[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
STRENGTHENING OUR FISCAL TOOLKIT: POLICY
OPTIONS TO IMPROVE ECONOMIC RESILIENCY
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HEARING
BEFORE THE
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
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HEARING HELD IN WASHINGTON, D.C., OCTOBER 16, 2019
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Serial No. 116-16
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Printed for the use of the Committee on the Budget
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available on the Internet:
www.govinfo.gov
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U.S. GOVERNMENT PUBLISHING OFFICE
38-236 WASHINGTON : 2020
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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 DAN CRENSHAW, Texas
ROBERT C. ``BOBBY'' SCOTT, Virginia TIM BURCHETT, Tennessee
SHEILA JACKSON LEE, Texas
BARBARA LEE, California
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., October 16, 2019................ 1
Hon. John A. Yarmuth, Chairman, Committee on the Budget...... 1
Prepared statement of.................................... 4
Hon. Steve Womack, Ranking Member, Committee on the Budget... 6
Prepared statement of.................................... 8
Douglas Elmendorf, Ph.D., Dean, Harvard Kennedy School....... 10
Prepared statement of.................................... 12
Olugbenga Ajilore, Ph.D., Senior Economist, Center for
American Progress.......................................... 15
Prepared statement of.................................... 18
John Hicks, Executive Director, National Association of State
Budget Officers............................................ 25
Prepared statement of.................................... 27
Douglas Holtz-Eakin, Ph.D., President, American Action Forum. 39
Prepared statement of.................................... 41
Hon. Sheila Jackson Lee, Member, Committee on the Budget,
statement submitted for the record......................... 85
Hon. Ilhan Omar, Member, Committee on the Budget, questions
submitted for the record................................... 93
Answers to questions submitted for the record................ 95
STRENGTHENING OUR FISCAL TOOLKIT: POLICY
OPTIONS TO IMPROVE ECONOMIC RESILIENCY
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WEDNESDAY, OCTOBER 16, 2019
House of Representatives,
Committee on the Budget,
Washington, D.C.
The Committee met, pursuant to notice, at 10:00 a.m., in
Room 210, Cannon House Office Building, Hon. John A. Yarmuth,
[Chairman of the Committee] presiding.
Present: Representatives Yarmuth, Moulton, Sires, Peters,
Scott, Jackson Lee, Jayapal, Schakowsky, Horsford; Womack,
Johnson, Hern, Meuser, Crenshaw, and Smith.
Chairman Yarmuth. The hearing will come to order.
Good morning and welcome to the Budget Committee's hearing
on ``Strengthening our Fiscal Toolkit: Policy Options to
Improve Economic Resiliency.''
I want to welcome our witnesses here with us today. This
morning we will be hearing from:
Dr. Doug Elmendorf, Dean of the Harvard Kennedy School, and
of course, former Director of the Congressional Budget Office.
We have two of those here today.
Dr. Olugbenga Ajilore, the Senior Economist at the Center
for American Progress.
Mr. John Hicks, Executive Director at the National
Association of State Budget Officers.
And Dr. Douglas Holtz-Eakin, President of the American
Action Forum, and again, a former CBO Director.
We look forward to your testimony.
I will now yield myself five minutes for my opening
statement.
Over the last 10 years, our nation has experienced the
longest uninterrupted period of economic expansion in U.S.
history. However, we cannot afford to take it for granted.
We know that business cycles are real, and eventually
periods of economic expansion come to an end. Of course, no one
hopes for a downturn, and no one can know when one will hit,
how long it will last, or which sectors or families will be
impacted the most.
As Members of Congress, it is a responsibility of ours to
make sure the federal government is ready to respond to a
crisis before we are in one.
Today, our expert witnesses will discuss policies that we
can implement now to ensure a more secure future for our nation
and our families tomorrow.
As we all know, recessions damage our nation's fiscal
health, put stress on local and state budgets, and, most
importantly, are also costly and painful for American families.
When the Great Recession hit, Americans across the country,
regardless of background, education, career, or state of
residence, felt its effects. Many families faced bankruptcies.
Others were forced to make tough choices as they watched their
savings shrink, their debt grow, and their opportunities
diminish.
In 2009, Congress passed the American Recovery and
Reinvestment Act, increasing government investment, cutting
taxes for working families and small businesses, and preventing
bigger unemployment spikes.
While the Recovery Act was critical, we could have and
should have done more to prevent families from being left
behind. The impact of the Great Recession is still being felt
in communities across our country.
The bottom 50 percent of households have only just now,
more than a decade later, recovered the wealth they had in
2007. Millennials, many of whom graduated college only to enter
into the worst job market in a generation, have been saddled
with high student loan debt, lower earnings and less wealth
than generations before them, and they face increased barriers
to economic opportunity.
We see the legacy of the Great Recession in rising economic
inequality and families still struggling to regain their
footing.
The American people expect and deserve a government that
can utilize every tool needed to stabilize our economy and to
soften the impact of recessions on our families. Our current
economic automatic stabilizers, revenues that fall and spending
that grows when the economy falters, are vital. They provide
timely and targeted support during economic downturns and turn
on and off when needed.
When the economy is weak, working families rely even more
on programs like Medicaid, SNAP, and unemployment insurance to
help them meet their basic human needs. At the same time,
payroll taxes and income tax withholding adjust to reflect what
families are earning. And they are temporary. When the economy
gains strength, fewer people rely on these programs, so
spending falls.
But the automatic stabilizers in current law can only do so
much. Waiting for Congress to act to provide additional help in
a time of crisis slows down response time, making it harder to
target relief when and where it is needed most.
It is time for us to consider new approaches. This is
particularly important because when the next economic downturn
comes, whenever that may be, it may not be as severe as the
Great Recession. It may be more challenging to overcome.
Interest rates today are significantly lower than they were
before the last downturn. So we will not be able to rely on the
Federal Reserve to play as large a role.
While the world is moving at 100 miles per hour, Congress,
at its optimum efficiency, moves at about 10 miles per hour.
That is why it is crucial that we start the process of
strengthening these programs now, before we hit a downturn.
Families and communities should receive the support they
need when they need it, not months later after the damage is
done.
Unfortunately, the Trump Administration is pursuing
policies that will put more families in jeopardy when we face
the next economic downturn. Changes to critical programs, such
as implementing untested work requirements, making it harder to
access SNAP benefits, and proposing changes to how the federal
government measures poverty in a way that could cut or
eliminate vital assistance for millions in need, will make
programs less responsive to a slowing economy. If we want to
minimize the damage caused by recessions, Congress must focus
on strengthening the key programs families will rely on most.
While we cannot predict when or if a recession might hit or
how severe its impacts will be, it is our responsibility to
ensure our government has all the tools it needs to respond
when necessary. We cannot afford to leave our nation and our
families unprotected.
I look forward to hearing testimony from our witnesses on
what Congress can do to best secure our fiscal future.
I now yield five minutes to the gentleman from Arkansas and
the Ranking Member.
[The prepared statement of Chairman Yarmuth follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Womack. Thank you, Mr. Chairman, for holding this
hearing.
And my thanks to the gentlemen seated before us, our
witnesses on the panel today. I look forward to your questions
or to your answers to our questions.
Whether some would like to admit it or not, there has been
a resurgence of economic confidence within our country. Years
of stagnation have been replaced with job and wage growth, as
well as a prosperous American economy.
The pro-growth policies our Republican majority enacted
last Congress, including historic tax relief, unlocked
extraordinary promise and opportunity for hardworking
Americans. In fact, earlier this month, we saw a jobs report
indicating the lowest unemployment rate our nation has seen in
a half century: 3.5 percent.
Since November 2016, employers have created nearly 6.5
million new jobs across all sectors. Wages are also rising and
showing sustainable, organic growth. The median average income
increased by 3.4 percent in 2018, according to the latest data
from the Census Bureau.
This historic forward momentum certainly does not mean that
we should ignore the possibility of an economic downturn.
Rather, I believe it means we should be focused on policies
that ensure continued economic strength.
We should encourage an environment that supports America's
job creators and allows workers to pursue greater
opportunities.
There are a number of actions Congress can take to guard
against a recession and to help maintain our current economic
growth. First and foremost, the House should take up and pass
the USMCA. This important trade deal will provide much needed
support for our nation's farmers and manufacturers, and it will
modernize our policies to reflect the realities of a 21st
century global economy.
Secondly, we must protect the 2017 Tax Cuts and Jobs Act,
which has benefitted American families. This point was
reiterated earlier this year as the CBO testified before our
Committee. The statement was clear. Repealing these important
reforms would reverse the gains made and put nearly a million
American jobs at risk.
Those jobs represent real families who could lose their
livelihoods if these tax cuts were eliminated.
Third, we must continue to reduce burdensome regulatory
barriers to economic growth. Redundant federal regulations and
permitting requirements unnecessarily extend the timelines of
major projects and add massive compliance costs to development
budgets.
One of our witnesses today will detail the enormous cost of
complying with burdensome regulations imposed by the Obama
Administration, $890 billion according to the agencies
themselves. The relief from these mandates over the last two
years has been an important component of the confidence we have
seen in the economy among job creators.
Lastly, this Congress has a responsibility to reduce the
cost of living for America's middle class. Over the past few
decades families have seen their largest price increases in
some of the most heavily regulated and subsidized sectors of
the economy, including health care, higher education, and
housing.
Free market policies could help lower these costs in these
industries by increasing competition and enhancing consumer
choice.
As Ranking Member of this Committee, I am skeptical of
proposals to create more automatic stabilizers beyond those
that exist in current law. By creating more of these
mechanisms, we would reduce oversight by elected officials at a
time when our nation and our budget need the exact opposite.
The root cause of our ever-growing debt is runaway
mandatory spending, which currently accounts for about 70
percent of all federal spending. We should be working to bring
more of those expenditures back under our oversight, which is,
in my opinion, where they belong.
A final reason to be suspicious of proposals to create new
automatic stabilizers is that these programs are not likely to
be deficit neutral. I will be curious to see if offsets will be
suggested today for any new increases in mandatory spending.
Our focus should be on preventing a future crisis instead
of just trying to react to one. We should implement policies
that will help avoid a recession in the first place and reduce
our long-term debt burden over time in a very responsible way.
So, again, I thank you, Mr. Chairman, for the opportunity
to have this hearing today, and I look forward to the
witnesses, and I yield back my time.
[The prepared statement of Steve Womack follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Yarmuth. I thank the Ranking Member for his
opening statement.
In the interest of time, if any other members have opening
statements, you may submit those statements in writing for the
record.
I once again want to thank 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. You will each have five minutes to give your oral
remarks.
Dr. Elmendorf, you may begin when you are ready.
STATEMENT OF DOUGLAS ELMENDORF, PH.D., DEAN, HARVARD KENNEDY
SCHOOL; OLUGBENGA AJILORE, PH.D., SENIOR ECONOMIST, CENTER FOR
AMERICAN PROGRESS; JOHN HICKS, EXECUTIVE DIRECTOR, NATIONAL
ASSOCIATION OF STATE BUDGET OFFICERS; AND DOUGLAS HOLTZ-EAKIN,
PH.D., PRESIDENT, AMERICAN ACTION FORUM
STATEMENT OF DOUGLAS ELMENDORF, PH.D.
Dr. Elmendorf. Thank you, Mr. Chairman, Ranking Member
Womack, and Members of the Committee.
It is wonderful to be back in a place where I spent so many
good hours as Director of the Congressional Budget Office and
to be looking up at portraits of the two chairmen whom I
served.
Thank you for inviting me to testify today.
I do not think a recession is imminent for the U.S.
economy, but clearly, the economy has slowed a great deal over
the past year, and economic forecasters surveyed by the Wall
Street Journal now see the probability of a recession over the
next 12 months at about one-third compared with about one-fifth
a year ago.
Predicting recessions is quite difficult, and we should not
count on economists to correctly anticipate the timing of the
next one. But as you said, Mr. Chairman, we know there will be
a next one, and we should be ready for it. And I am pleased
that the Committee has convened this hearing.
I want to make three points about using fiscal policy to
fight the next recession. First, vigorous use of
countercyclical tax and spending policies will be crucially
important for limiting the severity of the next recession.
When the economy goes into recession, the Federal Reserve
will presumably cut the federal funds rate to near zero, as it
did in the last recession, but because interest rates are so
low already, the Fed will have less room to cut than it did
before.
The Fed will try to compensate through quantitative easing
and forward guidance. On balance though, I expect the Federal
Reserve will be able to provide less stimulus than it has in
past recessions. That will leave more for a fiscal policy to
do.
Suppose that when the economy goes into the next recession
Congress and the President agree to a collection of tax cuts
and spending increases twice as large as the 2009 Recovery Act.
Such fiscal stimulus would make the recession less deep and
less lengthy than it would otherwise be.
Fewer people would lose their jobs, and those who did lose
their jobs would find new jobs more quickly.
My second point is that notwithstanding the historically
large amount of federal debt outstanding, the government has
plenty of budget capacity to use fiscal stimulus vigorously.
The legislation I just described would have a direct budgetary
impact of about $1.7 trillion.
But higher GDP means higher taxable incomes. So the federal
government would recoup some of the direct cost, leaving a net
cost of around $1.1 trillion.
That figure is very large by almost any standard, but it
represents only about one year's worth of federal borrowing at
our current pace. Holding off debt by a year would not be worth
the lost national output and suffering that would come from a
deeper or longer recession.
Indeed, the Tax Act of 2017 is generating a larger
budgetary cost and smaller increase in national income than the
fiscal stimulus I just described. If your goal is to raise
national income at a low budgetary cost, fiscal stimulus would
be a more effective route to do that than the tax law.
Moreover, the income gains from fiscal stimulus would be
more widely shared across the income distribution than the
income gains from the tax law, a consideration that I think
should be central to your thinking.
To be clear, federal debt cannot increase indefinitely
relative to the size of the economy, and you or your successors
will ultimately raise taxes and cut benefits and services.
