Hassett linkous insights today on the forces and constraints that are holding back private investment, labor forcedi participation and important, wages go up to get a clear picture of how the right policies can help the economy recover its full potential. The contrasting with the aging of the population, the slowing of the population growth and technological changes that altering the methods of production in america. With selfimposed constraints of also altered the way the economy performs and not in a good way. I certainly we can do something about that here in the United States congress. Id like to divert your attention to the craft showing how the Congressional Budget Office lowered its assessment of the economys output potential every year since 2007 through 2016. These 16. These are not projectionsns of actual gdp my juice but a potential the economys output capacity normally a fairly stable concept. Back in 2007 the cbo estimated the u. S. Output potential for 2016 would be over 12 higher than it actually ist now. What happened . The aging of the population was predictable, not anticipated was the use Business Investment would be down from a prerecession raise and at theow rate at which americas persistent in the labor force would be dropping so markedly. Despite the low Unemployment Rate, the labors markets health has not been fully restored. Indeed, the labor force but suspicion rate people of prime working age remain substantially below where it was prior to the recession. I believe the Economic Policy including appear to act when a consumer improving their Business Climate is largely to blame. Id like to show you two graphs illustrate the changes u. S. Firms face on the international playing field. The first chart shows how 34 countries changed their Corporate Tax rate since 2000. All of p these countries save chile which had the lowest rate initially reduced their corporate rates to make the economic, economies more competitive while the United States rate remained the same. The next chart shows that 27 countries east Product Market regulations 19982013 based on oecd index. All these countries save chile reduce the taxes and reduced their regulations. This paints quite a startling picture and explains why u. S. Corporations have been moving offshore. Other countries have purposely improved International Competitiveness of their business sector on the United States has taken for granted competitive of its businesses. As a result we now have an economy that is not fully engage its resources in entrepreneurial spirit. At jvc hearing earlier this year on the dramatic decline of you is a for missions in this country since the last recession. Recession. From 20082014 more businesses actually closed and opened. At jvc hearing showed up to the middle attacks could can be to starting a new business in terms of both its provisions and its sheer complexity. As the challenges we face are more daunting as result, the National Debt is a bigger problem with a slowgrowing economy. That is why we so urgently need both tax and regulatory reform. We must restore a more highly functioning market economy that offers hope and opportunity to investors, entrepreneursth and workers, the removes the artificial constraints on a faster Economic Growth model. I cant think of a better witness to explain to us just how tax of brightness would perform can lift the economy and Living Standards across our n country. Chairman hassett, we appreciate your appearance before the committee today, look for to hearing your views and i will now yield to our Ranking Member carper senator peters, for his statement today. Thank you, chairman. Thank you chairman. For someone to thank chairman hassett are being with us at the committee today. Looking forward to having a substantive discussion on the state of the economy and some prescription for the future. But also want to thank chairman tiberi for your presiding over this hearing and also want to wish you well in your future endeavors. Im sorry to hear the news. We are certainly going to miss you here in congress, but we also know youre going to enjoy new challenges, and most important apple a a bit more te to acquaint yourself with family which is always a wonderful thing. Thank you. I also think this is a very timely hearing given the ongoing push by the majority and the white house to enact tax legislation on an aggressive timeline. But before we get into specifics of tax policy id like to take a step back and take a broader look at the current state of our economy and thecs economic outlk for thehe coming years as well s the coming decades. The administration is not side withti my lighting some positive economic statistics. Unemployment remains low in the stock market continues to climb but i think we all know theres more to an economy that just raw monthly job numbers for the daily dow jones average. We are still seeing persistent, frustrating stagnation on wages. Americans are overwhelmingly still not seeing the growth in wages that normally accompany economic recoveries. Not only to stagnant wages have an immediate negative impact on the daytoday lives of american families, theres also contributing to another troubling Economic Trend and thats growing Retirement Savings crisis. Argument americans simply dont have the resources for a secure retirement, and as americans are living longer with less secure assets forin retirement like definedbenefit plans, i believe this will have a serious consequence our entire economy. When it comes to class american