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| <title> - THE DEBT LIMIT</title> | |
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| [House Hearing, 113 Congress] | |
| [From the U.S. Government Publishing Office] | |
| THE DEBT LIMIT | |
| ======================================================================= | |
| HEARING | |
| before the | |
| COMMITTEE ON WAYS AND MEANS | |
| U.S. HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED THIRTEENTH CONGRESS | |
| FIRST SESSION | |
| __________ | |
| JANUARY 22, 2013 | |
| __________ | |
| Serial No. 113-FC01 | |
| __________ | |
| Printed for the use of the Committee on Ways and Means | |
| [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] | |
| ______ | |
| U.S. GOVERNMENT PUBLISHING OFFICE | |
| 21-129 WASHINGTON : 2017 | |
| ----------------------------------------------------------------------- | |
| For sale by the Superintendent of Documents, U.S. Government Publishing | |
| Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; | |
| DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, | |
| Washington, DC 20402-0001 | |
| COMMITTEE ON WAYS AND MEANS | |
| DAVE CAMP, Michigan, Chairman | |
| SAM JOHNSON, Texas SANDER M. LEVIN, Michigan | |
| KEVIN BRADY, Texas CHARLES B. RANGEL, New York | |
| PAUL RYAN, Wisconsin JIM MCDERMOTT, Washington | |
| DEVIN NUNES, California JOHN LEWIS, Georgia | |
| PATRICK J. TIBERI, Ohio RICHARD E. NEAL, Massachusetts | |
| DAVID G. REICHERT, Washington XAVIER BECERRA, California | |
| CHARLES W. BOUSTANY, JR., Louisiana LLOYD DOGGETT, Texas | |
| PETER J. ROSKAM, Illinois MIKE THOMPSON, California | |
| JIM GERLACH, Pennsylvania JOHN B. LARSON, Connecticut | |
| TOM PRICE, Georgia EARL BLUMENAUER, Oregon | |
| VERN BUCHANAN, Florida RON KIND, Wisconsin | |
| ADRIAN SMITH, Nebraska BILL PASCRELL, JR., New Jersey | |
| AARON SCHOCK, Illinois JOSEPH CROWLEY, New York | |
| LYNN JENKINS, Kansas ALLYSON SCHWARTZ, Pennsylvania | |
| ERIK PAULSEN, Minnesota DANNY DAVIS, Illinois | |
| KENNY MARCHANT, Texas LINDA SANCHEZ, California | |
| DIANE BLACK, Tennessee | |
| TOM REED, New York | |
| TODD YOUNG, Indiana | |
| MIKE KELLY, Pennsylvania | |
| TIM GRIFFIN, Arkansas | |
| JIM RENACCI, Ohio | |
| Jennifer M. Safavian, Staff Director and General Counsel | |
| Janice Mays, Minority Chief Counsel | |
| C O N T E N T S | |
| __________ | |
| Page | |
| Advisory of January 22, 2013 announcing the hearing.............. 2 | |
| WITNESSES | |
| Lee A. Casey, Partner, BakerHostetler, Washington, DC............ 6 | |
| J.D. Foster, Ph.D., Norman B. Ture Senior Fellow in the Economics | |
| of Fiscal Policy, The Heritage Foundation, Washington, DC...... 26 | |
| G. William Hoagland, Senior Vice President, Bipartisan Policy | |
| Center, Washington, DC......................................... 16 | |
| Simon Johnson, Ph.D., Ronald A. Kurtz Professor of | |
| Entrepreneurship, Massachusetts Institute of Technology Sloan | |
| School of Management, Boston, MA............................... 44 | |
| SUBMISSION FOR THE RECORD | |
| Billy J. Spiva................................................... 91 | |
| THE DEBT LIMIT | |
| ---------- | |
| TUESDAY, JANUARY 22, 2013 | |
| U.S. House of Representatives, | |
| Committee on Ways and Means, | |
| Washington, DC. | |
| The Committee met, pursuant to call, at 1:34 p.m., in | |
| Room 1100, Longworth House Office Building, Hon. Sam Johnson | |
| presiding. | |
| [The advisory announcing the hearing follows:] | |
| ADVISORY | |
| FROM THE | |
| COMMITTEE | |
| ON WAYS | |
| AND | |
| MEANS | |
| CONTACT: (202) 225-3625 | |
| FOR IMMEDIATE RELEASE | |
| Tuesday, January 15, 2013 | |
| No. FC-01 | |
| Camp Announces Hearing on the Debt Limit | |
| House Ways and Means Committee Chairman Dave Camp (R-MI) today | |
| announced that the Committee will hold a hearing on the statutory debt | |
| limit. The hearing will take place on Tuesday, January 22, 2013, in | |
| Room 1100 of the Longworth House Office Building, beginning at 1:30 | |
| p.m. | |
| In view of the limited time available to hear witnesses, oral | |
| testimony at this hearing will be from invited witnesses only. However, | |
| any individual or organization not scheduled for an oral appearance may | |
| submit a written statement for consideration by the Committee and for | |
| inclusion in the printed record of the hearing. | |
| BACKGROUND: | |
| The U.S. Constitution grants Congress the authority to fund | |
| government, including the power to ``lay and collect taxes,'' and to | |
| ``borrow [m]oney on the credit of the United States.'' Congress | |
| provided the President with a limited delegation of borrowing authority | |
| in 1917, and created the first statutory aggregate debt limit in 1939 | |
| to pay obligations authorized by Congress. | |
| As of December 2012, the public debt is currently at the statutory | |
| limit of $16.4 trillion, and the U.S. Department of the Treasury | |
| (Treasury) is currently operating under ``extraordinary measures'' that | |
| give it additional, but limited, means to manage funds. According to | |
| Treasury, it is expected that the government's ability to meet its | |
| current obligations will be exhausted between mid-February and early | |
| March of this year. | |
| In announcing the hearing, Chairman Camp said, ``The Congress | |
| created the debt limit as a check on the delegated borrowing power of | |
| the President and it is critical that all parties understand the | |
| implications of increasing the debt limit. This hearing will examine | |
| the role and purpose of the debt limit, review past practices regarding | |
| its increase, and explore solutions that ensure responsible management | |
| of the government's finances.'' | |
| FOCUS OF THE HEARING: | |
| This hearing will examine the history of the debt limit, how past | |
| Congresses and Presidents have negotiated and raised the limit, and | |
| whether the Constitution provides options to the Executive Branch when | |
| the debt limit is reached. | |
| DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: | |
| Please Note: Any person(s) and/or organization(s) wishing to submit | |
| written comments for the hearing record must follow the appropriate | |
| link on the hearing page of the Committee website and complete the | |
| informational forms. From the Committee homepage, http:// | |
| waysandmeans.house.gov, select ``Hearings.'' Select the hearing for | |
| which you would like to submit, and click on the link entitled, ``Click | |
| here to provide a submission for the record.'' Once you have followed | |
| the online instructions, submit all requested information. ATTACH your | |
| submission as a Word document, in compliance with the formatting | |
| requirements listed below, by the close of business on Tuesday, | |
| February 12, 2013. Finally, please note that due to the change in House | |
| mail policy, the U.S. Capitol Police will refuse sealed-package | |
| deliveries to all House Office Buildings. For questions, or if you | |
| encounter technical problems, please call (202) 225-3625 or (202) 225- | |
| 2610. | |
| FORMATTING REQUIREMENTS: | |
| The Committee relies on electronic submissions for printing the | |
| official hearing record. As always, submissions will be included in the | |
| record according to the discretion of the Committee. The Committee will | |
| not alter the content of your submission, but we reserve the right to | |
| format it according to our guidelines. Any submission provided to the | |
| Committee by a witness, any supplementary materials submitted for the | |
| printed record, and any written comments in response to a request for | |
| written comments must conform to the guidelines listed below. Any | |
| submission or supplementary item not in compliance with these | |
| guidelines will not be printed, but will be maintained in the Committee | |
| files for review and use by the Committee. | |
| 1. All submissions and supplementary materials must be provided in | |
| Word format and MUST NOT exceed a total of 10 pages, including | |
| attachments. Witnesses and submitters are advised that the Committee | |
| relies on electronic submissions for printing the official hearing | |
| record. | |
| 2. Copies of whole documents submitted as exhibit material will not | |
| be accepted for printing. Instead, exhibit material should be | |
| referenced and quoted or paraphrased. All exhibit material not meeting | |
| these specifications will be maintained in the Committee files for | |
| review and use by the Committee. | |
| 3. All submissions must include a list of all clients, persons and/ | |
| or organizations on whose behalf the witness appears. A supplemental | |
| sheet must accompany each submission listing the name, company, | |
| address, telephone, and fax numbers of each witness. | |
| The Committee seeks to make its facilities accessible to persons | |
| with disabilities. If you are in need of special accommodations, please | |
| call 202-225-1721 or 202-226-3411 TDD/TTY in advance of the event (four | |
| business days notice is requested). Questions with regard to special | |
| accommodation needs in general (including availability of Committee | |
| materials in alternative formats) may be directed to the Committee as | |
| noted above. | |
| Note: All Committee advisories and news releases are available on | |
| the World Wide Web at http://www.waysandmeans.house.gov/. | |
| <F-dash> | |
| Mr. JOHNSON OF TEXAS. We are expecting votes, so we are | |
| going to go ahead and get started. The Chairman is on his way. | |
| He will be landing in a couple of minutes. But we are going to | |
| get started. | |
| Good afternoon. Welcome to today's hearing on the debt | |
| limit. The Chairman has been delayed, but given the votes this | |
| afternoon, he asked we go ahead and start the hearing so | |
| Members may have as much time as possible with our | |
| distinguished witnesses. | |
| Before hearing from our witnesses, I will read Chairman | |
| Camp's prepared opening statement and then turn it over to Mr. | |
| Levin for his usual opening statement. | |
| Good afternoon. Thank you for joining us today, all of you. | |
| The topic of today's hearing is the debt limit, which has | |
| increased higher and faster under President Obama than any | |
| President in our Nation's history. Since the President first | |
| took office in 2009, there have been four increases in the | |
| statutory debt limit, totaling more than $5 trillion, a 55 | |
| percent increase. | |
| As of December 31, 2012, our Nation reached the current | |
| debt limit of nearly $16.4 trillion, and the Treasury | |
| Department has been using extraordinary measures to avoid | |
| exceeding the debt limit. According to a letter from Secretary | |
| Geithner, those measures will be exhausted between mid-February | |
| and early March. | |
| In the simplest of terms, the debt limit helps hold | |
| Washington accountable to hardworking taxpayers, who ultimately | |
| foot the bill for Washington's spending habits. Without a | |
| limit, Washington would be free to borrow as much as it wanted | |
| without even a review of the bills we have racked up and those | |
| that are still coming due. | |
| Now, as I have said many times before, no one party is | |
| solely to blame. During 8 years of the previous Bush | |
| Presidency, deficits increased by $2.4 trillion. President | |
| Obama ran up twice that much during just his first term. | |
| The debt is not just some number; it has a direct impact on | |
| American families. During the President's fiscal commission, we | |
| heard nonpartisan testimony that stated when the debt is this | |
| large in comparison to the economy, it costs the country the | |
| equivalent of about 1 million jobs. Think about that. If | |
| Washington got its debt and spending under control, 1 million | |
| more Americans would be working today. | |
| As if that wasn't sobering enough, the staggering size of | |
| our debt and lack of a plan to deal with it also threaten to | |
| drive interest rates up. The Fitch Ratings agency recently | |
| warned that the failure to make progress on our structural debt | |
| would likely still result in a downgrade of the U.S. credit | |
| rating. A lower credit rating is sure to mean higher interest | |
| rates, which means families will face higher credit card | |
| payments, higher car payments, higher student loan payments, | |
| and certainly higher mortgage payments. | |
| In 2006, when speaking in opposition to increasing the debt | |
| limit, then-Senator Obama said, ``The fact that we are here | |
| today to debate raising America's debt limit is a sign of | |
| leadership failure.'' Those comments hold true today. That is | |
| why it is disappointing that the President has declined to | |
| engage in a meaningful dialogue to identify a responsible, | |
| balanced approach to reducing spending and, by extension, | |
| reducing the deficit, which the President promised to cut in | |
| half during his first term. | |
| Of course, it is tough to cut the deficit when the Senate, | |
| which is controlled by the President's own party, will not or | |
| cannot even produce a budget. It has been 4 years since the | |
| Democrat-controlled Senate has passed a budget. That is a | |
| disgrace. | |
| I fully expect Republicans and Democrats will disagree | |
| about what the budget should look like. Even when one party has | |
| a majority in both the Senate and the House, the two bodies | |
| often disagree. Disagreeing isn't the problem; the failure to | |
| resolve those differences is the problem. And how can we even | |
| start to find common ground if Senate Democrats won't tell us | |
| where they stand? | |
| In the first place, having the House and Senate pass a | |
| budget is the first step toward getting our finances back in | |
| shape. | |
| I want to thank the witnesses for agreeing to testify today | |
| and sharing your expertise on the debt, the debt limit, and | |
| what it means for the country. I thank you for your being here. | |
| And I would also like to welcome and thank our witnesses | |
| for appearing before us. Before we hear from them, I recognize | |
| now the Ranking Member, Mr. Levin, for his opening statement. | |
| Mr. LEVIN. Thank you. | |
| Welcome to all four of you. | |
| Today's hearing appears to have been originally designed to | |
| give the veneer of credibility to the notion that it might be | |
| appropriate, thinkable, or manageable to default on our debt. | |
| It is none of these. The debt ceiling is about paying the bills | |
| of the United States of America, for spending that this | |
| institution authorized. Manipulating it today, next week, or in | |
| 3 or 4 months damages our economy and our credibility. | |
| In the summer of 2011--and I urge we all try to remember | |
| it--Republicans in this Congress pushed our Nation toward | |
| default. There were clear consequences--clear consequences. | |
| Today, they are prolonging another debt-ceiling showdown | |
| instead of a long-term extension. This continues and increases | |
| the economic uncertainty. | |
| Our Nation's economic wounds from 18 months ago are simply | |
| too fresh to ignore. August 2011 was the single worst month for | |
| job creation in the last 3 years. The Dow Jones plunged 2,000 | |
| points in July and August of 2011, including one of its worst | |
| single-day drops in history, tumbling 635 points on August 8th. | |
| The Treasury was forced to spend $1.3 billion more in interest | |
| payments, according to GAO. The Bipartisan Policy Center | |
| estimates that the higher costs will be almost $19 billion over | |
| the next decade. | |
| And, of course, who could forget that the U.S. credit | |
| rating was downgraded for the first time in our history? One | |
| Standard & Poor's senior director said shortly after the credit | |
| agency downgraded the U.S. credit rating that the stability and | |
| effectiveness of American political institutions were | |
| undermined by the fact, and I quote, ``that people in the | |
| political arena were even talking about a potential default.'' | |
| The Washington Post unequivocally stated in a story this | |
| week that, and I quote, ``In 2011, the debt-ceiling dispute | |
| traumatized the economy.'' A senior principal economist with | |
| IHS Global Insight was one of the many economists who have | |
| warned against a repeat. He wrote in a report last week, and | |
| again I quote, ``If the political bickering over the debt- | |
| ceiling issue reaches a fever pitch, as it did in the summer of | |
| 2011, then consumer confidence will nosedive further into | |
| recession territory.'' | |
| We are hearing today that instead of quickly enacting a | |
| clean increase to the debt ceiling, there may be some other | |
| options. Some of the witnesses seem to suggest that it might be | |
| possible to instruct Treasury to pay bondholders while delaying | |
| payments to others. Whose bills should be delayed or cut? The | |
| Social Security checks of 56 million seniors and people with | |
| disabilities? The salaries of more than 2 million American | |
| personnel, many of whom are currently in harm's way? | |
| The idea is so troubling that it drew a strong rebuke from | |
| The Post Fact Checker last week. And he said, I quote, ``By | |
| available evidence, it appears all but impossible for the | |
| Treasury Department to pick and choose among payments.'' It is | |
| reported, as I read, that our Chairman, Chairman Camp, also | |
| cautioned his colleagues last week that such an approach is | |
| unworkable. | |
| I also urge--and I went back and checked it--that it | |
| embellishes history to imply that threatening to default has | |
| historically been used as leverage for deficit reduction, such | |
| as with Gramm-Rudman, which I voted for. In the House in both | |
| cases, the debt-ceiling bill was deemed passed, and the Senate | |
| then used it as a vehicle, not as a threat, for deficit- | |
| reduction legislation. | |
| Over the past 2 years, we have achieved $2.5 trillion in | |
