U.S. GOVERNMENT PUBLISHING OFFICE

29–915 WASHINGTON : 2018

S. HRG. 115–270 

UNLEASHING AMERICA’S ECONOMIC POTENTIAL 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

APRIL 11, 2018 

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] 

HOUSE OF REPRESENTATIVES 

ERIK PAULSEN, Minnesota, Chairman 

DAVID SCHWEIKERT, Arizona 

BARBARA COMSTOCK, Virginia 

DARIN LAHOOD, Illinois 

FRANCIS ROONEY, Florida 

KAREN HANDEL, Georgia 

CAROLYN B. MALONEY, New York 

JOHN DELANEY, Maryland 

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

DONALD S. BEYER, JR., Virginia 

SENATE 

MIKE LEE, Utah, Vice Chairman 

TOM COTTON, Arkansas 

BEN SASSE, Nebraska 

ROB PORTMAN, Ohio 

TED CRUZ, Texas 

BILL CASSIDY, M.D., Louisiana 

MARTIN HEINRICH, New Mexico, Ranking 

AMY KLOBUCHAR, Minnesota 

GARY C. PETERS, Michigan 

MARGARET WOOD HASSAN, New Hampshire 

COLIN BRAINARD, Executive Director 

KIMBERLY S. CORBIN, Democratic Staff Director 

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C O N T E N T S 

OPENING STATEMENTS OF MEMBERS

Hon. Erik Paulsen, Chairman, a U.S. Representative from Minnesota .............. 1 

Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New Mexico ..... 3 

WITNESSES

Dr. Douglas Holtz-Eakin, President, American Action Forum, Washington, 

DC .......................................................................................................................... 6 

Dr. Chad Moutray, Chief Economist, National Association of Manufacturers, 

Washington, DC ................................................................................................... 8 

Mr. Richard Hampton, Chairman of the Board, Circuit Interruption Technology, Inc., Rogers, MN ...................................................................................... 10 

Hon. Mark Mazur, Ph.D., the Robert C. Pozen Director of the Urban-Brookings Tax Policy Center, Washington, DC ........................................................... 11 

SUBMISSIONS FOR THE RECORD

Prepared statement of Hon. Erik Paulsen, Chairman, a U.S. Representative 

from Minnesota .................................................................................................... 34 

Prepared statement of Hon. Martin Heinrich, Ranking Member, a U.S. Senator from New Mexico .......................................................................................... 38 

Prepared statement of Dr. Douglas Holtz-Eakin, President, American Action 

Forum, Washington, DC ...................................................................................... 40 

Prepared statement of Dr. Chad Moutray, Chief Economist, National Association of Manufacturers, Washington, DC ............................................................ 55 

Prepared statement of Mr. Richard Hampton, Chairman of the Board, Circuit 

Interruption Technology, Inc., Rogers, MN ........................................................ 63 

Prepared statement of Hon. Mark Mazur, Ph.D., the Robert C. Pozen Director 

of the Urban-Brookings Tax Policy Center, Washington, DC .......................... 67 

Article titled ‘‘A debt crisis is coming. But don’t blame entitlements.’’ submitted by Representative Maloney ..................................................................... 76 

Response from Dr. Holtz-Eakin to Questions for the Record Submitted by 

Representative Maloney ...................................................................................... 77 

Response from Dr. Holtz-Eakin to Questions for the Record Submitted by 

Vice Chairman Lee ............................................................................................... 77 

Response from Dr. Moutray to Questions for the Record Submitted by Vice 

Chairman Lee ....................................................................................................... 78 

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UNLEASHING AMERICA’S ECONOMIC 

POTENTIAL 

WEDNESDAY, APRIL 11, 2018 

CONGRESS OF THE UNITED STATES, 

JOINT ECONOMIC COMMITTEE, 

Washington, DC. 

The Committee met, pursuant to call, at 2:17 p.m., in Room 216, 

Hart Senate Office Building, the Honorable Erik Paulsen, Chairman, presiding. 

Representatives present: Paulsen, Handel, Delaney, LaHood, 

Maloney, and Beyer. 

Senators present: Heinrich, Peters, Cruz, Klobuchar, and Lee. 

Staff present: Theodore Boll, Colin Brainard, Gerardo Bonilla, 

Daniel Bunn, Kim Corbin, Barry Dexter, Alaina Flannigan, Connie 

Foster, Natalie George, Colleen Healy, Matt Kaido, Kwabena 

Nsiah, Allie Neill, and Alex Schibuola. 

OPENING STATEMENT OF HON. ERIK PAULSEN, CHAIRMAN, A 

U.S. REPRESENTATIVE FROM MINNESOTA 

Chairman Paulsen. We will call the hearing to order. Good 

afternoon, and welcome to the hearing on ‘‘Unleashing America’s 

Economic Potential.’’ 

For the eight years prior to this new Administration we were told 

that America could never do better than two percent growth. We 

were told that such sluggish growth was the new normal, and that 

we had to lower our expectations. And this contradicted what we 

knew about America. 

We all know America is an economic powerhouse, and we are 

blessed with vast and bountiful land, massive energy resources, 

and most importantly the American people. 

Our dreams as a Nation do not rely on government fiat or foreign 

influence, but on the resourcefulness, the innovativeness, and the 

hard work of everyday working Americans. And the question is: 

Will we as elected officials of the U.S. Government allow them to 

work towards their dreams and fully contribute to our Nation’s 

prosperity? And this hearing is just about that. 

How is it, for instance, that we have just seen a remarkably good 

job growth for the last few months? Listen to these numbers: We 

are averaging 214,000 more jobs for February and March, and the 

employment-to-population ratio has held steady. 

The unemployment rate has remained stable at 4.1 percent for 

six months, the lowest since 2000. And, meanwhile, average hourly 

earnings continue their upward trend. And it was not long ago we 

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were told not to expect this. In fact, we were told to lower our expectations—and I will explain. 

As an example, when my daughters set goals, these goals are 

generally beyond where they are at the current time. Maybe they 

want to get better at math or science. Maybe they want to read 

more books than before. But the point is, they know their potential, 

and they set goals beyond where they are currently at because they 

want to grow. And it should be the exact same when we are thinking and talking about our own economy. 

The first graph that was displayed at our last hearing, the top 

line is what the Congressional Budget Office thought in 2007 our 

economy was capable of producing. This is an economy of hope and 

growth. The bottom line, regrettably, is what our economy in fact 

produced, our actual real GDP. 

Now to be sure the financial crisis knocked us off our feet. The 

lines in between are the annual CBO forecasts of our economic potential over the course of the Obama administration. In each year, 

these forecasts were lowered year by year. This is what it looks like 

when a Nation is urged by its leaders to accept mediocrity and to 

let the government handle more. 

More taxes, more regulations, and more control meant that the 

American economy was being held back. This was a self-fulfulling 

prophesy. These projections dragged under a growing weight of 

high tax rates and record-setting levels of regulation. 

Before 2017, economic growth was slow, employers were not willing to invest in their businesses or their employees. Productivity 

and take-home pay had stagnated. People in their prime working 

years stayed out of the workforce, and fewer people were willing to 

risk starting a business, so entrepreneurship fell. 

Businesses found it more attractive to invest and create jobs 

overseas, where other countries had learned to lower their corporate tax rates and reduce regulations. And at the same time, the 

Federal Government’s power over nearly every aspect of our lives 

grew. 

And, yes, there are constructive things that the government does 

such as keeping us safe, enforcing civil and property rights, and 

setting rational ‘‘rules of the road’’ by which the economy could operate efficiently. However, government does not create prosperity. 

Our people create prosperity by having great ideas, working hard, 

and having the resources to take a risk on building a piece of the 

American Dream. 

Far too often government stands in the way of prosperity and opportunity by over-taxing and over-regulating. A country’s GDP is 

based on its workforce, capital stock, and productivity determined 

by technology, innovation, and training. 

It is not based on how much the government succeeds in redirecting capital. And we are seeing a different course that lifts the 

artificial constraints that government has imposed on the economy. 

This graph is similar to the one in the Report the JEC published 

last week in response to The Economic Report of The President. If 

we lift the government constraints of high taxes and heavy regulation that weighed down our potential, our economic potential can 

rise. 

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If it rises to what CBO projected as recently even as 2012, there 

would be plenty of room displayed as the output gap for our economy to grow faster. We have removed the government obstacles 

that prevented Americans from achieving their dreams. 

When growth is strong, businesses have the confidence to invest, 

jobs are plentiful, potential entrepreneurs become willing to risk 

starting a business, and American households become more prosperous. And we are already seeing results: every quarter of economic growth in 2017 outperformed the same quarter in 2016; 

business investment is strengthening, and small business confidence is high; production and investment are coming back to the 

United States; paychecks are growing because the government is 

taking a smaller cut and businesses are investing in their workers. 

In my home State of Minnesota, the good news about tax reform 

keeps pouring in as companies like BestBuy, Bio-Techne, CIT 

Relay & Switch, LORAM, Data Sales, DTN, Hormel, TCF, and U.S. 

Bank—and there are others—invest in their employees by giving 

them special bonuses, pay raises, or additional better benefits. 

But even with the tail winds of pro-growth tax and regulatory reform, there still are risks to the economy such as the newly announced tariffs. Trade is critical to our economic growth. A robust 

trade agenda is essential for the United States to grow jobs by selling American goods and services around the world, as 96 percent 

of the world’s consumers live outside of the United States. 

The end goal of trade policy should be to eliminate artificial barriers for the free flow of our goods and our services, not cause new 

ones. And I look forward to hearing from our distinguished panelists who are here today as they advise us on other ways to unleash 

great opportunity in America. 

And before I introduce them, I now recognize our Ranking Member, Senator Heinrich, for his opening statement. 

[The prepared statement of Chairman Paulsen appears in the 

Submissions for the Record on page 34.] 

OPENING STATEMENT OF HON. MARTIN HEINRICH, RANKING 

MEMBER, A U.S. SENATOR FROM NEW MEXICO 

Senator Heinrich. Thank you, Chairman. I am pleased that we 

have this opportunity today to dig a little deeper into the Republican tax law. 

It was a complex bill, passed without Democratic input and very 

little debate. The result is a hastily written law that has caused 

confusion about how families and the broader economy will be impacted. 

So let me start with a couple of facts. 

As a result of the Republican tax law, working families will see 

what little relief they get disappear over time. Corporations will 

pocket massive permanent gains. The deficit will soar, and Republicans will point to spending as the problem. And the price tag 

seems to be growing. 

From $1.5 trillion in December, this week CBO increased the estimate to $1.9 trillion. By adding nearly $2 trillion to the national 

debt, the tax law gives Republicans a fresh rationale to target Social Security, Medicare, and Medicaid. Before the bill was even 

signed, Speaker Ryan said, quote, ‘‘We’re going to have to get back 

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next year at entitlement reform, which is how you tackle the debt 

and the deficit.’’ End quote. 

And other House Republican leaders, including Majority Leader 

McCarthy and Majority Whip Scalese, have made similar pledges 

to do the same. I thought a big part of tackling the debt and the 

deficit was not wasting nearly $2 trillion on tax breaks for large 

corporations and wealthy individuals. But that is not how my Republican colleagues see it. 

To pay for some of their tax giveaways, Republicans want to cut 

health care coverage that families receive through Medicaid, and go 

after Medicare and Social Security that seniors and their families 

count on. 

Let me be clear. Democrats will fight these cuts every step of the 

way. This week House Republicans are planning to vote on a socalled ‘‘Balanced Budget Amendment’’ that would have devastating 

consequences for seniors, children, and middle class families. 

It is all part of the same Republican script. Tax breaks for those 

who do not need them, followed by a belated call to address the national debt they keep adding to. As this Committee has discussed, 

Republicans also promised that their tax law would result in big 

yearly wage increases of $4,000 per family, to be precise. 

Now there is no question that families across the country desperately need a raise. After adjusting for inflation, the typical 

worker’s wages have grown by only 6 percent over the past 35 

years. 

It is especially tough in places like New Mexico where there are 

fewer jobs today than when the Recession began more than a decade ago. And the unemployment rate is at 5.8 percent, almost 50 

percent higher than the national rate. But the ones who are getting 

most of the benefits from the tax law are corporate executives and 

wealthy shareholders. 

Companies are spending about 30 times as much on stock 

buybacks as on worker bonuses or wage increases. Why are large 

companies using their tax savings to lift their stock prices? 

Well, it is actually pretty simple. Executive compensation is tied 

directly to the price of company stock. One study found that more 

than 80 percent of compensation of the 500 highest-paid executives 

in 2015 came from stock. That is a pretty big incentive for top executives to try to get their stock price higher. 

And there is another piece that is just as concerning. Large 

buybacks also mean that companies have less left over for investment in factories, in research and development, all of which drive 

productivity, job creation, and wage increases over the long term. 

Now I want to turn to the other focus of today’s hearing: reversing critical Federal oversight. 

The Administration has rolled back protections for workers, for 

consumers, and for the environment. Reducing cost is often the 

stated motivation behind gutting protections, but a new OMB report shows that the regulations issued between 2006 and 2016 resulted in annual benefits that far exceeded the costs, benefits of between $287 and $911 billion with annual costs of between $78 and 

$115 billion. 

Now there is no question that many recent actions taken by the 

Administration will harm workers and consumers. For example, 

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the Trump Administration reversed an increase in the overtime 

threshold, costing 4 million workers a collective $1.2 billion in additional wages per year. 

The Administration has given payday lenders a green light to engage in predatory lending practices that result in annual interest 

rates as high as 600 percent, and Republicans passed a law that 

reduced the effectiveness of the National Instant Criminal Background System and actually made it easier for people with serious 

mental illness to buy a firearm. 

The Administration has also gone after the environment and our 

public lands. And at the end of last year, President Trump took action to dramatically reduce the size of Bears Ears and Grand Staircase-Escalante National Monuments, pushing aside concerns voiced 

by Tribal communities that these sacred places should be protected 

and opening up our wildest lands to commercial development. 

The Organ Mountains-Desert Peaks and Rio Grande Del Norte 

National Monuments in New Mexico have also been under threat, 

despite widespread local support for their creation. 

Rather than working off a special-interest wish list, the Administration should work with Democrats to foster inclusive economic 

growth that helps families pay their bills, afford to go to college, 

and save for retirement. 

Thanks to each of you for your testimony today. 

[The prepared statement of Senator Heinrich appears in the Submissions for the Record on page 38.] 

Chairman Paulsen. With that, we will introduce our witnesses, 

and we will start—I will go through all four witnesses—Dr. Douglas Holtz-Eakin is the President of the American Action Forum. He 

also serves as a Commissioner on the Congressionally-chartered Financial Crisis Inquiry Commission, and an outside advisor to the 

U.S. Chamber of Commerce. During 2007 and 2008 he was the Director of Domestic and Economic Policy for the John McCain Presidential campaign. From 2003 to 2005, he was the sixth Director of 

the Congressional Budget Office, addressing the 2003 tax cuts, the 

Medicare Prescription Drug Bill, and Social Security reform. 

Dr. Holtz-Eakin was also the Chief Economist for the President’s 

Council of Economic Advisers from 2001 to 2002. He holds a Ph.D. 

in Economics from Princeton University, and a Bachelor’s in Economics and Math from Dennison University. Thanks for being with 

us today. 

Dr. Chad Moutray has served as Chief Economist for the National Association of Manufacturers since 2011. From 2002 to 2010 

he was the Chief Economist and Director of Economic Research for 

the Office of Advocacy at the U.S. Small Business Administration. 

Prior to working at the SBA, he was the Dean of the School of 

Business Administration at Robert Morris College in Chicago, now 

Robert Morris University of Illinois. Dr. Moutray is a former Board 

Member of the National Association for Business Economics, and 

he is the former President and Chairman of the National Economists Club. He holds a Ph.D. also in Economics from Southern Illinois University at Carbondale, and Bachelor’s and Master’s Degrees in Economics from Eastern Illinois University. 

And we also have a Minnesotan with us here today. Mr. Richard 

Hampton is the Chairman of the Board of Circuit Interruption 

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Technology, Incorporated, CIT. It is a family owned business in 

Minnesota his son Jeffrey founded in 1999, as well, and manages 

now as CEO. 

Welcome to Washington. Mr. Hampton began his career as Materials Manager for Weatherford Company, a California-based electronic distributor, and later became President of Fisher Brownell, 

a leading switch distributor. He subsequently served as General 

Manager of Karoff Electronics, a leading electronic components 

parts distributor based in Minnesota. And prior to joining CIT, he 

was Vice President, National Sales Manager, and President of Electronic Components Group. 

And our fourth witness today is Dr. Jay Mazur, as Vice President 

for Tax Policy and the Robert C. Pozen Director of the UrbanBrookings Tax Policy Center. From 2012 until early 2017, he was 

the Assistant Secretary for Tax Policy at the U.S. Department of 

the Treasury. Dr. Mazur served in the Federal Government for 27 

years in various positions, including Senior Economist at the President’s Council of Economic Advisers, Senior Director at the National Economic Council, Acting Administrator of the Energy Information Administration, and Deputy Assistant Secretary for Tax 

Analysis in the Office of Tax Policy. Before entering public service, 

Mazur was an Assistant Professor in Hines College at Carnegie 

Mellon University. He also holds a Ph.D. in Business from Stanford 

University. 

And with that, we will welcome each of you to the Committee 

today, and we will begin with Dr. Holtz-Eakin. And we’ll just remind all witnesses to limit your testimony to five minutes, and we 

are looking forward to hearing from you. 

Dr. Holtz-Eakin. 

STATEMENT OF DR. DOUGLAS HOLTZ-EAKIN, PRESIDENT, 

AMERICAN ACTION FORUM, WASHINGTON, DC 

Dr. Holtz-Eakin. Thank you, Mr. Chairman, Ranking Member 

Heinrich, and Members of the Committee. It is a privilege to be 

here today. 

In my oral remarks I will make three very straightforward 

points, and then I look forward to your questions. 

As of January first, 2017, poor economic growth was the top domestic problem facing the United States. Since then, the tax and 

regulatory changes I think will be quite beneficial for the growth 

environment, but my third point would be that there are challenges 

that remain and more work to be done. So let me elaborate on 

those. 

From the end of World War II to 2007, the U.S. economy grew 

rapidly enough that, even with the arrival of the Baby Boom population, income per person, GDP per capita, doubled roughly every 

35 years. And so in one working career one could see the standard 

of living roughly double, and that was America’s route to whatever 

their version of the American Dream. 

Since then, all projections were that the economy would grow 

roughly 2 percent, as the Chairman mentioned, and that with population growth this meant that the income per person would double 

roughly every 70 years. So access to the American Dream was 

twice as far away. 

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In 2016 the American economy did not even do that well. The 

Census data revealed that for those households that worked fulltime for the full year, they saw zero increase in their real income. 

So we entered 2017 with a severe growth problem, in my view. 

I think there have been some very beneficial changes on that 

front. During the eight years of the Obama administration the Federal Government finalized the costly regulation at a rate of roughly 

1.1 per day every day, and the total self-reported cost by the agencies of complying with those regulations was $890 billion. So every 

year for eight years over $100 billion in new regulatory costs were 

added to the economy. 

I think there is little doubt that that has harmed the growth potential. Since President Trump has been inaugurated to the end of 

Fiscal Year 2017, the addition to that total is exactly $5 billion. 

And the commitment in the President’s budget is that in Fiscal 

2018 there will be a reduction of $9 billion in the overall regulatory 

costs. 

Now there is no real science on exactly what the magnitude of 

the impact that will be on economic growth, but I think directionally it has to be going in the right direction. I think it is going 

to contribute to the capacity to start up small businesses, and to 

have expansion of those businesses in the U.S. economy. 

The second major event in 2016 was the passage of the Tax Cuts 

and Jobs Act. And the business provisions of the U.S. Tax Code 

prior to that law sent the very straightforward message to our most 

successful global companies. They said, if you’ve got some valuable 

intellectual property, park it abroad. Maybe park the production 

over there as well. Certainly if you make any money, keep it over 

there. And if circumstances arise where you might be merging— 

merging with someone or acquiring a company, move the headquarters as well. 

And so all the messages were to invest and innovate outside the 

United States. The Tax Cuts and Jobs Act, with the reduction of 

the corporate 21 percent, the movement toward a more territorial 

system, the imposition of a patent box for the global returns to intellectual property, and the expensing provisions send a different 

message. It sends a message that says: Invest. Innovate. Hire. And 

expand in the United States. And I think that is an incredibly valuable improvement in the business climate on something that will 

benefit productivity growth, capital per worker, and ultimately real 

wages in the United States. 

But—and we have seen, for example, the CBO credit that in 

their most recent report where they talked about the improved incentives to save, invest, and grow in the U.S., and more beneficial 

growth in 2018 and 2019. 

The challenges that remain are I think really budgetary and the 

concerns I’ve shared with the Chairman about our trade and our 

immigration strategies at the moment. 

The budgetary ones, as a former CBO Director, trouble me the 

most. I think the CBO outlook should be a wake-up call to everybody. There is an enormous amount of red ink, not way out there 

but right in front of us, and it needs to be dealt with. It is not a 

pro-growth strategy to sail directly into a sovereign debt crisis. And 

the current trajectory is exactly that. It is not a matter of ‘‘if,’’ it 

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is ‘‘when’’ does the U.S. get in trouble? And so we need to deal with 

the fact that these entitlement programs are growing at rates that 

are unsustainable. Medicare is 7.3 percent. Social Security is 6.3. 

Affordable Care Act is 6. Medicaid is 5.2. There is not a tax code 

that is going to deliver that kind of revenue growth year over year 

for the foreseeable future. So we need to reform those programs. 

We need to reform them for their beneficiaries, as well. Those are 

not financially sustainable. It is a tragic irony that our social insurance system is now delivering risk to its beneficiaries. And I would 

urge the Congress to fix that. 

So I will be happy to answer your questions or elaborate on my 

concerns with the other challenges that face us, but I believe 

progress has been made, but the job is far from done. 

[The prepared statement of Dr. Holtz-Eakin appears in the Submissions for the Record on page 40.] 

Chairman Paulsen. Thank you, Dr. Holtz-Eakin. And, Dr. 

Moutray, you are recognized for five minutes. 