families, the state of the economy is mixed in for policymakers i i believe the at of the trends we must address to ensure health and competitiveness for the American Economy in the decades to come and see the type of growth necessary. First i believe it is of the utmost importance that congress reject the idea that deferring over some eliminating investment in basic science and research has no consequences. It does. It has significant negative consequences. A lack of commitment to Funding Research that will lead to the next generation of Great American breakthroughs so well have a devastating impact on our economy. Iin can promise you our competitors including china will not simply stand still and see the competitive advantage in innovation. Second, we must reverse an alarming trend of declining new business formation. New businesses are the driver of our economy and are responsible for most new job creation in the uniteded states. Alarmingly where not seeing the numbers a new businesses needed to increase the shared prosperity across the economic especially in the urbanrural divide. New business formations across president ial administrations in both parties have fallen by half since the late 1970s and win whn you business are not prepared increasingly concentrated in just a few metropolitan areas like los angeles and new york. And finally i believe the critical question policymakers must be asking about the future of the economy is how are you going to prepare our workforce for an increasingly autonomous world driven by advances in Artificial Intelligence and Machine Learning . This is why were facing together i think as a nation some stagnant wages, massive Retirement Savings gap, a retreat from investment in innovation, decreasing business formation except for a few major metropolitan areas, and fundamental shift towards automation thatsh could dwarf te Industrial Revolution in global impact. These are problems we can Work Together to solve and a bipartisan basis, and he thinknk we must do this on a bipartisan basis. Im concerned that were going to be spending the coming weeks and months debating just a big a Corporate Tax cut to multinational conglomerates should receive and other policies that clearly benefit that very few and most wealthy individuals while raising taxes for middleclass americans. Despite our differences i look forward to a series conversation to and hope we can find Common Ground on how to meaningfully support American Workers and their families. So thank you, chairman hassett, for being here today. Thank you, mr. Peters. Senator peters, thank you for your kind words that were now turning to our distinguished guest, dr. Hassett, welcome. I apologize that we have ways and means republican meeting going on on tax reform upstairs so a few of the members are up there and i will be departing before the hearing is over, unfortunately, to join them. But were so excited to have you today. The senate also as a boat i think at 10 30 so sorry for the interruption as well. But introduce dr. Hassett, chairman of the president s council of economic advisers are part of this he worked as a scholar with a the American Enterprise institute also served as Economic Advisor to george w. Bush, john mccain and mitt romney, president ial campaigns. Trap i was also a senior economist at the board of governors of the Federal Reserve and associate professor lumbee university. He earned his doctorate in economics from university of pennsylvania. Chairman, you are now recognized for testimony. Ninety, chairman tiberi and what an honor just to be back before the committee with the word honorable before my name which is truly inappropriate, but gosh, im soop thankful for the support of the senators in my confirmation and its great to be back before you think the joint Economic Committee has a proud tradition focusing on the problems facing america and the solutions that we can agree to on a bipartisan basis and its in that spirit that i appear before you today. Discuss the status of a number of sectors. I will emphasize some areas that need attention as well as recommended policy changes that will improve our citizens economic wellbeing. It you read the 46 employment act that created the council, thats my somber responsibility, is to analyze the economy see , whats going on and provide the president and congress with objective advice about what we ought to do about it when we are probably sure. The economy is believed and growing at a solid pace with low unemployment and low inflation. Financial markets appear to recognize the likelihood of continued growth with low with major stock prices inspected inflation remaining low. That said the Trump Administration is not satisfied with business as usual, nor with the pace of real output and mcgrowth during the past several years. As a result we put forward a program designedded to boost the rate of read gdp growth and aim happy to report the economy is doing well so far in 2017. Real gdp growth in the first twoarted averaged 2. 1 and Consumer Spending grew 2. 6 . Business investment grew at a 7 annual rate during the first half of 2017. A notable acceleration from a flat pace during the preceding two years. Thats very important because after translating the pattern of investment into the flow of Capital Services its apparent that capital deepen, the fro hoff Capital Services made essentially no contribution to the growth of Labor Productivity in recent years and contrast to post if you look at the contribution to productivity growth it became negative for the First Time Since the Second World War. This administration thinks tax policy could play a role in reviving reviving reviving the contribution to the growth of wages. Before die thats lets look at other sectors, real residenceal investment grew, and core cbi inflations, including food and energy praises is 1. 