| deficit reduction--I repeat: $2.5 trillion in deficit | |
| reduction--and set an important precedent for future further | |
| balanced deficit reduction that includes both spending cuts and | |
| new revenue. And I close firmly urging we should proceed with | |
| this effort, focusing further on economic growth and jobs, not | |
| damaging this effort by attempting to use the debt ceiling for | |
| political leverage. | |
| Thank you, Mr. Chairman. | |
| Mr. JOHNSON OF TEXAS. Thank you, Mr. Levin. | |
| It is my pleasure to welcome the panel of witnesses before | |
| us today. We have four witnesses on today's panel. | |
| We will first hear from Lee Casey, a partner at the law | |
| firm of BakerHostetler. Mr. Casey is a former official in the | |
| Department of Justice Office of Legal Policy and Office of | |
| Legal Counsel. | |
| Second, we will welcome William Hoagland, Senior Vice | |
| President of the Bipartisan Policy Center. Mr. Hoagland is also | |
| the former Director of Budget and Appropriations for the Senate | |
| Majority Leader, Bill Frist, and former Staff Director of the | |
| Senate Budget Committee. | |
| Third on the panel is Dr. J.D. Foster, the Norman B. Ture | |
| Senior Fellow in the Economics of Fiscal Policy at The Heritage | |
| Foundation. | |
| Finally, we will hear from Dr. Simon Johnson, the Ronald A. | |
| Kurtz Professor of Entrepreneurship at the Massachusetts | |
| Institute of Technology's Sloan School of Management. | |
| I appreciate all of you being here with us today. The | |
| Committee has received your written statements. They will be | |
| made part of the formal hearing record. Each of you will be | |
| recognized for 5 minutes for your oral remarks. | |
| Mr. Casey, we will begin with you. You are recognized for 5 | |
| minutes. | |
| STATEMENT OF LEE A. CASEY, | |
| PARTNER, BAKERHOSTETLER, WASHINGTON, DC | |
| Mr. CASEY. Thank you, Mr. Chairman and Members of the | |
| Committee. It is an honor and a privilege to appear here today | |
| to discuss the critical issue of the Federal debt ceiling. | |
| Although there are many important policy questions raised | |
| by the current debate over the debt ceiling, I would like to | |
| address the more fundamental constitutional questions of | |
| whether there must be a congressionally mandated limit to | |
| Federal borrowing and the extent to which the President may | |
| ignore these restraints or simply raise that limit and borrow | |
| money on his own authority. | |
| I believe that the answer is clear: Under the Constitution, | |
| Congress alone has the power to decide how, when, and why | |
| Federal spending should take place, and the extent to which | |
| that spending may be supported by taxation and/or borrowing. | |
| The debt limit is, of course, a statutory device that dates | |
| to the First World War. Although the debt limit in its current | |
| form is not constitutionally mandated, some type of | |
| congressionally controlled limit on executive branch borrowing | |
| is required and, whatever precise form that limitation takes, | |
| it is constitutionally protected. The President can neither | |
| ignore nor alter the debt limit without fundamentally | |
| subverting the Constitution's separation of powers and | |
| violating his oath of office. | |
| There are two principal mechanisms by which the Federal | |
| Government may obtain resources in order to operate: through | |
| taxation and through borrowing. The Constitution makes both of | |
| these mechanisms the peculiar province of the legislative | |
| branch. Congress alone is granted the authority to lay and | |
| collect taxes, to pay Federal debts, and to borrow money on the | |
| credit of the United States. The executive branch then carries | |
| out these functions; that is, its role is to execute what | |
| Congress has enacted in these areas. The President has no | |
| independent authority to raise taxes or to borrow on the | |
| Nation's credit. | |
| This was, of course, the purpose and intent of the | |
| Constitution's Framers. In a basic division of governmental | |
| power, they gave Congress the power of the purse, a grant they | |
| viewed as especially empowering the House of Representatives, | |
| where all revenue bills must originate. | |
| Moreover, as James Madison explained in the Federalist No. | |
| 58, the Framers fully anticipated and intended that | |
| congressional power over Federal taxation, borrowing, and | |
| spending would be used as a political weapon. I quote, ``This | |
| power over the purse may, in fact, be regarded as the most | |
| complete and effectual weapon with which any constitution can | |
| arm the immediate representatives of the people, for obtaining | |
| a redress of every grievance, and for carrying into effect | |
| every just and salutary measure.'' | |
| It follows, of course, that the President cannot raise the | |
| debt ceiling on his own authority and is bound to respect this | |
| limitation on Federal spending, even if this requires him to | |
| make difficult decisions and take actions he would not | |
| otherwise support. Claims that section 4 of the 14th Amendment | |
| grants the President such power are mistaken. Section 4 forbids | |
| repudiation of Federal debts lawfully incurred. Permitting the | |
| President to raise the debt ceiling on his own authority under | |
| section 4 would upset the Constitution's basic separation of | |
| powers. And it is also plainly inconsistent with the 14th | |
| Amendment's language that, I quote, ``The Congress shall have | |
| power to enforce, by appropriate legislation, the provisions of | |
| this article.'' | |
| It is also important to understand that the public debt | |
| guaranteed by section 4 does not include ordinary Federal | |
| spending programs but extends only to debt instruments issued | |
| in exchange for money on the credit of the United States. | |
| Thus, as a constitutional matter, Congress has the | |
| authority and obligation to regulate Federal borrowing. It can | |
| exercise this power in a number of different ways, including by | |
| voting on individual debt issues as was the case before the | |
| First World War, or by establishing an overall limit on the | |
| amount of debt the Federal Government may incur without further | |
| congressional action. | |
| The President is bound by such limits. He can neither | |
| ignore the debt ceiling, nor can he raise it on his own | |
| authority. | |
| And I would be pleased to answer any questions the | |
| Committee may have. And thank you. | |
| [The prepared statement of Mr. Casey follows:] | |
| [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] | |
| Mr. JOHNSON OF TEXAS. Thank you, Mr. Casey. I appreciate | |
| your comments. | |
| Mr. Hoagland, you are recognized for 5 minutes. | |
| STATEMENT OF G. WILLIAM HOAGLAND, SENIOR VICE PRESIDENT, | |
| BIPARTISAN POLICY CENTER, WASHINGTON, DC | |
| Mr. HOAGLAND. Thank you, Mr. Chairman, Mr. Levin, and | |
| Members of the Committee. It is a privilege for me to be here | |
| this afternoon. | |
| Fundamentally, the debt-ceiling discussion emerges from the | |
| most basic tenet of our legislative sovereignty, and that, of | |
| course, is the power of the purse. | |
| I began my career here on Capitol Hill with the | |
| Congressional Budget Office in 1975. Later, as staff on the | |
| Senate Budget Committee and in the Senate Majority Leader's | |
| office, I witnessed and participated in many budget standoffs. | |
| But one of the first and most memorable was the one that the | |
| Ranking Member mentioned, the 1985 Gramm-Rudman-Hollings Act. I | |
| believe Mr. Levin and Mr. Rangel were the only two who were | |
| here at that time in 1985. That legislation came about because | |
| of the need to raise the statutory debt limit over $2 trillion | |
| for the first time in the country's history. | |
| The debt-limit bill has always been politically sensitive, | |
| but as the country's debt has continued to increase, the need | |
| to legislate an increase has become more frequent--78 times | |
| since 1940--and more difficult. Further, based on the actions | |
| that the 112th Congress took at the end of the 112th, I | |
| estimate that the debt held by the public will continue to | |
| rise, reaching 77 percent of GDP by 2022, and the debt subject | |
| to limit will exceed $27 trillion. | |
| My statement addresses two issues: First, what we call the | |
| X date, the date at which extraordinary measures will run out | |
| and there will be insufficient cash to pay our Nation's bills; | |
| and, second, one of the foci of this hearing, what options are | |
| available to the Executive when that X date is reached. | |
| On the first question, the cash flows of the past week have | |
| largely been, as we have anticipated, with no large | |
| fluctuations. And we at the BPC base our estimates of those | |
| cash flows on known cash flows and scheduled payments during | |
| this time period and on previous years' patterns of payments. | |
| And at this point, we are projecting the windows of the X date | |
| between February 15th and March 1st, the same as Treasury. | |
| On the second issue, what actions might the Treasury take | |
| post-X date, the President and Treasury officials will face two | |
| potential scenarios: First, the Treasury could prioritize | |
| payments, choosing to pay some and not others. In 1985, the | |
| Comptroller General issued a letter to the then-Chairman of the | |
| Senate Finance Committee, Bob Packwood, concluding that the | |
| Secretary of the Treasury does have the authority to choose the | |
| order in which to pay obligations of the United States. I asked | |
| the GAO general counsel last week if this opinion has changed | |
| and have been told that GAO has not issued an opinion on this | |
| question since 1985. It stands. | |
| Now, while prioritization may be legal, the actual | |
| implementation of it may not be practical. Treasury must make | |
| over 5 million payments on each business day. Treasury's | |
| computer systems are set up to confirm and process all payments | |
| as they come due. Implementing prioritization would be a | |
| dramatic overhaul and extremely difficult. Further, should | |
| Congress take to itself the responsibility of setting payment | |
| dates, possibly having to overturn the Prompt Payment Act or | |
| Title X of the Budget Act dealing with impoundment and other | |
| existing laws, one must be realistic as to how long such a | |
| legislative debate would last. | |
| The second scenario, should the Treasury deem | |
| prioritization to be implausible, the Secretary could instead | |
| announce that the government will make payments on daily | |
| obligations but in the order in which they come due on a | |
| delayed schedule. Assuming, as we do, that the X date is | |
| February 15th, the Treasury enters that date with precisely | |
| enough cash to fund the $30 billion interest payment due that | |
| day, and all other interest payments are prioritized and paid | |
| on time. | |
| In this situation, there would be $22 billion of | |
| noninterest payments owed on February 15th, which include | |
| military pay and unemployment benefits. They would be delayed | |
| until February 20th. Similarly, over $30 billion of payments | |
| due on February 20th, which include Social Security benefits, | |
| would have to be delayed until February 25th. These delays | |
| would continue to cascade. Payments due March 1st, which | |
| include Social Security benefits, military salaries, and | |
| veterans benefits, among others, would be delayed until March | |
| 15th, half a month late. The government could face legal | |
| challenges under the Prompt Payment Act, not to mention the | |
| real impact on individuals and businesses across the country. | |
| Finally, under normal conditions, Treasury issues new debt | |
| to the public in order to raise cash to pay off outstanding | |
| securities as they mature. However, in a situation where | |
| Treasury has begun to delay payments on noninterest | |
| obligations, there is a possibility that such auctions would be | |
| disrupted. Investors might demand a significant premium on | |
| their debt purchases or, in the worst-case scenario, Treasury | |
| could find itself with insufficient buyers for an auction. | |
| Were this to occur, it would force Treasury to step in with | |
| enough cash to pay off the redeeming bondholders or face a | |
| default on the U.S. debt, and it would further delay | |
| noninterest obligations--a vicious circle. We expect that there | |
| will be over $500 billion of debt that will need to be rolled | |
| over from February 15th to March 15th. | |
| In conclusion, Mr. Chairman, the Bipartisan Policy Center | |
| strongly believes that the imbalance in our Federal budget | |
| ledger does need to be addressed. Risks are risks, and while no | |
| one can know for sure what ramifications the largely | |
| unprecedented scenario of passing the X date would have, those | |
| risks clearly grow day by day and eventually could become | |
| catastrophic. These are considerations I know the Members of | |
| this Committee will keep in mind as you deliberate this | |
| important issue. | |
| Thank you. | |
| [The prepared statement of Mr. Hoagland follows:] | |
| [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] | |
| Mr. JOHNSON OF TEXAS. Thank you, sir. I appreciate that. | |
| Dr. Foster, you are recognized for 5 minutes. | |
| STATEMENT OF J.D. FOSTER, PH.D., NORMAN B. TURE SENIOR FELLOW | |
| IN THE ECONOMICS OF FISCAL POLICY, THE HERITAGE FOUNDATION, | |
| WASHINGTON, DC | |
| Mr. FOSTER. Thank you, Mr. Chairman, Mr. Levin, Members of | |
| the Committee. Good afternoon. It is nice to be back. | |
| My name is J.D. Foster. I am the Norman B. Ture Senior | |
| Fellow at The Heritage Foundation. The views I express today | |
| are my own and should not be construed as the position of The | |
| Heritage Foundation. | |
| Mr. Chairman, once again we find ourselves in dire straits. | |
| The President's position on the debt ceiling I believe could be | |
| summed up simply as: Kick the can, and then we will have a | |
| conversation; we will engage in a dialogue. The Senate's | |
| position can be summed up simply as: Hoping not to be noticed. | |
| And so it falls, as it so often does, on the House to lead. | |
| On the debt ceiling, I believe we face basically three | |
| options--two drastic, and one, which is sound. The first | |
| drastic one: Congress could simply leave the debt ceiling in | |
| place. While perhaps tempting to some, and understandably so, I | |
| think we all know this would be unwise and irresponsible, with | |
| consequences we can only begin to imagine--consequences that do | |
| not include, however, defaulting on the Nation's debt, a | |
| suggestion the President frequently makes in awesome | |
| irresponsibility. | |
| Second, Congress could raise the debt ceiling by some large | |
| amount or repeal it altogether, as the President has suggested, | |
| and do nothing else. Raising it substantially and doing nothing | |
| else would continue a pattern of reckless, irresponsible fiscal | |
| policy with no end in sight and, for this reason, would with | |
| certainty also bring terrible consequences. To be sure, the | |
| date of onset of these consequences is uncertain, which makes | |
| this course so appealing in a political environment often | |
| favoring perfect myopia. | |
| The Federal Government's debt trajectory is dangerous-- | |
| dangerous to our economy, dangerous to our future as a Nation. | |
| And surely that, at least, we can all agree on. Fiscally, the | |
| rise in the debt means more of the government's resources will | |
| be crowded out in the future into paying interest expense, | |
| making less resources available for other priorities. Americans | |
| generally are willing to pay taxes, but they expect services in | |
| return. Servicing the government's debt is not what they have | |
| in mind. | |
| Economically, it also means that savings that would | |
| otherwise be available for productive investment in the private | |
| sector have been captured by the government. Less private | |
| saving means a smaller economy and lower wages. Soaring public | |
| debt also means that when interest rates begin to rise--and | |
| rise they most assuredly will--they are now set to rise much | |
| farther and much faster. The consequences of these higher | |
| interest rates will be the most terrible of all, for families, | |
| for businesses, for the economy. And there will be nothing then | |
| that Congress can do to stop them. | |
| What Congress should do is raise the debt ceiling while | |
| enacting concrete programmatic spending reforms, especially to | |
| entitlements, to reduce the deficit in the short run and | |
| especially the long run. There are sound, bipartisan, | |
| commonsense, options for restraining entitlement spending while | |
| ensuring these programs preserve economic security for the | |
| elderly and the poor. Indeed, it is possible through reform to | |
| remedy key failings, such as the woefully inadequate minimum | |
| benefit in Social Security and the lack of a catastrophic | |
| benefit in Medicare, while doing these reforms. Our mantra | |
| should be ``reform and improve'' while slowing the growth of | |
| spending. | |
| If the President led on these issues, he could help shape | |
| these vital programs to ensure their sustainability and | |
| effectiveness and, in the process, transform himself from the | |
| most fiscally irresponsible President to arguably the most | |
| fiscally responsible President in our history. | |
| Which brings us back to the debt limit. Modern history | |
| provides fertile ground for doubt when process solutions | |
| substitute for concrete decisions, such as the House is | |
| considering. Thus, I have my qualms over the course the House | |
| leadership has set. But I understand the difficulties the House | |
| faces, and I accept as sincere assurances that there is a | |
