▶ 0:14:58Chair Crapo: This hearing of the subcommittee will come to order. I want to thank everybody first of all for attending. I was mentioning to the ranking member and my colleagues here I was expecting lines around the halls waiting to get in, but I truly appreciate you coming. I truly want to thank the witnesses for all the time and effort you put into your testimony and the time you are putting in here today.
▶ 0:15:22Chair Crapo: I certainly want to thank the ranking member of the subcommittee, senator smith, and the ranking member and chair of the full committee, chairman crapo, and senator wyden, and their staff for all the help in facilitating what I consider a pretty important hearing. When I came into congress, our debt was 14.7 trillion dollars, 96% of gdp. Soon it will surpass $39 trillion, 124 percent of gdp.
▶ 0:15:52Chair Crapo: Within 10 years, it will almost certainly exceed 134 percent of gdp. Although both sides claim to be concerned about our dire fiscal situation, neither side -- let me emphasize that -- neither side has demonstrated a genuine desire to seriously address it. Democrats insist on making the rich pay their fair share, yet when they had power to do so, they did not. We do not have a revenue problem.
▶ 0:16:22Chair Crapo: We have a spending problem. Yet when we have the power to return spending to pre-pandemic level, the one big beautiful bill did not meet the moment. When I arrived in congress in 2011, america's debt and deficit was the topic of discussion. Now, 20 $4 trillion of added debt later, it is barely mentioned, and most members of congress, the administration, and the public seemed content on continuing to whistle past the graveyard.
▶ 0:16:51Chair Crapo: Again, I want to thank our witnesses for testimony that describes our growing fiscal situation in all its gory detail. I don't expect to find agreement on solutions here at the hearing today, because we still have not taken the first step in solving the problem, which is admit we have one. If we are ever willing to collectively take that first step, a financial problem lends itself to charts and graphs. I love them.
▶ 0:17:20Chair Crapo: The written testimony is chock full of some really good ones. I highly recommend that people study. I went to quickly go through a few of them. Everybody has a copy in front of them. This is the depressing debt chart. We passed the $5 trillion debt level in 1996. $10 trillion in 2008. 15 trillion dollars in 2012. 20 $5 trillion in 2020.
▶ 0:17:50Chair Crapo: We will probably pass $30 trillion this year. A pretty depressing outlook. As a percentage of gdp, we were keeping it under 70% through -- from 1980 through about 2008. And then we hit basically 100% in 2012. Over 100% in 2020. Again, we are on a path to higher levels. Next.
▶ 0:18:17Chair Crapo: I know secretary bessent laid out deficit as a percentage of gdp, a benchmark level of about 3%. Since our last surplus, which was in 2001, $128 billion, we have only been under 3% of gdp with their deficits seven times in 24 years. Otherwise, we have been over that. This chart shows cbo's current baseline.
▶ 0:18:49Chair Crapo: Hopefully, we do better than that. But at 1.8 percent growth, we barely go below 6%. Even if you grow 3%, you are still not getting down to the 3% level of gdp. You would have to have 4% growth in the next decade for us to dip below 3% in the last years of this decade. The deficit is composed of two profits, revenue and spending.
▶ 0:19:17Chair Crapo: I have had this chart ever since I arrived in congress, to point out the folly of trying to punish success. Going back 66 years, we have had top marginal tax rates as high as 91%. A low of 28%. And no matter how much we try, on average, we sit -- we collect about 17.1% of gdp.
▶ 0:19:44Chair Crapo: At some point, we ought to realize that reality and start getting spending back in line. This chart is spending. I think the most noteworthy thing here is you can see it grow dramatically from the year 2000 to 2019, the year before the pandemic, when we spent $4.4 trillion. The pandemic hit, and spending exploded.
▶ 0:20:10Chair Crapo: But unlike, for example, world war ii, it went -- where it went way over 40% in the war. With responsible leadership, we went back to 11.4%, actually lower than where we are -- where we were. We did not do that with the pandemic. We never looked back. This year, we spent about 7.4 trillion dollars, 67% higher than 2019.
▶ 0:20:40Chair Crapo: There is no justification for that whatsoever. Another way to look at this is average deficits per trust -- her presidential term. You look back to what levels we were at under george bush. It averaged $250 billion per year. $100 billion seems like a lot of money. Obama came in first term. 1.7 trillion dollar average deficits. It sprang from the tea party.
▶ 0:21:12Chair Crapo: We restrain spending. There was public pressure. We concentrated on it. And then trump came in. Had to work with the other side. 10 billion dollar average deficits. And then the pandemic hit in the spending blew up. It has been averaging 1.9 trillion dollars basically ever since.
▶ 0:21:34Chair Crapo: According to the cbo, in the next 10 years -- this is the most recent numbers -- we will incur 24.4 trillion dollars of deficits over the next two years, an average of two point $4 trillion per year. This shows annual deficits. The main point of this chart is, when you go back to the cbo projection prior to the pandemic , the cbo was projecting from 2037 22035.
▶ 0:22:04Chair Crapo: We have about a $17.4 trillion deficit. Versus now, it is 24 trillion dollars. $7 trillion higher. A quick point. Yes, the one big beautiful bill started about $4 trillion. Most of that was preventing a massive tax increase, which again I will point out when the democrats have the same opportunity to use reconciliation, they could have increased taxes on the wealthy. They did not.
▶ 0:22:37Chair Crapo: It is a bipartisan agreement. We did not want to increase taxes. We understand how economically harmful that is. That is that point. This shows the four year average deficits if you have 3% growth. Notice it does not bend the deficit curve down. It flattens it out, but does not get it down. Go to the next chart. This is 4% growth.
▶ 0:23:05Chair Crapo: Now we are finally bending the deficit curve down, but we are not even close to balanced by the end of the decade. Still $1.4 trillion. Starting with a column in the wall street journal january 1 of last year -- I recommend going back to pre-pandemic level spending. I chose three different options. Bill clinton 1990 eight. Barack obama 2014. President trump 2019.
▶ 0:23:34Chair Crapo: We take the actual total outlays , social security, medicaid, and interest. You spend what you need to spend. All the other outlays -- inflation and population. If we were to do that, go back to clinton in 1998, we would be spending 1.5 trillion dollars less. That is a $15 trillion savings over 10 years. Go back to obama 2014 if clinton is too aggressive for you.
▶ 0:24:04Chair Crapo: Go back to obama. It is a hundred billion dollars less than we will spend this year. That is $8 trillion over 10 years. Go back to pre-pandemic under trump. It saves a half a trillion in one year, 5 trillion over 10. That is the solution. I'm not saying you take any one, but you use those as baselines as a valuation to get back to reasonable pre-pandemic spending. It is entirely possible.
▶ 0:24:32Chair Crapo: There is no justification to go from 4.4 to 7.4 trillion dollars. Let me describe what I believe our primary missions should be. First, return to reasonable spending, and given three different options we should look seriously at doing that. We passed $100 million of funding for line by line program by program review.
▶ 0:25:00Chair Crapo: We purchased an ai system and are hiring people to do forensic analysis. That is basically another three year project. Some things we have to simplify and rational -- rationalize and our tax code. It costs at least $400 billion to comply with. Instead of treating all income the same, we treat it differently, hoping to create various economic incentives.
▶ 0:25:27Chair Crapo: I think would probably create at least as many uneconomical, harmful disincentives. I truly believe we create a simple and rational tax system, it will be the most growth-inducing solution. With that, I turn it over to ranking member smith.
▶ 0:25:48Sen. Smith: Thank you very much, chair johnson. Thank you also to our panelists for being here today. Congratulations on your first hearing of the subcommittee. I also want to thank all of our staffs on the minority side for helping to put this hearing together. I have been looking forward to it. So cbo's latest 10 year budget outlook paints a grim picture. Our national debt is ballooning at an unsustainable rate.
