Cayman islands and virgin islands, the amount of profit they attributed to these countries is in some cases 1600 more than the Gross Domestic Product of these countries. This is outright tax avoidance. Im a Small Business owner. I know many Small Business owners pay their taxes legitimately, but some corporations take advantage of these tax havens and tax laws. Specific lit one that really has gotten a lot of attention lately is this inversion process. The fact we know already pharmaceutical companies and Manufacturing Companies have been looking at this, but most recently some Retail Companies like walgreens is in the process of potentially going down this road, which would be a whole new area we havent seen taking advantage of this practice walgreens, if i understand it right, there is an estimate over five years we could lose 4 billion worth of tax revenue if they were to do this practice, which is something that i think the average person would look at as nothing more than thes not inversion but subversion. Its a tax avoidance in the worst possible way. Do you have any idea what we lose potentially by inversion right now and how much potentially we could be losing depending on how far this goes . Im sorry. I dont have a number for that, congressman. Weve done work in this area and happy to point to you a copy of our report on the subject. Its our colleagues and staff in the joint committee and taxation who are more directly involved in helping you and your colleagues think about the effects of changes in law on corporate Financial Behavior and Corporate Legal reorganizations and so on. I think right now, representative lavin has a bill that shows about 19 billion on the portion he has. There are three different areas how inversions dorn. We are looking at one on the percent of Business Done somewhere to make it a more rational proposal. His bill is 19 billion. If we are talking about having walgreens and that is going to cost 4 billion five years from one company like walgreens if we start losing tens, if not hundreds of billions of dollars in revenue because of a practice i think is a subversion of our tax laws, that could have a negative effect on us in the future and down that tenyear revenue youre looking at. Yes. That is right. Its a very serious issue for you and your colleagues to wrestle. With. We might want to follow up with your office and get a copy of that report. I appreciate that. I yield back my type. Thank you. 25 seconds to spare. Youll learn. Thank you, mr. Chairman. Follow up on that point, mr. Elmendorf, as taxes rise, does tax avoidance activity go up or down . As tax rates rise there is more to be gained finding a way around paying the tax rate. Reduce that tax avoidance activity one would have to inflict increasingly draconian an Enforcement Mechanisms or reduce tax rates, is that correct . Yes. Or i think one could change the system in some more fund pavemental way that might reduce the capacity of or reduce the ability of firms to find their what is around through tax avoidance measures. For example, threatening the tax rate . So lowering the tax rate would reduce incentive for tax avoidance. Thats one of the routes you could go. Four years ago, the house passed a budget produced by this committee. It didnt pass the senate, it didnt become law to govern our spending. If that budget plan had been adopted four years ago and had kept in place, how would that changed your projections for today . Where would we be today and where would you be projecting us to be going today . Im sorry, congressman. We dont analyze bunt resolutions as they are occurring. I dont remember what was in that resolution from a few years ago. I cant speak directly to that. What did the cbo estimate . If our spending and the reforms that were enacted, were called for in the budget had actually come to pass, where would we be today . Would we have a larger deficit or smaller deficit than we have today . Again, congressman, i just dont know the details of that resolution. I would presume would you have a smaller deficit, but i dont know we dont look at policy in resolutions carefully and tote them up. But you had projections in terms how much revenue would be coming in, how much spending would be done, how much deficit there would be. We have projections under current law we never had a projection under the budget resolution. We dont do those directly. Committees draw on sets of estimates weve done. We dont tote up the resolution and say what would happen. We dont have those numbers. I wish you would go back in your reports and get us the figures that you were giving to us at the time. I remember them being much smaller deficits in the out years. I remember our Health Care Costs coming back under control. I remember a projection to a balanced budget would be ten years which would be six years from now. Those projections were the committees projections. Cbo does not do projections of budget resolutions we only do projections of bills that are being considered and we do projections under current law. The committees, i think, draw on estimates weve done sometimes. Assembling of them and bottom line for budget resolution doesnt come from us. It comes from the committee itself. The only time we had as high a percentage of our gdp as debt was during world war ii. Thats right. Now in fiscal year 1945 by the way we grew out of that, did we not . Yeah. What happened right after world war ii was that the budgets were more or less balanced. Not exactly, but more or less for a period of a few decades. The economy grew rapidly and debt came down fiscal year 1945, harry truman abolished the