuts for the 

next 2 years and rebuild our military, and I want to thank you and 

the President. That was great leadership. 

Graham-Cassidy, you mentioned that in the budget. Is that correct? 

Mr. MULVANEY. Yes, sir. In fact, we assume it passes. 

Senator GRAHAM. Well, I hope it will. Can you sort of explain to 

the Committee here very briefly why you think it is important that 

it does pass? 

Mr. MULVANEY. The way we do it, it does a couple of different 

things. Writ large, it transfers control of this issue, this very important issue of health care, to the States, and we just think that is 

a more efficient way to provide that service. You and I both served 

in the South Carolina State Legislature, and I absolutely believe in 

my heart of hearts that South Carolina knows better for South 

Carolinians on how to provide them with health care than we do 

in this chamber. And Graham-Cassidy goes to the very heart of 

that while providing importantly the funding necessary for States 

to do that. Oftentimes we hear folks say let us just give it to the 

States, but we do not give them the funds necessary to do it, the 

unfunded mandates we hear so much about at the State level. Graham-Cassidy does not do that, so we think in a bunch of different 

places, both fiscally and in terms of policy, it is by far the best idea 

we have seen come down the pipe in a long time. 

Senator GRAHAM. If I could just build on what you said, four 

States receive 35 percent of the money under Obamacare funding 

as it is today: Maryland, Massachusetts, New York, and California—all great folks. They are 22 percent of the population. 

Under Graham-Cassidy, we try in a 10-year period to level out that 


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funding, to have it per patient be the same no matter where you 

live. Then we will adjust for inflation based on region. Do you think 

that is a fair way to deliver health care? 

Mr. MULVANEY. No. Again, that is one of the reasons that we 

support the Graham-Cassidy bill and hope that you all see fit to 

pass it at some point. 

Senator GRAHAM. Well, I think every State will benefit, and we 

will try to make it the least amount of pain as possible to the four 

States who get most of the money compared to the other States. 

MOX, I asked three questions 2 years ago about alternatives to 

MOX. Can I just send you these questions? Or should I sent them 

to DoE? 

Mr. MULVANEY. Copy us both, because as you and I know, we 

have met together with Secretary Perry. We are very much aware 

of your concerns and your interest in MOX. You are also concerned—I think you are aware of ours. 

Senator GRAHAM. Yes. 

Mr. MULVANEY. Which is that there needs to be a more cost-effective way to do what we are doing. 

Senator GRAHAM. Right, so what I will do is I will send a copy 

of the questions, the basic questions about an alternative, to you 

and Secretary Perry, because from your person view do you think 

it is 70 percent complete, 30 percent complete, the MOX program? 

What do you think? 

Mr. MULVANEY. My concern, Senator, is that I have seen projections that say it may not be finished until the 2030’s, and I think 

the last time they asked the people what it would cost to finish, 

they could not give an answer, and as the budget Director, that 

really, really worries me. 

Senator GRAHAM. Well, I think it is 70 percent complete, and I 

think I am going to get you an answer on what it would cost to 

complete. I just do not think there is a viable alternative. But the 

State Department: ‘‘If you do not fund the State Department fully, 

then I need to buy more ammunition ultimately.’’ That was General Mattis when he was CENTCOM commander. Do you doubt 

that statement? 

Mr. MULVANEY. I do not, Senator. I would encourage folks to look 

at the State Department budget and realize that the President ran 

on saying we were going to give less money to other countries overseas, and the State Department budget does contain a lot of that 

foreign aid, and that is what represents a lot of those reductions. 

Senator GRAHAM. So it is a 20-percent reduction in the State Department’s budget. 

Mr. MULVANEY. It is, but I think we increase spending on humanitarian assistance. We do lower our commitments to some of 

the multilateral institutions to try and right-size our contributions 

to support what Secretary Haley—excuse me, Ambassador Haley is 

doing. But we are very much aware of your concerns and look forward to working with you on trying to make the State Department 

more effective. 

Senator GRAHAM. Do you agree that the State Department is 

really national security in another form, as General Mattis indicated? 


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Mr. MULVANEY. What do they say, that war is just diplomacy by 

other means? Yes, sir, the two are intricately entwined. 

Senator GRAHAM. So I will look forward to working with you to 

make sure that we do not take off the table diplomatic options, not 

only to prevent war, to make sure that gains on the battlefield are 

not lost. And I think, again, General Mattis said it better than I 

could ever say that this is a steep cut in the State Department that 

will lead to instability, put our people at risk who are serving overseas, and I look forward to working with you. I think you are doing 

a very good job, and I really appreciate the steady hand you provided when it comes to budget matters and your willingness to negotiate and compromise. So thank you very much. We are all proud 

of you at home. 

Mr. MULVANEY. Thank you, Senator. I wish I got back there 

more often. 

Chairman ENZI. Senator Murray. 

Senator MURRAY. Thank you, Chairman Enzi. Before I turn to 

Director Mulvaney, I do want to comment on the new Joint Select 

Committee on Budget and Appropriations Process that was included in the budget caps deal. I expect we will be hearing a lot 

about that in the coming months, and I just want to make my 

views very clear. 

Republicans spent 2017 hijacking the budget process for two 

things: first of all, a partisan attempt to take health care away 

from millions of families, which, thankfully, crashed and burned; 

and, second, jamming through the massive tax cut for the wealthiest Americans and a permanent tax cut for the biggest corporations, without even trying to work with Democrats on ways we 

could help the middle class. 

Now, in 2018, things have been a little different. Republicans 

came to the table and worked with us on a 2-year budget deal that 

increased investments in education and health care and child care 

and other domestic and military priorities. Now, finally, the Appropriations Committee has clarity, and we are able to get to work 

and pass our bills by the March deadline. 

So, with all due respect to Chairman Enzi and my House and 

Senate Republican colleagues, we do not need a new select committee to tell us what the problem is. It is pretty obvious. This 

Budget Committee has been unable or unwilling to do its job. So 

we had to lurch into one crisis and then another before the rest of 

Congress could come together and cleanup a mess. I am hoping we 

can do our jobs on the Appropriations Committee, and I continue 

to hope that this Committee can do its job and not rely on new select committees that are intended to pass the buck instead of making the tough calls, and I just wanted to make that clear. 

Director Mulvaney, if this were a normal budget hearing, I would 

start off by commenting that budgets are statements of values and 

priorities, and I would dig into the various proposals, what they 

said about what kind of country we were, what kind of country we 

wanted to be. 

If this were a normal Budget Committee, I would point out that 

the so-called immigration proposals it includes are wasteful, divisive. I would point out that it is widely misguided and simply 

wrong to ask low-income families and the workers who need a 


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hand up to bear the brunt of massive cuts while trillions are being 

spent on tax cuts for the rich and while austerity flies out the window when it comes to the military. 

If this were a normal Budget Committee hearing, I would point 

out how absurd it is to cut $200 billion in financial aid for college 

while students are struggling to afford college and keep their heads 

above water. And I would point out serious concerns about this administration’s request for veterans’ care. 

You know, if this were a normal Budget Committee, I may even 

praise some of the attention that is finally being paid to tackling 

the opioid crisis. But, Director Mulvaney, this is anything but a 

normal budget and Budget Committee hearing. President Trump 

just signed a 2-year budget agreement into law that makes this request irrelevant. Democrats and Republicans have ignored President Trump’s budget request before in the interest of trying to get 

something done, and this one will be no different. 

So it seems this budget proposal is only good for one thing: reminding people across the country that President Trump cares 

more about giving tax cuts to the wealthiest Americans and biggest 

corporations than he does about investing in health care and education and child care and middle-class priorities. 

So, Director Mulvaney, for years I have heard you rail against 

deficit spending. You called yourself a ‘‘deficit hawk.’’ You claim to 

take our debt very seriously. You called for balanced budget 

amendments. You said our debt is ‘‘so large as to defy description.’’ 

Well, the debt has only grown since. The deficit has increased 

under this administration, approaching $1 trillion this year and 

next. And it cannot ‘‘defy description’’ because you describe it in the 

pages of this budget proposal. And do not even try to hold yourself 

to the standard you held President Obama to when you were a 

Member of Congress. 

So I was prepared to come here today and call you out on the 

hypocrisy, but then I heard you on Sunday, that if you were in 

Congress, you would have voted against the budget legislation that 

President Trump just signed. So I wanted to give you a chance 

today to step back from the hypocrisy. If you were in Congress, 

would you have voted for this budget that you are presenting? 

Mr. MULVANEY. Sure, and I will give the same answer I gave on 

Sunday, which is that as a Member of Congress representing the 

5th District of South Carolina, I probably would have found enough 

shortcomings in this to vote against it, as did many members of 

this Committee. But I am the Director of the Office of Management 

and Budget, and my job is to try and fund the President’s priorities, which is exactly what we did. 

Senator MURRAY. So you would say this as a Member of Congress? 

Mr. MULVANEY. Yes, I think I have said that before. 

Senator MURRAY. Okay. 

Mr. MULVANEY. I do not think that reflects on my opinion of it 

as a member of the administration. 

Senator MURRAY. Okay. Well, let me ask you one more question. 

Mr. MULVANEY. I am just trying to give an honest question to an 

honest answer, Senator. 


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Senator MURRAY. I appreciate it. I appreciate it. Republicans 

have busted our budget with trillions in tax cuts for the rich, and 

this budget starts asking the middle class to actually pay for that. 

You have said before that you would like to cut Social Security and 

Medicare. Can you commit to me today that you will not be asking 

for a penny of cuts to benefits from either of these critical programs 

in future budgets to pay for the President’s tax cuts? 

Mr. MULVANEY. And that is exactly what this budget reflects. 

The proposals that you see that touch on Social Security do not 

deal with old-age retirement benefits, do not deal with core Social 

Security. As we discussed last year, we tried to address some reforms within Social Security Disability Insurance. 

Senator MURRAY. What do you propose? 

Mr. MULVANEY. I think, well, in Medicare, for example, let us 

talk about Medicare, because it was the other thing you—we do not 

propose any changes to any benefit, any benefits, any services to 

beneficiaries. We tried to focus on lowering drug prices within 

Medicare. The number I have heard, by the way, a couple times 

today and in the press is that we propose to cut Medicare by half 

a trillion dollars, $500 billion. That is just not right. The number 

is $236 billion, and most of that is tied up in drug reforms and 

some other proposals. 

For example, Senator Murray—and thank you for the time to do 

this. I do not know if you know this or not, but your Medicare 

money—Medicare money that you pay in FICA that goes into the 

Medicare Trust Fund—actually goes to pay for graduate medical 

school tuition. It goes to pay for bad debts from non-Medicare patients at hospitals. And we propose to move that funding—— 

Senator MURRAY. Are you eliminating that? 

Mr. MULVANEY. We do actually move that on to another part of 

the budget so that we actually still pay those, but we do not pay 

them out of the trust fund. And there are a lot of folks who said, 

‘‘Well, that is a cut to Medicare.’’ No, it is not. It is actually improving the Medicare Trust fund, and I think the proposals—— 

Senator MURRAY. And put it somewhere else where you can cut 

it. Okay. I got it. We are out of time. 

Mr. MULVANEY. Thanks. 

Senator MURRAY. Thank you. 

Chairman ENZI. Thank you. 

Senator Kennedy. 

Senator KENNEDY. Thank you. Mr. Director, I am over here. 

Mr. MULVANEY. You are on my right. I know that, Senator Kennedy. 

Senator KENNEDY. Yes. It is the correct place to be. 

Mr. MULVANEY. That is right. 

Senator KENNEDY. This is America. We all are entitled to our 

opinion, but I think you are doing a great job. 

Mr. MULVANEY. Thank you, sir. 

Senator KENNEDY. I know you to be a fiscal conservative. I think 

you share my, I do not know, concern, disbelief, curiosity. I do not 

understand why taking care of our generation requires robbing the 

next generation. I want to thank you and your budget for emphasizing our need to do something about improper payments. As you 

know better than I do, we have got $144 billion of improper payVerDate Sep 11 2014 13:37 May 06, 2019 Jkt 000000 PO 00000 Frm 00092 Fmt 6601 Sfmt 6601 H:\GPO\PDF\OUT\35700.TXT PAT

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ments being made every year. Now, we are not going to stop all of 

them, but if we can stop 20 percent, that is $30 billion. 

I have introduced a bill with Senator Carper to try—it is called 

the ‘‘Stop Paying Dead People Act.’’ I was just amazed. You cannot 

make this stuff up. We have got a death file at Social Security, but 

Social Security will not share it with its sister agencies. So people 

are being—dead people are getting checks, and they are being 

cashed. Obviously, there is fraud. In some States you can vote 

when you are dead, but cashing a Government check is just a 

bridge too far, as far as I am concerned. So I hope you will continue 

that. 

In the few minutes I have left, I want to get a little maybe metaphysical here. We talk about the need for a balanced budget, but 

sometimes—and I support a balanced budget. But sometimes I 

think we conflate balanced budget with Government spending, and 

here is what I mean. We have got a $20 trillion economy. That is 

all the goods and services we produce every year. If Government 

is spending $4 trillion—I know the President’s budget comes in a 

little higher, but if Government is spending $4 trillion, the Government is taking $4 trillion out of that, let us say, $20 trillion. Are 

you with me so far? Okay. Do you think that America would be better off if we had a balanced budget of $4 trillion Government 

spending and $4 trillion of taxes? Or would we be better off in 

terms of personal liberty if we had $2 trillion worth of spending 

and $1 trillion of taxes and, therefore, we would have to borrow $1 

trillion? 

Mr. MULVANEY. Well, from an individual liberty side, if you assume for the sake of this discussion that the larger the Government is, the less individual freedom you have, then by definition 

you would be better off from an individual liberty standpoint by 

having that $2 trillion Government expenditure with only $1 trillion taken out of the economy. Plus I think I can make the argument to you, take individual liberties out of the equation and look 

at the allocation of capital. If I give $4 trillion to the Government, 

it is likely to misapply a lot of that, spend it inefficiently; whereas, 

if I let people keep more of their own money, they are by definition 

going to apply it very efficiently. In fact, that is efficient. That is 

the market. People spending their own money is the market, and 

nothing allocates capital more efficiently than the free market. So 

I think in many ways you would be better off by having that smaller footprint. 

Senator KENNEDY. Well, I want to be clear. I support a balanced 

budget, and I know you do, too. But would one way to skin this cat 

be to approach legislation that would limit Government spending 

to a certain percentage of GDP? 

Mr. MULVANEY. Certainly, in theory, yes, sir. 

Senator KENNEDY. Okay. Do you think the President would support something like that? 

Mr. MULVANEY. I have not talked to the President. I know that 

came up a couple times in the House, Senator. I know you and I 

have not talked about this before, so we are just sort of thinking 

off the top of our heads. But I think that actually came up in the 

past as part of a debate regarding a balanced budget amendment. 

Would we cap Government expenditures as a percentage of the 


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overall economy? The theory being that it was Okay to grow the 

Government as long as you were growing the economy at the same 

time. Go back to my comments before about your revenues growing 

faster than your expenses. It is wrong to grow Government faster 

than the economy of the people that can pay for it. 

Senator KENNEDY. I am out of time. Thank you, Mr. Director, for 

your service. 

Mr. MULVANEY. Thank you, Senator. I always enjoy it. 

Senator KENNEDY. I am a big admirer. 

Chairman Enzi. Senator Perdue. 

Senator PERDUE. Director, thank you for surviving another one. 

It is always interesting. 

Mr. MULVANEY. It was a lot easier the first time I was in this 

room, I can tell you. 

Senator PERDUE. They do not get any easier, I am sure. 

I want to make a comment, Mr. Chairman, very quickly before 

I get to two questions quickly. 

One is I take a different view totally than the Senator from 

Washington. I respect her work over the years, and I know we can 

work together, but we have got to fix this budget process. Director, 

I know we have had this conversation. I think you agree with this. 

I am not asking for you on the record right now, but I want to 

make a comment. The budget process has only worked four times 

in 44 years. It has led to this debacle of $20 trillion. We are not 

going to solve our debt crisis over the next 20 or 30 years unless 

and until we fix this debt crisis. 

I applaud leadership on the House and Senate, and I applaud the 

White House’s support of this select committee, and I look forward 

to its outcome later this year. 

Director, I want to comment—just a question on the debt. The 

size of this Government in 2000, the last year of Bill Clinton, was 

$2.4 trillion in current dollars. Last year, it was about $4 trillion 

directionally. There is our problem. The largest growth of that, 

though, was in the mandatory side. Today $4 trillion, 75 percent 

of that is mandatory. Only about 25 percent is discretionary. That 

is what you have to work with primarily. 

I am concerned about over the last administration we borrowed 

about 35 percent. It looks like over the next 10 years in this budget 

we will borrow somewhere north of 20 percent. It is new debt. 

I know your heart. I know what you have done historically on 

this. Help us understand sort of the long—term investment return 

concept I know the White House has in terms of dealing with the 

debt. There are things that we have to invest in growing the economy. We have to build the infrastructure and all that. That will 

yield return, as I understand it, and I believe that. 

The question is: Are we moving toward a longer-term solution 

outside a 10-year window that is a directional pathway toward getting this debt down to some more meaningful percentage of GDP? 

We talk about spending. The problem with spending is, of the $1 

trillion, only 350 is non-military. Of the $1.1 trillion discretionary, 

about 700 now is military, about 200 is VA, and the balance there 

of 300, 350, is all the domestic discretionary programs that we still 

have out there. And they have been cut dramatically as well over 

the last decade. 


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So give me some comfort that we have at least a north eye on 

the long-term solution toward this mounting debt crisis. 

Mr. MULVANEY. We do. And, fortunately, Senator, we have got an 

example that works. We have actually balanced the budget during 

my adult lifetime, back in the late 1990’s, and—— 

Senator PERDUE. On a per year basis. 

Mr. MULVANEY. On a per year basis. I recognize there was some 

funny accounting when it came to the Social Security receipts and 

so forth, but if you look generally to the concept, what happened 

was we figured out a way to grow the economy faster than we expected, and we had fiscal restraint. Democrats take credit for it, 

Republicans take credit for it. But the truth of the matter is the 

Government grew slower than the economy. And if you can do that 

long enough, revenues will catch up. And you and I have not talked 

about this either, but we have talked to the administration a lot 

of times about prioritizing deficits. There are actually different 

types of deficits. Deficits that allow people to keep more of their 

own money because of the allocation of capital is actually a fairly 

relative efficient deficit. In the middle you might have stuff on 

things like infrastructure where at least you might get some return 

on that. The least efficient type, from an economic standpoint, of 

deficit would be something for wealth transfer payments. So we do 

try and prioritize that as we look across our deficits going forward. 

But the big picture, writ large, is you have to figure out a way 

to grow your economy faster than you are growing your Government. 

Senator PERDUE. Thank you for that. One last question, Mr. 

Chairman. 

With regard to infrastructure investment, again, as you just said, investments hopefully that will produce a return, unlike the $1 trillion that we threw toward investment in infrastructure back in 

2011 that was not made with those priorities. I call out one type 

of investment, particularly when we talk about spending the money 

we are talking about in this budget on infrastructure. The question 

is: Are we prioritizing based on the return that we get in terms of 

economic growth and contribution then in turn to reducing this 

long-term debt? And I specifically call out an issue that I believe 

is caught between current authorizations and the future infrastructure investments. Those are in States like Texas, Louisiana, Florida, Georgia, your home State of South Carolina, Virginia, New 

Jersey. These are our ports, our eastern ports that are all trying 

to accommodate the new Panamax ships that would dramatically 

improve our ability to compete around the world. 

I believe those investments are caught up in the Army Corps of 

Engineers’ budgets being cut, but are not being moved over to the 

infrastructure investments, and these port investments actually 

offer a higher rate of return than some of the infrastructure investments that I think were contemplated. Can you address that? 

Mr. MULVANEY. I would. At the risk of making a small correction, we absolutely anticipate that the deepwater ports be part of 

the infrastructure bill. In fact, the largest part of the infrastructure 

bill, the 50 percent of the $200 billion, $100 billion is sort of in our 

minds set aside for programs that can contribute their own portion 

of the funding. And as you know, the port of Savannah does exactly 


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that. So we had specifically the deepwater ports in mind when we 

fashioned the infrastructure—— 

Senator PERDUE. That is comforting. Thank you. 

Thank you, Mr. Chairman. 

Chairman ENZI. Thank you, and I want to thank the Director for 

his comments. 

I do want to ask an additional question here just from some confusion about GDP that we were talking about earlier. The President’s budget projects a GDP growth average of 3 percent annually 

with a long-term trend line of 2.8 percent. This long-term trend is 

nine-tenths percentage points higher than the CBO’s 1.9 percent 

forecast, which was published last June prior to the passage of the 

Tax Cuts and Jobs Act. There has been downward pressure on the 

long-term projections due to demographic changes. How does the 

administration reach its growth projections? And how will the Tax 

Cuts and Jobs Act encourage labor force participation? 

Mr. MULVANEY. Thank you for the question. At the risk of getting deep down in the weeds and showing my inner geek, we were 

fairly disappointed in the GDP numbers in the fourth quarter. We 

expected them to be north of 3. They were not. 

But if you drill down into the details, one of the things you will 

see is that the capital investment and the durable good numbers 

were almost 4 times what we expected. We were expecting something about 0.8, 0.9, and they came in just south of 3 percent. That 

is how you do it, Senator, and that is why such a critical part of 

the tax bill, gentlemen, was that corporate tax rate and the depreciation rules, in order to get the type of GDP growth that we need 

long term, given the demographic challenges that we face, we need 

individual productivity to increase. That comes from capital investment. You invest in a new machine, you invest in new technology, 

you invest in education, and you get individual productivity up. 

And we think we have seen the seeds of that planted almost immediately. Someone mentioned earlier that we have seen benefits 

from the tax bill far quicker than we thought that we would. Everyone pays attention to the bonuses that were given and the wage 

increases that were given. But if you look even deeper into the 

numbers and you see the investments that people are making, companies are making in the United States of America, we think we 

see the seeds planted for long-term structural improvements to our 

productivity, and that is our economic health. 

Chairman ENZI. I am counting on that proving out. I did ask for 

a static score when we were working on taxes because during the 

health care debate we asked for a dynamic score, and I found out 

that that was going to require 6 weeks for every amendment to be 

evaluated. And we do not do legislation where we have 6 weeks between amendments. It may seem like that, but we do not have 

that. 

So I want thank you for your testimony today. Your full statement will be included in the record. I think you did an outstanding 

job of presenting the President’s suggestions and priorities, and 

that is what the President’s budget is, suggestions and priorities, 

because the Constitution actually specifies that we are the ones 

that are going to be doing the actual work on that. I do hope we 

find a better process for doing that actual work. 


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Another little inconsistency that I heard this morning was saying 

that for preschool, there needs to be a program for preschool. I 

have been saying that all along since I got here. There were 119 

when I started. We got it down to 45 preschool programs. It seems 

to me like one or two really good ones reviewed again and reauthorized might be better. 

There were also some comments about housing programs here. I 

checked. There are 160 housing programs administered by 20 agencies. Nobody is in charge. Nobody is setting goals. Nobody is checking to see if they are being met. So how can we say that a decrease 

in the housing funding would put people out on the streets? We 

might actually come up with some better solutions. 

A little note that I found in reading through your documents was 

a suggestion that colleges have some risk accepted on student 

loans. That is kind of a novel concept. We kind of made the forprofit schools do that same thing, and we put them out of business. 

But there ought to be some kind of risk acceptance in it. 

I appreciate your comments about capital budgeting, and you 

used an example of the FBI building for that. I have been talking 

about capital budgeting since I got here. I think separating that 

out might make our job a little bit easier. 

I would mention that if anybody has any additional questions, 

the questions can be submitted for the record by 6 p.m. today with 

a signed hard copy delivered to the clerk at Dirksen 624. And you 

will have up to 7 days to respond to those questions to get additional good information so that we can understand this budget as 

well as we can so that we can do our budget. 

Thank you very much for an outstanding presentation. 

Mr. MULVANEY. Thank you, Senator. 

Chairman ENZI. Adjourned. 

[Whereupon, at 11:51 a.m., the Committee was adjourned.] 

ADDITIONAL COMMITTEE QUESTIONS 

[The following submitted questions were not asked at the hearing but were answered by the witness subsequent to the hearing:] 


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(193) 

DEPARTMENT OF DEFENSE AUDIT AND BUSINESS OPERATIONS REFORM AT THE PENTAGON 

WEDNESDAY, MARCH 7, 2018 

U.S. SENATE, 

COMMITTEE ON THE BUDGET, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:33 a.m., in room 

SD–608, Dirksen Senate Office Building, Hon. Michael B. Enzi, 

Chairman of the Committee, presiding. 

Present: Senators Enzi, Crapo, Corker, Perdue, Gardner, Kennedy, Boozman, Cotton, Sanders, Wyden, Stabenow, Whitehouse, 

Kaine, Van Hollen, and Harris. 

Staff present: Elizabeth McDonnell, Republican Staff Director; 

and Warren Gunnels, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN ENZI 

Chairman ENZI. Good morning. I will call this hearing to order. 

Welcome to the Senate Budget Committee hearing on the ongoing 

Department of Defense audit and Pentagon business operations reform. 

Our Nation faces grave threats abroad and a challenging fiscal 

situation at home. Given these dual pressures, rebuilding the military and reforming the way the Pentagon does business must go 

hand in hand. 

As Defense Secretary James Mattis said, the heart of our competitive edge is reforming the Department and gaining full value 

from every taxpayer dollar. So I commend the Secretary for launching a bold reform effort. 

After almost 30 years, the Pentagon has finally begun its own 

Department-wide consolidated audit. I will reemphasize that the 

Pentagon began it, the Department-wide consolidated audit. This is 

good news. The bad news is that we have all followed the recently 

publicized Defense Logistics Agency audit finding of nearly $1 billion in inaccuracies. As the Department-wide audit continues, there 

will surely be some more painful findings, but this should not deter 

our efforts. That is the purpose of an audit—to find things that 

need to be corrected and to save money by correcting them. 

We know a successful Pentagon audit will take time. It will also 

require sustained congressional oversight and a renewed commitment to accountability at the Department. Checking the box by 

completing the audit is not enough. The goal must be improved financial management and business operations. The audit will emVerDate Sep 11 2014 13:37 May 06, 2019 Jkt 000000 PO 00000 Frm 00199 Fmt 6601 Sfmt 6601 H:\GPO\PDF\OUT\35700.TXT PAT

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power managers to make better decisions with more accurate financial reporting systems and data. 

For our troops, it will be better decision making, and that will 

mean more money for critical equipment and training. 

For our part, Congress needs to step up its oversight of the consolidated audit and support its findings, but we need the Department’s help to better understand the process. Many of my colleagues on the Senate Armed Services Committee share my view. 

Several of them also serve on the Budget Committee. And members 

of this Committee know that cost matters, too. The Defense Department audit will cost almost $1 billion this fiscal year alone. 

Now, I did ask some questions and I want to thank the Department, and particularly Mr. Norquist, for a speedy response. We are 

not used to that, but really appreciate it. And I was interested even 

in the costs of the audit and noticed in the explanation that of the 

$918 million that are being spent on it, $368 million is for remediation. So that is for solving the problems that are in it. There is 

also $135 million for financial system fixes and another $48 million 

for internal control, which is all important. So, actually, in my 

opinion, the audit is $367 million. The rest is benefits that we get 

out of it by doing the fixes that are necessary. But that is why Congress needed a full breakdown of the projected audit costs. 

The Department also should provide an explanation of how it is 

ensuring the independence of its contracted auditors, and we need 

to know how the Department plans to remedy any problems they 

find. Gaining insight into which problems the Pentagon is fixing 

and why will motivate Congress to continue supporting the audit. 

There may also be instances in which additional funding up front 

can avoid increased costs later on, and we need to plan accordingly. 

Ultimately, reforming the Pentagon requires more than an audit. 

Defense spending is now higher than at the height of Ronald Reagan’s Presidency. But we are not seeing the same value for each 

defense dollar spent today. Ineffective business processes may be a 

big reason. 

The Pentagon will never operate like a business, but it still must 

reform its business operations. The Department’s management culture, which has taken hold over the course of several decades, frustrates everyone, including its employees and many of its senior 

leaders. Notably, the Department has yet to implement a modern 

work force management system, and I share my colleague Senator 

John McCain’s ongoing concern over the Department’s inability to 

tell us how many contractors work there. Even more troubling, the 

Department does not possess adequate reporting systems to measure the impact of ongoing reforms from work force changes to the 

adoption of shared services and cloud-based IT systems. 

I am pleased, however, that the Deputy Secretary of Defense has 

built a reform management group to oversee the development of 

such issues. Mr. Gibson, as the Department’s first Chief Management Officer, will have the unique opportunity to lead in this area. 

It is my hope that we can build a mutually beneficial working relationship to help you achieve your goals. Managing the Pentagon is 

a difficult task, but it is crucial to our Nation’s defense and to ensuring that we spend America’s tax dollars wisely. 


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Mr. Gibson and Mr. Norquist, thank you for joining us today and 

for your service. I look forward to continuing the discussion. 

Senator Sanders. 

OPENING STATEMENT OF SENATOR SANDERS 

Senator SANDERS. Thank you very much, Mr. Chairman, and we 

thank our guests for being with us. 

The Chairman and I do not agree on a whole lot of issues, but 

I think on this one we probably do. The Department of Defense receives far more money from the taxpayers than any other governmental agency. We now as a Nation, as you know, spend about— 

we spend more money than the next 12 nations in the world combined. And the Congress, against my vote, decided to add another 

$165 billion to the Pentagon over the next 2 years. And yet alone 

among all agencies of Government, the Pentagon has not been able 

to perform an agency-wide audit. 

Interestingly enough, Mr. Chairman, you may recall this, that 

the day before 9/11—the day before 9/11—in 2001, Secretary of Defense Donald Rumsfeld remarked that the Pentagon could not properly account for some $2.3 trillion in transactions. Needless to say, 

his remarks did not get a lot of attention given what happened the 

following day. But that was back in 2001, Rumsfeld talking about 

$2.3 trillion in transactions that could not be properly accounted 

for. 

We have seen some recent audits that tell us interesting things. 

The Commission on Wartime Contracting in Iraq and Afghanistan 

concluded in 2011 that $31 to $60 billion spent in those two wars 

had been lost to fraud and waste. Similarly, in 2015, the Special 

Inspector General for Afghanistan Reconstruction reported that the 

Pentagon could not account for $45 billion in funding for reconstruction projects. And, more recently, an audit conducted by Ernst 

& Young for the Defense Logistics Agency found that it could not 

properly account for some $800 million in construction projects. 

I want to thank Chairman Enzi for your letter to Secretary 

Mattis last month when you said, and I quote, ‘‘Taxpayers must 

have trust and confidence that their hard-earned dollars are being 

spent wisely. If such trust and confidence cannot be built and justified, it will be incredibly difficult to achieve the 3 to 5 percent real 

growth in defense spending you have identified as necessary to 

meet mission requirements.’’ 

And I agree with the Chairman that it is essential that the Pentagon demonstrates that it is trustworthy and accountable with 

taxpayer dollars, and that has not been the case. And that is why 

I was disappointed to read that the Pentagon buried a Defense 

Business Board report from 2015 which recommended ways to 

eliminate some $125 billion in bureaucratic waste. I do not think 

there is any debate among anybody here that we want to be able 

to defend our country, that we want to make sure that the men 

and women in the armed forces have all of the equipment they 

need to protect their lives. But I would hope that nobody here believes that just because this is the Department of Defense, we will 

defend an enormous amount of bureaucratic waste. 

As I think the Chairman touched on, one-half of the Pentagon’s 

budget goes directly into the hands of contractors. And of that 


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amount, one-third, or about $100 billion, goes to the top five defense contractors in the United States, all of which, by the way, 

have been convicted or settled lawsuits relating to fraud or misconduct against the Federal Government. So, we are dealing with 

huge defense contractors who have been involved in fraud against 

the Federal Government. 

Also, I might add—and later on I am going to have to—— 

I apologize, I am going to have to run out, but I will come back. 

I would like to get a response from our guests today about the fact 

that the CEOs of the top five defense contractors in the United 

States made a cumulative $96 million in compensation. Five CEOs 

whose agencies are significantly funded by the Federal Government, the CEOs of those defense companies made $96 million in 

compensation. 

Back in 2011, I requested a report from the Pentagon which de- tailed how the Department paid $573 billion over 10 years to more 

than 300 contractors involved in civil fraud causes against the Federal Government. 

There are a lot of issues here, and your job is not easy. The size 

of the Pentagon and the complexity of the budget is enormous, and 

nobody here thinks you are going to solve the problem immediately. 

But your job is to tell the American people how our tax dollars are 

being spent, to tell us, in fact, where the money is going—I am not 

quite sure that we know where the money is going—to tell us why 

it is that we continue to do business with defense contractors who 

give us cost overrun, cost overrun, cost overrun. Are we negotiating 

effectively, or are defense contractors simply coming in and saying, 

‘‘We will do it for X,’’ and it ends up being 3X, and nobody particularly cares? 

So there is an enormous amount of work, and I look forward to 

the question period, but at this moment I have to run out. But 

thank you very much for being here. 

Chairman ENZI. Thank you, Senator Sanders. I will now introduce the witnesses. 

Our first witness this morning is David Norquist, the Department of Defense Comptroller and Chief Financial Officer. Under 

Secretary Norquist has been in office since May 2017 and leads the 

Department’s efforts on budget and audit matters. Mr. Norquist 

has spent his career in budget—related national security positions, 

including leading the budget and audit process at DHS in the 

George W. Bush administration. 

Our second witness this morning is Mr. John Gibson, the Department of Defense Chief Management Officer, who was reconfirmed 

as Chief Management Officer only weeks ago after serving as Deputy Chief Management Officer since last November. Prior to his 

service at the Department of Defense, Mr. Gibson led several aerospace companies and previously served in a management reform 

position at the Pentagon during the George W. Bush Administration. 

For the information of our colleagues, each of the witnesses will 

take up to 5 minutes to consolidate his opening remarks, all of 

which will be a part of the record, followed by questions. 

We look forward to receiving your testimony. Mr. Norquist, you 

can begin first. 


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STATEMENT OF THE HONORABLE DAVID L. NORQUIST, UNDER 

SECRETARY OF DEFENSE (COMPTROLLER) AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF DEFENSE 

Mr. NORQUIST. Thank you, Mr. Chairman. 

Chairman Enzi, Ranking Member Sanders, and members of the 

Committee, thank you for the opportunity to provide an overview 

of the Department’s financial statement audit progress and plans. 

Before I begin, I would like to take a moment to thank you and 

the rest of the Congress for the Bipartisan Budget Agreement of 

2018. The agreement raised the caps for fiscal years 2018 and 2019 

on defense spending to a level that will support the National Defense Strategy and allow us to restore and rebuild our military. 

The agreement is a 2-year deal, so we will need Congress’ support 

again, or sequestration will return in fiscal year 2020. 

When Secretary Mattis released the National Defense Strategy, 

he detailed three distinct lines of effort: building a more lethal, resilient, agile, and ready Joint Force; strengthening alliances as we 

attract new partners; and reforming the defense business practices 

for greater performance and accountability. 

The third line of effort relates directly to the audit. It is an important component in the improvement of our business operations. 

We anticipate auditor findings in many areas. That is why we 

are doing these audits—to find the problems and fix the root 

causes. 

I appreciate your interest in the audit of the Department of Defense. It is a long-term, meaningful, and necessary undertaking 

that encompasses the whole of the Department, and its success depends on sustained congressional support. The personal interest 

Chairman Enzi and others on this Committee have shown in this 

issue are part of the reason DoD has, at long last, begun the audit. 

Although audits are not new to the Department of Defense, this 

is the first time the Department has undergone a full financial 

statement audit. A financial statement audit is comprehensive. It 

occurs annually, and it covers more than financial management. Financial statement audits include verifying count, location, and condition of our military equipment, real property, and inventory. It 

involves testing security vulnerabilities in our business systems. It 

tests system compliance with accounting standards, and it validates the accuracy of our personnel records and actions such as 

promotions and separations. 

The Department anticipates having approximately 1,200 financial statement auditors assessing whether our books and records 

present a true and accurate picture of our financial condition and 

results of our operations in accordance with accounting standards. 

Based on my experience at the Department of Homeland Security, it will take time to implement the changes necessary to pass 

the audit. It took Homeland Security, a relatively new and much 

smaller enterprise, about 10 years to get to its first clean opinion. 

However, we will not have to wait for a clean opinion to derive benefits from the audit. The financial statement audit helps drive enterprise-wide improvements to standardize our business processes 

and improve the quality of our data. 


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DoD owes accountability to the American people. Transparency, 

accountability, and business process reform are some of the benefits from the financial statement audit. 

Regarding transparency, the audit improves the quality of our financial statements and underlying data available to the public, including a reliable picture of our assets, liabilities, and spending. 

The audit will highlight areas where we need to improve our accountability over assets and resources. By fixing property records, 

we can demonstrate full accountability of our assets. The combination of better data resulting from audit remediation and the use of 

modern data analytics directly supports DoD’s effort to bring business reform to its operations. Audit is an enabler that will drive 

more opportunities for reform. 

The DoD consolidated audit is likely to be the largest audit ever 

undertaken and comprises more than 24 stand-alone audits and an 

overarching consolidated audit. 

During an audit, auditors will select line items on financial statements based on materiality and risk and will ask for a listing of 

items or transactions that make up the total amount on the financial statements. To put the scope of this task in perspective, the 

Army has over 15 billion transactions that the auditors will select 

from. 

The auditors will then pick samples from the listing for testing, 

which can include physically verifying that the property exists and 

is accurately recorded. 

Once the auditors have completed the testing, they will evaluate 

the results and report any problems they find and will re-evaluate 

the status of the corrective actions each year. 

Going forward, we measure and report progress toward achieving 

a positive opinion on the audit using the number of audit findings 

resolved. 

In closing, I want to thank this Committee for its interest in and 

focus on the Department of Defense’s audit. I anticipate the audit 

process will uncover many problems, some of which will be frustratingly difficult to fix. But the alternative is to operate in ignorance of these problems and miss the opportunity to reform. We are 

committed to the audit and to implementing the necessary reforms 

to be good stewards of the taxpayers’ dollars, and I appreciate your 

support. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Norquist follows:] 


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Chairman ENZI. Thank you for that and for overseeing it. 

Mr. GIBSON. 

STATEMENT OF THE HONORABLE JOHN H. GIBSON, II, CHIEF 

MANAGEMENT OFFICER, U.S. DEPARTMENT OF DEFENSE 

Mr. GIBSON. Thank you, Chairman Enzi and other members of 

this Committee for the opportunity to testify today regarding the 

aggressive work we are doing to bring greater efficiencies to the 

business operations of the Department of Defense. 

Any organization which receives capital for its business has a 

fundamental responsibility to execute in the most effectual manner. 

Given the American taxpayer has provided the capital to fulfill our 

mission, we have the highest level of fiduciary responsibility to continuously execute our operations in the most effective and efficient 

manner. 

The 2-year budget deal this Committee worked hard to establish 

is great support to a predictable funding stream and very helpful 

with all our work in the reform area. Thank you for the Committee’s hard work to establish this deal. 

Secretary Mattis has outlined three main lines of effort for the 

Department of Defense: build a more lethal force, strengthen traditional allies while building new partnerships, and reform the Department’s business practices for performance and affordability. 

It is the responsibility of the Chief Management Officer of the 

Department of Defense to execute the third line of effort: reforming 

business operations for solvency and security, gaining full benefit 

from every dollar spent. 

Looking forward, the Department is not anticipating funding 

above the out-year levels in the fiscal year 2019 budget, and in 

order to fund incremental resources, the military needs to achieve 

its mission requirements. We must lower our cost of operations to 

yield these resources. The global challenges to our military remain 

significant, and to best equip our men and women in uniform to 

meet their mission, we must consider significant reforms in the Department. 

Foundational to our vision of success in this area is the establishment of a culture of performance and productivity on an enduring, 

institutionalized basis. The work we are all doing today becomes a 

benefit for the next generations of leadership and warfighters to 

come. 

We are generating additional resources through efficiencies by focusing on three main areas: shared or common services, enterprisewide data and cost information, and the efficient and effective 

alignment of the enterprise. 

We have begun the effort in shared services by forming integrated, subject-specific teams to identify, vet, and implement immediate efficiency opportunities in their respective areas. Knowing the 

challenges to any significant reforms, we are constantly fostering 

a sense of urgency, maintaining leadership alignment at all levels, 

communicating a consistent message, proactively removing obstacles, driving immediate wins, and working to anchor all of this in 

long-term behavior and culture. 

As we implement the reform efforts, we are comfortable incorporating the ‘‘fly, test, fly’’ operational tempo to allow us to pilot, 


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learn, and scale in each of these areas. Fundamental to institutionalizing this effort is governance and management. We have 

formed the Reform Management Group to guide these multiple efforts. This integrated, cross-functional group leads dedicated teams 

and fosters ongoing working relationships, aligning all the stakeholders involved in the reform efforts. As our processes mature, we 

will form an integrated management board. This board will utilize 

relevant, standard measures and goals, coupled with the authorities to manage, enforce, and institutionalize a culture of performance and productivity, all with the goal of continuous improvement 

in our business operations. 

The reward process is essential to success and the primary incentive to change behavior. Typically, in the Department efficiency efforts are stimulated by a need to backfill budget cuts. Our current 

approach is to drive and incentivize performance and operating financial efficiencies by measuring, tracking, and reporting performance and outcomes. We will then return the savings generated to 

the military departments to reinvest in higher priorities and hold 

those people and organizations accountable. We will need your 

input and assistance in refining, implementing, and executing as 

we further define the mechanics of the reward process. 

Quality data is essential to good decision making, and we are 

working to improve the infrastructure to host and make available 

timely, accurate, and relevant data across the enterprise. Additionally, we are constructing a consistent framework that reflects cost 

data and analytical tools to support efficiency-driven decisions 

throughout the Department. In both efforts, we are working closely 

with the Under Secretary of Defense and Comptroller to achieve 

success. 

The financial audit the Department is undertaking is a tremendous tool and serves as an invaluable piece of our reform efforts. 

The audit process will improve the quality of our organizational 

and financial data, which is essential to good business decision 

making. The audit will also reveal business systems and processes 

which need to be reformed and can be incorporated into our ongoing reform efforts. By improving these business processes, we drive 

improved operational measures such as timeliness, productivity, 

and simplification. Many of these processes will have direct, positive impacts on lethality. 

The third line of effort is alignment of the Department. Many of 

the defense agencies and field activities have been in place for decades, and we have the opportunity to look at the end-to-end processes in major areas of operation and align all of the participants 

in the most efficient manner. We intend to include and leverage 

leadership from the military departments and the major mission 

areas such as Acquisition, Information Technology, Intel, Personnel 

and Readiness, Financial Management, Research, and Policy all as 

part of this process. 

A basis for evaluation for all our projects is establishing 

benchmarked private sector measures, setting goals, tracking, and 

reporting. 

In addressing any of our reform projects, we are also looking outside of the Department for further economies by incorporating the 

whole-of-government. 


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As our efforts progress, we will be looking to Congress as a 

source of support. Just as with any board of directors, we believe 

Congress is our partner, understanding the shared risk in this incredibly robust and aggressive work. We intend to keep an ongoing 

dialog with you on our plans and progress and will be seeking your 

input, feedback, and assistance as some of our objectives will require mutual actions to achieve our goals. 

As the Chief Management Officer of the Department of Defense, 

I consider Congress to be my board of directors. Therefore, I welcome the opportunity to begin our dialog on the substantial efficiency efforts we are making in the Department. 

Thank you. 

[The prepared statement of Mr. Gibson follows:] 


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TESTIMONY OF HON. JOHN H. GIBSON, II, CHIEF MANAGEMENT

OFFICER BEFORE THE SENATE BUDGET COMMITTEE

HEARING ON DEPARTMENT OF DEFENSE REFORM

MARCH 7, 2018

Thank you Chairman Enzi, Ranking Member Sanders, and other 

members of this committee for the opportunity to testify today regarding the aggressive work we are doing to bring greater efficiencies to the business operations of the Department of Defense. 

Any organization which receives capital for its business has a 

fundamental responsibility to execute in the most effectual manner. 

Given the American taxpayer has provided the capital to fulfill our 

mission, we have the highest level of fiduciary responsibility to continuously execute our operations in the most efficient and effective 

manner. Thank you for the Committee’s hard work to establish the 

2-year budget deal. 

Secretary Mattis has outlined the three main lines of effort for 

the Department of Defense. Build a more lethal force, strengthen 

traditional alliances while building new partnerships, and reform 

the Department’s business practices for performance and affordability. 

It is the responsibility of the Chief Management Officer of the 

Department of Defense to execute the third line of effort: reforming 

business operations for solvency and security, gaining full benefit 

from every dollar spent. 

Looking forward, the Department is not anticipating funding 

above the outyear levels in the fiscal year budget and in order to 

fund incremental resources the military needs to achieve its mission requirements, we must lower our cost of operations to yield 

these resources. The global challenges to our military remain significant and to best equip our men and women in uniform to meet 

their mission we must consider significant reforms in the Department. 

Foundational to our vision of success in this area is the establishment of a culture of performance and productivity on an enduring, 

institutionalized basis. This work we are all doing today becomes 

a benefit for the next generations of leadership and warfighters to 

come. 

We are generating additional resources through efficiencies by focusing on three main areas: shared or common services; enterprisewide data and cost information; and the efficient and effective 

alignment of the enterprise. 

We have begun the effort in shared services by forming integrated, subject-specific teams to identify, vet, and implement immediate efficiency opportunities in their respective areas. Knowing the 

challenges to any significant reforms, we are consistently fostering 

a sense of urgency, maintaining leadership alignment at all levels, 

communicating a consistent message, proactively removing obstacles, driving immediate wins, and working to anchor all of this in 

long-term behavior and culture. 


PM40855 on BUDGET-48538 with DISTILLER
211 

As we implement the reform efforts, we are comfortable incorporating the ‘‘fly, test, fly’’ operational tempo to allow us to pilot, 

learn, and scale in each of these areas. 

Fundamental to institutionalizing this effort is governance and 

management. We have formed the Reform Management Group to 

guide these multiple efforts. This integrated, cross-functional group 

leads dedicated teams and fosters ongoing working relationships, 

aligning all the stakeholders involved in the reform efforts. As our 

processes mature, we will form an integrated management board. 

This board will utilize relevant, standard measures and goals, coupled with the authorities to manage, enforce, and institutionalize 

a culture of performance and productivity with the goal of continuous improvement in our business operations. 

