[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
SOLUTIONS TO RISING ECONOMIC INEQUALITY
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, D.C., SEPTEMBER 19, 2019
__________
Serial No. 116-14
__________
Printed for the use of the Committee on the Budget
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available on the Internet:
www.govinfo.gov
___________
U.S. GOVERNMENT PUBLISHING OFFICE
38-006 WASHINGTON : 2020
COMMITTEE ON THE BUDGET
JOHN A. YARMUTH, Kentucky, Chairman
SETH MOULTON, Massachusetts, STEVE WOMACK, Arkansas,
Vice Chairman Ranking Member
HAKEEM S. JEFFRIES, New York ROB WOODALL, Georgia
BRIAN HIGGINS, New York BILL JOHNSON, Ohio,
BRENDAN F. BOYLE, Pennsylvania Vice Ranking Member
RO KHANNA, California JASON SMITH, Missouri
ROSA L. DELAURO, Connecticut BILL FLORES, Texas
LLOYD DOGGETT, Texas GEORGE HOLDING, North Carolina
DAVID E. PRICE, North Carolina CHRIS STEWART, Utah
JANICE D. SCHAKOWSKY, Illinois RALPH NORMAN, South Carolina
DANIEL T. KILDEE, Michigan KEVIN HERN, Oklahoma
JIMMY PANETTA, California CHIP ROY, Texas
JOSEPH D. MORELLE, New York DANIEL MEUSER, Pennsylvania
STEVEN HORSFORD, Nevada WILLIAM R. TIMMONS IV, South
ROBERT C. ``BOBBY'' SCOTT, Virginia Carolina
SHEILA JACKSON LEE, Texas DAN CRENSHAW, Texas
BARBARA LEE, California TIM BURCHETT, Tennessee
PRAMILA JAYAPAL, Washington
ILHAN OMAR, Minnesota
ALBIO SIRES, New Jersey
SCOTT H. PETERS, California
JIM COOPER, Tennessee
Professional Staff
Ellen Balis, Staff Director
Dan Keniry, Minority Staff Director
CONTENTS
Page
Hearing held in Washington D.C., September 19, 2019.............. 1
Hon. John A. Yarmuth, Chairman, Committee on the Budget...... 1
Letter and reports submitted for the record.............. 4
Prepared statement of.................................... 36
Hon. Bill Johnson, Vice Ranking Member, Committee on the
Budget..................................................... 39
Prepared statement of.................................... 41
Heather Boushey, Ph.D., President and CEO, Washington Center
for Equitable Growth....................................... 43
Prepared statement of.................................... 46
Hon. William E. Spriggs, Ph.D., Chief Economist, AFL-CIO, and
Professor, Department of Economics, Howard University...... 64
Prepared statement of.................................... 66
Kismet Evans, Home Healthcare Worker, Las Vegas, Nevada...... 80
Prepared statement of.................................... 82
Ramesh Ponnuru, Visiting Fellow, American Enterprise
Institute.................................................. 83
Prepared statement of.................................... 85
Hon. Sheila Jackson Lee, Member, Committee on the Budget,
statement submitted for the record......................... 123
SOLUTIONS TO RISING ECONOMIC INEQUALITY
----------
THURSDAY, SEPTEMBER 19, 2019
House of Representatives,
Committee on the Budget,
Washington, D.C.
The Committee met, pursuant to notice, at 10:01 a.m., in
Room 210, Cannon House Office Building, Hon. John A. Yarmuth,
[Chairman of the Committee] presiding.
Present: Representatives Yarmuth, Horsford, Moulton,
Higgins, Morelle, Scott, Kildee, Lee of California, DeLauro,
Cooper, Khanna, Sires; Womack, Johnson, Smith, Holding, Meuser,
Timmons, Flores, Hern, Roy, Crenshaw, and Woodall.
Chairman Yarmuth. Good morning and welcome to the Budget
Committee's hearing on Solutions to Rising Economic Inequality.
It is possible that we will have votes during this hearing.
So I ask unanimous consent that the Chair be authorized to
declare a recess at any time.
Without objection, so ordered.
I want to welcome our witnesses here with us today. This
morning we will be hearing from Dr. Heather Boushey, President
and CEO of the Washington Center for Equitable Growth; the
Honorable William E. Spriggs, Chief Economist at the AFL-CIO
and Professor of Economics at Howard University; Ms. Kismet
Evans, one of Mr. Horsford's constituents and a home healthcare
worker from Las Vegas, Nevada; and Mr. Ramesh Ponnuru, Visiting
Fellow at the American Enterprise Institute and a frequent
television commentator.
Nice to have you all with us today.
I will now yield myself five minutes for my opening
statement.
As a Congress, we have a responsibility to support policies
that give all hardworking Americans the opportunity to succeed
no matter where they started out. Unfortunately, policies
implemented over the past few decades have helped usher in an
era of economic inequality that remains one of our most
pressing economic and fiscal challenges.
During today's hearing, we will examine the causes and
consequences of inequality and discuss possible solutions to
strengthen our families and our federal budget.
Over the past 30 years, the richest 1 percent of Americans
have seen their wealth grow by nearly 300 percent. At the same
time, the poorest 50 percent saw no growth, even as the cost of
housing, healthcare, food, childcare and other basic
necessities have gone up and up and up, making it nearly
impossible for millions of American families to make ends meet.
The share of national income held by the wealthiest
Americans has also increased to levels not seen since the
1920s, right before the Great Depression.
In short, our economy has left working families behind. The
inequality it has created has impacted every generation. Our
nation's seniors are struggling to retire. Recent college
graduates and young people are putting off buying their first
homes or investing in assets that could increase their wealth.
Parents are finding it harder and harder to afford college,
job training and childcare, all of which are key to finding
success in a changing world.
Our nation's economic future depends on the success of
working Americans. Plain and simple, if they do not succeed,
our country does not succeed.
Economic inequality is suppressing economic growth and
eroding our tax base. It is putting pressure on federal, state,
and local budgets, and it is increasing the likelihood of a
financial downturn. In fact, income inequality has cost the
United States up to 9 percentage points in cumulative economic
growth over the past two decades.
But it is important to understand that the rise in
inequality is not just rooted in structural changes,
globalization, or other forces beyond our control. It is also a
result of decades of policy geared to help the very rich at the
expense of everyone else.
Beginning in the 1970s, as the United States experienced
major technological advancements, our country failed to take
the steps needed to ensure shared prosperity. Instead, workers
suffered from trickle-down economic policies, financial
industry deregulation, and attacks on organized labor.
As a result, wage growth slowed, and income and wealth
consolidated with the top 1 percent.
Unfortunately, here we are again. Rapid advancements in
automation and artificial intelligence are set to reshape a
broad swath of industries. In fact, a top official at IBM told
me earlier this year that in the next three years alone,
artificial intelligence will eliminate or significantly change
120 million jobs around the world, 120 million jobs in just
three years.
We need to make sure that the new industries of the future
and the skilled workers they demand will call the United States
home, not China or any other country. Instead, we just blew
$1.9 trillion on the Republican tax law that overwhelmingly
benefitted the wealthy and did little to improve our nation's
economy or prepare us for the future.
Continued efforts to deregulate the financial industry and
roll back consumer protections are endangering working
Americans. Legislation aimed at weakening unions is spreading
in state houses across the country, and we are setting a record
for the longest period in U.S. history without an increase in
the federal minimum wage.
What is worse, the current Administration is advancing
policies that would expand work requirements and redefine
poverty to make fewer people eligible for assistance, which in
turn makes it even harder for them to succeed.
America's greatest asset has always been our people, more
specifically, our workforce. And in this rapidly changing
world, it is also our greatest opportunity, but the federal
government must step up.
We must make a national commitment to early childhood
education and work to make college more affordable, raise the
minimum wage, expand job training opportunities, and invest in
the programs that help struggling families get ahead.
We need to address our aging infrastructure by overhauling
our crumbling roads and bridges, updating communications
systems, expanding broadband services to rural areas, all while
creating the new jobs of the future.
And we need responsible tax policies that will ensure
companies invest here, in U.S. workers and in the new
industries that will drive innovation for generations.
We must do all of this and more, not only because economic
inequality hurts American families and hinders their success,
which should be enough, but because it also threatens our
ability to compete in a rapidly changing global economy.
I look forward to hearing from our witnesses on the
importance of creating an economy that works for all Americans
and strengthens our fiscal future.
And now just one unanimous consent request, I ask unanimous
consent to submit a letter from First Focus on Children, along
with three of their reports entitled ``Children's Budget
2019,'' ``Shortchanging our Children Harms the Nation,'' and
``Implementing a Roadmap to Reducing Child Poverty.''
I ask unanimous consent to insert those all in the record.
Without objection, so ordered.
[The letter and reports submitted by Chairman Yarmuth
follow:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Yarmuth. I now yield to the Ranking Vice Chair,
Mr. Johnson, for his opening statement.
[The prepared statement of Chairman Yarmuth follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Johnson. Thank you, Mr. Chairman, and thank you for
your leadership here on the Budget Committee.
You know, there are many things in your opening statement
that you and I actually agree on. I wish we could find on this
Committee more common ground as it relates to our core task
because it seems to me, Mr. Chairman, once again, our Committee
has convened a hearing that does not focus on what we are here
to do, and that is to advance a budget and manage our
ballooning national debt.
The title of today's hearing is ``Solutions to Rising
Economic Inequality,'' but I am concerned this hearing is
focused on the wrong premise, that income inequality can only
be solved by redistributing wealth, increasing the minimum
wage, and eliminating pro-growth/pro-family policies like the
Tax Cuts and Jobs Act of 2017.
Instead, we should be focusing this Committee's time on
policies that create jobs, increase wages, and expand
opportunities for all Americans. Having lived in extreme
poverty as a child myself, I am so grateful that we live in a
country where Americans from all walks of life have the
opportunity to improve their economic situation.
And we must continue to build upon pro-growth successes,
such as the Tax Cuts and Jobs Act, to ensure upward economic
mobility is within reach for all hardworking American families.
Today I look forward to hearing more about the leading
proposal for wealth redistribution, the universal basic income.
We have heard a lot about universal basic income over the last
few months as presidential hopefuls discuss ways to address
what they call the income inequality crisis in our country.
Just last week we heard one presidential candidate
reiterate his support for a program that would give, give
$12,000 a year to each and every American adult. With a $28
trillion price tag, this type of proposal would not just bust
the budget and compound our existing mandatory spending crisis,
but it would also diminish the dignity of work.
The Budget Committee is supposed to be the Committee of
fiscal discipline, and we have a responsibility to ensure that
our government's finite resources are helping to grow the
economy, create jobs, and raise wages for all. That is why my
Republican colleagues and I will continue to support pro-growth
policies that expand opportunities, create jobs, and ensure
that wages continue to rise.
This past year was the first tax year under the new Tax
Cuts and Jobs Act, and American families kept more of their
hard earned money. As a result of the law, a family of four
with $73,000 of income received a $2,000 tax cut, a 58 percent
reduction in federal taxes. And by nearly doubling the standard
deduction and preserving and strengthening provisions that
support families, such as doubling the child tax credit, the
Tax Cuts and Jobs Act ensures that Americans can keep more of
their hard earned money to spend, save, and invest as they see
fit.
Families are seeing bigger paychecks with the median income
rising by 3.4 percent in 2018, and fewer Americans are living
in poverty, with the poverty rate dropping from 12.3 percent to
11.8 percent, according to the latest Census Bureau data.
Mainstream economists agree that strong economic growth is
the key to increasing wages and living standards so we should
be doing all we can to ensure our current economic growth
continues and expands.
Once again, I return to this idea that we are here asking
the wrong question. This hearing should not be about income
inequality. Instead it should be about policies that encourage
economic growth to provide all Americans with more
opportunities for upward mobility.
And while we have made important strides over the past few
years, the cost of living for middle class families continues
to rise, predominantly in heavily regulated and subsidized
sectors of the economy, including healthcare, higher education,
and housing.
Republicans stand ready to tackle the root causes of these
cost increases so we can put the American dream within reach
for more families across our great nation. Implementing free
market policies to increase competition and drive down prices
in these important sectors can build upon our current progress
rather than exacerbating our problems by raising taxes and
slowing economic growth.
