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99–452 2016

S. HRG. 114–279 

THE ECONOMIC REPORT OF THE PRESIDENT 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

MARCH 2, 2016 

Printed for the use of the Joint Economic Committee 

( 

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JOINT ECONOMIC COMMITTEE 

[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress] 

SENATE 

DANIEL COATS, Indiana, Chairman 

MIKE LEE, Utah 

TOM COTTON, Arkansas 

BEN SASSE, Nebraska 

TED CRUZ, Texas 

BILL CASSIDY, M.D., Louisiana 

AMY KLOBUCHAR, Minnesota 

ROBERT P. CASEY, JR., Pennsylvania 

MARTIN HEINRICH, New Mexico 

GARY C. PETERS, Michigan 

HOUSE OF REPRESENTATIVES 

PATRICK J. TIBERI, Ohio, Vice Chairman 

JUSTIN AMASH, Michigan 

ERIK PAULSEN, Minnesota 

RICHARD L. HANNA, New York 

DAVID SCHWEIKERT, Arizona 

GLENN GROTHMAN, Wisconsin 

CAROLYN B. MALONEY, New York, Ranking 

JOHN DELANEY, Maryland 

ALMA S. ADAMS, PH.D., North Carolina 

DONALD S. BEYER, JR., Virginia 

VIRAJ M. MIRANI, Executive Director 

HARRY GURAL, Democratic Staff Director 

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C O N T E N T S 

OPENING STATEMENTS OF MEMBERS

Hon. Daniel Coats, Chairman, a U.S. Senator from Indiana .............................. 1 

Hon. Carolyn B. Maloney, Ranking Member, a U.S. Representative from 

New York .............................................................................................................. 2 

WITNESS

Hon. Jason Furman, Chairman, Council of Economic Advisers .......................... 4 

SUBMISSIONS FOR THE RECORD

Prepared statement of Hon. Daniel Coats, Chairman, a U.S. Senator from 

Indiana .................................................................................................................. 34 

Prepared statement of Hon. Carolyn B. Maloney, Ranking Member, a U.S. 

Representative from New York ........................................................................... 34 

Chart titled ‘‘Longest Streak of Private-Sector Job Growth Continues’’ ...... 42 

Chart titled ‘‘U.S. Economy Has Grown in 24 of the Last 26 Quarters’’ ..... 43 

Prepared statement of Hon. Jason Furman, Chairman, Council of Economic 

Advisers ................................................................................................................ 36 

Chart titled ‘‘History of OMB Budget Projections of Real GDP Growth Rate 

vs. Actual, Other Forecasts’’ submitted by Vice Chairman Tiberi ................... 44 

Chart titled ‘‘Historical U.S. GHG Emissions, Non-Binding Reduction Pledges, 

and Long-Term ‘Pathway’ ’’ submitted by Vice Chairman Tiberi ..................... 45 

Questions for the record and responses: ................................................................

Questions for Hon. Jason Furman submitted by Senator Martin Heinrich 46 

Questions for Hon. Jason Furman submitted by Senator Amy Klobuchar . 51 

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THE ECONOMIC REPORT OF THE PRESIDENT 

WEDNESDAY, MARCH 2, 2016 

CONGRESS OF THE UNITED STATES, JOINT ECONOMIC COMMITTEE, Washington, DC. 

The Committee met, pursuant to call, at 2:28 p.m., in Room 216 

of the Hart Senate Office Building, the Honorable Daniel Coats, 

Chairman, presiding. 

Representatives present: Tiberi, Paulsen, Hanna, Grothman, 

Maloney, Delaney, Beyer, and Schweikert. 

Senators present: Coats, Lee, Klobuchar, Casey, and Peters. 

Staff present: Breann Almos, Ted Boll, Doug Branch, Whitney 

Daffner, Barry Dexter, Connie Foster, Harry Gural, Colleen Healy, 

Matt Kaido, Jason Kanter, Christina King, Yana Mayayeva, Viraj 

Mirani, Brian Neale, Thomas Nicholas, Brian Phillips, Ken 

Scudder, and Phoebe Wong. 

OPENING STATEMENT OF HON. DANIEL COATS, CHAIRMAN, A 

U.S. SENATOR FROM INDIANA 

Chairman Coats. As soon as I turn on the microphone, the 

Committee will come to order. 

Chairman Furman, welcome back. We very much appreciate your 

willingness to come and speak with us, following The Economic Report of the President. It is important for us to understand what is 

in this and get your take on it, and where we are going. It certainly 

helps us in terms of our policymaking decisions going forward. I 

want to welcome you here and thank you for your participation. 

Vice Chairman Tiberi, Ranking Member Maloney, and all of us 

welcome you and thank you for your willingness to continue this 

long-standing tradition that we have that the Chairman of the 

Council of Economic Advisers testifies before the Joint Economic 

Committee. 

This year marks the 70th anniversary of the Council of Economic 

Advisers and the Joint Economic Committee, both of which were 

created to advise our respective Branches of Government on a wide 

range of matters affecting the economy. 

We appreciate this annual opportunity to engage in dialogue, and 

look forward to discussing this year’s economic report. 

Much has been learned over the course of this slow-growth recovery that we are in, and these lessons will only continue for the foreseeable future. The current recovery has been slower than previous 

recoveries, and subdued expectations about the economic, population, and labor force growth have placed additional pressures on 

federal budget constraints. 

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However, I do not accept the often-mentioned assertion that we 

have entered a new normal of slower economic growth. Policy reforms seeking to create a better tax system, rein in spending, and 

loosen the regulatory shackles restricting our economy can alter 

this trajectory by removing some of the structural barriers American workers and businesses face today. 

In my opinion, a lot of the problems we would like to solve require us as policymakers to look in the mirror and see how current 

Federal Government policies are affecting our economy. 

In his final State of the Union Address this year, President 

Obama stated that he wanted, and I quote here, ‘‘to focus on the 

next five years, the next ten years, and beyond.’’ 

However, he admitted one of the most important issues that 

America faces in the coming years, the financial obligations that 

will come due over those time frames, and particularly in the beyond. 

That was not mentioned once in his address, and how to achieve 

fiscal sustainability was not among the four questions the President argued that we as a country have to answer. 

I found this to be a glaring omission, given how our national debt 

has risen so sharply over the past seven years from $10.6 trillion 

when President Obama took office to now over $19 trillion dollars. 

This accumulation of such staggering levels of debt is nothing 

short of reckless, and the situation will only get worse the longer 

we wait to address it. 

According to a recently released report by the nonpartisan Congressional Budget Office, in just 10 years spending on mandatory 

spending programs and interest on the debt will consume nearly 99 

percent of all federal revenues. Clearly this path is unsustainable. 

So if we do not work now to correct this disturbing trajectory, our 

ability to pay for essential government functions will be severely 

constrained. Our economy will suffer. And our national security 

will be at risk. 

The CEA’s report we will discuss today devotes significant attention to inequality as a defining challenge of the 21st Century. However, I think it is important to recognize that intergenerational 

theft is also a form of inequality, a particularly severe one that our 

children and grandchildren are poised to inherit. 

Their ability to succeed in our future economy will depend largely on the decisions that we make today. For the American Dream 

to remain attainable for future generations, we must accept the reality of our fiscal situation and act responsibly by addressing it immediately. 

I look forward to discussing these issues in more depth with 

Chairman Furman, and I will now turn to our Ranking Member 

Maloney for her opening statement. 

[The prepared statement of Chairman Coats appears in the Submissions for the Record on page 34.] 

OPENING STATEMENT OF HON. CAROLYN B. MALONEY, 

RANKING MEMBER, A U.S. REPRESENTATIVE FROM NEW YORK 

Representative Maloney. First of all, welcome, Dr. Furman, 

and thank you for planning this hearing, Mr. Chairman. And thank 

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you, Dr. Furman, for appearing yet again before us today to answer 

questions about the current state of the U.S. economy. 

I share the overall assessment of the Economic Report of the 

President that under the leadership of President Obama the Nation’s economy is back on track after what was the worst recession 

since the Great Depression. 

We have just completed the best two years of private-sector job 

growth since the 1990s. We have recorded the fastest two-year drop 

in the annual average unemployment rate in 30 years. 

The unemployment rate has been cut in half. As you can see in 

this chart, we are in the midst of the longest streak of private-sector job creation in history, with a record 71 straight months of 

growth and the creation of 14 million private-sector jobs. 

[The chart titled ‘‘Longest Streak of Private-Sector Job Growth 

Continues’’ appears in the Submissions for the Record on page 42.] 

There are some who look lightly at these achievements, claiming 

that the Obama recovery pales in comparison to average, quote ‘‘average’’ recoveries, as if the economic meltdown during the last 

years of the Bush Administration was, quote, ‘‘an average recession.’’ 

Is the loss of almost 9 million American jobs ‘‘average’’? Is the 

loss of homes for 9 million Americans ‘‘average’’? Let’s remember, 

when George Bush left the Oval Office, the economy was in a death 

spiral. 

In the final quarter of 2008, GDP shrank at a staggering 8.2 percent annual rate—the worst quarterly economic performance in 

more than 50 years. Housing prices were collapsing. U.S. households lost nearly $13 

trillion. 

Dr. Furman, last year you told us that this recession was like an 

economic heart attack. You said the share of wealth lost in the 

early days of this recession was almost 5 times as large as the loss 

in wealth that triggered the Great Depression. 

Thanks to the bold action of President Obama, Democrats in 

Congress and the Federal Reserve, we have steadily climbed back 

from this recession. As you can see from this chart, the U.S. GDP 

has grown in 24 of the past 26 quarters. Real GDP has grown by 

over 14 percent since the start of the Obama Administration. 

[The chart titled ‘‘U.S. Economy Has Grown in 24 of the Last 26 

Quarters’’ appears in the Submissions for the Record on page 43.] 

The auto industry, written off by some as dead, has already 

added nearly 640,000 new jobs since 2009, and it is now exporting 

more than 2 million units per year. 

Average housing prices have rebounded to 2007 levels, and 

household wealth is more than $17 trillion higher than before the 

recession. 

This recovery has occurred despite efforts by many Republicans 

in Congress. First, they opposed stimulating the economy. In fact, 

every single one of them in the House voted against the Recovery 

Act. 

They demanded budget cuts at exactly the time when economic 

theory says government should increase spending to boost demand. 

The Report notes that the economy faces long-term structural 

challenges. 

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First of all, the Baby Boomers are retiring. That alone will decrease labor force participation and slow the growth of GDP. 

We also face the devastating effects of off-shoring of American 

jobs and job losses due to automation and technical changes. These 

challenges are not a surprise. They have been on economists’ radar 

for years. 

