[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


                  THE FEDERAL GOVERNMENT ON AUTOPILOT:
                       MANDATORY SPENDING AND THE
                           ENTITLEMENT CRISIS

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

                                HEARING

                               BEFORE THE

                     EXECUTIVE OVERREACH TASK FORCE

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              JULY 6, 2016

                               __________

                           Serial No. 114-81

                               __________

         Printed for the use of the Committee on the Judiciary
         
         
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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
LAMAR S. SMITH, Texas                ZOE LOFGREN, California
STEVE CHABOT, Ohio                   SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa                       Georgia
TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas                 JUDY CHU, California
JIM JORDAN, Ohio                     TED DEUTCH, Florida
TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah                 KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas              DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia                SCOTT PETERS, California
RON DeSANTIS, Florida
MIMI WALTERS, California
KEN BUCK, Colorado
JOHN RATCLIFFE, Texas
DAVE TROTT, Michigan
MIKE BISHOP, Michigan

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel
                                 
                                 
                                 ------                                

                     Executive Overreach Task Force

                       STEVE KING, Iowa, Chairman

F. JAMES SENSENBRENNER, Jr.,         STEVE COHEN, Tennessee
Wisconsin                            JERROLD NADLER, New York
DARRELL E. ISSA, California          ZOE LOFGREN, California
LOUIE GOHMERT, Texas                 SHEILA JACKSON LEE, Texas
JIM JORDAN, Ohio                     HENRY C. ``HANK'' JOHNSON, Jr.,
TED POE, Texas                         Georgia
JASON CHAFFETZ, Utah                 JUDY CHU, California
TREY GOWDY, South Carolina           TED DEUTCH, Florida
RAUL LABRADOR, Idaho                 CEDRIC RICHMOND, Louisiana
RON DeSANTIS, Florida                SCOTT PETERS, California
KEN BUCK, Colorado
MIKE BISHOP, Michigan

                     Paul B. Taylor, Chief Counsel

                    James J. Park, Minority Counsel
                            
                            
                            
                            C O N T E N T S

                              ----------                              

                              JULY 6, 2016

                                                                   Page

                           OPENING STATEMENTS

The Honorable Steve King, a Representative in Congress from the 
  State of Iowa, and Chairman, Executive Overreach Task Force....     1
The Honorable Steve Cohen, a Representative in Congress from the 
  State of Tennessee, and Ranking Member, Executive Overreach 
  Task Force.....................................................     2
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Committee on the Judiciary     4
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Ranking Member, Committee on 
  the Judiciary..................................................     5

                               WITNESSES

C. Eugene Steuerle, Richard B. Fisher Chair & Institute Fellow, 
  The Urban Institute
  Oral Testimony.................................................     7
  Prepared Statement.............................................    10
Scott Lilly, Senior Fellow, Center for American Progress
  Oral Testimony.................................................    20
  Prepared Statement.............................................    22
Nicholas Eberstadt, Henry Wendt Chair in Political Economy, 
  American Enterprise Institute
  Oral Testimony.................................................    30
  Prepared Statement.............................................    32

 
    THE FEDERAL GOVERNMENT ON AUTOPILOT: MANDATORY SPENDING AND THE 
                           ENTITLEMENT CRISIS

                              ----------                              


                        WEDNESDAY, JULY 6, 2016

                        House of Representatives

                     Executive Overreach Task Force

                       Committee on the Judiciary

                            Washington, DC.