The reward process is essential to success and the primary incentive to change behavior. Typically, in the Department efficiency efforts are stimulated by need to backfill budget cuts. Our current 

approach is to drive and incentivize operating and financial efficiencies by measuring, tracking, and reporting performance and 

outcomes. We will then return the savings generated to the military departments to reinvest in higher priorities, and hold those 

people and organizations accountable. We will need your input and 

assistance in refining, implementing and executing as we further 

develop the mechanics of the reward process. 

Quality data is essential to good decision making and we are 

working to improve the infrastructure to host, and make available 

timely, accurate, and relevant data across the enterprise. Additionally, we are constructing a consistent framework that reflects cost 

data and analytical tools to support efficiency-driven decisions 

throughout the Department. In both efforts, we are working closely 

with the Under Secretary of Defense for Comptroller to achieve 

success. 

The financial audit the Department is undertaking is a tremendous tool and serves as an invaluable piece of our reform efforts. 

The audit process will improve the quality of our organizational 

and financial data, which is essential to making good business decisions. The audit will also reveal business systems and processes 

which need to be reformed and can be incorporated into our ongoing reform efforts. By improving these business processes we drive 

improved operational measures such as timeliness, productivity, 

and simplification. Many of these processes will have direct, positive impacts on lethality. 

The third line of effort is the efficient alignment of the Department. Many of the Defense agencies and Field Activities have been 

in place for decades and we have the opportunity to look at the 

end-to-end processes in major areas of operation and align all of 

the participants in the most efficient manner. We intend to include 

and leverage leadership from the military departments and the 

major mission areas such as Acquisition, Information Technology, 

Intel, Personnel and Readiness, Financial Management, Research, 

and Policy as part of this process. 

A basis for evaluation to all our projects is establishing 

benchmarked private sector measures, setting goals, and then 

tracking and reporting our performance. 


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In addressing any of our reform projects, we are also looking outside of the Department for further value by incorporating the 

whole-of-government as a marketplace and seeking to leverage private sector sourcing at an even higher level. 

As our efforts progress, we will be looking to Congress as a 

source of support. Just as with a board of directors, we believe Congress can be our partner, understanding the shared risk in this incredibly robust and aggressive work. We intend to keep an ongoing 

dialog on our plans and progress and will be seeking your input, 

feedback and assistance as some of our objectives will require mutual actions to achieve our goals. 

As the Chief Management Officer of the Department of Defense, 

I consider Congress to be my board of Directors. Therefore, I welcome the opportunity to begin our dialog on the substantial efficiencies efforts in the Department, and I welcome your questions. 

With me is Comptroller David Norquist, who will speak to the 

Department of Defense Audit. 

Chairman ENZI. Thank you. As an accountant, I cannot tell you 

how exciting it is for me to have the numbers management team 

before us. Your testimony is music to my ears. I want to thank you 

particularly, Mr. Norquist, for your prompt letter. Had I gotten it 

a week from now, I would have considered it prompt. 

[Laughter.] 

Chairman ENZI. That is actually when I was expecting it, and I 

will be sharing that with the members of the Committee because 

there is a lot of good information in the answers that you gave me. 

We will now turn to questions, and I do not think I probably 

need to explain how the sound of the gavel and alternating back 

and forth works, but every member will have 5 minutes for questions. I will begin with myself, and then we will begin the alternation process. 

I will begin with my first question for Mr. Norquist. The metrics 

used to measure the Department’s readiness for an audit were 

often very difficult to understand, even for outside experts. Now 

that the consolidated audit has begun, how will the Department 

help Congress to understand how much progress is being made? 

Will the Pentagon provide regular interim updates on both the 

findings and your remediation efforts? 

Mr. NORQUIST. Yes, sir. Mr. Chairman, the way we will measure 

progress going forward is by looking at the number of NFRs closed. 

So when the auditor has a finding, they will write it up. We will 

track the number of findings. We will track who they have been assigned to for fixing them so that rather than simply say the Department of Defense did not pass, or the Army, we will be able to 

say this materiel command had been assigned to 20 findings of 

which they have closed 5. This organization has seven of which 

they closed seven. So you will be able to see at a much deeper level, 

and part of the interest in the audit is that level of accountability, 

so you can talk about specific challenges. Is the issue with the systems? Is the issue with fund balance with Treasury? 

From our perspective, what we will do is a couple things. One is 

the auditors will publish their statements on the traditional schedVerDate Sep 11 2014 13:37 May 06, 2019 Jkt 000000 PO 00000 Frm 00218 Fmt 6601 Sfmt 6601 H:\GPO\PDF\OUT\35700.TXT PAT

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ule which starts about November 15th. Those are available to the 

public. They will look like the same type of financial statement reports that go out for companies. We will twice a year, both in January and June, provide updates to the Committee, summarizing 

those in easy-to-understand formats as well as providing tracking 

on the NFRs. 

The advantage, I think, of this one is we will not be self-reporting our progress. I will be telling you what the auditors have said. 

If they do not say we close it, then we did not close it. You know, 

the issue will be—I think that independence allows you a greater 

level of confidence in the data you receive on the status of the audit 

and allows us to track it. This is how we did it at Homeland Security, and it was a very effective way of measuring progress. 

Chairman ENZI. Thank you. 

Mr. Gibson, I want to ask you about metrics and baselines a little bit. Last year the GAO reported that billions of claimed savings 

from Department of Defense headquarters reductions were 

unsupportable. Similarly, the Department of Defense budget request this year claimed further billions in savings from the ongoing 

and new reforms, but does not provide much specificity. 

Can the Department provide a more detailed breakdown of these 

savings and what baselines are being used to construct them? 

Mr. GIBSON. Senator, the way we intended to execute this is we 

begin at the very working level. We have teams that are subject 

matter experts in nine particular areas. Out of that, they will then 

pick specific projects to go out that we find are efficiency projects. 

Within each of those, there will be an intended outcome, operational and financial goals that will be based on real data. They 

will have a project schedule. We will be able to track and measure 

how they are doing on that. We can then compile all of those into 

groups and report those out. 

So we intend this to be very, very specifically driven by data that 

we are tracking and reporting on, and then all of that will build 

out to a total of what we can account for reform savings that we 

will be getting. 

Also, I think it is important to mention that, in addition to financial savings, it is very, very important that we discuss that we are 

going after operational improvements as well. Those will include, 

it could be, timeliness, productivity, simplification. Those do not always have a financial outcome, but certainly our beneficial outcome 

to the overall business operations, we will be measuring and tracking and reporting on those as well. 

Chairman ENZI. Thank you. 

A quick question to Mr. Norquist, because I have read a number 

of stories lately about how the Pentagon cannot responsibly spend 

the extra fiscal year 2018 funding from the recent budget deal before the end of the current fiscal year. Marine Corps General Walters said we have a year’s worth of money in 2018 and 5 months 

to spend it. I understand that there are proposals to give more 

flexibility in spending this money, including changing fiscal year 

2018 operations and maintenance funding from funding. 


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Beyond this current issue, are there other changes in the budget 

process such as biennial appropriations for certain defense accounts 

that could result in greater stability and efficiency in military 

spending? 

Mr. Norquist. I think there are two types of challenges that we 

look at as you look over time, so let me do first the 2018 and then 

the longer period, and we can come back to this. 

In 2018, there is a series of rules designed to encourage people 

to spend their money earlier in the year and not hold it until the 

end. One is called the 80/20 rule. You can only spend 20 percent 

of your money in the last part of the year. When you get the bulk 

of the money or the increase late in the year, that makes it harder. 

So some relief from that 80/20 rule is certainly essential because 

then your deadline is not 1 October. It is 2 months earlier. All of 

these, though, relate to wanting to spend the money where the 

highest priority is, and as you get closer to the end of the year, you 

do not have the time to go out for the contract with the competition 

and the award with the amount of time that is left; or if you put 

something into a shipyard for maintenance and the cost of actually 

fixing it is less than you thought, so they give you the money back, 

you may be too late in the year to put it against your next highest 

priority, so you put it against the next one that is available. 

We would like to discourage that sort of use-it-or—lose-it view 

and encourage people to put it on the highest priority and, where 

necessary, look at what type of flexibilities are required, either 

being able to move money between accounts with prior notification 

instead of prior approval. Some of those flexibilities help, and I 

think that was—and this is true whether you are in a year where 

there has been a significant increase or not. You just want to make 

sure people are able to put it against the highest priority. 

Chairman ENZI. Thank you. I am sure we will talk a lot more 

about that. My time has expired. Senator Whitehouse. 

Senator WHITEHOUSE. Thank you very much. 

Mr. Gibson, GAO has reported that nearly a third of the roughly 

$1.5 trillion cost of current defense acquisition programs is a product of cost growth over initial estimates, which suggests that the 

Department has trouble either estimating costs or holding contractors to original estimates. 

Now we are looking at a proposal to spend something on the 

order of $1.7 trillion on nuclear modernization, including the development of new weapons platforms and warheads. There have been 

warnings issued that if we were to do that, those modernization 

plans would wipe out other defense programs, so I guess there are 

two problems that I would ask you to comment on. 

One, what is the plan for funding that without cannibalizing 

other programs? Is it just put it on the credit card? We seem to be 

getting expert on that around here. And, two, are there additional 

controls that we should put in place over this nuclear program to 

make sure that the $1.7 trillion does not have the same fate befall 

it that befell the other defense acquisition programs of these massive cost overruns? 


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Mr. GIBSON. Senator, in the area of contracting, the particulars 

we are focusing on is the common purchase of goods and services 

and doing that in a more efficient and effective manner. That is an 

area that I am specifically focusing on. And what this does is this 

takes a look at contracts from what is called a ‘‘clean sheeting,’’ a 

very common private sector practice to set the requirements and 

set the terms and conditions and then look across the market to 

best derive value. 

We are also looking at setting requirements in, again common 

services contracts so that it is the same across—— 

Senator WHITEHOUSE. I am sorry, but I think what I was trying 

to get at in my question is: Does a massive oncoming expenditure 

like $1.7 trillion for this nuclear modernization program give us an 

occasion to take a look at new and different checks and controls 

specific to that program to see if we can learn something from it 

and have it not fall to the same fate as the existing defense acquisitions of massive cost overruns? 

Mr. GIBSON. Yes, sir, I believe the opportunity to look across all 

phases of acquisition, so the area that we are focused on, absolutely. We need to do it. It is good fundamentals and good business. 

I know—— 

Senator WHITEHOUSE. And you would not object if we looked forward to this nuclear modernization program and looked at additional ways to try to make sure that the estimation and accounting 

was done better than it has been through traditional—— 

Mr. GIBSON. Senator, I think that is foundational to doing things 

right. 

Senator WHITEHOUSE. Okay. 

Mr. GIBSON. I think that is how we need to do it, and I know 

Mr. Norquist—— 

Senator WHITEHOUSE. Let me ask one last question then. 

DoD contract management has been on GAO’s high-risk report 

list for almost 25 years, and there are obvious concerns about the 

relationship between the Defense Department, the defense contractors, defense contractors’ role in Congress. There is kind of a loop 

that can exist there. And, in addition, there is the revolving door 

problem between the Department of Defense and these contractors 

with a view that some of the contracts may not be managed as 

scrupulously as ideal. 

Are there things that we should be doing to improve the revolving door issue between the Department of Defense and these contractors to make sure that that relationship with these contractors 

remains healthy for the taxpayer? 

Mr. GIBSON. Senator, my specific area of expertise is not contracting and acquisitions. However, I will say it is my understanding that between the policies in the FAR and within contracting, as well as our ethics, those are in place. I think it is always our responsibility to follow those to ensure that we truly get 

to the best place from a contracting standpoint and a conflicts-ofinterest standpoint. 


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Senator WHITEHOUSE. Do you agree that it is vital that the contractors should be serving the Defense Department and not vice 

versa? 

Mr. GIBSON. I think leveraging the private sector is absolutely 

invaluable to us, and that we are the customer and they are the 

supplier. 

Senator WHITEHOUSE. My time is up. 

Chairman ENZI. Thank you. 

Senator Corker. 

Senator CORKER. Yes, sir, Mr. Chairman. Thanks for having the 

hearing. And to the two of you, thank you for coming. I do not 

think any of us could respect our men and women in uniform, more 

than you, and I know you work on their behalf. 

The Department of Defense can kill people remotely in Mosul 

and other places, with people from far away commanding drones, 

and it is remarkable that we are able to do things like that. DoD 

has the capacity to turn entire countries into craters and has all 

kinds of cyber capabilities. Again, you are here; you are the messengers. We are not speaking necessarily to you at all, but how in 

the world is it that in 2018, with all the massive capabilities that 

the Pentagon has, this is the first time the Pentagon is able to conduct an audit? What is going on with the culture at the Pentagon? 

Mr. Norquist. 

Mr. NORQUIST. I share your concern. You know, when this administration came in, we made starting the audit right away critical, and so in the very first year we have begun it. When I was 

in the—— 

Senator CORKER. Just what is going on with the culture? How in 

the world could it be that the biggest, greatest fighting entity in 

the world cannot audit itself? What is wrong? 

Mr. NORQUIST. So I am speaking a little bit for those who came 

before me, but there is a sense on some of the mission focus is not 

as focused on the back office as you would see in a private company. I think that there is an essential value to the taxpayer in 

making sure the rest of these operations go well, and part of the 

messaging that the Secretary has made internally is to make sure 

folks understand that this is much broader than just financial 

management. If you want to make sure that your inventory of 

spare parts is correct, that your munitions is correct, this is part 

of what the audit covers. And part of that culture comes from 

change from two things: 

One is leadership at the top. Secretary Mattis and Deputy Secretary Shanahan have made this a top priority, and I think that 

has helped to turn the ship. 

And the other is, quite frankly, the emphasis from Congress. I 

have found it very helpful in meeting with folks and—— 

Senator CORKER. That is good, but I don’t care about Congress. 

The fact is we have probably wasted hundreds of billions of dollars 

at the Pentagon through the years through poor management. Is 

that correct? That would be a low estimate, would it not? 

Mr. NORQUIST. I would not be able to speak to that number, sir. 

Senator CORKER. Mr. Gibson, thank you for giving credit to this 

Committee for passing the increase in the caps. We actually had 

nothing to do with it. We had four people in a room that bid each 


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other up. This cap deal is going to raise spending over the next 10 

years by a minimum of $2 trillion. Two trillion dollars. 

What we are likely to see in this omnibus are some of the most 

God awful taxpayer abuses that we have ever seen. Things are 

being plussed up so quickly, and on the domestic non-defense side, 

so much money is being pumped in that there is going to be some 

of, again, the most God awful taxpayer abuses we have ever seen. At the Pentagon, we are raising the cap by $80 billion. What the President requested was not good enough—we had to go $30, $35 

billion above that. We are doing the same thing on the non-defense 

side, though not quite to that level. How is it possible with 6 

months remaining in the year for the Pentagon to possibly spend 

the additional cap, the additional amount of money, the $80 billion 

you are getting, plus, I think, $71 billion in OCO spending? How 

is it possible to spend that money wisely? Mr. Norquist. 

Mr. NORQUIST. I would be happy to answer that, Senator. So 

when you look at the increase, you will find that the vast majority 

of that occurs in procurement and R&D, which are 2-and 3-year 

money. And so when you are talking about buying additional munitions, buying additional planes, buying additional ships, you have 

time to negotiate the prices with the contractors and make the 

awards. 

The challenge is going to be in the operation and maintenance 

account, and the difference between had we stayed under sequestration and under the number that the Congress is looking at is on 

the order of about $13 billion. 

Now, some of that increase the President had requests, we had 

plans for in the budget, and so the amount of adjustment that you 

are making is more modest than the larger number you are seeing 

because only the O&M piece has to be executed by year-end. 

Senator CORKER. Well, again, we thank you and others for what 

you are doing. I am happy that in 2018 we are finally going to have 

an audit. That is good for taxpayers. I cherish the men and women 

in uniform, like Senator Kaine’s son and others who serve. I am 

distressed that, for all these years, we’ve known there have been 

massive amounts of wasted money because you could not complete 

an audit. And I am glad that you are on a path to do something 

good about it. 

I hope we are going to have a chance, Mr. Chairman, to see this 

omnibus in advance because I have a feeling taxpayers are going 

to be shocked at what is in it with the massive increases taking 

place in 1 year. But thank you so much. 

Chairman ENZI. Thank you. 

Senator Sanders. 

Senator SANDERS. Thanks very much. I agree with Senator 

Corker. This is an enormously important issue, and the DoD must 

be run cost-effectively and efficiently. 

Let me ask you, to start off with a simple question, about half 

of the DoD budget goes to defense contractors. Is that roughly 

right? 

Mr. NORQUIST. That sounds about right, yes. 

Senator SANDERS. I think at the top of the list is Lockheed Martin. 

Mr. NORQUIST. That would be one of the top five, absolutely. 


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Senator SANDERS. Okay. Answer me this one: As I understand 

it—I am looking at the revenue, 2016 defense revenues that went 

to Lockheed Martin, roughly $43 billion. And I am just kind of curious. The CEO of that corporation received—what was it, $20 million? Over $20 million in compensation. And as I understand it, 

over 90 percent of the business was the Department of Defense. In 

other words, we are giving this woman roughly an $18 million salary from the taxpayers of this country. Does that sound right to 

you? Is that something that we might want to look at and say 

when we give—I do not know what the salary is of the Secretary 

of Defense. What is it, $150,000, $200,000? 

Mr. NORQUIST. Yes. 

Senator SANDERS. Does it make sense to you that we pay the 

Secretary of Defense $200,000 or less and we give a contractor who 

gets 92 percent of her revenue from the taxpayers of this country 

$18 million of taxpayer money? Is that something that you might 

want to look at? 

Mr. NORQUIST. Sir, I cannot speak to how the companies compensate their executives. I know there may be rules on those, but 

they are outside my expertise. The one I can speak to, though, is 

that we do have—inside the office of the CFO, we have an organization that audits the contractors. So when they send us invoices 

and payments, we go through those in order to arm the contracting 

officers to make sure we are not being charged—— 

Senator SANDERS. But if I am right—I got that. But if I am right, 

that over 90 percent of the revenue for a company comes from the 

taxpayers of this country and this woman is making $20 million a 

year when the Secretary of Defense makes less than $200,000, I 

think that might be an issue that you might want to raise. All 

right? Essentially, for all intents and purposes, Lockheed Martin is 

a Government agency, if you like—private, but a Government agency, virtually fully funded by the United States Government. Is it 

reasonable to say that they keep their CEO salaries in check? Or 

should the taxpayers be paying exorbitant salaries? 

Mr. NORQUIST. The taxpayers should be paying for the service 

that we receive, Senator, and if the—— 

Senator SANDERS. Do you think it is an issue worth looking at? 

Mr. NORQUIST. I do not know if the acquisition rules—whether 

executive salaries falls within that scope. 

Senator SANDERS. I think that they might. 

Now, let me ask kind of a dumb bunny question, if I might. The 

truth is everybody supports the Department of Defense. We all support the men and women in the armed forces. But as I mentioned 

earlier, we are now spending more than the next 12 countries combined in defense. Against my vote, Congress just voted another 

$165 billion to go to the military. So here is the question: Who is 

our enemy? Who are we spending—we know that there are threats 

out there. We are all aware of terrorism. But I think the amount 

of money that we are spending fighting ISIS, for example, is relatively small. Who are we preparing to go to war against or defend 

ourselves from? 

Mr. NORQUIST. Senator, the Secretary of Defense outlined in the 

National Defense Strategy the challenges that we face. Part of the 

emphasis in the strategy was the shift from a focus on terrorism 


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to great power of competition with a particular emphasis on the 

long-term challenges of China and Russia. It refers to both of those 

as opportunities for peaceful competition, deterrence, and then the 

ability to prevail in a conflict, should we have to. The strategy has 

both a classified and unclassified option, but it lays out and goes 

through the challenges that we face. 

Senator SANDERS. So we are spending hundreds of billions of dollars defending ourselves from China while major corporation after 

major corporation is shutting down in the United States of America 

and moving to China. Anything incongruous about that? 

Mr. NORQUIST. So I think the White House and the President 

and others have talked about the competition expanding beyond defense. My expertise is more in the defense side. 

Senator SANDERS. Okay. Thank you very much, Mr. Chairman. 

Chairman ENZI. Thank you, Senator Sanders. 

Senator Kennedy. 

Senator KENNEDY. Thank you, Mr. Chairman. 

Has the audit begun? 

Mr. NORQUIST. Yes, Senator. 

Senator KENNEDY. Okay. I want to thank both of you and I want 

to thank President Trump for doing what the law directs you to do. 

Under the 1990 statute, what position—not what person but 

what position at the Department of Defense was responsible for initiating the audit? 

Mr. NORQUIST. The audit, I am not sure how the language is 

phrased. The audit is conducted by the IG, and then—— 

Senator KENNEDY. No. Who is responsible at DoD under the 1990 

statute for saying, ‘‘I have read the law; we are going to start this 

audit’’? What position? 

Mr. NORQUIST. My belief would be, since it is called the ‘‘CFO 

Act,’’ it would be the CFO or the Secretary, depending on how the 

language is written. 

Senator KENNEDY. Okay. Would you get me the name of every 

CFO who has served at the Department of Defense since this statute was passed? 

Mr. NORQUIST. I can do that, Senator. 

Senator KENNEDY. Okay. 

Senator KENNEDY. I do not know where to begin. Senator Corker 

is kind of the conscience of the Senate on our deficits, and I first 

heard him speak about the fact that the Department of Defense 

had never been audited at a meeting and, frankly, I thought he 

misspoke. I could not believe it. 

I cannot explain this to my people back home, every single one 

of whom supports a strong defense. But when I tell them that 

every other agency in the Federal Government undergoes an audit 

but the Department of Defense, and it was required to do it 18 

years ago and still has not done it, they think I belong in a straitjacket. I just found this—how did it go on 18 years? Didn’t somebody ever call the CFO and say, ‘‘Have you started the audit yet?’’ 

Mr. NORQUIST. I will try and attempt to answer the question, 

though I come from your perspective, which is I viewed the audit 

as essential, as something we needed to start, and in my prior experience at DHS, that is exactly what we did. We had an audit 

from the moment DHS was created. 


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I think the types of answers you will hear is: It is large, it is 

complex, it will take longer than the tenure of the person there. 

In my mind, those are arguments to start, not arguments to 

wait. There are some mechanical things you had to put in place to 

make it worth starting the audit. There are things that if you are 

not even able to answer the sample requirements of the auditor, 

they cannot even begin, and the Department, having not been set 

up that way, needed some time to do that. 

I say this not to explain it but because I recognize and my perspective is we ought to have started. And I am glad at least that 

in the transition of administrations, the contracts were set in place 

that allowed us to begin now rather than waiting, putting out contracts, and not getting the benefit of the audit for a few more 

years. 

Senator KENNEDY. Well, let me put it another way. I have read 

that the Department of Defense has more Federal contracts than 

all the other agencies in the United States Federal Government put 

together. Is that right? 

Mr. NORQUIST. I do not know. I do not know if that includes 

grants or not, but it may be—— 

Senator KENNEDY. Well, what—— 

Mr. NORQUIST [continuing]. Discretionary budget. 

Senator KENNEDY. If I ask you for a list of all the contracts and 

the amount, could you give it to me? 

Mr. NORQUIST. So that is something that we are building called 

‘‘the universe of transactions.’’ 

Senator KENNEDY. You could not give it to me? 

Mr. NORQUIST. Not easily. It was a very long list. 

Senator KENNEDY. We do not even know how many contractors 

we have? 

Mr. NORQUIST. Let me back up. There is a requirement that the 

Congress has put on the Department and others to publish— 

USAspending.gov—that type of information. And so you will be seeing that is part of the emphasis on the audit, is putting the accuracy of that data out there. 

Senator KENNEDY. Let me interrupt you because I have only got a few more minutes. I see where you expect to spend $367 million 

this year to conduct the audit and an additional $551 million to fix 

the problems. Now, how do you know it is going to cost $551 million to fix the problems if you do not know what the problems are 

yet? 

Mr. NORQUIST. I do not know how much it will cost to fix the 

problems. I know how much the services have set aside to start to 

take the problem on, and so we have been able to break it out according to how much the Army, the Navy, and the others are going 

to be spending on fixing problems. How long it takes them remains 

to be seen. 

Senator KENNEDY. Well, we have got clearly some people, some 

hogs who have all four feet and their snout in the trough. And we 

have got to find out who they are, gentlemen. And we need to pass 

legislation to require this to be done and say make it criminal, if 

it is not done somebody goes to jail, or at least somebody is fired. 

I would appreciate your advice on that. I cannot explain this to my 

people. I cannot. 


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I am sorry I went over, Mr. Chairman. 

Chairman ENZI. Okay. Senator Kaine. 

Senator KAINE. Thank you, Mr. Chair. Thanks to the witnesses. 

I associate myself with most of the comments that have been made. 

Senator Corker’s sense of what is wrong with the culture, I had the 

same feeling. I am an Armed Services Committee member. I joined 

the Committee in January 2013. Senator King joined with me. I 

think of the other Budget Committee members. I also think Senator Graham was on the Committee at the time. And I am a numbers geek. I was a mayor and Governor and was used to audits and 

financial statements. And we were stunned to get on the Committee and find, the 1990 statute notwithstanding, that the Pentagon had not made greater progress. They were trying to become 

audit-ready at the time, but there was not really a meaningful calendar in terms of auditability. 

We passed as part of the defense authorizing act that year—it 

was the 2014 NDAA that we worked on in Committee—the timetable that you are now on to require the audit to be done under 

this timetable. We should not have had to do it. It should have 

been done long before. But it is good to see you making the 

progress that you are making. 

I think the written testimony is very helpful. You, Mr. Norquist, 

talked about the scope of this audit, and it is a beginning audit. 

It is going to find a lot of things wrong, and it is not as broad as 

subsequent audits may be. But the 24 audits and then the single 

sort of consolidated audit, they are all underway right now. 

I would encourage—you did not do this in your verbal testimony, 

it would have been hard, but I would encourage colleagues to look 

at the chart on page 6 of Mr. Norquist’s testimony which sets out 

the timeline of what is to be expected here over the next few 

months. 

There was one item on the timeline that I did not understand, 

and I am sure it has probably got a simple explanation, but it is 

forthcoming. On Page 6, ‘‘March 2018, Submit NDAA Ranking Report to Congress.’’ Obviously, on Armed Services we are working on 

the NDAA right now, so I am assuming it is some report that is 

coming out of the audit work that could be helpful to us as we are 

working on—fiscal year 2019 NDAA? Is that what this report is? 

Mr. NORQUIST. What the Committee asked us to do was to rank 

the components by the progress they have made. So of those 24 

agencies, 8 of them already have a clean opinion. They went under 

audit early on and did it, so those would clearly be ranked at the 

top. 

Senator KAINE. I thought it was nine, but it is eight that 

have—— 

Mr. NORQUIST. There may be nine total. Then there are some 

that have modified opinions. 

Senator KAINE. Right. 

Mr. NORQUIST. Then you have a got a range of them that have 

been audited for a couple of years, but do not have a clean opinion 

yet. And then the largest, Army, Navy, and Air Force, this is the 

year they start. So what we have been asked to do by the Committee is to rank progress, and we will do that every year so you 

can start to see—and the idea that the Chairman mentioned, an 


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easy-to-see format, who is making the most progress on closing 

those open findings. 

Senator KAINE. And I think that is very, very important. This 

will be really the first NDAA where we will be able to take in this 

audit work that is being done functionally and really use them as 

part of the NDAA that we write, and that will be enormously helpful. 

The one point of disagreement I had with my colleague Senator 

Corker is when he quickly said, ‘‘I do not care about Congress. I 

want to ask about the Pentagon.’’ My sense is we are not here because Congress has not insisted on it. And we have not insisted on 

it with the Pentagon. You know, the Pentagon every year, under 

Presidents of both parties, will submit a budget request, and Congress will give them more than they ask for. And I think it is sort 

of the same phenomenon here. We have insisted upon it with others, but not until the NDAA really put it on the calendar in 2014, 

which was 24 years after the 1990 act, have we started to insist 

on it. And I think that is obviously important that we continue to 

insist, and I think you are hearing a bipartisan agreement around 

the table that we should. 

Just quickly, to conclude—but, again, I think that timeline is 

very helpful. Your conclusion is important. I anticipate the audit 

process will uncover many places where our controls or processes 

are broken. I think that is true. There will be unpleasant surprises. 

The DLA audit already showed some. Some of these problems may 

prove frustratingly difficult to fix. I think we have to be prepared 

for all of that. We are going to get a lot of bad news out of these 

audits if we do them right. 

Mr. NORQUIST. Right. 

Senator KAINE. If we do not do them right, maybe it will be nice 

news. But if we do them right, we are going to get a lot of bad 

news. But that is important for us to get the bad news so that we 

can then—you know, your answer to 

Senator Kennedy’s question, How do you know the fixes will cost $530 million? You do not. You have no idea what the fixes will cost. 

That is just what is set aside. But there is enormous upside opportunity in here for us. If you spend money on the wrong things, then 

you may be underfunding the right things. Or you may be, you 

know, using tax dollars that you should not be using, that should 

go to some other purpose or to the taxpayer. So this is an important thing. 

I do want to close on this. You mentioned it is not just about 

cost, it is about operations. And if I might, Mr. Chair, just for like 

30 seconds, an audit is not going to tell you—an audit is not the 

same thing as effectiveness. We had a hearing yesterday about air 

power on the Navy side in the Seapower Subcommittee of Armed 

Services, and we talked about lessons learned on the F–35. We 

asked Admiral Grosklags, who is the head of naval air power, ‘‘Has 

it been worth it?’’ And he said, ‘‘Fantastic capacity.’’ But he just 

groaned. He said, ‘‘We should have had it 10 years ago.’’ And we 

said, ‘‘What are the lessons learned?’’ You know, the cost overrun 

and delay. And he said part of it was, you know, putting in new 

technological requirements on the software side of the F–35 has 

proven very difficult, but the other part is we tried to do something 


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a little creative. Let us build a platform that can be used by the 

Air Force, Marines, Navy, and Army and take all of their specifications into account. And let us cost-spread by trying to build one 

that we can sell to NATO allies, too, so there will be interoperability. 

But what that ended up doing was create a decision making 

process that was a complete morass when you are trying to satisfy 

four service branches and allies as you are in design. It turned it 

into a decision making nightmare. And so did we get some economies of scale? Maybe. Did we get some interoperability? Yes. But 

the delay and the cost overrun as a result. The audit will not necessarily answer all of our effectiveness questions, and so we need 

to have a realistic expectation about what it will show and what 

it will not show. But it is necessary, and I appreciate it. 

Thank you, Mr. Chair. 

Chairman ENZI. Thank you. 

Senator Perdue. 

Senator PERDUE. Thank you, Mr. Chairman. And thank you both 

for being here. 

I echo and support most of what has been discussed today. I am 

chagrined that it has taken this long to get us to this point. I just 

have a quick question, Mr. Norquist. How long will it take us to 

actually get a clean opinion and identify material weaknesses, deficiencies, significant deficiencies, et cetera? When will we get a 

clean opinion? 

Mr. NORQUIST. Senator, I do not know. 

Senator PERDUE. What is the range of expectation? 

Mr. NORQUIST. So the benchmark I use is the last assignment I 

had at Department of Homeland Security, it took them 10 years. 

The numbers of weaknesses came down steadily so you could see 

the progress, but there were typically one or two at the end that 

took some time. 

Senator PERDUE. But it is your expectation that this year we will 

have an estimate of the number of material weaknesses, deficiencies, significant deficiencies, et cetera, that the remediation you 

are talking about could take 10 years. But how long will it take us 

to determine what work we have to do to remediate? 

Mr. NORQUIST. You will know the bulk of that this fall when the 

auditors finish their first audit, but I would anticipate that, in the 

second year, they will be able to go deeper and may uncover more 

things. So I think over the first 2 years we will have seen the vast 

majority of the findings that they will have. 

Senator PERDUE. So I am just a dumb business guy, but the DoD 

is not that much bigger than our largest public corporations. I just 

cannot imagine Walmart calling the SEC or the IRS and saying, 

‘‘I am sorry. The quarterly statements are not going to be in this 

quarter.’’ Ten years is outrageous. That is too long. We have got 

to find a way to close that down. There is no public corporation in 

the world that would be allowed by this Federal Government 10 

years to remediate. It is just not—it would not happen. It is not 

necessary. And I want us to address that in a future conversation, 

Mr. Chairman. 

The second thing is I want to talk about Congress. There is one 

very easy reason to explain why it has taken 28 years. Congress 


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did not do its job. It passed a law and then did not do anything 

to enforce it. And all the excuses that were used, from systems inadequacies to no chart of accounts, were just unacceptable and 

should never have been accepted. But that is water under the 

bridge. I want to talk about going forward. What have we learned—Senator Whitehouse talks about $1.7 

trillion being spent. The reality is in the last decade, about a third, 

just a little less than a third of what we have spent as a Federal 

Government has been borrowed money. That means in the next 10 

years the current forecast, if we continue to add debt the way we 

have added it the last 10 years and the way the current budget 

says we will over the next decade, about a third of what we spend 

will be borrowed. That, by definition,—if the first dollar goes to 

mandatory expenses, which it does, that means that every dollar 

that we spend in discretionary spending—that is DoD, VA, and 

about $350 billion of total other discretionary domestic spending— 

is all borrowed money. That means that every dime we spend at 

the DoD, we have to go to China and borrow. 

So we have these situations around the world, these bilateral 

agreements, like Taiwan, to defend Taiwan against China, we have 

to go to China and borrow the money to go to Taiwan and do that. 

This is how serious this is and home time-sensitive. 

My question is: When we talk about procurement—and a lot of 

these contracting relationships are dealing with procurement—I believe that the procurement process and the CR impact, the CR reality of a broken budget process, adds to that. When you do these 

audits, are you going to measure the impact of continuing resolutions on the procurement process and the billion dollars of waste 

that are found there or are to be found there? 

Mr. NORQUIST. So the audit itself does not directly do that, but 

what it allows us to do, because of the type of information we get 

out of the audit, is to drill down into exactly those types of questions, because you will have the transaction level data that will let 

you look at the effect. And when you—— 

Senator PERDUE. Right, I get that. So as I understand it, there 

is no common chart of account, so that will take a while to develop 

that as well, and even the system inadequacies that do not allow 

different parts of the DoD to talk to you is a hindrance. I get that, 

and that is part of the delay. 

We want to know, if you run into those problems or obstacles, we 

need to know those on the front end. 

Mr. NORQUIST. Absolutely. 

Senator PERDUE. Because 10 years is just too long to get there. 

I want to talk about the sequester and also the fundamental 

measurement of the effect of not having a capital budget. We do 

not have a capital budget, Mr. Gibson. I know you answered the 

question earlier about normal operation procurement. I get that, 

ongoing replenishment of ammunition and supplies, et cetera, et 

cetera. But in these big-ticket—we are going to spend $26 billion 

a year for 10 years to basically recap just the Navy. That is the 

current estimate. And my concern is, if that $26 billion then goes 

to 4X or 5X like the past decade did, we are talking about numbers 

that are unattainable. And so my concern is: Are we in this audit 

looking at the procurement process and finding the inadequacies in 


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there to recommend changes in the way Congress deals with funding of the Department of Defense? There is no capital budget; 

therefore, we do it on a cash-flow basis, which nobody else in the 

world does. And that adds billions and billions and billions of dollars to our procurement process, over and above overdesign and design creep. Those are all real. No question about it, and we have 

talked about that. But the one thing that I think as a business guy 

looking at this, I think the bigger contribution is to say we do not 

deal with this in the capital budget format and the limitations we 

put on the funding from the Federal Government create this tremendous opportunity to waste money on the procurement process. 

Would you respond to that, Mr. Norquist? 

Mr. NORQUIST. Sure. Senator, the way the information is currently stored, you do not have what you need for a capital budget. 

But when you look at what the audit standards require, valuing 

your assets, depreciating and so forth, that gives you the basis, and 

so one of the questions for Congress becomes: When you have that 

type of information, do you want to change the way that you manage the funds? But you would not have that to do today, but over 

the audit you will buildup exactly that type of information. 

Chairman ENZI. Thank you. 

Senator Van Hollen. 

Senator VAN HOLLEN. Thank you, Mr. Chairman. And welcome 

to both witnesses. And I want to associate myself with a lot of the 

comments that have been made by my colleagues. 

My question relates to the overseas contingency operations account, OCO. As you know, we have funding in the base defense 

budget for ongoing operations, which we expect to go on, you know, 

for the indefinite future. And then we have the overseas contingency operations account, OCO. 

There has been great concern on a bipartisan basis that OCO 

over the years has been used as a slush fund because OCO has not 

been subject to the budget caps that have been placed on both defense spending and nondefense spending. In fact, when I was in the 

House of Representatives, I teamed up with Mick Mulvaney, a conservative Member of the House, now the Director of OMB, and we 

put language into the 2016 defense authorization bill asking the 

Defense Department to adopt OMB standards at that time for what 

constitutes OCO funding and what is overseas funding. 

Since then, in January 2017, GAO issued a report recommending 

that the Department of Defense work with OMB to develop criteria. And since then, in 2018, in fact, in the defense authorization 

bill we passed, the Congress instructed the Department of Defense 

to develop these criteria by September of this year. 

Are you on target for providing those criteria to the Congress? 

Mr. NORQUIST. We have developed criteria that we have worked 

with at OMB to go through the OCO. Consistent with your previous discussions with Director Mulvaney, you will not be surprised 

to know that in the out-years he would like us to shift those categories so even fewer of them count as OCO and more of it is in 

base, and only the most incremental of the costs show up, which 

would dramatically reduce the size of the OCO. But, yes, we have 

worked with OMB on those criteria. 


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Senator VAN HOLLEN. Great. And once you develop those criteria, 

would you have any objection to the Congress codifying those criteria so that we can avoid any sort of monkey business in slush 

funds in the future? 

Mr. NORQUIST. I would have to defer to OMB on the effect of trying to turn that into legislation. 

Senator VAN HOLLEN. Okay. Let me just talk a little bit about 

the whole overseas funding effort, because we all wake up to tweets 

these days from the President of the United States, and a few 

weeks ago he tweeted this: ‘‘This will be a big week for infrastructure. After so stupidly spending $7 trillion in the Middle East, it 

is now time to start investing in OUR Country!’’ That was the 

President’s tweet. 

Are you aware of how much the Trump budget calls for in overseas contingency account spending for the next 10 years, both on 

the defense side and the smaller portion of the State Department? 

Mr. NORQUIST. I am familiar with the defense numbers. They are 

around $71 billion in, I think, the 2018. Then there is a similar 

number in 2019. And then they shift to move the sustainable costs, 

the things that are really not incremental, into the base. And then 

I think it sits at about $20 billion a year for the next 5 years after 

that. 

Senator VAN HOLLEN. All right. So—— 

Mr. NORQUIST. Those are place holders, of course, because you do 

not know where the conflict is headed. 

Senator VAN HOLLEN. Right. So a certain amount of that spending, as I read the budget, based on strategy over the next coming 

years—— 

Mr. NORQUIST. Correct. 

Senator VAN HOLLEN. I hope someone will point out to the President of the United States that when I add it up, it comes to $447 

billion over those 10 years, which is more than twice as much as 

he asked for in his infrastructure plan. He asked for $200 billion 

a year for our country’s infrastructure, as he put it. He is asking 

twice as much for what he referred to in the tweet as ‘‘stupid’’ overseas operations. I hope someone will bring that to the attention of 

the President next time he decides to tweet. 

Let me ask you about the out-years, because you have, as you in- dicated, the OCO funded at $66 billion through fiscal year 2022, I 

believe—fiscal year 2022, 2023. And then after that, as I see it, it 

goes to $20 billion a year——excuse me, $10 billion per year after 

that. As you say, it is a place holder. Is there any basis for choosing $10 billion? As Senator Corker 

said, these numbers quickly add up over time, much more than anticipated. You are dropping it from $66 billion in fiscal year 2023 

to $10 billion in fiscal year 2024. Over a 10-year budget window, 

that is a savings of $560 billion, right, if we drop back? My question is: What is the criteria you used to come up with the $10 billion as you look forward and mention, you know, the Strategic Plan 

with respect to China, Russia, and the other threats that may be 

out there? 

Mr. NORQUIST. So our budget looks out through 2023 and is 

based off more or less a static projection. So we will adjust as the 

combatant commanders’ requirements change on what is required 


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for those. I believe beyond the 5-year window is an OMB estimate 

based on where they think its direction is heading. 

Just to clarify, on the original submission we built for the budget, the expectation was around 65 going out. That is the next 5 

years is the number OMB wants to shift more to base and only 

leave 20 in OCO so there is less of it that is in that contingency 

fund. 

Senator VAN HOLLEN. Right. No, I think that is a good idea to 

put more in base if it is really base money. The net effect of that 

is to obviously reduce the overseas contingency—again, I just wondered if there was any strategic basis for that big drop, so we will 

follow-up with you. 

Thank you, Mr. Chairman. 

Chairman ENZI. Senator Cotton. 

Senator COTTON. Thank you, Mr. Chairman. 

Thank you, gentlemen, for your appearance here today. A lot of 

the questions and answers today have focused on the past and 

what has happened in the past and why we are where we are today 

in 2018 without an audit. Both of you are relatively new to your 

positions, and we appreciate your commitment to completing that 

audit, so let us look forward. 

Can you tell us, Mr. Norquist, in just the simplest, briefest 

terms, what do you hope to accomplish with the completion of this 

audit? 

Mr. NORQUIST. I hope to accomplish three things: 

The first is to be able to put more relevant and timely information in front of senior decision makers so that when they are trying 

to make decisions about the organization, they have relevant data. 

The second is to provide insights to the reform efforts where we 

discover broken processes or things where we can save money by 

changing the way we operate. 

And the third is to be able to make great user of data analytics 

because we will be able to rely on the underlying data. And there 

is, of course, the underlying transparency requirement to the 

American people and Congress. 

Senator COTTON. Mr. Gibson. 

Mr. GIBSON. Senator, I find the audit incredibly beneficial to 

what we are working. As Mr. Norquist said, the data is incredibly 

valuable. We are looking at putting in cost analysis tools so that 

once you have the good data, whatever the user and the operator 

is can have good cost assessments so they can then place assets 

where they need to be and manage those that do not fit within the 

zone. 

The second is the systems themselves. What we find is that often 

contributing to some of the weaknesses are poor systems. This fits 

right into one of our significant areas of reform, which is IT. I 

think we can contribute there, and, again, that contributes overall 

to good business processes. 

And last is the ability through this process to discover areas that 

the weaknesses translate into truly discovery of good information. 

Already we have had discussions about how the spares are managed in the Navy. You look at ammunition in the Army. Just two 

good examples of once we have better clarity there, we can then 


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better manage each of those, both from a financial standpoint but 

then those directly contribute to readiness. 

Senator COTTON. So the final point of your answer there, is that 

what it means to a private who is out on the front lines today in 

Afghanistan or Iraq, that he is going to have maybe a little more 

training, maybe a little faster access to parts or ammunition, what 

have you? Mr. Gibson. I think the answer is definitely yes. All of 

this contributes really to the Secretary’s first priority, which is 

lethality. 

Senator COTTON. Okay. And, Mr. Norquist, you were nodding 

your head in vigorous agreement, for the record. 

Mr. NORQUIST. Absolutely. Yes, you order a spare part, you know 

it is in inventory, you know when you are going to get it. You are 

able to keep your maintenance up when you need to and be ready. 

Senator COTTON. What do we think is the potential magnitude 

of the savings that this could ultimately yield for the Department? 

Mr. NORQUIST. I think you will see savings in three types, and 

for the middle section I will defer to Mr. Gibson. 

In the financial side, when we automate things that are currently manual, you streamline the accuracy, you reduce the cost. 

Those will not be enormous numbers, but they will be valuable and 

sustained numbers. There will be efforts that will drive reform. 

And then I think the third one, which is an unknown, understated 

value of the audit, is Congress passed a law on information security standards. The auditors check those. They do cybersecurity 

testing of each of our business systems. When they find weaknesses, that is not a dollar saving, but it is enormous cost avoidance if somebody is not able to break into your payroll system, your 

logistics system, and others. And I think there is an upside. But 

let me defer to Mr. Gibson on the reform. 

Senator COTTON. Before we go to Mr. Gibson, let me just put two 

numbers on the table. 

Mr. NORQUIST. Sure. 

Senator COTTON. The 2019 budget request suggested that internal business reforms could save a little over $6 billion. A 2015 Defense Business Board report, which essentially said if you ran the 

Department like a business—and that would mean eliminating virtually all of the civil service work rules, which I do not think many 

members of this Committee or this Congress would support. But if 

you eliminated all those legal requirements, you would save about 

$25 billion a year. So I will put those numbers on the table and, 

Mr. Gibson, turn to you. You can follow-up on what Mr. Norquist 

said. But I also would like to get a sense, could the results of this 

audit yield savings of that magnitude, or larger, $6 billion according to the Department’s request, $25 billion according to the 2015 

Defense Business Board? 

Mr. GIBSON. Well, Senator, let me attack a couple pieces of those 

separately. 

One, I think we have laid in $6 billion, and then OMB has laid 

$46 billion across the FYDP. We are very comfortable that we will 

meet or exceed those numbers. And then directly, as to the audit, 

the audit is, as I mentioned earlier, a great tool to help us get 

there, but it is in addition to other reform initiatives. 


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And then, last, on the DBB, I can tell you I fully embrace what 

they have suggested. We actually took some of the specifics there 

where they said focus on what is known shared services areas, put 

teams in place, and go after that. We have done just that. We actually added three additional areas to what they suggested. 

And then the last part of that, I think that while we go after 

shared and common corporate type services, we always have to remember our main mission is the lethality of who we are. We also 

have to incorporate the fact of security of what we do, and that impacts inventories and supply chain and logistics. And then, last, 

very simply, we are in a more regulated environment than the private sector. But it should not be lost that the spirit of what that 

report did we fully embrace, and I think it has great value to us. 

Senator COTTON. Thank you for those answers. Six billion dollars 

in a year, $46 billion over the 5-year defense plan would be great. 

I just have to point out that we just increased the defense budget 

by $85 billion, though, in 1 year, and that is the result of 7 years 

of living under the deeply flawed Budget Control Act. So I admire 

you for taking on a very, very big task, but it is really Congress’ 

responsibility here to fix this problem. 

Chairman ENZI. Senator Wyden. 

Senator WYDEN. Thank you, Mr. Chairman. 

Let me ask you a question, if I could, Commissioner Norquist. 

