Only worked four times in 42 years. Over those 42 years we only i want everybody to listen to this. We have only appropriated 2 1 2 appropriation bills per year. This is a fraud on the american people. Perpetrated for 42 years. Its time we deal with t thats one area we can use to help arrest this run away government spending. 2. 4 trillion is what we spent in 2000. We spent 3. 8 trillion last year. Thats constant dollars. We have to look we have to grow the economy. We have to save Social Security or medicare long term that makes it viable for our kids and grandkids. We have to get at the spiraling driver of our Health Care Cost inflation. Im running out of time im hold the questions for second round. Thank you. Senator king. Senator king thank you, mr. Chairman. Welcome, doctor. Nice to have you here. Appreciate your comments, senator perdue. Senator perdue in maine we have a saying that summarizes exactly what you were talking about. There is rarely a silver bullet. There is often silver buckshot. It takes multiple approaches to solve a problem of these magnitudes. There is no single solution. Dr. Hall, in listening to your tamm and readling it your testimony and reading it, it seems to me underlying allot of your assumptions is demographics in a couple ways. The demographics of baby boomers retiring, which is a ig bulk in the population. They have more people going on medicare. 10,000 people a day are signing up for medicare. And the demographics of not replacing those people in the work force, which you note on page 4 is a significant drag on the growth of the economy, which is labor supply. Is that all direct . Dr. Hall thats all correct. Senator king i would disagree with senator perdue, if the demographics, congress can repeal a loft things, but one of them we cant repeal is the law of demographics. If were at replacement or below, and in maine, for example, were below replacement now in terms of our birth rate, the only solution is immigration, isnt it . The people have to come from somewhere. Dr. Hall i dont know if thats the only solution. But clearl increasing the labor supply does have an impact on revenues. There are other sorts of impacts which one should probably consider depending on what kind of immigration that you have. Senator king im not saying. Unlimited. Open the borders or anything else. But to say we can close our borders and stop having people come to this country and maintain continued Economic Growth just doesnt square with economic principles. Dr. Hall certainly we do need to have a continuing growth in the labor force. Thats sort of the really simple recipe. You have to have your labor force growing. Productivity growing. Senator king as i talk to businesses in maine now, the number one problem there is telling me finding qualified workers. The important word is qualified because that speaks to education, training, improved job training. I think thats a big part of this. But that is the problem that were seeing. A couple of comments about where the budget has been going. What were seeing basically is the entire discretionary budget being crowded out by entitlement growth and tax expenditure growth. Tax expenditures in back in the 1960s were about 4. 5 of g. D. P. , now they are 8 . Defense spending for example in 1967 was 8. 5, it was 5. 2 in 1991. It was 4. 7 in 2010. And its 3. 2 today. In other words, steady decline and even the significant decline, almost 25 , since 2010 , and also since 2010 we have had chinas buildup of its military. North Koreas Nuclear weapons. Isis, syria, ukraine, crimea, all those have occurred and yet were still on this steady downward trend in terms of defense spending. Those figures sound consistent with what youre saying . Dr. Hall i think they do. Senator king domestic spending is going in exactly the same way. From over 4 back in 1967, 3. 5 in 1991, and down to 3. 3. Both defense and nondefense discretionary, as i understand t. Are at the low point for the last 70 years. What bothers me is a lot of the debate about the budget around here is about head start slots and aircraft when the real growth is basically in Health Care Costs. Which is driving medicare, medicaid, and those expenditures. I think thats something we need to be talking about. Let me ask a more general economic question. A lot of people have been talking about 4 g. D. P. Growth. Is that realistic in a mature economy, a developing economy can have those very high growth rates, and 4 was what we had, but are we do you see any combination of policies that would get to us 4 g. D. P. Growth . Dr. Hall if were talking about the short term, basic stimulus, we could accelerate the elimination of the output gap over the next two years. We could accelerate that, but for having anything lasting we need to worry about the supply side of things. To give you some idea senator king you are not talking about supply side are you talking supply side of labor force. Dr. Hall labor force, Capital Stock, innovation, those sorts of things. I wanted to couch this a little bit. Right now over the next 10 years were seeing a labor force grow at about half a percentage point a year. Were seeing Labor Force Productivity grow at about 1. 3 a year. That adds up to about 1. 