[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                   THE CONGRESSIONAL BUDGET OFFICE'S
                      BUDGET AND ECONOMIC OUTLOOK

=======================================================================

                                HEARING

                               BEFORE THE

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

             HEARING HELD IN WASHINGTON, D.C., MAY 26, 2022

                               __________

                           Serial No. 117-12

                               __________

           Printed for the use of the Committee on the Budget
           
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                       Available on the Internet:
                            www.govinfo.gov
                            
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                    U.S. GOVERNMENT PUBLISHING OFFICE                    
48-146 PDF                 WASHINGTON : 2022                     
          
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                        COMMITTEE ON THE BUDGET

                  JOHN A. YARMUTH, Kentucky, Chairman
HAKEEM S. JEFFRIES, New York         JASON SMITH, Missouri,
BRIAN HIGGINS, New York                Ranking Member
BRENDAN F. BOYLE, Pennsylvania,      TRENT KELLY, Mississippi
  Vice Chairman                      TOM McCLINTOCK, California
LLOYD DOGGETT, Texas                 GLENN GROTHMAN, Wisconsin
DAVID E. PRICE, North Carolina       LLOYD SMUCKER, Pennsylvania
JANICE D. SCHAKOWSKY, Illinois       CHRIS JACOBS, New York
DANIEL T. KILDEE, Michigan           MICHAEL BURGESS, Texas
JOSEPH D. MORELLE, New York          BUDDY CARTER, Georgia
STEVEN HORSFORD, Nevada              BEN CLINE, Virginia
BARBARA LEE, California              LAUREN BOEBERT, Colorado
JUDY CHU, California                 BYRON DONALDS, Florida
STACEY E. PLASKETT, Virgin Islands   RANDY FEENSTRA, Iowa
JENNIFER WEXTON, Virginia            BOB GOOD, Virginia
ROBERT C. ``BOBBY'' SCOTT, Virginia  ASHLEY HINSON, Iowa
SHEILA JACKSON LEE, Texas            JAY OBERNOLTE, California
JIM COOPER, Tennessee                MIKE CAREY, Ohio
ALBIO SIRES, New Jersey
SCOTT H. PETERS, California
SETH MOULTON, Massachusetts
PRAMILA JAYAPAL, Washington

                           Professional Staff

                     Diana Meredith, Staff Director
                  Mark Roman, Minority Staff Director
                               
                               
                               CONTENTS

                                                                   Page
Hearing held in Washington, D.C., May 26, 2022...................     1

    Hon. John A. Yarmuth, Chairman, Committee on the Budget......     1
        Prepared statement of....................................     4
    Hon. Jason Smith, Ranking Member, Committee on the Budget....     7
        Prepared statement of....................................     9
    Phillip Swagel, Ph.D., Director, Congressional Budget Office.    11
        Prepared statement of....................................    13
    Hon. Michael C. Burgess, Member, Committee on the Budget, 
      statement submitted for the record.........................    52
    Questions submitted for the record...........................    55
    Answers submitted for the record.............................    56

 
                   THE CONGRESSIONAL BUDGET OFFICE'S
                      BUDGET AND ECONOMIC OUTLOOK

                              ----------                              


                         THURSDAY, MAY 26, 2022

                           House of Representatives
                                    Committee on the Budget
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 11:01 a.m., via 
Zoom, Hon. John A. Yarmuth [Chairman of the Committee] 
presiding.
    Present: Representatives Yarmuth, Jeffries, Boyle, Lee, 
Chu, Plaskett, Scott, Jackson Lee, Peters; Smith, McClintock, 
Grothman, Smucker, Jacobs, Burgess, Carter, Cline, Feenstra, 
Good, Hinson, Obernolte, and Carey.
    Chairman Yarmuth. This hearing will come to order.
    Good morning and welcome to the Budget Committee's hearing 
on the Congressional Budget Office's Budget and Economic 
Outlook.
    At the outset, I ask unanimous consent that the Chair is 
authorized to declare recesses of the Committee at any time.
    Without objection, so ordered.
    Now, before I welcome our witness, I will go over few 
housekeeping matters. Today the Committee is meeting virtually. 
Before we begin, I would like to remind Members participating 
in this proceeding to keep your camera on at all times, even if 
you are not under recognition by the Chair. Members may not 
participate in more than one committee proceeding 
simultaneously. If you choose to participate in a different 
proceeding, please turn your camera off.
    Members are responsible for their own microphones. Please 
mute your microphones when you are not speaking. This will help 
prevent feedback and other technical issues. Please remember to 
unmute yourself when you seek recognition. Note that the Chair 
or staff designated by the Chair may mute participants' 
microphones when they are not under recognition for the 
purposes of eliminating inadvertent background noise. We are 
not permitted to unmute Members unless they explicitly request 
assistance. If I notice that you have not unmuted yourself I 
will ask if you would like staff to unmute you. If you indicate 
approval by nodding, staff will unmute your microphone. They 
will not unmute your microphone under any other conditions.
    I would like to remind Members that we have established an 
email inbox for submitting documents before and during 
committee proceedings. We have distributed that email address 
to your staff.
    Now, I will introduce our witness. This morning we will be 
hearing from Dr. Phillip Swagel, the Director of the 
Congressional Budget Office.
    I will now yield myself five minutes for an opening 
statement.
    Chairman Yarmuth. Good morning. I want to thank Dr. Phillip 
Swagel, Director of the Congressional Budget Office for 
appearing before our Committee today to testify on CBO's newly 
released budget and economic outlook, also known as the CBO 
baseline.
    Dr. Swagel, your agency is an indispensable partner to 
Congress and to the House Budget Committee in particular. And I 
want to thank all your dedicated staff for their hard work in 
putting out this report.
    We are holding this Committee hearing a little later in the 
year than usual since Congress did not complete the Fiscal Year 
2022 appropriations bills until March and CBO needed those 
final funding levels to finish the outlook. But today's hearing 
is still a great opportunity for us to examine CBO's new 
projections for the next decade as Congress begins the Fiscal 
Year 1923 budget and appropriations process.
    When comparing CBO's new outlook with the one published 
shortly after President Biden took office, one thing is 
abundantly clear. The American Rescue Plan delivered critical 
lifesaving and life-changing relief that changed the course of 
the pandemic, rescued our economy, and helped American families 
and small businesses stay afloat. The American Rescue Plan 
helped power a historic recovery, the most equitable in recent 
memory and contributed to the largest job growth ever in a 
calendar year. The percentage of people receiving unemployment 
insurance has now fallen below 1 percent for the first time in 
more than 50 years. The unemployment rate is currently down to 
3.6 percent, a level that prior to the Rescue Plan CBO 
projected we would not reach during the entire decade. Now, CBO 
is projecting that the unemployment rate will drop even further 
in 2023 to 3.5 percent, the lowest rate our country has seen in 
nearly 70 years.
    Small business, which account for nearly half of all 
American jobs, are booming. Americans submitted 5.4 million 
applications for new businesses in 2021, the most in recorded 
history. And small businesses are creating more jobs than ever 
before.
    The Rescue Plan nearly doubled our GDP growth in 2021. As a 
result, the U.S. was the first major advanced economy in the 
world to come back above pre-pandemic levels of GDP. Faster 
economic growth has boosted hiring and wages and powered record 
deficit reduction. CBO projects we are on track to see the 
deficit shrink by $1.7 trillion, from $2.8 trillion in 2021 to 
$1 trillion this year.
    All of these indications are evidence of the same truth: 
our economy is far outpacing what CBO projected without the 
Rescue Plan. The Rescue Plan laid the foundation for America's 
unprecedented recovery and economic resilience, and we are in a 
far better place because of it.
    We have made incredible progress, but inflation is our new 
challenge. I will reiterate what economic experts across the 
ideological spectrum have said over and over, international 
supply chain bottlenecks and higher energy costs due to 
Russia's war in Ukraine are the primary drivers of current 
inflation. These are global problems, which is why inflation is 
a global issue. In fact, inflation in the UK hit a 40 year high 
just last week. The 38 member countries of OECD are averaging 
an inflation rate of more than 9 percent. Clearly, this 
inflation is not unique to the United States, but the American 
Rescue Plan is.
    Because we enacted this legislation, American families, 
state and local governments, and our national economy are 
facing this new challenge from a position of economic strength. 
But additional action is necessary to protect Americans from 
rising costs and keep our economy strong. The Federal Reserve 
is best positioned to tackle immediate inflation concerns and 
Congress can and must do everything it can to lower costs to 
American families overall. The cost of healthcare, housing, 
education, childcare, the basic needs of American families, 
have been rising for decades. That is why House Democrats have 
passed legislation to lower prescription drug prices, expand 
the supply of affordable housing, cut childcare costs, expand 
access to higher education, and ensure that big corporations 
cannot take advantage of American consumers with excessive 
price hikes. These actions would lower families' monthly costs 
substantially, and I look forward to discussing this today with 
Director Swagel.
    This is an important hearing and an important time for the 
future of our nation. I hope that today we can focus on the 
facts and on solutions that will deliver relief to American 
families and build a stronger, more equitable, and more 
resilient economy.
    Director Swagel, thank you again for appearing before our 
committee today and I look forward to your testimony.
    With that, I would like to yield to the Ranking Member, Mr. 
Smith, to unmute his microphone for five minutes for his 
opening statement.
    [The prepared statement of Chairman Yarmuth follows:]
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    Mr. Smith. Thank you, Mr. Chairman. My opening statement 
probably couldn't be any more different than comments you had 
just made.
    The Budget and Economic Outlook released by the 
Congressional Budget Office yesterday shows the impact of one-
party Democrat rule in Washington over the past year. And it is 
not a pretty picture. In short, America's fiscal health is 
getting worse. And when we compare it to CBO's February 2021 
baseline, you can see just how much the nation's budgetary and 
economic outlook has deteriorated since President Biden and the 
one-party Democrat rule has taken over.
    First, let's look at the data. When President Biden entered 
office, CBO predicted the government would spend $61 trillion 
over the next 10 years. Now they say it will be $72 trillion. 
When Biden entered office, CBO predicted the government would 
run up just over $12 trillion in deficits over the next 10 
years. Now they say it will be close to $16 trillion. When 
Biden entered office, CBO predicted the government would spend 
$4.6 trillion on interest payments over the next 10 years. Now 
they say it will be over $8 trillion. When Biden entered office 
CBO predicted the average interest to be 2.5 percent over the 
next 10 years, now they say it will be 3.5 percent. Their 
prediction for this year has nearly doubled from 1.3 percent to 
2.4 percent. The inflation forecast for 2022 and 2023 combined 
is 64 percent higher than what CBO predicted when Biden entered 
office. And that might be overly optimistic. After all, CBO 
projects inflation to be 4.7 percent this year but inflation 
has already increased by almost 4 percent in 2022. Also, 
perhaps overly optimist, CBO's economic growth predictions. 
Real GDP growth is projected to be 3.1 percent this year, but 
GDP declined by 1.4 percent in the first quarter of 2022.
    Under every metric, President Biden has worsened the 
balance sheet of the federal government, the economic outlook 
for our country and the fiscal health of American families.
    So, how did we get here? Democrats passed their $2 trillion 
American Rescue Plan even though the economy was well on its 
way to recovery. Democrats promised it would create 4 million 
jobs. Instead, job creation was smaller in 2021 than CBO had 
projected it would be before the passage of the $2 trillion 
plan. What it did create was the highest inflation in 40 years 
while spending federal tax dollars on such things as $17 
million on a golf course in Florida, $4 million to build beach 
parking lots in South Carolina, $2 million to plant trees in 
New York, and $400 billion to pay people to stay at home and 
not go to work. And yet things could have been even worse. The 
Washington Democrats' ``Build Back Broke'' agenda would have 
added $5 trillion in new spending and $3 trillion in new debt 
according to CBO.
    There is a silver lining in the CBO baseline, though. 
Thanks to the Republican passed Tax Cuts and Jobs Act, the tax 
burden on families and job creators fell while federal revenues 
have grown. This year revenue from corporations and individual 
taxpayers is up, far exceeding what CBO projected the federal 
government would collect. Revenues have surged 39 percent over 
last year and collections are on pace to be the largest share 
of GDP in American history. As a matter of fact, if current 
forecasts hold, revenues could very well end up being more than 
a trillion and a half above what CBO predicted the would be for 
2022, after passage of the Tax Cuts and Jobs Act.
    The story this baseline tells us is a story of one-party 
Democrat rule in Washington. After one year, we have trillions 
more in spending; an explosion of new debt; record inflation; a 
supply chain crisis; and the highest gas prices ever recorded; 
and now a baby formula shortage. This is the legacy of 
President Biden's first year in office.
    I yield back, Mr. Chairman.
    [The prepared statement of Jason Smith follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Yarmuth. I thank the gentleman for his opening 
statement.
    In the interest of time, I ask that any other Members who 
wish to make a statement submit their written statements for 
the record in the email box we established for receiving 
documents before and during Committee proceedings. We have 
distributed that email address to your staff.
    I will hold the record open until the end of the day to 
accommodate those Members who may not yet have prepared written 
statements.
    Now, once again I want to thank Dr. Swagel for being here 
this morning. The Committee has received your written record 
and it will be made part of the formal hearing record.
    You have five minutes to give your formal remarks. You may 
unmute your microphone and begin when you are ready.