So what should we do? I agree with your assessment that we 

need to rebuild the Nation’s crumbling infrastructure, invest in 

early childhood education, implement paid leave, achieve equal pay 

for equal work, and make college more affordable. 

I want to close by looking at economic inequality, one of the central issues of our time, and the focus of the first and fourth chapters of the Economic Report of the President. 

The U.S. experience has diverged from other advanced countries. 

Since 1987, the share of income going to the top 1 percent in the 

United States has been greater than in every other G–7 country 

every single year. 

We need to recommit ourselves to policies that expand opportunities and narrow inequality. These policies will pay dividends in the 

future, and help us create an economy that is even more robust, 

an economy where the benefits of growth are shared across the income spectrum. 

As you note, giving all people a fair shot will strengthen our 

economy by boosting productivity and accelerating growth. 

Dr. Furman, thank you once again for appearing before the Committee. I am eager to hear your testimony. And congratulations on 

an excellent report. 

[The prepared statement of Representative Maloney appears in 

the Submissions for the Record on page 34.] 

Chairman Coats. Thank you, Ranking Member Maloney. Now 

we turn to introducing our distinguished witness, Chairman 

Furman. 

Jason Furman is the Chairman of the Council of Economic Advisers. Previously he served as a Principal Deputy Director at the National Economic Council, and Senior Vice President of the World 

Bank. 

He has also been a senior fellow in economic studies and Director 

of the Hamilton Project at the Brookings Institution. 

Dr. Furman earned his Ph.D. in Economics and a Masters of 

Arts in Government from Harvard University, and a Masters of 

Science in Economics from the London School of Economics. 

Thank you, Chairman Furman, for joining us. We look forward 

to hearing from your report. 

STATEMENT OF HON. JASON FURMAN, CHAIRMAN, COUNCIL 

OF ECONOMIC ADVISERS, WASHINGTON, DC 

Chairman Furman. Thank you, Chairman Coats, Vice Chairman Tiberi, Ranking Member Maloney, and members of the Committee. We are excited to be here today to talk about the 70th Annual Economic Report of the President, something that the CEA 

and this Committee have had a chance to do many, many times 

over the decades. 

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This report’s overall macroeconomic theme is that 2015 was a 

year of continued growth for the U.S. economy in the face of substantial headwinds from abroad. 

Ranking Member Maloney cited a number of the statistics: the 

strongest job growth in two years—in two years of job growth in 

a decade; the largest decline in the unemployment rate in 30 years; 

and the longest streak of private-sector job growth on record. 

The unemployment rate has consistently fallen well faster than 

what anyone would expect, falling to 4.9 percent, its lowest since 

February 2008, as compared to forecasts which as recently as 2014 

had expected it to stay above 5 percent through 2020. 

At the same time, the labor force participation rate has been relatively stable over the past year, as improving economic conditions 

partially offset the drag on participation from the retirement of the 

Baby Boom Generation. 

And perhaps most importantly, over the past six months nominal 

hourly earnings for private-sector workers have grown at their fastest pace since the Great Recession, although more work remains to 

be done to boost wages. 

Our domestic progress is all the more notable in light of the substantial headwinds that the United States faces from the global 

economy. 

The International Monetary Fund estimates that global economic 

growth was 3.1 percent in 2015, the slowest since 2009, and continuing a trend of falling below expectations. 

The United States had the highest growth rate of any major advanced economy, but slowing growth in a number of large emerging 

markets weighed heavily on the global economy in 2015. 

Weak growth abroad served as a drag on U.S. exports, with exports subtracting 0.1 percentage points from real GDP growth in 

2015, a substantial shift from the half-point that experts had been 

adding to growth in 2013 and 2014. And we expect these 

headwinds to continue into the year 2016. 

Particularly in light of these adverse global developments, it is 

important that we work to strengthen domestic growth by boosting 

productivity and dynamism in the U.S. economy. 

It is also important that we work to ensure that the benefits of 

economic growth are shared broadly. And to this end, the 2016 Economic Report of The President lays out the President’s agenda for 

inclusive growth. 

Despite progress since the Great Recession, the unequal distribution of income, wealth, and opportunity remains one of the greatest 

challenges facing our economy. It is not unique to the United 

States, but it is more severe here than in other countries around 

the world. 

Some of the increase we have seen is a natural consequence of 

competitive markets, a result of differences in productivity as technology evolves, but some of the increase may reflect the rising influence of what economists call economic rents: the income captured by companies and workers beyond what their productivity 

justifies. 

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equality without boosting productivity, providing opportunities to 

improve both efficiency and equity in the U.S. economy. 

The President’s agenda includes making competitive markets 

work better by increasing opportunity and combating the trend of 

rising unequally divided rents. 

Competition most effectively promotes economic growth when it 

is open to the widest pool of talent. So the President is promoting 

equality of opportunity by investing in education, supporting children in low-income families, and ensuring a fair criminal justice 

system. 

And the President also supports policies to make markets more 

competitive by reducing overall economic rents through promoting 

more open and competitive markets, balanced intellectual property 

rules, and a smarter approach to occupational licensing and regulation, among other policies. 

Now other sections of this year’s report lay out additional steps 

we can and should take to ensure a strong domestic economy, including expanding trade, investing in technology, investing in infrastructure, and investing in children. 

And I would be more than happy to talk about these or any other 

topics that you’re interested in. 

Thank you. 

[The prepared statement of Chairman Furman appears in the 

Submissions for the Record on page 36.] 

Chairman Coats. Mr. Chairman, thank you very much. I want 

to apologize for having to leave shortly. The Senate has called for 

four consecutive votes, which will take a considerable amount of 

time. 

I am going to ask my question to you, and then turn this over 

to Congressman Tiberi, our Vice Chairman, who will recognize 

Mrs. Maloney as Ranking Member. And then, in this somewhat 

byzantine order of who came first, and which chamber you are 

from, and what is your seniority, we will try to do a fair allocation 

of back and forth. And I have someone here who has studied fastidiously and is an expert on telling you, Vice Chairman, who is 

next. And, trust me, with people in and out and back and forth, it 

can get very complicated. 

Mr. Chairman, I came to office a long time ago. One of the very 

first critical votes I had to face was the decision as to whether or 

not we would raise our debt ceiling limit to over $1 trillion. 

People say, wow, that must have been a hundred years ago. No, 

not quite. That was 1981. Today, we are at the $19 trillion mark. 

Look, let’s take the politics out of this. We had three years of balanced budgets at the end of the 1900s before we came into this 

New Millennium. Under both Republican control and Democrat 

control, we have seen an ever-accelerating plunge into debt. 

We know that the Darth Vader of the future economy is lurking 

out there waiting to collect the bills. We know that from CBO the 

projections going forward are dramatic relative to the way discretionary spending shrinks as mandatory spending continues to 

grow. 

In fact, CBO said that in 10 years we will at the current trend 

be at 99 percent—that 99 percent of our budget will be consumed 

by mandatory spending and interest coverage. 

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This obviously is unacceptable. We know the Baby Boom budget—Baby Boom era has been descending upon us. We have known 

this for decades. And so if we can take the politics out of this as 

to who to blame, and who is responsible, and simply say we now, 

whether you are a Republican or a Democrat, a conservative, liberal, or in between on that spectrum, we have a common challenge 

that has to be addressed. 

It has been pushed down the road over, and over, and over. It 

is becoming increasingly a hindrance to our economy and ability to 

grow, to provide for our national security, to pave roads, to build 

infrastructure, to provide for health care, research, and you name 

the functions that are necessary to be addressed. 

So I wonder if you would tell us, what is the next President, regardless of who that is, what is the next President and the next 

Congress, what do they need to do to finally stand up to this looming crisis to put in place a long-term solution that is feasible in 

terms of how we need to govern, but will put us on a path to more 

fiscal responsibility and avoid this coming wall that we are going 

to hit if we do not take action? 

I may not be able to be here to hear your final answer on that, 

but we would like it for the record. And I would appreciate it if you 

would address that. That is my only question, and then I will turn 

it over to Mr. Tiberi. 

Chairman Furman. So thank you very much for that question. 

And I think I agree with the premise of almost everything that you 

said. I think it is important to put this in context. Our deficit was 

nearly 10 percent of GDP when the President walked in the door. 

That was a consequence of a very severe Recession. 

The deficit has come down to 2.5 percent of GDP, which is below 

the average of the last 40 years—— 

Chairman Coats. But we know it is going to spike shortly, 

right? 

Chairman Furman. Absolutely. And that is due to a combination of deficit reduction and also a strengthening economy. Doug 

Elmendorf, the former CBO Director, recently co-wrote a paper in 

which he argued that the fiscal outlook over the next 25 years is 

a challenge, as you said, but is less of a challenge than it looked 

a couple of years ago—in part because of the steps we have taken, 

and in part because of lower interest rates. 

But more does need to be done. The deficit will rise as a share 

of GDP. The debt will rise as a share of GDP, and our approach 

is a balanced combination of measures on the spending side, including to entitlements, and measures on the tax side which predominantly are not about raising rates but are about cutting back 

on tax benefits for high-income households, many of which are not 

economically efficient. 

The last thing I should say is that ultimately our goal is to see 

the debt-to-GDP ratio on a downward path and stabilized. One can 

accomplish that both by lowering debt, but also by raising GDP. 

So steps that strengthen our economy are a really important part 

of how we need to deal with our debt and deficit as well. 

Chairman Coats. Thank you. We finished 12 seconds ahead— 

whoops, 12 seconds behind my time. So I need to pass this on to 

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Mr. Tiberi, and again apologize for having to leave, and hopefully 

to be back as quickly as I can. 

Chairman Furman. Thank you. 

Vice Chairman Tiberi [presiding]. Thank you, Mr. Chairman. 

I will recognize the Ranking Member, Mrs. Maloney, for five minutes. 

Representative Maloney. Thank you, very much. 

A major focus of The Economic Report of the President is widening economic inequality. And your report argues that extreme inequality can be a macroeconomic problem, a drag on productivity 

and growth. 

Please explain to even those who are not concerned about the 

growing gap between the haves and the have-nots, why we should 

be concerned about inequality, and why is vast inequality 

everybody’s problem? 

Chairman Furman. Thanks for your question. And I think 

there are a number of reasons. One of the clearest is that if you 

have inequality of income, you are going to have inequality of opportunity. And if you have inequality of opportunity, there is talent 

that could be contributing to more of our economy but will not get 

the shot that it should get because of lacking educational and other 

opportunities. 

So we will miss out on the innovation and creativity we need to 

push us forward. 

Representative Maloney. Okay. As you noted in your testimony, the share of income going to the top 1 percent in the United 

States is much higher than in other G–7 countries. 

Why has the experience in the United States been so different 

from the other G–7 countries? 

Chairman Furman. All of our economies are facing similar 

forces in terms of technology and globalization, and those have 

played a role in rising equality across the advanced economies. 