| firmer strategy. I accept this. | |
| I agree entirely that if we are to make sustained progress | |
| in restraining spending and deficits, Congress must return to | |
| the regular order in a budget process, however much the other | |
| body would like to do otherwise. The House is correct to press | |
| for a regular, disciplined budget process. | |
| I don't know whether the House can compel a change in | |
| course. I acknowledge the difficulties. For all our sakes and | |
| the sake of my children and yours, I fervently hope you | |
| succeed. | |
| I do know the House can take a stand to present the | |
| American people a clear alternative to soaring debt and a | |
| dimmer future: To choose to stand with deficits and debt and | |
| decline, or to stand with the economic security and prosperity | |
| of future generations of Americans. The American people deserve | |
| at least to know this much from the U.S. House of | |
| Representatives: Where the Nation is heading and what the House | |
| would do differently. | |
| Thank you, Mr. Chairman. | |
| [The prepared statement of Mr. Foster follows:] | |
| [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] | |
| Mr. JOHNSON OF TEXAS. Thank you, Dr. Foster. | |
| Professor Johnson, you are recognized for 5 minutes. Please | |
| proceed. | |
| STATEMENT OF SIMON JOHNSON, PH.D., RONALD A. KURTZ PROFESSOR OF | |
| ENTREPRENEURSHIP, MASSACHUSETTS INSTITUTE OF TECHNOLOGY SLOAN | |
| SCHOOL OF MANAGEMENT, BOSTON, MA | |
| Mr. JOHNSON. Thank you very much, Mr. Chairman. | |
| I find it frightening and also hard to believe that we are | |
| having this conversation in general and that you are having a | |
| hearing on this matter. | |
| Among other things, I am the former Chief Economist of the | |
| International Monetary Fund, and I would remind you that the | |
| United States is not just the center of the world's economy; | |
| our financial assets, our government debt serves as a linchpin | |
| of the world's financial system. | |
| From 1948 to 1968, foreigners held as reserves U.S. | |
| Government debt worth about 2 percent of our GDP. Their | |
| reserves now, their rainy-day funds, the basis of their | |
| financial calculations, are now at least 15 percent of our GDP. | |
| These are assets they hold willingly. They hold them because | |
| this has in the past been regarded as the world's safest asset. | |
| You are calling this into question when you raise the issue of | |
| not increasing the debt ceiling. This, to the world, to the | |
| world's investors, is just unbelievable, that you would even | |
| have this conversation. | |
| Could I show, please, the first slide? | |
| I testified before this Committee and I made these exact | |
| same points in the summer of 2011. And the point I tried to | |
| communicate to you then was that if you continued to have a | |
| confrontation around the debt ceiling, you would create an | |
| unprecedented level of uncertainty regarding economic policy in | |
| the United States. | |
| This chart is taken from the work of Professors Baker, | |
| Bloom, and Davis. The full reference is in my written | |
| testimony. And they have measured policy uncertainty since | |
| 1985--not, I would say, at my behest or particularly focusing | |
| on the debt ceiling. But what do they find? What do you see in | |
| this chart? | |
| Matching exactly with what Mr. Levin said at the beginning, | |
| August 2011 stands out as the moment since 1985 when we had the | |
| greatest uncertainty, the most lack of clarity for everyone-- | |
| not just for the government, everyone in the private sector. | |
| Consumers, businesses cannot make decisions if they don't know | |
| what is going to happen to the government debt. | |
| And listening to the testimony just now, I was further | |
| frightened by the extent to which leading experts disagree or | |
| vary in opinion with regard to exactly what may happen if we | |
| are to breach or come up against or somehow play with this debt | |
| ceiling. | |
| The United States has never threatened to default, not | |
| since the 1780s. That has been the key element of U.S. fiscal | |
| policy since the Constitutional Convention in Philadelphia. | |
| That is actually a lesson that President Madison learned the | |
| hard way in and after the War of 1812, the importance of being | |
| very careful with your public debt and very careful with all | |
| communications around your public debt management. | |
| If you don't raise the debt ceiling now or if you postpone | |
| this conversation, if you say, every 60, 90, or 100 days we are | |
| going to again have the same kind of conversation about the | |
| debt ceiling, you will continue to have this sort of spike in | |
| policy uncertainty, you will continue to undermine the private | |
| sector, you will continue to delay investment and to reduce | |
| employment relative to what it would be otherwise. | |
| I urge you--I understand you have many difficult fiscal | |
| conversations to come. I appreciate that. I realize there is a | |
| range of reasonable opinion here. But I urge you, as I urged | |
| you in the summer of 2011: Take the debt ceiling off the table. | |
| Do it for our sakes. Do it for the world economy. Do it for the | |
| global financial system, which has still not recovered from the | |
| problems of 2007-2008. | |
| If you want to destabilize the European economy, if you | |
| want to put pressure on all those sovereigns in Europe who are | |
| right now struggling fiscally, then you should have exactly | |
| this confrontation, pushing up the yield on risky assets around | |
| the world. But you don't want to do that. You don't want to | |
| destabilize Europe. You don't want another downgrade of U.S. | |
| debt. You don't want another spike in policy uncertainty. | |
| Please, take the debt ceiling, once and for all, completely | |
| off the table. | |
| Thank you. | |
| [The prepared statement of Mr. Johnson follows:] | |
| [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] | |
| Mr. JOHNSON OF TEXAS. Thank you, sir. | |
| We have a vote going on right now, and it appears to me | |
| that we are not going to be able to continue as we are. So I | |
| think we will recess until the vote is over, which will be | |
| about half an hour, they say, and return. So the meeting stands | |
| in recess---- | |
| Mr. LEVIN. Mr. Chairman, let me just mention, there is | |
| going to be a Rules Committee meeting on the bill, so I may not | |
| be here for the questioning. I think my colleagues will be | |
| pressing the issue of a 3-month delay and the potential harm it | |
| can do. | |
| We went through this once, Dr. Johnson. I remember your | |
| testimony so well. And to think of going through it again, my | |
| hope is that there will be questions that can elicit your view | |
| as to why we should not be playing with fire once again. | |
| Thank you. | |
| Mr. JOHNSON OF TEXAS. The Committee stands in recess. | |
| [Recess.] | |
| Chairman CAMP [presiding]. The Committee will come back to | |
| order. | |
| I want to thank our witnesses for being here today. | |
| And I think we will move into the question and answer | |
| period. I am going to reserve my question time for a minute, | |
| and I will go to Mr. Brady. | |
| You are recognized for 5 minutes. | |
| Mr. BRADY. Thank you, Mr. Chairman. | |
| And thank you to all those who were here for the testimony | |
| today. It was very helpful. | |
| First, clearly, America will pay its debts. That has been | |
| made clear by Republicans and Democrats in Congress. We always | |
| have. And I hope that those who choose to be melodramatic about | |
| it these days to gain political advantage, if you could please | |
| stop, that would be helpful. | |
| Second, there is absolutely no chance that the President's | |
| request to have a permanent unlimited debt ceiling will occur. | |
| This is the constitutional prerogative of the House and the | |
| Senate. As we have seen in the past, it has also been a helpful | |
| tool, not only on checks and balances, but to enact spending | |
| reforms and restraints that can be helpful, although, in my | |
| view, have not been as helpful as they have in the past. | |
| And a third point is that the claim we heard earlier today, | |
| that a short-term extension of the debt limit may raise our | |
| U.S. Government debt service cost, that is highly speculative. | |
| The 2011 GAO study showed mixed results, with no significant | |
| impacts in 40 percent of the extensions. So three out of every | |
| five had no impact. The 2012 report was based on only one | |
| event, so it is statistically inconclusive. The Bipartisan | |
| Policy Center estimates are based upon both of these | |
| questionable GAO studies, and they miss the point. | |
| The fact of the matter is, unsustained spending over time, | |
| without doubt, will raise the cost of our borrowing in America. | |
| That is why we are all here today to deal with this issue or | |
| attempt to give our best insight. | |
| I would like to ask Dr. Foster a question because it | |
| relates to the debt ceiling. Many of us see the other side of | |
| that coin as a credit downgrade, a second one, which has | |
| serious consequences not just for our borrowing but for | |
| borrowing of small businesses and consumers at home. | |
| My question to you--and I know there are different | |
| opinions, but what do you think Congress has to do? What steps | |
| should we take to create not just medium-term fiscal | |
| consolidation addressing that issue, but long term, dealing | |
| with our long-term drivers of debt and spending? What do we | |
| need to do to avoid a second downgrade, or a downgrade by a | |
| second credit rating, to be accurate? | |
| Mr. FOSTER. To avoid another downgrade, which on our | |
| current path is almost assured, we really need to do two | |
| things. And they are pointed out in the letter expressing the | |
| first downgrade. | |
| One, don't raise any question about not raising the debt | |
| ceiling; ultimately, we have to do that. And the second is we | |
| have to get our long-term fiscal house in order. That means we | |
| have to get the entitlement programs under control, achieving | |
| two goals: One, the reforms necessary to make sure they achieve | |
| the result intended, which is protecting at-risk populations, | |
| while spending moneys that we can afford to spend and no more. | |
| There are simple entitlement reforms-- | |
| straightforward, and well- vetted--that this Congress could | |
| adopt, I believe, fairly quickly. They are not even | |
| legislatively complex. And these are the kinds of reforms that | |
| have received bipartisan support in the past. They are sort of | |
| commonsense changes. | |
| It is frustrating, in fact, that we don't take these | |
| reforms more seriously and move on them because they would have | |
| profound impacts in the long run, where the fiscal problem | |
| really lies. Yes, we have a serious problem with a trillion- | |
| dollar budget deficit today, but, really, as large as that is, | |
| that problem is dwarfed by our long-run fiscal problems from | |
| the entitlement programs. | |
| We know some of the basic reforms, bipartisan reforms that | |
| can be enacted that will go a long way to getting Medicare and | |
| Social Security, in particular, on a more sustainable path. And | |
| that is where the Congress should be looking as we debate | |
| fiscal policy this year, beginning with the debt ceiling. | |
| Mr. BRADY. Do you think investors look beyond that debt- | |
| ceiling issue to those fundamentals you talked about, answering | |
| the question, is America serious about getting its financial | |
| house in order over the long term? Do you think that really | |
| creates the most uncertainty going forward over the long term? | |
| Mr. FOSTER. It is certainly a tremendous source of | |
| uncertainty. There are others, but that is a major source of | |
| uncertainty that credit markets most assuredly look at, as | |
| indicated by the letter transmitting the credit rating | |
| downgrade the last time. | |
| Mr. BRADY. All right. | |
| Thank you, Mr. Chairman. I yield back. | |
| Chairman CAMP. Thank you. | |
| Mr. Rangel is recognized for 5 minutes. | |
| Mr. RANGEL. Thank you. And welcome back, Mr. Chairman. | |
| Chairman CAMP. Thank you. | |
| Mr. RANGEL. I am under the impression that the debt ceiling | |
| is to give the authority to the President to assure our | |
| creditors that each and every nickel that we would borrow will | |
| be paid back. I also believe that we have to have some | |
| guidelines on the spending in order to share with creditors and | |
| Americans alike the fact that we are going to reduce | |
| unnecessary spending. Having said that, there are some people | |
| who believe that we have to have to be involved, this debt | |
| ceiling, and with the deficit. And, of course, that is | |
| controversial. | |
| Under the system of prioritizing payments, as some people | |
| are pushing forward, they would believe that we can determine | |
| just who we were going to pay out interest to while we get a | |
| better handle on the spending part of this dilemma. And I just | |
| want to ask Dr. Johnson some questions. | |
| These programs, I think you pay your interest on your debt | |
| as the number-one priority. I think every family would like to | |
| pay off interest; Social Security; and then third, somewhere | |
| active duty military. And I think that is patriotic as well as | |
| political. | |
| But under this scenario, Dr. Johnson, will we be paying the | |
| people that we borrowed from in China, the debt that we owe | |
| China, the biggest creditor, or one of the largest, before we | |
| would pay our American military that got caught, like I did, in | |
| Korea, fighting the Chinese? Does this work out, that in terms | |
| of avoiding the payment of our debt, that we would pay off our | |
| debtors before we pay off our military? Is that part of this | |
| plan? | |
| Mr. JOHNSON. Well, Mr. Rangel, it is hard to know. I mean, | |
| I don't think these plans are very detailed, worked-out, | |
| credible plans. They are vague notions, the ones I have seen. | |
| But, yes, I have seen the notion expressed that the United | |
| States would pay its debts in the form of interest and | |
| principal on bonds, a substantial fraction of which are held by | |
| the Chinese Government, for example, ahead of payments that it | |
| would make of other kinds, which would include, presumably, the | |
| way that is framed, payments to active service military | |
| personnel, for example. | |
| Now, that just seems like a very strange notion---- | |
| Mr. RANGEL. It seems to me, if you owed anybody any money, | |
| no matter whether it was the country or your company, and you | |
| were not giving the executive director the authority to pay | |
| what has already been borrowed, that that shouldn't make our | |
| lenders feel comfortable. | |
| But about the question of reducing spending, is there a | |
| vehicle that the Congress can exercise its ability without | |
| jeopardizing the reputation of credit? I mean, we have to deal | |
| with it, but you say and I think most people believe, don't | |
| attack the debt ceiling and integrity of the United States of | |
| America, but use the constitutional vehicles you have. What can | |
| the Congress do to express America's concern about spending? | |
| Mr. JOHNSON. Well, Congressman, as you know far better than | |
| I do, you have a wide range of tools, and, in fact, you have | |
| more than 200 years of fiscal history in which the Congress did | |
| exactly that. Congress exerted for many, many years both a | |
| reasonable tax base that was consistent with the spending that | |
| they wanted, and nobody ever put the debt ceiling or the U.S. | |
| willingness to pay its obligations on the table in the way that | |
| it was placed in the summer of 2011 and the way that I fear it | |
| is now being placed on the table again. | |
| It was a big mistake in 2011 to create this degree of | |
| uncertainty and fear in the United States and around the world, | |
| and it is a big mistake to do it again today. | |
| Mr. RANGEL. Why would any good-thinking, patriotic American | |
| who loves the country as well as we all do want to use the debt | |
| ceiling as a vehicle to reduce spending rather than the other | |
| legislative opportunities we would have? What would their | |
| reasoning be? Certainly not to embarrass the United States of | |
| America. | |
| Mr. JOHNSON. I have no idea, Mr. Rangel. But I can tell you | |
| that---- | |
| Mr. RANGEL. Well, if you don't have any, then maybe it is | |
| to defeat the objectives of this President at whatever cost, as | |
| some leaders or so-called leaders have said: That they want to | |
| stop this President, and they were unsuccessful in that | |
| measure. So maybe, maybe they have decided to change tactics. | |
| And maybe this discussion is unnecessary and we find some other | |
| way to get a handle on the deficit. | |
| Let me thank you for your contributions to this hearing, as | |
| you have contributed so many times before. | |
| Mr. Chairman, I yield back the balance of my time. | |
| Chairman CAMP. Thank you. | |
| Mr. Johnson is recognized. | |
| Mr. JOHNSON OF TEXAS. Thank you, Mr. Chairman. | |
| Mr. Foster, in his famous farewell address, President | |
| Eisenhower said, ``We cannot mortgage the material assets of | |
| our grandchildren without risking the loss also of their | |
| political and spiritual heritage. We want democracy to survive | |
| for all generations to come, not to become the insolvent | |
| phantom of tomorrow.'' | |
| In your testimony, you say that with respect to our fiscal | |
| future, ``a change of course is inevitable.'' The question is, | |
| what kind of change? You warn that one such change may be | |
| brought by credit markets increasingly intolerant of | |
| Washington's fiscal imprudence. | |
| In essence, you are saying, if we don't do anything, it is | |