It is my hope that in today's hearing we will discuss how
we can help people succeed in our economy by enacting policies
that grow the economy, create jobs, and boost paychecks for
Americans from all walks of life.
With that, Mr. Chairman, I yield back.
[The prepared statement of Bill Johnson follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Yarmuth. I thank the gentleman from Ohio for his
opening statement.
And in the interest of time, if any other Members have
opening statements, you may submit those statements in writing
for the record.
Once again, I would like to thank all of our witnesses for
being here this morning. The Committee has received your
written statements, and they will be made part of the formal
hearing record. Each of you will have five minutes to give your
oral remarks.
Dr. Boushey, you may start when you are ready.
STATEMENT OF HEATHER BOUSHEY, PH.D., PRESIDENT AND CEO,
WASHINGTON CENTER FOR EQUITABLE GROWTH; THE HON. WILLIAM E.
SPRIGGS, PH.D., CHIEF ECONOMIST, AFL-CIO, AND PROFESSOR,
DEPARTMENT OF ECONOMICS, HOWARD UNIVERSITY; KISMET EVANS, HOME
HEALTHCARE WORKER, LAS VEGAS, NEVADA; AND RAMESH PONNURU,
VISITING FELLOW, AMERICAN ENTERPRISE INSTITUTE
STATEMENT OF HEATHER BOUSHEY, PH.D.
Dr. Boushey. Thank you. Thank you, Chairman Yarmuth and
Ranking Member Womack, for inviting me to speak today. It is an
honor to be here.
My name is Heather Boushey, and I am President and CEO of
the Washington Center for Equitable Growth. We seek to advance
evidence-backed ideas and policies that promote strong, stable,
and broadly shared economic growth.
I am an economist by training, and I would like to
summarize for you what the economics field has discovered about
economic inequality in all its forms, income, wealth, and
across firms, to name a few, and their effects on productivity
and growth.
To get to the punchline, what we found is that inequality
constricts growth by obstructing, subverting, and distorting
the processes that lead to higher productivity, greater output,
and overall wellbeing.
Let me start with the current economic situation. We are in
the longest expansion in recorded U.S. history. The economy
continues to add jobs month after month, and the unemployment
rate remains historically low, but the strong headline numbers
have not translated into the kinds of wage gains we would
expect to see for workers up and down the income ladder.
As has been increasingly become the case over the past four
decades, earnings for low and middle income Americans have
grown slowly or not at all, while incomes for those at the top,
both in terms of income and wealth, have surged. From 1980 to
2016, those in the top 1 percent saw their incomes after taxes
and transfers rise by more than 180 percent, and those in the
top .001 percent saw their incomes grow by more than 600
percent.
At the same time, those in the bottom half of the income
spectrum saw only a 25 percent increase, according to research
by economist Thomas Piketty, Emmanuel Saez, and Gabriel Zucman.
They further find that that the richest 160,000 American
families own a collective $11 trillion dollars in wealth, or as
much as the entire bottom 90 percent of the U.S. population.
The Census Bureau and Federal Reserve likewise confirm that
inequality by wealth and income are reaching record levels and
continue to grow.
Now, some argue that focusing on inequality is misplaced,
and that the most important goal is to grow the pie and just to
focus on growth. To be very clear, the empirical evidence from
the economics profession shows that this is wrong. There is a
large and growing body of research that shows that we cannot
create strong or broadly shared economic gains through a policy
agenda that presumes that growth follows from allowing those at
the top to reap the bulk of the gains.
Our inequality-filled economy now grows slower than it did
when we were less unequal. Over the past few decades we have
grown at an annual pace of about 1.3 percent, compared to a
larger 1.7 percent in the 1960s and 1970s.
So how do we get back to growth that is strong, stable, and
broadly shared? Well, we need to confront the fact that we have
spent decades systemically undermining the capacity of
institutions that were set up to constrain and constrict
inequality. We must reverse this.
I encourage you to think about the structural effects of
concentrated economic wealth and power by focusing on the
following solutions.
First, I encourage you to measure what matters, to focus
not just on that aggregate growth number, but to look at what
that means in terms of income gains across the income spectrum.
The Measuring Real Income Growth Act introduced by
Representative Carolyn Maloney would tell us what growth looks
like for low, middle and high income Americans and allow us to
design policies accordingly.
Second, we need to rebuild institutions, such as unions,
that are inclusive, broad based, and diverse and represent the
voices of working and middle class families. I am sure Dr.
Spriggs will discuss this in more detail.
Third, we must address concentrations of wealth and power
and the inherently subversive effects they have on our markets
and economy through stronger antitrust enforcement and funding.
Industries from healthcare to telecommunications to airline
transportation are far more concentrated than ever, leading to
growing monopoly power for the few firms left standing. This
leads to lower wages for workers, higher prices for consumers,
and less innovation. All of that is underscored by recent
empirical evidence.
Fourth, as my other fellow witness will undoubtedly
testify, working people need support and laws that protect
their opportunity to move ahead in life and to care for their
families and their personal needs. They need a higher minimum
wage.
We also need to protect a worker's right to know their work
schedule and other policies that allow them to address
conflicts between work and family.
Finally, the United States should join its international
peers in offering a national paid family medical leave program.
Core to this agenda is the need to rebalance the power between
those that have access to resources and those who do not. The
current situation cannot and has not provided a path forward
for strong, stable, and broadly shared income gains across the
income distribution.
Thank you very much for your attention.
[The prepared statement of Heather Boushey follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Yarmuth. Thank you for your testimony.
I now recognize Dr. William Spriggs for five minutes.
STATEMENT OF THE HON. WILLIAM E. SPRIGGS, PH.D.
Dr. Spriggs. Thank you, Chair Yarmuth, for this invitation
to speak, and to Vice Ranking Chair Johnson and Members of the
Committee, good morning.
I am happy to offer this testimony on behalf of the AFL-
CIO, America's house of labor, representing the working people
of the United States, and based on my expertise as a professor
at Howard University in the Department of Economics.
Income inequality is a challenge for the Committee on the
Budget. It is already well established that the biggest
challenge to Social Security's funding is the unprecedented
rise in income inequality that started in the 1980s. Addressing
the cap on Social Security taxes to correct for that is well
known and a simple fix to address that problem.
But inequality also is a challenge because of the revenue
stream. We have the lowest taxes on the portions of national
income that are rising the most. So we have lower capital gains
tax; we have lower corporate taxes; and those are the things
that are growing.
We are raising taxes on working people because that is the
part that is diminishing, but that is where the tax base is in
the way we have written the budget. That is a challenge going
forward.
If you are going to get lower taxes for the rising part,
that is a problem, but there is another problem, and that is
inequality hurts growth. It slows the growth of the United
States.
There is a global consensus now. The International Monetary
Fund, the Organization for Economic Cooperation and
Development, and the World Bank have all deeply studied the
issue of inequality and growth and have concluded that rising
inequality hurts growth, and in the specific case of the United
States, our rise in inequality between 1985 and 2005 slowed our
growth during the expansion we had at the beginning of this
century, a fifth lower. Our growth rate was one-fifth lower.
That translates to around $12 billion a quarter lower than
it would have been had we maintained a higher level of
equality. For this Committee, that means about $2 billion less
in tax revenue.
So inequality hurts growth. This is not a tradeoff. This is
how you get growth, and the challenge is how do we address
that.
This income inequality comes from an inordinate growth of
income at the top. In 1968, the middle three quintiles of the
United States controlled 53 percent of the household income.
That made this a middle-income nation. The market responded to
where the money was, which was the middle.
But in 1988, the share of income for the middle dipped to
50 percent. By 2004, half the income was with the top 20
percent.
The problem with that is that is where the market is. That
dictates the market, and specifically it dictates the market
for housing and for college because that is where the market
is. Over 45 percent of the market in housing is in just those
one in five American families, not the rest of us. That is
where the dollars are. That is why the price of housing is
responding to their rise in income and not to median
households.
How do we fix that? Studies have become clear. Union
density matters. Both the IMF and independent academic
researchers here in the U.S. have found, looking at the problem
from a different set of perspectives, about 40 percent of the
rise in this inequality, the money going to the top 10 percent
rather than to the middle, comes from the decline in union
density.
Removing from American workers the ability to collectively
bargain over the productivity gains that American workers have
been producing means whoever is at the table first gets the
money, not American workers.
We can also address this by raising the income from the
bottom. We have to protect the bottom, and raising the minimum
wage is crucial to that effort.
When America had those policies of stronger collective
bargaining and protecting the minimum wage, wages and
productivity grew together. Labor share, therefore, stayed
stable, and that meant we had a middle income country.
The problem for the Budget Committee is imagining what will
the budget need to be in order for America to have private
residential investment and higher education investment to be
competitive in the 21st century. At this level of inequality,
it is not affordable. The market cannot solve it because the
bulk of Americans cannot afford those essential investments for
our growth.
We have gone from first in college educated workforces in
the 1990s to 19th among the advanced economies. That is not a
formula for sustainable economic growth in the 21st century.
Thank you.
[The prepared statement of William E. Spriggs follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Yarmuth. Thank you for your testimony.
I now recognize Ms. Evans for five minutes.
Welcome, Ms. Evans.
STATEMENT OF KISMET EVANS
Ms. Evans. Thank you.
My name is Kismet Evans, and thank you for having me here
today to talk about the budget and inequality that is going on,
and a special thank you to Congressman Horsford, who represents
my district in Nevada.
As I said, my name is Kismet Evans, and I am currently a
home health provider in Las Vegas, Nevada, who serves the
community.
With that, hearing the previous testimony and to make it
real clear because there is a lot of statistics and
information, but let me just be clear and get to the real part
of what inequality does.
I am a product of inequality. Twenty-four years ago I was
on drugs and alcohol and homeless, and through a program that
gave me the resources, the information, the education, and the
training necessary, I moved from that to become a business
owner, receiving the California Peace Prize award as a result
of my work in the community with homeless people, with the
underserved, and with the disenfranchised individuals who do
not get the opportunity to become positive wage earners or
receive a wage that allows them to care for their families
properly, which results in them having to put themselves in
compromising positions, to do things that no one wants to do,
but to make ends meet, these are some of the things that they
end up putting themselves in.
Without raising the minimum wage for individuals who work
in the home health means we are taking food out of their
pockets because in the home healthcare industry, every one of
our compliances we pay for, DOJ, CPR, first aid, our in-service
training, and that is taking from our minimum wage income to
pay out to this company who is making billions of dollars,
millions of dollars a year.
How is that not inequality to the family that is trying to
provide a nutritional meal to their child or who wants to be
able to send their kid down the street to the camp so that they
are not sitting home going stir crazy or having to be in a
community which is unsafe for them when they can be doing
something that they enjoy doing, building them up, you know,
allowing them to live and become what they desire to be?
We are smashing, we are stomping on, and we are killing
people's, who work in the low wage industry, dreams of having
something more, doing something more.
Every American deserves to be able to have security,
safety, pay their bills on time, know what life is going to
bring to them instead of seeing nothing but darkness, no hope
or anything.
I know that with the increase, we are not going to get it
today because it is an incremental process, but it is a start,
and those people that become wage increased earners put back
into the community. You know, they are able to contribute to
the revenue.
They are better trained. They are better educated, which
means that they are going to take and they are going to help
somebody else and pull them along.
We deserve an increase not because we need more money, but
because we want to be a better citizen, a better mother, a
better father.
We want to provide for our children and give them a future
because if we do not, we are only going to continue to see more
mayhem, more crime, more prostitution.
And it is not the elderly or the Baby Boomers or the
seniors. It is our kids that are being subjected to these
things because parents are not able to make ends meet. We are
leaving them out of this equation.
And I am just imploring you guys today to make this
something that is a priority, the wage increase and for all.
Home health workers, anybody in the service industry has a
better income to become a better person in society.
Thank you so much.
[The prepared statement of Kismet Evans follows:]
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Chairman Yarmuth. Thank you for your testimony.
Mr. Ponnuru, you are now recognized for five minutes.
Welcome.
STATEMENT OF RAMESH PONNURU
Mr. Ponnuru. Thank you, Chairman Yarmuth, Ranking Vice
Chairman Johnson, and distinguished Members of the Committee.
It is an honor to be testifying before you.