▶ 0:26:18Sen. Smith: Regardless of your party or where you fall on the political spectrum, I think there is agreement on this, so I really welcome this hearing and I appreciate the opportunity for us to examine this important issue, and I hope that our discussion today can lay out the facts and also provide groundwork for real bipartisan work in this important area.
▶ 0:26:39Sen. Smith: I come at this myself -- before I came to the senate, I helped to lead the city of minneapolis and the state of minnesota, where we pass a budget every year. We pretty much pass it on time. And it was almost -- and it was always balanced. I have experience with this. I understand the discipline involved in putting together budgets that are financially sustainable. It requires making hard decisions, but they are necessary decisions.
▶ 0:27:06Sen. Smith: The looming budget problem our nation faces may not be top of mind, it is fair to say, for many americans, and I understand that. Every day, folks are figuring -- struggling to put food on the table and pay for their pickles and doctor visits, and the national debt can feel abstract in that day-to-day struggle. But in fact our fast-rising national debt does and can have an effect on everyone's lives, and it can drive up inflation and raise costs for families.
▶ 0:27:36Sen. Smith: It can stifle economic opportunity and make it harder to buy a home or start a business. And it can make it harder for the federal government to do the work that it ought to be doing. Consider this as an example. Cbo's outlook projects that interest -- not social security or medicare -- is our fastest growing expense. Net interest costs are expected to double to more than $2 trillion over the next decade. That is a lot of money leaving the treasury with no meaningful improvement to people's lives.
▶ 0:28:06Sen. Smith: And I think as chair johnson and I would agree, we did not end up here by chance. We got here because of the policy choices that we have made, that congress has made and the executive branch has made. It seems to me that deficit spending in times of crisis like world war ii or the great recession or even the covid-19 pandemic -- that makes sense. And deficit spending may even make some economic sense when interest rates are at or near zero.
▶ 0:28:36Sen. Smith: But it does not make sense in the current environment, especially the current environment of high interest rates. I also think it is important to be clear that deficits are not caused just by spending that is too high. They are just as contingent on the revenue side of the ledger. This is where, in my view, we have made some of our costliest policy choices. In the last two decades, congress has reduced revenue by enacting big tax cuts that we simply cannot afford.
▶ 0:29:05Sen. Smith: The latest installment in that series, the one big beautiful bill, is now expected to add 4.7 trillion dollars to our national debt, with most of that benefit going, I would argue, to the wealthiest folks and the biggest corporations. In my mind, that is a responsible. I want to note that as you say this reluctance to think about the revenue side of the equation as well as the spending side of the equation -- this is something we all have to grapple with.
▶ 0:29:34Sen. Smith: In contrast, it is also important to note that spending on discretionary programs is actually projected to decline in cbo's latest outlook. This is not to say that spending does not deserve scrutiny as we try to solve this problem. Every dollar that we collect from american taxpayers should be put to good use, and congress must be willing to cut and reform when it is not.
▶ 0:29:59Sen. Smith: Too often, both congress and the executive branch fall back on defending the status quo rather than doing the hard work of evaluating what needs to be changed or what old ideas are not working anymore. And I would be the first to say that not every federal program is working the way that it should. When we can save money, we should do that. We have to figure out ways of doing that better.
▶ 0:30:22Sen. Smith: I think we also need to acknowledge another big issue that is affecting our financial situation right now, and that is the war in iran, which is reportedly costing us a billion dollars a day or more. As we think about that spending in the context of the pentagon having never passed an audit to fully account for its $1 trillion budget, at the same time, we are being told that congress is unable to afford health care for veterans.
▶ 0:30:49Sen. Smith: It is no wonder that people are frustrated with washington. What do we do about this? If we can agree that we are hurtling toward a financial crisis and that we need to take the next step and figure out how to talk productively about solutions, this includes reevaluating the policy choices we have made and fixing the things that are not working. So I hope that today's hearing will give us all a better understanding.
▶ 0:31:15Sen. Smith: There is far too much at stake for us to remain sort of stubbornly entrenched in our respective corners on this crucial issue for the long-term health and vitality of our country. And I hope that we can walk toward -- that we can talk about the path ahead to get federal spending and revenue back in balance, so we can avert this looming crisis. I want to thank you all for being here and I look forward to your testimonies today.
▶ 0:31:39Chair Johnson: Our first witness is cbo director phillip swagel. He became the 10th director of the congressional budget office in 2019. Previously, he was a professor at the university of maryland school of public policy. From 2006 two 2009, he was assistant secretary of economic policy at the treasury department.
▶ 0:32:01Chair Johnson: He served as senior economist at the council of economic advisers in the white house as an economist at the federal reserve board and the international monetary fund. He earned his phd from harvard and his ba from princeton.
▶ 0:32:15Dr. Swagel: Thank you, chairman johnson, ranking members, and members of the committee. Thank you for inviting me to testify about the federal budget and the U.S. economy. It is a pleasure to participate on this panel of distinguished panelists. The large deficits and the projections we purchased on -- published on february 11 are historically unusual given that the unemployment rate is projected to remain below 5%.
▶ 0:32:42Dr. Swagel: Federal debt held by the public in her projections grows from 99% of gdp at the end of 2025 to 120 percent in 2036, and then 175% of gdp in 2056. The balance of social security's old-age and survivors trust fund is exhausted in 2032, 1 year earlier than we projected in january of last year. The trust fund for part a of medicare is exhausted in 2040.
▶ 0:33:12Dr. Swagel: These projections do not incorporate the administration's termination of tariffs, affected by the recent supreme court ruling. This termination results in projected deficits that are $2 trillion larger over the 2026 to 2036 period than in our baseline projections last month that I just mentioned. This also does not reflect the tariffs imposed on february 24 of this year under section 122 of the trade act of 19 74.
▶ 0:33:43Dr. Swagel: The tariffs are still changing and we are analyzing them. We will provide her projections on the new tariffs once they are -- once they are all set in place. Chairman johnson, as you said, stronger economic growth would reduce the deficit. As one example that we have calculated, gdp growth of 2.6% per year on average over the next decade would reduce the deficit by about $1.3 trillion over the next decade.
▶ 0:34:14Dr. Swagel: This deficit reduction is a net of several effects. It is revenues, interest outlays, and net interest outlays. All of those would change with stronger growth. Revenues would be higher, about $2.5 trillion over the next 10 years. But net outlays for interest would also be higher, about $1 trillion over the next 10 years. That is because when the economy is stronger, interest rates tend to be higher. Non-interest spending would also be about $100 billion higher.
▶ 0:34:47Dr. Swagel: If there is stronger growth in 2026, the deficit would be 5.5% of gdp instead of 6.7% of gdp. That at the end of the window would equal 109% instead of 120 percent of gdp. This illustrates that stronger growth helps with the fiscal imbalance, but is not enough by itself. Spending, of course, could be less than we project, or interest rates could be lower than our projections.
▶ 0:35:16Dr. Swagel: That could come about if economic growth is slower than we projected or if labor force growth is slower than we projected. Slower labor force growth, less immigration, slower growth would bring about lower interest rates. Of course, the challenges is that those lower interest rates and a lower debt service would come about as the economy is weaker -- may lower revenues.
▶ 0:35:42Dr. Swagel: The challenges that a key aspect of the growth of federal spending in the long term is higher spending on programs that support older people, including social security and medicare, and the rising number of beneficiaries in those programs is a major contributor to spending growth. Given the age of the population, are projections of the number of social security and medicare beneficiaries are among the most certain of our projections. Our projections continue to indicate that the trajectory for budget deficits is not sustainable.
▶ 0:36:14Dr. Swagel: Our projections are inherently uncertain, but I can tell you with high confidence that policy action is needed to reduce the budget deficit. Thank you.