excess profits tax. In fiscal year 1946 he dramatically reduced the income tax rates. He took in fiscal year 46, he took federal spending from 85 billion down to 30 billion in a single year. He fired 10 million federal employees. It was called war demobilization. They projected 25 unemployment, instead we got the postwar economic boom is that correct . Yes, that sounds right. Kennedy slashed rates. Reagan and clinton did the same thing with the same results. Why wouldnt we want to do that now . Congressman, if the congress were to cut tax rates right now, we think that would provide a shortterm boost to Economic Activity, but if there werent other changes made to offset the budgetary effects, the debt would be much larger and it would be harmful to the economy. Each of those president s certainly reagan, certainly clinton, certainly truman cut spending as a percentage of gdp, as well as cutting the tax rates. I think one needs to be careful in those comparisons to look at the cyclical state of the economy. Part of whats happening now and part of what happened in the early 1980s was the economy recovered from a recession. They looked at percentage of gdp, spending relative to gdp growth in the past . We draw on that work in what we do. We wrote a set of reports a year or two ago summarizing the evidence on the effects of changes and labor income tax rates on peoples work effort. Its from that review we draw the parameters we use in these estimates and summary literature. Thank you. Thank you. I am pleased you are helping my friend from california remember that you dont score resolutions and that was the committees formulation. I also would think it would be interesting to compare what those rates were when we had that rapid deceleration post world war ii. The tax rates, marginal rate 91 , i think, the top bracket. And there was massive investment in infrastructure. The government under president eisenhower instituted the interstate highway system. Id like to come back to that in a moment, but one thing that struck me. This week i think you revised the Medicare Trust fund Life Expectancy increase five years from what you had in february . This is the part a fund, Hospital Insurance trust fund. We think will last about five years longer than we said in february. I authentic that is perhaps an illustration, you make the point these things ebb and flow. Do you the best you can implementing, based on new information. My colleague from maryland pointed out that my republican friends on ways and means are proposing somewhere in the neighborhood of 800 billion of unfunded tax benefits that are going to have the effect of substantially increasing the deficit. You didnt have that Information Available to you . Because its not in law, we wouldnt have put it in this report, congressman. I note our friends, and i appreciate the notion of tax avoidance and compliance. I notice my friends in the Republican Appropriations Committee are proposing to slash further tax an enforcement for the irs. Would that, on balance, increase or decrease the deficit over time if we cant enforce our tax laws . So congressman, when we looked at proposals like this in the past we concluded reductions in funding for an enforcement would reduce revenues by more than the savings from the cutting the number of irs people. If you did more, devoted more resources to an enforcement, you would reap extra revenues that would probably outweigh the cost of the extra an enforcement. Slashing your accounts receivable reduces revenue and will increase the deficit . Again, the proposals we looked at in the past. I dont know the details of this particular proposal you are referring to. I think the irony, and some should say the hypocrisy of professing concern about the longterm deficit while increasing it through tax policies, and making it harder to collect the taxes that are due and owing, and by the way, its the middle class person with a w2 thats not going to be able to evade taxes. Its people with complex money, more businesses, more that they can just forget or whatever. I would like to turn it around. I share my friend the chairmans concern about Employment Opportunities and growing the economy. I gave you at the beginning of the hearing an economic report, which im going to ask unanimous consent to put into the record from standard and Poors Rating Services that talks about the impact of infrastructure voechlt. Without objection. Thank you very much, mr. Chairman. And it says here that a 1. 3 billion investment in real terms in 2015 would likely add 29,000 jobs. It would add 2 billion in real Economic Growth, and reduce the federal deficit by 200 million in constant dollars for that year. Now, i know you havent examined this in detail, and i didnt want to ambush you, but is this sort of finding consistent with what cbo has done in the past and looking at the benefit of Infrastructure Investment . Yes, congressman. When we looked at different methods the Congress Might use to stimulate Economic Activity on a number of owe occasions in the past years, we identified what could pay longer term dividends in terms of facilitating the flow of commerce in the country. I want to say if the republican budget, which has no new federal projects in the next 15 months, and a 30 reduction in federal Infrastructure Spending over the next ten years were enacted works that potentially depress Economic Growth . Time expired. We think less Infrastructure Investment would hold down Economic Growth in the long term. That is one the factors we weighed in this report. As you know we have not studied that particular resolution. I would note for the gentleman for the record, all it does is follow baseline. Mr. Flores. Thank you, mr. Chairman. Dr. Elmendorf, thank you for joining us. I would like to shift gears and you talk about the cbo cost estimate for hr3230 for the Health Care Issues facing the nation today. In your estimate in a nutshell, you said, not you, the cbo said it would cost about 22 billion in fiscal 16 for hr3230. And if the bill was fully implemented by 16 it would be 30 billion. The question that arises is, if current costs today in the va or 6. 