But market interest rates on federal debt are now at
historically low levels and have been trending down for
decades. Federal borrowing is thus less costly, less risky, and
less harmful to the economy in the long run than most
economists have expected. The urgency of putting federal debt
on a sustainable path is, therefore, greatly lessened.
My third point is that effective fiscal stimulus requires
that spending increases and tax cuts be targeted appropriately.
Effective stimulus requires that government spending increases
occur quickly, which is easier for certain payments to people
and state governments than for projects to build new
infrastructure.
Effective stimulus also requires that tax cuts be spent
quickly by the recipients, which is much more likely for cuts
aimed at lower- and middle-income households than higher income
households.
Moreover, both spending increases and tax cuts would have
larger and more beneficial effects if they were focused on part
of the country that have especially high unemployment in the
next recession.
In addition, because recessions are difficult to predict
and the legislative process often works slowly, as the Chairman
noted, it would be valuable to build more anti-recessionary
policy into law today with a trigger for activation.
In sum, the federal government can and should undertake
vigorous fiscal stimulus to counteract the next recession and
such stimulus can and should be built into law before the
recession arrives.
Thank you very much.
[The prepared statement of Douglas Elmendorf follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Yarmuth. Thank you, Dr. Elmendorf.
And I now recognize Dr. Ajilore for five minutes.
STATEMENT OF OLUGBENGA AJILORE, PH.D.
Dr. Ajilore. Thank you, Chairman Yarmuth, Ranking Member
Womack, and Members of the Committee, for inviting me to
testify on the steps that the federal government should
undertake to ensure the U.S. economy is prepared in the event
of recession.
It is an honor and privilege to contribute to this
Committee's work.
The United States is currently experiencing one of the
longest periods of economic expansion in its history. However,
the expansion has not reached all households, and many continue
to struggle with long unemployment spells.
At the same time, economic growth appears to be slowing,
and there are warning signs that a recession is possible in the
near future.
While downturns are difficult to predict, policy makers
have a responsibility both to assess whether the country is
prepared for the next recession and to implement approaches to
protect America from the worst outcomes.
The standard tools for combatting recession may prove less
effective in the future, in part, because the Fed has less room
to cut interest rates, and discretionary fiscal policy, while
still potentially effective, relies on politicians' willingness
to use it the right way, which is not always the case.
A case in point, during the Great Recession, Congress
engaged in austerity measures, reducing spending well before
the economy fully recovered.
Automatic stabilizers are a tool that can help mitigate the
effects of recession. Enabled once the economy hits a downturn,
these stabilizers, such as expansion of unemployment insurance,
are effective in helping steady the economy.
During the Great Recession, unemployment insurance kept
more than 5 million people out of poverty and prevented 1.4
million foreclosures. Unemployment insurance closed more than
18 percent of the shortfall in GDP in the aftermath of the
Great Recession.
Unfortunately, since the last recession, states have
reduced these UI benefits, thereby diminishing their positive
effects.
It is crucial that Congress update existing automatic
stabilizers using both academic studies of previous efforts and
policy professionals' experience in implementation gleaned from
the Great Recession.
Several guidelines should be implemented in existing
policies to create an instant response that would bolster the
United States' economic stability without the need for
legislative action in a potentially gridlocked Congress. These
principles should underlie almost any automatic stabilization
policy.
First, ensure that policy makers can increase and extend
the benefits of automatic programs and that they are not
tightened before all demographic groups and regions have
recovered.
Two, when appropriate, tie the triggers to activate
automatic stabilizers to economic indicators, such as
unemployment and GDP.
Third, make federal fiscal release to states substantial,
automatic, and prolonged so that states do not engage in
austerity measures before the economy has recovered.
And then, finally, require strong maintenance of effort
provisions during downturns so that states do not use the
federal funds simply just to replace their own.
There are three programs that can be updated to either make
them stronger automatic stabilizers or make to work better as
an automatic stabilizer.
First, the unemployment insurance system is a crucial
automatic stabilizer that provides a soft landing for
individuals who face layoffs or experience joblessness. Due to
the severity of the Great Recession, states depleted their
reserves and, therefore, had to borrow from the federal
government to cover UI benefits.
In response to the funding issues, many states have
decreased UI payouts to dramatic and historically unprecedented
reductions. These include reductions in the number of weeks of
available benefits, stricter eligibility requirements, and new
disqualifications.
To reverse these trends, there are several steps that can
be taken to make UI a strong and more effective automatic
stabilizer.
First, the federal tax base can be increased from its
current level of $7,000 to $18,000, which is the level the base
would have been had it matched inflation.
Second, in response to several states reducing the maximum
benefit duration level, the federal government should
incentivize states to maintain the maximum benefit duration of
26 weeks.
Second, the Supplemental Nutrition Assistance Program,
SNAP, provides a crucial role in reducing economic hardship and
providing food assistance for low income citizens. In 2018,
SNAP provided food assistance to one out of eight Americans,
including the elderly, disabled, and children.
SNAP can be made more effective as an automatic stabilizer
by removing the work requirements and by increasing benefits by
15 percent during a downturn. These provisions have the benefit
of expanding eligibility for the program, which in turn
improves the stimulus effect of spending by SNAP recipients.
Third, one issue for states during a downturn is that
almost all face balanced budget rules. This becomes difficult
during a downturn because spending rises while revenues fall.
Thus, states must make decisions about which programs to
cut, which inevitably falls on programs like SNAP, Medicaid,
and CHIP.
In previous recessions, to ameliorate these issues, the
federal government has provided funds to supplement these
programs. This policy can be turned into an automatic
stabilizer by linking federal disbursement to rising
unemployment rates.
This policy has the benefit of maintaining spending on the
programs that are crucial for those affected by downturns while
easing the burden on the states.
In conclusion, everyone is asking when the next recession
will be coming. I believe this is the wrong question to ask.
The right question to ask is: are we ready?
We are not ready because the tools at our disposal are less
effective than they were during the Great Recession. We can
rectify this by strengthening automatic stabilizers like
unemployment insurance, SNAP, and Medicaid, especially since
they take effect once the economy hits a downturn.
But the time to update these programs is now. We cannot
wait.
[The prepared statement of Olugbenga Ajilore follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Yarmuth. Thank you for your testimony, Doctor.
I now recognize Mr. Hicks for five minutes.
STATEMENT OF JOHN HICKS
Mr. Hicks. Chairman Yarmuth, Ranking Member Womack, and
Members of the Committee, thank you for inviting me today.
My association's membership consists of the states' and
territories' executive branch budget offices, and I am here
today to talk about their perspectives of federal fiscal
response during past recessions.
States have balance budget requirements. State revenues are
pro-cyclical with the economy. Over 80 percent of our revenues
come from taxing income and consumption. These two factors
cause states to cut spending and sometimes raise revenues
during recessions, both of which can worsen the impact of
declining economic conditions.
In fiscal year 2008, prior to the Recovery Act, 20 states
had revenue shortfalls, and most cut spending to balance that
year. State general fund revenues declined by 11 percent in
fiscal years 2009 and 2010. Almost one-third of the states had
revenue declines in excess of 15 percent.
States received federal fiscal relief in the last two
recessions. In both the 2003 legislation and the Recovery Act,
Congress highlighted the intent to provide fiscal relief to
prevent more significant spending cuts and tax increases.
The 2003 Act provided $20 billion to states for fiscal
years 2003 and 2004. States received a flexible grant of $10
billion and an increase in the federal Medicaid matching rate
that resulted in a little over $10 billion.
The 2009 Recovery Act had two primary state fiscal relief
funding streams, an increase in the federal share of the
Medicaid program and the state fiscal stabilization fund to
relieve fiscal burdens on states and local educational
agencies. They combined to provide about $148 billion, with
Medicaid being $99 billion of that and covered portions of four
state fiscal years.
The scope of the relief provided by the Recovery Act was
significant. The two relief programs covered 8.7 percent of
state general fund spending in fiscal year 2010 and 7.4 percent
in fiscal year 2011.
The level of state spending cuts and tax increases that
were mitigated by the federal relief was substantial. Even with
this relief, states still had to impose multiple years of
spending cuts, drew down most of their rainy-day fund reserves,
and took both temporary and permanent actions to raise
revenues.
Without this relief, elementary and secondary education,
higher education, and Medicaid would have incurred substantial
spending cuts just so states could balance their budgets.
After most of the federal relief expired in fiscal year
2011, states faced a fiscal cliff. The economic recovery was
inching forward slowly. State funding for Medicaid had to go up
20 percent, and further spending cuts were made with higher
education cuts of almost 10 percent.
The last recession had lingering effects on state budgets.
At the end of fiscal year 2018, half of the states are not
spending at their fiscal year 2008 level when adjusted for
inflation, and only about one-third of the 183,000 fewer state
employees have been added back to the workforce.
So what worked in the Recovery Act? It greatly helped to
alleviate state fiscal troubles. Without the Recovery Act,
state budget cuts, and tax increases would have been more
substantial.
The Recovery Act delivered the largest amount of federal
relief to State governments through the Medicaid program. This
served the dual purposes of targeting spending to the largest
health safety net program when enrollments were increasing and
the Act's intent of freeing up state dollars that prevented
more severe budget cuts in other parts of state government.
The timing of the start of the two main federal relief
programs aligned fairly well with the most difficult state
budget years of the recession. The majority of the Recovery Act
funds were delivered to states through preexisting federal
grant programs. This facilitated the speed of spending the
funds.
The Recovery Act flowed the stabilization fund through the
governors of each state. This ensured that the entire state
budget was taken into consideration when arraying the funds
across multiple fiscal years.
Federal-state communication during the implementation of
the Recovery Act went well. The communication and cooperation
among the administration, the GAO, and the states was well
executed through multiple layers of participants.
So what recommendations do budget officers have? The
expiration of federal fiscal relief to states in the last
recession did not match up with the lag in improvement in state
revenues.
The timing of the expiration of federal aid during
recessionary periods could be improved by targeting based on
specific economic or fiscal metrics rather than a fixed date.
The Recovery Act included other goals for states which made
it difficult to navigate. The new focus on counting jobs within
the accountability provisions directed an important
responsibility onto grant recipients rather than to a
centralized entity with the capabilities to ensure uniformity
of measurements.
And a process for sustained institutional contact among
federal, state, and local government partners is warranted. One
action that would advance this idea is the proposed legislation
by Representative Connolly, H.R. 3883, ``Restore the
Partnership Act,'' which proposes to establish the Commission
on Intergovernmental Relations of the United States.
Mr. Chairman, I appreciate the opportunity to speak.
Examining and considering the lessons learned ahead of the next
economic downturn is a wise undertaking.
[The prepared statement of John Hicks follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Yarmuth. Thank you for your testimony.
Dr. Holtz-Eakin, I recognize you for five minutes. Welcome.
STATEMENT OF DOUGLAS HOLTZ-EAKIN, PH.D.
Dr. Holtz-Eakin. Thank you, Chairman Yarmuth and Ranking
Member Womack and Members of the Committee, for the privilege
of coming here today to discuss economic resiliency.
As has been noted, the U.S. economy has already
demonstrated considerable resiliency, and there is not an
imminent recession. I think it is important to recognize that
we have essentially a two-part economy. One part, the household
sector, is quite strong and has been growing at an average rate
of about 2.7 percent year over year pretty steadily since 2016.
It is bolstered by a very strong labor market with
unemployment at historic lows, 3.5 percent.
Rising wages, including the wages of the least skilled and
least well off, and that is the good news part of the story.
You often hear a lot of the bad news part of the story,
which is a weak housing market. It has been that way for two
years now.
Diminished business fixed investment, which is a concern,
and the obvious problems in the global economy and the U.S.
trade sector which are a real headwind for the U.S. economy.
But with 70 percent of the economy growing at above 2.5
percent, it is hard to imagine getting into negative territory.
So a recession really is not imminent.
Having said that, I think the best way to think about
maintaining and expanding the economic resiliency is to think
hard about what we can do to raise the trend rate of economic
growth. There is a lot of attention on the cycle, but how fast
you grow on average is actually really important.
Bad things happen all the time in economics. Fukushimas and
other natural disasters happen. There are strikes as there is
in the auto sector right now. You get a Boeing Max 737
shutdown, and those are negative shocks to the economy.
If you are drifting along at 1 percent or a half of a
percent and not growing very rapidly, those negative shocks can
quickly put you into negative territory. That scares people,
and it snowballs, and you end up with a greater probability of
recession.
If you are growing at 2, 2 and a half percent, those same
events do not drive you into negative territory, and the
economy is more likely to survive without the necessity of some
sort of response to a recession.
So I think the Congress should now do the things they can
to bolster the trend rate of economic growth, and the Chairman
mentioned some of the ones that I would single out in my
testimony.
Certainly trade has been an important part of generating
productivity and economic growth in the United States. The
USMCA is something that the congress could do right now to
solidify the long-term trend rate of growth.
Tax reform is unfinished business in my view. Yes, there
was a bill passed in 2017, but there are a lot of opportunities
still to make the tax code permanently better, not to have
provisions that sunset, which were never, in my view, good
economic policy; to do some base broadening and improve the
investment and innovation incentives. Those are things that the
Congress could do now, put in place a stronger foundation.
The Chairman mentioned the importance of the regulatory
reforms that we have seen in recent years, and I really think
this is one of the least well understood aspects of what has
gone on in the past couple of years.
We keep track of every regulation issued by the federal
government. During the eight years the Obama Administration
issued a major regulation at the average rate of 1.1 per day
for eight years, a total self-reported cost for the private
sector to comply of $890 billion.
Since the Trump Administration entered, the net regulatory
burden has been cut by about $10 billion. So we have stopped
the expansion in the regulatory state. That could be made
statutory, not leave it to the executive branch.
Find a way to put budgets on the agencies in the same way
we put budgets on taxpayer dollars and minimize the burden on
the economy.