  STATEMENT OF PHILLIP SWAGEL, PH.D., DIRECTOR, CONGRESSIONAL 
                         BUDGET OFFICE

    Dr. Swagel. Thank you, Chairman Yarmuth, Ranking Member 
Smith, and Members of the Committee for inviting me to testify 
on the CBO's Budget and Economic Outlook.
    In CBO's projections released yesterday the federal budget 
deficit in 2022 is $1 trillion. That shortfall represents a 
substantial reduction from deficits in the past two years as 
federal spending in response to the Coronavirus pandemic wanes 
and as the current economic expansion continues.
    In our projections, which reflect the assumption that 
current laws governing federal taxes and spending generally 
remain unchanged, federal deficits nonetheless remain large by 
historical standards and generally increase over the next 
decade. From 2023 to 2032 the annual shortfall averages $1.6 
trillion. The projected deficit of more than $2 trillion in 
2032 at the end of the budget window would equal 6.1 percent of 
GDP. That is well above the average for the past 50 years.
    Outlays average 23 percent of GDP over the next 10 years 
and rising interest rates and accumulating debt cause net 
interest costs to double as a percentage of GDP by 2032. And at 
the same time, the aging population and the rising cost of 
healthcare contribute to increased mandatory spending.
    In 2022 revenues in our projections reached their highest 
levels as a share of GDP in more than two decades. They then 
decline over the next two years, but remain above their long-
term average through 2032. Outlays grow faster than revenues 
over that period, which is why deficits increase.
    Federal debt held by the public initially dips to 96 
percent of GDP in 2023 and then rises after that. In our 
projections, the debt ratio reaches 110 percent of GDP in 
2032--that is the highest level ever--and then rises to 185 
percent of GDP in 2052 at the end of our 30-year long-term 
outlook.
    We aim for our projections to fall in the middle of the 
range of likely outcomes. Still, they are subject to 
considerable uncertainty in part because of the ongoing 
pandemic and because of other world events, such as the 
invasion of Ukraine and lockdowns in China, and so on. Our 
estimate of the deficit for 2022 is now $118 billion less than 
what we had projected last July in our most recent update 
before this one. In the current estimate for 2022 revenues are 
10 percent higher than we had previously projected and outlays 
are up by 6 percent.
    The cumulative deficit over the 2022 to 2031 period is $2.4 
trillion more than it was last summer. Newly enacted 
legislation since last July accounts for most of that increase. 
There are other changes that boost projected revenues and 
therefore reduce deficits. Those are mostly offset by economic 
changes that increase outlays, particularly for interest 
payments and Social Security payments.
    Let me now turn very briefly to the economy. The pace of 
inflation since the middle of last year has been the fastest in 
four decades. In CBO's projections, elevated inflation persists 
in 2022 because of the combination of strong demand and 
restrained supply in the markets for goods, services, and 
labor.
    In response, the Federal Reserve tightens monetary policy 
and interest rates rise rapidly. Real GDP, that is GDP adjusted 
to remove the effects of inflation, grows by 3.1 percent this 
year and the unemployment rate averages 3.8 percent in our 
projections. After 2022 economic growth slows and inflationary 
pressures ease. So CBO has published a great deal of 
information yesterday about our new projections. Those are 
online on the CBO website.
    And, with that, thank you again. I am happy to answer any 
questions.
    [The prepared statement of Phillip Swagel follows:]
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    Chairman Yarmuth. Thank you, Director Swagel, for your 
opening remarks.
    We will now begin our question and answer session. As a 
reminder, Members can submit written questions to be answered 
later in writing. Those questions and responses will be made 
part of the formal hearing record. Any Members who wish to 
submit questions for the record may do so by sending them 
electronically to the email inbox we have established within 
seven days of the hearing.
    Now we will begin our questioning.
    I now recognize the gentleman from New York, Mr. Jeffries, 
for five minutes.
    Mr. Jeffries. I thank the distinguished Chair for your 
continued leadership and convening this hearing. And, Director 
Swagel, thank you for your presence and for the work that you 
do.
    I want to associate myself with the comments of Chairman 
Yarmuth when he made clear that the American Rescue Plan 
rescued the economy at a time when it was on the brink of 
collapse and put us into position to achieve some of the 
significant economic growth measures that have occurred at this 
particular point in time, as well as the record unemployment.
    And so I just want to clarify some things that you have 
previously testified to. So we got a real understanding as to 
where things are at right now. And I believe you previously 
testified that revenues in the CBO's projections would reach 
their highest level as a share of GDP in more than two decades. 
Is that right?
    Dr. Swagel. Yes, sir, that is correct.
    Mr. Jeffries. And, in fact, they are projected to increase 
to 20 percent of GDP in 2022, which I believe is up about 17 
percent from the previous forecast?
    Dr. Swagel. That is right. The revenues will reach just 
slightly under 20 percent, which is up very substantially from 
our previous projections.
    Mr. Jeffries. And we are seeing approximately 8.3 million 
jobs created since President Biden first took office, is that 
right?
    Dr. Swagel. Yes, employment has grown, you know, very 
sharply as the U.S. has come out of the pandemic--as you said, 
since the beginning of 2021.
    Mr. Jeffries. And is it your understanding that that 8.3 
million jobs that were created, that is a record in American 
history for a similar point in time in terms of a president's 
new administration?
    Dr. Swagel. Yes--yes, that would be the most jobs created 
in a single year. So that is, you know, over the 2021, the 
first year of the administration.
    Mr. Jeffries. Am I correct that the number of people 
relying on unemployment benefits has dropped to the lowest 
level since 1970?
    Dr. Swagel. I am sorry, the number of people collecting 
unemployment benefits is--it has dropped very substantially. I 
don't know offhand if it is the lowest, but I suspect it is--it 
might well be. You know, with the rebound and the very strong 
very tight labor market, we have seen lots of good outcomes 
like you just mentioned.
    Mr. Jeffries. And last year, how many new businesses were 
created in the United States of America?
    Dr. Swagel. The rebound from the pandemic has led to a 
surge in business creation. You know, obviously we saw business 
go out when the economy locked down, and then a huge number 
have created. I don't know the number of millions of offhand, 
but it has been a--this is a historic increase in business 
formation and entrepreneurship.
    Mr. Jeffries. It is my understanding that approximately 5.4 
million new businesses were created in the last year. As you 
indicated, a substantial return of American entrepreneurship.
    In terms of deficit reduction--because my colleagues on the 
other side of the aisle I thought were deficit hawks and cared 
about the deficit. That is all we have heard about certainly 
during the Tea Party years. Am I correct that in President 
Biden's first year the deficit was reduced by more than $350 
billion? Is that correct?
    Dr. Swagel. Yes. The deficit has gone down very 
substantially both, you know, from last year to this year, and 
compared to what CBO had projected, leaving aside the new 
legislation that has been enacted.
    Mr. Jeffries. And what is the projected deficit reduction 
for this current year that we are in?
    Dr. Swagel. The deficit is falling by some--I am sorry--
$1.8 trillion lower. It is going from--last year it was about 
$2.8 trillion to a deficit this year of $1 trillion. So that is 
a reduction of $1.8 trillion from 1921 to 1922.
    Mr. Jeffries. So thank you for your testimony.
    You know, for the life of me, we certainly have issues that 
we need to deal with in terms of inflationary pressures, which 
as you have indicated result from an increase in demand--that 
happens when you have a booming economy--and supply chain 
constraints--which happens when you have an economy that has to 
shut down as a result of a once in a century pandemic. These 
are challenges that of course we continue to work on.
    We also continue to work on the issue as it relates to the 
baby formula shortage. I was shocked that so many of my 
Republican colleagues chose to vote against the appropriations 
legislation that was brought to the floor.
    But for the life of me, I can't figure out the doom and 
gloom that is going to be painted by some of my Republican 
colleagues.
    Thank you for your testimony in presenting the facts in a 
straightforward fashion.
    I yield back.
    Chairman Yarmuth. The gentleman yields back.
    I now yield 10 minutes to the gentleman from Missouri, the 
Ranking Member, Mr. Smith.
    Mr. Smith. Thank you, Mr. Chairman.
    To start here for the record, Director, if you can give me 
these answers as quickly as possible. I want to try to get 
through as much as possible.
    But I want to hit on the deficit reduction that was just 
before you and the joke of the comments. And I want you to 
clarify. Is it true that the Fiscal Year 1921 deficit was $517 
billion higher than where the Congressional Budget Office 
projected for the 2021 year?
    Dr. Swagel. Right, our----
    Mr. Smith. Yes or no.
    Dr. Swagel. The deficit projection from last July to to 
this one, yes, is higher.
    Mr. Smith. So that is not a deficit reduction. And Biden's 
$2.78 trillion deficit in 2021 was the second highest in the 
history of America, driven in large part by his unpaid for $2 
trillion American Rescue Plan. Is that correct?
    Dr. Swagel. Yes, the emergency spending during the 
pandemic, including the American Rescue Plan, drove the deficit 
last year. That is correct.
    Mr. Smith. And so Biden's claimed Fiscal Year 1922 of $1.5 
trillion in deficit reduction is only because last year his 
inflationary $2 trillion ARP, American Rescue Plan, drove 
government spending to 30.5 percent of GDP, 10 percent higher 
than the historic average. His latest Fiscal Year 1923 budget 
proposes annual deficits averaging $1.6 trillion a year.
    Director, in February 2021 your baseline showed $61 
trillion in government spending over the next 10 years. You now 
say it will be $72 trillion, correct?
    Dr. Swagel. Yes, that is correct over the next 10 years.
    Mr. Smith. OK. So that is $11 trillion higher, correct?
    Dr. Swagel. Yes.
    Mr. Smith. So in February 2021 your baseline showed just 
over $12 trillion in deficits over the next 10 years. You now 
say it will be close to $16 trillion in deficits, correct?
    Dr. Swagel. Yes, that is correct. Yes.
    Mr. Smith. Got it. So, $3.5 trillion more in deficits. And 
in February 2021 you said the first interest rate hikes 
wouldn't come until 2024, correct?
    Dr. Swagel. In our economic projections--a year ago, that 
is correct.
    Mr. Smith. Yes. OK. Got it. Of course, now we have seen the 
Fed already increase rates twice in the last six months. And in 
February 2021 you said the government would spend $4.6 trillion 
on interest payments over the next 10 years. You now say it 
will be over $8 trillion, correct?
    Dr. Swagel. That is correct. It is both interest rates are 
higher and the amount of debt has gone up as well.
    Mr. Smith. So based on every indicator we are looking at 
here, the Administration is failing the American people. Your 
baseline projects inflation to be 4.7 percent this year, but 
inflation has already increased by almost 4 percent in 2022, 
making it highly likely we exceed 4.7 percent. To hit 4.7 
percent inflation, we could not exceed 1 percent total for the 
remainder of the year. When were the GDP and inflation 
projections included in this baseline made?
    Dr. Swagel. So we locked our economic forecast at the very 
beginning of March. So the work was mainly done in February 
then. And, as you said, inflation has turned out to be higher 
even immediately than we had forecast. And we see that 
especially in food prices and energy prices. I think all of us 
see that in gasoline prices. Some of that relates to the 
Russian invasion of Ukraine, which we had--we had the beginning 
of it, but----
    Mr. Smith. But it----
    Dr. Swagel [continuing]. it impacts it much more.
    Mr. Smith. Yes. Director, before the Russian invasion of 
Ukraine inflation was up 7.5 percent, correct?
    Dr. Swagel. Yes, inflation last year was up very sharply. 
Absolutely.
    Mr. Smith. Yes. So given that inflation continues to hover 
around a 40-year high, not to mention that inflation has gone 
up 11 percent since President Biden came into office, if you 
were writing this baseline today, knowing what you know now, 
how would that affect your projections and assumptions.
    Dr. Swagel. OK, as I said, it is--inflation in the first 
couple months of the year has turned out to be higher than we 
anticipated. It looks like the--you know, the current quarter 
that we are in is coming in around our projections. The Fed has 
raised interest rates by more, you know, whereas it has had an 
impact on financial markets.
    So it is as um of each, that inflation has been higher than 
we anticipated, the Fed's hiking, you know, probably as a 
result, has been higher, and, of course, we have seen the 
impact of that on financial markets.
    Mr. Smith. So do you expect that 4.7 percent to be much 
lower than where actually end up for the year?
    Dr. Swagel. You know, we don't redo our forecasts just 
because the way we do our budget----
    Mr. Smith. OK. So, you are saying rest of the year we are 
going to be at 1 percent? To be able to get the 4.7 percent?
    Dr. Swagel. To meet our forecast, which, you know--as you--
--
    Mr. Smith. Wow.
    Dr. Swagel. There is a risk there. Absolutely.
    Mr. Smith. So, we are clearly--I mean I will tell you right 
now, if you all think we are going to be at 1 percent the rest 
of the year, I got some ocean front property in Arizona to sell 
you, Director.
    Let me ask you about your economic growth objectives. Your 
budget says the economy will grow at 3.1 percent this year. But 
given that the most recent GDP report actually showed a decline 
of 1.4 percent, knowing what you know now, how would the 
current dismal economic numbers affect your projections? Or are 
you sticking with it like you are the inflation numbers?
    Dr. Swagel. OK. You know, again, just because the process 
we have that once we have the baseline, you know, that is 
locked down, so we are not going to--we don't redo our 
forecast.
    As you said, the first quarter had negative GDP growth. You 
know, some of that we see unwinding with, you know, changes in 
inventories and trade. You know, the outlook for the year is--
our outlook for the years is based on people come back to the 
labor force. There has been a million people still on the 
sidelines who we see as coming back. And that is supporting in 
part the rebound that we see in the economics over the course 
of this year.
    Mr. Smith. So let us ask this. Your future year inflation 
projections are relatively mild compared to where we are 
actually currently at with inflation--8.3 percent in the most 
recent year-to-year CPI report and 11 percent since Biden took 
office. But taking your projections for inflation, which 
assumes back to more normalized levels of 2 percent in a few 
years, what is the long-term damage to the U.S. budget and 
economic outlook of even the so-called short burst in inflation 
if it is actually short lived?
    Dr. Swagel. So inflation has a number of effects on the 
economy and of course on the fiscal outlook. The key risk is 
interest rates. High inflation leads to high interest rates, 
both through what the Fed is doing and through market 
reactions. And then as they debt level has gone up, higher 
interest rates translate into higher net interest outlays. And 
so you see that in our projection over 10 years. Net interest 
outlays as a share of GDP are more than doubling in our 
projection.
    So that is the fiscal risk of high inflation. It comes 
through high interest rates and high payments to service the 
U.S. debt.
    Mr. Smith. You know, Director, I am a little concerned with 
some of the proposals you selected in your alternative fiscal 
assumptions modeling. For starters, a lot of them seem targeted 
at tax relief Republicans. When they want to continue to 
provide--which now has a proven track record of economic growth 
and historic revenue generation--in your alternative 
assumptions you do incorporate--do you incorporate say things 
that the majority has been very clear that they do not view as 
