March 08, 2023

ICYMI: At Hearing, Warren Warns Republicans’ Debt Ceiling Hostage Demands Would Cut 2.6 Million Jobs and Trigger Recession

Warren Calls on Congress to Raise Debt Limit, Reject Any Proposal to Cut Funding for Families, and Make Billionaires and Corporations Pay their Fair Share

“Republicans… want hardworking 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’s a non-starter.”

Washington, D.C. – In case you missed it, U.S. Senator Elizabeth Warren (D-Mass.) chaired a hearing of the Senate Banking, Housing, and Urban Affairs Subcommittee on Economic Policy on “The Federal Debt Limit and its Economic and Financial Consequences.” Senator Warren warned about the catastrophic economic consequences if the United States defaults on its debt or if lawmakers give in to House Republicans’ extreme proposals to slash critical investments in American families.

Mark Zandi, Chief Economist of Moody’s Analytics, testified about a new analysis finding that if Republicans trigger a default on government debt, the economy will be plunged into a recession and at least 1 million Americans will lose their jobs; and if Republicans get their massive cuts, it will also trigger a recession and cost 2.6 million jobs. 

Massachusetts child care and early learning provider Anat Weisenfreund testified about the devastating impacts that Republican-proposed cuts would have on the children and parents that rely on this support, and tax expert Amy K. Matsui testified that repealing Trump’s tax cuts and making billionaires and giant corporations pay their fair share could raise trillions in revenue. 

Senator Warren called on lawmakers to unanimously and immediately raise the debt ceiling, and reject Republicans’ attempts to make any cuts to programs that help working-and middle-class families and protect billionaires and giant corporations. 

Transcripts and videos from three rounds of Senator Warren’s questions and closing remarks below:

Transcript: The Federal Debt Limit and its Economic and Financial Consequences
U.S. Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy 
Remarks from U.S. Senator Elizabeth Warren
Tuesday, March 7, 2023

Round 1 of Questions below and video HERE:

Senator Elizabeth Warren: 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’re 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 debts that it has already incurred. It's a little like running up a bill on the credit card, 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 MAGA 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. Don’t take my word for it – take Donald Trump’s, who blamed Republicans’ poor showing in the midterms on Americans not feeling “the full gravity of the pain our nation is going through” — but expressed confidence that by 2024 it will be “much worse.” So let’s talk about what it would mean if those Republican cuts went through? 

Dr. Zandi, you’re the Chief Economist at Moody’s – I know you’re testifying on your own behalf here – but you’re the Chief Economist at Moody’s and one of the authors of a new report that analyzes the impact 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 are we talking about here? 

Dr. Mark Zandi, Chief Economist, Moody’s Analytics: Well, as you said, they’re massive. First, I should say, this is a bit opaque because it’s not like the House Republicans have put forward a very explicit plan. We’re kind of piecing this together and listening to what’s being said in the House. My sense is that they’re proposing to so-called balance the budget ten years from now through spending cuts. Taxes are off the table. And of course Social Security and Medicare are also off the table. But if you do the arithmetic, and here I’m just doing simple arithmetic, it’s $16 trillion in cumulative cuts over the ten year period. So, just divide by 10 and that’s $1.6 trillion per annum. That’s 6% of GDP. That gives you a sense of context. 

Senator Warren: Okay so $16 trillion over 10–

Dr. Zandi: I was just going to say Senator – just point of interest – maybe only an economist 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 and spending. So it’s not going to be $16 trillion. It’s going to be a much bigger number than $16 trillion, but let’s just say $16 trillion.

Senator Warren: 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 cumulatively in the middle of that. And just so everybody understands 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? 

Dr. Zandi: No, there’s a number of ways you could get there, but the most – 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 you mentioned earlier. Housing, food inspection, everything relating to transportation – you could see all the problems we’re having in the airline industry and the rail. That would be affected. Housing, health care, science, NASA, air to overseas, it’s just a long list of things. But also Medicaid. The Medicaid program would also have to be effectively eliminated to achieve that $16 trillion in cuts over a ten year period. So this is not some jobs. This is a lot of what the American people expect from the American government. These are services that have been provided since the beginning of time and they rely on them.