And I think there are other things like immigration reform
and, certainly for this Committee, putting the debt on a
sustainable trajectory that would improve the long-term outlook
in beneficial ways.
Having said that, there will be a recession. I think we all
acknowledge that, and the logic of automatic stabilizers is
impeccable. I have no reason to worry about that.
What I am concerned about is how do you operationalize the
notion of bigger and better automatic stabilizers. I have not
seen a case yet on why these ones are too small, and so how big
the stabilizer should be, I think, is an open quantitative
question, and how we make that decision is going to be hard.
I worry, as the Ranking Member did, about expanding
mandatory spending. This is the key budgetary problem, and
these would be big expansions of mandatory spending.
And I worry about doubling up. I think it is almost
impossible for an elected Member of Congress in the face of
recession to go back to a town hall and say, ``Hey, our
predecessors took care of this. Do not worry about it. It will
happen automatically.''
So we will get both automatic stabilizers and discretionary
countercyclical policy. That might be overdoing it, and so I am
not convinced we need to do this.
So I thank you for the chance to be here today. I look
forward to answering your questions.
[The prepared statement of Douglas Holtz-Eakin follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Yarmuth. I thank you.
And just to clarify, you referred to things that he did as
Chairman. He was Chairman and a very good one. So----
Dr. Holtz-Eakin. My apologies, Mr. Chairman.
Chairman Yarmuth. No, no, no. It is all right. I just do
not want to take credit for what you are giving Mr. Womack
credit for.
Well, thank you all for your testimony. We will now begin
the question and answer period. The Ranking Member and I will
defer our questions until the end.
So I now recognize the gentlewoman from Washington, Ms.
Jayapal, for five minutes.
Ms. Jayapal. Thank you, Mr. Chairman, and thank you for
your incredible leadership and for these issues that you bring
to the Budget Committee.
Thank you all for your testimony.
Although the Great Recession officially ended 10 years ago,
the bottom 50 percent of households have only just retained
their wealth, which I find appalling. We know from our studies
of the last recession that certain programs, and you refer to
these, including SNAP and TANF and unemployment insurance, are
especially effective in stabilizing the economy during
recessions, and they could be even more effective in dampening
the harms of recession if they were available to more people
with fewer barriers to entry.
But we do hear a lot of criticism about how we cannot
afford to pay for these programs because the programs increase
federal debt, and these arguments are used to justify cutting
flexible spending programs that help people in need, and they
are used to justify the placement of high barriers, like
onerous and discriminatory work requirements.
We hear similar arguments against the creation of bold new
programs that would address important problems like
homelessness, our crumbling infrastructure, or climate change.
And so today I would just like to investigate a little bit
how strategic government spending, even government spending
financed by debt, actually helps our economy.
And, Dr. Elmendorf, I thought your testimony was incredibly
insightful. There is widespread concern that the U.S. may
experience a recession in the near future, and with interest
rates already low, you refer to this in your testimony. The
Federal Reserve is going to have even less space to intervene.
Does that mean that we have to rely on fiscal policies,
even if they include significant federal spending, to limit the
severity of a recession?
Dr. Elmendorf. Yes, Congresswoman. I think it does mean
that. We are currently running budget deficits of a trillion
dollars a year or so. The proposal I offered which was just
illustrative. We do not know how much fiscal stimulus we will
need in the next recession, but even a very large piece of
fiscal stimulus would add as much to the debt as we add every
year now in what people discussed as a strong economy.
It would be a terrible mistake to run significant deficits
when the economy is humming along and then to decide we cannot
run deficits when the economy needs that support.
So I think we are looking for more fiscal stimulus in the
next recession than we had in the last one.
Ms. Jayapal. Well, you are sort of getting at my next
question, which is exactly that. You know, even during a
recession, we hear that you cannot afford, we cannot afford to
increase federal spending because it will increase debt.
But in your testimony, you asserted that the Great
Recession would have been less destructive and long had the
government spent twice as much.
Can you explain why key investments in federal programs and
not austerity policies are actually more effective in heading
off a recession?
Dr. Elmendorf. So there are a few issues here,
Congresswoman. One is that fiscal stimulus can come from tax
cuts as well as spending increases, and I referred to both in
complete parallel through my remarks.
The choice of what sort of stimulus to use depends on your
and your colleagues' judgments partly about the economic
effects, and we can talk about the benefits of targeting and so
on; partly in your assessments of what is most important to
have in our country.
Is it to have more consumer spending through tax cuts, or
is it to have more support for people who need support? And is
it to have more investments in the future?
So one very important role of government spending is to
provide investments in our future. Some of those are
investments in research and development, are investments in
infrastructure, and currently federal spending for those
purposes is about the smallest percentage of our economic
output it has been in my entire lifetime. That is not a
forward-looking policy.
But also, there is a growing body of evidence that some of
the social programs that provide support for low-income
families give the children in those families permanent
advantages over their lives and the incomes that they can earn
when they go to work.
And so their investments in both the productivity enhancing
R&D and infrastructure, but also in the productivity enhancing
skills of children who can get better access to the education
they need with the right sort of federal support.
Ms. Jayapal. Thank you.
That investment early on in kids is so important, and, Dr.
Ajilore, you refer to this with your comments about SNAP, for
example.
Why is investment in programs for low income and middle-
class people crucial for preparing for and responding to
recessions, again, even though that increase might increase
federal debt, even though that spending might increase federal
debt?
Dr. Ajilore. Thank you for your question, Congresswoman.
One of the things that we need to understand is that these
programs have a stimulus effect, and so as was mentioned
before, consumer spending is 70 percent of GDP. So that has
been very good. Consumer confidence is still pretty good.
And so what we need to do is emphasize further consumer
spending, and the stimulus effect is larger for low-income and
middle-class families.
So when we think about these automatic stabilizers, one of
the things that we have to focus on, one of the things that we
miss is that people want to work, and so we want to have
programs that help people stay attached to the labor force.
So that means it is not just, you know, finding a job, but
it is also putting food on the table, which SNAP helps with. It
is also taking care of your health care, which Medicaid helps
with.
So we have all of these programs so that people can be
better able to find a job when they lose their job, and so that
is why we need to focus on that, because of that stimulus
effect that would help consumer spending and, therefore,
boosting GDP.
Ms. Jayapal. Thank you so much.
My time has expired. I yield back.
Chairman Yarmuth. The gentlewoman's time has expired.
I now recognize the gentleman from Missouri, Mr. Smith, for
five minutes.
Mr. Smith. Thank you, Mr. Chairman.
Today marks 177 days since this Committee has failed to
adopt a budget and pass a budget. It is the Budget Committee.
Speaker Pelosi has said numerous times that a budget is a
statement of your values, and every party should do a budget.
Yet her party is in power, and they are not doing a budget.
They do not care about the people's House right now, they
care about making it a House of investigations. This is the
Budget Committee, let us see your budget. It has been 177 days,
and we still have not had it.
Thanks to the policies championed by President Trump and
the work of a Republican Congress in his first two years in
office, we have a booming economy. GDP was 3.1 percent in 2018,
last year. This was the highest in 13 years. Our GDP was the
highest in 13 years last year at 3.1.
First quarter of 2019, we were at 3.1 GDP.
Just in the last couple weeks, we hit the lowest
unemployment rate in 50 years, the lowest unemployment rate in
50 years.
Do you know who has benefitted from a very, very low
unemployment rate? The low-wage workers. I represent one of the
poorest congressional districts in the country. My people have
benefitted the most under the policies of the first two years
of a Republican Congress and a Trump Administration, with all
of the deregulations, with the lower taxes, with the doubling
of the child tax credit from 1,000 to 2,000, with lowering the
tax rates for low-income families, doubling the standard
deduction. This has helped the folks in Southeast Missouri.
You know, there was a recent article that analyzed an
economist's view of wage growth amongst low-income workers,
low-income sectors. And in fact, it was comparing low income
sectors that included retail, restaurants, clothing stores,
casino workers, and in fact, those employees have seen the
largest wage growth than any other sector.
That is great news, but no one is talking about it.
And the reason why they are benefitting with higher wage
growth is because of the tight labor force. Like I just said,
the lowest unemployment rate in the history of our country
which was just announced, and that was created because of the
policies of the Republican Congress, the last two years, and
President Trump, with a booming economy that created a 3.1
percent GDP.
We need to champion the fact that those folks that work in
restaurants and the retails, retail clothing stores, that they
have seen the largest wage growth.
Let me read this. Wage growth was truly stagnant only for
workers in high-wage industry, such as lawyers, doctors, and
broadcasters.
Those broadcasters do not want the American people to know
that their wages have not increased as much as someone who
serves them in a restaurant because they care about their own
pocketbook.
Let me read something else to you. Earnings growth for low-
wage workers, such as those who work in retail and restaurants,
like I said, has doubled in the last five years. Their wages
have doubled in the last five years. That is phenomenal, and
that is great because of the economy and the policies that were
passed in the last two years.
Also, wages for the poorest Americans were rising twice as
fast as those hourly earnings for high-wage earners. Those are
great things to talk about, and so we need to look at is what
created that.
Deregulation, which saved families $3,100 that President
Trump initiated, and making permanent the Tax Cuts and Jobs
Act, such as the doubling of the child tax credit and lowering
tax rates for all Americans. That is how we can help continue
this growth in the economy and the growth in wages for low-
income workers.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from California, Mr. Peters,
for five minutes.
Mr. Peters. Thank you, Mr. Chairman.
And thank you all for being here today.
Mr. Holtz-Eakin, you talked about some of the factors
having to do with the growth rate, and I am onboard with a lot
of those. You did not mention immigration, which is another one
I would add.
The other thing I had a question for you though is: what is
the effect of federal debt on the growth rate?
Dr. Holtz-Eakin. So, first of all, I did mention
immigration in my written testimony. I think it is a very
important issue, and the U.S. has never really used immigration
as a tool of economic policy and could, I think, reform its
core visa granting programs to take better advantage of that. I
would be happy to discuss that further if you want.
In terms of the debt, the outlook for the debt really has,
I think, significant impacts on the capacity for the economy to
grow, and the mechanisms are the following:
One, every time the federal government borrows a dollar, it
takes a dollar that would otherwise be available for
investments in skills, innovation, capital. That is an
important channel by which the debt affects the economy.
It is not too visible at any point in time, but it is sort
of a slow, corrosive opportunity lost, and we are doing an
enormous amount of that right now.
The second thing is at some point, not today, you know, if
you are a businessman looking at investing someplace in the
globe and you look at the United States and it has a
fundamental mismatch in its federal budget, you have to start
asking yourself, well, how does this get resolved?
Does it get resolved by a crisis? Certainly we hope not,
but that is not a pro-growth strategy.
We could just tax and close that gap. That is not a pro-
growth strategy.
Or we could get the core spending programs under control
and have a revenue stream that matches them.
By the way, one of those three is good news, and that is a
bad news thing.
Mr. Peters. Well, let me ask you about that. But is it
appropriate to cut taxes on high-income earners who are
particularly wealthy individuals at a time when the economy is
strong?
That adds to the retardation of the growth rate, does it
not?
Dr. Holtz-Eakin. I think that you ought to think about tax
policy not in terms of just high-income individuals, but what
will be the incentives for saving investment growth over the
long term?
Mr. Peters. Right.
Dr. Holtz-Eakin. And tax policy should be designed to
heighten those to the extent possible.
Mr. Peters. It also has to be designed to cover your
expenses at some level.
Dr. Holtz-Eakin. Yes, and we are not close at the moment.
Mr. Peters. And, Mr. Elmendorf, I ask you. I keep hearing
that debt is a long-term issue, but it does seem to me that,
you know, we hear that we are going to be spending more on
interest payments than children in three years and more on
interest payments than defense in five years.
Is this not something that is with us right now?
Dr. Elmendorf. Well, as you know, Congressman, federal debt
is now at an historically high level relative to GDP. As I
noted, that is a problem that you or your successors will
ultimately confront.
I think the question is when and how. And so you talk about
when to confront that. It is good to do when the economy is
strong, bad to do when the economy is on the edge of recession
or in a recession or in the first part of a recovery.
And then you come to the question of how, and you have to
decide on behalf of citizens like me what we want the society
to be about.
And so when you think about tax policy, it is about raising
revenue. It is about the incentive effects, as Doug said. It is
also about who is bearing the burden.
And given the great divergence of incomes in this country
over the last several decades and, in particular, the slow
growth of incomes for people in the bottom half of the income
distribution, I think it is appropriate to have the burden
borne more by people who are higher up in the income
distribution.
And I would also just emphasize that when federal dollars
reduce private investment and innovation and so on, that can be
a cost, but also budget stringency reduces federal investments
in R&D and in education and so on. That also has a cost for the
future growth of the economy.
Mr. Peters. No, 100 percent. I do not mind the idea of
investing. I think we should be investing in that sort of
thing. I do not like the idea of accruing interest payments,
you know, which are becoming a bigger and bigger part of the
pie.
And in the course of this economy, which is very strong,
the majority in the last Congress cut taxes in a way that
seemed to me it was unresponsive to the need to fill the gap in
the debt and also ignored the effect of the slowing of growth
that happens from this debt over time.
And I think we have to recover from that and what you call
the next tax policy.
But really just quickly, Mr. Elmendorf, broadly speaking,
with respect to housing, in the last recession we responded to
the crisis by providing 7 to 9 million homeowners consumer's
relief, enabling them to restructure their mortgage.
But the worth for the typical household plunged by about 40
percent, and economic inequality was exacerbated. Can you in a
few seconds tell me how you think our response for homeowners
did and whether we could do better next time?
Dr. Elmendorf. A lot of smart people worked really hard to
develop policies to help homeowners in the last downturn. I do
not think we were terribly successful in the end, but I think
that importantly reflects the difficulty of that challenge.