| only a matter of time that financial markets will, so to speak, | |
| blow the whistle on Washington and say, ``The game is over.'' | |
| In other words, we are on borrowed time here, aren't we? | |
| Mr. FOSTER. Yes, sir, I am afraid we are. | |
| And this is rather an unusual posture for Americans to be | |
| in. We are not used to thinking in these terms because, | |
| traditionally, even though we have had a fair amount of | |
| government debt, it has ranged in the order of 40 percent of | |
| our economy, which is completely manageable. It has since shot | |
| up dramatically and is going to continue to shoot up under | |
| current policies. | |
| And the evidence is very clear in the academic literature; | |
| it is very clear in international observation. There comes a | |
| point where your debt, as a share of your economy, reaches | |
| levels at which credit markets become noticeably disturbed. | |
| They become very worried. And it is expressed, in part, as | |
| rising interest rates, which then spread throughout the | |
| economy. We are not just talking about Treasury interest rates | |
| but mortgage rates and consumer rates and so forth. | |
| Mr. JOHNSON OF TEXAS. Well---- | |
| Mr. FOSTER. This is a certainty. And it is a path that we | |
| are on that will have extreme consequences that we are not used | |
| to thinking about in this country. | |
| Mr. JOHNSON OF TEXAS. Well, I ask the question, how much | |
| time do we really have? You know, with the U.S. per-person debt | |
| now 35 percent higher than that of Greece, when do you think we | |
| face our Greek moment if we fail to take meaningful action to | |
| get our fiscal house in order? | |
| Mr. FOSTER. Well, right now we are having a good news/bad | |
| news situation. The good news is that, despite all that we have | |
| done wrong, we are still one of the safest places in the world | |
| to invest. And there are a lot of places around the world that | |
| capital wants to avoid. So it keeps coming into this country, | |
| driving down our interest rates, even as we are raising debt | |
| rapidly. | |
| Well, at some point that is going to reverse, and that | |
| capital will flow out again, and interest rates will rise | |
| rapidly. When that will happen I cannot say because I don't | |
| know when, for example, Europe is finally going to get its | |
| fiscal house and monetary houses in order. But once they do, | |
| this process will reverse and we will see the consequences of | |
| what we have done. | |
| Mr. JOHNSON OF TEXAS. Yeah, Germany is making moves now. | |
| Mr. Hoagland, would you care to comment? | |
| Mr. HOAGLAND. I agree with Dr. Foster that we are probably | |
| the best-looking horse in the glue factory today. That may not | |
| last. | |
| I would also say that I am very worried about, as I said in | |
| my opening statement, the fact that we are looking at debt-to- | |
| GDP that is close to 77 percent. And while in the past we have | |
| had debt-to-GDP after World War II at that level, we didn't | |
| have 50 percent of it being owned by foreign investors. And | |
| that is what scares me in terms of our sovereignty. We think we | |
| have to deal with this going forward. | |
| I agree also that the real issue here is mandatory spending | |
| and putting in procedures, processes, and building upon a | |
| regular-order process up here of getting budget resolutions | |
| adopted, conference agreements, a reconciliation bill, and | |
| working it through the regular order. And that is why I would | |
| say that while this is not the perfect solution in terms of the | |
| 3-month extension, it puts you back closer to what would | |
| normally have been a regular-order process. And I think that is | |
| positive. | |
| Mr. JOHNSON OF TEXAS. Well, I would like to know what both | |
| of you think, if we don't get it in order, you know, to our | |
| small-business owners, to our young families, to our aspiring | |
| college students, what kind of future are we looking at for | |
| these folks? Either one of you. | |
| Mr. HOAGLAND. I think the standard of living that we | |
| experienced and enjoyed, we have to be honest with ourselves | |
| that we are lessening that standard of living for future | |
| generations, our children and our grandchildren. I don't think | |
| there is any question that this level of debt would lower that | |
| standard of living that we enjoyed. | |
| Mr. JOHNSON OF TEXAS. Yeah, and people will stop wanting to | |
| come here, won't they? | |
| Thank you, Mr. Chairman. I yield back. | |
| Chairman CAMP. Thank you. | |
| Mr. McDermott, you are recognized for 5 minutes. | |
| Mr. MCDERMOTT. Thank you, Mr. Chairman. | |
| I have to tell you, listening to this hearing is like we | |
| are living in ``Alice in Wonderland.'' Here we are hearing from | |
| witnesses telling us how to use default creatively or use it to | |
| get some leverage or something. And simply talking about it | |
| here is destructive. The whole world is watching this hearing. | |
| It is the first hearing on this issue. | |
| And the whole point of a society is to create and run a | |
| government in order to make order for people. People don't like | |
| chaos. And this hearing is about how to create chaos to get | |
| what you can't get politically with votes. Businesses and | |
| workers in my district think this kind of talk is crazy. | |
| Today we are talking about a crisis manufactured by the | |
| Republicans, a crisis they have manufactured to achieve | |
| policies that the voters wouldn't vote for at the ballot box. | |
| The Republicans are taking the economy hostage every single | |
| time they get a chance. There are threats for workers and | |
| businesses, investors, retirees. And job growth stops every | |
| time the Republicans have a crisis; the economy falters. This | |
| is the Republican governance and economic policy at work--or | |
| not working, really. | |
| The biggest problem with the Republican arguments that are | |
| before us--and we just heard it again--is that spending and | |
| debt are problems. And this is a misdirection. Republican | |
| Congresses and Republican Presidents were happy to run up huge | |
| deficits to wage wars they didn't pay for, or take tax cuts for | |
| individuals and industry and give billions to oil companies. | |
| Now, deficits aren't what the Republicans care about. What | |
| Republicans want to do is end the guarantees on Medicare and | |
| Social Security. We just heard somebody say it is the | |
| entitlement payments that are the problem. I disagree. I think | |
| this country can have a social safety net that covers people | |
| and pay for it. | |
| And that ought to be happening, but what is happening on | |
| the other side of the aisle here is that they want everybody | |
| who is lucky and doing well to just do well, and if you aren't | |
| doing well, well, you have to deal with it. It is your problem. | |
| It is social Darwinism; it is survival of the fittest put into | |
| public policy in this Committee. | |
| That is the Republican policy. And I respect that they want | |
| a different policy than I do, but we ought to be honest about | |
| the debate. Instead, we just watch people say ``spending'' in | |
| the TV cameras again and again and again. ``Spending'' is just | |
| a term that the polls like. Republicans won't say what they | |
| want to cut because the public doesn't want their policies. But | |
| the word ``spending'' polls very well, so we hear a lot of it. | |
| But we don't hear debate because the Republicans want crisis | |
| but no solution. | |
| If we were serious about having a debate here, we would | |
| start talking about what in Medicare should be cut, or how are | |
| we going to change it, or how are we going to finance | |
| physicians. All those things would be on the table. But we | |
| don't hear that. What we say is, ``Let's just cut.'' And when | |
| you start talking across the board, you are talking about | |
| medical research, and you are talking about NASA, and you are | |
| talking about NOAA, and you are talking about all these | |
| government agencies as though they don't do anything that add | |
| anything to this society. | |
| So when we are spending our time here talking about this | |
| deficit stuff and raising the debt limit, we are simply saying | |
| to the world, for the first time, America is not going to pay | |
| its debts. | |
| Now, my question to you, Mr. Johnson, is this: If this was | |
| such a good idea, why haven't we done it before? We could have | |
| saved a lot of money by not paying our debts. Why have we | |
| suddenly decided that this is the time to do it? | |
| Give me some understanding so the American people can | |
| understand why, after all these years since the First World | |
| War, we have paid our debts under Republicans and Democrats. I | |
| voted under George Bush--both of them--to raise the debt limit. | |
| But now we are going to stop paying. Please tell me why they | |
| are doing it. | |
| Mr. JOHNSON. Well, Congressman, it is not a good idea, and | |
| it is not the way fiscal policy was run not just since World | |
| War I, but going back to 1789, after the initial assumption of | |
| debt at the Federal level and the restructuring of debt with | |
| which Alexander Hamilton began fiscal policy in this country; | |
| policy has absolutely been to always pay your debts and your | |
| other obligations. And it took a long time to convince the | |
| world that the United States was the safest place to put your | |
| reserve assets or your rainy-day money. And it was a great | |
| achievement. And now it is being squandered and thrown away | |
| for, I presume, some negotiating purpose. It makes no sense | |
| from a broader economic perspective. | |
| Chairman CAMP. Thank you. Time has expired. I would ask | |
| unanimous consent to place in the record a Statement of | |
| Administration Policy on H.R. 325, the temporary suspension of | |
| the debt ceiling, where the Administration says, ``For these | |
| reasons, the Administration would not oppose a short-term | |
| solution to the debt limit and looks forward to continuing to | |
| work with both the House and the Senate to increase certainty | |
| in the stability for the economy.'' | |
| Without objection, so ordered. | |
| [The submission of The Honorable Dave Camp follows:] | |
| [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] | |
| Mr. Tiberi, you are recognized for 5 minutes. | |
| Mr. TIBERI. Thank you, Mr. Chairman. | |
| Thank you, gentlemen, for coming and testifying. | |
| Let me expand a little bit on Mr. McDermott's line of | |
| questioning and just get a quick response from the four of you. | |
| Back in 2006, speaking on the Senate floor, then Senator Obama | |
| announced that he intended to vote no on the debt-ceiling | |
| increase. He went on to say, and I quote, to oppose the | |
| effort--``I oppose the effort to increase America's debt limit. | |
| We now depend on ongoing financial assistance from foreign | |
| countries to finance our Government's reckless fiscal policies. | |
| Over the past 5 years, our Federal debt has increased by $3.5 | |
| trillion dollars to $8.6 trillion.'' Oh, to have those numbers | |
| today. Since then, we now have a $16.4 trillion debt, nearly | |
| doubled in 6 years. In fact, since this President has become | |
| President in 2009, he has added more than four times, more | |
| than--more debt in 4 years, excuse me, than the previous | |
| President did in 8. | |
| So, to the four of you, a quick question. Was the President | |
| right, is this a failure of leadership? And is there a better | |
| direction? | |
| Mr. Casey. | |
| Mr. CASEY. Well, I certainly think he was right that we | |
| oughtn't to continue to run the store based on borrowing. There | |
| is a lot of ways you can pay your debts, and they don't all | |
| include incurring---- | |
| Mr. TIBERI. But since he made that speech, it has gotten | |
| worse; we have done nothing to change the trajectory. | |
| Mr. CASEY. I agree. | |
| Mr. TIBERI. It has gotten worse. So is the President right, | |
| it is a leadership failure? | |
| Mr. CASEY. Yeah, I would agree with that, it is. | |
| Mr. HOAGLAND. Congressman, it didn't say that he was right | |
| to say what he said. I would be careful to point out that some | |
| of that increase in that debt that took place was a result of | |
| obligations that were incurred long before he was ever | |
| President of the United States or he---- | |
| Mr. TIBERI. Oh, right. | |
| Mr. HOAGLAND. Or wherever. And I just would make that very | |
| clear. | |
| Mr. TIBERI. Oh, sure. | |
| Mr. HOAGLAND. Also, I would simply say, the House-passed | |
| budget resolution last year under Congressman Ryan, which was | |
| going in the right direction of controlling spending, still had | |
| a debt for the end of this year at $17.1 trillion. | |
| Mr. TIBERI. Right. It is getting worse. | |
| Mr. HOAGLAND. It is--and getting worse. It is built into | |
| the pipeline. | |
| Mr. TIBERI. Thank you. Agreed. | |
| Mr. Foster. | |
| Mr. FOSTER. Yes, sir, thank you. There is no question that | |
| allowing debt to continue to build more rapidly as a share of | |
| GDP is reckless; it is irresponsible. Under some circumstances, | |
| it is inevitable. Those circumstances are not what we have | |
| today. We should be getting it under control and doing so | |
| quickly. | |
| Mr. TIBERI. Mr. Johnson. | |
| Mr. JOHNSON. Congressman, figures 2 and 3 in my written | |
| testimony address this issue directly; where did the debt come | |
| from? These are the Congressional Budget Office numbers. This | |
| is figure 2, and you can see the impact of the tax cuts; the | |
| two foreign wars; Medicare Part D, which was not paid for; the | |
| 2008 Bush tax cut; and then, of course, the financial crisis. | |
| The largest swing, if you move to figure 3, this shows you the | |
| swing in medium-term debt projected by the CBO before and after | |
| they realized the severity of the financial crisis. | |
| Mr. TIBERI. Let me ask you a quick question. | |
| Mr. JOHNSON. That is a 50 percent of GDP increase in debt. | |
| Mr. TIBERI. Was the President right, yes or no? | |
| Mr. JOHNSON. The President was right when he spoke of the | |
| reckless fiscal policies at the moment. What he didn't realize | |
| was how bad it was going to get as a result of reckless | |
| financial policies---- | |
| Mr. TIBERI. And so the President is right today, then, you | |
| are saying as well. Even though the debt has nearly doubled and | |
| we had a deficit actually that was on the decline with what you | |
| talked about, two wars, prescription drug benefits, tax cuts, | |
| it was actually less than $200 billion the year that Rob | |
| Portman, now Senator, was budget director and has now since | |
| gone over a trillion dollars 4 years in a row. | |
| Mr. JOHNSON. Congressman, we had the largest financial | |
| crisis since the Great Depression. | |
| Mr. TIBERI. I have heard this before. | |
| Mr. JOHNSON. We lost a huge amount of revenue, according to | |
| the Congressional Budget Office that is 70 to 80 percent of the | |
| swing in debt. These are the CBO's numbers. | |
| Mr. TIBERI. We are not going to solve it. I have another | |
| question for Mr. Hoagland. | |
| Mr. Hoagland, I notice that you have some experience on | |
| budget issues in the Senate. How many years did you work in the | |
| Senate, and when you worked in the Senate on budget issues, did | |
| they pass budgets when you were there? How many times? Or did | |
| they fail to pass a budget 1 year, 2 years, or maybe 3 years? | |
| Mr. HOAGLAND. I was with the Senate Budget starting with | |
| the CBO in 1975, with the Budget Committee since 1982, and left | |
| the Senate after Majority Leader's Office in 2007. Over the 33 | |
| years that we have had budget resolutions, beginning in 1979, | |
| seven times have we failed to get a conference agreement on a | |
| budget resolution. Unfortunately, over that 33 years, three of | |
| those times have been in the last 3 years. There is one time | |
| when I | |
| was staff director of the Senate Budget Committee with Chairman | |
| Pete Domenici that we did not get a concurrent resolution on | |
| the budget, and that had to do in 1998 when John Kasich was | |
| Chairman of the House Budget Committee, and we had just | |
| finished the 19--but one time. | |
| Mr. TIBERI. One time. | |
| Mr. HOAGLAND. The Senate not---- | |
| Chairman CAMP. Time has expired. Thank you. | |
| Mr. TIBERI. Thank you. | |
| Chairman CAMP. Mr. Doggett. | |
| Mr. DOGGETT. Thank you very much, Mr. Chairman. | |
| I know opinions clearly differ about where we are headed in | |
| the future, but I think as Mr. Johnson's chart demonstrates, | |
| when we concluded the Clinton Administration, we had a surplus | |
| for the first time in recent memory, and a huge tax cut, where | |
| Alan Greenspan sat where you are sitting, Mr. Johnson, and told | |
| us that the justification for this tax cut in part was that we | |
| were reducing the debt too fast, that we would create some | |
| uncertainties in the bond market because we were moving so | |
| quickly, but an unpaid tax cut, unpaid prescription benefits, | |
| two unpaid wars. Now we are told we can no longer afford, by | |
| some of our Republican colleagues, to provide health security | |
| for people at 65 or 66 that you just--you would like to do it, | |
| but we just can't afford to do it anymore. | |
| And as it relates specifically to the proposal we just | |
| heard the Administration's statement on, I gather your opinion, | |
| Mr. Johnson, is, you know, better than have a Valentine's Day | |
| cliff to at least have some additional time to help resolve | |
| this, but if we keep moving in 3-month or 1-month or 6-month | |
| spurts, the effect on economic growth will be very damaging. | |
| Mr. JOHNSON. Absolutely, Congressman. If we could pull up | |
| figure 1 from my written testimony---- | |
| Mr. DOGGETT. Please. | |
| Mr. JOHNSON [continuing]. What you would get is the spike, | |
