Senate banking committee holds hearing on federal debt ceiling | full video

Air Traffic Control medical research fighting counterfeiters and Drug traffickers delivering the mail monitoring air pollution inspecting sewage treatment fighting wildfires keeping highways and bridges repaired it is a long list that House Republicans are willing to slash in the short term these Extreme Cuts would drive the U.S economy into a recession and force 2.6 million Americans out of their jobs a decade from now we would still be short a million jobs and 2.8 percent of our GDP as if our economy had simply Stood Still for a full year I'll say it again debt ceiling breach is bad for our economy but House Republicans spending cuts are also a disaster plunging our economy into a recession and putting more than two and a half million people out of work I appreciate that and not uh vison Freud did I get it right good from my home state of Massachusetts is here today to help us understand the real life impacts of these Republican plans now it is impossible to take House Republicans claims to want to reduce the deficit seriously their proposals simply seem designed to cause pain now there's a divide a debate among economists about how important deficit reduction really is but if we want to have a serious conversation about deficit reduction it starts with the trillions of dollars that's trillions with a t that we could raise with a few simple steps that would leave middle class families untouched repeal the Trump tax cuts for the wealthy and big corporations uh tax Giant multinationals on their offshore profits strengthen the billionaire corporate minimum tax raise the tax on stock BuyBacks and make sure that billionaires pay taxes on their growing piles of wealth eventually we must raise the debt ceiling and pay what we owe that leaves our country with two options to deal with the national debt we can raise trillions of dollars in new Revenue without touching middle-class families or we can cave in to Republican blackmail wreck our economy cut Medicare and Social Security and government programs that create jobs and invest in the middle class today I sent President Biden a letter urging him to put out a strong budget later this week that raises revenues from the wealthy and well-connected and rejects extremist job destroying house Republican plans our choice could not be simpler and that is what we are here today to talk about and now I will return I will turn this over to ranking member Senator Kennedy for his opening remarks thank you madam chair um I want to thank Senator Warren for calling this hearing I want to thank all of you for being here I know I know you're busy we have several several things going on this afternoon so I may be in and out but I want to stay as long as I can to hear your testimony let me make a couple of points number one it is Unthinkable to me that the United States Congress will not extend the debt limit um I can tell you the United States this United States Senator will not vote to to Paul to an America's debt now we have a lot of it but uh there's a moral principle involved in a practical principle involved and if you're going to have a party you've got to pay the band and it's time for us to pay the ban and we're going to do it however um I think you will see some of us including but not limited to the House Republicans use this as an opportunity to talk about our rate of growth in spending and to talk about the rate of growth in our debt accumulation and that's not unusual every time we have one of these disagreements in divided government over the the debt ceiling and extending it a the debt ceiling is always extended and B there are always negotiations so why is it important for the for the the president and the Congress to sit down and talk about it well a couple reasons I think many economists today are keynesians and as we all know Dr King's talked about the importance of deficit spending in government when you're in a recession like the recession we had during the pandemic the importance of government deficit spending to stimulate the economy and it works but some economists leave out the second part of what Dr Kane said he said when the recession's over you pay the money back and that's kind of an important part of the equation so that's point two point three why is it important that we have this this discussion um the the chair and I had a hearing this morning and other Senators with with with chairman Jay Powell and he's being cast to be very careful in his answers I understand that but here in my opinion is what's going on with the Federal Reserve Federal Reserve is raising the federal funds rate why is it doing that it's trying to slow the economy what does that mean well it means he's the FED is trying to lower GDP but how do you measure that how do you measure success in cooling the economy Channel and Powell wants to talk about about uh the Nexus between supply and demand I understand why he he talks like that but here's what's going on you measure you measure the effect of interest rates and Rising interest rates and unemployment okay that's what it means when you cool the economy the job of the Fed to curtail inflation is to put people out of work that's its job and I am convinced that the Federal Reserve is going to do that now chairman Powell is not trying to reduce prices we're going to live with these new high prices a long time he's trying to achieve disinflation which means a reduction in the rate of growth of inflation um since the 1950s we've had 10 periods where we had to work for disinflation we have inflation was too high we wanted to get it down in every instance where we were able to achieve disinflation we did it by raising unemployment and the average over a 50-year period to reduce inflation by two percent you had to increase unemployment by 3.6 percent now today inflation 6.4 percent the unemployment rate is what 3.4 percent So based on history in order to get inflation down to two percent you can do the math chairman Powell if he acts on his own just using monetary policy we'll have to raise rates to 10.6 percent and that's going to put a lot of people out of the work I believe and I think history demonstrates this as well that we can I know we can put fewer people out of work if Congress works with chairman Powell on the fiscal side pow's in charge of monetary policy Congress is in charge of fiscal policy and I believe as much as I'm sitting here that if we can slow the rate of growth in spending and debt accumulation to stimulate the economy less that's going to save a lot of people's jobs and I guess the final point I'd make Madam chair um I don't believe this Federal Reserve is going to go down in history as the Federal Reserve that let inflation beat them I don't I think chairman Powell is serious as four heart attacks and a stroke and if he's got to raise those rates to 10.6 percent he denies he might have to go that high but history is not in his favor he's going to do it and that's going to hurt millions of Americans as the chairman chairwoman said put people out of work Congress can save a lot of those jobs if we act on the fiscal side thank you madam chair thank you Senator Kennedy I appreciate those comments so we have a great set of witnesses today to be able to discuss these issues they're going to share their views on the consequences of gambling with the debt ceiling and with American Jobs first we have Dr Mark Zandy who is the chief Economist at Moody's Analytics Dr Zandy is a leading Authority on economics and data analysis and he has extensive expertise in the issues we're discussing today and of course the new report out today um second we will have MS anat Vice and Freud did I get right this time again both times I'm two for two I love it I really appreciate your being here she is the director of Head Start and early learning programs at the community action Pioneer Valley in Franklin County and Hampshire County in my home state of Massachusetts Ms weissenfreude helps make sure that kids and families in the Pioneer Valley can get the quality of child care in Early Education Services they need she's going to remind us when we're talking graphs and charts about what that means on the ground for real people including a lot of really small people so thank