temporary pandemic policies and they want to continue? Say 
things like the cost of continuing the student loan repayment 
moratorium indefinitely, canceling student loan debt 
altogether, a permanent extension of the child tax credit 
revision included in the American Rescue Plan that failed to 
include work requirements, and let us say a continuation of the 
increased Affordable Care Act subsidies that are set to expire?
    Dr. Swagel. OK. So thank you for the question. And I know 
that this is extremely important to you and we are continuing 
to work on some of these issues. Of course we have done some 
work for you and for Senator Graham on these expiring 
provisions. We will continue to do that.
    What we have in the report is Chapter 5 in the report is 
the--you know, the alternative scenarios. Essentially we 
followed the practice in the past of looking at provisions such 
as the tax ones that you mentioned that have been in place for 
several years and continue. And the challenge for us was so 
much in pandemic related provisions were in the law for maybe a 
year and then expired--the child tax credit as you mentioned, 
the expanded subsidies for the Affordable Care Act. We did 
not--you know, of course we didn't extend them in the baseline 
because they are not in current law. And then for the 
alternative provisions, we did not extend those either. You 
know, again, because they are not--you know, they are not a 
current law, they are not scheduled to expire in the future. 
You know, it is analysis that we can do, of course along with 
the JCT to--you know, to answer the sorts of questions that I 
know you are very focused on.
    Mr. Smith. Thank you, Mr. Chairman.
    Mr. Scott. Chairman, you are on mute.
    Dr. Swagel. Mr. Chairman, you are still on mute.
    Chairman Yarmuth. I hit it. I am sorry.
    I now yield five minutes to the gentlewoman from 
California, Ms. Lee.
    Ms. Lee. Thank you very much, Mr. Chairman. I have to 
associate myself with your remarks earlier about the American 
Rescue Plan.
    I just want to remind all my colleagues that this pandemic 
has taken over a million lives. I shudder to think what would 
have happened had we not passed the American Rescue Plan and it 
has saved lives and it has saved livelihoods. And so we can't 
forget that in terms of the investments that were made.
    Let me thank our Director for being here and let me just go 
right into our questions, because I think you know I am going 
to ask about the Department of Defense.
    It is quite frankly the only cabinet agency not to pass an 
audit. And I have legislation that would require DoD to pass an 
audit or face automatic spending cuts.
    So how does DoD's failure to pass an audit complicate 
budget planning from an auditing point of view? How much 
Pentagon spending is unaccounted for? Why should this Congress 
continue to add more and more money to the defense top line in 
the meantime if it can't be audited, if there is no 
accountability? And what sort of forcing mechanism should we be 
considering in Congress to get DoD to pass an audit? And this 
has been supported by my bill, by my colleagues on the other 
side of the House. What can we do? It is long overdue.
    And you also finally--the report--how DoD might save $1 
trillion over the next 10 years, it concluded that we can 
better defend our country by getting more for less money. Can 
you talk a little bit about that?
    Dr. Swagel. Yes. I would be glad to talk about this.
    And the problems you are pointing to are a challenge for us 
as well, that we aim for our baseline that we provided 
yesterday to inform policymakes, to inform you and your 
colleagues. And when the information that we get from the 
executive branch is--you know, I guess imperfect is the nice 
way of putting it, that means our baseline isn't as informative 
as it should be. And so absolutely, we are there and better 
information from DoD and from others would help us serve the 
Congress with our mission.
    In terms of the defense budget going forward, you know, of 
course CBO doesn't provide policy recommendations, but we have 
done a number of studies that help policymakers look at 
different choices for the defense. We recently put out a tool 
that is actually online on different force structures that, you 
know, you and your staff could go through and say, if we change 
the services in different ways what would be the fiscal 
implications of that. Of course we are not saying do this or do 
that, but you can see the--you know, basically how much money 
is saved by different choices on the national security side.
    Ms. Lee. Well, let me ask you though, it has failed to pass 
an audit. What do we do? You know, if a business fails to pass 
an audit, it gets dinged, there are penalties. Agencies have 
penalties, people have penalties. Why does the defense 
department get away with unaccounted spending? It boggles my 
mind. There is no accountability there.
    So I know you can't suggest policies, but tell me how 
inappropriate it is for our budgeting process to go forward 
without a clear picture? I mean we need to know what is--you 
know, the hand needs to be shown in terms of what you are 
dealing with. Otherwise it is not a good mechanism for us to 
make forecasts or for us to make decisions on our spending if 
we let agencies just run amok with the resources that we 
appropriate.
    Dr. Swagel. Right. And of course most of the national 
security spending is appropriations. And so we support the 
Appropriations Committees in both the House and the Senate as 
they take up the Fiscal Year 1923 appropriations. And you are 
absolutely right, the imperfect information means that we are 
not able to support them in the way that we need to.
    Ms. Lee. So how do you audit--OK, so what do you do? What 
would your suggestions be on any agency that is not auditable?
    Dr. Swagel. No, it is--you know, it is a difficult question 
for us because we provide information to the Budget Committee 
to enforce the budget rules and it is really GAO that does the 
auditing. Of course, it has very substantial expertise in 
auditing. So really they are the--and they would put forward 
policy recommendations. So they are the ones who would, you 
know, go out and say here is how the situation can be improved.
    Ms. Lee. Well, with your new--OK, CBO baseline, it is a 
real shame and disgrace that you all aren't working together 
and you are not suggesting it impairs your ability to be 
accurate and forecasting if they don't insist on an audit. But 
in terms of the baseline dealing with inflation, how does the 
Pentagon's budget assumptions fit into that in term of CBO's 
baseline?
    Dr. Swagel. OK. OK. No, absolutely. And essentially it goes 
both ways, that, you know, the fiscal spending has an impact on 
inflation and of course the decline in, you know, spending from 
last year to this year will alleviate some of the inflationary 
pressures going forward. But of course it is in the other 
direction as well, that inflation affects military spending. 
You know, the military is the--as I understand it, the largest 
purchaser of jet fuel, for example. So energy costs will 
affect--you know, affect them as well.
    So it definitely--there is an impact on inflation--between 
inflation and national security spending that goes in both 
directions.
    Chairman Yarmuth. The gentlewoman's time has expired.
    I now yield five minutes----
    Ms. Lee. Thank you, Chairman.
    Chairman Yarmuth [continuing]. to the gentleman from 
California, Mr. McClintock.
    Mr. McClintock. Thank you, Mr. Chairman.
    You know, I find it astonishing that the Chairman would 
tout the so called American Rescue Plan as a success. Even 
Democratic consultants like Steve Rattner and Larry Summers 
were warning that it was so irresponsible that it would trigger 
a crippling inflation. Mr. Chairman, it turns out all the free 
checks you sent out were actually very expensive and Americans 
are paying them back every day at the grocery store, the gas 
station, the tax collector--everywhere they spend money. I have 
seen a report costing average families about $5,000 for their 
purchasing power.
    My god, before the lockdowns took a wrecking ball to the 
economy, you know, we had the lowest unemployment rate in 50 
years, the lowest poverty rate in 60 years, the fastest wage 
growth in 40 years, and it was working class families gaining 
the most. The gap between rich and poor was actually narrowing 
for the first time in our lifetimes. We were energy independent 
for the first time in our lifetimes. Inflation was around 1 
percent, interest rates were near all-time lows. That didn't 
happen by accident. The Republican tax cuts produced one of the 
biggest economic expansions in history, an expansion that was 
so great we ended up taking in more revenues after the tax cuts 
than we had received before them. We saw the biggest regulatory 
roll back in history that freed up American energy resources, 
it brought companies back to America for oversees. All you had 
to do was continue those policies that produced this 
prosperity, and instead you did the opposite. You spent 
trillions of dollars we didn't have, you started what Mr. Biden 
just called an incredible transition away from fossil fuels by 
imposing the highest gasoline prices in American history. You 
have admitted into our country an impoverished population the 
size of West Virginia that American taxpayers have to now 
support, and you have the audacity to try to tell us that the 
economy is doing great? You know, just a word of advice, you 
can't spin the economy. Every person knows how the economy is 
doing because they are living it every day. And that is what 
makes the old Reagan question so devastating to you and your 
party--are you better off today than you were four years ago. 
Everybody knows the answer to that in their own lives and they 
can see clearly who is responsible for it. You are not fooling 
anyway.
    Now, Mr. Swagel, I want to begin with three numbers that 
describe the fiscal reality we face--28, 76, and 89. According 
to our calculations, 28 percent is the growth in population and 
inflation combined over the last 10 years--28 percent. 76 
percent is the growth in revenues, which means that revenues 
are growing at nearly three times the rate of inflation and 
population over the past 10 years. That is after the tax cuts. 
89 percent is the increase in spending and spending is the fine 
point of the matter.
    It seems to me there are only three ways to pay for it--by 
taxes. Personal taxes decrease the purchasing power of families 
in the present. Business taxes are passed through to consumers 
as high prices, to employees as lower wages, and to investors 
as lower earnings. That is one way you can do it. The second 
way is to borrow from capital markets. But of course this 
reduces the capital available to finance construction and 
consumer spending and home and automobile purchases and 
business expansion. And of course borrowing is paid back 
through future taxes and it generates additional interest costs 
along the way. And the third way is to borrow from ourselves, 
essentially printing money, which is the direct cause of 
inflation. Too many dollars chasing too few goods.
    So it follows then that it is excessive spending that is 
driving all three drags on the economy. To paraphrase the 
Clinton era maxim, it is the spending stupid.
    Mr. Swagel, am I missing anything?
    Dr. Swagel. No. I mean you have--I think you have got it, 
right. The inflation we are seeing is the combination of very 
strong demand and, you know, much of that is driven by--you 
know, by fiscal policy. Certainly there is a recovery from the 
pandemic combined with the supply constraints, and those are 
driving inflation.
    Mr. McClintock. Well, let us talk about that inflation rate 
for a second, 8.3 percent as I understand it. So does that mean 
if I manage to put away $100,000 in my retirement fund, does 
that mean I just lost $8,300 in purchasing power over the last 
year?
    Dr. Swagel. That would be one implication, that--right, the 
number you gave is the most recent 12 months of inflation. It 
means that Americans--nominal wages are up, but real wages are 
down for most Americans. So, yes, it is a challenge for 
families and a challenge for the economy. And a fiscal 
challenge as well.
    Mr. McClintock. And isn't the classic definition of 
inflation too many dollars chasing too few goods? So if you 
flood the economy with dollars while you raise taxes on 
productivity, you get more inflation or less inflation?
    Dr. Swagel. Right. I mean we have very strong demand and, 
you know, serious constraints on supply. And those dollars 
chasing the inadequate supply, that leads to higher inflation.
    Mr. McClintock. Thank you.
    Dr. Swagel.
    Chairman Yarmuth. The gentleman's time has expired.
    I now yield five minutes to the gentlewoman from 
California, Ms. Chu.
    Ms. Chu. Dr. Swagel, thank you for being here with us 
today.
    As a Member of the Ways and Means Committee I have made it 
my mission for years to lower the cost of prescription drugs. 
It is unconscionable that Americans pay the highest prices in 
the world for the exact same drugs. People with diabetes have 
to pay triple the cost for insulin compared with those living 
in countries like Canada. And now one in five seniors struggle 
to afford their medications. That is why it was so significant 
that when the House passed the budget reconciliation bill it 
included provisions to lower prescription drug costs by 
allowing Medicare to negotiate prices for certain high cost 
drugs. And it also penalized drug makers for hiking prices 
faster than inflation and it lowered out-of-pocket expenses for 
seniors and capped the price of insulin at $35 for those 
covered by Medicare and private insurance.
    While the CBO estimated that these provisions would result 
in nearly $80 billion of savings to Medicare and would reduce 
the federal deficit by nearly $300 billion, so Mr. Swagel can 
you explain how these provisions would not only reduce federal 
spending but also lower prescription drugs for Americans?
    Dr. Swagel. Yes, of course. And this is first from our cost 
assessment for H.R. 3 and then, as you said, inside the Build 
Back Better Act. The provisions in the Build Back Better and 
H.R. 3 would set up a system of negotiation between the 
secretary of HHS and drug companies. The secretary would have 
very substantial leverage in the form of an excise tax. We have 
done substantial modeling to that. We put out working papers 
that explain the technical details. We find that that would 
lower drug prices. The lower drug prices would have many 
effects. Some of them would be health. People would take more 
medicine and have healthier impacts, so save money on doctors 
and hospitals. The lower drug prices would save money for the 
federal government because the cost of health insurance would 
be lower and the federal government subsidizes health insurance 
through a variety of ways, employers, the ACA, Medicaid, and 
others.
    So the system in that bill, by lowering drug prices, would 
both make people healthier and save money for the federal 
government.
    Ms. Chu. Thank you.
    And now I would like to ask about paid family leave. As you 
know, the U.S. is the only country among 41 nations that does 
not mandate any paid leave for new parents, according to data 
compiled by the Organization for Economic Cooperation and 
Development. Democrats in the House tried to rectify that by 
passing a national paid family and medical leave program. Your 
analysis of that proposal found some important things. First, 
having access to paid family and medical leave could improve 
physical and mental health for some workers. Second, while some 
employers might reduce their company paid leave policies and 
shift to the federal program, that is not a bad thing for 
workers. Employees would still get paid leave and you found 
that employers would increase pay or provide other benefits to 
attract good workers.
    Could you expand on how a federal paid family leave program 
might help increase pay for workers?
    Dr. Swagel. No, that is right. You know, we have done a lot 
of work on this, including a set of slides in 2021 that went 
through the various dimensions in which paid leave would affect 
workers and effect the, you know, fiscal situation. And, as you 
said, that might lead some people to come back into the labor 
market, people for whom--you know, who are taking care of 
family members or loved ones, parents. And the availability of 
paid leave would make it possible to come back into the labor 
market.
    For people already working it would give them added 
flexibility. It might change the--you know, the way they are 
compensated. So there would be lots of different economic 
effects. We had that in the cost estimate for Build Back 
Better. For the Build Back Better Act as passed by the House of 
Representatives, we had that as costing the federal government 
$200 billion over 10 years, that is from 2022 to 2031. So there 
would be a fiscal cost and, as you said, there would be, you 