8 g. D. P. That is our forecast for potential g. D. P. If you want to get potential g. D. P. Up, you have to raise one of those two things or both. Thats right. Senator king im out of time. Hopefully, mr. Chairman, well have additional time for questions. Certainly. We dont want to pass up an opportunity like this. With an expert. Along the same lines senator king is asking about, do you have any projections on what our unemployment is and what our actual unemployment is . Senator sanders usually puts this in his speech. Dr. Hall dont have it handy. In some respects this is Unemployment Rate is being a little bit misleading because the Unemployment Rate is already below what we think is the potential full employment. The reason its below is because there are so many people still out of the labor force. We still think there are a good million and a half people who are not even in the labor force. We need to find jobs before you hit that full employment. So if you wanted to do some sort of calculation, i suppose you could take the current Unemployment Rate and add in about a million and a half people into the unemployment. It gives you some number that maybe gives you some idea how short were of our full employment. Senator enzi which goes back to senator kings comment that his employers were having trouble finding qualified employees. From my time in business that was always a problem. I go to a lot of businesses in wyoming when im there on the weekend and ask what kind of decisions they have to make, how long in advance they have to make them, and what some of their biggest problems are. The biggest one there is qualified employees, too. We have some training programs, and we need to take a look at those and see if they are actually effective. We had a question earlier about increase in Interest Payments. I think the largest percent increase in spending is a projected tripling of the Interest Payments in your document. Almost doubling relative to g. D. P. And thats with the Interest Rates remained low. Do you have an effect on c. B. O. s projections if the Interest Rates move up further, perhaps to the historic average . Dr. Hall we have some good rules of thumb to give you some idea. If Interest Rates say are one percentage point higher per year for the next 10 years, then that adds Something Like 1. 6 trillion to the deficit. So that almost doubles it. So its a really significant increase. Going forward. At the thing related, end of 10 years we anticipate the net Interest Payments are going to hit Something Like 2. 7 percent of g. D. P. Thats a high number. Its because the debt is so high. You raise that you really raise the forecast. Senator enzi i went to one of our bond sales and surprised how fast they got snapped up and found out that some people are actually betting bidding a negative Interest Rate at the moment because they have so much confidence in our government that they will get their money back even though they had to pay a little bit to keep that secure. The Interest Rate depends a lot on how much people think we are secure, i assume, and how much debt weve got per person. Were a lot worse off than greece. Dr. Hall thats right. One of the things that would happen if the deficit continues to grow its going to put pressure on that Interest Rate. You increase that Interest Rate and raise the cost of our already existing debt let alone new debt. Senator enzi changing a little bit. In the last congress c. B. O. Antijoint committee on tax produced dynamic cost estimates for major legislation, including the tax proposals. How would comprehensive tax reform affect g. D. P. Growth . How can we make our tax system more efficient so growth is not impeded by our tax code . Dr. Hall any sort of estimate, of course, i want to tip my hat to the joint committee in taxation. They would be doing the scoring on that. But there are certain things in the tax code that we could do the would impact eefficiency of taxes and would maybe impact productivity Going Forward if it helps eliminate some misallocation of resource that is are created by the tax code now. That certainly is one of those sources of policy choices that would impact potentially longrun growth in the economy. Senator enzi tell me a little bit more about misallocation of resources. Dr. Hall well, a lot of it is the impact on capital. Capital investment. For example, doing Something Like reducing taxes on the Capital Stock would potentially help productivity. And help longterm growth. Doing something to increase the tax base. Right now there are lots of things that sort of cause the tax base to key klein over time like offshoring sort of behavior. That sort of thing. Those would all potentially impact productivity and help the longrun growth. You. Or enzi thank senator van hollen. Senator van hollen thank you, mr. Chairman. Again, dr. Hall, thank you for your testimony. Just when we talk about the you. Senator van hollen. Aging of the population and the immutable law of demographics, we talked about immigration, i just think when were talking about this within the budget context, its important that we remember that no matter what we do in the budget, those costs are going to grow in aggregate for the country and for the people. In other words, Health Care Costs will grow, the costs of longterm health care will grow, and so really the debate here is how much of that cost should be shouldered by the average american and how much should be shouldered by trying to shore up things like Social Security, medicare, and other things. Isnt that one way to look at it . Dr. Hall yes. Senator van hollen someone is paying for this at the end of the day. And the question is, how we as a society decide to allocate those costs. And whether or not we should ask folks at the very high income scale, for example, pay more payroll taxes because if they dont, the costs are going to go up to seniors who are on retirement, Social Security. Its not that they are on other there arent other things we can do, but that has to be a major part of this conversation. In terms of productivity, talked about different levers, and obviously there are productivity gains through the private sector. We have talked, you and i in the past, about the different kinds of federal investments. And some federal investments can make a greater impact on innovation and potentially productivity than others. If you were looking at