Senator Warren: Okay, so when you take all that into account, that is the size of the cuts and the programs you’d 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?

Dr. Zandi: Sure and I’m making a lot of assumptions about the timing and how this would be implemented and what exactly would be cut, but in the scenario I articulate in gory detail in the paper that was released today, it would result in the near term in a severe recession. It would be throughout 2024 so it would be more than a year long. Just for context, a typical recession since World War II is ten months. So this would be longer than that. The economy would lose 2.6 million jobs. The unemployment rate would rise to as high as 6% so it would be a – it’s not the financial crisis – but it would be a very meaningful hit to the economy in the near term. It would be a significant recession.

Senator Warren: Okay so in the near term we’re talking about a severe recession and we’re talking about loss of jobs?

Dr. Zandi: 2.6 million at the peak of the job loss.

Senator Warren: 2.6 million at the peak of the job loss would be what it looks like overall. And anything about what happens to GDP over this ten year period?

Dr. Zandi: Well, that was just the near term. These are cuts through a ten year period so let’s take it out 10 years from now the end of the budget horizon in 2023, 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 counterfactual. Just for a little bit of context – sorry I think you said that in your opening remarks –

Senator Warren: Which I had gotten from your report.

Dr. Zandi: Oh there you go. Okay. 

Senator Warren: That’s why they sound so familiar.

Dr. Zandi: I thought you did the arithmetic yourself. But that’s a little more than a typical year of GDP growth. It’s as if the economy – in one of those ten years – just stood still. And employment would still be roughly one million – not quite one million – less than it would have been in the counterfactual with a clean debt limit increase. 

Senator Warren: Okay so let me just push this on through. So we’re talking about 2.6 million jobs lost in the near term, one million over time. Ten years out we’d be out one million jobs. 

Dr. Zandi: This is taking two different points in time at the maximal impact. In the near term it’s 2.6 million. And by the end of the ten year horizon, I think you’re down 950,000, something like that. Close to one million.

Senator Warren: So when you take all that into account – I think I’ve got my thing here – what we’re looking at is these House Republicans can either throw us into an immediate recession and cost us about one 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 get about 2.5 million jobs lost in the near term and about one million jobs 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 want to 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.

Dr. Zandi: Yeah I mean I think it’s pretty straightforward that defaulting on the debt as we all have discussed is cataclysmic. Just how cataclysmic depends on exactly what scenario unfolds. But the alternative of engaging in these massive cuts in spending over the ten year horizon would also be quite devastating to the economy. Neither is a viable option.

Senator Warren: Good. I appreciate that and I think that takes us back to where we started with all five of you and that is we need to raise the debt ceiling without conditions. 

Round 2 of Questions below and video HERE:

Senator Warren: Bear with me just a little because I want to go 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. And if defense is off the board, veterans are off the board, Social Security is off the board, and 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 Dr. Zandi, it’s just math, you’ve got to cut the other programs by about 78%, 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 just want to just do the translation about the different ways that people lose their jobs under this using child care and early 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. But the United States has been underinvesting in child care for decades. Of the 37 richest nations in the world, the US is number 35 in terms of our spending on our little ones. And we need to be investing much more in child care to grow our economy, but these MAGA House Republicans are threatening to cut the little funding we have going in to child care. 

So, Ms. Weisenfreund, you run this Head Start center and early learning program in Franklin Massachusetts and Western Hampden Counties in Massachusetts. How many employees do you have, and how many children do you serve?

Anant Weisenfreund, Director Of Head Start And Early Learning Programs, Community Action Pioneer Valley: Yes, thank you senator. When fully staffed we employ 168 people And we are funded to serve 438 children, 120 of those are pregnant women, infants, and toddlers, and 318 preschoolers. Because of these chronic structural economic issues we’ve been talking about, and the pandemic has worsened it, our program, like many others, is struggling to recruit staff.