STATEMENT OF DR. CHAD MOUTRAY, CHIEF ECONOMIST, NATIONAL ASSOCIATION OF MANUFACTURERS, WASHINGTON, 

DC 

Dr. Moutray. Thank you. Chairman Paulsen, Vice Chairman 

Lee, Ranking Member Heinrich, and Members of the Joint Economic Committee, thank you for the opportunity to testify on The 

Economic Impacts of Tax Reform. 

Last fall, President Trump came to the NAM, the National Association of Manufacturers, the voice of 12.6 million men and women 

in America, and he referred to tax reform as rocket fuel for the 

economy. 

Our members could not have agreed more. The NAM’s latest 

quarterly outlook survey released in December showed a manufacturing sector with optimism levels at unprecedented heights, 94.6 

percent of respondents saying that they felt positive about their 

own company’s outlook, the highest in the survey’s 20-year history. 

And while I cannot get into specifics right now, we will be releasing the next quarterly survey very shortly—hopefully, very soon. 

Much of this is due to the fact that tax reform passed. And even 

in anticipation of the tax reform actually getting enacted, manufacturers were energized as we have not seen them in a long time. 

It is little wonder, then, given that tax reform achieved so many 

of the NAM’s long-sought goals, that we are seeing such levels of 

optimism. Those goals are, as just a reminder: 

Lowering the marginal tax rate so U.S. manufacturers can compete globally; reducing the burden on many small businesses, small 

and medium sized manufacturing companies, which account for 

more than 90 percent of NAM members; moving us towards a territorial tax system, much like the rest of the world; encouraging 

more dollars to flow back into the United States; and expanding 

fixed investment and incentivizing more private-sector R&D. 

Of course there are additional tax changes that could have supported the—will continue to support the manufacturing sector even 

further. And of course there are other factors underlying manufacturing optimism as well, such as a global economy and other regulatory policies. 

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I will expand, obviously, on much of this in my written testimony, but let’s not bury the lead. Washington delivered with progrowth tax reform, and it is already starting to make private-sector 

businesses much more competitive. Private-sector businesses are 

already starting to deliver, as well. They are creating more wellpaying jobs. They are putting more money in workers’ pockets. 

They are investing more in their businesses, and the economy. 

Nearly every day we see more positive stories that underline 

these things anecdotally. Here are a few examples from NAM members: 

Thanks to tax reform, Miles Fiberglass of Oregon recently raised 

its entry-level wage by 9 percent, gave all of its employees a pay 

bump, and plans to nearly double the size of its workforce. It is 

also using tax reform savings to design a new facility that will cut 

back on waste and increase energy efficiency. 

Thanks to tax reform, Centennial Bolt in Denver will increase its 

workforce by nearly 50 percent, and open a new plant in the Midwest. The company already gave a Christmas bonus to all of its 

hourly workers, totaling about 5 percent of their annual pay, and 

is currently planning another mid-year bonus as well as increases 

to their employees’ profit-sharing program. 

Thanks to tax reform, Wyndham Millwork in Wyndham, Maine, is planning to increase its workforce by 20 percent, and start a $1 

million expansion of its facility. It also gave an immediate bonus 

of $1,000 to hourly workers, and across-the-board pay increases 

that the company describes as a direct result of tax reform. The 

NAM of course continues to highlight this and many other stories 

on its blog site, Shopfloor.org, and will continue to do so in the 

coming weeks. The NAM is also in the process of surveying its 

membership on the impacts of tax reform, and we will release the 

findings of that analysis in the coming days. But for now, let me 

share with you my predictions as an economist about what we 

might be able to expect on the manufacturing sector. 

I believe tax reform should lead to manufacturing investments 

rising by $55 billion in 2018, an increase of 11 percent compared 

to last year. I also believe that tax reform should lead to manufacturing employment rising by more than 100,000 this year, also a 

substantial increase especially when you consider that the sector 

added 207,000 workers in 2017, and that was a banner year. 

We have already added 73,000 workers so far this year through 

the first three months. This is all based on a model that I have 

been working on to predict the impacts of tax reform. More broadly, 

I believe that the U.S. economy should expand this year at its fastest rate since 2005 at 3 percent. 

While manufacturers should benefit from stronger economic 

growth globally, it is clear that businesses are responding positively to the passage of pro-growth tax policies. The NAM will continue urging manufacturers to take further positive steps on jobs, 

benefits, and investments, just as we have continued urging the 

President and Congress to look for additional ways to enhance competitiveness and to lift up more Americans. That I know is also the 

goal of this Committee. Thank you. 

[The prepared statement of Dr. Moutray appears in the Submissions for the Record on page 55.] 

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Chairman Paulsen. Thank you, Dr. Moutray. 

Mr. Hampton, welcome, and you are recognized for five minutes. 

STATEMENT OF MR. RICHARD HAMPTON, CHAIRMAN OF THE 

BOARD, CIRCUIT INTERRUPTION TECHNOLOGY, INC., ROGERS, MN 

Mr. Hampton. Chairman Paulsen, Ranking Member Heinrich, 

and Members of the Committee, thank you for this opportunity to 

testify on Unleashing America’s Economic Potential through the 

perspective of one small Minnesota business. 

My name is Rick Hampton. I am Chairman of the Board of Circuit Interruption Technology, Incorporated. CIT was started in 

1999 by my son after he had graduated from the Metropolitan 

State University Business School. Jeff is with me today. Jeff is 

President and CEO of the company. My wife, Sharon, is Chief Financial Officer; my daughter-in-law Jennifer Hampton handled CIT 

accounting since its inception and my daughter, Nicole, who is a 

businesswoman in her own right, handles international distribution 

and sales management. 

We now conduct business as CIT Relay and Switch. And in the 

past four years expanded from 12 to 22 employees. There are virtually no relay and switch manufacturers in the United States 

today, so we contract with manufacturing facilities in China and 

Korea. 

Many of our customers are household names, using our relays 

and switches in countless products. When, for example, you send 

your children off to school on a yellow bus, start your dishwasher, 

set your thermostat, drive a golf cart, even mix your favorite health 

drink at home, it’s very likely you are using CIT product today. 

As earlier noted, Jeff launched the business in 1999 in our home 

using $50,000 he had saved from his college years’ landscaping 

business. I cashed in my 401K. My wife and I borrowed $80,000 in 

credit cards, and mortgaged our home. For two years, none of us 

received an income. 

Over the years, we shared equally the profits from our work with 

State and Federal taxing authorities. Prior to the new December 

tax bill, the high average tax on CIT product led to a less-than-desirable business approach. 

To avoid double taxation where the value of one dollar might easily shrink to thirty-five cents, our CPA advised the best approach 

would be to take 100 percent of the profit out of the business, subject them to a one-time personal tax burden, roughly 50 percent 

State and Federal. The resultant reinvested dollars, however, were 

seen by bankers as a liability, not retained earnings, thus impairing CIT’s credit standing. 

Tax reform has changed our business model. We immediately 

provided a bonus of one extra week’s pay to all employees. This 

took place around Christmas. We provided raises to all of our employees. We funded our 401K program at a full 5 percent of their 

2017 income with no employee match required. 

We launched a $140,000 lab and facilities’ construction program 

which is in process as we are here today. We increased our employee base by 10 percent, with plans for another 10 percent by 

year’s end. 

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Due to the new law, after-tax profit of the 79 percent remaining 

will now be retained directly in the business. That is a whopping 

79 cents on every dollar after tax, jet fuel for a business like CIT. 

Tariffs. Let me insert a word or two about what we apprehend 

as possible unintended consequences in the proposed tariff on relays in particular. An exclusive China tariff will provide a corresponding 25 percent competitive advantage to manufacturers located in Mexico and in Canada. And, yes, even state-owned facilities in China who are often reimbursed for such expense, thus inadvertently punishing domestic companies like CIT. 

In conclusion, tax reform has been and will continue to be a tremendous help to our business and employees. We will hire added 

staff this year, expand new products, and explore the costs of reshoring manufacturing. However, we continue to be very apprehensive about regulations. 

I believe the lower tax will allow CIT Relay & Switch to position 

itself for even greater growth for the coming decade. 

More might be done, but this historic change has energized the 

entire CIT team, employees and management alike. 

Thank you again for this opportunity to testify, and I look forward to any questions. 

[The prepared statement of Mr. Hampton appears in the Submissions for the Record on page 63.] 

Chairman Paulsen. Thank you, Mr. Hampton. 

Mr. Mazur, you are recognized for five minutes. 

STATEMENT OF HON. MARK MAZUR, Ph.D., THE ROBERT C. 

POZEN DIRECTOR OF THE URBAN-BROOKINGS TAX POLICY 

CENTER, WASHINGTON, DC 

Dr. Mazur. Great. Thank you, and good afternoon. I would like 

to start by thanking Chairman Paulsen, Ranking Member Heinrich, and Members of the Committee for inviting me here today. 

I think it is crucially important for the Congress to focus on the 

economic trajectory of the country. I want to emphasize that, while 

I am Director of the nonpartisan Urban-Brookings Tax Policy Center, I am here testifying on my own behalf. The views I discuss are 

my own and should not be attributed to the Tax Policy Center, 

Urban Institute, or Brookings Institution. 

Given my background, I am going to focus on the recently passed 

Tax Cuts and Jobs Act, the most significant tax overhaul in the 

last 30 years. 

The new law does a lot of things. It makes some major structural 

changes in the way that multinational firms are taxed, in the way 

that pass-through businesses are taxed. It contains dozens of less 

structural changes: removal of a number of tax expenditures and 

some income exclusions, cuts rates by a third for corporations and 

more modestly for individuals. And all of these changes will have 

implications for the economy. 

But as a starting point for evaluation, I would like to consider 

four basic tenets of good tax policy: 

First, revenue adequacy. That a tax system should raise enough 

revenue to pay for the goods and services that the public demands. 

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Second, it should be an efficient tax system. There should be as 

little in the way of negative effects on resource allocation, economic 

behavior, economic growth prospects. 

Third, a tax system should be equitable. There should be horizontal equity in that similarly situated taxpayers get treated about 

the same. And there should be vertical equity in that taxpayers 

with the greater ability to pay should contribute a higher portion 

of their income to the country. 

And last, a tax system should be simple. There should be a simplicity component. It should be designed so individuals and businesses know what the consequence of their behavior are, and are 

able to take that into account ahead of time. And the tax system 

should be clear, comprehensible, and predictable. 

Now in the real world all these goals involve tradeoffs, but it is 

possible, though, to keep these goals in mind to at least evaluate 

what is going on with the tax system. 

There are some clear effects of the Tax Cuts and Jobs Act. First, 

the revenue effects. It is a big tax cut. It is a big economic stimulus 

in the short term, approximately $130 billion in this fiscal year, 

double that in the next year. 

Second, distributional effects are pretty clear. The tax benefits 

are tilted to higher income households. The bottom 20 percent of 

the income distribution gets on average about $60 a year, fourtenths of a percent of their after-tax income. The top 20 percent 

gets benefits in excess of $7,600 a year, a little over 2 percent of 

their after-tax income. 

Third, there is a temporary nature of these tax cuts. Individual 

components generally are temporary. The investment incentive is 

generally temporary. The corporate tax cuts and the structure of 

the way multinational firms are taxed are permanent. 

The way multinational firms are taxed is quite different under 

the Tax Cuts and Jobs Act. It brings the U.S. much more in line 

with our trading partners, moving us more toward a territorial system and away from a worldwide system with deferral. 

There has been a lot of discussion about the economic effects of 

the Tax Cuts and Jobs Act. I think the conventional economic estimates seem to indicate that there should be a burst of economic activity, economic growth, in the short term but those effects dissipate over time as higher Federal budget deficits increase interest 

rates and provide a crowd-out for investment. 

The Tax Cuts and Jobs Act will have a big impact on the fiscal 

position of the United States. If you look at the last 50 or 60 years 

of data, the U.S. has seen Federal revenues fluctuate between 15 

and 20 percent of GDP. And in that time period, there have been 

two small periods of time when the Federal budget was balanced. 

The most recent one was late 1990s, early 2000s, when revenues 

were around 20 percent of GDP. Given demographic trends, retiring Baby Boomers, longer life spans, lower birth rates, we can expect that demands for Federal goods and services will be 20 percent or more of GDP going forward. 

And so the Tax Cuts and Jobs Act, by cutting revenues in the 

short and medium term, moves in the opposite direction of budget 

balance. And what this means is that the Tax Cuts and Jobs Act 

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really is a large fiscal experiment. The economy is near full employment, and we are in a big fiscal stimulus at this point in time. 

Proponents of the Act say that there will be improved investment 

incentives that will lead to greater accumulation of capital, more 

productive workers, and eventually higher wages for the workers. 

It is too early to tell at this point whether all those linkages will 

be realized, and what the strength of those linkages will be. Really, 

it will be months or years before we can tell whether the Tax Cuts 

and Jobs Act has had the intended effect. So the jury is out. 

Congress will have opportunities to revisit this Act in the coming 

years as provisions expire or phase in our phase out, and there will 

be an opportunity to make any necessary changes. 

So thanks for your attention. I would be happy to answer any 

questions you may have. 

[The prepared statement of Dr. Mazur appears in the Submissions for the Record on page 67.] 

Chairman Paulsen. Thank you, Dr. Mazur. And with that we 

will begin the question opportunity for all Members. I would just 

remind Members to keep their questions to five minutes. 

I will begin. Dr. Holtz-Eakin, what are the most exciting parts 

of the Tax Cuts and Jobs Act in terms of boosting wages, jobs and 

investment in the United States? And what are the risks to the 

economy if major parts of the law are allowed to expire going forward? 

Dr. Holtz-Eakin. So I would say the most important thing for 

the middle class would be to get real wages rising again. And the 

key piece there, as Dr. Mazur outlined exactly right, which is to get 

better innovation and capital accumulation, higher and better capital per worker. That historically has been strongly linked with 

higher compensation for those workers. 

The key business tax reforms at the heart of the Tax Cuts and 

Jobs Act are the things that I think are most beneficial. They are 

the movement to a territorial system, a corporate rate that is now 

in line with our developed competitors; the expensing incentives. 

And the patent blocks, so that we no longer tell all of our corporations to park their most profitable inventions overseas. That I 

think is fantastic. 

The pass-through provisions are intended to mirror those. Nothing is perfect. Everyone has their own quibbles with these things, 

but those are the core of the things that I think are most important. 

I would just like to say, I think everyone who looks at this should 

have a little humility when they talk about the projected impacts. 

The United States has never before, and never again, will move 

from a worldwide to a territorial system of taxation. It is the largest, most successful economy on the globe. It is doing something 

unprecedented. And the idea that we have fantastic precision about 

the ultimate impacts I think really overstates the case. 

I agree with the jury-is-out sentiment. I am looking at the data 

every month, and we will just see how big those linkages are and 

how fast they happen. 

Chairman Paulsen. Dr. Moutray, we have seen some very encouraging signs in manufacturing, as you outlined. Can you please 

tell us a little bit more about some of the most important steps that 

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we can take to sustain the growing recovery of manufacturing here 

in America? 

Dr. Moutray. Well I think number one we can continue to do 

what we have been doing, right? I think that the tax policy was a 

nice step in the right direction, but we need to continue to improve 

the tax policy, making some of those provisions permanent. 

On the regulatory side, I think we also have continued a policy 

of enacting smart, very business-friendly policies, making sure we 

are looking not just at the overall impacts but looking at the impacts on small businesses, in particular. And, from manufacturers 

I think we just need to continue to make sure that the economy 

continues to grow and flourish, and we are certainly seeing that in 

manufacturing not just with the examples I gave earlier, but the 

number one issue right now with most manufacturers is the ability 

to attract and retain workers. 

And this I think speaks to just how strong the economy is, and 

how strong the manufacturing sector is, and hopefully that leads 

to wage appreciation moving forward. 

Chairman Paulsen. Would you say one of those components to 

attracting and retaining workers is what Dr. Holtz-Eakin had mentioned in his written testimony mostly about some immigration 

components and the importance of having a workforce that is entering those markets for manufacturing? 

Dr. Moutray. I would definitely agree with that, and we certainly have supported that. 

Chairman Paulsen. Good. Mr. Hampton, again welcome. Let 

me ask you this: In spite of how it provided massive tax relief to 

middle class Americans, we sometimes hear people characterize the 

Tax Cuts and Jobs Act as only mostly benefiting, and as a giveaway to the wealthy. But how would you respond to that? I mean, 

you know, from your perspective in your personal story? 

Mr. Hampton. It is actually—— 

Chairman Paulsen. If you would, just hit your microphone 

there. 

Mr. Hampton. It is actually somewhat the reverse of that. Before, we were forced into and to avoid double taxation, we were actually having to take money out of the business. As a result of the 

law, we are able to leave it in. We can leave in nearly 80 percent 

of the profit dollars because we are taxed at 21 percent. Before, to 

avoid the potential for double taxation, we removed 100 percent of 

the money from the business, took a personal tax on that money, 

and then reinvested the 50 percent back into the business. 

So actually it is going to improve our situation, and that is why 

I say this year we will begin every year leaving the money in the 

business, into retained earnings. That allows us to make investments in additional personnel, and so forth, particularly in the engineering and technical side, for the exploration into possibly reshoring manufacturing, which this country desperately needs, particularly in the product that we supply, as we supply product even 

for aircraft carriers and it is made in China. 

It makes no sense. We need to build it here. 

Chairman Paulsen. So it sounds like with some of the retained 

earning provisions, or success of the new law you talked about, do 

you see the track record continuing on the same parallel of, you 

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know, you gave some special bonuses, you gave pay raises, you contributed to the 401K, do you see that same path forward if there 

are no interruptions to sort of current tax policy? 

Mr. Hampton. Our current plan with the tax policy is that we 

indeed will be funding again this year a full 5 percent for our employees. And by the way, that is 100 percent their money. We don’t 

say that you’ve got to serve so many years. As soon as we give it, 

they own it. And that means 100 percent of what we have in 401K, 

those people own. We do not own it. 

And we will continue with that. We also plan to do another 

bonus, full week’s bonus, this year. We are adding additional employees. So I think most of these programs will definitely continue 

forward. 

Chairman Paulsen. Thank you. 

Ranking Member Heinrich, you are recognized for five minutes. 

Senator Heinrich. Thank you, Chairman. I appreciate it. 

Dr. Holtz-Eakin, you said that we need to reform entitlements. 

And one of the interesting things I find is that I have never had 

a constituent come up to me at a meeting and ask me about their 

‘‘entitlements,’’ or talk to me about their ‘‘entitlements.’’ They usually talk to me about Social Security and Medicare. 

And it makes me wonder if the difference isn’t that it polls a lot 

better to say ‘‘reform entitlements’’ than it polls to say ‘‘you should 

cut my Social Security.’’ 

So I want to ask you about that reform. When we talk about reforming Social Security, in your view should that include reducing 

benefits for some workers in their retirement years? 

Dr. Holtz-Eakin. My major concern with Social Security is that 

the Trust Fund that exhausts under current projections is roughly 

13 years. And people in retirement will have their benefits cut by 

25 percent across the board. And I think that is a disgraceful way 

to run a pension program. 

Senator Heinrich. You are assuming those cuts are going to 

happen, but you are saying—— 

Dr. Holtz-Eakin. Under law, they would happen. 

Senator Heinrich [continuing]. We should cut benefits now 

under current—— 

Dr. Holtz-Eakin. I didn’t say that. 

Senator Heinrich [continuing]. In order to not get to the point 

where those—— 

Dr. Holtz-Eakin. No, I didn’t say any of that. I said the program needs to be addressed. 

Senator Heinrich. So how would you suggest we reform that 

program? Should we look at reducing the—or increasing the retirement age? 

Dr. Holtz-Eakin. I think that’s sensible. That won’t get you very 

much. That makes a small contribution to the fiscal sustainability 

of the program. There’s going to be a combination of—— 

Senator Heinrich. So we are back to benefits? 

Dr. Holtz-Eakin. I think there’s no way that we can deal with 

Social Security, which is growing at 6.2 percent per year, and revenues which are going to grow at something that’s roughly the rate 

of the economy—— 

Senator Heinrich. What if we increase the cap—— 

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Dr. Holtz-Eakin. It is a one-time increase. You have a sustained, long-term problem of rapid growth in benefits that is faster 

than revenue. 

Senator Heinrich. I just find it ironic that, you know, we look 

back in 2001 and 2003, when you oversaw the CBO, the Bush administration added $1.5 trillion to the deficit. Now my Republican 

colleagues have added another $1.9 trillion to the deficit. And we 

always look to people on Social Security and Medicare to pay for 

this. 

I don’t find that to be a credible solution. 

Dr. Mazur, I want to ask you—and I am not going through again 

the faults of the national debt being added through this tax code, 

but this week we have seen the House preparing now to vote on 

a so-called balance budget amendment. 

What impact would a balanced budget amendment have specifically on Social Security, on Medicare, and on Medicaid? 

Dr. Mazur. Well it’s hard to say without seeing the details of 

how the amendment would be implemented. But it seems to me 

like a balanced budget amendment, it’s kind of an abdication of responsibility from Members of Congress because really it’s their job 

to be fiscally responsible. You shouldn’t need a constitutional 

amendment to tell you to do your job. 

Senator Heinrich. People at home are shocked by what you 

have to say there. 

[Laughter.] 

Dr. Mazur. Sorry. 

Senator Heinrich. If you look at that specifically from how you 

are able to address an economy when you fall into a recession, how 

would it affect the Federal Government’s ability to respond to a recession and get an economy moving again? 

Dr. Mazur. It would very much hamstring it. I think if you look 

at what happens at the State level where you have a balanced 

budget amendment, revenues go down during an economic downturn and you respond typically by cutting expenditures. 

In the Federal Government, we have automatic stabilizers, increased unemployment benefits and the like, that allow you to kind 

of cushion the downturn. And I think we saw in the Great Recession the value of having those automatic stabilizers. It really did 

put a floor under the economy. 

Senator Heinrich, You mentioned in your testimony that higher 

deficits can cause interest rates to increase, and certainly if we see 

a $2 trillion increase in the deficit that is not inconsequential. 

We saw higher rates in the CBO’s projections released on Monday. How will higher interest rates affect the costs that consumers 

bear through things like car loans, and in particular home mortgages? 