5 billion enrollees how can we have a more than doubling cost when we have a slight potential increase of the number people . I will break this in part. This is hr3230. Those currently enrolled in Veterans Health care, how does the cbo estimate it would affect the health care utilized for veterans . The senate adopted the house number so the estimate says hr3230, but it is passed by the senate. Talk about the senate bill then. I think the key issue here that i think surprised me when i learned it and surprised some people, for the veterans enrolled in Va Health Care today, they get only about 1 3 of their care through the va system, they get 2 3 other ways. What this legislation would do is to enable veterans who couldnt get into a veterans facility to have the care they are getting through their current doctors outside of va paid for by va. Because the veteran system has very low copayments relative to private insurance, there is a financial incentive to have more the health care they are already getting through their doctor to kip getting through the same doctors but have va pay to save on their copayment. We think there would be an increase in terms of the shared Health Care Spending for the veterans currently enrolled, they would go from having about 1 3 paid for to having 55 paid for through va. Then there are new people we think dont get health care through va at all who would start to get health care through va. They are a much smaller part. That is the second part of my question. Whats the empirical evidence to jump to 30 in the report to 55 , almost double. How does the cbo develop that number . Did you have any empirical evidence . Was it swag, what . Help me out here. So there are we have empirical evidence about the different of copayments what people are paying out of pocket versus other places. Then there is a body of evidence about how people respond to the cost of health care and their decision about where to get the care or in this case who to get to pay for the care. Im not aware of evidence directly about a change in the opportunities for veterans enrolled in Va Health Care. This is a new approach really. There is a great deal of uncertainty in your estimate. I wouldnt pretend otherwise. There is basic in evidence general about how people respond to changes in the cost of care we drew on. It does sound like there is substantial uncertainty in the estimates. We dont isle know we dont have an actual fact pattern to rely on historically. We dont have evidence as close to this particular question as we would want, yes. What its impact on Health Care Utilization by veterans who are eligible for Veterans Health care but who are not currently enrolled in Veterans Health care . Congressman, we think only a small percentage about 15 to 20 of those who are not enrolled in Va Health Care would choose to enroll under this program eventually. We dont get to that 15 or 20 in the couple of years the program is scheduled. We are working with the cbo to get the numbers. Its hard for any of us to think its credible our costs will double when we are not talking about a big expansion in the population or the utilization of health care. I have a question for the record since we are running out of time. One of the things that came out earlier was the impact of Immigration Reform. I think your language was, increase in the size of the labor force. Since we are talking about the size of the labor force, as it was said earlier in the conversation today in this hearing, the Labor Force Participation rate is at a longterm low. Based on some of the analytics ive seen, the difference between Labor Force Participation rate today and on a historical trend is about 4. 7 million workers. I would like for you to supplementally answer. What is the impact on gdp and impact on the deficit . Thank you. I yield back. Thank you. Mr. Schrader. Thank you. Mr. Elmendorf, how have your projections for net federal Health Care Spending changed from before enactment of the Affordable Care act and since the Affordable Care act has been in play . So as we show in this report, congressman, between our 2010 longterm projections and 2014 longterm projections, we reduced our projection of federal Health Care Spending as a share of gdp in 2039 by 1. 5 of gdp. That is a substantial reduction relative to what we had, down to 8 from. About 9. 5 to 8 since 2010. I dont have a comparison over the long term from before 2010. Essentially the Affordable Care act raised certain kinds of federal Health Care Spending, paid for that partly by cutting some other kinds of federal Health Care Spending, on balance we thought raised federal Health Care Spending. Whats happened since that point is that we have observed, everyone observed a great slowing in federal Health Care Costs and in private Health Care Costs, as well. We and others have done a great deal of analysis trying to understand the sources of that. Its hard to know exactly whats happening, but we think its been appropriate for us to substantially reduce our projection of federal Health Care Spending in the next ten years by more than 1 tri