One thing that has happened in the United States, though, is we 

have made less of an investment in education that would let our 

workers keep up with the skills that would complement the advances we have seen in technology, or to take advantage of 

globalization. 

So that is one reason why we have seen an increase in inequality. 

I think also institutional changes matter, the fact that the 

United States has a minimum wage that is very low by the standards of the G–7 has been eroded substantially by inflation, has also 

been a contributing factor to the increase in inequality. 

Representative Maloney. Many people understand that expanding economic opportunity for women in the workplace and 

paying them fairly is the right thing to do. Why is it also good for 

the broader economy? 

Chairman Furman. One of the challenges we face in our economy is a demographic challenge, that we are an increasingly aging 

society and that has slowed the growth of our labor force. 

One of the ways to increase the growth of our labor force would 

be to incorporate both more men and women in the workforce. And 

when you take steps like more flexible workplaces, more subsidies 

for child care, reducing the tax penalty on secondary earners, and 

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other measures along those lines, paid leave, all of that helps bring 

more women into the workforce and helps us overcome some of the 

demographic challenges we have built into our age structure. 

Representative Maloney. And people understand that programs like Head Start, and universal pre-K are an effective tool for 

helping children succeed in life. What are the economic benefits for 

allowing all of our children to have this opportunity of pre-K? 

Chairman Furman. Recently economic research has been taking advantage of studies that follow children over a very long period of time after public policies. And they have found that highquality preschool, for example, raises future earnings substantially, 

and raises them more than enough to justify the initial cost of the 

program. 

High-quality preschool also, by the way, helps women’s labor 

force participation. So it helps today the family as a whole, and balancing work and family, and then it helps the children later on. 

That is true of a wide range of interventions—the Earned Income 

Tax Credit, Supplemental Nutritional Assistance Program, and 

Medicaid, all have been shown to have long-term benefits for children in terms of education, earnings, and health. 

Representative Maloney. When the United States Congress instituted automatic spending cuts in 2013, did it help or hurt the 

economy? 

Chairman Furman. That hurt the economy. It created a fiscal 

headwind. 

Representative Maloney. Well my time has expired. Thank 

you. 

Vice Chairman Tiberi. Thank you, Ranking Member. 

Good afternoon, Chairman Furman. Thanks for joining us today. 

In his letter to Congress introducing the ERP, President Obama 

says, and I quote, ‘‘I have never been more optimistic about America’s future than I am today.’’ 

However, the chart that I have, hopefully on the screen here in 

a second, shows that past growth projections from the Administration have not lived up to expectations. They have failed. 

[The chart titled ‘‘History of OMB Budget Projections of Real 

GDP Growth Rate vs. Actual, Other Forecasts’’ appears in the Submissions for the Record on page 44.] 

And that now, by the Administration’s own estimates, the longterm growth potential is meager, at best. So the red is OMB’s forecast. The solid black line is actual. And the dotted black line is the 

new projection going forward. And then the blue, the various blue 

lines, are other nonpartisan organizations. And you can see the 

growth. GDP growth is between 2 and 21⁄2 percent, which is below 

the historic averages. 

As you know, business investment is essential to economic 

growth, job creation, and rising living standards. It has slowed dramatically in the last two years. 

So you describe an optimistic and a pessimistic view of the future 

trend in business investment within your report. So are you optimistic, or pessimistic? 

Chairman Furman. Thank you so much for that question. Of 

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herent strengths of the U.S. economy and also the policy measures 

that we can take. 

Now if you look at the unemployment rate—and I had shown 

that chart in my initial presentation—that has consistently fallen 

faster than our forecasts. Interest rates have come in below our 

forecasts. And the goal of these forecasts is to forecast the budget 

deficit, which has also generally come in at less than what we had 

expected. 

So a number of things have come in better than expectations. I 

think you are right, though, on the business investment across all 

the advanced economies: the UK, the Euro Zone, Japan, has not 

been what we would like to see. And I think a lot of that is the 

consequence of the very deep Recession. 

The bright spot within business investment is research and development by private companies is the highest it has been as a 

share of GDP. 

Vice Chairman Tiberi. So you yourself mentioned the importance of GDP growth to the Chairman, Mr. Coats’ question regarding our debt and our long-term debt. So Larry Summers, who you 

know, recently talked about secular stagnation. His hypothesis sees 

low capital investment, slow labor growth, and slow technological 

progress as lasting conditions long term. 

Is secular stagnation the same as the pessimistic view in the 

ERP? Or how do you explain it? And do you agree with it? 

Chairman Furman. I guess I interpret secular stagnation as a 

specific economic hypothesis about long-term equilibrium interest 

rates and the like. I think it has a number of problems in its application to the United States. I think it may help us understand 

places like Japan and the Euro Zone. I do not think it applies to 

the United States. 

That being said, I think the impetus that we need to take bold 

steps, like invest more in our infrastructure, are very much true 

and we would have a brighter future if we did that. 

Vice Chairman Tiberi. Okay, last question. I’ve got a chart up 

here. I was disappointed that the ERP does not address what I believe is the limiting effect on economic growth potential from a 

whole host of the Administration’s actions and policies like increased spending, debt, failure to reform the tax code, and the regulatory burden through regulations. 

[The chart titled ‘‘Historical U.S. GHG Emissions, Non-Binding 

Reduction Pledges, and Long-Term ‘Pathway’ ’’ appears in the Submissions for the Record on page 45.] 

For example, on this chart it shows historic and projected greenhouse gas emissions, including the effects of the President’s Clean 

Power Plan, and specifically the Paris Pledge. These policies and 

regulations are not even mentioned in the ERP, and the Administration has apparently turned away from the ‘‘all of the above’’ energy strategy that it was once in favor of as it now closes power 

plants and natural gas and nuclear power. 

So we have also seen this Administration pour on new financial, 

labor, and environmental regulations. Aren’t those holding down 

economic growth? And aren’t there not massive costs associated 

with such a decline in emissions, for instance, on this chart? 

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And these policies, none of them which I just mentioned, are included in this Economic Report. Shouldn’t the ERP discuss the 

most important issues impacting our economy, and explain that 

some government policies might constrain economic growth? 

Chairman Furman. I, you know, to some degree when you don’t 

see something in the Report, it is just a matter of space. And we 

already imposed 430 pages on you. You mentioned taxes. Last year, 

for example, we had a long discussion of business tax reform, and 

I would hope you would find a lot to agree with in that discussion: 

the importance of lowering our rates, and making our international 

system more competitive. 

We just did not repeat that again this year, not because it is not 

important, just a matter of space. On regulations, I suspect we 

probably see it a little bit differently. And certainly our analysis of 

the determinants of investment growth in the economy finds a trajectory of investment growth we have seen is very well explained 

by a traditional model that does not take into account these regulatory changes. 

And the investment we have seen, performance in the U.S. economy has been very similar to other economies that have had very 

different regulatory trajectories. So I do not think they are a very 

important factor in explaining this macro phenomenon. 

Vice Chairman Tiberi. Thank you. My time has expired. 

Mr. Beyer is recognized for five minutes. 

Representative Beyer. Thank you, Mr. Chairman. 

Chairman Furman, the report notes that, quote, ‘‘While investment has been low, the rate of payouts to shareholders by nonfinancial firms in the form of dividends or net share buy-backs has 

been rising. Nonfinancial corporations are now returning nearly 

half of the funds that could be used for investment to stockholders.’’ 

One possible explanation provided by the report is that, quote, 

‘‘The rise in payouts to shareholders may be related to the decline 

in the startup rate of young firms who are more likely to reinvest 

their cash flow than mature firms.’’ 

The report also notes that the lower investment growth in higher 

share of funds returned to shareholders suggest firms have had 

more cash than they thought they could profitably reinvest. 

However, the rise in share buy-backs predates current economic 

circumstances. Senator Baldwin, among others, has pointed to a 

1982 SEC rule that provided for safe harbor from manipulation liability at the beginning of the explosion of stock buy-backs. 

Prior to 1982, buy-backs were a very limited use of corporate 

profits. And buy-backs, as we know, can make earnings reports 

look better and improve short-term executive compensation, and 

foster short-term thinking in the corporate governance. 

Can you comment on the impact of this and other regulatory 

changes have contributed to the current investment environment? 

And should we be seeking to limit buy-backs as a means of promoting private-sector investment? 

Chairman Furman. So thank you for your question. I have certainly seen the hypothesis put forward that that 1982 regulation 

has played a role in the rise of buy-backs. And it is certainly the 

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case that buy-backs have risen over time. It is not just a recent 

phenomenon. 

I have not seen—reviewed the research in terms of assessing 

that link, so I do not have an opinion on that. I would be happy 

to look into it a little bit more and get back to you. 

I think one of the most important questions for us to ask, 

though, is what can we do to make sure companies have good 

things to invest in, and make sure that we have a really dynamic 

system in which new businesses are being formed and coming into 

existence. 

And if you have a large, mature company that does not have 

great investment projects, I would rather that money go back to 

shareholders, and then the shareholders can allocate it to some 

other part of the economy that could be of higher efficiency. 

So I usually step back and look a little bit less at where the 

money is going, and a little bit more at what is shaping the business decisions and the business opportunities in terms of the real 

investment prospects they have. 

Representative Beyer. Great. Thank you, very much. 

The ERP contains a very interesting discussion of the impact of 

economic rents as a driver of inequality. And I like your simple definition, which was: Economic rents is income captured by companies and workers beyond that which their productivity justifies. 

Rents can also be created by market consolidation and regulations which favors specific business or sector of industry over its 

competitors. 

Can you recommend policy approaches to address the undeserved 

rents? 

Chairman Furman. Sure. One is something that Senator Lee 

and Senator Klobuchar held a hearing on a few weeks ago, which 

is occupational licensing. The fact that at the state level now 25 

percent of occupations you need a license to get that reduces our 

ability to move between jobs. If you are one of the lucky people 

with a license, it lets you command a premium. 

Land use restrictions that drive up the cost of living in certain 

areas also create rents, both literally and in the economic sense. 

Greater degree of competition is important in this regard. But 

the other thing I would say is, some rents are inevitable and it is 

a question of how they are divided. So a higher minimum wage, or 

expanding workers’ voice, including labor unions, would help make 

sure that when you are dividing the pie it gets divided a little bit 

more towards the labor end. 

Representative Beyer. Thank you. You know, Mr. Chairman, 

we keep hearing about mandatory spending continuing to increase, 

and that at some point in our lifetime it will be 100 percent of federal revenues. 

Do we have a plan to address the long-term thinking about what 

we are going to do to maintain a meaningful discretionary part of 

our budget? 