Dr. Mazur. So higher interest rates affect people in several 

ways. There are a number of interest rates that are tied to market 

rates. Your car loan rates are typically tied to your market rate. 

Your mortgage rate is typically tied to the 30-year bond rate. Your 

credit card rate is tied to a short-term interest rate. 

All those things would bump up if you see interest rates across 

the board going up. 

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Senator Heinrich. Mr. Chair, I have only got a few seconds left, 

so I am going to yield them back. 

Chairman Paulsen. Thank you. I now recognize Vice Chairman 

Lee for five minutes. 

Vice Chairman Lee. Thank you very much. I appreciate each 

of you being willing to come and talk to us about these issues 

today. 

We measure a lot of things in this town, and appropriately so. 

We talk a lot about GDP, about GDP growth, and what government 

might be doing to affect it. 

I think it is difficult to talk about our economic situation and our 

true economic potential, however, without addressing a number of 

other issues, things that are more difficult sometimes to quantify, 

things that are a little bit less obvious, things that account for the 

social and cultural state of American life. And I tend to think that 

these other less well measured, or at least less frequently measured and discussed topics, are as important for economic growth 

and for the health of our economy and our country as anything 

else. 

So I have got a question for all of you. We will start with Mr. 

Holtz-Eakin and move our way across the table. In measuring our 

country’s long-term viability, how important is the flourishing of 

America’s associational life, or the social capital that is the 

strength of families, the strength of communities, community cohesion, trust, and collective efficacy? What can you tell me about 

that? 

Dr. Holtz-Eakin. I think it is incredibly important. We know 

from the data that there is a best practice in America, which is 

that a young person should go to school, graduate, get a job, get 

married, and then have children. And if one does it in any other 

order, it is a ticket one way to poverty. And so those things are at 

the foundation of economic success in the United States. 

We know also from the data, many studies done by a group led 

by a Harvard University professor, that mobility in the United 

States, broadly measured, has not changed much in the past 50 

years—social mobility, economic mobility. You might think it is not 

high enough, or you might think it is fine, but it has not changed 

much. But the geography of it has. 

There are places in the United States where mobility has diminished, and diminished sharply. There are places associated with 

less of those kinds of capital. So I think it is something that is very 

important although, as you say, very hard to measure. 

Dr. Moutray. So last night I was at the STEP Awards, the 

Science, Technology, Engineering and Production Awards, that 

honors the 130 women in manufacturing. And you get really a firsthand view of just how important manufacturing is to the lives of 

these ladies, and to their families, how proud they are of their accomplishments, and just how different it is. 

I took my 13-year-old daughter to be able to see just how you can 

be successful. How, again, manufacturing is that pathway to the 

middle class. And I think that we need to have more of that emphasis of stressing that women can be successful. Manufacturing 

can be that engine for growth not just for the economy but for your 

family and for your community. 

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And I think that we certainly have done that, and I think certainly timingwise it was good that I was just there last night. 

Vice Chairman Lee. Wonderful. Thank you. 

Mr. Hampton. 

Mr. Hampton. For me, I can just boil it down to personal type 

stories. A young lady came to us from Chicago who had three children, and she had no job and a husband in prison. And she had 

little if any education. 

We started her out in the assembly area of the company, and she 

had such a wonderful personality that we brought her into the 

front office, and my daughter Nicole took her under her wing and 

started training her how to use email and the like. And now she 

does all of our order processing, and so forth, and makes in the 

area of $45,000 per year. And her family is now much more successful. Her husband has gotten out of prison, and the two of them 

have been reunited, and the program is working very, very good. 

But it is social—when you talk about social engineering, I think 

there is a lot manufacturing and companies can do by looking at 

people in a whole different way. And that is, what they can contribute as opposed to what they cannot contribute. And we look at 

it in terms of what capabilities a person has, not what they don’t 

have. 

Dr. Mazur. I agree. I think the civic associations and the informal connections are important. It provides for networks. It’s social 

capital that provides informal mentorships. 

In addition, businesses also have invested in their communities. 

And it seems to me, at least today, less so than at times in the 

past. And that is an area where you can see situations in older industrial communities where there is not that civic engagement, and 

not that civic capital. 

Vice Chairman Lee. Thank you. Thanks to each of you. I am 

out of time, so I will forego my other questions. I did want to let 

you know, I released a report today titled ‘‘The Geography of Social 

Capital In America,’’ and it presents a breakdown of social capital 

statistics broken down at the State and county level. I highly recommend it to each of you and to my fellow Members of the Committee. 

Chairman Paulsen. Senator Peters, you are recognized for five 

minutes. 

Senator Peters. Thank you, Mr. Chairman, and each of our 

panelists. I appreciate your testimony here today, as well. 

Dr. Mazur, I was interested when you talked about the jury is 

out on this tax bill. We have got to see this experiment. Dr. HoltzEakin, you mentioned that as well, that this is a pretty grand experiment. We don’t know what the results are. 

But when I think—and tell me your thoughts—when I think of 

fiscal policy and how a government should responsibly deal with its 

spending, it is typically when an economy is strong and when an 

economy is at full employment or nearly full employment which we 

are at, normally that is a time when you should start paying down 

debt, because things can turn the other way. 

And as we saw with the Great Recession, it was essential to be 

able to prime the pump, so to speak, to get the economy going, 

which was very successful. We have had robust growth and job creLAP51NQ082 with DISTILLER

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ation since what was close to a Great Depression that we were 

faced with when Martin and I and others, and Eric, I think we all 

came into Congress about that time. 

So just your thoughts. Is this an appropriate time to be going 

into deep deficit spending, when the economy is recovering? I guess 

I get the kind of sense that we are kind of on a sugar high right 

now, and sugar highs are a whole lot of fun but unfortunately they 

do not last that long. 

Dr. Mazur. Yeah, I think President Kennedy once talked about 

the time to repair the roof is when the sun is shining, right? That 

is like the good times are when you should be taking those steps 

in order to shore things up. 

And so that is one of the aspects that makes this a big fiscal experiment; that this is a set of policies that is different than what 

the United States has typically undertaken. Typically we have 

done stimulus activities during times of economic downturn. Here 

we are doing a very stimulative fiscal bill during a generally pretty 

good economic time. 

Senator Peters. Dr. Holtz-Eakin, do you agree with that? 

Dr. Holtz-Eakin. In part. I think it is important to remember 

that the baseline budget outlook when President Trump took office 

had $10 trillion of deficits in it over the next 10 years. So we were 

going to do deficit spending, regardless. 

The Tax Cuts and Jobs Act added to the deficit, no question 

about that. 

Senator Peters. So we have expanded the bill. Was that a good 

idea, just to put the pedal to the metal and keep going? 

Dr. Holtz-Eakin. The core things that I talked about in the Tax 

Cuts and Jobs Act are not stimulus. They are permanent, structural changes to the tax code to permanently alter the incentives 

for our businesses in terms of both the location and the scale of 

their innovation and investment. I think that was crucial. 

Senator Peters. Well, we—— 

Dr. Holtz-Eakin. We were losing companies at a remarkable 

rate. We had run the experiment about whether the existing tax 

code was working, and it wasn’t. So it had to change. Had I had 

my druthers—I didn’t mean to interrupt—but it would have been 

revenue neutral. But no one gets everything they want in tax reform, and I didn’t, either. 

Senator Peters. And I think that is the important thing about 

revenue neutral. When you say these are long-term structural 

changes, but they are putting us on a long-term structural deficit, 

is—— 

Dr. Holtz-Eakin. We were already on one, is what I would emphasize. 

Senator Peters. I wouldn’t disagree, but now we have increased 

it. So if you didn’t like the other deficit, you certainly can’t like a 

bigger deficit? Is that true? 

Dr. Holtz-Eakin. I don’t like either one. I don’t like any of them. 

Senator Peters. Right. Exactly. So that is what the course we 

are on that is now increasing that, which is a pretty dangerous 

course. You know, we do need to have some responsibility here. 

And I know the short-term impact, as good of a sugar high that 

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we’re on right now, but even the jury is out on that. We are not 

sure exactly what is going to happen with that. 

You have talked about the changes in the entitlements, and I appreciated your response to Senator Heinrich, but, you know, specifically—because you mentioned Social Security. What would you do 

for Social Security? 

Dr. Holtz-Eakin. Personally? 

Senator Peters. Yes. 

Dr. Holtz-Eakin. I think a combination of raise the minimum 

benefit, raise the benefit for the most elderly because that is a 

place of risk right now. Change the indexing in retirement to 

match the changed CPI. Change the initial awards of Social Security benefits so they are less generous for life-time affluent people, 

people like me. And index the cap to be 90 percent of the wage 

base. That is roughly what every bipartisan commission has suggested. I would take the last five conditions, toss them in a hat, 

pull one out and do it. 

What I would emphasize is, doing something. To have that program right now creating cash flow deficits and promising to disrupt 

retirement lives in 13 years is I think disgraceful. And it is at the 

core of our social safety net, and it is not the only one. There are 

many others, as well. 

So if you go down the list, each of our social insurance programs, 

the ones that are supposed to make people’s lives safer, are making 

their lives more dangerous. 

Senator Peters. But if I may ask your response, too, on Social 

Security, part of what happened—and I think of the last major 

change in Social Security reform was back when President Reagan 

was here, and there were fixed to the system that everybody said 

this would last forever, as far as you could see we’re going to put 

Social Security on a sustainable course. 

And if I recall—and you can correct me on some of these numbers, roughly about ninety—— 

Dr. Holtz-Eakin. I don’t think that is quite right, but—— 

Senator Peters. Well as far as I could see at that time, and 

maybe Ronald Reagan—— 

[Simultaneous comments.] 

But it was for a long time. But what we were doing is basically 

it was being funded by roughly I think it was in the 90 percent 

range of the amount of revenue coming into the economy. But what 

we have seen since that time is growing income inequality in this 

country in a dramatic way, and now that has shrunk considerably 

because we have more and more of the income at the very high levels. Their contribution to social security is capped, and middle income folks have actually seen stagnant wages over those years. 

So this is a longer term structural problem really I think linked 

to growing income inequality. I know we don’t have time for that 

answer, but I would love to have that discussion. 

Chairman Paulsen. Representative Handel, you are recognized 

for five minutes. 

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

you to each of you for being here. 

Staying along the lines of our social safety net, it is very, very 

clear that as a country we are extraordinarily compassionate and 

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generous in that arena. And we are helping millions of struggling 

Americans. 

However, as each of you—several of your have referenced, we 

really are struggling in terms of the structure of some of these programs in terms of the spending. But also, although well intended, 

they seem to have in some cases created inadvertently a disincentive to return to the workplace. And then that exacerbates the 

workforce issues that we have. 

What suggestions—and I will start with Dr. Holtz-Eakin—would 

you have around how can we move more people from being on 

these social safety net programs and out of the workplace back into 

the workplace so that we give back that dignity of work and improve the standard of living? 

Dr. Holtz-Eakin. That is an enormously complicated question 

but, you know, I think it is important to just take a look at the 

entire social safety net and try to make it more pro-work. And to 

recognize that in many cases the phase-out of benefits, which is intended to be fiscally responsible and things, provides work disincentives for many low-income individuals. 

So that those have been some well-documented problems there. 

Representative Handel. So dealing with that so-called cliff at 

the top? 

Dr. Holtz-Eakin. Yes, you know there are some program-by-program structural issues, but I think the notion that we should expect people who can work to work is a simple and straightforward 

one that ought to be embedded all through what we do. 

Representative Handel. What are your thoughts on some minimum work requirements for some of these programs? 

Dr. Holtz-Eakin. For those who are—— 

Representative Handel [continuing]. Able-bodied. 

Dr. Holtz-Eakin [continuing]. Able-bodied and capable, I think 

that is an entirely sensible thing. 

Representative Handel. Okay. Thank you. 

Dr. Moutray, I wanted to talk about a little bit on the regulatory 

front. What are you seeing in terms of specific regulatory hurdles 

and the impacts within the manufacturing sector? 

I hear a lot from companies in my district, just about one company, 100 employees, 8 of whom are specifically 100 percent dedicated to regulatory compliance. What more can we do as Congress 

and across the regulatory agencies to start to draw that down? 

Dr. Moutray. So thank you. We listened early on at the beginning of the Trump Administration. We asked all of our member 

companies, all of our manufacturers to submit their ideas for— 

again, we’re in a different environment when it comes to the regulatory space. Keeping in mind that we all recognize we want clean 

air, clean water, et cetera, but what would you improve if we were 

to get rid of old regulations? What would you streamline? What are 

the real burdens that are out there? 

We prepared some actual written examples of that and gave it 

to the Commerce Department at the beginning of last year. So I 

would start there as examples of places where we could—— 

Representative Handel. I will give you a card afterwards. I 

would love to have a copy of that. I am the new kid on the block 

here, so—— 

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22 

Dr. Moutray. I will definitely get that to you. But I think the 

bottom line is, we recognize that cumulative burdens continue to 

get larger and larger. 

Last year was a unique year in that there was essentially a moratorium on regulation. But we also want to make sure that, as I 

said earlier, businesses and manufacturers, especially small manufacturers, voices are being heard. 

Representative Handel. Great. Thank you so much. Mr. Chairman, I yield back. 

Chairman Paulsen. Thank you. Representative Delaney, you 

are recognized for five minutes. 

Representative Delaney. Thank you, Mr. Chairman. 

I want to start by just congratulating Mr. Hampton on the success and growth of your business, and I would also add you are a 

very effective witness here. So I don’t know if you did this in your 

prior life, but you are very good at this. 

But seriously, congratulations on the business. 

Dr. Holtz-Eakin, just a couple of questions for you. One of the 

things that I have been frustrated with is the debate around the 

deficit where some people say deficits don’t matter, and other people say that we shouldn’t spend more than we take in. 

It has always seemed to me that if we could target deficits at say 

minus two percent, which is something that is potentially doable 

even though that is incredibly hard to do, that that would be a 

more realistic goal, and that would actually be the kind of sensible 

goal we should have in terms of the long-term fiscal health of the 

country, because if the economy can grow more than 2 percent a 

year, our debt as a percentage of our economy will stabilize, which 

is really the only metric that matters as it relates to these things. 

So I am interested in your views on that. 

Dr. Holtz-Eakin. I think I roughly concur. I am a little more aggressive. I would like to have the debt as a share of the economy 

go down a negative downward trajectory. It doesn’t have to be 

sharp, but put us in a position where we’re sending the message 

to world capital markets that we’ve got our fiscal house in order; 

that we are not going to end up in a position where we’re going 

to have a sharp disruption of the government, rapid hikes in either 

interest rates or taxes to deal with things. And that is what you 

need to do, is to send that clear message to capital markets, and 

the economic threat of the fiscal outlook would diminish rapidly. 

Representative Delaney. So how do you feel about balanced 

budget acts? 

Dr. Holtz-Eakin. Balanced budget amendments through the 

Constitution are of the class of things called ‘‘fiscal rules.’’ And 

around the globe, there have been countries that have resorted to 

fiscal rules when they’re elected representatives who were unable 

to get the job done. 

Representative Delaney. Right. 

Dr. Holtz-Eakin. So they are a recognition of failure. They tend 

to work. 

Representative Delaney. But do you think zero deficits is the 

right target? Because that is really what it does. 

Dr. Holtz-Eakin. Zero deficits? Realistically? 

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Representative Delaney. Like if you could set economic policy, 

would you set minus one-and-a-half, which is sounds like you are 

saying, or would you set zero? 

Dr. Holtz-Eakin. I wouldn’t set for zero. But I’ve now been in 

this town and watched this operation for quite some time. No one 

has threatened me with zero, or even close. 

Representative Delaney. But that is what that law would do. 

Dr. Holtz-Eakin. And that is why people are looking to things 

like the Balanced Budget Amendment. I think they are basically an 

admission that we are on track for the next ten years—— 

Representative Delaney. No, I get that. So do you think zero 

across time would be bad economic policy? Like zero every year? 

Dr. Holtz-Eakin. No—— 

Representative Delaney. No? 

Dr. Holtz-Eakin. I think if you look at those Balanced Budget 

Amendments, the ones that have been considered recently, they 

have correct-out clauses for major recession, war, circumstances 

where it would be sensible to run deficits. 

Representative Delaney. So do you think the Tax Bill, recognizing that fixing the international system was something that desperately had to be done, so we are in agreement on that, but do 

you think the Tax Bill would have been a better tax bill if, rather 

than cutting the corporate rate to 21 we would have cut it to 25 

or 26 or 27, and used the additional revenues for something like 

infrastructure, or to make the bill more deficit appropriate? 

Dr. Holtz-Eakin. So I am going to dodge the question at the 

outset, and then I will answer it. But I will say this—— 

Representative Delaney. Dodge quickly so we can get to the 

answer. 

Dr. Holtz-Eakin. Okay, as a general matter you never get to 

choose between the tax reform and the tax reform with the provision you would like. 

Representative Delaney. I get all that, yeah. I’m just asking 

you if you actually could do this. 

Dr. Holtz-Eakin. I think getting it to 20 was the right target. 

Representative Delaney. You do. 

Dr. Holtz-Eakin. We’ve got to be internationally competitive. 

Other countries are going to move. It’s not like they’re going to 

stay. 

Representative Delaney. How do you think a carbon tax could 

fit in across time? 

Dr. Holtz-Eakin. A carbon tax as a consumption tax? I’m a big 

fan of consumption taxes. As part of a thoughtful strategy for tax 

policy, you could certainly think about that. As an add-on for the 

sake of doing it, I’m not a big fan. 

Representative Delaney. What do you mean? Explain your answer there more. On what context would you do it? 

Dr. Holtz-Eakin. So, for example, the House Task Force came 

up with what was really a destination-based cash flow tax, it was 

a consumption of style tax. 

Representative Delaney. Right. So you wouldn’t do carbon tax 

on its own? 

Dr. Holtz-Eakin. So you could do that in the context of something like that. 

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Representative Delaney. But you don’t think carbon tax on its 

own? 

Dr. Holtz-Eakin. No, not just as a pure revenue approach. I 

think if we’re going to do something as major as that, fix the code 

you have. 

Representative Delaney. Got it. I yield back. Thank you. 

Chairman Paulsen. Thank you. Representative LaHood, you 

are recognized for five minutes. 

Representative LaHood. Thank you, Mr. Chairman. And I 

want to thank all of the witnesses here today for your valuable testimony. 

I want to start off with Dr. Moutray. You mention in your testimony how effective the tax reform bill has been and regulatory relief on the manufacturing sector of our country. We have created 

well over 200,000 new jobs in manufacturing, which people I don’t 

think thought was possible, and it is positive for a healthy and robust economy. 

I want to get your thoughts just in the last month here, the last 

few weeks, on potential trade war as it relates to steel and aluminum tariffs, and how that collaterally will affect manufacturing 

jobs. 

I just looked at a statistic here that, according to the Federal Reserve of Philadelphia, the futures for capital expenditures over the 

last two months is down [from February to March], dropped 11 percent. 

I’m wondering if you can describe the level of fear that a trade 

war, what that could do to manufacturing? 

Dr. Moutray. Well I think first off, let’s say that certainly the 

President is trying to address some real unfairnesses that are out 

there in terms of what China has been doing in terms of intellectual property, and in terms of overall trade. And so I think that 

there is that recognition, just kind of putting that out there. 

Manufacturers in general don’t like tariffs. The NAM itself was 

founded as a free-trade organization in 1895. And there is a lot of 

anxiety out there about what could happen on the tariff side. 

We actually have been calling, as you know, for hopefully what 

all of this trade talk really leads to is some more extended conversations with China. Earlier this week, last week, our president 

and CO asked for a bilateral trade agreement with China, and 

hopefully this leads to that. 

In the meantime, you’re right. Certainly our members are very 

upbeat, but the trade talk and the tariff talk is certainly an uncertainty that is not helpful. 

Representative LaHood. And if we do have a full trade war, 

do you have concerns that this wipes away some of the gains that 

we’ve made in tax reform and regulatory relief? 

Dr. Moutray. I think it certainly affects the overall level of optimism, yes. 

Representative LaHood. Thank you. And, Dr. Holtz-Eakin, can 

you comment on the level of fear that you have with a trade war 

and the potential road we’re headed down? 

Dr. Holtz-Eakin. I’m very concerned. I was in the White House 

when President Bush imposed steel tariffs. Those tariffs harmed 

steel consumers more than they helped steel producers. 

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25 

They bought us nothing on the international front, and they were 

ultimately disallowed by the WTO. All cost, no benefit. I think 

these are the same, and I wouldn’t have done them. I would echo 

what Mr. Moutray said about identifying China, but I am unclear 

on what the strategy is. What is it that we are asking China to do? 

At what pace? When will we know when we have had a success? 

And to get into this kind of tariff war without a strategy and an 

end game strikes me as dangerous. 

Representative LaHood. Do you have any thoughts on the reasoning for the tariffs as it relates to national security, and whether 

that holds up with WTO? 

Dr. Holtz-Eakin. I see little chance the WTO will uphold those 

tariffs. The Defense Department itself issued a memo that said 

steel is not a national security issue. We have enough domestically. 

Aluminum we can get it from reliable partners. So, you know, 

when the country that imposed the tariff says we really didn’t need 

them, that is not going to help the case. 

Representative LaHood. And in terms of suggestions on how 

we ought to go about this differently in a precision way in going 

after the Chinese, what is your recommendation on that? 

Dr. Holtz-Eakin. I think the lesson of history is that it is very 

difficult to win a bilateral showdown with the Chinese. And they 

have the negotiating advantage—and that is the only thing it is— 

of not having a democracy, and President Xi can just wait us out. 

So I think that strategy is not going to be very successful. I 

would have preferred a multilateral strategy. You know, get a coalition of countries, agree on pressuring China, and move it that 

way. 

Representative LaHood. Gotcha. Switching subjects, we talked 

a little bit about debt and what that does to our economy. Obviously no matter how fast the economy grows, if spending continues 

to outpace growth our economy is only going to get worse. 

You have referenced that a little bit, Dr. Holtz-Eakin. In terms 

of reforms to make to our budget process, appropriations process, 

and spending processes to reverse this, what suggestions do you 

have for us? 