This issue of auditing the Pentagon is the longest running battle 

since the Trojan War. It has gone on and on, and it comes now in 

the context, as Senator Cotton made, you know, $85 billion more 

for the Pentagon, and we have got a budget that is going to cut 

Medicare and Medicaid. So you have to put this in that perspective 

as you face these issues. 

When I was reviewing your testimony, one sentence really leaped 

out at me. You said in your testimony that it is going to take 

time—your words—to move from qualified audits to clean audits. 

So I would like to know, are you telling the American people with 

that statement that maybe it is going to take another 20 years to 

move from failed audits to clean audits? How would you explain 

this to the American people? How long is this going to take? 

Mr. NORQUIST. Not knowing the findings, I do not know how long 

it is going to take. I can give you some—— 

Senator WYDEN. How about an estimate? The public at least deserves some kind of estimate. 

Mr. NORQUIST. So the only benchmark I can use is Homeland Security took 10 years, and part of the reason that makes this a bit 

of a challenge is when you think about the money the auditors are 

talking about, they are not talking just about the money Congress 

appropriated in 2017. The procurement money that Congress 

awarded 8 years ago was available for the first 3 years to obligate 

and 5 years to disburse. The auditors are welcome to pick any 

transaction going back over those 8 years and ask us to document 

and support those transactions. So when you look at old military 

equipment, the ability to provide valuation in historical records, my 

concern as the CFO is there are some of these choices that I do not 

know that the information that we will get is worth the expense 

I would spend, and so I would want to come back to you and say 

this piece of equipment is going to go out of inventory in 3 years. 


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Do you want me to spend a lot of time valuing or, or do you just 

want to let it roll out of our inventory, its materiality is going to 

decline? 

Senator WYDEN. At my town hall meetings this weekend, when 

people are going to ask about waste and compare, as I have done, 

various items in the budget, I think based on your answer I have 

to tell Oregonians that it is going to take more than 10 years, 

based on the fact that you compared it to something else, to move 

from failed audits to clean audits. Is that correct? That is a yes or 

no answer. 

Mr. NORQUIST. To get all the way to the clean opinion, which requires fixing virtually everything, that may well be true. But the 

benefit of the audit we will start to get right away. 

Senator WYDEN. I am going to take that as a yes, that it is going 

to take more than 10 years to get to a clean audit. And I would 

really like just a yes or no answer, because the public, it seems to 

me, deserves that at this point. 

Mr. NORQUIST. Absolutely, Senator. 

Senator WYDEN. Is that right, over 10 years? 

Mr. NORQUIST. Yes, Senator. 

Senator WYDEN. Okay. Let me ask you one other issue. We have 

had several policy analysts over the years tell us that they do not 

think the auditors are going to uncover new inefficiencies of a great 

magnitude. Now, what is striking about that is if an analyst says 

they are not going to find many things that are that inefficient, 

why is it going to take, by virtue of your last answer to me, more 

than 10 years to get a clean audit? I am kind of trying to reconcile 

these two. So do you agree that not very many inefficiencies are 

going to be found? 

Mr. NORQUIST. Again, we have not had the results of this first 

audit. 

Senator WYDEN. But what is your opinion now based on the fact 

you have worked in this field for quite some time? What is your 

opinion today? 

Mr. NORQUIST. That you will find places for savings, that you 

will find things that you can automate to improve the accuracy of 

the data, that you will find chances to improve inventory that will 

save you money. 

Senator WYDEN. A lot of inefficiencies or a small number? 

Mr. NORQUIST. I would not have a way of saying at this point, 

Senator. 

Senator WYDEN. I am going to hold the record open because I 

would like your best estimate on that, because obviously that goes 

to the question of again trying to explain to people why this is taking so long. Everybody else in Government gets audited. Businesses 

get audited. It really is the longest running battle since the Trojan 

War. 

And, by the way, I want it understood, you are walking into this. 

This is not your doing. 

Mr. NORQUIST. Right. 

Senator WYDEN. But you are going to be the point person on this, 

and that is why I have asked, I think, a little bit more pointed 

questions, because the public’s frustration on this point is enormous. 


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Thank you, Mr. Chairman. 

Chairman ENZI. Senator Boozman. 

Senator BOOZMAN. Thank you, Mr. Chairman. And thank you all 

for being here. We do appreciate you all taking this on. This is a 

huge task. It is so, so very important. I appreciate the emphasis 

on the business practice reform approach that you are taking, and 

certainly your work on the audit is going to be so, so vitally important, the key enabler to ensure discipline metrics that we need to 

enact reform. And I appreciated the three things that you are going 

to get done. 

On the other hand, you know, you are going to hold people accountable, and I know our Chairman and Ranking Member very, 

very well, and I think I can speak for them and the Committee that 

we are going to hold you accountable in the sense that you have 

taken this on. It is a huge deal. 

As you have heard from the Committee, there is a lot of frustration in this area. There is a lot of frustration not only in this Committee but throughout Congress. And so we are going to get this 

done in a timely fashion. 

Now, the services had an audit, and I do not think they have 

been completed for various reasons or whatever. But the auditors 

got in there and made a lot of recommendations, hundreds of recommendations. What have you learned from the service audits, Air 

Force, Army, whatever, Navy? Was there anything to be gleaned 

there that you can use? 

Mr. NORQUIST. Yes, Senator, there were a couple of things. One 

of the overarching findings was that there is often a gap between 

what management believes is being done based on the policies that 

were issued, expecting that those policies are being followed. Then 

you go into the field and you discover either the field is not or cannot operate according to those. That information gap the audit 

closes and allows you to recognize either we have got to change the 

policy or we have got to change the way we operate. And so that 

is a valuable tool that lets you bring better controls in. 

There are some places we have seen where the—— 

Senator BOOZMAN. So are we able to go ahead, you know, and follow-up on that right now? Are we starting already? 

Or do we have to wait for a timeline to—— 

Mr. NORQUIST. No, this is the point I wanted to try and followup with the Senator, which is we will get those findings each year. 

We will start the corrective action plans right away. What we need 

to do is prioritize those. There will be some things where the benefit to the taxpayer and the American people is quite high; you 

want to get to those sooner. There are the other ones where it is 

an accounting entry. I know it is important from an accounting 

point of view, but it will not save money, and you want to be cautious about how much effort and money you spend trying to achieve 

that goal. And so we will want to strike that balance. 

Senator BOOZMAN. Okay. So go ahead. I interrupted you. Are 

there other things that you learned that—— 

Mr. NORQUIST. So inventory records and making sure the accuracy of those. I think, you know, the Army found Black Hawk helicopters that had been delivered but had not been yet loaded in 

their property system. The person there may have known it, but 


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if the Army did a search, it would not have shown up in the property. Air Force looked at 12 facilities and found approximately, I 

think it was, 400 buildings and structures. Again, the people in the 

building knew they were there, but if you did a look at how much 

do I need to do to do maintenance on my buildings, you would not 

have had that in the data call. So those types of issues and some 

of the inventory issues showed up at DLA. The accuracy of that effects a better operation and it enables reform. 

Senator BOOZMAN. Good. Mr. Gibson, the fiscal year 2019 defense budget submission indicates an expectation of saving $2.9 billion 

from ongoing reforms, including reforms in health care management. Can you give us some examples? Can you talk a little bit 

about health care management and some of the ways—I mean, 

that is such a huge issue for not only the Department of Defense 

but for the country in general. Do you have any ideas about efficiencies or savings in that regard? 

Mr. GIBSON. Yes, Senator, we are looking at this in two ways. 

There is the larger—I believe it is driven by the 702 requirement 

to look at health care. We have taken the opportunity to step back 

and work with the services and with DHA to say what is the optimal way to truly organize the relationships. The services are responsible for providing a ready medical force, and the DHA provides the facilities and support to get there. That is the easy part. 

The hard part is defining the roles and responsibilities and how 

we would roll that out. But we are in the middle of that right now. 

The goal is to end up truly with the services having the ability to 

provide a ready medical force in the most efficient and effective 

manner and be able to support the rest of the medical system also 

using the private sector and Government resources. 

Another way we are attacking this, sir, is we have a health care 

team, and that cross-functional team then looks at specific projects 

which are enterprise-wide. It could be management of pharmacy 

services. It could be reimbursement from third parties. Frankly, it 

could be common buying of professional services. And those we 

know are relevant across the enterprise. We are looking at those 

and implementing those immediately to effect savings. 

Senator BOOZMAN. Good. Thank you very much. And we do appreciate you and your teams for their hard work. 

Thank you, Mr. Chairman and Senator Sanders, for holding a 

very, very important hearing. 

Chairman ENZI. Thank you. 

I think Senator Sanders and I have some additional questions. 

Senator Sanders? 

Senator SANDERS. Thank you, Mr. Chairman. 

Mr. Chairman, I kind of thinking that the elephant in the room 

here is the relationship of the DoD to defense contractors. I think 

that is the area that needs most research. And in that regard, I 

want to touch on three subjects. 

Number one, I want to get back to this issue of CEOs’ salaries. 

Two out of the top four defense contractors have CEOs that make 

at least $20 million a year, despite the fact that over 90 percent 

of their revenue comes from the Federal Government. Okay? I 

worked hard and successfully with others to make sure that workers who work with Federal contractors get at least a minimum 


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wage above $7.25 an hour. We brought it all the way to a bit 

$10.10 an hour. But we said if you are working for a contractor 

who is being paid by the Federal Government, you should not get 

a starvation wage. 

I would like a report from you as to what you can do to say to 

CEOs of defense contractors that it does not make a lot of sense 

that they are making now 100 times more than the Secretary of 

Defense. 

Now, I am aware that $20 million is a small part of these multibillion-dollar contracts. But I do think it sends a message. If a corporation gets the overwhelming percentage of its revenue from the 

Federal Government and gives its CEO a large salary, it tells me 

they are going to do a lot of other things to ignore the needs of taxpayers. I would like you to get back to me with some ideas as to 

how you can negotiate with these large defense contractors and tell 

them that they should not be paying their CEO 100 times more 

than the Secretary of Defense gets. That is number one. 

Number two, that leads me to the issue of defense contractor 

fraud. Since 1995, Lockheed Martin has paid over $767 million in 

fines or related settlements for 85 instances of fraud or misconduct, 

and since the year 2000, Lockheed Martin has taken in more than 

$550 billion in Federal contracts. Some of the fraud and misconduct 

that Lockheed Martin has engaged in over the past two decades includes unfair business practices, contractor kickbacks, defective 

pricing, emissions and groundwater cleanup violations, nuclear 

safety violations, Federal election law violations, procurement 

fraud, and the list goes on. In 2007, Lockheed agreed to repay the Federal Government $265 

million for overbilling on the F–35 program. And Lockheed Martin, 

I should not just point them out. They are one of many. What are 

we going to do after giving CEOs of these defense companies huge 

salaries, tell them that they cannot continue to rip off the American people? What strategy do you have to prevent future fraud? 

Is this an issue that we should be concerned about? It seems to me 

we should. 

Mr. GIBSON. Well, Senator, I think waste, fraud, and abuse is always something that should be front and center. It is my understanding in the acquisition process we have a number of policies 

that must be followed, and there are checks and balances along the 

way. 

It is my understanding Ms. Lord is focusing on this not only with 

specific contractors but across the Department. 

Senator SANDERS. Mr. Gibson, would it be fair to say that we 

have not been terribly successful up to this point, that virtually 

every major defense contractor has had to reach settlements or has 

been fined for fraudulent activities? 

Mr. GIBSON. Well, Senator, I really do not have anything to base 

an answer on, whether it is success or failure. I think—— 

Senator SANDERS. Are you concerned that virtually every major 

defense contractor—— 

Mr. GIBSON. Senator, I would say that anytime we have waste, 

fraud, and abuse, I am concerned. 

Senator SANDERS. All right. And can you tell me that this will 

be a major priority, that if a defense contractor repeatedly engages 


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in fraud—and I have just listed some of what one company did— 

that maybe they should know that they cannot continue to get 

away with that with impunity? 

Mr. GIBSON. Well, Senator, I know this is a priority of Ms. Lord, 

and I fully support and am willing to do what we can on our side 

to help her in achieving this. And I will certainly pass this along, 

your passion for this issue. 

Senator SANDERS. All right. Which takes me to the third issue. 

We talked about CEO salaries. We talked about fraud. Now I want 

to talk about cost overruns. Let me read from the GAO’s Assessment of Selected Weapon Programs, 2017: 

‘‘DoD currently has an acquisition portfolio comprised of 78 programs costing a total of $1.46 trillion. Of this total, roughly $484 

billion is due to cost growth above the original procurement estimate; $259 billion of this cost growth occurred after programs had 

already begun production.‘‘According to GAO,′′ many DoD programs 

fall short of cost, schedule, and performance expectations, meaning 

DoD pays more than anticipated, can buy less than expected, and 

in some cases delivers less capability to the warfighter.’’ 

We have got a major crisis there. What are we doing about it? 

Mr. Norquist, cost overruns. 

Mr. NORQUIST. So I think one of the challenges that you have 

with any of those programs is the disruption to the budget. If you 

are expecting a program to cost a certain amount—I am taking this 

from the perspective of CFO Comptroller—and it goes up over time, 

you are disrupting other plans and expectations you had. So we 

have organizations whose expertise is cost estimating and trying to 

bring more accurate discipline to the budgeting process so we have 

the—— 

Senator SANDERS. No, I do not think—— 

Mr. NORQUIST. Then you have—— 

Senator SANDERS. Excuse me. I do not mean to—you know, I do 

not think that is the major issue. The major issue, if I sign you— 

if I work out a contract with you, you are going to—I used to be 

a mayor, so we went out with competitive bidding. We had a contractor come in, and we are going to do the streets of the city of 

Burlington for $3 million. Then 3 months later, the guy comes in 

and says, ‘‘Well, it is going to be $5 million.’’ We do not say, ‘‘Hey, 

that is fine. It is going to impact our budgeting.’’ We say, ‘‘Sorry, 

that is not going to happen.’’ 

What are we doing to deal with these outrageous cost overruns? 

Mr. NORQUIST. I was just going to point to the—I was going to 

break down the type of challenges into three parts. 

Senator SANDERS. Okay. 

Mr. NORQUIST. So the first one is on the Government side you 

made a wrong estimate as to what the work was going to cost. 

Senator SANDERS. Right. 

Mr. NORQUIST. We can fix that, and we have organizations with 

that expertise to try and do that. 

Senator SANDERS. What do you mean, we can fix that? If I tell 

you I am going to do something for $1 billion and I come back to 

you a year later and I say it is a billion and a half, what is your 

response to me? 


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Mr. NORQUIST. So this is where we have to end up—and, again, 

we are in the contracting world, which is outside of financial management, so I apologize. The question becomes: What changed? If 

the answer was on the Government side I changed the requirement, then we think of that as requirements creep, and the answer 

is—— 

Senator SANDERS. Yes, Okay. 

Mr. NORQUIST [continuing]. Have I started to ask the person to 

do different things? 

Senator SANDERS. Right. 

Mr. NORQUIST. And then it is: Was it a necessary requirement 

change or have we—— 

Senator SANDERS. What happens if I do—what happens if I have 

changed my requirement? 

Mr. NORQUIST. Well, if it is a firm fixed-price contract, for example, in the level at which I deal with it, the answer is you bid a 

price, that is what you are going to perform it for. 

Senator SANDERS. Has the DoD done that, or have they—— 

Mr. NORQUIST. We use firm fixed-price contracts, and we hold 

the vendors—I have to defer to our lead for contracting when she 

gets to talking about cost-plus and other contracts which are particularly challenged by the type of issue you raise. 

Senator SANDERS. Is your argument that most of these cost overruns are the responsibility of the DoD who has changed the nature 

of the contract? 

Mr. NORQUIST. No, but it is one of the contributing factors. And 

so when you say what can you do about it, you can do better estimates, you can control costs, and then you hold vendors accountable. I think those are sort of the three lanes of how to break the 

problem down. 

Senator SANDERS. All right. And what happens, tell me what we 

do when somebody says, ‘‘Hey, sorry, you are going to have to give 

me more money for the same contract that I agreed to’’? 

Mr. NORQUIST. So that is the contracting officer community, and 

actually I cannot speak to that well. So I would defer to Under Secretary Lord. 

Senator SANDERS. Is that an important issue? 

Mr. NORQUIST. It is a very important issue, and so in the types 

of contracts that I deal with in the financial community, which are 

smaller, you are ending up with it is a firm fixed-price contract; 

this is what you said you were going to do; that is where we are. 

So unless it is an issue, an error we made on our side, you are held 

accountable. 

Senator SANDERS. Okay. I apologize, Mr. Chairman, but what I 

would like to get back from you is your ideas of what we can do 

about excessive CEO salaries. 

Mr. NORQUIST. Yes. 

Chairman ENZI. Thank you. I want to thank everybody for their 

questions. I want to thank you for your testimony. 

I do want to note that this is the first time that anybody has 

made this effort to do this complete audit of the Defense Department, even though it has been a requirement for, I think, 14 years. 

So congratulations on that. 


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I appreciated the comments today about needing a capital budget. I think absolutely every department in the Federal Government 

needs a capital budget. I have kind of a pet peeve on National 

Parks as I grew up in some of the National Parks. Wyoming has 

Yellowstone, which was the first National Park. And I was always 

disconcerted that they were running out of money in August and 

talking about shutting down the park, which is the main season. 

So I asked them for their list of expenditures, which they could not 

give me. But I am pleased that with pressure, after just 20 years, 

I have a list of not only Yellowstone Park but every single park in 

the United States, the facilities they have got, the age of them, the 

cost to do them, the cost of maintenance, and I am hoping we can 

continue that and get that into every department of the Government and begin to manage what we have. Having an audit is a beginning part of that. 

I am also pushing for biennial budgeting. I think that every 

agency could spend their money more effectively if they knew in 

advance—that means before October 1st or whatever date gets set 

for the beginning of the fiscal year——how much money they had 

to spend over the next 2 years. And I think there is substantial 

savings just in not trying to spend up that last amount of money 

in the last portion of each year. And I am hopeful that if we break 

it down so that we only cover half of the appropriations each year 

but for a 2-year period, we can get a lot more scrutiny into what 

we are actually buying, as well as having the people be able to 

spend things more effectively. 

Now, you gave some examples about the improved financial management in terms of costs to Senator Boozman, and I appreciate 

that. Senator Wyden asked some questions about when this process 

would have a clean audit. Of course, we are hoping for a clean 

audit much before 10 years, but the public’s understanding of a 

clean audit I think is a little bit misleading. What we are talking 

about is getting improvement to the point of perfection, and typically nobody gets to perfection. If they do, then our auditors maybe 

are not doing their job. There is always something that ought to 

be reviewed, and every business, including the military, has to 

keep reinventing itself and are because of changing conditions 

around the world. And that requires doing things differently, and 

when you start doing things differently, the audit is going to turn 

up some different things that maybe should not have happened, 

but that are correctable. And unless we do these audits—which the 

purpose of them is not to play ‘‘gotcha’’ with the Department. That 

is not what is supposed to be done with it. What it is supposed to 

do is reduce errors as much as possible and come up with better 

business plans so that the objectives for, you know, what we are 

funding actually get accomplished. 

I am the Chairman of the Budget Committee, and I am just 

floored by how much money it is that we spend. I really have no 

concept for trillions. I am still having trouble with billions, and I 

thought I had finally mastered millions, but I am not sure about 

that yet either. But we spend trillions, and that is so much money 

that there is not any business in America or in the world that handles that kind of dollars, especially every year. 


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So our challenges are before us, and this is kind of a first step, 

and I want to congratulate you for taking the effort. And I want 

to thank the Committee for the interest that they have had in what 

you are doing. And I also want to again thank you for the promptness of your response to my questions. 

Now, the hearing record will stay open so that anybody that 

wants to submit some additional questions can until close of business tomorrow, and hopefully we will get a quick response from you 

on those as well. 

So thank you very much. This hearing is adjourned. 

[Whereupon, at 12:16 p.m., the Committee was adjourned.] 

ADDITIONAL COMMITTEE QUESTIONS 

[The following submitted questions were not asked at the hearing but were answered by the witness subsequent to the hearing:] 


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ANSWERS TO THE QUESTIONS FOR THE RECORD FROM: HON. BOOZMAN, GRASSLEY AND VAN HOLLEN

BUDGET COMMITTEE HEARING: 

DEPARTMENT OF DEFENSE AUDIT AND BUSINESS OPERATIONS REFORM

AT THE PENTAGON

DATE: MARCH 7, 2018; LOCATION: 608 DIRKSEN

TIME 10:33 AM

Boozman 

1. Mr. Norquist and Mr. Gibson, you are both well aware 

of the habit we have developed of appropriating money via 

Continuing resolution. How do CRs impact your ability to 

account for the funding we provide to the Department? 

Does it complicate the process of undergoing an audit? 

Operating under continuing resolutions (CRs) for extended periods of time complicates the execution of the Department’s plan as 

the CR legislation limits funding to a daily rate of operation and 

prohibits starting new programs to include construction projects or 

increasing the rate of production for weapon systems. For fiscal 

year 8, the Department has 176 investment-related new start efforts and 27 procurement rate increases that cannot be pursued 

under a CR given the restrictions of the legislation. Limiting available funding to a daily rate of operation and last year’s funding levels creates inefficiencies in program execution and increased workload for the contracting and the financial communities. 

Operating under a Continuing Resolution does not stop the 

progress of the audit, but it creates a competing demand. Once 

funding becomes available, the compressed remaining timeline 

available for obligating funds increases the burden on Defense financial management and acquisition work force. 

Both the incremental nature of CR funding and the late appropriations increase the workload on the same work force that is 

working to support the audit and address findings. 

2. Mr. Gibson or Mr. Norquist, this audit will be a billion 

plus effort. Do you anticipate needing new or additional 

business IT systems to support the ongoing audit efforts? If 

so, have you already planned for those needs? 

We anticipate that we will get many findings around both our 

Enterprise Resource Planning (ERP) financial and legacy systems. 

These findings may range from implementing simple system 

change requests to deploying new tools that streamline processes. 

In some cases, expediting the retirement of legacy systems will be 

the most cost effective solution. We have planned and estimated 

the cost of legacy and ERP system fixes that we anticipate will be 

necessary over the next several years (2018–2022). However, as we 

are currently undergoing our first comprehensive audit, depending 

on the magnitude of audit findings, we will have to evaluate and 

adjust our resource needs accordingly. 

3. Mr. Gibson or Mr. Norquist, there has been a lot of discussion about how to provide more funding flexibility to 


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programs within DoD. What impact would this have on 

auditability within the Department? 

The flexibilities being discussed should not have a direct impact 

on auditability within the Department as most of these proposals 

are modifications to authorities already being used by the Department. Such flexibilities include: 

• Changing the obligation limitation on annual accounts 

during the last 2 months of the fiscal year from 20 percent to 25 percent if Congress does not enact annual appropriations bills by January 1; 

• Increasing the below threshold reprogramming authority from $15 million to $25 million for the Operation 

and Maintenance accounts; and 

• Allowing the Department to carryover a small percentage of its Operation and Maintenance funding into 

the next fiscal year as is currently allowed for the Defense Health Program 

Some of these flexibilities, however, may have a favorable indirect impact on the audit as they will allow the Military Departments and Agencies to do smarter execution, allow the Department 

to capture the savings from negotiating better prices that often occurs late in the fiscal year, and relieve some of the stress and backlog in the contracting and the financial communities. 

Grassley 

1. Please give us a snapshot of audit progress against 

milestones as of March 1st. Are the milestones being met 

across-the board? Or are you running into roadblocks? What 

is the success rate? What is the prognosis? 

At this point in the process we are achieving our milestones. The 

consolidated audit has begun as planned and we have begun responding to auditor requests received from both the DoD Office of 

Inspector General and the Independent Public Accounting (IPA) 

firms. With the leadership support of the Secretary and the Deputy 

Secretary, we are receiving the support needed from stakeholders 

outside the financial management community. We are working 

with these communities to respond to audit requests. 

The next major milestone will occur as we begin receiving audit 

findings later this year. The auditors will be inputting their findings into our tracking tool, and we will review the status of service 

corrective action plans. We will use this tool to assign priorities 

and responsibilities and track progress. Senior leaders will be held 

accountable using the audit results and their progress addressing 

findings. Going forward, we will measure and report progress toward achieving a positive audit opinion using the number of audit 

findings resolved. 

2. Is it possible that the DoD accounting systems were designed to be un-auditable, or did Mr. Harrison (Todd Harrison, Center for Strategic and International Studies) simply make an inaccurate statement? If Mr. Harrison’s assertion is inaccurate, then explain why DoD seems incapable of 


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fixing its ailing accounting systems after so many years and 

billions of dollars? 

Mr. Harrison’s comment is accurate in the sense that our legacy 

systems were not developed with audit in mind; rather, our legacy 

systems were developed to support DoD operations. As a result, we 

are focusing on retiring legacy systems and ensuring our target environment is auditable and compliant with Federal system requirements. 

As the Department invests in new business systems, we will be 

able to obtain independent auditor feedback on the system’s compliance so we can better hold vendors accountable for their solutions. 

As the auditors report findings and share recommendations based 

on industry best practice, DoD will use that feedback to help ensure any system issues are identified early on and corrected before/ 

as systems are fully deployed—helping minimize rework and avoiding wasteful spending. 

Van Hollen 

1. In the president’s budget, proposed spending on overseas contingency operations (OCO) for defense falls from 

$20 billion in fiscal year to $10 billion from fiscal year to fiscal year 8. You Stated during the hearing that the Department of Defense budget looks out until fiscal year 3, and the 

OCO funding levels that begin in fiscal year come from the 

Office of Management and Budget (OMB). You Stated that 

OMB based its estimate on the direction it anticipated for 

OCO spending over the long term. 

Given the sharp decline in proposed OCO funding after 

fiscal year 3, please explain how $10 billion was chosen as 

a placeholder starting in fiscal year 4, instead of a larger 

number more consistent with President Trump’s national 

defense strategy. What input, if any, did the Department of 

Defense provide 0MB to substantiate this $10 billion per 

year estimate? 

You are correct that the Department’s Future Years Defense Program (FYDP) only looks out until 2023. Numbers beyond that point 

are provided by OMB. 

While the OCO placeholder amounts do not reflect specific decisions about OCO requirements in any particular year, the estimate 

that future OCO costs will decline is consistent with the change in 

emphasis in the National Defense Strategy. 


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THE ECONOMIC REPORT OF THE PRESIDENT 

WEDNESDAY, MARCH 21, 2018 

U.S. SENATE, COMMITTEE ON THE BUDGET, Washington, DC. 

The Committee met, pursuant to notice, at 10:31 a.m., in room 

SD–608, Dirksen Senate Office Building, Hon. Michael B. Enzi, 

Chairman of the Committee, presiding. 

Present: Senators Enzi, Grassley, Toomey, Johnson, Gardner, 

Kennedy, Boozman, Cotton, Whitehouse, Merkley, Kaine, Van Hollen, and Harris. 

Staff present: Elizabeth McDonnell, Republican Staff Director; 

and Joshua Smith, Minority Budget Policy Director. 

OPENING STATEMENT OF CHAIRMAN ENZI 

Chairman ENZI. I will go ahead and call to order this meeting 

of the Budget Committee for the purpose of hearing an economic 

report of the President. Good morning and welcome to the hearing. 

I want to thank Chairman Hassett for agreeing to testify today 

on the Council of Economic Advisers’ contribution to the President’s 

report. The Council’s analysis of the administration’s domestic and 

international economic policy priorities is particularly relevant as 

Congress grapples with the challenging fiscal outlook. 

To keep our economy moving in the right direction, we need to 

continue working together on a pro-growth policy. These efforts are 

helping American workers, small businesses, and families. Most notably the Tax Cuts and Jobs Act we passed last year is producing 

higher wages, more dollars in workers’ paychecks, and increased 

domestic investment, not to mention a new sense of community. 

Returning investment to America is key to continued economic 

growth. Not only does it create jobs in the short term, but capital 

formation also raises productivity and exponentially increases the 

amount workers make. A more productive work force raises the 

standard of living for all Americans. The results of such growth are 

better wages, improved profits, and more reinvestment in America’s businesses and workers. It invigorates the communities. 

In the first few months of 2018, more than 300 companies have 

announced salary increases, bonuses, and/or higher 401(k) matching, benefiting more than 4.2 million workers. The Council already 

counted $190 billion in planned corporate investment attributable 

to the Tax Cuts and Jobs Act. Clearly, this investment will continue to pay dividends for all Americans. 

While the tax cuts have jump-started our economic growth, we 

must continue to make other policy changes that can contribute to 


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the Nation’s expansion. We know that regulation and structural 

unemployment reduce productivity. For this reason, Congress has 

sought to roll back many of the ineffective regulations issued by 

the previous administration, and President Trump has set a goal 

of eliminating two regulations for every new one created. So far it 

has been 22:1. 

Last year’s deregulatory actions are estimated to produce $8 billion of savings. That is $8 billion companies can reinvest in America’s businesses and workforce. It is an $8 billion boost to productivity carried through our economy, and that is just the beginning. 

This coming year’s effort will be even more effective. As we move 

forward, it is Congress’ responsibility to ensure that we continue to 

support and advance effective policies to accelerate growth. Important pro-growth legislative proposals include infrastructure investment, health care innovations, and enhanced cybersecurity. 

But as we consider new legislation, we cannot forget our Government’s continued overspending problem and the crowding-out effect 

of our massive Federal debt. Accordingly, Government investment 

in pro-growth policies must produce substantial increases in output. 

I appreciate your thorough analysis, Chairman Hassett, on how 

each of these policies is projected to affect the economy. That will 

be very useful as Congress debates the merits of such proposals 

and their effects on our balance sheet. 

Congress also must ensure that none of the policies put forward 

slows or reverses the Nation’s economic expansion. For example, a 

number of members, myself included, have serious concerns about 

punitive tariffs, especially given the threat of foreign retaliation. 

We also believe efforts to renegotiate large trade deals must be 

done with our economy’s best interest in mind and with congressional consultation. 

I look forward to discussing the positive effects of free and fair 

trade and how we can create economic growth through trade. My 

home State of Wyoming exports across the natural resources and 

agricultural sectors, and access to foreign markets is vital to our 

economy. 

Here in Congress, the Budget Committee is working to set a progrowth legislative path. Large policy proposals are often integrated 

into our work in order to accommodate implementation throughout 

the year. We will begin this discussion with how these policies affect the balance sheet, which is highly dependent on how they support or hinder economic growth. 

I look forward today to a discussion on how we can promote the 

economy, how we can create jobs, and how we can tackle our national debt. Above all, we must continue to invest in our economy 

and workers in order to address our fiscal issues. 

Chairman Hassett, I look forward to hearing your perspectives 

on proposals to strengthen the Nation’s economy. 

Senator Sanders has sent word that he will not be here. Senator 

Van Hollen, would you like to make an opening statement? 


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OPENING STATEMENT OF SENATOR VAN HOLLEN 

Senator VAN HOLLEN. Thank you, Chairman Enzi. I will just 

make a short statement. I appreciate the opportunity. And, Mr. 

Hassett, good to see you. Congratulations on your appointment to 

this position. 

I just want to start with one of the comments the Chairman 

made regarding the deficit and debt. We passed a tax proposal that 

is estimated to increase our national debt well over $1 trillion, and 

that is taking the growth numbers into account. Many of us believe 

it will be far north of that. And the question is: What do we get 

for it? And I heard the Chairman talk about some of the changes 

we have seen. 

As I look at all the graphs in your report, Mr. Chairman, we are 

pretty much on a straight-line trajectory from the economic growth 

we saw during the final 4 years of the Obama Administration, pretty much on a straight-line trajectory when it comes to job growth. 

In fact, job growth has actually declined a little bit, as your chart 

shows, as we get closer to what we believe is full employment. But 

the point is that this administration inherited an economy that was 

growing. They inherited an economy where jobs were growing. And 

as I look at the early reviews on the tax cut, what I see primarily 

is a huge benefit going to big corporations and their stockholders, 

over $220 billion in stock buybacks just this year, 2018; 35 percent 

of that stock is owned by foreign stockholders, so a lot of that 

money is going directly into the pockets of foreign stockholders. 

In my State of Maryland, over 350,000 families will actually see 

a tax increase, including mostly middle-class families, because of 

the elimination of the ability to take the SALT deduction, the cap 

on the SALT deduction. 

So as I look out at the landscape right now, it appears that, you 

know, stockholders are doing very well; workers in some instances 

are getting primarily one-time bonuses. But the amount of cash 

that is flowing to stockholders is far higher than the investment we 

are seeing in both workers and new investment, which certainly 

does not meet with the predictions that we were told about. 

So I am looking forward to the conversation, but if you look at 

the budget that came out of this Committee, it included not only 

the plan for the tax cuts, but it also included very deep cuts to 

Medicaid, over $1 trillion over 10 years, and a $473 billion cut to 

Medicare. So I have got to figure a lot of families who are out there 

looking at the overall picture are recognizing that at the end of the 

day they are going to get the short end of the stick, unless they 

are a big corporation. But I look forward to the conversation. 

Thank you, Mr. Chairman, for the opportunity to say a few 

words. 

Chairman ENZI. Thank you, Senator Van Hollen. I think you did 

an outstanding job of filling in for Senator Sanders. I will now introduce the witness. 

Our witness this morning is Kevin Hassett, the Chairman of the 

Council of Economic Advisers. Chairman Hassett has held his office 

since September 2017 and is charged with providing objective economic advice to the President during the formation of the administration’s domestic and international policy. Prior to his time as the 

Chairman of the CEA, he was an economist and scholar at the 


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American Enterprise Institute. Dr. Hassett holds a Ph.D. in economics from the University of Pennsylvania. 

For the information of colleagues, Chairman Hassett will take up 

to 7 minutes for his opening statement, followed by questions. 

We look forward to receiving your testimony. Please begin. 

STATEMENT OF THE HONORABLE KEVIN HASSETT, CHAIRMAN 

COUNCIL OF ECONOMIC ADVISERS 

Mr. HASSETT. Thank you very much, Chairman Enzi and other 

members of the Committee, including Senator Van Hollen, for your 

opening statement. Thank you for coming out on a snowy day. I 

know that there is a lot of snow expertise on this Committee. I 

guess the one dark side is that this might forever be known as the 

‘‘hat hair hearing.’’ But having hat hair is probably better than not 

having hair at all. I guess I will just have to live with it. 

I took over the job as Chairman of the CEA with a really somber 

responsibility going back to 1946 of building an organization in the 

White House that provides objective advice to the President. The 

CEA is about facts and about analysis and providing people with 

the balance of the read of the literature when we are exploring economic policy issues. 

We are also charged in the CEA with the Economic Report of the 

President—looking at things that maybe people did not appreciate 

were as big a problem as they have become in the modern economy—and I would like to focus on a few of those in my spoken 

statement. My written statement, of course, is in the record. 

I want to start with cybersecurity, the costly issue that has become more and more crucial to address. In the Economic Report, 

we find that in 2016 malicious actors inflicted over $100 billion 

worth of damage to the U.S. economy. This $100 billion estimate 

that we came up with is pretty conservative, actually, to my mind. 

Cybersecurity issues have far-reaching effects. Their seriousness 

merits a great deal of attention from policymakers. 

The administration is focused on ways to combat cyber crime and 

is encouraging public-private cooperation to reduce the risks and 

costs of such attacks. But I think there is also—we identify in the 

chapter a market failure that leads private firms, which tend to 

face risks correlated with one another, to invest less in cybersecurity than would be economically optimal. 

Turning to the health chapter, we focus on the cost of health 

care, the economic implication of persistent public health problems, 

and drug pricing. We emphasize that several factors affect health 

and health care costs, such as smoking, obesity, and opioid abuse, 

which have contributed to the unusual decline of American life expectancy for the second year in a row. I will repeat that: a decline 

in life expectancy. 

Competition and choice could improve health insurance as well 

as lower American drug prices, without undermining American 

pharmaceutical innovation. The Federal Government can also pursue policies that lead to other countries paying their fair share for 

innovations—for example, among OECD countries. Americans pay 

more than 70 percent of patented biopharmaceutical profits that 

fund drug innovation. Seventy percent. The administration is foVerDate Sep 11 2014 13:37 May 06, 2019 Jkt 000000 PO 00000 Frm 00254 Fmt 6601 Sfmt 6601 H:\GPO\PDF\OUT\35700.TXT PAT

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cused on policies that would improve health care outcomes that 

lower health care costs for all Americans. 

The report also examines the economic conditions of something 

I know every member of this Committee cares desperately about: 

the welfare of the middle class, analyzing the recent history of policies that have helped and hurt them. While the new tax law’s wage 

effects can partially reverse the stagnation of the middle class, we 

must pay close attention to the policies that contributed to the 

stagnation. The inflation-adjusted labor income of the typical 

household at the middle of the income distribution fell below what 

it was at the start of the 21st century. Compounded by past tax 

and transfer policies, the median American inflation-adjusted total 

household income from working took 9 years—9 years—to recover 

to its pre—recession level after the Great Recession. These policies 

decreased the incentive to work and worsened labor force participation and wage stagnation. We list a number of them in the Economic Report, including high corporate taxes, undermining the 

very middle-class households that they were intended to help. Reduced work disincentives and rising wages are bringing people off 

the sidelines and improving labor force participation now. 

I believe that the cyber, health, and middle-class chapters of the 

2018 report contain some of the most eye-opening new insights on 

contemporary economic issues, and I will summarize the rest of the 

chapters here. Then I look forward to taking your questions. 

The tax chapter discusses how the administration has delivered 

a policy that increases growth now and improves the well-being of 

Americans in the future. Developed countries have competed to attract business by lowering corporate taxes for years, while ours 

stayed at a standstill. The Tax Act lowered the corporate tax rate 

and reformed the Tax Code, improving America’s ability to attract 

businesses that create good jobs for our workers. Our review of the 

literature and our own modeling finds that the average household 

could get a $4,000 pay increase from the new law once the law’s 

full effects get absorbed by the macro economy. And already—we 

are keeping constant, steady track of this—over 4.9 million workers 

have received wages, bonuses, or improved benefits as of last week 

because of the tax bill. Companies have already announced investments of over $200 billion, investments like the increased growth 

in wages. 

We also modeled the effects of the individual side of the Tax 

Code, finding that it could increase GDP by 1.3 to 1.6 percent after 

10 years. If made permanent, this will add another $4.7 trillion to 

$7.4 trillion to the economy over the next decade. 

I also want to mention share buybacks. Moneys previously offshore are being sent back to the U.S., so a one-time adjustment of 

the stock of trillions of dollars of old profits that were locked in foreign subsidiaries. No economist would make the case that the 

American economy would be better off if these moneys were still 

locked offshore. Share buybacks today are not mutually exclusive 

to long-run wage gains that will accompany the capital formation 

that will come from the lower marginal tax rates. 

The deregulation chapter documents the ways in which regulations stifle productivity and prevent the creation of new businesses. 

The year 2009 marked the first time that more firms died than 


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were born in the United States since the Census Bureau began 

compiling data in 1978, and recent research shows that fewer 

younger Americans are becoming entrepreneurs than ever before. 

It is likely that regulatory zeal slowed both dynamism and overall 

growth. 

To put our overregulation into perspective, the CEA finds that if 

the U.S. regulatory environment were the same for OECD product 

market regulation as in Germany, we would increase annual 

growth by 0.1 percent per year. And so we are not talking about 

having a terrible environment or anything. We are just talking 

about moving toward modern standards of regulation. If we deregulate further to the level of the Netherlands—that does not seem 

like a really terrible idea—we could get growth at twice that rate, 

0.2 percent per year, and this is based on peer-reviewed literature. 

Liberating the economy from the burdens of regulation can unleash 

economic activity and create jobs. 

The infrastructure chapter highlights the inefficiencies of both 

our existing transportation infrastructure and the red tape that 

prevents crucial projects from getting started. Improving infrastructure should have wide bipartisan support. Polls find it has the 

support of 84 percent of Americans, with 76 percent believing it 

should be funded as the President has suggested: a combination of 

public funds, bonds, and public-private partnerships. In 2014, total 

congestion costs peaked at $160 billion, wasting 6.9 billion hours 

in delays that could have been spent doing jobs. 

Finally, the trade chapter discusses the ways in which the administration is seeking to improve America’s position. Trade has 

been beneficial but left some American communities worse off. 

I should add we have one more chapter, and I am out of time, 

and so I am skipping over some of my bullet points. 

But the outlook chapter examines the year in review and offers 

our forecast for the decade ahead. 2017 growth and real gross domestic product exceeded expectations and increased to 2.5 percent, 

up from 1.8 percent during the four quarters of 2016, and so it is 

not exactly a flat line. 

The unemployment rate has fallen to 4.1 percent, the lowest 

since 2000. Our baseline forecast is that we will have 2.2 percent 

growth between now and 2028, but that that will increase to an average of about 3 percent if all of the administration policies are 

adopted. 

With that, I thank you so much for your attention and for inviting me. It is great to be back before this Committee, and thank you 

again for inviting me. I am looking forward to your questions. 

[The prepared statement of Mr. Hassett follows:] 


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Chairman ENZI. Thank you for your testimony and for being 

here. We will now turn to questions. I think everybody knows the 

way that we do those, except that I am going to make a deviation 

this morning and call on my fellow Chairman Senator Johnson to 

see if he has any questions that he wants to ask. 

Senator JOHNSON. Well, thank you, Mr. Chairman. 

Chairman Hassett, welcome. I appreciate you braving the snow 

and putting a hat on. 

I want to talk about overregulation. From my standpoint it is the 

most significant thing this administration has done. We stopped 

adding to the regulatory burden. 

Now, in our Committee we have heard from experts and there 

are a number of studies that put the overall regulatory burden of 

Federal regulations at close to $2 trillion per year. Where do you 

put that burden? Again, by the way, if you divide that by the number of households, it is about $15,000 per year per household. I call 

it the ‘‘silent killer.’’ Most people do not really understand it, and 

so you are not getting a whole lot of credit for it. But what does 

the CEA put the regulatory burden at? 

Mr. HASSETT. You know, I would—— 

Senator JOHNSON. Is your microphone—— 

Mr. HASSETT. Stupid me. In order to give you a precise number, 

I would have to get back to you because we have reviewed the literature, and there are some estimates as high as $2 trillion. There 

are some that are about half that. And it is one of the frustrations 

that we go into in the regulation chapter, that regulation is really, 

really hard to measure because, for example, if we withdraw a regulation, the number of pages in the Federal Register can go up because we have to write the regulations withdrawing the regulations 

and so on. 

And so I think that there is a great deal of uncertainty of the 

cost of regulation, but there is no uncertainty, I think, about the 

fact that business optimism, especially small business optimism, 

has skyrocketed since the administration has put new regulations 

on hold. And that is something we have thought hard about. We 

think that new regulations have an unusually high cost, a disproportionate cost, because you know as a businessman that if we 

give you a new reg, you have got to hire lawyers and engineers to 

figure out what to do with it. The existing reg you have kind of figured out before. And so I think the fact that we have stopped the 

new regs is one reason why sentiment and growth picked up even 

before the tax bill. 

Senator JOHNSON. I will second that. You know, prior to this administration, it is about all I heard from the business community, 

is the new regulations, you know, specific ones or just generalized. 

And now they can actually concentrate on growing their business 

as opposed to looking over their shoulder, wondering which new 

regulation——you know, how much it is going to cost for a compliance officer or how something could put them out of business. So 

I think that is the most significant thing, as important as making 

American businesses more competitive tax-wise was as well. 

I do want to go back, though, because I think rather than really 

taking a look at specific numbers and data, which I like, being an 

accountant, can you just give a little economic lesson? What do 


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shareholders do with dividends? What do they do when their 

shares are purchased back by—I mean, what do they do with that 

money? Do they stuff it in a mattress? 

Mr. HASSETT. Well, there is not a lot of evidence—it is actually 

one of the first academic papers I ever wrote—that dividends increase consumption. So what it means is that when someone gets 

a dividend, then they tend to reinvest it in something else. And so 

a way to think about the economic effects of unlocking all of that 

capital that was locked offshore is that firms can send it home, and 

they are investing it. You know, we have seen that already, announcements north of a couple hundred billion, they are giving pay 

raises to people, but they are also doing share buybacks. Those 

share buybacks will likely be reinvested in other equities. It is a 

way to move capital maybe from older firms that are less dynamic 

toward newer firms that are more. 

Senator JOHNSON. So it more efficiently reallocates the capital. 

Rather than having it locked up in these C corporations, now it is 

actually being reallocated as millions of investors are literally making those reallocation decisions. 

Mr. HASSETT. That is correct. 

Senator JOHNSON. What about foreign investors? I have always 

viewed—you know, rather than foreigners buying America, I 

viewed that as, you know, foreign investors investing in America. 

Isn’t that a good thing? 

Mr. HASSETT. Yes, and thank you for that. And I think the way 

to think about it is that if the U.S. firm is repurchasing a share, 

which is a way that they do special dividends basically, that if they 

are repurchasing a share, then they are returning cash to their 

shareholders, who then reinvest. If the shareholder is a foreign 

shareholder who owns U.S. equities, he has presumably done a 

portfolio analysis that suggests some share of his portfolio should 

be invested in the U.S. And the share buyback probably does not 

change that, and so I think it is highly likely that share buybacks 

will be reinvested in U.S. equities. 

Senator JOHNSON. And, by the way, when we do run a trade deficit, isn’t the whole capital balance somewhat made up by the fact 

that foreigners then take and invest in America? 

Mr. HASSETT. Sure, the current account and the capital account 

balance, and one of the things that we talk about in the Economic 

Report is that we had set up a system where firms moved jobs offshore, moved wage increases offshore by putting their production 

over there and selling it back in here to avoid our really high tax 

rate. And so we estimate that that increased the trade deficit by 

about 50 percent because of the transfer pricing, inflated imports—— 

Senator JOHNSON. So one final very quick question. I just want 

you to confirm numbers, because the more I look at this—I know 

Wisconsin actually has a trade surplus with both Mexico and Canada. But when I look at overall total NAFTA numbers, in 1985, 

prior to NAFTA, we were exporting $136 billion to Canada and 

Mexico with a deficit of about $61 billion. Now we are exporting 

$476 billion with a $68 billion trade deficit. So, in other words, we 

increased exports, I would say because of NAFTA, or certainly after 


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NAFTA was passed, by $340 billion, and our trade deficit only increased by seven. Are those largely accurate figures? 

Mr. HASSETT. Yes, those sound like the correct numbers to me. 

Senator JOHNSON. It sounds like a pretty good deal to me. 