    The Task Force met, pursuant to call, at 1 p.m., in Room 
210, Cannon House Office Building, the Honorable Steve King 
(Chairman of the Task Force) presiding.
    Present: Representatives King, Goodlatte, Gohmert, 
Labrador, DeSantis, Buck, Bishop, Cohen, Conyers, and Lofgren.
    Staff Present: (Majority) Paul Taylor, Chief Counsel; 
Tricia White, Clerk; Zachary Somers, Parliamentarian & General 
Counsel, Committee on the Judiciary; (Minority) James J. Park, 
Minority Counsel; Veronica Eligan, Professional Staff Member.
    Mr. King. The Executive Overreach Task Force will come to 
order, and without objection, the Chair is authorized to 
declare recesses of the Task Force at any time. And I will 
recognize myself for an opening statement.
    Today's hearing of the Task Force on Executive Overreach 
will focus on mandatory spending at the Federal level, and the 
resulting entitlement crisis. Federal spending is 
characterized, excuse me, categorized as either discretionary 
or mandatory spending.
    Under discretionary spending, the President and Congress 
decide each year which programs to fund, and how much. To do 
so, they are supposed to enact 12 appropriations bills that 
fund the defense budget, and a wide range of domestic programs. 
Some programs are continued, some programs are created, and 
some programs, less often, are ended.
    But under mandatory spending, the President and Congress 
create programs, mostly so-called entitlement programs, that 
continue automatically from year to year. That is unless 
Congress enacts laws in later years to change them.
    These entitlements have increasingly dominated Federal 
spending, and they grow automatically forever, by annually 
providing more generous benefits to more eligible people. As 
Urban Institute scholar Eugene Steuerle has written, ``to top 
it off,'' and this is a quote, ``to top it off, these automatic 
growth rates, particularly in retirement and health programs, 
were sometimes set at levels above the growth rate, in people's 
private incomes and the economy itself. Eventually, the 
prospect of new and growing future deficits arises even in the 
absence of any new congressional action.''
    This trend is accelerating as ever more years of taxpayer 
support are required as people live longer, and as there has 
come to be fewer taxpayers relative to the beneficiaries, as 
birthrates have fallen.
    As Mr. Steuerle has summarized, ``Where policymakers of the 
past could achieve budget balance simply by enacting few or no 
increases in discretionary spending for a while, or in a few 
cases, mainly after war, cutting discretionary spending, such a 
strategy would prove futile in today's fiscal context.
    ``Now the reverse is true. Built-in growth in spending will 
exceed the growth in revenue forever, or until the economy 
collapses. Eventually, with revenues completely allotted to 
finance fast-growing entitlements, Congress will have to 
finance any dollar of discretionary spending by borrowing, 
often from abroad.''
    Recent experience in advanced economies indicates that 
countries with debt above 80 percent of gross domestic product 
and persistent deficits are vulnerable to doubts by lenders, 
which lead to higher interest rates, which in turn make our 
fiscal situation much worse by requiring us to devote an even 
larger share of Federal revenues to paying for the interest on 
our debt.
    That is an unsustainable situation. Mandatory entitlements 
continue to grow larger with the volume of current 
beneficiaries, making the debt burden larger and larger as our 
future generations grow smaller and smaller.
    As researchers at the Urban Institute have concluded, ``If 
current trends for younger generations are not reversed, within 
a few decades they may become more dependent than older 
generations of Americans today, especially in retirement, upon 
safety net programs less capable of providing basic support.''
    I look forward to hearing from all our witnesses today, and 
discussing ways in which we might step away from the abyss that 
has been growing steadily at our feet for decades. That abyss 
cannot grow forever without opening under the feet of future 
generations, and swallowing their futures and opportunities.
    I would conclude my statement, and now recognize the 
Ranking Member from Tennessee for his opening statement, Mr. 
Cohen.
    Mr. Cohen. Thank you, Mr. King, and I welcome the 
witnesses. It has been clear, since the first hearing of this 
Task Force, that my colleagues in the majority have attempted 
to turn into constitutional issues what are essentially policy 
disputes between the parties.
    Indeed, at the first hearing, one of the majority witnesses 
suggested the Constitution may require Congress to cut funding 
for Social Security, Medicare and Medicaid. So it is not 
surprising that today's hearing about mandatory spending and 
the so-called ``entitlement crisis,'' is really about making 
the argument to cut Social Security, Medicare and Medicaid, 
three of the most important and most politically popular 
entitlement programs, which conservatives are denied the votes 
or political support to undermine outright.
    These three programs constitute a majority of all Federal 
spending, and by far the largest portion of mandatory spending. 
And so when we talk about mandatory spending, we are talking 
about these programs. And if there is a problem with the 
finances of these programs, I would submit you can raise the 
cap on Social Security and Medicaid to get sufficient funding, 
not to take away from the people who need these programs, 
perfectly within Congress' constitutional powers to constitute 
power of the purse to pass mandatory spending measures that 
avoid the annual appropriations process.
    Doing so as a policy choice, one which Congress may be free 
to revisit on its merits, but not one that is unconstitutional. 
And the prior Congresses that enacted Social Security, Medicare 
and Medicaid made the right choice in making funding mandatory 
for those programs.
    In the 81 years since President Roosevelt, Franklin 
Roosevelt, signed the Social Security Act into law, Social 
Security has remained one of the Nation's most successful and 
effective programs, one that provides a basis for retirement 
for our seniors, and social insurance for workers who have 
become disabled, or for their survivors in the event of their 
deaths.
    According to the Center for Budget and Policy Priorities, 
60 million Americans, or more than 1 in 6, received Social 
Security benefits in June of 2015. And without Social Security, 
almost half of Americans age 65 and older would be living well 
below the poverty line. Thanks to Social Security, less than 10 
percent currently do.
    Social Security is a particularly important source of 
income for members of minority groups, who are 
disproportionally likely to have low incomes and less ability 
to save for retirement. For instance, 46 percent of African-
Americans age 65 and older relied on Social Security for 90 
percent or more of their income, compared to 35 percent of 
Whites.
    This disparate impact shows that regardless of the intent--
and I know there is no intent on the part of the people that 
proposed this--it is de facto racial in nature, and 
discriminatory.
    According to the Center for Medicare and Medicaid Services, 
Medicare provided health insurance and other benefits to 54 
million Americans in 2014, and the average monthly enrollment 
for Medicaid in the Children's Health Insurance Program was 64 
million in 2014, including 29 and a half million children.
    Other programs that mandatory spending provisions include 
SNAP, the Nation's foremost anti-hunger program, which in 2015 
helped 43 million low-income Americans afford food, including 
the 15 million children who are food-insecure and living below 
the poverty line. That is one in five children in the richest 
country on earth.
    These programs represent our Nation's most basic commitment 
to supporting our elders, and of protecting our most vulnerable 
fellow citizens. And mandatory spending programs are vital to 
ensuring the poor, the sick and the elderly are not sentenced 
to a life of desperation and constant insecurity over essential 
life necessities like food and healthcare.
    While we are spending limited time and resources on a 
budgetary policy dispute, calling it a constitutional issue, we 
should really be addressing programs, pressing programs, that 
have been ignored, like reinvigorating the Voting Rights Act, 
criminal justice reform, and stopping the scourge of gun 
violence. These are issues that need addressing that are 
important.
    And I would submit again, this past week we lost a great 
hero in Eli Wiesel, a great man on the face of the earth, and 
he talked about the fact that if you are dealing with an 
issue--and he was talking about, I guess, physical violence, 
but he said, ``If you do not take a position, if you do not 
take a stand, you stand with the oppressor, and not with the 
victim. And neutrality does not work, because neutrality 
benefits only the oppressor and not the victim.''
    In these situations where you are taking funding from 
people who are poor, and otherwise would not have the money and 
the means to have food or healthcare, and particularly to 
African-Americans who grew up, many of them, in either a pre-
Brown, a Jim Crow world, or just the beginning of the change, 
which was not enough to give them the opportunities for access 
to moneys or to jobs that could give them good retirements, you 
are talking about discriminating against the vulnerable, and 
you are taking the role of helping the oppressor.
    That is something we should never do, and that is why I am 
pleased to be a Member of Congress and fight for those people 
that need to be represented, and suggest that we, instead of 
looking at these issues, we should be looking at raising the 
cap, and having those that can afford pay a little more to take 
care of those who cannot.
    I thank our witnesses for their testimony, and I look 
forward to the rest of the hearing. I yield back the balance of 
my time.
    Mr. King. I thank the Ranking Member from Tennessee for his 
opening statement, and now recognize the Chairman of the full 
Committee, Mr. Goodlatte from Virginia, for his opening 
statement.
    Mr. Goodlatte. Thank you, Chairman King, for convening this 
sixth hearing of the Task Force on Executive Overreach, this 
one focusing on the mandatory Federal spending that risks 
stripping current and future generations of so many of the 
opportunities previous generations enjoyed.
    Federal spending as a percent of gross domestic product, 
broken down by category, shows that entitlement spending has 
grown the fastest, and now consumes the largest percentage of 
our GDP. In the past, U.S. public debt as a percentage of gross 
domestic product generally rose as a result of having to 
conduct wars of a limited duration. When those wars were over, 
the debt was gradually paid off.
    More recently, however, public debt has risen as a result 
not of wars, but of having to pay for entitlement programs that 
are of indefinite duration, and difficult to reduce over time. 
Total discretionary spending as a percentage of our economy has 
gone down. Defense spending as a percentage of our economy has 
gone down. Other non-defense discretionary spending has also 
gone down.
    What is increasingly going up is total mandatory spending 
as a percentage of our economy, such that mandatory spending 
now dominates the Federal budget. Making matters even worse, 
the deficit spending it causes will lead to ballooning interest 
payments in the years to come, as interest rates reach normal, 
that is, higher levels.
    By 2026, it is predicted that so much of the Federal budget 
will be devoted to mandatory entitlement spending that just a 
sliver of incoming annual revenue will be left to pay for 
everything the Federal Government does other than mandatory 
entitlement spending, such as paying for national defense, our 
Federal courts, Federal policing, natural disasters, basic 
research and everything else.
    Federal tax rates are already steeply progressive, and the 
pool of people in the labor market from whom taxes can be drawn 
is shrinking as fewer and fewer people report even looking for 
work. At the same time, older generations receive more in 
public benefits than they pay in taxes. And so future 
generations will have to pay much more in taxes to cover both 
the public benefits costs to themselves, and the costs incurred 
by all who came before them.
    As fewer younger people must pay more to support the 
benefits for larger older generations, younger people are less 
able to afford children of their own, and so are having fewer 
children. And the situation worsens going forward in a perverse 
ripple effect.
    Indeed, a 2013 cross-national study looked at measures such 
as public debt per child, the ratio of childhood to elderly 
poverty, and the skew toward older generations in social 
spending. The study found that the United States ranked worst, 
dead last, among 29 advanced countries in the degree to which 
it imposes disproportionately large burdens on future 
generations.
    As University of Virginia philosophy professor Loren 
Lomasky has written, theorists have devoted considerable 
attention to injustices committed across lines of race and 
gender. Far less attended are concerns of intergenerational 
fairness. That omission is serious. Measures that have done 
very well by baby boomers are much less generous to their 
children, and worse still for their grandchildren.
    The single greatest unsolved problem of justice in the 
developed world today is transgenerational plunder. That is 
grossly unfair to our young Americans, and to the wellbeing of 
our pluralistic society as a whole.
    I believe the only way to ensure Congress acts with fiscal 
restraint over the long term is to pass a balanced budget 
amendment to the Constitution. Back in 1995, when a balanced 
budget amendment came within one vote of passing, the gross 
Federal debt stood at $4.9 trillion. Today, it stands at over 
$19 trillion. This experience has proven time and again that 
Congress cannot, for any significant length of time, rein in 
excessive spending, but two-thirds of each house of Congress 
has yet to come to really appreciate that history and this 
looming fiscal crisis. I look forward to hearing from all of 
our witnesses today, and examining solutions for bringing our 
fiscal house in order. Thank you, Mr. Chairman. I yield back.
    Mr. King. I thank the Chairman for his opening statement, 
and I now recognize the Ranking Member of the full Committee, 
the venerable gentleman from Detroit, Mr. Conyers.
    Mr. Conyers. Thank you very much, Chairman King. And I too 
join in particularly welcoming Scott Lilly, as well as Mr. 
Steuerle and Mr. Eberstadt. Members of the Committee, this is a 
continuation of a decades-old line of attack by conservatives 
on America's longstanding commitments to aid the elderly and 
the poor, and I am not sympathetic with that point of view, and 
it is a legitimate one that even rational people can hold or 
claim is an important consideration.
    Now, there are a couple things that we want to keep in mind 
before the testimony of our witnesses comes forward. The first 
is that mandatory spending and stopping the entitlement crisis 
are really intended to slash programs such as Social Security, 
Medicare, and even parts of Medicaid. These are the programs 
that comprise the great majority of mandatory spending in the 
Federal budget.
    According to the Congressional Budget Office, Medicare and 
Medicaid alone made up 40 percent of all mandatory spending in 
the last fiscal year. And Social Security, Medicare and the 
Federal share of Medicaid, the largest mandatory spending 
programs, comprised a little bit over 50 percent of all Federal 
spending. The budget deficit and the future solvency of the 
trusts that fund Social Security and Medicare are important 
issues in this discussion that merit close consideration.
    But instead of putting forth a proposal that would help 
raise revenue, there are friends of mine on this Committee, in 
the majority, who propose to fund all these and other social 
safety net programs through the annual appropriations process, 
a process that often becomes mired in partisan division.
    And so while they may protest that they would leave Social 
Security and Medicare alone, keep in mind that other important 
social safety net programs, such as food stamps, better known 
as SNAP, Temporary Assistance for Needy Families, better known 
as TANF, only account for 10 percent of the mandatory spending. 
So if the majority's plan for reducing the Federal deficit 
relies on cuts alone, you cannot do so simply by cutting 
funding for these important social safety net programs through 
the appropriations process. It cannot be done.
    Subjecting Social Security, Medicare and Medicaid 
recipients to an annual appropriations process threatens to 
harm the basic economic well-being of seniors and working 
people in need. And if you do not believe me, hold a hearing in 
your congressional district, and let people know what you have 
in mind, and I think I can fairly easily predict what the 
result would be.
    According to the Center on Budget and Policy Priorities, 
without any government income assistance, from safety net 
programs like Social Security, the Nation's poverty rate would 
almost have doubled in the year 2014. And so I am comparing 
some of these figures with what my colleague from Tennessee, 
Mr. Cohen, has already promoted with great skill, and so I will 
cut this very short.
    Imagine the harm it would do to the most vulnerable members 
of our society if the funding for these programs were held 
hostage to yearly budget negotiations, or benefits were 
withheld because of a government shutdown, which, as we know, 
has occurred before. Unfortunately, this scenario is entirely 
possible, maybe even probable.
    And so lastly, mandatory spending provisions are not a 
historical accident, where Congress gave away too much power to 
the executive. Rather, they more nobly reflect the Congress' 
commitment to the American people; to care for the elderly 
after a lifetime of considerably hard work, and to aid the 
working poor. Mandatory spending for programs like Social 
Security and Medicare is simply based on the need to ensure 
stability in these and other vital programs, so that the most 
vulnerable in our society can be assured of minimum income 
standards to meet their basic human needs.
    And so proposing to subject these programs to an annual 
appropriations process cannot be a very humane or charitable 
strategy. It may be accidental or inadvertent to denigrate the 
working poor and the elderly as undeservers, undeserving 
takers, something which I would love to discuss further. But I 
welcome the witnesses, I thank the Chairman, and I look forward 
to the discussion today. Thank you, Mr. King.
    Mr. King. Resisting the temptation to engage in debate, I 
thank the gentleman from Michigan. Without objection, other 
Members' opening statements will be made a part of the record.
    And let me now introduce our witnesses. Our first witness 
is Eugene Steuerle, Institute fellow and Richard B. Fisher 
Chair at the Urban Institute; our second witness is Mr. Scott 
Lilly, senior fellow at the Center for American Progress; and 
our third witness is Nicholas Eberstadt, the Henry Wendt 
scholar in political economy at the American Enterprise 
Institute.
    We welcome you all here today, and look forward to your 
testimony. Each of the witnesses' written statements will be 
entered into the record in its entirety. I ask that each 
witness summarize his testimony in 5 minutes or less. To help 
you stay within that timeframe, there is a light in front of 
you. The light will switch from green to yellow, indicating you 
have 1 minute to conclude your testimony. When the light turns 
red, it indicates the witness' 5 minutes have expired, and we 
appreciate you just working to that direction.
    Before I recognize the witnesses, it is the tradition of 
the Task Force that they be sworn in. So, to the witnesses, 
please stand to be sworn. Raise your right hand.
    Do you solemnly swear that the testimony that you are about 
to give will be the truth, the whole truth, and nothing but the 
truth, so help you God? You may be seated. Let the record 
reflect that the witnesses have all answered in the 
affirmative.
    And now I recognize our first witness, Mr. Steuerle, for 
his 5 minutes of testimony. Please turn on the microphone, Mr. 
Steuerle.