you and thank you for the work you do third we have Dr Douglas Douglas Holtz Eakin uh president of the American action Forum which provides analysis on economic domestic and Physical policy issues long-time expert and testifies many times before Congress thank you for being with us uh fourth we have Dr Michael strain director of Economic Policy studies and the Arthur F Burns scholar in political economy at the American Enterprise Institute where he oversees the institute's work on economic policy issues and finally we have MS Amy Matsui who is director of income security and Senior council at the National Women's Law Center Ms Matsui has spent years fighting on behalf of low and middle-income women and families and advocating for a tax code that works not just for a handful at the top but that works for everyone so thank you all for being with us today and I'm going to start with you Dr Zandy uh thank you recognize you for five minutes and of course you can put all of your remarks in the record if you wish thank you so much Senator and I want to thank you and Senator Kennedy for the opportunity to be here today I should say that my con comments are my own and not that of the Moody's Corporation and just for sake of disclosure I'm on the board of directors of mgic it's a publicly traded mortgage insurer and on the board of the Coleridge initiative which is a non-profit that works to facilitate the use of government data and public policy I'll make three points in my uh opening remarks uh first uh I think it's absolutely critical that lawmakers uh either increase suspend or preferably do away with the uh debt limit um uh if we don't do away with it uh within the next few months the treasury will run out of cash to pay all of the government's bills in fact we've done a bit of work trying to estimate the so-called X date when the treasury will run out of cash and we put that at August 18th so that gives you about six months to get something across the finish line uh if the legislation isn't passed uh and there's a breach of the doubt limit uh I think uh obviously uh that would be chaotic for financial markets the stock market the bond market foreign exchange markets and uh would push us into a recession uh of one form or another depending on the circumstances and I would say you know even uh the longer this debate discussion goes on uh the the more damage it's going to do to this economy you go back and look at previous debt limit battles like the 2011 battle that was pretty debilitating significantly undermined uh investor consumer and business confidence and in this fragile economy because of the high inflation High interest rates and recession risks that Senator Kennedy mentioned uh you know that would be particularly inopportune so Point number one is it's just um uh makes no sense not to increase this uh or suspend or do away the debt limit in a timely way second point uh is there's no way around this uh there's been a lot of discussion about well uh is there a workaround and a fair amount of debate and discussions around been around payment prioritization the idea of paying bondholders Treasury bondholders and then not paying everyone else on time uh the thought being that that would mean that we're not defaulting on the on the government debt and maybe in a technical sense we're not defaulting on the government debt but I'm not sure how long that would last uh in a political sense and in I think investors know this very clearly if I'm a Japanese investor a Chinese investor or a Saudi investor or a British investor I I know it's uh might it's not going to be very long before I'm not before I don't get my my bill because uh there's no way that an 85 year old social security recipient or someone in the military or even the electric bill for a federal government building in Omaha Nebraska doesn't get paid uh before I get paid and so uh that would not forestall payment prioritization would not forestall that chaos in the financial system and the resulting recession that would occur other ideas like a platinum coin issuing a lot of premium bonds 14th Amendment uh all not viable options there's only one solution here and that is to increase the spend or eliminate the debt limit by uh by mid-august the final point is uh I think the debt limit should be increased without strings no strings um that clean debt limit legislation meaning no additional policy uh needed I think the deficits in debt load that we struggle with today are bipartisan uh I think both parties have contributed uh you can just look at recent history uh the three trillion dollars in government support that was provided during the teeth of the pandemic in 2020 both side both parties agreed to that the American Rescue plan that was passed early in the Biden Administration in 2021 only Democrats voted for that that added two trillion dollars to Future budget to budget deficits but of course the tax cut and jobs act that was passed back in 2017-18 uh that was only supported by Republicans added two trillion dollars to the dev so this is ecumenical politically uh both sides uh you know player play a role in this and not paying the bills only make the nation's fiscal situation uh meaningfully worse uh it will just add to the interest add to the compensation that investors are going to demand because of the risk that they face that they won't get paid in the future uh it's incumbent on on lawmakers to put an end to this uh once and for all and increase the debt limit uh and let's move on I will say one final thing and that is uh I do believe that our nation's fiscal situation does deserve uh careful Attention our deficits in debt long run are going to be a problem uh and I do think that does require you know a look at both tax revenue and uh spending restraint thank you very much thank you Dr Sandy uh Mrs vison Freud chair Warren ranking member Kennedy and members of the committee thank you for the opportunity to testify today my name is anat eisenfrein as you said and I'm the director of Head Start and early learning programs at Community Action Pioneer Valley in Western Massachusetts I'm also the president of the Massachusetts Association for infant mental health and for the past 30 years I've worked to support the youngest children and their families in various clinical and Leadership roles I'm here to speak to you today about the immense benefits Head Start brings the current funding challenges we face and the significant impact of potential future funding cuts to our program for nearly six decades Head Start has provided critical services for pregnant women infants toddlers preschoolers and their families in communities across our country prioritizing those with the lowest incomes and living in the most difficult circumstances it is well known that poverty in its multiple forms puts the youngest children and their families at risk the discoveries of brain and developmental science leave no doubt our experiences in the first five years of life will impact our entire lives Head Start is grounded in this knowledge and our work supports the needs of children their families and their earliest relationships our programs provide high quality Early Education to support Children's School Readiness nutritious snacks meals Transportation make that possible we screen children to ensure healthy development we connect them to needed services at the same time we work with families to become increasingly self-sufficient and confident in their parenting abilities we provide Crisis Intervention housing assistance access to education job training programs and so much more the long-term positive impact of Head Start for children families and future Generations is well documented the program I lead has provided Head Start in child care since 1966 our Western Massachusetts survey service area spans nearly 1600 square miles and includes three mostly Rural and semi-rural counties from the border of Vermont to the border of Connecticut we're funded to serve 120 infants and toddlers And 318 preschool children and do so in a variety of program models we braid Federal Head Start funds with Massachusetts child care funds to provide eligible children with full day full year care so that their parents can work in the 2122 program year 55 percent of our Head Start children received a