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Impediments to Job Creation

March 30, 2011









March 30, 2011

SERIAL 112-09

Printed for the use of the Committee on Ways and Means



DAVE CAMP, Michigan, Chairman

WALLY HERGER, California                         
PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
RICK BERG, North Dakota
DIANE BLACK, Tennessee

RICHARD E. NEAL, Massachusetts
JOHN B. LARSON, Connecticut
RON KIND, Wisconsin
JON TRAUB, Staff Director
JANICE MAYS, Minority Staff Director



Advisory of March 30, 2011 announcing the hearing


Dr. Edward Lazear, Professor, Stanford University

Dr. Andrew Biggs, Resident Scholar, American Enterprise Institute

Dr. Heather Boushey, Senior Economist, Center for American Progress

Dr. Veronique de Rugy,
Senior Research Fellow, Mercatus Center



Wednesday, March 30, 2011
  U.S. House of Representatives,
Committee on Ways and Means,
Washington, D.C.

The committee met, pursuant to call, at 10:03 a.m., in Room 1100, Longworth House Office Building, Hon. Dave Camp [chairman of the committee] presiding.

[The advisory of the hearing follows:

Chairman Camp.  The Ways and Means Committee will come to order for a full committee hearing on Impediments to Job Creation.  If members would take their seats and members of the audience would take their seats, we will begin shortly. 

I think every member of this committee, Republican and Democrat alike, would agree on one basic fact, and that is the U.S. economy is not growing fast enough.  If the pace of private sector job creation does not increase significantly, the national unemployment rate will remain unacceptably high for at least another 5 years. 

Currently, there are 14 million Americans who are unemployed.  Millions more have given up looking for a job.  These families have already waited too long for Congress to figure out we cannot spend our way to prosperity and job growth.  Our experience over the last 2 years is clear; more government intervention fueled by more debt and higher taxes is not the answer.  I am not sure that all of my colleagues in Congress have figured this out yet, and I hope they will listen carefully to what we will hear this morning. 

During the President’s Deficit Commission on which I, Mr. Ryan and Mr. Becerra from this committee all served, we heard nonpartisan testimony that once a Nation’s total debt equaled 90 percent of its Gross Domestic Product, that that became a drag on economic growth.  In fact, it would slow growth by about 1 percent a year. 

The fact that large amounts of government debt slow down job creation should not be lost on lawmakers, especially since according to CBO, by the end of this year, our total debt will be over 100 percent of our GDP.  The U.S. debt is so large that these experts warned it is costing us about a million jobs. 

I have had a chance to preview the witnesses’ testimony, and they agree the recent run‑up in the size and cost of government is holding our economy back.  The Federal Government has grown so large it is casting a dark shadow over our recovery and literally has the families and employers I talk to in Michigan scared.  Given that our debt well exceeds $40,000 for every man, woman and child in the country, you can understand why. 

The American people know we are on an unsustainable path.  What they don’t know is when the system will come crashing down on them; when Washington will come looking to them for even more tax revenues or when foreign governments that are financing our debt, especially China, will call on us to repay the loans we have taken out. 

While fear can be a motivating factor, it has never propelled a Nation to prosperity.  In our current situation, just the opposite appears to be true.  Fear over rising debt levels and higher taxes has scared families and employers stiff.  Small and large businesses alike are so uncertain about the future, they are even sitting on profits rather than invest them in this landscape of uncertainty.  Not surprisingly, the result has been anemic job creation.

The American public understands intuitively what economic research confirms.  The smart policy is to control government spending.  Based on the testimony I have seen, we will hear a lot of expert agreement this morning that this is the most effective path to addressing both our Nation’s fiscal crisis and our Nation’s job crisis.  We need to get the government out of the way and let the private sector do what it does best, invest and create jobs. 

The problems created by growing deficits and debt are not new, nor are they the creation of one party alone.  But they have gotten much more severe and what many viewed as a future problem is firmly here today.  The truth is, there is plenty of blame to go around.  But it would be a shame if we fall into the habit of pointing fingers rather than working to find bipartisan solutions that allow government to carry out its important functions without imposing crippling tax burdens on its families and job creators. 

I look forward to hearing from our witnesses in a few minutes, but I will now yield to Ranking Member Sandy Levin for the purposes of his opening statement. 

Mr. Levin.  Thank you, Mr. Chairman.  This is a hearing on impediments to job creation.  A major impediment to job creation is the failure of the majority in the House to take any specific steps for job creation.  In this committee, they have not marked up a single jobs bill.  And when we on the Democratic side introduce a jobs bill, like the continuation of the very successful Build America Bonds, there is nothing in response but stoney silence.  Clearly, we must take steps to address the deficit. 

When the President took office, he had facing him a $1.5 trillion deficit.  But the deficit must not undermine economic recovery, or be used as a maneuver to tear apart the fabric of programs that are important for American families.  This is exactly what happens when a party is gripped by extremism.  This extremism is reflected in H.R. 1, which undermines important education programs like Pell Grants and Head Start, that represent vital investment in our future growth in jobs, law enforcement funding like the COPS program, that puts police on our streets, and environmental programs such as the Clean Water Revolving Fund, which creates jobs and ensures we have safe drinking water.

Attacks on these programs is consistent with, and in my judgment, indeed encouraged by Republican witness testimony presented today with the blanket statement, “The disease is government spending.”  It is also supported by the approach of another witness, Mr. Biggs, who years ago said the following in support of privatization of Social Security. “In that way, Social Security reform, featuring personal retirement accounts, doesn’t send just one liberal sacred cow to the slaughterhouse, it sends the whole herd.  The greatest long‑term effect of reforming Social Security to personal retirement accounts will not be on individual retirement savings, it will be on the way they view their relationship to the government to the economy and to each other.” 

If one wants to talk about a slaughterhouse and impediments to job creation, Federal Reserve Chairman Bernanke has predicted that the House Republican plan would lose, “A couple of hundred thousand jobs,” and there are estimates that go way beyond the 200,000 or several hundred thousand.

Being very uncomfortable, Republicans have suddenly decided that they had better try to frame their efforts by pinning to them the word jobs.  But playing games with words won’t work.  It is not a substitute for real action.  If we want to talk about jobs and American families, real action would include bringing trade adjustment assistance up for a vote on the floor of the House. 

Now having lapsed, the 2009 program allowed almost 200,000 workers without a job to undertake retraining as they try to find a job.  This legislation was passed by this committee, but it has shamefully been set aside by House Republicans guided by the rigid ideology that is so rampant within the Republican conference.  We need to take real action to help put Americans back to work.  We welcome this debate and we look forward to the testimony today.

Chairman Camp.  Thank you, Mr. Levin.  I would say that this committee did pass the repeal of 1099s, which received a large bipartisan vote on the House floor and support of more than 70 Democrats, which actually helps small businesses in their efforts to create jobs. 

Today’s panel includes four witnesses.  Dr. Edward Lazear from Stanford University.  Dr. Andrew Biggs from the American Enterprise Institute, Dr. Heather Boushey from the Center for American Progress, and Dr. Veronique de Rugy from the Mercatus Center at George Mason University.  I would like to thank all of our witnesses today for their participation in today’s hearing.


Chairman Camp.  Each of you will be given an opportunity to use 5 minutes to present your testimony.  Your full written statements will be entered into the record in their entirety.  After all the panel completes their statements, we will then go to member questioning.  So I will begin by recognizing Dr. Lazear for 5 minutes, thank you and welcome.

Mr. Lazear.  Chairman Camp.

Chairman Camp.  If you could pull the microphone close, and you do have to push a button to make sure it is on.  There should be a green light.  Not now, no.  Try again. 

Mr. Lazear.  Now? 

Chairman Camp.  Try the other one. 

Mr. Lazear.  It is red. 

Chairman Camp.  We will check for a second and see what is happening.

Mr. Lazear.  It is not a good start.

Chairman Camp.  We will have you slide over. 

I apologize for the technical glitch.


Mr. Lazear.  All right. 

Chairman Camp, Ranking Member Levin and members of the committee, thank you for giving me the opportunity to speak to you today.  In my 5 minutes, I would like to cover three issues.  First, as is becoming well accepted, the current spending pattern is unsustainable.  Second, the problem was created by policy and can be remedied by changing policy.  Third, if the spending picture is not altered, economic growth will suffer, and with it employment, wages and the standard of living of the typical American. 

It is becoming common knowledge that the U.S. budget deficit is a threat to our long run economic survival.  As our debt gets large relative to GDP, we will eventually have to service this debt out of tax revenues and offsets in other spending.  More important will be the effect on the private economy as high levels of government borrowing raise interest rates and stifle business investment.  A well‑known study suggests that growth could fall by half at debt levels that we are rapidly approaching. 

Although the discussion is usually put in terms of the deficit, focusing on the deficit can lead to the wrong policy choices.  The deficit is the difference between expenditures and revenues, but it is not only the difference that matters.  The economic literature has documented that higher taxation also impedes growth.  If spending is high, taxes must also be high to control the deficit. 

Policy is primarily responsible for the large deficits that are projected to be sustained into the near and distant future, although it is true that tax receipts fall during recessions.  As economic activity rebounds, so to does revenue.  The spending side is different.  It is controlled by government policy and the President’s projections move our post recession spending ratios up considerably from our historic norm of 20.8 percent.  The long run numbers are frightening as chart 1 shows.  The President’s projections show an expanding gap between expenses and receipts.  This implies that the deficit and debt will rise in the future, perhaps to crisis levels. 

I believe that we should take immediate actions to retrace our footsteps.  We are currently well above the historic spending levels, but we can return to sustainable spending without slowing the recovery.  This would require that we cut spending significantly in the next couple of years. 

In addition, I believe that we should institute a rule that constrains the growth in spending to the inflation rate, minus 1 percent point, which would return us to historic levels in a few years. 

With the unemployment rate still close to 9 percent, job creation is obviously a primary focus.  In the short run, increased employment comes with economic growth as chart 2 shows.  If you can switch the chart please, thank you.  You see those lines move parallel there. 

The economy rarely creates jobs in the absence of economic growth, but over the longer run, the main effect of economic growth is on wage, which has a direct impact on the typical American standard of living.  The link requires two steps.  First, GDP growth is usually linked to productivity growth as chart 3 shows.  Flip to chart 3, yeah.  Second, both theory and experience imply that wage growth comes with productivity growth.  Chart 4 shows that periods of high productivity growth are also periods of high compensation growth. 

In the labor market it is important to bear in mind one final point.  Even during deep recessions a tremendous amount of hiring occurs.  At the worst part of the recession, there was still around 3‑1/2 million hires per month, which means that over 30 percent of our workforce turned over in a year.  Most hiring is for the purpose of replacement, not expansion.  To ensure that hiring increases to levels that prevailed at the peak it is important that our labor market remain flexible. 

Let me conclude.  We can best deal with our labor market problems by ensuring that we have a progrowth economic environment.  Perhaps the largest threat to long‑term growth is the recent high level of government spending, which will result in high deficits or will require that we raise taxes substantially.  Either course impedes economic growth.  The high level of spending can be reversed.  If we adopt the appropriate policy, we can look forward to economic growth, low unemployment and rising wages.  Thank you, and I welcome your questions.

Chairman Camp.  Thank you very much.

[The statement of Mr. Lazear follows:]

Chairman Camp.  Dr. Biggs, you have 5 minutes. 


Mr. Biggs.  Thank you very much.  Chairman Camp, Ranking Member Levin and members of the committee.  Thank you for offering the opportunity to testify with regard to Federal deficits and debt and how they might be resolved in a positive way with regard to job creation in the economy. 

Addressing deficits and debt is a truly daunting task.  The CBO projects that over the next 25 years alone, the Federal Government faces a fiscal gap of 4.8 percent of GDP.  Bridging that fiscal gap would require an immediate and permanent 23 percent increase in all Federal tax revenues, or an equivalent reduction in Federal outlays.  Delaying action only makes the gap larger. 

To resolve this gap, the Federal Government must undergo a significant fiscal consolidation, which is defined as a policy aimed at reducing government deficits and debt accumulation.  Without a fiscal consolidation a debt or currency crisis is inevitable.  Over the past several decades, many developed countries have undertaken fiscal consolidations, some have succeeded and others have failed.  Both in causing lasting reductions in debt and in generating positive impacts in economic growth. 

What has separated the successes from the failures?  To help answer this question in a recent article with my AEI colleagues, Kevin Hassett and Matthew Jensen, we reviewed the extensive existing literature on fiscal consolidations as well as conducting our own data analysis.  We analyzed over 20 countries covering a span of nearly 4 decades.  We first isolated instances in which countries attempted to reduce their budget deficits, either through increased revenues or reduced government outlays.  We then revisited these countries several years later to see which fiscal consolidations have succeeded in reducing debt and which had failed.  And more importantly, we analyze what separated the successes from the failures. 

Our findings are striking.  Countries that address their budget shortfalls to reduce spending were far more likely to succeed in reducing their debt than countries whose budget balancing strategies depended upon higher taxes.  The typical unsuccessful fiscal consolidation consisted of 53 percent tax increases and 47 percent spending cuts.  By contrast, the typical successful fiscal consolidation consisted of 85 percent spending cuts.  These results are consistent with a large body of peer‑reviewed academic research. 

Also consistent with other studies, we found the successful consolidations focused spending cuts in two areas:  Social transfers, largely meaning entitlements in the American context and government wage bill, which means the size and pay of the public sector workforce. 

A second area of research, however, is more contentious.  Some economists have found the fiscal consolidations can spur economic growth even in the short term by generating confidence in the private sector at the larger and more disruptive changes have been averted down the road.  These expectational effects can offset the traditional Keynesian effects in which any fiscal consolidation, whether tax‑ or spending‑based, would drain demand from the economy and hurt short‑term growth. 

Harvard University economist Silvia Ardagna and Alberto Alesina found that only around 1 quarter of fiscal consolidations coincided with an increase in economic growth, but those that did were overwhelmingly composed of spending cuts, making up around 85 percent of the total.  Fiscal consolidations that did not spur growth were composed on average of 63 percent tax increases and only 37 percent spending reductions. 

The IMF recently published a paper arguing that fiscal consolidations don’t, in general, lead to higher economic growth.  But IMF did conclude that spending‑based fiscal consolidations will produce superior economic outcomes in terms of growth unemployment than would a tax‑based consolidation.  And that a fiscal consolidation that focused on reduced transfer spending likely would increase economic growth.  For instance, the IMF study found an expenditure based fiscal consolidation would lead to GDP 1.4 percent higher 3 years later than would a tax based consolidation, equal to around $200 billion in today’s dollars. 

Likewise, unemployment would be around one‑half percentage point lower under an expenditure consolidation than tax‑based consolidation.  In today’s economy, that would be equivalent to around 600,000 additional jobs.  Moreover, the IMF approach does not negate the prior conclusion that spending‑based fiscal consolidation are more likely to be successful in reducing deficits and debt than tax‑based consolidations.

To be clear the economic leadership isn’t saying that the best way to stimulate the economy is to cut government spending.  If short‑term stimulus were the only goal, tax cuts likely would be preferable.  But the literature does agree that if you must undergo a fiscal consolidation, and to be clear, we must in the very near future, then a fiscal consolidation based on spending reductions is more likely to succeed in reducing debt, and is more friendly to economic growth than a tax‑based fiscal consolidation.  Thank you.

[The statement of Mr. Biggs follows:]

Chairman Camp.  Thank you very much.  Dr. Boushey, you also have 5 minutes. 


Ms. Boushey.  Wonderful.  Thank you, Chairman Camp, and Ranking Member Levin for inviting me here today to testify.  My name a Heather Boushey, I am a senior economist with the Center for American Progress Action Fund. 