Dr. Holtz-Eakin. Well the good news on that front, there is a 

Joint Select Committee that is going to take this issue up, and I 

applaud Congress for that. 

I think there are two problems, and one is the near-term problem 

and the appropriations process, which has led to lots of threats of 

government shutdown, and threats on raising the debt limit, both 

of which I view as dangerous. 

The longer term problem is mandatory spending. This country 

balanced its budget on the whole for centuries, and then we invented mandatory spending and we have not balanced it since. 

So dealing with how you do oversight and assessment of mandatory spending so that it does not get out of line with the resources 

is the key issue. 

Representative LaHood. Thank you. 

Chairman Paulsen. Thank you. Representative Maloney, you 

are recognized for five minutes. 

Representative Maloney. Thank you. And I thank all of the 

panelists for your testimony. 

LAP51NQ082 with DISTILLER

26 

And, Mr. Hampton, I was very impressed with your business and 

your testimony. One of the challenges, though, is that most of the 

business owners that I am reading about, they are not plowing it 

back into wages. It’s usually a one-time bonus. Maybe they will 

make it permanent later, but a lot of bonuses but not permanent 

wages that I’ve been reading. And many are using this tax bonus 

as paying out to shareholders, as opposed to plowing it back and 

growing the business like you are. But I hope more people make 

the same decisions that you’ve made. 

But I would like to ask Dr. Holtz-Eakin about an op-ed that appeared recently in The Washington Post, and I would like permission to place the op-ed in the record. 

Chairman Paulsen. Without objection. 

[The Washington Post article appears in the Submissions for the 

Record on page 76.] 

Representative Maloney. It was written by five very prominent former Chairs of the White House Council of Economic Advisers, Jason Furman, Alan Kruger, Laura Tyson, Martin Neil Bailey, 

and Janet Yellen. The economists argued that in the future the 

United States will face a large debt crisis, as we’ve all been talking 

about, but they argue that entitlements—Social Security, Medicare, 

and Medicaid—are not to blame. And they make three points that 

I find interesting, and I would like to hear your response. 

Number one, they write that the large tax cuts and unfunded 

wars have been huge contributors to our current deficit problem, 

and the primary reason the deficit in coming years will now be 

higher than it had been expected is the reduction in tax revenue 

from last year’s tax cuts, not an increase in spending. 

Do you agree with their assessment? Would you begin with a 

‘‘yes’’ or ‘‘no’’ and give your explanation to that first point? 

Dr. Holtz-Eakin. I do not agree with them. Again, I would go 

back to—— 

Representative Maloney. It’s $1.7 trillion, by all accounts. 

Dr. Holtz-Eakin. I would go back to the baseline budget outlook 

of January 2017, prior to any tax legislation, which showed that 

there would be an additional $10 trillion in deficits over the next 

ten years, and that did not come from the discretionary accounts. 

It came from the mandatory accounts. So it wasn’t wars. And it 

came because all of the mandatory spending grows at rates faster 

than the economy, faster than any plausible revenue gain. Those 

are the entitlement programs. 

So arithmetically, I think they are simply incorrect. 

Representative Maloney. Okay, secondly, the five economists 

further write that the tax cuts passed last year added an amount 

to America’s long-term fiscal challenge that is roughly the same 

size as the preexisting shortfalls in Social Security and Medicare. 

Do you agree, ‘‘yes’’ or ‘‘no’’ with that, and your explanation? 

Dr. Holtz-Eakin. I disagree, but I think it is a misleading statement by them, quite frankly. They compared it to Medicare Part 

A, which is a subset of the entire Medicare program. The entire 

Medicare program is three-quarter financed out of general revenue. 

Parts B and D were structured that way, and they run enormous 

cash flow deficits, over $300 billion a year. And to throw them out 

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of that calculation and compare it only to Part A is to really 

mischaracterize the situation. 

Representative Maloney. Thirdly—and Mr. Peters brought 

this up, too, and others on the panel—the economists write that decreasing our debt-to-GDP ratio will require running smaller deficits 

in strong economic periods such as the present to offset the larger 

deficits that are needed in recessions to restore demand and avoid 

deeper prices. Do you agree, ‘‘yes’’ or ‘‘no’’? 

Dr. Holtz-Eakin. That is a beautiful theory in textbook. No government, Republican or Democrat, in my lifetime has done it. 

Representative Maloney. Okay. And lastly, or is my time up, 

four years ago the consensus estimate at the Fed of the NARU, the 

nonaccelerating rate of unemployment, was 5.4 percent. And what 

likely would have happened if the rate dropped further, as it has, 

and in response the Fed has raised interest rates, which they are 

saying they are going to do? 

Dr. Holtz-Eakin. I think it is a good news story if the Fed is 

worried about the economy growing too fast. That has been the 

least of our concerns for a long time. It celebrates what they admitted were unusually low, and were labeled extraordinary monetary 

policy because they became very ordinary as we got used to them, 

so I think it’s a good news thing that they are normalizing the 

stance on monetary policy. 

I think it has been surprising the degree to which the employment rate has been able to fall, and we’ve seen labor participation 

rise more than I think a lot of people expected. We see no particular evidence of current inflation as a result of this, and we do 

see some acceleration in average hourly earnings. That is all a good 

news story, and I hope it continues. 

Representative Maloney. My time has expired. Thank you. 

Chairman Paulsen. Thank you. Representative Beyer, you are 

recognized for five minutes. 

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

Dr. Mazur, tomorrow we have the House taking a doomed-to-fail 

messaging vote on the Balanced Budget Amendment, probably to 

provide cover for Members who are feeling buyer’s remorse after 

their deficit-increasing votes, and faced with the new CBO deficit 

figures. 

But now, as it seems like we have built a house of cards with 

more than trillion-dollar deficits for the foreseeable future, how do 

we possibly consider long-term sustainable growth? How are we 

unlocking America’s economic prospects when our debt levels will 

quickly equal GDP, with ever increasing pressure on interest rates? 

What is the smart way to address the debt and deficit we have? 

Dr. Mazur. So I think the point that Douglas Holtz-Eakin and 

I both made is that in good times you should be running smaller 

deficits, to kind of be on a downward trajectory, so that it becomes—the debt becomes a smaller fraction of your economy over 

time. 

And I think you saw that in the late 1990s, where the budget 

was actually in balance for the late 1990s, early 2000s. And then 

we embarked on a series of tax cuts and unpaid-for war, and Medicare benefits expansion, and we moved into a situation where we 

had larger deficits. 

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So kind of to harken back to what I mentioned earlier about 

President Kennedy, that the time to really work on repairing your 

fiscal situation is when things are going good, during the good economic times. And it seems to me we are having a missed opportunity. We have an opportunity to do it now during relatively good 

times, and we are not taking advantage of that. 

Representative Beyer. I would like to compliment Mr. Hampton on sharing so much of the benefits to his business of the tax 

cuts with your employees. But as many predicted, we have seen 

that as opposed to fueling wage increases, or even investment in 

the recipient businesses, the lion’s share of the corporate tax cuts, 

some say greater than 80 percent, is going to stock buybacks and 

dividends. 

Dr. Mazur, do you see limiting the use of buybacks, which we 

used to do until regulatory changes in the early 1980s, as a worthwhile public policy response that would promote a natural focus on 

wages and investment in research and development, rather than 

all of it going to the people who own the assets that we have? 

Dr. Mazur. I view a stock buyback as more of a financial transaction which keeps the value of the company the same. It’s just dollars of cash goes out and shares get retired. So the company stays 

about the same size. 

Now there may be concerns about earnings-per-share being driven up because there are fewer shares out there, but that is really 

the responsibility of the board of directors of the company to look 

at that, not—I don’t really think it is a Federal Government responsibility. 

Representative Beyer. Isn’t part of the issue, if you look at Dr. 

Holtz-Eakin—again, Dr. Mazur—where early on he points out that 

the growing gap between the productivity rate of increase and the 

wage rate of increase, that—and we have had year after year of 

record corporate profits, that businesses haven’t been sharing the 

increases in productivity gains with their people? 

Dr. Mazur. There may be some truth to that. I think that, you 

know, we have had a stagnant minimum wage over the last number of years. We have not increased the minimum wage. We have 

had a reduction in unionization over decades now. Both of those 

would have been ways to get more dollars into the pockets of the 

workers, and we have not done either of those things. 

Representative Beyer. Finally, Dr. Mazur, we have seen that 

the pass-through provision seems to fail to meet all four of the 

standards of good tax policy that you laid out in your testimony. 

We are already seeing in The Wall Street Journal that this sets 

the bill so that the most tortured gaming has occurred since the 

passage of the new tax law. The tax law Professor Dan Shaviro 

called it, quote, ‘‘the worst provision ever even to be seriously proposed in the history of the Federal income tax.’’ 

Is there any way to fix this? 

Dr. Mazur. That is a hard question. I think that you are setting 

up a situation where it is relatively easy, through paper transactions, to change the form of income from one level of tax to a different, to a lower level of tax. And you would expect to see gaming 

on that front. 

LAP51NQ082 with DISTILLER

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One of my law friends also quipped, similar to Dan Shaviro, that 

the jobs part of the Tax Cuts and Jobs Act was the tax planners’ 

jobs. That there will be many tax planner jobs as a result of this, 

and that is an example in the flow-through area where you could 

see that be the case. 

Representative Beyer. Thank you very much. Mr. Chair, I 

yield back. 

Chairman Paulsen. Thank you. And I was going to say we are 

going to start with a Minnesotan and end with a Minnesotan, but 

Senator Cruz just got here, but we will go with Senator Klobuchar 

and you are recognized for five minutes. 

Senator Klobuchar. Well very good. I had my moment a few 

years ago, speaking of unleashing the economy, where Minnesota 

beat out Texas as the best State to do business in in the CNBC 

survey. And I completely enjoyed telling Senator Cruz about it. 

But I do welcome Mr. Hampton. He is a real success story right 

out of Rogers, Minnesota, which is on the western part of the metropolitan area, and I grew up not far from there, employing 22 

Minnesotans and Americans. I thank you for that. 

And I note that your business is—Senator Heinrich and I were 

thinking that you are in the business of circuit interruption technology and that we need a little circuit interruption around Washington right now, so maybe you can bring us some. 

So thank you for that. I thought I would start with you, Dr. 

Holtz-Eakin, and talk to you about—I was just around our State 

in a lot of the rural areas last week, and there is just a huge problem with workforce shortages everywhere. I heard it from mediumsized companies manufacturing to peat mines, to the just regular 

farming. 

And we have done a lot of work with apprenticeships, and I 

think we should be doing more nationally. Senator Collins and I 

have a bill on this, and maybe loosening up some of the rules about 

how old kids are when they can start doing apprenticeships while 

they are in school, because it is a patchwork of State and Federal 

laws. And I am going to talk to the Labor Secretary about that. 

Doing more on STEM, obviously. And just some very cool things 

going on with our high schools around Minnesota where kids in 9th 

grade are getting exposed to a class with tech, or the traditional 

shop, which it no longer is, robotics. And then having kids choose 

a traditional track, or health care, or manufacturing. 

And those are all good things and are incredibly important. I still 

don’t think it is going to fill the short-term need that I am seeing 

in our State. 

So I just wondered if you would comment about immigration reform. And right now we are going backwards. I had a turkey producer who, the new rule is he can’t get his part-time seasonal 

workers, he can’t get them from the same country anymore. He has 

to rotate countries, and he had the same crew coming in for 17 

years, and we just are seeing with the Dreamers not getting on a 

path to citizenship. Liberians in our State, we have the biggest 

population, they only have a year left who are on the Temporary 

Status. They all came in legally. 

And I just see this as sort of coming right up against our potential for unleashing our economy because we are going to start havLAP51NQ082 with DISTILLER

30 

ing workforce shortages. And there are two ways to do this: training the kids who are growing up, and retraining some workers; and 

then of course immigration reform. 

And could you comment on those two things? 

Dr. Holtz-Eakin. Well first of all, congratulations on the apprenticeship work. I am a big fan of those sorts of efforts. I would 

like to know more about it. 

I remind everyone who asks me about the immigration issue that 

the native-born U.S. population has fertility low enough that in the 

absence of immigration the United States shrinks. We become 

Japan. We become smaller in population, smaller in economic size, 

smaller in our ability to protect our values and spread them around 

the globe. 

And so the flip side to that is that immigration reforms and policies are a huge economic opportunity, and one that I think we 

should pursue vigorously. 

I am not a big fan of what I see going on right now. I think we 

are going in the wrong direction, and we ought to think hard about 

legislation that would in fact put this more on an economic foundation both in terms of the long-term visa-granting, but also in terms 

of the need for seasonal workers and sensible temporary worker 

programs that have a real effort at enforcement. 

Senator Klobuchar. Well and as you know in the comprehensive bill that passed the Senate with strong bipartisan support we 

actually had worked out the ag issue with migrant groups, and the 

Farm Bureau, and the Farmers Union, and that was something 

that was in there which we would love to see today. 

And I just look at it. I like that we had—I did a hearing here 

once on immigration reform, and we actually had Grover Norquist 

testify in favor of immigration reform because he saw it as reducing the debt, because you have more people paying in by billions 

of dollars. So I just think it is a really important point to make as 

we go through. 

I don’t know if anyone else wants to comment on any of that? 

Dr. Holtz-Eakin. It is just one of those issues that unites bearded right-wing crazies, and we thank you. 

[Laughter.] 

Senator Klobuchar. Dr. Moutray. 

Dr. Moutray. Well we have The Manufacturing Institute at the 

NAM, as you know, Senator, which has really been specializing in 

trying to address that skill shortage. And as I noted earlier, it is 

our number one issue, and we go out and ask our members. As I 

travel around the country, I hear it everywhere, small, medium, 

and large, in every State. 

And so we have been trying to do a number of things, including 

encouraging more women, as well as trying to change perceptions. 

Senator Klobuchar. Any others? Mr. Hampton, do you want to 

get the last word maybe, our Minnesotan? 

Mr. Hampton. We have found opportunities to employ people 

from all walks of life, by just keeping our eyes open. And that may 

mean the local waitress who is showing something going to school, 

and we give her an opportunity. As a matter of fact, that is a casein-point. Recently we did hire somebody like that, and are bringing 

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her along in an office environment where she wasn’t going to get 

an opportunity because she was a 40-year-old waitress. 

And just by going that direction and paying her a little more 

money, we now have an excellent employee. 

Senator Klobuchar. Good point. Thank you. 

Chairman Paulsen. Thank you. Senator Cruz, you are recognized for five minutes. 

Senator Cruz. Thank you, Mr. Chairman. And I would note to 

the Senator from Minnesota, talking about Texas and Minnesota rivalries, that it appears likely now, or at least a good chance, that 

starting this weekend the Houston Rockets will be facing the Minnesota Timber Wolves in the NBA playoffs. 

Senator Klobuchar. We hope that is true, yes. 

Senator Cruz. You all are—but perhaps we may have a side 

wager on the outcome—— 

Senator Klobuchar. Alright, okay. 

Senator Cruz. Good afternoon, gentlemen. Welcome. Thank you 

for being here. 

As you guys know, on the tax reform bill, because it was passed 

on Reconciliation, some elements of it are scheduled to expire. Notably, the individual tax cuts and the expensing provisions. 

In your judgment, what impact does the expiration of those tax 

cuts have on likely future economic growth? And how would those 

projections be different if those elements of the tax cut were permanent instead? 

Dr. Holtz-Eakin. I think you see those impacts in the CBO 

analysis where there are strong near-term impacts, and they diminish over the 10-year window. Permanent tax policy is always 

more powerful and better than temporary tax policy. And that, had 

it been possible, would have been a preferable route to go. 

Dr. Moutray. I agree with that. Certainly I think when you look 

at, from a manufacturing standpoint, the expensing provision is 

what really allows so much of the growth that we are seeing in this 

year and kind of moving forward. But we would like to have seen 

those made permanent. We hope that they are made permanent at 

some point. 

Mr. Hampton. A typical approach would be for a company like 

ours, which is privately owned, for the proprietors to increase their 

own wages in order to offset the increase in taxation. 

So if we want to maintain the benefit of the tax cuts to our corporation and retain money in that corporation, which is what we 

want to do, then the way to achieve it is certainly not to increase 

the personal tax. 

Dr. Mazur. Senator Cruz, I think making the investment and 

incentives permanent would make them more effective. However, it 

should be paid for. It shouldn’t be just run up on the credit card 

of the Nation. 

And I disagree a little bit with your point about Reconciliation 

requiring that. I think that was basically a statement of priorities, 

that you had one-and-a-half trillion dollars, and you spend X on 

corporate stuff, Y on individual stuff, and the Y only lasts for seven 

years. 

Senator Cruz. So if Congress in 2018 were to revisit tax reform 

and make expensing and make the individual tax cuts permanent, 

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what would you expect the impact to be in terms of economic 

growth and jobs going forward? 

Dr. Holtz-Eakin. I think in and of itself it would be beneficial. 

Probably not large in the near-term, but you would get better outyear projections. I think it would be even better if those were 

paired with reforms to the mandatory spending program so that 

you didn’t increase the deficit. That would be the strongest economic impact. 

Dr. Moutray. Manufacturers are very long-term in their thinking. They are looking about investments that are going to be paying out many years down the line. And so I agree with Doug. I 

think you’re going to see, especially in those out-lying years, you 

are going to see similarly positive impacts from that. 

Mr. Hampton. Our programs are, as we look at it presently, we 

are looking towards a longer term future as a result of the tax cuts 

for aggressive investment in the company. So if we look down the 

road and we’re saying that there’s going to be a reversal of these 

kind of things, it makes it more problematic for us to set our plans. 

Dr. Mazur. And I just think that there are going to be plenty 

of opportunities for Congress to revisit this tax law, that you have 

things that expire in 2019, 2022, 2025. There will be plenty of opportunities to take a look at it and look at what our fiscal situation 

is and make the necessary adjustments. 

Senator Cruz. Shifting topics to regulatory reform, if Congress 

were to pass structural regulatory reform—something like the 

REINS Act which provides that any economic regulation that imposes over $100 million of cost on the economy can’t go into effect 

without an affirmative up/down vote from Congress—what would 

each of you expect to be the impact on the economy on economic 

growth and jobs if the REINS Act were enacted? 

Dr. Holtz-Eakin. As I said in my opening remarks, the burden of regulation of over $100 billion a year for eight years I think has 

an important impact on the economy. And to have a statutory 

check on that would be an enormous benefit. 

I wish we had better sort of empirical estimates from the research literature. We don’t. But it is certainly directionally an important thing to do. 

Dr. Moutray. The manufacturers certainly are responding to the 

changed environment, and recognizing that the rulemaking process 

is different. You know, two out for every one coming in I think is 

a completely different ball game. And certainly I think they would 

react very favorably to continued changes in the positive direction 

for regulation. 

Dr. Mazur. I don’t know enough about the REINS Act to have 

a well-formed opinion on that, so I think I will pass. 

Senator Cruz. Very good. Thank you, gentlemen. 

Chairman Paulsen. Thank you. And with that I want to thank 

all of our witnesses for taking the time to be with us here today, 

and remind Members that should they wish to submit questions for 

the record, the hearing record will remain open for five business 

days. 

And with that, our Committee is adjourned. Thank you. 

[Whereupon, at 3:50 p.m., Wednesday, April 11, 2018, the hearing was adjourned.] 

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SUBMISSIONS FOR THE RECORD 

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PREPARED STATEMENT OF HON. ERIK PAULSEN, CHAIRMAN, JOINT ECONOMIC

COMMITTEE

I call this hearing to order. 

Good afternoon, and welcome to this hearing on ‘‘Unleashing America’s Economic 

Potential.’’ 

For the eight years prior to this new Administration, we were told America could 

never do better than 2 percent growth. We were told that such sluggish growth was 

the new normal, and that we had to lower our expectations. 

This contradicted what we knew to be true about America. 

We all know America is an economic powerhouse. We are blessed with vast and 

bountiful land, massive energy resources, and most importantly, the American people. Our dreams, as a nation, don’t rely on government fiat or foreign influence, but 

on the resourcefulness, the innovativeness, and the hard work of everyday Americans. 

The question is: Will we, elected officials of the U.S. government, allow them to 

work towards their dreams and fully contribute to our nation’s prosperity? 

This hearing is about just that. How is it, for instance, that we have just seen 

a remarkably good job growth for the last few months? 

Listen to these numbers: 

We are averaging 214,000 more jobs for February and March and the employment-to-population ratio held steady. 

The unemployment rate has remained stable at 4.1% for 6 months, the lowest 

since 2000. 

Meanwhile average hourly earnings continue their upward trend. 

It wasn’t long ago, we were told not to expect this. In fact, we were told to lower 

our expectations. I’ll explain. 

When my daughters set goals, these goals are generally beyond where they are 

at the time. Maybe they want to get better at math or science. Maybe they want 

to read more books than before. But the point is, they know their potential, and set 

goals beyond where they are currently at because they want to grow. 

It should be the same when thinking about our economy. 

The first graph was displayed at our last hearing. The top line is what the Congressional Budget Office thought in 2007 our economy was capable of producing. 

This is an economy of hope and growth. 

The bottom line, regrettably, is what our economy in fact produced—our actual 

real GDP. To be sure, the financial crisis knocked us off our feet. 

The lines in between are annual CBO forecasts of our economic potential over the 

course of the Obama Administration. Each year, these forecasts were lowered. 

This is what it looks like when a nation is urged by its leaders to accept mediocrity and to let the government handle more. More taxes, more regulations, and more 

control meant that the American economy was held back. 

This was a self-fulfilling prophecy. 

These projections dragged under growing weight of high tax rates and record-setting levels of regulation. 

Before 2017, economic growth was slow, employers weren’t willing to invest in 

their businesses or their employees. 

Productivity and take-home pay stagnated. 

People in their prime working years stayed out of the workforce. 

Fewer people were willing to risk starting a business so entrepreneurship fell. 

Businesses found it more attractive to invest and create jobs overseas, where 

other countries had learned to lower their corporate tax rates and reduce regulations. 

At the same time, the federal government’s power over nearly every aspect of our 

lives grew. 