Too many people bought houses they could not really afford
on the hope that house prices would keep rising, and they did
not keep rising. It was very hard to solve that problem. So I
wish more had been done, but I do not think it was so
straightforward.
I think it is important going forward that we have the
right sorts of regulation to help people avoid avoidable risks
like that.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Oklahoma, Mr. Hern, for
five minutes.
Mr. Hern. Thank you, Mr. Chairman and Ranking Member.
I appreciate the opportunity. It is really an honor to be
here because this is something I would love to talk on for
about the rest of my time in Congress.
Being a businessman for 35 years before I came here, I have
only been in Congress not quite a year now. I do find it quite
humorous on the conversation here that if somehow we did not
have the tax increase, that somehow we would automatically
start paying down debt.
This never happens. It only happened really four years in a
row in our lifetime, and that was under President Clinton, and
then the House was Republican led and the Senate was Republican
led when everybody got together and had a thing called welfare
work reform.
And it is an interesting thing because the only way we are
going to work it out in our economy, the way it is structured
is that we have more people working, paying in taxes, and less
dependent on the federal government. That is really what
happened.
We had 9/11 come along. I remind us our history. It changed
the world economy forever, and now we are right back to where
we were, running gigantic deficits and enormous debt that has
really got to be troubling to all of us regardless of the side
you are on, which really demands that we have a budget, one
that really determines how we are going to spend those
revenues.
In fact, if you look at the next 10 years of the budget
window, it is incredibly devastating, once many of us are gone,
what we are going to be leaving our kids and grandkids in the
future. Somebody is going to have to pay the piper at some
point in the future.
So to say that we are just going to all of a sudden, if we
got those tax reforms back, that we were going to change our
direction, with all due respect, I just think it is a joke. I
have not seen that in my time here. It is how can we spend
more, and nobody has the intestinal fortitude to want to cut
anything.
I do think it is irresponsible though to not cut spending
with the revenues we have, and so it is interesting. I do find
it interesting, Mr. Elmendorf, that you said the wealthy ought
to pay more of their fair share.
They are paying well over half of the American taxes. The
upper 2 or 3 percent are paying well over half of taxes. So, I
do not know what you define or describe as ``fair.'' Maybe it
is all of what they earn, and it still would not be enough.
In fact, we could take almost all of the revenue generated
in the United States and have a difficult time paying off our
debt, and so I do not know exactly where we are going with this
other than we have got to figure out how we get our arms around
increasing our participation rate.
As a person who was in the welfare system as a young child
for a number of years, it was not because of a person who could
not work. It was because they did not want to work. There were
plenty of jobs, and at least I did not go hungry, I guess, but
his hardest job was to run to the mailbox and get a food stamp
check when it was still going to the mailbox.
Now we make it real easy today. We just send it to your
checking account.
I do find it interesting also that we do not want to have
people who are able-bodied adults without dependents actually
have to work or get an education to get a job that might be
available. There are over 7 million jobs in America today, and
we have got 6 million-plus that are looking for jobs, and
obviously their skills or their geographics do not match up
with where those jobs are. So they should get a training that
would allow them to go to work and be less dependent on the
federal government, not more.
To the height of about 17 million people on food stamps in
2008 to the height of about 46 million people in 2015, now back
down to about 38 million people on food stamps today, we should
design a system, I would hope, that would not just be a fiscal
cliff for them, but they would actually encourage them to move
on to a job, not be fearful of getting a raise or getting a
better job for losing their benefits.
So with all of that said, could we talk about, and we can
start with you, sir, regarding the participation rate?
What kind of policies could we put in place that would help
us grow our participation rate with our job seekers?
Dr. Holtz-Eakin. I think the prime age male and prime age
female participation rates are the things that are most
troubling right now. We have not regained some past levels on
those.
With the retirement of the Baby Boom generation, the
overall participation rate has a lot of downward pressure on
it. That is inevitable.
You want to have, I think, a strong foundation, and to be
honest, the thing I am most troubled about right now is the
fact that in our K-12 education system, we do annual testing,
and those tests, the National Assessment of Educational
Progress, indicate that a quarter to a third of fourth and
eighth graders are seriously deficient in math and reading. So
a quarter to a third of future workers are going to come into
the labor force unable to compete effectively and probably
unable to participate.
And that, I think, is an enormous mistake for the United
States and something that is not being focused on.
So getting people to enter the labor force equipped to
compete is very important, and then having a very work-friendly
social safety net so that there are not barriers to work is the
second piece.
Mr. Hern. Dr. Holtz-Eakin, is it fair to say that our
systems were designed to have more people working to support
those who need?
And so we have less people working today. Then we have got
a real problem that is a structural problem, not necessarily a
fiscal problem, but a structural problem. We just do not have
enough workers in America to feed the opportunities we have to
take care of folks when they need the safety net programs,
whether it be Social Security, Medicare, SNAP. The list goes on
and on.
We need more workers in America.
Dr. Holtz-Eakin. Yes.
Mr. Hern. And if we fill these jobs, we could have a better
GDP, change the trend that you talked about, have an
immigration policy. You mentioned visas, so we could bring
workers in to fill these jobs and grow our economy.
Dr. Holtz-Eakin. And importantly, not just have people to
work, but have people with skills and have equipment to raise
productivity.
One of the beneficial things we have seen in the past
couple of years is a resurgence in productivity growth was
under 1 percent. It is now up at about 2.5. I do not know if
that is going to continue, but if it does, that is the single
most important piece of good news that we have seen.
In the long run, productivity growth is everything. It is
how the standard of living goes up. It is how you manage to
support a higher number of seniors, given the labor force.
Mr. Hern. Mr. Chairman, thank you.
Chairman Yarmuth. I promised you some extra time.
Mr. Hern. You did. Thank you, sir.
Chairman Yarmuth. If you want to ask another question, you
are welcome to.
Mr. Hern. Well, let's talk about participation rate just a
second. When we look back in 1997 through 2001, our
participation rate was just short of 68 percent. Today it is at
63.
Do you feel today at a 68 participation rate, if that were
achievable, that we would be in a different direction, or is
this a different time for a different set of numbers?
Dr. Holtz-Eakin. I am always nervous about comparisons to
the late 1990s. You know, in the late 1990s, the world was a
safer place. The Soviet Union had fallen apart. It is not a
safer place right now.
In the late 1990s, discretionary spending was the dominant
part of the budget. It was easier to deal with. That is not
true right now.
The late 1990s gave us a dot-com bubble and a productivity
boom. It turned out that that was illusory. We do not want to
have another bubble as the key to economic and other successes.
And in the late 1990s, the retirement of the Baby Boom
generation was two decades away. It is here.
And so we are in a different place right now, and we need
to acknowledge that and deal with the problems we have right
now using new solutions, not the things we did in the 1990s.
Mr. Hern. Thank you, Mr. Chairman.
Chairman Yarmuth. The gentleman's time has expired.
I now yield five minutes to the gentleman from New Jersey,
Mr. Sires.
Mr. Sires. Thank you, Mr. Chairman.
You know, I have been here now 13 years, and I came here
when Paulsen was here. I was in Financial Services, and Paulsen
came in before the Committee. I thought he was going to cry as
he was describing the financial situation in this country.
And it really made an impact on me. You know, we had
difficult roads to take. We were able to save the auto
industry. We were able to save basically this country with all
of the things with the Recovery Act that we put together.
So as things came along, one of the things that I was upset
about and it is one of the things I want to talk to you about,
is investment in infrastructure. I did not feel that we did
enough investment doing the Recovery Act on infrastructure.
And here we are now looking to see what we can do to
prevent any kind of recession in the future, and we do not seem
to be making the investment that we need in infrastructure.
I was just wondering how do you feel about investment in
infrastructure as a way of hedging off any kind of recessions
or what part of it is it?
Dr. Elmendorf. So, Congressman, I think infrastructure
investment is very important for the long-term growth of the
economy, and my judgment agrees with yours that we should be
doing more infrastructure investment in this country.
But its role in fighting recessions is hindered by the fact
that many forms of infrastructure have long set-up times. If we
are trying to fix the airports around New York City, that is
not a thing that really is shovel ready. That is a thing that
takes time to prepare.
So throwing a lot of money at infrastructure during a
period of economic weakness may or may not lead to extra
spending when the economy needs it.
As it turned out in the last recession, it was long enough
and deep enough that even the slow payout of infrastructure
spending turned out to provide important stimulus as that went
on. But for many recessions in this country that have been
shorter, infrastructure spending can come late.
It is important for long-term growth, but I would say less
central to addressing recession when recession hits, which is
why some of the comments here have been more about payments to
individuals and payments to states.
Mr. Sires. So rather than having a larger stimulus in
infrastructure, do I understand that you favor a strong amount
of money if leaving----
Dr. Elmendorf. Yes.
Mr. Sires.----in order to head off any kind of recessions?
Dr. Elmendorf. Well, I think we should have a higher level
of infrastructure investment funded by the federal government
to ensure the long-term growth of the country. I do not think
that will particularly forestall the recession or is the best
way to address the recession when it hits.
Mr. Sires. I was wondering when you were talking about
immigration, can you tell me how immigration would help?
Because it seems that it has become a bad word around here,
``immigration.''
Dr. Holtz-Eakin. So let me first just say that there is
complete agreement across the ideological spectrum on every
word that Doug Elmendorf just said on the infrastructure. It is
not a cyclical issue. It should be dealt with as a proactive
policy for raising the trend growth rate. That is a good idea.
Immigration. The reality is that native born Americans do
not have enough kids. So in the absence of immigration, the
size of the population will shrink. It will become increasingly
old. The size of the economy will shrink, and we will be a less
vital and less important presence on the world stage.
The flip side to that is all of our choices about the
future reside in how we want to run our immigration system. Who
are we going to admit? And what are we going to value?
Traditionally, the United States has focused on
humanitarian issues in immigration. The last reforms were done
in the 1960s, and the primary criteria were family unification
and refugee and asylum status, I think indicative of the
character of this country.
But many other of our competitor developed countries use
immigration as a tool of economic policy, and I think it would
be a good idea for us to do that, too. Under 5 percent of our
permanent visas are granted for economic reasons. We could
establish criteria by which we wanted people to come in who are
going to be able to bring their productivity to the United
States, bring their entrepreneurial vigor.
Immigrants traditionally work more, work longer, start
businesses, create jobs. We can take advantage of that going
forward in a more systemic fashion.
Mr. Sires. So, in other words, we used to think in terms of
immigration on a humanitarian basis, but they still worked and
they still contribute.
Dr. Holtz-Eakin. They did, and so without trying, they have
contributed enormously. If we tried, we could do better.
Mr. Sires. It was still a stimulus for the economy.
Dr. Holtz-Eakin. Yes, it is essential.
Mr. Sires. It is essential.
Dr. Holtz-Eakin. Yes.
Mr. Sires. And here we are today somehow thinking that
immigration is bad in coming to this country because there are
jobs in this country that even though you get 5 percent of
well-educated people coming into the country, there are jobs
they are not going to do, and we need that immigration of
people that those start-up jobs that come on a humanitarian
basis to become part of the American economy.
I mean, I see it in my district. I see it in myself. I was
an immigrant. I came here when I was 11 years old. I saw my
parents, no education, worked in a factory. Yet they
contribute.
So I just think we have to rethink this issue of
immigration that we want selective immigration. You know, there
has got to be a way that we can bring immigration so people can
add to the economy like they have done in the past.
This country was built on immigration, and most of them
came as humanitarian necessities.
So there you are. I have run over. I am sorry. I apologize.
Chairman Yarmuth. That is all right. The gentleman's time
has expired.
Now, I recognize the gentleman from Ohio, Mr. Johnson, for
five minutes.
Mr. Johnson. Well, thank you, Mr. Chairman.
Is it not interesting? We are talking about the need for
infrastructure. We are talking about the need for an
immigration system that works.
How do we fund those? My gosh, it sounds like we are
talking about the need for a budget. Is that not a novel idea?
I do not know why we are here today talking about a policy
on how to improve economic resiliency. I am deeply concerned by
the premise of today's hearing that an economic recession is
imminent and that Congress needs to enact new automatic
economic stabilizers to ease the effects of an impending
economic downturn.
This is a false premise. The economy is strong. In fact,
the United States economy is undergoing the longest, largest
economic expansion in American history. The unemployment rate
is at a 50-year low. Six point four million new jobs have been
created since November of 2016.
And under the new Tax Cuts and Jobs Act, American families
are keeping more of their hard-earned money. As the Federal
Reserve Vice Chairman Richard Clarida stated, the economy
continues to be in a good place.
So instead of trying to mitigate the damage from a
nonexistent recession or to advance a false narrative of an
inevitable recession, like many of our colleagues on the left
and the national media are doing, solely for the purpose of
throttling America's economic surge and striking fear across
the nation, all to advance a political agenda, Congress should
instead focus on extending our current economic expansion by
enacting the USMCA, the U.S. Mexico-Canadian Agreement, and
reducing burdensome regulations that add billions of dollars in
cost to our economy.
So Dr. Holtz-Eakin, the Trump Administration has made
efforts to reduce the amount of burdensome regulations that
hurt American taxpayers and disproportionately affect
industries that play an important role in the economies of my
district, the Eastern and Southeastern Ohio, such as coal and
natural gas.
Can you tell me how the reduction in regulatory costs have
helped create a more competitive and productive economy?
Dr. Holtz-Eakin. I think what the Administration has done
through executive authority is actually quite remarkable. They
have instituted regulatory budgets in all the agencies, and I
think that is the right way to do this. You let the agencies
develop the regulation they need, but they have a budget, and
they cannot just do something without an offset someplace.
You get a smarter regulatory system as a result. I think
this should be a statutory regime. I think Congress should pass
this as a permanent feature.
In doing so, you get the same impacts you get from tax
policy. Regulations are an overall reduction in resources
available to do other things, and they distort the activities
of businesses. They have to focus their capital investments not
only on what is most productive, but on what meets the
regulatory requirements.
