S. HRG. 117–236 — Corporate Profits Are Soaring as Prices Rise
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S. HRG. 117–236, the printed record of a hearing titled Corporate Profits Are Soaring as Prices Rise: Are Corporate Greed and Profiteering Fueling Inflation?, before the Committee on the Budget of the United States Senate, One Hundred Seventeenth Congress, Second Session, April 5, 2022. The record states that the Committee met at 11:03 a.m. via Webex and in Room SD–608, Dirksen Senate Office Building, with Hon. Bernard Sanders presiding. The contents list opening statements by Chairman Bernard Sanders and Ranking Member Lindsey O. Graham and statements by witnesses Robert B. Reich, Lindsay Owens and Michael Faulkender, each with a prepared statement.
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“S. HRG. 117–236 — Corporate Profits Are Soaring as Prices Rise.”
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S. HRG. 117–236
CORPORATE PROFITS ARE SOARING AS
PRICES RISE: ARE CORPORATE
GREED AND PROFITEERING FUELING
INFLATION?
HEARING
BEFORE
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
APRIL 5, 2022
Printed for the use of the Committee on the Budget
(
U.S. GOVERNMENT PUBLISHING OFFICE
47–315 WASHINGTON : 2022
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COMMITTEE ON THE BUDGET
BERNARD SANDERS, Vermont, Chairman
PATTY MURRAY, Washington LIINDSEY O. GRAHAM, South Carolina
RON WYDEN, Oregon CHARLES E. GRASSLEY, Iowa
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
SHELDON WHITEHOUSE, Rhode Island PATRICK TOOMEY, Pennsylvania
MARK R. WARNER, Virginia RON JOHNSON, Wisconsin
JEFF MERKLEY, Oregon MIKE BRAUN, Indiana
TIM KAINE, Virginia RICK SCOTT, Florida
CHRIS VAN HOLLEN, Maryland BEN SASSE, Nebraska
BEN RAY LUJÁN, New Mexico MITT ROMNEY, Utah
ALEX PADILLA, California JOHN KENNEDY, Louisiana
KEVIN J. CRAMER, North Dakota
WARREN GUNNELS, Majority Staff Director
NICK MYERS, Minority Staff Director
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CONTENTS
TUESDAY, APRIL 5, 2022
Page
OPENING STATEMENTS BY COMMITTEE MEMBERS
Chairman Bernard Sanders .................................................................................... 1
Ranking Member Lindsey O. Graham ................................................................... 10
WITNESSES
Statement of the Honorable Robert B. Reich, Carmel P. Friesen’s Professor
of Public Policy, Goldman School of Public Policy, University of California,
Berkeley ................................................................................................................ 4
Prepared Statement of ..................................................................................... 26
Statement of the Ms. Lindsay Owens, Ph.D., Executive Director, Groundwork
Collaborative ......................................................................................................... 6
Prepared Statement of ..................................................................................... 36
Statement of the Honorable Michael Faulkender, Ph.D., Dean’s Professor
of Finance, Robert H. Smith School of Business, University of Maryland ...... 8
Prepared Statement of ..................................................................................... 47
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CORPORATE PROFITS ARE SOARING AS
PRICES RISE: ARE CORPORATE GREED AND
PROFITEERING FUELING INFLATION?
TUESDAY, APRIL 5, 2022
U.S. SENATE,
COMMITTEE ON THE BUDGET,
Washington, D.C.
The Committee met, pursuant to notice, at 11:03 a.m., via Webex
and in Room SD–608, Dirksen Senate Office Building, Hon. Ber-
nard Sanders, Chairman of the Committee, presiding.
Present: Senators Sanders, Whitehouse, Kaine, Van Hollen,
Padilla, Graham, Grassley, Crapo, Braun, and Scott.
Staff Present: Warren Gunnels, Majority Staff Director; and Nick
Myers, Republican Staff Director.
OPENING STATEMENT OF CHAIRMAN SANDERS
Chairman SANDERS. Let me call this hearing to order.
There is some confusion on the floor about when the next vote
is going to take place, so we will see what happens. But I do want
to thank our panelists for being with us. I am going to get to them
in a moment.
I believe Senator Graham should be here in a while, and I have
the feeling that other members will be floating in and out depend-
ing on the votes on the floor. This is an important hearing, and I
want to thank everybody for being here.
The truth is that corporate greed is nothing new. It has been
going on for a very, very long time, and it manifests itself in the
extreme wealth and income inequality that we are seeing in this
country now. And this is one of the issues which gets far too little
discussion, but the American people have got to determine whether
or not we are comfortable with 2 people owning more wealth than
the bottom 42 percent of Americans, whether we are comfortable
with the top 1 percent owning more wealth than the bottom 92 per-
cent.
And I have said this a million times. You know, we focus on the
oligarchy in Russia, which should be focused on, and Putin’s allies
there led him into this and worked with him on this terrible war.
The truth is we have an oligarchy in this country, and we might
want to be focusing on that as well.
When we talk about why the American people are angry, why,
among other things, we are seeing a spurt in the growth of trade
unionism in this country, it has a lot to do with the fact that CEOs
in large corporations now make 350 times more than their average
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workers. In addition to that, they receive stock options, golden
parachutes, and a wide range of perks go to the CEOs. And mean-
while, working families are struggling to pay their bills, to feed
their kids, to take a few weeks’ vacation, and to save up for retire-
ment. So what we are seeing now is more income and wealth in-
equality in this country than we have seen in a hundred years, and
this is an issue that if nobody else wants to talk about we will talk
about in this Committee.
But it is not just income and wealth inequality. Corporate greed
manifests itself in the massive amounts of union busting that we
have been experiencing in which large corporations spend millions
of dollars to deny workers their constitutional rights to organize
while, in many cases, forcing workers who belong to unions to
make unacceptable concessions like eliminating pensions and major
pay cuts. I have been involved in a number of strikes in the last
year, and it is astounding to me to see the degree to which large,
profitable corporations go out of their way to try to take away
health care, take away pension benefits, lower wages. It is really
rather astounding.
And today, when we talk about corporate greed, it manifests
itself in corporation after corporation using the pandemic and all
of the instability caused by the pandemic, using the terrible war in
Ukraine, as a specter, as an attempt to raise prices for the average
American higher and higher. And that obviously deals with gas
prices. It deals with housing. It deals with food.
And what we are seeing is during this pandemic this is an issue
we have to deal with, and we are going to deal with it today. Is
it appropriate that during this pandemic, during the war in
Ukraine, during all of this instability, that this be a moment in
which large corporations continue to enjoy huge profits? And I
think the American people, based on the polling that I have seen,
have had enough. They are outraged at the unprecedented level of
corporate greed that is taking place all around them.
And today, while the average worker is making $40 a week less
in real wages than he or she made nearly 50 years ago, corporate
profit margins are a 70-year high, and CEOs are seeing huge in-
creases in their compensation package. So let me just give you a
few examples though I do not know that I have to because the
American people are seeing this every day right in front of them.
Yesterday, at a time when gasoline in America is now at a near
record high of $4.17 a gallon, guess what? We have seen yesterday
ExxonMobil reported that its profit from pumping oil and gas alone
in the first quarter will likely hit a record high of $9.3 billion.