There is little dispute that inequality has risen since
1979, although some evidence suggests that it peaked in 2007
and has been falling since then.
There is considerably more disagreement about how
inequality should factor in our thinking about public policy.
The view that prosperity should be broadly shared is
widespread.
Few of us would be satisfied with an economy in which
average incomes are rising only because those at the very top
were moving further up.
At the same time, most of us think that rising living
standards for most people are more important than the relative
speeds at which different groups' living standards are rising.
Many analysts have argued that economic inequality has
negative effects that offer reasons to worry about it beyond
its importance in itself. Some believe that greater inequality
reduces economic growth, but these analyses are seriously
disputed.
My written testimony cites summaries of studies that
suggest that inequality has only modest effects, no effect, or
even positive effects on these variables.
It is easy to reach erroneous conclusions about the link
between inequality and wage growth because of a widespread
misunderstanding of wage trends over the last several decade.
Misleading claims that the average wage has been stagnant since
the late 1970s, coupled with the accurate observation that
inequality has risen, has heightened the impression of a causal
link between these trends.
But as I discuss in that testimony, using the correct
adjustment for inflation reveals that wages have grown
significantly, if unsteadily, over this period.
None of this is to deny that there are policies worth
pursuing that hold some promise of reducing inequality, but
these policies are worth pursuing primarily because they would
raise economic growth, boost living standards, and expand
opportunity.
Several provisions of the Tax Cuts and Jobs Act of 2017 are
examples of such policies. The bill's provisions expanding the
child tax credit and the standard deduction disproportionately
aided low income and middle income taxpayers, and the law
scaled back deductions for mortgage interest and state and
local tax payments that disproportionately aided high earners.
A further expansion of the child credit, increasing its
maximum value and making it fully refundable against payroll
taxes would recognize and foster investment in the next
generation, while also reducing poverty inequality.
Many other such policies would have multiple advantages in
this way. Loosening restrictions on the construction of
housing, especially in areas of the country with high economic
growth and severe restrictions would expand opportunity.
Loosening occupational licensure laws would also increase
upward economic mobility, in part, by increasing geographic
mobility.
Rethinking education policies so that they better serve the
large majority of young people who do not receive college
degrees could also expand opportunities.
And finally, better countercyclical policy from the Federal
Reserve might be able to reduce the risk and severity of
recessions, limiting the damage of business cycles which can be
especially severe for those with low or no incomes.
But policy makers should refrain from enacting policies
that in the name of reducing inequality inflict major harms.
The Congressional Budget Office's median estimate is that
raising the minimum wage to $15 would cause 1.3 million few
people to have jobs in the first year it took effect.
A tax on wealth would reduce national saving and,
therefore, either reduce investment in the United States or
increase capital inflows or both. To the extent that it
increased capital inflows, it would raise the trade deficit. It
would also be extraordinarily difficult to administer.
A universal basic income would very likely reduce the labor
force participation rate, which has already been in secular
decline, because people would be able to have a higher income
without paid work than they currently can.
It would also reduce hours worked because it would require
a major increase in taxation.
In short, public policies that could affect inequality vary
widely in their effects and thus their desirability. Policy
makers should focus on ways to reduce poverty, increase
mobility, and improve living standards, keeping in mind the
possible drawbacks of those policies and considering their
effects on inequality as a second order consideration.
Thank you.
[The prepared statement of Ramesh Ponnuru follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Yarmuth. Thank you for your testimony, and once
again, I thank all of the witnesses for their testimony.
As a reminder, Members can submit written questions to be
answered later in writing. Those questions and your answers
will be made part of the formal hearing record.
Any Members who wish to submit questions for the record may
do so within seven days.
And now we will begin the question period, and as a matter
of courtesy, but first of all, as our habit, the Ranking Member
and I are going to defer our questions until the end.
So, I now recognize the gentleman from Nevada, Mr. Horsford
for five minutes.
Mr. Horsford. Thank you very much, Mr. Chairman, for the
courtesy and also for holding this very important hearing to
discuss something that impacts so many of my constituents and
low income communities across this country, which is economic
inequality.
I am so excited with the panel that we have here today,
particularly Ms. Kismet Evans, who is one of our constituents
from our district. She is a leading voice and advocate for
economic equality and fairness, and I am so delighted that you
flew all the way across the country to bring your important
voice to this perspective.
I want to start off by highlighting the recent U.S. Census
Bureau's annual report on income and poverty, which showed the
importance of federal safety net programs in helping to keep
millions of people from falling into poverty.
Social Security benefits kept more than 27 million people
out of poverty last year. SNAP benefits kept an estimated 3
million people from becoming poor.
And yet the Trump Administration recently announced a
proposed rule related to SNAP eligibility that would negatively
impact about 46,000 SNAP recipients in my state.
When it comes to available affordable housing, which the
panelist just spoke about, Nevada ranks as the worst in the
country, according to the National Low Income Housing
Coalition. That is especially true for those considered
extremely low income, a group that often includes those living
off of Social Security or those with disabilities.
In Clark County, 250,000 people, or roughly a quarter of
the workforce in Southern Nevada, fall into the, quote, missing
middle. Those are people earning between 60 and 120 percent of
the median income in the area, a large chunk of whom are
teachers and others in the service industry.
These are individuals who we are fighting for, to make sure
that the programs that we support, including the Home Program,
are preserved. And yet the Trump Administration and
Republicans, after doing all of this, gave a gift of $1.9
trillion dollars in tax cuts to benefit the top 1 percent.
You want to talk about wealth redistribution? That is the
issue at hand.
So, Ms. Evans, again, thank you for being here and sharing
your story. You perform some of the most difficult, intensive,
and important work in our society as a home healthcare worker
and caregiver.
What will the increase in the minimum wage in Nevada mean
for your household and for others like you?
Ms. Evans. Thank you, Congressman, for that question.
First of all, the increase is something that we will not
see for a while because it is an incremental process, but
knowing that we are looking forward and toward an increase from
what we get already because we pay out so much of our income
for compliances just to be able to have a job; so if you do not
pay those compliances, you do not have a job.
So, one, it would mean that we would not have to take so
much money out of our pocket to pay for those compliances, in
addition to everything else that we have to pay for.
We are looking for an increase so that we can become
better, more attentive parents, provide better nutritional
meals for our families instead of coming home after being out
all night with someone else's loved ones, which is an arduous
yet blessed task to care for someone; however, when we get
home, I know there are people like the only thing they have
enough energy to do is pop a Top Ramen in the oven and give it
to them or, I mean, the microwave.
Mr. Horsford. So how does that, the pressures of being a
low wage----
Ms. Evans. Oh, a sigh of relief. We will be able to breathe
knowing that we will be able to do more things with the income
that we will be receiving because we will not feel so trapped.
We will not feel like we have to compromise, minimize, or
condone or put ourselves in a compromising position to make
ends meet.
So those are some of the real issues. Having to make ends
meet in other kinds of manners is what I am sure some of the
people that I work with would love to not have to contemplate.
Mr. Horsford. Thank you.
Well, this is a very important hearing. I also want to
commend Congresswoman Lee who has been a champion on addressing
these issues of income inequality and poverty, and I know she
has a number of blueprint policies that would help people like
you and others that we are fighting for. Thank you, Mr.
Chairman.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the Vice Ranking Member, the gentleman from
Ohio, Mr. Johnson, for five minutes.
Mr. Johnson. Thank you, Mr. Chairman.
And I, too, want to thank our panel for being here. I know
you have taken time out of your busy schedules to come, and I
appreciate that.
Several things have already been said that I think I have
to clarify because the facts and the statistics just do not
match up with what has been said.
Mr. Spriggs, you talked about rising taxes on middle and
lower income Americans when, in fact, the Tax Cuts and Jobs Act
did exactly the reverse. It lowered taxes on middle and lower
income families. It lowered taxes for virtually all Americans.
So I do not know what references you are using to get your
statistics from, but the real facts do not match that.
And when we talk about income and rising wages, there is
always that claim that incomes are going up disproportionately
for upper income wage earners than lower income wage earners,
and I have been at both ends of that spectrum in my life. So I
understand that dynamic.
But here is what is never mentioned. It is never mentioned
that the top 1 percent of Americans pay 37 percent of the taxes
in this country, and it is also never mentioned that the top 50
percent of wage earners pay 97 percent of the taxes in this
country because taxes are proportional. They are percentage
based. The more you earn, the more you pay.
That is the way the system works, and that is the way it
should work, but let's get to some questions.
Mr. Ponnuru, the Tax Cuts and Jobs Act increased the child
tax credit from $1,000 to $2,000 and increased the standard
deduction from $13,000 to $24,000 for joint returns.
This provides a substantial tax cut for the middle class
and helps reduce the cost of raising a family. So what do you
think the impact of repealing the Tax Cuts and Jobs Act would
have on American families?
Mr. Ponnuru. Repealing the Tax Cuts and Jobs Act would be a
substantial tax increase for many middle class families. The
Act, as the Joint Tax Committee concluded, cut taxes for each
income quintile roughly in proportion to the amount of taxes
that each quintile paid. It was carefully designed to have this
effect.
The Joint Tax Committee has also estimated that if you look
at the provisions that you mentioned: the child tax credit, the
standard deduction, and also some of the deduction changes and
the changes to the exemption, all told those provisions tended
to increase taxes on households making more than $100,000 a
year and decrease taxes on households making less than $100,000
a year.
So those provisions in particular, I would think, need to
be guarded.
Mr. Johnson. Yes. You know, we talk a lot about workforce
development. In the aggregate, America does not have a birth
rate that is replacing the aging, retiring workforce--the
10,000 Baby Boomers per day that are retiring.
One of the provisions of the Tax Cuts and Jobs Act that
encourages families to have children and to grow their families
if they want to is the child tax credit.
So what are your thoughts on what the Tax Cuts and Jobs Act
did to the child tax credit?
Mr. Ponnuru. I think that was an extraordinarily positive
development in the tax code. And I think that the crucial thing
in what you said was ``if they want,'' because we do have
evidence spanning decades now that Americans would like to have
more kids than they end up having.
To the extent that some of this is economically based and
some of it is based on being overtaxed, that is something that
public policy can and should address and in the Tax Cuts and
Jobs Act did address.
Mr. Johnson. Okay. I have got 20 seconds. I want to ask our
other witnesses just real quick. It is a very quick yes or no
answer.
Do you think it was beneficial for American families that
the Tax Cuts and Jobs Act doubled the child tax credit and
dramatically increased the standard deduction?
Dr. Boushey, yes or no?
Dr. Boushey. That is an important policy, but it is an
incredibly high price to pay.
Mr. Johnson. No, I need a yes or no.
Dr. Boushey. For the increase in deficits that we are going
to see----
Mr. Johnson. Yes or no.
Dr. Boushey.--and the way that taxes are going to go up for
those people in the future.
Mr. Johnson. Dr. Spriggs, do you have an answer to that?
Dr. Spriggs. Because you did not make it refundable, no.
Mr. Johnson. Okay. How about you, Ms. Evans?
Ms. Evans. No.
Mr. Johnson. And would you all support repealing those
provisions?
Ms. Evans?
Ms. Evans. Yes.
Mr. Johnson. Yes?
Dr. Spriggs. It has to be fixed.
Mr. Johnson. No. Yes or no, would you support it being
repealed?
Dr. Spriggs. I would repeal it because you have to make it
refundable.
Mr. Johnson. Okay. Dr. Boushey?
Dr. Boushey. You need to fix the tax code, and I agree with
Dr. Spriggs. Making it refundable is absolutely paramount.
Mr. Johnson. Okay. I yield back, Mr. Chairman.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Massachusetts, the Vice
Chairman of the Committee, Mr. Moulton.
Mr. Moulton. Thank you, Mr. Chairman.
America is founded upon the idea of equal opportunity. It
is our nation's guiding principle. It is the manifestation of
freedom.
The single guiding phrase of the American Revolution- it
has often been said- is that great Jeffersonian line from the
Declaration of Independence, ``All men are created equal,''
which we of course know now includes not just men.
Now, America is not a country of equal results. We thrive
on free competition, and we know that some will have greater
success than others. But if we do not start with equal
opportunity, we cannot live up to our fundamental values and
principles as a nation.