Yes, there are constructive things that government does, such as by keeping us 

safe, enforcing civil and property rights, and setting rational ‘‘rules of the road’’ by 

which the economy can operate efficiently. 

However, government does not create prosperity. 

Our people create prosperity—by having great ideas, working hard, and having 

the resources to take a risk on building a piece of the American dream. 

Far too often government stands in the way of prosperity and opportunity by overtaxing and overregulating. 

A country’s GDP is based on its workforce, capital stock, and productivity—determined by technology, innovation, and training. It isn’t based on how much the government succeeds in redirecting capital. 

We’re seeing a different course that lifts the artificial restraints government imposed on the economy. 

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This graph is similar to one in the report the JEC published last week in response 

to the Economic Report of the President. 

If we lift the government constraints of high taxes and heavy regulation that 

weighed down our potential, our economic potential can rise. If it rises to what CBO 

projected as recently as 2012, there would be plenty of room, displayed as the output gap, for our economy to grow faster. 

We’ve removed the government obstacles that prevented Americans from achieving their dreams. 

When growth is strong, businesses have the confidence to invest, jobs are plentiful, potential entrepreneurs become willing to risk starting a business, and American households become more prosperous. We’re already seeing results: 

Every quarter of economic growth in 2017 outperformed the same quarter 

in 2016; 

Business investment is strengthening and small business confidence is 

high; 

Production and investment are coming back to the United States; 

Paychecks are growing because (1) the government is taking a smaller cut 

and (2) businesses are investing in their workers. 

In my home State of Minnesota, the good news about tax reform keeps pouring 

in as companies like Best Buy, Bio-Techne (BIO–TECH–KNEE), CIT Relay & 

Switch, LORAM, Data Sales, DTN, Hormel, TCF, and US Bank invest in their employees by giving them special bonuses, pay raises and better benefits. 

But even with the tailwinds of pro-growth tax and regulatory reform, there are 

still risks to the economy, such as the newly announced tariffs. Trade is critical to 

our economic growth. A robust trade agenda is essential for the United States to 

grow jobs by selling American goods and services around the world as 96% of 

world’s consumers live outside the United States. 

The end goal of trade policy should be to eliminate artificial barriers to the free 

flow of our goods and services, not cause new ones. 

I look forward to hearing from our distinguished panel of witnesses today as they 

advise us on ways to unleash greater opportunity in America. 

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20,000 

19,000 18,000 17,000 16,000 15,000 14,000 

Real GOP 

2009$, billions 

Lost U.S. Economic Potential 

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 

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20,000 

19,000 

18,000 17,000 16,000 15,000 14,000 

Better Policy Releases Economic Potential 

Real GDP 

2009$, billions Better Policy Reopens Output Gap Enabling ·················· 

Sustainable Growth ··· .. 

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 
38 

PREPARED STATEMENT OF HON. MARTIN HEINRICH, RANKING MEMBER, JOINT

ECONOMIC COMMITTEE

Thank you for calling today’s hearing on promoting innovation and accelerating 

economic growth. 

Innovation drives economic growth and boosts wages. We need more of it and we 

need innovation to be more broadly shared across regions. 

Other countries are moving forward aggressively to promote innovation, to support advanced manufacturing, and to boost the productivity of their workers. 

To lead in the 21st century economy, the United States must remain at the forefront of game-changing discoveries and create an ecosystem that supports innovation across the economy. 

The Federal Government plays a key role in this—funding and conducting R&D, 

investing in the human capital of our people, and ensuring that we are making the 

necessary investments in STEM. 

STEM education and R&D are two innovation anchors. 

We need to ensure that students everywhere have access to STEM pathways, and 

that starts with making sure that schools have the resources they need to recruit, 

train, and retain talented science and math teachers. 

We need to expand middle-skills pathways into emerging sectors, and make a college education accessible and affordable for all Americans, so that every student has 

the opportunity to benefit from tomorrow’s innovations. 

The Federal Government remains the largest funder of basic research—that research which adds to our fundamental stock of knowledge, yet often would not be 

conducted without public investment. 

This is the research that can help us solve the problems we don’t yet know we 

have. 

Basic research has driven major leaps forward—including mapping of the human 

genome, vaccines, breakthroughs in cancer research, and energy storage technology 

and the creation of the internet, laser, MRI and GPS. 

The knowledge gained through this research has significant spillover economic 

benefits—increasing productivity, creating jobs, and accelerating economic growth. 

That’s why it’s encouraging that the recent Omnibus agreement made significant 

investments in R&D. 

Investments in basic research increased by almost 10 percent over the previous 

year, its largest annual increase since the Recovery Act in 2009. 

Promoting innovation also means extending already developed technologies, like 

broadband, to communities currently without access. 

Today, years after high-speed internet was first made available, 19 million rural 

Americans still lack access. The private sector doesn’t have the incentive to extend 

broadband to remote, hard-to-reach communities. 

The Federal Government must step in and fill the gap. 

We also need smart policies that can help emerging industries grow. Targeted tax 

credits, competitive grants, and prize competitions are all levers Congress can pull. 

The multi-year extension of the wind production tax credit is a good example. It 

is driving investment in wind farms in New Mexico and across the country. 

Earlier this month, I toured the future site of the $1.6 billion Sagamore Wind 

Project in eastern New Mexico, which will be the largest wind farm in our State’s 

history and create up to 300 construction jobs and 30 full-time operations jobs. 

Programs like Laboratory Directed Research and Development (LDRD) authorizing a portion of a lab’s Federal funding for cutting-edge R&D are also vital. 

At Los Alamos National Laboratory in New Mexico, LDRD researchers generally 

account for one-quarter of the lab’s patents and peer-reviewed publications. 

Efforts to help commercialize technology developed at our national labs and research universities help to take a good idea and get it into production and out into 

the market place. 

In New Mexico, we’ve seen how commercializing the R&D that takes place in national labs can generate significant economic opportunities. 

I’ll share one example. 

Descartes Labs is a New Mexico start up that uses artificial intelligence technology developed at Los Alamos National Laboratory to provide analysis and predictions based on satellite images of the earth. 

Early applications are in delivering crop yield forecasts and analyzing trends in 

energy, construction and the environment. 

Today, the company has its headquarters in Santa Fe, has raised close to $40 million in venture money, employs about 70 people, and is a recognized leader in analyzing satellite images. 

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39 

We need to help more research turn into innovative startups. 

Access to capital is key for entrepreneurs. Too many promising young companies 

fall to the Valley of Death, or get absorbed by behemoths where their innovations 

stall, because they cannot find the financing they need. 

This is especially tough for innovators in rural areas and smaller cities. Good 

ideas and innovations occur everywhere. But more than three-quarters of venture 

capital go to companies in San Francisco, Los Angeles, New York and Boston. 

Expanding access to capital can help us to tap into the next generation of 

innovators creating new startups and new opportunities. 

Lastly, immigrants are a key source of innovation and entrepreneurship. We cannot jeopardize these enormous contributions through short-sighted immigration policies or by kicking out talented young people. 

I’m an engineer by training. I could talk all day about innovation, R&D and tech 

transfer. 

But, now I look forward to hearing from our witnesses. 

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Unleashing America's Economic Potential 

Testimony to the Joint Economic Committee 

Douglas Holtz-Eakin, President 

American Action Forum' 

Aprilll, 2018 

'The opinions expressed herein are mine alone and do not represent the position of 

the American Action Forum. I thank Gordon Gray for his assistance. 
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Introduction 

Chairman Paulsen, Ranking Member Heinrich and members of the Committee: I am 

honored to have the opportunity to testify on the necessity of a pro-growth policy 

agenda. Pro-growth policies are essential for ensuring that current and future 

American families enjoy the same-or greater-improvements in their living 

standards as previous generations. 

In my testimony, I wish to make three simple points: 

• Encouraging more rapid long run economic growth remains the most 

pressing policy issue faced by the Congress; 

• The Trump Administration has pursued a policy agenda that has had a mixed 

effect on the economic outlook- with tax reform and regulatory policy 

achievements contributing positively to the growth outlook, but immigration 

and trade policies introducing needless economic headwinds; and 

• Notwithstanding the policy developments of the past year, considerable 

work remains to improve the economic trajectory of the United States. 

Let me discuss these in turn. 

Recent Economic Performance and the Growth Challenge 

Supporting more rapid trend economic growth is the preeminent policy challenge. 

The nation has experienced a disappointing recovery from the most recent 

recession and confronts a projected future defined by weak economic growth. Left 

unaddressed, this trajectory will give the next generation a less secure and less 

prosperous nation. 

Figure 1: Disappointing Economic Growth 
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Post Recovery GOP Growth (2009-2017) 5.0 

4.0 

3.0 

2.0 

oR 

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0' 0' 0' 0' 0' 0' 0' 0' 0' 0' 0' 0' 0' 0' 0' 

-2.0 

-3.0 

-4.0 

Figure 1 shows quarterly, year-over-year growth rates for real gross domestic 

product (GDP) since the official end of the Great Recession in June of 2009. As 

displayed, real GDP growth has been stubbornly weak, averaging 1. 9 percent (the 

dotted line). While recoveries from recessions precipitated by financial crises tend 

to be weaker, the persistence of the nation's weak economy should not be 

considered inevitable, but rather as an encouragement to implement better 

economic policy. 

Figure 2: Productivity Growth is Lagging Past Performance 
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130 

125 

120 

115 

Source:BLS 

Productivity Growth (2007-2017) 

6 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 N N N N N N N N N N N N N N N N N N N N N 

d ~ & ~ d ~ & d & ~ & g d d d d d ~ d d & Productivity Growth Trend (1947-2007) - Productivity Growth Trend (2001·2007) -.Productivity Growth (2009=100) 

Household income, a metric that more working Americans can appreciate, 

underscores the tepid economic recovery. According to the most recent 

comprehensive income survey conducted by the U.S. Census Bureau, earnings 

growth of men and women who worked full-time and year-round was essentially 

zero in 2016.1 Stagnant earnings growth reflects poor productivity growth that lags 

behind the rate seen in other recoveries or the prevailing historical trends (see 

Figure 2).2 

Figure 3: Labor Force Participation 
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Labor Force Participation Rate (2000-2018) 

68.0 

67.0 

66.0 ~ 

~ 

il "65.0 

"' ·§" 

·~ 64.0 0. 

:'i 

& 63.0 ,_ 

0 

il 

__, 

62.0 

61.0 

The other essential building block for stronger trend economic growth is growth in 

the labor force- the population willing and able to work. As a share of the 

population, the labor force has declined from historical highs in 2000, but this 

decline has accelerated since the Great Recession (Figure 3). 

Figure 4: CBO April2018 Baseline 
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Projected Growth (2018-2028) 

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 

Even more troubling than the recent economic past is the outlook. The 

Congressional Budget Office (CBO) projected in its April Budget and Economic 

Outlook that U.S. economic growth will average 1.9 percent over the period 2018-

2028. This is essentially unchanged on average from CEO's June projections, but 

reflects near-term improvement largely attributable to the Tax Cuts and Jobs Act 

(TCJA) that dissipate over the budget window. 

The rate of growth projected in the current economic baseline is certainly below 

that needed to improve the standard of living at the pace typically enjoyed in postwar America. During the early postwar period, from 194 7 to 1969, trend economic 

growth rates were quite rapid. GDP and GDP per capita grew at rates of 4.0 percent 

and 2.4 percent, respectively. Over the subsequent 25 years, however, these rates 

fell to 2.9 percent and 1.9 percent, respectively. During the years 1986 to 2007, 

trend growth in GDP recovered to 3.2 percent, while trend GDP per capita growth 

rose to 2.0 percent. 

These rates were quite close to the overall historic performance for the period. 

These distinct periods and trends should convey that the trend growth rate is far 

from a fixed, immutable economic law that dictates the pace of expansion, but rather 

is subject to outside influences- including public policy. 
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Table 1: The Importance of Trend Growth to Advancing the Standard of Living 

0.50 139 

0.75 93 

1.00 70 

1.25 56 

1.50 47 

1.75 40 

2.00 35 

2.25 31 

2.50 28 

2.75 26 

3.00 23 

The trend growth rate of postwar GDP per capita (a rough measure of the standard 

of living) has been about 2.1 percent. As Table 1 indicates, at this pace of expansion 

an individual could expect the standard of living to double in 30 to 35 years. Put 

differently, during the course of one's working career, the overall ability to support 

a family and pursue retirement would become twice as large. 

In contrast, the long-term growth rate of GDP in the most recent CBO projection is 

1.9 percent. When combined with population growth of 0.8 percent, this implies the 

trend growth in GDP per capita will average about 1.0 percent. At that pace of 

expansion, it will take 70 years to double income per person. The American Dream 

is disappearing over the horizon. 

More rapid growth is not an abstract goal; faster growth is essential to the wellbeing of American families. 

A Policy Regime for Faster Trend Growth -Assessing Recent Developments 

Given the poor growth legacy of the last administration, Congress and the current 

administration must break from the economic policies of the past decade .. 

"Economic growth policy" is more a philosophy than a piece oflegislation. It is a 

commitment at every juncture in the policy process to evaluate tradeoffs between 

social goals, environmental goals, special interest goals, and economic growth- and 

then to err on the side of growth. 

The second flaw in the prior administration's policy approach was its misguided 

reliance on temporary, targeted piecemeal policymaking. Even if one believed that 

countercyclical fiscal policy ("stimulus") could be executed precisely and had 

multiplier effects, it is time to learn from experience that this strategy is not 

working. The various stimulus programs- the Economic Stimulus Act of 
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2008( checks to households), the American Recovery and Reinvestment Act (the 

gargantuan stimulus bill in 2009), the Car Allowance Rebate System ("cash for 

clunkers"), the Federal Housing Tax Credit (tax credits for home buyers), the HIRE 

Act (consisting of a $13 billion payroll hiring credit, expensing of certain 

investments, $4.6 billion for schools and energy), the Small Business Jobs Act of 

2010, and the state-local bailout Public Law 111-226 ($10 billion to education; $16 

billion to Medicaid) -all have failed to generate adequate growth. 

Just as the policy regime of macroeconomic fiscal (and monetary) fine-tuning 

backfired in the 1960s and 1970s, leaving behind high inflation and chronically 

elevated unemployment, this regime has worked no better in the 21st century. The 

Trump Administration and the Congress have an opportunity to commit to raising 

the long-term growth rate of the economy through permanent reforms. We have 

seen some noteworthy progress toward this goal, specifically with respect to tax 

reform and regulatory policy. But the administration has also pursued trade and 

immigration policies that are decidedly anti-growth, risking the progress made in 

other areas of economic policy. This Committee can and should continue to serve as 

a forum for encouraging sound economic policies that support a pro-growth agenda 

and dissuading those policies that impede such an agenda. 

Tax Reform 

Prior to the enactment of the TCJA, the U.S. tax code was broadly viewed as broken 

and in need of repair, and for good reason. Whereas the previous administration 

and past Congresses made the tax system worse - adding higher rates and new 

taxes, including on the middle class- the Trump Administration and Congress 

embarked on an effort to overhaul the fundamentals of the nation's tax system. A 

sound reform of the U.S. tax code was an essential element of a pro-growth strategy, 

and this reform promises to support substantially increased long run economic 

growth.3 

The last time the United States undertook a fundamental tax reform was with the 

Tax Reform Act of 1986 (TRA). A robust literature demonstrates negative 

relationships between higher marginal rates and taxable income, hours worked, and 

overall economic growth.4 Highly respected economists David Altig, Alan Auerbach, 

Laurence Kotlikoff, Kent A. Smetters, and Jan Walliser simulated multiple tax 

reforms and found GDP could increase by as much as 9.4 percent because of tax 

reform. 5 The highest growth rate was associated with a consumption-based tax 

system that avoided double-taxing the return to saving and investment. The study 

also simulated a "clean," revenue-neutral income tax that would eliminate all 

deductions, loopholes, etc., and lower the rate to a single low rate. According to their 

study, this reform raised GDP by 4.4 percent over 10 years- a growth effect that 

roughly translates into about 0.4 percent higher trend growth, resulting in faster 

employment and income growth. This theoretical work essentially staked out the 

upper bound for the growth potential from tax reform. 
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The TCJA addressed some of the most glaring flaws in the business tax code: it 

lowered the corporation income tax rate to a more globally competitive 21 percent, 

enhanced incentives to investment in equipment, addressed some of the disparate 

tax treatment between debt and equity, and refashioned the nation's international 

tax regime. Primarily for these reasons, the TCJA will enhance the nation's growth 

prospects. The likely growth effects over the long-term will fall short of the 

theoretical ideal but will ultimately be positive. The long-run contribution to GDP 

from the TCJA could be as much as 3 percent, though there are a range of credible 

estimates and myriad factors that could alter the ultimate impact of the TCJA on the 

economy.6 

The TCJA is not an ideal tax reform, however, and there remains considerable 

opportunity for improving the law itself and the overall tax environment in the 

United States 

Regulatory Reform 

Perhaps the most striking policy departure from the previous administration has 

been in the area of regulatory reform. The Obama Administration finalized a costly 

regulation at the average rate of 1.1 per day, and the cost of complying with those 

regulations cumulated to $890 billion - according to the agencies themselves that 

issued the regulations. That cost is an average stealth tax increase of over $110 

billion a year. Enter the Trump Administration, which from the president's 

inauguration to September 30 oflastyear (the end of the federal government's fiscal 

year) incurred essentially zero additional regulatory costs,7 While much of the 

reduced regulatory burden identified by the administration can ultimately be traced 

to delays or paperwork reductions, the taming of the regulatory state has been 

remarkable. Congress also contributed to this effort by invoking the Congressional 

Review Act (CRA) to repeal14 rules.8 

Going forward, the Trump Administration has promised to make even more 

progress in reducing the burden of the regulatory state. For 2018, the 

administration produced a regulatory "budget" the amount by which the nation's 

24 regulatory entities' regulations are permitted to increase the overall cost of 

complying with regulations. These budgets, detailed by the American Action 

Forum's (AAF) Dan Bosch, show that overall deregulation will accelerate. 

Annualized costs are to decline by $687 million, or an up-front $9.8 billion.9 Not all 

entities must deregulate equally. eight got budgets of zero - that is, flat overall 

regulatory burdens- while the remaining 16 got negative targets- that is, 

continued deregulation. Of note, nobody got an increase. Among the decreases, the 

largest is the Department of Interior, with $196 million in annualized reductions, or 

$2.8 billion in up-front costs. 

The current administration should also be commended for enforcing a common 

method of measuring regulatory costs, especially by making sure that every 

regulatory entity uses comparable time periods over which to do the cost 
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accounting. The infrastructure of regulatory budgets and cost accounting have taken 

a very large step forward and will likely continue to evolve in the years to come. 

Trade Policy 

Trade is an important driver of productivity and economic growth in the United 

States and globally. Trade creates jobs, increases GDP, and opens markets to 

American producers and consumers. The United States is the world's largest 

participant in global trade -with over $2.3 trillion in exports of goods and services 

and imports of over $2.9 trillion- and has established trade agreements with 20 

countries.IO The United States is the largest exporter of services in the world.l1 

Trade supports over 11 million jobs in the United States12 and U.S. exports comprise 

nearly 13 percent of U.S. GDP.13 

It is therefore regrettable that the Trump Administration has embraced 

protectionism at the expense of the opportunities that global trade provides. The 

administration walked away from the Trans-Pacific Partnership, which offered both 

economic and geo-strategic benefits. More recently and notably, the administration 

has decided to impose tariffs on steel and aluminum for dubious "national security" 

reasons. The national security rationale is undermined by the Department of 

Defense, which notes in a memo that the military's requirements for steel and 

aluminum can be met by a fraction of current domestic production.14 Ultimately, 

these tariffs are likely to have the same effects of similar past actions - they will 

harm consumers, antagonize strategic and economic allies, and ultimately fail in 

their stated policy objections.ls 

Immigration Reform 

Immigration reform can raise both population and labor force growth, and thus can 

raise GDP growth. In addition, immigrants inject entrepreneurialism into the U.S. 

economy.16 New entrepreneurial vigor embodied in new capital and consumer 

goods promises a higher standard of living. Without this policy effort, low U.S. birth 

rates will result in a decline in the population and overall economy. An economically 

based immigration reform would raise the pace of economic growth substantially, 

raise GDP per capita, and reduce the cumulative federal deficit. It is therefore 

disappointing that the current administration has continued to pursue an 

immigration policy agenda that forgoes these benefits and threatens to diminish the 

effects of other pro-growth economic policies. 

The Trump Administration has advocated restricting legal immigration, which is a 

sufficiently misguided policy as to earn the rebuke of nearly 1,500 economists, 

covering the spectrum of political preferences and including six winners of the 

Nobel Prize in Economics)? Restricting legal immigration would harm 

entrepreneurialism, accelerate the aging of the United States' demographics, and 

disqualify the U.S. economy as a home for the innovation and diversity of skills that 

immigrants bring. The current administration's chosen course of action with respect 
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to Deferred Action on Childhood Arrivals (DACA) also introduces needless policy 

risk to the economy. AAF's jackie Varas estimates that "the average DACA worker 

contributes $109,000 to the economy each year. If all DACA recipients were 

removed, U.S. GDP would decrease by nearly $42 billion." 18 Put differently, the DACA 

population is an economic asset, and failure to address its uncertain status either 

through legislation or administrative action could undercut economic performance. 

Structural Reforms to Enhance Trend Growth 

The Unfinished Work ofT ax Reform 

The TCJA was an important first step in improving the U.S. tax code but should not 

be viewed as the final word in U.S. tax reform. Several features of the bill will need 

to be revisited and improved. Specifically, the temporary provisions should be made 

permanent. These include business and individual provisions, and expensing of 

qualified equipment should top the list of provisions that should be made 

permanent. 

Making these changes permanent, however, should be done in a revenue neutral 

way. According to the President's Budget, just making the individual and estate tax 

provisions of the TCJA permanent would cost $541.6 billion over the next decade.l9 

It would be fiscally imprudent to layer this additional deficit effect on top of existing 

budget challenges. 

The Trump Administration and Congress, with the assistance of this Committee, 

should also continue the reform effort of tax reform and continue to flatten 

distortions in the tax code. The tax preference for debt over equity, for instance, 

persists in the tax code and should be revisited. 