7 for the 12 months through september. Looking back the it appears the potential gdp is growing at 2 annual rate or program even less. And real wage growth in america has stagnated. Over the past eight years the real Median Household Income rose by an average of. 6 per year. The corporate profits and Worker Compensation brogue down in the 1980s before in the recent policies had a chance to interrupt that a that deter youre rate relationship between the wages of American Workers and u. S. Corporate profits reflect thursday state of international tacoma tax competition in the world. Cutting Corporate Tax rates to cut capital book. The key feet fewer of the joint proposal is to proposed reduction of statutory federal corporation that tax rate forgot 35 to 20 . This conclusion that the corporation that tax falleds on workers driven by empire tall empireal the covariation between real wage growth and statutory Corporate Tax raise between the most taxed and least taxed countries, in figure one, and is indicative of the large rid tour. Of course simple time series correlations dont tell the whole story but theres literature that shows that High Corporation that tax donees there have wage growth and low Corporate Tax donees there have high rate of growth. In 2012 to 102017 the ten lowest tax rates has tax rates 13. 9 percentage itselfs lower than the ten highest countries countries ande same scale as the reduction in the United States. The average rate in low tax copies i highser. Thus economy has made great progress during the past years in reducing reducing the joblest the rate of productivity great hasline slow. Its time for all of news bipartisan way to boost the rate of growth and wage growth in particular. As i discussed the administrations plan for tax reform will have an Important Role in improving the rate of productivity growth in combination with the plan to stabilize the Regulatory Environment and we rook forward to working with you, the members of the committee to help reach the goals. Ill be happy to respond to questions. Thank you. As i mentioned in my testimony and showing in the graph over the past decade the cbo has continually downgrade an estimate of what the economy is capable of producing, our output potential. Is it possible in your opinion that the obama era policies of higher taxes and heavier regulation actually cosntrained our economic potential and how can we changed that . I think on the regulation it is certainly possible. I think your chart captured what happen, its know actions its our inaction and so what happened is the rest to the world cut Corporate Taxes and that made their countries much more attractive for the location of multinational plants than our country and we saw the activity move overseas in responsible 0 to that one met trick to think about how big this effect is, theres a National Bureau of Economic Research paper that came out in the spring that look at just the u. S. Molted thank you nationals this, transferred profits broad by paying too much for the products they buy from, say, the irish plants and this study estimated that 52 of our trade deficit right now is coming about because of this transfer pricing. Were paying too much for stuff from our foreign subs and moves that much jack different offshore and 52 of the trade deficit is attributable to. You have written and spoken on the challenges of the uneven economic recovery, a topic we have explored in this committee, topic that senator peters mentioned as well. Indeed a wide array of research makes clear this recovery has been the most geographically concentrated on record, leaving far too many communities, like in ohio, and michigan, for example, behind, communities and the people who live the those communities behind. As you know ive introduced legislation to provide a new Market Driven way of getting private capital off the sidelines and into our communities to foster new business and create jobs called the investing in opportunity act, which is has broad bipartisan support and bicammerral support. To questions. First, can you briefly describe the dimensions and consequences of this trend that is occurring wind our economy of increasingly consent straighted job growth in places like los angeles and new york, and secondly, can you speak to the administrations commitment to ensuring tax reform ensures the challenge head on of incorporating ideas like the investing opportunity act. Thank you, chairman. The geographic inequality has been a focus of my Academic Work many years and really the reason why im an economist. Grew up in a town, greenfield, massachusetts, where the grownfield tap and die closed and across the way there was a big paper mill that was the main employer there and that closed, too. My dad and i, when guy home, my dad still lives there and we walk next to the abandoned factories and theyre so torn falling apart that the video game fallout used it as a location for video shooting for post apocalyptic america. So this is something i care desperately about and why my academic career has focused on geographic inequality, including in states like ohio and michigan where there are def stressed communities where the plants closed and the jobs have no