  TESTIMONY OF C. EUGENE STEUERLE, RICHARD B. FISHER CHAIR & 
             INSTITUTE FELLOW, THE URBAN INSTITUTE

    Mr. Steuerle. Mr. Chairman, Mr. Cohen, Members of the Task 
Force, thank you for the opportunity to testify before you 
today. The views expressed are my own, and should not be 
attributed to the Urban Institute, its trustees or funders.
    Let me begin by noting that we live at a time of 
extraordinary possibility, but you would not believe it by 
looking at the headlines. We have never been so rich, despite 
going through a recent Great Recession, and even though many 
needs remain unaddressed, and many do not share in that growth.
    Yet partly because we are ruled over by dead men, and yes, 
they were men, we stand with our backs to an ocean of 
possibilities that lay at our feet. I try to show this by two 
means. First, a decline in what I call fiscal democracy--that 
is, the discretion left to current voters and policy makers to 
determine how government should evolve. This index, which is 
shown on the screen above you, measures how much of our current 
revenues are pre-committed to programs that require no vote by 
Congress, or in technical terms, to mandatory spending 
programs.
    This index, I should point out, is politically neutral. 
Fiscal democracy is reduced both through increases in mandatory 
spending, and reductions in taxes. By this measure, in 2009, 
for the first time in U.S. history, every dollar of revenue was 
pre-committed before the new Congress walked through the doors 
of the Capitol.
    The second piece of evidence, which I will elaborate on 
more in my testimony, comes from simply comparing two budgets. 
First, a traditional budget, such as prevailed over most of 
this Nation's history, where spending is largely discretionary, 
and second, a modern budget, where growth in spending and tax 
subsidies are committed to rise automatically faster than 
revenues.
    Congress and the President end up in a never-ending game of 
whack-a-mole, or should I say, whack-some-dough. No wonder 
there are still budget problems after deficit-reducing actions 
in 1982, 1983, 1984, 1987, 1990, 1993, 1997, 2005, 2011, 2013, 
2015, among others.
    Consider the consequences. It is not just the economic 
problems of rising debt, and the inability to respond 
adequately to the next recession; and the people who will be 
hurt in that recession or the next emergency.
    It is also the political requirement imposed upon you, as 
legislators, to renege on promises to the public for both 
spending increases and low taxes, and in facing their wrath in 
the elections. Yet through the inability to work together, both 
parties lose their agendas, getting government that is both fat 
and ineffective at meeting public needs.
    For example, out of a scheduled increase of close to 
$12,000 annually per household in additional spending and tax 
subsidies by 2026, almost nothing goes to programs that 
encourage the development of earnings, wealth, human and social 
capital. And kids get essentially nothing, nothing.
    Restoring democracy requires nothing more or less than 
restoring greater discretion to the budget. That is easy to say 
economically, it is hard to say politically. Democrats must be 
willing to limit the share of spending that grows 
automatically.
    And Republicans must do likewise for tax subsidies, while 
agreeing to collect enough revenues to pay our bills. And both 
the President and Congress need to be held responsible for all 
changes in the budget, whether newly-enacted or passively 
allowed to continue. Restoring discretion does not simply mean 
paring program growth, or raising taxes, but opening the door 
to modernizing programs to better meet public needs, including, 
as I elaborate again in my testimony, on providing greater 
opportunity for all.
    I am not naive about the difficulty of reversing a 
multidecade decline in fiscal democracy. Yet until we restore 
greater discretion to the budget, the frustration and anger 
exhibited and shown to political parties by the public here and 
around the developed world will continue, deriving in no small 
part from a budget process that has shifted national debates 
from what we can do to what we cannot do. That is, from letting 
dead men rule. Thank you.
    [The prepared statement of Mr. Steuerle follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
                	______________
 
    
    Mr. King. Thank you, Mr. Steuerle. The Chair now recognizes 
Mr. Lilly for his testimony. Mr. Lilly?

           TESTIMONY OF SCOTT LILLY, SENIOR FELLOW, 
                  CENTER FOR AMERICAN PROGRESS

    Mr. Lilly. Thank you, Mr. Chairman, Ranking Member Cohen, 
Chairman Conyers. I think it is striking that the three of us 
largely agree on one essential element here, and that is that 
the Federal debt, the growth of Federal spending, is driven 
entirely by entitlements.
    I think it is important to go beyond that, and look at the 
entitlements that are driving the debt. And those entitlements 
are Social Security, Medicare, and Medicaid. Those, if you look 
at real per capita growth of Federal spending over the last 30 
years, those three programs by themselves accounted for more 
than 100 percent of the growth. In other words, the rest of the 
government shrank.
    So all of the vitriol about the bureaucracy being out of 
control, about the growth of the Federal Government, so forth 
and so on, is basically false. The government as we think of 
it--the 15 departments and all of the independent agencies--has 
actually shrunk in size if you measure it by real per capita 
spending.
    What has changed is the amount of money that we send out to 
individuals across the country. And that has gotten very 
expensive, because we have--in the past, we had about half a 
million people a year reaching retirement age. Today we have a 
million and a half people a year reaching retirement age, and 
so it is a lot more expensive to take care of.
    Where I think I may disagree with my colleagues, at least 
to some extent, is what do we do about that problem? CBO 
estimates that Federal expenditures are going to rise from 19 
or 20 percent of GDP, which they have been historically, to 
around 24 percent of GDP, as the progression of retirement 
increases. I think that is a reality that we all have to, 
regardless of our views of entitlement programs or the benefits 
of them, we need to face that reality. I do not think this 
country is ready to do the things that some people advocate, 
particularly the placement of Social Security benefits under 
the appropriations process.
    The average monthly benefit under Social Security for a 
retired worker is $1,350. More than $350 of that amount goes to 
out-of-pocket medical expenses. So if you believe that somebody 
can live well on less than a thousand dollars a year for all 
other expenses other than medical care, than this proposal 
works fine. If you think that that is not enough, and the vast 
majority of Americans, according to polling, think that it is 
not enough, then you have to come up with some combination of 
entitlement reform and tax increases. I think a large portion 
of it is going to have to come from tax increases, because I do 
not think either the elderly are willing to live on less, nor 
are their children willing to pay more for their retirement 
costs.
    As a result, this country would have to increase revenues 
substantially, but it is not out of the line. In fact, we would 
still be one of the lowest-taxed Nations in the world if we 
paid the cost of those retirement benefits. So I would like to 
expand on that in the question period, but I think we need to 
understand the problem, and I think this hearing is a good 
thing for helping people understand what the problem is. But we 
also have to think about the consequences of various 
alternatives of dealing with it.
    [The prepared statement of Mr. Lilly follows:]
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    Mr. King. Thank you for your testimony, Mr. Lilly, and the 
Chair now recognizes Mr. Eberstadt for his testimony.