Chairman Furman. We currently have much lower projected 

health care both level and growth rates going forward than the projections six or seven years ago. That is in part due to the Affordable Care Act, and in part due to a set of changes that were under 

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way in our health system, and continuing to implement that which 

is most of the job of our Administration is really important. 

We could also take additional steps modeled on that to bring 

down the cost of health care, helping to reduce premiums, extend 

the life of Medicare, and reducing the pressure on discretionary 

spending that you cited in your question. 

Representative Beyer. Thank you, Mr. Chairman. 

Vice Chairman Tiberi. Mr. Paulsen is recognized for five minutes. 

Representative Paulsen. Thank you, Mr. Chairman, and thank 

you Dr. Furman for being here and following up on the report. 

It is interesting to me because some of the numbers you cited 

and that the others cite are often cites in terms of numbers, and 

the economy is back on track. We have had the fastest, we have 

had the best, and we have had records. 

Here is another number that I think is really critical: The U.S. 

Bureau of Labor Statistics announced that for all of 2015, all of 

last year, that we had U.S. productivity—labor productivity rose 

only 0.6 percent. So this is the fifth year in a row where that 

growth has been below 1 percent. 

So since the U.S. started collecting this data, going back all the 

way to 1947 up until now, there has never, ever been such a poor 

five-year stretch because we have had five years in a row where 

it has been below 1 percent. 

So knowing that is the case, this is really important, the link between increases in labor productivity and the average U.S. standard of living, one example now estimates for instance that because 

of the annual increases in labor productivity of 3 percent, if you 

had 3 percent the average standard of living would double in just 

about 24 years here in the United States. 

But now if you compare it to the last five years we have had with 

low productivity growth, we have actually changed it where the average standard of living will not be doubled until every 139 years. 

So 139 years to double our standard of living. 

So these are numbers I think that are behind what many people 

feel, or sense that they feel it is the disappearing of the American 

Dream. And it is probably why 72 percent of the public feels we 

are in a recession right now, even though technically we are not. 

So I am not a doctor, but I think one of the rules we have in 

medicine is ‘‘do no harm.’’ So just in terms of that question, Mr. 

Furman, to what end do you or the Administration, what thoughts 

have you given? What analysis have you provided? Or do you acknowledge that the cumulative effect of a lot of regulations on 

small, on medium, on large businesses has had on a lack of productivity growth, and the effect that that is now having on a lower 

standard of living in the United States? 

Chairman Furman. Thank you for your question, and I think 

you are right to identify productivity as one of the biggest challenges our economy faces. An analysis by the San Francisco Fed 

put the date at around 2004 when productivity growth started to 

slow. 

It is something we have seen, as I have said in other contexts, 

across a range of other countries. The United States—and one of 

the reasons I am optimistic about the United States—is over the 

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last 10 years we have had the fastest productivity growth of any 

of the other G–7 economies. But we certainly have not had enough. 

As you said, that plays a big role in terms of what future we can 

expect for wage growth. And so I think the most important question is what steps can we take? 

I would suggest expanding markets abroad, through steps like 

TPP. Reforming our business tax system, lowering the rate and reforming the base. Investing more in infrastructure. Investing more 

in research and development. And bringing down our deficit to free 

up more private capital for investment. 

Those are five really important steps we could take to increase 

our productivity growth. 

Representative Paulsen. And I would agree. Tax reform. Expanded trade opportunities. Sell more American goods and services 

overseas. Get the money back home. 

But what about the regulatory environment? I mean, do you acknowledge, or have you done analysis just on the weight of regulations from a cumulative effect that that has actually had? 

I mean, it’s a consistent message that I hear from my employers 

that I visit with in Minnesota all the time. 

Chairman Furman. I don’t think the—I think it is very important to get regulations right. And one of our jobs at CEA is to participate in the process by which Executive Branch regulations are 

reviewed. And we take that responsibility very seriously and work 

hard to get the benefits as high relative to the costs as you possibly 

can. 

Often that means doing regulations in a way that is flexible, that 

uses market mechanisms. I think if you do that, it can be consistent with a stronger economy and strong productivity growth. 

Representative Paulsen. Thank you, Mr. Chairman. 

Vice Chairman Tiberi. Thank you. Congressman Delaney is 

recognized for five minutes. 

Representative Delaney. Thank you, Mr. Chairman. I also 

want to welcome Chairman Furman and thank you for your very 

intelligent report and testimony here today. It also has pretty significant throw weight associated with it, so it is a great work product, as usual. 

I was going to ask about economic rents, but my friend from Virginia already covered that, so I wanted to actually go back to a 

point that was raised by the Chairman about the Paris Accord, and 

thinking about this debate about economic growth as it relates to 

how we position the country around climate change. 

So when you think of two postures, one that is more forward 

leaning as it relates to climate change—in other words, setting 

goals like 50 percent clean electricity by 2030, or various goals that 

are achievable based on current technology but aspirational—you 

know, stretch goals—versus not taking these steps, and not putting 

the proper incentives in. 

How do you think about that as it relates, putting aside environmental stewardship, but just as a pure matter of economics, which 

posture will drive greater economic growth for the United States? 

Chairman Furman. I think acting as soon as possible to create 

as predictable a path for the future, and one that is, as you said, 

is achievable but a little bit of a stretch to make sure we are chalDeShaun on LAP51NQ082 with DISTILLER

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lenging ourselves, is the thing that makes the most economic sense, 

especially in a world where most every other country in the world 

is doing the same thing. 

And so some of the progress we have seen in solar energy, in 

wind, in conserving energy, all of that is helping to make sure jobs 

are located here in the United States. 

Representative Delaney. And when you think about job creation opportunity in carbon-intensive industries versus non-carbonintensive industries, what does the data suggest in terms of both— 

what it is likely to do to our economic growth, but also this notion, 

and I may be wrong about this, but my sense is that the carbonintensive industries have become much more automated and therefore are not actually driving labor, and in fact they’re not, even as 

they produce the same amount of energy, they are not reducing 

their labor participation in these industries, versus the clean energy, green energy, whatever you want to call it, that actually tend 

to be more labor intensive. Do you have a view on that? 

Chairman Furman. Yes. So that is my understanding, as well, 

that a lot of the traditional carbon-intensive industries are very 

capital heavy. It is a continuum, though. 

So natural gas, for example, has carbon, but it has half as much 

carbon, beginning to end, as coal would have. And we have had 

substantial increases in natural gas production, and that has 

helped to create jobs in our country. 

And I think that is a good thing, and something that we would 

welcome and encourage. It is also something that is compatible 

with how we are trying to hit our goals for climate change. But 

then solar and wind, and a range of renewables, and the set of industries around those, as you said, are very labor intensive. 

Representative Delaney. And then when you think about economic risk, or threats to American prosperity, if you will, because 

as we have seen from the economic performance that this country 

has realized across the last seven years, particularly relative to our 

competitors—which this might be one of the greatest periods of 

time when we have outpaced the rest of the world in terms of how 

we have recovered from the financial crisis and how well our economy is doing relative to other places, and how less dependent we 

are on other parts of the world. And so things like what is happening in the developed world are affecting us less than anywhere 

else. 

But when we think about that threat, Mark Carney, the Chairman of the Bank of England, gave a speech about a year ago where 

he talked about one of the risks to financial markets that he saw 

was in fact climate change. Because, he said, there might be a 

point in time when people actually—it may not be when some of 

the catastrophic scenarios occur, but when people actually come to 

the view that it will be a reality, and there is a dramatic repricing 

of assets based on that. 

How do you think about that in terms of risk to our economy if 

we do not deal with it in a prudent way? 

Chairman Furman. Right. So—— 

Representative Delaney. And do you have macro views as to 

how much climate change could hurt our economy? 

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Chairman Furman. So we, the Administration has what is 

called ‘‘the social cost of carbon.’’ It is an estimate of how much 

each ton of carbon costs us economically. Our estimate is about $40 

a ton that we use as an input into the rulemaking process. 

That estimate does not include the uncertainty in tail risks associated with climate change, and that is a lot of what Mark Carney 

was talking about in that speech you referred to. And that might 

even be a larger and more consequential cost than just this. 

And then at the other end, the sooner you deal with it, the 

cheaper and more efficient it is. If you waited 30 years, it would 

be quite costly to our economy to address. 

Representative Delaney. Great. Thank you, Chairman. 

Chairman Furman. Thank you. 

Vice Chairman Tiberi. Senator Lee is addressed—excuse me, 

is recognized for five minutes. 

Senator Lee. Thank you, Mr. Chairman. 

Thank you, Chairman Furman, for coming to testify today. I 

want to thank you also, once again, for coming to testify on occupational licensing just last month in the Judiciary Committee. 

I would like to speak with you about innovation and get your 

thoughts on a piece of your report that focused on the potential job 

market effects of robots. 

It seems that we might be nearing a really significant technological inflection point, one that could have profound implications 

for our economy. Boston Dynamics continues to release videos of robots with incredible mobility and coordination, while industrial applications involving machine learning and analytical algorithms 

that at some level simulate cognition continue to advance. 

Some observers have suggested that we may be on the edge of 

a new wave of innovation, and that this new wave of innovation 

might in some ways be similar to that which was spurred on by 

the invention of the internal combustion engine, for example, which 

of course effectively led to a really sharp and economically significant decline in the use of horses. 

First of all, as policymakers should we be thinking about automation as a discrete issue? Or is it better thought of as a piece of 

a larger challenge involving globalization, trade, and a number of 

other similar factors? 

I am referring in particular to the challenges facing lower skilled, 

lower income workers and their jobs. 

Chairman Furman. I think that is a great question, and it is 

something that I know I grapple with all the time. I think to some 

degree that is all one set of issues. But I think automation brings 

it to the fore in a very direct way. 

In theory, automation should not present any problem at all. We 

have had automation for thousands of years, and we always find 

more jobs for people. But in practice that can come at a cost, either 

in terms of inequality if you do not have the skills to benefit from 

it, or some people who get displaced do not find another job and 

you might call it transitional or temporary, but that could last for 

decades. 

Senator Lee. Right, right, which is part of why I raised the 

question here. This one could be different in some ways, and I was 

looking to try to stay ahead of the curve. 

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Your report estimates a high likelihood that jobs today paying 

less than $20 per hour will eventually be automated. There does 

not seem to be a hard timetable for your projection, but is that accurate? 

Chairman Furman. That is accurate. And we were drawing on 

research that was done at Oxford in that regard. McKinsey has 

also done their own research that reaches similar conclusions to 

what is presented there. 

Senator Lee. The current Administration supports of course 

raising the minimum wage. And obviously every policy has tradeoffs. That is what we try to hash out in these debates. And one of 

the things we discuss in this Committee are the economic implications of policies like that one. 

But if low-paying jobs are the ones that are most threatened, 

most potentially threatened by automation, doesn’t raising the minimum wage just raise the cost of low-skilled work and incentivize 

employers to accelerate the process of automating these jobs, the 

very jobs that we are perhaps most concerned about? 