I want to get right to my point.  The policies that will create jobs are those that will increase aggregate demand by making investments that not only boost employment in the short term, but lay the foundations for long‑term economic growth.  Every policy should be examined to through the lens of whether or not it supports job creation and rebuilding our Nation’s middle class. 

Let’s be clear, we are here today because of the failed economic policies of the 2000s.  The collapse of the housing market and the financial crisis upended the labor market causing unemployment to spike from just below 5 percent in early 2008 to 10 percent just a year and a half later in late 2009.  With the Federal funds rated zero since December of 2008 and evidence of a liquidity trap, fiscal policy has been your primary lever to address high unemployment. 

While one cause of our current Federal deficit is the higher expenditures and lower tax revenues due to the Great Recession, the main causes of today’s deficit were evident before the recession took hold.  The prior administration left our country with a run‑up of debt from a two unfunded wars along side massive tax cuts.  The long‑term challenges are compounded by the need to get health care costs under control. 

The supply side mantra of tax cuts for the wealthy has left our Nation indebted in ways that profoundly harmed our economy.  The early 2000s saw unprecedented tax cuts for the wealthy, yet in the economic recovery that followed, growth in investment, employment and output were all slower than any other economic recovery in more than half a century.  For the first time since the end of World War II, our Nation’s middle class families saw their incomes fall in inflation‑adjusted terms over an economic recovery.  The hollowing out of our middle class is clear evidence of a failed economic model.  It also encouraged economic instability as households borrowed to make up for falling incomes. 

We need to put our economy on a path to balance that starts policy that creates jobs now, make the investments we need to lay the foundation for long‑term economic growth and build our middle class.  In doing so, we will be able to repay our debts and see strong growth in the years to come.  And I will note the Rogoff and Reinhardt study that has been discussed this morning connecting the high debt to lower growth is entirely driven by the demobilization following World War II, and therefore is not applicable necessarily in today’s circumstances. 

There remain five seekers today for every job opening available.  This unemployment is not a structural problem.  The National Federation of Independent Businesses continues to report that the primary concern of small businesses in this country is sales.  The shortfall and aggregate demand amounts to almost 6 percent of U.S. Gross Domestic Product even though the economy has been growing for six quarters now.  This is the output gap that we need to fill in order to make our economy whole so that everyone who once worked can find a job. 

High unemployment not only creates significant hardships for individual families, it continues to threaten the recovery.  The unemployed can’t spend what they don’t earn, which why unemployment directly adds to our Nation’s aggregate demand problem. 

Funds spent on benefits and services designed to help the unemployed find new work have mitigated, not exacerbated the problem.  The best economic evidence is that unemployment benefits and transitional jobs programs have helped the current recovery.  By boosting economic growth, the actions we have taken over the past couple of years has actually made the long‑term deficits smaller than it would have been without action. 

To address unemployment, Congress should focus on three specific policy goals:  Boost aggregate demand and invest in our economy, including investing in infrastructure, which is the best way to ramp up employment now while building the foundation for a high productivity future; second, stop adding to the problem of unemployment.  Once someone loses their job in this economy, they are facing a historically low odds of finding a new job; third, help the unemployed beat the odds and find work.  In particular, programs like TANF emergency funds that put people to work in public‑private partnerships should be reinstituted. 

The cost of inaction continue to far outweigh the cost of action.  While we need to keep our eye on a growing Federal debt addressing the scourge of long‑term unemployment now will do more to cut future deficits than not.  Getting our economy growing again is the most important thing we need to do to address our budget woes, and that includes both a long hard look at our tax revenue and increasing that.  Thank you.

Chairman Camp.  Thank you very much.

[The statement of Ms. Boushey follows:]

Chairman Camp.  Dr. de Rugy you have 5 minutes.


Ms. de Rugy.  Good morning, Chairman Camp, Ranking Member Levin and distinguished members of the committee.  Thank you for inviting me to discuss how debt and deficits relate to economic growth and job creation.  My name a Veronique deRugy and I am a senior research fellow at the Mercatus Center at George Mason University, where I specialize on tax and budget issues. 

Deficits and debt matter.  They are the symptom of a disease called government spending.  Overspending in the past, along with the near explosion of Social Security, Medicare and Medicare spending means it will be drowning in red ink for the foreseeable future.  Unfortunately, the persistent failures of lawmakers to cut spending have created a situation where the symptoms produce symptoms of their own. 

I have three points to make today about large sustained deficits and debts.  First, they cripple economic growth and destroy jobs; second, they are expensive and they are self‑perpetrating; third, American families are the ones paying the price for these symptoms. 

To the first point, large and sustained deficits and debt in evidently cripple economic growth and destroy jobs.  The money the Federal Government borrows comes from American savings, so does the money that American invest in the private sector’s growth.  There comes a point where there just aren’t enough savings to satisfy both masters.  So if the government borrows more money, domestic investment will go down as State economists call crowding out.  And this State’s company will build fewer factories, cut back on research and development and generate fewer innovations.  As a result, our Nation’s future earning prospect will then, and our future living standard will suffer.  And pouring more money to foreign investors isn’t the solution either, as this money needs to be repaid too. 

Second, deficits and debt are expensive and self‑perpetrating.  The more we borrow, the bigger our interest payments are.  In spite of historically low interest rates, by the time my 8‑year old daughter finishes high school, the Federal Government well spend a projecting $866 billion each year just to pay interest on our debt.  That is more than what the U.S. spends now on two wars, plus the Department of Defense, Education, Energy and Homeland Security combined. 

As our deficit grows, the interest on our debt grows too.  All too soon we will have to borrow money to pay for the interest on our debt.  And if persistent deficits lead to higher interest rates, through the combination of concerns about inflation and potential default, these new rates can magnify the power of compounded interest.  In other words, deficits find us at low rate today can lead to more deficits financed at higher rates in the future. 

Third, deficits and debt matter to American families and they are the ones who will suffer from economic uncertainty, high unemployment rate, higher interest rates, lower growth and lower standards of living brought by a fiscal crisis caused by too many deficits and too much debt.  Yet the ones who will really suffer are our children.  As the United States is set to embark in an unprecedented and massive transfer of wealth from younger taxpayers to older ones. 

Make no mistake, our children will be the ones who pay for the decisions we are making today.  That fiscal crisis could be slow, yet rampant discussion of our economy.  It could be abrupt with creditors losing faith and pulling their money from the United States overnight.  Either way, things are way worse than they look on paper. 

According to the CBO, U.S. debt as a percentage of GDP will reach 200 percent by 2037.  Those are projections.  Not the real world.  In the real world the economy could collapse before we could even get to the CBOs forecast level.  Even the CBO acknowledges that possibility.  And as long‑term projections documents the CBO forecasts, the effect crowding out may have on GDP per capita and contrast it with commonly‑used projections. 

Depending on the assumption made this data shows that per capita growth collapsing about 10 to 20 years from now due to crowding out.  The contrast between this data and the data usually referenced by scholars like me and a governmental official is striking. 

What then should the government decide today?  Well, Congress should address our fiscal imbalance today and tomorrow and should start to do it now.  In particular, Congress should reform the main driver of spending explosion, Social Security, Medicare and Medicaid.  That being said, I think everything should be on the table, including defense spending. 

It should also resist the temptation to address these deficits by raising taxes.  No amount of taxes could address the immense fiscal imbalance that our country which face in the future.  Furthermore, raising taxes would add to our problems by hindering economic growth, thereby reducing tax revenue and adding to the deficit. 

Thank you for the opportunity to testify before you today, and I am looking forward to your answers. 

Chairman Camp.  Thank you, thank you all for your testimony.

[The statement of Ms. de Rugy follows:]

Chairman Camp.  Dr. Lazear, last week you were among a group of bipartisan former Council of Economic Advisor Chairs that signed an op‑ed calling on the administration and Congress to address the Nation’s fiscal crisis. And I would ask unanimous consent that the op‑ed that I refer to be included in the record without objection.

[The information follows:]

Chairman Camp.  Why does such a distinguished and bipartisan group of economists think it is crucial that we act now to address our Nation’s fiscal crisis? 

Mr. Lazear.  Is this working yet? 

Chairman Camp.  I don’t think it is working yet.

Mr. Lazear.  Thank you.  Can you hear me now? 

Chairman Camp.  Yeah, I can.

Mr. Lazear.  I think the problem is obvious to all of us.  Those of us who have been CEA chairs have had to put together forecasts every year.  We had a committee called TROIKA inside the administration.  We look at these numbers on a frequent basis, and it is quite apparent when you start looking at these data that the problem is overwhelming and it is a problem that is immediate.  We are adding 10 percent, 10 percentage points to the debt to GDP ratio every year and that number is really a frightening number.  So I think that is what has stimulated all of us to try to work together and to think about these issues together. 

Now obviously we don’t all have the same solutions for the problem.  We differ on some of the things that we like, and some of the things that we don’t like, but we all recognize that if the problem goes unaddressed that it will be a problem that threatens the country and threatens our economic livelihood.  And in particular what we are concerned about is that a couple of things will happen, first of all it will become very costly for the U.S. to borrow. 

It will be difficult to service our debt, but more important will be the effect on the private sector.  When borrowing costs go up, it makes it difficult to invest.  It also means that other investors from around the world will loose confidence in the United States, and those are the things we are most concerned about.

Chairman Camp.  I notice that you all agree that we do need to find measures and ways to deal with our deficit and our debt.  And I think it is unprecedented, I have never, in my time in Congress, seen a letter of this kind from both Republican and Democrat Counsel of Economic Advisor Chairs.  These are all former chairs of that group that advises the President. 

There is a significant debate obviously occurring in the Congress right now about the best way to promote economic growth and job creation.  And I would ask you, your testimony seems to say that we need to begin to reduce government spending.  And can you walk me through how reducing government spending is connected to job creation? 

Mr. Lazear.  Sure.  Again, if I use the President’s numbers, which I think are probably the easiest way to start, use the numbers that OMB puts out.  The big problem that we have as we go into the future is that we just can’t get to the situation that we want to be at by raising taxes; we are just never going to get there, it is simple arithmetic.  If you look at the gap that the President is projecting out a couple of decades, we are talking about deficits somewhere in the order 8, 10, eventually 12 percent of GDP per year.  To raise taxes enough to close that gap would mean that we would be raising taxes by about 50 percent.  I just don’t see that happening in this country.  I surely hope it does not happen in this country.  It would be a tremendous drag on the economy. 

So the problem that we face then is one of controlling spending.  Now if we don’t control spending, I really see it more as a negative.  It is not so much that if we control spending, there will be this magical increase in economic growth; it is rather the reverse.  If we don’t control spending, what we will be doing is putting ourselves in a situation where we will have such strong impediments to economic growth that the economy will struggle.  And we had examples of this, Japan has lost decade, now lost 2 decades, hopefully not 3 decades, is case in point. 

Chairman Camp.  All right.  Dr. Biggs, do you care to comment on that? 

Mr. Biggs.  Well, I think I would reiterate what Professor Lazear said, that we are facing with a number of bad choices, particularly in entitlements.  If we addressed these issues 10 or 15 years from now we would have a much smoother glide path towards bringing the budget back into balance.  We have much more leeway today in terms of the fiscal policy and the avenues we have available to us to address joblessness and fiscal stimulus in the short term. 

As it stands, though, we have to do two things at once:  We have to both address deficits both in the short term and long term, and we have to think about how to stimulate the economy and keep the economy healthy going forward.  And of course, those two things are linked.  The stronger your economy, the more easily it can bear the debt that it has more easily it can bear government programs. 

So I think we have to say what steps together will both help us effectively address deficits and debt and will do it in a way that is, at the very least, neutral with regard to the economy, but we hope may be helpful with regard to the economy.  The research that we have reviewed, and there is a fairly large body of it, indicates the best approach to that would be through reductions in government outlays rather than increases in revenues.

Chairman Camp.  All right.  Thank you.  Dr. de Rugy, would you like to comment on the connection between reducing government spending and the promotion of jobs, job creation.

Ms. DeRugy.  I would agree with Ed Lazear and Andrew Biggs about the connection that exists.  And I would like to add to show that in the last 10 years, during President Bush’s presidency, Federal spending has grown in real term by 60 percent.  We have had massive increase in spending in the last 3 years, whether you think it was justified or not.  We have tried the routes of stimulating the economy through massive spending and it hasn’t worked. 

In fact, I would argue that it has hurt us more than anything else.  And what we know is that we are at a time where basically ‑‑ actually, economists have not really studied the situation in which we are.  A situation where actually not only do we have unprecedented level of debt, but they are not about to end in the foreseeable future because of the explosion of spending on Social Security, Medicare and Medicaid.  We have not studied this.  I mean, like all the examples that economists have studied after the Second World War, where I agree the situations were different, there wasn’t this massive extension already forecasted and projected. 

So we are at a situation where pretty much we know the consequences of spending more, we also know the consequences of taxing more.  What we don’t know is when we are going to reach this tipping point where things could absolutely really be bad for our economy.  That will mean a slowdown of economic growth in a situation that we are already today, but in any case, means a destruction of jobs.

Chairman Camp.  Thank you.  Mr. Levin is recognized. 

Mr. Levin.  Thank you and welcome.  You know, there is no question of if there needs to be deficit reduction.  The issue is how we do it.  No one is saying do it by raising taxes alone. No one says that.  I just want the record to be set straight.  The private sector job losses from January 2001, to January 2009, total 650,000 private sector jobs lost.  From February 2010 to February 2011, 1,526,000 private sector jobs increase.  Those are the facts.  A loss of 653,000 from 2001 to 2009; 1.5 million increased in the private sector from February 2010 to February 2011.  And everybody who constructs an economic theory needs to look at those facts. 

So now, let me just ask each of you what you think of the estimates of job losses from H.R. 1.  I mention Chairman Bernanke, 200,000; Mark Zandi, 700,000; Goldman Sachs, a reduction in economic growth of 1‑1/2 to 2 percent in the second and third quarters of this year.  Mr. Lazear, do you challenge those? 

Mr. Lazear.  Let me just say two things, Congressman.  The first thing I would say is that I certainly agree that we should be looking at the facts on job loss, but normally, what one does when one looks at the facts is you look from peak of a business cycle to peak of a business cycle or trough of a business cycle to the trough of the business cycle.  You don’t look from the peak of one business cycle to the trough of another.  If you do that, you get a very distorted picture.  And I would argue that is probably accounting for a good bit of the numbers that we saw. 

Mr. Levin.  So even if you use that argument, the facts are striking in terms of the job loss for 8 years, and the job increase in 1 year. 

Mr. Lazear.  Well, my argument would be that if you want to understand job growth, what you need to do is you need to correct for the business cycle.  And if you correct for the business cycle you can get a very different picture. 

Mr. Levin.  Well, send us something on how different it would be.

Mr. Lazear.  You would essentially see job decline during the recession that started in 2001, continue job growth from 2003 to 2008 and then job decline from 2008 thereafter.  So that is essentially the picture.

Mr. Levin.  Okay.  We will be glad to look at those figures, but they don’t change the basic fact.

Mr. Lazear.  But let me get to your more important question, which was do I believe in the numbers in terms of the effects.

Mr. Levin.  Is Bernanke right or wrong? 

Mr. Lazear.  All right.  I would say that I don’t believe those numbers and I will tell you why I don’t believe those numbers.  I was also the chair of the committee that did exactly those numbers at the White House, and we did that for 3 years, and here is how those numbers are created.  The way you create those numbers is you base them on a model, you do not base them on evidence.  You base them on a model that says we know that if we spend so much in GDP, that will have a particular effect on GDP.  And historically, there has been a relation between GDP and job growth. 

Mr. Levin.  Let me say, my time is up.  That is maybe what you did. 

Mr. Lazear.  That is what Zandi does, that is what Goldman does, that is what CBO does.

Mr. Levin.  That is what Bernanke did? 

Mr. Lazear.  That is what Bernanke does. 