Child Care Subsidy and over 70 percent of the families we serve are working in job training or school when fully staffed we employ 168 people as Educators family service workers bus drivers Cooks janitors nurses and and more in rural Western Massachusetts we are a major provider of early education but also a major employer all we do is made possible by our dedicated and skilled staff yet as a director of res as a direct result of Decades of insufficient funding recruiting and retaining qualified professionals is a chronic challenge the last years of the pandemic coupled with Rising inflation have made a bad situation worse in our program 75 percent of the budget goes to salary and Fringe yet classroom teachers earn an average of only thirty seven thousand dollars annually about half that of their counterparts and public schools in the 2122 school year out of 51 educator positions 37 percent left during the course of the year and as of mid-august 22 33 percent of these positions were still vacant all across the nation staff are leaving their jobs in droves for higher paying and less demanding opportunities and low salaries are a main barrier to talented Early Childhood professionals wishing to enter the field clearly staff vacancies directly impact our ability to serve children and families and for children who may have already suffered multiple breaks in attachment in their young lives sudden and repeated loss of their teachers is especially damaging in my career I have never experienced a situation more severe than the workforce crisis we're facing now even modest reductions in funding would be devastating to those who rely on head start setting back measurable National gains in School Readiness and undercutting communities just beginning to rebound from the pandemic so chair Warren ranking member Kennedy members of the committee we rely on your unwavering commitment please ensure that we have sufficient funds to continue head start's most important work I thank you again for the opportunity to testify I'm happy to serve as a resource on the committee on these important issues and would be pleased to take your questions thank you very much um I have to go vote so I'm going to turn the gavel over to Senator Kennedy and I will be right back my apologies but I will catch up uh thank you Senator Kennedy uh chair Warren as you exit ranking member Kennedy um good to see you again I'm going to tell you some things you've already heard or even said uh briefly and then uh look forward to a chance to answer your questions um first and foremost uh Congress must raise or suspend the debt limit as expeditiously as possible in any way possible strings no strings I I don't think that matters um second point is failure to do so raises a a long list of risks even tiptoeing up to what Dr Zandy called The X date was going to produce investor uh drops in confidence you're going to see Financial Market instability you'll see some spreads rise on treasuries and and it's going to be an economic headwind that we don't need uh and but we'll get it continuing down that path would lead to a default would lead to a downgrade of U.S treasuries uh a loss of their risk-free nature that would be a recipe for Global Financial turmoil and we would have poor economic performance across the globe with Fallout on every American it's inescapable and is simply a self-inflicted wound that no one needs the third point is that uh the chair was correct when she said that um failure to raise the debt limit is not fiscal sobriety it's a these are disconnected uh our fiscal trajectory is very important but raising the debt limit is about our past decisions we've made in the past on spending and taxes they that bill has to be paid be it banned or otherwise and um raising the debt limit is about that past I want to Echo those who've pointed out that the USS on a uh a long-term federal budget Outlook that's unsustainable the CBO recently put out his long-term budget Outlook it's the same Outlook I put out in 2003 when I was the CBO director in the 21st century congresses and administrations have not been serious about taking on the federal budget problems that we Face the clock has been ticking for two decades and we're running out of time I urge Congress to get serious about controlling the growth rate in particular of large mandatory spending programs which are crowding discretionary spending which is where we do all investments in the future out of the budget and ensuring that we no longer have a trajectory which is a headwind to the prospects of future prosperity for all Americans so I appreciate the chance to be here today look forward to answering your questions thank you Senator uh Senator Warren Senator Kennedy members of the committee thank you for the opportunity to offer testimony on the dangers of default and near default it is an honor is the United States a nation with a political system that is so dysfunctional that it cannot pay the bills that is legally obligated to pay that question is at the heart of the uncertainty around the debt ceiling if the U.S defaults on our bond obligations many investors International and national leaders and citizens will answer that question in the affirmative if the U.S resorts to prioritizing Bond payments while not beating other Financial Obligations many will answer in the affirmative if the U.S again runs up to the 11th hour but raises or suspend the debt ceiling in the nick of time some will still answer that question in the affirmative the right answer to that question is no Congress and the president need to answer that question clearly by raising or suspending the debt ceiling as soon as possible running up to the 11th hour before raising the debt ceiling would be a major economic and market event on the day before a deal was reached during the 2011 debt ceiling standoff the S P 500 was down six percent from its high that year four days later credit rating agency standard and Poor's downgraded the United States credit rating sending stock prices tumbling further at its low point during this episode the S P 500 lost around 15 percent of its value the 2011 standoff sent economic confidence down to levels not seen since the 2008 Global financial crisis this matters because consumers outlook for the economy has an effect on consumer spending even though a resolution was reached in 2011 in time for the U.S not to miss any payments the episode still drove up interest rates costing taxpayers 1.3 billion dollars in 2011 according to the government accountability office the 10-year cost was estimated at around 19 billion dollars running up to the 11th Hour runs the risk of the U.S accidentally missing payments accidents can happen in the spring of 1979 Congress reached a debt ceiling deal at the last minute but a subsequent computer glitch meant the treasury was late in making payments on maturing Securities to individual investors and in redeeming treasury bills that accident apparently warned investors that treasury issues were not completely riskless economists estimate that this translated into a 12 billion dollar annual increase in federal interest payments as the result of a 60 basis point permanent increase in interest rates actually missing a payment to a bondholder would have consequences that would be much more severe than occurred in 2011 or in 1979. the Dow would plunge by thousands of points per day and The credibility of the United States its trustworthiness is a country that pays its debts on time would be substantially eroded the beginnings of a global financial crisis would take hold as the riskiness of Treasury is increased and Market liquidity dried up after a day or two of this chaos a clean debt ceiling bill would pass both houses of Congress with overwhelming bipartisan support so-called payment prioritization schemes would likely provoke a reaction similar to defaulting on U.S debt obligations the message Congress and the president would be sending to Global markets would be that the U.S government is unable to meet its spending obligations due to political dysfunction that would Shake confidence in the United States in a very fundamental way to be sure the U.S has a debt problem increases in tax revenue are not sufficient to solve the US's debt problem to solve the problem projected spending