And so minimizing to the extent possible those burdens is
something that is very beneficial for growth.
We have less in the way of quantitative estimates of the
impact of regulation than we do of tax policy, and obviously,
there are big disagreements on tax policy. No doubt we would
get big disagreements about the impact of the regulatory
policy.
But given the magnitudes involved, going from over $100
billion a year to zero, I have little question that it has
contributed significantly to the post-2016 acceleration.
Mr. Johnson. Okay. So this hearing is discussing potential
automatic stabilizers that could be used to minimize the
adverse effects of, in my view, a false claim of an economic
recession. Several ideas have been proposed that involve higher
federal spending.
In your opinion, could regulatory reform be utilized to
mitigate these adverse effects?
For example, since federal regulations impose burdensome
compliance costs which would reduce economic growth, could you
design a stabilizer in the regulatory space?
Dr. Holtz-Eakin. You could. As I said in my opening
remarks, I would prefer to first focus on raising the trend
rate of growth so that you have less need for stabilizers and
less probability of going into a negative GDP growth territory.
So there is a lot that could be done in that front, and the
regulatory reforms can contribute to it.
Mr. Johnson. Yes. You know, I find it interesting because
we do not learn from history in our country very well, and I
think we tend to forget the successes of our past and our
legacy.
I mean, we discovered powered flight. We put a man on the
moon. We discovered nuclear energy. We discovered internal
organ transplants. We built the Internet. We brought marvels to
the world prior to 1970 when big government came on the scene.
We are pretty smart people.
If we would just get the government out of the way and
spend the money that we take from the taxpayers more
effectively and efficiently, we would be making a lot more
progress.
Mr. Chairman, thanks for the indulgence. I yield back.
Chairman Yarmuth. I thank the gentleman. His time has
expired.
I now recognize the gentleman from Virginia, Mr. Scott, for
five minutes.
Mr. Scott. Thank you, Mr. Chairman.
You know, listening to the other side about fiscal
responsibility, I have got to congratulate them on being able
to message fiscal responsibility better than we do, but let's
get some facts on the table.
Dr. Elmendorf, is it not a fact that since Nixon every
Republican President has ended up with a worse deficit than
they came in with, and since Carter, every Democratic President
has ended up with a better deficit or even a surplus than they
came in with, and that this Administration is on track to keep
that pattern going?
Dr. Elmendorf. Yes, Congressman, I think that is a fair
description of your very interesting chart.
Mr. Scott. Thank you.
And the next chart is on jobs. You can tell where President
Obama's initiative went into effect. That is at the bottom,
when you are bouncing off the bottom of the chart, and his
about $700 billion initiative went into effect, and you can see
jobs coming in pretty much flat since then.
Can you tell where, without looking at the chart, President
Trump was elected or when his stimulus package twice as big as
President Obama's economic package went into effect?
Dr. Elmendorf. No, Congressman. The continued economic
expansion over the past few years is a straight extension of
the economic expansion that was started years ago under
President Obama.
Mr. Scott. So with a package twice as big, there is no
upward trajectory in jobs?
Dr. Elmendorf. No, Congressman.
Mr. Scott. Thank you.
You mentioned triggers. We have unemployment compensation,
which is automatic; SNAP benefits, automatic; Medicaid. And you
talked about infrastructure. If we required states to have on
the shelf, shovel ready projects, school constructions, stuff
like that, and provided low cost or low interest loans, would
that be something that we should have on the shelf in cases of
economic decline?
Dr. Elmendorf. I think, Congressmen, there are some
infrastructure projects that can be launched fairly readily if
the money is available, but not many others, and that is why I,
and I think many of my colleagues on this panel, would
encourage you and your colleagues to focus on other ways of
fighting recessions and to think about infrastructure
investment as a longer term strategy.
Mr. Scott. Okay. Well, you mentioned there are tax cuts and
there are other tax cuts, and you said that all tax cuts do not
stimulate the economy equally. What did you mean by that?
Dr. Elmendorf. To stimulate the economy, we need to have
tax cuts that encourage households or businesses to spend. So
when you think about individual tax cuts, tax cuts that go
primarily to higher-income individuals are much more likely to
be saved than tax cuts that go to lower- and middle-income
individuals and will, therefore, have less stimulative effect
on the economy.
Mr. Scott. One problem you have with tax cuts is once you
get them into effect, they are kind of hard to eliminate. So
that a temporary tax cut is difficult.
Infrastructure spending you can cut off without as much
aggravation. Can you make a comment about if you put these tax
cuts in can you ever get them out?
Dr. Elmendorf. Well, you put in a two-year payroll tax cut
to help fight the last recession, and one piece of advice I
would offer to you in this Committee is to construct a version
of that sort of payroll tax cut that would be triggered on by a
slowing of the economy and would be triggered off when, but
only when, the economy has recovered sufficiently.
I think if you build a tax cut as an explicit recession
fighting tool, then I think it is clearer to the American
people, as well as to Members of Congress, that this is meant
to be temporary.
Mr. Scott. The gentleman from Missouri went to great
lengths to talk about how the lower incomes had increased
significantly. Did Missouri not have an increase in the minimum
wage in the last couple of years?
Dr. Elmendorf. That may be, Congressman. I am afraid I
actually do not know.
Mr. Scott. Yes.
Would an increase in the minimum wage stimulate the
economy, particularly on the low end?
Dr. Elmendorf. Yes, Congressman, I think it would. The
analysis that CBO did when I was Director and the analysis in
the version they have updated more recently shows that raising
the minimum wage can reduce employment, but it also provides a
great deal of additional income primarily toward people who are
lower down in the income distribution.
Mr. Scott. And about half of the analyses in the CBO report
show that there would actually be an increase in jobs; is that
right?
Dr. Elmendorf. It is a possibility as well, Congressman.
Mr. Scott. Thank you.
Thank you, Mr. Chairman.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Texas, Mr. Crenshaw, for
five minutes.
Mr. Crenshaw. Thank you, Mr. Chairman.
Since we are in the method of debunking myths, let's talk
about that graph where fiscal responsibility was the main focus
and which President from which party was in power at the time.
Mr. Elmendorf, it is good to see you again, by the way.
Dr. Elmendorf. Good to see you, too, Congressman.
Mr. Crenshaw. Since that question was directed at you, I
will direct this one at you as well.
Where does the budget start? Does it start with the
President or does it start in Congress?
Dr. Elmendorf. Congressman, I always put the Congress first
in my own thinking.
Mr. Crenshaw. Right, and when we look at that graph, what
we would also note if we cared about the facts was that a
Republican Congress was in power both during the Budget Control
Act of 2011 and under the Clinton Administration when we
actually did not have deficits for a couple of years. I mean,
quite amazing stuff there.
So the facts do matter.
On the CBO analysis, I would point out on the minimum wage
that at the upper end we risk having 3.7 million jobs lost if
we went to a $15 minimum wage. So it is just good to know.
This next question is for Dr. Holtz-Eakin.
Since this is about recession, I want to get to the core of
that really quick. The Federal Reserve and other financial
institutions monitor the signs of a potential recession. What
are the common indicators that a recession is imminent, and
should we be worried about this?
Dr. Holtz-Eakin. People have their different favorite
leading indicators. Traditionally, building permits, housing
starts have been good indicators of the business cycle.
Orders for durable goods, so on non-defense capital goods,
excluding aircraft, is my preferred measure.
All of these are, and monthly retail sales, are ways to
monitor the confidence and the spending habits of different
pieces of the real economy.
The other ones that you hear a lot about are financial
market indicators like inversions in the yield curve and the
like. I am less a fan of those. I pay less attention to
financial markets on a near term basis because they fluctuate a
lot in the way that has nothing to do with the trends, but
others like those more.
Mr. Crenshaw. Okay. How much do you think expectations
affect economic outcomes?
So if in the public eye we keep talking about a recession,
and this is very difficult to measure, I imagine, but do you
think that affects economic outcomes?
Dr. Holtz-Eakin. Yes, and there is a lot of evidence of
this from the efforts of the Federal Reserve to set and
maintain inflation expectations, and we have seen that.
Doug Elmendorf mentioned forward guidance, expectations
about the future of policy. These are all important channels
for improving the performance of the economy.
I am spending a lot of time looking at consumer confidence
right now because the household sector is the bulwark of the
economy right now, and continued bad news can dent that
confidence, and that is something I would be concerned about.
Mr. Crenshaw. Dr. Elmendorf, did you want to comment on
that as well?
Dr. Elmendorf. I would just add a comment. I agree that
expectations can be important, but I also think that the
American people expect the Congress to be realistic about
future possibilities and risks, and to try to enhance the
possibilities and guard against the risks.
Mr. Crenshaw. Of course. So let's talk about those risks,
and if we wanted to be as pessimistic as possible, you know,
what risk should we be worried about?
More importantly, what would we do to alleviate those
risks?
I will start with you, Mr. Elmendorf. Go ahead.
Dr. Elmendorf. Well, I sympathize with Doug Holtz-Eakin's
exhortations to try to raise trend growth, but I think that is
a complementary policy to policies that would help bolster the
economy if it falls into recession.
And I disagree with Doug about the automatic stabilizers.
We have a set of stabilizers today whose strength is basically
a byproduct, an accidental byproduct, of tax rules and spending
programs that we have built for other purposes.
And so there is no reason to think we have the optimal
level of automatic stabilizers today, and in fact, if you look
back at the past set of recessions in this country, we have had
bit run-ups in unemployment that have caused a lot of
suffering, and stronger automatic stabilizers would have helped
to reduce that.
And in particular now, with monetary policy having less
room to maneuver in the future because market interest rates
are already so low, there are clear reasons to think we will
need stronger fiscal measures in the future, and that is why I
think building strong automatic stabilizers is important.
Mr. Crenshaw. Dr. Holtz-Eakin, is it stronger stabilizers
or is it more efficient stabilizers that we need? Can you
comment on that?
Dr. Holtz-Eakin. I think efficiency of a stabilizer really
comes down to the issue of how well targeted they are. Are they
targeted on the problem?
And one of the issues in design I see right now is that in
the 20th century, recessions were essentially industrial,
inventory driven, investment driven events, and in the 21st
century, 2000, 2001, dot-com bubble bursts. We get a minor
recession. In the mid-2000s, we get a credit bubble burst. The
housing bubble bursts, and we get the Great Recession.
These are bubble-driven recessions. Their onset is
different and sort of targeting effectively to offset the
initial downturn is an important issue. I do not know exactly
how to do that in this day and age.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Massachusetts, the Vice
Chairman of the Committee, Mr. Moulton, for five minutes.
Mr. Moulton. Thank you, Mr. Chairman.
Dr. Elmendorf, good to see you. Thank you very much for
joining us here today.
Dr. Elmendorf. Thank you, Congressman.
Mr. Moulton. And all of the panelists for participating in
this discussion.
Dr. Elmendorf, I would like to start with you. To
paraphrase your testimony, in the event of a new recession our
monetary policy is limited by low interest rates. Our fiscal
policy can be limited by our timeliness in response and I would
add political considerations.
You also outline a stimulus package in your testimony that
doubles the ARRA under President Obama.
Why have you chosen a value double what was enacted
previously?
And how did limiting our stimulus as we climbed out of the
Great Recession impact our recovery?
Dr. Elmendorf. So I picked an illustrative stimulus package
that was deliberately large because the stimulus that we
enacted in 2009 was not sufficiently strong, given the nature
of that downturn, the severity of that downturn, and because
with monetary policy having less room to cut the federal funds
rate than it had in any of the past recessions, fiscal policy
will be more important.
So I think there is a reasonable chance that we will need
quite a large fiscal stimulus to effectively counter the next
recession.
And I wanted to discuss the fact that we can afford that,
despite the large amount of outstanding federal debt. Even a
stimulus package that was twice the size of what was the
previous largest stimulus package is something for which this
country has fiscal capacity.
Mr. Moulton. I think it is worth just pointing out that as
you say, it was not big enough. It was the Republican Congress
that cut that stimulus short, and I think we could have had a
much stronger recovery if we had not done that.
Dr. Elmendorf. There was a survey of economists done at the
time of the Recovery Act. It showed overwhelming support for
the view that the Recovery Act boosted output and employment.
And the slew of research about that Recovery Act and other
forms of fiscal stimulus over time that we have seen in the
last decade has strongly confirmed the views at the time that
fiscal stimulus is an effective way to put people back to work.
Mr. Moulton. Dr. Ajilore, automatic stabilizers, such as
unemployment insurance, can also help reduce the impact of a
recession. In fact, according to your recent article,
unemployment insurance kept more than 5 million people out of
poverty and prevented more than 1.4 million foreclosures.
If states have reduced unemployment insurance benefits
since the Great Depression, how will reduced UI benefits slow
recovery during the next recession, whenever it occurs?
Dr. Ajilore. Thank you for the question, Congressman.
It is really important to understand that UI benefits are
not just about the individual who is laid off and they are able
to spend. It has a stimulus impact on the economy.
So if you have lower benefits, that is less they can spend.
So, for example, there are nine states that reduced the maximum
benefit duration from 26 weeks down to 20, even down to 14, and
they also made stricter eligibility requirements.
And so, you have some states that if someone was unemployed
in 2007, they would end up with that first paycheck of, say,
like $3,000. Then in 2017, if that same person would be
unemployed, they would end up with like $2,000.
That $1,000 from that first payment, that is a loss to the
economy, not just to the individual but to the economy, and so
we have had that.
So we have had a lot to talk about, ``We may not need
this'' or ``we should not be worried about the recession,'' and
that is fine, but we retrench back on unemployment insurance,
which is the first kind of line of defense when we have a
recession.
You know, as has been mentioned, the monetary policy is
going to be weaker. Fiscal policy is going to be helpful, but
once we hit that recession, we need that first kind of, you
know, return, that first kind of like punch to like, okay,
let's get the economy back going again. And that is what
unemployment insurance is.