▶ 0:36:21Chair Johnson: Thank you, director swagel. Maia mcginnis is the president of the committee for a responsible federal budget. Previously she worked at the brookings institution on wall street. She did a stint at the washington post editorial board. Ms. -- Ms. macguineas?
▶ 0:36:47Ms. Macguineas: This is an issue that everybody knows is a problem but very few people are willing to do anything about at this point. It is particularly troubling is the issue is shifting from one that used to be primarily an economic issue and now encompasses national security, our ability to respond to emergencies and major crises, and our role in the world. This is being tested more and more frequently.
▶ 0:37:12Ms. Macguineas: I worry that if we don't make changes, we will look back at this moment and ask ourselves how we failed to recognize the risks to the future of our nation. In my remarks, I want to cover our fiscal trajectory and the drivers of the debt, risks of future deterioration, and a path forward to a more desirable outcome. And it comes to the national debt, there is pretty much no good news. Our debt is about to be past the record as a share of gdp that was set after world war ii. After that, it went down.
▶ 0:37:43Ms. Macguineas: This time, it is going to continue growing. Deficits will average more than 6%, twice the physical target of 3%, which is the absolute minimum that people are talking about that would be a sensible goal. Interest payments of $1 trillion have begun to the point where the borrowing of our past is limiting and dictating our opportunities for the future. Our major trust funds are headed toward insolvency. Social security in particular is going to be insolvent in six years.
▶ 0:38:15Ms. Macguineas: This is an unconscionable situation that we find ourselves in, and yet the conversation continues to be people competing not to do anything to fix the program, with some important exceptions. I will say that the aarp that says it focuses on protecting seniors is running an organization that actively opposes any changes to fix it and it tries to intimidate members whenever they start to talk about this changes. We have got to start talking about how to fix social security.
▶ 0:38:42Ms. Macguineas: All the warning signs are there, yet we do nothing, with the exception of the fiscal responsibility act last year. Almost everything we have done in the past decade and more has relied on more borrowing. Tax cuts, and infrastructure build, spending on seniors -- there are more and more things we continue to choose to borrow for. It is going to cause generational resentment, and younger people are going to be right to be angry about it.
▶ 0:39:13Ms. Macguineas: Politics don't help. Both parties spend a lot of time blaming each other. We know that all sorts of policies have contributed to this. About 37% of the increase in gdp since we had budget surpluses comes from tax cuts. About 33% comes from spending increases. About 28% comes from responses to recessions. Three quarters of all those policies were nonpartisan. Nobody likes to raise taxes. Nobody likes to cut spending. We need to do both of them.
▶ 0:39:42Ms. Macguineas: As bad as these numbers are, they could easily be worse. A few examples include if we don't replace the tariff revenue, if we extend the tax cuts and don't have them expire. If we bring back the aca subsidies. Just those three things alone, another $5 trillion. There are so many things we could look at. Emergency supplemental. Increases in defense spending. Scaling back the medicaid's paintings -- medicaid savings.
▶ 0:40:15Ms. Macguineas: Unforeseen emergencies. The list coats on and on that we continue to borrow more for. What do we do? Thank you again for holding the hearing. We just have to talk about it. The opening remarks, there is clearly such an overlap of understanding of the issue. I assume the politics of this is really hard and quite thankless. We know that, which is why it has to be bipartisan. We put forward a couple of ideas to try to get the discussion going. The first is there should be an agreement that there will be no new borrowing.
▶ 0:40:45Ms. Macguineas: We are already going to borrow $24 trillion over the next 10 years under cbo estimates. We can agree that any new policies are offset. We believe we should adopt a physical target of a minimum of 3%, which is something secretary bessent has put out there and many others have embraced as a target that is enough to reassure financial markets but not so much as to be impractical.
▶ 0:41:10Ms. Macguineas: Whenever we adopt really aggressive targets, we fall short right away and we tend to give up. I should point out that getting to 3% of gdp would require $10 trillion in savings. 1.5 trillion dollars of savings is the most we have had in over a decade. This would be in it self and heavy lift.
▶ 0:41:31Ms. Macguineas: Other options we are pushing are something called super paygo, where anytime there is a dollar in tax cuts, we would offset by two for one so we could have a down payment on deficit reduction. Fixing social security immediately. And putting forth a bipartisan fiscal commission, which I am so pleased was introduced yesterday in the senate by a broad bipartisan group of senators. That would bring some political cover to the issue. Realistically, I think we are not going to get this done.
▶ 0:42:00Ms. Macguineas: At least I think there is a real risk we are not going to get this done without an emergency or crisis. It seems absurd to me that a country as strong as we are would let a crisis push us to act, but I fear that is going to happen. We just released a break glass ban, so in case of an emergency, there would be something that would ensure that any stimulus is really targeted at only what is necessary. No christmas tree stimulus.
▶ 0:42:30Ms. Macguineas: Secondly, that it would be fully offset using super paygo. Third, we would have policies we would phase in that would automatically put us on a better trajectory. Finally, we would include a fiscal commission. To conclude, thank you so much. I look forward to the discussion. I really appreciate having this.
▶ 0:42:50Chair Johnson: Our final witness is Ms. martha gimbel, the executive and codirector of the budget lab at yale. Previously, she was a senior advisor for the white house council of economic advisors advisors, director of economic research at indy.com, senior economist and research director at congress's joint economic committee, and senior policy advisor for the secretary of labor.
▶ 0:43:17Ms. Gimbel: Chair johnson and ranking member smith, members of the subcommittee, thank you for having me. I appreciate the opportunity to come testify. As we would all agree, forecasting is inherently uncertain, but the active forecasting gives us a chance to examine where we are, where we could be going, and what that means for policymakers and citizens. The U.S. fiscal trajectory is likely unsustainable.
▶ 0:43:44Ms. Gimbel: The deficit is projected to be 5.8% this year, and slowly deteriorate to 6.8 percent. This is despite the fact, as phil mentioned, that the unemployment rate is expected to decline. It is highly unusual to run these types of deficits outside of recessions. For context, based on data before 2000, if the unemployment rate below 4.5% in the fiscal year we would have expected a deficit of 0.5% and a primary surplus of around 1%.
▶ 0:44:14Ms. Gimbel: What does that mean? We are not running a large deficit in response to an economic need, but because of policy choices. It is also important to emphasize cbo projections reflect current law, not current policy. The budget lab which I run has forecast that the temporary provisions -- no tax on tips in the one big beautiful bill act -- that would increase deficits by 1.70 $5 billion over 10 years , raising gdp by almost seven percentage points.
▶ 0:44:45Ms. Gimbel: This is not to say that balancing the budget at all costs should necessarily be a goal. There is global demand for our debt and borrowing allows us to make important investments in our country. In addition, we will always need to spend to respond to crises. But this is a time of solid economic growth and not a solid policy decision. Sometimes talk about debt and deficits can feel removed from the average person. We like to pontificate about large numbers and say that they are bad.
▶ 0:45:14Ms. Gimbel: But what does this mean for the budgets of american families? Higher government debt, specifically government deficits, leads to higher borrowing costs for everyday americans, by driving up interest rates. According to research from the budget lab, the cumulative effects of fiscal policy since 2015 has raised 10 year projected federal debt by about 49 percentage points of gdp. As a result, long-term treasury yields have risen.
▶ 0:45:47Ms. Gimbel: What does that mean? For a family taking out a 30 year mortgage, like a typical home, that is raising borrowing costs by about $2500 per year or roughly 76,000 over the life of the loan. You can go to our website and plug in your mortgage or the average mortgage in your state and see what it is costing people. So how did we get here?
