Hearing of the House Budget Committee - Near-Term Economic Outlook
Statement
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REP. LLOYD DOGGETT (D-TX): Thank you, Mr. Chairman.
And thank you for your testimony. You know, some people spend so much time here in Washington, they lose sight of what low- and moderate-income people means in this country. What do you mean by that term?
MR. BERNANKE: Well, the median income in the U.S. -- I believe I've got this right -- is about $48,000 for a family.
REP. DOGGETT: So you're talking about people $48,000 and below in --
MR. BERNANKE: Well, it's not a sharp cutoff. I think, again, people of lower income will tend to spend more out of these rebates. But as I said, even relatively high-income people do spend some out of a rebate, and so it's more like a continuous line than a sharp break.
REP. DOGGETT: When you talk about the best multiplier effect for a stimulus being for low- and moderate-income people, you're really talking about, you know, $50,000, $55,000 and below, aren't you?
MR. BERNANKE: Well, that's --
REP. DOGGETT: (Inaudible) -- maximum multiplier effect.
MR. BERNANKE: Again, weighting towards low- and moderate-income people, for multiplier purposes, is beneficial. I think you're going to have to think about the problem of how to distribute the money in a timely way. For example, if you -- one way to do it would be to use tax filers, because obviously we have that data available and the IRS can send checks. But, of course, if you do only tax filers, you're excluding some people who don't file taxes. So there is some question about how the best way to give money out quickly is.
REP. DOGGETT: And in terms of the fiscal stimulus that you feel would be desirable, given the economic conditions we have today, to supplement what you're doing with monetary policy, how big a fiscal stimulus is too big in terms of the total amount of stimulus?
MR. BERNANKE: I don't think I can -- the numbers that have been thrown around between, say, $50,000 and $75,000, up to $150,000. All those things are --
REP. DOGGETT: Within a range.
MR. BERNANKE: -- within a range that, from a macroeconomic viewpoint, is, you know, reasonable. But obviously you get more stimulus the more dollars you throw at it.
REP. DOGGETT: But if you go overboard -- and that's my concern --
MR. BERNANKE: Right.
REP. DOGGETT: -- with all these lobby groups lining up to get their program in and --
MR. BERNANKE: I certainly hope that Congress can resist having, you know, a huge list of different things that should be kept separate; I mean, may be valid, but should be kept separate from --
REP. DOGGETT: Just in terms of a range, up to $150,000 -- $50,000 to $150,000 in the broad range like that would not be unreasonable.
MR. BERNANKE: Those are all reasonable ranges. But again, one of the issues you're going to have to think about is the fiscal implication and how you -- if you're going to pay for it, you can pay for part of it and --
REP. DOGGETT: And that's really an important part of your testimony, because the first hearing that this committee had was back on December 5th, and we had three very diverse economists, as I think you know -- Dr. Feldstein, Fred Bergsten, Peter Orszag -- all say that it is possible to have a significant stimulative effect on fiscal policy and still pay for it within the requirements of our pay-go rules, and you agree with that.
MR. BERNANKE: I do.
REP. DOGGETT: And as far as the way we got into the problems that we have today, we would not have any need for fiscal stimulus at all today had it not been for the collapse of the home mortgage market, would we?
MR. BERNANKE: Well, the combination of the housing cycle and subprime mortgages, and the interaction between those two has been a big part of it, yes.
REP. DOGGETT: And you believe that in addition to any fiscal stimulus steps we take, we should be looking at the regulatory issues that are associated with that whole subprime debacle that got us into this problem.
MR. BERNANKE: I do, although I would point out again that the Federal Reserve has already issued for comment an extensive set of rules addressing subprime lending, which perhaps at some other occasion I'd be happy to discuss with you.
REP. DOGGETT: And certainly it would -- you conclude your written testimony, I think quite appropriately, by expressing concern about the structural budget deficit. If we put in place significant long-term -- not temporary, but long-term tax cuts -- you think that would be undesirable in terms of increasing -- unpaid long-term tax cuts -- in increasing the structural budget deficit.
MR. BERNANKE: Again, I think you need to look at the overall budget and, you know, make some tough decisions about the combination of taxes and spending which promote our national goals most effectively.