Meanwhile, big oil CEOs are on track to spend $88 billion this
year, not to decrease supply constraints, not to address the climate
crisis, but to buy back their own stock and hand out dividends to
enrich their wealthy shareholders. That is for oil and gas.
And let us talk about more examples of corporate greed. Amazon
recently raised the price of its Prime Membership by 16.8 percent
while increasing its profits by 56 percent last year to a record-
breaking $33 billion, and by the way, they avoided over $5 billion
in Federal taxes. Meanwhile, the founder of Amazon, Mr. Bezos,
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became $83 billion richer during the pandemic and is now worth
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3
almost $200 billion, making him the second wealthiest person in
America.
Other examples of corporate greed, let us talk about food. Tyson,
a major meat producer, has increased the price of beef by 32 per-
cent, the price of chicken by 20 percent, and the price of pork by
13 percent. Meanwhile, Tyson Foods has increased its profits by
140 percent last quarter to $1.1 billion and gave its CEO a 22 per-
cent pay raise last year, to $14 million, while its owner, John
Tyson, doubled his wealth during the pandemic and is now worth
$3 billion.
Another example about corporate greed in terms of products des-
perately needed by the American people, let us talk about prescrip-
tion drugs. Last year, Pfizer, Johnson & Johnson, and AbbVie,
three giant pharmaceutical companies, increased their profits by
over 90 percent to $54 billion. Meanwhile, the CEOs of just 8 pre-
scription drug companies made $350 million in total compensation
in 2020.
In other words—and these are just some examples. We can go on
and on. But in other words, the problem is not that a low wage
worker got a 50-cent raise 2 weeks ago and a $1,400 check from
the government last year, as some of my Republican colleagues will
suggest. The problem is that corporations are making record-break-
ing profits and over 700 billionaires in American became nearly $2
trillion wealthier during the pandemic while engaging in obscene
levels of price gouging.
Now the American people want us to take action. They are sick
and tired of prices going up, corporate profits going up, CEO com-
pensation going up. They want us to represent them, not the cor-
porate world. They are sick and tired, among other things, of bil-
lionaires paying a lower effective tax rate than a teacher, a nurse,
a truck driver, or a firefighter. They want Congress to address cor-
porate greed and make sure that the wealthiest people in our coun-
try and the most profitable corporations pay their fair share of
taxes.
In order to address the current crisis, I have introduced legisla-
tion to enact a windfall profits tax modeled off a bill signed into
law during World War II. During World War II, our country, the
people of our country, understood that it was unacceptable for com-
panies to make obscene profits when young men and women were
dying in Europe and in Asia. That is not a time to make huge prof-
its.
Now I am not here to suggest that this moment is equivalent to
the 1940s and World War II, but I will tell you that during this
terrible pandemic, which has caused so much pain and so much
economic instability, during Putin’s murderous invasion of Ukraine,
it is at this moment not acceptable to me for corporate America to
make huge profits by ripping off Americans at the gas station, at
the grocery store, or any other sector of our economy.
And let us be clear. When we talk about corporate greed, we are
also talking about the enormous concentration of ownership that
exists in America today and the lack of competition which has al-
lowed companies to drive prices higher and higher. So it is not just
the reality of income and wealth inequality, and corporate profits,
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it is an economy in which a handful of giant corporations control
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sector after sector after sector and can control the pricing that goes
on.
In terms of agriculture, just 4 firms in America control 85 per-
cent of the corn seed market, 82 percent of the beef packing mar-
ket, 76 percent of the soybean seed market, 66 percent of the pork
processing market, and 54 percent of the poultry processing mar-
ket. All right, that is agriculture; that is food.
In terms of transportation, 4 large companies control 67 percent
of our airlines and 83 percent of our railways while just 3 compa-
nies control 80 percent of cargo shipping.
In terms of health care, over the past 20 years, there has been
approximately 1,600 hospital mergers while 90 percent of metro-
politan hospital markets are considered highly concentrated.
And maybe most important—and we had a hearing on this, and
we are going to come back to this issue over and over again. In
terms of our entire economy—and I want everybody to hear this—
we should all understand that just three Wall Street firms, three,
one, two, three, BlackRock, State Street, and Vanguard, control $22
trillion in assets, which is roughly the equivalent of the entire
gross domestic product (GDP) of the United States of America.
Three companies. And when you have that kind of power, you are
impacting hundreds and hundreds of corporations, where you are
a major stockholder in the lives of millions and millions of workers.
If we are serious about combating inflation and lowering prices,
we must aggressively use the antitrust laws that are on the books
and introduce new ones as necessary to break up behemoth cor-
porations and increase competition.
Now is corporate greed the only reason for inflation? The answer
is obviously not. The severe supply chain crisis and the microchip
shortage are also contributing to higher consumer prices.
But let me remind my colleagues that over the last 30 years, as
a result of our disastrous, unfettered free trade policies, corporate
America has shut down many thousands of factories and shipped
millions of good paying American jobs to low-wage countries.
Maybe, just maybe, if we did not make it so easy for corporations
in America to move abroad, our supply chain crisis and microchip
shortage would not be as serious as it is today.
Bottom line, we need an economy that works for all Americans,
not just a handful of people on top.
Senator Graham is not here, so we go to the—okay, let us go to
our panelists, and let me begin with Robert Reich, who is a former
Secretary of Labor, U.S. Secretary of Labor, and is the Carmel P.
Friesen Professor of Public Policy at the Goldman School of Public
Policy at the University of California, Berkeley.
Professor Reich, are you there?
Mr. REICH. Yes, I am right here. Senator, I hope you can see me.
I can see you.
Chairman SANDERS. Loud and clear.
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STATEMENT OF THE HONORABLE ROBERT B. REICH, CARMEL
P. FRIESEN’S PROFESSOR OF PUBLIC POLICY, GOLDMAN
SCHOOL OF PUBLIC POLICY, UNIVERSITY OF CALIFORNIA,
BERKELEY
Mr. REICH. Okay. Good. Mr. Chairman and members of the Com-
mittee, I am going to submit my formal testimony for the record,
and I will simply summarize.
The Commerce Department reported last Wednesday that cor-
porate profits are at a 70-year high, which raises an obvious ques-
tion about inflation. When corporations are so flush with cash, why
are they raising prices? Not because of the increased cost of sup-
plies and components or of workers who are beginning to get raises
because they are in demand. Yes, there are increased costs, but in
a competitive economy, corporations enjoying record profits would
absorb these costs. They would keep their prices down to prevent
competitors from grabbing away customers, but instead, they are
passing these costs on to consumers in the form of higher prices.
Why? Because they can. They can because they do not face
meaningful competition. Since the 1980s, two-thirds of all Amer-
ican industries have become more concentrated. This concentration
gives corporations the power to raise prices without risking the
possibility of losing customers who have no other choice.
Now, Mr. Chairman, you went through a number of examples.
Many people see it every day. Starbucks is raising its prices to con-
sumers, blaming the rising costs on supplies, on increasing supply
costs, but Starbucks just reported a 31 percent increase in yearly
profits.
Proctor & Gamble is charging more for consumer staples, also
citing rising costs, but Proctor & Gamble has reported a whopping
24.7 percent profit margin. It even spent $3 billion during the
fourth quarter buying back its own shares of stock.