Mr. Chairman, thank you. 

Chairman ENZI. Thank you. 

Senator Van Hollen. 

Senator VAN HOLLEN. Thank you, Mr. Chairman. And again, Mr. 

Chairman, thank you for your testimony today. 

Back in October of last year in remarks at the Heritage Foundation, President Trump said, ‘‘If we pass this tax cut bill, the typical 

American household is going to get a $4,000 pay raise.’’ Now, I 

have seen a sprinkling of one—time bonuses. I have seen some pay 

increases. Walmart went from, I think, $10 to $11. But your own 

report on page 50, in the box, says that only 43 employers in the 

country have, in fact, raised their wages at all. 

So as we sit here today, can you name for me one U.S. company that has raised the wage of their workers by $4,000? Because we 

all know there is a big difference between getting a one-time bonus 

and something in your base pay. Four thousand dollars this year 

would be $40,000 over 10 years. So can you give me one U.S. company or corporation that has raised their worker pay by $4,000? 

Mr. HASSETT. I would have to go through our list and get back 

to you to see if there is one that is that high, but I would doubt 

it. If you look at page 49, there is a chart that shows the likely 

wage increases that come from corporate tax reductions, and these 

estimates are often based on cross-country variation, which means 

that it is a long-run estimate, maybe 3 to 5 years or something. 

And the way the wage increase happens is that the firms build factories here in the U.S. instead of over there; that increases the demand for labor here; and then—— 

Senator VAN HOLLEN. I appreciate that, Mr. Chairman, but I am 

looking at the chart, and I am looking at President Trump’s statement. I did not see a little asterisk there saying it is going to be 

down the road. So this is going to be after the next Presidential 

election, is that right? That is your prediction? We are going to 

start seeing these $4,000—— 

Mr. HASSETT. We are seeing wage increases now, but the entire 

effect does not happen in the first—— 

Senator VAN HOLLEN. But I remember a lot of our colleagues, I 

mean, I can roll back the video on the floor of the Senate. I mean, 

this was a huge talking point, $4,000 wage increases. And today we 

cannot mention—identify one company that has actually done that. 

And the reality is your own report says only 43 employers around 

the country have actually given wage increases, which is far short 

of what was advertised. 

Let us talk about stock buybacks for a second, because back in 

December 19th 2017, the incoming Director of the National Economic Council, Larry Kudlow, tweeted out—this is just as the tax 

plan was passed—‘‘Companies will invest in equipment, technology, 

plants, et cetera. Stock buybacks are not smart.’’ That is what he 

tweeted out. Do you agree with that assessment? 

Mr. HASSETT. No, I do not. I do not. I think that firms—in fact, 

I have academic papers I can send you about this where we try to 


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look at where buybacks come from. Buybacks tend to happen with 

firms that are older firms and that already have the plant that 

they want, they do not have an expanding market, and so they are 

returning the capital—— 

Senator VAN HOLLEN. So it is interesting. Larry Kudlow converted, too, after that December tweet. On March 16, 2018, he 

tweeted out, ‘‘Stock buybacks are proof of the tax reform’s success.’’ 

So in December, he said they were stupid. In March, these were 

great proof of the plan’s success. 

I want to ask you about something in your report. It goes to this 

whole question about stock buybacks and whether or not they are 

really benefiting the economy. And what you say here in the report 

on page 398 is, ‘‘Although it may be admirable for individual firms 

to thus return funds to their shareholders, the rising share of paybacks to shareholders suggests that investable funds are not being 

adequately recycled to young and dynamic firms.’’ 

Is this a rising concern of yours, the fact that we do not—we see 

a lot of money parked there that is actually not being recycled in 

these younger firms? 

Mr. HASSETT. The chart on that page refers to old data, and I 

think that the tax bill has only been there for a few months. And 

so the hope is that—so in the past, people did not really want to 

locate their new factories here because we had the highest tax rate 

in the developed world. Now they do. The people who have lots of 

cash offshore can fund the new factories with that, but many of 

them do not want to do that because they already have their full 

capacity, in which case they will return the capital to investors, 

and they will go to innovative—— 

Senator VAN HOLLEN. Mr. Chairman, as I look at that data—I 

mean, I am looking at it. You are right. Actually, in 2017 stock 

buybacks went down, and in the first 3 months of this year they 

have gone through the roof. So, in fact, you have a lot more stock 

buybacks now. We can debate this for a long time, but as of 

today—as of today, all the data you have got—who is benefiting 

more from this: stockholders or workers? 

Mr. HASSETT. You know, I think that the buybacks have gone up 

because the money was locked offshore. If you think about the economic consequences of locking the money offshore, then that hurts 

workers and it hurts the capital markets of the U.S. both. 

Senator VAN HOLLEN. But in terms of the dollar value of the tax 

cut, how much has gone to workers versus how much has gone to 

stock buybacks? 

Mr. HASSETT. The worker effect comes from capital formation, 

which happens over time. The buybacks are going to be front-loaded. 

Senator VAN HOLLEN. I would just point out again, when President Trump and lots of other folks talked about it, they did not 

have a big asterisk next to the $4,000 pay raise saying it is going 

to be after the next election. 

Thank you. 

Mr. HASSETT. Could I just respond to the asterisk point, Mr. 

Chairman? Only for 1 second. I think that nobody asserted that the 

full effect of the tax bill would be there by March. I do not think 

anyone—— 


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Senator VAN HOLLEN. If I was a typical American household, I 

would have read the President’s remarks as saying I am going to 

get a $4,000 pay increase. 

Chairman ENZI. To answer the Senator’s question, one company, Walmart, has given a $2-an-hour pay increase. If you are working 

40 hours a week for 50 weeks of the year, it comes to $4,000 in 

increase. 

Senator VAN HOLLEN. Walmart is the example people are using, 

but I go back, Mr. Chairman, to the statement in the report, which 

says 43 employers. In the entire country, 43 employers have given 

a pay increase. 

Chairman ENZI. In the first month, that is nice. 

Mr. HASSETT. It is now much higher. 

Chairman ENZI. Senator Gardner. 

Senator VAN HOLLEN. Mr. Chairman—— 

Chairman ENZI. Senator Gardner. 

Senator VAN HOLLEN. Polling shows about 2 percent. 

Chairman ENZI. Senator Gardner. 

Senator GARDNER. What I am surprised about this argument is 

it is as if the Government is now run by a bunch of Eeyores who 

are complaining about pay increases, complaining about minimum 

wage increases, complaining about increases to pension funds, complaining about deregulation that is resulting in new investments 

coming back to the United States. It is as if people believe tax cuts 

resulting in bonuses, minimum wage increases, and pension benefits are nothing but a bunch of crumbs. In fact, that has been used. 

Mr. Hassett, Chairman Hassett, do you believe that a $1,000 

bonus amounts to crumbs? 

Mr. HASSETT. No. 

Senator GARDNER. Do you believe that a pension increase, an increase in people’s pension benefits, does that amount to crumbs? 

Mr. HASSETT. No. 

Senator GARDNER. Do you believe that minimum wage increases, 

salary increases, and deregulation allowing billions of dollars to 

come into this economy amount to crumbs? 

Mr. HASSETT. No. 

Senator GARDNER. And so what we hear is this dissatisfaction 

with the American people making more money. We have seen wage 

increases. We are going to see more. In fact, there was an article 

in the Denver Post yesterday by the Associated Press that talked 

about the fact that the tax cuts are working to bring new investments, hundreds of millions of dollars into States around the country and into Colorado, resulting in more employment. In fact, we 

saw for the first time in a very long time the unemployment rate 

actually affected because more people are leaving—they are getting 

into the work force. The labor participation rate is actually increasing. Is that correct? 

Mr. HASSETT. Yes, it—— 

Senator GARDNER. Is that correct? Because people are ticked off 

that they got a bonus because it is just a bunch of crumbs? 

Mr. HASSETT. Well, the labor force participation rate is going up, 

that is correct. 

Senator GARDNER. Because more people are working, right? And 

why are more people working? 


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Mr. HASSETT. Well, to give you data on what you were just talking about—we keep, again, careful track of this——85 firms have 

offered a minimum wage increase; 46 companies have raised another wage, which would be like a permanent increase—— 

Senator GARDNER. But I guarantee—— 

Mr. HASSETT. Three hundred and thirty have given bonuses, and 

52 have increased their 401(k) contributions. That is a lot of firms. 

Senator GARDNER. You know, and, again, I had a conversation 

yesterday with a group of lumber dealers in Colorado, and Lemoine 

Dowd, a great family owned business in Boulder, Colorado, they 

have given their employees dollars back as a result of the tax cuts. 

That is probably not included in a report like this, is it? 

Mr. HASSETT. I would have to ask my staff. 

Senator GARDNER. Yes, and so, I mean, there are businesses 

around—— 

Mr. HASSETT. We are scraping the news for—— 

Senator GARDNER. But instead what we see right now, Chairman 

Hassett—let me ask you this, because what we have seen the 

Democrats unveil is legislation or at least a legislative proposal 

that would increase taxes by 19 percent. They want to increase 

taxes by 19 percent, corporate rate to 25 percent. What would that 

do to the economy if this massive tax increase were to be passed? 

Mr. HASSETT. Well, it would probably be better than what we 

had with the 35 percent rate, but it would at the margin chase capital away from the U.S., which would reduce the demand for workers and reduce wages. It is simple Econ. 101. If you want—— 

Senator GARDNER. So the tax increase that we have seen from 

our colleagues on the other side of the aisle would result in fewer 

workers, lower wages? 

Mr. HASSETT. That is correct. 

Senator GARDNER. And do you—— 

Mr. HASSETT. And fewer factories here in the U.S. Senator Gardner. Do you think that they would see the new tax dollars they are 

paying to the Federal Government, would that be crumbs to people 

around the country? Would they see that as economic pain that 

they are suffering as a result of a significant tax increase? 

Mr. HASSETT. It would not be crumbs. 

Senator GARDNER. Thank you. Thank you, Mr. Chairman. 

I understand that people are bitter that we cut taxes and that 

people are upset that we actually reduced the burden on the American people. And I understand that some people believe it is in 

their best interest to increase taxes. I just do not understand an 

economic policy that would actually take away bonuses, take away 

wage hikes, and slow American growth as a result. It just makes 

no sense to me. 

Would we be less competitive if we repealed and reversed the tax 

cuts that passed? 

Mr. HASSETT. Yes, we would. 

Senator GARDNER. And would we see capital no longer returning 

back to the United States as a result of that? 

Mr. HASSETT. Yes, it would—— 

Senator GARDNER. Do workers—you know, workers around this 

country, do they benefit from pension plans that may hold stock? 

Mr. HASSETT. Yes. 


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Senator GARDNER. And do those pension plans then benefit from 

dollars that go to them as a result? 

Mr. HASSETT. They do, and from the increase in market value of 

firms because the corporate tax has been reduced. 

Senator GARDNER. And so we are seeing benefits to the American 

people, to American workers, through rising wages, and I do not 

understand why people can be bitter about that. 

You note in your testimony that the most significant component 

of the bill was lowering our business taxes to make them competitive again. The Council has estimated that lowering the corporate 

tax rate alone would boost average household salary, as you have 

talked about. We are already starting to see these benefits in higher wages, lower utility bills. That has not been talked about, people 

with fixed incomes seeing lower utility bills and more jobs. We 

have heard opponents talk about this as crumbs. You have clearly 

said that it is not a crumb. So, obviously, the American people continue to benefit from this. 

You talked about regulations and the decrease in regulations. 

What would a 0.2 percent—like you mentioned the Netherlands, a 

0.2 percent in GDP mean if we were to reduce—continue our regulatory path? 

Mr. HASSETT. Well, it would be 2 percent over 10 years, which would give you 2 percent of $28 trillion, which is the level of GDP 

in—— 

Senator GARDNER. And so could you just—what would that—— 

Mr. HASSETT. It is a lot of money. 

Senator GARDNER [continuing]. Mean this year in jobs? What 

would that mean? 

Mr. HASSETT. Yes, so it would be an enormous amount. I guess 

I would have to have my calculator out to give you an exact number, but, $2.8 trillion divided by—— 

Senator GARDNER. Thank you, Mr. Chairman. Again, I do think 

we need to be concerned about this tax increase proposal, as you 

mentioned, because of the impact it would have on wage cuts and 

certainly more people paying taxes. 

Mr. HASSETT. Thank you, Senator. 

Chairman ENZI. Thank you. 

Senator Merkley. 

Senator MERKLEY. Thank you, Mr. Chairman. 

You have talked a lot about how wonderful these buybacks are, 

and so I am curious. What percent of the stock in America is owned 

by people, working-class families, who earn less than $80,000 a 

year? 

Mr. HASSETT. I would have to get back to you with the exact 

number, but it is a small percent. 

Senator MERKLEY. Small, like 3 percent? 

Mr. HASSETT. It could be, yes. I would have to—— 

Senator MERKLEY. In that vicinity? So if there are $227 billion 

in buybacks and it is 3 percent, then how much is that that is 

going to working-class America? 

Mr. HASSETT. The direct effect of the buyback is small for working—— 

Senator MERKLEY. Yes, what is 3 percent of 227? 

Mr. HASSETT. The indirect effect is larger. 


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Senator MERKLEY. Can you do that basic math, 3 percent of 227? 

Mr. HASSETT. Yes. 

Senator MERKLEY. How much is that? 

Mr. HASSETT. It is a small number. 

Senator MERKLEY. Small, a little over 6 billion, I think. 

Mr. HASSETT. Six billion, seven. 

Senator MERKLEY. You can do that in your head probably. 

Mr. HASSETT. Yes. 

Senator MERKLEY. Okay So a little bit over $6 billion goes to working America from those buybacks, and if there is $227 billion 

in buybacks, that means—can you subtract 6 billion from 227? How 

much is left? 

Mr. HASSETT. Okay so it is 221. 

Senator MERKLEY. Okay so $221 billion goes to the richest Americans, and $6 billion goes to workers. Now, wouldn’t it make more 

sense for working America to reverse those numbers and have $221 

billion go to working America and only have $6 billion go to the already richest Americans? 

Mr. HASSETT. So as the cost of capital is now lower, capital formation will increase. It is something that we already see in the 

data, that higher capital formation will increase workers’ wages. 

There is a big literature that looks—— 

Senator MERKLEY. Okay wait, wait. We are talking stock 

buybacks here. We will get to wages in a moment. But I think—— 

Mr. HASSETT. But it seems like you’re charactering—— 

Senator MERKLEY. Please do not interrupt me. 

Mr. HASSETT. Okay, sorry. 

Senator MERKLEY. I think most Americans would feel that if you 

have a plan designed for working America, the vast bulk of the 

benefits would go to working America, not to the richest Americans. Three percent is a very small fraction. Now, this tax plan borrowed $1.5 trillion from our children, and 

then when the benefits flow out through these buybacks, only 3 

percent goes to working America and $221 billion, as you say, goes 

to the richest Americans. And so that seems like a big price tag to 

put on our children to the already richest Americans, don’t you 

think? 

Mr. HASSETT. I think that it is better for America that that capital came home. 

Senator MERKLEY. Okay. Well, let us proceed to take a look at 

the bonuses that have been paid, because my colleagues like to talk 

about how much in bonuses is being paid. Well, let us take a look 

at it. I have got the chart right behind me here. Wow, Okay $227 

billion in corporate stock buybacks, which goes, as you say, more 

than $200 billion, maybe $220 billion of it goes to the richest Americans. Let us see down here. What do we get for workers? Five billion dollars. 

Do you think working America would be better off if working 

America got this chart, this column of $227 billion and the richest 

already—they do not need more money, they get this little fraction 

over here? Wouldn’t America be better off? 

Mr. HASSETT. We had trillions of dollars locked offshore. Those 

trillions of dollars are now coming—— 

Senator MERKLEY. I am just saying, wouldn’t the design—— 


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Mr. HASSETT [continuing]. Home, and they are—— 

Senator MERKLEY. Wouldn’t working America be better off if you 

design a tax decrease that actually helped working Americans? 

Mr. HASSETT. Well, on the individual side, you know, that did 

happen. But on the corporate side—— 

Senator MERKLEY. Okay So we clearly see that very little of the 

buyback wealth is going to working America. We are seeing very 

little of the bonuses going back to working America. And we have 

seen that very little wage increases occurred, and you have just indicated that you cannot identify a single company in the country 

that reached that $4,000 per worker increase that you were bragging about just a few months ago, and all my colleagues were echoing on the floor of the Senate. You cannot find one company in 

America that has done that. So that really is a significant problem 

when you design a plan for the richest Americans, try to sell it for 

workers, but workers get the short end on the buybacks; they get 

the short end on the wage increases; they get the short end on the 

bonuses. And it is all borrowed from our children. Isn’t that kind 

of a shameful thing to do to the next generation of Americans? 

Mr. HASSETT. Senator, I think that you have misstated what I 

said, and I certainly was not bragging. I was providing analysis. 

But, you know, I have got—— 

Senator MERKLEY. So it is just your analysis was that far off. 

Mr. HASSETT. My analysis was not off at all, Senator. My analysis—— 

Senator MERKLEY. $4,000—— 

Mr. HASSETT. Could I please finish my sentence? 

Senator MERKLEY. Please do. 

Mr. HASSETT. My analysis was that the $4,000 would come over 

3 to 5 years. I said that on television a zillion times. That is what 

our analysis in the Economic Report says. No one said that the full 

phased-in capital formation would happen by March of this year. 

Senator MERKLEY. Well, actually, a lot of people went to the 

floor, my colleagues went to the floor and said we would see this 

right away in January. In January we would see these vast wage 

increases. And we have not seen it, and we are well into the year. 

But let us turn to the infrastructure plan. So the President has 

put forward a budget that says we are going to reduce infrastructure spending by $240 billion, and then we are going to have a 

$200 billion infrastructure plan. 

Now, if I take away 240 and I put 200 back in, is that a plus 

or minus overall in terms of investment in infrastructure? 

Mr. HASSETT. The President’s infrastructure plan is to accelerate 

permit approval and to make it easier for private capital to come 

in and invest in infrastructure, something private capital—— 

Senator MERKLEY. But you acknowledge that the budget has a 

decrease of $240 billion in infrastructure? 

Mr. HASSETT. We expect that overall infrastructure spending 

would skyrocket—— 

Senator MERKLEY. No, but I am just asking about the basic 

budget. 

Mr. HASSETT. Within the budget, you are correct. 

Senator MERKLEY. Okay Thank you. I am correct. It is a minus. 

That is not infrastructure plan. Thank you very much. 


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Chairman ENZI. The Senator’s time has expired. 

Senator Toomey. 

Senator TOOMEY. Thank you, Mr. Chairman. Where to begin? 

For the record, I may be guilty of having been the Senator who 

spent more time on the Senate floor advocating this tax reform 

than anyone else. I did not measure it. It may not be true, but I 

would be up there. I can assure all of my colleagues that I never 

once said nor do I recall ever once hearing any of my colleagues 

say that the result of our tax reform would be $4,000 pay raises 

for Americans by March of 2018. 

Now, of course, I was wrong. In the case of Walmart, that exact 

thing did happen, in fact. But I did not anticipate it, did not project 

it. And part of the reason why is the way I view the mechanism 

that takes tax policy and over time results in higher wages. So I 

wonder if we could explore that a little bit, Chairman Hassett. 

Thanks for being with us today. But one of the mechanisms is a 

very straightforward mechanism that we saw that did kick in 

early, which is just the additional free cash-flow of a lot of companies that resulted from a lower tax rate was something that they 

decided made sense to share with their workers, and so we saw 

this wave of bonuses and pay raises and pension contributions. 

But it seems to me there is a more profound dynamic that I 

think we have encouraged, and that is, by lowering the cost of capital, which we have done in a variety of ways through this tax reform, especially fully expensing all capital expenditures, that is 

going to lead to not just increasing demand for workers to deploy 

that capital, to use that capital, but it is also going to make workers more productive, which is a necessary precondition for higher 

wages. But you are the Chairman and you are the expert. Could 

you tell us a little bit about how you think about the mechanism 

that takes us from the tax reform that we passed to higher wages 

for workers over time? Why does that happen? 

Mr. HASSETT. So, you know, it is very important to think about 

where wages can come from sustainably. One is increased productivity of workers from higher human capital. We could sure do a 

better job at training people and retraining people and get that 

human capital component up. But the second is that you give workers more physical capital to work with. And capital deepening’s 

contribution to productivity growth and wage growth in the last 

few years actually turned negative for the first time in U.S. history, and it turned negative for the simple reason that we were, 

with our high tax rate, chasing the capital offshore. And so now 

that the capital is coming back, if you think about it, the share 

buyback data are evidence that the capital is coming back. It is not 

just sitting in the subsidiary in Ireland anymore, it is going to 

come back, and it is going to feed either capital formation in the 

firms that had the money offshore or in the new entrepreneurial 

firms that will issue equity and then invest in America—— 

Senator TOOMEY. Just to interrupt for one quick second, and 

then I would like for you to continue. But if a company repatriates 

money that had been trapped offshore and returns that to shareholders, does that harm any worker? Is a worker hurt by that process? 


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Mr. HASSETT. No. No, it helps because what will happen is a 

shareholder will reinvest it in some other firm, which will bid up 

the demand for workers and increase wages. And that is why there 

is such strong, striking data that we talk about in the Economic 

Report linking cross-country variation in corporate tax rates to 

worker wages, because capital formation is where wages come 

from. 

Senator TOOMEY. So the data actually shows a correlation there? 

Mr. HASSETT. Sure. 

Senator TOOMEY. Yes. 

Mr. HASSETT. And that is where the $4,000 number comes from. 

It is a very modest read of the literature. I would say the average 

estimate in the literature is much larger than that. And $4,000, to 

put in perspective, Senator, in present value, it is not like you get 

$4,000 in 1 year. It is that the wages are going up, and they grow 

off the higher base. 

Senator TOOMEY. Right. 

Mr. HASSETT. So the present value is something like $8 trillion of that $4,000. 

Senator TOOMEY. My colleague from Oregon several times alluded to this idea that this is all being borrowed from our children. 

Now, as you know, the static score on the tax reform was about 

$1.5 trillion. That is compared to a current law baseline which is 

unrealistic in several respects. But compared to a current policy, 

which is a more realistic baseline, the static score was about $1 

trillion. My understanding is if our economy grows by three-or 

four—tenths of 1 percent faster than it would have in the absence 

of the tax reform, Federal revenue will actually be greater than the 

current policy baseline. Is that your view, that we are—— 

Mr. HASSETT. Yes. 

Senator TOOMEY [continuing]. Actually going to have a smaller 

deficit, not a larger deficit? Or I should say we will have more revenue, not less revenue, as a result of the tax reform? 

Mr. HASSETT. And also the debate is a little bit unfocused to an 

economist in the sense that the corporate side, as you know, once 

you net out all the international tax increases, because we made 

it harder to transfer price profit offshore, ended up netting $300 or 

$400 billion, so the $1 trillion dynamic score is, you know, mostly 

coming from the individual side. I think that the final score for the 

refundable child credit, which I think many people on both sides 

in this Committee supported, was $700 billion. So, again, are you 

robbing from children to give them a $700 billion child credit? It 

seems like it is an unfocused argument to me. 

Senator TOOMEY. Thank you, Mr. Chairman. 

Chairman ENZI. Thank you. 

Senator Kaine. 

Senator KAINE. Thank you, Mr. Chair, and I am going to continue some of the discussion, Mr. Hassett, about taxes. I am going 

to go to my good colleague from Colorado. Do not associate me with 

those who you are saying are bitter about the passage. Disappointed, yes. Many of us wanted to participate. Many of us I 

think could have made it better. Instead of doing tax reform like 

President Reagan did in 1986 where he took 10 months and got 97 

votes in the Senate because it was bipartisan, we did 41 days and 


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there was really no opportunity for those of us who have done a 

lot of tax reform to participate and make it better. 

We got a chance—Mr. Hassett, I do not know if you paid attention to this. We did get a chance to make 1-minute amendments 

on the reorganization of the American economy. And my disappointment is largely this: that it was deep and permanent tax 

cuts for corporations and modest and temporary tax cuts for individuals. And I think that is a fundamental mismatch. 

I had a 1-minute amendment that I did make on the floor, and 

I basically said this: Hey, guys, I got an idea. Let us reduce the 

corporate tax rate not to 20 but to 25—or 21 at that point, but to 

25. But let us make all the individual tax cuts permanent. And if 

you basically do that, drop the rate to 25, not 21, you can make 

all the individual tax cuts permanent, and it will reduce the deficit 

effect by about $1 trillion. And 34 Democrats voted for it. We wanted to reduce the corporate tax rate. We wanted to make the individual tax cuts permanent. We wanted to reduce the deficit effect. 

But we could not get a single Republican vote. 

It is tax time now, so, you know, Virginians are doing their tax 

returns, just like everybody. Now Virginians doing their tax returns cannot completely deduct State and local taxation, their tax 

payments. There is a limit to it. Corporations can deduct the full 

amount. They are not limited in the deductibility of State and local 

taxation. But now for the first time, we have limited individuals, 

and corporations can do it all. I just think it was a really poor balancing of relief, that we could have given significant relief to American companies versus relief that we should have given to the 

American taxpayer. 

I want to ask you this, Mr. Hassett: Did the CEA recommend to 

the President the tariffs that were announced on steel and aluminum? 

Mr. HASSETT. Senator, my job is to provide objective advice. I can 

tell you that as CEA Chair I am a principal in trade meetings in 

the Roosevelt Room, and, you know, those meetings are confidential. But—— 

Senator KAINE. Let me—— 

Mr. HASSETT. Could I just finish one sentence? Because I am not 

dodging. 

Senator KAINE. Yes, but I do not want to ask you what you 

said—— 

Mr. HASSETT. I provide economic analysis. Yes, I cannot talk 

about what I said. 

Senator KAINE. Right. 

Mr. HASSETT. But economic analysis of, for example, steel or aluminum tariffs, there has been a pretty big literature that shows 

that in the industries themselves, there is a little bit of an increase 

in employment and output, and in the downstream steel-consuming 

and aluminum—consuming industries, there tends to be a little bit 

of a loss. Those two things in the literature have been a small net 

negative. But the 232 announcement is a national security announcement, and I think that the President was elected Commander in Chief. I am not a national security expert—— 

Senator KAINE. So you basically say—— 

Mr. HASSETT. He thinks it is important to have—— 


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Senator KAINE. Let me ask you a question. 

Mr. HASSETT. Sure. 

Senator KAINE. So you basically say the literature would say net 

negative, but it might be justified by the 

President’s national security experts. Let me read—— 

Mr. HASSETT. That is correct. 

Senator KAINE [continuing]. You some quotes about this, what 

the experts have said about the proposed tariffs. ‘‘More than five 

jobs will be lost for every one gained.’’ That is the Trade Partnership. 

Council on Foreign Relations: ‘‘Trump’s steel tariffs could kill up 

to 40,000 auto jobs, equal to nearly one-third of the entire steel 

work force.’’ 

Harbor Intelligence: ‘‘Tariffs would boost production jobs by 

about 1,900, but 23,000 to 90,000 U.S. manufacturing jobs will be 

lost.’’ 

MillerCoors: ‘‘Like most brewers, we are selling an increasing 

amount of our beers in aluminum cans, and this action will cause 

aluminum prices to rise. It is likely to lead to job losses across the 

beer industry.’’ 

Our home builders: ‘‘These tariffs will translate into higher costs 

for consumers and U.S. businesses that use these products, including home builders.’’ 

Auto dealers: ‘‘Auto sales have flattened in recent months, and 

manufacturers are not prepared to absorb a sharp increase in the 

cost to build cars and trucks in America. The burden of these tariffs, as always, will be passed on to the American consumer.’’ 

Retailers: ‘‘Make no mistake, this is a tax on American families. 

When costs of raw materials like steel and aluminum are artificially driven up, all Americans ultimately foot the bill in the form 

of higher prices for everything from canned goods to electronics and 

automobiles.’’ 

The Business Roundtable: ‘‘Business Roundtable strongly disagrees with today’s announcement because it will hurt the U.S. 

economy and American companies.’’ 

And the U.S. Chamber: ‘‘These new tariffs would directly harm 

American manufacturers.’’ 

The President basically tweeted out and said it is easy, we 

should—trade wars are good, and when we have trade wars, we 

win big. Do you think trade wars are good? 

Mr. HASSETT. In the Economic Report of the President, we have 

a big trade chapter that documents stuff that to me was kind of 

surprising. As you know, I have been before this Committee before 

but not as a trade economist. And our trade deals really are quite 

asymmetric. Even Europe charges high tariffs on our stuff, much 

higher than we charge on their stuff, and China—— 

Senator KAINE. And they are announcing retaliatory tariffs last 

week. 

Mr. HASSETT. And China is stealing our intellectual property, 

and every President—you know, I have been in DC 20 years, and 

it seems like every President has talked about wanting to improve 

that situation and then failed. And President Trump is serious 

about—— 

Senator KAINE. So you think this is a good move? 


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Mr. HASSETT. Which? 

Senator KAINE. The tariffs that were just announced that I am 

asking you about. 

Mr. HASSETT. I am a team member. I support the President, and 

the 232 tariff is a national security judgment, which I am not an 

expert in, national security. 

Senator KAINE. Thanks, Mr. Chair. 

Chairman ENZI. Thank you. 

Senator Kennedy. 

Senator KENNEDY. Thank you, Mr. Chairman. Doctor, welcome. 

I am sorry I was late. 

Mr. HASSETT. Thank you. 

Senator KENNEDY. You did your graduate work at Pennsylvania? 

Mr. HASSETT. That is correct, sir. 

Senator KENNEDY. Great. Let me just ask you a couple of questions as an economist. All things being equal, do you think—who 

can spend money better: the people who earned it or a well-intentioned Government worker? 

Mr. HASSETT. The people that earned it. Usually—in fact, that 

even applies to Christmas presents. I wrote an article in the Washington Post about this once, that you should give people the money 

instead of picking a present because they will know better how to 

use it. 

Senator KENNEDY. Let me ask you some questions about a small 

business in America. Can we agree that taxes for a small business—this is true for a large business, too, but let us talk about 

a small business. Can we agree that taxes for a small business constitutes a cost of doing business? 

Mr. HASSETT. Yes. 

Senator KENNEDY. So it is sort of like insurance and labor and 

paying the utility bill. Is that right? 

Mr. HASSETT. That is correct. 

Senator KENNEDY. Okay If we were to increase the costs to a 

small business, would that help them to expand? 

Mr. HASSETT. No. 

Senator KENNEDY. When you tax something, you get less of it. 

Is that right? 

Mr. HASSETT. That is correct, usually. 

Senator KENNEDY. So if we wanted small business women and 

small business men to expand their business, we ought to help 

them control costs, preferably lower them. Is that correct? 

Mr. HASSETT. That is correct, sir. 

Senator KENNEDY. Okay. That is sort of Economics 101? 

Mr. HASSETT. And if you look at the NFIB Survey of Small Businesses, which is really a rich data source, you can see that small 

businesses have celebrated the passage of this bill and that their 

sentiment has increased dramatically over that time. 

Senator KENNEDY. Right, but, I mean, that is kind of basic economics, right? 

Mr. HASSETT. It is economics, but it is also visible in the data 

as well. Sometimes basic economics turns out to be wrong. But it 

is nice to see it confirmed—— 

Senator KENNEDY. But is that a principle that most people would 

agree is part of just basic free enterprise economics? 


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Mr. HASSETT. Yes. 

Senator KENNEDY. Okay. So unless you were in the quad throwing the frisbee during Econ. 101, you would agree with that? 

Mr. HASSETT. I think that that is correct, unless it is a Giffen 

good, which is a technical thing. 

Senator KENNEDY. Okay. 

Mr. HASSETT. But we do not have to talk about that in a Senate 

hearing. 

Senator KENNEDY. Okay. I mean, obviously, one of the purposes 

of our tax cut bill was to attract foreign direct investment, and I 

think a lot of investors looked at America and said, ‘‘God, we would 

love to do business there. They have got a stable court system, free 

society. You know, it looks like a wonderful place to live. There is 

just one problem. We do not want to pay 35 percent in taxes.’’ That 

is kind of a deterrent, isn’t it? 

Mr. HASSETT. Yes. 

Senator KENNEDY. Okay. Let us talk about infrastructure for a 

second. We moved in our Tax Code bill to a territorial system of 

taxation. Is that correct? 

Mr. HASSETT. That is correct, sir. 

Senator KENNEDY. We used to be non-territorial, correct? 

Mr. HASSETT. ‘‘Worldwide,’’ we called it, yes. 

Senator KENNEDY. Yes, We had a lot of American companies 

with business overseas that made a lot of money. They stockpiled 

it. They did not want to bring it back because they would have to 

pay 35 percent in taxes, right? 

Mr. HASSETT. Yes, that is right. 

Senator KENNEDY. So we made them a swell deal. They can 

bring it back now if they are liquid, if they are liquid overseas profits. They are going to have to pay 15 percent. Is that correct? 

Mr. HASSETT. Yes, and it was actually even a sweeter deal than 

that in the sense that if a firm located a new operation offshore, 

then they could transfer-price their profits say to Ireland and post 

a loss in the U.S. and then get a refund on past taxes in the U.S. 

So we were basically using tax refunds to build foreign factories 

under the old code. 

Senator KENNEDY. Okay How much tax money, tax revenue is 

going to be generated—roughly, just give me an answer, because I 

am going to run out of time here in a second. How much in tax 

revenue do you think will be generated by the repatriation? 

Mr. HASSETT. By the repatriation of the couple of trillion? I 

would have to pull out the line item on that. 

Senator KENNEDY. Give me a ballpark guess. 

Mr. HASSETT. 150 billion. 

Senator KENNEDY. Okay. That is a non-recurring source of revenue, isn’t it? 

Mr. HASSETT. Yes, it is. 

Senator KENNEDY. Okay. And classic budgeting says you match 

up a non-recurring source of revenue with a non—recurring expense, right? Unless you want to create a structural deficit. Is that 

correct? 

Mr. HASSETT. If you are looking at the present value, then you 

have to consider both. 

Senator KENNEDY. But that is basically correct? 


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Mr. HASSETT. Yes. 

Senator KENNEDY. Okay So why don’t we spend that money on 

infrastructure instead of dumping it into the big old black hole of 

the general fund from the Federal Government where it is spent 

on God knows what? 

Mr. HASSETT. You know, Senator, the tax bill passed with the 

support of everybody in the White House, and I respect the legislative process. They decided to do the thing exactly—— 

Senator KENNEDY. Well, we can change that, can’t we? 

Mr. HASSETT. I think moving forward, you know, especially in 

the medium and long run, as this Committee knows and as Senator 

Enzi has been a leader—— 

Senator KENNEDY. I get all that. I have not been here long, but 

I figured that part out. But, I mean, unless we——I am sorry, Mr. 

Chairman. I am going to wrap it up in a second. But unless we 

want a structural deficit, you do not put non-recurring revenue into 

your budget, for God’s sakes. My 22-year-old knows that. You 

spend it on a non-recurring expense. Infrastructure. Would there 

be something better non-recurring than infrastructure to spend it 

on? 

Mr. HASSETT. Again, if you generate economic growth with a 

lower cost of capital, then that is going to give you revenue, and 

then that revenue is recurring—— 

Senator KENNEDY. Yes, but it is not going to equal the $150 billion. We are not—— 

Mr. HASSETT. It could in present value, yes. I would be happy in 

QFRs to do some math on this. 

Senator KENNEDY. I mean, I am not trying to get you in trouble, 

but you need to talk to Secretary Mnuchin, because he keeps wanting to match up—sorry, Mr. Chairman. 

Mr. HASSETT. And I got the precise estimate of the revenue from repatriation. It is $338 billion, so I guessed a little bit low. 

Senator KENNEDY. All right. I heard the gavel. Man, this is like 

‘‘The Gong Show.’’ 

Mr. HASSETT. He is tough. 

Senator KENNEDY. I have got to stop. 

Chairman ENZI. I only let people run over by a minute. 

[Laughter.] 

Chairman ENZI. Senator Whitehouse. 

Senator WHITEHOUSE. It is when you said it was like ‘‘The Gong 

Show’’ that the gavel really came down. 

Senator KENNEDY. I know. 

Senator WHITEHOUSE. Mr. Hassett, what is a negative externality? 

Mr. HASSETT. A negative externality would be something like 

pollution, that if there was a factory—the classic example, textbook, is a factory next to a laundry that puts out dark fumes. 

Senator WHITEHOUSE. And a negative externality as viewed by 

economists is a bad thing? 

Mr. HASSETT. Yes. 

Senator WHITEHOUSE. And the customary way we respond to 

that is with regulations? 

Mr. HASSETT. Or with taxes. You could tax—— 

Senator WHITEHOUSE. Exactly. You could do a pollution fee—— 


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Mr. HASSETT. It is called a ‘‘green tax.’’ That is correct. 

Senator WHITEHOUSE. I want to just make a record here that the 

2017 Draft Report to Congress on the Benefits and Costs of Federal 

Regulations that came out under the Trump administration says 

this: ‘‘The principal findings of this Report are as follows:′′ 

Number one, ‘‘The estimated annual benefits of major Federal 

regulations reviewed by OMB from October 1, 2006, to September 

30, 2016, for which agencies estimated and monetized both benefits 

and costs, are in the aggregate between $219 billion and $695 billion, while the estimated annual costs are in the aggregate between 

$59 billion and $88 billion, reported in 2001 dollars. In 2015 dollars, aggregate annual benefits are estimated to be between $287 

and $911 billion and costs between $78 and $115 billion.’’ 

So those show very, very significant annual net benefits to those 

major Federal regulations, which I suspect has a lot to do with this 

problem of negative externalities. 

Mr. Hassett, I want to take you into health care. I do not know 

how weedsy you get on this, but I want to talk about accountable 

care organizations—does that ring a bell?—or the Medicare Shared 

Savings Program. 

Mr. HASSETT. Yes, you are getting into the weeds—— 

Senator WHITEHOUSE. Okay. This is going to be a little weedsy, 

but I want to—— 

Mr. HASSETT. Okay. 

Senator WHITEHOUSE. I want to focus on it for a reason, because 

your Economic Report criticized the accountable care organization 

effort that was a part of the Affordable Care Act, saying the ACA’s 

signature cost control provisions were ineffective and had unintended consequences, and then went on about accountable care organizations. 

So I want to make a plug for these accountable care organizations. We have one in Rhode Island. It is called ‘‘Coastal Medical.’’ 

It is a primary care provider practice. It is the family doctors, basically. It is one of the biggest providers in Rhode Island. They, before this, were trapped, as other providers were, in fee-for-service. 

You do not get any money unless you do something to somebody 

or prescribe something to somebody or call somebody in for a session with the doctor. 

Because of the ACO program, they were able to find ways to get 

reimbursed, to share the savings of driving the costs down for their 

patients. It has required changing the way that they provide care. 

They have hired people who do things like social work and case 

management. They make home visits to appropriate patients for 

various things. They have nurses on call 24/7 so if you wake up in 

the middle of the night and you feel badly, you can call their nurse 

and get a little bit of an educated decision about whether you need 

to go to the emergency room or not. 

They have hired pharmacists who are helping with pharmaceutical management, particularly of patients who take considerable numbers of pharmaceuticals. They have even hired an actuary. The head of the practice, Dr. Kurose said ‘‘Five years ago, I 

barely knew what an actuary was. Now I have one.’’ 

And all of those things have improved the care for their patients. 

Patient enthusiasm for the care that they are getting is through 


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the roof. They absolutely love it. The doctors love it. And what is 

interesting is that their per patient cost has fallen $700 since 2011. 

This is not a question of the rate of increase declining. This is an 

actual drop. 

Now, I think that is an important model, and we can perhaps 

argue about how much of the savings that have been generated 

Medicare should get versus what the doctors should get. But I hope 

that you would agree that where a change in the way doctors are 

compensated has enabled them to improve the way they treat their 

patients, and to do so in a way that has saved $700 per patient, 

that is a good indicator for cost of health care and for the direction 

of cost in health care. 

So I do not know if you have a reaction to that, but I do 

think—— 

Mr. HASSETT. Well, thank you for the plug—— 

Senator WHITEHOUSE [continuing]. If you just look at the Medicare billing piece of that and you are not looking at the endpoint, 

which is where did the actual cost of care go, you are missing the 

story. The real story is follow Coastal, drive care down by $700 per 

patient, and then we can worry about what to do with those savings. 

Mr. HASSETT. So thank you. We did, in the report, review the 

academic literature and the data, but your tip about looking closely 

at Coastal Medical is a good one. As you know, I have noticed over 

time that Rhode Island has been pretty innovative in many areas 

of public policy, and it could be that there is variation in the effectiveness of organizations and that that is a particularly good one. 

Senator WHITEHOUSE. Come visit. We will show you. 

Mr. HASSETT. But we will look carefully at it, sir, and I look forward to working with you on that. 

Senator WHITEHOUSE. Thank you. 

Chairman ENZI. Senator Cotton. 

Senator COTTON. Thank you. Thank you, Mr. Hassett, for your 

testimony today. 

I want to discuss wage growth over the last 40 years, also going 

forward. I have a chart that my trusty sidekick here will post in 

a moment, but it relates to a piece from the Harvard Business Review last October that found that since the 1970’s, wage gains have 

primarily accrued to the top earners, the richest and those with the 

highest levels of education in our country, while wages for the bottom half have been stagnant and declining. So here is our trusty 

chart. 

You can see now what I am talking about. If you have an advanced degree, over the last 40 years your wages have gone up in 

real dollars by 36 percent; college degree, 30 percent; only a high 

school diploma, it has basically been stagnant, it has declined by 

2 percent, not great; obviously, less than a high school diploma, it 

has been catastrophically bad, declined by 17 percent. 

I specifically want to discuss the input of immigration on this. If 

the supply of labor exceeds the demand of labor, does that not put 

downward pressure on wages, especially for the kinds of wages for 

labor that we tend to import in the form of immigrants or non-immigrant guest workers? 

Mr. HASSETT. The economics of that is accurate, yes. 


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Senator COTTON. Okay So the law of supply and demand is not 

repealed magically in the labor market, as some people in Congress 

seem to imply. 

Mr. HASSETT. Correct. 

Senator COTTON. Today we have about a million new immigrants 

in our country with a Green Card. The vast majority of those come 

not through employment or education based but through family reunification, mostly extended family reunification and other programs. That is one reason why the vast majority are unskilled and 

low-skilled. 

To what extent do you think the fact that the vast majority of 

our immigrants in this country are unskilled and low-skilled has 

helped explain what you see on the chart here, that we are bringing in people with—immigrants who have less than a high school 

degree or a high school degree as opposed to immigrants that have 

Stanford Business School and MIT Ph.D.s? 

Mr. HASSETT. It is certainly a factor, Senator, and there is literature on this that, you know, I would be happy to, in written correspondence with you, review. George Borjas at Harvard University 

has studied the impact of immigration on low-skilled wages and 

found pretty big negative effects. There are some other papers that 

argue with his methodology and so on. 

Senator COTTON. Yes, so what do you think about—I mean, I 

tend to admire Professor Borjas’ work, and I think he has done a 

good job of correcting a lot of the record on somewhat—what I 

would consider less rigorous academic research. What do you think 

of Professor Borjas’ work in this area? 

Mr. HASSETT. He is a great economist. But, you know, all work 

should be subject to careful scrutiny, and I would have to get back 

to you about the criticisms of the work that is—— 

Senator COTTON. Let us say if we took those million immigrants 

per year, and rather than being unskilled and low-skilled workers, 

if we had a million immigrants a year who were, say, MIT Ph.D.s 

or Stanford Business School graduates, would it relieve some of the 

pressure that Americans in this part of the income scale face? 

Mr. HASSETT. It would. It would also add to economic growth, 

and the capital formation from the tax bill, though, should very 

much help that minus 17 percent number as well. 

Interestingly, in the first taxes and wages literature that leads to the $4,000 number, Aparna Mathur and I used blue-collar 

wages, so it is actually the blue-collar wages that respond to corporate taxes because they are the ones that are using the better 

machines. And I think that we are about to see an investment explosion in the U.S. that is going to also help very much with that 

number. 

Senator COTTON. Why is that? 

Mr. HASSETT. Because the capital is going to come back to the 

U.S., people are going to build plants here, and the people running 

the machines tend to be blue-collar workers that do not have college degrees. 

Senator COTTON. I agree with that belief. But a smarter and better immigration policy that is more focused on high-skilled workers 

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vestment capital in this country would also work in tandem with 

that tax policy, correct, that help get these men and women higher 

wages? Which they get to keep more of now because of the tax bill. 

I know you all talked a lot about the tax bill this morning. 

Mr. HASSETT. That is correct, sir. 

Senator COTTON. And then, finally, since we talked mostly about 

permanent immigration, Green Card holders, I want to talk briefly 

about non-immigrant visa holders, some of the controversial programs like the H–1B program or the H–2B program. Those have 

the same—it would have the same impact on wages for people who 

are in H–2B—let us take the H–2B program, so, you know, a lot 

of landscaping, a lot of resort work, a lot of ski instructors, that 

kind of thing. Again, if you are importing more of those workers, 

it is going to put downward pressure on the wages for that kind 

of work, correct? 

Mr. HASSETT. That is correct, yes. 

Senator COTTON. In your opinion, how big is the regional or local 

effect on that? Obviously, ski instructors are not running around 

Arkansas. They are in Colorado. And resort workers tend to be in 

places on the coasts or the Great Lakes or the Rocky Mountains. 

How big an impact is the regional effect on those wages? 

Mr. HASSETT. The regional effect can be enormous, especially 

close to an unsecured border, but also because of the variation in 

the tightness of labor markets. The last I checked, for example, in 

Colorado, there is about half an unemployed worker per job listing, 

and so that No. 1 problem for firms is finding workers. But there 

are other places where that is not true. 

Senator COTTON. So that is one reason why we have so many H– 

2B workers in places like ski resorts in Colorado or beach resorts 

in North Carolina or Florida, or what have you. That is one reason 

why when you go there, you hear and meet so many people from 

Eastern European countries like Poland and Czechia and Slovakia 

and Austria and so forth who come and hand out towels as lifeguards in the summer or work on the ski lifts in the wintertime. 

Those people could also come in from Izard County or Jefferson 

County, Arkansas, couldn’t they? 

Mr. HASSETT. In principle. But one of the things that has been 

a puzzle to us as we study the current job market is that mobility 

from places that need jobs to places that have jobs is very, very low 

right now, and I think that might be related to the variation of real 

estate prices and a number of other factors. 