Chairman Furman. I mean the evidence that I have seen for 

moderate increases in the minimum wage phased in over time, 

similar to the types of proposals that have been put forward in 

Congress, has found that they don’t have adverse effects on employment. 

But certainly if you were to raise the minimum wage to $30 an 

hour, you know, I would expect you would have a tradeoff. 

Senator Lee. At some point you are going to get there, to a 

tradeoff, and perhaps when you factor in the effects of automation 

that tradeoff could end up being significant. 

Chairman Furman. I think it is important as part of an overall 

strategy to make sure our workers have more skills and more productivity. 

Senator Lee. Got it. And I want to be clear. I am not trying to 

get you to disavow the President’s policies here. I know that is not 

something that is going to happen, certainly not in this forum and 

not in your current position, but what I am asking is: 

If our goal as a society is that an honest day’s work should earn 

an honest day’s wage, and machines are going to make it harder, 

and in some cases perhaps impossible for low-skilled, entry-level 

Americans to find an honest day’s work, doesn’t the basic design 

of our social safety net have to perhaps look a lot different than 

it does today? 

Chairman Furman. I think it certainly has implications for 

how we design our social safety net, and I think that is an important conversation to have. I would not throw out the lessons of the 

last 50 years, and we are certain of what has worked and what has 

not, I think minimum wage has worked. I think Earned Income 

Tax Credit has worked. But I think we should be thinking hard 

about these questions going forward, as well. 

Senator Lee. Okay. Thank you very much, Mr. Furman. Thank 

you, Mr. Chairman. 

Vice Chairman Tiberi. Thank you. Senator Klobuchar is recognized for five minutes. 

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Senator Klobuchar. Thank you very much, Mr. Chairman, and 

thank you. I am sorry that Senator Coats and I have had a number 

of votes going on here. 

I appreciate the words about the improvement of the economy. 

I think we have all seen that. Our State is down to 3.7 percent unemployment. But we also know there are challenges. You raised 

one, Mr. Chairman, about income inequality. We have challenges 

for workers that are retired and have issues with their pensions. 

In fact, right behind you there, who I am going to meet with 

later, is Sherman Liimatainen who is from northern Minnesota, 

spent his whole life. Started as a janitor, was then a Teamster and 

a union delegate. He is working on a pension issue because of a decision that is inordinately affecting a lot of states in the Midwest 

that we are trying to work on. 

But another issue up in northern Minnesota that I know that 

you are well aware of is the current employment situation with the 

iron ore mining affected by the over-production in many countries, 

combined with illegal steel dumping that we know is going on. And 

I have really appreciated the recent moves of the Administration 

to try to be more aggressive in the enforcement, including adding 

nearly 38 new Commerce Department employees to focus on trade 

enforcement from the budget money we got last year, as well as 

working on the enforcement actions, including some new tariffs 

today. 

Could you talk about that industry, and what is going on, and 

what you think the future is? 

Chairman Furman. Yes. Thank you. And this is an issue we do 

pay a lot of attention to, Senator. 

The backdrop for this is the substantial global over-capacity in 

steel. And that steel capacity is 70 percent outside of the OECD 

economies, much of it in economies that have made very heavy 

state investments in supporting their steel industries. 

This overcapacity has collided with a collapse in worldwide demand for a range of commodities and products, including steel, and 

the result has been a 35 percent decline in steel prices in 2015, 

which is having a significant impact on our industry and in your 

State, among others. 

We have, as you said, taken 149 antidumping and countervailing 

duty actions, 40 of them in 2015 alone. It is the highest rate of actions in at least 14 years. That has contributed to the fact that 

steel imports are down 13 months—13 percent over the last year. 

And we are going to continue to rigorously enforce our trade laws, 

including taking advantage of some of the new tools that Congress 

gave us with the Customs Enforcement bill that the President 

signed I believe last week. 

It is important to understand that it can’t—that domestic trade 

enforcement is an important part of the answer, but international 

coordination is also critical. U.S. imports represent only 10 percent 

of global exports, and we need to be working together with other 

countries, both steel importing countries who are dealing with 

many of the same issues our economy is, as well as steel exporting 

countries like China to push on their overcapacity. 

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Senator Klobuchar. Very good. Well as I said, the President’s 

Chief of Staff came up to Minnesota. We have had thousands of 

layoffs, and it was really helpful to have him there. 

I am going to ask you more questions about this pension issue 

in writing. But could you just talk in general about the importance 

in a volatile economy where you have on the one hand the 

Millenials dealing with the Gig economy, and having trouble saving 

because they do not have that kind of structure in place that we 

once had. 

And then you have some seniors who have retired but things 

change with their pensions and it makes it very difficult for them. 

So could you talk about just this importance in general of retirement? 

Chairman Furman. Retirement security is very important. A 

lot of people are not prepared for retirement, and retirement security is enhanced when you are depending on multiple sources, Social Security of course being one, private savings being another, 

and pensions. 

Pensions include both defined contribution and defined benefit. 

Defined benefit have faced a number of challenges in our economy, 

especially in the multi-employer segment. And that is an important 

issue. And the Pension Benefit Guaranty Corporation plays an important role in helping to make sure that those pensions function 

as well as they can. 

Senator Klobuchar. Okay. And you know this issue with the 

Central States Pension Plan, which we can talk about more in the 

future, is affecting two-thirds of the nearly 400,000 participants 

who are going to have their pensions reduced as high as 70 percent. And so it is a real, big concern in northern Minnesota, which 

is the same place where all the layoffs of iron ore miners are occurring especially. 

So, thank you. 

Chairman Furman. Okay. Thank you. 

Vice Chairman Tiberi. Congressman Grothman is recognized 

for five minutes. 

Representative Grothman. Thanks for calling on me, and 

Chairman Furman I am honored to have a chance to be on a committee that you are testifying before. 

One of the things I think we can all agree about is the labor participation rate now is a little bit disappointing. And when I get 

around my District, one of the big complaints employers have is 

they have a hard time finding employees. 

Okay? On the other hand, they also feel that their major competition for those employees is the government itself because of all 

the government benefits that you get if you don’t work, or don’t 

work as hard as you can. 

You mentioned that the unemployment rate has dropped during 

the Obama Administration, which it has, but at the same time the 

unemployment has dropped SNAP enrollment has gone up by 12 

million, okay? 

So it seems as though we are paying people either not to work 

at all, or not to work to their abilities. Could you comment on 

whether or not you feel all of the benefits out there that are available to you if you are making less money are contributing to the 

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low labor participation rate, or contributing to people not achieving 

their full potential? 

Chairman Furman. Right. So thank you for your question. 

For men between the age of 25 and 54, their labor force participation rate has fallen nearly every year since the 1950s. So this is 

a very long-standing phenomenon. 

For women since the late 1990s, this happened even though we 

changed our social assistance system to be much less something 

that you would get regardless of whether or not you were working 

to something that you pretty much in most cases really requires 

you to work to get. In fact, many elements of our social assistance 

system—— 

Representative Grothman. I am okay to a certain extent you 

are talking about Earned Income Tax Credit there, which requires 

you to work a little, but as soon as you work more than a little they 

begin to take it away. But go ahead. 

Chairman Furman. I was going to say the evidence on the 

Earned Income Tax Credit is that it does increase labor force participation because people deciding whether to work or not work, it’s 

a several thousand dollar difference, and then you are right, there 

is a phase-in range, and a phase-out range, and those could have 

effects as well. But those appear to be dominated by the large 

amount of money that you get as an additional bonus for working. 

Representative Grothman. I am going to disagree with you, 

but I am going to mention another problem we have. 

Economists have found there is a positive correlation between 

stable two-parent households and better outcomes for families. Now 

it is not very difficult to come up with hypotheticals in which people are losing over $30,000—a single parent could lose over $30,000 

a year by getting married. 

Do you view—and I am hearing exact examples of that in my 

District. You know, parents saying my son can’t get married and 

lose the benefits. That sort of thing. 

Can you think of anything to do in the remaining time in this 

Administration, or any plans for the future that you could suggest 

for future administrations to do something about this huge marriage penalty we have right now? 

Chairman Furman. Thanks for your question. President Bush 

passed some meaningful marriage penalty relief for many middle 

class families which President Obama signed into law on a permanent basis. 

There is a substantial marriage penalty in the Earned Income 

Tax Credit that was reduced in 2009, that we just made permanent 

on a bipartisan basis this past December. 

And then one of the proposals in the President’s budget which I 

alluded to in response to a question from Ranking Member Maloney gets at the fact that secondary earners often face higher tax 

rates in the United States than in many other countries, and it can 

discourage them from working. 

And so we have a tax benefit for secondary earners that we have 

proposed. 

Representative Grothman. Would you agree, though, that we 

still have over a $30,000 penalty say for a single parent making, 

with a couple of kids, making $10,000 to $15,000 a year, if they do 

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marry somebody making $40,000 or $50,000 a year? Would you 

agree with those figures? 

Chairman Furman. I think for most middle class families we 

do not have a marriage penalty in the tax code anymore because 

of the steps taken—— 

Representative Grothman. I am not talking the tax code. I am 

taking all the benefits, the Earned Income Tax, the SNAP program, 

the—— 

Chairman Furman. That is higher than I would have put the 

number at, and in part because we have taken a number of steps. 

But there is certainly more we can do. 

Representative Grothman. Yes, I will have to get you those 

figures. I will give you one more question. Before you talked about 

the fact that you felt we cut spending too much in, whatever, 2011, 

2010, and it would have been better not to. Okay, so I take it you 

are a Keynesian economist, you kind of believe that deficit spending improves the economy. 

In the budget that President Obama has recently submitted to 

Congress, you also have a larger deficit. It always kind of makes 

me wonder about you folks—and I love all people—but if the time 

to run a deficit is when the economy is weak as it was in 2010– 

2011, and now that we have had such a long period of time of lower 

employment, though our incomes are not where we want, and you 

are still running a large deficit, is there ever a time that economists such as yourself would suggest running a surplus? 

Chairman Furman. The goal that we have in mind is having 

the debt on a declining path relative to the size of the economy, so 

that you are shrinking it relative to the economy. That is not something that under current law we would achieve. It is something 

that additional steps, including greater spending reduction and reducing tax benefits, especially for high income households, would 

help us achieve. 

Vice Chairman Tiberi. The gentleman’s time has expired. 

Senator Casey is recognized for five minutes. 

Senator Casey. Thanks very much. 

Mr. Chairman, thank you for being here, and we have a day 

when folks were voting. In the Senate we are voting. So I will probably have just one question, but I think it is a critically important 

topic. 