know, implications for families and for the economy.
    Ms. Chu. And just quickly, one of the drivers of increasing 
deficits and debt over the decade is the aging of the 
population. How would immigration reform help keep our promises 
to our seniors?
    Dr. Swagel. So, as you said, as the decade goes on, as we 
get out into the long-term outlook, the aging of the population 
becomes an important driver of, you know, the fiscal challenge, 
both through Social Security and through Medicare. Immigrants 
make substantial contributions to the U.S. economy, the 
immigrants who are here and new immigrants. You know, people of 
working age come in, they would tend to pay into the trust fund 
supporting Social Security. And Medicare, they get benefits, 
those would be off into the future. They boost growth, they 
boost innovation, they boost our society in other ways.
    So of course it is up to policymakers. CBO doesn't perform 
policy recommendations, but increased immigration has many 
effects on the economy and on the fiscal trajectory.
    Ms. Chu. Thank you.
    I yield back.
    Chairman Yarmuth. The gentlewoman's time is expired.
    I now yield five minutes to the gentleman from Wisconsin, 
Mr. Grothman.
    Mr. Grothman. Thank you much.
    I was trying to scramble here and find a Ronald Reagan 
quote. I couldn't find it in time, so I am going to have to 
kind of guess a little bit.
    Our forefathers didn't come here to copy Europe. And I 
always run into people, you know, who came here from England, 
came here from Germany, came here from a variety of European 
nations. I am sure occasionally somebody goes the other way, 
but largely everybody wants to come here and I would suggest 
that is in part because we have less government and government 
does less in America than it does in Europe.
    Now, I would like to talk a little bit about the overall 
level of spending and the effect of two bills, the American 
Rescue Plan, which I thought was about the most fiscally 
reckless thing I have ever seen, and the Bipartisan 
Infrastructure Bill.
    I think we already saw that--I would even argue the CARES 
Act was somewhat excessive. I know it happened under President 
Trump, I know it was negotiated by Treasury Secretary Mnuchin, 
who was a Democrat--kind of looked like it. But in any event, I 
would like to ask you in your 10 year deficit projections, how 
much is the legislation enacted so far by this Congress 
affected them, including the American Rescue Plan and 
bipartisan infrastructure framework?
    Dr. Swagel. OK. No, absolutely. As I said, I am holding up 
your report. It is on page 30 of our report, figure 2-2. Goes 
through and shows the impact of the major legislation. And so 
you can see that the--you know, the early pandemic legislation, 
you know, especially the CARES Act was--it contributed over $2 
trillion to the deficit last year and another roughly half 
trillion this year, and so on. And you can see in there the 
American Rescue Plan Act also was over $1 trillion in 2021 and 
then about, you know, $400 billion this year.
    Now, since February 1921 overall the legislation that has 
been enacted has increased spending by $3.4 trillion. And of 
that, $2.4 trillion was since our July 2021 update. So it is 
$3.4 trillion in legislation since February 2021.
    Mr. Grothman. Already?
    Dr. Swagel. Already. That is right. And that is under 
current law. Of course that would not include Build Back Better 
since that is not part of current law.
    Mr. Grothman. OK. Now, I will give you another question. 
There have been a lot of actions with the Biden Administration 
and quite frankly I think the high unemployment, which began in 
the CARES Act, was to a certain extent extended by President 
Biden, I think that encourages people not to work. You made the 
assumption in your presentation today that unemployment is 
going down because the pandemic is ending and less people are 
sick or whatever. Do you think part of the reason unemployment 
is going down is we need to peel off those excessively high 
unemployment benefits? Could that be one of the reasons why 
more people are getting back to work? We no longer bribe people 
quite as much not to work?
    Dr. Swagel. You know, that is certainly part of it. And one 
of the things that we see today as compared to our--you know, 
our economic projections a year ago is that there has been a 
million--just over a million--it is like 1.1 million people who 
are still out of the labor market who we thought a year ago 
would be back.
    Mr. Grothman. What do you attribute that? Too generous 
government benefits or what?
    Dr. Swagel. You know, it is a mix. In part we think it is 
the--you know, the effects of unemployment insurance and the 
other transfers last year had some impact. It is also health 
concerns, it is childcare. You know, I think we all understand 
that, you know, the federal government hasn't given clear 
guidance to childcare providers. I mean it affects me, the 276 
people I work with here. You know, there are childcare 
providers.
    Mr. Grothman. I want to give you another question along 
that vein. Since January 2021 the Biden Administration has 
spent hundreds of billions of dollars without congressional 
approval through various executive actions. And a lot of these 
programs are programs in which we pay people not to work. It 
includes the higher SNAP benefits, about 250 million student 
loan repayment moratoriums, dropping previous actions related 
to strengthening work requirements in welfare programs, which I 
think, you know, is clearly you don't want people to work, you 
want them to depend on the government. Total cost of Biden 
Administration's executive actions could be half a trillion 
dollars or more.
    CBO's budget outlook provides information on how much the 
deficit is increased due to the laws passed by Congress. Do you 
think you should also include how much it is increased due to 
the impact of executive actions?
    Dr. Swagel. No. And we try to provide as much information 
as we can. And some of this is in the baseline. For example, 
you mentioned the Thrifty Food Plan update that increased SNAP 
benefits. So that is in the baseline. That is roughly $225 
billion over the--you know, for 2022 to 2032. There are other 
executive actions that we can't quantify. There is the EO 13990 
relating to the climate change. We just--you know, we can't 
pinpoint where that enters in the budget. There is just not 
enough specificity for us to say what is the impact on the 
budget.
    So when we can, we certainly try to provide that 
information and sometimes, you know, it just a little bit too 
amorphous for us to pinpoint.
    Mr. Grothman. Well, thank you very much and thank you for 
the extra time, Mr. Chairman.
    Chairman Yarmuth. That is all right. That was Dr. Swagel's 
answer.
    The gentleman's time is expired.
    I now yield five minutes to the gentlewoman from the U.S. 
Virgin Islands, Ms. Plaskett.
    Ms. Plaskett. Hi. Good morning. I am sorry, I was having 
some technical difficulties here.
    Thank you, Chairman Yarmuth, and to the Ranking Member for 
holding today's hearing on the Congressional Budget Office's 
Budget and Economic Outlook.
    I would also like to extend my gratitude to Director Swagel 
for appearing before us today and providing insight into the 
year's Budget and Economic Outlook.
    I believe CBO is invaluable to our work here in Congress 
and the release of this report will help us begin the 
conversation on addressing fiscal issues.
    The National Oceanic and Atmospheric Administration's 
Climate Prediction Center recently announced that they are 
predicting an above normal Atlantic hurricane season. The 
Virgin Islands, specifically, is still recovering from 
Hurricanes Irma and Maria.
    Could you tell me how our climate related disasters and 
storms are expected to affect the federal budget and economic 
outlook?
    Dr. Swagel. Yes, Representative Plaskett.
    So it is something that we have done a lot of work on and 
that is embedded in the economic baseline that we produced 
yesterday. So we look at the effects of climate over time 
affecting the economy and affecting fiscal situation, both 
through the effects on, you know, things like agriculture and 
construction and then through disasters, through, you know, 
wildfires, which is very important right now, and hurricanes. 
And those both have a measurable impact that reduce GDP and 
therefore reduce revenues over the forecast. And that is in our 
baseline.
    Ms. Plaskett. Great. Thank you for that.
    You know, we hear a lot of discussion surrounding 
inflation. And it is of course something that Congress cannot 
ignore, although we recognize that this is a global issue that 
is occurring. Prices for groceries, housing, gas, and other 
forms of energy are steadily rising. As you saw, the House 
recently passed a bill with no Republican support to lower gas 
prices by cracking down on the alleged price gouging by energy 
companies. The House and Senate both passed versions of a 
bipartisan U.S. competitiveness bill that will strengthen 
supply chains and lower costs for American consumers.
    What additional acts can Congress take to mitigate the 
effects of inflation? We cannot just complain about it, we have 
to do something about it. I know that my side of the aisle is 
working steadily to do that and are trying to work in a 
bipartisan. What are some of the suggestions you have for us to 
do that?
    Dr. Swagel. OK. And I should just preface what I will say, 
is that CBO--you know, we provide analysis and not policy 
recommendations. So I will give you some examples of supply 
constraints that are affecting inflation and just please, you 
know, be aware that this is not my saying you should do this. I 
am just--I am answering the question.
    Ms. Plaskett. I love your disclaimer. Very smart.
    Dr. Swagel. OK.
    Ms. Plaskett. Thank you.
    Dr. Swagel. You know, it is really the key to this 
organization, as set by Alice Rivlin from the beginning, that 
we don't provide--you know, we don't tell Members what they 
should do. So, but, you know, there are supply constraints 
affecting the economy and labor markets and product markets, 
international, right. So one is tariffs. And we have a write up 
of that in the report that, you know, tariffs are raising the 
price of, you know, many products. Anything with steel, 
anything with aluminum. We have a tariff on infant formula. You 
know, the CBP until recently was--I guess bragging is the 
word--is the right word, if keeping out infant formula. And 
obviously that has changed, but that is the sort of impediment 
of trade policy. So that is one.
    We talked about the immigration before. I mentioned 
childcare. Just I think--you know, again, I am speaking a 
little bit for on behalf of CBO employees getting clear 
guidance on, you know, childcare and the pandemic and the virus 
would be helpful. And then energy. And you mentioned energy. 
There is energy transportation, the--you know, the Jones Act. 
This raises costs for transporting, you know, goods and service 
and energy is part of that. There are other provisions that 
could be taken.
    So, you know, again, CBO wouldn't say what to do, but there 
is--you know, anything on the supply side would help reduce 
inflation.
    Ms. Plaskett. Thank you. Thank you very much for that 
answer.
    And with so little time I just want to yield back. And 
thank you again, Mr. Chairman for holding this hearing. And 
thank you so much to the witness for answering the questions 
and being a policy advisor, letting us know what policies 
affect those issues.
    Thank you.
    Chairman Yarmuth. Thank you. The gentlewoman yields back.
    I now recognize the gentleman from Pennsylvania, Mr. 
Smucker, for five minutes.
    Mr. Smucker. Thank you, Mr. Chairman. Appreciate that.
    You know, I want to concur with the comments of Mr. 
McClintock earlier. I found the comments by the Chairman, with 
all due respect, and by Mr. Jeffries to be astounding when they 
talked about the health of this economy. And I can tell you 
that that is not what my constituents are experiencing. They 
are experiencing massive price increases at the pump, they are 
making tough decisions about whether they can buy gas or go buy 
food. They are deferring retirement. It goes on and on.
    And so I don't know that I have ever felt the comments that 
were so out of touch with what my constituents are feeling. 
And, frankly, it is why Democrats are in big trouble in the 
upcoming Midterm elections, because of that out of touchness 
that we are hearing today.
    The other thing I want to say, Mr. Swagel, the argument 
that you sort of concurred with in regards to Ukraine causing 
the inflation, but then in the next sentence you admitted that 
inflation was 7.2 percent, or something like that, before 
Ukraine started. So how can you--tell us how you can reconcile 
those two statements.
    Dr. Swagel. Yes, I know--OK, no, it is an important 
question.
    And so inflation was high before the invasion----
    Mr. Smucker. Yes.
    Dr. Swagel [continuing]. of Ukraine. And----
    Mr. Smucker. So it was not caused by Ukraine?
    Dr. Swagel. No, no. Inflation was high and----
    Mr. Smucker. Yes. OK. I----
    Dr. Swagel. You know, this wasn't only in the U.S. The 
Ukraine shock was a global shock. And so now we see inflation 
around the world go up.
    Mr. Smucker. But inflation here was not caused by Ukraine? 
Would you concur with that?
    Dr. Swagel. Oh, absolutely. Inflation was high in the 
U.S.----
    Mr. Smucker. Yes.
    Dr. Swagel [continuing]. before Ukraine. It has gotten 
higher because of the effects of the invasion of Ukraine.
    Mr. Smucker. Yes. Then one other thing you said, you talked 
about sort of the classic economic formula. And I am not an 
economist, but, you know, you increase demand, you decrease 
supply, you are going to have inflation. That is what happened 
here.
    What are you talking about when you say increase demand?
    Dr. Swagel. So increase demand, we think of that as 
spending by families, by households.
    Mr. Smucker. Yes, yes.
    Dr. Swagel. But this is----
    Mr. Smucker. So it is the trillions of dollars that was 
inserted into the economy by Democrat spending that increased 
demand and caused inflation, correct?
    Dr. Swagel. That would be certainly a contribution to it, 
was the fiscal----
    Mr. Smucker. It was the----
    Dr. Swagel. The inflationary impact of fiscal policy.
    Mr. Smucker. The biggest part of it, right?
    Dr. Swagel. I mean it is--you know, it is a little bit--
there is both because you had this supply----
    Mr. Smucker. So the American Rescue Plan caused the 
inflation that we were seeing? That we are seeing now?
    Dr. Swagel. I would say it definitely contributed to it. 
The fiscal policy. The economy was really----
    Mr. Smucker. Most economists that I talk to believe that it 
was the primary factor in causing inflation that we are seeing. 
Are you disagreeing with that?
    Dr. Swagel. No, you know, I am not disagreeing. I am just 
trying to say that there is two----
    Mr. Smucker. OK, thank you. I appreciate it. I am sorry, I 
am going to keep going.
    Dr. Swagel. No, no, of course, of course.
    Mr. Smucker. Because I think it is really important that we 
come to an understanding about what has caused some of these 
disastrous economic situations----
    Dr. Swagel. Mm-hmm.
    Mr. Smucker [continuing]. that we are in for our 
constituents. So I appreciate the answer to those questions.
    Dr. Swagel. Mm-hmm.
    Mr. Smucker. The Democrats talk about reducing deficits in 
this budget--in their budget, which is pretty bizarre when you 
look at the numbers. And I want to see if you agree with me on 
this as well.
    They are estimating a $1.6 trillion in average federal 
deficits over the next decade. Is that right?
    Dr. Swagel. That is right. That is the 10 year average.
    Mr. Smucker. Do you know what the average was in the 10 
years prior to COVID? Like we all know it was an anomaly during 
COVID, what was the average in the 10 years prior to COVID.
    Dr. Swagel. Yes, it is a good question. I don't have that 
offhand. Just before COVID----
    Mr. Smucker. It was $829 billion average.
    Dr. Swagel. OK.
    Mr. Smucker. So in the 10 years prior, not even looking at 
any, you know, numbers going up and down, they are doubling in 
the 10 years coming up compared to the 10 years prior to COVID. 
The year before COVID the deficit was $984 trillion. So how 
could the Democrats possibly credibly be saying that they are 
reducing deficits in any way?
    Dr. Swagel. So that--right. I mean the deficit is coming 
down this year as the emergency standing of the pandemic----
    Mr. Smucker. But that is only because we spent trillions--
it is because they spent trillions and trillions of dollars 
more and now they claim that they are reducing deficit. It 
makes absolutely no sense and I think everyone can easily see 
that.
    How concerned are you with our debt-to-GDP? If you give us 
a little bit of history on where we are in debt to our gross 