Therefore, I believe the most important question before the
Committee today is whether rising economic inequality is due to
a lack of opportunity, whether we are a country of equal
opportunity or not.
My colleagues across the aisle seem to think that
opportunity in America is just as equal as it needs to be. They
like to say two things about the problem of rising economic
inequality, and we heard both from the Vice Ranking Member in
his opening statement.
The first is: all we need to do is grow the economy, simply
grow the economy we already have. Now, this would make sense if
the current economy lived up to our ideals, that principle of
equal opportunity. So we should investigate this.
The second thing Republicans like to say is that this
entire conversation about economic inequality is about
redistributing wealth. And since they believe we should not do
this, we should not even have this conversation, or as the Vice
Ranking Member stated, we should not be holding this hearing.
But redistributing wealth is about equal results, not equal
opportunity. I am a proud Democrat, and that is not what I am
here to talk about.
So to directly address the two Republican concerns on the
table, if you want to, one, grow the pie more and, two, you do
not want to redistribute wealth, then it seems to me the only
remaining option is to ensure that opportunity in America truly
is equal.
So let us discuss whether opportunity in America is equal
or not, and whether making economic opportunity more equal, in
other words, living up to those ideals in our founding
documents, would help address rising economic inequality.
Dr. Boushey, to begin with, the research by Professor Raj
Chetty of Harvard finds that there is a very strong
relationship between parental income and the future income of
their children. In other words, economic inequality is not
equal, but strongly inherited, and it is a generational
problem.
Why does growing economic inequality leave the lowest
income families more at risk of generational poverty?
Dr. Boushey. Well, two points. First, one of the things
that we learned from Chetty's research that he concluded is
that if you look over the period over the past few decades,
children who are born in the middle part of the 20th century,
about 90 percent of them grew up to earn more than their
parents. Kids born in the 1980s, 90 percent are not growing up
to earn more than their parents.
And that decrease in absolute mobility over that time frame
is not due- or we could not have altered that outcome even if
the economy had grown more. In fact, 70 percent of that decline
in upward mobility was due to the rise of inequality.
As he put it, it is because the rungs on the ladder have
become further apart.
So it is important that we connect the dots between how
inequality is actually making it impossible for there to be
economic opportunity.
A second point from Raj Chetty's work is his really
interesting study on patents he did with a bunch of colleagues.
They found- they had data connecting what someone makes as an
adult and whether or not they have a patent with their third
grade math test scores and their parents' income in third
grade.
They found that children who scored high on their third
grade test scores were more likely to grow up and get a patent,
but if you were from a high income family, you were four times
as likely to grow up and get a patent among that high scoring
group.
That is a direct loss to our economy of productivity gains
because of the stymieing of opportunity and economic mobility.
Mr. Moulton. And it seems to me that if this is related to
third grade test scores, then rich kids are going to better
schools than poor kids. That does not to me mean economic
opportunity is equal in America.
Dr. Boushey. Well, in this case these were all kids in one
school system. So all the kids, and you have the high scores
over here. Among the group that scored high in third grade, the
ones who had rich parents were much more likely to move up and
out.
So even a patent----
Mr. Moulton. So, even if the school systems were equal,
which we all know that they are not----
Dr. Boushey. Yes. So, even among children in the same
school system, that inequality is creating a pipeline across
someone's life, and it is that that we need to be thinking
about and connecting the dots on.
Mr. Moulton. Thank you, Mr. Chairman.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Missouri, Mr. Smith, for
five minutes.
Mr. Smith. Thank you, Mr. Chairman.
I have said this numerous times, but the days change. Today
marks 150 days since this Budget Committee has failed to pass a
budget, 150 days. Speaker Pelosi said that a budget is a
statement of your values. It is a statement of your party's
values.
What are your values?
Instead, we are having hearings on other items than passing
a budget from this Committee. It is completely ridiculous.
Let us talk about this. Last month I traveled and visited
every one of our 30 counties in the month of August, visiting
with families and farmers and small business owners. And in our
30 counties, 20 of those 30 counties are below the poverty
level or above the poverty level. 20 of the 30 counties are
above the poverty level in Southeast Missouri along the
Mississippi River.
What I heard from these families is that they wanted to
have the opportunities, and the opportunities are what allows
them to have a better quality of life.
Speaking to some people that are third and fourth
generations on government assistance and welfare. Think about
that. Third and fourth generations.
Things are a little bit better. The economy is definitely
doing well. You all admitted to that in your opening testimony,
but a number that I think we need to point out is 1.4 million
fewer people are living in poverty today than what they used
to. That is a step in the right direction.
But just in the last couple of years, serving on a
committee here in Congress, I had a young lady that testified
before the committee that I was serving on, and she gave an
issue that she had to turn away an increase in her hourly wage
because of some federal welfare programs.
Think about that. There are over 80 different federal
welfare programs that add up to $1 trillion a year that we
spend to get people out of poverty, and we started that War on
Poverty back in the 1960s. We have not been winning that war.
But this lady testified before our committee and said, ``I
had to turn down the increases in my hourly wage because I
would lose subsidies, and my childcare subsidies, and my
quality of living would be less if I took a $2 an hour increase
in pay.''
That is called the poverty trap. If we want to get serious
about ending inequality, we need to make sure that we do not
keep and push people down to stay reliant on federal government
programs. We need to give them an incentive to work themselves
off the system.
And I think Republicans and Democrats can agree with that.
But instead, this lady had to turn down a wage increase because
of that security blanket being ripped out from underneath her
for childcare subsidies.
That is an easy fix that I think Republicans and Democrats
should agree, that would make the quality of life of a lot of
low income people so much better, and it is not even being
discussed right now. And I think that is a point of discussion
that we have to hit on.
When you are talking about the child, the Tax Cuts and Jobs
Act, it was my provision that helped double the child tax
credit, and, sir, it is refundable. It increases the
refundability up to $1,400. That is more than what it was
before the Tax Cuts and Jobs Act.
Do you know that in the district that I represent, the
median income household of a family in my district is $40,000 a
year . . . for a family of four? It is one of the poorest
congressional districts in the country.
But do you know what? Under the Tax Cuts and Jobs Act,
those people in Southeast Missouri and bootheel of Missouri, my
friends and neighbors, the place I have called home for seven
generations, by the changes in the Tax Cuts and Jobs Act of
doubling the standard deduction from $12,000 to $24,000 for a
husband and wife, and doubling the child tax credit from $1,000
to $2,000, guess what. They do not have to pay one cent in
federal taxes if they make $55,000 or less.
And that is under the Tax Cuts and Jobs Act. That is a real
impact to the door greeter at Walmart in Salem, Missouri. That
is a huge impact to the cashier at Schnucks in Farmington,
Missouri.
And so for you all to say that you do not want that to be
supportive, go talk to the people on the front lines who are
barely able to buy their prescription drugs. That are working
at Schnucks, and Walmart, and the AT&T stand at the mall in
Cape Girardeau.
So if we want to get serious about inequality, I give you
one way that we can start, Mr. Chairman. Let us try to all work
together.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from New York, Mr. Higgins,
for five minutes.
Mr. Higgins. Thank you, Mr. Chairman.
Dr. Spriggs, you had talked in your testimony about a time
when economic growth in wages grew in tandem, and based on the
economic data, that was a period between 1950 and 1980. We had
97 percent economic growth during that period, and real wages
increased by 95 percent.
That was a period of shared prosperity. Economists would
call that a virtuous cycle of growth. So you had high wages,
high demand, equal high economic growth.
During that period of 30 years, you had annual average
growth in the American economy of 4.1 percent. That was not
coincidental. That was a period of time where American
corporate leaders believed that it was their responsibility to
balance the interests of all the stakeholders in the American
economy.
So, it was the shareholders certainly that benefitted, but
it was also the managers, the workers, and the communities
within which these large corporations operated. And if you look
at the testimony of the CEO of GM, of Dupont, of General
Electric, of Standard Oil, of Coca-Cola, their themes were all
consistent. They thought it was their responsibility to help
families, the economic interests of all the stakeholders.
In 1962, an economist from the University of Chicago by the
name of Milton Friedman wrote a book called ``Capitalism and
Freedom,'' which was taught in a lot of American business
schools- Harvard, Stanford, and many others.
And he basically argued that forget about all of those
stakeholders. What you should do, as a corporate leader, is
push all the profits to the shareholders. Forget about the
workers. Forget about the communities. Forget about your
responsibility, that you yourselves once accepted was yours.
What happened during that period, 1980 to 2019, you had
economic growth of 94 percent and real wages increased by 9
percent, 9 percent. That was a 39-year period. The average
annual growth in the American economy was 2.8 percent versus
4.1 percent when wages were higher.
In the past 20 years, 84 percent of the growth in the
American economy went to the top 1 percent. That means, unless
anybody on this panel is part of the top 1 percent, 16 percent
of the growth in that 20-year period went to the rest of us 99
percent.
We just gave away a massive tax cut to American
corporations. We were told by the White House Council of
Economic Advisors that each household would receive four to
$9,000 annually as a result of that tax cut.
That did not happen. It is not going to happen, and it
never was going to happen. In fact, we have a President that is
in a trade war who has imposed a tariff tax that, according to
a conservative economist, Mark Zandi, from Moody's Analytics,
will cost each American household $1,000.
The Trump Administration and the corporate tax cut has
added $3 trillion to the national debt. We will have this year,
next year, the year after a budget deficit of more than $1
trillion. So we will be $1 trillion short for every budget
year.
It seems to me that the way to deal with income inequality
is through tax policy. Mark Zandi, again, a conservative, he
said for every dollar that you give away in the corporate tax
cut, you can expect to recapture 32 cents. The loss in
investment from the corporate tax cut is 68 percent. Sixty-
eight percent.
So those who argue here, on the margins, that middle class
taxpayers have benefitted from this, you have to do that within
the context of the history, and clearly, clearly, the current
policies are detrimental to the nation's economic growth and to
the American middle class that depends greatly and have
contributed historically to the economic growth.
With that, I will yield back the balance of my time. I am
sorry I went over.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Texas, Mr. Flores, for
five minutes.
Mr. Flores. Thank you, Chairman Yarmuth and Republican
Leader Womack, for holding this important hearing today to
discuss solutions to economic inequality.
It is appropriate for us to explore this subject as it
gives us a chance to highlight the strong economic gains that
have resulted from the Tax Cuts and Jobs Act and free market
approaches from this Administration and from the last Congress.
In 2018 alone, median earnings for workers increased by 3.4
percent, and I am going to overlay this on one of Dr. Boushey's
charts in a few minutes.
The number of people living in poverty fell by 1.4 million,
and the number of full-time workers increased by 2.3 million.
This tells us that Americans are getting off the sidelines
and finding full-time work and earning good paychecks. In fact,
the Federal Reserve in Atlanta recently reported that, over the
last year, low wage workers in the bottom 25th percentile have
experienced the fastest rate of growth and pay increases of 4.4
percent, higher than the 3.4 percent average of all workers.
It appears that the other side of the aisle is simply
ignoring these facts in supporting budget-busting approaches to
income inequality. CBO estimates that the Democrats' 107
percent increase in minimum wage proposals can cost up to 3.7
million jobs.
Presidential candidate Andrew Yang's proposed universal
income would cost the federal government $2.8 trillion, and
single payer healthcare would reportedly cost $32 trillion, in
conjunction with a $93 trillion price tag for the Green New
Deal.
Short of monetary theory, which this Committee will not
hold any kind of a hearing on, my Democratic colleagues have no
answer as to how they will find ways to pay for this wish list.
Instead of having the government foot the bill for goods and
services, we should focus on proven pro-growth and free market
policies to create more jobs in our country just as the last
two years have shown us.
I look forward to discussing solutions that will further
improve the economic wellbeing of all Americans without busting
the budget.
Mr. Ponnuru, a lot of proposals from my colleagues on the
other side of the aisle to close income inequality come with a
heavy price tag to both economic growth and to the American
taxpayer. Specifically, the proposed 107 percent increase in
the minimum wage proposal would cost up to 3.7 million jobs,
which is the high end of the scale. I think your number was 1.3
million.
Presidential candidate Andrew Yang's proposal for universal
income would cost the federal government $2.8 trillion, and
single payer healthcare would cost $32 trillion.