We could spend hours on this one topic, and I am glad that you 

have in your work and in the report and the work of the Administration, focused on what we sometimes call early care and learning. 

Early care meaning quality, affordable child care; and learning, of 

course, pre-kindergarten education. 

But I noted—and I think they are both essential. And I see there 

is a relationship between the two. I noted on page 4 of your testimony you said, and I quote, that one of the chapters focuses on, 

quote, ‘‘disparities in opportunity that appear at an early age in the 

long run benefits of investments in the education, health, and well 

being of children.’’ Then you go on to talk about the gaps in the 

early health and cognitive skills of children. 

And then you conclude by saying, quote, ‘‘Research demonstrates 

that direct investments in children can help close gaps in these important outcomes and can have lasting positive effects.’’ Unquote. 

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22 

Then you have a chart there about cognitive skills, kindergarten 

versus fifth grade. 

I have been working on these issues for years. And I think the 

connection between learning and earning is not only demonstrated 

but is something we should bear in mind: that if kids learn more 

now, meaning when they are in those early years, they will literally earn more later. And, frankly, we are all better off with that 

investment. 

So I guess I wanted to ask you, number one, can you walk 

through some of the benefits that you see, maybe purely from an 

economic or workforce perspective, on making those investments in 

children in the dawn of their life? 

Chairman Furman. Yes. Thank you so much for that question 

and bringing up that issue, because I think that is a really important chapter of the report and a really important example of how 

we can both promote productivity growth which we have been talking about in this hearing, and make sure that that productivity 

growth is shared more widely. 

When you do an economic analysis of these types of early care 

programs and early education programs you find that it has two 

sets of benefits. One is actually an immediate benefit because it enables the parents, more often than not the mother, to work more 

if she chooses to do so. And it facilitates greater income for that 

family which itself is important for a learning environment for that 

child. 

And then the second set of benefits, the ones you have talked 

about, are a robust connection between education as young as 3, 4, 

5, and how much you earn in that 25, 30, 35 years of age. And 

when you look at for example just the extra tax revenue collected 

on those future earnings, that is enough to repay a substantial portion if not all of the initial cost of these programs. 

I am not suggesting that we take that into account in the budgetary treatment of them, but in evaluating whether or not it is a 

good idea to undertake those programs that is certainly relevant. 

Senator Casey. Yes. I know there are a number of studies that 

show the return on investment, which is really extraordinary. 

Sometimes it is you spend a buck on high-quality early learning 

and you get back multiples of that, sometimes into the teens. 

Chairman Furman. Yes. 

Senator Casey. So it is significant. I will, in the interests of 

time because I have to run to vote, I will yield back one minute 

and seven seconds. 

Vice Chairman Tiberi. Thank you. We appreciate it. Mr. 

Hanna is recognized for five minutes. 

Representative Hanna. Thank you very much. Thank you, Mr. 

Chairman. I want to say that I could not agree more with Senator 

Casey. The Arne Duncan Strong Start For Children Act, our past 

Secretary, I supported that and am pleased to be the lead of that 

in the House. And every possible matrix suggests that universal 

pre-K, or as near as we can get to it, is one of the best investments 

a society can make. 

But on another matter, you talked about corporate inversions, 

and our high corporate tax rate vis-a`-vis other countries, and mentioned that you believe it is an issue. How would you correct it? BeDeShaun on LAP51NQ082 with DISTILLER

23 

cause the issue has been demagogued I think by both sides in ways 

that are not helpful. 

You know, certainly I have my opinion about it, but what would 

you like to see happen, Doctor? 

Chairman Furman. Sure. I think there is a good way to address it, and there is an even better way to address it. The good 

way to address it would be to take a simple step of banning the 

practice of merging with a smaller foreign company and changing 

your tax domicile overseas, and thus claiming the set of benefits associated with being an overseas corporation. That is a step we 

could take today and it would reduce inversions. 

The even better way to deal with it would be to do that at the 

same time that we make it more attractive to invest in the United 

States by reforming our business tax system, lowering the tax 

base—— 

Representative Hanna. Ultimately, though, one is not effective 

if you do not do the other. 

Chairman Furman. I think we could do—I think it would be— 

the inversions are happening so quickly that I do not think we can 

afford to wait. And if it is going to take a long time to reform the 

tax code as a whole, then I would just deal with the inversions 

issue by itself. I think that would be the economically prudent 

thing to do. 

The even better thing would be to reform the business tax system as a whole to make it more attractive to be here at the same 

time you’re making it harder to invert. 

Representative Hanna. Ultimately, I mean we are talking 

about larger businesses being co-opted by smaller ones. 

Chairman Furman. Exactly. 

Representative Hanna. But you also cannot stop the reverse. 

And the idea of building an environment that makes it fundamentally attractive to be here, which Chairman Brady supports I think, 

is really what we should be considering. And the fact that we have 

the highest corporate tax rates are among them. 

And the world is a fundamental problem when you look at companies like Pfizer and Johnson Controls, and others, and Apple, 

and the conversation that ensues. 

I want to ask you, though, about something that I am disappointed that I am afraid that we are not going to be addressing 

this year. And that is the Trans-Pacific Partnership. And I would 

like to give you an opportunity to talk about it in any way you 

would like, without rendering an opinion if you do not want to, but 

the idea that we are not taking up this conversation is deeply disturbing to me, regardless of where it goes. 

Chairman Furman. Thanks for that. 

As I said in my opening statement, one of the challenges facing 

the U.S. economy is that it is hard to export—increase your exports 

to a world where growth in the rest of the world is slower. In that 

environment, one of the steps we could take that could help make 

it easier for us would be to reduce or eliminate 18,000 taxes that 

our exporters face when they try to export to abroad. The tariffs 

that these 11 other countries in the TPP have. 

One study found not just that there would be substantial benefits 

from doing TPP, it also found that if you wait a year to do it you 

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24 

lose $94 billion. You would lose more than $600 or $700 per household in our economy. 

So I think it is not just important to do, it is important to do it 

as expeditiously as possible. 

Representative Hanna. So you have heard the conversation on 

the street that unions are deeply against it, yet I find that most 

people are very much uninformed or misinformed. What do you say 

to those people, Doctor? 

Chairman Furman. I say the United States is already a very 

open economy. It is very easy for other countries to sell here. What 

we are trying to do is break down the barriers that our companies 

face to countries around the world. 

We also have very high standards in our country—labor, environment. This would ensure that other countries are raising their 

standards and put us in a better position to compete on a level 

playing field. 

Representative Hanna. So that the net is a big benefit. 

Chairman Furman. The net is a big benefit for workers, a big 

benefit for productivity, a big benefit for our economy overall. 

Representative Hanna. How can we get that message out? I 

mean, it just does not seem to be getting any traction? 

Chairman Furman. It is certainly something we have been trying to communicate and really make it tangible, that these are 

about cutting taxes on American exporters, and American exporters 

support higher-paid jobs. 

Representative Hanna. Thank you, Doctor, my time has expired. 

Chairman Coats [presiding]. Doctor, thank you. It is my understanding that Congressman Beyer has some questions, and feel free 

to take whatever time you need, and you’re on. 

Representative Beyer. Thank you, Mr. Chairman, very much. 

Just two questions. Chairman Furman, on this Committee we 

have often focused on the lost economic gap between a perceived 

or a titular 4 percent growth rate versus the 1, 2, 2.5 that we have. 

And we look back over the last most of our lifetimes when we have 

higher rates of growth. 

But I keep reading in various newspapers and magazines that 

absent some dramatic new disruptive technology, the agricultural 

revolution, the manufacturing revolution, the IT revolution, that 

we are destined to long-term growth rates of between 1 and 2 percent. 

Your perspective? 

Chairman Furman. Growth rates are a function of two things. 

One, how much is labor growing? And the second is how much is 

productivity growing? 

Labor is growing more slowly now than in the past, for demographic reasons. If you look during the 1980s, for example, and you 

look at the growth of the population between age 25 to 54—this is 

the group of people most likely to be working—that was 2.3 percent 

annually. 

Now the growth of the population in that age bracket is negative 

zero point one percent annually. This is a pure demographic fact. 

I am not talking about who is working or not working. It is just 

who is alive in that age range. 

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25 

And so the Baby Boom really helped propel our growth forward. 

That is turning into a retirement boom. And for that reason, the 

labor component of growth is lower today and is going to be lower 

in the future. 

The second component of growth is productivity. And there is a 

big debate that you alluded to in the economics profession about 

what the outlook for productivity growth is. I think, you know, no 

one really knows. And it depends on what inventions people have 

in the future. And if I knew what inventions people would have in 

the future, I would go out and invent them myself and probably not 

be before your Committee today. 

[Laughter.] 

I think there are a lot of reason to think we have a lot of potential. There is a lot of exciting technological developments in our 

economy, a lot of questions about how to apply them and make 

sure we are using them as well as possible. But I certainly would 

feel better if we were investing more in research, infrastructure, 

trade, business tax, all the different steps that we should be taking—lower deficit, all the different steps. 

Representative Beyer. Thank you. One more question. China has lost about $800 billion in currency reserves over the last 12 

months. What are your views on the drivers of this capital outflow? 

Do you expect them to continue? And how about China’s reserve 

adequacy? And, really, what is its impact on our economy? 

Chairman Furman. That is certainly a really important question. And China has suffered from not always communicating its 

policies as clearly and as transparently as we would like to see 

them do, and as the market would like to see them do. 

And one consequence, when you do not have transparent marketoriented policies that are communicated clearly, is that you can see 

various abrupt changes in financial markets. 

So I think that is part of what is going on with China. China still 

has very substantial reserves. They have I think more than enough 

wherewithal to deal with the economic challenges that they face. 

The question is: Are they going to make sure that they are doing 

the right reforms, the right transparent policies, communicating 

them in the right way such that they are taking advantage of those 

resources to address the challenges they have. 

Representative Beyer. Thank you, Mr. Chairman. Mr. Chairman, I yield back. 

Chairman Coats. Thank you. 

Congressman Grothman. 

Representative Grothman. Yeah, I am kind of going a little 

different from the way Congressman Hanna went here. I know 

there are countries around the world that want to get the kids as 

soon as possible in the loving arms of school and away from their 

parents. In your report you emphasize that Head Start is a good 

way to improve economic success in children. 

Your own HHS has found that Head Start has little or no impact 

in the long run across 22 different measures, and that actually 3- 

year-olds who attended Head Start were doing worse in math than 

their peers. 

Now I know awhile before that the Brookings Institution, which 

were you affiliated with. 

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Chairman Furman. At one time, yes. 

Representative Grothman. Themselves came out with the idea 

that Head Start really was not up to snuff. 

Given that these studies that show that, you know, Head Start 

is not that great, that it is better to leave the kids with their parents—and Head Start of course it seems that they are the poorer 

kids, not kids across the board—why do you keep pushing this 

daycare stuff to get the kids away from their parents? 