And we have gone back worse than the Great Recession, and
so that is why we need to even just get back to par where we
were in 2008.
Mr. Moulton. So, I mean, to sort of paraphrase what you are
saying and to put it in layman's terms, there is no real
downside to having strong unemployment insurance because it is
something that not only helps people who need the help. It just
helps the broader economy.
Dr. Ajilore. Exactly. And the other thing is that we do not
have to worry too much about the debt burden of it because when
you have a job, you do not get un-insurance benefits, and so
when you lose your job, you get benefits, but then you get a
job again. Then it is not mandatory spending that is constant.
It is just once you lose a job.
And then when you get a job again, it goes away.
Mr. Moulton. But by definition, it is an automatic
stabilizer.
Dr. Ajilore. Right.
Mr. Moulton. Dr. Elmendorf, we could address the reduction
in UI among states by extending the length of benefits when
unemployment grows, offering more to states with higher
unemployment rates.
The Committee for a Responsible Federal Budget estimates
that this would cost approximately $25 billion during a normal
recession.
How might this expansion reduce the length and severity of
the next recession and how else might we amend automatic
stabilizers before a recession arises?
Dr. Elmendorf. Strengthening the role of unemployment----
Mr. Moulton. I apologize. I do not have much time left.
Chairman Yarmuth. You can have some more.
Mr. Moulton. Okay.
Dr. Elmendorf. Strengthening the role of the unemployment
insurance system, as has been suggested, I think would have two
very important advantages. One is that it would alleviate the
harm suffered by people who lose jobs when the economy slows
down.
Also it would provide continued spending that would help
maintain some momentum in the economy.
But on the second piece, maintaining momentum in the
economy, you all will need to do more than that because we have
a very large economy at $20 trillion of annual output now.
In a slowdown to be effectively countered, you will need to
bring some real force to bear, and that is why I think you and
your colleagues should think about a collection of policies, a
collection of ways to strengthen automatic stabilizers, in
order to reduce the damage that will occur to the economy and
individual families whenever the economy next goes into
recession.
Mr. Moulton. Gentlemen, thank you.
Thank you, Mr. Chairman.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Pennsylvania, Mr.
Meuser, for five minutes.
Mr. Meuser. Thank you, Mr. Chairman.
Thank you to you all very much for being here with us. It
is terrific having former CBO Directors. As a former revenue
secretary from the Commonwealth of Pennsylvania, Dr. Elmendorf,
good to see you again.
Dr. Elmendorf. Thank you, Congressman.
Mr. Meuser. So a couple of questions. Clearly, our public
debt is a bipartisan issue. We have averaged 42 percent of our
debt to GDP over the last 50 years; 79 percent versus GDP
today, projected to continue to grow, as we all know.
So the first question is the tax cuts versus stimulus
discussion. We have had a large tax reform a couple of years
ago, and in my numbers it shows that at this point the idea of
gaining tax revenue neutrality, we are not quite there yet.
It has added approximately $160 billion, my numbers, to the
current deficit yet out of $900 billion, but it has done
wonders to the economy. There is really no denying that.
I mean, we have a very robust economy, wages, unemployment,
and every demographic, manufacturing, new business starts. A
lot of great things are happening versus the stimulus one could
argue did not have the same sort of returns and yet could
arguably say cost more.
So what is your response--and, Dr. Elmendorf, I will ask
you--to tax cuts versus stimulus package?
Dr. Elmendorf. Well, Congressman, as I read the evidence
from CBO and from outside analysts, the 2017 Tax Act was
expected to boost economic output by a little bit, and given
everything else going on in the economy, it is always hard to
tell whether something has had the effect one predicted.
But I think as analysts look at what has transpired since
that Tax Act took effect, it is quite consistent at least with
the view that it was of a notable short-term boost in growth
rates in 2018, but now the economy has slowed to the growth
rates of GDP and employment it had before that boost.
And so I think the evidence is consistent with the view
that there will be a small positive effect on GDP of the tax
law.
If you look at stimulus legislation, that would occur
during a recession. So, if you just tried to do that now with
the unemployment rate already at 3.5 percent, you would not get
so much.
But my analysis here was or my suggestion drawing on
serious analyses was in a recession when there are people
unemployed and if the Federal Reserve has already cut the
federal funds rate close to zero, which seems quite likely,
then under those conditions, you get quite a large short-term
boost to GDP from a short-term increase in the budget deficit
through either tax cuts or spending increases.
It is not just about spending increases. There is stimulus
from tax cuts of the right sort, but you get a pretty big boost
in GDP, and thus, you get a larger dynamic effect on tax
revenue, which I believe and have argued should be included in
estimates you see for important pieces of legislation. You get
a pretty big feedback effect.
And that is why the numbers I think make sense, given the
uncertainties are bigger boost for smaller cost for stimulus
under the conditions that we have been talking about.
Mr. Meuser. Now you are not in an official capacity at CBO
and, Dr. Eakin, you as well. Do you work some dynamic figures
in, such as better trade agreements and perhaps more
competitive Fed. interest rates, competitive versus the rest of
the world?
Would that add to GDP in your view?
Dr. Holtz-Eakin. So I certainly spend a lot of time
worrying about the quality of economic policy, and I think
starting with the Fed. that the Fed. has done a remarkably good
job of exiting from extraordinary monetary policy.
I do not think we could have anticipated it would go as
well as it did. And that has been an enormous benefit to the
U.S. economy.
Interest rates in other countries are noticeably lower
because those economies are more broken, and I do not want to
get lower interest rates from a broken economy. I would prefer
to have a strong economy which would display higher
productivity and interest rates. I think that is where we are.
In terms of the Tax Act, I think the focus is too much on
the individuals' side and the cut and the stimulus that comes
from that and not enough attention is focused on the bipartisan
agreement that the U.S. corporation income tax was broken, was
damaging our international competitiveness, was harming our
capacity for economic growth.
And the most important reforms in there are structural
reforms that will last that are permanent and should improve
the incentives to invest, innovate, and have higher
productivity in the United States, and those are key parts of
policy. We can enhance them even further.
Mr. Meuser. Thank you.
Mr. Chairman, I yield back.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentleman from Nevada, Mr. Horsford,
for five minutes.
Mr. Horsford. Thank you very much, Mr. Chairman, for
holding this hearing today.
And I just really want to build off of the last points that
were being made because I come from Nevada, and we were a state
that faced really some of the hardest hit circumstances from
the Great Recession, and I saw, directly, the impacts not only
to my neighbors and folks in my community, but I was serving in
the state legislature at the time and so had to deal with the
impact of losing about a third of our state's economy during
that recession.
Nevada lost more jobs to our workforce than any other state
during that period, with more than 70 percent of those losses
in the Greater Las Vegas Metro Area.
So one of the points that was just being made about the
Jobs and Tax Cuts Act is that while the corporate tax rate was
permanent, the middle-class tax cuts and tax cuts for small
businesses were temporary, and that shows just the inequity in
the tax policy that was set by this Administration and
Republicans in Congress.
But today I would like to focus on how we can strengthen
the unemployment insurance program as an automatic stabilizer.
I am a Member of the Ways and Means Committee as well, which
has jurisdiction over the unemployment insurance program which
serves as a lifeline for many Nevada families, and without the
unemployment insurance program during the recession, I do not
know what many families would have done to keep the living
standards that they were able to maintain.
Earlier this Congress, Ways and Means, and subsequently the
full House passed H.R. 1759, the ``Bridge for Workers Act,''
which would ensure that states have flexibility to provide
reemployment services to workers receiving earned unemployment
benefits who need them.
UI is one of the many tools we have at our disposal to help
keep people and families afloat when they experience job loss
during an economic downturn.
Not everyone though is eligible for unemployment insurance,
such as independent contractors, because they do not pay into
the program. That is particularly true today because we have so
many workers who make a living off of the informal gig economy.
But one of the positive aspects of unemployment insurance
is the fact that it functions as a federal-state partnership.
So, Dr. Ajilore--if I said that wrong, I apologize--what
options with respect to unemployment insurance can policy
makers consider to meet the needs of those who are increasingly
working in the gig economy during times of high unemployment?
Dr. Ajilore. Thank you for your question, Congressman, and
you got the pronunciation correct. Thank you.
One of the things you look at is as the proposal has been
talked about called the job seeker's allowance, which would
work to kind of fill in the gaps beyond those for unemployment
insurance, as you mentioned, independent contractors.
Also you have to be employed for about a year to get
unemployment insurance, and there are people, especially like
new entrants, new labor entrants that are not eligible.
And what you would do is you actually would come up with
kind of what a weekly benefit, about $170, which relates to
kind of the low-income people, and so you would expand
eligibility.
You provide this weekly benefit, and then also have the
reemployment services, things called RESEA, where you would
help people kind of stay attached to the labor force.
And so the key is as you have talked about and as was
mentioned before, the context of where we are now in terms of
the economy is much different than it was 20 years ago, 30
years ago, and so we have to have our programs to adjust for
that.
And so having a simple program like what is called the job
seeker's allowance where you just get that weekly benefit and
provide employment services would help address that issue.
Mr. Horsford. Thank you.
And, Mr. Hicks, again, from the state perspective on what
more can be done to help them ensure that they are prepared to
respond in a recession, what should states be doing now with
their rainy-day funds and other tools in order to be ready to
utilize those tools when necessary?
Mr. Hicks. Yes, thank you, Congressman.
The first thing you mentioned was rainy-day funds. States
have been adding to their rainy-day funds after the last
recession to a level that has never been seen before, and so
the lessons were learned from the last two recessions that the
sufficiency of their reserves were not there.
And so states have been active in this area, raising the
caps of their rainy-day funds, tying some of the deposit rules
to volatility of revenues. A number of states are taking the
extra revenue they get from certain volatile taxes and putting
those in the reserves rather than budgeting them and increasing
their base.
The other thing that has happened in the last couple of
years, particularly, is a return to a structural balance. A
number of states through the slow recovery had structural
imbalances in their budgets, and so more and more governors and
legislatures now have budgets that are recurring revenues and
equal and current recurring expenses and paying attention to
the nonrecurring uses thing.
So settled into a lower risk expenditure profile is one of
the things they are doing, and then other things they are doing
is planning better, stress testing both their revenue and
expenditure growth under various scenarios, a mild recession, a
moderate recession, a severe recession, at least informing the
legislature and governors about, well, what would it look like
if, you know, a downturn occurs and being a little more
knowledgeable ahead of time about doing those things.
And some of the things that we did during the Great
Recession, we had all kinds of tricks that we needed to do to
avoid severe cuts and to balance the budget. We are rolling
some of those back into the toolbox and setting ourselves up
to, you know, if we had to use those things again, not good
budget policy, but sometimes the necessary actions.
The states are preparing in that way.
Mr. Horsford. Thank you very much.
Thank you, Mr. Chairman.
Chairman Yarmuth. The gentleman's time has expired.
I now recognize the gentlewoman from Texas, Ms. Jackson
Lee, for five minutes.
Ms. Jackson Lee. Mr. Chairman and Ranking Member, thank you
for your courtesies. I was in a mark-up, but this is such an
important hearing that I wanted to make sure that I was able to
get here.
My questions will be in the backdrop of the most deadly or
devastating tax cut that has now generated debt that I do not
think we have experienced in the last three presidencies.
I was here with the presidency of Bill Clinton, George W.
Bush, and Barack Obama. I was also here, and, Dr. Elmendorf, I
will have to get my numbers straight. I think it was 2007-2008
when we got the word from Secretary Paulsen that we were not
going to be the country that we thought we were in the matter
of a weekend.
So I want to have it in the backdrop of this trillion
dollar-plus tax cut, and then a news item that I have heard
that we do have unemployment, but hiring has slowed down, and I
do not know whether that is an indicator that we should
certainly be looking at.
But let me then pose these questions first to Dr.
Elmendorf. Since I lived through this, what is your assessment
of what would have happened without the Recovery Act?
If you can just answer these two questions, and why are
automatic stabilizers fiscally responsible?
Dr. Elmendorf. Thank you, Congresswoman.
Without the Recovery Act, the previous recession would have
been longer and----
Ms. Jackson Lee. Can you give me the year so it will be in
the record?
Dr. Elmendorf. Right. So you and your colleagues enacted
the Recovery Act in 2009, and without that action the terribly
deep recession would have been even deeper, longer, more severe
than it was.
Automatic stabilizers are important because it is difficult
for the Congress to always act very quickly when economies fall
into recession. Economists are bad at predicting recessions,
but quick responses from fiscal policy are important.
And the way to do that with quick responses is to build
them in ahead of time. Automatic stabilizers in our current
fiscal systems have arisen by accident essentially by having
certain sorts of tax provisions and spending programs that were
designed to achieve other ends.
If we strengthen the automatic stabilizers in a deliberate
way, that would then provide stronger anti-recessionary policy
when the economy needs it.
Ms. Jackson Lee. Give us an example of one that we could
strengthen.
Dr. Elmendorf. So, for example, Congresswoman, you and your
colleagues could enhance the unemployment insurance system in a
way that would provide benefits for a longer period of time,
which makes sense if you end up in an economy in which jobs are
harder to find.
You could also write into law increases in federal payments
to states for the Medicaid program, which would help state
governments get through recessions without having to cut other
sorts of benefits or raise taxes, which would be exactly the
wrong thing to do.
You could write into law a cut in the payroll tax of the
sort that you and your colleagues enacted to help fight the
last recession, but that could be written into law with a
trigger to take effect if unemployment rises and then a trigger
to be turned off when unemployment falls back down again.
Those are the sorts of policies I have in mind.
Ms. Jackson Lee. I appreciate it.
The question is we should have more than an umbrella on a
rainy day. We need to really get prepared.
For the last two gentlemen, I am going to ask my question
so that you can be answering it. Let me just indicate to Mr.