domestic produce.
    Dr. Swagel. Right. So the debt-to-GDP ratio is just under 
100 percent this year.
    Mr. Smucker. How does that compare to historical average?
    Dr. Swagel. It is essentially, you know, right up there 
near where we were at the peak when we were paying for World 
War II.
    Mr. Smucker. And currently it is projected to keep 
increasing. Are you concerned about that?
    Dr. Swagel. That is right. I am concerned that the debt 
ratio by the end of the 10-year window goes up 120 percent, 
higher than ever, and the service cost more than doubles. So 
goes up to 3.3 percent of GDP just to do the annual servicing. 
And that is if interest rates are still pretty moderate by 
historical standards.
    Mr. Smucker. It is why this budget is so irresponsible, and 
I thank you for pointing that out.
    Thank you, Mr. Chairman.
    Chairman Yarmuth. The gentleman's time is expired.
    I now recognize the gentleman from California, Mr. Peters, 
for five minutes.
    Mr. Peters. Thank you, Mr. Chairman. Thank you very much 
for holding this hearing. Dr. Swagel, thanks for being here.
    Let us start with the good in this report.
    Despite the havoc the pandemic wreaked on our economy, the 
economy is fairly strong if you look at higher wages and lower 
unemployment rates. In San Diego our unemployment rate sits at 
just 3.5 percent.
    Your testimony notes that the size of the labor force, 
which in early 2022 remained 1 million people below its pre-
pandemic level, is expected to keep increasing, exceeding that 
level by the end of 2022. And what is driving the recovery in 
the labor force participation rate?
    Dr. Swagel. You know, so it is a mix. It is got to be large 
part of that is the reopening of the economy and scientific 
progress. You know, progress with the virus. There is probably 
the strong--you know, the tight labor market and rising wages 
are leading people to come back in. It could be high inflation, 
and so this is pushing people who need more income to come back 
in as well.
    Mr. Peters. And I suppose over time that that will serve to 
address some of the supply issues in the labor market that are 
driving inflation? Don't you agree with that?
    Dr. Swagel. That is right. And that is essentially why we 
have--part of why we have inflation moderating over the next 
couple of years.
    Mr. Peters. Well, let us turn to some of the bad things in 
the report. You estimate inflation will remain elevated through 
2022 and the Federal Reserve will hike interest rates to fight 
inflation. And I commend the Fed for doing that. But at the 
same time we have to confront the consequences of rising rates.
    I am serving currently as the Vice Chair of Policy for the 
New Democratic Coalition and I helped start an inflation 
working group to identify solutions to ease inflation and ease 
the effects of inflation on families. I want to just note, you 
have mentioned immigration, you have mentioned tariffs. I also 
note that the--my colleagues on the other aisle, when they had 
control of all three branches lowered taxes for wealthy people 
in the middle of a booming economy. I am happy to work with any 
of my colleagues on anything they want to do, on any of those 
things, to get a fairer tax system, to cut back on the Trump 
tariffs, and to deal with immigration, which they have really 
left the building on. And I hear a lot of criticism, but what I 
don't hear from the other side of the aisle is answers on what 
they would like to do about this.
    Dr. Swagel, based on the Fed's current trajectory, do you 
predict inflation will slow in 2023 and 1924, but spending on 
interest payments will grow each year for the next decade? Can 
you describe in a little bit more detail on how interest 
payments will rise substantially over the next 10 years and how 
that compares to previous outlooks as a share of our total 
budget?
    Dr. Swagel. I can. So interest payments rise both with 
higher interest rates and with the increased debt. And the 
challenge is that that the--you know, the debt level has gone 
up by so much that even a pretty modest increase in interest 
rates will have a, you know, an outsize effect. You know, it is 
not immediate because, you know, we are not funding the U.S. 
debt with like 30 days T-bills. So, you know, there is some 
time period over which those debt payments go up.
    It is at 1.6 percent of GDP for net interest outlays today. 
You know, the 50 year average is like 2 percent. So we are 
actually below the 50 year average just because interest rates 
still remain moderate. And that is the challenge, that we are 
going up. We are going up to like 3.6 percent by the end of the 
10 year window, both because the debt is going up, but also 
because interest rates are going up. And interest rates in our 
projection go up kind of moderately. So that is--you know, 
essentially if interest rates go up even more than the net 
interest payments, the challenge there would get even sharper.
    Mr. Peters. I have a personal concern as a policy matter 
about continuing to spend more on interest than on the future 
of our children. Are there budget consequences for doing that?
    Dr. Swagel. Absolutely. And I mean the choice that you 
highlighted, I mean that is the choice, right. I mean we are 
going to pay the interest payments on our debt, right. And that 
is since Alexander Hamilton, that is part of the country. But 
that crowds out other priorities or it means that policymakers 
must put in place more revenue provisions.
    So it is rising interest rates and rising debt payments, 
you know, pose a challenge and a choice for policymakers.
    Mr. Peters. Mr. Chairman, I appreciate very much this 
hearing. And I would just say to my colleagues on the other 
aisle, they all know that I am interested in the deficit and 
working with them on the deficit. I would invite them to work 
with us on immigration, on the Trump tariffs, and on a tax 
system that funds this government in a way that is good for our 
fiscal health as well as for our children.
    And with that, I yield back.
    Chairman Yarmuth. The gentleman yields back.
    I now yield five minutes to the gentleman from Georgia, Mr. 
Carter.
    Mr. Carter. Thank you, Mr. Chairman, and thank you Mr. 
Swagel for being here.
    You know, I want to build off of what some of my colleagues 
have been talking about the deficit. Here we have the 2021 
deficit, the second highest in American history, was $517 
billion over CBO's estimate. Yet the Biden Administration is 
trying to tout this as a deficit reduction. I mean, honestly 
and sincerely and seriously, do you think we are stupid?
    Dr. Swagel. I don't think I should answer that question.
    Mr. Carter. OK. Well, don't answer it then, but we are not, 
I will tell you. It is just ridiculous.
    You know, here we have the $2.78 trillion deficit. That is 
almost three times the average trillion-dollar 10-year average 
deficit. And yet, they are saying it is a deficit reduction. It 
just baffles me that someone could possibly even think that or 
say that.
    But let me ask you this. What was the largest contributor 
to the deficit growth between last year's projection and this 
year's?
    Dr. Swagel. So, there was some legislation that was 
enacted. It was both the Investment Infrastructure and Jobs Act 
and then the Fiscal Year 2022 appropriations that were passed 
earlier this year. And so that was new spending. Some of that 
shows up this year. And that was offset by increased revenues 
and then, of course, the pandemic-related spending that fell 
away. So, that is where the--I will just say that is why the 
deficit falls from--it was $2.8 trillion last year to $1 
trillion this year, the combination of essentially the pandemic 
spending falling away and then some increased revenues.
    Mr. Carter. OK. Well, let me ask you this. Has the 
Administration or the Democratically controlled Congress, 
either one of them, have they taken any steps to stabilize our 
debt or to deal with the dramatic disparity that we are 
witnessing right now between our growing spending and the 
revenues that fail to cover that spending?
    Dr. Swagel. I mean, the fiscal trajectory is challenging 
and so that, you know, that is essentially I think the message 
of the report we released yesterday, that choices need to be 
made. It is not--you know, not that this year there is going to 
be crisis. Maybe not even by the end of the 10 years. But the 
trajectory is challenging and will drive the need for choices 
to be made.
    Mr. Carter. We all know that inflation has gone up every 
month--every month--since this President has been in office. I 
guess you could make the argument maybe a tick down a couple of 
points or a couple of tenths of a point last month. It went 
from 8.5 to 8.3, but I can assure you, you are going to see it 
go back up again this month. But every month. When Joe Biden 
went into office, when this President went in office, the 
inflation rate was 1.7 percent. Now here we are at 8.3, 8.5 
percent.
    You know, we don't have a revenue problem. What we have got 
is a spending problem. But let me ask you this. How much do you 
think we need to reduce the deficit to stall inflation?
    Dr. Swagel. So, some of that is in the works with the 
reduction in--you know, the falling of pandemic-related 
spending. And the amount in substance of contractionary, you 
know, impulse that is needed to reduce inflation, it is going 
to depend on the success of the Fed's efforts and also on the 
supply constraints falling away.
    So, it is not clear. I can't give you a single number of 
what needs to be done on the fiscal side because it depends on 
the Fed and on what happens with the supply side.
    Mr. Carter. Let me ask you something. Inflation was at 7 
percent in 2021 and it was at 8.3 percent over the last 12 
months and it is running at an 11 percent pace so far this 
year. The last time we experienced this kind of inflation, the 
effective interest rate on the debt was 10.8 percent. How does 
that limit our ability to reduce our debt?
    Dr. Swagel. No, it is an important challenge that as 
interest rates go up, given the increase in the debt level, 
that means that net interest outlays will rise as a share of 
the budget and a share of the economy. And that is going to 
crowd out other things or require action to raise revenues. And 
so we have a pretty moderate increase in interest rates and 
that already has a pretty substantial rise in spending to 
service the debt.
    Mr. Carter. And correct me if I am wrong, but we had a .5 
percent increase in the interest rate by the Federal Reserve, 
which resulted in $29 billion interest, an increase of $29 
billion interest just like that.
    Dr. Swagel. Right.
    Mr. Carter. And don't think that the interest rate isn't 
going to go up again. It is probably going to go up two or 
three more times at that rate. And how much is that going to 
cost us?
    Dr. Swagel. And we have----
    Mr. Carter. I am sorry, I am out of time. But what is it 
going to take? What is it going to take to get people's 
attention at what is going on here?
    Chairman Yarmuth. Is that a rhetorical question of the 
gentleman?
    Mr. Carter. No, no, it is a real question. And maybe you 
could followup in writing for me. Tell me what it is going to 
take because I really need to know.
    Mr. Chairman, I appreciate your indulgence and I yield 
back.
    Chairman Yarmuth. That is all right. The gentleman's time 
has expired. I now recognize the gentleman from Pennsylvania, 
Mr. Boyle, for five minutes.
    Mr. Boyle. Thank you, Mr. Chairman. I know it is tempting 
to get into the usual partisan food fight and score points. I 
am going to use my precious five minutes that I have with 
someone as esteemed as you for perhaps a better purpose.
    And I am struck, Mr. Swagel, that whenever I am with 
colleagues of mine, fellow parliamentarians from around the 
world, especially in Europe, obviously right now the Russian 
invasion and attack on Ukraine is paramount, but a close second 
to that is every one of my colleagues is speaking about the 
inflation going on in their country. It is pretty much a 
worldwide issue, so hardly something we are dealing with in the 
U.S.
    So, I was wondering if you could take a step back and maybe 
just give us the lay of the land internationally, and 
especially in other Western democracies, at what inflation 
looks like for those countries.
    Dr. Swagel. OK. No, very good and I can speak to that. And 
that affects the U.S. because the, you know, the condition of 
foreign countries affects us, you know, both China and their 
lockdowns there and what it does to our supply side and then 
demand in other countries for U.S. exports. So, other countries 
are suffering from some of the same factors as we are. And I 
talked about earlier that the Ukraine-related shock on food and 
energy, and, of course, Europe is much more affected by the 
negative effects of the energy shock there.
    So, inflation has risen for all countries. You know, for 
the U.S., I mean, the U.S. is first, so it does look like we 
had something different last year: the combination of the 
supply issues in the U.S. and the demand in the U.S. It made us 
go first. And so, you know, that is a factor and more recently 
all countries are facing similar challenges together.
    Mr. Boyle. Yes. My Belgian colleagues tell me theirs is 
over 8 percent. A French parliamentarian who I am friends with 
I think pegged it at 7 \1/2\. So, obviously, this is a 
challenge worldwide.
    Do you think one of the lessons coming out of COVID is--
well, you will see this is a bit of a leading question, but 
something I have been pushing for a number of years now is to 
increase domestic manufacturing both for economic reasons, but 
also in terms of our national security. Do you believe now that 
coming out of the COVID experience the argument for that is 
strengthened? And maybe you could even talk about some other 
critical parts of our supply chain that we now realize are 
really at risk, and COVID helped expose that.
    Dr. Swagel. Right. I can talk about a couple dimensions 
and, of course, there are many dimensions to this. It is almost 
the closer you get to it, the more dimensions there are. It is 
fractal I think is the word for that.
    And so we have seen the supply chain issues that bedeviled 
the U.S. economy even from the very beginning of the pandemic. 
And, of course, items produced in the U.S., those supply chains 
have been more resilient. But even there, you know, issues with 
the labor supply have affected the U.S.
    I think we all understand now the impact of, you know, some 
of the critical supply chains, like in medicine and, you know, 
other critical issues, relying on foreign countries is 
difficult. And, of course, not every foreign country is the 
same, so there is an important discussion to be had there 
about, you know, about our trade alliances.
    And then last, obviously, what has happened with infant 
formula, right, there is ample supply, global supplies of safe 
and nutritious formula. It is the U.S. that, in some instances, 
you know, we have inflicted the problem on ourselves. And so it 
is--you know, it is sort of--it is just a different wrinkle on 
the supply chain.
    And so absolutely, it is coming out of the pandemic. I 
think we all understand we need to focus on this more as an 
economic impact, a fiscal impact, and, of course, the impact on 
families.
    Mr. Boyle. Yes. One thing, in speaking to a pretty 
prominent economist, Ian Stephenson, he believes that inflation 
is going to be a challenge for the rest of the year, beginning 
to come down next spring. And once it drops, dropping pretty 
precipitously, you talked about this way back in the beginning, 
but I was wondering if you could just kind of offer your 
thoughts on that timetable, where you agree, disagree.
    Dr. Swagel. Yes. So, we the supply issues facing the 
country generally waning over the course of this year. I talked 
earlier about the labor supply, that is one. We see some of the 
trade supply issues, the situation at some of the key U.S. 
ports looks to be getting better. You know, the China lockdowns 
don't yet seem to be affecting their exports too much, so that 
is supporting our expectation that inflationary pressures will 
diminish over the course of the year.
    And then, of course, you know, as we have discussed a 
couple times, the, you know, demand side pressures driving 
inflation will diminish as well, both from what the Fed is 
doing and from fiscal policy, the pandemic spending falling 
away.
    Mr. Boyle. Well, thank you. It is always a pleasure to be 
with you. Thank you.
    Chairman Yarmuth. The gentleman's time has expired. I now 
recognize the gentleman from Virginia, Mr. Cline, for five 
minutes.
    Mr. Cline. Thank you, Mr. Chairman. I want to thank 
Director Swagel for being here today as well.
    Despite the last update of inflation being 8.3 percent, 
CBO's new economic baseline projects a rate of only 5.1 percent 
in this quarter. I think everyone would prefer if inflation 
really were only 5.1 percent. Obviously, however, CBO is 