Entitlement Reform and a Sustainable Debt Tratectory 

One of the biggest policy problems facing the United States is that spending rises 

above any reasonable metric of taxation for the indefinite future. A mini-industry is 

devoted to producing alternative numerical estimates of this mismatch, but the 

diagnosis of the basic problem is not complicated. The diagnosis leads as well to the 

prescription for action. Over the long-term, the budget problem is primarily a 

spending problem and correcting it requires reductions in the growth of the largest 

mandatory spending programs - namely, Social Security and federal health 

programs. 

At present, Social Security is running a cash-flow deficit, increasing the overall 

shortfall. There are even larger deficits and future growth in outlays associated with 

Medicare, Medicaid, and the Affordable Care Act (ACA). These health programs 

share the demographic pressures that drive Social Security, but include the 

inexorable increase in health care spending per person in the United States. 
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For this reason, an immediate reform and improvement in the outlook for 

entitlement spending would send a valuable signal to credit markets and improve 

the economic outlook. The United States is courting a further credit downgrade as a 

sovereign borrower and the ensuing increase in borrowing costs such a downgrade 

would generate. Any sharp rise in interest rates would have dramatically negative 

economic impacts. Moreover, an actual liquidity panic would replicate (or result in a 

crash worse than) the economic contraction in the fall of 2008. 

Alternatively, businesses, entrepreneurs and investors perceive the future deficits 

as an implicit promise of higher taxes, higher interest rates, or both. For any 

employer contemplating locating in the United States or expanding existing facilities 

and payrolls, rudimentary business planning reveals this to be an extremely risky 

environment. 

But purely budget-driven arguments are insufficient to marshal support for 

entitlement reform. The large entitlement programs need reform in their own right. 

Social Security is a good example. Under current law, retirees will face a 23-percent 

across-the-board cut in benefits in less than two decades.zo That is a disgraceful way 

to run a pension system. It is possible to reform Social Security to be less costly 

overall and financially sustainable over the long term. 

Similar insights apply to Medicare and Medicaid, the key health safety nets for the 

elderly and poor. These programs have relentless appetites for taxpayer dollars yet 

do not consistently deliver quality outcomes. Reforms can address their open-ended 

draws on the federal Treasury and improve their functioning at the same time. 

Growth-oriented fiscal strategy will re-orient spending priorities away from 

dysfunctional autopilot spending programs and toward core functions of 

government. It will focus less on the dollars going into programs and more on the 

quality of the outcomes. Such a strategy will do so because it is the principled 

approach, because it coincides with the best strategy to deal with the debt and 

growth dilemmas, and because it will force a restructuring of the entitlement 

programs to generate a quality social safety net. 

In short, entitlement reform is a pro-growth policy move at this juncture. As 

summarized by AAF, research indicates that the best strategy both to grow the 

economy and to eliminate deficits is to keep taxes low and reduce public employee 

costs and transfer payments.zt 

Structural Regulation Reform 

As noted above, the Trump Administration and Congress have made remarkable 

progress in halting the growth of the regulatory state and show promise in pursuing 

a regulatory agenda that should reduce net regulatory burdens. The remarkable 

progress on this front, however, underscores how quickly it could be reversed 
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under another administration. There remains a need for structural regulatory 

reform to check the growth of the regulatory state in the future. 

The Regulatory Accountability Act (RAA) is one example of how Congress can 

impose structural checks on future burdensome regulations. Among other 

provisions, the Act defines a "high-impact" rule as a measure that would impose 

annual costs of $1 billion and require an advanced notice of proposed rulemaking 

for any high-impact rule. It would also require a public hearing before adoption and 

for agencies to adopt rules on the basis of the best evidence and the least cost to the 

economy. This is one of several potential legislative efforts that could improve 

checks on regulatory growth. 

Education Re{orm 

K-12 education is underperforming, and reform attempts have disappointed since 

No Child Left Behind passed. Our economy's future workforce is in crisis. Of 100 

children born in 1983 who started kindergarten together in 1988, only 30 

graduated on time in 2001. Of the 70 who eventually graduated, 50 started college, 

and just 28 of those 100 kindergartners had a college degree by spring of 2007. But 

it gets worse. 

Our nation continues to report significant achievement gaps between students 

based on race and socioeconomic factors. On average, students of color have a much 

lower likelihood of graduating, at 76 percent. Of those who graduate, they typically 

exit high school with the functional equivalent of an 8th or 9th grade education. 

Despite more than $16 billion annually in targeted federal aid, our poor 

neighborhoods usually lack the essentials, such as good teachers. This achievement 

gap in the United States feeds an embarrassingly persistent and worsening gap 

between our students' performance and that of students in the rest of the 

industrialized world. The Organisation for Economic Co-operation and Development 

found that in 2012, America ranked 27th out of 34 industrialized countries in math 

and 20th in science. 

In addition to the previously discussed policy areas, higher education requires 

significant reform . The amount of student loan debt has received a lot of attention, 

but how poorly these programs operate has received comparably little. The flaws 

are manifold: little-to-no meaningful underwriting at the time loans are issued, poor 

accounting for dollars once they are dispersed, and chronic underestimates of 

defaults and other taxpayer costs. In many fundamental ways, federal higher 

education policy looks remarkably similar to federal health policy, as both are 

marked by large open-ended subsidies, uneven quality, and inexorable cost growth. 

The federal programs that finance higher education need substantial reform, 

perhaps preceded by a needed assessment of the central value proposition those 

programs deliver.zz 
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Combined, these reforms should be part of an overall workforce development 

agenda that also addresses other critical deficiencies in America's workforce. While 

these reforms cannot fully mitigate the demographic trends contributing to the 

relative decline of the labor force, they can meaningfully improve the prevailing 

economic trend and improve the nation's growth outlook. 

Conclusion 

Achieving more rapid trend economic growth is the most pressing federal policy 

issue. Fortunately, the roots of subpar growth are found in subpar growth policies. 

Focusing on permanent structural reforms to entitlement, tax, regulatory, 

immigration, education, and trade polices holds the promise of improving the 

economic outlook for this generation and those that follow. 
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Notes 

1 https:/ jwww.census.govflibraryjpublications/2017 /demofp60-259.html 2 https://www.americanactionforum.org/research/does-compensation-lag-behind-productivity/: 

Also see h ttps: //www.bls.gov /opub /btn /volume-6/below-trend-the-us-productjvity-slowdownsince-the-great-recession.htm on which figure 2 is based 3 http: //americanactionforum.org/research I economic-and-bud getary-consegue nces-of-pro-growthtax-modernization 

4 See: Feldstein, Martin, "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 

1986 Tax Reform Act" journal of Political Economy, june 1995, (103:3), pp 551-72; Carroll, Robert, 

Douglas Holtz-Eakin, Mark Rider and Harvey S. Rosen, "Income taxes and entrepreneurs' use of 

labor." journal of Labor Economics 18{2) (2000):324-351; Prescott, Edward C., "Why do Americans 

Work So Much More Than Europeans." Federal Reserve Bank of Minneapolis july 2004; Skinner, 

jonathan, and Eric Engen. "Taxation and Economic Growth." National Tax journal49.4 (1996): 617-

42; Romer, Christina D., and David H. Romer, "The Macroeconomic Effects of Tax Changes: Estimates 

Based on a New Measure of Fiscal Shocks." National Bureau of Economic Research NBER Working 

Paper No. 13264 july 2007 Web.http:/ fwww.nber.orgjpapersjw13264 5 Altig, David, Alan j. Auerbach, Laurence). Kotlikoff, Kent A. Smetters and jan Walliser, "Simulating 

Fundamental Tax Reform in the United States." American Economic Review, Vol. 91, No.3 (2001), pp. 

574-595 

6 https:!/www.wsj.com/article email/how-tax-reform-will-lift-the-economy-1511729894-

lMyQjAxMTl3Mji1NziyMTc4Wj/ 

7 https: //www.a mericanaction foru m.o rg/insigh tId eregulati on-trump-savings-coming/ 8 https:/ /www.americanactionforum.org/insightfderegulation-obama-trump/ 9 https:/ fwww.americanactionforum.orglinsightlfirst-look-fy-2018-regulatory-budgets/ 10 https: I {www.census.gov /foreign-trade/Press-Release I current press rei ease I exh l.pdf; 

h ttps: I I ustr.gov /trade-agreements /free-trade-agreements 11 https:!/www.wto.org/english/res e/booksp e/world trade report15 e.pdf 12 

http: I fwww. trade.gov /mas I ian /build I groups I public I @tg_ianl d acumen ts lwebcon tentftg_ia n_ 00 55 

OO.pdf 

13 http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS 14 https:/ fwww.washingtonexaminer.comjopinionltrumps-tariff-is-the-wrong-way-for-tradeenforcement-but-there-is-a-right-way 

15 https:/ lwww.usnews.comjopinionjeconomic-intelligencejarticlesf2018-03-02/trumps-steeland-aluminum-tariffs-will-achieve-nothing 

16 Holtz-Eakin, "Immigration Reform, Economic Growth, and the Fiscal Challenge." 

17 https:/ jwww.americanactionforum.orgjwpcontentjuploads/20 17 /04/Economist_Immigration_Letter _ -l.pdf 18 https:j jwww.americanactionforum.orgjresearchjestimating-economiccontributions-daca-recipients/ 

19 https:j jwww.whitehouse.gov jwp-contentjuploads/2018/02/spec-ty2019.pdf 20 https:j jwww.americanactionforum.orgfresearchjfuture-americas-entitlementsneed-know-medicare-social-security-trustees-reports/ 

21 http: I /america naction fo rum.org !insights /repairing -a-fiscal-hole-how-and-why-spendjng-cu tstrump-tax-jncreases 

22 https: /lwww.americanactionforum.orglinsightlpriorities-reformingmodernizing-federal-financial-aid-systeml 
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Manufacturers 

Testimony 

of Chad Moutray, Ph.D. 

Chief Economist 

National Association of Manufacturers 

Before the Joint Economic Committee 

On Unleashing America's Economic Potential 

April11, 2018 
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COMMENTS OF THE NATIONAL ASSOCIATION OF MANUFACTURERS 

BEFORE THE 

JOINT ECONOMIC COMMITTEE 

APRIL 11, 2018 

Chairman Paulsen, Vice Chairman Lee, Ranking Member Heinrich and members of the 

Joint Economic Committee, thank you for the opportunity to testify on the economic impacts of 

tax reform. I will be tackling these issues from a manufacturing perspective. 

The National Association of Manufacturers (NAM) is the nation's largest industrial trade 

association and voice for 12.6 million men and women who make things in America. The NAM 

is committed to achieving a policy agenda that helps manufacturers grow and create jobs. 

Manufacturers very much appreciate your interest in, and support of, the manufacturing 

economy. 

I. Recent Economic Trends for Manufacturers 

The latest NAM Manufacturers' Outlook Survey, released in December, showed a 

manufacturing sector with levels of optimism at unprecedented heights. In fact, 94.6 percent of 

respondents to our quarterly survey said they felt positive about their own company's outlook, 

the highest in the survey's 20-year history. Moreover, optimism has been at historically high 

levels across the past year, averaging 91.8 percent in the four quarters of 2017. To put that 

number in perspective, the average was 64.3 percent in 2016. In the December survey, 

respondents anticipated both sales and capital spending to increase over the next 12 months at 

the fastest rates since mid-2011, and employment continues to trend strongly upward. 

What's behind those historic levels of manufacturer optimism? Primarily, pro-growth 

policies emanating from Washington-policies that would allow manufacturers to better 

compete in the global marketplace: smarter regulatory policies, for one, and the expectation that 

Washington would succeed in enacting historic tax reform. 

Well, Congress did succeed in passing a historic package of tax reforms, which the 

president signed into law. We've seen the positive effects of this law throughout the economy 

already. And, while I cannot get into specifics right now, the NAM will release an update to its 

quarterly survey shortly, and from what we've seen already, it is safe to say that manufacturers 

remained very upbeat in the first quarter. 

Indeed, the manufacturing economy has hit its stride over the past year, with solid 

growth in demand, output and hiring and a healthy outlook moving forward. Manufacturing 

production rebounded in February, up 1.2 percent for the month or 2.5 percent over the past 12 

months. That was the best year-over-year rate since July 2014. Similarly, manufacturing 

capacity utilization jumped to 76.9 percent in February, a reading not seen since April 2008. At 

the same time, total industrial production rose 1.1 percent in February, or 4.4 percent, the 

highest rate since March 2011. 
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Improvements in the global economy have also helped to boost manufacturing in the 

United States, and trade volumes have risen significantly over the past year on the better 

outlook. In fact, international demand has started 2018 on a positive note, extending the 

rebound in 2017. U.S.-manufactured goods exports in January and February are 5.0 percent 

higher than at the same point last year, building on the 4.7 percent increase in 2017 as a whole. 

That turnaround is certainly an improvement from the declines of 6.2 percent and 4.0 percent in 

2015 and 2016, respectively. Manufacturers have also benefited from a weaker dollar, which 

has boosted export demand. 

With a brighter economic outlook, hiring has accelerated. Manufacturers added 22,000 

workers in March, with employment in the sector rising by a rather robust 18,733 per month on 

average since the end of 2016. That is quite a turnaround from the sluggish job growth in 2016. 

Indeed, manufacturers cited the inability to attract and retain a quality workforce as the top 

concern in December's survey-the first time it has topped the list since the question was added 

in 2011. Since the end of the Great Recession, manufacturing employment has risen by 

1,179,000 workers, with 12.63 million employees in the sector in March. That is the highest level 

of manufacturing employment since December 2008. 

In my view, the U.S. economy should expand by 3.0 percent in 2018, the fastest pace of 

growth since 2005. Manufacturers should benefit from stronger economic growth globally, but it 

is also clear that businesses are responding positively to the passage of tax reform and the 

changed regulatory environment. In my own estimation, fixed investment in the manufacturing 

sector should rise by $55 billion this year, with employment increasing by another 104,000. 

The rest of my testimony delves into those impacts and includes some examples about 

how tax reform is enabling manufacturers to invest more in their businesses and their people, 

helping to stimulate more economic growth. 

II. Manufacturing Response to Tax Reform 

As I will outline in more detail shortly, the recent tax reform law contained several 

provisions that provide significant benefits for many manufacturers, primarily: 

• A corporate tax rate of 21 percent; 

• A reduced tax burden on pass-through business income; 

• A move toward an international territorial tax system; 

Robust rules for capital cost recovery; and 

A permanent R&D tax credit. 

Prior to the passage of tax reform legislation late last year, U.S. corporations faced one 

of the highest statutory tax rates in the world. At 35 percent, the statutory rate was the highest in 

the Organisation for Economic Co-operation and Development (OECD) and the fourth highest in 

the world.' Public Law 115-97 reduced the statutory corporate rate to 21 percent, making 

the United States more competitive by bringing the top rate below the average of the G7 (29.57 

percent), G20 (28.04 percent), OECD (24.18 percent) and the European Union (21.82 percent)_, 

1 See Tax Foundation, Corporate Income Tax Rates around the World, 2017 (Sept. 7, 2017). 

'I d. 

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In addition, the tax reform legislation included two provisions aimed at reducing the tax 

burden on pass-through businesses, particularly those engaged in manufacturing. The 

bill reduces the top individual income tax rate from 39.6 percent to 37 percent. Moreover, the 

legislation creates a new 20 percent deduction for pass-through business income. The ability to 

claim this deduction is limited based on the trade or business in which a taxpayer is engaged. 

The text of the bill indicates that manufacturers are not engaged in a "specified service" and are 

therefore eligible to claim the deduction. Moreover, as a taxpayer's income surpasses $157,500 

($315,000 in the case of taxpayers who are married and filing jointly), the ability to utilize the 

deduction turns either on wages paid or a combination of wages paid and basis in capital 

equipment. Capital-intensive industries, such as manufacturing, are uniquely positioned to 

benefit from this provision. 

The tax reform legislation moved the United States away from its decades-old 

"worldwide" system for taxing international income. Under the old system, all earnings of a 

U.S. company were subject to U.S. tax, irrespective of the country in which it was earned. The 

old system allowed taxpayers to defer the imposition of this tax until earnings were brought back 

to the United States and allowed for a foreign tax credit to prevent double taxation. However, 

our high federal rates imposed a significant U.S. tax charge on repatriated earnings, resulting in 

what is often referred to as a "lockout" effect. The tax reform bill addressed this issue by moving 

toward a territorial tax system, in which foreign earnings are not subject to additional tax when 

brought to the United States. In transitioning to this new system, the bill imposes an immediate 

tax on previously unrepatriated foreign earnings. Moreover, the legislation imposes several antibase erosion provisions to prevent taxpayers from transferring property offshore to significantly 

reduce their U.S. tax burden. The adoption of a new system for taxing foreign income raises 

substantial implementation questions, and manufacturers are engaging with the Treasury 

Department to work through these issues. 

The NAM has long called for tax reform legislation that encourages the capital 

investment needed to ensure durable economic growth and job creation and promote U.S. 

productivity and competitiveness. The most effective way to spur business investment and 

make manufacturing in the United States more competitive is through a strong capital costrecovery system and a full deduction for interest expense. The tax reform bill provides for 100 

percent expensing for capital equipment acquisitions through December 31, 2022, and 

phases this incentive out by 20 points per year over five years. In addition, the bill imposes new 

limitations on businesses' ability to deduct interest expense. Companies are only allowed to 

deduct an amount of interest that does not exceed 30 percent of earnings. Significantly, the 

earnings base to which the limitation applies will change. For taxable years starting after 

December 31, 2017, and before January 1, 2022, the 30 percent limit applies to earnings before 

interest, taxes, depreciation and amortization (EBITDA). For years starting after January 1, 

2022, the limit applies to earnings before interest and taxes (EBIT). This shift will have the effect 

of further limiting interest deductions for industries that must invest in capital equipment, such as 

manufacturing. 

Manufacturers account for more than three-quarters of all private-sector R&D in the 

United States. While the tax reform bill retained the R&D tax credit, it also included 

provisions that will significantly diminish the value of the current deduction for R&D 

expenses in the coming years. The bill would fundamentally modify the treatment of these 

expenses. For taxable years starting after December 31, 2021, these amounts would no longer 

be deductible in the year in which the expense was incurred. Rather, these costs would be 

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required to be capitalized and amortized over a period of five years (for domestic research 

expenses) or 15 years (for research conducted outside of the United States). 

In sum, tax reform accomplished a lot of the NAM's long-sought goals. It lowered the 

marginal rate, making manufacturers in the United States more competitive globally. It reduced 

the tax burden for many pass-through entities, which account for more than 90 percent of NAM 

members. It moved the United States toward a territorial tax system, much like the rest of the 

world. And, it should encourage more dollars flowing back into the United States, expanding 

fixed investment and incentivizing more private-sector R&D. 

While largely positive, tax reform could have gone further to support manufacturing, and 

I urge you to consider the following suggestions to do so. First, implementing a more robust 

incentive for pass-throughs would equalize the tax treatment of business income irrespective of 

the entity through which it is earned. Second, as noted above, the bill phases out full expensing 

starting in 2023, permanently modifies the treatment of currently deductible R&D expenses 

starting in 2023 and increases the cost of financing equipment purchases by limiting interest 

deductions to 30 percent of EBIT starting in 2022. These changes would serve as a disincentive 

to investment and innovation and should not take effect. Third, Congress should make clear that 

the Treasury Department has the authority to implement this new law in a manner consistent 

with its intent. This need is particularly urgent with respect to complex provisions in the 

international area. Fourth, Congress should continue to reevaluate the international 

competitiveness of our tax system. As noted above, our corporate income tax rate moved from 

one of the highest in the world to slightly better than average. Further reductions would serve to 

make the United States a more attractive place to start and grow a business. 

The driving purpose behind tax reform was to create more opportunities for more 

Americans and to benefit manufacturing workers and their families directly. President Trump 

called tax reform "rocket fuel" for the economy, and manufacturers strongly agreed. 

Prior to passage of tax reform, we asked NAM members what they would do if tax 

reform were enacted. Nearly 63 percent said comprehensive business tax reform would 

encourage their company to increase capital spending, and more than half would expand their 

business (57.9 percent) and hire more workers (53.8 percent), while nearly half would increase 

employee wages and benefits (48.8 percent). 

Now that Congress and the president have done their part to pass pro-growth tax reform 

and make private-sector businesses more competitive, it is on those firms to deliver as well. 

Many businesses, including manufacturers, are already doing so by hiring more workers, 

creating more well-paying jobs and putting more money in the pockets of manufacturing 

workers. Indeed, nearly every day since the bill was enacted, there have been positive stories 

that underline these facts anecdotally. Here are just a few: 

Many of you will remember Steve Staub, the president and co-founder of Staub 

Manufacturing Solutions in Dayton, Ohio, as President Trump mentioned him during the 

State of the Union address. (If you do not remember him, you likely cannot forget Corey 

Adams, who has become the most famous welder in the country because of his 

appearance during the speech.) As a result of tax reform and pro-growth policies in 

general, Staub Manufacturing has hired 14 new team members, given each employee a 

pay raise and a larger bonus and expanded its operations by acquiring a building next 

door to increase its square footage. 

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Miles Fiberglass in Oregon City, Oregon, has raised its entry-level wage by 9 percent in 

2018, gave all employees a pay bump and will nearly double the size of its workforce. It 

is also using tax reform savings to design a new facility that will cut back on waste and 

increase energy efficiency. 

• Centennial Bolt in Denver, Colorado, will increase its workforce by nearly 50 percent 

(from 27 employees to 39) and open a new plant in the Midwest. The company gave a 

Christmas bonus to all hourly workers totaling about 5 percent of their annual pay, doing 

so specifically because tax reform had been passed. It is also planning another bonus 

midyear and introducing profit-sharing to further benefit its employees. 

• Windham Millwork in Windham, Maine, is planning to increase its workforce by 20 

percent (from 80 employees to 1 00) and start a $1 million expansion of its facility. It also 

gave an immediate bonus of $1,000 to its hourly employees and across-the-board pay 

increases that the company said were a "direct result" of tax reform. 

The NAM has highlighted many such tax stories on its blog, Shopfloor.org, and will 

continue to do so in the coming weeks. 