TESTIMONY OF NICHOLAS EBERSTADT, HENRY WENDT CHAIR IN POLITICAL 
             ECONOMY, AMERICAN ENTERPRISE INSTITUTE

    Mr. Eberstadt. Mr. Chairman, distinguished Members, co-
panelists and guests, it is an honor to be here today. May I 
ask you to put up my first slide, please?
    [Slide shown.]
    Mr. Eberstadt. Over the past half-century, American 
politics, American governance and the American way of life 
itself have been transformed by the growth of public 
expenditures on social entitlement programs. In just----
    Mr. King. Mr. Eberstadt, could you move the microphone a 
little closer? Thank you.
    Mr. Eberstadt. In just two generations, the government of 
the United States has effectively become an entitlements 
machine. As a day-to-day operation, the U.S. government devotes 
more attention and resources to the public transfer of money, 
goods and services to individual citizens than to any other 
purpose, and the Federal Government more to these ends than to 
all other purposes combined. Over these same years, entitlement 
transfers have become a major component of the family budget of 
the average American household, and our dependence on these 
government transfers continues to rise.
    The first law of social policy is that government programs 
come not only with intended consequences, but with unintended 
ones as well. Fifty years into our great social experiment of 
expansion of entitlement programs, there is ample evidence to 
indicate that the unintended consequences of this 
reconfiguration have been major, and adverse. Why do we not go 
on to that? Until about 1965, the accepted purpose of the 
Federal Government, in keeping with its constitutional charge, 
was governing.
    The Federal Government spending patterns reflected that 
mandate. The overwhelming share of Federal expenditures was 
allocated to defending the republic against its enemies foreign 
and domestic, and some limited public services and 
infrastructural investments.
    In fiscal year 1965, according to OMB, Federal entitlement 
programs expended about 28 percent of the Federal Government's 
total outlays. By FY 2015, entitlement programs reportedly 
accounted for fully 72 percent of Federal Government total 
expenditures.
    Thus in a very real sense, American governance has 
literally been turned upside down by entitlements, within our 
lifetimes. A half-century of extraordinary expansion of 
entitlement outlays has completely inverted the priority, 
structure and functions of the Federal administration, as these 
had been understood by all previous generations of Americans. 
May I ask for the next slide, please?
    [Slide shown.]
    Mr. Eberstadt. And the one after that.
    [Slide shown.]
    Mr. Eberstadt. The explosive growth of entitlement outlays 
was accompanied by a corresponding surge in the number of 
Americans who had routinely applied for and accept government 
benefits. Despite episodic attempts to limit the growth of the 
welfare state, or occasional assurances that the era of big 
government was over, the pool of entitlement beneficiaries 
apparently has grown continuously.
    Can we go to the next one, please?
    [Slide shown.]
    Mr. Eberstadt. This may be a little bit difficult to see. 
Between 1983 and 2012, the percentage of Americans 
participating in entitlement programs jumped by nearly 20 
percentage points. Less than one-fifth of that 20 percentage-
point jump can be attributed to increased reliance on the two 
old age programs--Medicare and Social Security.
    Overwhelmingly, the growth in claimants has stemmed from an 
extraordinary rise in means-tested entitlements. All told, more 
than 35 percent of Americans were taking home at least some 
benefit from a means-tested program by 2012, nearly twice the 
share in 1983.
    America today is almost certainly the richest society in 
history, at any time, and it is also certainly more prosperous 
and productive now than it was three decades ago. Yet 
paradoxically, our government behaves as if Americans have 
never been more needy.
    Until and unless some sort of forcing financial crisis 
suddenly restricts the resources available to it, continued 
growth of the entitlement state looks very likely in the years 
immediately ahead. And at this writing, I myself see no such 
forcing crisis on the horizon. If that prognosis is correct, we 
may expect the inadvertent consequences, to which I detail in 
my prepared statement the rise of our entitlement state, to 
become still more acute in the coming years. Thank you very 
much.
    [The prepared statement of Mr. Eberstadt follows:]*
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    *Note: Supplemental material submitted with this statement is not 
printed in this hearing record but is on file with the Task Force, and 
can also be accessed at:

      http://docs.house.gov/Committee/Calendar/
      ByEvent.aspx?EventID=105155
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                  _____________
                  