Meat prices are soaring because the four giant meat processing
corporations that dominate the industry are using their market
power to extract bigger and bigger profit margins for themselves,
and this is according to a report from the White House National
Economic Council.
Although major oil companies have faced increasing costs for
crude oil, they posted near record profits last year. So they are
passing those costs on to consumers in the form of higher prices at
the pump and for heating oil, and they are keeping record profits.
And now they are using Putin’s invasion of Ukraine as an excuse
to raise prices even further.
The New York Times, two weeks ago, pointed out that corporate
executives have spent recent earnings calls with Wall Street ana-
lysts, bragging about their newfound power to raise prices, often
predicting that it is going to last.
Now what are large corporations doing with their near record
profits? They are buying back their own shares of stock in order
to deliver higher returns to their shareholders. Stock buybacks hit
a new record last year, this year is on track to exceed it. The oil
giants alone are planning to buy back at least $22 billion of their
own stock.
So here we have corporations with record profits not seen in 70
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years. They are raising their prices. This means consumers are
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paying more. Wages are rising, but almost all of the increase in
wages is being wiped out by price increases. And, corporations are
using their profits to buy back their shares of stock. All of this—
what is all of this? Connect these dots. This amounts to an upward
transfer of income and wealth from consumers and workers, many
of whom live from paycheck to paycheck, to shareholders, half of
whom are in the richest 1 percent of the population and more than
80 percent of whom are in the richest 10 percent.
Now what to do about this? The Fed is battling inflation the old
fashioned way, by raising interest rates to slow the economy. But
here is the point; higher interest rates are not going to stop cor-
porations from using their pricing power. Higher interest rates are
just going to slow the economy and potentially cause millions of
lower-wage workers to lose their jobs and forfeit long overdue real
wage increases.
There is a far better way to battle this corporate-induced infla-
tion that would not hurt average working Americans. It is for Con-
gress and the Administration to apply tougher antitrust enforce-
ment and enact a windfall profits tax and price controls.
Inflation is intimately connected to record corporate profits and
widening inequality. Average working people in America are being
shafted. They need and deserve action.
Thank you.
[The prepared statement of Mr. Reich appears on page 26]
Chairman SANDERS. Professor Reich, thanks very much.
Let us now go to Senator Graham, and then we will go back to
the other two witnesses.
Senator GRAHAM. If you want to do the witnesses, I am okay
with that, Mr. Chairman.
Chairman SANDERS. All right. Very good. Then let us go to Dr.
Lindsay Owens. Dr. Owens is the Executive Director of the
Groundwork Collaborative and an award-winning sociologist and
policy researcher.
Dr. Owens, thanks for being with us.
STATEMENT OF LINDSAY OWENS, PH.D., EXECUTIVE
DIRECTOR, GROUNDWORK COLLABORATIVE
Ms. OWENS. Chairman Sanders, Ranking Member Graham,
members of the Committee, thank you for inviting me to testify
today. My name is Lindsay Owens, and I am the Executive Direc-
tor of the Groundwork Collaborative, a think tank working to
produce broadly shared prosperity and abundance for all.
My testimony today will focus on three key points. First, cor-
porate profiteering and price gouging are accelerating price in-
creases and squeezing consumers and small businesses while cor-
porate executives and shareholders cash in. Second, Wall Street’s
presence in every corner of our economy is putting us at risk for
a profit-price spiral; in contrast, the share of economic output going
to labor is declining inconsistent with a wage-price spiral. Finally,
today’s price increases are the direct result of the outsized market
power that giant corporations hold over our supply chains and our
economy more broadly.
There are a range of factors driving inflation right now, from in-
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creasing and shifting demand to supply chain disruptions and even
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conflict abroad, but last week’s Bureau of Economic Analysis’s data
release laid bare another culprit behind recent price hikes: plain
old profiteering. Corporate profits of nonfinancial firms surged 35
percent in 2021, and overall profit margins reached their highest
level since 1950. In all 4 quarters of 2021, the overall profit mar-
gins stayed above 13 percent, a level reached in just one other 3-
month period during the past 70 years.
The 2021 profit data confirms what CEOs have been telling
shareholders for months. Inflation has been very, very good for
business.
My team at the Groundwork Collaborative has combed through
hundreds of quarterly earnings calls to understand why profit mar-
gins are at record highs despite the rising costs of energy, raw ma-
terials, and other inputs. In these calls, executives tell investors
about last quarter’s performance and discuss what they can expect
going forward. Over and over, the message from corporate America
is clear. They are not just asking consumers to pay for their rising
costs; they are going for more.
Whereas, the CEO of Constellation Brands, the parent company
of popular beers Modelo and Corona, put it in their January earn-
ings calls, ‘‘So we want to make sure that we are not leaving any
pricing on the table. We want to take as much as we can.’’
Giant corporations are able to get away with this kind of aggres-
sive and extractive pricing precisely because of the current infla-
tionary environment. As the CEO of Hostess said in an earnings
call last month, ‘‘When all prices go up, it helps.’’
Wall Street’s influence in every corner of our economy makes this
period of inflation unique and puts us at risk for a profit-price spi-
ral. As profits rise as the result of price hikes, so too does investor
demand for those profits.
Take an example from the energy sector. Last month, the CEO
of Texas-based Pioneer Oil was asked whether Pioneer would con-
sider increasing production to make up for any shortfall resulting
from Russia’s invasion of Ukraine. His answer, ‘‘No.’’ When asked
to explain, he said, ‘‘It is all about the shareholders. Our share-
holders own this company. They want a return of cash.’’
But it is not just Pioneer. Fifty-nine percent of oil and gas execu-
tives recently told the Dallas Fed in a survey that investor pres-
sure to maintain capital discipline is the primary reason publicly
traded oil companies are throttling supply despite high prices.
Shareholders across sectors are not hiding the ball. They expect
buybacks and dividends, not investments in production, and their
strategy is paying off. In 2021, S&P 500 firms spent nearly $900
billion on stock buybacks, and U.S. companies paid out nearly $1.5
trillion in dividends to shareholders, both record highs.
Over the last 50 years, corporate America’s ruthless pursuit of ef-
ficiency and short-term profit set the stage for today’s high prices
by ushering in a wave of corporate consolidation that left us vul-
nerable to profiteering and price increases in two ways. First, it
hollowed out and nearly eliminated diversity in our supply chain,
leaving us without any fail-safes to withstand significant shifts in
demand without shortages. Second, without competition to under-
cut companies who are charging excess prices, those companies
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with market power can continue raising prices virtually unabated.
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Giant corporations’ control over our supply chain has supplanted
the functioning, resilient system we could have built through ro-
bust public investment and free and fair competition. But it is not
too late. We have many policy tools at our disposal. First, Congress
should tax excess and windfall profits to encourage productive in-
vestment instead of profiteering. Second, regulators should enforce
the laws already on the books to make markets more competitive
and prevent collusion and price fixing. Third, Congress should pur-
sue a Federal price gouging standard to protect against excessive
price hikes during periods of economic transition. And finally, Con-
gress should make long overdue investments in our supply chain.