▶ 0:46:09Ms. Gimbel: It is important to remember that in january 2001 cbo was projecting surpluses that would exceed the amount of debt available for redemption, beginning in 2006. They were projecting revenues would be sufficient to cover costs. Instead, we have seen a rise in outlays. Noninterest spending increases were driven by legislative decisions and economic shocks -- covid, a rack the bipartisan infrastructure law.
▶ 0:46:41Ms. Gimbel: Revenue also fell short of projections with tax cuts under president bush, the renewal under president obama, and further large tax cuts under president trump. While we often say aging of the population is a driver of federal spending, in october 2 thousand cbo projected that noninterest spending would rise to 21% of potential gdp by 2030. That is higher than our current projections, not lower.
▶ 0:47:13Ms. Gimbel: Projections always knew this would happen. Current projections have spending coming in below where the old projections thought spending would be. The main reason is that total spending projections are up relative to old projections because they include the interest costs from financing past debt incurred. So far this century we have spent more than cbo anticipated, the excess largely driven by temporary spending. Interest is coming in below projections.
▶ 0:47:43Ms. Gimbel: The interest burden of past debt accumulation -- we have rising interest costs, past debt accumulation, and revenues that have been cut repeatedly. The question is what we can do to close the primary deficit so we can stabilize the debt to gdp ratio. A few additional concerns to flag -- this does not mean we should not do anything with spending. It is important to consider what we are spending on. We spend relatively little on children.
▶ 0:48:12Ms. Gimbel: Children have a much higher return from an economic perspective than other types of spending. There are other factors that can affect the path of debt and deficits. For instance, immigration has driven substantial economic growth in recent years, and immigrants tend to be fiscal positive for the united states. A substantial slowdown in net immigration will have financial implications.
▶ 0:48:40Ms. Gimbel: Finally, given the rising role of interest payments, it is important to ensure that markets are calm about the direction of policy in the united states. Today, markets have not registered substantial ongoing concern, but the greater our debt burden, the more we have to rely on markets to trust us to handle our debt responsibility -- responsibly. I look forward to your questions.
▶ 0:49:03Chair Johnson: Senator cassidy has to leave, so I will let him start the questioning.
▶ 0:49:10Sen. Cassidy: Thank you, chairman johnson. Social security -- discretionary spending goes down. But the debt goes up. Several people have said it is related to more people on medicare, more people on social security. My goal is how do we preserve the benefits we have seen, but not go bankrupt doing it?
▶ 0:49:35Sen. Cassidy: What percentage of the long structural unfunded crude liability -- that is a mouthful -- of the federal government is related to the social security program?
▶ 0:49:43Dr. Swagel: I can tell you through the end of the budget we know, the unfunded -- through 2036. So the 10 year window, social security, the unfunded part is about $2.8 trillion. It is a meaningful number. But compared to the $26 trillion increase in deficits over that period, it is only part of it. The number gets much bigger as you go past the 10 year horizon.
▶ 0:50:14Sen. Cassidy: Typically you score social security over 75 years. What percent of the future debt is related to social over 75 years?
▶ 0:50:22Dr. Swagel: I'm sorry. I don't have that off him. The shortfall in social security is equal to about 1% of gdp. 1% of gdp into the future. So we have debt rising from about 100% to 175% over the next 30 years. That is more than 2% a year.
▶ 0:50:48Dr. Swagel: You could think of it as -- for social security, you could think of it as a meaningful part of that but not the majority of it.
▶ 0:50:56Sen. Cassidy: I am told that current law requires, once the trust fund goes insolvent in six years, like Ms. macguineas speaks to, at that point, there should be a benefit cut adequate to make up for that decrease in income.
▶ 0:51:15Dr. Swagel: That is correct.
▶ 0:51:19Sen. Cassidy: In here, the cbo assessment assumes congress is going to borrow and not make those cuts.
▶ 0:51:25Dr. Swagel: That is required -- that is correct and we are required by law to show the benefits being paid in full even after the trust fund is exhausted.
▶ 0:51:35Sen. Cassidy: So even with congress tipping its hand that it is not going to cut benefits but will continue to borrow?
▶ 0:51:41Dr. Swagel: Can I say in the report we do it both ways. We have an appendix that shows what if congress does not provide money.
▶ 0:51:52Sen. Cassidy: If benefits are cut by 28%, what impact would that have in increasing the rate of poverty among the elderly?
▶ 0:51:58Dr. Swagel: It would have a big impact, especially at the bottom half of the distribution for which those benefits are an important part of retirement planning.
▶ 0:52:10Sen. Cassidy: So we have an imperative to prevent that increase in poverty among the elderly. But this is a meaningful contribution to our long-term indebtedness and this is a negative aspect of that. Also, looking at your testimony, it seems that the longer we wait to address this, the more punitive the cuts, the more confiscatory the tax increases required to offset the imbalance of revenue to social security,
▶ 0:52:42Sen. Cassidy: Relative to output. Is that correct?
▶ 0:52:42Dr. Swagel: Intuitively you can think of it as some generations, if we wait longer -- there are some generations who don't share and part of the burden of the fiscal adjustment.
▶ 0:52:55Sen. Cassidy: It seems here that if an increase in revenue from 4.27% of gdp -- almost 16.7% if we wait until 2024 to make the change?
▶ 0:53:06Dr. Swagel: The revenue increase is larger the longer we wait.
▶ 0:53:14Sen. Cassidy: That is quite remarkable. What impact would that have on economic growth if we added an aggressive tax, knowing it would be poor people paying a greater percentage of their income if all we did was raise taxes or cut benefits? In both cases, it is regressive, falling on those who are not well off. The impact upon the economy?
▶ 0:53:34Dr. Swagel: It is a good question. We have not done an analysis but there would be a negative effect from higher tax rates on incentives, and the net would be negative from the higher tax rate.
▶ 0:53:48Sen. Cassidy: So we need to avoid an aggressive cut in benefits or increase in taxes -- we have to figure out some way to prop up the program beyond borrowing.
▶ 0:53:57Dr. Swagel: That is right. The policy levers are more revenues, changes in benefits. Of course, you could change benefits differently for people at different parts of the income distribution.
▶ 0:54:09Chair Johnson: Before I turned to senator smith, to clarify where we are talking about social security -- in your 10 year projection, are you accounting social security spending as if we are maintaining the benefits, current policy and current law?
▶ 0:54:27Dr. Swagel: Correct, and that is by statute we are directed to do that.
▶ 0:54:32Chair Johnson: Your projections maintain benefits at a full level. So we have a current policy mix in your projections. The current policy for social security and current law for everything else.
▶ 0:54:45Dr. Swagel: That is correct.
▶ 0:54:50Sen. Peters: I will defer to senator welch.
▶ 0:54:53Sen. Welch: You mentioned that this debt situation imperils us in ways that previously were not so dangerous, if we have a new emergency starting out with this debt level, it is going to make it more difficult for us to respond. Can you elaborate a little bit on those points you made?
▶ 0:55:16Ms. Macguineas: Certainly. Thank you for the question. When I started working on this -- you and I were working on this when we were in the house, working in a bipartisan way. The world seemed more peaceful at the time and we had more fiscal space. We worried about the crowding out. We worried about the current interest payments. Net interest rates were low. Now it suddenly is upon us that there may be a huge new amount of unexpected needs in our budget. The national security posture we have right now is immense.
▶ 0:55:47Ms. Macguineas: You are hearing all over the place about our inability to respond in multiple arenas at once, which used to be the goal of our national security policy. Two medium-sized wars at once -- we are not able to do that the same way we used to be able to. Our borrowing is dependent on foreign countries, not all of whom are aligned with us. We have seen that treasuries could be weaponized if people wanted to dump treasuries and coordinated. That could have a profound effect on our economic stability. That is just one thing.