It is interesting to note that my colleagues have few
proposals to pay for such ideas, other than muttering monetary
theory as we talk.
Furthermore, these cumbersome government-centric approaches
will slow down economic activity and put people out of jobs,
which means less people will be paying taxes while more people
would become reliant on government safety nets.
In contrast, since our Tax Cuts and Jobs Act was signed
into law, we are seeing higher tax receipts this year than last
year, our higher tax last year than the prior year. If we are
blowing up the budget deficit because of the tax cuts, you
would see lower revenues to the federal government, which in
fact we are going to have a record this year.
So, Mr. Ponnuru, what sort of tax structure would be
required to pay for all the Democratic programs that I
mentioned, the universal basic income, the higher minimum wage,
the single payer healthcare or the government takeover of
healthcare, and the Green New Deal?
And what would the impact be on economic growth?
Mr. Ponnuru. Thank you.
The details of those policies would matter. People mean
different things when they talk about single-payer. They mean
different things when they talk about a Green New Deal.
But any plausible price tag, if these policies were going
to be pursued with any degree of fiscal prudence, would have to
involve very large and broad-based tax increases, including tax
increases on the middle class of a kind that we have not seen
in many decades, possibly not ever.
Those tax increases could be expected to reduce the amount
of work savings and investment, and thus have a negative impact
on job growth, on output, on national wealth. All of those
things would have to be weighed, I think, very heavily in the
balance.
Mr. Flores. Okay. Thank you.
And I am going to close with a couple of things. Again, tax
receipts this year are estimated to be around $3.4 trillion,
which is higher than last year's $3.3 trillion, which is higher
than the prior year's $3.3 trillion by a few billion dollars.
Now, one of the things I was looking at Dr. Boushey's
charts here. I found these to be interesting. If you look at
the average annual income growth for the first period of 1963
to 1979 and also 1980 to 2016, it was 1.7 percent for the first
period, 1.3 percent for the second period, but what is it today
for income growth? On average, it is 3.4 percent.
So higher than either one of those periods. That is how you
solve economic growth. That is how you make economic growth
higher, and you addressed all wages.
Now, the lowest economic growth is over here on the left-
hand side, and under this chart the assertions were that it was
higher for the lowest part of the workforce and lower for the
higher part of the workforce, and then the inverse happened
during the second period.
But today what is interesting is it is 4.4 percent, which
is the highest of all the income groups over the last two
years. So I think this proves that the Tax Cuts and Jobs Act
with modern regulatory policy creates better economic growth
for all boats.
I will close with President Kennedy's statement that he
made back in the 1960s. ``Rising economic activity lifts all
boats,'' and what did he do to get there? He cut taxes.
Thank you. I yield back.
Chairman Yarmuth. The gentleman's time has expired.
And I would like to let him know that we do intend to have
a hearing on essentially modern monetary theory. It is going to
be called ``Does Debt Matter,'' which is essentially what we
are talking about. So you will get your chance to discuss that,
absolutely.
I now recognize the gentleman from New York, Mr. Morelle,
for five minutes.
Mr. Morelle. Thank you so much, Mr. Chairman, for holding,
I think, what is a really important conversation, and I
appreciate the comments by all of my colleagues, and I
particularly appreciate the comments by the witnesses.
I find this topic fascinating. Unfortunately, I did not
really do well in economics when I was in college. I think I
was not in the classroom nearly enough as I should have been. I
wish I had known better.
But, so, I am trying to get caught up. I was interested,
Dr. Boushey, in some of the charts that you presented. For
instance, you have by sort of quartile or quintile, I think, is
the distribution. I am looking for the chart because there are
several here.
But I was just curious. What is the optimal distribution?
You have sort of what the distribution is and what it has
been over the last 40 or 50 years in terms of distribution of
wealth, distribution of income. Is there an optimal chart that
we should look for or a target that there should be, whether we
decide to do something or do nothing?
But what would that look like in your mind?
Dr. Boushey. That is a great question. Thank you.
So you want to connect the income growth to what is
happening in the wider economy.
Mr. Morelle. Yes.
Dr. Boushey. So I think optimally, there are two ways to
measure it. One is you would like to see that wages are growing
in line with productivity because that would mean that the
benefits of what workers are contributing, and most of us are
workers in the economy, is being connected to what people are
taking home.
Mr. Morelle. May I stop you there because that is
interesting as well? Talk to me because that is one of your
charts as well in here. It shows the divergence as it relates
to productivity.
I am going to find the page here.
Dr. Boushey. Yes.
Mr. Morelle. I think it is the third chart that I looked
at. Worker pay has lagged behind productivity.
Before you go on could you just describe, first of all, the
definition of productivity? Because I think it is important. It
seems to mean different things to different people, but I know
there is an economic definition.
Obviously, I know what hourly compensation is for workers.
Could you just talk about productivity? Because I have a
follow-up question to that.
Dr. Boushey. In its most basic definition, it is how much
in terms of goods and services are being produced per worker
hour.
Mr. Morelle. Right.
Dr. Boushey. So it is how productive we are, right? You
know, how many clients people are serving or, you know, what
quality of work is happening.
Mr. Morelle. So can I stop you, and I am going to let you
finish what you started earlier. But I notice that the big
divergence happens around 1980, 1978, 1980. And I know that
former Fed. Chair Alan Greenspan talked about this. What is
happening? Why is that?
It is not that chart, but I think it is probably in the
next one.
Dr. Boushey. There you go.
[Chart.]
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Mr. Morelle. Thank you for putting that up.
So it just seems to coincide to some degree with the
development and the growth, and this may be completely wrong,
but just in terms of the growth of technology, particularly
around productivity tools, technology of the microchip, and
what it did.
Is that something that economists look at? Does it just
happen to be coincidental? Is that not what has somewhat
contributed?
Because this is output for number of hours worked, whereas
if you have a factory now that has doubled the output, fewer
workers and robotics are doing more of it, that would
contribute to it. Is that right or is that not right?
Dr. Boushey. Well, certainly, but that was also happening
in decades before, right?
Mr. Morelle. But has there been an acceleration?
Dr. Boushey. So it is----
Mr. Morelle. And I am not trying to be argumentative.
Dr. Boushey. No, no, it is a good question. You were saying
that because----
Mr. Morelle. No, I am asking.
Dr. Boushey. Yes. Was your question if our economy is more
productive, if because of computer chips you can produce
things, twice as many things in half as much time?
The question is whether or not the workers that are still
participating in that process get any of those gains or do
those gains only go to people at the very top of the income
distribution.
And so what we saw prior to 1980 is that even when
technology made workers more productive, they shared in those
gains, where now workers do not share in those gains. Those
gains go almost exclusively to people at the top.
And that has encapsulated the fundamental question of our
times.
And so the other chart that I had in my testimony showed
that in the period in the 1960s and 1970s, you know, when the
economy grew, families all across the income distribution saw
their incomes grow at about the same rate.
Mr. Morelle. That is the, if I might interrupt, and I
apologize because I am running out of time here.
Dr. Boushey. Yes.
Mr. Morelle. That is the ``income gains widely shared in
early post war decades but not since then'' chart that shows
the divergence?
Dr. Boushey. Yes.
Mr. Morelle. Again, around 1980.
Dr. Boushey. 1980.
Mr. Morelle. I mean it is----
Dr. Boushey. And I think it comes down to how we
reconceptualize the importance of the institutions that
constrain the rise in inequity. Everything from unions to
antitrust to how we thought about taxes, there was a change in
mindset about whether or not it was policy makers' roles to
create institutions and to support institutions that make sure
that everybody has a level playing field, rather than allowing
a few to increasingly reap the disproportionate gains of
growth.
So it was not one thing. It was all of these things
happening together, a shift in how we thought.
Mr. Morelle. Thank you.
I apologize for exceeding my time, Mr. Chairman. Thank you.
Chairman Yarmuth. That is quite alright. The gentleman's
time has expired.
I now recognize the gentleman from Texas, Mr. Crenshaw, for
five minutes.
Mr. Crenshaw. Thank you, Mr. Chairman.
It is great to be at this hearing, and it is great because
it exposes two very different ways of thinking about our
economy, opportunity, and the mutually shared goal of
overcoming poverty.
So, on the one hand, you have a deep and persistent focus
on inequality, and it is defined as the gap between the rich
and the poor, and at first glance that seems pretty reasonable.
But in reality, it means you are dividing your attention.
Half of your attention is focused on protesting the wealthy,
and these days that seems actually where most of the attention
is, and that leaves only a small amount of focus on the real
issue, which is people in poverty and their ability to move up
the economic ladder.
And this is the kind of backwards thinking that leads to
ideas like Andrew Yang's where we raise taxes on the rich only
to give it right to them in the form of universal basic income.
It is hard to imagine a more inefficient and ineffective way to
reduce poverty.
So as a conservative, our approach is different. Instead of
creating resentment against success, we focus on who actually
needs our help, which is the people who are having trouble
moving up the economic ladder.
After all, the fact that there is a much wealthier person
down the street from you is not the problem. The problem occurs
that if you cannot find opportunities even when you make all
the right decisions.
So the first step to understanding any problem is to get to
the truth. Mr. Ponnuru, I want to go to you on this. We have
heard inequality is worse than ever. Is that true, especially
if we use a more accurate measure of inflation and account for
welfare programs and cash transfers?
Mr. Ponnuru. No, it does not appear to be true. The
Congressional Budget Office's reports on the distribution of
income suggest that income inequality peaked in 2007; that it
has been falling since then; and so we are, I think, to some
extent looking at a problem in the rear view mirror.
Of course, that could change. Maybe next year's numbers
will be different, but the trends over the last decade or so
have been towards shrinking inequality.
Mr. Crenshaw. And let's talk about the people we really
want to help, those in the bottom quintile of earners. So let's
find out who they are.
So can you break that apart demographically? Who are the
people in the bottom quintile? Maybe that helps us focus our
problem setting here.
Mr. Ponnuru. So people in the bottom quintile differ from
people in the other quintiles across a variety of measures. One
of the more important things to look at is the number of
workers in the household. The top quintile is going to be much
more likely to have two earners, and that household on the
bottom quintile is much more likely to have zero earners in the
household. Obviously, that is going to make a huge difference
in how much income you have got.
There is also the question of age. If you are retired or if
you are young and in school, you may very well be in the lowest
quintile.
Mr. Crenshaw. Right.
Mr. Ponnuru. It does not mean you are always going to be in
that quintile or always were. Lifetime inequality is lower.
Mr. Crenshaw. Right. So it is possible that we are placing
a teenager, who lives with their parents, in the bottom
quintile of earners and saying that that is one extra person
under the poverty line, right, statistically speaking?
Mr. Ponnuru. Right, and equality seems to have increased
however you measure it, but it is, I think, important to have
that perspective.
Mr. Crenshaw. Right. It also turns out that 56 percent of
Americans will at some point in their lives be in the top 10
percent of earners. Seventy-three percent of Americans will be
in the top 20 percent of earners in their lifetime. That is an
amazing statistic. It does not mean we cannot always do better,
but it is an amazing statistic.
It also turns out my colleagues are right that the middle
class is shrinking. It is just not in the way that they think.
It turns out the data shows the middle class is shrinking
because they are moving up into higher income households over
time.
This is all good news. It does not mean we cannot improve.
The point is that the rhetoric about inequality is not only
inaccurate, but it is just flat out unhelpful to the people we
are actually trying to help.
So let us talk about solutions really quick. If we want to
empower people to rise up instead of disempowering them with
more handouts, how do we do that?
You do not need to take my word for this. Mayor Bloomberg,
a prominent Democrat, studied this extensively with 30
different pilot programs, and what they found is there are
different solutions for different kinds of poverty, and they
are localized solutions. We have to be thinking about it that
way.
So back to you, Doctor. How else can we empower people to
rise up?
You talk about occupational licensing. You know, I have a
constituent in my district. Her name is Ashley. She owns a hair
wash and style company. She cannot find stylists because Texas
requires 1,000 hours of licensing to wash and dry hair.
I learned how to free fall out of an airplane at 30,000
feet in less time than that. That is crazy. Can you talk about
more solutions like that?
You mentioned housing. What kinds of deregulation? What
kinds of vocational training can we be working on so that we
empower people to rise above their current economic status?