Mr. Levin.  So you don’t give any credibility to his critique? 

Mr. Lazear.  No.  You asked me if I believe the numbers, I told you why I don’t believe the numbers.  The numbers are model‑based rather than evidence‑based.

Mr. Levin.  So you just dismiss all of the statements about the impact of H.R. 1 in terms of economy growth? 

Mr. Lazear.  What I dismiss is those as evidence of the effect of a bill on jobs.  What I don’t dismiss is that they still ‑‑

Mr. Levin.  Let me ‑‑ Ms. Boushey, quickly, would you respond to that? 

Chairman Camp.  Quickly, because his time has expired so you have a few seconds. 

Ms. Boushey.  Well, I mean, economists use models and so there is a bit of a challenge there.  Especially looking at the Goldman Sachs estimate, these people did that estimate for their investors to help them determine how to invest and how they thought they were going to make money in the years to come.  I take that very seriously, because if they think that this will be bad for growth, then that is how they are advising their clients.  I mean, economists use models.  We all agree there is some wiggle room in there, but certainly, we need to take these very seriously.

Mr. Levin.  Thank you.

Chairman Camp.  Mr. Herger is recognized. 

Mr. Herger.  Thank you very much, Mr. Chairman.  I want to thank you for holding this hearing.  Certainly it is incredibly important what we are talking about now.  We are in a very serious recession that has taken place not only in my district, but throughout this Nation.  There is a concern of stability and whether or not we have the policies that are going to bring us out of it.  Certainly the spending, this massive spending is at the heart of much of the concern that I hear when I am in my northern California district. 

Mr. Lazear, according to the CBO, in 6 of the President’s proposed budgets over the next 10 years, the deficits will be in excess of $1 trillion.  During that period of time our debt would more than double. I would like to ask you what are the likely economic consequences of this massive accumulation of debt envisioned by the President? 

Mr. Lazear.  Well, again, I think I would use the word that I used before, I think it is frightening.  And the reason I think it is frightening is that if we add that kind of debt to our fiscal situation, we need to service that debt.  If we service that debt, we can only do it in one of two ways.  Either we have to raise taxes, or we have to borrow even more.  Raising taxes, we know, is not good for the economy.  There are many, many studies that document that.  Across countries, over time periods, I referenced some in my formal testimony.  But in addition to that, if we try to borrow, what we will end up doing is driving up interest rates.  We are already starting to see that at the long‑term of the Treasury structure right now. 

When we start driving up interest rates, what that does is it imposes costs on businesses that are trying to borrow and trying to invest.  And the one thing we do know is that investment is a huge driver of economic growth, and job growth depends on economic growth.  So I guess I am very concerned about the effects of long‑term deficits and the kinds of high deficits that you referred to, sir, on both economic growth through interest rates and through confidence in the United States as a place to invest.

Mr. Herger.  I have to mention another concern that I have.  As we look around the globe, we look at what has taken place in Greece, what has taken place in Ireland, some other countries, we can see that an economic crisis, a fiscal crisis can develop very suddenly.  And my concern is with what we have seen take place, how quickly it can happen with, again, this incredible debt that we are seeing taking place here in the United States.  In your opinion, are we currently on the fiscal path that could trigger a crisis similar to what we have seen in some of these countries, only on a much more substantial scale considering the size and importance of our economy? 

Ms. Boushey.  Can I take that one? 

Mr. Herger.  Dr. Biggs. 

Mr. Biggs.  In my written testimony, I quoted the well‑known economists Ernest Hemingway who said that people go bankrupt two ways, gradually and then suddenly.  And we are in the gradually phase now, we are accumulating more and more debt.  For the moment we can bear that burden.  We have been advantaged by the fact of financial instability in other parts of the world that has sort of a flight to safety approach and it helps the U.S. in the short term. 

Over the long term, though, both the history and theory of financial crisis isn’t going to happen very quickly, they are like a bank run you don’t know exactly what causes it, but once panic sets in and confidence is lost, these things can happen very, very fast. 

So the point is you don’t want to get yourself into the region where that can happen.  You can’t say precisely when or what will trigger it, once you are in the region, that can be a very difficult place to be.

Mr. Herger.  Would you say we are in the region again looking at the region that Greece was in? 

Ms. Boushey.  I would look at ‑‑

Mr. Biggs.  I think we are entering the region now.

Ms. Boushey.  I would look at what has happened in Ireland.

Chairman Camp.  Would you please suspend?  The gentleman will direct a question to you, thank you. 

Mr. Herger.  Dr. de Rugy. 

Ms. de Rugy.  One of the things we know is that investors rate a country on a curve, so basically, and this is why there is so much uncertainty and we can’t tell you and pinpoint exactly when the crisis will happen.  But one of the things that we know is that there will be a moment where it is really possible, and this is one of the things that keeps me up at night, where our investors are going to look at the U.S. and they are going to think that we are not as safe as we used to be, and they are first going to start to ask for a premium for potential risk of inflation, and they are also going to ask potentially for premium and that could happen.

Chairman Camp.  All right.  Thank you.  The gentleman’s time has expired.  Mr. Levin is recognized.  I am sorry.  Mr. Rangel is recognized. 

Mr. Rangel.  Thank you, Mr. Chairman.  The staff reports that the Bush tax cuts cost us about a loss in revenue of $1.6 trillion, and the extension for the 2 years, $500 billion.  Do any of you contradict that this increased our debt that we owed to have a negative impact?  Or is that accepted?  Silence means you agree.

Mr. Biggs.  If I could quickly note.  One of the points I made in my written testimony is that the fiscal gap, the CBO projects over the next 25 years and beyond is entirely a result of higher spending.  The historically income taxes or total taxation has been about 18 or so percent of GDP, the CBO projects that going over the next 25 years taxes will equal 20.7 percent of GDP. 

Mr. Rangel.  Let me try the question then.  We had a deficit then and after the tax cut, you would agree that we didn’t have the money to pay for it, we have to borrow the money to pay for it, the same way we have to borrow money for the $500 billion extensions of the President Obama continuation and extension of it.  I don’t think anyone wants to challenge, if you don’t have the money and you reduce the revenue that the tax system says you can get, that you borrow that money ‑‑

Mr. Lazear.  I guess I would ‑‑

Mr. Rangel.  ‑‑ by short term.

Mr. Lazear.  I would respond to you two ways, Congressman.  The first thing I would say is that the Bush tax cuts were in effect primarily throughout the Bush administration, that was a relatively benign period in terms of both ‑‑ 

Mr. Rangel.  If we borrowed the money in order to do it, the answer is yes. 

Mr. Lazear.  Excuse me, Congressman.

Mr. Rangel.  What I am trying to say is, do you believe that we can raise any revenue now and it would help us to close the deficit? 

Mr. Lazear.  That was my second point. 

Mr. Rangel.  Well, that is my first point.

Mr. Lazear.  All right.  Sorry, sir.  Which is that there is a short‑run effect and a long‑run effect.  And I think what I think we are concerned about primarily is the long‑run effect on economic growth.  Whether we can get a year or 2 of additional revenue by increasing taxes right now, that is possible.  I wouldn’t deny that, there is some ambiguity there. 

Mr. Rangel.  If I was to share with you where we would get that money would be in closing tax loopholes that technically some people would say ‑‑

Mr. Lazear.  Yeah.

Mr. Rangel.  They are getting a tax increase, but most economists agree that our corporate tax rate is too high at 35 percent, but that the actual tax rate that corporations is closer to 20 in terms of what it should be in the first place.  If you cut out all the preferential treatment and brought more equity to the table, that it would be perceived that America’s the place to invest and that high corporate taxes would not be negative, do you agree with that? 

Mr. Lazear.  I certainly agree with you.

Mr. Rangel.  So you don’t mind reducing revenues by reforming the system?

Mr. Lazear.  I think I better not start my statement with “I certainly agree with you” because you are going to cut me off right there.  But go ahead, sir. 

Mr. Rangel.  But you do believe that having tax reform could make it easier to reduce the corporate rate? 

Mr. Lazear.  I absolutely agree there is tremendous room for reform if our tax structure and corporate reform would be part of it. 

Mr. Rangel.  And reduce the rates?

Mr. Lazear.  Well, that is not my preferred solution.  I was on the President’s tax panel for a year before being chair of the council.

Mr. Rangel.  You think rates should stay at 35 percent? 

Mr. Lazear.  We had a different plan.

Mr. Rangel.  I know, I am only talking about the rates.  I know you know more about this than me, that is why I want to find out. 

Mr. Lazear.  Well, I thought that was why you were asking me.

Mr. Rangel.  The corporate rate is now 35 percent, right?

Mr. Lazear.  The corporate rate is 35 percent.

Mr. Rangel.  And you support reform, right? 

Mr. Lazear.  I do.

Mr. Rangel.  And I am only asking would you support a dramatic reduction in the corporate rate at the same time? 

Mr. Lazear.  I would prefer to see reductions in the corporate rate to the current rate, but there are alternative ways to do that that I would prefer than reducing the corporate rate.

Mr. Rangel.  Okay.  Well, when you talk about reducing or cutting back and spending, and everyone says it that way, that doesn’t necessarily mean that you are saving money, does it? 

Mr. Lazear.  It doesn’t necessarily mean that you are saving money.  What our concern is, again, that we need to have a tax‑and‑spend structure that is healthy for the economy in the long run.  I don’t see us getting to that by the solution that you are proposing, sir.

Chairman Camp.  All right the gentleman’s time has expired.  Mr. Johnson is recognized.

Mr. Johnson.  Thank you, Mr. Chairman.

You know, one aspect of the current fiscal debate which I don’t think has received enough attention is foreign holdings of U.S. debt.  As you may know, foreign‑held debt has doubled during the last 5 years from just over $2 trillion to nearly $4.4 trillion.  During this time, China has become the number one foreign holder of U.S. debt.  In fact, China holdings have more than tripled to $1.16 trillion.  In response to these developments, I introduced last year the Foreign‑Held Debt Transparency and Threat Assessment Act, legislation aimed at raising awareness of the threat to our economy and national security of our exploding debt. 

So with that said, what would be the economic consequences, especially with respect to job creation if China decided to significantly cut back its holdings of U.S. debt, one?  And what would this mean for Main Street, small businesses, especially with respect to access to affordable credit?  And I would appreciate Lazear, Biggs and de Rugy to answer first, and then Ms. Boushey as time permits. 

Mr. Biggs.  Sure.  I will start quickly.  Obviously, a large portion of the debt that has been issued and is currently being issued by the United States is held by overseas investors, including China.  I am not an expert on foreign policy, but obviously, it does constrain our foreign policy choices.  There was a New York Times story I remember a year or so ago when President Obama was visiting China, and the point of the story was that ordinarily our American President can go over to China and speak very forthrightly about human rights issues or national security issues, but in this case, we are now talking to our largest creditor.  So that constrains us on non‑economic policies.

In terms of if China or other foreign holders were to essentially give up their holdings of American debt, I think the likely outcome then will be a devaluation of the dollar, which would have disruptive effects on the economy here in terms of jobs, job dislocations.

Mr. Lazear.  We did a study, sir, in 2007, again, at the Council of Economic Advisors and we looked at this.  It was a big concern then, it is a much bigger concern now.  At that time, we estimated that if China were to get rid of their treasury holdings, it would cost about 100 basis points in terms of an increase in interest rate, which is not enormous, but it is certainly significant and would have a significant impact on the economy. 

I think the more important point, though, is not the immediate impact on the economy, the more important point is the one that Dr. Biggs just talked about, which is the long‑run impact.

The United States enjoys a special position in the world of having the reserve currency, and that is a very important position for us.  We have that status not by right, but because we have earned it, and we can certainly do things that will earn someone else the right to have that status in the future.  So I think the big concern is that we need to show that we have our house in order so that others in the world will be willing to continue to hold our currency as the reserve currency. 

Mr. Johnson.  Thank you. 

Ms. De Rugy.  I agree with my colleagues.  I would add, though, that I think Lauren Kaines is the one who said if you borrow $1 from your bank, your bank owns you, and if you borrow $1,000 from your bank, you own the bank.  And I want to believe ‑‑ even though I agree with you guys ‑‑ that China, I mean, by choice, should have our best interests at heart.  The problem is what happens if China gets into a recession of its own and actually starts slowing down the amount of capital that it sends our way?  Just that could actually throw us into disarray and raise interest rates.  This is the concern I have. 

And one of the problems we have, I mean, even though it is in theory, not that much of a concern, is this amount of money that foreigners have, I mean, they are less loyal to American interests than domestic investment.  And this is the reason why Japan, for instance, has been able to actually have these level of debts is that 95 percent of their debt held by the public is held domestically.  You have lesser of a flight instinct in theory. 

And so, yes, it does expose us to significant risk, even though I just don’t think it would be just in order to hurt us, it would be to protect their own investment.  And if China gets in a serious recession, they will have no other choice than to stop sending that much money our way.

Mr. Johnson.  Go ahead, Ms. Boushey, if you wish. 

Ms. Boushey.  I agree with many of the comments up here.  I want to focus on one thing that Dr. Biggs said, which is that that would lead to a devaluation.  One, it is highly unlikely that China would do that because it would make their goods more expensive.  We import a lot from them.  But number two, if that were to happen, that would make our exports cheaper.  So in many senses, some of the outcomes of that would be good for American manufacturing and for goods that we export.  So there is a pro and a con there.

Mr. Johnson.  Thank you very much.  I appreciate that.

Chairman Camp.  Thank you. 

Mr. Stark is recognized. 

Mr. Stark.  Thank you, Mr. Chairman. 

I would like to address this to Ms. Boushey.  The Republicans have been busy over the last couple of months.  They have passed legislation that would end foreclosure assistance programs with no alternative solution, they have repealed the Affordable Care Act with no alternative, they have moved to defund National Public Radio, to end public financing of campaigns so corporate money will have more influence on elections.  They voted to extend the PATRIOT Act and make gradual cuts in domestic programs such as education, public safety, environmental protection. 

Today we are going to vote to spend $300 million on a pet project of the Speaker to use taxpayer dollars to subsidize private schools.  And next week we will vote to restrict safe access to abortion. 

Now Ms. Boushey, will any of these bills create jobs? 

Ms. Boushey.  Well, it is a long list, and my instinct is that many of them may not.  But let me just focus on a couple that you mention on that list.  One thing that a number of the panelists up here have spoken about is the long‑term health care costs are a critical piece of this long‑term ‑‑

Mr. Stark.  I asked you a question; will any of those bills create jobs?

Ms. Boushey.  I don’t think any of those appear, of the list that you mentioned, focused on job creation.

Mr. Stark.  I don’t think they will either.  So do any other panelists have estimates on how many jobs will be created if these bills became law?  Go ahead. 

Ms. de Rugy.  I mean, I don’t think ‑‑ you are probably right that this is not the point of this job.  But I think there is the case to be made that the Federal Government should probably not be involved in absolutely everything that concerns our lives, and maybe there will be some very positive impact on having the Federal Government scale back its intervention on Americans lives.

Mr. Stark.  And how will that create jobs?

Ms. de Rugy.  The less intervention and the less you tie Americans’ hands, the more you help them actually do what they are good at, which is investing, entrepreneurial, create wealth, and help the economy grow.

Mr. Stark.  Any other panelists have any idea how those bills will create jobs?

Mr. Lazear.  Sir, I would comment on one of them, and that would be the health care legislation.

Mr. Stark.  I didn’t mention that.

Mr. Lazear.  I am sorry, I thought you did.

Mr. Stark.  No, I didn’t.

Mr. Lazear.  Okay.  Then I withdraw my comment. 

Mr. Stark.  Okay.  You want to talk about health care legislation?  I would be happy to do that.  It is entitlement reform, it reduces Medicare spending, it extends solvency of Medicare for about 12 years. 