▶ 0:56:18Ms. Macguineas: The second thing is we can talk about ai. I am a huge optimist and pessimist at the same time. Ai may do a lot for productivity growth, but it will almost certainly also do significant disruption, and yet we are not having a conversation about how we are going to change our economic system to make sure that, if people have to change jobs, if there are disruptions, if there are huge shifts or concentrations of wealth, what is going to happen.
▶ 0:56:46Ms. Macguineas: You want fiscal flexibility to deal with either of those examples. Fiscal flexibility, right? Not being able to borrow when you need to and from flexibility.
▶ 0:56:57Sen. Welch: One of the things that is increasingly disturbing to me is that despite record deficits, and despite our relatively low unemployment, and despite a record stock market, you have the significant majority of americans who cannot pay their bills at the end of the month even though they work full-time jobs. It is said that 50% or 60% of americans, if they had a $500 bill, they would not be able to do it.
▶ 0:57:29Sen. Welch: One of the things you pointed out is that the consumer spending is largely driven by the top 20%. So how does the debt allow us to have an economy that starts diminishing rather than expanding income equality, and how are they related if at all?
▶ 0:57:49Ms. Gimbel: I think one thing we have to think about is how we are thinking about revenues. I think there has been a lot of discussion about ak-shaped economy. I would argue the data is not as clear as some people think it is. There is certainly a sense that there has been growing inequality. That has led to I think this increasing desire to get as much revenue as possible from the top.
▶ 0:58:19Ms. Gimbel: I'm not saying that we should not get revenue from the top. But I think it is a thing that people like to tell themselves, that we can solve any revenue problems entirely from the top. There is simply not enough revenue there.
▶ 0:58:34Sen. Welch: We do have an economy now where the wealth is created through the deployment of capital and the application of labor is going far more to capital and much less to labor, so that is not sustainable. In addition to the obvious -- we have a mismatch of revenues and a mismatch of spending. One of the ways to bring spending down is to reform things. Our health care system is the most expensive.
▶ 0:59:03Sen. Welch: We have really on the low end of the outcomes. Things like trying to get a better health care system that gets more quality and we spend less per person -- I'm talking about prescription drugs, monopoly pricing power, and various other sectors of the economy. What role does that potentially break -- does that potentially play in bringing down the deficit?
▶ 0:59:28Ms. Macguineas: Health care perform has the most potential where we could generate savings and protect beneficiaries. I'm not a pressure of the free lunch. We have to make trade-offs. But there are areas of the budget where we could squeeze real savings that would protect recipients in so many ways, if we are willing to acknowledge there are a lot of powerful industries in health care who -- one person's waste is another person's profit. We need to look at prescription drugs, at medicare.
▶ 0:59:59Ms. Macguineas: There are so many policies that have been embraced by both sides of the aisle that I think there is a potential for hundreds of billions of savings that would protect consumers and help them.
▶ 1:00:10Sen. Welch: Thank you very much.
▶ 1:00:14Chair Johnson: Thank you, senator welch. I have to clarify something. I'm somewhat outnumbered on the dais. We have been hearing this. We enacted massive tax cuts. We did enact additional tax cuts. What we did is pretty much what democrats did, because they agreed to do it with inaction. They had two chambers and the presidency. They did not change the tax cut and jobs act.
▶ 1:00:43Chair Johnson: They did not cancel those tax cuts, nor did we. We prevented a massive automatic tax increase which really would have been harmful. I'm the first one to say we ought to completely reform our tax system. Simplify it and rationalize it. I wish we would have done that. We did not. But we did not enact a massive tax cut. We just prevented a massive tax increase. I think that has to be on the table.
▶ 1:01:10Chair Johnson: I think a couple of you have mentioned that we were actually decreasing discretionary spending. No, we are not. I'm looking at cbo's assessment care. It is going up every year. You can take a look at how much of the added deficit is because of revenue versus spending. You are comparing spending from -- not the pre-pandemic level.
▶ 1:01:36Chair Johnson: You are comparing it to pandemic levels which we never went down from. You are also assuming there was a tax cut when we just did not increase taxes. Isn't that true? Ms. macguineas, I think you made that point.
▶ 1:01:55Ms. Macguineas: A couple of points in terms of what we are thinking. Spending pre-covid is important. Spending has remained elevated. A big chunk of that is from the inflation that kicked him. A lot of it is automatic growth. We need to think about what legislatively is increasing spending and what is built into the budget. The part I worry about the most is the increases that are automatic, that we don't have enough control over.
▶ 1:02:24Ms. Macguineas: The second thing is I think I kind of agree and kind of disagree on tax cuts. It was disappointing that democrats did not raise taxes when they had the majority. We should have. We need to. Just like it has been disappointing that republicans no longer talk about entitlement reform the way they use to. Both parties have walked away from the areas they used to be more fiscally responsible, and kind of embrace the other side.
▶ 1:02:52Ms. Macguineas: Now nobody is talking about reform of spending and the only revenues we can look at are the top 2%. We are going to have to do more on both sides. So I'm not sure if that got your point. It may not be what you are looking for. Bottom line, if we are going to be real, we have to reduce spending. We have to look at mandatory spending, social security and medicare growing faster than the economy. This is linked to the problem with interest. We need to look at the revenues.
▶ 1:03:20Ms. Macguineas: We should look at massively broadening the tax base and doing reforms.
▶ 1:03:24Chair Johnson: But we have to do is we have to agree on the numbers. We have to agree on the facts. We cannot distort them. During the debate over the one big beautiful bill, I published a 30 page report and I did not hold back. I laid out here is the financial situation. This is why no labels approached me to lead our evaluation of what we would do if we had a debt crisis. And that is my next question. I will let each of you answer this if you want to.
▶ 1:03:55Chair Johnson: Describe what a debt crisis would look like. I have to admit coming in at $14 trillion because we are bankrupting this nation -- we have not had the debt crisis yet. I think we have had a chronic debt crisis which is called the devaluation of the dollar. In 1998-2019 levels -- a dollar held in 1998 is worth $.51.
▶ 1:04:23Chair Johnson: A dollar from 2014 is worth $.74. A dollar before the pandemic is worth 80. That is why people can't afford things. That to me is a debt crisis. But I'm talking about an acute debt crisis. What is going to be the catalyst for that? What is it going to look like? What is it going to feel like?
▶ 1:04:43Dr. Swagel: A debt crisis would manifest as sharply higher interest rates, a weaker dollar, lower investments, lower consumer spending, fewer jobs. Our economy would crash. I can't tell you when that will happen or what the catalyst will be. The longer our unsustainable fiscal situation continues, the higher is the risk.
▶ 1:05:08Ms. Macguineas: It could take a currency crisis, and inflation crisis, a crisis around treasury auctions -- not enough demand. Even without that acute crisis, we've seen the cbo's projections, interest rates versus growth is going to switch and 2031, I believe, where interest rates will be higher than growth. You have a built in risk even without a shock to the system.
▶ 1:05:36Ms. Macguineas: Basically, we are on thin fiscal ice, and basically anything could cause it to crack. Once it started, it will spiral.
▶ 1:05:43Chair Johnson: Interest expense, the higher dollar amount is more than gdp?
▶ 1:05:49Ms. Macguineas: There was a big discussion about this with -- as long as interest rates are lower than the growth rate, and you have a stable primary deficit, there is less to worry about. We have been in that situation for most of history. But we are now changing to the point where our interest rates are likely to be higher than our growth rate, which adds a lot of pressures for turning over this borrowing. Remember, a lot of our debt is short-term.
▶ 1:06:18Ms. Macguineas: About a third of it is reissued in under a year. When rates go up, interest rates go up very quickly. That is going to happen.
▶ 1:06:25Chair Johnson: We kept interest rates artificially low which is the only reason growth was slightly above interest rates, correct?