Importantly, interest rate hikes, which slow inflation by tamping
down demand and making people poorer, will not address any of
the underlying causes of our supply shortages and do nothing to
address profiteering.
Thank you for inviting me to testify today, and I look forward to
your questions.
[The prepared statement of Ms. Owens appears on page 36]
Chairman SANDERS. Thank you very much.
Our third witness is Dr. Michael Faulkender, the Dean’s Pro-
fessor of Finance at the University of Maryland’s Smith School of
Business. Dr. Faulkender served as the Treasury Assistant Sec-
retary for Economic Policy during the Trump Administration.
Dr. Faulkender.
STATEMENT OF THE HONORABLE MICHAEL FAULKENDER,
PH.D., DEAN’S PROFESSOR OF FINANCE, ROBERT H. SMITH
SCHOOL OF BUSINESS, UNIVERSITY OF MARYLAND
Mr. FAULKENDER. Chairman Sanders, Ranking Member Graham,
Senators on the Committee, thank you for the opportunity to speak
with you today on the impact of inflation on the American people
and its root causes.
I had the honor of serving as Assistant Secretary for Economic
Policy at the Department of Treasury in the previous administra-
tion. In that role, I worked with Senators on both sides of the polit-
ical aisle and the Small Business Administration to quickly imple-
ment the Paycheck Protection Program (PPP) and ensure that the
economic devastation that might have resulted from the pandemic
was not realized.
The excessive inflation currently harming America’s families is
primarily the result of unnecessary fiscal stimulus passed by Con-
gress and implemented by this administration, bolstered by exces-
sively accommodative monetary policy by the Federal Reserve.
At the onset of the pandemic, prices declined. When the economy
reopened, prices started rising with inflation from June 2020 to
February 2021, averaging 32 basis points per month.
The $1.9 trillion American Rescue Plan (ARP) was signed into
law in March of 2021. Since then, monthly inflation has doubled to
64 basis points per month, resulting in a 7.9 percent annual infla-
tion rate.
Due to a fundamentally strong economy prior to the pandemic,
Americans had aggregate balances in their checking and savings
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accounts of just under $11 trillion. Following ARPA’s disburse-
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ments, that amount had risen to over $14.2 trillion, nearly a 30
percent increase.
The entirely predictable result was inflation, running the highest
we have seen in 40 years. Even former Clinton Treasury Secretary
Larry Summers characterized enactment of such policy as ‘‘the last
responsible macroeconomic policies we have had in the last 40
years.’’
Last week, researchers at the San Francisco Federal Reserve
published findings that stated, ‘‘Fiscal support measures designed
to counteract the severity of the pandemic’s economic effect may
have contributed to this divergence by raising inflation about 3 per-
centage points by the end of 2021.’’
Some are, instead, blaming the recent inflation on corporate
greed and the exercise of market power. There are many problems
with this conclusion. From January 2010 through January 2020,
the 12-month average inflation rate averaged 1.8 percent. Over the
last 12 months, inflation has been 7.9 percent, more than quad-
rupling recent increases.
Were corporations not greedy in the 2010s? What changed in
March 2021 such that corporations suddenly became greedy? As
someone who has researched corporate financial decision making
for the last 20 years, I am not aware of any finding that corpora-
tions only recently desired profits.
It is true that corporate profits have risen during the recovery.
Just as corporate profits fell at the beginning of the pandemic,
when there was extra supply relative to suddenly diminished de-
mand, corporate profits will rise when demand significantly out-
strips supply. This outcome is caused by a shortage caused by poli-
cies that have inflated demand while discouraging supply. It also
appears to be the case that PPP expenses in 2020 that were for-
given in 2021 helps explain the vast majority of the increase in cor-
porate profits.
To curb the 40-year high rate of inflation the American people
are enduring, Congress must reverse course. Continuation of irre-
sponsible fiscal policy would only accelerate the Federal Reserve’s
already aggressive plans to hike interest rates. Instead, we need to
encourage more domestic supply by reducing the regulatory bur-
dens on companies, cease the constant threats of higher taxation,
remove barriers to work, and declare an end to pandemic restric-
tions. Following those policies prior to the pandemic, our nation
saw low inflation, a 50-year low in the unemployment rate, historic
gains in household income, reductions in income inequality, and
record low poverty rates across all races.
The Chairman’s proposal would have devastatingly counter-
productive effects. The proposal would apply a 95 percent tax rate
on any profits realized by large companies above their pre-pan-
demic 5-year average profit level adjusted for inflation. Any com-
pany that created new products, successfully entered new markets,
or shifted their offerings in response to changes in consumer pref-
erences following the pandemic would be punished. Companies
whose product prices rose with inflation but who merely served
more of their fellow Americans would have their increased results
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deemed excess profits and taxed at 95 percent.
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10
If enacted, this proposal would nearly eliminate domestic eco-
nomic growth. Today’s punishment becomes tomorrow’s extremely
strong disincentive. Profits from successful innovation that better
serve the needs of fellow citizens would be forcibly taken by govern-
ment, but losses from failed innovation would be borne by the busi-
nesses. Why would American companies innovate, respond to
changes in the economy, supplement supply when there are short-
ages, or engage in research and development under those kinds of
conditions? I urge the Senate to reject such destructive proposals.
I look forward to participating in today’s conversation. Thank
you.
[The prepared statement of Mr. Faulkender appears on page 47]
Chairman SANDERS. Thank you very much.
Senator Graham.
OPENING STATEMENT OF SENATOR GRAHAM
Senator GRAHAM. Thank you, Mr. Chairman. I am sorry, I voted.
There is another vote on, so . . .
Chairman SANDERS. Is there one?
Senator GRAHAM. Yeah, so you might—we will figure out how
you want to do this.
So anyway, very well done, sir. I agree with everything you said.
I want to remind the Committee and the American people that
basically before the pandemic hit we had a 50-year low unemploy-
ment rate. We had among—African Americans and Hispanic Amer-
icans and Americans with disability hit their lowest levels on
record. American workers saw their paycheck rise at the fastest
pace in years, and they were rising faster for low earners. The offi-
cial poverty rate in 2019 hit an all-time low.
We cut taxes in 2017 through the reconciliation process. We re-
duced the corporate rate to make it competitive. Before the tax re-
duction, from 35 percent to 21 percent, America had the fourth
largest corporate tax rate in the world.
What you saw from 2017 to 2019 was economic growth that
touched every sector of the economy. Making our corporate tax rate
competitive is important in my view because we live in a global
economy and people can go where capital is most well received.
And if you want to create jobs in America, the American corporate
tax rate has to be competitive with the rest of the world.
Now we find ourselves here talking about how to fix inflation and
who to blame. And all I can say to my Democratic colleagues, you
have an insatiable desire to take money from the private sector,
build the government bigger, and I assume you do this because you
think that is the best way to help people.
My view is that the best way to help people is have a competitive
tax code, take money from the American people to run the govern-
ment in a professional manner, not overly expand the role of gov-
ernment, but whatever you do, do it well, and we have to be com-
petitive. If you have ever been in the private sector, tax policy real-
ly does relate to who you hire and how many people you can hire.
So the idea of a windfalls profit tax in the middle of this would
be a disaster. We are trying to get our economy back on its feet
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after dealing with COVID throughout the world. And, what I would
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11
say is that the best cause for inflation lies in the policy choices of
this administration more than any single thing.