Mr. Lazear.  The health care legislation, while scored by CBO as deficit reducing ‑‑ and I will accept that as a given, also ‑‑

Mr. Stark.  What do you know about health care?  You are not a very good economist, but I wonder what you know about health care?  We have a group of second‑rate economists here.  And I don’t know where they dragged ‑‑ scraping the bottom of the barrel. 

Chairman Camp.  I would say to the gentleman, I think if we could confine our remarks to the topic at hand and not personally disparage the witnesses ‑‑

Mr. Stark.  It seems like the topic at hand is where you found these clowns. 

Chairman Camp.  Well, one of them is a Democrat witness. 

Mr. Stark.  I understand that.

Chairman Camp.  So they are not all Republican witnesses.  It is the gentleman’s time to proceed. 

Mr. Lazear.  I am sorry.  Would you repeat the question, sir? 

Mr. Stark.  Well, I just wondered about your expertise in health care. 

Mr. Lazear.  Oh.  Well, you probably recall that I was the President’s chief economic advisor for 3 years.  We spent a lot of time talking about health care.  The 2007 State of the Union address was all about health care, and I was instrumental in devising that. 

So I have certainly thought a good deal about health care over my career.  But I don’t think my credentials are really all that relevant at this point, the Senate has already confirmed my credentials.

I think what I would like to talk to you about is the health care legislation.  If you want to hear about it, I am certainly happy to talk about it, because as it concerns job creation, which I thought was your question, recall that the expenditures in the health care bill that we are talking about are about $1 trillion ‑‑

Mr. Stark.  Let’s hear from Ms. Boushey about this.  What do you think; health care have anything to do with this? 

Ms. Boushey.  Well, health care does have something to do with the long‑term deficit, and so we do need to take steps and did take stops in the Affordable Care Act to get health care costs under control over the long term.  And I would encourage you to continue to focus on that because if we care about the deficit ‑‑ which is what this panel is about ‑‑ then we should care about thinking about that in the long term? 

Mr. Stark.  Thank you very much. 

Thank you, Mr. Chairman.

Chairman Camp.  Thank you.  Mr. Brady is recognized.

Mr. Brady.  First to the panel, let me apologize to you for Mr. Stark.  We may disagree on conclusions, but your credentials, lifetime of credentials in economics is so very impressive, and we appreciate you taking your time today to share that with this committee, and therefore with Congress.

I think we are hearing a lot of Draconian projections about job losses due to minor spending reductions.  But those same economists got it so wrong in the stimulus.  Here we are 2 years later spending over $800 billion, we have 2.2 million fewer jobs today in America than when the stimulus began.  We were told at this point the unemployment rate would be 6.9 percent ‑‑ off by a mile.  Mark Zandi, who was cited earlier today, he predicted we would create 4 million new jobs by the end of 2010, we actually had 3 million fewer.  He was off by 7 million jobs.  It is time to stop listening to the economists who got it wrong and start listening to the economists who got it right. 

I want to pull up two charts, if I may, that follow on the testimony we heard today from our panelists.  This chart follows the last 40 years in America.  The blue line charts Federal Government spending from here in Washington.  The red line charts job growth in the private sector, jobs along Main Street.  As you can tell from the chart, there is no correlation between higher government spending and job growth in the private sector.  In fact, for each of the four decades, there is a negative correlation between higher Federal spending and job growth in the private sector. 

The next chart tracks as ‑‑ again, inspired by the testimony we have heard today ‑‑ this tracks business investment, private business investment in America the last 40 years versus job growth in the private sector.  What it shows is a very strong correlation in each of the last four decades; when businesses large and small buy new equipment, new software, invest in new buildings, jobs along Main Street grow. 

And so for Dr. Lazear and Dr. Biggs specifically, one, I would like your comments on the role of private investment in creating private sector jobs.  And secondly, because, Dr. Biggs, the Joint Economic Committee report, “Spend Less, Owe Less, Grow the Economy” cited your study that our international competitors who got themselves in debt trouble, and reduced their debts credibly through spending cuts, not by tax increases, were able to grow their economy in the short term as well as the long term.  So I would like both Dr. Lazear and Dr. Biggs’ comments on these points.

Mr. Lazear.  Yes, sir.  Congressman, let me start.  I certainly agree that investment is a key component to both economic growth and job growth.  In the short run, the chart that I showed is quite consistent with the one that you are showing now, which is that we do know that you just don’t get job growth in the short run without seeing growth in economic activity.  So the question is, how do we get growth in economic activity?  I have never been a strong believer in the notion that the government can create a lot of economic activity.  Occasionally, we can move it around ‑‑ I think the government has done that in the past couple of years ‑‑ but I don’t see a lot of effect on aggregate economic activity from the kind of government programs that we have seen. 

In the longer run, the more important effect of investment is actually not on the number of jobs, it is on wages.  And the reason it works on wages is that wages are very closely linked to productivity growth.  And in order to get productivity growth, you have to have investment.  And I would include in that, by the way, investment in human capital as well as investment in physical capital.

Mr. Brady.  Thank you.  Well said.

Mr. Biggs.  Well, since Professor Lazear discussed investment, I will try to focus on the second part of your question since time is short. 

The study you referenced, and obviously the literature that I reviewed in my testimony has found that countries that attempt to get on top of their budget problems through reduced spending tend to be both more successful at cutting their deficit and debt, but also have better economic outcomes than those who try to address their budgets through increased taxes. 

For anybody who is doubting this, that is just my opinion.  My testimony includes a large number of references to these findings in peer review journals that come to the same conclusion. 

I discuss there is a controversy among economists about to what degree fiscal consolidations will spur economic growth to help the economy.  One number I cited from an IMF study found that a spending‑based fiscal consolidation would produce unemployment half a percentage point lower than a tax‑based fiscal consolidation 3 years after it took place.  That was from a study that people cite as being a more pessimistic one in terms of these outcomes. 

So I can’t promise you that cutting spending is going to rapidly increase growth, but given that you have to get on top of your budget, the research seems clear that going at it on the spending side seems to be more successful and better for the economy than going at it from the tax side.

Mr. Brady.  Thank you.  I yield back.

Chairman Camp.  Thank you.

Mr. Nunes is recognized.

Mr. Nunes.  Thank you, Mr. Chairman. 

Ms. Boushey, in your testimony you mention two wars that were unpaid for.  Were you referring to Iraq and Afghanistan, or…

Ms. Boushey.  I was.

Mr. Nunes.  How about Libya; is that unpaid for?  Paid for?  How does that fall? 

Ms. Boushey.  I was referring to the run‑up in spending over the 2000s alongside tax cuts.  So I was trying to make the point that the deficit was something that we inherited at the end of the last administration.

Mr. Nunes.  Right.  I just want to clarify that the two wars you were referring to are Iraq and Afghanistan. 

How does Libya compare, what is happening in Libya today, compared to those two wars being paid for or not paid for? 

Ms. Boushey.  We are making choices about how we are spending scarce resources.  I am not an expert on foreign policy, but as an economist who cares about job creation ‑‑ and we are having this national conversation about deficits, it certainly is important for you to consider how those two pieces fit together.  I would prioritize job creation here in the United States.

Mr. Nunes.  So the tax cuts that you are referring to that went alongside with the two wars, I assume those are the George W. Bush tax cuts of `01 and `03? 

Ms. Boushey.  Yes, sir.

Mr. Nunes.  And also supported by President Obama for a 2‑year extension last year? 

Ms. Boushey.  As a part of a compromise that also extended unemployment insurance, yes. 

Mr. Nunes.  So President Obama has basically carried forth not only going into wars that aren’t paid for ‑‑ right?  In Libya, you agree with that? 

Ms. Boushey.  Wars in times of deficits, so yes.

Mr. Nunes.  And also supporting the extension of the tax cuts.  So you disagree with the Obama administration’s positions on wars that are not paid for and extending Bush tax cuts. 

Ms. Boushey.  Again, because I am an economist who doesn’t focus on foreign policy, I don’t want to comment on the war in Libya.  However, on the tax cuts, that was a compromise where, in my professional opinion, those extensions to the unemployed were necessary, that was the price of getting it passed through Congress.  So yes, I think we had to do it.  But those tax cuts for the wealthy did not lead to the kinds of employment, investment, and wage gains that we would like to see, so I don’t think that those ‑‑ those are not what is going to be helping our economy right now.

Mr. Nunes.  So you sit around and you think about these things, you spend a lot of time researching this.  So you don’t support the current tax rates.  I would just be interested to know, before this committee ‑‑ since it is the tax writing committee ‑‑ what rate should the tax levels be at?  Let’s take income tax and corporate income tax; what would you like to see those rates at? 

Ms. Boushey.  Well, one of the things that we talked about here on this panel this morning is the appropriate level of taxation.  One of the ways that you can look at it ‑‑ there are two points I would like to make.  One is that the periods after which we have cut taxes for the wealthy over the past few decades ‑‑ in the early 1980’s and the early 2000’s ‑‑ and then in the early 1990’s, we raised taxes, if you look at the recoveries to economic performance in the years after those different tax ‑‑

Mr. Nunes.  I understand the point that you are making, but what I am really interested in, since this is the committee that will take testimony and then we will begin to craft legislation, the chairman is looking at fundamental tax reform, so I think it is pertinent to this because tax reform is job creation.  So do you have a range of what you think the tax rates should be on both the corporate side and the income tax side?  Can you give us any number at all of what we should be looking at? 

Ms. Boushey.  I can’t give you one number because it is complicated, but I do think that certainly higher would be my first answer.  And second, one idea would be thinking about, the United States is one of the most lowest income tax countries in the OECD.  If we just bumped up to the revenue generation strategies of Canada ‑‑ our neighbor to the north who hasn’t seen the same economic turmoil that we have ‑‑ we would still be in the bottom third of all OECD countries, but we would be able to solve our deficit problems.

Mr. Nunes.  So you would like to see us at 25 percent of GDP? 

Ms. Boushey.  I can get back to you on a specific number.  I am hesitant to say something without sort of doing some calculations that are hard to do at this moment. 

Mr. Nunes.  I would assume that is probably what Canada is, roughly? 

Ms. Boushey.  I can’t remember off the top of my head, but I am happy to get back to you.

Mr. Nunes.  But you will get back to me what percentage of GDP the tax rate should be at? 

Ms. Boushey.  Yes, sir.

Mr. Nunes.  And I know we are at a limited time here, but Mr. Lazear, what rate do you think the tax rate should be at that would get us to a point where we could get into job creation where businesses would be willing to invest? 

Mr. Lazear.  Well, again, I don’t think of the tax rate as generating jobs in the short run, and I don’t think of expenditures as generating jobs in the short run.  I think that the steps that we took in late 2008, early 2009 to get ourselves through the financial crisis are the steps that were appropriate in creating the job growth.  We are going to see it, unfortunately, slower than I think we all had hoped, but that is where it is going to go. 

What I would say is that historically, our tax rate has been at 18 percent.  We have been able to do quite well in terms of supporting the economy, growing the economy, supporting the government and doing the necessary things that government has to do with an 18 percent tax revenue over the past 30 years.  That also means we have run about a 2 percent deficit.  So at a 2 percent deficit, we are bringing down the ratio of debt to GDP. 

Mr. Nunes.  Mr. Chairman, I would also like to associate my comments with Mr. Brady’s, that I don’t think any of you are clowns or second‑rate economists.  I apologize for that.

Chairman Camp.  Thank you. 

Mr. McDermott is recognized for 5 minutes. 

Mr. McDermott.  Thank you, Mr. Chairman.  I would ask unanimous consent to enter into the record, March 29, 2011, a letter to Harry Reid, Boehner, McConnell and Pelosi from 34 chief executive officers of alternative energy companies.

Chairman Camp.  Without objection.

[The information follows:]

Mr. McDermott.  I put that in because I want to commend you on having brought to us today the architect of the Bush failure and a representative of the Koch Institute’s ideas about the economy.  It is important. 

I want to ask both of you a question.  This letter says, “We urge you to continue funding the Department of Energy’s loan guarantee program for section 1705 and 1703” ‑‑ and I am sure, Mr. Lazear, you know what those are about.  And it says, “We are investing in projects with pending loan guarantees based on the good faith action that the DOE programs would function as stipulated in the law as the Congress intended.  We are deeply concerned that eliminating funding for these critical programs would not only destroy thousands of pending jobs and hinder the growth of critically needed U.S. domestic energy production, but also defeat America’s effort to compete with China, Germany, and others in the clean technology marketplace.”  They go on to talk about the fact that they have already invested $26 billion, and that has led to another $42 billion in investment. 

Now listening to you, one would think that any investment by the government in anything in the private sector was bad.  Do you think these 34 executives are wrong in asking for loan guarantees from the United States Government?  Do you think President Obama’s plan to give them loan guarantees to create a clean energy industry is wrong? 

Mr. Lazear.  I guess I would make two comments.  One is, first of all, I am not an anarchist, I don’t think that government investment is always a bad thing. 

Mr. McDermott.  So you think the CR that is being considered by the Tea Party Members of the House of Representatives is bad for the economy because it kills jobs? 

Mr. Lazear.  No, I didn’t say that.  And I am not familiar with that legislation, so I won’t comment on it.  But what I did say was ‑‑

Mr. McDermott.  Don’t you work at the Hoover Institute?  I mean, you are looking at the economy.  You are not paying attention to what these guys are doing? 

Mr. Lazear.  I am trying to pay attention to what you guys are doing, and I hope that I am doing that in a fair and accurate way. 

The question that you asked in terms of do I think that the CEOs are justified in making their case?  I certainly think they are justified in making their case for the industry ‑‑

Mr. McDermott.  No, no, no.  You sat at the Bush table and created this thing. 

Mr. Lazear.  Which thing is it that you are referring to? 

Mr. McDermott.  These loan guarantees.  I mean, you put this economy together, so you are saying they have a right to make their case.  Of course they do. 

Mr. Lazear.  I wish I had such power, sir.  But what I believe we can do is I believe we can move resources around.  I am less convinced that we can have an effect on aggregate economic activity.  So my concern is not that we cannot create incentives for one industry to take off perhaps at the expense of another industry.  I think the issue that we are concerned with today ‑‑ and I am sure it is the issue that you are concerned with as well, sir ‑‑ is creating jobs at the aggregate level, not simply moving them around.  And I am not convinced that the kinds of stimulus activity that we have done has done much more than move jobs around.

Mr. McDermott.  I asked you about a specific program, a green energy program to compete with China. 

Mr. Lazear.  I thought I answered your question.

Mr. McDermott.  Do you think aiding that industry in this country is a good idea? 

Mr. Lazear.  Again, I am not a person who believes that it is good to pick industries and to invest in particular industries.  I don’t think that any government does a very good job of that.  Occasionally, we do make decisions like that.  For example, we do make decisions to fund education, we do make decisions to fund research.  We have to make those decisions at the level of government.  Sometimes we make mistakes, but I think ‑‑

Mr. McDermott.  Do you think, then, that the programs we have aiding the oil industry and the write‑offs we give them, are they useful? 

Mr. Lazear.  Again, I am not in favor of picking industries and aiding particular industries? 

Mr. McDermott.  So you would end the oil subsidies as well? 

Mr. Lazear.  As I said, I believe in policies that are as industry‑neutral as possible.

Mr. McDermott.  I would like to hear from the Koch brothers. 

Ms. De Rugy.  Well, are you asking me whether anyone has put these words in my mouth?  I am here just to talk about my research.  And at Mercatus, we have a strict policy of separation and independence research.  So I am talking about myself. 

Chairman Camp.  The time has expired, so if you could just very quickly comment.  All right.

Mr. Nunes.  Mr. Chairman, would you yield?  I just think that the committee has asked these panelists to come here, and I would just hope that both sides of the aisle would refrain from lobbing personal insults to the panelists. 