Hicks I think some of the questions may have been asked that we
are concerned about, but I would be interested in Kentucky's
experience with the Recovery Act.
And I would also be interested in whether you think a
recession is inevitable.
And let me then pose my question, too, which means that we
should be getting all of our emergency ducks in order to be
prepared. Either Boy Scout, Girl Scout, Red Cross, however you
will be prepared, we need to be prepared.
Dr. Ajilore, I heard you talk about unemployment, but I am
interested in a question. Are there steps that we should be
taking to make sure that Medicaid, SNAP, and I did think I
heard you were talking about unemployment insurance, are ready
for the next recession?
We get colds and others in impoverished conditions have
pneumonia and have to be hospitalized, and I am really
concerned. I just have an unreadiness about this enormous debt
because of this tax cut, among other things, that are existing
right now.
So I would ask first if Mr. Hicks would answer and then
Doctor.
Mr. Hicks. Thank you, Congresswoman.
Ms. Jackson Lee. Have you got my questions?
Mr. Hicks. Yes, I did.
I spent 32 years in the Commonwealth of Kentucky and 25 in
the Budget office.
So, the Great Recession was a series of continuous
budgeting for states. States typically will cut first as
revenues fall short of the estimates, and in fiscal year 2008,
the recession had already started.
We had a brand new governor in transition. The first
briefing I had with that governor was how much he was going to
have to cut spending, you know, for when he was walking in the
door.
And so, then we put the budgets together in fiscal year
2009 before the Recovery Act. So that was done in the 2008
legislative session. Again, we were planning for a downturn
without any expectation of assistance from the federal
government.
And so what had happened- states quickly pivoted to try to
array that assistance they had across this multiple years. The
flexibility that was in the Recovery Act for use of some of
those funds was very helpful. States could choose how much to
use one of those streams of funding over Year A or Year B.
It was really important to measure that against their
drawdown to reserves because we had a number of states that did
three consecutive years of drawdown of reserves, exhibiting
kind of the planning of do not empty it out until we know it is
really bad.
And so states struggled but, I think, weathered a lot of
those issues, and then the ability or the requirement to
maintain spending on education that was part of the State
Fiscal Stabilization Fund really assisted states in preventing
from significant reductions in our primary spending item, which
is K-12.
And in terms of inevitability of recessions, they are
always inevitable. We just do not know when they are, and so my
membership this year is taking up this project to kind of just
talk about, like this Committee hearing is, just what can we do
to be ready when and what were the lessons that we learned from
past occurrences.
It really is just an educational and informative process to
just be thinking ahead and state budget officials are typically
very good planners.
Ms. Jackson Lee. Thank you.
Doctor?
Dr. Ajilore. Thank you for your question, Congresswoman.
So we talked a lot about unemployment insurance because
that is kind of like the first stage, but other programs like
SNAP and Medicaid are very helpful, too. And one of the reasons
why it is helpful is because when people look for a job, they
still have to eat. They still have issues with health care.
And so these programs can help with those things that will
make it easier then to get back to work.
And so one of the things we can do with SNAP, we already
have an existing program. One of the things that could happen
is they could do a trigger where if there is a downturn, you
immediately boost benefits by 15 percent. So now you give
people more money to spend on food and things like that so that
they do not have to worry about that, and you are able to hit
more people.
The other thing you could do is, you know, there has been a
big push for work requirements, as if people do not want to
work. And the gentleman before had mentioned that, you know, he
knew of people like that.
There are a lot of people who do want to work, and so
adding work requirements that make it difficult; even if you do
work requirements, you have to put in the infrastructure. So a
lot of times, you know, we are moving to automation, and there
are a lot of things you have to do online.
Now, one, it is difficult for people to learn how to use
these things online, but then you have to think about certain
areas, like rural areas and rural communities that do not even
have broadband. How are they going to, you know, satisfy these
work requirements?
Or you have work requirements that say, oh, well, you need
to apply to five jobs a week. If you are in a rural community
with three employers, how can you meet those?
And so because you have these work requirements and people
getting kicked off, now you are making it even worse for them.
So you can remove work requirements. You can boost spending
with SNAP, and as the gentleman was talking about, you know,
sometimes you cannot rely on the federal government, but the
federal government can do a lot to do that to help them out.
When there was, you know, lack of spending by the states
because they had the balanced budget rules, the federal
government had a program where they supplemented them. Now,
that could be made automatic so that in a downturn, the federal
government already, you know, automatically provides
supplemental funding so that you are not cutting Medicaid, you
are not cutting SNAP, you are not cutting CHIP.
So there are a number of things in these other programs
that are very helpful, that are very important during a
downturn that the federal government can do.
Chairman Yarmuth. I thank the gentleman.
Ms. Jackson Lee. Thank you. I yield back.
Chairman Yarmuth. The gentlewoman's time has expired.
I now recognize the gentlewoman from Illinois, Ms.
Schakowsky, for five minutes.
Ms. Schakowsky. Thank you, Mr. Chairman.
You know, I am so sorry that I missed your statements. I
wish we would not schedule hearings all at the same time, and I
am such a proud Member of this Committee. So I am glad.
If everything I ask has already been talked about, I am
going to apologize up front.
But I do want to get an answer to these questions. So who
exactly was left behind in the Great Recession and the recovery
that followed?
And who is still really being left behind, and maybe how we
could address that?
I am going to leave that open to whomever wants to answer
that. Doctor?
Dr. Elmendorf. Congresswoman, in recessions traditionally,
and in the last recession, people with less education lose jobs
at a higher rate than people with more education and end up
with higher unemployment rates.
And members of racial and ethnic minority groups, black
Americans, Hispanic Americans tend to and did in the last
recession end up with higher unemployment rates.
So it was the people who have worst economic experiences in
general between recessions also end up having the worst
experiences in recessions on average, and you and your
colleagues can do more to help these people both in the regular
year and when recessions hit.
Your tools, your budget tools, of course, are tax policy
that supports working people and spending programs that support
people when they cannot find jobs. And those programs are
particularly important when jobs are harder to find in
recessions.
Ms. Schakowsky. Thank you.
Let me ask Dr. Ajilore.
Dr. Ajilore. Ajilore.
Ms. Schakowsky. Ajilore?
Dr. Ajilore. Yes.
Ms. Schakowsky. Okay. Say it a little faster. I will get
it.
We in the House of Representatives voted to raise the
minimum wage, gradually, and we also in that same bill got rid
of the tip wage, $2.13 an hour, and went to one fair wage.
So is not raising the minimum wage really important for
protecting those people that are vulnerable during recessions
and in between recessions?
Dr. Ajilore. Thank you for your question, Congresswoman.
It is very important because there are so many issues. It
not just an economic issue, but even almost like a job quality
issue.
So a lot of problems with, you know, tip wage, you have a
lot of issues of sexual harassment or other types of harassment
that when you have that minimum wage and you get rid of the tip
minimum wage, that goes away because you are not working so
much for that.
The other thing is that it was mentioned earlier that low-
income workers have done really well in the last two years. A
lot of that has coincided with state level increases in the
minimum wage.
And so if we had a national minimum wage, a federal minimum
wage, that would boost incomes for a lot of low-income workers,
and then it is going to have that stimulus effect to help out.
So one of the things is that consumer spending is 70
percent of GDP, and that is what has been keeping this economy
afloat, and so you boost the incomes especially of low-income
people. That is going to help continue this economic growth and
so we do not have to worry about a recession as much.
So it is very important to have that minimum wage.
Ms. Schakowsky. I want to ask you though, I am all for
raising the minimum wage in the way that we did it. It gets to
$15 an hour by 2025, is what we have done.
I am wondering what you think in terms of is that
meaningful enough by 2025 or are we going to look at $15 an
hour as inadequate by those five-plus years.
Dr. Ajilore. I would say for right now, in 2025 as it
stands, the minimum wage is going to be $7.25. So if it is $15,
that is going to be important.
And so I think the key is that we have to worry about let's
try to increase it, and if it turns out by 2022, 2023 we find
that maybe it needs to be higher, we can do that because we do
that with tax cuts.
You know, we pass a tax cut, and then two years later we
say, oh, well, we need to make it permanent. We can do the same
thing with the minimum wage. We can say, okay, let's pass the
minimum wage. It is going to $15 in 2025, but in 2021, if we
find it inadequate, then we could pass a bill to boost it up
again.
Ms. Schakowsky. I appreciate that advice, and that we
should watch carefully and make sure that we are serious about
moving closer to a living wage in our country.
Thank you.
Chairman Yarmuth. The gentlewoman's time has expired.
I now recognize the Ranking Member, Mr. Womack for 10
minutes.
Mr. Womack. I thank you, Mr. Chairman, and a good
discussion today.
I appreciate our witnesses today.
I said in my opening remarks that--and this is kind of a
prayer that I have for our country--that we would spend as much
time trying to use lessons learned in history to better protect
ourselves against a recession, a potential recession, by
preventing it than we do spending time on how to figure out how
to build all of these automatic stabilizers into the formula so
that we can guarantee something to happen, and I will come back
to that in just a minute.
Here we are in the Budget Committee, and I agree with my
colleagues that talk about the need to do a budget because I do
think, as Speaker Pelosi indicated, that it is a statement of
your values.
We do not really know what those values are because we did
not do a budget, and we did not lay this out for the American
people and have that adult level discussion about it.
But here we are today talking about how can we add to more
mandatory spending in this country when any person with half a
brain and decent in eighth grade math can figure out that when
70 percent of your federal spending is on the mandatory side of
the ledger and you are going to run a trillion dollar deficit,
which is going to come really close to equaling the amount of
money we are going to spend on the discretionary side of the
ledger, a significant portion thereof.
Here we are talking about adding to it, when I think the
conversation would be better spent talking about issues of how
do we better prevent a recession from happening through our
policy discussions and get off of this desire or this
insatiable appetite to talk about relitigating the 2016
election with impeachments and investigations.
I mean that has consumed the Congress of the United States
right now, but yet here in these Committee hearings we are
talking about things that actually have the chance to move the
needle for the American public.
So, Dr. Holtz-Eakin, thanks for indulging me in my soapbox
speech.
You have already talked about things we could do. I made a
couple of notes here. We could influence some resistance to
future recessions through education policy, could we not?
Dr. Holtz-Eakin. Yes.
Mr. Womack. How?
Dr. Holtz-Eakin. As I mentioned in an answer to another
question, I am deeply concerned, beginning in the K-12 area,
that our education system is badly underperforming, and it is
not just an economic issue. It is a great social injustice.
We are going to create an underclass if we do not educate
those individuals better.
If you want to find the single biggest indicator that
someone is going to get into student debt problems, find
someone who comes out of high school and needs remedial help
entering college.
Those individuals are less likely to graduate. If they do
graduate, they are likely to take longer, and they are going to
end up with more student debt.
So this starts at the beginning, and in the end what we
care about is capacity to participate and productivity or
participants in the labor force. That is at the core of it.
Mr. Womack. And let us remind ourselves we have a student
loan debt bubble right now of one point--pick a number--$6
trillion. In my understanding it is about $400 billion of that,
25 percent of the amount, has been accrued to people who never
received a college degree.
How has that helped us protect ourselves against a future
recession?
Dr. Holtz-Eakin. That is heading in the wrong direction,
quite frankly. I think the student loan program that is
something that needs deep review by the Congress.
Mr. Womack. Dr. Elmendorf, I see your eyes lit up a little
bit over there. So I want to give you a chance to comment on
the same assertion that I made that policy discussions, good
policy discussions about how to protect ourselves against a
future recession.
And let me just give you an example of what drives my
thinking on it. We know there is going to be another recession,
just like we know there is going to be another hurricane. We
just do not know where and when.
But there are things we can do to protect ourselves against
that next future hurricane if we just use our heads a little
bit and use some of the lessons learned in history like raising
the base flood elevation or building from materials that are
more wind resistant and that sort of thing.
So why could we not do the same thing about recessions?
Dr. Elmendorf. So I think we can and should, Congressman.
So I sympathize very much with Doug's concern about the
educational system in this country, and I agree that you and
your colleagues should work to build a stronger trend growth of
our economy. I think that is a complement to, not a substitute
for also thinking about what will happen when a recession hits.
So to use your analogy, we should build buildings out of
flood plains, but we still need FEMA to turn up when the
hurricanes hit.
And what I am saying here, my view of economic policy fits
that. We should build a stronger economy for the medium term
and long term. We should also be prepared for the consequences
of recession.
Mr. Womack. But we already have automatic stabilizers in
place. Why are they not sufficient?
Dr. Elmendorf. That is an important question, Congressman.
I think the answer is that the strength of those stabilizers
was not by design by you and your colleagues. You built tax
provisions and spending programs to achieve other ends, and out
of those decisions, we end up with a certain amount of
automatic stabilization.
But it is not by design. We have not picked the current
amount, and if you look at the past recessions we have had in
this country, we have had a lot of people lose jobs and not be
able to get back to work as quickly as we all would like them
to in ways that I think stronger stabilizers would have helped.
And that is even worse going forward because with market
interest rates in the 2 percent range, not the 5, 6, 7 percent
range of the past, the Federal Reserve will have less room to
cut the federal funds rate.
So I think we will need even stronger fiscal policy to
fight recessions in the future.
But can I say one more thing, Congressman? It does not have
to be spending. It can be tax cuts. So I have referred every
time these questions have come up there could be cuts in
payroll taxes of the sort that people here did in the Congress
a decade ago.
So you should not think about it as there are spending ways
to do it, and I personally think there are important spending
aspects of that, but if you and some of your colleagues prefer
to fight recessions with tax-based countercyclical policy, that
can have some of the same, not all of the same, but some of the
same positive effects I have been talking about.
Mr. Womack. In this resiliency discussion that we are
having, sometimes I believe we can talk ourselves into
believing that we are going to have a recession, and when you
turn on the nightly news and all these economists who are like
TV weathermen, they still keep their job even though they are
wrong.