Mr. Ponnuru. So I think with the little time I have here
what we should be doing is focusing specifically on mobility,
opportunity, and fighting poverty, not as much on inequality
per se, and identifying barriers often created by the
government that we can get out of the way.
Mr. Crenshaw. Thank you, Mr. Chairman.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Michigan, Mr. Kildee,
for five minutes.
Mr. Kildee. Thank you, Mr. Chairman, for recognizing me and
for holding this very important hearing.
As we have heard, the pace of economic inequality has
increased dramatically over the past few decades, and many have
made this point. Mr. Higgins brought data that I think points
to this really stark dichotomy that we have seen, increased
inequality over the last several decades, and that this
Administration continues to push policies that further reduce
support for those families that are struggling.
And it has been discussed here already. The Republican tax
bill gave even more advantage to the wealthiest Americans and
to the largest corporations in the United States and overlooked
the needs of working families as we continually see greater
income inequality.
The earned income tax credit, which is a refundable credit
for low wage workers and the child tax credit, are two ways--
two very significant ways--we can help families start to get
ahead.
And just listening to the debate here today and the
conversation, I appreciate the enthusiasm that I have heard
from some of my colleagues on the other side for the expansion
of the child tax credit. I could not agree with them more. I
invite them to sign onto my legislation.
But I find it difficult to fully accept that enthusiasm,
when they were given the opportunity to make permanent those
provisions, which I think were not enough anyway, for example,
they could have made it fully refundable, but did not do that.
They could have made them permanent. They did not do that.
The provisions that they did include, as modest as they
were, expire in 2025, but what happened to the provisions for
wealthy corporations? They were made permanent.
So not only is the budget a statement of our values, but
our tax policy is a statement of our values, as well. If this
is such a high priority, why did you set it to end for
hardworking families? And only get a modest break and then give
a massive break, a permanent break, to wealthy corporations?
So, one question, if I could just pose to Dr. Boushey and
also Dr. Spriggs, number one, did those provisions actually do
anything when you look at the totality of the 2017 tax bill?
Did those modest, temporary provisions do anything to
increase income equality in this country or did the totality of
that tax bill actually take us in the opposite direction?
Dr. Boushey. Well, in the totality, it moved us in the
opposite direction.
And I certainly commend your leadership on the earned
income tax credit and the child tax credit, and that we do need
to make that fully refundable.
You know, proponents claim that the new tax law would boost
wages, but there has been no evidence that that has been
directly responsible.
One of the things that we did see, of course, is that
corporations used that tax windfall for a record one trillion-
plus in stock buybacks in 2018. That is a really big number of
income that is going to those at the very, very top in exchange
for a long-term gap in revenue for the United States to make
the investments that we need to make in people and families.
So I think especially over the long term this is really
just pushing us exactly in the wrong direction on multiple
levels.
Mr. Kildee. Dr. Spriggs?
Dr. Spriggs. First, thank you for representing my wife's
hometown of Flint in Genesee Country.
Mr. Kildee. A Flintstone. You chose well.
Dr. Spriggs. I moved up.
So there is an inequality tax that low income people pay
because they don't provide enough of the market to drive where
prices go. When you exacerbate the big share of the market, you
add more demand at the wrong end. So the price of childcare
goes up as inequality goes up because that is where the market
is.
And so, yes, you gave a tax credit, but then it gets taken
away with increased cost of childcare. So when you look at
earnings gains that have been made, those who are middle income
and the next one lower are finding the burdens increasing this
entire expansion because housing cost, childcare cost,
education cost have all gone up faster than their earnings
because the earnings at the top are going up faster, and the
prices are following those earners.
And the earned income tax credit excludes single people.
They are currently being taxed into poverty, and the working
family's tax bill, which corrects the earned income tax credit
excluding these workers and fixes the issue that the tax credit
should be fully refundable, are important steps to restore the
balance that is in that bill.
And as you pointed out, if corporations need a permanent
cut, working people need a permanent cut.
Mr. Kildee. Thank you very much.
I have exceeded my time. I yield back. Thank you.
Chairman Yarmuth. The gentleman's time has expired.
I am going to have to leave in just a minute to attend a
conference committee on the Defense Authorization Act and make
a statement. Mr. Horsford is going to chair.
But before I leave, I just wanted to thank all of the
witnesses again, as well as the members, for your testimony,
and I wish I could stay around. I was going to be able to come
back, but it looks like we are not going to have enough Members
to make that possible.
So with that said, I now yield five minutes to the
gentlelady from Connecticut, Ms. DeLauro.
Ms. DeLauro. Thank you. Technology, yes.
Just a couple of facts, and I have a question that deals
with the child tax credit.
But Columbia University School of Social Work's Center on
Poverty and Social Policy estimated in a 2013 report that
poverty has fallen nearly 40 percent since the 1960s. Much of
that reduction is due to our social safety net programs.
And I am not being self-serving, but about three years ago,
I wrote a book which was called ``The Least Among Us, Waging
the Battle for the Vulnerable.'' And what I found there was
that the social safety net programs were crafted by Democrats
and Republicans, in fact, realizing the economic challenges we
were facing of families in this country, moved to assist that
process.
What are some of the social safety net programs? We have
got Social Security. It lifts 26.5 million people out of
poverty. EITC, child tax credit, 9.1 million people. SNAP, 4
million people. SSI, 3.3 million people. Housing assistance, 2
million people.
Now, let's take a look at what my colleagues on the other
side of the aisle are interested in doing. First of all, they
want to change the way that the federal government measures
poverty, thereby throwing people off of these programs, not
acknowledging that they live in poverty.
They want to reduce the number of people who are eligible
for nutrition assistance, continually cutting back on a food
stamp program.
They want to eliminate the low income housing energy
assistance program, the LIHEAP Program, a $4 billion cut in the
President's 2020 budget.
They want to eliminate affordable housing programs, the
very programs that have helped to lift people out of poverty.
So when my colleagues talk about poverty, take a look at
what the record is and what havoc you are wreaking in people's
lives and continuing to push people into poverty in this
nation.
Do not talk out of both sides of your mouth because what
you would do with some of these programs to make them so
onerous as to humiliate people into not taking advantage of the
programs that are there.
The child tax credit, 83 percent of the Republican tax law
went to the richest 1 percent of the people in this country.
Your child tax credit is supposed to go to everyone. You left a
third of the kids and families who earn too little to get a
full credit.
Those left behind included, disproportionately, families
with young kids, rural families. Members of the Congress made
themselves eligible for the child tax credit for the very first
time. So we now can get a $2,000 child tax credit for each
child, but do you know many military families, families who are
earning the minimum wage, only got a $75 increase.
We have a piece of legislation called the American Family
Act, which I am proud to have authored. We would give the same
full child tax credit to families earning minimum wage,
military families, rural families, families with young kids,
all of those left behind by the GOP tax bill, endorsed by
scholars across the country, consistent with the National
Academy of Science as showing what would be the most effective
policy to reduce child poverty in this country.
Now, there are two questions. Dr. Boushey, we know what the
tax cut did. I do not care what they say. We know who got the
benefit of it. It has been proven over and over and over again.
A $75 increase to families to reduce inequality. Talk for a
moment about providing a child tax credit for the families that
I am talking about.
And I also want to ask you, Dr. Spriggs. You know, this
conversation about technology and moving forward and, in fact,
that is what the cost of technology is. That is where poverty
sees its face.
We do know that a Nobel Prize winning economist, Joe
Stiglitz, no schlep in the economy world, here says that
inequality is not inevitable. It is about the choices we make.
Dr. Spriggs, how much of inequality is due to the public
policy decisions that we make?
Mr. Horsford. [Presiding.] The gentlelady's time has
expired, but I will allow you to respond.
Dr. Spriggs. Thank you. Thank you, Chair Horsford.
Quickly, the divide in 1980 is because we changed policies.
Because we redistributed income from workers to those at the
top.
When you look at that gap in productivity and what workers
make when we see the declining labor share, we redistributed by
taking away from workers the ability to negotiate. We un-
invented a middle income nation. We redistributed, today if you
wanted to correct it, close to some $650 billion worth of
income out of the middle towards the top by denying workers a
decent minimum wage. That cut the work productivity and to
working people the right to negotiate about the increases in
their productivity and who gets it.
Ms. DeLauro. Dr. Boushey?
Dr. Boushey. I would just agree.
Ms. DeLauro. Child tax credit?
Dr. Boushey. Child tax credit. It is important that it is
fully refundable for all the groups that you mentioned. I think
you made that case very eloquently, and that should be
incorporated into our tax law. So I could not agree more.
Mr. Horsford. Thank you.
The gentlelady's time has expired.
I will now recognize Mr. Khanna from California for five
minutes.
Mr. Khanna. Thank you, Mr. Chairman.
Thank you to our witnesses. Dr. Boushey, thank you for many
of your insights. Dr. Spriggs, I appreciated yours. Ms. Evans,
I appreciate your being here. Mr. Ponnuru, I read your work all
the time even though I disagree. Thank you for being here.
My question is simple. There are 70 million American
families that make under $75,000 a year. They have, by and
large, not had a meaningful raise in the last 40 years, and we
can quibble about whether wages are slightly going up or not,
but by and large, 70 million American making under $75,000 have
not had a raise over the last 40 years.
In 2019, the projected corporate profits in this country
are going to be $9 trillion, $9 trillion. So if we wanted to
have a program in the Congress, and I would like all of the
witnesses to answer this, that would give a 20 percent raise in
the next two years to these 70 million American families, what
would be the actions or policies that would achieve that?
Dr. Boushey, we can start with you.
Dr. Boushey. So give them a 20 percent raise in the next
two years. Is that what you said?
Mr. Khanna. The next two years.
Dr. Boushey. Wow, that is a tall order, and I appreciate
the ambition.
I think there are a lot of things you can do. One is that
you can raise the minimum wage. That is going to focus on those
at the very bottom, so not at the very top of that $75,000, but
at the bottom part.
You can make sure that they have the right to organize and
bargain collectively because that does have the capacity to
boost wages.
You can make sure that their costs are kept low, not
necessarily going to raise their wages, but you can focus on
raising the wages of the workers that provide care. So through
fully funding programs for home health aides, for nursing
assistants, for childcare workers, that could go a long way
towards boosting a lot of those folks under $75,000.
And you could make sure that you rethink the way that we
enforce our rules around market structure. We know now that one
of the things that is really keeping wages down is what
economists call monopsony, which is many workers work in the
labor markets where they have a single employer. They do not
have a lot of bargaining power. We need to incorporate that
value into how we enforce antitrust.
So it is a long list.
Mr. Khanna. Let's just keep it to 45 seconds so we can get
all of these.
And I do want to recognize Dr. Boushey and Rosa DeLauro,
leaders here on these issues with paid family leave, paid sick
days, equal pay, and is handing me a note, affordable
childcare. I want to make sure I am making Representative
DeLauro's points.
Ms. DeLauro. Thank you.
Mr. Khanna. She has been a huge leader on this in the
Congress for decades.
Dr. Spriggs. Thank you.
So there has been a lot of celebration about wages rising
at the bottom. That is from minimum wage increases because the
majority of American workers today do not have $7.25 as a
minimum wage because Congress has refused to raise their wages.
States and cities have responded, and so the rise at the bottom
is because we have raised the minimum wage successfully in some
states. So that is key.
It is also key to to reach greater equality and gender
equality between men and women. The Equal Pay Act would go a
long way towards that. Because women are a rising and important
part of the labor force, the inequality that they face is an
important and rising part of the equation for what causes
general inequality.
We have to give workers back their right to organize. This
a human right. It is globally recognized as a human right. The
United States stands out as the one country where for most
multinationals this is their non-union plant. It is
embarrassing for the United States. So we have to give
Americans back that right.
We have to restore in the public sector what the pay of
teachers used to be. Their relative pay, their pay relative to
all other workers has been falling. What they do has not fallen
in importance.
And we have to give some focus to correcting what has been
going on in the public sector for public sector workers broadly
speaking. That will raise the pay of a lot of people pretty
quickly.
Mr. Khanna. Mr. Ponnuru, I just want to give you 30 seconds
if you have a similar or alternative perspective just to be
fair. I think we only have 30 seconds left.