will need to be cut specifically projected future spending on entitlement programs will need to be cut ever higher debt and deficits gradually erode the ability of the U.S economy to generate long-term increases in living standards government debt reduces private investment in productive Capital lower investment translates into a smaller Capital stock lower rates of productivity growth lower wages output reductions slower economic growth and lower living standards higher deficits in debt also increase the borrowing costs facing the federal government and ultimately taxpayers the vulnerability of the budget to changes in interest rates increases with higher debt levels as does the amount of taxpayer Money Paid to foreign holders of U.S debt Rising debt could have other consequences as well it could lead to a gradual decline in the value of U.S assets increased inflation expectations and actual inflation and slowly erode confidence in the unique role of the U.S dollar in global markets this would make it more difficult to finance both private and public investment by U.S entities ever higher debt also reduces the political space for important investments in basic research physical infrastructure and in programs to advance Economic Opportunity Congress needs to tackle the debt but waiting to raise the debt ceiling until the 11th hour is a risk that should not be required for prudent fiscal reform thank you chair Warren ranking member Kennedy and members of the subcommittee thank you for the opportunity to testify in my statement I will address three main points first as others have stated the debt limit should be raised without spending cuts or other conditions families are struggling to pay bills to care for themselves and their loved ones and to afford the basics women households of color and families with low incomes are shouldering the heaviest burdens in the wake of the pandemic and policy makers continued failure to make public investments in child care paid leave disability and Aging Care affordable housing and more if the United States were to default on its obligations Working Families would be devastated by the recession high unemployment and delay in receipt of government benefits that would result these families can likewise ill afford cuts to Federal programs and services upon which they rely accordingly it is imperative to approve a clean extension of the debt ceiling without delay second after raising the debt ceiling Congress should make the tax code fairer and more Progressive over the past 40 years the tax code has become less Progressive due to a series of costly tax cuts while their proponents asserted that the wealthy and big corporations would share the benefits of these tax cuts with workers this failed strategy has instead helped fuel extraordinary levels of wealth and income inequality widened racial and gender wealth gaps forestalled public Investments and increase the deficit the 2017 tax law will reduce federal revenues by an estimated 1.6 trillion dollars over a 10-year period increasing the deficit by nearly two trillion dollars notably the benefits of the 2017 tax cuts failed to quote unquote trickle down to workers or stream or stimulate appreciable economic growth extending the expiring provisions of the 2017 tax law would reduce federal revenues by an additional estimated 2.2 trillion dollars over 10 years and increase the deficit by an additional estimated 3 trillion dollars it is time to reject this failed approach and chart A New Path there are numerous policy options that would make the tax code more Progressive and Foster an economy that works for all of us while raising significant Federal revenues for example the 2017 tax law permanently slashed the corporate tax rate from 35 to 21 percent one proposal from the Biden Administration would increase the corporate rate to 28 percent which would raise an estimated 1.3 trillion dollars over 10 years a proposed millionaire surtax such as the one passed by the House of Representatives in 2021 would ensure those at the top who can afford to pay more in taxes do so this proposal would raise an estimated 228 billion dollars over 10 years billionaires pay an estimated effective tax rate of only eight percent annually in part because of preferential tax treatment of income from wealth raising the capital gains rate and closing the stepped up basis loophole is proposed by the Biden Administration would raise an estimated 174 billion dollars over 10 years President Biden's proposed billionaire minimum income tax which would cap tax capital gains annually is estimated to raise 361 billion dollars over 10 years and a wealth tax would curb excessive wealth and raise significant new revenues for example Senator Warren's Ultra millionaires tax is estimated to raise up to 3 trillion dollars over 10 years this list is neither exhaustive nor comprehensive but it does remind us that policymakers make a choice to increase the deficit at the expense of Working Families by failing to make the tax code more Progressive third policy makers should ensure the IRS has sufficient resources to enforce the tax laws already on the books every year at least 450 billion dollars in taxes and likely more is owed but not collected households in the top one percent of income are responsible for about a quarter of this tax Gap the inflation reduction Act of 2022 increased IRS funding by almost 80 billion dollars over 10 years the IRS is committed to use those resources to strengthen tax enforcement against the wealthiest and treasury has conservatively estimated that this funding would collect around 400 billion dollars net over a 10-year period fully implementing the IRS increased funding for the IRS will therefore help reduce the federal deficit in some the path forward is clear Congress should raise the debt ceiling without spending cuts or other conditions raise additional revenues through more progressive tax policies and protect IRS funding this will not only reduce the deficit but ensure that our economy lives up to its full potential and Advance gender and racial Equity especially if additional revenues are used to make public investments in the care economy affordable housing and other infrastructure thank you for the opportunity to testify thank you very much Miss Matsui I really appreciate it thank you all so we're going to start with some questions now and we're going to let Senator Van Hollen start if you're ready now I recognize the senator for five minutes uh thank you uh Madam chair and thank all of you for your testimony app we apologize for being a little late there's a vote on but um I've been informed of your testimony and appreciate that I think the broad consensus here Mr holtzeek and if I could start with you I've respected some of the differences we've had over the years in budget issues but I do appreciate the unity on this really important point which is the United States cannot and must not default on its debt and violate the full faith and credit of the United States you said in the past nobody should ever contemplate willfully forcing the treasury to default in this fashion anyone who does is unfit for any public office in the United States do you stand by that statement I do and there's been much talk this time around as was true years ago back in 2011 about the idea of prioritizing our debt and I know we reached out to you to get your views on prioritization of debt and your response I believe was quote it won't work and we will default other than that it's a spiffy idea that's correct you stand by that I do thank you um if I could just ask um others on the panel um yes or no do you agree uh with the assessment uh made by Dr Holtz Eakin um and it being spiffy it's been a bad idea other than that it's a spiffy idea uh but you all agree that the idea of prioritization of the debt uh is a bad idea maybe we can start with Mr Dr Zandy yes I agree with that [Music] um I prefer not to comment on that it's really not my wheelhouse uh yes Senator I agree with that I agree senator right so this is the question because you know this is one of these things you don't just come up to and jump over the cliff all at once that people Advance these ideas uh to try to pretend there's a way to escape the ultimate question um Mr Holtz Dr holtzeek and I if you