The hearing held on March 25th began by addressing the nation’s financial future when David Cote, Chairman and Chief Executive Officer of Honeywell International Inc., testified that by 2025 the United States government will be spending approximately $1 trillion annually in interest.
Cote added that within 25 years China is estimated to surpass the U.S. as the biggest economy in the world and that by that time the debt held by the U.S. would be over 100% of the GDP. Cote added that from an international standpoint other nations have shown concern over the United States’ massive debt and has led many to question the continued financial credibility of the United States.
Dr. Douglas Holtz-Eakin, president of the American Action Forum, said during his testimony that mandatory spending and interest costs tied to the national debt would rise to 77 to 80 percent of the budget.
After assessing the future, the panelists were asked how Congress can best help solve these problems.
Overall the panelists agreed upon a combination of building infrastructure and building up the work force. Alice Rivlin, now a senior fellow of Economic Studies at the Brookings Institution, said that the labor force needs to grow and that focus needs to be investment in labor force productivity. That is especially true, she noted, with an increase in productivity among younger people. Separately, all four panelists agreed that immigration reform is a good way to help develop infrastructure.
Panelists disagreed over the potential benefits of raising the minimum wage. While Dr. Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, said that raising the minimum wage would be a good idea, Dr. Holtz-Eakin said that there are better pathways to help the poor. Rivlin agreed with Dr. Bernstein but added that in her opinion the earned income tax credit (EITC) should be extended.
The witnesses agreed that increased taxation is not the answer to the nation’s debt woes. Dr. Holtz-Eakin, said “you cannot tax your way out of this problem.” Mr. Cote pointed out to the committee that the debt is “not just a tax issue…not just a spending issue… [but] a holistic issue.”
Just before adjourning, committee chairman Jeb Hensarling (R-TX 5th District) noted that the debt clock increased by 380 million dollars during the hearing alone.
Jordan Butcher is an intern with Financial Executives International's Government Affairs office.