Senator Warren: Alright, just so everyone understands, not everyone knows about Hampden Counties and Franklin and this area. Can you just describe the area a little bit? Are you in an urban area? 

Ms. Weisenfreund: Yes, so no. We, you know, I run a pretty large program, mostly rural, some semi-rural. We span 1600 square miles. 

Senator Warren: Okay, so you are the child care provider for a 1600 square mile area. 

Ms. Weisenfreund: We’re a big one, so from the border of Vermont down to the border of Connecticut. 

Senator Warren: You’re the big one. Alright, so it sounds like things are already pretty tough on your current budget. 

Ms. Weisenfreund: That’s right. 

Senator Warren: 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? 

Ms. Weisenfreund: Oh yes, it’s about 85 percent of our budget. 

Senator Warren: 85 percent. I want you to imagine your federal funding is cut by 78 percent. Could you keep your centers open and retain your current employees? 

Ms. Weisenfreund: You know, I hope I’ll never have to do that math. 

Senator Warren: But if you do? 

Ms. Weisenfreund: It will be a huge impact to our operations. As I said, we have 168 employees, we operate 11 sites, 28 classrooms over this rural area. So a 78 percent 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. 

Senator Warren: All right, thank you. So there’s the example of what happens if we make these federal cuts. You know, the child care sector is already short nearly 60,000 employees compared to just pre-pandemic, when we were already hearing from parents across this country that they could not find safe, affordable, accessible child care. And if all of the child care providers face the kind of cuts these MAGA Republicans are proposing, then more child care workers across the country will lose their jobs, and more of these child care centers would close. 

So let me do another part of this. If you cut the number of employees 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?

Ms. Weisenfreund: Well again, just doing the arithmetic here, about 341 of the most vulnerable children and their families would lose care, and that would have both more short-term and longer-term impacts. 

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 rates, and of course, participation in the workforce.

Senator Warren: So, I’m just trying to think through what this means in terms of job losses. So we cut the federal budget the way the Republicans have proposed, you lay off 168 of your staff, in turn, that means half the children you serve, the doors are locked, they can’t come. And what happens to their parents? 

Ms. Weisenfreund: 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 in order to take care of their children, with single adult households being most affected. This would lead to immediate loss of income and thrust them into even deeper poverty.

Senator Warren: So, the job cuts lead to more job cuts in your case. Are there other child care options near you?

Ms. Weisenfreund: So we’re the largest provider of subsidized care in the most rural parts of our service area. There are few providers in Western Mass, but we 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. 

Senator Warren: So let me just say, thank you, Ms. Weisenfreund for the work you do. Thank you for the way you play a critical role in keeping our economy going and letting families build a strong economic future. 

Ms. Weisenfreund: May I say something? 

Senator Warren: Please. 

Ms. Weisenfreund: Thank you for calling the children little people. Because they are people. 

Senator Warren: Yes they are, yes they are. They don’t have lobbyists, but they are people. 

Ms. Weisenfreund: That’s right. 

Senator Warren: That’s an important distinction around here. Thank you, thank you. But thank you very much for your work and thank you for helping illustrate what happens here. 

Round 3 of Questions below and video HERE:

Senator Warren: 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. I think it’s fair to ask – and I think Dr. Holtz-Eakin can raise this – how the national debt got so large. MAGA 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 MAGA 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 3% of their wealth each year in federal income taxes – less than half the rate that 99% of America pays. Giant corporations have lobbied their way from paying 6% of the cost of running our country to paying about 1% of the cost of running our country. 

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. Ms. Matsui, you’re a tax expert. That’s why we invited you here today. How much would it affect the deficit if we repealed the Trump tax cuts for the wealthiest Americans and largest corporations?