want to comment further on that well could um right now we're engaged in the so-called Extraordinary Measures which amounts to temporarily reneging on promises we've made to government employees and their pensions in order to fund things that that we need to keep funding kind of prioritization what are you doing prioritization you say okay we'll do the treasuries and then we'll do social security and Medicare and we will stiff these guys that's that's that's just emergency Extraordinary Measures by another name you can't do it forever and it doesn't solve any any underlying problem it just kicks the problem down the road temporarily and that's putting aside I think they don't have the legal Authority or them or they have an obligation to fill all the the promises we made and I don't think they can execute on it but even if they could and it was legal it doesn't solve the basic problem well I appreciate that and we've been trying to make that a point I hope with your voices here today we can amplify uh that very important point that uh it it is tantamount at the end of the day to as you say defaulting on our debt it's just a way to creep in that people think they can creep into it uh let me just ask you all simple yes or no question as well I mean if we defaulted on our debt would it have catastrophic economic consequences for our country maybe start with Dr Zandy yeah I don't think it's hyperbole to say that it would have a cataclysmic effects on the Global Financial system and on the economy not only in the near term but uh for generations to come it'd be very costly I think I will answer that question based on everything I know um yes I agree yes yes yes right so I I think I'm really glad that uh Senator Warren had this hearing because I think Clarity is really important at this moment because there are lots of folks on Capitol Hill uh who think it's okay to play political games uh with the debt ceiling and try to impose their particular agenda and threaten to default on our national debt if they don't get their way on that agenda uh if maybe just a final yes or no if you all agree that that is a a very not just risky but irresponsible strategy doctors Andy yes indeed yes yes I agree thank you thank you madam chair thank you Senator and Holland so I want to see if we can look at another aspect of this the House Republicans have decided to use the debt ceiling to hold our government and our economy hostage they are demanding massive Cuts in government spending investments in the American economy investments in American workers or they won't allow the United States to pay the debts that it has already incurred in a little like running up a bill on the credit card and then declaring that your new budget plan is we're not going to pay the bill on the credit card so you have all said uniformly that's a terrible idea we cannot default on our debt but the Republicans the mega Republicans in the house have put us in this between a rock and a hard place they said okay we will raise the debt ceiling but only if you will agree to massive spending cuts and it seems that the point of these massive spending cuts is acute pain and don't take my word for it take Donald Trump's who blamed Republicans poor showing in the midterms on Americans not feeling quote the full gravity of the pain our nation is going through but Express confidence that by 2024 it will be quote much worse so let's talk about what it would mean if those Republican Cuts went through doctors Andy you're the chief Economist at Moody's I know you're testifying on your own behalf here but you're the chief economy at Moody's and one of the authors of a new report that analyzes the impact of the on the economy from massive spending cuts being demanded by Republicans so we've talked about what happens if there's breach now we're talking about these massive spending cuts so let's start out tell us a little bit about the kinds of cuts we're talking about here well as you say they're massive first I should say some this is a bit opaque because uh it's not like the House Republicans have put forward a very explicit plan they're kind of piecing this together and um uh listening to what's being said in the house and my sense is that they're proposing to uh so-called balance the budget 10 years from now through spending cuts taxes are off the table and of course Social Security Medicare are also off the table but if you do the arithmetic and here I'm just doing Simple arithmetic it's 16 trillion dollars in cumulative Cuts over the 10-year period okay so just divide by 10 that's 1.6 trillion per annum that's six percent of GDP that gives you sense of context okay so 16 trillion dollars over 10. how can I say senator just the point of Interest I mean maybe only economists would appreciate this but that's a static estimate right that doesn't account for The Economic Consequences of those cuts on the economy and what that means for Revenue spending and so it's not going to be 16 trillion it's going to be a much bigger number than 16 trying but let's just say Okay so those are in the straight cuts just doing plain arithmetic on what the Republicans have said without accounting for how much GDP goes down cumulative cumulatively in the middle of that and just so everybody understands on this is that the type of cut that the government could achieve by just not filling new job openings and doing a little belt tightening no no uh you know there's a number of ways you could get there but the most uh I guess I hate to use the word reasonable way to get there would be you would have to effectively eliminate all non-defense discretionary spending all the things that you were just mentioning earlier you know housing food inspection everything related Transportation you can see all the problems we're having in the airline on the Airlines and the rail that would be affected housing Health Care you know the science NASA you know everything Aid overseas you know this is a long list of things but also Medicaid the Medicaid Program would also have to be effectively eliminated to achieve that 16 trillion dollars in cut over a 10-year period so this is not some jobs this is you know a lot of what I think American people expect from the American government these are services that have been provided since the beginning of time and they rely on them okay so when you take all that into account that is the size of the cuts and the programs you to have to cut to achieve a reduction in spending of that size you've done an analysis of the impact on the economy can you tell us what that would do to the economy over the next decade sure and of course I'm making a lot of assumptions about timing and you know how this would be implemented and you know what exactly would be cut but in the scenario that I articulate in gory detail in the paper that was released today it would result in a in the near term in a very severe recession it would you know it'd be it'd be throughout the 2024 so it'd be more than a year long just for context the typical recession since World War II is 10 months so this would be longer than that the economy would lose uh 2.6 million jobs the unemployment rate would rise to as high as six percent so it would be a very it's not the financial crisis but it would be a very meaningful hit to the economy in the near term uh it would be the significant recession okay so in the near session 2.6 million 2.6 at the peak of the job that's a peak would be what the job what it looks like over overall and anything about what happens to GDP over this 10-year period well if you if you now if you that was just the near term so yeah this these are cuts through a 10-year period so let's take it out 10 years from now the end of the the budget Horizon in 2023 the the GDP that's the value of all the things that we produce all the goods and services we produce would be 2.8 less than it would have been if we just did a clean debt limit increase and there would be no impact on the economy so that's the that's the counter factual it just for a little bit of context sorry I think you said that in your opening remarks but just to you know strike that from your report oh there you go okay I thought you did I thought you did the rhythmatic yourself but the that's that's a little more than a kind of a typical year