▶ 1:06:33Ms. Macguineas: There was demand. There was central bank activity. That cause this general feeling that maybe deficits don't matter and we don't need to worry. There were even papers that said rates are so low that we should borrow more. It is like a credit card teaser rate where now we are in this problem where we are incredibly vulnerable and our payments could go up quite quickly.
▶ 1:06:56Chair Johnson: Ms. macguineas talked about a failure at treasury auction. First of all, I think that is going to be the first signal. Could you describe what would be the catalyst for a debt crisis and what it is going to look like, feel like?
▶ 1:07:11Ms. Gimbel: Cheer point, there is a slow-moving cost to american families which I discussed earlier instead of an acute crisis. You raised this question of why hasn't that happened yet. I think what we need to keep in mind is that currently markets don't have a better great option then U.S. treasury debt.
▶ 1:07:33Ms. Gimbel: The way I sort of put it is we are currently the boyfriend at the beginning of the hallmark movie in the big city, where the girlfriend is still going out with him even though she knows it is wrong. But at some point, she is going to go home to the small town and find the nice firefighter and realize that there is another option. And we don't know when that will happen. But you are already seeing the eurozone trying to do things to make their debt more appealing to markets.
▶ 1:08:04Ms. Gimbel: And right now we have really benefited from the lack of an alternative option to the united states. But the more that other people try to create more appealing debt options outside of the united states -- we have seen a big movement into switzerland, for instance. We are lucky switzerland cannot absorb that much.
▶ 1:08:28Ms. Gimbel: The more we make ourselves less attractive to markets, the more likely it is that you will have a fiscal crisis along the lines of what phil and maya described. Right now, markets don't have anywhere else to go.
▶ 1:08:47Chair Johnson: You talked about how much more we are supporting seniors at the expense of the young. A good way to describe it -- I used to have a chart that was pretty good. But we will go to senator whitehouse.
▶ 1:09:08Sen. Whitehouse: I want to say a big thanks, and I'm going to be brief. I am interested in exploring with a couple of you what I have been reading about in the press. Senator cruz and senator scott calling for yet another big break -- what looks to me like a handout to the ultra-wealthy.
▶ 1:09:30Sen. Whitehouse: This time, it is hidden behind some industry jargon called indexing capital gains for inflation. As I understand it, you can in effect erode the tax code and sort of just do it administratively. I'm going to ask about that. Let's see if we can get on the table fairly quickly how much money we are talking about. How much would indexing capital gains for inflation cost, and how much benefit?
▶ 1:10:01Sen. Whitehouse: I understand you have done some work in these precincts with ultra-wealthy taxpayers.
▶ 1:10:05Ms. Gimbel: Indexing all capital gains to inflation would cost almost $1 trillion over the budget window. If you limit it to new asset purchases, it would be a mere $170 billion. It is also quite regressive. The top 0.1 percent by income would see an average tax cut of about $350,000. Those in the bottom two quintiles would not benefit.
▶ 1:10:30Sen. Whitehouse: So lots of money. Is this something that the administration has the authority to do via executive action? Or would this in effect require congressional action? In other words, what we normally think of as taxes here at senator johnson as the chair today would get together and we would do it. Can you do this by executive action?
▶ 1:10:56Ms. Gimbel: I am not a lawyer. I do want to emphasize that despite the fact I am at yale law school. The supreme court has repeatedly struck down similar levels of spending through administrative action.
▶ 1:11:14Sen. Whitehouse: Ms. macguineas, remembering all the meetings we were in over the years talking about these kind of reforms, it is good to be able to ask this of you as well. Is it appropriate in your view, and you have been working in this area for a long time, for the administration to further erode the tax code through executive action?
▶ 1:11:34Ms. Macguineas: Thank you, senator. It is nice to see you. I think there are two fundamental issues. One, it is not appropriate to have further tax cuts with revenues that are not offset. I should -- I would argue we should not do it even if they are offset until we have a debt deal in place. We cannot afford this loss of revenue. When it comes to executive actions, I also am not a lawyer. We should follow the rule of law.
▶ 1:12:01Ms. Macguineas: But it is clear that doing these kinds of huge budgetary actions not through congress does not make sense. They are often illegal. They do not stick. We have been in a situation where policymaking has become a pendulum of one party does it in the other party repeals it, back and forth. The fact that you don't have any certainty makes policymaking decisions terrible.
▶ 1:12:25Ms. Macguineas: And there is a lot of discussion right now, just on the policy itself -- a lot of discussion about whether we need to be worried about taxation of capital versus labor. It is not at all clear that what we need to be doing is subsidizing the returns to capital right now, given the shifts in our economy. From where I see it, the main point is that is a lot of revenue. We should not have offset tax cuts. >> thank you.
▶ 1:12:58Ms. Macguineas: A lot of times, we would be in a room and talking through these things. It is probably way too logical -- too logical for washington. I just get the sense that something like this is not a close call. You bring it to the congress of the united house. You offer your proposal. You take your proposal, take your price cuts. You open discussion and have a vote on it.
▶ 1:13:23Ms. Macguineas: But the idea of administratively without the united states congress stepping in -- the numbers that Ms. gimbel has talked about -- you were coming to your credit, taking a rough estimate. But we are talking about hundreds of billions of dollars. Senator smith, thank you very much, and to my friend senator whitehouse, I yield back.
▶ 1:13:50Chair Johnson: Let's lay out an area of agreement. Senator wyden, first of all, if we are going to index capital gains to inflation, which I would be in favor of doing, and then taxing the gain at earlier income rates. Let's be a rational system. We take capital gains and we come up with a tax rate for them. It is meant to eliminate some of the inflation, but it does it in a completely uneconomic way.
▶ 1:14:20Chair Johnson: I would be in favor of indexing games from inflation but then taxing as ordinary income. And I also don't believe that can be done by executive action. I also am concerned about this ultra gap between industrial and labor.
▶ 1:14:43Chair Johnson: One way would be to tax all at an individual level at individual rates. I wished during the one big beautiful bill we would have focused on simply focused on simplifying and rationalizing it. I did not support additional tax increases other than no tips on cash tips. Cash.
▶ 1:15:13Chair Johnson: Can't collect it any way -- cash tips. Just cash tips. You can't collect anyway so let's not tax it but credit card tips, I would have taxed that but, again, I lost that argument internally. The purpose of this hearing is to lay out the facts and figures and longs we're here at is the dais, there are areas of agreement and there are a lot of differences and a lot of acrimony. Ok, I agree with that, I agree with that.
▶ 1:15:41Chair Johnson: If we start working together no matter who is in charge and rationalize and simplify a tax system, you have a willing participant. Senator whitehouse?
▶ 1:15:56Sen. Whitehouse: Thank you. Are your projectionings that the medicare trust found would be depleted 1 years earlier?
▶ 1:16:09Sen. Whitehouse: Yes, that's correct. >> and Ms. macguineas, do you support the medicare and social security fair share act which would extend the solvency of both programs for the full 75 year all aerial window? >> yes. >> you think it's a fair way of going about it? >> it is not my personal preference of the way to do it.
▶ 1:16:39Sen. Whitehouse: We look at whether you're going to create -- achieve solvency or improve the situation.
▶ 1:16:51Sen. Whitehouse: That's why you endorsed the bill. Ms. gimbel, what has the effect been on U.S. debt and deficits?
▶ 1:17:03Ms. Gimbel: You've seen a substantial increase under that in the trump administrations. Particularly with the one big beautiful bill act. Again, I think one thing really important to talk about with that is when that was scorned by c.e.o., by us, by penn charlton. It was unusual in that when it was scored dimeically it became more expensive.
▶ 1:17:34Ms. Gimbel: Because of where we were it would drew up interest costs than even conventionally. We don't need more deficit spending.
▶ 1:17:50Sen. Whitehouse: Did you track the proposal that ended up passing the bicam ram commission. >> sure did. Could we please bring that back and get to work on that? There are a lot of tremendous improvements there.