Senator COTTON. I know a bunch of 18-year-olds in Arkansas 

who would love to hand out towels at Palm Beach in the wintertime. 

Mr. HASSETT. It looks pretty good today as well with all the snow 

outside. 

Senator COTTON. Okay. Thank you, Mr. Hassett. 

Mr. HASSETT. Thank you, Senator. 

Chairman ENZI. I have not taken a turn yet, but I will call on 

Senator Johnson. 

Senator JOHNSON. Thank you, Mr. Chairman. 

Can you leave that up for a minute? Can you leave up the chart? 

Senator COTTON. I am going to leave the chart up. 

Senator JOHNSON. Okay. I appreciate that. 


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So I do not run out of time, I want to first ask a question that 

Senator Kaine raised about the lack of permanence in terms of individual and passthrough entity tax cuts. I obviously fought pretty 

hard for the approximately 95 percent of American businesses that 

pass through their income to the individual owner. Is that something—first of all, making those tax cuts permanent, is that something the administration would support? 

Mr. HASSETT. Yes, of course. In fact, it is a key assumption in 

the President’s budget. 

Senator JOHNSON. So it would probably be a pretty good idea 

maybe if the House and the Senate were to propose that and hopefully get Democrat support to make those tax cuts permanent. We 

obviously ran out of the static score that we were operating under 

with the budget resolution, correct? 

Mr. HASSETT. I am very grateful that it passed the Senate, and 

I understand that is difficult and depends on complicated budget 

rules. But if it was permanent, the economic effect would be higher. 

Senator JOHNSON. And the administration would absolutely support making those tax cuts for individuals and passthrough entities 

permanent? 

Mr. HASSETT. Yes. Director Mulvaney said that in this Committee room a few weeks ago as well. 

Senator JOHNSON. Good. Is there any caveat to the information 

that Senator Cotton put up on that chart? 

Mr. HASSETT. Sure. You know, even in articles that I have written that it is not clear that price indices are always measured well, 

and so I think that, for example, if you were to ask a typical person 

with less than a high school diploma in 2016 would they trade 

their consumption bundle with the consumption bundle from 1979, 

then they would say no. 

Senator JOHNSON. But, again, in terms of—— 

Mr. HASSETT. So I think the basic point is correct, but whether 

people are truly worse off than they were in 1979, I think that that 

could be related to problems in price index—— 

Senator JOHNSON. But those are accurate numbers in terms of 

wage growth? 

Mr. HASSETT. They are accurate numbers. 

Senator JOHNSON. Okay. So here is the conundrum. Like you 

mentioned in Colorado and Wisconsin, in the 7 years I have been 

a United States Senator, there is not one manufacturing plant I 

have visited—and I come from manufacturing; I have this experience myself—that can hire enough people, not even close. We developed this project taking folks from the inner city, busing them 

up to Sheboygan County, where there were 4,000 jobs just in that 

one economic zone that were going unfilled. So what is causing the 

labor shortage? 

Mr. HASSETT. Well, we believe that labor force participation is 

going to recover. The previous administration preached that it was 

all the retirement of the baby boomers, and we think that there are 

a number of other factors, including opioid abuse, that have reduced labor force participation. So I think that that is one of the 

things that is a near-term opportunity. I think that if you are in 

a tight labor market area, then one thing that you should do as an 

employer is probably advertise with, you know, targeted messages 


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for people in groups that have left the labor force, like people above 

55 and so on, to get workers back. 

Senator JOHNSON. I came under a fair amount of criticism for 

work our Committee did talking about the opioid crisis somewhat 

being funded by Medicaid where individuals use their Medicaid 

card, you know, the people that are permanently out of the work 

force in the 25-to–54 age cohort. They are using their Medicaid 

card obtaining opioids and selling those on the open market to supplement their income. Isn’t part of our problems our welfare system 

that pays people not to work, that creates the lack of mobility? 

Mr. HASSETT. There are two waves in the opioid crisis. The first 

one was really from 2000 to 2010 and was based on prescriptions, 

while the price of prescriptions was dropping a lot in part because 

of generics, but also because of Medicare Part D and expanded coverage. After 2010, it seems like the dominant factor or one of the 

dominant factors is the switch toward illegal opioids, like fentanyl, 

that are very, very cheap. So I think that there are multiple factors, but Government policy certainly is one of the contributing factors. 

Senator JOHNSON. I mean, we have really limited the number of 

work requirements in transfer payment programs, correct? 

Mr. HASSETT. Yes. 

Senator JOHNSON. Isn’t that a big problem, we literally pay people not to work? We require no work requirement? 

Mr. HASSETT. I think that work requirements that are easy to 

understand as well and apply across lots of programs, a universal 

type work requirement would be something that I think would be 

consistent with the discussions I have seen in the administration. 

Senator JOHNSON. Certainly Senator Cotton and Senator Perdue 

have been suggesting a far more merit-based immigration system, 

legal immigration system I completely support. But I would consider part of high skills, people who want to work hard as well. 

Anyway, that is all I have, Mr. Chairman. Thank you. 

Mr. HASSETT. Thank you, Senator. 

Chairman ENZI. Thank you. Thanks for being here through almost all of the hearing. I am going to have some questions now. 

Quite a few things, a few that I have to clear up some possible misunderstandings on before I get into my questions. 

There were some comments about the deductibility of taxes being 

limited. The deductibility of taxes for 2017 is not affected. 

Mr. HASSETT. It is next year, yes. 

Chairman ENZI. Everybody that is paying their 2017 taxes are 

still filing under the old laws using the old forms and do not have 

the same limitations that there will be when they file on their 2018 

taxes. 

I would also comment that there is this comment about the tax 

cuts being temporary for individuals and then permanent for companies. When we were making the decisions on that, there was a 

definite reason for that, the biggest reason being that companies 

prepare a lot longer into the future in making their economic decisions than individuals do. In fact, individuals are pretty much on 

a year-to-year basis, except with some of their investments, which 

might get into the higher income. 


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Is there a definition for ‘‘rich’’? We keep talking about what we 

are doing for the rich and against the poor. Can you tell me exactly 

where that level is? 

Mr. HASSETT. I could not, Senator. 

Chairman ENZI. I cannot either. I thought that one of the bench- marks was established at $80,000 as being—if you are below 

$80,000 you are not rich, and if you are above $80,000 you are rich 

based on some of the comments here. 

And then there were the comments about people not realizing 

these benefits yet that have been projected. Should it take a while? 

How long did you anticipate that it would be before we really saw 

differences from the Tax Cuts and Jobs Act? 

Mr. HASSETT. Yes, again, I think that the literature on taxes and 

wages that allows us to look at timing suggests that it is 3 to 5 

years. But many of the papers are long-run, which means that the 

full effect could be a little bit larger but take longer, so that there 

are papers in the chart that I waved a while ago that say there 

is $10,000, but maybe that is the full long-term effect. Say you get 

to $4,000 in the fifth year, and then you grow from there. Then you 

could imagine that—it depends on how far out you look, how big 

the effect would be. But, again, I was very clear throughout the debate about where that estimate came from and how long it would 

take, and it should not—I guess at Walmart it already did, but the 

full effect should not be there yet because it depends on the capital 

formation. And as you said, that is why the corporate tax is permanent. Capital formation is kind of a 20-year decision for a firm. 

They are deciding to locate a new plant someplace, and that takes 

a little bit of a while. A lot of the capital goods that firms would 

want to order in order to increase productivity take 6 months to get 

delivered. And so it is not something that even if they, like January 1, went crazy ordering stuff, then the odds of it being in place 

and affecting wages right now are pretty low. 

Chairman ENZI. So you did not feel compelled to do an analysis 

over what would happen because of the tax cuts in the first 2 

months? 

Mr. HASSETT. I did not, sir. 

Chairman ENZI. Thank you. 

The Economic Report describes the central infrastructure problem that we are looking at. It is clear that demand for that spending is not going to subside anytime soon. There seem to be two general options for the Committee to consider. One is reducing the 

spending to match incoming revenue or increasing revenue to 

match desired spending. Is there a better option for the economy? 

What distinctions would you make between user charges and 

taxes? 

Mr. HASSETT. I think that there are pluses and minuses from 

every approach, and we go into that in great detail in the Economic 

Report of the President. I think that the headline is that if folks 

up here get it right, then it can be a big positive for economic 

growth. And then the question is, you know, how does one get it 

right, and there are lots of different attempts to finance infrastructure across the world and across the U.S. We mention things like 

user fees and tolls in addition to the gas tax if funding is one of 

the ways—increased funding is one of the ways you want to go. 


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And I think that that is something that inevitably Congress is 

going to have to address because as we move toward higher fuel 

economy and electric cars and so on, then the gas tax is not going 

to be able to fund all the potholes that we have to fix. 

Chairman ENZI. I always note that the Simpson-Bowles plan was 

to raise the gas tax a nickel at a time for 3 years, and that would 

have put us in pretty good shape. Now I think the President is proposing a nickel a year for 5 years to get us to the same point we 

would have been at had we done that, and I have made several 

speeches on that over the period of time. But is that a specific revenue option that the administration is supporting? 

Mr. HASSETT. I know that it is something that I think is on the 

table. I think the administration—the President has spoken about 

the gas tax. That is, you know, a public record. But I think that 

in the Economic Report we explore all the options and try to 

present economic analysis that helps you decision maker decide 

what the best path is. 

Chairman ENZI. Of course, I keep referring to that as the ‘‘gas 

user fee.’’ 

Mr. HASSETT. Yes. 

Chairman ENZI. You do not drive, you do not need to pay it. But 

last week 67 Senators voted to pass a bipartisan piece of legislation 

that would help out community banks across America, and we have 

not gotten into that today. Can you tell us about the benefits the 

Council believes will come from relieving the overly burdensome 

regulations that have been placed on the Nation’s smaller banks 

over the last 8 years? And could you speak to the Council’s projection for benefits of increased financial stability, particularly in 

rural communities, when they have that greater access to credit? 

Mr. HASSETT. Right, the administration has issued a SAP in 

favor of the bill. I understand that, you know, there is ongoing negotiations with the House, and I think that, you know, respecting 

the legislative process is important. 

As for the economics, I think that one of the most striking things, 

in addition to the low wage growth, that I see in the data is the 

sharp decline in entrepreneurship in the U.S. and an especially 

sharp decline in rural areas that a Harvard professor has written 

a study that suggests it is related to the decline in community 

banks associated with big increases in regulatory costs. But I think 

that entrepreneurship in rural areas, really if you are outside of 

the top 20 big cities, it is really, really hard to be an entrepreneur 

now because you just do not have access to the relationships and 

the finance that you used to. So I think that there is a big economic 

growth upside, which is mentioned, I think, in the SAP from the 

bill like the one that is being considered in the Senate. 

Chairman ENZI. So if something like that passes, do you think 

that will have an effect on the GDP? 

Mr. HASSETT. It certainly would, and I have not done a precise 

estimate. I cannot say it is 0.1 versus 0.3 or something like that, 

but the literature suggests that the decline in community banks 

has really harmed entrepreneurship, and entrepreneurship is one 

of the factors that especially contributes to total factor productivity 

growth, which has been especially disappointing. And so I would 

guess that once we did the full entrepreneurship estimate that we 


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would potentially increase our total factor productivity growth estimate. 

Chairman ENZI. Thank you. And thank you for your testimony 

and answering the questions. We do leave the ability to ask questions open a little bit. I do not see my instructions here on how 

quickly that has to be in. Today? So by close of business today, we 

need to have any questions that anybody wants to submit to have 

answered, and we would appreciate a speedy response on that. 

Mr. HASSETT. Thank you so much for inviting me. It is a great 

honor to be here. 

Chairman ENZI. We appreciate your vast knowledge on this and 

also the concise answers you gave to the questions, which is very 

helpful, too. 

Mr. HASSETT. Thank you, sir. 

Chairman ENZI. So thank you for your testimony. The hearing is 

closed. 

[Whereupon, at 11:59 a.m., the Committee was adjourned.] 

ADDITIONAL COMMITTEE QUESTIONS 

[The following submitted questions were not asked at the hearing but were answered by the witness subsequent to the hearing:] 


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CBO’S BUDGET AND ECONOMIC OUTLOOK: 

FISCAL YEARS 2018–2028 

WEDNESDAY, APRIL 11, 2018 

U.S. SENATE, 

COMMITTEE ON THE BUDGET, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:32 a.m., in room 

SD–608, Dirksen Senate Office Building, Hon. Michael B. Enzi, 

Chairman of the Committee, presiding. 

Present: Senators Enzi, Grassley, Crapo, Toomey, Corker, Gardner, Boozman, Cotton, Sanders, Wyden, Whitehouse, Merkley, 

Kaine, Van Hollen, and Harris. 

Staff present: Elizabeth McDonnell, Republican Staff Director; 

and Warren Gunnels, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN ENZI 

Chairman ENZI. Good morning, and welcome to our hearing on 

CBO’s budget and economic outlook for fiscal years 2018 through 

2028. 

Dr. Hall, thank you for this report. As you know, this update was 

delayed from its normal release in January due to congressional activity at the end of last year. I appreciate CBO’s dedication to integrating into the final product analysis of last December’s Tax Cuts 

and Jobs Act as well as the 2018 Bipartisan Budget Act and the 

omnibus appropriations bill. It is vital that this Committee have 

the most up-to-date information in order to understand the fiscal 

impact of the policies being implemented. 

This year’s report, like so many before it, shines a spotlight on 

our country’s unsustainable fiscal outlook. Automatic spending programs like Social Security and Medicare are growing disproportionately to the revenue and outpacing the economy. 

Consider this: Automatic spending will soon consume all the 

taxes and revenues the Federal Government collects, and that is 

before one dollar goes to providing for our national defense and 

other priorities funded through so—called discretionary spending 

as part of the annual appropriations process. And 70 percent of the 

total increase in outlays over the next 10 years is from Social Security, Medicare, and net interest on America’s debt. 

Congress must come to terms with this overspending. Our Government makes promises to pay for those programs without identifying a source of funding to ensure their sustainability. Dedicated 

taxes and fees are currently paying for less than half of the total 

mandatory spending. 


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To really address this fiscal imbalance, we can either reduce 

spending or increase our projected economic growth, but preferably 

some combination of the two. The Tax Cuts and Jobs Act passed 

last year was a good first step toward growing our economy. It is 

already producing higher wages, more dollars in workers’ paychecks, and increased domestic investment. And while we may 

have disagreements over the extent of its impact on the economy, 

both the Joint Committee on Taxation and CBO have confirmed 

that the tax cuts will have a positive impact on GDP growth. 

The Budget Committee continues to work toward setting a progrowth legislative path for the upcoming year. Part of that has to 

be the process by which Congress budgets. We cannot continue to 

make last-minute deals that only add to our debt and ignore the 

structural policy changes needed for long-term sustainability or to 

spend money from the end of the 10-year period in the first year. 

The threat of a Government shutdown should not be used to increase spending, but, unfortunately, since the 2011 failure of the 

Joint Select Committee on Deficit Reduction that was created by 

the Budget Control Act, we have seen this outcome time and again, 

most recently culminating in the Bipartisan Budget Act of 2018. 

This new law raised the caps on regular discretionary spending by 

$296 billion over fiscal years 2018 and 2019. CBO estimates that 

if appropriations were to grow at the rate of inflation after 2018 

rather than returning to the Budget Control Act’s lower caps, discretionary spending would be $1.7 trillion higher over the next 10 

years than it is under CBO’s baseline. 

Many members of this Committee have supported reforms to the 

budget and appropriations process, including automatic continuing 

resolutions and biennial budgeting. Senator Cotton has proposed 

eliminating the Budget Control Act’s discretionary caps to end 

what he called the ‘‘bust—and-boom budget cycle.’’ We need to reform our budget and appropriations process to end the specter of 

Government shutdowns that lead to overspending. The truth is, 

however, that annual appropriations make up just a fraction of our 

total spending. To really address underlying problems, we need 

more time and effort put toward oversight and reducing the rate 

of growth of mandatory spending. 

Congress needs to focus more on addressing these autopilot programs in order to make them more effective and eliminate duplication. We need to set long-term goals to ensure a sustainable debtto-GDP ratio so our overspending does not ultimately bankrupt the 

country. The continued growth of our national debt is something 

this Committee and Congress needs to address. A balanced budget 

is the best outcome, but as the President’s fiscal year 2019 budget 

shows, it is getting harder and harder to produce. While the correct 

debt-to-GDP goal is debatable, I think we can all agree this report’s 

projected path approaching 100 percent over the next 10 years is 

not a good outcome. 

Dr. Hall, I look forward to your thoughts on what actions Congress could take to foster a stronger U.S. economy and reduce 

spending. 

Senator Sanders. 


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OPENING STATEMENT OF SENATOR BERNARD SANDERS 

Senator SANDERS. Thank you very much, Mr. Chairman. And, 

Dr. Hall, thanks very much for being with us again. 

Mr. Chairman, over and over again, President Trump, his administration, and many of my Republican colleagues have made the 

claim that the tax plan that was passed that gave massive tax 

breaks to the richest people in this country would magically pay for 

itself. 

On September 28th, Secretary Mnuchin, the Treasury Secretary, 

said, ‘‘Not only will this tax plan pay for itself, but it will pay down 

debt.’’ 

On October 22d, President Trump said this about his tax plan: 

‘‘If we pick up one point on GDP, that is $2.5 trillion. It more than 

pays for everything.’’ 

On December 4th, Senate Majority Leader McConnell said, ‘‘I not 

only do not think the tax bill will increase the deficit, I think it will 

be beyond revenue neutral. In other words, I think it will produce 

more than enough to fill that gap.’’ 

And, Mr. Chairman, on December 19th, you said, Mr. Chairman—see, I am quoting you. 

Chairman ENZI. Thank you. 

Senator SANDERS. That is how much I respect your work here. 

‘‘I am tired of the accusations the Republican budget hawks—and 

that definitely includes me’’—i.e., you—‘‘are willing to throw in the 

towel and accept a trillion and a half dollar deficit over the next 

10 years. I am still a deficit hawk. And here is why: Claims to the 

contrary that this tax bill will go unpaid for are based on an incomplete analysis of the tax bill.’’ 

Fair quote? 

Chairman ENZI. Fair quote. 

Senator SANDERS. Okay. Well, Mr. Chairman, the results are in, 

and the nonpartisan experts at CBO tell us that not only will the 

Trump tax plan not pay for itself, it will add nearly $1.9 trillion 

to the Federal deficit over the next 11 years, even after taking economic growth into account. And the Trump tax cut is not the only 

Republican policy that has increased the deficit and the national 

debt over the past 17 years. There are wars, there are massive increases in military spending that have added to the problems. 

So here we are, and this is a point, Mr. Chairman, that I want 

to make. When we talk about the Government, we have got to talk 

about the American people, not just the Government. We have got 

to talk about a declining middle class. We have got to talk about 

40 million people living in poverty. We have to talk about the massive level of income and wealth inequality that exists in America. 

You just talked about it, if I may say, really about the necessity, 

in your view, about cutting Social Security and Medicare. And I 

think that that is a very, very wrong idea. When you have got millions of seniors in Vermont, Wyoming, and all over this country trying to get by on $12,000, $13,000, $14,000 a year, what we should 

not be doing as a Nation is giving unbelievable tax breaks to billionaires, and then say, ‘‘Oh, we have got to cut Social Security or 

take away health care benefits from the elderly in this country.’’ 

That is a warped sense of priorities, in my view. 


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So I think when we talk about the budget, we have to talk about 

it in the broader context of what is happening in America. And 

what is happening in America is we are seeing a massive increase 

in income and wealth inequality. Does anybody here want to defend the fact that three people in America now own more wealth 

than the bottom half of the American people? Do we want to defend 

the reality that a very significant amount of new income today is 

going to the top 1 percent? 

So our job is to create an economy that works for all of us, and you do not do that, as the President proposed, by a $1 trillion cut 

in Medicaid, $500 billion in Medicare. You do not do that by cutting Social Security. What you do do is say to the wealthiest people 

in this country, who in many ways have never had it so good, you 

recognize the fact that income and wealth inequality is worse today 

than at any time since the 1920’s, you say to those people, ‘‘Start 

paying your fair share of taxes.’’ And maybe we also may want to 

think about why we are expanding, increasing military spending by 

$165 billion over the next 2 years when you have veterans in this 

country sleeping out on the street. 

So the bottom line is, Mr. Chairman, the President’s tax plan is 

not going to lower the deficit. According to the CBO, it is going to 

increase the deficit. And the time is long overdue for us to get our 

priorities right, start protecting working families and the middle 

class, not just wealthy campaign contributors. 

Thank you. 

Chairman ENZI. Thank you, and I appreciate you quoting me. 

But later, when you said that I said cut Medicare and Social Security, I have never said cut them. 

Senator SANDERS. Okay. Then what did you mean when you 

talked about entitlement programs, when you talked about those 

programs? What do you mean by that? 

Chairman ENZI. I think you missed the part about some of the 

duplication and effectiveness of making those programs, and I did 

not rule out an increase in the revenues for them. Something has 

to be done, and it needs to be a combination, is what I said. 

Senator SANDERS. All right. If I misquoted you, then I am sorry. 

But some of your colleagues, especially in the House, have talked 

about cuts to Social Security and Medicare. 

Chairman ENZI. Thank you. 

Our witness this morning is Dr. Keith Hall, the Director of the 

Congressional Budget Office. Earlier this year he appeared before 

this Committee to discuss CBO’s work and his efforts to increase 

responsiveness and transparency at the agency. This morning Dr. 

Hall will be talking to us about CBO’s latest projections and the 

challenges we face as a Nation. We look forward to receiving your 

testimony. 

For the information of colleagues, Dr. Hall will take up to about 

7 minutes for his opening statement, followed by questions. 

Welcome, Dr. Hall. Please begin. 


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STATEMENT OF THE HONORABLE KEITH HALL, PH.D., 

DIRECTOR, CONGRESSIONAL BUDGET OFFICE 

Dr. HALL. Chairman Enzi, Ranking Member Sanders, 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. My statement summarizes 

CBO’s new baseline budget projections and economic forecast, 

which the agency released on Monday. 

In the Congressional Budget Office’s baseline projections, which 

incorporate the assumption that current laws governing taxes and 

spending generally remain unchanged, the Federal budget deficit 

grows substantially over the next few years. Later on, between 

2023 and 2028, it stabilizes in relation to the size of the economy, 

though at a high level. 

As a result, Federal debt is projected to be on a steadily rising 

trajectory throughout the coming decade, approaching 100 percent 

of gross domestic product by 2028. 

Projected deficits over the 2018–2027 period have increased 

markedly since we issued our last budget and economic projections 

in June 2017. The increase stems primarily from tax and spending 

legislation enacted since then, especially the 2017 tax act, the Bipartisan Budget Act of 2018, and the Consolidated Appropriations 

Act of 2018. 

In our economic projections, which underlie our budget projections, inflation-adjusted GDP or real GDP expands by 3.3 percent 

this year and by 2.4 percent in 2019. Most of this growth is driven 

by consumer spending and business investment, but Federal spending also contributes a significant amount this year. 

Growth of real GDP exceeds the growth of real potential GDP 

over the next 2 years. This marked cyclical path in real GDP will 

occur in large part because the recent legislation provides significant fiscal stimulus at a time when there is very little slack in the 

economy. Those effects, as well as the larger Federal budget deficits resulting from the new laws, exert upward pressure on interest 

rates and prices. During the 2020–2026 period, those factors, along 

with slower growth in Federal outlays and the expiration of reductions in personal income tax rates, dampen economic growth. After 

2026, economic growth is projected to rise slightly, matching the 

growth rate of potential output by 2028. 

Between 2018 and 2028, real actual output and real potential 

output alike are projected to expand at an average annual rate of 

1.9 percent. In our forecast, the growth of potential GDP is the key 

determinant of the growth of actual GDP through 2028 because actual output is very near its potential level right now and is projected to be near its potential level at the end of the period. 

Potential output is projected to grow more quickly than it has 

since the start of the 2007–2009 recession, as the growth of productivity increases to nearly its average over the past 25 years. Nonetheless, potential output is projected to grow more slowly than it 

did in earlier decades, held down by slower growth of the labor 

force, which results partly from the ongoing retirement of baby 

boomers. 

In our projections, the effects of the 2017 tax act on incentives 

to work, save, and invest raise real potential GDP through the 


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2018–2028 period. Over the same period, the tax act is projected 

to boost the level of real GDP by an average of 0.7 percent and 

nonfarm payroll employment by an average of 1.1 million jobs. 

Our current economic projections differ from those that we made 

in June 2017 in a number of ways. The most significant is that potential and actual real GDP are projected to grow more quickly 

over the next few years. Projected output is greater because of recently enacted legislation, data that has become available after our 

previous economic projections were completed, and improvements 

in our analytical methods. 

Over the next decade, the unemployment rate is lower in our current projections than in our previous ones, particularly during the 

next few years, when economic stimulus boosts demand for labor. 

Also, both short-and long-term interest rates are projected to be 

higher, on average, from 2018 to 2023. 

Turning to the budget projections, we estimate that the 2018 budget deficit will total $804 billion, $139 billion more than the 

$665 billion shortfall recorded in 2017. In our projections, budget 

deficits continue increasing after 2018. As deficits accumulate, debt 

held by the public rises from 78 percent of GDP, or $16 trillion, at 

the end of this year to 96 percent of GDP, or $29 trillion, by 2028. 

That percentage would be the largest since 1946 and well more 

than twice the average over the past five decades. 

For the next few years, revenues hover near their 2018 level of 

16.6 percent of GDP in our projections. Then they rise steadily, 

reaching 17.5 percent of GDP by 2025. At the end of that year, 

many provisions of the 2017 tax act expire, causing receipts to rise 

sharply—to 18.1 percent of GDP in 2026 and 18.5 percent in 2027 

and 2028. They have averaged 17.4 percent of GDP over the past 

50 years. 

In our projections, outlays for the next 3 years remain near 21 

percent of GDP, which is higher than their average of 20.3 percent 

over the past 50 years. After that, outlays grow more quickly than 

the economy does. That increase reflects significant growth in mandatory spending, mainly because the aging of the population and 

rising health care costs per beneficiary are projected to increase 

spending for Social Security and Medicare, among other programs. 

It also reflects significant growth in interest costs, which are projected to grow more quickly than any other major component of the 

budget, the result of rising interest rates and mounting debt. By 

2028, net outlays for interest are projected to be roughly triple 

what they are in dollar terms this year, roughly double when measured as a percent of GDP. In contrast, discretionary spending is expected to decline in relation to the size of the economy. 

For the 2018–2027 period, we now project a cumulative deficit 

that is $1.6 trillion larger than the $10.1 trillion deficit that we anticipated in June. Projected revenues are lower by $1 trillion, and 

projected outlays are higher by half a trillion. 

Laws enacted since June 2017—above all, the three mentioned 

earlier—are estimated to make the cumulative deficit $2.7 trillion 

larger than previously projected between 2018 and 2027. However, 

revisions to our economic projections caused us to reduce our estimate of the cumulative deficit by $1 trillion over the same period, 

mainly because of the expectations of faster growth in the economy 


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and in wages and corporate profits. Other changes had relatively 

small effects on the projections. 

CBO also analyzed an alternative scenario in which current law 

was altered to maintain major policies that are now in place, so 

that substantial tax increases and spending cuts would not take 

place as scheduled under current law, and to provide more typical 

amounts of emergency funding than the sums provided for in 2018. 

In that scenario, far larger deficits and much greater debt would 

result than in CBO’s current baseline projections. Debt held by the 

public would reach about 105 percent of GDP by the end of 2028, 

an amount that has been exceeded only once in the Nation’s history. Moreover, the pressures contributing to that rise would accelerate and push debt up even more sharply in subsequent decades. 

Such high and rising debt would have serious negative consequences for the budget and the Nation; in particular, the likelihood of a fiscal crisis in the United States would increase. 

I appreciate the invitation to testify today about CBO’s budget 

and economic outlook. I would be happy to answer questions. 

[The prepared statement of Dr. Hall follows:] 


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Chairman ENZI. Thank you for your testimony and even more for 

the expanded documents that you do to help us to know where 

things are going. 

We will now begin a round of questions, and I think everybody 

knows how we alternate back and forth, and it is based on being 

here at the sound of the gavel or arrival since that time. So I will 

begin my questions. 

The Tax Cuts and Jobs Act has already stimulated the economy, 

putting more dollars in the hands of hardworking Americans and 

businesses for investments. As we look forward to the reduction in 

the business tax rates, they are incentivizing more work and higher investment. And I noticed in your chart on Table 2 that revenues grow every single year. I noticed that outlays grow every single year, too, and more substantially than revenues do, which is 

the problem that we need to solve. 

Can you expand on the expected individual and business response to the tax bill in the medium term? 

Dr. HALL. Sure. We have forecasted that the tax act will encourage savings, investment, and work. The reduction in the lower tax 

rates and the bonus expensing we think will lower the user cost of 

capital, increase investment in the economy, and boost GDP 

growth. We also see that the effective marginal tax rates on labor 

income is also down. We think that will increase labor force participation, hours worked, and increase employment throughout the 10- 

year period. 

We also think that the reduction in effective marginal tax rates 

on both capital and labor will have a significant effect, and I think 

our average boost to GDP over the 10—year period is 0.7 percentage points higher over the 10-year period because of the tax act. 

Chairman ENZI. Excluding intergovernmental transfers and 

counting only income from sources outside the Government, such 

as Social Security payroll taxes and Medicare premiums, you estimate that the trust fund programs will add to the deficits through 

the 2019–2028 period by amounts that grow from $655 billion in 

2019 to $1.5 trillion in 2028. These trust fund programs will add 

a total of $10.2 trillion to the deficit over the 10-year budget window. 

Is the current trajectory of these programs fiscally sustainable? 

And without legislative action, which year do you project that the 

Social Security Disability Trust Fund and Medicare’s Hospital Insurance Trust Fund will be exhausted? Not that I am suggesting 

cuts in those. I am suggesting solutions. 

Dr. HALL. Well, the aging of the population and the rise in 

health care costs we think will—are the major forces driving the 

big increase in the deficit over the next 10 years and beyond. That 

is exactly right. The Health Insurance Fund, for example, we think 

is going to run out of money in 2026. We have not re-estimated the 

Old Age and Survivors Insurance Program, but our last estimate 

was that that will be exhausted in 2031. 

Chairman ENZI. Thank you. The latest baseline includes more than $14 trillion in discretionary spending over the next 10 years. 

While the Armed Services Committee is able to authorize its spending each year, many of the nondefense programs remain unauthorized, a problem that persists. I know that CBO prepares a report 


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each year on unauthorized appropriations, but this year it was released prior to final appropriations being enacted. 

Assuming defense continues to be authorized on an annual basis, do you have an estimate of what portion of this $14 trillion in your 

current baseline is unauthorized? 

Dr. HALL. We really do not. The last estimate we did was 2016, and it was a pretty large number. It was about $310 billion. We 

have not updated the estimate. We do not really want to forecast 

too much because, obviously, Congress decides what to authorize 

going forward, so that number could change. 

Chairman ENZI. Okay. I think we will be interested in getting 

that number, anyway. 

Dr. HALL. Okay. 

Chairman ENZI. The Tax Cuts and Jobs Act made the corporate 

rate permanent to ensure long-term investment decisions that businesses have to make over the show the U.S. as a competitive market. 

Dr. Hall, does the lower statutory corporate rate encourage firms 

to locate their establishments domestically? 

Dr. HALL. Yes, we do believe that the overall effect of the tax act 

is to make the U.S. a more appealing location for business activity. 

So we actually do see that the reduction in corporate rates and 

some of the changes in the international tax system will boost investment and actually increase investment in the United States 

from abroad. 

Chairman ENZI. Thank you. My time has expired. 

Dr. Sanders. 

Senator SANDERS. Thank you for the doctorate. 

Chairman ENZI. Sure. 

[Laughter.] 

Senator SANDERS. I barely made it through college, though. 

Dr. Hall, as you know, President Trump and some of my Republican colleagues said over and over again that the tax cut bill would 

pay for itself. On page 128 of your report on the budget and the 

economy, however, the CBO projects that the Trump tax plan will 

increase the deficit by nearly $1.9 trillion over the next 11 years. 

Is that correct? 

Dr. HALL. That is correct. 

Senator SANDERS. Okay. So, my friends, at the end of how many 

hours we have sat in this room hearing about the benefits of trickle-down economics that magically, if you give tax breaks to billionaires, it is going to create all the growth, and tax revenues will increase to overcome the deficit, turns out not to be true. 

Dr. Hall, President Trump, among others, has claimed that—this 

is a quote from Trump—‘‘The rich will not be gaining at all with 

this tax plan.’’ But according to the Tax Policy Center, by the end 

of the decade, 83 percent of the benefits of the Trump tax plan go 

to the top 1 percent and 60 percent of the benefits go to the top 

one-tenth of 1 percent. Is that roughly accurate? 

Dr. HALL. I think that is their estimate. We have not done a 

similar calculation, though. 

Senator SANDERS. So, in other words, what we are talking about 

is a tax plan that significantly grows the deficit and almost all of 

the benefits go to the very, very wealthiest people in this country. 


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One of the issues that concerns me is that what we are seeing 

happening to working families all across this country—and, Dr. 

Hall, I do not know if you have even seen it, but a report came out 

literally today from the Bureau of Labor Statistics, and the report 

tells us that the average worker in America has seen zero wage 

growth over the past year after adjusting for inflation. 

In March 2017, the typical non-manager in America made about 

$22.60 an hour. In March 2018, that same worker made the same 

$22.60 an hour. Does that sound roughly right to you. 

Dr. HALL. It does sound roughly right, yes. 

Senator SANDERS. So what I would say—and, Dr. Hall, while we 

are at it, talk a little bit about income and wealth inequality. Is 

it true, based on your understanding, that the three wealthiest people in this country now own more wealth than the bottom half of 

the American people? 

Dr. HALL. That I do not know. We did just release a report. I do 

not have the numbers in my head. We did just release a report in 

the past few weeks, actually, about income inequality that is worth 

looking at. 

Senator SANDERS. Okay. Well, we will do that. 

My colleague from Wyoming, the Chairman, talked about Social 

Security and Medicare. I introduced legislation that would lift the 

cap on taxable Social Security income for people making $250,000 

a year or more. Now, everybody is concerned about the financial future of Social Security. That is a legitimate concern. 

Correct me if I am wrong here, but according to the Social Security Administration, if you lift the cap on income of $250,000 or 

more, which is just the very highest income earners in this country, 

Social Security will be solvent for the next 60 years, and we can 

increase benefits for lower-income Social Security beneficiaries. 

Does that sound right to you? 

Dr. HALL. I do not know if that is true or not. I have not looked 

at—— 

Senator SANDERS. According to the Social Security Administration. So for all people who are concerned about the solvency in Social Security, the answer is not to cut benefits, but at a time of 

massive income and wealth inequality, to ask the people on top to 

start paying their fair share of taxes so that we can protect the 

many, many millions of people today who are struggling to keep 

their heads above water in my State, and I am sure in every State 

represented in this room. And we do not talk about this enough. 

Mr. Chairman, it might be worth a hearing on this. You have got 

a lot of elderly people who are cutting their prescription drugs in 

half, cannot afford the medicine that they need, cannot afford to 

keep warm in the wintertime. We have a real crisis in terms of 

poverty among elderly people in this country, and the answer is not 

to be talking about cutting Social Security or Medicare. The answer 

is to be strengthening those programs through a fairer tax system. 

Thank you very much, Dr. Hall, and thank you, Mr. Chairman. 

Chairman ENZI. Senator Grassley. 

Senator GRASSLEY. Thank you for your work, Director Hall. 

Sorry that there is such a bleak picture painted. Having the public 

debt go from 78 percent to 96 percent of gross national product is 


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not very good news. I hope Congress thinks about the impact on 

our children and grandchildren with that debt and deficit. 

My colleagues on the other side of the aisle want to make this 

all about revenue and the historic tax cuts that we enacted. I think 

that that completely disregards the positive economic effects of 

these reforms that I think you pointed out in your exchange with 

the Chairman. 

So my first question is kind of carrying on where the Chairman 

left off: Is it not accurate, based on your analysis, that the tax reforms enacted last year will increase economic growth, lead to 

lower unemployment, increase hours worked, increase capital investment, and increase wages? 

Dr. HALL. Yes, those are all true. 

Senator GRASSLEY. So then I have to conclude that when Democrats say that they want to repeal tax reforms, they are really telling the American people that they want fewer jobs and lower 

wages, and no American is going to think that is acceptable. 

Based on your analysis, how would allowing the individual tax 

reforms to expire after 2025 impact the economy? 

Dr. HALL. Well, we think that would be sort of the opposite of 

stimulus. We actually do think it will help slow growth. One of the 

reasons we did the alternative scenario was to assume that some 

of those things like the tax rates do not expire and they continue, 

to give you an idea of that. 

Senator GRASSLEY. Okay. Instead of asking a question, unless 

you disagree with this percentage, I am going to say that revenue 

as a percentage of GDP has averaged 17.4 percent over the last 50 

years. According to your analysis, what will revenue as a percentage of GDP be in 2025, which is prior to the expiration of the individual tax reforms? 

Dr. HALL. I forget the number. I think it is somewhere north of 

18 percent of GDP, so it is a bit higher. 

Senator GRASSLEY. Well, if you are saying north of 18 percent, 

then that is even better than what I thought it was going to be, 

17.5. So even with the tax cuts enacted last year fully in effect, revenue as a percentage of GDP will exceed the historic average. 

Dr. HALL. That is right, and I did misspeak. I got the year 

wrong. You are right, it is 17.5 percent in 2025. I was looking at 

the next year. 

Senator GRASSLEY. Now, turning to spending, is it correct that 

over the past 50 years spending has averaged about 20.3 percent 

of GDP? 

Dr. HALL. Yes. 

Senator GRASSLEY. And what do you project spending to average 

over the next 10 years as a percentage of GDP? 

Dr. HALL. I do not have the number right in front of me, I am 

sorry, but it is something north of 21 percent. 

Senator GRASSLEY. Yes, I think quite a bit north. 

Dr. HALL. Okay. 

Senator GRASSLEY. I do not know whether these figures come 

from you, but I have down here 22.4, reaching 23.6 in 2028. 

Dr. HALL. That sounds right. I am sure that is—— 

Senator GRASSLEY. And what are the primary drivers of spending 

growth? 


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Dr. HALL. Well, the primary drivers are things related to the 

aging population and health care costs. So it is things like Medicare, Medicaid, and the entitlements because of the aging population. 

Senator GRASSLEY. And I think I agree with that. I do not know 

whether these percentages are accurate, but they take up 12.9 percent of GDP today, and that is going to go up to 14.9, while discretionary spending, that part that we appropriate every year, is projected to fall 1 percentage point. 

So, in sum, revenues, even with tax cuts, will remain on a par 

with historic averages, but spending is set to increase significantly 

over historic norms. It seems to me that if we are going to get control of our growing debt and deficits, our focus needs to be on the 

spending side, particularly mandatory spending programs. 

I yield. 

Chairman ENZI. Senator Wyden. 

Senator WYDEN. Thank you, Mr. Chairman. Dr. Hall, good to see 

you again, and your professionalism is always appreciated. 

Here in this room, a bipartisan tax reform bill was produced by 

then-Chairman Judd Gregg, and I was proud to be one of the sponsors of it. Our approach would have put the bulk of the tax relief 

into the pockets of the middle class rather than the multinational 

corporations. Unfortunately, our colleagues on the other side rejected that bipartisan approach, and others, and decided to put the 

massive tax cuts for the multinational corporations on the national 

credit card. So let me keep you clear of politics and let us just walk 

through a couple of numbers so we can be clear about this. 

In the updated outlook, you all estimate that the Trump tax law 

is going to increase the deficit by almost $1.9 trillion over the budget window, even after taking economic feedback, economic possibilities into account. Nearly $600 billion of that cost is due just to bigger interest payments on all this new debt. 

So here is my question, and just apropos of the numbers: Besides 

slashing Social Security, Medicare, and Medicaid, I do not know 

where else Republicans could possibly go to pay for this $1.9 trillion in debt largely going to the multinational corporations. In fact, 

when I sort of strip the budget down, it would seem to me that cutting the defense budget would be the only other realistic option. 

What is missing here with that analysis? 

Dr. HALL. Well, you know, I do not want to make recommendations, I suppose, on how to fix the problem. 

Senator WYDEN. I do not want you to. I just want to hear—I 

mean, I guess when I looked at it last night, I said maybe they 

could cut everything discretionary like NIH, and we would lose the 

prospects of research. But, basically, other than the Defense Department and cutting that, where else would they go or could they 

go other than Social Security, Medicare, and Medicaid? 

Dr. HALL. I actually have one of my favorite figures here that 

gives you a little bit of insight from the report, Figure 4.3. Right 

now net interest alone is about 1.6 percent of GDP, and that number is going to triple, just the net interest payments is going to triple over the next 10 years, and that will become about 3.1 percent 

of GDP. That is bigger than all of defense spending, discretionary 

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ing. So my point is that the interest cost is starting to just swamp 

things like defense spending and nondefense spending. So whatever 

the fix is going to be, it needs to be something that is pretty big. 

Senator WYDEN. So you cannot just wave your hands and sort of 

throw up fairy dust and say you are going to drive down the debt. 

I am just looking at three ranges of kind of numbers. One of them, 

when you have that amount of debt, is—and this is where I think 

they are going, is Social Security, Medicare, and Medicaid, and I 

base that on their budget proposal for this year. Then I think you 

could wipe out the discretionary budget, NIH and parks and the 

like. But I cannot see any other budgetary real estate. 

I know my time is almost up. Can you give me some examples 

for other possibilities than what I mentioned? 

Dr. HALL. Well, I think looking at that figure, it gives you some 

idea of sort of where the buckets are. But even that is sort of underestimating the problem because that is just the interest cost. 

That is just getting a deficit down toward zero. We then would 

have a huge amount of debt sitting out there. So I think the problem is even more extreme than that. 

Senator WYDEN. Well, I am not going to pummel this any longer, 

and you have certainly made a very good point with respect to the 

debt. But when the growth projections are nowhere near what was 

promised, No. 1, the middle class are not seeing what they were 

told they were going to get, which was a $4,000 pay raise, and the 

middle class drives 70 percent of the American economy, I do not 

see how growth is going to get you close to paying for that $1.9 trillion that was put on the credit card, and it still leaves us with a 

safety net and defense, unless you want to cut the discretionary 

programs, and I do not see that being proposed either. So I will 

look forward to talking with you about this more, and I certainly 

share your view about the debt. 

Thank you, Mr. Chairman. 

Chairman ENZI. Thank you. 

Senator Corker. 

Senator CORKER. Mr. Chairman, thank you. And, Dr. Hall, thank 

you for being here. I have several committee assignments, like 

most people here, and this has nothing to do with our leadership. 

I find this to be the least serious Committee that I serve on, but 

we thank you for being here today. And it seems like it is always 

sort of a partisan, whoever is in charge, tit for tat. None of us have 

covered ourselves in glory. This Congress and this administration 

likely will go down as one of the most fiscally irresponsible administrations and Congresses that we have had. 

My best vote, one of the best votes I have made here was the 

Budget Control Act of 2011, and we did not finish the work by leaving in the sequester, by making the cuts that needed to be made. 

I was not on the special committee. I do not know if anybody here 

was. But we did not finish our work, and so we ended up with a 

sequester. But it was the best vote that I have made in that we 

at least capped domestic spending for a period of time. It would 

have been better if we did our work. 

You have talked about the cost of this tax bill, and if it ends up 

costing what has been laid out here, it could well be one of the 

worst votes I have made. I hope that is not the case, and I hope 


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there is other data to assist, whether it is jobs or growth or whatever, but I want to get back to that in a moment. 

But the thing that is never talked about here is we—the bipartisan budget—Maya MacGuineas’ group just did an analysis on the 

bipartisan budget agreement that we just passed. You did not do 

that in your papers because it had just happened. But I think you 

are saying that the tax bill could add $1.9 trillion in debt over the 

next 10 years. The spending bill that we just passed, if policy continued, would be $2.1 trillion. Would you say that what we did in 

fairness, passing the spending bill we just passed, would add about 

the same order of magnitude of indebtedness over a 10—year period as the tax bill? 

Dr. HALL. Yes, actually, we do have a bit of an estimate. I think 

the add to discretionary spending from those two bills is about 

$650 billion over 10 years. 

Senator CORKER. The what? 

Dr. HALL. The Bipartisan Budget Act and the omnibus, they 

combine to add about $650 billion to the deficit over 10 years. 

Senator CORKER. Not under current policy. 

Dr. HALL. That is under—— 

Senator CORKER. Surely do not tell me that, or you are going to lose all credibility. $650 billion in debt, current policy over what we 

just passed? 

Dr. HALL. Yes. About $305 billion of that is from exceeding the caps, and then another $330 billion to spending not subject to the 

caps. 

Senator CORKER. So if you add $150 billion a year in spending over 10—we added $150 billion to the baseline, did we not? 

Dr. HALL. You mean in—— 

Senator CORKER. We just added $150 billion to the baseline. How 

could you multiply that by 10 and come up with $650 billion? I 

mean, with any growth at all, it is going to be in the $2 trillion 

range when you include debt service. 

Dr. HALL. Right, right. If you look at Table A–1, we have got the 

change, changes in our budget forecast since June 2017. If you look 

under discretionary outlays, you will see that we have a forecast 

here of discretionary outlays adding around $650 billion to the deficit over the 10 years that did not exist before. 

Senator CORKER. If you keep current policy in place? 

Dr. HALL. Right. That is right. 

Senator CORKER. I want to followup with you on that. 

Dr. HALL. OK, sure. 

Senator CORKER. That cannot be accurate. I mean, you just do 

the math, you add $150 billion to the baseline, you multiple it by 

10, it cannot be accurate. 

But, anyway, the point is that we have had both spending that 

has increased the deficit and tax reform that has increased the deficit. Is that correct? 

Dr. HALL. That is right. 

Senator CORKER. So, really, we have had both sides of the aisle— 

the only three people on this Committee that have not been involved in increasing the deficit over the last 15 months are Senator 

Harris, Senator Sanders, and Senator Merkley. And I do not think 

it is because they are fiscal conservatives. I think it is because they 


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did not agree with the priorities that were in these bills. But they 

are the only three that have not participated in increasing the deficit. We all have participated. I voted against the spending. Some 

of you voted against the tax bill. But let us face it, I mean, both 

sides of the aisle are totally remiss as it relates to deficits. And, 

I mean, I listen to this partisan bickering over blaming people. It 

is ridiculous. We are absolutely not capable of dealing with our 

country’s finances. And, of course, a big part of it is the American 

people do not really want it to be controlled. 