Chairman Furman. In the report we review several dozen studies conducted over a few decades. Any given study is going to have 

a different finding. We show that in broad terms they consistently 

find positive results. 

A number of these studies were authored by Nobel Prize winning 

economist Jim Heckman from the University of Chicago, who happens to be a Republican as well—which is not relevant for evaluating his research—but I think this is a widely accepted finding in 

the economics profession. 

Certainly high quality is important. You do not want to just do— 

you want to pay attention to the quality of what you are doing, not 

just anything. 

Representative Grothman. You are familiar with the Brookings deal, too, right? 

Chairman Furman. Yes. 

Representative Grothman. Alright, so there are studies out 

there, HHS Brookings that it does not work out that well. 

I will give you one more question. I am alarmed about the growing income gap in this country. And one of the things that I think 

contributed to it was the quantitative easing by the Federal Reserve, which as far as I can see is pushing money towards the, almost the most obscenely wealthy Americans, and kind of feeling 

that you are going to grow the economy that way. 

I realize you do not have direct control over the Fed, but could 

you comment? Do you think it was a mistake in trying to juice the 

economy for the Fed in essence to financially benefit some of the 

wealthiest, or I guess wealthiest Americans? 

I guess their idea was they thought it would trickle down, but 

do you think that was a mistake? Or is there a moral problem with 

that? Wouldn’t you have thought it would have been better off if 

we had kind of debased the currency to at least give money more 

to the working stiff? 

Chairman Furman. I do not comment on policy actions of the 

Federal Reserve. We think it is better for them to undertake those 

independently. But Congress granted the Federal Reserve a dual 

mandate in terms of employment and inflation, and I think any 

steps they take consistent with that mandate are ones that I would 

agree are in the best interests of our country. 

Representative Grothman. So you agree with—am I wrong in 

thinking that quantitative easing, insofar as it gives an immediate 

benefit to somebody, gives an immediate benefit to the big Wall 

Street banks? 

Chairman Furman. There is a large economic literature on the 

sources of inequality, and I do not think any major economic research thinks that monetary policy one way or the other is an important part of the explanation for changes in inequality. 

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Representative Grothman. Okay. Thank you for the additional 

time, Mr. Chairman. 

Chairman Coats. Congressman Tiberi. 

Vice Chairman Tiberi. Thank you, Chairman. 

Thank you, Chairman Furman, for being here today and your 

sincerity on this difficult topic. I want to associate myself, just to 

keep in the back of your mind, with what Senator Lee said. I look 

at my own experience. I worked at McDonalds my first job, and I 

was really excited about six months in when I got a minimum wage 

increase. I got an increase in my pay, which was not very much, 

but the impact, good for me, was not so good on the two guys that 

got hired after me because they lost their jobs. 

And I think that was what Senator Lee was talking about. But 

let me give you a better example of what I was thinking about 

when he was talking. 

My next job in high school was pumping gas at a gas station. I 

am dating myself here. You cannot get anyone to pump gas anymore at a gas station. You do it yourself. And I remember the 

owner, a small businessman, telling us, most of us in high school 

and college, that the biggest cost driver of his business was us. And 

so we better perform. 

And I did not have any skills in high school, but I learned how 

to pump gas. Well today that job is gone. In many service areas we 

find in our economy employers trying to figure out ways to reduce 

cost. And one of the few areas through technology that they can reduce cost impacts those high school kids that do not have those 

skills that they have yet to learn. 

And we have in our State of Ohio, which is reflected really in 

many other states, more and more individuals with a lack of skills 

not being able to find those service jobs that once were plentiful 

when I was a kid. 

In urban areas, it is even more tragic, where unemployment 

among Blacks and Hispanics are double-digits. So it is not a question, just to put in the back of your mind, I worry as we have 

meaningful, well intended, regulations from the Federal Government that sometimes they have just the opposite effect, which I 

think was Senator Lee’s point, of trying to allow for those who have 

the skill set maybe that I had when I was 16 and had not yet developed, are being left behind. So, just a thought. And thanks for 

your sincerity again. 

Chairman Furman. Okay. Thank you. 

Chairman Coats. Well, Congressman, if you think you are dating yourself on your first job, wait until I tell you what my first 

job was. 

[Laughter.] 

I see Senator Peters has arrived. Senator, just in the nick of 

time. You are on. 

Senator Peters. Well thank you, Mr. Chairman. 

Chairman Coats. You have not come to a committee meeting in 

a long time where you walk in, sit down, and the chairman says 

you’re on. 

Senator Peters. I need to do this more often. This is great. So 

thank you for that. 

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And, Chairman Furman, thank you so much for being here as 

well to talk about how issues related to the economy and the future. I have a question regarding some of the long-term structural 

changes that seem to be occurring in our economy that I think are 

going to pose some potentially very significant challenges for us in 

the decades ahead. 

I enjoyed reading The Economic Report of The President, which 

I am sure most people enjoyed reading and spending some time 

with it, but some very interesting discussion about growing income 

inequality, and job dislocations, job creation dynamism, et cetera. 

But one issue that is addressed in here, and I think you have 

done some studies related to it as well, deals with the pace of technological change and the impact that that is having on the job market. And I think I heard some of that as I walked in here today. 

It has always been that folks have always feared that technology 

would disrupt jobs, jobs would be destroyed, and we would have a 

much higher unemployment as a result of that. But it has never 

materialized, as jobs have—or as technology has destroyed jobs, 

which it has, it has always created even more jobs. They tend to 

be better jobs. They tend to be higher paying jobs. And a lot of the 

routine jobs have been displaced by ones that require higher education and skill training. 

But it seems as if there are a lot of folks who think that we may 

be getting to an inflection point where the technology is advancing 

to the point to where even those high-knowledge jobs, creative jobs, 

also can be done with the technology; that you will have jobs physicians, for example, when you look at Watson and the medical 

breakthroughs that are being done with Watson that can diagnose 

disease perhaps better than most physicians can do it. 

We know that for radiologists, there are machines that can do 

the job probably better than a lot of radiologists can. That we may 

be getting to the point, especially with artificial intelligence, that 

can radically transform the job market. 

In fact I know there was a recent study that I was looking at 

that thought that in the matter of the next decade or two 50 percent of the job classifications in this country could probably be done 

better with some sort of technology than a human can do it, which 

is disturbing but it is a challenge. 

What are your thoughts on that? And if that is indeed something 

we need to be concerned about, what sort of policies should we be 

thinking about right now? 

Chairman Furman. So thank you for that. And I think this 

bears a lot of thought, and I do not think it is a particularly partisan issue. I do not think we have all the answers. I think it is 

something we all should be grappling with together. 

To a first approximation, I think one hypothesis you stated is 

right. For thousands of years we have invented new machines. 

They have replaced things people used to do. Most of what people 

did in the 19th Century they are not doing today, and we are much 

better off as a country for it. 

The problem is when that happens really abruptly, and when you 

are not prepared for it the consequence of that can be one of two 

things. 

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One is inequality. And the 50 percent figure, if you break it down 

by income, it is higher than that if your income is lower, and it is 

lower—well lower than 50 percent if your income is higher. And if 

you see a lot of lower wage jobs replaced, that is reducing the demand for those types of workers. That lowers their wages. That 

raises inequality. So one bad side effect is inequality. 

The second is I certainly believe that over time if you lose a job 

you will be able to find another job, and hopefully a better job. But 

if a lot of people lose a job at once, though, that process can be long 

and painful. And we don’t always make it as easy as we should. 

What we should be doing in this regard is making sure people 

have more skills to take advantage of so that they are complementing the innovations and benefitting more from them. Making 

sure we have a labor market that is better at moving people from 

job to job. 

The President had proposed a wage insurance program that 

would help get people back on their feet by insuring them against 

some of the wage losses associated with a job, as they move into 

a new job. And there is probably a lot more than that that we need 

to do, as well, that we need to keep thinking about. 

Senator Peters. Well, and that is I guess the challenge with the 

training, as well as technology, particularly with artificial intelligence and what the promise of that is. With that promise there 

are some significant challenges, but it may be difficult to train 

folks as well in that area. 

Now these are not things that I am worrying about happening 

in the next or five years, or perhaps 10, but at least from some of 

my reading it is something we should be very concerned about looking out beyond that. 

For example, I have done a lot of work with autonomous vehicles, 

and I think you have talked about autonomous vehicles, something 

we are passionate about in Detroit, which will have incredible applications and, most importantly, will save tens of thousands of 

lives with the types of technology that will make cars safer, eventually leading to autonomous vehicles. 

But autonomous vehicles can also have great promise for the 

economy. Would you talk a little bit about what you see happening 

with autonomous vehicles in transforming the economy and some 

of the investments that may be necessary from the Federal Government to make that happen? 

Chairman Furman. Yes. I think that is an important question. 

And, you know, autonomous vehicles, everyone is interested in 

them in the world right now. U.S. car makers are making significant investments. German car makers are. Japanese car makers 

are. Israeli technology, and the like. And I think that is one reason 

why it is really important to make sure that a lot of it is happening 

here. 

Some of that is a set of state regulations that allow 

experimentational out-testing. You know, we already let cars with 

drivers on the road. That is already quite dangerous. It is often 

safer to let these cars on the road, and to make sure you are not 

letting your fears get in the way of being able to undertake that 

type of experimentation. 

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Basic research that we fund here in Washington is an important 

complement to the more applied research that is undertaken by the 

companies that are doing that. Investments in an infrastructure 

that supports both autonomous vehicles as well as, for example, 

electric cars and other types. There can often be a chicken-and-egg 

problem of if the infrastructure is not there they will not be there. 

If they are not there, the infrastructure will not be there. 

Well, the government can play a role with public policy in overcoming those types of chicken-and-egg, or network externality obstacles to the adoption of a technology. So I think there are a number of different steps that we are thinking about and we need to 

keep thinking about. 

Senator Peters. Great. Thank you so much. Appreciate it. 

Chairman Coats. Chairman, thank you so much. I want to just 

follow up with one last thing while I have you here. If you could 

take yourself out of your current job, and let’s say you’re back at 

Brookings, or teaching at Harvard, or whatever, and I came to you 

and I said: You know, we talked about this runaway mandatory 

spending. A lot of it related to the aging of the population, the 

bulge that existed in the Baby Boom generation. We have done a 

number of things to address that. We have had sequestration. We 

have had the tax, the revenue increase that raised income taxes on 

the highest category. 

We have, you know, economic growth will help us address that 

problem, but we still have the impact of this bulge of Baby Boom 

generation, and it is going to be with us for several years, and particularly effecting Social Security and Medicare, you know the 

numbers and so forth. If we were able to summon the will to bring 

together a bipartisan, bicameral Executive Branch working together [microphone interference]—I do not know why this is doing 

this, maybe my time is up—— 

[Laughter.] 