So that is kind of an inventory of where we are at.
Here is the tale of the tape. If you are buying a used car, it is
up 41.2 percent since the Administration took over, 38 percent in-
crease in gas prices, 12.7 percent increase in airfare; meat, poultry,
fish, eggs, 13 percent; fruits and vegetables, 7.6; milk, 11.2; elec-
tricity, 9 percent from February 2021 to February 2022. So people
get what I am saying because they are living this.
You can see the 7.9 percent surge in inflation from October 2021
to January 2022. We are going in the wrong direction at a fast
rate. So if you got a 5 percent pay raise, it does not go very far.
You can see this chart, the tremendous spike in inflation from
basically January 2021 till now. It has just gone through the roof,
and the question is, why?
On the energy side, every time you go to the pump, you are re-
minded of the dramatic increase in gas prices, and inflation is a
nightmare for working-class people. It is the enemy of the middle
class.
So let us see if we can figure out what happened here. Why are
gas prices so high? Well, there is a supply and demand component
for sure. Demand was down during COVID because most of us
were not traveling. Demand is up, so you would expect some in-
crease.
But what happened here? Remember the 2020 election? I do.
This is Biden’s campaign promise, President Biden on energy: ‘‘We
are going to end fossil fuel,’’ September 2019. No more, no new
fracking, March 2020. ‘‘No more drilling, including offshore,’’ March
2020.
So how can you be surprised that American energy production is
down? The policies that he campaigned on were basically to declare
war on the fossil fuel industry in the United States. And, guess
what? It worked.
Top five Biden actions that impede energy production: Revoked
the Keystone Pipeline, which would have had a supply coming out
of Canada. Paused new oil and gas leases on Federal lands and
waters. Halted drilling in Alaska’s Arctic National Wildlife Refuge.
Stifled new energy infrastructure projects in the name of climate
change. Included $45 billion in new taxes on domestic energy pro-
duction.
Now when you look at all this, if you are surprised that gas
prices are up, you should not be.
So what is driving all this? I think, Mister—what is your name,
sir?
Mr. FAULKENDER. Faulkender.
Senator GRAHAM. Okay. I think you and Larry Summers agree
that this is not from profiteering; this is from policy.
So what I want the Committee to understand is that we have a
vastly different view in this Committee of how to fix this problem
and the role of government and tax policy. Our Democratic col-
leagues spent $1.9 trillion by themselves, and I think you see from
the passage of that bill to now a dramatic increase in inflation. We
poured a bunch of money into the system, and you have got de-
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mand chasing money.
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12
They proposed Build Back Better, which would have made all of
our problems 10 times worse. So the people telling you how to fix
this inflation problem were trying to sell you a bill on top of the
$1.9 trillion, the American Rescue Plan, called Build Back Better.
Democrats said it would cost $1.75 trillion over a decade. CBO
scored the cost, and it is $4.9 trillion because all the gimmicks in
the bill limiting programs to 1 or 2 years. If you actually look at
reality, they never go away. So it over doubled the cost of the bill.
In terms of deficit impact, Democrats told us it was $365 billion
over 10; it is actually $3 trillion over 10.
So I remind the American public that they have been selling pol-
icy proposals that really do not pass the smell test.
So this Committee is designed to debate where should we go and
how we get there when it comes to budgets. To the American peo-
ple, if we impose new taxes now on businesses who have changed
their business model in light of COVID, we are going to make a
huge mistake. It is hard enough in America to create a job as it
is. Every time we turn around, there is a new desire by my Demo-
cratic colleagues to take more money out of the economy, to make
villains out of people who work and produce jobs, to grow this gov-
ernment, and this will be on the ballot in November 2022.
It is not Putin’s fault. It is not corporate greed. As you said, in
March, did they suddenly get greedy before then? What changed
was the big spending package in March and a destruction of Amer-
ican oil and gas supply.
So if you spend a bunch of money at the Federal level and you
reduce the ability of America to produce its own oil and gas, you
will wind up one day with gas prices like we have. If we do not
change our policies, it is going to get worse, and the only policy
change I see is to double down on the policies that are not working.
So all of us on this side will oppose a windfall profits tax as de-
signed by the Chairman, and we will take this issue to the voters
in November and argue that when somebody campaigns in 2020 of
destroying American energy production you should not be surprised
in 2022 your gas bill was through the roof.
Thank you, Senator Kaine.
Senator KAINE [presiding]. We will now move to five minute
rounds of questions, and I am the only Democrat here, so I will
start. I feel lonely in this body. I feel like there is a hundred people
here and most people in the Senate only have broad brushes in
their paint kit.
So inflation is Biden’s fault——
Senator GRAHAM. Well, I will take you to lunch if you are lonely.
I like you, you are a nice fella.
Senator KAINE. Inflation is Biden’s fault, or inflation is because
of corporate greed? I think most Americans understand—and you
acknowledge this, Dr. Owens, in your written testimony—there is
a lot of different causes for this.
Inflation is Biden’s fault when nations all around the world are
experiencing it? Inflation is because of American corporate greed
when nations all around the world are experiencing it?
I do think we made a big mistake. I want to focus on some labor
market issues. I think we made a significant mistake in the tax bill
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in 2017. I voted against it. And in particular, here was a mistake,
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13
the corporate tax rate. Did we need to reduce it to make the cor-
porate tax rate competitive? I think we did.
And my Virginia companies were coming to me and saying, re-
duce the rate to 26 or 27 percent. Were they greedy to ask for that?
I do not know whether they were or not. I think they were trying
to be competitive.
But Congress was stupid to take it to 21.5. My companies were
asking for 26 or 27, and Congress, in my view, stupidly took it to
21.5.
I made an amendment on the floor during our—when we were
given the thousand-page bill to read immediately and we got a one-
minute opportunity to amend, I said, take it back up to 27 and you
will dramatically reduce the deficit or give us the opportunity to do
some other things.
And Senator Toomey and all the Republicans opposed me. Sen-
ator Toomey said he opposed me because it would be raising taxes
on corporations.
I felt like I was in Alice in Wonderland. No. It would have been
reducing taxes dramatically to what they were asking us to do, but
sadly, we went further.
I think one of the reasons for inflation—and there are many rea-
sons, but one of the reasons for inflation right now is a tight labor
market. We still have a lot of people out of the labor market. It
would be good if we could get people back in the labor market. I
believe we could get a lot of people back in the labor market if child
care was more affordable.
If we took the corporate tax rate back to what they were asking
for, the 26 or 27, I think it would dramatically fund more afford-
able child care and universal pre-K.
Let me just ask that question. Would more affordable child care
and universal pre-K, in your views, get more people back in the
labor market?
Ms. OWENS. Yeah, absolutely. According to the Washington Post
today, the second most common reason people cite for being out of
the labor force, aside from early retirement, is the lack of child care
options. And so providing robust child care, bringing the United
States closer to peer countries where folks, you know, can assume
that they will have child care, it will be ready for them when they
need it to go to work, will absolutely pull people off the sidelines
and help secure a robust economic growth.
Senator KAINE. Here is a question that I would like all three of
you to answer. Would Congress working together in a bipartisan
way to do immigration reform, would that also open up the labor
market and maybe put some downward pressure on prices? And I
would like each of the witnesses to answer that question.