of GDP growth it's as if the economy did just stands of those 10 years one of those years it just stood still so okay and and employment would still be a million roughly a million not quite a million less than it would have been in the counter factual with a clean debt limit increase okay so let me just let me just on through so we're talking about jobs a million over time 10 years out we'd be down a million jobs it's just taking two different points in time right maximal impact in the near term it's 2.6 Million by the end of the 10-year Horizon I think you're down 950k something like that but yeah close to a million so um when you take all that into account I think I've got my my thing here where what we're looking at is the Republicans can either these House Republicans can either throw us into an immediate recession and cost us about a million jobs in the short term if they do a debt default but if instead we cave in and go with the kinds of cuts they're talking about we get a severe recession we got about two and a half million jobs lost in the near term and a million jobs kind of over time year by year off into the future so this sounds like they've really got us caught where the Republicans are trying to drive this on the one hand we don't see a debt default but on the other I think what you're telling us is the consequences of the kinds of cuts that the Republicans are advancing would also have a severe impact on the economy yeah I mean I think it's pretty straightforward that you know defaulting on the debt as we all have discussed is uh cataclysmic depending on just how cataclysmic depends on exactly what scenario unfolds but the alternative of engaging in these massive cuts and spending over this 10-year Horizon would also be you know quite devastating you know to the economy uh and uh you know it's a there's neither is a you know I think a viable option good I I appreciate that they started with all funny to raise the debt seal yeah without conditions thank you Senator Menendez thank you madam chair uh I often think in my role as the chairman of the Foreign Relations Committee about America's role in the world and what it means and what it uh and the benefits it has great burdens but it also has benefits along the way and for decades the United States has been the leader in the Global Financial system about half of international trade is invoiced in dollars about half of all International loans and debt Securities are denominated in dollars and dollars are involved in nearly 90 percent of All Foreign Exchange transactions and that has been an immeasurable asset to the American economy and our foreign policy goals it allows American consumers to borrow more cheaply for a house or car it allows US government to use economic uh sanctions to change other countries behavior and ultimately try to avoid military conflict but that could all change if we were to default on our debt so Dr zandi and Dr Hulse I can uh how would defaulting on the debt harm the United States position as the dominant Reserve currency um it would severely undermine it and I I I don't think we can overstate The Importance of Being the reserve currency on the planet uh particularly I think people don't recognize how important this is in times of crises because we have Global crises and in those periods of time because the United States is the AAA credit on the planet because everyone believes that if they invest in the U.S treasury bond that they will be paid in a timely way money comes here Capital comes here and that is an enormous benefit to our economy at the worst of Economic Times so the reserve currency status provides enormous benefits to to us and as you said there are responsibilities but there are enormous benefits to that and that would be significantly diminished because we're no longer money good you know investors Global Investors don't know for sure that they're going to get their money back if they invest in the United States of America and they're going to invest somewhere else and it diminishes us geopolitically as well when you think about it you know think about the importance of the reserve currency status when Russia invaded Ukraine and what we did to sanction Russia the first thing we did was phrase the dollar reserves of you know the Russians dollar reserves we wouldn't be able to do that in in a world where you know we're not no longer the reserve currency and then it also reduces and diminishes our our uh status uh geopolitically economically with China I mean China is a formidable competitor and it's increasingly found in reserve portfolios uh across the world and this is increasing over time and that would significantly be accelerated if the U.S you know uh abdicated its role as and that's what we'd be doing we'd be abdicating our role as a reserve currency so it just it it would be these are these are things I'm not even counting for in the kind of the analysis that I did that are so difficult to quantify but they are critically important to our success both economically and geopolitically so I agree with everything that Mark said and I just want to just pick up on the last Point um the world benefits from having a reserve currency it because those transactions can be done in a common currency they're they're cheaper more efficient global trading and investment uh flows more smoothly and all economies benefit from that so the notion that we could give up the creditworthiness of the treasuries and have the world Stand By and not go find another Reserve currency is missing the big coin it would and would be handing that opportunity to China and at this juncture there's no reason to do that yeah you both made the case that I'm concerned about we already see China trying to do this in a variety of ways and that's without defaulting on our debt we see them in the context of trying to create a digital a digital Reserve as well uh they're out there to challenge Us in every Dimension and just one one final point to to add a fine point to this question if we were to default and God forbid that we do would it be easy to put the genie back in the bottle and convince others in the world don't worry that happened once it won't happen again would you be convinced I mean no I mean it just it it is not possible yeah generally yeah yeah there's not it's not possible I mean investors you know since the founding of the nation this was a principle that we established Alexander Hamilton the first treasury secretary's you know bought back U.S uh the the Revolutionary award debt on Pennies on the dollar to establish the credit of the United States that we are money good you put our your money with us you're good and if we so as just uh one second go over the line and not pay in a timely way we we lose that forever and it it's incalculable the cost because the you'd add just a few basis points to interest rates and it's gonna be more than that just add a few basis points on 31 trillion dollars in debt just think about that for a second the cost that will that we were going to occur we're going to be spending we're going to be shelling out cash to Japanese Bond investors Chinese Bond investors uh British Bond investors instead of investing in our schools and Head Start in our military and all the things that we all can agree on As Americans that we need to do just to drive the point home revisit the opening statement that Michael Strahan gave I mean in 2011 we didn't default but we still incurred enormous costs we got downgraded and it took years to repair that now imagine actually defaulting you know that that the Global Leadership makes for a more secure domestic Financial system and advances U.S interests at home and abroad I appreciate your answer I mean I have uh if you have the time um so uh but my friends often talk about that we need to deal with a question on spending cuts but they've depleted the revenue Side Of The Ledger over the last uh several years uh Dr Sandy how much did the 2017 Republican tax law add to the federal tax deficit over 10 years I'm using CBO numbers here but it will add two trillion dollars over the 10-year period give or take yeah so I mean you know if if we want to have an honest discussion uh I think we have to look at all sides of The Ledger at the end of the day and it seems to me that the time to