| this is the spike from August 2011, you are going to have that | |
| every 3 months. That was a disastrous month for hiring because | |
| who wants to hire when you don't know if there are going to be | |
| payments made by the government or if various other disruptions | |
| are going to take place? These are big numbers for the U.S. | |
| economy. You are going to do this every 3 months, for how long? | |
| Until you have another election? That is far too long for the | |
| health and sanity of the American people. | |
| Mr. DOGGETT. And at the same time we had that phenomenon, I | |
| believe the General Accountability Office has estimated that | |
| the direct cost of Republicans taking us right up to the brink | |
| on the debt, on the full faith and credit of the United States | |
| last time was over a billion dollars in increased interest | |
| costs. We could also expect to see an increase in borrowing | |
| costs for taxpayers if we don't get this debt ceiling resolved. | |
| Mr. JOHNSON. That is a definite possibility, Congressman. | |
| To the extent we disrupt debt markets, if we worry investors, | |
| if we create risk, and we are hurting not just the Federal | |
| Government; this has implications for State governments and for | |
| local governments that, of course, do not generally borrow at | |
| the low interest rate the Federal Government borrows at, so | |
| they have a risk premium in there. You are driving up risk | |
| premia around the world when you generate this kind of | |
| uncertainty. | |
| Mr. DOGGETT. Your written testimony indicates that, for a | |
| decade, actually for a couple of decades, we have seen income | |
| inequality increase dramatically with little change in income | |
| for 90 percent of wage earners and a 50 percent increase for | |
| those at the top. What are the policies that you think we most | |
| need to address other than getting stability on this full faith | |
| and credit of the United States to change that and to ensure | |
| that there is a more equitable share in the success of the | |
| American economy? | |
| Mr. JOHNSON. Well, the evidence is completely compelling | |
| that education, human capital, the ability of people to work | |
| with information technology, these are huge determinants of | |
| what has happened to income inequality. And many people in | |
| American society today cannot afford by themselves to get that | |
| kind of education. | |
| To the extent that you can make resources available to support | |
| younger people, support families in the pursuit of high | |
| productivity human capital, that is good for them, that is good | |
| for the economy, and that is good for the tax base, so over the | |
| medium term, that is absolutely going to strengthen the budget. | |
| Mr. DOGGETT. And in terms of competitiveness worldwide, | |
| building a stronger workforce from, as you mentioned, early | |
| childhood education to access to a college education is really | |
| vital to American competitiveness, isn't it? | |
| Mr. JOHNSON. It is the number one determinant of both our | |
| competitiveness, the extent to which we can compete with other | |
| countries, and our productivity, how much do we actually | |
| produce per person in this economy. The number one determinant | |
| looking forward is human capital; that is about education. It | |
| is about ability to innovate, ability to work with those new | |
| technologies. | |
| Mr. DOGGETT. And over the short run, what is the effect of | |
| across-the-board cuts on early childhood education, on Pell | |
| grants, on research funding for medical research and other | |
| basic scientific research? | |
| Mr. JOHNSON. It is all going to be negative for growth and | |
| for human capital, and it is going to impact equality, and to | |
| the extent that you don't have a progressive tax system, it is | |
| also going to give you negative impact on the budget. | |
| Mr. DOGGETT. While the most immediate concern, I know, and | |
| the main focus of your testimony is upholding the full faith | |
| and credit of the United States, is it your feeling that at | |
| this time in our economy, we need to see a contraction of | |
| government spending? | |
| Chairman CAMP. All right, time has expired, I am sorry. | |
| Mr. Reichert. | |
| Mr. REICHERT. Thank you, Mr. Chairman. | |
| My first question is to all the panelists. Thank you for | |
| being here. There are a lot of--there is a lot of talk across | |
| the aisle about raising revenue to solve our debt problem. Is | |
| it possible to raise taxes enough to permanently sustain | |
| programs such as Social Security and Medicare without reforming | |
| the programs themselves? And what sort of tax increase would | |
| this be on the middle class, and what would this sort of tax | |
| increase do to our broader economy? | |
| Mr. CASEY. I would ask the Committee if I may pass on that | |
| since it goes beyond my legal expertise. I will defer to the | |
| economists. | |
| Mr. HOAGLAND. I believe that it would require a balance | |
| between both spending, controlling entitlement spending, | |
| mandatory spending, and revenue increases to lower the debt-to- | |
| GDP figure to a goal of about 60 percent. I believe the last | |
| proposal that was on the table before the fiscal cliff | |
| discussion was that the House Republican leader's proposal was | |
| $800 billion in tax increases; the President's was $960 | |
| billion. You get $600 billion; there is $200 billion there that | |
| you are still looking at for this next 10-year window, but I | |
| think that has to be coupled with changes to mandatory spending | |
| programs. | |
| To Mr. McDermott's position, there are specific proposals | |
| as it relates to changing the Medicare program that does not | |
| harm current recipients of Medicare but protects the program | |
| for the future beneficiaries out there. | |
| Mr. FOSTER. There is an illusion that you can solve all | |
| these problems with tax increases without getting into the | |
| question of whether or not you should, or that you could. The | |
| answer is you can't. The costs in these programs are rising so | |
| rapidly over the next decades, not 2014 or 2015, but over the | |
| near future, that you can't solve them with tax increases. We | |
| would not have much of an economy left if we tried that. | |
| So you must understand, the starting point for getting our | |
| fiscal house in order is reducing the growth in the entitlement | |
| spending, just as Mr. Hoagland suggested. Then it is a | |
| political point, a debatable point, as to whether or not you | |
| want to mix in tax increases as part of that solution. That is | |
| a political decision at that point, not an economic decision, | |
| understanding that the tax increases we tend to enact tend to | |
| be those most harmful to the economy, thereby slowing the | |
| growth of the economy as well as the tax base. But you have to | |
| start with the entitlement reform, slowing the growth of that | |
| spending. That is a necessary and unavoidable component of | |
| getting our fiscal house in order. | |
| Mr. JOHNSON. Congressman, I actually wrote a book on this | |
| topic, which I would be happy to send you. | |
| Mr. REICHERT. Congratulations. | |
| Mr. JOHNSON. Thank you. And the bottom line is that Social | |
| Security you could rebalance relatively easily with new | |
| revenue, and some relatively minor---- | |
| Mr. REICHERT. What kind of impact would that have on the | |
| middle class, just using revenue, just taxing people? | |
| Mr. JOHNSON. The impact on the middle class would be | |
| relatively small, and again, I can send you the numbers. The | |
| key issue there is that they are raising the cap on earnings | |
| subject to Social Security, which was not indexed last time | |
| that was changed by this Congress in the mid 1980s. | |
| The big problem is healthcare spending, Congressman, but it | |
| is not Medicare, per se, it is healthcare spending. If you | |
| shift that, the responsibility of health care from Medicare on | |
| to families, individuals, and companies, you will raise | |
| healthcare spending as a percent of GDP, that is the CBO | |
| scoring of that issue. And that is not going to help American | |
| families. You need to find a way to control, limit healthcare | |
| spending as a percent of GDP. That is the key variable to focus | |
| on, how the healthcare system functions, how it delivers, and | |
| what it costs. | |
| Mr. REICHERT. If tax increases were the only solution that | |
| you are talking about here, you are just relating the tax | |
| increase to Social Security. Medicare, Medicaid, what is the | |
| impact there? What is the impact of just raising taxes on the | |
| broader economy totally? | |
| Mr. JOHNSON. The problem, Congressman, is the healthcare | |
| spending. If healthcare spending increases, you can either pay | |
| that out of the budget, in which case it would be very high | |
| cost, or you can shift that on to individuals, in which case it | |
| ruins them. Either way, it doesn't make much difference. It is | |
| the healthcare costs that you have to focus on. | |
| Mr. REICHERT. I want to go to some of the discussion that | |
| was occurring earlier. Why are we focusing on spending today, | |
| now? Why now? I may not have enough time to get to that | |
| question. I see the yellow light is on. So, Mr. Chairman, I | |
| will yield back before. It is a long question. | |
| Chairman CAMP. All right. Okay. | |
| Mr. Larson, you are--I am sorry, Mr. Neal has come back in. | |
| Mr. Neal is recognized for 5 minutes. | |
| Mr. NEAL. Thank you, Mr. Chairman. | |
| As we debate increasing the debt ceiling this afternoon, I | |
| think a bit of history is important as we acknowledge the | |
| current fiscal situation. In January 2001, CBO estimated that | |
| the total budget surplus for 2002 to 2011 would be $5.6 | |
| trillion, surplus. Instead, after years of reckless spending | |
| and tax cuts, the Federal Government ran deficits from 2002 | |
| until 2011. The total deficit over that 10-year period amounted | |
| to $6.1 trillion, a swing of $11.7 trillion from January 2001 | |
| and its projections. | |
| We began down this path by enacting tax cuts that cost the | |
| government $2.3 trillion. The other major expenditure during | |
| those years that contributed mightily to these deficits is the | |
| engagement in two wars. By the time we got to January of 2009, | |
| the debt was $10.6 trillion, setting a record for debt for any | |
| Administration. Pursuing two wars and massive tax cuts was the | |
| reason, and Mr. Johnson, while he was temporarily holding the | |
| chair for Mr. Camp, indicated that we were all responsible for | |
| many of those positions. Having voted against the war in Iraq | |
| and having voted against the Bush tax cuts in 2001 and 2003, I | |
| think I have earned an element of credibility on these | |
| questions. | |
| So today we are debating another increase in the debt | |
| limit. I don't understand how anyone who voted for the Iraq war | |
| could now vote against raising the debt ceiling. In reality, | |
| arguing over the debt ceiling is essentially an argument over | |
| whether or not we should pay our bills. We should pay our | |
| bills. | |
| This debt is about the past, not about the future. If you | |
| voted for the war in Iraq and the Bush tax cuts, the bill is | |
| here. Remind our colleagues and friends: 1.7 million new | |
| veterans, 45,000 of whom have served us honorably, as the other | |
| 1.7 million have, but they have been wounded. Half of the | |
| 45,000 have claimed disability. | |
| So we hear from some of our friends, the default deniers, | |
| that they think hitting the debt ceiling is no big deal, that | |
| we could raise the debt ceiling only if we cut government | |
| spending as well. But where were they during those years, those | |
| very difficult years? And incidentally, I have compiled the | |
| voting records on the debt limit increases that President Bush | |
| requested during those years. | |
| And I hope, Mr. Chairman, I could insert that into the | |
| record. | |
| Chairman CAMP. Without objection. | |
| [The submission of The Honorable Richard Neal follows:] | |
| [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] | |
| Mr. NEAL. Thank you, Mr. Chairman. | |
| Many of the most senior Members of this Committee routinely | |
| voted to raise the debt ceiling during those years, even though | |
| the money for the tax cuts and the wars was put on emergency | |
| basis for the purpose of hiding the costs. So I am pleased that | |
| we are coming around to a more reasonable position today, and I | |
| hope that we are going to find a common path forward on many of | |
| these issues. | |
| Mr. Johnson, you state in your testimony that low-- | |
| unemployment depresses tax revenue, and this is the major | |
| reason for our current deficits and why they are so large. Once | |
| the economy recovers fully and the unemployment rate is | |
| lowered, it certainly will take some of the pressure off of | |
| these discussions, acknowledging there are long-term challenges | |
| that we have to address. I have been making this point inside | |
| of my own caucus, not to overreact to the situation in which we | |
| find ourselves, and if we could only find that common path | |
| forward that I referenced, we would find that you could have a | |
| conversation that would be worthwhile past the political | |
| talking points. | |
| Now, getting Americans back to work should be the number | |
| one priority, and as we address this fiscal situation, toying | |
| with the debt, considering that American companies are | |
| estimated to be sitting on $1 trillion domestically and more | |
| than $1.8 trillion offshore. If we offered a picture of | |
| stability, and again a conversation worth having, we might be | |
| able to ameliorate some of the tension that surrounds this | |
| issue. | |
| Would you comment, Mr. Johnson? | |
| Chairman CAMP. You have 8 seconds. You can follow up with a | |
| letter, but we are going to stay on time here. | |
| Mr. JOHNSON. We should pay our bills. That is the number | |
| one priority. If we don't pay our bills as a government, we | |
| will disrupt the economic recovery and push unemployment | |
| higher. | |
| Mr. NEAL. Thank you. | |
| Chairman CAMP. Thank you. | |
| Mr. Boustany, Dr. Boustany is recognized. | |
| Mr. BOUSTANY. Thank you, Mr. Chairman. | |
| I want to put this in perspective for a moment. The former | |
| Chairman of the Joint Chiefs of Staff, Admiral Mullen, was | |
| quoted as saying the debt of the United States is a threat to | |
| our national security, and while it might not rise to that | |
| level acutely immediately, it certainly is a serious strategic | |
| restraint on the ability of the United States to operate in an | |
| international environment. And it is clearly a threat to our | |
| economic prosperity. | |
| I want to make it clear, nobody on this side of the aisle | |
| is talking about default, none of us are talking about default. | |
| We are talking about a serious solution going forward with a | |
| big problem, which is widely acknowledged to be a spending | |
| problem. | |
| Now, several of you made a number of points. Mr. Casey, you | |
| talked about Congress having the power of the purse and using | |
| it wisely, with discretion, to enact spending reforms which are | |
| desperately needed. | |
| Mr. Hoagland talked about going back to regular order, | |
| something we all believe needs to happen. You also mentioned | |
| temporary extraordinary measures that are currently being used | |
| and talked a little bit about prioritization, and I want to | |
| bring that up again in a moment. | |
| Mr. Foster, you spoke about process not being a substitute | |
| for real policy reforms. We all agree with that, I think both | |
| sides could agree with that. | |
| But the bottom line is this: We have a spending problem, | |
| and we have to also recognize that in the context of how it | |
| plays out in the economy, it is not just spending, but it is | |
| also a need for growth. This is why we want to do tax reform, | |
| real tax reform, fundamental tax reform that puts our Tax Code | |
| on a 21st century basis that promotes American competitiveness | |
| and growth. | |
| Now, historically, and I went back and I read a CRS report, | |
| short-term debt limit increases have been used just to buy time | |
| in order to get to a point where you couple it with real | |
| spending reforms. This has happened historically. Am I correct? | |
| Mr. HOAGLAND. Yes, sir. | |
| Mr. BOUSTANY. So we are not talking about something out of | |
| the ordinary as we talk about this current proposal on the | |
| table. | |
| But I want to go back, Mr. Hoagland, to prioritization | |
| because we know there are extraordinary measures already being | |
| done by Treasury, and prioritization, we wouldn't have to be in | |
| this crisis if the President had come forward with a real plan. | |
| He has had opportunities with four budgets and hasn't done that | |
| and has continued to perpetuate the problem. | |
| Now we are caught in a situation where we are waiting with | |
| the budget and the timing, but the bottom line is this: We | |
| don't need to be in this. We didn't need to be in this crisis, | |
| but we find ourselves in it. Now if prioritization is going to | |
| be used as one of these extraordinary measures, talk a little | |
| bit more, elaborate a little more on the fact that we have | |
| uneven receipts coming in and how this plays out. I want this | |
| to be real clear for the public that might be paying attention | |
| to this. | |
| Mr. HOAGLAND. The Treasury has estimated that the cash | |
| flows in are very unprecise. Even in a 1-week forecast out, the | |
| estimate is that varies on statistically plus or minus $18 | |
| billion, just 1 week out, just estimating the receipts coming | |
| in. Two weeks out, the estimates are a $30 billion variation | |
| plus or minus. When you combine that with the requirements, in | |