Ms. OWENS. Sure. We are absolutely overdue for immigration re-
form, and it would be a great way to increase our labor force par-
ticipation.
Mr. FAULKENDER. I agree we need to reform the immigration sys-
tem. In particular, we need to look at more H-1B visas and facili-
tating high-educated foreign workers to come into the country le-
gally to perform services and relax some of the labor constraints we
have.
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Senator KAINE. Professor Reich.
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14
Mr. REICH. Yes. And, Senator, I do agree as well. The United
States labor force is aging. I am a good example of that. And the
Baby Boomers are moving on. The Millennials are a big generation,
but the United States is going to need more workers. Immigration
is, and has always been, a source of extraordinarily important labor
market growth in America, and there is absolutely no doubt that
we need to have immigration reform and we need to allow in more
immigrants.
Senator KAINE. Thank you. I yield back, Mr. Chair.
Chairman SANDERS [presiding]. Senator Graham.
Senator GRAHAM. Well, thank you. On immigration reform—
number one, Senator Kaine is really good to work with.
The 21 percent rate that we picked was, I think, the world aver-
age. Is that right, Doctor—how do you say your name again?
Mr. FAULKENDER. Faulkender.
Senator GRAHAM. Okay. Was that correct, that 21 percent is sort
of the world average?
Mr. FAULKENDER. That brought us to the median within the
OECD (Organisation for Economic Co-operation and Development).
Senator GRAHAM. Yeah. So when Senator Kaine says 25 versus
21, it is not an unreasonable debate to have. We just did not pull
21 out of the air. So—but, no, he is always trying to look for a way
forward, and I appreciate that.
When it comes to immigration reform, I have been in the Gang
of Eight and about every other gang you can be. I will just tell—
you know, Dr. Reich, I know you have been involved—that if we
do not secure our border first there will be no immigration reform.
Dr. Owens, does that make sense? If you legalized a bunch of
people now without securing your border, you would have even
more illegal immigration?
Ms. OWENS. I think Dr. Reich was referring to the fact that our
aging population means that to get robust labor market growth
over the future we are going to need some population growth and
immigration reform is one way to take that on.
Senator GRAHAM. Yeah. I am just—Dr. Reich, are you there?
Mr. REICH. Yes, I am, and that is exactly what I said, and that
is exactly what I mean.
Senator GRAHAM. Okay. But we do have to secure the border as
part of immigration reform. Is that correct?
Mr. REICH. Yes, and we have had in this country a very strong
and robust debate about what securing the border actually means
just as we have had a robust debate about a lot of things.
I think the central issue that we are debating today is whether
we have a corporate-centered economics or whether we have a peo-
ple-centered economics in terms of inflation and making sure that
wages rise in a real way. And as somebody who has been involved
in labor policy for the last 50 years, I can tell you that from the
World War II until the late 1970s we had a growing middle class,
we had lower inequality, we had more opportunities for people in
this country. And starting in 1980, we actually had a U-turn, and
most Americans have not had much of a wage, if at all, but cor-
porate profits continue to grow to the point where last week we
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learned that corporate profits are at a 70-year high.
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15
Now if you cannot actually explain that and explain to the Amer-
ican public how we can possibly have inflation and price increases
while corporate profits are at a 70-year high, then I just simply do
not know how you can say we have a people-centered economics.
We do not.
We have policies coming out of Washington——
Senator GRAHAM. Thank you.
Mr. REICH [continuing]. That continue to improve the wellbeing
of American corporations——
Senator GRAHAM. Okay.
Mr. REICH [continuing]. Not the wellbeing of American people.
Senator GRAHAM. Thank you. So I totally disagree with what you
just said. Before COVID, we had the fastest growing economy in
all sectors of America. African American and Hispanic families
were doing better than they have ever done. The American dis-
ability community was doing better than it has ever done. The pov-
erty rate was lower, and our economy was in good shape. And
along comes COVID.
So all I am saying is we are here to talk about inflation, and
Senator Kaine mentioned immigration. Count me in for
supplementing a declining workforce. Count me out for an immi-
gration bill that does not secure the border first.
So, yes, we need a rational immigration system to supplement a
declining workforce. It is not just H–1B visa workers. We need peo-
ple in the service industry. When you cannot find an American to
do a job after you advertise it at a competitive wage rate, you need
to give business a chance to bring people into our country to im-
prove their lives and improve our economy. Count me in for that.
But we are here to talk about how to deal with inflation, and the
Democratic response is to tax people. The Democratic response is
it is business’s fault. It is Putin’s fault. No. It is the policy choices
you have made as Democrats is the leading contributor.
It is a bit complicated. I am sure there are other things other
than the policy choices, but it is no accident there has been a surge
in inflation after you pass a $1.9 trillion bill to flood the Federal
Government with spending, put money throughout the economy in
every area you can think of. It is no accident that gas prices are
through the roof when the man campaigning for President said he
would put the fossil fuel business out of business. They virtually
have.
So this whole hearing is about what to do, and if you left it up
to my Democratic friends, they would spend more money through
Build Back Better. Thank God, Manchin and a few others said, no.
And when it comes to energy production, instead of producing here,
you are calling Venezuela and you are calling OPEC and you are
calling maybe even Iran. You have got it backwards.
Thank you.
Chairman SANDERS. Thank you very much, Senator Graham.
Let us do a little bit of reverse engineering, so to speak. Let us
look at where we are.
Senator Graham mentioned policy issues. Let us take a look at
where we are and how we got here. Right now, we have more in-
come and wealth inequality than we have had, I think, in a hun-
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dred years. We have CEOs making 350 times what their average
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16
workers make. We have half of our people living paycheck to pay-
check. We have the average worker in America today making $40
a week less in real wages than he or she made 50 years ago despite
huge increases in productivity. And right now, we are looking at
corporate profits at a 70-year high while companies have raised
prices for a number of goods at extremely high levels. And, we have
concentration of ownership in sector after sector that we have not
seen in a long, long time.
Secretary Reich, let us talk about policy. How did we get to
where we are today with so much income and wealth inequality,
where the people on top are doing phenomenally well while ordi-
nary Americans are struggling?
Mr. REICH. Mr. Chairman, to my mind, there are three related,
interrelated reasons. One is that corporate power keeps growing.
And when I say corporate power, I am talking about market power,
corporate dominance over their markets, the ability to raise prices
and not suffer any competitive loss, and we see this especially dur-
ing the pandemic and now.
Senator Graham asks, how can it be? Well, I will tell you how
it can be. Because corporations—and they have said this in earn-
ings calls over and over again. They are taking advantage of both
the pandemic and the inflation and the war, some companies, to
raise their prices because they can. They can get away with it.
Now you can call it, and we can call it, whatever we want to. We
can call it price gouging, or we can call it profiteering. It does not
matter what we call it. The fact is they are doing what their share-
holders want them to do, and that is capitalism, but workers and
consumers are paying the price.
Another major factor is that labor has had less and less bar-
gaining leverage. Labor unions—when I was growing up, a third of
the private sector workforce was unionized. Now, 6 percent of the
private sector workforce is unionized, which means that if you have
companies that are getting more and more dominant on the one
hand and workers who are losing their bargaining power on the
other, it is no surprise that you are going to see widening inequal-
ity.