underestimating the level of inflation.
    We all know that the assessment of our fiscal future is 
sensitive to inflation. You have inflation going down over the 
next year quite a bit. Can you talk about if inflation does 
stay at the rates that we are seeing now, the impact that that 
would have on families, particularly, you know, those who are 
working on fixed incomes?
    Dr. Swagel. Absolutely. The inflation we have seen already 
poses an important challenge for families. It means that family 
incomes just don't go as far. And so even though wages are up, 
nominal wages are up, crises are up by more, and so most 
Americans over the past year have seen their real take-home pay 
go down. And if that continues, as you say, that would continue 
to pose an important challenge for families.
    Mr. Cline. Now, we are expecting federal deficits to exceed 
$2 trillion by 2031 and 2032, going on in perpetuity. The 
President's budget does nothing to address these deficits going 
forward, does nothing to move us toward fiscal responsibility 
or a balance in any way. And this represents a huge crowding 
out of private investment and economic growth. How would you 
say that that, these recurring deficits, are going to impact 
the fiscal futures for American families as well?
    Dr. Swagel. Oh, it is through the mechanism that you have 
highlighted is an important one, that the deficit over time, as 
it gets larger, crowds out private spending, private 
investments. And that leads to higher interest rates. And 
otherwise, that affects American businesses, American families, 
it affects job creation, it affects productivity.
    You know, again, in our forecast it is not a crisis. We 
don't have a recession in our forecast. But it is more like a 
slow undermining of the foundation of success for the American 
economy.
    Mr. Cline. And CBO is also expecting the Fed to reduce its 
holdings of federal debt by roughly $2 trillion over the next 
three years. This would also contribute to that crowding out of 
private investment. The last time the Fed promised to reduce 
its holding of federal debt it only offloaded about $750 
billion, leaving its assets 300 percent larger than before the 
2008 financial crisis.
    Do you really think that the Fed will reduce its assets by 
this much and stop facilitating massive federal deficits?
    Dr. Swagel. So, in our economic forecast, we have the Fed, 
as you said, reducing, you know, its asset holdings. 
Essentially it is going from quantitative easing to 
quantitative tightening, and that is pushing up long-term 
interest rates. I mean, and essentially that is by design. The 
Fed is trying to reduce demand in the economy to reduce 
inflationary pressures. But, you know, that has an impact. It 
has an impact on families and on businesses.
    And, you know, of course, the challenge for the Fed is 
getting that right and reducing inflation without excessive 
negative effects on families and businesses.
    Mr. Cline. You know, the government is repositioning and 
implementing more of this pseudo socialist ideology that the 
current Administration and the current congressional leadership 
is promoting. The government right now spends $4 on wealth 
redistribution for every dollar that it spends on government 
services. This uptick represents, as I said, a decades-long 
shift of the government moving closer to this pseudo socialist 
dystopia of the left.
    Does the CBO have a position on this trend and increasing 
use of government to redistribute wealth as opposed to support 
economic growth?
    Dr. Swagel. OK. I would say that the transfers that you are 
pointing to are part of the fiscal challenge, that, you know, 
as we go out further, right, we have debt-to-GDP going to 110 
percent by the end of the 10-year window, to 185 percent out in 
30 years. And that is driven overwhelmingly by mandatory 
spending, by Social Security and Medicare.
    Now, of course, CBO doesn't have a position on what the 
right spending is, you know, how much or for what. But it is 
just the budget arithmetic that the fiscal challenge is being 
driven by mandatory spending.
    Mr. Cline. And does the budget do anything to address this 
increase in mandatory spending?
    Dr. Swagel. No, our projection is current law. So, current 
law has this very challenging fiscal trajectory.
    Mr. Cline. And that is the greatest tragedy of this 
Administration. Thank you. I yield back.
    Chairman Yarmuth. The gentleman's time has expired. I now 
recognize the gentleman from Iowa, Mr. Feenstra, for five 
minutes.
    Mr. Feenstra. Thank you, Chairman Yarmuth and Ranking 
Member Smith. And I want to thank Dr. Swagel for being here.
    My question is on pages 31 and 32 of your analysis you 
mention that ``the expiration of the temporary provisions of 
the 2017 tax act, including the expiration of most of the 
provisions affecting individual income taxes at the end of 2015 
and the phaseout of bonus depreciation by the end of 2026, is 
projected to temporarily slow down the economic growth.'' That 
is a real concern to me.
    Looking at the economic growth rates, you project after 
2025. Do your projections consider the damage to the economic 
growth and opportunity that would accompany an increase in the 
federal tax burden from the expiration of these tax and job 
cuts? Could you answer that?
    Dr. Swagel. Oh, yes, we do. So, we have the 2018 CBO's 
analysis showed the impact of the 2017 tax act in boosting 
economic growth, boosting business investment and growth, and 
concomitantly the expiration of the individual side provisions, 
we had that as reducing growth. That economic growth and job 
creation, that is in our baseline.
    Mr. Feenstra. OK. So, that is very significant. I mean, if 
those go away, if those tax cuts go away, I mean, this could be 
a pretty significant reduction in economic growth. Is that fair 
to say?
    Dr. Swagel. There is a slowdown. In our baseline we assume 
that the Fed would react to it and cut interest rates. So, that 
is why the, you know, the baseline has some sort of, you know, 
a modest slowdown. That is because we are anticipating that the 
Fed would react to it, that the Fed would see it coming and 
react to it in part.
    Mr. Feenstra. Right.
    Dr. Swagel. But there would be an economic impact.
    Mr. Feenstra. Yes, thank you. I am glad you said that. 
There would be truly an economic impact.
    I want to transition over to the forecast that you stated 
on our trust funds. And they are set to expire in the next 
several years. We have got some real problems. And I understand 
the CBO is required by law to assume that the trust funds will 
make full payments after they expire. However, on page 127 of 
your report, it notes all active trust funds, including Social 
Security, Medicare Part A, and highway trust funds, are 
projected to ultimately increase the debt by $14 trillion over 
the next 10 years.
    Director Swagel, can you explain to the committee the 
seriousness of not mitigating the spending costs of these 
programs and the catastrophic effects that could exist if we 
don't start looking at these programs and how to fund them as 
we move forward?
    Dr. Swagel. No, absolutely. And in substance the trust 
funds represent the fiscal challenge not being over the 
horizon, but really right in front of us. Right? The trust 
funds in some sense are accounting devices that redeem the 
special purpose bonds. And the trust funds, the Treasury has to 
raise revenue just in the same way it does to fund any other 
spending. And so that is--that table is table B-2 on page 127. 
As you mentioned, that shows the, you know, the deficit impacts 
of the trust funds over the next 10 years and it is $14--it is 
nearly $13.8 trillion, nearly $14 trillion.
    Mr. Feenstra. Yes. This to me is so serious. And 
unfortunately, the Administration and the majority party are 
not even taking a look at this. And it is something that we 
just got to get our arms around.
    One other thing, it was stated yesterday that the U.S. 
economy contracted 1.5 percent on its annualized basis in the 
first quarter of this year. The downgrade revision of the GDP 
to me is very concerning. And it was noted that the contraction 
was partially attributed to the U.S. spending more on imports 
with us reducing U.S. exports, or on domestic goods. The 
Administration has clearly shown that trade is not a priority. 
It has not filled a lot of the trade positions and, in that 
sense, has not effectively completed any unilateral or 
bilateral trade deals.
    Can you explain how critical trade is to our economic 
growth as we move forward?
    Dr. Swagel. No, absolutely. And trade is a critical part of 
our economy, as you said. You know, it is important factor in 
what happened in the first quarter.
    We see some of that unwinding over the rest of the year. We 
expect a bit better growth in other countries. That should 
boost our exports. But over time, trade is a critical factor in 
the U.S. in supporting growth, in leading to lower inflation, 
and also boosting productivity. Right? Larger markets mean--you 
know, through trade, help American firms, whereas, you know, a 
greater variety for American households, you know, boosts their 
choice and lowers their prices. And that is trading.
    Mr. Feenstra. Absolutely. And I appreciate, Director, what 
you are saying. I mean, trade is so critical. And just again, 
it doesn't seem like this Administration has a handle on it, 
doesn't care about it, doesn't fill positions. It is not doing 
any bilateral or unilateral trade deals. I am just so 
disappointed there.
    So, thank you and I yield back.
    Chairman Yarmuth. The gentleman's time has expired. I now 
recognize the gentleman from Virginia, Mr. Good, for five 
minutes.
    Mr. Good. Thank you, Mr. Chairman. Thank you for your 
testimony, Director Swagel. Thanks for your appearance today.
    I find it interesting, if not surprising, that not many of 
our members in the majority want to participate today and 
defend the disastrous economic record of this Administration, 
let alone its proposed budget, which it obviously exacerbates 
the problems we have. It is interesting the only call for 
bipartisanship I have heard from Democrats in my first term is 
during this hearing because they don't want to hear from 
Republicans on the disaster that they have created 
economically.
    Director Swagel, if Democrats were trying to ruin the 
economy, if they were trying to do that, what would they have 
done differently on spending, on energy, paying people not to 
work, growing the welfare state, firing people for not getting 
vaccines, closing or making it hard for businesses to operate, 
suspending rent and student loan payments, and continuing other 
COVID mandates and so forth? What might you do differently if 
you were trying to ruin the economy over the past year and a 
half?
    Dr. Swagel. I mean, in our baseline you can see the effect 
of the supply challenges that are facing the economy. And, you 
know, with the labor participation, people not coming back, you 
know, in part that is because of health reasons. And so 
anything that would get people to come back into the labor 
force, that would support greater supply and a stronger economy 
with lower inflation.
    Mr. Good. Yes. I just can't imagine you doing anything 
differently if you were trying to ruin the economy than what 
they have done this past year and a half. Do you think 
Americans can afford the President's continued pursuit of his 
Build Back Bankrupt plan? Or maybe said differently, how much 
worse off would we be if they were successful in passing the 
unprecedented $5 trillion worth of spending last fall?
    Dr. Swagel. You know, of course, CBO won't, you know, won't 
evaluate the merits or demerits of policy. We won't tell 
Members what to do. The deficit reduction we have seen this 
year is under current law. And so if there is additional 
spending that would go in the other direction of deficit 
reduction.
    And now that could have implications for inflation as well 
that, you know, has been widely understood, that, you know, the 
lower deficit means some fiscal constraints and that is 
reducing inflation along with the actions of the Fed. And so 
additional spending would go in the other direction. Of course, 
the details would matter, but, broadly speaking, that would 
have an effect on inflation as well.
    Mr. Good. Thanks for bringing up the deficit. I know others 
have talked about that already today. But, you know, the 
Administration is claiming a deficit reduction, as you know, of 
a trillion dollars or so. But, as you know, they are not going 
to stop with the spending. The Democrat majority here is not 
going to stop with the spending. There are going to be more 
they are going to try to get through, to try to get more of the 
Build Back Bankrupt plan through piecemeal or what have you.
    But last year's deficit was $2.8 trillion. Obviously, an 
abnormally high number under the disastrous American Rescue 
Plan. Do you think it is physically
    [sic] responsible to overspend by a trillion dollars even 
what they are projecting even right now?
    Dr. Swagel. I mean, the deficit is large under current law 
and that has important economic effects. Right? That leads to 
higher interest rates and higher inflation and that would, you 
know--a wider deficit would make those challenges even greater.
    Mr. Good. During the State of Union the President said that 
to combat inflation that businesses should just lower their 
costs, demonstrating I think a fiscal or economic illiteracy 
there. He has also accused them of price gouging, businesses 
are just price gouging and that is what is causing inflation. 
He and members of the Administration have said that.
    Do you think that businesses--do you hold the view that 
businesses are really kind of too dumb to understand that they 
should be trying every day to lower their costs and they don't 
really do that? Or do you think that they don't understand that 
they compete by the lowest cost possible? Do you hold to that 
view that has been expressed by the President and some members 
of the Administration?
    Dr. Swagel. So, I would tell you our baseline projection 
assumes that businesses--builds in the assumption that 
businesses are doing their best. They are trying to lower 
costs, they are trying to sell more, and help their customers. 
And so we don't have price gouging in our baseline. That is 
just not----
    Mr. Good. Thank you. I wouldn't think that you would and I 
appreciate that answer on that.
    Do you think that the--can you confirm the overspending 
doesn't contribute significantly to inflation in your view?
    Dr. Swagel. You know, there I would have to go back to what 
I said before, that it is a mix. It is together it is the, you 
know, the substantial demand, including for fiscal policy, 
together with the supply constraints.
    Mr. Good. Let me interject just for a second because, as 
you know, the President's budget has proposed a massive 
increase over the next 10 years on spending, admittedly. What 
is that going to do to inflation and prices going forward? And 
I will just let you finish with that.
    Dr. Swagel. OK, sure. No, I see the clock. I will be quick.
    You know, we have inflation coming down in our forecast 
with, you know, fiscal constraints, with the actions of the 
Fed, and supply challenges waning. Deviations from that would 
feed into higher inflation. We haven't yet analyzed the 
President's budget. We will actually have that later in the 
summer, so, you know, stay tuned.
    Mr. Good. Well, we look forward to that analysis, but thank 
you. Thank you, sir. Thank you, Mr. Chairman. I yield back.
    Chairman Yarmuth. The gentleman's time has expired. I now 
recognize the gentlewoman from Texas, Ms. Jackson Lee, for five 
minutes. Unmute, please.
    Ms. Jackson Lee. I did it again, as they say. Let me--Mr. 
Chairman, thank you.
    Chairman Yarmuth. I have already done it once during the 
hearing myself, so.
    Ms. Jackson Lee. I did hear, so I feel like I am in good 
company. But let me thank you for this hearing and as well 
thank the budget Director, Dr. Swagel.
    Let me indicate to my colleagues I am actually in the 
middle of a memorial for Uvalde. We are all overwhelmed here in 
Texas, so it is not that you live in Uvalde. It is that you 
live in Texas. And we are all broken and we know the nation is 
praying for these families. So, I thank you for yielding to me 
at this time.
    Dr. Swagel, I am going to ask one-answer questions, so that 
I can get an overview of the direction in which I wish to go. 
First of all, let me ask the question in your economic life 
have you seen the economic impact of a pandemic? Have you been 
through, have we been through in the last 50 years, short of 
wars, a pandemic of this sort where the economy was practically 
shut down?
    Dr. Swagel. This is--the pandemic is unprecedented in our 
lifetimes.
    Ms. Jackson Lee. So, we are looking at an economy that is 
now in the midst of or in the aftermath of an unprecedented 
moment in history and an economic unprecedented moment. Is that 
not--yes or no?