In total, the investments stemming from tax reform will have large impacts on the U.S. 

economy. I have been working on a model to predict these impacts on the manufacturing 

sector. Based on my estimates, tax reform should lead to a $55 billion increase in private 

investment in fixed assets in manufacturing in 2018. That would represent an 11 percent 

increase over 20171evels, with manufacturing employment rising by more than 100,000 as a 

result. In addition, we are in the process of surveying our membership on the impacts of tax 

reform, and we will release the findings of that analysis in the coming days. 

Ill. Regulatory Relief 

Executive Order 13771, often referred to as President Trump's "one-in, two-out" or "netzero regulatory budget" order, has now been in effect for a little over a year. This executive 

order marks a significant change in regulatory philosophy compared to that of past presidents 

from both parties. In President Trump's first year, according to the Federal Register, federal 

agencies issued roughly half as many rule documents deemed significant under Executive 

Order 12866 than Presidents Bush and Obama issued in their respective first years. 

In President Trump's first year in office, the administration published 23 deregulatory 

actions with estimated annualized cost savings, excluding those nullified under Congressional 

Review Act resolutions. Through the end of fiscal2017, the administration completed 67 actions 

classified as deregulatory, including rules without estimated annualized cost savings. While 

these numbers are dramatic, they do not indicate a slash-and-burn approach to deregulation. 

Instead, they indicate a more methodical approach taking place through the rulemaking 

process. Perhaps the most noteworthy number through the end of fiscal 2017 is three: the 

number of new final rules with more than $100 million in burdens on the industry-a historic low. 

This methodical approach, and dramatic slowdown in new rulemaking, has likely been 

an important component in record-high manufacturing optimism. Manufacturers do best when 

regulatory conditions are certain and stable, because fast-paced and dramatic regulatory or 

deregulatory actions may introduce new variables and risks into their operations. Simply slowing 

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down discretionary agency actions appears to have had a greater impact than the projected net 

decrease in per-capita regulatory burdens. 

In the NAM's Manufacturers' Outlook Survey, the business climate has continued to 

diminish as a top concern. This reordering of top concerns mainly reflects manufacturers' 

recognition that a dramatic change in the policymaking environment has occurred in 

Washington since the 2016 election. In addition to tax reform, there was a regulatory 

moratorium last year-a dramatic shift in the federal rulemaking process and one that 

manufacturers see widely as a positive development. 

Manufacturers believe that regulation is critical to the protection of worker safety, public 

health and our environment. At the same time, our regulatory system needs improvement. We 

need smarter regulations that minimize unnecessary burdens and better balance benefits and 

costs, eliminating redundancies wherever possible. Regulations can accumulate with no real 

effort to evaluate or clean up the outdated and obsolete rules already on the books. It is 

imperative that policymakers and regulators understand the cumulative burdens that their rules 

are placing on businesses and enact policies that minimize those costs that do not contribute to 

the realization of regulatory objectives. 

One of the reasons to reform the regulatory process is to acknowledge that burdens are 

not evenly distributed. Certain sectors, such as manufacturing, bear a sizeable portion of overall 

regulatory costs in the economy. In addition, small and medium-sized manufacturers experience 

the burdens of regulation that are significantly greater than their larger counterparts. They lack 

the economies of scale that larger businesses rely on to spread the costs of compliance. Each 

dollar that a small or medium-sized manufacturer spends on regulatory compliance is a dollar 

that the company cannot spend to grow its business or expand its workforce. 

We asked our manufacturing members about how the changed regulatory environment 

has impacted their businesses. More than 38 percent of respondents said that the better 

rulemaking climate will allow them to increase capital spending and expand their businesses, 

with roughly 35 percent noting that they could increase employee wages and benefits and hire 

new workers. 

Moving forward, there is also a desire to further reform the way that federal rulemaking is 

done, hopefully streamlining the process and better including business feedback. We asked 

respondents if they generally have enough time to understand new regulations before those 

rules become effective or mandatory, and 54.6 percent said they did not. Nearly 19 percent 

noted they had been accused of violating a regulatory provision they did not realize applied to 

them or they did not realize existed. Beyond the awareness issue, nearly 47 percent indicated 

they have delayed an investment due to uncertainties related to regulations. 

IV. Start-Up Rates and the Business Climate 

Beyond these issues, I know this committee has focused heavily in recent hearings on 

declining entrepreneurship rates. I should note that I used to be the chief economist at the 

Office of Advocacy for the U.S. Small Business Administration, and as such, this is an issue that 

I care about greatly. Like the broader economy, new manufacturing establishment start-up rates 

have fallen since the 1990s, and in my view, the business environment plays a large role in 

helping to explain firm formation rates, especially for those start-ups with employees. 

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The best way to increase firm formation is to have a growing economy. Policymakers 

need to adopt pro-growth measures that will enable manufacturers and other businesses to 

expand, to hire more workers and to invest in more capital spending. A healthy economy will 

encourage more participants, and that should spur more entrepreneurship and innovation. The 

recently enacted tax changes and the improved regulatory climate should help to enhance firm 

formation moving forward. With that said, there is still more that can be done, including adopting 

other pro-growth measures. 

The NAM continues to push for more infrastructure investment, to have a fully 

functioning Export-Import Bank and for more avenues to enhance workforce development. At 

the same time, we also do not want to discourage growth by creating economic uncertainties in 

the marketplace, including on trade matters. The main goal for international trade negotiations 

should, first and foremost, be to increase opportunities wherever we can, raise standards and 

ensure strong and binding enforcement tools. 

Along those lines, with NAFTA, we have a critical opportunity-depending on the 

choices we make, we can either boost this growth further or put it all at risk. That is why it is so 

important to get NAFTA modernization done the right way. President Trump is correct that it is 

time to make NAFTA better. We at the NAM have put forward a 10-point plan to improve market 

access, raise standards to improve our competitiveness and strengthen enforcement tools to 

hold our trading partners accountable. He knows the stakes for the economy, jobs and the stock 

market if we get this wrong. 

V. Conclusion 

Chairman Paulsen, Vice Chairman Lee, Ranking Member Heinrich and members of the 

Joint Economic Committee, thank you for your leadership on the economy and business 

competitiveness and for holding this hearing. 

Manufacturers are benefiting from a growing U.S. and global economy, and strong 

expansions in demand, output and hiring in 2017 have carried over into 2018-at least so far. 

The NAM's quarterly survey has recorded its highest levels of optimism in the economic outlook 

in its 20-year history, and manufacturing production has risen 2.5 percent year-over-year, the 

fastest rate since July 2014. Workforce challenges top the list of primary concerns for firms of all 

sizes across the country. Indeed, nearly every manufacturer that I talk to tells me that they are 

having difficulties finding talent. Along those lines, there were 427,000 job openings in the 

sector in January-not far from an all-time high. 

Pro-growth policies-including tax reform and a changed regulatory climate-have 

helped to boost economic growth. Manufacturers are benefiting from the improved business 

environment, which is helping to make the sector more competitive globally. Congress and the 

president did their part when it comes to tax reform, and the NAM continues to strongly urge its 

members to continue doing their part as well. Fortunately, we continue to hear positive stories 

about how tax reform has helped businesses invest more, hire more and pay more to their 

employees. From my own analysis, I expect fixed investment in the manufacturing sector to rise 

by $55 billion this year because of the tax law changes. 

Therefore, these policies have also enhanced the outlook for a stronger macroeconomy, 

and I remain bullish about the prospects for growth in the manufacturing sector and for the 

larger economy. It is important for the president and Congress to look for other ways to enhance 

competitiveness and pass other pro-growth policies to ensure that our bright prospects can 

come to fruition. That is-1 know-the goal of this committee as well. 

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Testimony of Richard Hampton 

Chairman of the Board, Circuit Interruption Technology Inc. 

Hearing before the Joint Economic Committee 

"Unleashing America's Economic Potential" 

Aprilll, 2018 

Chairman Paulsen, Ranking Member Heinrich, and members of the Committee, thank you for 

this opportunity to testify on "Unleashing America's Economic Potential" through the 

perspective of one small but growing family-owned business in Rogers, Minnesota. 

Our Company 

My name is Rick Hampton, and I am Chairman of the Board of Circuit Interruption Technology, 

Inc. CIT is truly a family business. It was started in 1999 by my son, Jeffrey, shortly after he 

graduated from Metropolitan State University business school. Jeff, who is here with me today, 

was an entrepreneur from an early age. In junior high he sold gum out of his locker. In high 

school, he started a very successful lawn and landscaping business. That financed his way 

through college and provided seed money to start CIT. CIT began in my home, staffed by Jeff 

and my wife Sharon. It moved from selling fuses and circuit breakers to a line of business I had 

experience with, electro-mechanical relays and switches. We now do business as CIT RELAY & 

SWITCH. 

For a variety of reasons, there are virtually no manufacturers of our kind of products left in 

America, so we contract with manufacturing facilities in China and Korea. Our engineering staff 

creates the design in consultation with Asian engineering affiliates. CIT is committed to the 

highest quality possible. Our specifications frequently exceed those of our competition, making 

CIT often the first choice in critical or problem applications. Our employee base continues to 

grow in all sectors of our business. We also support other jobs, including 94 independent sales 

representatives, and sell through nearly 100 distributor locations throughout the United States. 

Our customers are mostly North American original equipment manufacturers, many of which 

are household names. Our relays and switches are used in countless products you'll find in your 

home, office, on the road, in restaurants or parking lots, or even on aircraft carriers. When you 

send your child off to school on a "Yellow Bus," start your washer or dishwasher, drive on a golf 

course, or mix your favorite health drink, you may well be depending upon a quality CIT 

product. 
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Today, my son is President and CEO, I am Chairman of the Board, my wife Sharon is Chief 

Financial Officer, and my daughter Nicole-a successful businesswoman in her own righthandles International Distribution and Sales Management. Four years ago we moved from a 

smaller facility in Spring Lake Park to a larger facility in Rogers, and since then we have 

expanded from 12 to 22 employees. We invest in our employees, paying them well, helping 

them advance professionally, and even helping them through rough patches in their lives. 

Pre December 2017 Tax Consequence: 

The long-term drag of a burdensome tax system likely played a role in the migration of relay 

and switch manufacturing from North America to Asia and mostly China. Other factors involved 

cheap labor and low regulatory burdens. The migration accelerated as China aggressively 

sought manufacturing facilities and technology transfers. Fewer component part suppliers 

remained in America, driving up costs. Inevitably, this was followed by fewer technical 

personnel skilled in production. 

Manufacturing and the transfer of technical know-how enabled China to become skilled in 

metallurgy, magnetics, polymers, and other elements of sophisticated manufacturing. 

All the while, the high average tax on CIT profits resulted in a less-than-desirable business 

approach from an accounting standpoint. Essentially, the tax system punished us for keeping 

profits in the company. 

As a family-owned business it was clear that $1.00 in profit would be subject to an initial 

corporate tax of 37%; followed by roughly another 37% Federal personal tax when it was taken 

out as income, and another 8% in Minnesota State tax, leaving us with less than 35 cents of the 

original $1.00. To avoid this double taxation professional accountants agreed the best 

approach would be to take out 100% of the profit, subject it to a one-time Federal and State 

personal tax, which would retain more than 50% of the original dollar. Those net dollars could 

then be re-invested in the company. The negative impact ofthis approach was highlighted 

recently when CIT applied for an expansion of its credit card line of credit. Due to what 

appeared to be low income on sales of $10,000,000, the credit company denied our request. 

The re-invested dollars were clearly shown on our balance sheet but were seen as a CIT liability, 

not retained earnings. 

December 22, 2017. Tax Reform Changed our Business Model 

CIT made a plan in the event tax reform actually became law. We determined that we would: 

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• Provide a bonus of one extra week pay to all employees; 

• Fund our employee 401K program with no matching required at 5% of employee 2017 

W-2 income, including the bonus; 

• Launch a lab and facilities construction program estimated between 

$14o,ooo~$2oo,ooo; 

• Increase our employee base by 10%; 

• Extend a $1000 bonus to employees achieving their 10-year milestone of employment; 

• Establish a fund to evaluate the possibility of bringing manufacturing back to America; 

and 

• Changing our budgeted forecast from 5% growth to 15% in 2018 

All ofthe above have been implemented. We are now projecting additional changes in the near 

term: 

• We will retain 2018 profit in the business, meaning that after tax we will be able to keep 

79% of the profit as retained earnings in the company. 

• We anticipate expanding hiring by another 10% by year's end. 

• We anticipate repeating the 5% 401K contribution and extra one-week year-end bonus. 

• We are projecting 30% growth 2019. 

Additional Thoughts on Manufacturing Our Products in America 

While tax reform was great news, the remaining barriers to manufacturing our products in 

America are two-fold: 

• CIT would need to compete with companies receiving direct assistance and subsidies 

from the China government. 

• We would have to navigate the plethora of regulations from various domestic County, 

State and Federal agencies. 

We think that CIT specialization and quality can meet the first challenge. The second, however, 

is more daunting as the unknowns become known only through the process of re-introducing 

manufacturing in America. The ultimate cost may be unknowable until far along in the process, 

making this barrier the most frightening of all; for a small business such as ours taking such a 

risk could even lead to the very extinction of the Company. 

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Since tariffs are in the news and have a direct effect on CIT let me say a word about the 

proposed tariff on relays in particular. As there are virtually no general-line relay 

manufacturers remaining in the United States, here is how I assess the potential impact: 

1. The affected products are broad. The average automobile uses over 20 relays. In 

addition to all vehicle types they are used in computers, security, thermostats, 

furnaces, humidifiers, appliances such as washers and dryers, industrial and 

restaurant ovens, heating and air conditioning, as well as medical and military uses. 

There are simply too many product applications to mention. 

2. An exclusive China tariff will provide a corresponding competitive edge to relay 

manufacturers currently located in Canada, Mexico, and Europe, providing them a 

25% price advantage and potentially damaging CIT's ability to survive. 

3. A specific China manufacturer with a solid foothold in the United States is StateOwned and thus any tariff may be potentially reimbursed to this China 

manufacturer, allowing them to maintain price while CIT must increase theirs 25%, 

resulting in an unintended consequence of increasing the growing dominance of 

China over this critical component. 

Conclusion 

While companies like CIT Relay & Switch continue to face a host of regulatory and other 

challenges, tax reform has been and will continue to be a tremendous help to our business and 

employees. We are in the process of developing a longer term approach to expanding our 

business model from private-label manufacturing outside the United States to re-shoring 

manufacturing in America. In conjunction with this approach CIT will be hiring added technical 

staff to help explore this process. We'll hire additional staff to expand new products, some of 

which will meet the demand for relays to support electric automobile charging stations and 

specialty relays used to reduce energy used for office lighting. CIT will take the necessary steps 

to position itself to meet the growing desire by our customers for US-made quality and 

improved logistics that ultimately result from domestic US manufacturing. 

I believe the lower tax will allow CIT Relay & Switch to position itself for continued growth for 

the coming decade. More might be done, but this historical change alone is energizing and 

exciting to all our team, employees and management alike. 

Thank you again for this opportunity to testify, and !look forward to any questions you may 

have. 

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TAX POLICYCENTER U~BAN lN.i>Tl'rUT£ A B~OOK!N<iS !NSTJTU110N 

REFLECTIONS ON THE TAX CUTS AND JOBS ACT 

Mark J. Mazur* 

Robert C. Po zen Director 

Urban-Brookings Tax Policy Center 

Joint Economic Committee 

Hearing on "Unleashing America's Economic Potential" 

Apri111, 2018 

*The views expressed are my own, and should not be attributed to the Urban Institute, 

the Brookings Institution, the Tax Policy Center, their trustees or their funders. 
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I want to start by thanking Chairman Paulsen and Ranking Member Heinrich and all the members of the 

Committee for inviting me to participate in this important hearing. 

Given my position and background, my testimony focuses primarily on fiscal issues, with particular emphasis 

on the recently enacted Tax Cuts and Jobs Act (TCJA). How we as a nation ensure a thriving economy in which 

all can participate along with fiscal responsibility are key issues. Obviously, none of us want to burden future 

generations with the financial results of our choices today. Rather, we should strive to provide our children and 

grandchildren with better sets of economic choices than we had provided to us. 

The Tax Cuts and Jobs Act was the most consequential tax overhaul in three decades. The new law contains 

several major structural changes to our tax code and many other nonstructural changes. These all will have a 

variety of economic implications. Some of these implications are dear and fairly well known. Others are much 

less dear and involve trade~offs among conflicting goals or are contingent on future legislation or future 

economic behavior or future reactions by other countries. And some implications are just inherently uncertain 

given the state of economic knowledge. 

As a starting point for evaluation, consider the four basic tenets of good tax policy: 

Revenue adequacy: Tax systems should raise enough revenue to meet the current and future 

obligations of the government (rather than to meet the demands from citizens for public goods and 

services). 

Efficiency: Tax systems should raise that revenue in a way that minimalizes negative effects on resource 

allocation, underlying economic behavior, and economic growth prospects. 

Equity: Tax systems should raise that revenue in a way that citizens find to be fair. In general. this means 

that the tax system exhibits horizontal and vertical equity. Horizontal equity means that taxpayers with 

similar incomes are treated in a similar manner by the tax system. Vertical equity means that taxes are 

assessed on a taxpayer's ability to pay tax, which usually is characterized as a progressive tax systemone where tax liabilities as a share of income tend to increase with income. 

Simplicity: Tax systems should be as simple as possible so taxpayers understand the consequences of 

their economic decisions and so there are fewer unintended consequences. Generally, this means that 

tax laws and rates are clear, comprehensible, and predictable. 

In the real world these policy goals all involve trade-offs. There are an infinite number of transactions that 

taxpayers can enter into, and so laws will never be simple. Similarly, raising adequate revenue requires tradeoffs related to efficiency and equity. But if one keep these policy goals in mind, it becomes possible to evaluate 

changes in tax law qualitatively as well as quantitatively. 

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CLEAR EFFECTS OF TCJA 

There are several effects of the Tax Cuts and Jobs Act that are quite dear. First, there is a large tax cut in the 

short term. According to the Joint Committee on Taxation, the nonbusiness individual income tax provisions will 

cost around $60 billion in FY 2018 and around $160 billion in FY 2019. The business provisions have a similar 

revenue cost. So, to a first approximation, this is a large, stimulative tax cut in the short term. 

And these tax cuts are tilted toward those with the highest incomes. Tax Policy Center estimates indicate 

that the short~term tax cuts as a share of after·tax income increase throughout the population as income gets 

higher. We estimate that the 20 percent of the income distribution with the lowest incomes will benefit by 

about $60 per year on average, or about 0.4 percent of average after·tax income. In contrast, those in the top 

20 percent of the income distribution with the highest incomes receive an average tax cut of more than $7,600, 

or 2.2 percent of their average after~tax income. 

TABLE 1 

Distribution of Federal Tax Change of the Conference Agreement 

for the Tax Cuts and Jobs Act 

By expanded cash income percentile, 2018' 

lowest quintile 0.4 1.0 -60 

Second quintile 1.2 5.2 -380 

Middle quinti!e 1.6 11.2 -930 

FoUrth qu!ntile 1.9 18.4 -1,810 

Topquintile 2.9 65.3 -7,640 

All 2.2 100.0 -1,610 

Addendum 

80-90 2.0 13.1 -2,970 

90-95 2.2 9.6 -4,550 

95-99 4.1 22.1 -13.480 

Top 1 percent 3.4 20.5 ·51,140 

Top 0.1 percent 2.7 7.9 ·193j380 

Source: Urban-Brookings Tax Policy Center Microsimulation Model {version 0217-1) 

-0.4 3.7 

-1.1 7.6 

-1.4 12.4 

-1.6 15.8 

-2.2 23.3 

-1.8 18.1 

·1.6 18.5 

·1.8 20.2 

·3.1 22.2 

-2.3 30.3 

·1.8 31.6 

Notes: Number of Alternative Minimum Tax {AMD taxpayers {mlllions): Baseline: 5.2; Proposal: 0.2. !temizers (millions): Baseline: 46.5, Proposal: 19.3, 

{c) After-tax income is expanded cash income less: individual income tax net of refundable credits; corporate income tax; payroll taxes (Social Security and 

Medicare); estate tax; and excise taxes. 

(d) Average federal tax (includes individual and corporate income tax, payro!l taxes for Social Security and Medicare, the estate tax, and excise taxes) as a 

percentage of average expanded cash income, 

In the longer term, the Tax Cuts and Jobs Act becomes even more regressive. By 2027, we expect the 

legislation to provide a small net tax cut on average. But the 60 percent of the population with lower incomes 

would experience, on average, a net tax increase under the law as written. This is because most of the individual 

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income tax cuts will have expired, and the substitution of a slower-growing price index to adjust for inflation will 

gradually raise taxes on individuals, compared to earlier law. The portion ofthe population receiving net tax 

cuts is primarily those with the highest incomes and those with capital income, who benefit from the ongoing 

corporate income tax cuts. 

TABLE 2 

Distribution of Federal Tax Change of the Conference Agreement 

for the Tax Cuts and Jobs Act 

By expanded cash income percentile, 2027' 

Lowest quintile -0.1 -4.6 30 

Second quintile -0.1 -5.4 40 

Middle quintlle 0.0 -2,1 20 

Fourth qointife o.o 2.9 -30 

Top quintile 0.4 107.3 -1,260 

All 0.2 100.0 -160 

Addendum 

80-90 0.1 4.4 -100 

90-95 0.1 3.9 -190 

95-99 0.2 16.4 -1,010 

Top 1 percent 0.9 82.8 -20,660 

Top 0.1 percent 1.4 59.8 -148,260 

Source: Urban-Brookings Tax Policy Center Microsimulation Model {version 0217-1) 

0.1 4.4 

0.1 8.9 

0.0 13.8 

0.0 16.9 

-0.3 26.0 

-0,1 20.0 

0.0 19.7 

-0.1 21.8 

-0.2 25.4 

-0.6 32.9 

-0.9 32,9 

Notes: Number of Alternative Minimum Tax {AM1) taxpayers {millions): Baseline: 5.6; Proposal: 6.0. ltemizers (mi!!ions): Baseline: 56.8, Proposal: 57.4. 

year. Baseline ·Is current law. Proposal lndudes provisions contained in the wnference agreement for the Tax Cuts and Jobs Act as filed on 

Excludes the effects of repealing the Affordable Care Act's Individual Shared Responsibility Payment (i.e., "individual mandate"). 

income 

(d) Average federal tax (includes individual and corporate income tax, payroll taxes for Social Security and Medicare, the estate tax, and excise taxes) as a 

percentage of average expanded cash income. 