do those things is when you're talking about budgets uh not when the time comes due on your debt finally last year Congress appropriated for example a billion to the child care and block development Grant ccdbg this is the main Federal program that provides funding for child care providers to support low-income families in accessing affordable child care I've heard from Child Care Providers throughout New Jersey who conveyed that this funding has been critical to their survival and what is an incredibly low margin industry so I would ask Miss weisenfront and Miss Matsui what would be the impact on families and child care providers if there is an insistence on slashing vital discretionary funding like the cdbg as a precondition to avoiding a debt default our program um is funded by about 85 percent Federal money and in our program if there was that kind of cut we would have to uh most of our children would lose services to care most from most vulnerable children families it would really break the system that we've so intentionally built to support the poorest is most and most vulnerable children and families in our western Mass service area it would be tragic thank you for the question Center and I appreciate the expertise of my my colleague on the panel I will just add that losing that level of services and child care supports will not only devastate the child care sector the workers who are employed in child care but also the parents and families and employers and the economy writ large who rely on caregiving in order for the economy to function we saw the devastation during the pandemic and those effects would certainly be replicated if not exacerbated because of the weakened state of child care right now yeah we want people to work we have 11 million jobs that are going unfulfilled in terms of human capital to do so and yet we would potentially take away one of the Essential Elements of helping people get to work so that they can be gainfully productive both for themselves their families and our society so it's one example of which this type of thinking doesn't make sense thank you manager thank you Senator Menendez back and see if we can dig a Little Deeper on this question around child care so our earlier discussion talked about how these extremist House Republicans are demanding massive across the board spending cuts um and if defense is off the board veterans are off the board Social Security is off the board in Medicare is off the board as some Republicans now claim then the other programs at a minimum I'm kind of like you are here doctors Andy it's just math you've got to cut the other programs by about 78 percent or else just wipe out entire programs and as the new Moody's analysis shows if Republicans get their way this is going to be about 2.6 million Americans who lose their jobs so I want to just do the translation about the different ways that people lose their jobs under this using child care in early childhood education as part of our example so I'm a big fan of early childhood education it expands learning opportunities for our babies it gives mamas and daddies an opportunity to go to work the United States has been under investing in child care for decades of the 37 richest nations in the world the United States is number 35 in terms of our spending on Littlewoods and we need to be investing a lot more in child care to grow our economy but these Mega House Republicans are threatening to cut the little bit of funding that we do have going into child care so Ms vison Freud you run this Head Start Center and Early Learning Program in Franklin Massachusetts and Western Hampton counties in Massachusetts how many employees do you have and how many children do you serve yeah thank you Senator so when fully staffed we employ 168 people and we're funded to serve 438 children 120 of those are pregnant women infants and toddlers And 318 preschoolers you know because of these chronic structural economic issues we've been talking about uh and the pandemic has certainly worse than this our program like many others is struggling to recruit staff all right so just so everyone understands not everyone knows about Hampton counties and Franklin and this area can you just describe the area a little bit are you in an urban area yeah so no we uh we you know I run a pretty large program uh mostly rural some semi-rural we span 1600 square miles okay so you are the child care provider for 1600 square miles we're a big one from the order of uh Vermont down to the border of Connecticut you're the big one all right so it sounds like things are already pretty tough on your current budget that's right Head Start is a federal program that provides funding to help low-income families afford Child Care is it fair to say that this Federal funding is a large part of your budget oh yes it's about 85 okay so 85 percent I want you to imagine if your federal funding is cut by 78 percent can you keep your centers open and retain your current employees you know I hope I never have to do that math uh-huh but if you do well it'll be a huge impact to our operations um as I said we have 168 employees we operate 11 sites 28 classrooms um over this rural area so a 78 cut we would be serving fewer than 100 children and we would probably have to reduce to one or two centers I would have to lay off about 130 staff I would say all right there's the example of what happens if we make these Federal cuts the child care sector is already short about 60 000 employees compared just to pre-pandemic when we were already hearing from parents all across this country that they could not find safe affordable accessible child care and if all of the child care providers face the kinds of cuts that these Mega Republicans are proposing then more child care workers all across the country will lose their jobs and more of these Child Care Centers will close so let me do another part of this if you cut the number of employees that you have by 130 what's going to happen to the children you serve Can you estimate how many families would lose their child care because of those cuts well again just doing the arithmetic here so about 341 of the most vulnerable children and their families would lose care and that would have both short-term and longer-term impacts right so in the short term if we cut 130 staff these youngest children would lose access to Quality Early Education and Care to nutritious meals and snacks screenings referrals health and mental health supports all the things I spoke about earlier and lose their critical relationships with teachers we know that Head Start is a fantastic long-term investment in terms of child welfare as well as high school and college graduation and of course participation in the workforce with job losses losses so we cut the federal budget the way the Republicans have proposed you lay off 168 of your staff in turn that means more than half the children you serve the doors are locked they can't come and what happens to their parents well over 70 percent of our families work they go to school or attend School Readiness programs so clearly if they were to lose child care most of those families would lose jobs would lose income would have to leave school would have to leave job Readiness programs to take care of their children with single adult households being most affected so this would lead to immediate loss of income and thrust them into even deeper poverty so the job Cuts lead to more job Cuts in your case are there other child care options near you so we're the largest provider of subsidized care in the rural part of our service area there are a few providers in western Mass but we also have the most expensive market for private pay it'll cost about 21 000 a year for infant care and most of our families do live at the federal poverty level so there's no way that the 341 children who would lose Services could be absorbed by other providers in the area so let me just say thank you Miss weissen Freud for the work you do uh thank you for the way that you play a critical role in keeping our economy going and letting families build a strong economic future I'm going to say one thing thank you for calling the children little people because they are people yes they are thank you yes they are they don't have lobbyists but they are people