I want to get back with you on the numbers, and I know my time 

is up. The thing that is confusing to me, I noticed that—and I will 

close with this—On page 117, you have got the growth at 0.7 percent, an average increase growth of 0.7 percent over the 10-year period. And we were looking at an average growth increase of 0.4 percent paying for this bill that was passed, the tax reform bill. And 

I am just confused as to whether that is just a seven-tenths increase in the baseline and there really is not that much growth. I 

am confused over that, so I want to get back to you on that. I know 

my time is up. 

Dr. HALL. One thing that might be confusing you, that is a level. 

So we think GDP on average the level would be seven-tenths higher over 10 years on average. 

Chairman ENZI. Senator Van Hollen. 

Senator VAN HOLLEN. Thank you, Mr. Chairman. And, Dr. Hall, 

I want to start by thanking you and your team for your nonpartisan, professional work. And as your report clearly indicates, 

the claims that the recent tax cut would pay for itself were pure 

fantasy. You indicate here that even with additional economic 

growth, the debt will increase by close to $2 trillion over 10 years. 

I want to dig down a little bit into the different impact this tax 

bill has on gross domestic product versus gross national product, 

because both are measures of our economy, but am I correct in saying that gross national product is a better measure of the income 

that comes to the people of the United States? 

Dr. HALL. That is right. Gross domestic product focuses on where 

things are made, and gross national product focuses on who gets 

the income from what is made. 

Senator VAN HOLLEN. Right. So to the extent that the Republican tax law boosts gross domestic product more than gross national product, it is because some of that income from increased 

economic activity is flowing to foreigners instead of Americans, 

right? 

Dr. HALL. Right, and one of the big reasons is the big increase 

in borrowing that we are having to do, both privately and publicly. 

It is coming from abroad, so when you borrow money, you owe interest payments, and those interest payments are income that flow 

out of the country. 

Senator VAN HOLLEN. Right. And it is also a fact that if you look 

at the stock of American companies, 35 percent of that stock is currently owned by foreigners, so when there is a stock buyback, that 

is money that flows directly into the pockets of somebody overseas, 

non-Americans. 

In fact, if you dig into your report, you find that by 2028, CBO 

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uct by 0.5 percent but boosts gross national product by only 0.1 

percent. Is that right? 

Dr. HALL. That is correct. 

Senator VAN HOLLEN. All right. So doesn’t this mean that roughly 80 percent of the income from the increased activity of the tax 

plan in the final year when it has fully kicked in is going to foreigners? 

Dr. HALL. I am not sure I would characterize it that way, but I 

get your point about—— 

Senator VAN HOLLEN. Well, Dr. Hall, you just said that GDP is 

a measure of the total economy, and the difference between GNP 

and GDP is the amount that is going to foreigners. 

Dr. HALL. Sure. 

Senator VAN HOLLEN. So you are finding that GDP is growing a 

lot faster in year 10 than GNP, right? 

Dr. HALL. That is right. 

Senator VAN HOLLEN. And, in fact, it is five times faster, right? 

Dr. HALL. Right. 

Senator VAN HOLLEN. All right. So I just want to be clear, Mr. 

Chairman: 80 percent of the benefit of increased economic activity 

from the tax law is going into the pockets of foreigners. So every 

dollar of increased economic activity in 2028, 80 cents of that is not 

going into the pockets of hardworking Americans that the Chairman referred to. It is going into the pockets of foreigners. Right? 

Dr. HALL. Well, you know, I think—your calculation is right. I 

am just not sure that is exactly how I would look at the benefits 

of or the impact of the tax act by just—— 

Senator VAN HOLLEN. Well, as you said, it is in your report. Let 

me ask you about—— 

Dr. HALL. I am not trying to argue with you. I am just—— 

Senator VAN HOLLEN. Let me ask you about two parts of the 

plan that I tried to spend a lot of time on the floor warning my 

colleagues about, and this has to do with the foreign minimum tax. 

Here it is called the ‘‘global intangible low-tax income,’’ GILTI for 

short. 

Dr. HALL. Right. 

Senator VAN HOLLEN. You are familiar with that piece? 

Dr. HALL. Yes. 

Senator Van Hollen. And then there is another part that is a deduction for profits from foreign sales, which they call the ‘‘FDII,’’ 

or ‘‘fiddy,’’ right? 

Dr. HALL. That is right. 

Senator VAN HOLLEN. Okay. And on page 109 of your report, you 

state, ‘‘By locating more tangible assets abroad, a corporation is 

able to reduce the amount of foreign income that is categorized as 

GILTI. Similarly, by locating fewer tangible assets in the United 

States, a corporation can increase the amount of U.S. income that 

can be deducted as FDII.’’ And you conclude, ‘‘Together, the provisions may increase corporations’ incentive to locate tangible assets 

abroad.’’ 

Just to translate into English, when we talk about moving tangible assets abroad, we are talking about things like plant and 

equipment and that kind of thing, right? 


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Dr. HALL. Right, although I do not want to exaggerate that. Part 

of what we were doing there is pointing out that it is pretty complicated, and it—— 

Senator VAN HOLLEN. Dr. Hall, I am just reading from your report—— 

Dr. HALL. I understand. 

Senator VAN HOLLEN.—and your findings here are consistent 

with that of lots of economists, as you know, that this provision, 

the way this provision was written creates this perverse incentive 

to shift jobs overseas. And if a corporation does succeed in lowering 

its tax bill by moving its factory overseas along with the jobs, then 

they are effectively getting a tax break by moving plant and equipment overseas, aren’t they? 

Dr. HALL. Yes, I just want to put it into context, though. We 

think overall the tax act is going to encourage investment in the 

United States on the whole, not abroad. 

Senator VAN HOLLEN. But part of that investment, as we talked 

in the earlier question, is from foreigners, and foreigners—— 

Dr. HALL. That is right. 

Senator Van Hollen.—in the year 2028 are getting 80 cents of 

every dollar of increased income from economic activity. 

Dr. HALL. Part of that money will be foreign—— 

Senator VAN HOLLEN. So, yes, more foreign investment and more 

profits for foreigners in a bill that was sold as something that was 

going to help the American worker. 

The final question relates to the other half of the GILTI, which 

is the FDII. Would you agree that is a tax expenditure? 

Dr. HALL. Well, it is not our call. It will be the Joint Committee 

on Taxation. They will followup with that. 

Senator VAN HOLLEN. Is that the kind of thing that you in the 

past have said is sort of a tax break that some people get but others do not? 

Dr. HALL. Actually, we have not. We rely on the JCT to make 

that determination. 

Senator VAN HOLLEN. I just find it ironic, Mr. Chairman, that we 

have got now what is a Government program that encourages the 

people to move plants and equipment overseas. I thank you. 

Chairman ENZI. Senator Cotton. 

Senator COTTON. Thank you, Director Hall, for your appearance 

and your testimony. There has been a lot of talk so far about the 

macroeconomic picture, about budget, debt and deficits, and economic growth and so forth. Let us bring it down to the micro picture, what this means for families. 

The CBO outlook projects an unemployment rate in 2019 of 3.3 

percent, historically low, so that is good news. Maybe even better 

news, CBO projects an increase in hourly wages and attributes 

that to increased competition for labor among businesses because 

the bidding up of wages is necessary to attract new employees and 

retain existing workers. 

Director Hall, what are the policies fostering that competition 

and leading to the increase in hourly wages? 

Dr. HALL. Well, we are ending the slack in our economy, but we 

have a lot of stimulus from the tax act and the other two bills, so 

that stimulus really is pushing GDP growth above potential and so 


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we are getting this very low unemployment rate, we think, and 

higher employment. 

Senator COTTON. And does that mean that some of the gains 

from that growth, whatever it may be—we have our differences between the two parties, but some of the gains from that growth will 

accrue to a greater degree to labor than it will to capital since you 

are seeing wage increases for people’s labor? 

Dr. HALL. Well, yes, there will be benefit for labor, and we do see 

actually a decline in the marginal tax on labor as a result. 

Senator COTTON. Well, I think that is a good thing given that 

labor for many decades now, especially unskilled, low-skilled laborers, people who are getting out of high school and going straight 

into the work force or maybe not getting a high school degree have 

not seen their wages increase. 

I also think one important policy that we need to continue is immigration enforcement, and I think that we need to take a look at 

our immigration levels, because obviously we could increase our abstract GDP simply by bringing in millions of more workers. The 

way you increase your GDP is more productivity or more workers. 

But that would not necessarily be good for America’s families. It 

would not necessarily be good for GDP on a per capita or a per 

household basis. 

I want to turn now to something that I did not see in your report. I looked at your report; I looked at your testimony. I did not 

see much, if anything, about national defense and military spending. Did I overlook that, or did you not put much focus there? 

Dr. HALL. You know, I think we did not put a ton of focus. We 

did our usual. 

Senator COTTON. And I raise that because I want to make the 

point that I do not think our military is responsible for driving 

much of these deficits and the debt we face now, and I think your 

report makes that clear, in part by not discussing the increase in 

military spending. There is no doubt that we increase military 

spending substantially this year and next year, but as your report 

makes clear, the long-term debt picture is driven primarily by retirement, especially health care spending. Is that right? 

Dr. HALL. That is right. 

Senator COTTON. And I would even make the case that in the 

long term, military spending is essential for controlling our deficits 

and ultimately our national debt because it creates the international system in which our economy operates. I have a few figures here from the end of World War II about international trade 

and investment, that trade expansion in the United States has produced roughly $2.1 trillion in economic gains. That translates into 

more than $7,000 per person and more than $18,000 per household, 

and that our economy is about 13 percent larger than it would have 

been absent that increase. 

It is hard to imagine that kind of increase in trade happening if 

we had had a conflict on the scale of World War II again. No doubt 

there has been many wars, and our Nation has participated in 

many of those wars. But certainly we have not had the kind of 

great power conflict in this world that we saw from 1939 to 1945. 

The Federal Reserve Bank studied the effects of war on trade and 

concluded that it not only severely diminished trade in the long 


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term for countries directly involved, but even for neutral countries, 

you saw declines in trade of up to 10 percent. And it is the United 

States military that has been creating that environment, that has 

been patrolling the seas, securing critical choke points, forcing our 

allies to conciliate or mediate their differences so their small conflicts do not rise into big conflicts, as well as deterring first the Soviet Union and now some other peer competitors from the kind of 

adventurism that launched us into World War II and before that 

World War I. 

So we spend a lot on our military, and we spend a lot more than 

every other nation, many of the closest nations combined, but that 

is in part because military competition is so destructive of economic 

growth and prosperity and, therefore, we cannot afford to skimp on 

it. I took that to be the message of the absence of much discussion 

of military spending in your most recent report in your testimony, 

that the military is one of the most fundamental things our Government spends taxpayer dollars on and that we have to continue 

to do so if we have any hope of achieving the prosperity that we 

all hope for our country. 

Thank you. 

Chairman ENZI. Senator Harris. 

Senator HARRIS. Thank you, Mr. Chairman. Good morning. 

Dr. HALL. Good morning. 

Senator HARRIS. I reviewed the CBO’s outlook for the next decade, and I am deeply concerned about the increase to the deficit, 

as many members of this Committee have expressed. I am especially troubled that much of the deficit increase can be attributed 

to the Republican tax plan that was passed a few months ago 

which will add nearly 1$1.9 trillion to the deficit. 

According to the CBO’s analysis, the debt will exceed the size of 

the entire United States economy in just over a decade, 2 years 

sooner than you forecasted in June, the debt problem created by a 

massive giveaway to the wealthy and corporations and by making 

the individual tax cuts expire in 2025 while making the corporate 

tax cuts permanent. This was a pure giveaway to the corporations 

and the top 1 percent of the United States. And when Congress 

talks about how we fix this deficit increase from the tax plan, some 

of my colleagues on the other side of the aisle discuss the need for 

entitlement cuts. Entitlement cuts really mean cutting Medicare, 

Medicaid, and Social Security. It means cutting the main programs 

4.3 million seniors in my home State of California rely on, seniors 

who deserve to retire with dignity. 

For my constituents, retiring with dignity means being able to afford their prescription drugs. It means not living paycheck to paycheck and having the peace of mind that Government will not take 

away the benefits promised to them. At a time when so many seniors cannot afford their life-saving medications, we need a budget 

that allows Medicare to negotiate drug prices. What we do not need 

is a budget that cuts $500 billion from the program over the next 

decade. When trying to repeal the Affordable Care Act this past 

year, congressional members proposed cutting Medicaid by $700 

billion, the same program that cut six out of ten seniors’ nursing 

home uses. 


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Nearly two-thirds of California seniors depend on Social Security for at least half of their annual income, an average of $21,300. 

With cuts to Social Security, millions of seniors would struggle to 

make ends meet. So when we discuss balancing the budget, we 

need to speak the truth: that this tax plan has ballooned the deficit 

for the purpose of delivering billions of dollars to the top 1 percent 

while putting access to affordable health care and a shot at a decent retirement at risk for anyone else. 

So, Dr. Hall, my question is: Based on your updated budget outlook, can you tell me whether the effects of this tax bill, either directly or indirectly, impact the future solvency of Medicare and Social Security? 

Dr. HALL. Well, certainly anything that adds to the deficit and 

the debt is going to have an impact on things going forward. If we 

get a little boost in economic growth, that might extend the exhaustion dates. But the basic problem is still there, and the basic 

issue of the debt getting to an unsustainable level is maybe more 

intense than it was before. 

Senator HARRIS. And will you agree that it is going to have a disproportionate impact on senior Americans? 

Dr. HALL. I mean, certainly changes in Medicare and that sort 

of thing would have a disproportionate effect. I guess it depends 

upon how Congress decides to deal with the problem. 

Senator HARRIS. All right. Thank you. 

Thank you, Mr. Chairman. 

Chairman ENZI. Thank you. 

Senator Merkley. 

Senator MERKLEY. Thank you very much for coming and bringing 

your expertise to bear on our economic situation. 

I was looking at numbers from the Joint Committee on Taxation, which laid out that $17 out of every $20 in the benefits from the 

tax reductions goes to richer Americans, or roughly 84 percent. 

That did not include the estate tax, by the way, which was specifically excluded, which goes 100 percent to the very richest Americans. 

What is your analysis of the percent of the tax benefits that go 

to those who earn more than $100,000? 

Dr. HALL. We have not updated those numbers. In this baseline 

we have not sort of tried to reproduce that. So I could not tell you 

anything different than what JCT has on the topic. 

Senator MERKLEY. Do you have any reason to think JCT is far 

off the mark? 

Dr. HALL. No, I do not. 

Senator MERKLEY. And would you agree that if you include the 

estate tax, the numbers would be even worse? 

Dr. HALL. That sounds right. 

Senator MERKLEY. Well, I think that is an important point because something that was sold as beneficial to the middle class is 

actually beneficial to the best-off. And that brings me to the second 

point, which is your analysis shows that from 10 months ago until 

now, the annual deficit has grown from an estimated $563 billion 

to an estimated $804 billion, or roughly a $241 billion increase 

from 10 months ago. 

Dr. HALL. That is correct. 


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Senator MERKLEY. Okay. And if it extends it over 10 years, I think your numbers were about $1.6 trillion? 

Dr. HALL. Yes. 

Senator MERKLEY. Of just additional on top of the baseline that 

existed 10 months ago. 

Dr. HALL. That is right. 

Senator MERKLEY. And how much of that is the tax bill and how 

much of that is the spending bill? 

Dr. HALL. That is a good question. The tax bill is a big part of 

that. I think the tax bill is—I am sorry. Let me look it up quickly. 

Senator MERKLEY. You bet. 

Dr. HALL. I can tell you the spending part of it. The spending 

part actually is 40 to 45 percent of that increase, so it actually is 

a pretty significant part. But the remainder is—and probably more 

than the remainder is the tax bill. 

Senator MERKLEY. So a great share of the tax bill, even if you 

include some growth projections, is funded through borrowing? 

Dr. HALL. Correct. 

Senator MERKLEY. Okay. So essentially we have a bill that has 

borrowed from our children, because they are the ones that inherit 

the debt, to deliver the vast bulk of the benefits to the richest 

Americans. 

Dr. HALL. That is a way of looking at it. 

Senator MERKLEY. Well, not just a way of looking at it, but that 

is a fair reading of the numbers? 

Dr. HALL. Well, obviously, it depends upon who winds up fixing 

the deficit, I suppose, as to who bears the burden about how Congress decides to deal with it. But delay is certainly pushing the 

burden back in time. 

Senator MERKLEY. I want to point out a pattern that I found 

quite interesting. Under President Carter, we had essentially him 

closing out with the same deficit that existed the year before he 

took office despite the oil shocks, about $73 billion. Under President Reagan, the deficit increased from 73 to 149, or roughly doubling. Under President Bush, the first President Bush, we had another near doubling, going from 149 to 290. Under President Clinton, we had a reduction from 290 to a surplus of 236, so obviously 

a vast decrease in the deficit—in fact, a surplus. And so we were 

reducing our national debt. Under Bush the 2nd, we had an increase from 236 to 458, so another rough doubling. And under 

President Obama, the results of the recession his first year in office, $1.4 trillion in deficit reduced down to 584 when he left office. 

Why is it that the deficit decreases under Democratic leadership 

and increases under Republican leadership? 

Dr. HALL. I would not want to offer an opinion on that. 

Senator MERKLEY. Have I read the numbers accurately? 

Dr. HALL. That sounds right. 

Senator MERKLEY. Well, I do think it is an important point to 

make because what we have seen for a pattern that has increased 

our debt vastly has been Republican leadership has repeatedly 

taken us deep into the red, Democratic leadership has reduced that 

damage, and yet all we hear from our Republican colleagues is how 

they are fiscally responsible. How can one square the rhetoric with 

the reality? 


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Dr. HALL. I would not want to offer an opinion. 

Senator MERKLEY. It is not your responsibility to offer that, but 

I am glad you confirmed that my numbers were accurate. 

I will just close by saying that our children are now financing the 

biggest theft of money delivered to the wealthy in America, and 

this is what you normally see in corrupt, irresponsible, Third World 

governments, not the United States of America. 

Chairman ENZI. Senator Kaine. 

Senator KAINE. Thank you, Mr. Chair. Dr. Hall, good to be with 

you. 

I want to just draw your attention to page 33 of the report, and 

I will just read a quote. I want to ask you about trade. Changes 

to trade agreements or tariff policies on the part of the United 

States and its trading partners that impede trade could have significant adverse effects on aggregate economic activity; whereas, 

the removal of trade barriers between the United States and its 

trading partners could improve aggregate economic conditions. 

We had a hearing recently where the head of the Council on Economic Advisers Kevin Hassett appeared before us. It was immediately after President Trump had indicated he was going to impose tariffs on imported aluminum and steel. It was before any of 

the subsequent potential retaliation discussion back and forth. 

I asked Kevin Hassett at the time, based on my understanding 

that the number of workers in American industries that make aluminum and steel is dramatically smaller than the number of workers that work in American industries that make things with aluminum and steel, I asked his economic opinion about whether the 

imposition of these tariffs would be a plus or minus for American 

workers, and he said that the economic literature would suggest 

that just looking at it that way, before you get into a retaliation 

discussion, it would likely have a negative effect on jobs. Do you 

agree with that? 

Dr. HALL. I do. 

Senator KAINE. And then if we get into the subsequent retaliation issues, the aluminum and steel issues matter at lot to Virginians because I have got, you know, Coors beer and Anheuser 

Busch, you know, big breweries that are buying aluminum for cans. 

And I also have a Dublin truck plant in Pulaski that is—it is the 

only manufacturer of, I am sorry, Volvo trucks in Dublin. Pulaski 

County, Virginia, is the only manufacturer. It is going to raise their 

costs, raise costs to consumers. So there is some effect just on the 

aluminum and steel issue in Virginia. But over the course of the 

last couple of weeks, I have been on recess traveling around, a lot 

of concern in Virginia on the ag side, the announcement by China 

that they would retaliate, especially with respect to things like soybeans and pork and some other agricultural products are very challenging to Virginians. 

Talk a little bit about—and I do not know, have you at the CBO 

started to do any analysis of what either the tariff on aluminum 

and steel or more broadly, if retaliation were to occur, what would 

the effect on American workers and American farmers? 

Dr. HALL. We have not, and, in fact, our economic forecast closed 

about mid-February, so we really have not taken any of that on 

board. Certainly that is the sort of thing we would pay attention 


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to and see how things turn out and would be something we would 

include in our baseline economic forecast at a later date next time 

we do it or whenever significant changes are made. 

Senator KAINE. You did generally agree with the Hassett conclusion that the import tariffs on aluminum and steel are likely to be 

more negative than positive on American workers. Do you have an 

opinion about if there are retaliatory tariffs against the United 

States in the ag sector, you know, is that going to be a net good 

or a net bad in terms of the workforce? 

Dr. HALL. Well, to be fair, you know, the real solution, how it 

winds up is sort of how it winds up, you know, rather than just 

this one act like that. I do think a lot of the concerns—I find them 

interesting because they are the inverse of the benefits of freer 

trade. Having trade negotiations or trade agreements, the idea is 

that you can have lower prices, you can have lower cost of production, you can have access to the foreign markets with good trade 

agreements. So undoing those can have the reverse effect. But, 

again, to be fair, we have to sort of see where we wind up. 

Senator KAINE. Some of the retaliation discussion is still kind of 

at the rhetorical level. 

Dr. HALL. Right. 

Senator KAINE. I guess the actual tariffs have been imposed on 

aluminum and steel, so that is real. But the retaliation discussion 

is a little bit rhetorical right now. 

Dr. HALL. Right, right, and we do not really know what sort of 

tariff changes the U.S. is likely to make or may make going forward. 

Senator KAINE. Well, I am just going to conclude and say I think 

it is interesting that the Constitution gives Congress really plenary 

power over trade in the Commerce Clause. We delegate to the 

President through fast-track, which I support, the ability to negotiate trade deals and then set up a process for bringing those back 

for a congressional up or down vote. 

I think it is interesting that we want the say over a trade deal, 

but we allow Presidents to start trade wars without a vote of Congress, even though the Constitution suggests that trade is ultimately for Congress. I do not think a President should be able to 

do a trade deal or start a trade war without Congress giving it an 

imprimatur. And I hope to work with my colleagues to maybe come 

up with some improvements in the process so that there cannot be 

a unilateral executive decision to start a trade war when the Constitution reserves trade powers to Congress. But that is just my 

opinion. You need not comment. 

Thank you, Mr. Chair. 

Chairman ENZI. Thank you. 

Senator Whitehouse. 

Senator WHITEHOUSE. Well, Mr. Chairman, it looks like I am 

bringing up the rear here. It is just down to us and Dr. Hall. 

Dr. Hall, you and I have talked before about the health care 

spending projections graph. 

Dr. HALL. Right. 

Senator WHITEHOUSE. And this is the one that I have used before. But guess what? We have a new one. A new year has gone 

by, and just for the record, back here when the Affordable Care Act 


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passed, CBO did the yellow-line estimate of what mandatory, Federal health care spending was expected to look like. Then as time 

went on and we had the experience of the Affordable Care Act and 

we had whatever else took place, we got this actual result, which 

came in below what was expected. And then here there has been 

a new projection that is made going forward. So this is the old projection. This is the actual through this period. And this is the new 

projection. 

Now, in the graph that I used to use all the time, this savings delta was $3.3 trillion in savings between the expected spending 

and the new projection. In this, the number goes up to $4.2 trillion. 

Now, I believe that about $300 billion of that relates to the repeal 

of the individual mandate, so you could back that out, but that still 

leaves $3.9 trillion in savings up from $3.3 trillion in savings just 

in the intervening year. And I think it is important to try to do 

whatever we can to figure out what is going on here. 

So I ask you to keep working with us on that. This has a particular emphasis now because, as you know, there is a bicameral 

select committee working on trying to reform our budget process, 

and nobody has been more eloquent than Chairman Enzi in understanding how broken our existing budget process is. It is one of the 

areas where he and I have considerable common cause. 

I think that one of the ways that we need to fix our existing broken budget process is that we need to have all of the elements that 

mathematically add to the debt to be considered in our budget 

process, so not just appropriated spending but also health care 

spending, also tax expenditures and also revenue. That is what 

mathematically leads to debt and deficit. 

As a general proposition, do you agree with me that those are the 

four key elements that mathematically lead to our debt and deficits? 

Dr. HALL. Yes. 

Senator WHITEHOUSE. So if we are going to look at health care, 

we really need to start looking at ways to address this. And I completely disapprove of and will fight to my last breath to prevent attacking Medicare and Medicaid and other Federal programs and 

taking benefits away from people in order to achieve savings, because I think there are better ways to achieve savings. I think 

there are efficiencies that can be gained. We are seeing some remarkable results out of some of the accountable care organizations, 

and it is very hard to extrapolate from Coastal Medical in the State 

of Rhode Island, a provider practice that has now reduced its per 

patient per year cost by $700, while dramatically improving the experience and the care that their patients get, to $3.9 trillion in savings. But I suspect that there is something going on out there as 

we improve the payment system for the health care enterprise so 

that it is diverted less toward doing things to people and prescribing things for people and seeing people than it is to doing the 

things that keep people healthy so they do not need those things 

in the first place. And I just want to, first of all, ask if you concur 

with that as a general thought. And, second, will you keep working 

with us, and if there are any ways that we can be helpful, to try 

to figure out what is behind—you know, $3.9 trillion, that is a lot 

of money. 


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Dr. HALL. Right. 

Senator WHITEHOUSE. And it ought to be a matter of real priority 

to try to figure out what is working that has made that difference 

in this period. 

Dr. HALL. We are interested in that topic. We are interested. We 

are trying to do some work on that. I know you are interested beyond this, but if for no other reason, we keep getting the forecast 

wrong. We keep having to lower our estimate of health care cost 

growth, and if we understood that better, we could give you a better forecast of future costs. 

So we are working on that. We would be happy to follow up and 

talk to you a little bit about what we are doing. 

Senator WHITEHOUSE. I know my time has expired, but may I 

ask an additional question, Chairman? 

Chairman ENZI. Sure. 

Senator WHITEHOUSE. Does your work to look at that look at 

any—can you look kind of in any way down through to the experience of, say, a Coastal Medical or a Rhode Island Primary Care 

Physicians or a provider group where they are actually seeing that 

cost not just not go up so fast, they are actually driving the cost 

down for their patients. And maybe that is too big of an extrapolation, but what does that look like from your perspective? 

Dr. HALL. We will have to do that. I think that is certainly where 

we start working on this, is talking with providers and their experiences to get an understanding of what is happening at individual 

providers and see if we can find some common factors in there. So 

that is certainly going to be part of our methodology. 

Senator WHITEHOUSE. Great. Well, thank you, because, surely, Mr. Chairman, if we could save $700 per person per year on health 

care expense while providing better care for people, that would be 

a pretty serious win-win. 

Chairman ENZI. Yes, it would, and I thank you for your comments at the last hearing regarding that and then sharing the information that you did with me. I will have to get together with 

you and ask a few questions about that, though, to get more detail 

on how it actually works. And I thank you for your work on the 

special budget task force as well. We are really relying on you. as 

you did working bipartisan before, to come up with some solutions 

that maybe we can fix that process and make this—— 

Senator WHITEHOUSE. Well, we are much inspired by you, Mr. 

Chairman, and Senator Perdue and I, who are both on this Committee, are doing our best to channel your concerns and your wishes into that process. 

Chairman ENZI. I appreciate that. And I want to thank you, Dr. 

Hall, for your testimony today and for all of the documents that 

you oversee the preparation of, and your full statement will be included in the record. 

As information to all Senators, questions for the record are due 

by 6 p.m. today, with a signed hard copy delivered to the Committee clerk in Dirksen 624. Under our rules, our witness has 7 

days from receipt of the questions to respond with answers. 

With no further business to come before the Committee, the 

hearing is adjourned. 

[Whereupon, at 11:54 a.m., the Committee was adjourned.] 


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ADDITIONAL COMMITTEE QUESTIONS 

[The following submitted questions were not asked at the hearing but were answered by the witness subsequent to the hearing:] 


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(343) 

GAO’S ANNUAL REPORT ON ADDITIONAL OPPORTUNITIES TO REDUCE FRAGMENTATION, OVERLAP, AND DUPLICATION IN THE 

FEDERAL GOVERNMENT 

WEDNESDAY, MAY 23, 2018 

U.S. SENATE, 

COMMITTEE ON THE BUDGET, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:33 a.m., in room 

SD–608, Dirksen Senate Office Building, Hon. Michael B. Enzi, 

Chairman of the Committee, presiding. 

Present: Senators Enzi, Grassley, Boozman, Sanders, Van Hollen, and Harris. 

Staff present: Elizabeth McDonnell, Republican Staff Director; 

and Warren Gunnels, Minority Staff Director. 

OPENING STATEMENT OF CHAIRMAN ENZI 

Chairman ENZI. I will go ahead and call to order this hearing of 

the Senate Budget Committee. Good morning and welcome. I call 

this hearing to order so that we can focus on the Government Accountability Office’s annual report to Congress on reducing Government fragmentation and redundancy. I like that word ‘‘fragmentation.’’ 

By acting on the recommendations in this report, Congress and 

Federal agencies have the potential to improve Government performance and stewardship of taxpayer dollars. This is a goal I believe both parties share, and I hope we can work together to advance solutions to the problems identified in this report. 

It is no secret that the Federal Government spends beyond its means. Our national debt has eclipsed $21 trillion, and the Congressional Budget Office projects annual deficits will soon return to 

more than $1 trillion. 

Key to addressing this chronic overspending is diligent oversight 

of the programs, agencies, and activities currently being funded. 

That means routinely reviewing programs and reauthorizing, reforming, and eliminating them as appropriate. It also means getting appropriations bills done on time and not resigning ourselves 

to massive catch—all spending bills that are subject to little review 

from the body. 

GAO’s annual report on fragmentation, overlap, and duplication 

is one tool on which Congress can and should rely as we undertake 

this work. Each year GAO calls attention to the numerous examples of inefficiency and redundancy across Government. One examVerDate Sep 11 2014 13:37 May 06, 2019 Jkt 000000 PO 00000 Frm 00349 Fmt 6601 Sfmt 6601 H:\GPO\PDF\OUT\35700.TXT PAT

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ple is the graduate science, technology engineering, and math, or 

STEM, education. GAO began highlighting the duplication in these 

programs in its 2012 report and does so again this year. In 2016, 

13 Federal agencies spent approximately $3 billion on 163 different 

STEM education programs. You can see how many agencies are engaged in STEM education on this chart that is on the screens. 

GAO noted that nearly all of these programs overlap to some degree with at least one other program. A key feature of GAO’s report 

is that it does not just highlight problems; it identifies solutions. 

Since GAO began issuing this report in 2011, it has identified more 

than 700 actions across 278 programs that Congress and the executive branch could take to make the Federal Government more efficient and effective. Of those recommendations, 551 have been partially or fully addressed by executive or legislative action. GAO estimates these transactions have saved the Federal Government 

$178 billion. 

But as GAO’s 2018 report indicates, more work can be done, and 

I would direct your attention to this chart, which is probably too 

small to read, but it is duplicated in the testimony that we have, 

too. It provides a breakdown of partially addressed and 

unaddressed agency-specific actions since GAO began producing 

this report. The light blue color represents those that have been 

partially addressed while dark blue represents those that have 

been unaddressed. 

As the chart shows, the Department of Defense leads the pack 

with the most pending recommendations followed by the Department of Health and Human Services, the Internal Revenue Service, 

and so on down the list. I wanted to highlight this chart as a reminder that Congress must be diligent in its oversight efforts. 


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As I have said before, I want to work with members of this Committee to make our Government more efficient and responsive to 

all Americans. If there are issues in this report you would like to 

address, let us work together. Tackling Government inefficiency 

and overspending is not an easy task. I believe the issues identified 

in the GAO’s report, which we will talk about this morning, represent a good place to start. 

Our witness, the U.S. Comptroller General, will provide additional information about the report and GAO’s recommendations. 

Additionally, GAO’s subject matter experts are in attendance this 

morning, prepared to answer any specific questions from Committee members. 

I might mention, though, that the National Defense Authorization Act is also being marked up at this same time this morning, 

and a number of members of the Committee are on that, so we will 

make sure that they pay some special attention to this report and 

this testimony. 

Welcome to all of you, and I look forward to the discussion. 

Senator Sanders. 

OPENING STATEMENT OF SENATOR SANDERS 

Senator SANDERS. Thank you, Mr. Chairman, for holding this 

hearing and thank you, Mr. Dodaro, for being with us today. 

I know that my friend, the Chairman, has long been concerned 

about the deficits and the national debt facing this country, and I 

would just remind folks that the recent tax bill that was passed, 

supported, I believe, by almost every Republican, will increase the 

national debt by $1.9 trillion, and that at a time of massive income 

and wealth inequality, 83 percent of those tax benefits by the end 

of the 10-year period go to the top 1 percent. So some of us do not 

take my Republican colleagues all that seriously now when they 

talk about the need to deal with the national debt. 

But, Mr. Chairman, the point of this discussion today, this hearing, is a very important one, and that is that a budget as large as 

the Federal Government’s, there is no question but there is an 

enormous amount of waste, fraud, abuse, duplication, and I think 

it is a good idea that we take a look at how we can deal with those 

issues. 

One of the agencies that I think—and I suspect you, Mr. Chairman, will agree with me—deserves to have people take a hard look 

at is, in fact, the Pentagon where over half of our discretionary 

spending goes. That is kind of the elephant in the room. And this 

year we are spending $700 billion on the military, more than the 

next ten countries combined. I mean, it is a good debate that we 

do not have enough of, how much we should be spending on the 

Defense Department. Everybody believes in a strong defense, but 

when is enough enough? 

Meanwhile, while we spend so much on defense, we have tens of 

millions of people in this country with no health insurance, parents 

cannot find affordable child care, hundreds of thousands of kids 

cannot afford to go to college, and we have people talking about 

making cuts in programs for working people but expanding military spending by $165 billion over 2 years. 


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But I think—I appreciate very much, Mr. Chairman, the hearing 

that you held in March on the need for an audit of the Department 

of Defense, and I think there is widespread agreement that there 

is something wrong when the Pentagon is the only Federal agency 

in the country that has not been able to pass an independent audit 

28 years after Congress required it to do so. And I appreciate you 

holding a hearing and focusing attention on that. 

Twenty-eight years does seem to be enough time for the Pentagon under Democratic and Republican leadership to maybe get 

its act together and give us an audit, and we hope that we will 

have some success in seeing that soon. 

Further, Mr. Chairman, as the GAO has told us, there are massive cost overruns in the Defense Department’s acquisition budget 

that we have got to address. According to GAO, the Pentagon’s 

$1.66 trillion acquisition portfolio currently suffers from more than 

$537 billion in cost overruns, with much of the cost of the cost 

growth taking place after production. So this is a huge issue that 

I think requires bipartisan analysis. I do not think anybody thinks 

it is a great idea to see these huge cost overruns. 

GAO tells us that ‘‘many DoD programs fall short of cost, schedule, and performance expectations, meaning DoD pays more than 

anticipated, can buy less than expected, and in some cases delivers 

less capability to the warfighter.’’ You are a former mayor, I am a 

former mayor, and I think, you know, when we let out contracts, 

we held the contractors accountable. I would presume it is the 

same thing in Wyoming as it is in Vermont. If somebody says they 

are going to do something for $2 million and then they say, ‘‘Oh, 

it is going to end up costing $4 million,’’ that is not acceptable. But 

I think there has not been that type of oversight over the Department of Defense that needs to take place. 

Another major subject that we should be looking at today is defense contractor fraud. Today, Mr. Chairman, about half of the 

Pentagon’s $700 billion annual budget goes directly into the hands 

of private contractors. It is a whole huge issue. I think many people 

think when we spend money on defense, it goes to the soldiers and 

the planes. But a lot of that money goes to private contractors. 

Meanwhile, over the past two decades, virtually every major defense contractor in the United States has paid millions of dollars 

in fines and settlements for misconduct and fraud, at the same 

time while making huge profits on these Government contracts. 

In 2011, I requested a report from the Pentagon on this very 

issue. Incredibly, that report showed that hundreds of defense contractors and their parent corporations that had defrauded the 

United States military or settled allegations of fraud received more 

than $1.1 trillion in Pentagon contracts over the previous decade. 

For example, since 1995, Boeing, Lockheed Martin, and United 

Technologies have paid nearly $3 billion in fines or related settlements for fraud or misconduct. Three billion dollars, collectively. 

Yet those three companies received about $800 billion in defense 

contracts over the past 18 years. 

Finally, Mr. Chairman, we need to take a serious look at the excessive and obscene executive compensation of defense contractors. 

It is an issue I raised at that hearing on the need for an audit. You 

have defense contractors which, for all intents and purposes, they 


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are private companies, profit-making companies, but they are really agencies of the U.S. Government because almost all their funding comes from the United States Government. 

Last year the CEOs of Lockheed Martin and Raytheon, two of the top four U.S. defense contractors, were each paid over $20 million in total compensation. Moreover, more than 90 percent of the 

revenue from those companies came from worldwide defense spending. So you have companies in which 70 percent of their revenue 

comes from the U.S. Government, at least from the Department of 

Defense, and then they pay CEOs 400 times what the Secretary of 

Defense makes. I do think that is an issue that we may want to 

look at, because it is not only the money that goes to the CEOs, 

it sets a pattern. If you can have a company paying its CEO 400 

times, or whatever it is, what the Secretary of Defense gets, it tells 

you or it should tell us that these guys are not terribly serious 

about taxpayer dollars. 

So those are some of my concerns that I will be raising, Mr. 

Dodaro. Thanks for being here. Mr. Chairman, thanks for holding 

the hearing. 

Chairman ENZI. Thank you, Senator Sanders. When you mentioned the mayor thing, I was recalling my mayor days when we 

worked on cost overruns, because I told my project engineers that 

if the bid came in above their estimate, they would have to do the 

job for what they said it would cost. 

Senator SANDERS. Right. And we did something similar, and I 

think mayors all over this country look at it, and we should ask 

why the DoD does not. 

Chairman ENZI. There is no extra fund to dip into if you do not 

have the money. Hopefully the people that are not here that are 

at that markup are making note of that anyway. 

Our witness today is Gene Dodaro. He is the Government Accountability Office—and actually holds the title of Comptroller 

General of the United States. Mr. Dodaro testifies frequently before 

Congress. I am pleased to welcome him back to this Committee. 

GAO has done great work over the years identifying waste, fraud, 

and abuse in Federal spending and has been a great service to this 

Committee in its oversight of Federal spending and the budget. He 

is the eighth Comptroller General of the United States. He was 

confirmed in December 2010 after serving as Acting Comptroller 

General since March 2008. He has been with the GAO for more 

than 40 years. He served for 9 years as the Chief Operating Officer, the No. 2 leadership position at the agency. Prior to that, he 

headed GAO’s Accounting and Information Management Division, 

which specialized in financial management, computer technology, 

and budget issues. 

Comptroller General, please begin. 

STATEMENT OF THE HONORABLE GENE L. DODARO, COMPTROLLER GENERAL, U.S. GOVERNMENT ACCOUNTABILITY 

OFFICE; ACCOMPANIED BY MICHAEL SULLIVAN, DIRECTOR, 

DEFENSE WEAPON SYSTEM ACQUISITIONS 

Mr. DODARO. Thank you very much, Mr. Chairman. Good morning to you, Ranking Member Senator Sanders. Good to see both of 

you again. I appreciate the opportunity to be here today to discuss 


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our eighth annual report on this topic of overlap, fragmentation, 

and duplication in the Federal Government. We also add our ideas 

for cost savings and revenue enhancements, which we think the 

Congress should consider as well. 

In the first 7 years on this effort, we identified 724 recommendations in this area. So far, as of March, 52 percent were fully implemented, 24 percent were partially implemented, and as a result of 

the actions by Congress and by the executive branch, financial benefits have either occurred or will accrue of $178 billion. And I believe much more savings could be realized by addressing our open 

recommendations. 

This year, we identified 68 new recommendations for congressional consideration in addition to the 724 we already identified. 

For example, the Department of Defense could save over $500 

million over 5 years by eliminating unnecessary overlap and duplication among U.S. distribution centers that provide goods to 

servicemembers. 

The Department of Energy could potentially reduce risk and save 

potentially tens of billions of dollars by testing and using alternative approaches for low-level treatmenting nuclear waste at the 

Hanford site in Washington. 

The Department of Veterans Affairs could save tens of millions 

of dollars in purchasing medical and surgical supplies by using best 

practices that private sector hospitals use in that area. 

Also, the Coast Guard could save millions of dollars by closing 

unnecessary overlapping and duplicative search and rescue stations. They have already identified ways that they could do that. 

So there are many opportunities yet to provide savings. We have 

365 open recommendations of where savings could be still yet realized. And many of these, I would point out, are in both the Defense 

Department and the Department of Health and Human Services, 

Mr. Chairman, which you identified in your opening statement. 

One of the reasons there are so many recommendations open in 

those two areas is that is where the money is. Medicare, Medicaid, 

and other programs are over $1 trillion a year right now, and we 

have a number of recommendations that we think could save tens 

of billions of dollars in Medicare and Medicaid expenditures; and 

also at the Defense Department; and we think there are also opportunities for IRS to take actions that could result in additional revenue collections that should be implemented as well. 

So I appreciate very much you holding this hearing and providing a platform for discussing these issues, which are very important, and I look forward to responding to your questions. Thank 

you. 

[The prepared statement of Mr. Dodaro follows:] 


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Chairman ENZI. Thank you. Particularly, thank you for the testimony, which is a summary of the full report, which we will be encouraging people to read. 

We will now do rounds of questions, 5 minutes for questions— 

although that is not very strict for the two of us. 

[Laughter.] 

Chairman ENZI. And it will be in the order that people came. 

That will be easy to keep track of, too. 

Before I start my questions, I would like to thank you again for 

the report, and, of course, what we need is action on the report. 

That is what you have been suggesting, and there is some action 

on it, but we will have to figure out if we can come up with some 

ways to accelerate that. 

I am going to ask about the 160 housing programs, some health 

care improper payments, inefficient VA purchasing, the 163 STEM 

programs, identifying theft, duplication, disability claims, redundant reviews, and I know that instead of Washington, DC, bureaucracy, we need to get the money out to where the people are with 

the programs that they are designed to help. And your report is 

outstanding at that. 

I will start with the housing one. You found that there are 160 

housing-related programs that overlap, and the money could be 

saved by combining them. It is an area ripe for reform. As I said 

to HUD Secretary Carson when we met to discuss the issue, reform 

done right would mean less money going to overhead and more directed to providing assistance. What benefits can be recognized by 

streamlining duplicative, overlapping, and fragmented housing assistance programs? Has the GAO estimated how much could be 

saved by such streamlining? 

Mr. DODARO. The benefits could be both cost savings and greater 

efficiencies as well as reducing the burden on both property holders 

and tenants. For example, the Department of Housing and Urban 

Development and the U.S. Agriculture Department both operate 

multi-family programs, housing programs in that area, but they set 

different requirements for both the property and tenant eligibility 

for those programs, and they manage the programs very differently. So if you are a property owner and you want to use a 

multi-family dwelling and arrangements with HUD or USDA, you 

end up dealing with two different sets of requirements. You also 

could have multiple inspections with different inspection standards, 

and this creates a lot of inefficiencies in those program activities. 

In the single-family housing area, there are opportunities for 

their loan guarantee programs. A lot of them operate in similar 

markets, so they could be consolidated or at least improve the coordination among the programs, and this would provide further 

streamlining opportunities. 

Now, we have not made estimates because there have not been 

specific proposals put forward by the executive branch. We have 

encouraged the executive branch agencies to come up with streamlining and consolidation options. In recent discussions I have had 

with OMB, they have said that they are using our prior work on 

overlap and duplication as input to the President’s reorganization 

proposals that are due to be submitted sometime soon. So we will 


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see if they have addressed these areas. I will continue my discussions with them. 

Chairman ENZI. Thank you. Your report also states that the Centers for Medicare & Medicaid and the Internal Revenue Service can 

save money by strengthening controls related to improper payments for the premium tax credit. The Congressional Budget Office 

estimates that that cost is $605 billion over a 10-year period or 

about $60.5 billion a year. Why is it a challenge for these agencies 

to detect improper payments? What can the Federal Government 

do to achieve cost savings for improper payments? 

Mr. DODARO. Well, first of all, we found that the Centers for 

Medicare & Medicaid Services as well as the IRS, who are both 

charged with different responsibilities under the Affordable Care 

Act for the premium tax credit, really did not design internal controls effectively in order to make sure they were only paying subsidies for eligible people, that people who are receiving the benefits 

of the advance premium tax credit were filing their tax returns as 

required and doing the necessary reconciliations between the two 

figures. And so we made several recommendations, eight to CMS 

and three to IRS, to design better internal controls so that they 

would operate their programs more effectively. 

The only internal controls that we found effective at CMS, for example, were the controls they put in to make sure that the payments went out to the insurance companies. But in terms of reviewing eligibility and doing the reconciliations that were required, 

they were not effective. 

Now, CMS has done a risk assessment that said that its advance 

premium tax credit program is at high risk of improper payments, 

but they need to follow-up. They have said they are not going to 

begin making estimates until 2022. I mean, that is not acceptable. 

That is too late. They need to move on that area, and I would encourage the Congress to weigh in there and provide support for 

that as well. IRS really did not do a good assessment. We have 

made suggestions to them to improve that effort. 

Now, from a broad standpoint of improper payments across Government, what we found in 2017, 27 programs did not even report 

improper payment estimates even though they had determined 

that their programs were highly susceptible to problems or were required by law to report estimates, including the Temporary Assistance for Needy Families Program and the Supplemental Nutrition 

Assistance Program, SNAP. And both of those programs are large 

programs, and so the Congress needs to make sure agencies follow 

the process, make the estimates, have good corrective action plans. 

One suggestion I have for the Congress that has not been acted 

upon yet that I would encourage Congress to consider is there is 

a Do Not Pay list that the Department of Treasury operates, and 

they are to check against several other databases before they make 

payments, one of which is the Death Master File from the Social 

Security Administration, because we and others have found in the 

past payments keep going even though people have been deceased, 

and that causes all sorts of problems. But the Social Security Administration does not provide the full Death Master File to the 

Treasury. They believe they are not permitted by law to do that. 

And I would encourage Congress to clarify that and to make that 


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file available to the Treasury Department. It does not serve anybody’s interest to send out improper payments when we know that 

they should not go out. 