Mr. McDermott.  Mr. Chairman, it is not an insult to say that the institute for which this woman works is funded by the Koch brothers.  That is not an insult, that is a statement of fact.

Chairman Camp.  All right.  Why don’t we continue on in regular order. 

Mr. Tiberi is recognized. 

Mr. Tiberi.  Thank you, Mr. Chairman.  I, too, apologize for the name calling today, it is just unwarranted.

Ms. Boushey, just to comment ‑‑ and I am not asking a question ‑‑ in your exchange with Mr. Nunes here, you blamed the 2001 tax cuts, the 2003 tax cuts, in part for our structural deficits.  It is interesting to note that in February, just last month, we had a higher deficit than we had the entire year of 2007, years after both tax cuts were in place.  That is not my question.  My question to you, ma’am, first; your research with respect to this debt that we have, the structural debt that we have today, what would it do to solve, in part, that debt problem ‑‑ which the President’s budget just punts on ‑‑ if we just raise taxes to do it?  What impact would that have on our economy and job creation in the private sector? 

Ms. de Rugy.  Well, I mean, I think it will have ‑‑ I think we have already said it, it will probably have long‑term disastrous consequences for economic growth.  I mean, in order to get tax revenue, you need a thriving economy.  And if you increase taxes to the point where there creates your disincentive to work, you will not get the revenues that you get.  In fact, I would like to mention the research by Christina Romer, the former Chair of the Council of Economic Advisors, and her husband, David Romer, that has shown that if you raise taxes by 1 percent point of GDP in order to reduce the deficit, what you get is a decrease in GDP by 3 percent.  And her research is very consistent with a lot of the economic research on this issue, so it would just not be a good idea.

I would like to add one more point, which is that every solution that members of this committee design has to be realistic.  I mean, in the history, in the last 60 or 70 years, as Mr. Biggs has said, the average rate of tax collection has been roughly 18 percent of GDP.  Whether we like it or not, whether we think it should be higher or not, it is a reality and this reality is nonnegotiable. 

So any solution that we design should actually have a realistic expectation about what the government can do.  For instance, the Deficit Commission, unfortunately, its solution rested on the government being able to raise 21 percent of GDP consistently.  It has never happened before, and there is no reason to think that it would.  That is why I am begging you to ‑‑ whether we like taxes or not, to at least design solutions that are consistent with what the government can do based on how people respond.

Mr. Tiberi.  Thank you. 

Mr. Biggs, kind of to tail on what you just talked about in your research, when the private sector looks ‑‑ from what I have heard back in my district from small business owners ‑‑ looks at things that we do or don’t do, whether it is uncertainty on what the Tax Code is going to be or a health care bill that is going to add cost to employers, they say that it causes them to kind of stand in place, not hire.  Does your research indicate, whether it is the health care bill or the uncertainty of the Tax Code and the structural debt that they believe will cause us to increase taxes significantly, impact behavior in the research that you have done? 

Mr. Biggs.  Well, the research I have reviewed shows that one of the reasons why getting on top of your budget problems in the near term can spur economic growth is because it resolves these sorts of doubts that people have.  Any investor dislikes risk.  Risk reduces the value of your investment.  Similarly, if you know that you are going to have higher costs in the future because taxes are going to decrease, that makes you less likely to invest as well.  So resolving these issues in the near term helps both individuals, businesses and financial markets have confidence in the activities they are undertaking, and as a result they seem to undertake more of them.  So there is a connection between getting on top of our fiscal problems in the right way and helping the economy recover over the long term. 

Mr. Tiberi.  Mr. Lazear, I see you have a comment? 

Mr. Lazear.  I completely agree with the points my colleagues raised.  I still think that what we need to do is get ‑‑ the kinds of things the government does and does effectively is not pick sectors, not try to grow particular programs, not try to grow particular jobs, but rather to create the kind of environment that is conducive to private businesses, the ones to which you referred, and allowing them to do the growth.  And what that means, we really only know one way to do this, and the way we know to do this is to keep taxes low to allow for an open economy and to make sure that markets are free and open.  And that is the best that the economists, I think, can advise you.

Mr. Tiberi.  Thank you.  My time has expired. 

Chairman Camp.  Mr. Lewis is recognized. 

Mr. Lewis.  Thank you very much, Mr. Chairman. 

Dr. Boushey, the Bush tax cuts have been in place now for almost 10 years and they have not created a single job.  During the Clinton administration, we created more than 22 million new jobs.  In fact, we have lost hundreds of thousands of jobs, the budget is no longer balanced, the deficit increased under the Bush administration, and we all know the unemployment numbers.  Despite this failed policy, Republicans want these tax cuts to continue and claim they will create jobs.  What is your response to this argument?  What would you suggest we do in terms of a tax policy to create jobs?

Ms. Boushey.  I have two comments on that.  Number one, the kinds of tax cuts that happened at the beginning of the Bush administration were focused on the highest income earners in the country, not necessarily people that invested that money in job creation, but just rich people in America.  The evidence shows that that was not something that led to an increase in investment.  We saw the slowest investment growth of any recovery in the recovery that happened in the 2000s after those tax cuts.  The logic was you give more rich people their money back, they were going to invest and create jobs.  Quite frankly, we know now that they didn’t. 

At the same time, what you saw happening over the 2000’s was a squeeze on the middle class.  Again, that was the only economic recovery in the post‑World War II period where middle class families had less income at the end of it than they did at the prior peek before the recession in the early 2000’s.  That, again, is failure, and that, of course, is part of the economic stability picture that we have seen in the ensuing years, families lost income, they put more people in the labor force, they took out more loans.  And that, of course, was a piece of the housing bubble and the ensuing crisis.

Then the third point I want to make is that, one of the things that we haven’t talked enough about this morning is that we continue to be in a unique economic situation.  The models that economists have about taxes and spending are, for the most part, research done in “normal” economic times.  But we are in a moment where interest rates are at zero, they have been for a number of years now; we are in what is called a liquidity trap, where even if the government continues to spend, it is not crowding out private investment.  There is no evidence that that is happening right now.  And a piece of that is how we get to this output gap and how we need to keep spending.  So while we may need to sort of deal with this deficit in the long term, in the immediate term, if we do that, we will probably experience the kind of contraction that the U.K. and Ireland are now experiencing after their austerity packages.

Mr. Lewis.  Now, Dr. Boushey, I grew up in a little place in southern Alabama called Troy.  And back then, a long time ago, when I was growing up ‑‑ and up until some years ago in Alabama and many other parts of our country ‑‑ people could kind of get a solid, dependable job at one of the local plants or factories.  But our economy has changed now, hasn’t it, Dr. Boushey? 

Can you explain why cutting investment in education will only lead to worse unemployment?  What effect will reducing investment in transportation have on our economy?  How are goods and freights supposed to be moved across our country if we do not take care of our roads, our bridges?

Ms. Boushey.  Definitely.  I mean, we have seen a decline in the middle class for decades now.  And economists have tracked this polarization in the U.S. labor market with a growth in jobs at the low end, at the high end.  But over the 2000’s, we didn’t even see the kinds of growth at the high end.  You have really just seen a bottoming out of our labor market, and that has been hard on families.  A piece of that right now, something that we can be doing is making these investments in infrastructure, in education, that would get people in jobs now, but it would also lay the foundations for long‑term economic growth. 

The American Society of Civil Engineers estimates that we can spend trillions of dollars just to repair our fraying infrastructure.  And that has real consequences, not just for workers, but for small business owners.  I live here in the District of Columbia on 18th and U, and across the street from me is a small business owner who has seen his water main break three times in the past few years, and each time leading to his business closing.  Now, thanks to the recovery dollars, they are replacing the 100‑year‑old water main breaks on my street and so that small business owner won’t see that kind of challenge moving forward.  So these investments are not only good for job creation now, but they are what keep our economy moving forward.

Mr. Lewis.  Dr. Boushey, the last question; I am sure you have heard the reports that the Republican CR will cost our economy 700,000 jobs. 

Chairman Camp.  Very quickly, because the gentleman’s time has expired. 

Mr. Lewis.  If you were Speaker Boehner, what would you do?  What would your response be to the thousands of people who will lose their jobs?

Ms. Boushey.  I think I would encourage him to focus on job creation and building a strong middle class.  And I would ask whether each of those items in the cuts he is making would actually accomplish those goals.  And I think the answer is many of them are not focused on that goal.

Chairman Camp.  Thank you. 

Mr. Davis is recognized. 

Mr. Davis.  Thank you, Mr. Chairman. 

A recent report by the Committee for a Responsible Federal Budget suggests that one of the groups most likely to be hurt by massive debt are the poor.  That is because, as the report puts it, “the poor and working poor already facing tough living conditions are particularly vulnerable to any deterioration in the economy which will reduce limited employment and income opportunities.  Debt‑related higher interest rates, whether through crowding‑out pressures or a fiscal crisis, will make conditions even worse.  Chances are that the fiscal pressures and political battles will mean less safety net resources available.” 

I would like to ask the panel whether they agree with that view.  And if we don’t get the debt under control, who will suffer the most when it comes to undermining job creation, the rich, the middle class, or the poor?  Who is the most at risk, and what are the lasting impacts?  And we can begin with Mr. Lazear. 

Mr. Lazear.  Well, again, I would refer back to the letter signed by the 10 CEA chairs because the scenario that you are talking about is exactly the one that we feared and that we were trying to speak to.  If we encounter another crisis of the sort that we have now or one that is potentially worse, we do expect to see very high rates of unemployment, very low rates of GDP growth.  And we know that when unemployment goes up, the groups that suffer the most are the ones who are most vulnerable. 

So certainly to your question, I don’t think there is any doubt that if you see high rates of unemployment, the people who can’t easily carry through that period of tough times are the people with the least resources.  So obviously, my concern would be for those individuals. 

Mr. Davis.  Thank you, Mr. Biggs. 

Mr. Biggs.  I would agree and echo Professor Lazear’s remarks.  In a weak economy, where you are facing financial instability, higher income people, better educated people, people with some assets, they have the greater ability to whether that, to hedge the risks, to adjust things to get through tough times.  People who don’t have that ability are just in a much more difficult situation.  So the point here is that you want to strengthen the economy, in particular, for the people at the bottom who really do need the help over the long term. 

Mr. Davis.  Thank you. 

Ms. Boushey.

Ms. Boushey.  We are already in a crisis for those families.  And I agree with you that we should be focusing on them.  What we need to be doing is focusing on getting them back to work now.  And once we do that, then we can deal with our long‑term debt.  We are sort of putting the cart before the horse. 

And again, I point to the situation in Ireland, for example, which bailed out its banks, did an austerity package, and now has seen its bond rates double.  The austerity has actually worsened the economic situation.  So focusing on the debt before you have gotten your labor market in order is only going to add to the woes of America’s working class.

Mr. Davis.  Ms. de Rugy. 

Ms. de Rugy.  One of the reasons why low‑income people and their families are hurting is because for many years this government hasn’t been doing the right thing.  And when I hear the conversation about tax cuts costing the economy, there might be something to this, but it is comparing oranges and apples because there is also the, during the Bush years, a 60 percent increase in real term of spending, and we should not forget this.  And it was unfunded, a large part of it. 

But to your direct question, one of the reasons we need to act today is if we don’t get our debt under control, if we don’t get our spending under control, we are going to find ourselves in a situation where it is going to be a dramatic change right away.  And we are going to find ourselves in a situation where we won’t be able to actually sell assets in an organized fashion, but we are going to have to cut things across the board, like a fire sale type of thing, and we won’t have enough time to actually set our priorities and make sure that the neediest people in our society are taken care of.

Mr. Davis.  Thank you.

As a follow up, when it comes to choosing between maintaining the status quo of out‑of‑control spending or protecting the opportunities for Americans to achieve self‑sufficiency, I think it becomes obvious that that needs to go.  There is a direct correlation between increasing debt and reduced opportunities, particularly the unwillingness or pensiveness of employers to hire people or create new jobs because of the economic uncertainty. 

Is there any additional collateral damage that will be caused by not addressing our debt issues, that it will impact those primarily the most in need?  And we can start with you and go back across. 

Ms. de Rugy.  Absolutely.  I mean, I think we all agree that the most vulnerable people in society are poor people, and they are the one paying the brunt of all of the downturn of the economy.  One of the reasons why we need absolutely to reform Social Security today is so that the program can actually be reverted to actually its original purpose, which is take care of the neediest of society.  And the problem is if we don’t do anything today, by the time the trust fund assets run out, the Social Security program is going to cut benefits across the board by 22 percent, and the people who are going to be hurt the most are low‑income people.  So, yes, absolutely we need to do things right now.

Mr. Davis.  Thank you.

Chairman Camp.  The gentleman’s time has expired. 

Mr. Neal is recognized.

Mr. Neal.  Thank you very much, Mr. Chairman. 

I want to thank Professor Lazear for saying that it was a good idea today to retrace our footsteps.  Do you think in retrospect, Professor, that it was a good idea to cut taxes by $2.3 trillion and invade Iraq? 

Mr. Lazear.  I am sorry? 

Mr. Neal.  I don’t think that question could be any more clearer.

Mr. Lazear.  I just didn’t hear the last three words.  Oh, and invade Iraq. 

Mr. Neal.  Do you think, in retrospect, to cut taxes by $2.3 trillion and invade Iraq? 

Mr. Lazear.  And invade Iraq.  I am sorry.  Well, I certainly won’t speak to the invasion of Iraq, that is outside of my area of expertise. 

Mr. Neal.  That is where the money has gone; $250 billion annually we are being asked to come up with and it is all borrowed money.

Mr. Lazear.  I understand that, sir.  But again, if you look at the spending pattern during the Bush administration, what you will see is that spending average, 19.6 percent of GDP, which is the lowest level of spending ‑‑

Mr. Neal.  You come back to those numbers.  I am asking you a policy question, Professor. 

Mr. Lazear.  ‑‑ relative to any recent President.  So that doesn’t mean that there aren’t things that we could do that would improve the situation. 

Mr. Neal.  Were you in the room with Paul O’Neill, the Secretary of the Treasury? 

Mr. Lazear.  No, I was not there. 

Mr. Neal.  You weren’t there.  Are you familiar with Lawrence Lindsey? 

Mr. Lazear.  I didn’t overlap with Lawrence Lindsey.

Mr. Neal.  Do you accept now, in retrospect, his recommendation that we should have budgeted substantially greater dollars for the invasion of Iraq? 

Mr. Lazear.  In terms of the accuracy of the budget, I think Larry was right, that it did cost more than I think they were projecting at the time, but again ‑‑

Mr. Neal.  Well, good God, that is something we can all agree on in this room today.

Now let me ask you this along the same line of reasoning here.  President Obama mentioned on Monday night in his comments to the country that the war in Iraq was now going to cost $1 trillion.  Do you agree with that? 

Mr. Lazear.  I haven’t tallied up the exact number, so I can’t testify to that right now.

Mr. Neal.  Do you want to take a wild guess?  That is frequently what economists do. 

Mr. Lazear.  I prefer not to. 

Mr. Neal.  Do you agree with this following statement, that because of our VA system, for the next 40 or 50 years for those young men and women who have served us honorably, that they are going to be in need of a substantial amount of increased dollars for their health care? 

Mr. Lazear.  I certainly think that we should take care of those who have served this country and take care of them well, absolutely, sir. 

Mr. Neal.  What is interesting about the commentary from our panelists today is Ms. de Rugy, she is of, I think, a similar mind to you on many of the policies here, but she is intellectually honest about what happened during the Bush years with spending.  You haven’t mentioned that. 

Mr. Lazear.  I thought I did.  I thought I gave you the exact numbers, sir.

Mr. Neal.  Do you think that spending got out of control during the Bush years? 

Mr. Lazear.  I thought I just told you ‑‑ I stand by my statement.

Mr. Neal.  Why don’t you say it again.