    Dr. Swagel. Oh, I think that is fair to say, absolutely.
    Ms. Jackson Lee. And then is the economy performing better 
than previously assumed in comparison to--as it relates to the 
baseline in comparison to the February 2021 baseline?
    Dr. Swagel. Yes, the output is higher and the unemployment 
rate is lower than what CBO had previously had in our last 
update.
    Ms. Jackson Lee. And that was before--that baseline was 
before the American Rescue Plan?
    Dr. Swagel. That is correct.
    Ms. Jackson Lee. And so projections on growth and 
employment now, are you assessing that they are more positive?
    Dr. Swagel. Yes, we have stronger economic. We have 
increased employment. There is also high inflation, so, yes, 
the picture is complex. But the American Rescue Plan certainly 
contributed to stronger growth and stronger employment gains.
    Ms. Jackson Lee. And have we had more jobs created in the 
last year? My understanding is 8.3 million jobs created since 
President Biden took office.
    Dr. Swagel. Oh, yes, the rebound from the pandemic over the 
last year has meant, again, an unprecedented number--an 
unprecedented increase in employment in the U.S. economy.
    Ms. Jackson Lee. Let me quickly move to a history lane. 
One, the Bush tax cut that came after President Clinton and now 
the tax cut that was done under President Trump, did that 
create an increased deficit in spite of the celebratory 
attitude of my Republican friends? Did that Trump cut in 
particular create a deficit?
    Dr. Swagel. Yes, the CBO analysis from April 2018 goes into 
the fiscal and economic impacts of the 2017 tax act. And we had 
that as increasing the deficit.
    Ms. Jackson Lee. Is the good news is that in 2022 we expect 
a trillion-dollar deficit down from $2.8 million
    [sic] in 2021?
    Dr. Swagel. That is right, down from $2.8 trillion. It is a 
$1.8 trillion decrease in the deficit from last year to the 
current year.
    Ms. Jackson Lee. And in spite of the issue of inflation, 
which we are concerned about for my families, my working 
families, we are not ignoring it, the economy is moving along? 
What is your assessment?
    Dr. Swagel. Yes. So, we have a continued recovery from the 
pandemic that real economic growth and job creation is very 
strong with the tight labor market this year.
    Ms. Jackson Lee. Let me just ask an employment question and 
that is we have jobs. Let me mix this with have you give an 
assessment. So, let me ask, I would like an assessment of a 
comprehensive immigration program, meaning legislation that 
Congress would have to plan for, access to citizenship, for 
green cards, et cetera. Have you had that analysis done? I am 
asking that analysis be done on a comprehensive immigration 
plan as to its infusion of dollars into the economy and also 
employment. Would it impact employment negatively? Do we have 
jobs in the United States now?
    Dr. Swagel. You know, it is important question. The CBO did 
a fiscal analysis for the immigration provisions in the Build 
Back Better Act. That was narrow relative to your question 
because we focus on the fiscal impacts. And it has been some 
time since CBO did the wider economic impact and, you know, the 
contributions of immigrants to the economy to jobs, to, you 
know, to culture and society, entrepreneurship, innovation. 
That is something we can do. We haven't done it for a while, 
though.
    Ms. Jackson Lee. Are you saying it would have a positive 
impact? I didn't get your point.
    Dr. Swagel. It would, yes. Yes. And this is--CBO's past 
analysis has shown this, that immigrants contribute to the 
economy both economically, fiscally, through, you know, through 
innovation, entrepreneurship. They create businesses, they hire 
other people. Their children make contributions, their 
grandchildren. And that is--those are effects that CBO has 
analyzed in the past.
    Ms. Jackson Lee. So, as President Biden, we have managed to 
survive an historic moment that we have never expected that we 
would be in. Dr. Swagel, as my time closes, Dr. Swagel?
    Dr. Swagel. Yes.
    Ms. Jackson Lee. Can you----
    Dr. Swagel. It has been an absolutely unprecedented moment. 
I am in solid agreement with you.
    Ms. Jackson Lee. OK.
    Chairman Yarmuth. The gentlewoman's time has expired. I now 
recognize the gentlewoman from Iowa, Ms. Hinson, for five 
minutes.
    Mr. Hinson. All right. Thank you, Mr. Chairman, for holding 
this hearing today. And I apologize if you are hearing some 
banging. We are finally having work done on our house two years 
after a major storm, so.
    Director, thanks so much for the work you do. The CBO 
obviously provides such an important role for us as Members of 
Congress with the legislation that we are considering. And with 
the runaway spending coming out of this Congress combined with 
the historically expensive proposals that we have seen from the 
Biden Administration, I know you have had your work cut out.
    The baseline in front of us today makes it very clear. 
Under this Administration costs are on the rise. Our debt has 
surpassed $30 trillion. Interest rates are rising. Your 
baseline projection back in February of last year was 2 percent 
average inflation. And as you know, we are well past that 
today. Democrats to say the solution to this is to just spend 
more money and grow government. Well, President Biden wants to 
spend another $4.9 trillion on the Build Back Better agenda. It 
is Build Back Broke. And the out-of-control spending is why we 
are seeing the numbers in front of us today.
    I have held a town hall in each of the 20 counties that I 
represent in Iowa and there was a common theme across all of 
Northeast Iowa. It is that rising costs are the number one 
concern that I hear from my constituents here in Iowa.
    Families are truly struggling to make ends meet and we have 
to get our fiscal house in order. You know, working moms that 
have to choose right now between filling up their tank and 
putting food on the table; the restaurant owner who is seeing 
those chicken wings rise in price, double in price, and they 
have to pass that on to their customers. Grandparents are on a 
fixed income. They are worried about making rents. And those 
folks have been left behind by what is happening with our 
economy, which is, again, a direct result of the decisions made 
by the majority party in Congress and the President in White 
House.
    When OMB Director Young testified in front of this 
Committee on the President's budget I asked her last year were 
they thinking inflation was going to be transitory. She said 
yes, and they weren't considering the impacts of inflation.
    Then I asked her this year how they are projecting 2.3 
percent inflation in 2023 and beyond. And the Administration 
believes that, again, it would be transient and did not need to 
be accounted for the longer term.
    Well, clearly, it has not gone away. Your baseline does say 
that that will continue into 2023, but what does CBO account 
for here as far as inflation goes that the Administration is 
ignoring?
    Dr. Swagel. So, our baseline is based on current law. So, 
we have, you know, just the fiscal policy in place. Additional 
fiscal action would, you know, put additional upward pressure 
on inflation. And so that is the thing that we don't have.
    Mr. Hinson. So, you know, when you talk about this, this is 
a miscalculation and I think the American people--if a small 
business had to budget this way, they would be out of business. 
And so when I look at this miscalculation by OMB, it really 
does affect their ability to make accurate projections and so 
that is a huge concern for me.
    So, I would ask you what measures of the economic outlook 
does inflation impact the most?
    Dr. Swagel. Oh, OK. No, it is important question. So, there 
is three measures. So, first is on the spending side, there is, 
you know, both what we call the primary deficit, so spending 
on--you know, everything the federal government spends on, 
Social Security benefits, I talk about jet fuel for the 
military, you know, home healthcare aides, all the things that 
the federal government directly or indirectly spends on, 
inflation raises the cost of that.
    Inflation raises the cost of the net interest payments as 
well, the government servicing its debt. You know, higher 
inflation means higher interest rates, higher payments to the 
federal government.
    Inflation does also mean more revenue. And so, you know, 
because we tax, we tax essentially nominal, inflation 
translates into higher revenues. The net is interest. The net 
shows that the interest rates are the--this is the danger, that 
higher inflation leads to a worsening deficit because of the 
higher interest rates and higher interest payments.
    Mr. Hinson. So, because of these changes and fluctuations 
in the economy, they have, in essence, impacted your 
projections, I am assuming, with your last baseline. So, can 
you kind of delve into that a little bit, how those have 
changed?
    Dr. Swagel. OK. No, absolutely. Compared to--you will see 
that over the 10-year outlook, the 10-year outlook has gone 
from--it is just over $12 trillion to over $14 \1/2\ trillion, 
and so revenue has gone up. So, this is, again, looking at 10 
years, we see it as revenue, you know, going up on more than--
it is like $3.4--an initial $3.4 trillion. Its outlays go up by 
more. And part of that is legislation, part of that is the 
economic effects, such as higher inflation. And that is what is 
driving the increase on deficits going from $12 trillion to $14 
\1/2\ trillion over the 10-year horizon.
    Mr. Hinson. All right. Thank you, Director. And I see I am 
out of time. Mr. Chairman, I yield back. Thank you.
    Chairman Yarmuth. The gentlewoman's time has expired. I now 
recognize the gentleman from Texas, Dr. Burgess, for five 
minutes.
    Mr. Burgess. Thank you, Chairman. And, Director Swagel, 
thank you for being here today. Thank you for talking to me 
earlier this year. In fact, the Chairman mentioned that the 
budget that we have before us, the subject of this hearing is 
late this year. He has described it as a little late. Three 
months is probably significantly late in anyone else's book. 
Tell us again why the delay for the CBO baseline this year.
    Dr. Swagel. OK. No, very good. So, essentially it has three 
different pieces to it.
    One was that we normally would have done an update in 
January. The people who would have done that were busy with the 
analysis on Build Back Better. And just between those two 
priorities we could not do the update in January.
    Mr. Burgess. May I just interrupt you there?
    Dr. Swagel. Yes. No, please, please.
    Mr. Burgess. It seems like that would be--if you were 
primed to properly price and project the cost of a major 
spending bill, a major spending reconciliation bill, you would 
at least want to have your baseline set or you would at least 
prioritize to continue to work on setting the baseline before 
you proceeded with another massive spending project if you were 
truly concerned about the effect of--or the budgetary impacts 
of what you were doing. Would I be wrong to make that sort of 
assumption?
    Dr. Swagel. I mean, you know, of course, the latest 
information would be helpful and we try to be as helpful as we 
can to policymakers. But that Build Back Better delay, that is 
the first event. There is three components to the delay that we 
faced. I can go into the other two quickly.
    Mr. Burgess. Can you do it briefly?
    Dr. Swagel. Oh, yes, very quickly I will say it. So, the 
second is the Fiscal Year 2022 appropriations, that those were 
delayed as well. And then the third is that the President's 
budget, the submission of that was delayed and so we get 
information on last year's actual spending when the President 
releases the budget. And so it was those three--those three 
components pushed our baseline--our economic update back until 
yesterday.
    Mr. Burgess. So, two on the White House and one on the 
Congress that kept you from begin able to do your job. But when 
we spoke earlier in the year, you suggested to me that the 
strength of the economy going into the pandemic was much 
stronger than you had anticipated. Did I understand that 
correctly?
    Dr. Swagel. That is correct, that the economy in early 2021 
as compared to the forecast that we put out in early 2021, the 
economy is stronger, that people are coming back into the labor 
market and the impact of the fiscal policy that had been 
undertaken I think is more impactful than we understood at the 
time.
    Mr. Burgess. And just to be clear, this is fiscal 2021, so 
actually starting October 1st of 2020?
    Dr. Swagel. That is right. I am thinking of there is a CAA 
that--an appropriations act that was enacted at the end of 2020 
had essentially more economic impact payments, the rebate 
checks put back some--expanded unemployment insurance and some 
other things like that.
    Mr. Burgess. Another thing you related to me was that the 
amount of tax collections were stronger than you had 
anticipated and it looks like from your report that you are 
delivering us today that that has continued. Is that correct?
    Dr. Swagel. That is right. That continues to be the case as 
both from the economy is stronger. There is some timing shifts 
that, you know, with the pandemic legislation, you know, 
delayed some taxes. We are seeing some of that come back now. 
You know, even beyond that, tax revenue is strong.
    Mr. Burgess. Well, let me ask you this. When you report a 
reduction in the deficit is that largely because the strength 
of the income tax collections were stronger than what you 
anticipated?
    Dr. Swagel. You know, it is a mix that compared to our 
previous analysis that----
    Mr. Burgess. But how much of that mix was increased tax 
revenues? We were all told that it was a trillion-dollar 
giveaway to the millionaires and billionaires according to 
Chairman Sanders. So, what is the deal here?
    Dr. Swagel. So, I will tell you, in our--if you compare the 
projection we made in 2020--for 2022, right, so we are saying 
it is a trillion dollars is what we are saying now, we 
previously thought it would be $1.2 trillion. And that is the 
mix that revenue is about $400 billion stronger than we 
anticipated, spending is----
    Mr. Burgess. Yes, it is an important number, $400 billion 
stronger.
    Dr. Swagel. That is right.
    Mr. Burgess. And that is pretty significant. Look, do you 
stress test this stuff? We require banks to stress test their 
projections, their balance sheets. Does any of your modeling 
require stress testing, what is happening with the United 
States economy, with the spending of the Biden Administration?
    Dr. Swagel. No, absolutely. And it is something that we 
think about, I think about, in terms of what could go wrong? 
And we have done some of this work. We had recent work that we 
did for Senator Crapo and the Finance Committee on what is the 
effect, the physical effect, of higher inflation? We looked at 
two different scenarios. We are continuing to do some of that. 
What is the effect of higher inflation and higher interest 
rates? What would it mean for the economy and what would it 
mean for the fiscal situation? I am hopeful that we will have 
more on that later this year.
    Mr. Burgess. Well, I hope to followup with you on that. 
Thank you very much. I just wanted to ask.
    Chairman Yarmuth. Yes. The gentleman's time has expired. I 
now recognize the gentleman from California, Mr. Obernolte, for 
five minutes.
    Mr. Obernolte. Thank you, Mr. Chair. Dr. Swagel, thank you 
for the update on the outlook. I would like to talk about some 
of the alternative policy solutions that you have examined in 
the outlook and how those fit into the long-term budgetary and 
economic outlook that the CBO issued a few months ago.
    Now, in the long-term outlook, if I am recalling correctly, 
you expressed some grave concerns that by the end of the 
forecast period on the path that we were on that net interest 
outlays would exceed 8 percent of GDP, would consume over half 
of all federal tax revenue, and that if interest rates 
increased in response to inflation, that would get much worse. 
And that sometime between now and then something would have to 
be done to get the deficit under control. Am I understanding 
that right?
    Dr. Swagel. No, that is right that the fiscal trajectory 
is, you know, is challenging now, but the longer we go--the 
further we go out, it gets more challenging. We will have 
another update of that at the 30-year horizon later this 
summer, I am hoping in July. It will get more difficult, 
honestly, but we will argue that.
    Mr. Obernolte. OK. So, in this outlook that we are 
discussing in this hearing you examine a couple of different 
policy alternatives and you analyze their impacts on the 
deficit. And you have got a table that summarizes it, the ones 
that increase the deficit, the ones that reduce the deficit. 
Can you tell me which of those policy scenarios actually have 
a--result in a declining deficit over the course of the 
forecast period?