Chairman SANDERS. Let me interrupt you if I could because I
want to get to—thank you. Let me get to Dr. Owens to respond to
that.
Ms. OWENS. Yeah, so you need motive and opportunity to commit
a crime. I do not think that corporate greed has changed signifi-
cantly from the pre-pandemic period to the post-pandemic period.
So I really agree with my Republican colleagues on that point.
I think what we are seeing here is opportunity. It is the oppor-
tunity that changed. In the case of Exxon, which just today noted
that they are going to be seeing quarterly profits this quarter bet-
ter than they have seen in a decade, the opportunity was foreign
war. In the case of 3M, that has jacked up the price of masks, the
opportunity was the pandemic. And in some cases, the opportunity
is actually the pretext of inflation, the ability to point to inflation
rather than their own profiteering.
So I think what we are seeing here is really a system that was
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set up to pounce on a moment like this and corporations are taking
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17
it to the hilt. They are telling us that over and over again. I think
we should believe them.
And I think Congress can step in and we have a variety of policy
tools at our disposal, from an excess profits tax to trying to rein
in buybacks to implementing a Federal price gouging statute. I
think we are overdue for a Federal price gouging statute to protect
against exactly this kind of profiteering during crisis moments, eco-
nomic transition, climate catastrophe, and the like.
Chairman SANDERS. Let me ask Dr. Faulkender. How do you feel
when two people have more wealth than the bottom 42 percent,
when CEOs make 350 times more than their average employee? Is
that a good thing?
Mr. FAULKENDER. I view profit as a reward that people realize
from serving their fellow Americans, and so if they amass profits
because they have offered a better product at a lower cost than
somebody else, I do not begrudge them for providing that good or
service to me or to my fellow Americans.
Chairman SANDERS. Okay. Thank you.
Senator Grassley.
Senator GRASSLEY. Thank you, Mr. Chairman. I have no ques-
tions. I want to speak. Democrats have been consistently wrong
about inflation. This hearing is yet more evidence that they remain
clueless about the economies of inflation and are in denial about
the role played by their reckless spending.
At the start of 2021, Democrats told us inflation was nothing to
worry about as they pushed ahead with a $2 trillion liberal spend-
ing spree. According to them, the real risk to our economy was
spending too little. Now imagine that. This argument never had
any basis in reality. At that point, Congress had spent as much on
the pandemic in inflation-adjusted dollars as we had waging World
War II.
Democrats ignored common sense, and they ignored the warnings
of very prominent economists. This included Larry Summers, who
held top posts in the Obama and Clinton administrations, who cau-
tioned that Democrats’ $2 trillion partisan spending spree ‘‘set off
inflationary pressures of a kind we have not seen in a generation.’’
Since then, Democrats have been trying to explain away infla-
tion. In April 2021, President Biden told us inflation was due to
base effects from prices being suppressed during the pandemic. In
June, we were told inflation was merely transitory and the result
of a bottleneck in supply chains. These remained the favored lines
of arguments until October, when inflation surged to 6.2 percent,
at that time the highest rate in 31 years.
President Biden finally recognized inflation as a problem and
claimed addressing it was his, quote-unquote, top priority. How-
ever, instead of admitting government spending was a main con-
tributor, would you believe it, he sought to argue that the solution
was spending trillions more. Now can you imagine that?
Thankfully, the American people were not buying it. More impor-
tantly, common-sense Democrats like Joe Manchin did not buy it
either.
It is now clear high inflation endangers Democrats’ reckless tax-
and spending agenda. As a result, Democrats are grasping at
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straws to find a scapegoat, hence, blaming inflation on corporate
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18
greed, never mind that economists across the political spectrum
overwhelmingly reject the theory. Seventy-nine percent of the
economists responding to a Chicago Booth School of Business sur-
vey said they disagreed that, quote-unquote, dominant corporations
is the cause of today’s inflation. Jason Furman, President Obama’s
Chief Economist, has stated that ‘‘corporate greed is a bad theory
of inflation’’ and called such arguments, quote-unquote, a side
show. Larry Summers has called such arguments, quote-unquote,
diversionary. And Benjamin Page, a senior fellow at Liberal Tax
Policy Center, has called them, quote-unquote, a red herring.
The current Democratic rhetoric would be amusing if not for the
disastrous consequences that could result from misdiagnosing the
cause of inflation. The current focus on so-called corporate greed
risks taking us down the failed road of the 1970s-style price con-
trols and windfall profit tax. Anyone who lived through that time
can tell you that these policies made things worse by reducing sup-
ply. The result was rampant shortages, most notably, gas lines
around the block. Let us not repeat the mistakes of the past.
I yield back my time.
Chairman SANDERS. Thank you very much.
Senator Whitehouse.
Senator WHITEHOUSE. Thanks very much. Secretary Reich, you
have said that corporate profits are at a 70-year high. My recollec-
tion from my economics classes is that competition would drive
prices to, at, or near the marginal cost of production. That does not
seem to be happening, and there are two markets in which it
seems particularly not to be happening. One is the oil market, and
the other is the meat market. Are there characteristics of the oil
market that create this problem or allow it to exist? And same for
the meat market, is there something unusual about those two mar-
kets that seemingly causes this market theory not to pertain in
those markets?
Mr. REICH. Well, Senator, you have both in the oil market and
in the meat market a relatively few number of producers who can
easily coordinate their production. It is called oligopolistic pricing
and oligopolistic coordination, and we see it not just in oil and in
meat.
I want to emphasize that since the 1980s two-thirds of all Amer-
ican industries have become more concentrated, and you look
across the industries, particularly where you see the greatest infla-
tion, and you see the fewest number of competitors dominating the
industries because they can raise prices even though they are high-
ly profitable. That is a core problem today.
If you will allow me, I just want to—because I have been, in
much of this discussion, struck by the criticism of the American
Rescue Plan and the very important actions that the Senate and
the House took to help average Americans. I think it would be
wrong simply to sit back and not say that one of the great suc-
cesses going through this pandemic was that so many Americans
did not fall into poverty as we have seen in former recessions. The
fact that they did not fall into poverty, that they actually survived,
is a great credit to the Senate and the House for passing the Amer-
ican Rescue Plan. And again, if you take the view that this econ-
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omy is about people, it is not about corporations, then you have to
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19
congratulate what the government did to help people through this
pandemic.
Senator WHITEHOUSE. What would you say is the role of the
international oil cartel and speculation in driving the recent surge
in oil prices?
Mr. REICH. The international oil cartel and speculation typifies
the kind of oligopoly that is the relatively few number of players
who coordinate prices and production that we see and again that
exemplifies the problems of oligopoly, that is, when you have pro-
ducers who are able to coordinate prices and production, inevitably,
they are going to do what their shareholders want them to do, and
that is to maximize profits. And then they are going to turn
around, and they are going to do again what their shareholders
want them to do, which is buy back their shares of stock to raise
and maintain the highest possible share prices. That is probably
good for their shareholders, but what is good for shareholders, we
see time and again, is not necessarily good for the economy or good
for consumers or good for workers.