REP. DOGGETT: But I gather from your testimony, when you talk about a fiscal program that increased the structural deficit, would only make confronting the challenges more difficult, that whether it's unpaid for spending or unpaid for long-term tax cuts, the effect is the same. It increases the structural budget deficit, and you don't want (either ?).
MR. BERNANKE: If you want low taxes, you need to find ways to keep spending low. And if you want high spending, you need to find ways to raise the revenue.
REP. DOGGETT: Exactly. Thank you.
REP. SPRATT: (Off mike.)
REP. PATRICK TIBERI (R-OH): Thank you.
Thank you, Mr. Chairman. Your testimony was excellent today. And I'd like to follow up on some of the comments that you made and some of the comments that have been talked about today.
I agree with everything you said with respect to short-term stimulus. A year from now, when you come back and testify before us, after we get behind this issue, we're looking at the next year, two years, what effect does tax uncertainty going forward in the next two to three years have on taxpayers, on savers, on investors, on entrepreneurs, when they hear over and over on TV, on news shows, that the tax cuts that were passed earlier this decade are going to expire, and if they're not repassed, taxes will go up on a variety of different things? What does that uncertainty do for those taxpayers, investors, workers and entrepreneurs?
MR. BERNANKE: I'm sure that uncertainty causes some problems, and I don't know how to quantify that exactly. And there are many dimensions of that. I mean, another example would be -- I know you're referring to the president's tax cuts, but yet another example is the alternative minimum tax, which has been (passed ?) one year at a time, and there's been no sort of long-term resolution of that.
I think it does -- I mean, I think the fact that the code keeps changing and that there's uncertainty about that does have some adverse effects, though to the extent that, as part of, you know, going forward, you can find a more stable long-term solution to our tax and spending priorities, that would obviously be helpful.
REP. TIBERI: If you look at the tax cuts that are set to expire in a couple of years, which would you look at as having, if they do expire and go up, pro-growth taxes, which would do the economy most harm by going up if you look at people's behavior in terms of pro- growth economics?
MR. BERNANKE: If you wouldn't mind, I'd prefer not to get into that. You know, I would be -- again, I'm concerned about, at this point -- and particularly in this discussion of fiscal stimulus -- about taking a strong position on one side or another, but it's a very complicated issue. And there are a lot of factors that I could talk about. But --
REP. DOGGETT: But it does have impact on peoples' behavior.
MR. BERNANKE: Certainly taxes obviously have impact on peoples' behavior. And I would certainly agree, as general matter, that low taxes tend to stimulate efficient economic behavior and stimulate growth. And the trade-off one faces is between low taxes, on the one hand, and higher spending on the other.
REP. DOGGETT: Thank you, Mr. Chairman. I'll ask you that question a year from now.
MR. BERNANKE: Okay.
REP. DOGGETT: The other avenue you wanted to head down is with respect to this housing issues that you've talked about, and you made a comment earlier. As a former realtor, I found it interesting that the -- that there is good subprime and bad subprime, which I think has missed in the national media. Would you concur that there are people in homes today -- and in fact we have homeownership levels at all-time highs, which also gets failed to be mentioned -- that there are people in homes today that would have never have been in homes, in terms of their economic status, 20 or 30 years ago because of the change in the way that the American marketplace has worked, with respect to lending, and that there are people in homes that had subprime loans given to them that are fine, and they are living in their homes and they are absolutely fine, and they wouldn't be if it weren't for that loan product, and that the housing -- the credit crunch and the housing slump is more complicated than just blaming it on bad -- and there are bad -- subprime loans?
MR. BERNANKE: Well, I've been to many communities where I've seen, for example, cooperation between lending institutions and local community groups that have been extraordinary effective in making subprime loans with low rates of default and high rates of homeownership. So I know personal experience that it can be effective. If you look at the aggregate data, you'll see that there's been this huge increase in delinquency rates among subprime mortgages with adjustable rates, which adjust to very high levels, but if you look at subprime mortgages with fixed rates, there's been some increase, but they remain, on the whole, you know, recently stable. I don't think there's any reason why people of, you know, with less- complete credit histories cannot qualify for homeownership or for a mortgage. And there's plenty of experience to show that it can be done well. Obviously it was not done well, in many cases, in the last couple of years.
REP. DOGGETT: Thank you, Mr. Chairman.
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