                  
    Mr. King. Thank you, Mr. Eberstadt, for your testimony, and 
all the witnesses. I now recognize myself for 5 minutes. And I 
would turn first to you, Mr. Eberstadt, and ask if you could 
expand a little bit on a point that is in your written 
testimony regarding male flight from work. What is this social 
dynamic that is brought about, I think by your assertion at 
least, because of the entitlement programs?
    Mr. Eberstadt. Well, for over the postwar period, from 
1948, when we started to collect detailed monthly employment 
statistics, to the present, we have seen a dramatic decrease in 
the proportion of prime age males--that is the Labor 
Department's designation of men 25 to 54 years of age--who are 
either working or unemployed and seeking work, which is to say, 
in the labor force.
    We have seen a growing proportion of men who are neither 
working, nor looking for work. Most recent estimates by the 
Labor Department are that almost 12 percent of men in this 
prime group are neither working nor looking for work. When I 
was a kid, back in 1965, the corresponding figure was about 3 
percent, about a quarter of that.
    Exactly why there has been this tremendous flight from work 
is I think a very important and complex question. But certainly 
this has coincided with the rise of various entitlement 
availability programs. That does not prove causation. 
Correlation does not prove causation. But certainly the rise of 
these programs has helped to facilitate and to finance this 
exit from the labor force.
    Mr. King. Mr. Eberstadt, would you agree that it looks like 
there is an incentive in the entitlement programs, though, that 
discourage work, and that is a component in the data that you 
have seen?
    Mr. Eberstadt. This is one of the unintended consequences 
of social policy to which I mentioned, yes.
    Mr. King. I want to pose a question off of that. And that 
is, and I have watched different places around the world as, it 
looks like a group of people loses its work ethic over time. 
And some of it has to do with the welfare programs, some of it 
is just loss of opportunity, subtle and not producing in the 
economy. Can you think of any examples where that work ethic 
that has been inter-generationally diminished has been 
reconstituted again back to the former work ethic?
    Mr. Eberstadt. I think this has happened historically on a 
number of occasions. If we look at the history of Victorian 
England, for example, I think we saw a reinvigoration of work 
ethic at various points and times. It has usually been 
associated in other societies, like in England or Britain, with 
a religious revival. I do not think that government is a very 
effective instrument for engineering religious revivals, and I 
hope government does not try to do that.
    Mr. King. So probably the Protestant work ethic would be 
some of that, and I recognize that. For now, I think you, and I 
turn to Mr. Steuerle. And one of the things that you mentioned 
was that we have never been so rich. I would assert we are the 
richest country in the history of the world, and yet we cannot 
sustain ourselves in real time, even when we are not in a 
national security crisis mode. Can you enlighten us as to what 
happens if we continue down this path? Where is the cliff, and 
what does it look like?
    Mr. Steuerle. I am not sure where the cliff is. I do know 
that the increasing debt that we have as an economy decreases 
our ability to react to different issues. I mentioned in my 
testimony and elsewhere that our ability to react to the next 
recession, or the next emergency, is much less. Even if we do 
not actually fall off the cliff, we are still very tentative in 
doing other things.
    I would also point out, and I pointed this out through all 
sorts of examples--I can give you more--the extraordinary 
extent to which the growth in government is scheduled for 
things that, generally speaking, I do not think either party 
thinks is best.
    So it may be Republicans do not want to have so much 
growth, and it may be Democrats would rather the growth go 
toward children, but the compromise is not there. I mentioned 
we are spending nothing additional on children, on programs for 
what I call human and social capital development. We are not 
spending wisely. And I think all of this is really a budget for 
a declining economy.
    Mr. King. Thank you, and then, Mr. Lilly, in your vision 
into the future, if we continue down this path with this debt 
load we have, or we adjust it with tax increases to make some 
accommodations to that, is there a limit to what we can 
sustain? Can we always raise taxes to get it back to I think 
something resembling balance? Or is there a cliff for us? Is 
our borrowing capacity getting limited, and if so is it a 
percentage of GDP? How do you envision this thing getting out 
of hand, because I know you are concerned about it?
    Mr. Lilly. I mean, we are at 85 percent or 80 percent of--
our debt is 80 to 85 percent of GDP. I think that is way too 
high. I want to see a fiscal policy that brings that debt back 
down to below 50 percent. In 1974, we were at 24 percent. I 
mean, that is a reasonable goal.
    We have an unusual situation because of demography and the 
huge number of people that were born after World War II. And I 
think we have to recognize that, and we have to recognize that 
we are going to have to raise more taxes in order to pay for 
it. But that still leaves us at the very low end of 
industrialized countries in terms of taxes. There are countries 
that have been growing much faster than we have, that have tax 
as a percentage of GDP that is nearly twice the level that we 
have.
    Mr. King. Would putting a much higher percentage of our 
people to work, would be part of your solution?
    Mr. Lilly. Absolutely, absolutely. I would like to say, 
though, if I could, I think it is a great disservice to say 
that welfare payments to working-age men has anything to do 
with this entitlement program. That is a tiny, tiny share of 
entitlement spending.
    Mr. King. We will give you the last word on that, Mr. 
Lilly. And now I yield back the balance of my time, and 
recognize the gentleman from Tennessee, the Ranking Member, for 
his questioning.
    Mr. Cohen. Thank you, Mr. King. I find this terribly 
disturbing that we are even talking about it. And I appreciate, 
Mr. Steuerle, your statement--you understood and made clear 
that it is both incomes as well as spending, and it could go 
either way. You are interested in a neutral area.
    So you agree that if we raise the cap on Social Security, 
which is 1,185, and raise it considerably, we could bring 
revenues that would take care of this problem or take care of 
it to some extent. Is that not correct?
    Mr. Steuerle. I have to give sort of a qualified answer. 
Yes, as part of a compromise, I would actually agree to an 
increase in this cap, partly because it has been lowered 
through--has not kept up with real growth in wages. However, I 
have real concern with raising taxes to put more money into 
these programs, mainly for people like me. I cannot go into all 
the details----
    Mr. Cohen. No, it is not for people like you, particularly. 
When you come to the understanding that African-Americans age 
65 and older got 90 percent of their income from Social 
Security, that 46 percent of African-Americans got 90 percent 
of their income, and think about who they are. You start 
drawing Social Security when you are 66.
    That means that people get into Social Security who were 
born in 1950, and give or take let us say people live to be 90. 
There is outgrowth, but you are talking 1950 back to 1926. 
Think about all those people in the South, African-Americans, 
born between 1926 and 1950. What chance do they have to get 
enough money to take care of themselves without Social 
Security? They had no chance.
    Mr. Steuerle. Part of my Social Security compromise is 
actually to raise benefits for these people. But the average 
person retiring on Social Security now retires for 12 more 
years than he or she did in 1940. That does have an implication 
for the issue that Mr. King raised about the percent of the 
population that works. But I agree with you, I would spend more 
money on those particular people on Social Security, but as 
part of a compromise. It does not mean I still would not try to 
get this system into balance.
    Mr. Cohen. Yeah, well, you cannot balance things on people 
born between 1926 and 1950. Particularly in the South, and it 
was not that much better in the North. Opportunity was not 
there for African-Americans. Opportunity was not there for 
White people in Appalachia, either. People have not had 
opportunity, and this has been a society of haves and have-nots 
for a long time. It has just gotten to be more haves, or 
wealthier haves. The Trumps, and all that multi-billionaire 
world. Yeah, they want things cut, and they do not want to pay 
on the 1,185 and more. But you got so many people out here, 
they cannot deal with it.
    Mr. , you talk about it great in the ivory tower. What 
would you do about somebody that is born in the South, an 
African-American in 1940? What chance do they have to have 
enough funds? Were they deprived of some religious valuation 
that made them not want to work? Or could they not work because 
their government worked against them, and allowed 
discrimination and Jim Crow laws, that put them in the back of 
the line, and did not give them jobs? What would you do for 
those people?
    Mr. Eberstadt. I was born in 1955, sir, I did not have 
any----
    Mr. Cohen. You do not look African-American, you do not 
look like the South. You did not have Jim Crow, you did not 
have barriers put before you from the time you were born. And 
these are the people you are trying to cut. What opportunities 
do they have? Speechless. Mr. Lilly, tell me----
    Mr. Eberstadt. Sir, I am not speechless. Were you----
    Mr. Cohen. What would this Social Security cap be if it 
kept up with inflation? Do you have any idea?
    Mr. Lilly. I think it has been adjusted, you know, 
relatively rapidly to deal with inflation. I do not think it is 
that much out of line with that.
    Mr. Cohen. It is 1185 in 2016, right?
    Mr. Lilly. Yeah, and it was----
    Mr. Cohen. 117 before that?
    Mr. Lilly. Yeah. But less than 10 years ago, it was below 
100. So it has gone up at pretty close to the rate of 
inflation, and it may even be indexed, I think.
    Mr. Eberstadt. The percent of wages subject to the cap has 
been lowered mainly because of the increasing inequality in 
wages in the economy, and also because there are certain self-
employed people who are excluded from the tax. However, Mr. 
Lilly is right, it has kept up with inflation.
    Mr. Cohen. Well, it might not have been set at the right 
place when it started, so it may be the wrong criteria to look 
at to see whether----
    Mr. Lilly. What I would say is the problem with respect to 
Social Security is relatively small. And there are reasonably 
small adjustments that could be made to take Social Security 
and make it solvent over a period of time at current benefit 
levels. The real problem is Medicare. And as I tried to point 
out in my testimony, it is not just your Medicare check, but 
how much you have to pay in out-of-pocket expenses. And if your 
out-of-pocket expenses eat up most of your Medicare, you do not 
have enough to stay alive on. And that is the problem we face.
    And there is no reason that we cannot raise the general 
revenues to pay for Medicare. That is the way we pay for them 
now, and we could pay for more of it if we would simply make 