Chairman ENZI. Thank you. Excellent. My time has expired in 

the first round, so I will defer to Senator Sanders. 

Senator SANDERS. Thank you, Mr. Chairman. 

Given the fact that DoD spending is well more than half of discretionary spending, I think it is important that we focus on the 

elephant in the room, which is the Pentagon. You are talking to 

two ex-mayors, and when we would let out a contract for the 

streets to get repaved in Burlington, Vermont, and somebody said, 

‘‘Well, we can do so many miles for $3 million,’’ and they came back 

and said, ‘‘Well, actually it cost us $6 million, you owe us another 

$3 million,’’ neither I nor the city council would have given them 

the light of day. ‘‘You said you could do it for $3 million. That is 

what you are going to get paid.’’ 

Mr. Chairman, similar in Wyoming? 

Chairman ENZI. Absolutely. 

Senator SANDERS. All right. So I want to know why it is that a 

handful of defense contractors—and we have relatively few of 

them—are able to run up over $537 billion in cost overruns. If 

somebody says if you go out to whatever degree we have competitive bidding—and I understand not everybody on the block builds 

F–35s, right? It is a little bit different than paving roads. I got 

that. But, nonetheless, if somebody says, ‘‘I am going to build you 

this weapons system for $5 billion,’’ and then they come back and 

say, ‘‘Oh, I am sorry, it cost $10 billion,’’ is there somebody at the 

Department of Defense that says, ‘‘Well, you are going to have to 

eat it, guys, because you told us you could do it for $5 billion’’? Why 

do we run up $537 billion in cost overruns? 

Mr. Chairman, is that a fair question? 

Chairman ENZI. I think so. 

Senator SANDERS. Okay. It is a bipartisan question then. 

[Laughter.] 

Mr. DODARO. All right. I will give you a bipartisan answer to the 

question. Then I will ask our expert in weapons acquisition issues 

to elaborate. 

Senator SANDERS. Okay. 

Mr. DODARO. Because he has studied all these programs over 

time. 

Senator SANDERS. Good. 

Mr. DODARO. Now, part of the problem is that the requirements 

are not set. If you were a mayor you would have exactly how many 

streets you want paved and what kind of material you want to use. 

This information would foster competitive bids. 

Senator SANDERS. Yes. 

Mr. DODARO. That does not happen in a lot of these contracts because the requirements keep changing, they are not set up front. 

The other thing is defense—— 

Senator SANDERS. Well, requirements keep changing. I understand that. 

Mr. DODARO. Yes. 

Senator SANDERS. I am not minimizing the complexity of weapons systems. 


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Mr. DODARO. Right. 

Senator SANDERS. But, you know, I presume the DoD tells the 

contractor what they require, what they need. I mean, it is not 

quite a good enough answer to say requirements keep changing. 

Mr. DODARO. Well, no—— 

Senator SANDERS. Is that a problem or is that the nature of the 

world there? 

Mr. DODARO. Well, it is the way they operate. 

Senator SANDERS. But should they be operating that way? 

Mr. DODARO. Well, we have made suggestions on how they could 

improve their process for setting requirements and approving technologies to go into production. You know, you mentioned, as we did, 

a lot of the cost increases after production. What we have found is 

that a lot of times they will send things into production, even 

though the technologies are not mature enough, and so you discover new problems when you go into production that then have to 

be corrected, and then that requires a lot of additional money later, 

and—— 

Senator SANDERS. But, presumably, Mr. Dodaro, doesn’t somebody at the DoD know that, know what you are talking about? 

Mr. DODARO. They know it, but they have to make sure that they 

follow the process. We have made many recommendations for best 

practices—— 

Senator SANDERS. Let me interrupt you here just to ask you a 

simple question. Is this issue that we are focusing on—it seems to 

me to be a major issue when we talk about unnecessary expenditure of Federal funds. Am I right in saying that or not? 

Mr. DODARO. It is a significant issue. It has been on our HighRisk List since 1990. So we have been focused on it. We have made 

recommendations. Congress passed major reform legislation in 

2009 implementing many of our recommendations. We have seen 

improvements in weapons systems going into production post-2009 

reforms that Congress passed and better performance in those 

areas. So there are a lot of systems that are still in the area, but 

I will let Mike explain. 

It is an important issue. We have been focused on it. There have 

been some improvements, but more needs to be done. 

Senator SANDERS. Okay. 

Mr. DODARO. Mike. 

Mr. SULLIVAN. Yes, Senator. So just to go back a little bit, it is 

a matter of, as the Comptroller General said, weapons systems are 

very complex, cutting edge, oftentimes bleeding edge kind of technologies. And in order to get the contracting world and the industrial base to sign up to do things, like a B–2 bomber when it was 

done or currently a Joint Strike fighter or the satellites. The federal government uses contracting methods that more or less open 

the door to a lot of cost inefficiency. It is called ‘‘cost-plus contracting’’ for development. And it more or less became the way to 

do business in the late 1970’s—— 

Senator SANDERS. Does cost-plus, for the laymen here, mean I am going to give you a $2 billion estimate, but if it costs me more, 

I am going to bill you more? Is that what cost-plus—— 

Mr. SULLIVAN. Yes. Basically, it’s ‘‘I will send you the bills.’’ 

[Laughter.] 


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Mr. SULLIVAN. And the plus part of that is actually an award fee. 

They put criteria in the contract, if they do this faster, they get 

extra money on top of that. It was a cultural issue—still is, basically the way that they do business—— 

Senator SANDERS. Did you say ‘‘cultural’’? 

Mr. SULLIVAN. Yes. It really—— 

Senator SANDERS. All right. Let me stop you. 

A couple of years ago, Mr. Chairman, I had somebody from the 

DoD in the office, and he said—this is what he said. He said, 

‘‘Look, the truth is’’—this is 5 years ago——‘‘we have a whole lot 

of money, and people were not watching that money very, very 

carefully.’’ And when you talk about cost-plus, you and I are going 

to do business, I am going to tell you I am doing it for X, but, by 

the way, I am going to charge you more, and that is not a problem. 

That seems not a particularly efficient way to do business. Yes? Am 

I missing something? 

Mr. SULLIVAN. It is—obviously if you have a urgent, urgent need 

and nobody knows how to do it, that is when you do this. 

Senator SANDERS. Yes. 

Mr. SULLIVAN. And that is how the Department operated when 

some of the Cold War weapons that the government bought that 

were not urgent needs, it did it that way. And so, for example, if 

you look at the B–2 bomber, the F–22, F–35, any of these big—I 

do Air Force work, so I look at that, but ships, same thing. They 

would go in with an—take the estimate that would call for—I think 

in the F–22 case, they probably estimated about $10 billion for the 

development cost, and it turned out to be over $20 billion. One of 

the reasons for that is, as complex as it was, when they wrote the 

requirements, they did not really do the due diligence that they 

need to do, the systems engineering, the prototyping you have to 

do ahead of time. 

Senator SANDERS. Who, the contractor? 

Mr. SULLIVAN. The contractor and the Government both. But, 

yes, the contractor accepted requirements that it did not really 

know how to do, and they do not do a lot of trading—you know, 

there is space before you start a program where you can look at 

cost—— 

Senator SANDERS. Let me interrupt you. You said this cultural 

thing. You know, the Chairman made a point. Again, you are talking to two ex-mayors. What you are really suggesting is they did 

not fully understand what they were getting into. 

Mr. SULLIVAN. That is right. 

Senator SANDERS. And, unfortunately, it was the taxpayer who 

had to pick up the difference. 

Mr. SULLIVAN. That is right. The taxpayer—— 

Senator SANDERS. But in the world that we lived in, it would be 

the contractor would have to pick up—‘‘Sorry you screwed up, guys. 

You have to eat it.’’ Yes? 

Mr. SULLIVAN. Yes. 

Mr. DODARO. You might want to mention the tanker. 

Mr. SULLIVAN. Okay, yes. 

Mr. DODARO. There is one program that they are doing that now. 

I would ask Mike to explain that, where the contractor is picking 

up the tab for it. 


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Mr. SULLIVAN. Yes, it is the KC–46 tanker, which the Government really scrubbed the requirements, did a lot of cost and performance trade analysis before they let the bid for the contract. 

Boeing made the bid, and it was a fixed—price contract, which 

means anything over the bid, is Boeing’s. As a matter of fact, right 

now the program is a little bit behind schedule. No real issues performance-wise, and it has gone above Boeing’s cost estimate. It hit 

the ceiling, and Boeing is paying I think as much as $1 billion for 

that now. 

Senator SANDERS. But isn’t that a sensible way to proceed? 

Mr. SULLIVAN. Yes. We think that is the way to do product development. We are talking about what procurement should be and it 

usually is fixed price. They sign fixed-price contracts for lots of the 

F–35s right now. It is in development where they use these contracting methods that really places all the cost risk on the Government. 

Senator SANDERS. Yes, Okay. Thank you, Mr. Chairman. 

Mr. SULLIVAN. But the tanker is an example of a direction they 

are moving in now. 

Senator SANDERS. Good. 

Chairman ENZI. To follow-up on that a little bit, I remember running into a guy that built office buildings, and he told me that 

what he really relied on, he did a nice tight bid, but then he always 

tried to encourage them to do some changes to their plans after the 

bid, and then he could charge extra for the changes. And, evidently, 

on the KC–46 we are not making a lot of changes then, so they 

cannot—— 

Mr. SULLIVAN. One of the keys was that the Government knew 

exactly what it wanted, did its homework up front, and there have 

been no increased requirements, so the contractor has not been 

able to reopen their contract. 

Chairman ENZI. Thanks. I am going to switch to the Department 

of Veterans Affairs, the VA. They launched a new program to 

streamline the way its medical centers buy supplies for treating 7 

million veterans. The GAO found that the VA lacked any overarching strategy, and the rollout of the program ran counter to 

practices of leading hospitals. As a result, the list of available products did not meet medical center needs, and the program has yet 

to achieve the key goals of cost savings and greater efficiency. 

Can you tell me a little bit about if the VA is making any 

progress on establishing a formulary that meets veterans’ needs 

and follows the practices of hospitals, for example? 

Mr. DODARO. In the short term, what VA is trying to do now, 

from what we understand, is increase the number of items on the 

formulary from 8,000 to about 37,000 items, so to put more items 

available there. Now, one of the problems we found earlier is they 

had not selected all the proper items to put on the list, so hopefully 

they are doing a better job of doing that. 

In the longer term, they are trying to come up with a whole new 

strategy, and part of that longer-term strategy will involve the clinicians, the people with the clinical skills who know what items 

they really need. This is one of the recommendations that we have 

made to them. My understanding is this week the House has 


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passed legislation that would require VA to ensure that the clinicians are involved in deciding what items are needed. 

What we found is because they were not involved earlier, even 

though they had this central formulary that was supposed to drive 

down cost, it did not include all the items that they needed, so they 

were using purchase cards and emergency purchasing services at 

the medical centers to get the supplies they needed, because it was 

not coming through this central purchasing authority. 

So I would say they are in the very early stages of trying to address our recommendations and improve this process, but they still 

do not have a good long-term strategy. 

Chairman ENZI. They are increasing it from 8,000 to 30,000 or— 

are they eliminating any? 

Mr. DODARO. Yes, well, what I understand is they are focusing 

initially on items they know they need every month for surgical 

supplies and medical supplies. So these are known needs. 

Now, the question is whether or not the data that they are drawing from is accurately showing what those needs are, because there 

are a lot of different purchasing vehicles. So we will go in, and we 

are going to follow-up, we are going to work with them and hopefully move them in the proper direction in this area. They are trying new approaches, and they just need to address the recommendations that we have made, and we are going to follow up. 

Chairman ENZI. Okay. I appreciate that. Some helpful outside research. 

Your report also states in regard to the Federal STEM education 

in 2016 that spending totaled almost $3 billion for 163 programs 

in 13 agencies and nearly all of those programs overlapped with at 

least one other program. We do need strong STEM programs in 

order to move forward as a country. What kind of checking are 

they doing to see if the programs are effective and to reassign them 

so that there is more direct oversight? 

Mr. DODARO. They are not doing what was expected of them. 

There is a Committee on STEM Education that was created by the 

Congress and the Office of Science, Technology, and Policy in the 

White House that is required to review program evaluations that 

were supposed to be done on the STEM education programs and to 

document them and to evaluate how well they are performing in 

this portfolio of programs. And that has not been done, and we recommended that they go forward and do that. 

Now, the Congress also passed additional legislation last year to 

require them to report on this analysis and to go forward. As a result, while some individual STEM programs have been evaluated, 

many have not, and there has not been this portfolio review done 

where it is documented and then there could be action taken to 

consolidate programs that may not be working effectively or eliminate some of the programs. So without that fundamental performance information on how well the programs are doing, they cannot 

make informed decisions on how to change the portfolio. 

So they have agreed to implement all our recommendations, 

which should put them in a better position to be able to know 

which programs are working effectively or not, and then take appropriate action, which could include consolidating or eliminating 


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some of the programs or redesigning them if they know what the 

design flaws would be. 

Chairman ENZI. For over 25 years, I think we have had some requirements on the Government Performance and Results Act. Is 

anybody actually doing that? 

Mr. DODARO. Some people are, but what we find in some cases 

where they are doing the evaluations, they are not using it to make 

decisions going forward. In this case, Congress set specific requirements for this Committee on STEM Education, and they have not 

fulfilled those responsibilities yet, and that is what we have recommended that they do. This is separate and apart from the Government Performance and Results Act. But it is consistent with 

that, Mr. Chairman, as you point out. 

So there have been strides where there has been greater use of 

performance measures or greater development of performance 

measures, but what we find when we do surveys periodically of 

Government managers is that the results of those evaluations and 

studies are not being used as effectively as possible. 

Chairman ENZI. Thank you. 

Senator Sanders. 

Senator SANDERS. Thanks. 

The Chairman talked about VA, which is a huge $200 billion operation. The VA negotiates drug prices with the pharmaceutical industry, and if I am not mistaken, I think they pay the lowest prices 

in this country for prescription drugs, much lower than Medicaid 

or Medicare. Have you guys done any studies about how much savings would accrue to the taxpayers if all Government agencies paid 

the same amount of money as the VA did for prescription drugs? 

Mr. DODARO. We have been asked to look at that issue and compare VA, Medicaid, Medicare. I do not have the information—— 

Senator SANDERS. By the way, the drug companies tried to keep 

this—what do you call it?—confidential, what is the—proprietary. 

Mr. DODARO. Yes. 

Senator SANDERS. And what you will find is they are all different 

prices. The same drug, the VA pays X dollars for it, Medicaid pays 

Y dollars for it. 

Mr. DODARO. Yes, and DoD. 

Senator SANDERS. DoD pays—— 

Mr. DODARO. Same thing. I would be happy to provide a summary of our work. 

Senator SANDERS. All right. Let us work on that. Will you do me 

a favor? 

Mr. DODARO. Sure. 

Senator SANDERS. Let us talk about how we can go forward. 

Mr. DODARO. Okay. 

Senator SANDERS. I am curious about that. 

Let me ask you just a question. My understanding is that since 

1995 Boeing, Lockheed Martin, and United Technologies have paid 

nearly $3 billion in fines or related settlements for fraud or misconduct. That is a lot of money, and that is above—we are not talking about cost overruns here. This is illegal behavior. Do we have 

an epidemic of fraud and illegal behavior within the defense contractors industry? 


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Mr. DODARO. That is not an area we have looked into. I would 

be happy to consider what we could do to look at the information 

that you provided. 

Senator SANDERS. You know, I am not aware that we have the 

most vigorous fraud enforcement—you know, people looking at 

these issues. But $3 billion from major contractors, it seems to me 

that we may have a serious problem above and beyond cost overruns. 

Mr. DODARO. We will consider how we could take a look at that. 

Senator SANDERS. Okay. 

Mr. DODARO. And, also, you know, to look at that in perspective 

to other industries as well, too. 

Senator SANDERS. Okay. Could we drop into your office and 

maybe chat about this? 

Mr. DODARO. Sure. 

Senator SANDERS. Okay. Let me get back to an issue that I 

raised a moment ago. You have major contractors like Lockheed 

Martin and Raytheon. They receive 90 percent of their revenue 

from national defense, 70 percent from the U.S. Government, 20 

percent from other governments buying military equipment, and 

they pay their CEOs over $20 million in total compensation. I 

asked the DoD about that, and they wrote back and they said basically with regard to what companies decide to pay their executives 

and employees is within the purview of the owners or boards of directors and shareholders. 

Do you think that if the U.S. Government provides 70 percent of 

the revenue for Lockheed Martin or Raytheon and they provide 

their CEO with 100 times more salary than the Secretary of Defense, is that a proper issue for the U.S. Government to look into? 

Mr. DODARO. We were asked to look at this issue a few years 

ago, and based on our report, the Congress decided to set a cap on 

how much executive compensation could be charged to the Federal 

Government, and it was initially set at $487,000, and it is to be indexed over time. Currently, the current cap for 2017 was $1.1 million. Clarification: This limit, which was set by the Office of Federal Procurement Policy officially at $1,144,888, is the amount that 

contractors may charge the government for compensation costs— 

not only for executives but for all employees—incurred during 2018 

for contracts that were awarded before June 24, 2014. The limit 

that contractors may charge the government for compensation costs 

incurred during 2018 for contracts awarded on or after June 2014 

is $525,000. So, whatever they decide to pay their top executives, 

they can only charge the Federal Government about $1 million for 

contracts awarded prior to June 24, 2014 for compensation costs incurred during 2018; if the contract was awarded on or after June 

24, 2014, however, contractors may only charge the government 

$525,000 for compensation costs incurred during 2018. 

Senator SANDERS. They could add the other $19 million to the 

cost of their F–35s, can’t they, pretty easily? 

Mr. DODARO. Well, it is up to the Defense Department to scrub 

their analysis of the costs that they charge the Government and to 

be audited by the Defense Contract Agency and make sure they 

have proper cost accounting systems. But I am just saying what 

the requirement is. 


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Senator SANDERS. Okay. All right. Those are my questions, Mr. 

Chairman. And, Mr. Dodaro, we will give you a ring, and if you can 

come in, we can go over some of these things. 

Mr. DODARO. Sure. I would be happy to discuss those issues. 

Senator SANDERS. Okay. Thank you very much. 

Mr. DODARO. You are welcome. 

Senator SANDERS. Thanks for your good work. 

Mr. DODARO. Sure. Thank you. 

Chairman ENZI. Senator Boozman. 

Senator BOOZMAN. Thank you, Mr. Chairman. And thank you 

very much for being here. 

In your testimony, you discuss many of the challenges of the Veterans Health Administration that they face. Specifically, you mention issues with human capital, medical supplies procurement, IT 

operations, maintenance, and the list goes on and on. As a member 

of the Veterans’ Affairs Committee, I noticed that the Department 

of Veterans Affairs was rather high on the list of agencies with not 

addressed or partially addressed actions. 

Have you identified road blocks at the VA that have prohibited 

them from implementing your recommendations? 

Mr. DODARO. No, Senator. I have made it a priority to meet with 

each Secretary of Veterans Affairs since I have been in this job. I 

met with Secretary Shinseki—— 

Senator BOOZMAN. You met with a bunch of them lately. 

Mr. DODARO. Yes, McDonald and Shulkin, and I plan to meet 

with the new Secretary once there is one in place. And each time 

I met with them, I encouraged them to implement our recommendations. In many cases they agreed with the recommendation, but then it was not implemented. And I told them they are 

not getting the benefit of implementing the recommendations. 

So with the last Secretary, Secretary Shulkin, we set up quarterly meetings. We were meeting with their staff to try to encourage them to implement the recommendations. So they are making 

some progress, and there is no real barrier. I am very concerned 

about the VA. I think it needs leadership. It has some of the most 

serious management problems in the Federal Government, and I 

look across the whole Federal Government. So I have made it a 

high priority. In 2015, added veterans’ health care to the High-Risk 

List that we keep for Congress of the highest risks. The disability 

portion was already on the High-Risk List for many years. And we 

are looking now at veterans’ health care and focused on contracting 

activities. 

So they need some leadership. They need follow-through and 

some fundamental management reform. 

Senator BOOZMAN. One of the issues is that not only—and, again, 

I am excited about the prospect of us confirming the President’s 

nominee. I think he is going to do a very, very good job. But one 

of the problems I have got now is just the fact that there is just 

so many open spots, you know, in key leadership positions. 

Mr. DODARO. That is an issue. They have somebody now finally 

at the VBA, and I am going to be meeting with Paul Lawrence and 

talking about our recommendations there. But they do not have 

somebody at the VHA and in other areas, the CIO. They have a 

big contract for the electronic health care records. So that is an 


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issue. When I say leadership, I do not just mean the Secretary. I 

mean throughout the Department. 

Senator BOOZMAN. Right, very much. In a related situation, according to GAO’s report, Congress and the executive branch have 

not addressed or resolved approximately 25 percent of identified 

items. Why do so many items remain open? And approximately 

how much money could be saved by—what do you estimate are the 

dollars that could be saved by implementing GAO’s open recommendations? 

Mr. DODARO. These are recommendations across the board. We 

were talking about the open ones. For those Senator, I believe 

there are tens of billions of dollars that could be saved by implementing our recommendations. It depends on specifically what 

needs to be done, but easily tens of billions of dollars. And these 

would be savings that would generally not adversely affect the provision of services. Some of them are revenue enhancements that 

would bring in additional revenue that Congress could decide how 

to use. So there are lots of additional opportunities to save money. 

Senator BOOZMAN. Very good. Thank you, Mr. Chairman. 

Chairman ENZI. Thank you. 

It will be my turn again. Mr. Dodaro, the GAO report highlights 

millions of dollars in duplication of Federal agencies’ provisions for 

identity theft services in response to the data breaches that we 

have had. The report notes that the Office of Management and 

Budget, OMB, is responsible for coordinating these services across 

agencies. What steps should OMB take to better coordinate the 

provision of identity theft services to ensure that agencies do not 

waste the taxpayers’ dollars by offering duplicative theft help? 

Mr. DODARO. Well, first, OMB should track and keep a central 

repository of all the Federal agencies’ efforts to offer identity theft 

services to make sure that before an agency goes forward with a 

new decision, that they know to what extent the Federal Government has already provided services to specific populations. 

Second, OMB should issue some guidance that should go to agencies about identifying alternatives to identity theft services such as 

credit freezes and fraud alerts that may be cheaper and more effective over time. What we found is that some of these identity theft 

services will cover some out-of-pocket costs. They will not actually 

cover, material losses if something happens where the information 

is inappropriately used. So there are typically only reimbursements—so far from what we have seen, a few thousand dollars that 

they are getting reimbursed, where it is costing millions of dollars 

to provide these services to the Government. So there may be a better cost-benefit analysis, and OMB should require agencies to conduct a cost-benefit analysis of alternatives before deciding how to 

move forward. 

Now, OMB mentioned some concerns about keeping central data 

bases in terms of secrecy or privacy concerns, but we think that 

this could be overcome properly. This would be a better value to 

the Government. 

Chairman ENZI. You are a wealth of information on this, and I 

have got another question or two, but Senator Grassley has joined 

us, and as head of Judiciary alone, he has got a really busy job, 

but he is also on a number of other committees, and he is probably 


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one of the best attendees at any of them, so if you have got some 

questions. 

Senator GRASSLEY. Thank you. We just finished five nominees 

just now, so I am glad to be able to get here. Thank you, and thank 

you for the good work you do. 

You have identified ways to reduce fragmentation, overlap, and 

duplication. You report Congress and the executive branch have 

partially or fully addressed 76 percent of the action items identified 

in the 6 years of your report. That is 551 altogether. So that leaves 

122. I hope this is not too difficult a question. Let us say you are 

not going to get all 122 items done. Could you tell me two or three 

that are the most important or urgent for Congress to take action 

on that you would suggest? 

Mr. DODARO. Yes, Senator. To address that question, as an appendix to my testimony, there are 50 open matters for congressional consideration that I consider high priority, so they are 

spelled out in the appendix. For example, we have just one area 

alone we think could potentially save tens of billions of dollars, and 

that is to provide the Department of Energy the ability to consider 

alternative methods for treating nuclear waste at the Hanford site. 

Congress has already provided this authority for the Savannah 

River site, and we think these alternative methods can treat the 

waste faster—and this is low-activity waste. We are not talking 

about high-level waste, which Congress and Federal law requires 

to be vitrified or turned into glass before disposal. There is a cheaper method called ‘‘grouting’’ that can use a concrete-like mixture for 

low-activity waste. And if they are allowed to switch to this treatment method they could potentially save tens of billions of dollars. 

Environmental liabilities right now are estimated in the Federal 

Government to be almost half a trillion dollars. And we are spending tens of billions every year, and the liability keeps going up. 

Then we have a number in the Medicare-Medicaid area. For example, there have been demonstration projects approved over the 

years where about one-third of total Medicaid spending right now 

has been provided through these demonstration projects, they were 

supposed to be budget—neutral. They are not, based on our analysis. So we think tens of billions of dollars could be saved by bringing them into a budget-neutral position. 

On Medicare, for example, we think giving equal treatment to 

these cancer hospitals that they were initially developed in the 

1980’s when cancer therapies were first being developed. They are 

reimbursed at a different rate than if you go into a teaching hospital and receive the same cancer therapy. If you equalize the 

rates, you would save $500 million a year. 

Also under Medicare, if you go in and see a doctor and if the doctor’s practice is owned by a hospital, they get reimbursed at a higher rate than a doctor in a private practice not owned by a hospital. 

If you equalize those rates, you would save $1 billion to $2 billion 

a year. 

So those are some of the areas, but we have many others. 

Senator GRASSLEY. Okay. My last question. Since 2014, your organization has recommended that Congress enact legislation to better coordinate Social Security disability with unemployment. While 

proposals have been offered to address this issue over the years, 


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enacting such a proposal has been met with resistance by some. 

Could you elaborate on why GAO sees this as a duplication meriting correction? 

Mr. DODARO. Yes. Our work identified people that were receiving 

both benefits. Now, both benefits try to compensate you for not 

working, whether it is unemployment or disability insurance, and 

we believe that, people should have support if they have lost their 

income for a legitimate reason. But they should not receive both 

benefits at the same time. And so we think the Congress ought to 

consider rectifying that situation. 

Senator GRASSLEY. Okay. Thank you, Mr. Chairman. 

Chairman ENZI. Thank you. 

I want to ask a question, too, on the Social Security Administration because in your testimony it mentions that there are five quality assurance reviews of decisions on appealed disability claims and 

that it spent $11 million on those reviews in fiscal year 2016 alone. 

In December 2017, you found that some of these reviews may overlap and that the Social Security Administration has not evaluated 

the efficiency and effectiveness of the reviews. 

Why does SSA have five different quality assurance reviews? 

And what is the agency doing, if anything, to streamline those reviews? 

Mr. DODARO. This is a classic case of what we find when we find 

overlap and duplication, that these quality reviews were added for 

different purposes over time. The first quality reviews were done 

in 1940, so they have added these other programs to deal with different issues, and they have never really gone back and done a systematic look to see whether some of them could be consolidated. 

They have agreed with our recommendations. They have already 

started taking some action to consolidate some of the reviews within a certain program office, and they are looking at how they can 

consolidate the reviews further over time. But this is a pattern we 

have seen. That is why you have 160 housing programs, why you 

have, 160-some STEM programs. They get added over time, and it 

is very rare something gets taken off the table. And that is the benefit of our recommendations. 

Chairman ENZI. Nothing has quite as much longevity as a Federal government program. 

[Laughter.] 

Chairman ENZI. Well, I want to thank you for your outstanding 

answers. I remember when this was called the ‘‘Government Accounting Office,’’ and I thought that it should have stayed that as 

an accountant. 

[Laughter.] 

Chairman ENZI. But after hearing your answers, I am glad that 

it went to ‘‘accountability.’’ I think that is going to be much more 

effective than the other. I am fascinated with your vast knowledge. 

Your experience and years of doing this really show. I appreciated 

the comment you made earlier about prioritizing the suggestions 

that you have in order of dollars of savings. That shows that you 

are doing at your agency what you are requiring the others to do 

as well, and I appreciate that you meet with the different agencies, 

but that you also meet with the appropriators. I hope everybody is 

taking advantage of that. 


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You have some other expertise with you there as well, and I appreciate that. If you could supply the record with the full names 

of your experts for a part of the record today, too, that would be 

appreciated and helpful. 

Mr. DODARO. I would be happy to do that, Mr. Chairman. We 

have terrific people at GAO. 

Chairman ENZI. You must to produce these reports that you are 

putting out. 

Mr. DODARO. And we still do all the accounting work. 

[Laughter.] 

Chairman ENZI. Yes. Your full statement, of course, will be included in the record, and my staff will be working to see if there 

are other contacts that we can make to get that information out to 

more people that can suggest to the decision maker the answers 

that you have suggested. 

As information for all Senators, questions for the record are due 

by 6 p.m. today with a signed hard copy delivered to the Committee clerk in Dirksen 624. And under our rules, GAO has 7 days 

from the receipt of the questions to respond to the answers. 

If there is no further business to come before the Committee, the 

hearing is adjourned. 

[Whereupon, at 11:36 a.m., the Committee was adjourned.] 

ADDITIONAL COMMITTEE QUESTIONS 

[The following submitted questions were not asked at the hearing but were answered by the witness subsequent to the hearing:] 


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1GAO, Medicare: Lack of Price Transparency May Hamper Hospitals’ Ability to Be Prudent 

Purchasers of Implantable Medical Devices, GAO–12–126 (Washington, DC.: Jan. 13, 2012). 

QUESTION FOR THE RECORD FROM SENATOR MURRAY

Question 1 

One area where cross-agency collaboration has been lacking is 

improving the data collected on medical implants to both reduce 

patient harm and costs. While medical claims submitted to health 

plans-including Medicare-are increasingly used as a key pillar to 

create a learning healthcare system, claims lack information on the 

brand and model of medical implants, including artificial hips and 

cardiac stents. A new tool created by the Food and Drug Administration (FDA)—called the unique device identifier-indicates the 

brand and model of implants, and could be integrated in to claims 

data to support analyses on the long term safety of those products. 

The Office of the Inspector General of the Department of Health 

and Human Services (HHS OIG) has recommended adding device 

identifiers to claims after finding that the failure of just seven 

types of cardiac implants cost the Medicare program $1.5 billion 

and beneficiaries an additional $140 million in out-of-pocket costs 

to get care associated with those faulty products. The Medicare 

Payment Advisory Commission (MedPAC) has also recommended 

adding device identifiers to claims, as have dozens of health plans, 

hospital systems, clinical societies and other key organizations. 

While the FDA has indicated that adding device identifiers to 

claims is a key element of its device safety strategy, the Centers 

for Medicare & Medicaid Services-which supported this policy in 

the previous administration-has recently stated that it is still reviewing this proposed change. As part of GAO’s forthcoming report 

on cross-agency collaboration, have you evaluated whether to join 

HHS OIG, MedPAC, FDA and many other organizations in recommending this common sense policy that can improve patient safety 

while reducing costs? 

GAO Response 

In our 2012 report on certain implantable medical devices, we 

noted several shortcomings that arose from Medicare not having information on the specific devices implanted in patients. 1 We stated 

that CMS generally intended to link payment to the quality and efficiency of care provided—a move toward value-based purchasing in 

Medicare—but that one of the principles of value-based purchasing 

is having good data on performance and that such data generally 

were lacking for specific brands of implantable medical devices. We 

reported that there were registries of postoperative outcomes for 

some cardiac devices, but none for orthopedic or spinal devices outside of specific organizations such as Kaiser Permanente. Furthermore, we stated that because hospital data currently were embedded in multiple data systems—such as medical records, operating 

room logs, purchasing department records, and billing systems—it 

could be difficult to match which device brand was used with a particular patient. Finally, we noted that efforts to improve information about patient safety and medical devices would be supported 

by the implementation of unique device identifiers and that the 

Food and Drug Administration Amendments Act of 2007 required 


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2Department of the Treasury, ‘‘General Explanations of the Administration’s fiscal year 2017 

Revenue Proposals,’’ February 2016, available at https://www.treasury.gov/resource-center/taxpolicy/Documents/GeneralExplanations-FY2017.pdf. 3To promote retirement savings without creating permanent tax-favored accounts for a small 

segment of the population, GAO suggested that Congress should consider revisiting the use of 

IRAs to accumulate large balances and consider ways to improve the equity of the existing tax 

expenditure on IRAs. Other options could include limits on (1) the types of assets permitted in 

IRAs or (2) the minimum valuation for an asset purchased by an IRA. See GAO, Individual Retirement Accounts: IRS Could Bolster Enforcement on Multimillion Dollar Accounts, but More 

Direction from Congress Is Needed, GAO–15–16 (Washington, DC.: Oct. 20, 2014). 

the promulgation of regulations establishing a unique device identification system. 

QUESTION 1-6 FOR THE RECORD FROM SENATOR VAN HOLLEN

Question 1 

According to press reports, the Executive Branch may be withholding some of the funding that Congress has appropriated to the 

National Labor Relations Board (NLRB), which is the agency responsible for protecting the rights of workers in the private sector. 

At a hearing of the Senate Appropriations Subcommittee on the 

Legislative Branch on April 25, you indicated to me that the Government Accountability Office was looking into this as a potential 

impoundment of funding at the NLRB, which could be in violation 

of the Impoundment Control Act. Is GAO still examining whether 

there is an impoundment taking place at NLRB, and if so, when 

do you expect to report to Congress on this question? 

GAO Response 

Our work on the potential impoundment of funds at NLRB is ongoing. We expect to provide your staff with an update by the end 

of June 2018. 

Question 2 

In 2015, GAO recommended that Congress take action to limit 

the extent to which wealthy individuals could accumulate massive 

amounts of money in tax-advantaged retirement accounts such as 

IRA and 401(k) plans. These accounts are critical tools that help 

millions of middle-class families save for retirement, but some very 

wealthy individuals are abusing the rules for these accounts to 

turn them into a tax shelter with account balances that can reportedly exceed $100 million. Would President Obama’s proposal to 

‘‘Limit the total accrual of tax-favored retirement benefits’’ have addressed GAO’s recommendation for this issue? 2 And did the recently enacted tax overhaul (Public Law 115–97) take any action 

to address this recommendation from GAO? 

GAO Response 

The Obama Administration proposal would have addressed one 

option that we suggested in that it would introduce an overall cap 

on retirement contributions and savings in tax-preferred accounts. 3

The Administration’s Fiscal Year 2017 proposal was to limit additional contributions beyond the amount necessary to provide the 

maximum annual annuity permitted for a tax-qualified defined 

benefit plan. If a taxpayer reached the maximum permitted accumulation, no further contributions or accruals would be permitted, 

but the taxpayer’s account balance could continue to grow with investment earnings and gains. At the time of proposal, the maxVerDate Sep 11 2014 13:37 May 06, 2019 Jkt 000000 PO 00000 Frm 00410 Fmt 6601 Sfmt 6601 H:\GPO\PDF\OUT\35700.TXT PAT

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4GAO, Tax Expenditures: Background and Evaluation Criteria and Questions, GAO–13– 

167SP (Washington, DC.: Nov. 29, 2012) outlines a series of questions and criteria—economic 

efficiency, equity, simplicity, transparency, and administrability—that can be used to evaluate 

the performance of a tax expenditure or a proposal to modify an existing tax expenditure. 5Pub. L. No. 115–97, 131 Stat. 2054 (Dec. 22, 2017). 

6 IRS Notice 2017–64. 

7For 2018, the limit for an annual benefit from a defined benefit plan is $220,000. 

8For 2018, the contribution limit on an employee’s elective deferral is $18,500, and the overall 

defined contribution limit, which includes the total of all employer contributions and employee 

elective deferrals, is $55,000. For 2018, the maximum contribution for all traditional and Roth 

IRAs in total is $5,500. 

imum annual benefit was $210,000, and the Administration stated 

that the maximum permitted accumulation for an individual age 62 

was approximately $3.4 million. 

We have not assessed an approach for limiting contributions to 

defined contribution plans and individual retirement accounts 

(IRA) based on the actuarial equivalence calculations used for defined benefit plan accumulations. 4 However, according to Department of the Treasury’s February 2016 estimates, the Administration’s fiscal year 2017 proposal limiting the total accrual for taxfavored retirement benefits would have generated an estimated $30 

billion from 2017 through 2026. In July 2016 using Congressional 

Budget Office economic assumptions, the Joint Committee on Taxation estimated that the Administration’s 2017 proposal would 

have generated about $4.4 billion over the period. 

In December 2017, Congress enacted and the president signed 

Public Law 115–97 which included significant changes to corporate 

and individual tax law. 5 In February 2018, the Internal Revenue 

Service announced that the recent tax legislation made no changes 

to the section of the tax law limiting benefits and contributions for 

retirement plans. Although the new law made changes to how cost 

of living adjustments are made, after taking the applicable rounding rules into account, the 2018 limit amounts remained unchanged. 6 For employer-sponsored defined benefit plans, benefits 

are limited to amounts needed to provide an annual benefit no 

larger than the lesser of a specific dollar amount or 100 percent of 

the participant’s average compensation for the highest 3 consecutive calendar years. 7 Employer-sponsored defined contribution 

plans have annual contributions limits, and similar contribution 

limits exist for IRAs. 8 However, there is no total statutory limit on 

IRA accumulations or rollovers from employer-sponsored defined 

contribution plans. 

Question 3 

One of the issues this report examined is the Social Security Administration’s lack of coordination with the Department of Education to monitor the extent to which individualized education programs (IEP) are being used to connect transition-age youth with 

disabilities with vocational rehabilitation services. Leveraging a 

student’s IEP to link them with vocational rehabilitation transition 

services—as well as work incentives and benefits planning—could 

help create a continuum of services into adulthood to bolster employment and higher education outcomes in the long-term. But of 

course, in order for that to be a successful model, children on SSI 

need to have IEPs in the first place. According to a 2005 National 

Survey of SSI Children and Families from SSA, 32 percent of children on SSI did not have an IEP. As part of this review, did GAO 


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9GAO, Supplemental Security Income: SSA Could Strengthen Its Efforts to Encourage Employment for Transition-Age Youth, GAO–17–485 (Washington, DC.: May 17, 2017). 

examine how many children receiving SSI do not have IEPs at all? 

If so, does GAO have more recent data that you can share? 

GAO Response 

As part of our work, we made inquiries to determine whether we 

could match Social Security Administration (SSA) data on SSI recipients aged 14 to 17 with data on students with IEPs. 9 Because 

student files do not always include Social Security numbers, we 

were unable to identify a reliable source of IEP data to match with 

SSI recipient data to determine the extent to which youth receiving 

SSI have IEPs. Further, we learned that SSA only collects IEP information in certain cases—for example, when it is reviewing an 

SSI recipient for continued eligibility—and therefore lacks complete 

information to systematically determine whether youth receiving 

SSI have IEPs. As a result, we could not determine the proportion 

of youth on SSI who lacked an IEP. 

Question 4 

Once children on SSI have an IEP in place, I agree that we need 

to understand the extent to which IEPs are not being used to connect students with these services. From GAO’s perspective, what 

value would this data provide? 

GAO Response 

While data on connections to vocational rehabilitation services 

made through IEPs may be useful for evaluating the effectiveness 

of IEPs, our work did not focus on this issue; rather we examined 

whether or not youth on SSI had IEPs that could connect them to 

vocational rehabilitation and found that data to make such determinations are unavailable. We recommended that SSA work with 

the Department of Education to determine the extent to which 

youth on SSI are not receiving transition services through schools 

that can connect them to vocational rehabilitation agencies and 

services. SSA partially agreed with this recommendation, noting 

some on-going collaborative efforts with Education and expressing 

concerns about the legality of sharing privacy data. However, SSA’s 

current collaborative efforts with Education are not designed to determine the extent to which youth on SSI are receiving transition 

services through schools or being connected to vocational rehabilitation services. While we acknowledge that legal and privacy issues 

can present challenges to collaboration, we believe that SSA can 

explore approaches that take into account such legal issues. 

Question 5 

In its response to GAO’s recommendation on IEPs and transition 

services, SSA stated that sharing the data necessary to identify 

students with SSI who are not receiving transition services in 

schools may raise privacy concerns. However, GAO noted that SSA 

has overcome privacy concerns and found work-arounds to share 

similar data in the past. Can you provide an overview of some of 

those situations and how those work-arounds could be applied to 

take action on this recommendation? In your view, is there anything that Congress can do—or should be doing—to help facilitate 


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10GAO, Supplemental Security Income: SSA Could Strengthen Its Efforts to Encourage Employment for Transition-Age Youth, GAO–17–485 (Washington, DC.: May 17, 2017). 

SSA and the Department of Education’s coordination and implementation of this recommendation? 

GAO Response 

SSA has addressed privacy concerns related to data sharing in 

the past through several methods. For example, as part of the Promoting the Readiness of Minors in Supplemental Security Income 

(PROMISE) initiative, SSA obtained consent from the youth and 

his or her parent or guardian to participate and assigned each 

youth a separate unique identification number for use instead of 

his or her Social Security number. In addition, at the time of our 

report, SSA was conducting an initiative to share encrypted data 

on SSA beneficiaries eligible for employment services with employment networks via secure messaging. 10 Such data could then be 

used by the employment network to conduct outreach to these 

beneficiaries. 

SSA has the authority to implement our recommendations and 

Congress could help by highlighting our recommendation to SSA 

and the Department of Education. 

Question 6 

GAO’s recommendation to SSA focused on better coordination on 

vocational rehabilitation services for transition-age children on SSI. 

Did GAO also examine the extent to which IEPs are integrating 

other goals around transition that are crucial for SSI beneficiaries, 

including work incentives and benefit planning? 

GAO Response 

Our work was mainly focused on SSA’s efforts to encourage employment for youth on SSI, rather than on the effectiveness of the 

IEP transition process. We did review SSA efforts to administer 

work incentives with respect to youth on SSI, and its efforts to provide related information to youth on SSI and their families. Based 

on this work, we made two recommendations: 

• We recommended that SSA determine why a large proportion of transition-age youth on SSI with reported earnings did 

not benefit from the Student Earned Income Exclusion (SEIE), 

SSA’s primary work incentive for this population. SSA agreed 

with this recommendation, but as of June 15, 2018 has not reported taking any actions. 

• We recommended that SSA analyze options for improving its 

communications with transition-age youth and their families 

about available SSA-administered work incentives and the implications that work earnings may have on the receipt of SSI 

benefits. SSA disagreed with our recommendation stating, in 

part, that it found no indication that staff are not providing 

youth with appropriate information, despite our findings that 

such information is not consistently provided. SSA also noted 

that a newly developed brochure provides information on work 

incentives. We acknowledged that the brochure is a positive 

step, but that it could contain additional information and that 

written communication may not be sufficient to convey such 

complex information. 


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11Pub. L. No. 111–352, § 7, 124 Stat. 3866, 3876 (Jan. 4, 2011) codified at 31 U.S.C. §

1122(a)(2). GPRAMA updated the Government Performance and Results Act of 1993 (GPRA), 

Pub. L. No. 103–62, 107 Stat. 285 (Aug. 3, 1993). 

GAO has conducted other work related to transition services for 

students with disabilities, for example, 

• GAO–17–352—Youth with Autism: Federal Agencies Should 

Take Additional Action to Support Transition-Age Youth, and 

• GAO–12–594—Students with Disabilities: Better Federal Coordination Could Lessen Challenges in the Transition from 

High School. 

QUESTION FOR THE RECORD FROM SENATOR WARNER

Question 1 

As you know, over the past few years agencies have been working to implement the DATA Act, a bill I authored back in 2011 and 

was signed into law in 2014. GAO has a critical role in overseeing 

implementation of that law as agencies seek to fully integrate their 

systems with the statutory requirements of the law. I have appreciated GAO’s continued vigilance. 

(a) Once fully implemented, how will the DATA Act help in addressing the issue at the core of this hearing—finding ways to 

make the Federal Government work more efficiently? 

GAO Response 

The DATA Act holds great promise for improving the efficiency 

and effectiveness of the Federal Government, and for addressing 

persistent government management challenges. Expanding the 

quality and availability of Federal spending data will better enable 

Federal program managers to make data-driven decisions about 

how they use government resources to meet agency goals. Reliable, 

detailed budget information is critical to estimate the cost savings 

that could be achieved should Congress or agencies take certain actions to address identified fragmentation, overlap, and duplication. 

Absent this information, Congress and agencies cannot make fully 

informed decisions on how Federal resources should be allocated 

and the potential budget trade-offs. 

Moreover, implementation of the program inventory provisions of 

the GPRA Modernization Act of 2010, in tandem with DATA Act 

implementation, could also provide vital information to assist federal decision makers by enabling program managers to crosswalk 

spending data to individual programs. 11 A comprehensive list of 

federal programs along with related funding and performance information is necessary for improving the effectiveness of federal decision making, as well as for identifying potential fragmentation, 

overlap, or duplication among federal programs. Currently, there is 

not a comprehensive list of all federal programs and agencies often 

lack reliable budgetary and performance information about their 

programs. Without knowing the scope, cost, or performance of programs, it is difficult for executive branch agencies or Congress to 

gauge the magnitude of the federal commitment to a particular 

area of activity, or the extent to which associated federal programs 

are effectively and efficiently achieving shared goals. 

(b) How will the DATA Act assist policymakers, watchdogs, and 

others identify duplication, and waste, fraud, and abuse? 


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12GAO, Improper Payments: Most Selected Agencies Improved Procedures to Help Ensure 

Risk Assessments of All Programs and Activities, GAO–18–36 (Washington, DC. Nov. 16, 2017) 

and Financial Audit: fiscal years 2017 and 2016 Consolidated Financial statements of the U.S. 

Government, GAO–18–316R (Washington, DC.: Feb. 15, 2018). 13GAO, Medicaid: Opportunities for Improving Program Oversight, GAO–18–444T (Washington, DC.: April 12, 2018). 

GAO Response 

Our work examining fragmentation, overlap and duplication in 

federal government programs has demonstrated the need for more 

reliable and consistent federal data, which the successful implementation of the DATA Act should produce. As we have reported, 

better data and a greater focus on expenditures and outcomes are 

essential to improving the efficiency and effectiveness of federal efforts. The open data provisions of the DATA Act should also enhance the federal Government’s emerging use of data analytics capabilities to conduct incisive analysis to support oversight, improve 

decision making by federal program managers, and foster innovation by making more federal data available to the public. This oversight will include, but not be limited to, the detection and prevention of fraud, waste and abuse, as well as analysis of improper payments. 