We sometimes say it enough that the average Joe out here
believes that it is about to happen.
And every metric that I look at, even inverted yield
curves, are not long term. There is no evidence that it is
going to happen.
And even if and when it does happen, every recession is
going to be different than the previous one. The time frames
are different. The conditions are different.
For example, in the 1970s, it was about energy. In the
early 2000s, it was a dot-com, and then we all know the housing
bubble. I believe we are going to have some kind of, you know,
a hiccup with student loan debt, but that is just me, and we
have got to figure out a way to fix that.
So, Dr. Holtz-Eakin, should we be tailoring automatic
stabilizers if, in fact, we do not have a sufficient number?
I believe we do, but if we are going to do those, should we
not tailor those to the situation rather than just try to do a
one size fits all approach?
Dr. Holtz-Eakin. As I said, I understand the logic, and I
think it makes sense, for example, to think hard about whether
the real value of unemployment insurance is at the appropriate
level. It has diminished over time. That is a stabilizer we
have. Make sure that it is sufficient and it is working well.
What I do not know how to operationalize, you know. You
would have to write law, and this is the Budget Committee. So
magnitudes matter.
What is the trigger? Is it the level of unemployment? Is it
the increase in unemployment?
How much do you cut the payroll tax if that is something
that is going to be a trigger? Two percentage points, 3
percent, 5?
We do not know what the recession looks like. So how in
advance are you going to write down the actual metrics which
are we are going to spend this money, and this is how much we
are going to spend in an unknown future?
So I just do not know how to operationalize this idea. It
sounds great, but I do not know how to do it, and I am not sure
anyone has enough science to do it well.
And my concern that I will repeat is I think that it will
be impossible for a future Congress, in the face of a
recession, to do nothing. And the idea that you are going to
rely on automatic stabilizers and it is all going to be good, I
think, is not realistic.
A future Congress is going to do things, and so given that
you are going to do discretionary things, do not set yourself
up to spend the money twice or cut the taxes twice.
Mr. Womack. Well, I know I am about out of time. I do not
want the moment to pass though without referring to a
conversation you had with Mr. Sires here about immigration
because, again, here is another policy that the Congress of the
United States is, I think, required to address because we have
a broken immigration policy.
And within the last couple of years, we have had policy on
the floor, legislation on the floor that would, in fact, do
exactly what Mr. Sires was talking about in terms of visas and
this sort of thing and how we can build a system that provides
something that would contribute strongly to the economy if it
were done properly.
And not lost on me was the fact that he voted against that
particular policy when it came on the floor, and I am sure it
was more over political reasons and the political consequences
of trying to support something like that rather than one on
merit. And I am just going to leave it there.
If I have got one more moment?
Chairman Yarmuth. Go right ahead.
Mr. Womack. Since Ms. Jackson Lee took four extra minutes,
I do not mind taking an extra minute.
I never let these moments pass without asking our panelists
because I believe that $22.5 trillion of debt is way too much,
and we are going to spend $400-plus billion this year on
servicing that debt. That $400 billion would pay for a lot of
really cool stuff if we had the money with which to do it
across the spectrum of discretionary spending.
Dr. Elmendorf, when is it time for us to do our jobs?
Dr. Elmendorf. Every day, Congressman.
I think you are right, Congressman, to note that we have a
level of debt and, even more importantly, a trajectory of that
debt under current policies that is not sustainable, and
ultimately you or your successors will raise taxes and cut
benefits and services to reduce the rate of borrowing.
But, it is also true that we have interest rates today that
are lower on Treasury debt than have been at essentially any
point in my professional lifetime. They have been trending down
for decades, and not just in this country, but in other
countries as well.
And there is a signal in that about how much damage the
outstanding debt is doing. And with low interest rates, that is
a signal that the crowding out of investments is not so costly
because one of the ways we have always tracked the cost of that
crowding out is interest rates get pushed up.
Interest rates are very low today. So that makes the
problem less urgent, less urgent than I said when I came here
as the Director of the Congressional Budget Office half a dozen
years ago because we have seen something happen in the world,
which is a further decline in the interest rates.
It does not mean we can go on like this indefinitely, but
it does mean there is a less urgent problem.
Mr. Womack. So maybe a less urgent, but urgent nonetheless,
right?
Dr. Holtz-Eakin. It is out of fashion to worry about this.
I do not mind being out of fashion.
I think that the heavy focus of the economics profession on
interest rates has missed the fact that the primary deficit,
the mismatch between spending and revenue is large and growing
and needs to be dealt with, and that is the Budget Committee's
job.
Mr. Womack. Yes. You know, Mr. Chairman, it is indisputable
that as a percentage of our economy, discretionary spending,
that which the appropriators of the Congress have to deal with
and are currently wrangling with, is going down, and that as a
percentage of the economy, mandatory spending is continuing to
skyrocket.
And I would hope that our Committee will eventually come to
terms with that and be willing to deal with it no matter how
tough the political world may be.
And I yield back.
Chairman Yarmuth. I thank the gentleman.
I now yield myself 10 minutes, or however much time I can
take.
Mr. Womack. Or 15.
Chairman Yarmuth. Yes.
[Laughter.]
Chairman Yarmuth. Thanks, again, to all of the witnesses. I
think it has been a very useful discussion.
I thought it was getting way off the tracks for a time
being, not from the witnesses, but from some of the members who
wanted to talk about how great things were, and the whole point
is to say whatever you think of the current state of the
economy, as the Ranking Member said, we know that the hurricane
is coming at some point, and is there something we should be
doing now to get ready for it? That is a pretty simple
question.
I know we do not usually think too far ahead in this body,
but it is useful to at least have that discussion.
Mr. Hicks, I am sorry that I did not mention your 25 years
of service to the Commonwealth of Kentucky, our beloved state,
earlier in the hearing, and I thought you were going to get
ignored for the whole hearing as I was prepared to spend most
of my time talking to you, but fortunately people did turn
attention to you.
Getting back to the Recovery Act and Kentucky's experience,
I know when we debated the Recovery Act, we on the Democratic
side said we want more infrastructure. We want to spend more,
and we want more infrastructure, and Republicans said they
wanted to spend less, and they wanted to get it under $900
billion, and they wanted a larger share to go to tax cuts than
we did.
I do not know who was right or wrong, but in the Kentucky
experience, if you were writing it today, and granted that we
are different now than we were in 2009 and 2010, but if you
were to write it today, how would you have done it differently?
Mr. Hicks. Well, as it relates to infrastructure, I think
one of the things that Departments of Transportation across
state governments will tell you, they have plenty of projects
they can do resurfacing bridge repair. The infrastructure
deficit has been well documented. There is plenty of that kind
of spending that is not transformative, that is not
reinvestment, but is truly spending.
There is more of that supply of projects available than
there are on the long-term projects, the construction of a
brand new bridge. That is, as Mr. Elmendorf said, you know, a
longer term issue.
So in one sense there is plenty of spending that takes
place there. States in the last six fiscal years, over 33
states have raised their gas taxes. It did not matter what
party, you know, the states were. They have done that.
And so that is the area of some of the largest spending
increase that states have done because they recognize that
infrastructure deficit. So that is one area that I think is
good.
The other probably I would say is the use of Medicaid as a
means of both, you know, incorporating the fact that
enrollments rise and that safety net element, you know, needs
attention, also combined with the fungibility of the dollars
that the last two recessionary fiscal responses we have had are
very effective.
If you want to get spending done quickly and you want to
keep states from raising taxes or really reducing education
spending because that is where most of our big dollars go to,
that is a very effective tool, and it has proved effective in
the last two recessions.
So we looked at that very closely, you know, when we were
contending with the Great Recession, and it really was a rescue
effort aimed at really K-12 spending and higher education
spending at the time.
I will say the fiscal cliff that we ran into, we did not
know how long the recession was going to last, and on state
revenues, it lasted longer than anyone expected. And so when
the relief dropped off, we had to do what we had to do, which
is we had to backfill the Medicaid with state dollars and we
cut the heck out of everything else.
We tried to keep K-12 spending from being cut, but higher
education took uniformly across the country the biggest single
year spending cut, you know, that we have seen in years and
years because that is the largest discretionary element of
state government spending.
And then the last thing I say in my remarks, this kind of
conversation and an institutional type of conversation between
and among the federal government, state governments, and the
local governments we used to have done in a better way back
when the ACIR, Advisory Commission on Intergovernmental
Relations, was okay.
So one of the things in terms of your theme here, preparing
and getting ready for that next contingency, is to pay some
attention to that.
Speaker Ryan had a task force, you know, on that issue a
couple of years ago, and I still think it is important because
when such a large amount of the Recovery Act flowed through
state governments on domestic spending, and I will say it was a
shock in terms of the amount of effort that needed to be done,
but we are all willing to do it, and I think states worked
really hard.
But the federal government did a really good job of
communicating during the time of implementation, and GAO did an
excellent job in terms of getting out ahead of these things so
they could identify problems and get to resolution before
enforcement had to take place and later has.
So I think some of that preparation are the lessons
learned, and I would love to see some of that
institutionalized.
Chairman Yarmuth. Some of my Republican colleagues were
talking about how great the economy is and minimized the risk
here, but just for a review of history, Dr. Elmendorf, and by
the way, I apologize. I am not sure I introduced you as the
Dean of the Harvard Kennedy School at the beginning. I
introduced you as a former CBO, but you have got to give a
shout-out to the Kennedy School.
But was there not growth, the economy growing at a fairly
reasonable rate back in 2007, right before it was not?
Dr. Elmendorf. So, Congressman, Mr. Chairman, I will say
first that as some of the alumni of the Harvard Kennedy School
are here and Members of your Committee, we are very proud of
that.
Economists are very bad at predicting recessions. In fact,
it is quite common for economists, once the recession is known
to have started, to look back and see economists leading policy
makers, saying things like, ``Well, we are not in recession
now.''
It turns out the economy had already slowed because the
data become available with a lag, and there are jolts that are
reversed, and then jolts that are not reversed.
So it is hard to know, and that is why it is important to
be prepared.
Chairman Yarmuth. The quarter before we went into a
negative growth rate, we had a 2.5 percent growth rate in GDP.
Dr. Elmendorf. Yes, Mr. Chairman.
Chairman Yarmuth. Essentially where we are right now.
You said something, Dr. Holtz-Eakin, that I think is really
important when you talked about the differences between the
1990s and today. Some of my colleagues have heard me say this.
I repeat it all the time.
We had a Chief Technology Officer from Microsoft in my
district several months ago, and she said that over the next
ten years we would experience 250 years' worth of change.
Even if she is 50 percent wrong, that is an awful lot of
change.
Then, one of the top people at IBM told me that in the next
three years alone, artificial intelligence was going to change,
significantly change or eliminate, 150 million jobs around the
world. That is just in the next three years.
So we are in a period of rapid change, and it is going to
get more and more rapid. So I think the idea that we could face
and almost a certainty that we will face some really
significant disruptive changes in society that are going to
make significant difference and without question will
disadvantage certain categories of the population, as we know,
is something I think makes this discussion much more important.
One of the things that you talk about enhancing economic
growth and the chance is that I become more and more focused on
is early childhood education in that we know that very soon we
are going to be a majority non-white population, which means
that a generation or two from now, the tax base is going to be
majority non-white.
And we have a lot of people in vulnerable situations whose
children are going to make up a lion's share of the tax base a
generation or two from now.
Is that one of those things that you think we could do,
along with immigration and other things?
Dr. Holtz-Eakin. There is a lot of evidence that early
childhood education has high returns over the course of
people's lives. That is in the economics literature pretty
clearly.
From the Budget Committee's perspective, I think like the
key is this is yet another piece of evidence that we have two
budget problems. One is the mismatch on revenues and spending,
and the other is the composition of the spending.
Discretionary accounts are the place where you do all the
genuine investments, basic research, infrastructure, education,
and the mandatory programs, which are largely legacy programs
and aimed at the elderly, are pushing out the discretionary
accounts, and the kids get shortchanged as a result.
And how you deal with that I think is one of the
fundamental challenges of the budget going forward.
Chairman Yarmuth. I thank you for that.
And going back to immigration, I do not know. I will let
Mr. Sires speak for himself about why he voted against it, but
you are not talking about back in 2013, are you?
Mr. Womack. No.
Chairman Yarmuth. Because the reason that a lot of
Democrats, and I am sure I was one of them, voted against that
was because it was the easy stuff to do, and one of the
problems we have always faced in doing immigration reform, at
least since I have been here is everybody wants to do the easy
stuff, H-1B visas, yes, simple.
Border security? Yes, we can do border security.
DACA, half of the citizenship, those are the tougher
things, and I think that, as one of the Gang of Eight in 2013,
I worked for seven months to bring comprehensive immigration
reform to the floor when the Senate had already passed it, and
we were not able to get it to the floor, even though seven of
the eight of us had signed off on a proposal that we thought
could pass.
Mr. Womack. The bill I am talking about did have a six-year
DACA fix in it.
Chairman Yarmuth. A temporary DACA fix, yes.
Mr. Womack. Yes.
Chairman Yarmuth. Got you, but I totally agree that
immigration reform--I agree with you, the Ranking Member, and
everybody else--is something that is not optional. It is
mandatory.
In my district, over the last 10 years, 100 percent of the
population growth has been from immigration. None has come from
native born growth.
We had a hearing on immigration and its future impact on
the budget, and one of the witnesses said that it is estimated
in about 2045, 87 percent of the population growth of the
country would be from immigration. So it is something that,
again, looking down the road we definitely have to do.
So anyway, once again, thank you all for your testimony. I
found the discussion extremely interesting and valuable. And I
do not think I have anything else to do except to say once
again thank you, and I thank the Ranking Member.
And without objection, the hearing is adjourned.
[Whereupon, at 12:19 p.m., the Committee was adjourned.]
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