Mr. Lazear.  The statement is, during the Bush years the average spend‑to‑GDP ratio was 19.6 percent ‑‑

Mr. Neal.  All right.  Let me come back to make perhaps a more simple statement.  Are you arguing this morning that there was greater economic success during the Bush years than there was during the Clinton years?

Mr. Lazear.  I didn’t say that.

Mr. Neal.  I hope you didn’t.

Mr. Lazear.  What I said was the economy certainly was doing very well during the period of 2006/2007.  We had 4.4 percent unemployment.  Those were very good times for the economy.  We hit, obviously, one of the toughest financial situations we have had in this country in many, many years. 

Mr. Neal.  It needs to be acknowledged that TARP took place in October of 2008.

Mr. Lazear.  Correct.

Mr. Neal.  Who was the President then? 

Mr. Lazear.  President Bush. 

Mr. Neal.  Okay.  That is a very important consideration as you lay out these dates. 

Now are you suggesting to me that on January 19, 2001, that the economy was ailing? 

Mr. Lazear.  On January 19, 2001?  Absolutely.

Mr. Neal.  The economy was ailing? 

Mr. Lazear.  Absolutely.  We were in the beginning of the crash. 

Mr. Neal.  Let me take you back to this; do you think that it is accurate, as Mr. Lewis pointed out, that there were 22 million jobs created during the Clinton years?

Mr. Lazear.  I understand that, but your question was, was the economy ailing in 2001?  It certainly was ailing.  We were going into a recession.  We were going into the recession that started the Bush administration.  We had just ‑‑

Mr. Neal.  The Wall Street Journal says today that the economy began to tank in 2007. 

Mr. Lazear.  Excuse me, sir.  In 2000, we had two negative quarters of GDP growth.  We were going into a recession. 

Mr. Neal.  This is the difficulty with witnesses coming here like this.  I gave you some very basic numbers and you were evasive on them.  And Ms. de Rugy, she was not evasive on those numbers.  She was very clear; she said spending got out of control during the Bush years.

Mr. Lazear.  Sir, I am trying to answer your questions honestly, I am happy to do that.  You posed a question, you said, do I think that we were in trouble in January of 2001?  And I said absolutely.  That is an honest answer.  We were going into a recession.  The data are clear on that.  We had two negative quarters prior to that. 

Mr. Neal.  I am going to close on the statement with which I opened; do you think it was a good idea in retrospect to cut taxes by $2.3 trillion and invade Iraq? 

Mr. Lazear.  I think that the Bush tax cuts in 2003 were absolutely a good idea.  The investment tax credits stimulated investment and got the economy going again.

Mr. Neal.  Thank you, Mr. Chairman.

Chairman Camp.  Thank you. 

Mr. Reichert is recognized. 

Mr. Reichert.  Thank you, Mr. Chairman.  And thank you all for being here today experiencing this pleasant discussion. 

I have a simple question first for Dr. Lazear.  The administration has stated that we will reach the statutory debt limit sometime this spring.  The current limit is $14.2 trillion, or nearly equal to the value of every good and service produced in the United States.  How do you think the financial markets and the broader economy would react if Congress simply increased the debt limit and there was no credible commitment or action taken in addressing our current fiscal crisis? 

Mr. Lazear.  Well, I think that the debt limit, to my mind, is more of a symbol than a reality.  The reality comes earlier, I would say.  So the front line of defense against increasing expenditures is not so much the debt limit, it is the actions that you and your committee in particular can take and take now in thinking about appropriations in the future budget. 

So I would actually urge action at an earlier stage rather than at the debt limit stage.  I think that is really where the action has to be had in order to make a credible commitment to reducing future spending.  I believe that that is where you are headed, I believe that is where you are trying to go, but I am not convinced that simply dealing with the debt limit would be an effective mechanism at this point.

Mr. Reichert.  Anyone else on the panel care to comment? 

Mr. Biggs.  I agree with Professor Lazear.  I think the symbolism in terms of the debt limit matter, things like dealing with the debt limit, things like do we take up the recommendations of President Obama’s Fiscal Commission, does the administration’s budget try to tackle deficits over the long term?  My concern for the financial markets is when opportunities to get on top of these problems are pushed aside.  When we say we appointed a debt commission, but we are going to ignore what they did.  We have a debt limit, but we are going to raise it without taking any reforms.  We have various opportunities to fix these problems and we push them aside. 

My fear is eventually financial markets may say they no longer have the will to get on top of these problems.  And when financial markets begin to doubt you, that is when you enter a pretty dangerous zone.

Ms. de Rugy.  If I can add something.  I agree.  I think this is a sign of where we stand with our reputation abroad.  I think there is a lot of talk about how the bond market will get rattled if we don’t increase the debt limit.  But I actually think that if we increase the debt limit and then either with the debt limit legislation, which is not necessarily the right place to do it, but also later, if we increase the debt limit without signaling that we are going to be seriously committed to changing the path on which we spend, it will rattle the bond market too.  This is one of the signs that the U.S. is really at the cusp of a potentially very grave situation where do or don’t, you are dammed. 

Mr. Reichert.  Thank you. 

Dr. Boushey, did you want to comment on that? 

Ms. Boushey.  Certainly, thank you. 

I mean, I agree that the debt limit is an opportunity for us to have this conversation about getting our long‑term fiscal house in order.  However, in the short term, we need to be cognizant of the reality of our economic situation, that we do need to continue to keep spending to help boost job creation.  And we don’t want to be cutting back on making investments in long‑term economic growth.  So in the short term, that is a very important thing to do, to increase the debt limit. 

Over the long term, we do need to have a plan in terms of raising taxes and addressing the spending moving over the long term? 

Mr. Reichert.  Thank you. 

Let me ask one more question real quick.  At the end of 2008, our country had a total debt of $10.7 trillion, it is now $14.2 trillion, a 32 percent increase in a little over 2 years.  And due to our current projected spending levels, no one expects this debt level to decrease.  In fact, the President has submitted a $3.6 trillion budget, revenue projections have been $2.6 trillion, so we are $1 trillion in debt going into 2012. 

If I understood Dr. Boushey correctly, she agrees with this sort of math because it is a job creator.  Dr. Lazear, what do you think about another $1 trillion deficit added to our country’s debt 2012 as it relates to job creation? 

Mr. Lazear.  Well, I guess I have a different view than Dr. Boushey.  I was never a firm believer that the stimulus programs did much to increase jobs; and as a result, I don’t think that cutting expenditures right now would have much of a negative impact on jobs.

My concern is really for the longer run.  I think that if we do add another $1 trillion to the deficit and then to the debt, we are talking about approaching numbers that are really going to have a significant detrimental effect on economic growth and on our long‑term ability to borrow.

Chairman Camp.  All right.  Thank you.  The gentleman’s time has expired. 

Mr. Becerra is recognized. 

Mr. Becerra.  Thank you, Mr. Chairman.  And thank you to all the witnesses for your testimony.

We have been talking quite a bit about debt long term, the existing deficits, and how we want to get all of that under control.  And interspersed in this conversation is how we get ourselves back on track.  What I keep hearing is the more we do private sector investment, the more we see productivity increases for our workers, the better things will be.  It sounds like at the end of the day what we are saying is the more we create jobs for Americans to take, the better off we will be.  The more Americans can go to work, the more they can pay their fair share of taxes.  And if we pay our fair share of taxes, our revenues will increase so we can cover some of our investments in education and defense and the rest. 

So it seems to me the more we have this conversation, the more we should talk about the fact that the worst deficit we face is the jobs deficit, is how we put those 14 million Americans who are still looking for work back into a good‑paying job.  And so when you see that during the Bush recession we lost 8 million jobs, and when you see that we had a turnaround, a situation where economically we were hemorrhaging close to three‑quarters of 1 million jobs per month ‑‑ that was the case in January, 2009, when George Bush handed the keys over to Barack Obama. 

Now that we are gaining jobs ‑‑ in the last month, close to a quarter of a million new jobs ‑‑ that is all great, but we have to still continue to do more.  But as you talk about making cuts to our Federal investments, I think some of us are concerned that we are not really targeting the main contributors to these massive deficits. 

I have a chart on the screen that pulled together what the biggest contributors have been over the last decade or so toward our deficits, incoming deficits.  And obviously the biggest is, as we would expect, the recession, naturally occurring at times that we have the cycles and the down cycle.  Obviously, the cycle contributes quite a bit.  But we also see that the Bush tax cuts from 2001 and 2003, if you continue to extend them forward, you can see the size of the contribution to the deficit that we get from those Bush tax cuts.  You see there, the discussion has it centered a bit on the two wars that have not been paid for as well.  You can see the other things that help contribute to these massive deficits. 

I am wondering if I could ask those of you who are here, if we were to make cuts and if we were to make investments, would it be wise to target the principal causes of our deficits before you start making cuts to investments to our kids, to our seniors, to our workers and to our veterans?  Ms. Boushey. 

Ms. Boushey.  Certainly.  I will start and I will leave time. 

Certainly, I mean, if we look at your chart, which the blue is the Bush tax cuts? 

Mr. Becerra.  That is correct.

Ms. Boushey.  Certainly.  You are asking us to think about what our national priorities are.  And you are sort of forcing us to think about the role of job creation and investment in those priorities and how the Federal budget actually represents those.  It doesn’t seem to me that tax cuts for the wealthiest ‑‑ that did not lead to strong investment or employment or gains for the middle class ‑‑ should be a national priority over job creation in building a strong middle class.  Yet the kinds of things that are being cut in H.R. 1 are those very investments that middle class and working class families can’t buy out of.  They can’t send their kids to private school because they can’t afford it.  We need food safety, we need bridges and transportation, all the things that are going to be cut in this piece of legislation.  So I think that is the right priority and what we should be thinking about.

Mr. Becerra.  You mentioned H.R. 1, which is the Republican budget bill for 2011, the continuing resolution.  That bill, H.R. 1, makes a cut of $1.1 billion to Head Start, which would leave 200,000 children without a Head Start program to attend as they get ready to go on to kindergarten.  It would also probably lead to pink slips to about 55,000 Head Start teachers.  That doesn’t seem to be like a way to make investments for people who are currently working, teaching our children in Head Start programs who would ultimately be fired.  Does that, Ms. Boushey, sound like a way to reduce our deficit in a smart way? 

Ms. Boushey.  Certainly not.  It is kind of cutting off our nose to spite our face.  We need to be making those investments in education and in teaching America’s children.  We also need to make sure that those people that have jobs can keep them.  Programs like Head Start or the childcare programs or home health aides that we are cutting as a part of these budget cuttings both here and in the States make it harder for people who have those care responsibilities to keep their jobs.  So we are harming America’s families and making it harder for people to work, while at the same time, not investing in our future.

Chairman Camp.  All right.  Thank you.  The gentleman’s time has expired. 

Mr. Buchanan is recognized. 

Mr. Buchanan.  Thank you, Mr. Chairman.  And I want to thank our panelists today for being here.

A couple of questions.  One is, our debt is at $14 trillion, and you don’t have to project far down the road we are going to be at $20 trillion.  Money is almost historically free today, the cost of money, I think the interest debt is maybe a couple hundred billion.  But if you have a normal rate, 4 or 5 percent, you are looking at $1 trillion a year in interest before you pay anybody anything in the very near future, say 5, 7 years, pick a time frame, but they are projecting trillion dollar deficits. 

When I was in Tampa last week talking to business people, that is one of the things, the reason we are not getting the job creation is because of the uncertainty around our debt and deficit and looking forward and Washington’s inability to deal with it.  So I guess, Mr. Lazear, what is your thought, first off, on the $1 trillion a year in interest ‑‑ which could be very quickly down the road in the next 5 to 7 years ‑‑ and then the uncertainty that is created by that possibility and where we are at today?  So I guess it is a two‑point question. 

Mr. Lazear.  Thank you, Congressman.  I think that is an excellent question. 

The point about interest rates going up I think is an important one.  I think Dr. Boushey referred earlier to the liquidity trap, the fact that we are at low interest rates today ‑‑ low, by the way, for the short term, not necessarily so low at the longer term ‑‑ but absolutely true.  And I think most people do expect that we will not see these interest rates being sustained into the long run, that we do expect the kinds of changes we are talking about which will place additional burdens on the budget. 

I guess my concern, you mentioned the word “uncertainty,” and one of your colleagues did as well, my concern is actually not the uncertainty, my concern is the certainty of the deficit and this high debt problem that we have now.  That is the problem that is plaguing the economy and that will plague business investment in the future.  It is not the uncertainty, it is the fact that unless we do something, unless you, our elected officials, do something and do something pretty dramatic and pretty soon, we are going to be in the certain situation where our debt is so high relative to GDP that we are going to be placing very significant pressures on our economy.

Mr. Buchanan.  Thank you. 

Ms. Boushey, would you like to comment on that?  If we don’t do something substantial in the very near future, $1 trillion in interest that we are going to have to pay out, taxpayers’ money?  I can just tell you, talking with people, a lot of business people, there are health care issues they are concerned about in the cost of hiring an employee, but also the uncertainty with spending and debt is very real.  I have been in business for 30 years, and I can tell you it is not comfortable.  But I would like to get your thoughts on it.

Ms. Boushey.  Certainly.  I want to make three points.  One is that every month the National Federation of Independent Businesses comes out with a survey and they ask small business owners what they are worried about.  And month after month they do say sales.  They are worried about customers coming in through their doors.  I think that one of the big uncertainties that has hit people really hard is that people didn’t expect this financial crisis to happen, they didn’t expect the devastation that we have seen in our economy.  Are we taking the steps now to make sure that it doesn’t happen again?  Are we moving forward?  And so there certainly is uncertainty certainly about that and what Congress will do.

But I think I want to reiterate, in the short term, we do need to make sure that we get people back to work.  That is the foundation of having a strong economy.  We need customers, we need people in charge.

Mr. Buchanan.  Let me just say, let me mention getting people back to work is important for us as leaders to deal with this issue in a real way on a bipartisan basis. 

Let me go to my next question because I haven’t been here 30 years, I have been here 4.

Mr. Buchanan.  One the things that concerns me is people like to talk about Bush, Obama, Clinton.  But if you look back over 50 years the Democrats and Republicans have only balanced the budget five or six times in the last 50 years so there is plenty of blame to go around.  You can come up with whatever rationale you want to come up with.  I was here when the Democrats came up with PAYGO.  I voted for it.  When they had the Commission on looking at the deficit, I applauded that.  I think it is a great opportunity. 

But again, we talk about it, but we don’t do anything.  But 49 out of 50 States have a constitutional balanced budget amendment.  Doesn’t that make sense, I mean you have to ‑‑ if you think of a family or if you think of a business.  I have been in business, created a lot of jobs over 30 years.  You have to be able to make a budget and pay your bills.  But it forces Washington, the Congress to say, look, we take in 2.7 trillion, we give the taxpayers the best value we possibly can for the money.  That is it, make the hard choices. 

The State of Florida, for example, has cut their budget every year, it seems like 2 or $3 billion, they have made hard choices.  There is much shared pain that goes around.  But doesn’t a constitutional balanced budget amendment that phases in over time give some certainty to people in America as well as the right thing to do for Americans?  I mean, Mr. Biggs, what do you think.

Chairman Camp.  Very quickly, because the gentleman’s time has expired.

Mr. Biggs.  You can make the argument that a balanced budget amendment constrains Congress’s ability to conduct countercyclical fiscal policy, and there is a cost there.  But there is benefit in terms of restraining the natural impulse to overspend.  And so I think on balance, it is something I would support because the problems we face going forward are so difficult.

Chairman Camp.  Thank you.  Mr. Thompson is recognized. 

Mr. Thompson.  Thank you, Mr. Chairman.  And I want to thank all the witnesses for being here today. 