| terms of statute, the payments going out, you create a | |
| tremendous level of difficulty in terms of being able to set | |
| the timeframe in which you should pay those when you don't know | |
| exactly, when you are doing prioritization, paying with income | |
| coming in with the degree of variation that exists in the | |
| receipts coming in. It is just very, very difficult. | |
| Mr. BOUSTANY. For the interest payments, there is a | |
| different computer system, right, than what is used for the | |
| other payments? | |
| Mr. HOAGLAND. Correct. The interest payments is a separate | |
| computer system. It is possible that you could just prioritize | |
| those interest payments, but I think the Fitch report last week | |
| said that you could avoid an actual default, default being | |
| defined as paying the interest, but then those other | |
| noninterest obligations will be looked at as another form of | |
| default, which would also affect Fitch's rating. | |
| Mr. BOUSTANY. I see. How much time do you think we would | |
| have with prioritization? How much time could be bought? | |
| Mr. HOAGLAND. Congressman, I mentioned in my report that we | |
| are talking about the pay-fors, the Prompt Payment Act, the | |
| Impoundment Act; I think you have a long time in terms of you | |
| determining prioritization. | |
| Chairman CAMP. Time has expired. | |
| Mr. Larson, you are recognized. | |
| Mr. LARSON. Thank you very much, Mr. Chairman, and it's | |
| always good to see you back here and in good health. Let me | |
| start by saying thank you to our panelists for their testimony | |
| and thank you for your service to your institutions and the | |
| country and I thank the Chairman for this hearing. | |
| I think it is a good news/bad news story. On one hand, the | |
| good news is that we have avoided yet another immediate crisis. | |
| The bad news is that we are just kicking the can down the road | |
| for 3 months and, in essence, then are dealing with default and | |
| not paying on our bills just 3 months later. That creates an | |
| enormous problem and one I think that--I would hope that this | |
| Committee, above all others, could solve because I do believe | |
| in this Committee and its bipartisan membership in our ability | |
| to address this issue. We know that what we have to do is both | |
| stabilize this economy, invest in this economy, reform this | |
| economy, and grow it in terms of what everyone has testified | |
| and what the people on this Committee believe in. | |
| No less than Speaker Gingrich said on ``Face the Nation'' | |
| that, look, take the debt ceiling off the table, at least | |
| provide the American people with a modicum of security that | |
| they know we are not going to hold this hostage, too. We ought | |
| to be adults about it, as the former Speaker said, and take | |
| that off the table. That doesn't mean to desert the issue or | |
| back away from the issue of dealing with debt. And there are | |
| still appropriate opportunities, as he pointed out, whether | |
| through sequester or continuing resolution to do it, but we owe | |
| it to the American people to make sure we take this uncertainty | |
| away from them. We saw what that uncertainty does in terms of | |
| impacting their pensions and their 401(k)s, and they look to | |
| this Congress, and frankly, I think the Congress looks to this | |
| body to return to regular order. And I know we have the | |
| leadership on this body to do that, and by returning to regular | |
| order, we can go after the difficult things. | |
| Mr. Johnson pointed out that the issue is healthcare costs. | |
| That is true. Mr. Ryan, who serves on the Budget Committee and | |
| this Committee, has pointed out the issue is healthcare costs. | |
| How do we go after those costs? It just simply isn't | |
| entitlements, aka insurance that people have paid. They have | |
| paid for that; that is their insurance. What are the actuarial | |
| assumptions around that? What do we have to do to change and | |
| alter that? We ought to be able to carry that out in regular | |
| order, not in meetings in the White House, not in meetings in | |
| the Senate, where they won't do a budget and where they will | |
| wait to do some kind of bill themselves. We ought to be doing | |
| it in this Committee. | |
| Mr. Johnson, I was confronted in my hometown by our CFO, | |
| who said, ``Listen, if you guys don't provide us some certainty | |
| again, we have to go out to the bond market again in this very | |
| difficult time, and what happens to us is we end up in a | |
| situation where we have to raise people's property taxes | |
| because Congress twiddles and diddles and plays hostage | |
| politics.'' What is your experience with respect to the impact | |
| that this will have on local municipalities, our cities, and | |
| our communities? | |
| Mr. JOHNSON. Well, Congressman, the impact is going to be | |
| bad, and it could be dramatically bad, depending on what | |
| happens in 3 months. I don't agree with Mr. Gingrich on many | |
| fiscal issues, but I think on this one, he is right. Take the | |
| debt ceiling off the table permanently. Investors around the | |
| world are watching this hearing. They are looking at your | |
| words. They are trying to understand, what does prioritization | |
| mean? How does this not involve default? The degree of | |
| uncertainty that is being multiplied by this conversation is | |
| extraordinary, the impact on municipalities is going to be | |
| tough. They will face higher borrowing costs to the extent that | |
| risk premia rise in the United States and around the world and | |
| that means either they are going to fire people or they are | |
| going to raise property taxes or they are going to face some | |
| other problems. So this is a very bad route to go down from | |
| that perspective. | |
| Mr. LARSON. I have great respect for Dr. Boustany, but we | |
| are talking about default. And whether we are talking about | |
| immediate default or default 3 months from now, that is a | |
| policy issue. | |
| Mr. Hoagland, you also talked about bringing balance to | |
| this issue. I thought that was an excellent point, and you said | |
| that it ought to be done through regular order. How do you see | |
| that proceeding? | |
| Mr. HOAGLAND. I see that proceeding by the President | |
| submitting a budget. I see that proceeding by the Budget | |
| Committee passing budget resolutions. I see that by a | |
| conference agreement between the House and Senate on a budget | |
| resolution. I see that by including a reconciliation | |
| instruction to achieve the savings over the time period, and I | |
| see that working through the normal course. | |
| Mr. LARSON. I have been in Congress 14 years; we have not | |
| completed that once since I have been here in full complete | |
| order. | |
| That is why I think it is incumbent upon our Committee, and | |
| I know the great integrity that our Chairman and Members of | |
| this Committee have. I think that we can achieve those goals. I | |
| know my time is up. | |
| Chairman CAMP. Thank you. Thank you very much. | |
| Mr. Paulsen is recognized for 5 minutes. | |
| Mr. PAULSEN. Thank you, Mr. Chairman, also for holding the | |
| hearing. | |
| I want to thank each of the witnesses for being here. You | |
| know, it is pretty clear to me that there is actually broad | |
| bipartisan consensus that our country is on a fiscally | |
| unsustainable path right now. The 2010 report by the Bipartisan | |
| Policy Center's Debt Reduction Task Force--Mr. Hoagland, I | |
| believe you were a member of that Task Force--included the very | |
| sobering warning that the Federal budget is on a dangerous, | |
| unsustainable path. Federal spending is projected to rise | |
| substantially faster than revenues, and the government will be | |
| forced to borrow ever-increasing amounts. Federal debt will | |
| rise to unmanageable levels, which will push interest rates up, | |
| endanger our prosperity, and make us increasingly vulnerable to | |
| the dictates of our creditors, including nations whose | |
| interests may differ from ours. We have talked a little bit | |
| about that earlier from some of the other questions. | |
| My constituents are, quite honestly, very perplexed that | |
| Washington continues to borrow 40 some cents of every dollar it | |
| spends. They can't get their arms around that. And there is a | |
| recognition now that without significant changes to our fiscal | |
| policy, the national debt itself is going to become an | |
| existential threat. I would like each of the panelists, if you | |
| could, just comment what are the implications of current debt | |
| levels? What are the consequences of increased levels? And what | |
| really is the turning point where our debt becomes | |
| unmanageable, where it becomes an unmanageable situation? | |
| Mr. Casey. | |
| Mr. CASEY. Well, I think on most of that question, I will | |
| defer to the economists, but I will say that one thing I think | |
| we need to keep in mind is that we are not--we fling around the | |
| term debt ceiling. What we are talking about here is Congress' | |
| power to borrow money and how we should be paying our bills | |
| based on that or based on some other method of raising revenue, | |
| so I think it is very important to keep that clearly in mind. | |
| Mr. PAULSEN. Mr. Hoagland, you were a member of that Task | |
| Force as well. | |
| Mr. HOAGLAND. Yes, and in fairness, Congressman, that Task | |
| Force also recommended a balanced plan that included tax | |
| increases as well as spending cuts going forward, more on the | |
| spending side than on reduction of the rate of growth. The | |
| implications of the debt level, that we are headed at 77 | |
| percent going into the future, I think has a major--will | |
| jeopardize, quite frankly, our standing in the world. When we | |
| have about 40, 50 percent of this debt owned by investors | |
| outside of the United States, we are questioning, we are | |
| raising questions about the sovereignty of this country going | |
| forward. | |
| In terms of, where is the turning point, I think that is | |
| the problem; most economists would say they can't answer that | |
| question. Who knows when that last drop into the test tube | |
| turns the water blue? But it will turn at some point, and that | |
| is the problem. When it turns, it will turn fast. That is why I | |
| think you have to have a plan going forward to avoid that date | |
| coming. I don't know. There is a book out on this called, | |
| ``This Time is Different.'' This time is not different. | |
| Something will happen. We just want you to control that so it | |
| has some process behind it. | |
| Mr. PAULSEN. Now, knowing that the United States is still a | |
| safe haven in terms of money flocking here, based on what is | |
| happening in Europe, I mean, can we learn anything of what is | |
| happening in Europe basically on how capital---- | |
| Mr. HOAGLAND. We are not Greece. We are not Italy. We are | |
| not Spain, but I think when you look at the level of spending | |
| there relative to their assets, I think you end up with a | |
| situation where you do create social disorder which is very | |
| dangerous. | |
| Mr. PAULSEN. Mr. Foster. | |
| Mr. FOSTER. There are three basic things. The first is that | |
| with all that debt, you are going to see in the future a lot | |
| more of government's resources, the Federal Government's | |
| resources being used just to pay off the interest on the debt | |
| from the past. As I said in my testimony, Americans expect | |
| services from the taxes they pay; they don't expect just that | |
| you service the debt from previous deficits. | |
| Second, interest rates are going to rise. We have now | |
| increased the debt sufficiently that all previous debates about | |
| whether deficits matter for interest rates can be set aside. It | |
| has now risen enough that it will matter, and it will matter a | |
| lot. Interest rates will rise and they will rise a lot faster | |
| and further than they ever would have otherwise. | |
| Third, as my colleague was just saying, it is like a family | |
| or any business, if you take on far too much debt, you lose | |
| control of your own future. You lose control of your path | |
| forward. Somebody else is going to be able to dictate the terms | |
| to you as to what you are going to do. The dictator in this | |
| case will be the bondholders and the credit markets. We lose | |
| control of our future as a Nation. Ask these countries in | |
| Europe, Mr. Hoagland knows, we are not Spain or Italy or | |
| Greece, but we will have one thing in common if we keep this | |
| path: We will lose control of our future as they have lost | |
| control of theirs. | |
| Mr. PAULSEN. Can you comment in terms of if there is even a | |
| 1 percent or a 2 percent increase in interest rates what the | |
| effect is going to be on interest payments, on a dollar amount? | |
| Mr. FOSTER. Well, if you think about it, 1 percent payment, | |
| and you have $15 trillion out there, that's $150 billion---- | |
| Chairman CAMP. All right, thank you, time has expired. | |
| Mr. Kind is recognized for 5 minutes. | |
| Mr. KIND. Thank you, Mr. Chairman. | |
| I want to thank you for holding this hearing and thank the | |
| panelists for your input and your discussion today, which is | |
| important. I think we all understand what the ultimate solution | |
| is of the debt ceiling: We need a long-term, bipartisan deficit | |
| reduction agreement in this place that is comprehensive and | |
| that will get our fiscal house in order, especially dealing | |
| with the demographics and the aging population. That is the | |
| answer. I equate this to the Middle East peace plan. We all | |
| know where we need to end up; it is just finding the political | |
| process and the will to get there. Every bipartisan commission | |
| that has met and been tasked to come up with a solution has | |
| reached the same conclusion, there is going to have to be some | |
| additional revenue and some major spending reforms in the | |
| budget for this to make sense in a balanced and a fair fashion. | |
| Mr. Foster, I appreciated your testimony here today where | |
| you said there is some additional room on the revenue side, | |
| even given where we ended up with the fiscal cliff, a little | |
| over $600 billion over 10 years in new revenue, but that was | |
| short of where things stood during the previous conversations. | |
| But, Mr. Johnson, in your written testimony and also your | |
| oral testimony here today, I think you have been fairly clear | |
| that the greatest if not the chief contributor to the deficits | |
| and the fiscal shortfall today has been the underperforming | |
| economy and the high unemployment rate, so I would assume then | |
| that one of the responses if not the response to help with the | |
| fiscal situation is to get the economy back fully functioning | |
| with good-paying jobs and lowering the unemployment rate. Is | |
| that right? | |
| Mr. JOHNSON. Absolutely, Congressman, and it would be, in | |
| that context, disastrous if you were either not to extend the | |
| debt ceiling or create a lot of uncertainty about who is | |
| getting paid and how they are getting paid because of the debt | |
| ceiling or because of the sequester or because of some sort of | |
| government shutdown. All of those things are bad for the | |
| recovery. They are bad for revenue, and all those things would | |
| tend to push up interest rates, which has the adverse | |
| consequences that my colleague just described. | |
| Mr. KIND. So I really don't understand the argument for | |
| holding the debt ceiling hostage and jeopardizing the full | |
| faith and credit and possibly defaulting on our financial | |
| obligations for the first time in our Nation's history, given | |
| the safe haven that we have enjoyed. In fact, the great irony | |
| in this recession is the fact that people have been willing to | |
| pay us to take their money, which is, in effect, what has been | |
| going on. It has been a lifesaver for us economically, and all | |
| that, I assume, would be in jeopardy overnight if we do default | |
| on our financial obligations. Would you agree? | |
| Mr. JOHNSON. Absolutely. The most obvious risk we face is | |
| that we will, through our own deliberate irresponsibility, | |
| undermine the safe haven status of the United States. The world | |
| is a complicated, dangerous place; people look to the United | |
| States as a safe place to keep their reserves, keep their | |
| money, but we can throw that out the window very, very quickly | |
| if irresponsible actions are taken around the debt ceiling. | |
| Mr. KIND. I would also submit that, you know, both sides, | |
| both political parties need to be a little more realistic in | |
| our approach to this whole discussion, and not to sound too | |
| partisan, but we have just come off two national campaigns | |
| where my colleagues on the other side accused Democrats of | |
| taking $700 billion out of Medicare and promising to restore | |
| that money while at the same time promising to increase defense | |
| spending by $2 trillion over the next 10 years. Those are the | |
| two largest spending programs we have in the Federal deficit, | |
| and that is a $2.7 trillion proposition of new spending that | |
| they were offering in two national campaigns, and now they want | |
| to sit back and criticize the President for not being realistic | |
| in his budget choices? They lose me on that argument. | |
| But, Mr. Hoagland, you have had a lot of experience and | |
| especially with Dr. Frist, and we do understand that the | |
| largest and fastest growing area of spending is rising | |
| healthcare costs. I think there is a solution to getting | |
| enhanced quality of care but at a better price. We need to | |
| change the way we pay for health care in this country, so it is | |
| value- and outcome-based and no longer volume-based, which fee- | |