Mr. Ponnuru. Okay. Sure. I would just say that if you
defined the objective as a 20 percent increase for scores of
millions of people within two years, you pretty much have to do
just straight up redistribution. It has to be something like
universal basic income that is set at a high level.
I happen to think that that is a bad idea, but nothing else
I have heard, including anything I have heard right now, would
come close to meeting that target.
Mr. Horsford. Thank you.
The gentleman's time has expired.
I will now recognize Mr. Sires from New Jersey for five
minutes.
Mr. Sires. Thank you. Thank you for being here.
I apologize for not being here earlier. Three hearings at
ten o'clock makes it a little difficult, and if it is
redundant, the question I ask, I apologize.
You know, there is a lot of talk about the tax bill that
was passed in 2017, and I would just like to know how do you
think that has impacted the inequality that exists today, this
new tax bill.
Either one.
Dr. Spriggs. Well, because it went overwhelmingly and
disproportionately to those at the top, it has exacerbated
inequality.
And I think my comments earlier were misinterpreted. It is
not that individuals saw their taxes go up, but the shift in
burden from where taxes come has been shifted down because we
made the tax system less progressive.
So a greater burden of taxes have to come from labor
income, which is the declining part of national income, and a
smaller burden is being placed on the rising parts of income.
Those are the top 1 percent, corporations, and this makes the
system more unfair because going forward, in order to get the
revenue necessary to have an economy that can work, it is going
to have to come from those at the bottom.
And as we discussed earlier, the portion of the tax cut
that goes to workers expires. And making up that deficit
obviously then has to come from that source.
So this is the big problem that the Budget Committee faces
because the nature of where the income is coming from does not
match where income is rising and falling, and it complicates
the problem going forward for the Budget Committee.
Dr. Boushey. Let me add a couple of things. When we think
of inequality, we are often focused on the individual families,
but the other thing that we were promised with the tax cut, of
course, was that it would lead to this massive increase in
investment. That is the economic argument from the other side,
that if you lower those taxes for corporations on the wealthy,
that it will lead to that boon.
And, of course, we have not seen that, and that is the only
way that the tax cut at the top would translate into higher
wages for individuals, is if you saw that investment and those
gains, that greater productivity, were shared with workers.
So I think that, you know, thinking about that, that kernel
of the argument is really important as well, that we have not
seen that investment boon, and in fact, as I noted earlier,
corporations used that tax windfall to give out a record $1
trillion in stock buybacks in 2018.
So instead of using that to invest in productive capacity,
make our economy more innovative, more productive, they used it
as a boondoggle for those at the top of the income ladder. So
that is exacerbating inequality, not just today, but for
decades to come.
Mr. Sires. And can you talk a little bit about or elaborate
on the relationship between the decreasing union membership and
increasing inequalities?
Dr. Spriggs. Yes. So much is tied to a chart that would
show you increases in union density and declining union
density, and all the patterns we have been talking about.
America became more equal as more workers had the ability
to collectively bargain with their boss. I am more productive.
How do I share in that?
And when workers had that voice, their wages tended to go
up with productivity. As they have lost that voice, not just
union members, but nonunion members also suffer wage losses
because when we had high union density, many employers took the
lead from what was happening in the unionized sector for
setting their own wages.
So that loss of voice in the workplace has meant a very
high correlation that other people have looked at and found can
explain about 40 percent of the disproportionate rise of income
in the top 10 percent, essentially, the finance and management
classes of America who get to say where the productivity goes
as opposed to the workers who are making the product.
And that gap is important for understanding the weight of
inequality on our economy because when you shift from the
market being the middle to the market being the top, there are
all sorts of implications that make it difficult to produce
residential investment, which has not been very strong in this
recovery because the bulk of Americans cannot afford housing;
because we are not going to get the college educated workforce
we need. We are falling behind. We have gone from first to 19th
in terms of our rank among advanced countries in terms of who
has a highly college educated workforce.
This is all in the wrong direction because in order to get
that kind of investment in housing and in education, you need a
different shaped market. You need a market that is aimed at the
middle, and you cannot do that when all of the income and all
of the market is at the top.
Mr. Sires. Thank you. My time is up.
Mr. Horsford. Thank you. I will now recognize Ms. Lee from
California for five minutes.
Ms. Lee of California. Thank you very much, Mr. Chairman.
And I want to thank yourself and our Ranking Member for
holding this very important hearing.
I do chair the Majority Leader's Task Force on Poverty and
Opportunity. I care deeply about rising income inequality in
our country and have been working on it for many years.
So I just want to thank all of you so much for being here
and laying this out before the Budget Committee. Your testimony
is extremely important as we move forward.
As many of you have pointed out, since the 70s, economic
growth for middle class and low income workers has only risen
actually by one-third while income for the top 1 percent has
tripled. This is especially true for CEOs whose salary has
grown by 1,000 percent since 1978.
I know, Dr. Spriggs, you know this very well. According to
a recently released report by the AFL-CIO on executive pay, the
average pay gap among CEO-to-worker ratio was 278 to one.
That's unbelievable in the richest nation on earth, that
productivity and work hours have continued to skyrocket while
workers' wages have shamefully fallen behind.
This is especially true for black and brown families. The
income gap between black and whites today remains almost at
exactly the same level from the 1960s. For example, according
to a report from the Institute for Policy Studies, the median
black family today owns $3,600, just 2 percent of the wealth of
the median value of a white family.
The median Latino family owns $6,600, just 4 percent of the
median white family.
So just let me ask you this question because we always talk
about income inequality, but why do we not frame this as racial
or income and racial inequality? Because we know that we have
to have targeted resources and some strategies to address the
legacy of racism on wealth building.
And I am not sure, and I apologize for not being here
through the entire hearing, but I am not sure if the issue of
race has come up, and I hope that somehow we really look at
that layer because we cannot talk about income inequality
without talking about racial inequality.
Dr. Boushey. Just to weigh in on that, I am so glad you
brought that up. Just to add to your statistics, we know that
even being higher educated does not protect black families in
terms of wealth building because even if they increase their
educational attainment, their wealth is still lower than it
should be relative to whites who have higher education.
And so it is important to think about the racial component
of wealth. That is one reason why I actually think that a
wealth tax is very important because it would hit white
families much more than families of color. It would be a way of
addressing that inequality in a direct way.
When we talk about taxing at the top for the most part, we
are not going to be talking about taxing families of color
because they are not there. So it is a way to integrate that
progressivity and then, at the same time, to be making sure
that we have the resources that we need to create the
widespread opportunity that we need to do to address poverty.
So implicit in that agenda that I laid out in my testimony
is policies that would, I think, go a long way toward
addressing the racial wealth gap through policies that tax at
the top and focus on redistribution.
Ms. Lee. Dr. Spriggs, as you know, some of us are
supporting H.R. 40. The moment, I think, has come to study and
look at what reparations mean.
What do you think about just looking at this dynamic around
reparations as it relates to the racial wealth gap that has
historically been systemic in this country for 400 years?
Dr. Spriggs. It is vitally important because at the root it
is being blind when we make policies across the board on many
issues, and the effect of many policies that on the face appear
race neutral. They are not.
So giving a tax cut like we just did has a racially
disparate impact because of the huge tax cut we gave from which
people of color did not benefit when you look at who got that
huge part of the tax cut.
So policies like that matter, and it is the accumulation of
being blind to those policies. Studying that will allow people
to go back and revisit it. This is why we cannot have a
regional minimum wage. A regional minimum wage would have such
a huge racial disparate impact it would border on being just
outright racist because it singles out black women and women of
color to not be protected by a rising wage standard that we
would give to all other Americans. It is surgical in the way
that it does it.
So analyzing policies in that way, the decline in union
density has been most dramatic among black workers, and the
lack of access to union membership has been most detrimental to
black workers who disproportionately live in right-to-work
states.
The proactive, very important for making sure that workers
everywhere have access to the right to organize, and it is
especially important because the pay increase that black
workers get from union membership and the pay increase that
Latino workers get from union membership is far greater, and
this helps to close the racial income gap.
And the challenge for the nation is as the current
population of kids who are K through 12 are now the plurality
of children of color; the fact that Latino and black households
have no wealth, relying on the market to provide a highly
educated workforce is not going to work.
Ms. Lee. Thank you.
Dr. Spriggs. Sixty percent of black children today come
from a household where the maximum expected family contribution
is zero. So it has clear budget implications if we want as a
nation to have a highly educated workforce.
Ms. Lee. Thank you. Thank you very much. Thank you, Mr.
Chairman.
I am going to suggest to this Committee that the next time
we have a hearing on economic inequality we add ``racial.'' We
have to say economic and racial inequality. Otherwise we are
missing it.
And thank you very much.
Mr. Horsford. Thank you.
The gentlelady's time has expired.
I now recognize the Ranking Member, Mr. Womack, for 10
minutes.
Mr. Womack. I thank the gentleman. I hope that I do not
have to take as much time. A lot of the questions that I had
for the panel have already been asked by many of my colleagues.
There are a couple of things, a couple of unfinished pieces
of business, and I want to direct the next couple of questions
to Mr. Ponnuru.
We have heard in the discussion, and I thought I saw a
chart up there on the gap between wages and productivity that
came up earlier in the conversation; that wages and
productivity have come apart. Is that true?
Mr. Ponnuru. I think that the best evidence suggests that,
no, it is not true and that claims to the contrary that are
quite widespread that these things have come part, that
productivity has gone up and wages have not gone up
commensurately rely on not comparing apples to apples, using
different groups of workers to look at wages and different
groups of workers to look at productivity, using different
inflation measurements to adjust for changes over time in each
of those trends.
If you correct for those phenomena----
Mr. Womack. And different eras, too.
Mr. Ponnuru. Right. There is no substantial gap. These
things have moved basically in tandem, and that has been shown
not just by economists who are more associated with
conservatism, but economists who are more associated with
liberalism and the Democratic Party, such as Lawrence Summers.
Mr. Womack. Yes. I think it is important to get an apples
to apples comparison, and it is very difficult to do,
particularly when you are comparing life today with maybe 50
years ago.
And I saw a chart that showed that gap widening from about
1980 out. There was a suggestion made that because we go to
robotics, that we are finding that the speed of technology has
created in the innovative minds of corporate America the
opportunity to do some things that help their bottom line.
The speed at which technology is changing and that some of
this speed is affecting the American worker has accelerated
over time, has it not?
Mr. Ponnuru. Well, it depends on the time period you are
looking at, but a lot of particularly the concerns people
express about rapid automation and technological change you
would think would be reflected in accelerating productivity,
and that has not really been happening.
The most important thing you could do though to increase
wages over time would be to increase productivity, and we lose
sight of that if we buy this misleading narrative about what
has happened to wages and productivity.
Mr. Womack. In response to Mr. Crenshaw's last question,
and you were in the process of answering it when time expired,
the question was something along the lines of how can we help
that bottom quintile of American workers without just throwing
money at the problem.
What are the things? You mentioned mobility as being one of
those. What are the things that we can do that can kind of help
lift as we continue to see people being lifted out of poverty
in that lower quintile?
Mr. Ponnuru. Well, I do think that there are public
policies at state, local and federal level that would be useful
in expanding opportunity and combatting poverty. An expansion
of the child tax credit, which people on both sides of the
aisle today have talked about, would be one of those things.
Loosening restrictions on housing, particularly in some of
the highest growth parts of the country so that people could
afford to move there and maybe find better prospects than they
have where they are would be another one.
Changing the way a lot of our means tested programs work so
that they have fewer poverty traps and fewer marriage penalties
in them would be another.
There is no shortage of places where I think we could make
a substantial positive difference and possibly be able to find
some bipartisan agreement.
Mr. Womack. Dr. Spriggs, I found it ironic that you
mentioned in one of your responses to a question earlier the
concept of a budget, ironic in the sense that you are appearing
before the Budget Committee, the Budget Committee that is
supposed to produce a budget.
The fact that a budget was not produced by my friends on
the other side of the aisle, do you not find that a bit ironic?
Dr. Spriggs. I recall living through so many Congresses
before this Congress that did not produce a budget. I am not
sure that I find it ironic in the sense that you just used the
term.
Mr. Womack. How important is a budget?