the sort of set of Discretionary Spending options and investments, have you done any analysis of c. B. O. Which could most impact in a positive way productivity . Dr. Hall we dont have a lot on that because, frankly, the literature is very thin on the impact of the different kivendse investment. One of the things thats really clear is different kinds of federal investment have different effects, but we just dont know that much about how the different kinds differ on things. Senator van hollen is that something that is could be determined through analysis . Is that something for example, investing in education. Which we believe increases productivity. If you have a more educated work force. Is there a way for c. B. O. To do that kind of analysis . After all, a lot of the research and Development Investment that helped innovation, darpa, and the internet, a lot of those things began at least with federal investment. Not the not that the private sector doesnt quickly come in with a lot of its own. Is that something that c. B. O. Could undertake as a guide to the congress with respect to investments that we might want to look at . Dr. Hall im happy to get that question out because we have, in fact, been doing work on that and were very close, for example, putting out a little blog post talking about what we see in the evidence on the effects of Something Like education. On productivity and some of those good things. Its generally pretty positive. One of the issues with education is how much lag there is before it has an effect. We do talk about the evidence in there. We have something coming out very soon on that. Senator van hollen i look forward to seeing t thank you. Senator enzi senator king. Senator king a couple of different questions. I think i remember there was a report several years ago that the overall analysis, i think it was by the c. B. O. , of the Deficit Impact of the Affordable Care act, was positive. That it would reduce the deficit over a 10year period Something Like a trillion dollars. Have you done any recent analysis of what the repeal what a full repeal, which included repeal of all the taxes and fees that support the subsidies, what a full repeal would mean in terms of its economic effect dr. Hall we did that last. To be honest cant remember if it was june of last year or june of 2015. Think it was 2015. We did do an estimate of the full repeal. We did have the dynamic analysis. Senator king could you give us a summary of what you found. Was it a net or negative or positive . Dr. Hall it was a positive. So the exercise was if you eliminate the a. C. A. , would actually have a negative impact and make the deficit worse on the whole. Senator king thats important. If you eliminate the a. C. A. , it would make the deficit grow. Is that correct . Dr. Hall thats right. Senator king if you could supply that study, i would appreciate t number two, with regard to investments. I have always thought looking historically that the g. I. Bill is probably the best single investment that the United States government ever made in terms of Economic Growth after world war ii. Nd that may be a model for us. Vice president cheney once famously said, reagan proved deficits dont matter. Do deficits matter . Dr. Hall we think they do. I think our deficit is at a high level and the debt is at a high level. I think its already having an effect. It does create a drag on the economy and drag on growth. Senator king i agree with you. My problem is deficits around here seem to matter sometimes and then not others. It seems to me if we could establish a consensus that deficits are a problem, are a drag on commit, and do ultimately have to be paid back, that we could then start to move towards solutions. I think they do matter. And i hope we can establish hat kind of consensus. We got two levels of debt. The socalled public debt and then as senator perdue mentioned the Social Security debt that we owe. Why arent they the same . I think, frankly, the picture is worse than it looks because we dont count Social Security as part of public debt. Those people want checks in the mail not i. O. U. s. Dr. Hall in our numbers we do include all the debt. Our debt held by the public does include that. Thats why we focus on that because we think thats the important number for the economy. Senator king and the other issue s. How do we again, to get back to my silver buckshot image, there is no single solution. We have to have Economic Growth. That would help considerably. We also have to have control of spending in a variety of areas. But there may be a question, again because of the demographics, were in a moment of a huge increase in demand on our Social Security and medicare. Maybe we have to talk about where revenues are. Revenues historically for 50 years have been 17. 4 of g. D. P. But for 50 years we didnt have 10,000 people a day signing up for medicare. Do you see what i mean . There needs to be an adjustment of our thinking about revenues to adjust to the reality of the demographic tidal wave were facing. Would you agree . Dr. Hall thats right. Do want to say the growth in revenues is already at a historically high level. Senator king by. 4 . Dr. Hall were already starting at a high level on revenues. Were on an even higher level on spending. Its this race of both things. And spending senator king spending growth is in the Social Security and medicare not in the not in discretionary, defense, and pell grants, and those areas. I think it should be clear. We need to make it clear those are actually declining. Dr. Hall thats right, they are, as a share of g. D. P. Senator king do you know of any economic studies or evidence that tax cuts stimulate Economic Growth . Because thats a kind of theological position around here and i, in my own research, havent been able to find