Amy K. Matsui, Senior Counsel and Director of Income Security, National Women’s Law Center: Thank you Senator. Just to discuss two provisions that were in President Biden’s budget last year to even partially repeal or raise the corporate tax rate as well as repeal the tax cut for the highest individual income tax rate would raise $1.3 trillion over ten years and almost $187 billion over ten years respectively and those revenues could be used to reduce the deficit.

Senator Warren: Okay and this is for the largest corporations and the wealthiest individuals?

Ms. Matsui: The highest individuals, yes. 

Senator Warren: And Ms. Weisenfreund, you’re going to help me out here on the other half of this. You run an early learning and child care program – would it increase your taxes if we reversed the Trump tax cut for people making over half a million dollars in a single year? 

Ms. Weisenfreund: Oh no.

Senator Warren: Would it increase the taxes of your workers? 

Ms. Weisenfreund: No again.

Senator Warren: Would it increase the taxes of the families that you serve? 

Ms. Weisenfreund: Definitely not.

Senator Warren: Okay so nobody in your outfit is making more than half a million a year?

Ms. Weisenfreund: No, senator.

Senator Warren: Okay. Dr. Zandi, 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?

Dr. Zandi: No, I think the negative consequences would be on the margin and I base that on looking at the effects of the tax cuts. The cuts were put forward as a way to significantly increase economic activity and I think the research that has been done since that time has found that indeed it 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 should that the benefits of the tax cuts are relatively small. Therefore, I think the negative impact of the tax increases would be – on the margin – relatively small. One 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 based on all the other research that they were doing that the benefits of those tax cuts would be on the margin and it looks like that’s exactly what we got on the margin.

Senator Warren: That’s right. And on the margin meaning very small?

Dr. Zandi: Very, very small. All else being equal, if you raise taxes it’s going to have some negative consequences, but it’s going to be on the margin. On the margin.

Senator Warren: Okay. Which means you could raise them here – not going to have a big effect.

Dr. Zandi: No. Not a big effect.

Senator Warren: Alright. So there’s one option that we’re talking about. Add $1 trillion just 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. Ms. Matsui, how much revenue would that raise?

Ms. Matsui: Senator, for example, Senator Sanders’s Corporate Tax Dodging Prevention Act would raise an estimated $1 trillion over ten years.

Senator Warren: Okay so there’s a second trillion dollars that we’ve got. Ms. Weisenfreund, are 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 international profits?

Ms. Weisenfreund: No, Senator Warren.

Senator Warren: Okay and Dr. Zandi, would this have a meaningful impact on the U.S. economy?

Dr. Zandi: No. I think it would have a very small, marginal impact on the economy.

Senator Warren: So there’s a second option—an international corporate minimum that would shut down tax havens. Let’s do a third one. 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. Ms. Matsui, how much money would that raise? 

Ms. Matsui: Senator, President Biden’s proposal would raise about $361 billion over ten years and your Ultra-Millionaire Tax is estimated to raise up to $3 trillion over ten years.

Senator Warren: Okay. So somewhere in that range between $360 billion and $3 trillion. Ms. Weisenfreund - 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 2-cent wealth tax?

Ms. Weisenfreund: No we’re not.

Senator Warren: Okay. And Dr. Zandi, one more time?

Dr. Zandi: Yep, on the margin.

Senator Warren: On the margin. I just want to say thank you to all of you. There are just three proposals and we could raise somewhere around $5 trillion – 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’m 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 bottom 99% of Americans while the top 1% are getting away without paying their fair share. And if Republicans actually 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. 

Closing Remarks below and video HERE:

So, let me just wrap this up. Look, I think it’s clear that House Republicans aren’t interested in fiscal responsibility – they want hardworking 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’s 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 to see that we have unanimity on that point today. 

I want to thank our witnesses for being here today. I want to thank you all for your testimony. 

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 will have 45 days to respond to any questions. Thank you all again for doing this. I really appreciate it.