A second clear effect of the Tax Cuts and Jobs Act is that the vast majority of tax cuts for individual 

taxpayers are temporary, and the tax cuts for businesses (especially corporate income) tend to be permanent. 

However, a number of the investment provisions for business, such as bonus depreciation, are temporary. And a 

reduction in the incentive to invest in research and development is scheduled to start in 2022, 

A third dear effect is shifting the system for taxing US~based multinational corporations in a direction similar 

to many of our trading partners. The prior tax system had been described as "worldwide taxation with 

deferral," but the ability of many cash-rich US multinationals to defer recognizing income from their foreign 

subsidiaries indefinitely meant that the tax system really functioned as a hybrid between a worldwide and a 

territorial tax system (where only income earned in the US would be subject to US taxation). 

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A fourth clear effect is a shift away from a broad-based, lower-rate income tax system in two ways. One way 

is in the direction of a hybrid tax system with more consumption tax aspects. By embracing 100 percent bonus 

depreciation, at least temporarily, Congress moved the business tax system toward a consumed income tax. 

Similarly, by denying deductions for net operating losses and for items that are costs of producing income, such 

as interest payments, FDIC premiums, housing expenses, and certain corporation expenses, the Tax Cuts and 

Jobs Act moves away from a traditional income tax base. 

A fifth clear effect is the further establishment of different tax systems for different taxpayers. The Tax Cuts 

and Jobs Act maintained the preferential income tax rates for long-term capital gains and for dividends, But it 

added new tax regimes for income from pass-through entities (many of which are smaller businesses, but some 

of which are very large entities) that provide lower tax rates than for comparable wage earners, for income from 

exports by US multinational firms, and added a Base Erosion Anti Abuse Tax on certain intra-company 

transactions with foreign affiliates. 

And the final clear effect I want to highlight is that the Tax Cuts and Jobs Act represents a large fiscal 

experiment, especially when considered in conjunction with the budget bill enacted in January. Taken together, 

these legislative efforts reduce federal revenues by $1.5 to $2 trillion over the 10-year budget window, under 

conventional federal budget scorekeeping methods. This large reduction in future revenues occurs at a time 

when the US economy is at or near full employment, so there is little need for added economic stimulus and the 

medium- and long·term pressures on the federal budget are likely to grow. The reason I call this an experiment 

is that proponents of the tax cuts contained in the legislation claim that they will have positive effects on the 

overall US economy and that economic growth will help improve the Nation's Fiscal outlook. But this is an 

untested claim. 

LESS-CLEAR EFFECTS OF THE TCJA 

Conventional macroeconomic analysis indicates that the positive economic effects of the Tax Cuts and Jobs Act 

are likely to be small for the bill as written. This is because many of the investment incentives are temporary, as 

are most of the individual income tax provisions. In the longer term, the positive economic effects will be driven 

by a lower corporate tax rate, largely paid for by individual income tax increases because of a change in the 

price index used to adjust individual income tax parameters for inflation and less federal support for health care 

coverage because the individual penalty for not obtaining adequate health insurance is set to zero. 

The macroeconomic analyses conducted on the Tax Cuts and Jobs Act by the Tax Policy Center, the Penn 

Wharton Budget Model, and the Congressional Joint Committee on Taxation all come to similar conclusions. 

There is an initial burst of extra economic growth as households and firms deploy the initial round of tax cuts. 

There may even be additional capital investment above what would have occurred in the absence of legislation 

because of improved investment incentives. But over time, larger federal budget deficits cause interest rates to 

tick up, providing a disincentive for firms to invest, This later effect erodes the initial burst of economic growth, 

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and, within a decade or so, the overall economy is back to about where it would have been without the tax law 

changes, 

To trigger strong positive economic growth, a number of effects need to occur through linkages among 

economic actors. To sketch out how this might work, consider the following possible set of effects. A lower 

corporate income tax rate makes investments in the United States more attractive because of a higher after-tax 

rate of return. More investment capital for business entities encourages them to add to their stock of productive 

capitaL In turn, this means that workers are more productive and the increased output is sold to willing 

consumers. This increased productivity leads to firms competing for the now more-productive workers, 

increasing wage rates commensurately. Each of these linkages Is uncertain as to its strength, which is why f 

characterize this tax overhaul as a large fiscal experiment. In similar situations in the past, the promised 

additions to economic growth have not materialized. But those who support the Tax Cuts and Jobs Act on 

economic grounds have argued that this time will be different, 

The Tax Cuts and Jobs Act also will have some effect on overall complexity of the Tax Code, but different 

provisions push in different directions, so the overall effect is unclear. There are a number of provisions that 

certainly will increase complexity, notably the changes to the way income from multinational firms is taxed, the 

changes to the way that income from certain pass-through business entities is taxed, and the creation of a new 

geographically-based investment incentive called Opportunity Zones. There also are several provisions that 

likely will reduce complexity for many taxpayers, such as the large increase in the standard deduction amount 

under the individual income tax, which will reduce the number of taxpayers claiming itemized deductions by 

millions, reducing complexity and record-keeping burden for these taxpayers. In the area of business taxation, 

repealing the domestic production activities deduction and introducing simplified accounting methods for 

smaller businesses should make complying with the income tax a bit easier for many businesses. 

The Tax Cuts and Jobs Act also will have mixed effects on tax system certainty, It is true that many 

taxpayers will experience tax cuts for 2018 and 2019, But the new law also brings a lot of uncertainty. A chief 

reason is the built-in phase-outs, phase-ins, rate changes, and other scheduled changes that are part of the Tax 

Cuts and Jobs Act. This includes the favorable treatment for medical expense deductions and the lower excise 

tax rates on some production by alcoholic beverage producers. And there is the scheduled expiration of most 

individual income tax provisions after 2025, including the preferential tax treatment for income from passthrough businesses. For companies making long-term investments and having to choose their form of operating 

entity and the size and scope of their investment activity, making these choices with the prospect of wholesale 

changes in the tax law is a daunting task, 

There also is some added uncertainty because of the speed with which the tax bill was enacted, Both the 

international tax provisions and the special tax regime for pass-through businesses were enacted without the 

chance for outside experts to analyze and evaluate design choices. That rapid legislative process means that US 

Department of the Treasury and the IRS will have to issue detailed regulatory guidance to explain how these 

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provisions will operate in practice. The uncertainty surrounding the outcomes of these regulatory decisions and 

the speed with which they can be delivered adds to the uncertainty for affected parties. 

IMPACT ON FISCAL POSITION OF THE TCJA 

The following chart shows federal revenues over the last 65 years or so. Despite changes in the economy, tax 

laws, and the political climate, federal revenues have fluctuated in a fairly narrow band-between 15 and 20 

percent of GDP. 

Total Federal Receipts as a Share of National GDP 

1950-2016 

Percent of GOP 

25 

20 

15 

10 

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 

Source: Office of Management and Budget, Fiscal Year 2018, Historical Tables, Table 2.3. 

But only two periods since 1950 have seen a balanced federal budget (the shaded areas in the chart). The 

more recent period was the !ate 1990s/early 2000s when revenues were around 20 percent of GOP. Given 

demographic trends (aging Baby Boomers, longer lifespans, relatively low birth rates), we can expect the 

public's demand for goods and services to be at least as high as it was during that time frame. So balancing the 

federal budget is likely to require federal revenues at least approaching 20 percent of GDP. The Tax Cuts and 

Jobs Act, as a net medium-term tax cut, goes in the opposite direction. 

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CONCLUSIONS ABOUT THE TCJA 

The recent tax overhaul contains both desirable and undesirable features. It included a necessary updating of 

the tax system applied to multinational firms. And it simplified tax filing for millions of individuals by 

substantially increasing the standard deduction and reducing the number claiming itemized deductions. 

But the Tax Cuts and Jobs Act also has some negative features. It will worsen income inequality in the short 

and long run by reducing the overall progressivity of our tax system. It added several new complexities to the 

tax code while adding considerable uncertainty about how the law will be interpreted and administered and 

also whether various provisions will phase in, phase out, sunset, or come into being as scheduled. And the Tax 

Cuts and Jobs Act reduces tax revenues at a time when fiscal pressures and economic conditions indicate that 

may have negative consequences. 

THE PATH FORWARD 

As with any new tax legislation, there will be a lot of interest in seeing its effects on the economy and on federal 

receipts. There will be opportunities to make necessary and desirable fixes to the legislation as defects become 

apparent. And Congress will have numerous opportunities to evaluate and reevaluate this legislation as 

provisions sunset, or phase down, or spring up. For example, at the end of 2019, the modification to the 

medical expense deduction (lowering the threshold to 7.5 percent of adjusted gross income) and the lower 

excise taxes on certain alcoholic beverage production will sunset. After 2022, the bonus depreciation provision 

begins to phase down and it sunsets in 2026. And most individual income tax provisions and the estate tax cuts 

expire after 2025. A number of other provisions have similar scheduled changes under the new law. Each of 

these will provide Congress with a good opportunity to evaluate how the provisions are working (or have 

worked) and to make a well-considered decision about whether the scheduled legislative treatment should be 

modified. And those decisions will have important implications. 

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The Tax Policy Center is a joint venture of the 

Urban Institute and Brookings Institution. 

tNSTIYUTII 

BROOKINGS 

For more information, visit taxpolicycenter.org 

or email info@taxpolicycenter.org 

The views expressed are those of the author and should not be attributed to the Urban-Brookings Tax Policy Center, the 

Urban Institute, the Brookings Institution, their trustees, or their funders. Funders do not determine research findings or 

the insights and recommendations of our experts. Further information on Urban's funding principles is available at 

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76 

A DEBT CRISIS IS COMING. BUT DON’T BLAME ENTITLEMENTS. 

BY MARTIN NEIL BAILY, JASON FURMAN, ALAN B. KRUEGER, LAURA D’ANDREA TYSON, 

AND JANET L. YELLEN

APRIL 8, 2018

Martin Neil Baily, Jason Furman, Alan B. Krueger, Laura D’Andrea Tyson and 

Janet L. Yellen are all former chairs of the White House Council of Economic Advisers. 

The U.S. unemployment rate is down to 4.1 percent, and economic growth could 

well increase in 2018. Consumer and business confidence is high. What could go 

wrong? 

A group of distinguished economists from the Hoover Institution, a public-policy 

think tank at Stanford University, identifies a serious problem. The Federal budget 

deficit is on track to exceed $1 trillion next year and get worse over time. Eventually, ever-rising debt and deficits will cause interest rates to rise, and the portion 

of tax revenue needed to service the growing debt will take an increasing toll on 

the ability of government to provide for its citizens and to respond to recessions and 

emergencies. 

None of that is in dispute. But the Hoover economists then go wrong by arguing 

that entitlements are the sole cause of the problem, while the budget-busting tax 

bill that was passed last year is described as a ‘‘good first step.’’ 

Entitlement programs support older Americans and those with low incomes or disabilities. Program costs are growing largely because of the aging of the population. 

This demographic problem is faced by almost all advanced economies and cannot be 

solved by a vague call to cut ‘‘entitlements’’—terminology that dehumanizes the 

value of these programs to millions of Americans. 

The deficit, of course, reflects the gap between spending and revenue. It is dishonest to single out entitlements for blame. The Federal budget was in surplus from 

1998 through 2001, but large tax cuts and unfunded wars have been huge contributors to our current deficit problem. The primary reason the deficit in coming years 

will now be higher than had been expected is the reduction in tax revenue from last 

year’s tax cuts, not an increase in spending. This year, revenue is expected to fall 

below 17 percent of gross domestic product—the lowest it has been in the past 50 

years with the exception of the aftermath of the past two recessions. 

All of us have supported corporate tax reform. The statutory tax rate was too 

high, much higher than in other Organization for Economic Cooperation and Development economies. However, because of deductions and breaks in the tax code, the 

effective marginal tax rate was similar to the average among competitor economies. 

The right way to do reform was to follow the model of the bipartisan tax reform 

of 1986, when rates were lowered while deductions were eliminated. 

Instead, the tax cuts passed last year actually added an amount to America’s 

long-run fiscal challenge that is roughly the same size as the preexisting shortfalls 

in Social Security and Medicare. The tax cuts are reducing revenue by an average 

of 1.1 percent of GDP over the next four years. The Hoover authors minimized the 

cost of the tax cuts by noting that if major provisions are allowed to expire on schedule—certainly an open question, given political realities—they would amount to 

‘‘only’’ 0.4 percent of GDP. Even this magnitude exceeds the Medicare Trustees’ projections of a 0.3 percent of GDP shortfall in Medicare hospital insurance over the 

next 75 years. 

Just as entitlements are not the primary cause of the recent jump in the deficit, 

they also should not be the sole solution. It is important to use the right wording: 

The main entitlement programs are Social Security, Medicare, veterans benefits, 

and Medicaid. These widely popular programs are indeed large and projected to 

grow as a share of the economy, not because of increased generosity of benefits but 

because of the aging of the population and the increase in economywide health costs. 

There is some room for additional spending reductions in these programs, but not 

to an extent large enough to solve the long-run debt problem. The Social Security 

program needs only modest reforms to restore its 75-year solvency, and these should 

include adjustments in both spending and revenue. Additional revenue is critical because Social Security has become even more vital as fewer and fewer people have 

defined-benefit pensions. Medicare has been a leader in bending the health-care cost 

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curve. Reforms to payments and reformed benefit structures in Medicare could do 

more to hold down its future costs. 

As we focus on the long-run fiscal situation, our goal should be to put the debt 

on a declining path as a share of the economy. That will require running smaller 

deficits in strong economic periods—such as the present—to offset the larger deficits 

that are needed in recessions to restore demand and avoid deeper crises. Last year’s 

Tax Cuts and Jobs Act turned that economic logic on its head. The economy was 

already at or close to full employment and did not need a boost. This year’s bipartisan spending agreement contributed further to the ill-timed stimulus. The Federal 

Reserve will have to act to make sure the economy does not overheat. 

Several years ago, there was broad agreement that responding to the looming fiscal challenge required a balanced approach that combined increased revenue with 

reduced spending. Two bipartisan commissions, Simpson-Bowles and DomeniciRivlin, proposed such approaches that called for tax reform to raise revenue as a 

percent of GDP and judicious spending cuts. Without necessarily agreeing with 

these specific plans, we believe a balanced approach is the correct one. Start with 

spending goals based on the priorities of the American people and then set tax policy to realize adequate revenue. The Hoover economists’ advocacy of paying for large 

tax cuts with entitlement reductions would take the United States in the wrong direction. 

QUESTIONS FOR THE RECORD FOR DR. HOLTZ-EAKIN SUBMITTED BY REPRESENTATIVE

CAROLYN B. MALONEY

1) Four years ago, the consensus estimate at the Federal Reserve of the 

NAIRU was 5.4 percent. This should have meant that a further drop in the 

unemployment rate likely would put upward pressure on wages. In response, the Federal Reserve in theory should have soon raised interest 

rates. What would have happened if the Federal Reserve raised interest 

rates at that time? How should that experience inform our understanding 

of the NAIRU, wages and interest rates now? 

Prematurely normalizing monetary policy would have slowed the pace of growth, 

diminished employment growth, and harmed wage growth. At present, there appears to be considerable uncertainty regarding the point at which the labor market 

will tighten. Job creation in the payroll survey has averaged just over 200,000 per 

month so far this year, much above what one would have expected in a full employment economy. The Fed should be vigilant to evidence of an uptick in supply-chain 

price pressures (especially for goods; services inflation is already at the Fed target), 

but not rely on the unemployment rate as the primary indicator of the stance of 

monetary policy. 

2) In your testimony, you note that in its April Budget and Economic Outlook, the Congressional Budget Office projects that economic growth will 

average 1.9 percent over the period 2018–2028. Yet the 2018 Economic Report of the President estimates that it will be 3.0 percent over that period— 

a very large difference. Which estimate do you think is more realistic? 

I believe that CBO number is a bit low. Because it relies on current law, it cannot 

anticipate future actions that will likely diminish the crowding out and thus magnify the impact of the business tax reforms. The Economic Report of the President 

has a different bias. It assumes that every one of the President’s proposals is implemented in a timely fashion and works exactly as planned. That is also unlikely to 

happen and leads to an upward bias in the growth projections. I anticipate that reality will be in between. 

QUESTIONS FOR THE RECORD FOR DR. HOLTZ-EAKIN SUBMITTED BY VICE CHAIRMAN

LEE

How long do you think we have before our luck runs out—that is, when 

this current period of economic growth and viability will be overshadowed 

by the grim fiscal situation we find ourselves in? 

If left literally unchanged, I cannot imagine completing the 10-year budget window without detrimental impacts. However, I would very much prefer not to run the 

experiment and see if I am right or wrong. It is always better to move earlier and 

phase-in large changes and I would prefer that strategy. 

In my mind, a conversation about ‘‘unleashing America’s economic potential’’ cannot happen without discussing how we are preparing the next generation of workers—teachers, doctors, scientists, welders, manufacturers, 

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cation that would provide for more access to degrees and certifications 

that may or may not be driven by a traditional four-year institution. Innovation in this arena is critical, and we should be thinking about how we 

are—or how we are not—empowering states, local institutions, and private 

entities in finding these solutions. Do you think higher education reform 

plays a role in the ability of future generations to sustain our current pattern of strong economic growth? Could you expand on your recommendations for higher education reform? 

Education and the skills of the labor force are central to the future of the U.S. 

economy. Broadly, I believe that better performance in higher education begins with 

improving the K–12 education system. As I noted (here) progress has stalled on this 

front. Students that arrive to college needing any remedial education are far more 

likely to graduate slower, not graduate, and suffer from student loan debt. This can 

be avoided. 

Higher education itself needs to compete on the basis of price and quality. The 

reforms closest to the Federal Government are student loans and grants. Currently 

these are focused on paying for students to attend college. Instead, they should be 

tied to outcomes (staying on schedule, graduating, being employed, etc.) and not 

merely showing up. These outcomes can be measured independent of specific institutions (e.g., 4-year public university), allowing for new entry, innovation, and competition. 

QUESTIONS FOR THE RECORD FOR DR. MOUTRAY SUBMITTED BY VICE CHAIRMAN LEE

Are you concerned with the job losses that will likely result for a number 

of manufacturers in other industries besides steel and aluminum as a result of the Sec. 232 tariffs implemented by the president? Would you advocate for a congressional approval process for the imposition of such measures? 

The NAM has been actively engaged with our members on this issue. At this 

point, there is still a lot of uncertainty given that several countries have been temporarily suspended while negotiations are ongoing and companies are now seeking 

product exclusions for products not made or available in the United States or needed for national security reasons. Different parts of the manufacturing sector are reporting differential effects on their production and competitiveness. 

The NAM is working with the Administration and others throughout the U.S. and 

international business communities to address the underlying issues that have 

given rise to distortions in these markets, most notably subsidies and distortive 

practices out of China that are impacting several other industries as well, from 

semiconductors to cement and fertilizers. 

Under the U.S. Constitution, Congress retains the authority to ‘‘regulate trade 

with foreign nations’’ but has chosen to delegate certain authorities to the executive 

branch, including through section 232 of the Trade Expansion Act of 1962, as 

amended. Manufacturers strongly support a strong congressional-executive partnership on trade issues that will eliminate foreign barriers and market-distorting practices, raise standards to improve U.S. competitiveness, and hold all countries accountable in a rules-based trade system. 

In my mind, a conversation about ‘‘unleashing America’s economic potential’’ cannot happen without discussing how we are preparing the next generation of workers—teachers, doctors, scientists, welders, manufacturers, 

and so on. This conversation must include serious reforms to higher education that would provide for more access to degrees and certifications 

that may or may not be driven by a traditional four-year institution. Innovation in this arena is critical, and we should be thinking about how we 

are—or how we are not—empowering states, local institutions, and private 

entities in finding these solutions. What types of continuing education does 

the manufacturing sector pursue? Do you have any ideas for specific types 

of programs, outside the traditional four-year model, that might be useful 

for continued development in the manufacturing industry? If there was 

more flexibility from the Federal Government on what educational opportunities Federal student loan dollars could support, do you think your industry would explore these opportunities? 

Manufacturers have been outspoken and persistent in efforts to gain new tools 

and new opportunities to address the skills gap. It is common for the manufacturing 

sector to promote a wide range of continuing education options for its employees. 

These include customized training programs designed to meet specific company 

needs, certification programs for specialty occupations, and tuition reimbursement 

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programs common in many other industries. Manufacturers are hiring and promoting based on skills and competencies. That trend will only accelerate in the new 

economy. Increasingly, we are also seeing manufacturers use earn-and-learn models 

such as internships, apprenticeships, and cooperative work-study programs to attract and retain employees. 

As I noted in my testimony, manufacturers cite the inability to attract and retain 

a quality workforce as their top concern in the latest NAM survey. This means that 

manufacturing leaders need to get creative to proactively address the workforce 

shortage facing the industry. 

The Manufacturing Institute, which is the non-profit affiliate of the NAM, continues to work with industry leaders to address these workforce challenges. This includes initiatives designed to change perceptions about the sector, including youth 

programs and Manufacturing Day promotions, and programs to encourage more 

women and military veterans to pursue a career in manufacturing. On the latter, 

the Institute has launched a full-time career skills program called Heroes MAKE 

America, with its inaugural class just graduating at Fort Riley in Kansas, and with 

additional installations beginning at Fort Hood in Texas starting this summer. 

Regarding the flexibility of student loan dollars, yes, the manufacturing industry 

would support these efforts. The Manufacturing Institute recently published a paper 

titled Quality Pathways: Employer Leadership in Earn and Learn Opportunities 

that discussed how to expand the role of companies in education and assure quality 

outcomes for those programs. If earn and learn models can demonstrate results as 

good as, if not better than, traditional postsecondary pathways, then they should 

have access to the Federal resources that support traditional postsecondary education options. 

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