| for-service brings. Would that help improve the fiscal outlook | |
| if we can make that conversion to a different payment system? | |
| Mr. HOAGLAND. Yes, Congressman. I don't want to scoop my | |
| bosses. Senator Frist, Senator Daschle, Senator Domenici, and | |
| Alice Rivlin will be coming out with a report here in the | |
| middle of March, where we are looking specifically at this | |
| question, and one of the areas where we are focusing, we have | |
| to move away from the fee-for-service payment system to a more | |
| orderly system and move it away, and we believe that in the | |
| long run will help control costs overall in the Medicare area, | |
| but that also some 50 percent of health care is---- | |
| Mr. KIND. Well, I knew you guys were involved in that work | |
| because the Institute of Medicine is doing a comparable report | |
| coming out in a couple months. I also appreciated Mr. Brady's | |
| comment, he is going to be the new Chair of the Health | |
| Subcommittee, about getting away from SGR and moving to a | |
| quality-based physician reimbursement system, too. I think that | |
| is going to be key to the fiscal outlook as well, but there is | |
| a lot here we can follow up on. | |
| But, Mr. Chairman, thanks again for this hearing and the | |
| feedback here today. Thank you all. | |
| Chairman CAMP. Mr. Reed is recognized for 5 minutes. | |
| Mr. REED. Thank you, Mr. Chairman. | |
| I have been listening to this testimony all afternoon, and | |
| I just have to say, I am embarrassed to hear some of the | |
| comments that have been made today about what I believe to be | |
| the biggest threat to the future security of our country, the | |
| security of our country, when it comes to our kids and our | |
| grandkids, and that is the debt. So I am going to ask you, | |
| point blank, each and every member of this panel, is the | |
| present debt path sustainable? Does anybody think that it is? | |
| Mr. HOAGLAND. No. | |
| Mr. REED. Mr. Casey. | |
| Mr. CASEY. No. | |
| Mr. REED. Mr. Foster. | |
| Mr. FOSTER. No, sir. | |
| Mr. REED. Mr. Johnson. It is a yes or no question. | |
| Mr. JOHNSON. No, sir, not over the long term, Congressman. | |
| Mr. REED. Thank you. Why is it not sustainable? Can each of | |
| you briefly answer that question? | |
| Mr. Casey, starting with you. | |
| Mr. CASEY. Well, frankly, as a layman, there comes a point | |
| when they start cutting up your credit cards, and we will reach | |
| it. | |
| Mr. REED. Mr. Hoagland. | |
| Mr. HOAGLAND. And when the rate of growth in terms of | |
| payment on the interest of that debt is faster than the rate of | |
| growth of the economy, then you are, the country is defaulting. | |
| Mr. REED. Mr. Foster. | |
| Mr. FOSTER. That is the heart of it, sir, when your | |
| interest expenses are growing faster than your income, you are | |
| in trouble. | |
| Mr. REED. Mr. Johnson. | |
| Mr. JOHNSON. Healthcare costs, Congressman, it is the | |
| failure to control healthcare costs, as just discussed. | |
| Mr. REED. So that is the debt, but the debt crisis, why it | |
| is not sustainable, is eventually the interest on the debt | |
| becomes so large that you can't pay that payment, correct? | |
| Okay, because I have done some calculations on that point, | |
| and I have looked at, what is our--if our present debt at $16 | |
| trillion, just close to 3 percent, what is the debt service | |
| payment on that for our interest costs? Do you guys know that | |
| off the top of your head? Well, it is $492 billion. Let's say | |
| it goes to 6 percent. Does anybody know what that is? | |
| Mr. FOSTER. Twice. | |
| Mr. REED. That is $985 billion. Do you know what that | |
| means? What are we presently paying on our debt service | |
| payment? Do any of you know that number off the top of your | |
| head? | |
| Mr. FOSTER. It is about $250 billion I believe. | |
| Mr. REED. Yeah, so if you take the difference between the | |
| two, it goes up to 6 percent, you have $765 billion of | |
| additional need for cash payments to service the debt. What do | |
| we pay on our national defense budgets in an annual year? | |
| Mr. HOAGLAND. We pay about $700 billion. | |
| Mr. REED. So overnight, because that is an annual number, | |
| we are going to have to find the amount that we pay on our | |
| national defense lines in our Federal budget, an equivalent | |
| amount of dollars to service our debt. Is my understanding | |
| correct? Does anyone disagree with that math? | |
| Mr. JOHNSON. You are right, Congressman, but if you have a | |
| big fight over the debt ceiling, that is going to push up | |
| interest rates and cause exactly the effect you are worried | |
| about. | |
| Mr. REED. So if we just take care of the debt ceiling, put | |
| our head in the sand and say, we are never going to worry about | |
| the debt ceiling, at what point in time does the debt become so | |
| large that our creditors say, you know what, we are going to | |
| charge you a little bit more interest, and that interest then | |
| goes up to 6 percent on the $16 trillion. Don't we just get to | |
| the same problem that you are concerned about in the short term | |
| on a long-term approach by not dealing with the underlying | |
| problem at all? | |
| Mr. JOHNSON. Congressman, I am totally in favor of dealing | |
| with the budget, that is the point of the book we wrote called | |
| ``White House Burning,'' a dramatic enough title I hope, but | |
| the point is you need a balanced approach, as Mr. Levin said at | |
| the beginning, and you have the forces to do it---- | |
| Mr. REED. Mr. Johnson, if I could, it is my time, it is my | |
| time. And I have heard the balanced approach now for a year and | |
| a half, and I heard it today from the panel. There has been | |
| $600 billion of additional revenue that--as a result of the | |
| fiscal cliff negotiations. A balanced approach to me was if you | |
| gave revenue, you got spending reforms. Has the President | |
| offered any spending reforms as of yet in regard to that $600 | |
| billion of additional revenue? | |
| Mr. FOSTER. We are hoping to see some in the budget, sir. | |
| Mr. HOAGLAND. When he, when the President put--when | |
| Secretary Geithner put forth his proposal on November 29th, he | |
| had spending reductions of like $400 billion. | |
| Mr. REED. So $400 billion in relationship to $600 billion | |
| of new tax revenue, and the President offered $400 billion in | |
| spending cuts. | |
| Mr. HOAGLAND. In fairness, the President proposed $1.6 | |
| trillion in revenues for $400 billion in spending cuts. | |
| Mr. REED. That doesn't sound too balanced to me, in my | |
| opinion. So I will just end with this. It is clear that Admiral | |
| Mullen had it right; this debt--and I could care less about all | |
| the people here in Washington, D.C.--I am really concerned | |
| about the people back at home, my constituents, my kids, my | |
| grandkids. This isn't sustainable, and to have this bickering | |
| over these issues without putting a real concrete proposal in | |
| front of the American people to say these are the visions of | |
| how we deal with this problem, that is why I wholeheartedly | |
| support this 3-month extension, and I am glad to hear the White | |
| House supports it also because at least now we will put in | |
| black and white hopefully in the Senate and in the House a | |
| vision to deal with this number one threat to our national | |
| security. Thank you. | |
| With that, I yield back. | |
| Chairman CAMP. Thank you. | |
| Mr. Pascrell is recognized for 5 minutes. | |
| Mr. PASCRELL. Three-quarters of the deficit reduction to | |
| date has been spending cuts, and I would rather err on the side | |
| of what Roosevelt said in his second inaugural, and that was, | |
| ``The test of our progress is not whether we add more to the | |
| abundance of those who have much; it is whether we provide | |
| enough for those who have too little.'' He said that in 1937 in | |
| the second inaugural. | |
| I am more concerned about one-fifth of our children living | |
| in poverty, and I am more concerned about the guys who are | |
| working out there--male income compared from 1969 to the | |
| present, and what do we have? We have people making, males | |
| making $1,000 more back in 1969. That is what I am concerned | |
| about. We have had a redistribution of wealth, all right, in | |
| this country. It was all upward. It was all upward. Let's get | |
| our facts straight here. | |
| This storied Committee, Mr. Chairman, is even discussing | |
| the idea that America will not pay our bills, that we will be a | |
| deadbeat Nation, as the President said, and that is | |
| unbelievable to me. Certain things are unbelievable to you. | |
| That is unbelievable to me because if you read Article XIV and | |
| Section 4, questioning whether or not to pay the public debt | |
| may be unconstitutional from this body. It is not a long | |
| section. It is the public debt. It is right there. | |
| And about the public debt, it also says--Mr. Foster, you | |
| didn't read the whole section. It says, if the House--if the | |
| Congress doesn't do it, the Executive must do it. It says that | |
| right in the bill. Am I not correct? | |
| Mr. FOSTER. I will leave that to the constitutional | |
| scholars. | |
| Mr. PASCRELL. I will read it to you. | |
| Mr. FOSTER. Go ahead. | |
| Mr. CASEY. No, sir, it doesn't say that, but please read | |
| it. | |
| Mr. PASCRELL. I will. If Congress won't pay them, then the | |
| Executive must. | |
| Mr. CASEY. In Section 4 of the 14th Amendment. | |
| Mr. PASCRELL. Well, I am talking about the interpretation | |
| of Section 4 of Article XIV. | |
| Mr. CASEY. Okay. | |
| Mr. PASCRELL. You disagree with that? | |
| Mr. CASEY. I disagree most wholeheartedly. | |
| Mr. PASCRELL. So the Executive has nothing to say about the | |
| debt? | |
| Mr. CASEY. Well, the Executive has no power to raise the | |
| debt, certainly. He has an obligation to pay the public debt, | |
| which is to say pay the amounts of money that have been loaned. | |
| Mr. PASCRELL. And how is he going to do that if the | |
| Congress does not give him the ability to do that? That is a | |
| little problem, isn't it? | |
| Mr. CASEY. It is obviously a problem. | |
| Mr. PASCRELL. Okay. Well, let me go on here. We are not | |
| going to default on our obligations and not just to our | |
| bondholders, because another thing that we are talking about, | |
| which is questionable, is whether we can prioritize the | |
| payments to make everybody happy. I have heard that here. Go | |
| ahead. | |
| Mr. HOAGLAND. I just want to be clear that I was not | |
| proposing prioritization. I was just pointing out the | |
| difficulties of prioritization. | |
| Mr. PASCRELL. So you understand it is questionable under | |
| the Constitution? | |
| Mr. HOAGLAND. Yes, sir. | |
| Mr. PASCRELL. We all saw the economic impact that the last | |
| debt ceiling had on the economy. The Dow dropped 2,000 points. | |
| We added $18.9 billion to our deficit just in that time, and | |
| for the first time in our history, we were downgraded for our | |
| credit rating. That was all when we didn't default, either. The | |
| mere threat of default and irresponsible discussions of default | |
| is what I am talking about right now, like the one we are | |
| having today, were enough to do significant damage to our | |
| economy, just the discussion of it. And we saw that. | |
| So let's give the American people some certainty. We have | |
| been saying that for the last 2 years. You have heard that. | |
| When are we going to solve that problem? When we solve this | |
| problem. How are people going to invest if they don't really | |
| know what is coming toward them? So let's end the talk of | |
| default, the irresponsible discussion. Responsibly default, | |
| could we responsibly default? Let's get an end to that | |
| discussion. Let's pass a long-term increase in the debt ceiling | |
| so that the phrase ``backed by the full faith and credit of the | |
| United States of America'' continues to mean something, and I | |
| believe it does mean something to all of you, and thank you for | |
| coming today. | |
| Chairman CAMP. Thank you. I would just note for the record | |
| that this discussion may not be as harmful as we think as the | |
| Dow S&P 500 just hit a 5-year high today. With that, I will---- | |
| Mr. PASCRELL. I am sure it is because of our discussion, | |
| Mr. Chairman. | |
| Chairman CAMP. Yes, I am sure it will be. | |
| With that, I would recognize Mr. Young for 5 minutes. | |
| Mr. YOUNG. Thank you so much, Mr. Chairman. | |
| I thank all our panelists for being here today. | |
| It is clear, based on all your testimony, that really the | |
| big issue here, I think Mr. Hoagland put it most succinctly, | |
| the real issue is mandatory spending, and, you know, we are | |
| entering budget season, what ought to be budget season here in | |
| Washington, D.C., and I am just curious. First, Dr. Foster, I | |
| will start with you. As the President submits his budget for | |
| fiscal year 2014, what do you anticipate the likelihood is that | |
| his request will include any reforms of significance to make | |
| sustainable Medicare and Social Security in that budget | |
| request? | |
| Mr. FOSTER. Well, sir, despite being an economist, I am | |
| also an optimist, so I am going to say I think he may take the | |
| opportunity and really choose to lead on this, and until he | |
| proves otherwise, that is what I am going to believe. | |
| Mr. YOUNG. Well, good. I share your hope. I spent a couple | |
| of years on the Budget Committee before being on this Committee | |
| and was hopeful then, too, so I think that is the most | |
| important thing that certainly could be done because it is | |
| important that we act quickly. There is a cost to waiting, and | |
| perhaps, Mr. Hoagland, you could discuss the important benefits | |
| of acting quickly here, coming up with a clear, specific, | |
| comprehensible, and comprehensive plan to make these largest | |
| unsustainable programs of government sustainable. | |
| Mr. HOAGLAND. Congressman, I think it is necessary that a | |
| plan be put together that shows a path toward regaining | |
| sustainability in the Medicare program long term and in the | |
| Social Security program. The President back in November had | |
| proposed about $400 billion in spending reductions. I am, like | |
| Dr. Foster, I am optimistic he will come forth with that. The | |
| proposal here by the Republican leadership was $600 billion. | |
| This is over a 10-year period. The only comment I would have, | |
| Mr. Young, would be that the issue of controlling healthcare | |
| costs in a 10-year window is difficult. What we really should | |
| be looking at is a much longer window because some of the | |
| fundamental changes we have to make in the healthcare delivery | |
| system will take time to implement, such as Mr. Ryan's proposal | |
| last year. | |
| Mr. YOUNG. Well, fair enough, and I supported Mr. Ryan's | |
| proposal last year. I was encouraged that it received some | |
| bipartisan support. I would hope in the future it might get a | |
| bit more. | |
| But, Mr. Hoagland, to continue with you, the road map, if | |
| you will, in order to arrive at a spot where we can get | |
| concrete ideas from Democrat leadership, from the President of | |
| the United States about how to make these largest programs of | |
| government sustainable is through regular order. Could you | |
| bring us through that regular order as we have articulated it? | |
| Mr. HOAGLAND. I am a regular order guy. I have spent my | |
| career up here. I believe the power of making legislative | |
| decisions lies with committees such as this very powerful | |
| Committee here, and I think it is better that the decisions in | |
| terms of what legislation could flow forward come out of the | |
| committees. Therefore, that is why I believe a budget | |
| resolution that is put together that sets the broad parameters | |
| for how much you are trying to achieve in the way of deficit | |
| reduction worked through the committees of jurisdiction is the | |
| most salient way of achieving a goal and expressing to the | |
| American public we really are serious about a fiscal blueprint | |
| that puts us on a path of sustainability, and we are lowering | |
| that level of debt to GDP in the future. | |
| Mr. YOUNG. It strikes me as an orderly approach, a | |
| collaborative approach, one that ought to receive bipartisan | |
| support, and one that by design is set up to come together with | |
| some degree of consensus about what our Nation's priorities | |
| are, and then give the markets a degree of certainty about what | |
| is going to happen in the future, allowing us to create more | |
| jobs, et cetera. | |
| Incidentally, this is exactly the approach that the House | |
| Republican Conference has taken with respect to the debt limit | |
| increase. We have tied increasing this debt limit contingent | |
| upon the Senate finally producing a budget for the first time | |
| in several years. It strikes me as eminently reasonable. It | |
| happens to also be very popular among the American people. So I | |
| do agree that talk about default is irresponsible to | |
| characterize this hearing as about something other than an | |
| effort to bring us back into balance and to try to get a budget | |
| out of the U.S. Senate and a clear budget out of the President | |
| of the United States. I think it is irresponsible to | |
| characterize it otherwise. | |
| And I would just say to Mr. Johnson, I will give you a | |
| brief opportunity to respond, sir, that you spoke a great deal | |
| about policy uncertainty, but really it strikes me the greatest | |
| uncertainty longer term exists when you have Medicare, | |
| Medicaid, and Social Security unsustainable and no plan to make | |
| them sustainable. | |
| Chairman CAMP. All right. Mr. Johnson will have to respond | |
| to that question in writing as time has expired. | |