But what would you recommend in terms of what we do now? Or 

what a next Administration, a next Congress should be thinking 

about in terms of addressing the challenge of the long-term problem that we have here, and doing it in a way to preserve the programs to assure the American people that the retirement benefits 

are going to be available to them. They are not at risk. Their 

health care entitlements are going to be available to them so they 

do not have that concern. What would you recommend, if that will 

was there and they said we want to go forward? What kind of formula do we have to put in place, particularly given what we have 

already done, but now what we clearly know that we need to do, 

and do it in a way that is not disruptive to the economy or the retirement capabilities and necessities of that generation? 

Chairman Furman. So thank you for that. I think if it was a 

year from now and I was not in the government, I would tell you 

look back at President Obama’s last budget. It had lots of great 

ideas. 

One of them is Medicare Advantage, having competitive bidding 

that would set the reimbursement rates, rather than setting them 

the way we do now, which often results in rates that are too high. 

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31 

On drugs, using the same way to purchase drugs for people who 

are dually eligible for Medicare and Medicaid, as we do for people 

in Medicaid. 

Reforming the benefit structure in Medicare so that in appropriate ways there is more cost sharing in areas like Part B Home 

Health. Reduce the ability of Medigap to blunt some of that cost 

saving and have more income-related premiums. 

Those are some of the types of steps we could take in Medicare. 

What I would say is in health I would think, though, broader 

than just Medicare. I would think of the health system as a whole, 

both private and public. And the so-called Cadillac tax, or the tax 

on high-cost employer-sponsored insurance is I think one of the 

most important steps that we have to slow the growth of private 

health care. And it also results in additional revenue, and it is 

based on the idea that has been supported by—widely supported by 

both Democratic and Republican economists. 

I would say, more broadly, that you want to think of elements 

of the tax code. If you look at tax benefits, tax preferences, those 

are technically termed ‘‘tax expenditures.’’ And my predecessors 

like Marty Feldstein, Greg Mankiw, and Glenn Hubbard who 

served under President Reagan and President Bush, have all said 

that we should be looking at those because they are also on autopilot. They are also not an efficient way of accomplishing the goals, 

and not a particularly fair way, either. 

So I would bring that into it, and curb some of those tax expenditures for high-income households like the incentives we have for 

health, housing, and pensions. 

Chairman Coats. Well thanks for that. I hope we can get to 

that point without getting there by crisis. I was around in 1983 

when Social Security was about ready to go belly-up. President 

Reagan reached out to then Speaker of the House, Tip O’Neill. 

They took it out of politics. They secured about 30 years, 30, 35 

years of solvency for Social Security. So it has been done. It can 

be done. But the question is, do you have to have the pistol at the 

temple of the politician in order to get it done? And oftentimes mistakes can be made when you are doing this in crisis form rather 

than just laying it out and doing it in a logical way, which does 

not end up making mistakes and putting people at risk. 

So I think that is—I appreciate your giving us that template. 

Hopefully we can reach that point without getting to a crisis. I 

really appreciate you coming and being with us today, and your 

continuing availability to the Congress. Working together is the 

only way we are going to solve this, and you make it easy for us 

to do. We appreciate you being here. 

And with that—well, let me just do a couple of housekeeping 

things here. We are going to keep the record open for five business 

days so that Members can submit anything else that they want to 

submit. And that would be for you, also, if you so desire. 

And with that, the hearing, with thanks again to you, is adjourned. 

(Whereupon, at 4:04 p.m., Wednesday, March 2, 2016, the hearing was adjourned.) 

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SUBMISSIONS FOR THE RECORD 

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PREPARED STATEMENT OF HON. DANIEL COATS, CHAIRMAN, JOINT ECONOMIC

COMMITTEE

Chairman Furman, welcome. Vice Chairman Tiberi, Ranking Member Maloney, 

and I appreciate your willingness to once more continue the longstanding tradition 

of the Chairman of the Council of Economic Advisers testifying before the Joint Economic Committee. 

This year marks the 70th anniversary of both the Council of Economic Advisers 

and the Joint Economic Committee, both of which were created to advise our respective branches of government on a wide range of matters affecting the economy. We 

appreciate this annual opportunity to engage in dialogue with you and look forward 

to discussing this year’s Economic Report of the President. 

Much has been learned over the course of this slow-growth recovery, and these 

lessons will only continue for the foreseeable future. The current recovery has seen 

far slower growth than previous recoveries, and subdued expectations about economic, population, and labor force growth have placed additional pressures on federal budget constraints. 

However, I don’t accept the often mentioned assertion that we have entered a 

‘‘new normal’’ of slower economic growth. Policy reforms seeking to create a better 

tax system, rein in spending, and loosen the regulatory shackles restricting our 

economy can alter this trajectory by removing some of the structural barriers American workers and businesses face today. 

In my opinion, a lot of the problems we’d like to solve require us, as policymakers, 

to look in the mirror and see how current Federal Government policies are affecting 

the economy. 

In his final State of the Union address this year, President Obama stated that 

he wanted ‘‘to focus on the next five years, the next 10 years, and beyond.’’ However, 

he omitted one of the most important issues that America faces in the coming years: 

the financial obligations that will come due over those time frames, and particularly 

in the ‘‘beyond.’’ 

Debt was not mentioned once in his address, and how to achieve fiscal sustainability was not among the four questions the President argued that ‘‘we as a country 

have to answer.’’ I found this to be a glaring omission, given how our national debt 

has risen so sharply over the past seven years, from 10.6 trillion dollars when President Obama took office to now over 19 trillion dollars. 

This accumulation of such staggering levels of debt is nothing short of reckless, 

and the situation will only get worse the longer we wait to address it. According 

to a recently released report by the non-partisan Congressional Budget Office, in 

just 10 years, spending on mandatory spending programs and interest on the debt 

will consume nearly 99 percent of all federal revenues. Clearly this path is 

unsustainable. 

If we do not work to correct this disturbing trajectory, our ability to pay for essential government functions will be severely constrained, our economy will suffer, and 

our national security will be at risk. 

The CEA’s Report we will discuss today devotes significant attention to inequality 

as a defining challenge of the 21st century. However, I think it’s important to recognize that intergenerational theft is also a form of inequality—a particularly severe 

one that our kids and grandkids are poised to inherit. 

Their ability to succeed in our future economy will depend largely on the decisions 

we make today. For the American Dream to remain attainable for future generations, we must accept the reality of our fiscal situation and act responsibly by addressing it immediately. 

I look forward to discussing these issues in more depth with Chairman Furman. 

PREPARED STATEMENT OF CAROLYN B. MALONEY, RANKING DEMOCRAT, JOINT

ECONOMIC COMMITTEE

Thank you, Mr. Chairman, for calling today’s hearing. 

Dr. Furman, thank you for appearing before the Committee today to answer questions about the current state of the U.S. economy. 

I share the overall assessment of the Economic Report of the President, that 

under the leadership of President Obama the nation’s economy is back on track 

after what was the worst recession in our history. 

We have just completed the best two years of private-sector job growth since the 

1990s. We have recorded the fastest two-year drop in the annual average unemployment rate in 30 years. 

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The unemployment rate has been cut in half. We’re in the midst of the longest 

streak of private sector job creation in history, with a record 71 straight months of 

growth and the creation of 14 million jobs. 

There are some who disparage these achievements, claiming that the Obama recovery pales in comparison to ‘‘average’’ recoveries—as if the economic meltdown 

during the last years of the Bush Administration was an ‘‘average’’ recession. 

Is there anyone who is willing to say openly to the 8.7 million Americans who 

lost their jobs that the Great Recession was an ‘‘average’’ event? 

Is there anyone willing to tell the 9 million Americans who lost their homes that 

this was a run-of-the-mill recession? 

Some prefer that we forget the past. I say we should learn from it. 

When George Bush left the oval office, the economy was in a death spiral. 

• In the final quarter of 2008, GDP shrunk at a staggering 8.2 percent annual 

rate, the worst quarterly economic performance in more than 50 years. 

• Housing prices were collapsing. They fell by 20 percent nationally between 2007 

and 2011. Some parts of the country saw declines twice that large. 

• U.S households lost nearly $13 trillion during the last seven quarters of the 

Bush presidency. 

Dr. Furman, when I asked you last year at this time whether this recession was 

like a ‘‘common cold.’’ You said—rightly—that it was more like an economic heart 

attack. You said the loss in wealth as a share of the economy that precipitated the 

recent recession was about five times as large as the loss that triggered the Great 

Depression. 

Thanks to the bold action of President Obama, Democrats in Congress and the 

Federal Reserve, we have steadily climbed back from this recession. 

• [As you can see in this chart,] U.S. GDP has grown in 24 of the past 26 quarters. Real GDP has grown by 14.5 percent since the start of the Obama Administration. 

• The auto industry—written off for dead by some—has added nearly 640,000 jobs 

since 2009. U.S. auto exports topped 2 million units for the first time ever in 

2014. Last year, they topped 2 million again. 

• Average housing prices have rebounded to around their 2007 levels. 

• And household wealth is more than $17 trillion higher than before the recession. 

This recovery has occurred despite efforts by many Republicans in Congress. 

First, they opposed stimulating the economy via the Recovery Act. They demanded 

budget cuts at exactly the time when economic theory says government should increase spending to boost demand. 

I hope that those who took action to slow the pace of the Obama recovery will 

stop complaining about it. 

The Report notes that the economy faces long-term structural challenges—first of 

all that the U.S. population is aging. That alone will decrease labor force participation and slow the growth of GDP. We also face the devastating effects of offshoring 

of American jobs and job losses due to automation and technological change. 

These challenges are not a surprise. They have been on economists’ radar for 

years. 

So, what should we do? I agree with your assessment that we need to rebuild the 

nation’s crumbling infrastructure, invest in early childhood education, implement 

paid leave, achieve equal pay for equal work and make college more affordable. 

I want to close by looking at economic inequality, one of the central issues of our 

time, and the focus of the first and fourth chapters of the Economic Report of the 

President. 

The U.S. experience has diverged from other advanced countries, as you note in 

your testimony, Dr. Furman. Since 1987, the share of income going to the top 1 percent in the United States has been greater than in every other G–7 country—every 

single year. 

We need to recommit ourselves to policies that expand opportunities and narrow 

inequality. These policies will pay dividends in the future and help us create an 

economy that is even more robust—an economy where the benefits of growth are 

shared across the income spectrum. 

As you note, giving all people a fair shot will strengthen our economy by boosting 

productivity and accelerating growth. 

Dr. Furman, thank you again for appearing before the Committee today. I am 

eager to hear your perspective on the economic challenges and opportunities ahead. 

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