Dr. Lazear, in your statement, you said that policy is primarily responsible for the large deficits that are projected to be sustained into the near and distant future.  Now in regard to that policy, does this include borrowing to fund two wars?  Borrowing to pay for Medicare Part D?  And borrowing to finance a tax cut? 

Mr. Lazear.  Yes.  I would say legitimately that including policies of the Bush administration did add to that.  Now, that was not the policy to which I was referring in that statement, but I would not deny that there were things that ‑‑

Mr. Thompson.  That is policy.  Irrespective of when that tax cut was borrowed, when we borrowed to pay for that tax cut, it still adds to the problem. 

Mr. Lazear.  Well, again, we have to be careful about the tax ‑‑ when you say the tax cut.  Remember there were three, as I recall, tax bills during the Bush administration, 2001, 2002 and 2003.  The 2003 was quite different from the other two, so I would distinguish those. 

Mr. Thompson.  So I agree that our debt and our deficit is a huge problem, and it is a problem that we need to tackle, but I also believe that we are in a very fragile recovery right now in this economic recovery.  And do you agree that with Senator Simpson and Erskine Bowles who chair, cochair the Debt Commission that we really need to be careful here, and this is something that we need to tackle, but we need to do it in a way that doesn’t disrupt this fragile recovery.

Mr. Lazear.  Well, I agree that we need to do it in a way that doesn’t disrupt the fragile economy, no question about it.  Again, my guess is that you and I have different views of what that would mean in terms of the disruption of the current economy.  As I said earlier, I have not been an admirer of the stimulus program.  I don’t think it has done much to create jobs. 

Mr. Thompson.  I am asking you about the stimulus program, I am asking your about Debt Commission’s proposals that actually get to the problem, they deal with it in a tough but responsible way, and they are very clear in pointing out that we need to do this in an appropriate way.  Now Mr. Neal pointed out the third‑party analysis, their disinterested party analysis, if you will.  Other economists from around the country who point to H.R. 1.  And if that were to go into effect, it would be the antithesis of what the Debt Commission is talking about when they say watch out for the fragile economy, that it would lose ‑‑ it would cost us 700,000 jobs.  That was the only point that I was trying to make. 

Dr. Boushey, again, I agree we have got fiscal problems and we need to deal with them, but at the same time, I think it would be penny wise or pound foolish, whatever that is, if we ignored appropriate government responsibilities and appropriate investments.  And one of the areas where I think we are really, really lacking is in infrastructure, because bad and unsafe roads, bridges, rail lines, overpasses, our harbors, I believe is, in fact, a tax on American businesses. 

And that tax increase on American businesses means higher prices to American people, many of whom are unemployed, many of whom can’t afford to pay that.  These are the same American people as I say who are unemployed and who could be put back to work, if, in fact, we did make that investment in infrastructure to do away with this hidden tax that is there.  Do you have any comments on that? 

Ms. Boushey.  Certainly.  I think that those are exactly the kinds of investments we should be making right now.  Interest rates are low, it is a good time for municipalities and for us to be sort of borrowing to pay for those necessary investments and getting our economy on the right road to recovery.  We have an enormous backlog of projects that need to get done, an enormous backlog of unemployed workers who need jobs, many of whom lost their jobs in the construction industry.  So it makes sound economic sense.  It also will help push our economy into the 21st century, we have infrastructure in the country that is 50 to 100 years old in many places.  I already gave the example of the water pipes here in D.C.  I mean, this is something that is unsustainable.  We are gong to have to make that investment at some point.  If you look over the course of an economic cycle, now is the perfect time to do it. 

Mr. Thompson.  It is not just in D.C.  There is not a congressional district in this country, every one of us represents a district that is woefully behind in our infrastructure investment.  I don’t care if it is clean water and sewer, healthy, safe, and passable bridges and roads.  So thank you very much.

Chairman Camp.  Thank you, Ms. Jenkins is recognized. 

Ms. Jenkins.  Thank you, Mr. Chair, and thank you all for being here.  I think we can all agree that America’s financial situation, as it stands today, is unsustainable.  Yet the President sent Congress a $3.7 trillion budget proposal with a record $1.6 trillion deficit that continues a very aggressive agenda of more government spending, more taxes, more deficits and more debt.  The CBO predicted the national debt under Obama’s proposals would double in 10 short years.  The President refers to this as investing in our future.  I consider it robbing our kids of their future. 

I think Dr. Boushey has made her position well‑known this morning, agreeing with the President that it is an investment, but I would like the other panel members to comment on how you would characterize a proposal that doubles our national debt in this budget window. 

Mr. Biggs.  Well, I would fully acknowledge that President Obama entered office in a very difficult economic time, just as President Bush entered office in a difficult time.  The thing that worries me about the administration’s budget proposal is the lack of ambition over the medium in the long term.  You would like to think they could say well, we have large deficits today because of the economy, but over 10 years, we are to bring ourselves back to balance.  Their argument, well we will go through a down payment, which is we will bring ourselves back to primary balance, which is a lower standard.  The CBO scoring of the budget proposal says they come under best year, about $175 billion short of that. 

So an answer I made to an earlier question is lost opportunities are the sorts of things that give people doubt about our will power to get on top of these problems.  We have certain opportunities handed to us, where we can stand up and say yes, we are willing to make these difficult decisions.  Each time we pass is another opportunity for people to say they are not serious about this. 

So, really the short‑term problems, I think, are indeed an issue.  What worries me more is there is no plan on how to get out of them. 

Ms. de Rugy.  I agree with you that a lot of the time we hear the word “investment” mentioned when really what we are talking about is just government spending.  And giving it the label “investment” doesn’t make its consequences any lesser.  In fact, I would argue that it is time for everyone to think that yes, if our roads are in dire need of repair, what is this Congress willing to actually cut in the budget in order to make the necessary investments?  And the problem is each time you heard the word “investment,” it is oh, this investment is necessary, but so is everything else. 

I agree, one of the things that is extremely worrisome with President Obama’s recent budget is the actual lack, first of creativity or willingness to even address the future.  And this is, as we have all said, worrying us because it will have consequences.  We talk about the budget but we don’t talk about the fact that our investors have got to be looking also at the financial statement of the United States the way we do and see the massive amount of unfunded liability.  They must be knowing when the Social Security trust fund runs into a cash flow deficit forever, we are going to have to come up with money for this.  Either in the form of taxes or more borrowing.  So it is not even just what is on paper, it is all the things that are not on paper that adds up to the bill.

Mr. Lazear.  I certainly agree.  I think the point that I would raise is one that we probably haven’t talked enough about, and that is again, let’s use the President’s numbers, because you referred to the President and his budget.  If you use the President’s projections and you look at his charts, the charts I showed earlier, what you see is even with the kinds of tax increases that the President is proposing, we are nowhere near close to solving this problem.  So this is not a situation where we can get there with the President’s arithmetic, it is just not going to happen. 

The kinds of concerns that you have about your children’s future, I think are concerns that I have as well and concerns that we need to address in ways other than the ones that the President is suggesting, simply because his budget, his own numbers acknowledge that this is just not going to do the job.  So it is going to take some additional creativity on your part to get us there. 

Ms. Jenkins.  Thank you.  I believe, in today’s testimony, we have proven that the Nation’s debt and deficits are an immediate concern and that they are not a result of Americans paying too little taxes.  Some of us believe that we really need to cut spending now.  President Obama, through his proposed budget, however, has suggested that we merely freeze some discretionary spending at today’s inflated levels as his solution to solving the Nation’s problems.  I see I am about out of time.  Perhaps ‑‑

Chairman Camp.  Time has expired.  Mr. Pascrell is recognized for 5 minutes. 

Mr. Pascrell.  Thank you, Mr. Chairman.  It is good to be here, to listen to a lot of things that have been repeated and repeated.  I would like to jump right into questions.  I know I only have 5 minutes but there is always time. 

Mr. Biggs, you were associate director of the National Economic Council for the White House in 2005.  In your testimony before the committee today, and I respect your academia, I respect your research ability, but I have to ask you this question.  You used the word gradual, these things sneak up on us, they don’t happen usually over night, they don’t happen all at once.  What did you see in 2005 gradually happening to the economy, since we knew that the balloons were inflating.  And we knew what was basically coming down the road, there were a few economists who warned us.  What were you warning the White House about in 2005? 

Mr. Biggs.  My time at the National Economic Council in 2005 was focusing on Social Security reform, which is a period of which President Bush proposed to reduce the rate of growth of benefits over the long term for medium and high income retirees while protecting benefits for low income individuals who need those benefits the most.  That proposal that I worked on would have reduced the long‑term Social Security deficit by somewhere around 60 percent, and I think, given considerable fiscal relief over the long term, in terms of reducing debt, that was the issue I focused on the time, I was not there given general economic advice to the President.

Mr. Pascrell.  In order to give specific advice, you would have to see the clouds coming, there are distant early warning signals.  We weren’t paying for anything, Mr. Biggs?  What was your position on not paying for two tax cuts, not paying for two wars, not paying for the prescription drug recommendation that was passed 3 o’clock in the morning when it was passed 8 years ago?  What were your recommendations about those things? 

Mr. Biggs.  I did not make any recommendations on those things.  I believe most of them took place prior to the time I was at the NEC, so it is not something I made any recommendations on at all. 

Mr. Pascrell.  Thank you. 

Ms. de Rugy, am I pronouncing your name correctly? 

Ms. de Rugy.  Yeah.

Mr. Pascrell.  Thank you.  The debt versus the Gross Domestic Product, you talked about that.  You said it was the highest in 2011, did you not? 

Ms. de Rugy.  Well, I mean, since the Second World War.

Mr. Pascrell.  The highest was in 1947.

Ms. de Rugy.  I said “since.”

Mr. Pascrell.  The debt versus the Gross Domestic Product in 2008, it was already 82 percent under President Bush.  It was 56 percent under President Clinton.  So I want us to try to, in some manner, shape or form, get out of this amnesia we have about those 8 years.  I think there is really systemic amnesia about what happened between 2001 and 2008.  We know, for instance, that revenues as a percent of the Gross Domestic Product in 2000 were 20.6 percent; in 2010, 2010, 14.9 percent, projected by CBO to be 20.8 percent; and between 2012 and 2020 ‑‑ 2021, rather, 19 and 9 percent. 

We are talking about paying off our debt, it is a very serious problem.  I think you all enunciated it quite well.  But we must remember what happened, compared to what happened in the 1990’s or what happened in the 8 years preceding Clinton’s administration.  We created in the 1990’s, 27 million jobs.  That is a fact.  You are entitled to your opinions, but you are not entitled to your own facts. 

Now what we did in 2001 and 2003 was to cut taxes, that is clear.  We know what the record is.  I am entitled to my own opinion but I am not entitled to Pascrell’s facts.  These are the facts.  If you look at the jobs that continue, they went down from that period of time, cutting taxes automatically produces jobs.  No, they don’t.  When you are spending frivolously, when you are not paying for anything you could cut taxes all you want.  Because there is a revenue situation here we need to talk about, and I think it is very important that we do talk about it.  The highest level at our best times, we had the revenues at the highest, highest levels ‑‑

Chairman Camp.  The gentleman’s time expired. 

Mr. Pascrell.  ‑‑ when Clinton was the President.  So don’t blame this whole situation ‑‑

Chairman Camp.  Regular order.

Mr. Pascrell.  ‑‑ on 2 years of the Obama administration.

Chairman Camp.  The gentleman from Minnesota is recognized, Mr. Paulsen. 

Mr. Paulsen.  Thank you, Mr. Chairman.  And first of all, thank you for taking the time to come and testify.  I think hearings like this are very helpful.  What is interesting to me is that as I travel around my district and I have met with a lot of small business people, and sure they talk about the tax environment, they talk about the regulatory environment.  But increasingly, there are more and more of them that are talking about ‑‑ actually, their concern about government’s role in spending and the national debt and what that means in terms of that fiscal responsibility or lack thereof, eroding confidence in their investment decisions. 

And that is something that has been growing more and more in number over recent months, and especially over the last year, which is very interesting.  And so I think this conversation is important because the chairman started out, unemployment levels are predicted to be fairly high for the next couple of years still, which is not a good situation which we all absolutely want to change. 

And in a global economy you can allocate capital at a click of a mouse so easily, anywhere you would like.  I would like to obviously have this committee continue as the chairman wants to make the United States destination number 1, to create ideas, to generate economic growth and make it an opportunity, if you have an idea in the garage or in the backyard you can turn it into a company that is successful. 

I will start with Dr. Lazear.  Do you believe that maintaining our current levels of spending where they are now, will help make the economy the number 1 destination for new ideas and innovation down the road where we have been and where we need to go.

Mr. Lazear.  No, I don’t.  And I think, again, that is my major concern and also the major concern of the other CEA chairs who signed that letter.  The reason that we have that concern is that we believe if we allow the current situation to continue and to get out of hand, investors not only American investors, but investors around the world will lose confidence in the United States as a primary investment destination.  If that happens, if that happens, we will find that the cost of funds goes up, we will find that the cost of doing business goes up.  And with it, investment will decline, with that, productivity will decline, and with that wages and job growth will decline, so that is certainly my concern. 

Mr. Paulsen.  And Mr. Biggs, maybe you can elaborate too, because you cited studies that have suggested that cutting spending versus raising taxes in terms of rehabilitating our country’s economy or their budget situation because some countries have approached a balanced approach from raising taxes, but looking at that proposition through the innovation lens, which option, cutting spending or actually raising taxes as a part of the equation might be more beneficial to those who have new ideas to create companies or create jobs? 

Mr. Biggs.  The interesting thing in the empirical research that we have reviewed is how overwhelming the case is that balancing your budget on the spending side is more likely to be successful than balancing it on the tax side.  Study after study you can cite, they all come to very similar conclusions.  What was still a little bit of a mystery is why that takes place.  One of the reasons, I think, is especially if you do it in a large way, if you are sending a message that this is a place where your future is stable, and where you can make the kinds of investments, and you can take the kinds of risks that help make an economy vibrant over the long term. 

So you are not simply doing a bookkeeping exercise of reducing your deficit debt.  You are also sending a message to individuals, to businesses, to financial markets that the country is open for business, and it is the place where you want to be.  Ultimately, over the long term, that is an extremely important thing to do.

Mr. Paulsen.  And Ms. de Rugy, you can comment as well, but let me ask you this as well, because I think you have got some part of your testimony, you raised some issues about the debt burden we have and the interest payments that we will have as a part of our debt.  And obviously, a lot of my colleagues, we have been through tough economic times.  And I am pretty brand new to Congress, but the fact is, if interest rates do climb, as the bond markets react as they will at some point that is going to consume a larger portion of our budget as paying interest. 

Ms. de Rugy.  Yes.  It is ‑‑ already you can see it in the CBO projection.  And the CBO projections are already built in some level of interest increase, but they don’t build in the type of increase and interest rate that we may see the day our investors get completely rattled, and we can actually see interest rates being way bigger.  And when that happens, the debt can get out of control because we are going to be starting to actually pay ‑‑ borrow money just to try to pay interest and it could get out of hand. 

I would like to add something which, we have been focusing a lot on investors and how they will look at us.  One of the important things about tackling our problems today and signaling to the American people that we are not continuing on the path that we are because ‑‑ I mean, the American people is smart.  They understand that when we spend today and we don’t have this money, it is going mean that taxes are going to go up.  And also, it is in the news all the time that interest rates are going to go up.  So that is why demand is low, and that is why they are not going to shop.  It is not because the government isn’t investing enough.  It is because they actually want to pay down their line of credit.  They want to save money for when the really hard times hit again. 

And I think it is important to understand that the more government spends, or actual at least not change its path, the more it paralyzes investors and the American people, business owners and potential shoppers.

Chairman Camp.  Thank you time has expired.  Mr. Larson is recognized. 