Improper payments—payments that should not have been made 

or were made in incorrect amounts—remain a significant and pervasive government-wide issue. From fiscal years 2003 through 

2017, improper payments have been estimated to total about $1.4 

trillion government-wide. 12 For example, the size and diversity of 

the Medicaid program make it particularly vulnerable to improper 

payments. In fiscal year 2017, improper payments were an estimated $37 billion of federal Medicaid expenditures. As we have 

previously reported, a fundamental challenge to the oversight of 

the Medicaid program is the lack of complete, accurate, and timely 

data. This challenge has hindered the ability of the Centers for 

Medicare & Medicaid Services (CMS) to ensure the appropriate use 

of federal and state dollars for beneficiary care. Without reliable 

data, CMS is unable to effectively monitor who is providing services, or the type of services provided. 13


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AN UPDATE ON TRANSPARENCY AT THE 

CONGRESSIONAL BUDGET OFFICE 

THURSDAY, SEPTEMBER 13, 2018 

U.S. SENATE, COMMITTEE ON THE BUDGET, Washington, DC. 

The Committee met, pursuant to notice, at 10:30 a.m., in room 

SD–608, Dirksen Senate Office Building, Hon. Michael B. Enzi, 

Chairman of the Committee, presiding. 

Present: Senators Enzi, Toomey, Gardner, Van Hollen, Merkley, 

Kaine, and Harris. 

Staff Present: Elizabeth McDonnell, Republican Staff Director; 

and Joshua Smith, Minority Budget Director. 

OPENING STATEMENT OF CHAIRMAN ENZI 

Chairman ENZI. Good morning, and welcome to the Senate Budget Committee hearing on the transparency efforts of the Congressional Budget Office. In many ways, this hearing is a follow-up to 

our January CBO oversight hearing at which Dr. Hall highlighted 

many new and expanded transparency initiatives at the agency. 

More than 40 years since CBO’s inception, Congress and the public have come to depend on CBO for its budget and economic analysis—analysis that we all agree must be timely, objective, accurate, 

and transparent. That means ensuring the agency’s work is accessible and well understood. 

While this Committee has conducted oversight of CBO’s past performance, today is an opportunity to discuss what the agency is 

doing to improve congressional and public understanding of the 

processes and products moving forward. Testifying before the Committee today is CBO Director Keith Hall. In his role as Director, 

Dr. Hall is responsible for managing the operations of the Budget 

Office and its more than 200 full-time staff. Since taking the helm 

of CBO in April 2015, Dr. Hall has been committed to cultivating 

a culture there that, among other competing demands, prioritizes 

greater transparency. 

Last month, the agency released a report that provided an update on the work it has undertaken as part of this effort, which we 

will be examining this morning. This report includes updates on 

CBO’s numerous efforts to better explain analytical methods, to release relevant data, to compare agency estimates to actuals, to visualize data, and to conduct outreach. 

Dr. Hall, thank you for being here. As you know, transparency 

of your office’s analysis and operations has long been a priority of 

mine. I have raised the issue with you in previous hearings and in 


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private meetings throughout your tenure. I am encouraged by the 

progress in this area that is detailed in the recent report and, in 

particular, the work CBO performed at my request. These items include an analysis comparing the agency’s spending projections with 

the actual outcomes and the supplemental data CBO now releases 

on more than 1,000 appropriations with expired and expiring authorizations. 

I was also pleased to see the release of the new interactive tools 

including one that allows the public to estimate the cost of customized plans for different military force structures, building upon 

a report the Committee requested several years ago. I look forward 

to hearing more about specific plans to bolster transparency at 

CBO and how the agency will track and evaluate the progress of 

its efforts going forward. 

In addition to learning more about developments like these over 

the last year, I am especially interested in learning about CBO’s 

plans for the future. In particular, I would like to know more about 

any plans for making CBO’s models more available to the public, 

specifically in the area of health care. I am aware of the major 

work the agency is currently undertaking to develop a new health 

insurance simulation model. Certainly, there is no better area to 

focus on transparency than one as complicated and controversial as 

health care. And I would be interested in hearing about CBO plans 

to release details of this new model to the public to facilitate a 

broad peer review process prior to its implementation next spring. 

Dr. Hall, I welcome your remarks about CBO’s recent report on 

transparency as well as any thoughts you have on other issues I 

have raised. I have no doubt that CBO will continue to play a critical role in the support of the congressional budget process. In my 

view, efforts to increase transparency at CBO, where possible, will 

only help to protect and buildup on the agency’s strong reputation 

and the credibility it has already established over the years. 

I thank Dr. Hall for joining us today, and I look forward to our 

discussion following his testimony. But now I will give the floor to 

Senator Van Hollen for some comments from that side. 

OPENING STATEMENT OF SENATOR VAN HOLLEN 

Senator VAN HOLLEN. Thank you, Chairman Enzi, and thank 

you for holding this hearing. Today Ranking Member Sanders cannot be here, but he wanted me to extend his best wishes to you, 

Dr. Hall, and I want to thank you because I know that focusing on 

transparency was also one of your own initiatives, and I want to 

congratulate you on the progress that you have made in this area. 

I do think that in the interest of transparency, it is worth highlighting some of the recent reports that CBO has come out with, 

including within the last 2 weeks, finding, Mr. Chairman, that for 

the first 11 months of fiscal year 2018 we are going to expect close 

to a $1 trillion deficit, specifically $895 billion just in the first 11 

months of this fiscal year. 

As we know, these soaring deficits are highly unusual given the 

fact that the economy has been growing for more than 9 years. 

Now, typically we see deficits shrink during strong economic times 

as the need for Government services decreases and tax revenues 

rise. In fact, in the year 2000, which is the last time the unemployVerDate Sep 11 2014 13:37 May 06, 2019 Jkt 000000 PO 00000 Frm 00418 Fmt 6601 Sfmt 6601 H:\GPO\PDF\OUT\35700.TXT PAT

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ment rate was at its current level of 3.9 percent, the Government 

ran a surplus, meaning tax revenue exceeded all Government 

spending. When you look under this, you find a number of elements, but one thing that jumped out in this most recent report is 

that corporate tax receipts have fallen by 30 percent in the aftermath of the passage of the Republican tax bill. 

Now, I remember, Mr. Chairman, when lots of our Republican 

colleagues criticized the analysis and scoring from CBO and JCT 

with respect to the Republican tax plan because our Republican 

friends said that those corporate tax cuts were going to pay for 

themselves. And, in fact, just this week the Chairman of President 

Trump’s Council of Economic Advisers, Kevin Hassett, made the bizarre claim that somehow the corporate tax cuts were paying for 

themselves, despite the obvious data, which is no longer a projection but real-world data, showing corporate tax payments have 

dropped by 30 percent. 

I hope, Mr. Chairman, we will ask the OMB as well as some of 

the President’s economists to present us with some of the background on their methodology, because that was sorely lacking during the discussion of the tax cut debate. We demand excellence 

from CBO, as we should, but it seems to me we should be getting 

more than one-page papers from the administration when they are 

talking about major tax changes. And now we know that CBO is 

right, and, in fact, if you look at the deficits that we are seeing 

today in real time, just last May the CBO projected pretty much 

the deficits that we are seeing right here in month 11 of this fiscal 

year. 

The final point I would make, Mr. Chairman, is that while CBO 

clearly has a role to play in transparency, so do we as the Congress. The Congressional Budget Office needs both the time and 

the resources to do comprehensive analyses in a quick and transparent way. In fact, Director Hall testified before this Committee 

in January, and I quote, ‘‘There can be significant time and resources used to become more transparent.’’ 

CBO works as quickly as possible to produce scores while bill are 

being written and rewritten, and Congress often does not want to 

wait for the Congressional Budget Office to write out a full explanation before we rush to action and rush to vote. In fact, during 

the debate over repeal of the Affordable Care Act, several CBO 

scores for the Affordable Care Act repeal were simply tables with 

no narrative because—so we knew millions of Americans were 

going to lose coverage, but Congress did not give CBO the time to 

provide the full and transparent explanation about how those bills 

were going to impact the American people. 

During the tax debate, we heard claims from our Republican 

friends that tax cuts for big corporations and wealthy households 

would pay for themselves with additional economic growth. In fact, 

I remember a big deal being made about the need for so-called dynamic scoring that takes into account economic growth when you 

do a tax analysis. But the House and the Senate both rushed to 

pass final legislation before the Joint Tax Committee could do a dynamic score that would analyze whether that claim was plausible. 

And, in fact, it was only after Congress passed the bill—because we 

rushed before the public could get the benefit of that analysis—only 


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after Congress passed the bill that JCT published a dynamic score 

that found that the bill was nowhere close to paying for itself with 

economic growth, and later the Congressional Budget Office published a report finding that the tax bill would cost nearly $2 trillion 

even after taking into account the economic impact. That, of course, 

includes interest payments on the borrowing. 

So I am really glad to see CBO do its job in working to increase 

transparency. But, Mr. Chairman, what we need is for Congress to 

increase our transparency and give CBO the time and the resources to do their job for the American people, and I look forward 

to this hearing. 

Thank you. 

Chairman ENZI. Thank you, Senator Van Hollen. 

Our witness this morning is Dr. Keith Hall, the ninth Director 

of the Congressional Budget Office. He is no stranger to this Committee, having served as CBO Director since April 2015. Since that 

time, he has appeared before this Committee to discuss CBO’s 

work and its projections of the Nation’s fiscal situation many times. 

This morning, Dr. Hall will be talking with us about CBO’s work 

over the last year and the goals he set for his critical, important 

agency. We look forward to receiving your testimony. 

For the information of colleagues, Dr. Hall will take whatever 

time he needs, and then we will go to opening statements for questions. 

So, Dr. Hall, please begin. 

STATEMENT OF THE HONORABLE KEITH HALL, PH.D., 

DIRECTOR, CONGRESSIONAL BUDGET OFFICE 

Dr. HALL. Thank you. Chairman Enzi, Ranking Member Sanders, and members of the Committee, I am delighted to be here 

today to discuss transparency at the Congressional Budget Office. 

The transparency of our work has always been a priority of ours, 

and this year we have added and shifted resources to redouble our 

efforts in that area. 

Transparency can mean many different things, so let me begin 

by highlighting CBO’s three goals in being transparent: 

First, we aim to enhance the credibility of our work by showing 

how it relies on data, professional research, and expert feedback. 

Second, we seek to promote a thorough understanding of our 

analyses by sharing information in an accessible, clear, and detailed manner. 

Third, we want to help people gauge how our estimates might 

change if policies or circumstances were different. 

Over the past year, we undertook many activities supporting 

progress toward those three overarching goals. Almost all of CBO’s 

employees spent part of their time on those activities, and last 

month, we published a report summarizing them. I would like to 

highlight a few, and I think there is a handout. I have got a little 

summary here—hopefully you have got them at your tables—of the 

accomplishments on transparency. 

First, we created several interactive tools: one that lets users add 

or subtract brigades, ships, aircraft squadrons, or other units to see 

the effects on the squadrons, or other units to see the effects on the 

Department of Defense’s total operation and support costs and the 


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size of the military; one that shows how we project spending on discretionary programs; and one that allows users to enter alternative 

economic scenarios and see the budgetary results. 

Second, we published information about important models that 

we use, including our microsimulation tax model, our long-term 

projections model, and our health insurance simulation model. 

Third, we posted computer code to help analysts understand and 

replicate parts of our analyses in papers about the distribution of 

household income and about macroeconomic output. 

Fourth, we published analyses of the accuracy of our spending 

estimates for fiscal year 2017 and of our projections of subsidies for 

health insurance under the Affordable Care Act. 

And, fifth, we published a report on how we produce cost estimates, as well as a detailed description of our formal cost estimates 

and the information that they contain. 

We also reached out to provide information about our work to 

congressional staff. Last week, for example, we answered questions 

at an ‘‘open house’’ for House staff convened by the House Budget 

Committee. Tomorrow, we are making a presentation to congressional staff—jointly with the Congressional Research Service— 

about CBO’s baseline budget projections and how they are produced. 

In addition, we have reached out to many experts for feedback 

on our analyses. For example, last week we announced the formation of a technical review panel to advise us on the development 

and testing of the next generation of our health insurance simulation model. 

In response to interest expressed by the Congress, we plan during the next year to publish more overviews and documentation of 

some of CBO’s major models and more detailed information, including computer code, about key aspects of those models. The models 

are used to simulate choices about health insurance, project longterm budget outcomes, forecast business investment, and estimate 

Medicare beneficiaries’ costs. We also plan to update our template 

for cost estimates to make important information easier to find and 

read. And we will continue to evaluate previous estimates in order 

to improve future ones. For example, we are currently examining how our estimate of the 

effects of the effects of the American Recovery and Reinvestment 

Act of 2009 on spending for the Supplemental Nutrition Assistance 

Program compares with what actually happened. As we undertake these efforts, it will be important to understand 

which ones are particularly valuable and informative to Congress 

and which ones have less value. Being transparent has costs, and 

CBO must, in essence, make business decisions weighing the benefits and costs of devoting resources to different activities. We welcome your feedback about what you find most useful and your suggestions about other ways in which we can provide more information about our work. 

Let me close by thanking you for your support and guidance. We 

have long relied on the budget committees to explain our role to 

Congress, to provide constructive feedback on how we can best 

serve Congress, and to provide us with guidance about legislative 

developments and congressional priorities. Thank you. 


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THE PREPARED STATEMENT OF DR. HALL


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Chairman ENZI. Thank you, Dr. Hall. 

Now we will turn to question. I think all the members of the 

Committee understand the process that we do with each member 

having 5 minutes for questions, beginning with myself and then 

Senator Van Hollen, unless you are replaced by Senator Sanders, 

and then alternating back and forth in order of arrival and seniority. If you have any questions, you can ask me about that. I will 

go ahead and begin the questions. 

I appreciate the effort that you have gone to and the work that 

you have done. I know you are currently building a new health insurance simulation model that the agency plans to begin to use in 

early 2019. Can you discuss the most important differences between CBO’s existing health care model and the new health care 

model the agency is building? 

Dr. HALL. Well, sure. The model itself is going to be an upgrade 

and is going to be an update. We have changed some features of 

it that will allow us to actually assess some different health care 

changes. One of the most important things about it is that we are 

going to be able to use actual data in the model. 

The previous health insurance model—in fact, even now—it does 

not really rely on a current data basis, so it actually has this interesting situation where it takes us from current situation back to 

pre-ACA and then forward back to our replacement, if we are looking at repeal and replace. 

The new model will actually use—we start using 2015 data, actual data from the ACA operations, and so we think that will really 

help things, and we think that will make things more efficient 

going forward. 

The other thing that is going to be really different is how we are 

creating it. We are doing it in a very transparent way. We are writing detailed documentation as we go, and we are doing something 

that is rather rare. We are actually making presentations on the 

model as we are producing it and getting feedback. We have done 

that a few times now, once publicly at the Bipartisan Policy Center, 

and then we have our technical advisory group, panel, and we are 

going to make a presentation to them and get some feedback from 

them. And, again, we are doing it while we are developing the 

model so that, one, we can incorporate comments into the model as 

we are producing it; but, two, it will add transparency. People will 

actually understand what we have done even before we start using 

the model. That is a really important feature for us. 

Chairman ENZI. You mentioned soliciting feedback. Are there 

specific groups that you are working with to solicit that feedback? 

Or do you plan to release the model to the public prior to putting 

it to use? How does that part of the process work? 

Dr. HALL. Well, we have already talked with the Bipartisan Policy Center. We have talked to a couple of other groups—the Urban 

Institute and the Rand folks, who have themselves done a lot of 

work on health care and health care modeling. It is a technical exercise, so we are looking for people who have actual modeling experience. And then we just released a list of names. If anyone takes 

a look on our web site, you see a list of names that we have added 

to our Technical Advisory Committee. You will see a very diverse 

group of people there, all of which have particular technical skills 


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in the modeling. So we are pretty confident that we are going to 

have people who can make useful comments to us and give us real 

advice going forward. 

When we first use the model, we will have some pretty detailed 

documentation out. And I think when we first use the model, we 

are going to use it next year for the baseline estimate. We are 

going to try to make—we are planning on making the code that is 

used to produce the baseline available as sort of a ‘‘show your 

work’’ sort of aspect to it. And in between the increased documentation and making some of that code available, I think we will already take a big step forward. Then we will sort of see what the 

feedback is like and see if we can provide other information on the 

model. 

Chairman ENZI. Do you envision this getting like the military 

program where people can go in and add and subtract and have 

some instance feedback that way? I know it is more complicated 

than the military acquisitions. 

Dr. HALL. No, I think for some models we can actually do that, 

and we do have plans on trying to become—change our modeling 

style that will encourage that. 

The health care model itself may not be a good candidate for 

that. We can talk about it, but part of the trouble with the health 

care model is that it is just a piece of any analysis. There is so 

much individual input into it, and the output of the model is used 

in other models. That may not be as good a candidate for that. But 

we have other models which are pretty straightforward where the 

output of the model is what we, in fact, use in estimates, that we 

are going to try to do that with. 

Chairman ENZI. Thank you. I will reserve the balance of my 

time. Senator Van Hollen. 

Senator VAN HOLLEN. Thank you, Mr. Chairman. And, Mr. Director, again, thank you for your testimony. 

I appreciate the analyses that CBO has done over the years. It 

is a fact that, you know, we do not always agree on the result, but 

I always appreciate the integrity of the process at CBO. And I am 

interested in making sure the public understands what your findings are. 

We have a President that likes to tweet a lot about the most recent economic indicators. I do not think it surprised anybody that, 

after you do a $2 trillion tax cut, you are going to see some kind 

of sugar high reaction in the economy. The unusual thing about 

that tax cut is we usually reserve those stimulus efforts for times 

when the economy is really in bad shape, like we did in a positive 

way with the economic recovery bill and not when the economy is 

already on the upswing as it was when the President took office. 

We all would like to see our economy continue to grow, and we 

know there are lots of elements to that, including the size of the 

work force and the number of people who are working, productivity. And I think we should focus on investments in things like 

infrastructure and education. But just providing sugar highs will 

not do it. And, in fact, I think if you could tell us, Director Hall, 

as the CBO looks forward in your projections, starting in the year 

2020, is there any year in which the Congressional Budget Office 

projects that real economic growth will exceed 2 percent? 


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Dr. HALL. No, there is not. And the situation as we see it is that 

we have, in fact—we are, in fact, receiving quite a lot of stimulus 

in an economy that has got zero slack. And while we are going to 

see some significant growth for a couple of years, the pressure on 

interest rates and inflation and a number of things is going to 

cause the Fed to act and going to cause us to go through, frankly, 

a mini cycle. Not a business cycle, but a bit of a slowdown in 

growth. So we do, in fact, see growth slowing pretty significantly 

for 2 or 3 years as we sort of work through this extra stimulus and 

get back to a more sustainable, long-run growth rate. 

Senator VAN HOLLEN. And I think that is the sober analysis. You 

know, economists I think across the spectrum agree that we are 

seeing a sugar high right now put on top of an economy that was 

already doing very well coming out of the deep recession in 2008 

and had a steady climb. And, in fact, I know the President likes 

to talk a lot about economic growth during certain quarters. If you 

look from the period of 2009 to 2016, when President Obama was 

in the White House, did we see a lot of quarters where the growth 

exceeded 3 percent? 

Dr. HALL. Yes, we did see a few. 

Senator VAN HOLLEN. Yes. In fact, by my count there were eight 

quarters under President Obama. So looking from quarter to quarter is just a snapshot, isn’t it? 

Dr. HALL. That is right. That is right. And also at that time you 

have us coming out of a pretty severe recession, so you, in fact, expect to see above-trend growth, you know, as you do away with 

slack in the economy. 

Senator VAN HOLLEN. Yes. The other thing I noticed was just 

today that the Bureau of Labor Statistics came out with their most 

recent report. One of the things we were told was that with the tax 

cut, as it accelerated, the economy gave a sugar high that all of a 

sudden regular folks were going to get an increase in their real 

wages, their purchasing power. But just today the Bureau of Labor 

Statistics has released its latest numbers showing that for production and supervisory workers, which represent eight out of ten 

workers in America, they have actually seen a slight decrease in 

their real wages over the last year, and that is a trend we have 

been seeing month after month. 

Can you just talk a little bit about the difference between nominal wage increases and real wage increases? And when you are 

looking at your own pocketbook and your purchasing power, what 

is the most relevant figure for an American family? 

Dr. HALL. Sure. One of the reasons that we look at real data is, 

of course, if you want nominal wages, you want them to grow at 

least as fast as inflation does. And so the real data does a nice comparison of how fast our—for example, with the wages, how fast are 

wages growing relative to prices. So it gives you a truer picture of 

whether you are having an increase in buying power going forward. 

Senator VAN HOLLEN. And what these numbers tell us is that 

when it comes to real buying power, people are actually slightly 

worse off this month compared to this time last year, and that has 

been a continuing trend, at least for supervisory and non-production—production and supervisory workers. 


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Mr. Chairman, I thank you for the opportunity. Director Hall, 

thank you for your testimony. And, again, I think having CBO as 

the referee is really important. Thank you for your good work. 

Chairman ENZI. Senator Kaine. 

Senator KAINE. Thank you, Mr. Chair, and thanks, Director Hall. 

I echo the comments from Senator Van Hollen. It is important to 

have you as the referee. I remember once sitting with President 

Obama at the White House and having him kind of muse, ‘‘I wonder why we have let CBO be the master arbiter of the economic 

effectiveness.’’ And as Democrats, we often do not like the numbers 

you come up with and find cause to complain, but I am not aware 

of President Obama ever saying that we should get rid of the CBO, 

that we should not allow it to continue to operate or not at least 

take into account CBO analysis. I have noted a number of individuals, especially the OMB Director, describe CBO scoring of the 

House Republican health care bill as ‘‘absurd’’; ‘‘the days of relying 

on some nonpartisan Congressional Budget Office to do that work 

for us has probably come and gone.’’ And former Speaker Gingrich 

called for dismantling the CBO because ‘‘the Congressional Budget 

Office is simply incompatible with the Trump era.’’ 

I am very glad you are doing what you are doing, and thanks for 

grappling with the transparency issue. 

On transparency, I just want to put some facts on the table about 

the current U.S. economy. The private sector has added private sector jobs for 102 straight months. That is the longest streak of private sector job growth in the history of this country, at least as we 

have measured it. Eighty percent of that streak occurred under the 

Obama administration; 20 percent has occurred under the Trump 

administration. President Trump has commented accurately that 

more people are working today than at any point in the history of 

our Nation, but that comment has been true since May 2014. Each 

month sets a new record for the number of people working in the 

country. 

Job creation: In the first 19 months of the Trump administration, 

we have averaged created 189,000 jobs per month. The 19 months 

of the Obama Administration that preceded these months of the 

Trump administration, we averaged 208,000 jobs per month. The 

number of jobs being created per month has slowed under this administration. 

Hourly earnings growth: In the first 18 months of the Trump administration, hourly earnings growth has increased by 1.1 percent. 

The relevant period, the last 18 months of the Obama Administration, it was 1.3 percent. Wage growth, hourly earnings growth has 

slowed under the Trump administration. 

And so if you look at these facts—and I think in the interest of 

transparency it is good to—job creation and wage growth have actually slowed under this President for many causes, but it is interesting to see that they have slowed even with the tax cut that you 

were discussing with Senator Van Hollen, which has had a significant deficit effect. And as you indicated, Dr. Hall, in your testimony, I think we have to be aware of this. As we look out, the projections are that growth would slow even more if the Fed takes various action with an economy near to full employment. We would potentially see that is slower. 


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I want to ask you this—Will Rogers used to say, ‘‘I only know 

what I read in the newspapers,’’ and I have been reading newspapers recently, and there have been discussions of two potentially 

late-breaking election eve additional tax adjustments that might be 

contemplated. The House Ways and Means Committee unveiled 

three bills this week that say that they indicate compromise tax— 

comprise tax reform 2.0. That would be an additional tax cut bill 

for some. In addition, the White House has reported in the last 2 

weeks that it is considering undertaking a tax law change through 

executive action that would index capital gains to inflation, basically allowing the basis that somebody claims when calculating 

capital gains to adjust upward by inflation. That was actually announced the same day as the President indicated he wanted to take 

away the cost-of-living adjustment for Federal employees in their 

salaries. 

Has the CBO been asked yet to do scoring of either of those proposals that I have been reading about, either the tax reform 2.0 

that the House Republicans are talking about or the capital gains 

indexing that the Trump administration is reportedly considering? 

Dr. HALL. We have not, but I believe on the tax proposal the 

Joint Committee on Taxation—they are the ones who do the estimation on revenue legislation. I believe they did just complete an 

analysis of it. 

Senator KAINE. According to that analysis—and I think it is preliminary one—extending the expiring Trump tax cuts on the individual side of the Tax Code through 2028 would increase the deficit 

by about $627 billion. I think that is the preliminary analysis they 

have done. I do not believe the JCT has costed the potential for indexing capital gains in the way that I have described. 

Dr. HALL. No. 

Senator KAINE. But Penn Wharton did an indication suggesting that it would cost between $100 and $200 billion over a decade, 

with 86 percent of the gains going to the top 1 percent. Have you 

looked at that Penn Wharton analysis of the capital gains indexing 

proposal? 

Dr. HALL. No, I have not. 

Senator KAINE. All right. Thank you, Dr. Hall. 

Thanks, Mr. Chair. 

Chairman ENZI. Thank you. 

Senator Merkley. 

Senator MERKLEY. Well, thank you, Mr. Chairman, and thank 

you, Director, for being with us. 

I wanted to understand the impact of the 2017 tax bill and estimates that were made at the time. The Joint Committee on Taxation estimated $1 trillion of cost added to the deficit. Penn Wharton estimated $1.4 trillion. The Tax Foundation estimated $516 billion, so half a trillion. What did CBO estimate? 

Dr. HALL. I believe our number came out to be pretty high: $1.8 

trillion, I believe, something like that. Is that what you have? 

Senator MERKLEY. I have $1.4 trillion, the same as the Penn 

Wharton study, but based from an article, not from a CBO report. 

Dr. HALL. Okay. 

Senator MERKLEY. But perhaps the 1.4 was after you took into 

account the impact of dynamic scoring. 


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Dr. HALL. Right, right. 

Senator MERKLEY. So as you stand now, as we look this many 

months in, what is your revised estimate of how much it is going 

to cost? 

Dr. HALL. Actually, so far—and I am not sure we have changed 

much at all. In fact, our forecast for the deficit this year is pretty 

much on target. We will probably do a re-estimate—certainly a reestimate of the baseline in January just to see how that works. But 

I do not think we are seeing anything surprising that is going to 

make us change things. 

Senator MERKLEY. So within the analysis CBO did to get to their 

estimate, be it 1.8 or 1.4—— 

Dr. HALL. Yes—I am sorry. 

Senator MERKLEY. There were different lines, different tax provisions. 

Dr. HALL. Right. 

Senator MERKLEY. I had difficulty getting the numbers on the individual tax provisions, what they would have costed, to better understand individual policies. Are you now taking a look at those individual policies that were in that tax bill and analyzing, well, here 

is what we thought that piece, say the expansion of the estate tax 

exemption. 

Mr. HALL. Right. 

Senator MERKLEY. That is what we thought it would cost. Now 

we see it is different—or another provision. Are you looking at the 

individual provisions to see and are you planning to give us a report showing kind of in general what you estimated on these individual policy pieces and then what it looks like now a year later? 

Dr. HALL. Well, the answer is yes. That is sort of part of our normal process. Every time we do a baseline, we go back and look and 

see how our previous baseline is doing. I do not know how much 

detail we will have, but that is especially important in tax bills because implementation can be one of the harder things to forecast 

how Treasury actually does things. 

Senator MERKLEY. Yes, and that is my point, that it is particularly important in a tax bill to have the individual provisions and 

understand what each one costs as we look to future tax changes 

or revisions. And so when you started to answer, you said yes. Does 

that mean we can expect a report that will look at those different 

provisions, what they are costing within that $1.4 to $1.8 trillion? 

Dr. HALL. I am not sure you will have it very quickly. We will 

adapt our baseline in January. There will be some changes there 

that—— 

Senator MERKLEY. So here is my frustration. 

Mr. HALL. Okay. 

Senator MERKLEY. As you may know, I used to work for CBO. 

I did analyses for Congress. The modeling that I did, I knew every 

provision within that model, what it cost. You cannot get to an 

overall score without adding up the impact of the individual tax 

change provisions. So the analysis at CBO has that information. 

Why should Congress not have that information on what the individual policy’s impact is? 

Dr. HALL. Well, if you would like, we can certainly look and see 

what sort of detail we can provide from our forecast of things. The 


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reason I am slowing down a little bit on a look at sort of how it 

is actually working out is tax data is very slow to come out, and 

so it literally will be a couple years down the road before we get 

enough data to really understand what is happening now with the 

tax data. 

Senator MERKLEY. Okay. Well, that is a fair point. But my point is that initial analysis, be it $1.4 trillion or $1.8 trillion, to get to 

that analysis CBO had to look at each individual tax provision and 

what it would cost, and that is the type of information that you already have, CBO already has, because it was necessary, and we 

want it and we should have it. And I am asking you for it. 

Dr. HALL. Okay. Well, I will tell you, I am happy to follow-up 

with you and see what we have got and see what we can provide. 

If we have got it, we are happy to provide it. 

Senator MERKLEY. Thank you. And if you do not have it, how did 

you possibly get to an overall score if you did not cost out the individual provisions, right? 

Dr. HALL. Right. 

Senator MERKLEY. Okay. 

Dr. HALL. Understood. 

Senator MERKLEY. So at this point, if one looks at 2027 when 

this tax bill is completed, what is your sense of the percentage of 

the benefits that goes to the top 1 percent? 

Dr. HALL. I do not know that. There was some work done by JCT 

in the original bill. They did do a distributional analysis of that. 

We did not do that for our outlook report, so I cannot tell you. But 

I think if you go back and look at the JCT work, you will get a picture of that. I am sorry, I do not—— 

Senator MERKLEY. I have gotten the picture from other organizations. I wanted it from yours. 

Dr. HALL. Okay. 

Senator MERKLEY. The Tax Policy Center looked at it, and 107 

percent of the benefits goes to the top 1 percent by 2017. A hundred and seven percent. In other words, the entire cost of the bill 

plus another seven percent goes to the richest Americans. And, 

meanwhile, more than half of Americans would pay more than they 

would have under existing law. It is just shocking that when we 

look around the world and we see countries where the legislature 

and the executive branch work with an elite to essentially raid the 

national treasury and distribute that money to the richest among 

them, we call those ‘‘corrupt countries.’’ And yet the very same 

thing happened right here in America, one of the biggest tax heists 

or bank heists inflicted on the United States of America, on the 

citizens of the United States of America, in that 2017 tax bill, raiding the treasury for the benefit of the very wealthiest Americans. 

Thank you. 

Chairman ENZI. Some interesting math, 107 percent of the benefit. 

Senator Harris. 

Senator HARRIS. Thank you. 

Dr. Hall, I share your belief and agree that we need more transparency across the board in our Federal Government and, frankly, 

government at all levels. So on that point, children make up 24 

percent of the population of the United States, yet in fiscal year 


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2017, Federal spending dedicated to children reached an all-time 

low of 7.75 percent, and total spending on children’s programs decreased by 5.5 percent between 2014 and 2017. To me this trend 

indicates a critical need for a clear and accessible tool so that we 

can monitor and measure on a frequent basis Federal decisions 

around spending on children in the United States. 

So I hope we can agree that CBO is well equipped to be that 

agency that would actually create and implement such a tool, and, 

in fact, I introduced a bill that would require the CBO to provide 

estimates of legislation’s expected impact on children. It would also 

require that you would produce reports on Federal spending for 

children and develop a public web site on Federal spending for children. 

So my question to you is: Do you believe that these measures will 

complement your goal and CBO’s goal of bolstering transparency 

not only of CBO’s analyses and processes but also of the economic 

impacts associated with Federal policy decisions? 

Dr. HALL. Sure. If there is sufficient interest, we could put resources into that. You know, we want to—— 

Senator HARRIS. Well, the children are certainly interested in it, 

but, unfortunately, they do not vote and they do not—— 

Dr. HALL. I am talking about congressional interest. I am talking 

about in particular congressional committee interest. 

Senator HARRIS. Do you need congressional committee interest to 

do it, or can you do it—— 

Dr. HALL. We need congressional committee interest in particular. We do not take on—certainly do not take on analytical 

work unless we have a clear customer for it. I can look into the 

idea and sort of see—get some feel for what we could do and see 

if there is some interest. 

Senator HARRIS. Well, as a point of information, Mr. Chair, does 

the Committee need to vote on something like this? How do we express Committee interest? Because as a member of the Committee, 

I am certainly expressing an interest. Is there something more that 

is required? 

Chairman ENZI. Yes, the committee of jurisdiction has to have 

the interest in it and request to CBO. I believe that is the way it 

works. 

Dr. HALL. That is right. Right, and there are two sides to every 

committee, though. There is the majority and then there is the minority, and the minority side has standing to ask us to do work. 

Senator HARRIS. Okay. So I will follow through on that. And then 

are there other ways that you believe that the CBO could enhance 

Congress’ and the public’s understanding of how Federal spending 

impacts children? 

Dr. HALL. Well, this sort of report sounds like it is something 

that we could undertake, it is something we could look at. We always start with how much data is there and that sort of thing. I 

think it would be hard to do anything too real-time. You know, if 

we looked at a piece of legislation, it would be really hard to separate out the effects like that. But as sort of an analytical piece, that 

seems to me like topic-wise, that is in our ballpark, I think. 


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Senator HARRIS. That would be great. Well, let us plan to do a 

follow-up with my staff and yours, and then I can present something to the Committee as a follow-up. 

Chairman ENZI. As a follow-up on your question, it usually has 

to be based on some kind of legislation as well, not just—— 

Dr. HALL. Right. 

Chairman ENZI [continuing]. A general thing of how—— 

Senator HARRIS. And I have a piece of legislation. 

Chairman ENZI. Okay. 

Senator HARRIS. Thank you. 

Senator ENZI. We will do a second round of questions if people 

are interested. I am interested, so I will do another one. 

Director Hall, I would like to ask you about CBO’s latest monthly 

budget review for August 2018, which was brought up earlier in 

this hearing. For the first 11 months of the fiscal year, revenues 

are $19 billion higher than for the same period last year. Is that 

correct? 

Dr. HALL. That is right. 

Chairman ENZI. But spending is up $240 billion. Can you tell me 

what is contributing to that increase in spending. 

Dr. HALL. Sure. Actually, it is quite a number of things. It is almost across the board. Net interest payments are up quite a bit 

over last year. The military spending is up. Social Security benefits 

are up; Medicare and Medicaid are all up. So you are right that a 

lot of that increase or that change over last year is from the spending side, outlay side. 

Chairman ENZI. But there is an increase in revenues. 

Dr. HALL. That is right. 

Chairman ENZI. I have been traveling Wyoming and was listening to a number of people. I tried to get into some businesses to 

see how they work because any business that I have not been in 

looks pretty simple. And I know that people that have not been in 

any business, it looks even simpler. So I have been trying to find 

out what kind of effects these things have had, and I had one fellow who said, ‘‘You know, I have been doing a bunch of construction now, and I have given my employees more wages, and I am 

going to have to pay a million more in taxes this year than I did 

last year.’’ But he said, ‘‘That is because I am making more 

money.’’ 

So that is how the tax thing is working, and I think we will get 

September—September normally is a big time for tax payments on 

estimates, and we have not gotten that yet, obviously, because it 

is still September. 

Dr. HALL. Right. And, in fact, September usually reduces the deficit for the year because revenues are very high in September. 

Chairman ENZI. Thank you. 

Now, CBO and the Joint Committee on Taxation, JCT, are the 

two entities Congress relies on for estimating the budgetary impact 

of legislation. Comparisons are often made between the time it 

takes for the two agencies to provide technical assistance and 

produce cost estimates. 

Can you discuss any differences between CBO and JCT models 

and the types of analysis that they produce that might explain this 

discrepancy? 


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Dr. HALL. Sure. In a lot of ways we are very similar. The big difference is that the JCT focuses on tax issues, so they really work 

for a couple of committees. We work for almost everybody. We wind 

up working for a lot of committees, and our coverage areas are 

much, much larger. So we have a much broader waterfront of 

things. That is one of the biggest differences. And then, of course, 

in that big waterfront are things that are fairly complicated. It can 

be anything from ag bills to the DoD to lots of things. So we have 

a big variety of things, and that is really one of the biggest differences. 

We have hundreds of models that we use on these different topics, so we have a very diverse set of models. We have a very diverse 

set of data. But I think we share the same sort of challenges, 

though, when there is a major piece of legislation. I think JCT has 

to work very, very hard to get it done, and I think we have to work 

very, very hard to get it done oftentimes. 

Chairman ENZI. So are you saying that JCT can just stick to the 

code, but you have to stick to all of the other legislation? Did I get 

that right? 

Dr. HALL. Yes, that is right. It is the breadth of work that is fairly different. So at any point in time, we have quite a large number 

of estimates that we are producing. We produced 740 estimates last 

year on a huge variety of topics. JCT I am sure was nowhere near 

that because they are focusing on the tax issues. 

Chairman ENZI. Yes, thank you. 

In your report you discuss how CBO often attempts to compare 

its estimates to those of other entities. In some cases those comparisons are to the administration’s estimates, and in other cases 

it is comparison to private entities. Can you please explain some 

of the challenges that are inherent in such comparisons? 

Dr. HALL. Sure, sure. Well, we do comparisons, and we do our 

best to do them. The biggest single thing—for example, in our economic forecasts, we compare economic forecasts to OMB and we 

compare it to private sector—is we operate under current law. And 

so our forecast is the current law compromise only. Other folks are 

different than that. 

For example, that was really relevant in the buildup to the tax 

bill. We literally had to ignore the fact that tax legislation was possible or likely and had to pretend it was not going to happen. And 

so in our forecast, none of that happened while in the private sector forecast that did happen. And that is mostly it. You know, we 

have our revenue and spending forecasts. We do compare those to 

OMB. We compare very favorably, I think, to everybody in our forecasting. 

For individual pieces of legislation, that gets even trickier because we have to read the legislation very carefully and try to 

model all aspects of it. The private sector folks can sometimes give 

you a quick number. We sometimes give quick numbers. But to actually do the work carefully and get all the detail and put it into 

a format that we can model the budgetary impact is generally a 

heavier lift certainly than the private sector has. 

Chairman ENZI. Thank you. My time plus the time that I reserved has expired. 

Senator Van Hollen. 


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Senator VAN HOLLEN. Thank you, Mr. Chairman. 

Who has a more transparent open process with respect to what 

the public knows about how they go about their work, CBO or 

OMB? 

Dr. HALL. I am trying to be diplomatic. 

[Laughter.] 

Senator VAN HOLLEN. Please. We are trying to be transparent 

here, Dr. Hall. 

Dr. HALL. We try to be very transparent. For example, when we 

do an analysis of the President’s budget, we tell you what our picture is of the economy before and after so you know what our baseline is. That does not typically happen at OMB, even though they 

probably have to do the work. It is that sort of thing. 

Part of the issue, at least a little bit, is that we report to all of 

Congress. 

Senator VAN HOLLEN. Yes. No, I understand. I mean, I think it 

is pretty clear that is the case. How about with respect to the tax 

plan? Did you ever get a detailed analysis from the Trump administration with respect to the impact of their tax plan? 

Dr. HALL. No. 

Senator VAN HOLLEN. No. Neither did the public. If I recall, we 

got like two pages, Mr. Chairman. And so it is not surprising that 

the projections that this administration made could not be justified. 

If they could have justified them, they would have presented them 

to the public. Your data you present to the public, and so far your 

projections are right on track with respect to the impact of the tax 

cuts. 

So, yes, the economy is doing well. We talked about the fact it 

has been growing strongly for over 9 years now. So it is not at all 

surprising that, even with some tax cut with that kind of economic 

growth, there is some revenue coming into the Treasury. 

What percent of—revenue represents what percent of GDP in 

2018, according to CBO? Do you know? 

Dr. HALL. I can look it up in 1 second here. I think I brought 

the right—— 

Senator VAN HOLLEN. My number—I do not know if this——is 

16.6 percent. 

Dr. HALL. I can now verify that. 

Senator VAN HOLLEN. Got it. Thank you. And the last time we 

had a balanced budget, do you recall what the revenues were as 

a percent of GDP? 

Dr. HALL. I do not offhand. I suspect it was higher because it 

was at a time of very strong economic growth. 

Senator VAN HOLLEN. I think it was in the range of 20 percent 

of GDP. And we had a balanced budget for about a 3-year period, 

and then we had the Bush tax cuts and a number of other things 

happened. We had the Iraq war and other things. 

Dr. HALL. Right. 

Senator VAN HOLLEN. And if you are looking at the long term, 

I mean, what does CBO look at mostly—the percentage of revenue? 

When you are looking at whether we are balancing the budget as 

a percent of revenue, of GDP? 


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Dr. HALL. Yes, that is right. That is certainly part of our forecast, and we do a lot of comparing where we are and where we are 

going to be relative to historical levels and that sort of the thing. 

Senator VAN HOLLEN. And what is your calculation of 11 the loss 

in revenue over the next 10 years as a result of the tax cut, right? 

I mean, you have the number, right? 

Dr. HALL. It was $1.8 trillion. 

Senator VAN HOLLEN. $1.8 trillion. And that, if I recall—did that 

include the interest on the debt? 

Dr. HALL. Yes. 

Senator VAN HOLLEN. That included it, Okay. So close to $2 trillion with interest on the debt. 

Mr. Chairman, I do not think it is surprising that there is additional revenue coming in. The reality is, though, we will have $2 

trillion, $1.8 trillion less in revenue coming in as a direct result of 

the tax cut, and that takes into account any additional economic 

activity. 

I wanted to ask you, Director Hall, because I asked you at one 

of the earlier hearings, about what share of that increased economic growth would actually go to benefit foreign accounts compared to our fellow Americans? And it was really shocking. You determined that on average between the years 2018 and 2028, 43 percent of the income from increased economic activity linked to these 

tax cuts flowed into foreign accounts, right? 

Dr. HALL. That is right. 

Senator VAN HOLLEN. And by 2028, an astounding 71 percent of 

the increased economic benefit went into foreign accounts, right? 

Dr. HALL. Yes. 

Senator VAN HOLLEN. Mr. Chairman, I think that the public 

needs to know that, and in the interest of transparency, we will do 

our best to let them know. And part of that is the benefit of these 

huge stock buybacks, right? 

Dr. HALL. I think so. I am not sure that we got a lot in there 

about the stock buybacks yet because we are not sure of what actually is going to happen. 

Senator VAN HOLLEN. Right. Well, as of our count right now, 

there has been about $700 billion of funds that we were told were 

going to be used for greater investment in plant and equipment 

and higher wages, you know, like $4,000 a-year wage increases. Instead of going to that purpose, they are going to stock buybacks, 

and foreigners own a 35-percent share of the value of U.S. corporate stocks, so they are getting a lot of that. 

The last thing I would just ask, Mr. Chairman, is you mentioned 

the projected increased deficits on top of the $1.8 trillion we would 

see if we extended some of the other tax cuts as has been proposed 

by House Republicans. I believe you said the JCT number was 

$657 billion. Now, that is only additional for the 3-year window. Is 

that right? 

Dr. HALL. I believe that is right. 

Senator VAN HOLLEN. Right. And I would like to put in the 

record, Mr. Chairman—it was referenced earlier—the Penn Wharton budget model, which estimates that if you do what the House 

Republicans want to do, you would increase the Government debt 


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by over $5 trillion over the next 20 years, and actually reduce GDP 

because of the drag on the economy. 

Senator VAN HOLLEN. My final question, with your indulgence, 

would just be if the Director could talk a little bit about how large 

debts like that can actually be a drag on the economy and reduce 

economic growth? 

Dr. HALL. Sure, absolutely. One of the issues clearly is debts and 

deficit are a drag. Part of it is that with the Federal Government 

borrowing, there is crowding out because they are borrowing, and 

they are borrowing on rising interest rates over what they normally 

would be, and that raises the cost of capital to the private sector 

and can reduce investment over what it would be otherwise. So in 

a sense, this is sort of working against something like a tax bill, 

which gives incentives for companies to invest. But if you finance 

it through deficits, you undo some of that. 

Senator VAN HOLLEN. That is even more true when the economy 

is doing well, right? Because there is less slack in the economy. 

Dr. HALL. That is right. 

Senator VAN HOLLEN. Thank you, Mr. Chairman. 

Chairman ENZI. Thank you. And since we have gotten pretty far 

away from looking at transparency of the CBO, I will not do another round. I appreciate all the participation on the Democratic 

side and the interest that they have shown and some of the spectacular things that you have mentioned. 

Senator VAN HOLLEN. I am just citing CBO. 

Chairman ENZI. There are a lot of comments about the last time 

that the budget balanced, and that is the one that really bothers 

me because most of the revenue from that came from Social Security payments. We had an excess of Social Security coming in compared to the people that were retired. And there is no way in the 

Federal Government to save that money. We tried talking about 

lock boxes and stuff, but you cannot do that. And, consequently, we 

spent that Social Security money, and we put bonds in a drawer 

over in Maryland that say that we owe that Social Security money. 

But that is where the revenues came from that shows this magnificent balancing of budgets. And that is why before 9/11 they decided 

they needed to reduce some taxes so that things could be a little 

more honest. I do not know that they would have been. But we had 

9/11, and that did cause a lot of expenses that we had not anticipated. 

Senator VAN HOLLEN. Mr. Chairman, with all respect, we have 

just heard that we are going to face close to a $2 trillion revenue 

shortfall as a direct result of what was passed. 

Chairman ENZI. Well, we will see if that happens or not. 

Senator VAN HOLLEN. We will. 

Chairman ENZI. The economists that did some alternate evaluations on it came up with some different numbers, and we had that 

statically scored. 

Senator VAN HOLLEN. I would like to see the same transparency 

in their methodology that we are requiring of CBO in theirs, and 

JCT. 

Chairman ENZI. Well, I think they would be willing to do that. 

Senator VAN HOLLEN. I would love to see it. I know the White 

House has not shown us a thing. 


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Chairman ENZI. So anybody who has additional questions—and 

I do have additional questions—they can be submitted by 6 p.m. 

today. We hope that you will answer those expeditiously, and those 

will be a part of the record as well. 

Chairman ENZI. With no further business to come before the 

Committee, we will adjourn. 

[Whereupon, at 11:28 a.m., the Committee was adjourned.] 

ADDITIONAL COMMITTEE QUESTIONS 

[The following submitted questions were not asked at the hearing but were answered by the witness subsequent to the hearing:] 


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