▶ 1:18:10Sen. Whitehouse: Thank you. And finally, for all the talk about debt and deficit driven economic collapse, there are abundant warnings out there that climate risk is bearing down on insurance markets, most particularly home insurance markets which in some places are already in a state of upheaval and when home insurance markets fail, that cascades into mortgage markets and there are already considerable warnings
▶ 1:18:41Sen. Whitehouse: That mortgage markets will fame and when they do, that crashes property values for everybody except a billionaire and anyone who needs to sell their house and somebody who needs a mortgage to buy it is going to be hurt badly by that and so the predictions are pretty formidable, including from fed chair powell that in 10 to 15 years, whole regions of the united states will be uninsurancable and unmortgageable and that will
▶ 1:19:11Sen. Whitehouse: Cascade into the banking system. A piece that I've asked the board member of allianz about where there is going with the companying warns but the U.S. president of aon the insurance giant. The former chief economist at freddie mack. Cares a lot about mortgages and see this is coming. Mortgage bankers association has warnings out.
▶ 1:19:38Sen. Whitehouse: The economist magazine predicted a $25 trillion -- trillion dollar hit to global real estate markets. The international financial stability board has warnings out to the world banking system of this collapsing into banking insolvencies. Fourth street has warnings about 1.4 trillion lost just in U.S. real estate value.
▶ 1:20:09Sen. Whitehouse: Goldman sachs has issued warn, as has the former chief of the bank of england. I just don't want to be talking about financial dangerous without pointing out that there's a very significant financial danger that is floating out there and I would conclude by asking that my contribute one through eight that backstop what I just said be it inned to the record.
▶ 1:20:36Chair Johnson: Without objection.
▶ 1:20:39Sen. Whitehouse: And I think senator smith who's questioning of senator powell extracted his confession that they are headed for a construction and mortgage failure across entire regions of the country. Thank you.
▶ 1:20:57Chair Johnson: Senator smith?
▶ 1:20:59Sen. Smith: Thank you, Mr. chair. I want to get at a bit of the interplay between spending and revenues and how that's contributed to where we are right now. Dr. swagel, am I saying your name correctly?
▶ 1:21:19Dr. Swagel: Yes, that's correct. Sen. -- c.b.o. Was projecting it would be like, what, 21% of g.d.p.? What's the latest protection now.
▶ 1:21:41Dr. Swagel: Coming in at 17.8. >> and non-interest spending back then was projected to be maybe a little under 21% of g.d.p. And what's it projected to be now?
▶ 1:21:58Dr. Swagel: Total spending today -- this year we projects at 23.3% and interest is 3.3% of g.d.p. So it's 20% of g.d.p. >> so we're bringing in less relief knew than we were as a percentage of g.d.p. It normalizes for all the changes in other parts of the economy. For people, more spending, everything.
▶ 1:22:25Dr. Swagel: We're bringing in less money and we're spending about the same.
▶ 1:22:33Dr. Swagel: That's right and the spending is set to rise with the aging of the population and higher medicare and social security --
▶ 1:22:47Sen. Smith: Ms. gimbel, let me also get at the question of the inflation reduction act. If memory section that had a net deficit reduction. Is that what you recall?
▶ 1:23:04Ms. Ghim Bell: Yes.
▶ 1:23:07Sen. Smith: I think that was caused by two things. One, tax increases in the reconciliation bill and I think the second big components was the prescription drug negotiation, which was another big cost cut. Ms. gimbel. Prescription drug negotiation makes a huge difference.
▶ 1:23:37Sen. Smith: With these tax cuts, spending is a partner of g.k.p., basically kind of the same. What have we seen in terms of how that meaningfully contributed to d.d.p. Growth or higher mechanics amongst middle class folks in this country. Those assessments of economic strength?
▶ 1:24:04Ms. Gimbel: There was a small but positive impact on economic growth. The one big beautiful bill is forecast in the short run to have functionally no impact on economic growth and ultimately to slow it down because of the drag from higher interest rates.
▶ 1:24:21Sen. Smith: Because interest rates go up and then that has a drag on the economy overall. Is there any assessment of what impact it's having on the impact on equality that we were seeing which is such a challenge in this country right now?
▶ 1:24:39This Is Gimbel: In this conversation with when you're focusing on taxes. If you look at analysis of the one big beautiful bill act. Both c.b.o. And we showed that it largely benefits wealthier people and hurts lower income people when you're combining it with the spending cuts. One thing that was repeated by emphasized during the debate was that tariffs, despite not being part of the bill were an important pay for for the bill.
▶ 1:25:10This Is Gimbel: If you include tariffs in that reduction number. Th tit becomes even more stream.
▶ 1:25:23Sen. Smith: I wanted to just make sure I was understanding that I want to go to something that I think senator whitehouse was getting it a little bit too. Because we know that this big challenge -- one of the biggest challenges is what happens with social security and I appreciated senator cassidy's questions about what our only occasions are around social security and the impacts of not making sure that social security is strong but if we simply race
▶ 1:25:56Sen. Smith: The cap on social security taxes amongst folks that make $200,000 or more, so that they're paying the same rate that people who are making less are paying, that would have a pretty significant impact on the long-term health of social security, do I have that right, Mr. swagel?
▶ 1:26:20Mr. Swagel: Yes, that would bring more revenue into the system and extend the life of the truths fund. I don't have a number offhand but we put that out every year.
▶ 1:26:30Sen. Smith: There are basic live three let's when it comes to social security. You can cut benefits or raise revenue. To me that would be a fair way of raising revenue into social security by asking folks at the higher incomes to pay basically the same as lower income folks. I'll stop there. Thank you very much.
▶ 1:26:59Sen. Warren: Back in 2002 the bush white house said that the war in iraq would be "a cakewalk" and estimated its cost would be about $50 billion. Well it wasn't a cakewalk and what did it cost?
▶ 1:27:19Sen. Warren: About $756 billion and that doesn't even count the long-term costs of war like caring for our injured service members and veterans. Dr. swagel, you are the director of the congressional budget office and congress relies on your office to help us understand the financial costs of the policy decisions that we make but c.d.o.
▶ 1:27:40Sen. Warren: Is in a difficult position of forecasting when there's a rapidly spiraling war of choice. So Dr. swagel, president trump plans to ask congress for an extra $50 billion to fund his war with iran. Can you definitively say that the war with iran will cost only $50 billion?
▶ 1:28:11Dr. Swagel: No, I can't. We don't know the duration or the scope. We will find out as much information as we can but we can't say that right now.
▶ 1:28:21Sen. Warren: Yeah, interesting that it would be the same number that the bush administration picked only to have it turn out to be more than $750 billion. Now, this war is also costing american lives and a lot of money. Money that could instead be spent lowering costs like health care. So Dr.
▶ 1:28:42Sen. Warren: Swagel, based only the c.b.o.'s previous estimates, how much would it cost to extend is extend the a.c.a.'s enhanced premium tax credits for just one year?
▶ 1:29:00Dr. Swagel: For one year our last estimate was around $30 billion.
▶ 1:29:06Sen. Warren: So the trump administration says in war will cost $50 billion. That means we could help all of the people who are getting pushed off their health care or whose health care costs are rising enormously and still have an additional $20 billion lefts over, is my math right on that?
▶ 1:29:27Dr. Swagel: That math is correct, yes.
▶ 1:29:32Sen. Warren: Some estimates say that trump's war with iran costs roughly $1 billion a day. If that is right, how long before we blow influence the money that we could have spent to support the a.c.a.'s enhanced premium credits this year?
▶ 1:29:51Dr. Swagel: The math again is 30 days by that --
▶ 1:29:56Sen. Warren: One month.
▶ 1:30:00Dr. Swagel: The $1 billion figure. We don't have that but it's a figure I've seen as well.