Mr. Larson.  Thank you, Mr. Chairman.  And I want to thank the panelists for their fine testimony today.  I just have a brief question for Dr. Lazear and Dr. Boushey.  We are all concerned about reducing government spending in the short term, I share those concerns.  We are also concerned that we have to deal with the raising of the debt ceiling.  My question is very specific, do you believe that it is wise to hold the full faith and credit of the United States hostage to deep cuts in order to deal with the issue of raising the debt ceiling? 

Mr. Lazear.  Well, as I already testified, I think that the debt ceiling is one more symbol than substance.  And I don’t believe it would have significant impact one way or the other on markets right now.  With that said, I don’t feel that using the debt ceiling as a mechanism to control spending is probably the most effective way to do it.  I would like to see your committee get ahead of that.  I think that the appropriations process, the process that you go through is the appropriate one.  And I hope that you will take our testimony seriously and work on those problems.

Mr. Larson.  Dr. Boushey. 

Ms. Boushey.  I think the answer would be no.  That I don’t think that we should be held hostage to the debt ceiling in terms of making significant budget cuts that will significantly harm the economy. 

Mr. Larson.  Well, with regard to Social Security, I would just like to point out, and have this for the record that over time, Social Security has raised 14.6 trillion and spent 12 trillion and people continue to pay into it.  And I would concerned, Mr. Biggs, could you define nor me what you mean by middle earners? 

Mr. Biggs.  People in the middle of the earnings distribution. 

Mr. Larson.  And what would that be?  If I am a middle earner in America, what portion of my benefit are you going to reduce? 

Mr. Biggs.  I think the average wage index now is about $42,000 per year. 

Mr. Larson.  So a person earning $42,000 per year should expect a decrease in their benefits in Social Security in your opinion, in order to make it more secure for the future? 

Mr. Biggs.  Well, if we don’t take certain steps on Social Security that same individual and everybody else is going to get a 22 percent across‑the‑board benefit cut when Social Security becomes insolvent. 

Mr. Larson.  So the idea is that person in the middle that the middle class once again, a person that earns $42,000 a year will see his benefits shrink.  And what does that do to that person?  And what does that do to the economy?  And what does that do in terms of this large group of Baby Boomers that will be coming through here?  What do they do with income that they are going to spend in an economy if we are reducing that rate? 

Mr. Biggs.  What I have discussed is not reducing benefits for current retirees in any way, so the Baby Boomers really wouldn’t be affected at all.  And also to the degree you would reduce for higher earners, they would be done on a progressive basis.  So somebody at the middle of the distribution would have a very, very small reduction in the growth of their benefit. 

Mr. Larson.  One man’s tea is another man’s poison.  And when you say very small reduction, and you are living on that, the average that people are living on on Social Security is something like $14,000 annually, these are very modest benefits.

Mr. Biggs.  Why is one reason ‑‑

Mr. Larson.  Why is it always the only way to help out a beneficiary is for them to take the cut? 

Mr. Biggs.  You can’t ‑‑

Mr. Larson.  We have got billionaires that aren’t paying any taxes all over this country, we have everyone sheltering money offshore and we are going to have the middle class, a $42,000‑a‑year person bear that burden.  That is what is an outrage, that is what is wrong when we have a program, one of the best programs in the world that is working for people.  And we are preparing to look at a road map that privatizes Social Security and vouchers Medicare for these people in the middle.  Thank you. 

Mr. Biggs.  Should I respond?

Chairman Camp.  I think the gentleman has yielded back his time.  Mr. Marchant is recognized.

Mr. Marchant.  Thank you, Mr. Chairman.  Depending on what publication you believe today in the United States, we have ‑‑ corporations have about $2 trillion in liquidity set aside, not spending it.  The Federal Reserve has expanded its balance sheet to $2.5 trillion.  And it is arguable, depending on what numbers you believe, that there are hundreds of billions of dollars of profits that are still abroad that have been earned and have not been brought back to the United States. 

So as a Ways and Means Committee, it looks to me like one of the big opportunities that we have is to find a way to persuade that large amount of capital, that is a historic amount of capital, that is sitting on the sidelines now, persuading them, incentivizing them and trying to find a way to help them convert that capital to jobs.  They could do it today if they wanted to, but there is a tremendous reluctance on their part to take that capital and create jobs with it.  A country that has combined austerity, budget cutting with job creation has been Germany in the last 2 years.  They have gone through a significant austerity program.  Yet their economy has started to grow.  They are creating new jobs and their economy has recovered. 

One of the fears that I have is that very soon in the next year or so, these companies that are sitting on these assets will begin to, and you have seen it in just the last week, instead of creating new jobs, they will begin to look at mergers and acquisitions.  When you look at a merger and acquisition situation, you don’t really look at job expansion first.  You look at consolidation of redundancy, you look at ‑‑ you try to exploit every inefficiency that is in the business, and usually there is not a new net job creation. 

What do you think that this committee should be looking at in the theme of creating jobs, which creates economic activity, which creates additional income, which you combine with austerity to bring the economy back and put us back on the footing that we have?  What can we do as a committee to reach out to this liquidity and say create jobs, help us back by creating jobs.  Mr. Lazear.

Mr. Lazear.  Well, that is a tough question, so let me try to get at it in a couple of different ways.  You talked a little bit earlier in your question about capital overseas and how that capital could be brought back to be productive.  Repatriation of overseas capital is a big issue.  Much of this has to do with a complicated set of international tax issues having to do with whether we have a worldwide or a territorial tax structure.  That, to me, should be embedded in a more general picture of tax reform that we ought to be talking about taxes that are more friendly to investment, and there are a number of different ways to get at that.  But again, I think that the lesson that we learn from looking at the economic literature, and there is a lot of it on this particular issue, is that the best way to enhance an economy’s ability to grow and to create jobs and higher wages, by the way, is through low and efficient taxes, through an open economy, and through flexible and free markets.  That is really the only way we know that works and that is the only way we know that works historically.  And so I would stick with those three prescriptions and just push everything you can do to get in that direction. 

Now I know you have been talking about tax reforms, significant reform, I hope you do push down that path.  I have spent much of my career thinking about it and I think it would be a very good way to go.  Thank you, sir. 

Mr. Marchant.  Yield back.

Mr. Johnson.  [Presiding.]  The gentleman’s time has expired.  Mr. Berg, do you care to question?

Mr. Berg.  Thank you, Mr. Chairman.  It has been a very interesting hearing today for the last 2‑1/2 hours.  And we have gone down a lot of different trails and different tracks.  Clearly, I guess, one of the observations that I had in North Dakota, if we have a prairie fire, everyone comes together and tries to get it put out.  We don’t waste any time figuring out who to blame the fire on.  And it seems like today we spend a lot of time trying to blame who started the fire.  I think we all agree there is a fire.  And we all agree, I hope, that we need to get our economy back.  And it seems that we have two separate views on how to do that. 

The view that was laid out was we would reduce spending.  We encourage private sector growth through freezing or reducing taxes and regulation.  And I am not quite clear on what the other alternative is, but it appears the other alternative would be not to reduce spending, possibly increase spending, possibly increase taxes, maybe increase some borrowing, which, again, from my perspective, that was something we did last year. 

So that is my first question for Ms. Boushey, is there any place that you can say this country, or this is the policy that we follow, was followed and historically look at the facts and say this policy of increasing spending and increasing taxes has resulted in a stronger economy and more jobs? 

Ms. Boushey.  The kind of economy we are in right now is one where interest rates continue to harbor near zero and we need to encourage people to invest that are not doing it.  We have a lack of demand in our economy.  So that is why, at this moment in time, you don’t want to cut back government spending because that will reduce the amount of demand. 

Mr. Berg.  I understand your argument.

Ms. Boushey.  Oh, I am sorry, that what I thought you wanted me to ‑‑

Mr. Berg.  No, what I am asking for is are there any facts?  We have facts laid out that said this country did this to reduce spending, they didn’t cover their debt by increasing taxes.  So I guess what I am looking for are specific examples where, again, some similar economy increased spending, increased taxes or increased debt and that created jobs. 

Ms. Boushey.  Japan, when it tried fiscal stimulus, saw improvements in its economy growth and performance, the United States. 

Mr. Berg.  What years would that have been? 

Ms. Boushey.  Oh, now you are ‑‑ I will get back.

Mr. Berg.  I am not trying ‑‑

Ms. Boushey.  Let me go to the United States example.  When Obama took office, we implemented, you implemented a massive stimulus proposal that then did lead to a sharp immediate reversal in job losses.  The nadir of job losses in terms of jobs losses per month were in winter of 2008 and then it started going up, so that each month you saw fewer and fewer, and it was a very, very sharp reversal.  And that is clear evidence above and beyond the kinds of analysis we have seen of the Recovery Act, that that certainly took things out of free fall and pushed them in the right direction.  We have seen economic growth for 6 quarters now after ‑‑

Mr. Berg.  I just don’t have much time and I know a lot of people are hungry.  So the two examples you have are Japan and then the United States.

Ms. Boushey.  Sweden, Germany.  The example that Congressman Marchant just brought up of Germany.  Germany saw larger output ‑‑

Mr. Berg.  Let me just ask you another question.  Again I would be more than happy if you have specific time periods on these countries again, of U.S., Japan and Germany, I would love to have that.  The other question again is everyone is saying we need a government program that creates jobs.  Has there been a government program that has passed in the last 10 years that you can say this program created 2 million jobs? 

Ms. Boushey.  I can’t think of one specific program, but let’s try the chains of emergency dollars, they created a quarter of a million jobs last year in public private partnerships. 

Mr. Berg.  You can get back to us on that.  I would like to know what specific government program passed in the last 10 years that had the impact clear and direct of 2 million jobs, or, say, a million jobs or more. 

Again, Mr. Chairman, my belief, and of course, the other thing I would like to say is I did not vote for the stimulus.  I was enjoying life in North Dakota when the stimulus passed.  I am here because of that stimulus and because of a lot of other things, which brings me back to one question, that is the health care debate. 

Mr. Lazear, could you explain the job impact of the health care law? I know you were cut off several times, but very quickly, what that impact will have on jobs? 

Mr. Lazear.  I would say there is a direct impact of some of the taxes that are associated with the health care bill.  One primarily, the tax on employers of $2,000 if you don’t have a health care bill.  So those kind of taxes are never good for creating jobs, we know that.  I was more concerned about the long‑term implications of very large increases in spending.  Whether we cover it with tax increases or not, it is still a huge increase in spending, and that means, to my mind, that we are going in the wrong direction. 

Mr. Johnson.  The time of the gentleman has expired.

Mr. Berg.  I yield back.

Mr. Johnson.  Thank you.  Ms. Black, you are recognized for 5 minutes. 

Mrs. Black.  Thank you, Mr. Chairman and thank you panel members.  I am the last one here standing, and I appreciate others that are standing behind me but I especially appreciate you all. 

I certainly agree with my colleague from North Dakota that it will not do us any good to litigate the past and we should learn from the past. 

And I also agree with my colleague from the other side of the aisle that said that there was some amnesia, because I think there is some amnesia here when we talk about President Bush and the Congress.  And at that point in time when we started seeing all of this happening, I want to remind my colleagues that while President Bush was at the helm, there was also a Congress that was a Democrat‑controlled Congress.  So I think if we want to sit here and start throwing these things back and forth we ought not to have amnesia on all levels. 

I do want to say, as I have been back in my district in the last 100 days, it has been my goal to get to every one of my counties and to visit industry, to also do town hall meetings, and to visit with the elected officials.  And without a doubt, the top two issues have been jobs and the spending.  There is no doubt that that is the issue.  But what I am hearing from those that are creating jobs is that they are scared.  They are scared about what we are going to do to them next with regulation, with mandates.  They are very uncertain about the economy and what is happening in the economy and the amount of debt. 

And you know what else they tell me, is they have the money, they have the capital.  And not only that, there is also the demand for them to grow their businesses and to create jobs.  If we want to help the middle class people to get back to work, that is what we need to do is make sure that we are helping those who are creating those jobs to have an environment where they can grow.  And certainly piling up more debt is not giving them certainty that they can use their capital, this hard‑working capital to put into their business to find out that they are not going to be able to reap a return on it. 

Ms. Boushey, you continue to talk about the rich.  Can you define for me who are the rich? 

Ms. Boushey.  In the context of what I was talking about in terms of the tax cuts?  Certainly. 

Mrs. Black.  Yes, you talk about the rich and wealthy continually in both your testimony and also in your written. 

Ms. Boushey.  In that case, I would define it probably as the top fifth percent of earners in this country. 

Mrs. Black.  Can you give me what that salary would be?

Ms. Boushey.  That would be probably over around $250,000 a year, but I am probably getting the math a little bit off, but I am happy to ‑‑ 

Mrs. Black.  So someone who has invested everything that they own, put their life on the line and they go into business as a small business entrepreneur, and they finally make it.  And they make $250,000 a year, which, by your definition that is rich, but I would argue with you, if you were to ask some of my businesses who have really worked hard to get there, and they finally are making a good salary, a good income, they would not probably consider themselves rich, but you consider them wealthy, you consider them rich.  So what we should do is we should tax them at a very high level and punish them for being successful. 

Ms. Boushey.  Let’s go back to the tax rates of the 1990’s where we saw strong employment gains for everyone and we saw growth for incomes across the board.  So that is actually what I am recommending, is that we reverse those tax cuts that gave the bulk of the tax benefits to people at the very top of the income distribution but that didn’t help the rest of us, it didn’t help our economy.

Mrs. Black.  Ms. Boushey, I think that what you are doing here is you are trying to just isolate one thing and not look at everything else that was going on around that time that may have affected what was happening at that time.  But what I would like to do is I would like to hear from the other panelists.  Now, I will tell you if I think there are tax loopholes for people who make millions and billions of dollars as have been used, then yes, we need to take a look at that if those people in those income brackets are not paying what we would consider to be their fair share. 

But to say that we want to punish those who have been entrepreneurs and done well, and they truly are the American dream, I mean that is what we want, we want the American dream.  I would like to hear from the other panelists, what do you think about that? 

Ms. de Rugy.  Can I add just a very short point?  The fact, we always talk about the 1990’s and how it was great and how it is always used by the other side by saying look marginal tax rates were increased.  But I would also like to remind people that during the Clinton administration’s year, spending in real terms only grew by 12 percent, 12 percent.  And that was a significant impact, because when you increase spending, people understand, when you increase spending massively people understand that there will be tax increase in the future and that actually creates a lot of uncertainty and forces them to stay home. 

Mr. Biggs.  I would just give an example, I will say good things about my in‑laws.  My father‑in‑law is retired, but he was small businessman in rural Oregon, and when you are the owner there, you work hard for a long time, you sacrifice, you take the risk.  If profits are low, you go without because you still have to pay your employees.  When things turn out well, then you get the rewards.  They are taking a risk in sacrificing at certain times in order to get that in later days.  When they do succeed the more you penalize, or the higher tax that, it reduces the incentive to do the sacrifices that are needed to make the economy grow. 

Mrs. Black.  Mr. Chairman, I know that I am out of time but I really want to make the point here since this committee hearing today was about how we create jobs, that we do not lose sight of the way we create jobs and that is by entrepreneurs, because 80 percent of our economy of businesses are created by entrepreneurs.  And if we really want to encourage our entrepreneurs to take the risk, we need to also say to them we understand you take the risk, we are not going to take from you, but thank you very much. 

Mr. Johnson.  Thank you.  Your time has expired.  I want to thank the panelists; all of you for your perseverance, and maybe you have got time for some lunch now.  Thank you so much for being here.  This committee stands adjourned.

[Whereupon, at 12:45 p.m., the committee was adjourned.]

Questions for the Record:

Members Submissions for the Record:

Chairman Camp

Mr. McDermott

Submissions for the Record:
Bobby L. Austin
National Roofing Contractors Association