| Mr. Davis is recognized for 5 minutes. | |
| Mr. DAVIS. Thank you very much, Mr. Chairman. | |
| I certainly want to thank our witnesses for coming. You | |
| know, it appears to me that as we continue to raise the specter | |
| of possible default, that we undermine the confidence of our | |
| citizenry, and we certainly do a disservice to our country. You | |
| know, if you are living every day with the idea wondering, are | |
| we going to be able to make it until next week, or are we going | |
| to be able to make it for the next 3 months, I am not sure that | |
| that is the most effective way of convincing our citizenry that | |
| we are a stable, viable government, able to solve its problems, | |
| to meet its needs, and bring resolution to whatever crisis | |
| there might be facing us. | |
| Dr. Johnson, let me ask you, after the 2011 crisis, we had | |
| the worst job creation month in 27 months. Why? Why did that | |
| occur? | |
| Mr. JOHNSON. That occurred because of the additional | |
| uncertainty created for everyone, including companies that make | |
| the hiring decisions about what is going to happen next week or | |
| next month. This is a classic problem many countries have, but | |
| those are usually countries much poorer and less well organized | |
| than the United States. It was in 2001, extraordinary and | |
| unbelievable to people that we would come so close to default, | |
| and it is extraordinary again today that you would put the debt | |
| ceiling on the table in these negotiations when the last thing | |
| you surely want to do is get into any of these complicated | |
| games about prioritization, nonpayment or this or that creditor | |
| or potential default. | |
| Mr. DAVIS. Let me ask, how do business interests, how does | |
| a company respond to this short-term kick the can down the | |
| road, when they have to make decisions about their company, | |
| people they must hire, or products they must develop? How does | |
| the business community respond to that? | |
| Mr. JOHNSON. They delay decisions; they wait. That is the | |
| finding, overwhelming finding, for example, by Baker Bloom and | |
| Davis but also other people who studied uncertainty, the | |
| effects of uncertainty. We don't know what is going to happen; | |
| therefore, we hesitate to make commitments. We are not going to | |
| buy that new equipment. We are not going to expand. We are not | |
| going to hire people. Let's wait and see. And while uncertainty | |
| remains elevated as it is today, there will be hesitation in | |
| hiring and hesitation for the overall macroeconomic recovery. | |
| Mr. DAVIS. It is my position that one of the great needs | |
| that we have to get out of the economic crisis that we have | |
| been facing and creating and wondering about is to create jobs. | |
| I mean, it seems to me that if more people were working, that | |
| that means more people would be paying taxes; they would be | |
| putting more money into the Treasury. And if jobs are not being | |
| created, then I don't think we can just keep dallying around | |
| and dallying around and still there is no bottom line. How does | |
| this impact job creation and really provide the kind of | |
| assurance that people are going to be able to work and | |
| contribute significantly to further development of our economy? | |
| Mr. JOHNSON. Job creation is going to be impacted | |
| negatively by the uncertainty around fiscal policy, | |
| particularly any discussion of the debt ceiling, any of the | |
| debt-ceiling-related points that have come up today. Those are | |
| negative in terms of increasing uncertainty. Those are going to | |
| cause more hesitation in hiring. Those are going to slow | |
| employment growth below what it would otherwise be. And those | |
| are not helpful to the economic recovery or, as you say, | |
| Congressman, to the budget. | |
| Mr. DAVIS. So, in essence, we are kind of kidding ourselves | |
| about being able, without creating jobs, to solve economic | |
| problems; that just making decisions to shift thoughts and | |
| ideas and processes, and at the end of the day, there are still | |
| no more people working. | |
| Mr. JOHNSON. You need an economic recovery, Congressman, | |
| for everything else that you want to do. And that requires jobs | |
| to come back to where they were. We are still at least 3 | |
| percent below peak employment pre-financial crisis. This is the | |
| longest, worst recession in American history since the 1930s. | |
| Mr. DAVIS. Thank you very much. | |
| And thank you, Mr. Chairman. | |
| Chairman CAMP. Thank you, Mr. Davis. | |
| Mr. Griffin is recognized for 5 minutes. | |
| Mr. GRIFFIN. Thank you, Mr. Chairman. | |
| Thank you all for testifying today. I want to be really | |
| clear as well. I haven't heard any talk on this side of the | |
| aisle about default, wanting to default, using default as | |
| leverage. That is a straw man. The only people I have really | |
| heard a lot about default from are on the other side of the | |
| aisle. So I just want to make that abundantly clear. | |
| And it reminds me of what now Majority Leader Reid said | |
| back in 2006. He is the one that was talking about default. He | |
| said, ``Americans know that increasing debt is the last thing | |
| we should be doing. After all, I repeat, the Baby Boomers are | |
| about to retire. Under the circumstances, any credible | |
| economist would tell you we should be reducing debt, not | |
| increasing it. Democrats won't be making argument to support | |
| this legislation, which will weaken our country, weaken our | |
| country. We are being asked to do what shouldn't be asked of | |
| us, to increase the debt to almost $9 trillion.'' | |
| So there is a lot of politics going on here. And what I | |
| would like to do--and most of the questions I had to ask have | |
| been asked. So I would like to just go over a couple of things | |
| to clarify. We have heard a lot of talk about the Bush tax cuts | |
| and the wars adding to our debt. And I was looking here at | |
| revenue as a percentage of GDP. And it is interesting that in | |
| the mid-1990s, when taxes were higher--1995, for example-- | |
| revenue as a percentage of GDP was 18.4 percent. During the | |
| Bush years, in 2007, after the economy recovered from 9/11, it | |
| was 18.5 percent. So the idea that revenue dipped significantly | |
| during the Bush years because of tax cuts is just not true. | |
| Sure, it went down after 9/11. | |
| I didn't see 9/11 labeled on this chart, Mr. Johnson. | |
| But I think that that is a critical part of the equation. | |
| The other thing that I would point out, a key change--and | |
| Majority Leader Reid referred to it--the key change has been | |
| demographics. We all agree we have spent too much in Congress, | |
| a lot of it long before I got here. But the issue now is not | |
| who spent too much. The issue now is, who is willing to fix the | |
| problem and who is not? That is ultimately the issue. | |
| And we have heard a lot about a balanced approach, and we | |
| just had an agreement here in the House, in the Congress, that | |
| raised taxes. | |
| Now, from my calculations, before the taxes that were | |
| raised on the American people recently--a few weeks ago--we had | |
| a deficit of about $1 trillion. After those tax increases, we | |
| have a deficit of about $1 trillion. Does anyone disagree with | |
| that? | |
| Mr. Casey, do you agree that it had no significant impact | |
| on our deficit? | |
| Mr. CASEY. I agree. | |
| Mr. GRIFFIN. Mr. Hoagland. | |
| Mr. HOAGLAND. I agree that the deficit for fiscal year 2013 | |
| will still be about $1 trillion. | |
| Mr. GRIFFIN. Even after the tax increases? | |
| Mr. HOAGLAND. Yes. But of course those tax increases phase | |
| in over a longer period of time. | |
| Mr. GRIFFIN. If you take $60 billion a year and subtract it | |
| from a little over $1 trillion, you are still right at $1 | |
| trillion. Correct, Mr. Foster? | |
| Mr. FOSTER. That is the simple math, sir. | |
| Mr. GRIFFIN. And Mr. Johnson. | |
| Mr. JOHNSON. No, Congressman. Look, the way that you have | |
| discussed the budget and the way you argue about the budget | |
| is over a 10-year timeframe. Those were insufficient, I agree, | |
| to completely address the budget issue. I supported larger, | |
| stronger strengthening of revenue--not immediately, though. | |
| Phasing it in over time is the right way to do it. You don't | |
| want to shock the economy too much. Phasing it in over 10, 15 | |
| years. | |
| Mr. GRIFFIN. I am running out of time. The bottom line is, | |
| I understand you look at things over 10 years. And we all know | |
| that in 10 years, there is no control over what is going to be | |
| spent and what is going to be coming in. But the bottom line | |
| is, the tax increases we got with no cuts did nothing to impact | |
| the deficit of any significance--it is still about $1 trillion. | |
| You could say it is $910 billion. Okay. It is still about $1 | |
| trillion. The bottom line is, we still are about $1 trillion in | |
| the red every single year. And I will be waiting with optimism | |
| to see the President's budget. | |
| Again, thank you all for coming today. And I yield back. | |
| Chairman CAMP. Mr. Hoagland, in your 33-plus years of | |
| dealing with budget issues in the Senate on the Senate Budget | |
| Committee and in other areas, have you ever known in the | |
| history of our country of four successive years of trillion- | |
| dollar deficits? | |
| Mr. HOAGLAND. No, sir. | |
| Chairman CAMP. So it is an unprecedented position we are | |
| in, in terms of the annual deficits? | |
| Mr. HOAGLAND. I never thought I would see trillion-dollar | |
| deficits. | |
| Chairman CAMP. And the debt--and I tend to use gross debt | |
| as a percentage of GDP. | |
| Have you ever seen the gross debt as a percentage of GDP at | |
| the level that we are seeing right now? | |
| Mr. HOAGLAND. Only after World War II. But then we owed it | |
| to ourselves, and we brought it down rather substantially | |
| there. | |
| Chairman CAMP. So since World War II, the level of GDP---- | |
| Mr. HOAGLAND. Has averaged about 40 percent. | |
| Chairman CAMP. Okay. And I was on the President's fiscal | |
| commission. And at that time, it was about 90 percent. Now it | |
| is over 100 if you look at gross debt. And we had a | |
| presentation there by doctors--it was by Drs. Carmen Reinhart | |
| and Kenneth Rogoth--who indicated that a country's economic | |
| growth would--and I am using their words--deteriorate markedly | |
| when its debt-to-GDP ratio was above 90. And obviously, we are | |
| at that point now. | |
| Mr. HOAGLAND. Correct. | |
| Chairman CAMP. What impact do you believe that will have on | |
| the economic growth and job creation in the United States in | |
| the future? | |
| Mr. HOAGLAND. I believe, again, that has a very negative | |
| impact upon the growth of this country going forward in terms | |
| of our credit rating around the world, in terms of our economic | |
| growth pattern will be negatively affected by that level of | |
| debt to GDP. While it is not a good example, all we have to do | |
| is look at what is happening in Europe and see the consequences | |
| that that has had over there. | |
| Chairman CAMP. We recently got a Fitch ratings report. And | |
| I am quoting from their report that said, ``In the absence of | |
| an agreed and credible medium-term deficit reduction plan that | |
| would be consistent with sustaining the economic recovery and | |
| restoring confidence in the long-run sustainability of the U.S. | |
| public finances, the current negative outlook on the AAA rating | |
| is likely to be resolved with a downgrade later this year, even | |
| if another debt-ceiling crisis is averted.'' | |
| How do you think the financial markets and the broader | |
| economy would react if Congress simply increased the debt limit | |
| and there was no credible commitment to addressing the current | |
| fiscal situation, as we have just discussed? | |
| Mr. HOAGLAND. Mr. Chairman, I think that the debt limit | |
| bill does not control or limit the ability of the Federal | |
| Government to run deficits or incur obligations. But I do | |
| believe there is a limit on our ability to pay obligations. So | |
| I think that while this is not the perfect solution, at least | |
| you do have the opportunity here by--if you simply raised it | |
| without some form of a process, which I hope would come about | |
| through going back to regular order, I think that would be | |
| looked upon very favorably. But if you simply raised it with no | |
| process involved, I think that would be looked upon negatively | |
| by the market. | |
| Chairman CAMP. All right. | |
| Dr. Foster, any comment on that? | |
| Mr. FOSTER. I think that is exactly right. The markets are | |
| looking. They understand something of Washington and how | |
| Washington works. They understand there are only a few moments | |
| in a given year or 2- or 4-year period in which we have a | |
| forcing moment, a time when Congress must actually do | |
| something. And the critical value of the debt limit and the | |
| debate around the debt limit that is a simple enough issue that | |
| the American people can understand it. The budget is | |
| complicated. They don't understand the budget. They do | |
| understand debt. They have debt. They understand. They don't | |
| understand trillions. But the concept, they get. | |
| The second value is that it is a forcing moment. It forces | |
| Congress to act when the regular order of the budget process | |
| has failed. Mr. Hoagland talked about this--and I completely | |
| agree with him regarding the importance of the regular order. | |
| But Congress has a regular habit of ignoring the regular order. | |
| This is a forcing moment, and it is a critical time to take | |
| action. | |
| Chairman CAMP. And Mr. Hoagland, again, given your | |
| experience on budget, we have had other short-term extensions | |
| of the debt limit in the history of this country, have we not? | |
| Mr. HOAGLAND. Yes, we have a number of times. Looking it | |
| up, I think it was at least--in my career up here, we have had | |
| it at least seven or eight times, we have had a short-term | |
| limited increase. | |
| Chairman CAMP. And we have also had extensions of the debt | |
| limit that have had policy reforms attached to them as well, | |
| have we not? | |
| Mr. HOAGLAND. Oh, I think the most important one--I said my | |
| first experience here was with the 1985 Gramm-Rudman-Hollings | |
| Act, which was tied to debt limit increase because we were | |
| going over $2 trillion. | |
| Chairman CAMP. So when the President and many Democrats | |
| call for a so-called clean increase in the debt ceiling, which | |
| they mean has no other reforms or other proposals attached to | |
| that or changes in spending behavior, how do you see the path | |
| forward? And what should advocates of lower spending expect | |
| from the Administration? Or other budget reforms that might be | |
| attached with it? You mentioned Gramm-Rudman-Hollings. And I | |
| would like you to comment and then Dr. Foster. | |
| Mr. HOAGLAND. As I say, I don't think the debt limit bill, | |
| per se, it controls spending. It controls--it is a limit. But I | |
| do think that there are other tools. And they are not pretty. | |
| But you do have a sequester. I would certainly argue--and this | |
| is just myself speaking, not BPC--that you would look at the | |
| sequester as something that really does reduce spending. And I | |
| would also argue that one thing to do there would be to modify | |
| the sequester so that it actually does affect more than just | |
| the discretionary portion of the budget and maybe, and with | |
| some trepidation, also tax expenditures. | |
| Chairman CAMP. All right. Dr. Foster. | |
| Mr. FOSTER. Yes, sir. As I mentioned, the debt limit is a | |
| forcing moment. And one of the things it can force is a shift | |
| in budget processes to make them more effective, to get | |
| Congress to take actions that it might not otherwise take under | |
| the regular order as it then stands, Gramm-Rudman-Hollings | |
| being the great example. | |
| One of the things we should be looking for in this current | |
| debate is, how do we tighten up, make more rigorous the budget | |
| process regular order so Congress takes it seriously and then | |
| puts forward the kinds of resolutions and reconciliation bills | |
| that Mr. Hoagland was talking about? | |
| Chairman CAMP. Thank you. | |
| And Mr. Casey, I just want to clarify this point before we | |
| adjourn. The Constitution grants Congress the sole authority | |
| over fiscal powers to tax, spend, and borrow; is that correct? | |
| Mr. CASEY. Absolutely correct. | |
| Chairman CAMP. And because the power resides in Congress, | |
| the debt limit is not actually a limitation on the Executive's | |
| power to borrow; is that correct? It is the statute that | |
| contains the debt ceiling is actually a grant of authority to | |
| the President. | |
| Mr. CASEY. It certainly can be read that way. I mean, it is | |
| a limit on the amount that Congress is permitting the Executive | |
| to borrow. | |
| Chairman CAMP. But it would be authority he would not | |
| otherwise have---- | |
| Mr. CASEY. Absolutely. Absolutely. Without it, he cannot | |
| borrow a nickel. | |
| Chairman CAMP. So when that authority runs out, it is | |
| actually the Constitution of the United States that is | |
| preventing the President from attempting to borrow on the | |
| credit of the United States? | |
| Mr. CASEY. Yes. | |
| Chairman CAMP. All right. Thank you. | |
| I want to thank all of our witnesses and certainly the | |
| Members for participating in this hearing today. | |
| And with that, this hearing is now adjourned. | |
| [Whereupon, at 4:36 p.m., the Committee was adjourned.] | |
| [Submission for the Record follows:] | |
| [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] | |
| [all] | |
| </pre></body></html> | |