▶ 1:30:06Sen. Warren: That's right and one that the administration have certainly not walked away from, have they?
▶ 1:30:14Dr. Swagel: I haven't seen that, no.
▶ 1:30:17Sen. Warren: All of us want to make sure that our troops have whatever they need to be safe but we know right now the department of defense is swimming in money and we also know that there is no guarantee that trump will end his illegal war anytime soon or that he won't be coming back for more money over and over for this.
▶ 1:30:41Sen. Warren: You know, it seems to me that when we're talking about money here that the way that we could save the most money would be to stop bombing iran now and just as a side benefit, we could also save a lot of lives. Thank you. Thank you, Mr. chairman.
▶ 1:30:59Chair Johnson: Senator warren, why don't you bring that one chart on taxes again. I need to clarify things. It's easy to cherry pick a particular year on spending and this is what it's always been. It's just not true. So director swagel, this is pretty accurate, right? This is accurate. Over 66 years, the average amount we collect in taxes is 17.1%.
▶ 1:31:28Dr. Swagel: That's right. I have a fifth-year figure but it's almost the same.
▶ 1:31:33Chair Johnson: But current spending is an aberration. By the way, the bush tax cuts were extended under president obama. Not all of them but the vast majority of them. Go back to 2017. We were at 17.1% of g.d.p. And we're at 20.6% of spending, of youth lays, correct?
▶ 1:31:55Chair Johnson: When we had surpluses I think spending was as low as 1% and we had that aberration of revenue approaching 21. That was a booming economy during the clinton years, ok? The dot-com economy. So it happens but it's an aberration. In general at some point in time you have to recognize here's the reality. We collect about 17, we can extract about 17% of g.d.p.
▶ 1:32:22Chair Johnson: In revenue, would you agree, director swagel?
▶ 1:32:30Director Swagel: As your chart shows, the tax revenue fluctuates around there.
▶ 1:32:37Chair Johnson: We hit $2 trillion around the year 2000. 2.4 through 2019. Bam, we hit 2.65 and never looked back. This year we'll spend $7.5 trillion. What's driving it is spending. And neither side wants to extend taxes beyond the 17.1. Obama blamed bush for the tax cuts but obama extended them.
▶ 1:33:08Chair Johnson: I was here, I don't like increasing taxes. I realize you can only squeeze so much out of a turnip. Again, when democrats were in control, they had the house, the senate, the kuo white house. They could have done tax reconciliation. They didn't. They could have gone from 11.7 to over 40% then come right back down. We're not at 20% of g.d.p.
▶ 1:33:36Chair Johnson: In spending. We're at 23%, 24%. It's a spending problem. I was willing to vote against the one big beautiful deal because we weren't cutting spending enough. I thought if we're not willing to reduce spending, maybe we'll have to increase taxes, not this way.
▶ 1:34:00Chair Johnson: One thing, we are increasing revenue through tariffs and as much as I hate increasing taxes, if you have to increase them, it's probably not a bad way to go. From my standpoint, you want a simple tax, a low rate, a broad base and tariffs have the added advantage that foreigners to a certain extent over some period of time pay part of that tax so the trump administration is tariffing.
▶ 1:34:26Chair Johnson: Now, again, it's creating all kinds of disruptions, instability, uncertainty in the economy. Maybe that's something we ought to look at, cold if I a generalized tariff. I'm open to these discussions but we have to talk honestly, agree on the same figures. We can't be cherry picking a particular year in this percentage. You don't have the full thing. I don't have the full historical tables where I can go back and really kind of school folks.
▶ 1:34:59Chair Johnson: Let's get back to what has happened because I think it's unconscionable what we've been doing since the great society. Basically robbing from our young people for the benefit of the old people. I don't think the elderly understand this how we are literally mortgaging our children's future. But you all mentioned it so why tonight you put it in your own words? Director swaying?
▶ 1:35:23Director Swagel: That's one way of looking at fiscal imbalance. The trajectory means that future generations are bear the burden of deficit reduction that has to come at some point in the future.
▶ 1:35:40Chair Johnson: Ms. macguineas?
▶ 1:35:44Ms. Macguineas: We try to focus just on the effect of the bottom line but if there is one thing that our budget reflects and our budget is a statement of a nation's priorities, if there is one thing they just find so alarming and frustrating and disappointing is that we choose to spend $6 per senior on every one that we spend on children under 18 and this is a value thing and people can have different priorities but I don't think that reflects a budget that is sound for the strength
▶ 1:36:15Ms. Macguineas: And growth of the country. Seniors were the poorest cohort there was and it was very important to start that program. Today children are the poorest cohort and seniors are the richest. And I know that changes we're going to make, we're going to protect seniors. Current seniors do not need to worry about it. Know there are so many well-off seniors talking to me that say I don't need it.
▶ 1:36:44Ms. Macguineas: I would give it back to the program to strengthen it. These are important perhaps but we need to think about how we're doing them in terms of children. It is a value that I think is reflecting political power and not what the country's values are.
▶ 1:37:04Chair Johnson: Do you have the percentage of people in poverty, young vs. Old?
▶ 1:37:15Ms. Gimbel: I don't know the number but poverty for seniors is very low.
▶ 1:37:22Chair Johnson: $1 versus $$6 and we're borrowing money, which is going to rob our children's future. It's one of the reasons -- by the way, it wasn't a no tax on -- very few people pay tax on social security, correct, Mr. swaying? You have to be at the very top --
▶ 1:37:46Director Swagel: It's very small.
▶ 1:37:49Chair Johnson: It wasn't a no tax on social security. We just increased the standard deduction, correct? Future senior that makes $100,000 and you have a 30-year-old who can't buy a house who's struggling trying to raise a family making $100,000. Who has the lower marginal tax rate? Mr. swaying?
▶ 1:38:14Director: Swagel: yeah, tough balance there. That's the challenge.
▶ 1:38:19Chair Johnson: The elderly person making the same amount of money is going to have a lower mar gin of tax rate. Is that fair, america? It's not. Maybe we can come to an area of agreement on that. I know one thing was talked about then I'll turn it back over to you, senator smith. That we need to take the cap off of payroll tax on income.
▶ 1:38:44Chair Johnson: Social security was set up as a forced savings plan to cover people if they were lucky enough to reach retirement. Retirement age back then I think was 65 and life expectancy was under 6. That's how lien reform is going to work, it's going to last. There were dozens of people that were working versus every person on social security.
▶ 1:39:12Chair Johnson: Now we're getting close to two to one. Again, it was a for-savings program. The idea was we're going to force you to save and invest it for you so that none is going to be yours and you'll get it if you get lucky enough to retire. That was the concept.
▶ 1:39:32Chair Johnson: It wasn't a welfare program, so if you remove the cap on payroll tax you're going to dramatically increase the marginal tax rate for people. It turned social security into a complete welfare system. It's an incredible harmful tax but this was how social security was set up.
▶ 1:39:56Chair Johnson: This is what taking that top off -- those solutions are economicically harmful, they're not fair and what's really not fair is how much we're spending on seniors while impoverishing our young people. Senator smith?
▶ 1:40:14Sen. Smith: . I have a floor speech so I have no further questions and I want to thank you for the hearing.
▶ 1:40:21Chair Johnson: Appreciate you hoping to facilitate this. I hope we can have more of this. We just have to lay these things out. I'm so appreciative of the no- I'm so appreciative of the n no-labors group and going through everything and just laying out the actual figures so we can free on that because until we do that, again, we're just going to keep fighting but really appreciate your cooperation on this and thank you again for the time and effort of the witnesses.
▶ 1:40:50Chair Johnson: Members wishing to submit questions for the record have until 5:00 p.m. On wednesday, march 18. The fiscal responsibility and economic growth and senate subcommittee of finance is concluded.