the tax adjustment, and avoid some, as you point out, terribly 
painful choices that we would have as a society.
    Mr. Cohen. Thank you.
    Mr. King. The gentleman from Tennessee yields back. The 
Chair now recognizes the gentleman from Idaho, Mr. Labrador.
    Mr. Labrador. Thank you, Mr. Chairman. And, Mr. Eberstadt, 
I had a couple of comments, but before I say anything, did you 
want to respond to that question that was just asked to you, 
that they were trying to put you in a situation that I thought 
was a little bit unfair?
    Mr. Eberstadt. Thank you very much for giving me an 
opportunity, and I will try to answer your question. Of course 
we have a long history of racial discrimination. It goes back 
to President Obama's description of original sin in the United 
States. It is our original sin.
    There is no way to rewind history, as I tried to indicate. 
What we can do is we can try to have a social safety net that 
deals efficiently and in a targeted way with the people who 
have the greatest need in our society. I think that is part of 
what Mr. Steuerle was trying to say as well.
    As for the greater question of whether the benefits which I 
was mainly talking about, the means-tested benefits, have an 
effect upon the quality of citizenship, and also upon the 
likelihood of people's participation in the economy in the 
future in growing wealth, I think that is something that we 
also have to keep a careful eye on, because there are 
unintended consequences in all social policies.
    Mr. Labrador. Thank you, and there definitely are 
unintended consequences. In fact, if you look at the areas of 
the country that are suffering the most from poverty are the 
places where, for the most part, the people complain the 
loudest about it are representing them.
    So I would be very careful. I would look at the history of 
what these unintended consequences have been. And you find the 
largest gaps in wages, you find the largest poverty pockets, in 
some of these areas where so many people come here and they 
like to lecture others on how much they care about those 
people. But really what is happening in those communities is 
that they are finding themselves further and further in poverty 
and in need. I am pleased that we are examining here the 
mandatory spending that is bankrupting this country.
    Ever since I first sought election to Congress was to cut 
back on the gross amount of spending authorized by this body 
each and every year. In order to sustain the fiscal solvency of 
this country, we need across-the-board cuts in spending, both 
mandatory and discretionary. Nothing should be off the table. 
It strikes me in the past 6 years, I have not truly been given 
the opportunity to vote against these measures, and not really 
been given the opportunity to vote against any mandatory 
spending provisions.
    This is not so much executive overreach as it is a bloated 
bureaucracy that continues to grow fat and spend money while 
Congress does nothing. I am encouraged by this hearing today, 
and I look forward to working with other Members on proposals 
and bills that return the spending authority to Congress to 
decide more regularly what is appropriate mandatory spending, 
and what is simply wasteful
    Mr. Steuerle, what sections of the Federal budget are the 
largest contributors to mandatory spending?
    Mr. Steuerle. So, in a lot of my writing I distinguish 
between mandatory spending without built-in growth rates, and 
those with built-in growth rates. The ones that have the built-
in growth rates are mainly the retirement and the health 
programs--and by the way, the health programs include the tax 
subsidy for health as well--and things like the mortgage 
interest deduction.
    So I include the tax subsidies in my examples of those that 
grow automatically. For instance, people in my generation have 
about twice the housing, or the value of housing, as my 
parents' generation. Congress automatically let that subsidy 
grow or double, without voting that that was the best way to 
spend the money, when I think we could have done a lot better 
for low-income people, people who do not have housing. The same 
thing happens within the retirement and health arena.
    Can I just give one statistic that I think might help think 
about this? Thinking about the future as opposed just to 
current levels: for a typical couple today, Social Security and 
Medicare provide lifetime value benefits of about a million 
dollars. Right now, that is about two-thirds Social Security, 
about a third Medicare. That is a million dollars. You might 
wonder how you get there; it is basically about $50,000 for a 
couple, average couple, for about 20 years. For a typical 
couple, they are on these benefits--that is the longer-living 
of the two for close to 3 decades.
    Now, for millennials, that million-dollar figure--and that 
is the value needed in a savings account, if it is discounted 
would grow to about $2 million.
    Suppose we thought about that growth, that automatic growth 
from a million to $2 million, and said, ``Is this the best way 
to support millennials?'' Well, we add to their student debt, 
we let their childcare, I am sorry, the child credit decline in 
value, the tax credit. We do not give them wage support if they 
are low-income. We do not provide them first-time home buyers' 
subsidies.
    I think there is a lot of ways of transferring this money 
gradually over time to better provide work incentives, to 
better provide support that would produce upward mobility, than 
simply saying that all of the growth in government for you, you 
millennials, whom we are neglecting already, is going to go to 
you when you retire. But before then, we are going to forget 
you.
    Mr. Labrador. Well thank you, Mr. Chairman, I have run out 
of time. So I yield back my time.
    Mr. King. The gentleman from Idaho yields back. The Chair 
will now recognize their Ranking Member of the full Committee, 
Mr. Conyers.
    Mr. Conyers. Thank you, Chairman King. This has been very 
interesting. I would like to ask you all about the economic 
reality of income inequality in America, the wealthiest country 
on the planet.
    And let me start with the senior fellow for the Center for 
American Progress. But I will come to all of you here. It is my 
understanding, shocking that one in five children in this 
country live in poverty, but that on a larger basis of private 
wealth, the top 1 percent of possessors of private wealth have 
a greater income than the other 90 percent of the citizens put 
together. Have you heard of that, mister senior fellow?
    Mr. Lilly. Mr. Chairman, I think that is one of the great 
tragedies in our society today. It is also a problem that we 
have around the world. I think a lot of the divisiveness in 
American politics today centers around the fact that people 
feel disinherited. The working class feels that there is no way 
out. They do not see a way out for their kids, and guess what, 
we are finding out it is really bad for business, it is bad for 
the direction--I think the American Chamber of Commerce is 
absolutely apoplectic right now at the direction that this 
country is going.
    And I think they have to looking the mirror to some extent 
and think about why there is this division, why is this 
extremism showing itself in American politics. A country that 
does not grow together and does not prosper together is not 
going to be a strong country, and I think we are beginning to 
see only the beginning of the downside of this terrible 
division in the way we are growing.
    Mr. Conyers. And you know, this is not even taking into 
consideration the rather great improvement in the differences 
of income inequality because of collective bargaining, which 
has only recently come into our system in which people--we have 
such a thing as a minimum wage, and we have some progressives 
now arguing that a $15 minimum wage should be the bottom of the 
income level, which leaves more conservative people that come 
before the Congress apoplectic, that we would pay somebody a 
minimum of $15 an hour. Would you begin our discussion on that, 
Scott Lilly?
    Mr. Lilly. Well, you know, I think there are a number of 
things that you can do to reduce income inequality from a 
policy side. I would say this topic that we are dealing with 
right now in terms of Social Security benefits and Medicare and 
so forth, is a huge factor.
    In 1959, 30 percent of elderly people in the United States 
lived in poverty. Today it is 9 percent, the lowest of any age 
group. If we were to turn back and put Social Security payments 
as subject to annual appropriations, we would be headed back to 
that 30 percent and we would greatly exacerbate what is already 
a huge problem in this country.
    Mr. Conyers. Why do your two panelists on either side of 
you not agree with that comment?
    Mr. Steuerle. So I have never advocated putting Social 
Security on annual appropriations; I have suggested that 
whether Social Security or anything else, that we need to 
figure out where we want the growth in government to go. So 
think out 35 years from now. Even at our low economic growth 
rate, the economy doubles in size, revenues probably double.
    How do we want to spend that money best? I would argue that 
it is time now to promote the types of things that you are 
talking about, Mr. Conyers--which is on the opportunity front--
to touch the things that I think Mr. King is also talking 
about--which is promoting more earnings and promoting more 
labor supply, and trying to figure out how we could allocate 
it.
    My calculations are that in the direct support budget--that 
is, take out the public goods--we spend about $35,000 a 
household right now. Suppose in another 35 years that doubles 
to $70,000. Now maybe it takes 40 years to get there with 
Republicans, and maybe it takes 30 years to get there with 
Democrats. It is still growing, as long as we can promote 
economic growth.
    I want to think about how we can really allocate that 
growth best to the things that promote mobility, earnings 
growth, wealth--and wealth inequality, by the way, is much 
worse than income inequality. But I do not think our current 
social programs are doing a good job of getting us there. And 
even if you disagree with that statement, I think we can all 
agree they could do a better job.
    Mr. Conyers. Thank you so much. Could I just ask if our 
other panelist, Mr. Eberstadt, did you have a view different 
from the--well there are two different views. Where do you come 
down on this discussion?
    Mr. Eberstadt. I think Mr. Lilly is absolutely right in 
emphasizing the importance and the future of unfunded 
liabilities for the healthcare programs. I think Mr. Steuerle 
is exactly right in emphasizing the importance of more rapid 
economic growth. If we have more rapid economic growth, we have 
got more options for everything. In terms of the question of 
the poverty rate, this may be a little bit arcane for our 
current discussion, but I think that the poverty rate is 
actually a very poor measure of poverty in the United States 
because it looks--in my view, it looks at the wrong end of the 
telescope.
    We should be looking at people's purchasing power and 
people's spending power. And if we did that, poor people would 
still be poor, but they are not going to be rich. But we would 
have a much better understanding of how to target our resources 
to the truly needy.
    Mr. Conyers. Well, I thank you all for your interest. This 
is a conversation that, Chairman King, we could have another 
hearing on. And I congratulate you on picking this subject to 
bring these three experts before us on.