that's right that's an important distinction I appreciate that thank you thank you but thank you very much for your work and thank you for helping illustrate what happens here if we can then I'd like to turn to one more topic I'm going to call on myself again since Senator Kennedy hasn't made it back from voting and that is to talk about revenues um I think it's fair to ask and I think uh Dr holtzee can raise this how the national debt got so large uh matter Republicans claim it's about spending too much on child care and air traffic controllers but there are two sides to any balance sheet and mega Republicans have conveniently ignored their own actions in driving up the national debt by shoveling tax breaks to the richest Americans and the largest corporations year after year the Republican Playbook has been simple more help for their Rich buddies and more economic pain for everyone else today billionaires pay just three percent of their wealth each year and federal income taxes less than half the rate that 99 of America pays giant corporations have lobbied their way from paying six percent of the cost of running our country to paying about one percent of the cost of running our country so serious conversations about reducing the national debt should start with rebalancing our tax system not start with how to hurt families so I want to talk about some of those ideas first repealing the Trump tax cuts for the wealthy and for giant corporations Miss Matsui you're a tax expert that's why we invited you here today so how much would it affect the deficit if we repeal the Trump tax cuts for the wealthiest Americans and the largest corporations thank you Senator just to discuss two Provisions that were in President Biden's budget last year to even partially repeal or bring down the raise the corporate tax rate as well as repeal the tax cut for the highest individual income tax rate would raise 1.3 trillion dollars over 10 years and almost 187 billion dollars over 10 years respectively and those those revenues could be used to reduce the deficit okay and this is for the largest corporations and the wealthiest individuals the right individual okay and Ms vison Ford you're going to help me out here on the other half of this you run an early child Early Learning and Child Care Program would it increase your taxes if we reverse the Trump tax cuts for people making over half a million dollars in a single year oh no uh would it really uh increase the taxes of your workers uh no again uh would it increase the taxes of the families that you serve uh definitely not okay so nobody in your outfits making more than half a million a year uh no Senator okay Dr Sandy as an economist how do you think about repealing the Trump tax cuts for people earning over say half a million dollars how would that affect the U.S economy would it cost us 2.6 million jobs the way the house Republican Cuts would no I think the negative consequences would be on the margin uh and I based that on looking at the effects of the tax cuts I mean the the cuts were put forward as a way to significantly increase economic activity in uh I think the research that's been done since that time has found that indeeda has not done that admittedly we need more data points and the pandemic has made it difficult to disentangle all the things that are going on but research from the IMF research from Brookings has shown that the benefit of the tax cuts are relatively small therefore I think the negative impact of the tax increases would be on the margin relatively small well the final thing I'll say is when we were all debating And discussing the tcga cuts and CBO weighed in you can go back and look at those studies they found that the uh based on all the research that they were doing that the the benefits of those tax cuts would be on the margin and it looks like that's exactly what we got on the margin meaning very small very very small I mean I mean all else being equal if you raise taxes it's going to have some negative consequence but it's on the margin it's on the margin okay which means you can raise them here you're not going to have a big effect no no big effect all right so there's one option that we're talking about a trillion dollars let's roll back the Trump tax cuts for the wealthiest Americans here's another tax the profits that giant multinational corporations hide overseas right now helping level the playing field for domestic businesses and joining Europe and others in enacting a global corporate minimum tax Miss Matt Suey how much revenue would that raise senator for example Senator Sanders corporate tax dodging protection act would raise an estimated trillion dollars over 10 years okay so there's a second trillion dollars that we've got there's Vice and Freud or you or any of your workers or any of the families whose children you care for giant multinationals who would pay this additional tax on uh International profits no Senator Warren okay and Dr Zandy would this have a meaningful effect on the U.S economy no I think it's they have a very small marginal impact on the economy okay so there's a second option an international corporate minimum that would shut down tax Havens let's do a third one um we should ask billionaires to pay taxes on their growing piles of wealth through proposals like my ultra millionaire tax or President Biden's billionaire minimum income tax Miss Matsui how much money would that raise Senator President Biden's proposal would raise about 361 billion dollars over 10 years and your Ultra millionaires tax is estimated to raise up to three trillion dollars over 10 years okay so somewhere in that range trillion Ms bison Ford just checking you your employees your families are any of you secret billionaires who would pay this tax either President Biden's tax or my two cent wealth tax no we're not okay and doctors Andy one more time yep on the margin on the margin okay so I just want to say thank you to all of you on this there are just three proposals and we could raise somewhere around five trillion dollars without costing the economy 2.6 million jobs and without increasing the burden on workers and families by a single penny and we could make the tax system a whole lot fairer as part of what we're doing here House Republicans want to talk about the national debt and I am happy to talk about the national debt but let's be clear this is a question of who pays for running our government responsible lawmakers should flat out refuse to cut a single dollar of Investments for the 99 percent of Americans while the top one percent are getting away without paying their fair share and if Republicans really care about the national debt I'd be happy to work with them to make sure that billionaires and giant corporations are pitching in just like everyone else and with that I understand that we are not going to have Senator Kennedy back is that right we have run him off no we haven't um so let me just wrap this up look I think it's clear that House Republicans are not interested in fiscal responsibility they want hard-working Americans to shoulder the burden of keeping the government up and running while billionaires and large corporations get away with paying as little as possible the debt ceiling hostage demands that they're making would shrink our economy and it would cost millions of Americans their jobs while it plunges us into a recession that is a non-starter responsible lawmakers as Dr Holtz Eakin has said should reject this extremist ultimatum and instead act immediately to raise the debt ceiling and I'm glad to see we have unanimity on that point today I want to thank our Witnesses for being here I want to thank you all for your testimony uh for senators who wish to submit questions for the record they will be due one week from today that's Tuesday March 14th and for our Witnesses you have will have 45 days to respond to any questions thank you all again for doing this we really appreciate it and with that this hearing is adjourned thank you

Channel: CBS News

Views: 5,848

Keywords: cbs news, news, live news, livestream, breaking news, senate, congress, debt ceiling, debt limit, default, treasury, finance, sherrod brown, janet yellen, biden, president biden

Id: I-56pat_v5A

Length: 76min 45sec (4605 seconds)

Published: Tue Mar 07 2023