    Dr. Swagel. So, we did, you know, we did a range of 
alternative scenarios, some with higher spending and some with 
lower spending. One of the ones that has a lower path of 
spending freezes appropriations at the current level, and that 
reduces the deficit. You know, we looked just--in that, that 
was just appropriations, which, of course, is not the biggest 
part of the----
    Mr. Obernolte. It is discretion----
    Dr. Swagel [continuing]. deficit challenge.
    Mr. Obernolte. Yes, discretionary spending I think you call 
it in the document.
    Dr. Swagel. Yes, exactly, exactly.
    Mr. Obernolte. OK. But if I am reading it right, although 
it reduced the deficit over the baseline, it did not reduce the 
deficit on an absolute basis. Is that correct?
    Dr. Swagel. No, that is correct.
    Mr. Obernolte. OK. So, let me ask again. Which of these, on 
an absolute basis, which of the policy scenarios that you have 
laid out here in the outlook actually reduce the deficit, you 
know, on an absolute basis?
    Dr. Swagel. OK. There is one other one we did here. I will 
mention two things. One we did in this report and then one we 
will have later, you know, by the end of the year, is we looked 
at the spending in the Infrastructure Investment and Jobs Act. 
By the budget rules, that gets extended out through the budget 
window. There is a box on page 77 of the report, which is Box 
3-4, that goes through and shows the fiscal impact of that. And 
it is just mechanical through budget rules, and so if that 
doesn't get extended, that would be substantial enough to 
reduce the budget deficit. You know, that is the not the long-
term----
    Mr. Obernolte. OK, but not on an absolute basis. So, that 
change, if I am understanding right, would not result in the 
budget deficit decreasing over time instead of increasing. Is 
that right?
    Dr. Swagel. Oh, that is correct, absolutely.
    Mr. Obernolte. OK. So, here is----
    Dr. Swagel. I am talking relative and you are thinking 
absolute.
    Mr. Obernolte. Here is the crux of what I am asking here is 
why are we not examining policy alternatives that result in an 
overall decline in deficit instead of an increase in deficit 
over time if, as you say, we should be so concerned about this 
increasing deficit?
    Dr. Swagel. No, no, I agree. It is a grave concern and we 
will have that for you later this year. So, it is probably 
December we will have a new edition of our budget options 
volume that goes through a wide range of policies. And we will 
provide information on policies that change the course, instead 
of just change the shape of the river, that really make a big 
impact on the deficit.
    Mr. Obernolte. Great. OK. Well, I mean, I wish that every 
outlook that you gave us with these policy alternatives would 
include those alternatives just to illustrate the gravity of 
the problem and the magnitude of the changes that are going to 
be required to effect, you know, that trajectory.
    So, you know, along those lines let me ask about something 
Congressman Feenstra mentioned, the trust fund and the 
declining balances in the trust funds. And you go over that on 
page 125 and 126 of your outlook.
    You say that the outlook was prepared under the assumption 
that mandatory spending would continue regardless of the 
balance in the trust funds. But you also say on the previous 
page that the government has no legal authority to continue to 
expand anything when the balance of the trust funds is 
exhausted other than the revenue that is coming in. So, are 
those two statements your intention? And I am wondering why do 
we do it that way? Because we are contradicting ourselves, you 
know, in the span of one page.
    Dr. Swagel. No, I agree. There is a tension there. And we 
are following the budget rules. And in terms of stats for that 
it is tables B-1 and B-2 around the chapter that you showed. It 
is trying to provide that information and it is the Deficit 
Control Act that requires us to do it that way. And so we are 
trying to provide as complete information as we can to follow 
the law and then provide the additional information to show the 
impact of that tension that you mentioned.
    Mr. Obernolte. All right. Well, I would encourage you to do 
that in the future. I see my time has expired. But, you know, 
please, in the previous outlook you had made plain that just 
attacking discretionary spending is not going to be sufficient 
to solve this problem and that is vital, you know, regardless 
of your political party or political, it is going to be vital 
for us to get this under control.
    So, we are going to have to take a look at those trust 
funds and what we are going to do as those balances decline and 
are exhausted. And I would like to encourage you to please 
include those scenarios. As uncomfortable as that conversation 
might be, please include those scenarios in future outlooks.
    Thank you, Mr. Chair. I yield back.
    Chairman Yarmuth. The gentleman's time has expired. I now 
yield five minutes to the gentleman from New York, Mr. Jacobs.
    Mr. Jacobs. Well, thank you very much, Mr. Chairman. And 
thank you for being here. I do have to shake my head that there 
has been a lot of celebration of a trillion-dollar deficit. I 
want to say I am not celebrating that we at a trillion-dollar 
deficit, which is one of the highest deficits we have ever had. 
So, only in Washington.
    But I wanted to first ask you, as we talk about the issue 
of inflation and the multitude of impacts it has, you know, we 
talk about the fact that the Fed is now in an effort to combat 
inflation begun raising interest rates and the expectation is 
they will continue to do so. So, the CBO projects that net 
interest payments on the debt will be $8.1 trillion over 10 
years. And that would be $1.9 trillion higher than previously 
or due to the increase in inflation that is projected. So, that 
in my mind is, you know, money that is essentially wasted 
because we have to pay because the rate of inflation increases.
    I also wonder as we talk about inflation, and certainly our 
priority as representatives is the price that our citizens are 
incurring when they go to the pump, when they go to the grocery 
store, et cetera, but what is the delta, if you have one, on 
the increased cost on running our government and the cost that 
we the government has on buying everything now due to this 
information that if inflation was at its previous level several 
years ago we wouldn't have had to factor?
    Dr. Swagel. No, it is an important one and the U.S. 
Government buys, you know, a wide range of goods and services. 
You know, it pays salaries, it buys jet fuel, you know, buys 
everything. And so that has an important impact on spending.
    You know, there is a revenue impact as well. The tax code 
is based on nominal wages. And then net interest payments go 
up, so that inflation has an important impact on the 
government. I guess we haven't looked at just that in 
isolation. You know, we have looked at the net of all these 
things.
    Mr. Jacobs. OK. Just back on the--you know, certainly 
related to the two things that, inflation and the interest rate 
increases, given the most recent economic data, what do you 
feel the likelihood of a recession is later this year or next 
year?
    Dr. Swagel. OK. So, we don't have a recession in our 
projection; that, you know, today the challenge is in some 
instances the demand is too strong relative to supply. Right? 
It is both supply and demand, but we have very strong demand.
    Now, of course, as the Fed tightens, we have seen the 
impact already in financial markets and wealth is down. And, of 
course, there is always the possibility, you know, of a 
recession. You know, we don't have it in our projection. We try 
to be in the middle of the range of possibilities and so 
certainly, you know, at one side is the possibility.
    Mr. Jacobs. OK. All right. Thank you. I thank you, Mr. 
Chairman. I yield back.
    Chairman Yarmuth. The gentleman yields back. And now it is 
up to me. I yield myself 10 minutes for my questions and 
comments. And first of all, once again, Dr. Swagel, thanks so 
much for being here and for your responsiveness and the 
information.
    One thing that I think may be important to have as a part 
of the record is for you to briefly explain what this forecast, 
what this outlook is used for, why it is important. And there 
is also, I kind of inferred a sense that some members, 
particularly on the Republican side, think that you work for 
Democrats. Because there were some pronouns, and maybe the 
pronouns were used accidentally, but talk just in general about 
this process and why it is so important and what its purpose 
is.
    Dr. Swagel. No, thank you. So, we serve the Congress. We 
work for the--you know, for both chambers and both sides. We 
are nonpartisan. We work through the Budget Committees and for 
the Chairs and Ranking Members of Committees in jurisdiction.
    The baseline update, once the Budget Committees adopt the 
work as a new baseline, provides a foundation for policymakers 
to look at the impact of a fiscal policy, whether on spending 
or on revenue. So, that is why we do it the way we do it. We 
try to look ahead under current law as best we can, so that you 
have the foundation on which to evaluate fiscal policy.
    Chairman Yarmuth. And I know you constantly give 
disclaimers about, you know, the uncertainty of these 
projections. I remember several years ago when Tim Geithner was 
Secretary of the Treasury and appeared before the Committee and 
I think Paul Ryan was Chairman at that point. And I asked--he 
was showing all these charts going out to 2075 and so forth. 
And I asked the Secretary at that point how reliable, given the 
pace of change in the world and all the dynamics that it 
involved in the world economy, how reliable do you think 
projections going out 30, 40, 50 years are? And he said to me, 
I don't think projections going out more than five years are 
reliable.
    And so I just want when we are talking about these 10 
years, I know you have to do it, but would you agree that there 
is a great variation in the possibilities relative to your 
projections at this point?
    Dr. Swagel. No, absolutely. And as you said and as 
Secretary Geithner said, the difficulty, you know, it grows, 
you know, as we go out over time. And we understand that, we 
acknowledge that. I mean, even, you know, nominal dollars, 
comparing a dollar in year 10 against a dollar in year 1, 
right, we do it because that is useful to the Congress. But, of 
course, policymakers understand that, you know, 10 years from 
now is different than this year.
    You know, the other thing we do also is we keep the 
baseline constant just so that you have a constant benchmark. 
You know, as I said before, we know our inflation forecast is 
too low, right, and there is--we locked in at the beginning of 
March. Subsequent events showed it was higher. We are still 
going to keep the baseline, the economic projection constant so 
that this is a consistent benchmark to evaluate all proposals, 
you know, both sides, both chambers. That is the key to what we 
do is to be consistent so that, you know, you and your 
colleagues can evaluate the merits or not of legislation.
    Chairman Yarmuth. Thank you. I want to talk about inflation 
for a little bit because I think when we hear these numbers, 
8.3 percent the most recent one, your projections for this year 
a little bit lower than that. And the comment made, you know, 
it is a $5,000 tax increase for the average family. Well, it 
really depends on what het average family does and how it is--
what it is composed of. I mean, the impact of inflation on a 
family of six or eight is a lot different than the impact on a 
family of two. Food prices are different.
    If you are going to--at one point I know that it was 
estimated that a third of the inflation rate was due to the 
price of used cars or the growth. Well, if you are not buying a 
car that portion of the inflation rate doesn't affect you. So, 
it is really kind of--it is individual circumstances that are 
going to determine the impact of increased prices on everyone.
    Now, we know everybody eats and food prices are up and we 
have to respond to these as we can. But we generalize because 
that is what we do.
    But one of the questions, you know, I know, for instance, 
you know, everybody is saying, well, the price of eggs have 
gone up. Well, they had to kill 5 million hens because the 
avian flu. That is not anything that had to do with anybody's 
policy. Right? That was an unfortunate act of nature that 
resulted in the price of eggs.
    When the pandemic started lumber manufacturers stopped 
producing lumber because they thought there wouldn't be a 
demand for it. Well, it turns out there was a huge demand for 
it. They weren't supply it. The price of lumber went up five or 
six times. Now it has come back down to about a third of its 
highest level.
    But all of these components make it really difficult to--
not just to figure out what happened to cause the inflation, 
but also to deal with it. Because a lot of it is the actual 
marketplace and decisions that producers made, the shipment of 
computer chips and so forth, impacted a lot.
    But Republicans want to say that the American Rescue Plan 
was largely responsible for this. And my question is have you 
done any analysis of to what extent the American Rescue Plan 
contributed to inflation? You said it was a factor, but have 
you done any analysis of to what extent it was a factor?
    Dr. Swagel. No. so, we haven't. We haven't tried to parcel 
that out, you know, between the mix of demand, you know, the 
strong demand and strong--you know, not strong, the oppositive 
of strong, the supply impediments. And it is both. And that is 
one of the challenges is that there are so many things going 
on, changes in the economy and the labor market, you know, from 
health and scientific reasons with the virus, and we have not 
disentangled that. You know, at some point in the future people 
will go back and disentangle that.
    Chairman Yarmuth. Right. Well, some have. I mean, I think 
Moody's Analytics said it was about a half a percent or a third 
of a percent of the total of inflation. The Fed in San 
Francisco came up with a similar number. I think Goldman Sachs 
came up with less than 1 percent. And, you know, Larry Summers 
predicted that, is now taking credit for having predicted this 
inflation rate based on the American Rescue Plan, but he 
basically said there was a third possibility. It would be 
significant inflation, a third would be moderate, and a third 
would be none. So he tried to cover his bases totally at the 
time and now he is taking credit for it. But there are not a 
lot of economists who are saying that it is the lion's share of 
inflation that we are seeing now.
    And what people tend to forget is that about 25 percent of 
the American Rescue Plan was essentially a tax cut. It was 
$1,400 checks to almost every citizen in the country. In every 
congressional district, on average, there was sent by the 
federal government $900 million of disposable income. And I 
think we can argue over whether that was justified or not or 
whether it was needed or not, but I don't think many of the 
hundreds of millions of Americans who got that $1,400 check 
sent it back. They were very grateful for it and I think you 
can make a strong case that that had a large--played a large 
role in actually helping the economy recover, saving businesses 
all over the country and saving lives.
    And the other thing I would say is that, and I will ask you 
for this, we talk about deficits. And obviously, we can argue 
about how bad they are, what we need to do to dissolve them, 
what we--if and whether we do. But by and large, isn't it true 
that when the government runs a deficit, that the American 
people run a surplus?
    Dr. Swagel. Oh, I see. I mean, right. The government is 
running the deficits and the funds are going somewhere. So, the 
American Rescue Plan Act was an illustration of that; that that 
contributed to a wider deficit and that was used for a variety 
of purposes, the rebate checks to American families, you know, 
combating the virus, unemployment insurance, and aid for state 
and local governments. So, absolutely, the money is, you know, 
recycled is a good term here, you know, used throughout the 
economy.
    Chairman Yarmuth. When the government runs a surplus, it is 
taking money out of the economy and, therefore, from people. 
When it runs a deficit, it is putting money into the economy 
and into people's pockets. And the question is, you know, what 
other impacts doe that have? And that is obviously what we are 
trying to discuss here.
    I am not going to use the last 20 seconds except once again 
to thank you for being here today. Thank you for your work. 
Thank you for your responses today. And we look forward to 
hearing from you again in the not-so-distant future.
    And unless there is any further business, this hearing is 
adjourned.
    [Whereupon, at 1:18 p.m., the Committee was adjourned.]
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