    Mr. King. Thank you, Mr. Conyers, for your engagement. And 
the gentleman from Michigan has yielded back the balance of his 
time. Chair will now recognize the other gentleman from 
Michigan, Mr. Bishop.
    Mr. Bishop. Thank you Mr. Chair, and thank you for this 
hearing; I think it is a fantastic opportunity to discuss an 
issue that is so very important to this country and the 
citizens of this country and really one of the reasons--primary 
reasons why I decided to run for Congress was to address this 
issue, and not just for me, but for future generations.
    I have got three young kids, and it occurs to me that if 
someone does not step in very quickly, this will get out of 
control. And my dad used to tell my sisters and me that if we 
ever found ourself in a hole, the first thing you do is stop 
digging. And this country, this government, at so many levels, 
has not done that one essential thing, stop digging.
    We continue to dig ourself in deeper. It is not rocket 
science, we just spend more than we have, and we continue to 
bury ourself in big government and programs that have failed 
over the years. And I think there is an institutional reflex to 
go to back to exactly where we started and to build from there, 
and we have not reassessed our priorities over the years. And I 
think that, coming from state government a few years back when 
I served there, I think state government is a great incubator 
for ideas on this subject.
    And, for example, the State of Michigan was in a financial 
death spiral. We were being steered right into the ground. I 
read the title of the hearing today, ``The Federal Government 
is on Autopilot,'' that is exactly what was happening in 
Michigan and it was being driven right into the ground.
    And changes had to be made, and were made. And about 2010, 
a completely new group of leaders came in with a new idea and a 
mandate to get things done, and Michigan has really turned 
around, in every category, because of that leadership. And you 
look at the other Midwest States, like Ohio, Indiana, 
Wisconsin, all have made dramatic turnarounds because of 
decisions that were made--tough decisions to address really 
difficult structural problems with the State. And then you look 
at Illinois, that has not made the decisions at all, and they 
continue to drive themself into the ground.
    So I raise this as a bigger issue. Government continues to 
grow at just phenomenal rates because we have not been able to 
do the very thing that we are sent here to do, which is to 
control our spending and get this place under control. I worry 
about my kids, and I worry about the future of this country 
because of that very reason. I wonder, Mr. Eberstadt, can you 
tell me anything--are there reforms that we can implement or 
consider that would restore the role of Congress, and 
rationally matching programs with the ability to pay for them?
    Mr. Eberstadt. Sir, I think that is a pretty big order. I 
think that is a pretty tall order. We have had two generations 
of very, very strong momentum in developing the Federal 
Government as an entitlements engine. And it did not happen by 
accident; it happened because there is a great demand for this 
on the part of voters in both parties. It is bipartisan.
    I guess I would think that maybe the impetus for real 
change has to come from the grassroots. I think it has to come 
from the voters. As long as voters say we would like to limit 
everybody's entitlements but our own, have a collective failure 
here.
    Mr. Bishop. That is a good point, and one that I was trying 
to make earlier with regard to the states, because that 
grassroots momentum started in Michigan, my home State, and 
that is really what turned things around, and really was the 
mandate for members of government to go back and do the right 
thing. Mr. Steuerle, if government stays on this path, can you 
reflect on what this means for my kids, for millennials?
    Mr. Steuerle. I already gave the example of what we 
promised for millennials, which is a hard time until they 
retire, and then they retire. Now that path is, by the way, not 
sustainable, but that is what currently scheduled in the 
budget, that is, to say, where we are providing all the growth 
in government. Now scheduled for about $12,000 more per 
household, nothing goes for children, and there is actually not 
very much for working families either.
    I keep trying to emphasize in my testimony that I am really 
trying to figure out a way to get through what I consider 
sometimes called a classic prisoner's dilemma between the two 
parties, where if either one leads too much by themselves, they 
lose. And they lose because we the voters punish them. Because 
you are in a position now where you are actually required with 
the budget so out of balance, to take things back for the 
public. Either to cut spending or to raise taxes. Take either 
side. And the public does not like that.
    An example of how this played out--I will not go to the 
current election--I will go to the past election, when 
President Obama ran against Governor Romney. They both accused 
each other of cutting back on Medicare, and they were both 
right on wanting to. So President Obama accused Governor Romney 
of cutting back on Medicare because he tended to favor--spoke 
somewhat in favor of a proposal--by Representative Paul Ryan, 
which was not fully delineated, but it was basically to convert 
the system a bit more toward a voucher system. Which, by the 
way, we have for Obamacare.
    Meanwhile, the Governor Romney accused President Obama of 
cutting back on Medicare because in truth, that is partly how 
he distributed some money in paying for health reform from 
older people to younger people. He would not say that, but that 
is what happened.
    They were both right; the system is out of control, but you 
could see how when you over-promise, it leads to this political 
dynamic where both parties basically accuse the other of 
cutting back on some untenable promise. We all know Medicare is 
out of balance, we know it cannot be sustained. And yet as long 
as we are in a situation where either party can blame the other 
when trying to reform it--and because there will be less, yes, 
there is less relative to an unsustainable promise--we are in 
this box.
    And so that box then, getting back to your question, this 
ties us in these knots. For instance I did a recent study that 
says of all the growth in spending, another one scheduled the 
next 10 year--the majority of it goes for healthcare.
    So for poor people and workers--Mr. Conyers cares a great 
deal about poor people, and also Mr. Cohen. So we are going to 
give them $400,000 a year surgeons, but we will be darned if we 
are going to give them wage subsidies or help for their 
children when they raise them. It is like a crazy box that we 
are all trapped in. And so a lot of what I am trying to do is 
create a process where there can be a compromise between both 
parties about how to get out of this box or this classic--as I 
say, it is sometimes called a ``prisoner's'' dilemma where if 
you lead by yourself, as a party you lose.
    Mr. Bishop. Thank you sir. Mr. Chair, I yield back.
    Mr. King. The gentleman from Michigan returns his time. And 
Chair would now recognize the gentlelady from California for 5 
minutes.
    Ms. Lofgren. Thank you Mr. Chairman. I think this is a good 
hearing, and with a serious testimony, and I appreciate all of 
the witnesses. Mr. Lilly, we knew you for so many years here 
when you worked on the Hill, and we thank you for your service 
here. And now that you are outside, I am wondering, I thought I 
saw that--well, let me ask you. What percentage of the 
mandatory spending on entitlement programs is for other than 
Medicare, Social Security, or Medicaid? What is the percent? Do 
you know that?
    Mr. Lilly. Medicare, Medicaid, and Social Security are 
about 73 percent of total entitlements. But then you have 
military retirement, which is not in there, you have civil 
service retirement, and you have veteran's benefits, which make 
up another close to 10 percent. I mean I think there is kind of 
an ugly part of this discussion, which is people use the word 
entitlement with some racial implications. I think that is 
true. I mean I know a lot of people do not, but there are some 
people that do.
    The truth is very, very little of the entitlement budget is 
actually going to minority groups that some people would like 
to undercut the whole--there may be a lot of State money that 
goes there, but I think there is an innuendo there that drives 
it. And the truth is, contrary to what Mr. Labrador said, the 
people that get the most from Social Security, and the people 
that are most dependent are rural White voters in Republican 
districts. And I am somewhat amazed at the willingness of the 
majority party to keep going down this road, because I think it 
is absolute dynamite if they get to the end of it. I think the 
whole purpose here is to get only partway down the road.
    Ms. Lofgren. At home, people, you know, the veterans and 
others talk about it as an earned benefits program, not an 
entitlement program. I suppose we could argue about that. But 
as I was thinking about those benefits that people have paid 
into, either with their service in the military or through 
paying into Social Security, what would happen if those were 
subject to annual appropriations?
    And I remember the government shutdown we had here; it was 
a very depressing time on--here in the capital and in the 
country. And one of the things that was important was that 
Medicare recipients and Social Security recipients did not have 
their benefits cut off. You know, we are not the most 
functional institution right now. If we had another government 
shutdown, and we had annual appropriations for these earned 
benefit programs, would they just simply be cut off?
    Mr. Lilly. It would depend on how understanding the Budget 
Committee was and what kind of allocation they gave the 
Appropriations Committee. But you are certainly setting up a 
big fight between law enforcement and national security and 
grandma's check. And I think she may keep part of her check, 
but I think she would be quick vulnerable if we set up that 
scenario.
    Ms. Lofgren. You know, just a final comment. I hope that 
there is general agreement--and I have heard that from both 
sides of the aisle--that we need to be doing more for the young 
people of this country. I very much feel that that is true. But 
I am also mindful that these Social Security programs, number 
one, the large number of survivors' benefits are children of 
people who have died, and that is an essential safety net for 
that group.
    But that also, at least where I come from, if grandma is in 
poverty, it is not grandma's problem by herself. I mean the 
whole family is going to have to scramble together. So to think 
that there is just an old person versus her daughter and her 
grandchildren is not correct, because the whole family is in 
this together. And if grandma is without any resources, 
everybody else in the family is going to have to come up with a 
way to keep grandma safe, sound, housed, fed, and the like. At 
least that is the way it is in where I come from.
    Mr. Lilly. The caps that we have put on Medicaid will 
inevitably, if adopted, result in lots of old people being 
taken out of nursing homes and put on their children's 
doorsteps, which would have--we would go back to the way we 
used to deal with old age 30 or 40 years ago, and it would be 
catastrophic for families, for the future--the ability to 