Dr. Spriggs. Congress resolving authorization for our
agencies if important because, as you have seen in the previous
three Congresses when we did not have a budget and we could not
resolve authorizations in time, that federal procurement was
greatly delayed, and federal agencies need that budget
authority and authorization in place in time to do and plan
their purchases in an efficient way.
It reduces the efficiency of the government, and we have
seen that in the last three Congresses because of that delay
and the process. In the fourth quarter, GDP suffers because
government procurement activities have to stop, and then we see
a boom in the next quarter because government workers finally
have the authorization to do what they are supposed to do.
Mr. Womack. Dr. Boushey, I have a question on a pivot to
Social Security because it has been on my mind for a long time,
and I know that there is a bill, the Social Security 2100 Act
that you are probably familiar with. Congressional Democrats
have proposed it.
It is sponsored by 210 Democrat members in the House,
including 19 on this Committee. It would increase the Social
Security portion of the payroll tax on all workers from 12.4
percent to 14.8 percent.
Do you support increasing that payroll tax?
Dr. Boushey. I am not familiar enough with that bill to
comment on it, but I am happy to get back to you in writing.
Mr. Womack. You know, Social Security, according to the
trustees is going to be insolvent in 2034 or 2035. Pick one of
those years, which I think in anybody's estimation is right
around the corner. It fits my definition of right around the
corner.
But let's just say for the sake of the argument that that
bill was before the House of Representatives today, raising the
payroll tax from 12.4 percent to 14.8 percent. Given how
important Social Security is to a lot of people, vulnerable
people, in our country, would that not have an impact on some
of these lower quintiles?
I.e., would it have a negative impact on a lot of workers
at the lower economic scale, so to speak?
Dr. Boushey. You are saying that the payroll tax would have
an impact?
Mr. Womack. Yes.
Dr. Boushey. You also said the trust fund needs resources
in order to continue to pay out benefits, which do help those
lower income families disproportionately.
So your job as a policy maker is that this is a policy that
for decades has lifted people out of poverty. It is one of the
most important programs that actually lifts children out of
poverty because children live with elderly or parents that----
Mr. Womack. But the question is on the payroll tax itself.
If raising the payroll tax, would it not have a
disproportionately larger increase on low income workers than
it would be on the high income workers?
Dr. Boushey. It is such an important question, and----
Mr. Womack. That is why I asked it.
Dr. Boushey. Yes, I am very glad you are asking. What we
know is that these benefits are incredibly important, and so it
must be our priority to make sure that those benefits are there
for future generations.
We know that payroll taxes are regressive. I do not know
enough to----
Mr. Womack. But reclaiming my time, would it
disproportionately impact the lower income?
Dr. Boushey. Well, as I said, I do not know enough about
the legislation, but in other policies that have looked to
reform Social Security, that has also included raising the cap.
So if they did that, that would be very progressive.
So I do not know enough about the details.
Mr. Womack. So given the importance of workers to
beneficiaries, in the whole social safety net formula,
Medicare, Social Security, the two big ones, it stands to
reason that the more people you have working, the better off
you will be, right?
From the standpoint of funding those social safety net
programs, is that correct?
Dr. Boushey. Yes.
Mr. Womack. So from that standpoint, seeing that we have
increased jobs, and I believe directly attributable to the Tax
Cuts and Jobs Act, we may disagree on that, but I think it has
had a big impact.
Has that not helped the social safety net structure of this
country, i.e., helping put important resources into those
programs that benefit such a large number of people who fit in
that vulnerable category and rely solely on those programs?
Dr. Boushey. Certainly including increasing the labor
supply is very important, but we have to remember, of course,
that the United States has a lower labor force participation
right now than our economic competitors for both men and women,
which is a shift from decades before, in no small part because
we do not offer them the policies that allow them to adjudicate
their challenges between work and family life.
So I think you are exactly on the money in terms of the
question, but I think it is also making sure that we are doing
more to improve labor supply through things like paid family
leave or addressing short-term disability.
Mr. Womack. Mr. Ponnuru, since November of 2016, 6.3
million jobs have been created. Can you talk about how this has
improved the labor market and impacts the financial prospects
of the average worker, in the few seconds I have left?
But since Ms. DeLauro took a minute and a half and then got
20 more seconds from Mr. Khanna, I do not feel so in violation.
Mr. Ponnuru. So just about every economic indicator that we
have has been pointed in the right direction over the last
several years, whether you are talking about wages in general,
wages at the low end of the labor market, labor force
participation rates, job growth. Everything has been moving in
a positive direction over this period.
And in fact, not just moving in a positive direction, but
moving in a positive direction in a way that people had not
thought was possible.
You know, the Federal Reserve itself believed we had
reached full employment a few years ago, and it turned out that
it was possible to bring unemployment down further without
causing inflation to take off, which is a measure, I think, of
how strong this economy has been.
Mr. Womack. Thanks to the panel.
Chairman Yarmuth. [Presiding.] I thank the Ranking Member.
I fortunately could get back here and take my time.
I think the gentleman from New Jersey has another question.
Did you have another question?
I yield to you for that.
Mr. Sires. Yes. Talking about Social Security, it just
popped in my mind. Do you know for undocumented workers how
much money they contribute to Social Security? Do you?
Dr. Spriggs. The Social Security Administration has
conveniently decided that they would not give continuous
reports on the unclaimed tax revenue. The last picture we had
of that, it is measured in the billions, the billions of
dollars that are part of the trust fund because we cannot
allocate it because those were invalid Social Security numbers.
A tiny portion of that, of course, is just error, but a big
chunk of that are the contributions of people who are
undocumented here in this nation.
It is going to be a true crisis when those people reach
retirement, that they will not have access to the money that
they have put into the Social Security fund. Because they are a
significant share of our population and because they have been
here so long, when they reach that age, which is going to be
soon, we are going to have a very serious issue.
Mr. Sires. Thank you very much.
Chairman Yarmuth. I thank the gentleman.
So it is good to be back. One of the things that I think is
unfortunate is that in talking about income and wealth
inequality in this country and how it is growing, we have not
really projected so far this year and projected into the future
as to what this would mean.
And this is the Budget Committee, and so I am interested in
both from Dr. Boushey and Dr. Spriggs, for your comments on--if
this trend continues, if the spread between the wealthiest and
everybody else gets worse or if it stays the same, what are the
implications for the federal budget and, therefore, for all of
the taxpayers going forward?
Dr. Boushey. Well, so let me say two things. One is since
the mid-teens when Thomas Piketty's book ``Capital in the 21st
Century'' came out and he made the argument that today's high
income inequality was calcifying into wealth inequality, and
that that would continue to increase, there has been a lot of
work by economists all across the world, but in the United
States, trying to understand what that would mean for our
economy and our society.
There is an increased awareness, I think, of the kinds of
effects that he talked about in confirmation.
In terms of the budget, one of the things that we know is
that as income and especially wealth inequality has increased,
that has had an effect on agenda setting for democratic
institutions, for things like passing the Tax Cuts and Jobs Act
in 2017, the amount of money at the top of the income ladder
that went into making sure that that went into law, which
itself exacerbates inequality.
So one line of questioning is to what extent does that
inequality subvert our democratic institutions or create the
bandwidth for policies that then allow those groups to continue
to garner wealth.
I think the other thing that we have to keep thinking about
is how this is very much connected to the concentration across
firms, and once we see monopolies being created in a particular
industry, that, too, creates these concentrations of economic
resources and affects the policy making process.
Dr. Spriggs. There are certain key things that inequality
creates. A huge part has to do with the distortion of the
markets and the marketplace.
When income rises uniformly, you create many more potential
new customers. So if you think about the over 185 million
customer units in the United States, if everybody gets a raise,
that is a potential 185 million new customers for American
business.
When it is only 5 percent, that is a different country. It
is a different market. And the virtual cycle when we had rising
wages for everyone was that it is easier to start a business if
I only have to pick off somebody from 185 million versus a very
small number of people.
New firm formation since the 1980s in the United States has
been declining specifically for that reason, and this recovery
is slowing. We know we created almost half a million fewer jobs
than we thought we had because new firm formation is slowing.
In an environment in which people say we are giving tax
cuts to businesses and we are getting rid of regulation, that
is not what businesses want. They want you to give them
customers.
And what happens? Well, the only way I can grow my business
is either I cut my prices, which means I cut my wages, the
wrong virtual cycle. Now we are all going down, or I buy my
competitor because I buy new customers.
And we have seen both. We have seen slowing business
creation and more business consolidation. This creates
challenges for the budget because where do you get the revenue
from?
And the other part of the budget is hopefully this body is
concerned with what nation do we have. Are we going to have a
nation with a well-educated workforce if the price of college
because it is determined by the market? The market is only the
people at the top.
We have so many universities in the United States where
more students are from the top 1 percent than the bottom 40
percent, major universities. The University of Michigan at Ann
Arbor, a major, huge university, has more students from the top
1 percent than the bottom 40 percent.
That is not a formula going forward, and so the Budget
Committee has to be confronted with how are you going to get
the 40 percent educated, and so if you say, well, we are not
going to pay attention to that, then you are going to wake up
20 years from now and we are not going to be the 19th best
educated out of 28 advanced countries. We are going to be the
least educated among advanced economies. And that is not a
formula that is going to work going forward.
You are not going to get the housing investment that is
necessary to make our economy turn.
Chairman Yarmuth. We are seeing kind of an example of this
dilemma we are in right now with the General Motors strike. It
seems to me that we have workers who made some sacrifices to
save their company when GM was on the verge of going bankrupt.
The taxpayers bailed GM out.
GM is now doing very well, but the increase in profits to
GM has not been shared to much of an extent with the workers,
and one of the things that they did, and I represent two Ford
facilities in my district, and they did a similar thing, was
they negotiated in troubled times and said, we are going to
create two levels of employee. They may be doing the same job,
but one is going to be continued to be paid $25, $30, $40 an
hour that they were, but those coming into those jobs are going
to be paid $16, $17, $18.
Those people show up in the employment numbers. So the
employment numbers look good. The unemployment goes down, but
they are still essentially going to be a burden on the
taxpayers because a lot of them are not going to make a
sustainable wage.
Is that playing itself out across the economy or is this an
isolated example?
Dr. Spriggs. No, unfortunately, it plays itself out. This
is unique because these workers are unionized, and they have a
voice, and we get to actually hear from them, their concern.
The case of General Motors is extreme because what the UAW
did was totally bail out this new company. The new company, a
large part of their stock was put in trust through the United
Auto Workers to provide for the healthcare of incumbent
retirees and UAW members.
That was a total blessing to this new company that the
union agreed to take on this risk. What those workers who are
there now did was make the company profitable enough to pay
back the United States government with interest.
And now they are saying we gave up wages. The current
workers were not given retirement help pledges. They were not
given the same retirement, and they are saying, ``We saved the
company. We saved the company.''
The UAW, by taking on the risk of investing heavily in that
company, putting the entire risk of their health insurance on
the table to make this company profitable, and the workers are
saying, ``Okay. We did that.''
And so what is unique here is for once in public we get to
understand the depth that American workers have sacrificed in
order to help American corporations succeed, and we are finally
hearing the voices of workers on improving productivity and
saying, ``Where is our share?''
So now it plays out for us to see.
Chairman Yarmuth. I do not have a lot of time left.
Dr. Boushey. Yes, and you see it in different ways across
the economy. An economist, David Weil, has called this
particular trend in the workplace ``fissuring,'' and by that he
means increasingly you see workers who are employed by a firm,
but they are employed by a subcontractor rather than the major
firm.
And so you go into a hotel, and all the people you may be
coming into contact with are not working at the big hotel
chain. They are working for these smaller subcontractors, and
that means that the profits, the earnings of that brand do not
have to be shared with all of those subcontracted workers.
We are seeing that all across the economy, and it is yet
another way where we are creating these fissured workplaces,
these different workplaces for some categories of workers, and
that is part of what has been driving this long-term gap
between productivity and wages.
Chairman Yarmuth. My time has expired.
Does the Ranking Member have any closing remarks to make?
Mr. Womack. No.
Chairman Yarmuth. Well, in that case, I once again thank
all of the witnesses. Thanks to the members for their
participation.
And with no further business, this hearing is adjourned.
[Whereupon, at 12:11 p.m., the Committee was adjourned.]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]