educate and send kids to college. It is a direction nobody in 
this country wants to go, and it is foolish to talk about it as 
a real plausible route.
    Ms. Lofgren. I see my time has expired. Mr. Chairman, I 
yield back.
    Mr. King. I thank the gentlelady from California for 
yielding back her time. And the Chair now recognize the 
gentleman from Texas, Mr. Gohmert.
    Mr. Gohmert. Well, I feel like I just listened to one of 
the biggest reasons we are in trouble. Mr. Lilly, your 
statements that often entitlement is used with racial 
implications. Normally when I hear entitlements, most of the 
people I know understand the majority of people are elderly 
White people. And so I realize there is a component around this 
town, to deal with issues in this town, that want to put 
everything in racial perspective, but that is one of them that 
is. And maybe some of your friends do, but I do not know any of 
mine that do.
    Mr. Lilly. Could I respond to that?
    Mr. Gohmert. I am responding to you, so no, you do not get 
a so rebuttal. If majority party goes down that road, they are 
not going to like where they are going. If we do not go down 
the road to get to fiscal responsibility, you are going to get 
through your life okay. And the wake you leave behind is going 
to be devastating and people will curse your name for future 
generations. We have got to go down a road of fiscal 
responsibility. So what I would like to do is talk about some 
possible solutions.
    For one thing, the way Congress has been structured after 
Watergate, when the Democrats took over the majority, there 
were a number of things that were put into play. The Committee 
structure, the way it has ended up, you have Subcommittees 
putting together budgets that include different public 
assistance measures for the same groups.
    And so, if you see one area where you think this is a bit 
duplicative, maybe we should cut this because I feel sure we 
have got other programs. Once you light into that, you are 
called a racist, you are called a--you know, you hate elderly 
people, you hate young people, it is just all about trying to 
divide us when we are trying to get to a place of 
responsibility before the system just collapses.
    And my friend Dan Webster, former Speaker of the House in 
Florida, said he took on one aspect, and that was the aspect of 
how many Federal programs have we created that take people to 
and from appointments. And he said he is pretty sure he has 
found them all, but they are all through different 
appropriations, through different Subcommittees, and he 
believes 82 is how many there are. There may be a few more, but 
he thinks he has found most of them.
    If you were to try to take out one of those 82 programs in 
one of those Subcommittee budgets, you would be accused of 
being racist, hating the elderly, hating veterans, hating this 
that or the other, when actually it seems to me if we got all 
of those different methods of public assistance--whatever it 
is, every form of public assistance in one Committee or one 
Subcommittee, then we could say no we do not need 82.
    Most of them have 20 seat vans that sit idly by, and when 
they are used apparently usually average of like three people 
taking a trip somewhere. So if we got down to one, then we 
could make some real progress, we could help the same number of 
people without all of the massive waste. Now Cleta Mitchell 
made a suggestion before our Judiciary Committee, or I guess 
this Committee--she said let the authorizing Committee be the 
appropriating Committee, which is an interesting thought 
because we have hundreds of millions, maybe billions of 
dollars, that--I guess it is billions--that are being 
appropriated even though the Authorizing Committee has not 
authorized them. And so, anyway, I do not have a lot of time 
when you only get 5 minutes.
    Also, another thing that was set up after Watergate was the 
automatic increase in every Federal department's budget, and we 
have got to do away with that, so that when we try to slow the 
rate of growth, then we are not vilified for making draconian 
cuts, that a real cut would be a cut, and a real increase is an 
increase. But I have been pushing that bill ever since I have 
been here.
    We have gotten through a couple of Republican Houses, but 
not through the Senate. But there is no charity, individual, 
company, partnership, nothing that has an automatic increase 
every year, and until we stop that and force people to be in 
government to be as responsible as people across America have 
to be, we are not going to fix our problems. And I yield back.
    Mr. King. I thank the gentleman from Texas. And the Chair 
would now recognize the gentleman from Colorado, Mr. Buck.
    Mr. Buck. I was just having fun over here listening to Mr. 
Gohmert. Mr. Gohmert, do you need more time?
    Mr. Gohmert. No.
    Mr. Buck. You said you only had 5 minutes, you were going 
to run out of time.
    Mr. Gohmert. That is right.
    Mr. Buck. All right. I have one sort of simple 
straightforward question, and I am directed to Mr. Eberstadt to 
start with. There are more than a dozen versions of a balanced 
budget amendment running around Congress right now. What would 
the effect of a balanced budget amendment be on this particular 
area?
    Mr. Eberstadt. Mr. Buck, I am really out of my depth, I 
confess, on balanced budget amendments. I have followed various 
entitlement programs and spending and dependency and labor 
market, but I have got to guess that the other two experts here 
will know a lot more about that particular area than I will.
    Mr. Buck. Okay. I do not want to mispronounce your name.
    Mr. Steuerle. It is just Steuerle. I grew up in the South, 
I slur over the letters, so. Just Steuerle.
    Mr. Buck. Okay. You want to take a shot at that?
    Mr. Steuerle. I do think the issue here is a constitutional 
issue, but I have to say constitutional with a small ``c,'' 
because I think it is actually crucial. My fear is in watching, 
say, votes in California, or votes in Britain--I worry that we 
cannot design a constitutional amendment well to deal with how 
you organize fiscal policy.
    So yes, I think that a budget should be basically balanced 
over an economic cycle, or as Mr. Lilly says, even more than 
balanced in the near term to get the debt to GDP ratio down. 
But I fear trying to write a precise rule for how to do it, 
because there is always something that comes up. An emergency, 
a war. So you can put exceptions in. But you put something in a 
constitution, and it is very hard to adjust.
    I think at the end of the day you have got to come up with 
rules on how the House, the Senate, and, if you want to, the 
President when submitting budgets--that, as I say, with a small 
``c''--can tend to have the constitutional constraint that the 
old balanced budget rule, which was not in the Constitution, 
provided. But I just fear we cannot write a formal 
constitutional amendment that is going to actually work. That 
we would ever word it right. And I fear the classic California 
problem of how some of things work when you get into that type 
of game.
    Mr. Buck. And what is the alternative?
    Mr. Steuerle. So I have quite a number of suggestions in 
various writings that I have made. Among them, I think that 
there are ways to hold Congress and the President more 
responsible for keeping a budget balanced over a cycle. You 
could tell the President this does not constrain him, but I 
think in the public it would. You could say we the Congress 
only accept a budget that is balanced over 10 years, or 
balanced in some reasonable way over the 10 years. I want to be 
careful because whether you do real or inflationary.
    Mr. Buck. But you know what happens then----
    Mr. Steuerle. And all these issues that are hard to define 
precisely.
    Mr. Buck. This Congress would blame it on the next one that 
it was not balanced 10 years from now. That is the game.
    Mr. Steuerle. But the last two Presidents have submitted 
substantial increases in the debt in their initial years and 
said, well, later on I will get around to dealing with it. At 
least a rule like that would hold them responsible for telling 
the public, ``Oh by the way, I am going to increase spending 
for Medicare Part D, or I am going to increase spending for the 
recession, but here is how I am going to pay for it at least 
seven or 8 years down the road.''
    They start off not doing it, and then they say after they 
double the debt, they say, ``And now I am going to worry about 
maybe cutting it back.'' There are other rules that I do not 
have time to go through it, that I suggest I think Congress 
could adopt that would be much stricter.
    But the main thing that I emphasize as I state in my 
testimony, there are all sorts of ways of writing budget rules 
is I think we have to restore discretion. So we could require 
some entitlements, by the way, like food stamps, to be actually 
reauthorized. So that it is really not an entitlement the same 
way.
    I think Mr. Lilly is more of an expert on this than I am. 
It is not an entitlement the same way as the ones that have 
automatic growth. Because it does not grow automatically, and 
it has got to be reauthorized. You could require more 
reauthorization for every program. Also, I think every program 
should be in a budget. Health programs, Social Security, it 
should be in a budget.
    Now, for instance, I would protect the inflation increases 
for current elderly, so nobody is cutting back on benefits. But 
target the growth, the automatic growth. For instance, I get 
about 7 or 8 more years of retirement relative to when the 
system was first established. That is worth about, for my wife 
and me, about $300,000 more.
    Did anybody really intend for me to get a $300,000 increase 
in Social Security benefits, just by having more years in 
retirement? I do not think so. Stuff like that should have to 
be voted on and reauthorized. So by restoring discretion to the 
budget, we create a process where there would then be a gap 
between revenues and spending, which the parties could fight 
over whether to have tax cuts or spending increases. That was 
the tradition throughout almost all of our history.
    And by the way, you know, consider all the political 
arguments about why people in Congress cannot compromise. When 
there is discretion, you have got to vote for a tax cut or a 
spending increase because a budget building up surplus would 
create huge problems. When spending grows faster than revenues, 
now you have got to compromise. Saying, ``Who wants to step up 
first and tell the public what they are not going to get? Who 
is going to step up first and tell them what tax increases you 
really want, or what spending cuts you really want,'' puts them 
in a horrible box, is easier to compromise when you have got 
more money to spend.
    It is hard to compromise when all the contracts have 
already been signed for infinity for how that money is going to 
be spent.
    Mr. Buck. Thank you, Mr. Chair.
    Mr. Steuerle. So there is a lot of rules like that I think 
we could develop.
    Mr. Buck. I have got to yield back.
    Mr. King. The gentleman from Colorado yields back. This 
concludes today's hearing, and thanks to all our witnesses for 
your testimony and your participation.
    Without objection, all Members will have 5 legislative days 
to submit additional written questions for the record, or 
additional materials for the record. I thank the witnesses, and 
I thank the members in audience. This hearing is adjourned.
    [Whereupon, at 2:36 p.m., the Task Force was adjourned.]

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