Senator WHITEHOUSE. In the 30 seconds remaining, I would just
note that in addition to corporate market power, which the Sec-
retary discussed, we have a really stunning problem of corporate
political power in this country, with massive corporate trade asso-
ciations dominating this building. The oil and gas industry,
through basically blunt force political power, has forced us to ig-
nore climate change now for a decade. I think we will rue the day
that we let the oil and gas industry have that kind of control over
what we do here in Congress.
And with that, I will yield.
Chairman SANDERS. Senator Scott.
Senator SCOTT. Thank you, Chairman Sanders. The Federal Re-
serve Bank of San Francisco recently released a report stating that
massive government spending is to blame for the raging inflation
crisis hurting families across America right now. My Democratic
colleagues disagree and want to approve trillions in additional
spending.
Dr. Faulkender, is the Federal Reserve wrong?
Mr. FAULKENDER. Is the Federal Reserve wrong? The Federal Re-
serve was entirely too accommodative during the most recent year
in increasing the money supply and facilitating the amount of Fed-
eral spending that was then monetized by the Fed.
Senator SCOTT. So what is causing inflation? Is it spending, or
is it Federal Reserve actions, or both? What is it?
Mr. FAULKENDER. It is a combination of both. So we have exces-
sive demand coming from excessive fiscal stimulus. So we have in-
creased household checking and savings accounts balances by $3
trillion while the Fed pushed more money into the money supply,
and at the same time, we degraded our ability to provide supply
to offset that increase in demand.
Senator SCOTT. So how much longer is the inflation going to last?
Mr. FAULKENDER. I think we were looking for inflation to curb
this year, but with what is going on geopolitically we continue to
expect energy prices to rise. And now we are looking at food prices
rising, particularly grains, and so inflation will continue. Fortu-
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nately, with the failure of the enactment of Build Back Better, we
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20
are not going to have as much fiscal stimulus overdoing demand
in the economy.
Senator SCOTT. So does spending in excess of what we collect,
does that cause inflation?
Mr. FAULKENDER. It does, particularly when it is monetized by
the Fed increasing the money supply to support it.
Senator SCOTT. I questioned OMB Director Young last week
about the nation’s financial stability and President Biden’s $6 tril-
lion proposed budget that will take the U.S. debt to $45 trillion in
10 years. She could not tell me if that debt was too much or what
number would be enough. I know that the Chairman believes that,
you know, we can absorb more debt. I do not think on this—nobody
would do that in their personal life, have all this excessive debt.
So each of the witnesses, can you tell me, is $45 trillion worth
of debt too much for the United States to carry, or what number
do you all think is the right number? Mr. Faulkender?
Mr. FAULKENDER. Historically, when debt-to-GDP ratios get
above 100 percent, that is when you start being concerned. The
U.S. fiscal capacity is probably slightly larger than that because we
are the world’s reserve currency, but I do not want to test how
much we can get to. I think we need to pull back.
Senator SCOTT. So can we service $45 trillion?
Mr. FAULKENDER. Given the expected increase in interest rates,
it is going to become an excessive burden for the Federal budget.
It is going to become unsustainable, and that could put us into a
debt spiral.
Senator SCOTT. So does that mean we would not be able to pay
the interest expense, or what would happen?
Mr. FAULKENDER. We would have to print additional money to
pay the interest expense, which is just going to increase interest
rates even further and increase inflation.
Senator SCOTT. Ms. Owens.
Ms. OWENS. Yeah, when I look at the inflation we see right now,
I actually see 50 years, decades, of underinvestment. We have let
American manufacturing hollow out. We have let our supply chain
hollow out. And we are really paying the price for that right now.
We do not have any redundancy, any geographic diversity, any re-
silience in our supply chain.
Senator SCOTT. What about the $45 trillion?
Ms. OWENS. It seems like we are paying the price for that.
Senator SCOTT. But you think we can sustain $45 trillion worth
of debt?
Ms. OWENS. I believe we are at about $23 trillion right now.
Senator SCOTT. But the budget—if in 10 years, if we follow Presi-
dent Biden’s budget, we will be at $45 trillion.
Ms. OWENS. Yeah, I think the President’s budget laid out his
plans for investment in the American economy going forward and
his plans to pay for it with taxes on the rich.
Senator SCOTT. Well, even with that, you know, the budget
goes—the debt goes to $45 trillion, even with the taxes on the rich.
You realize that?
So, Mr. Reich, what do you think about $45 trillion worth of
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debt? Do you think we can afford it?
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Mr. REICH. Well, I think that we could afford it, but there are
two necessary prerequisites. One is investing in the American peo-
ple, that is, education, infrastructure, making sure that people
have what they need to be more productive. That is what we have
done for much of the postwar era. We stopped doing it. It is very
important that we resume doing it.
Secondly, I think we have to raise taxes on the extraordinary
wealthy and also on big companies, and for Congress to fail to do
that at a time when we have unprecedented corporate wealth and
income, and also individual wealth and income at the top, not ordi-
nary people—I am talking about at the top. There is extraor-
dinary—it is an opportunity to get our fiscal house in order, and
for Congress not to take this opportunity I think would be a shame.
Senator SCOTT. Thank you, Chairman.
Chairman SANDERS. Thank you.
Senator Van Hollen.
Senator VAN HOLLEN. Thank you, Mr. Chairman. Thank all of
you for your testimony.
I keep hearing from some of my Republican colleagues that the
Trump tax cuts brought better outcomes for American workers. I
would just point out that it is a fact that real wages grew faster
during President Obama’s second term than during the Trump
years, and that does not include the Trump years after COVID hit.
So the notion that this $2 trillion tax cut was a great boon to
American workers and wages just does not bear out under any
scrutiny.
What we know it brought us was $2 trillion added to the deficit
and debt and a huge amount of additional stock buybacks, and I
want to focus for a moment on the stock buybacks because they
went from approximately $368 billion a year in 2016–2017 to what
Goldman Sachs estimates will be about $1 trillion this year.
Secretary Reich, let me just ask you to talk a little bit about the
connection between those Trump tax cuts and ongoing stock
buybacks. As I think everybody agrees, all the witnesses agree,
those are great from the perspective of the stockholders. I mean,
you have a large share of those stockholders, I would point out, are
overseas investors that are pocketing those gains, but clearly, the
argument that they were going to go to higher wages and more in-
vestment just did not bear out.
So, Secretary Reich, if you could start by just talking about what
the incentives from that bill were created and what we are still liv-
ing with.
Mr. REICH. Yes, Senator, we were promised—the American pub-
lic was promised—you recall, before the Trump tax cuts, that ev-
erybody would get a raise, a wage raise, and that there would be
a huge new round of investments in America. Neither of those
came to pass. Instead, corporations used their—the money that
they otherwise would have spent, otherwise would have been taxed,
the revenues, they actually spent on corporate buybacks.
I think it is important to understand that stock buybacks do not
generate more productivity in the economy. There is no trickledown
from a stock buyback. When corporations use their record profits,
as they are doing right now, to buy back their own shares of stock,
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what they are doing is delivering higher returns to their share-
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22
holders because buybacks reduce a company’s shares outstanding,
pushing its profit per share figure higher. They hit a new record
last year. They are going—they are on the way to hitting an even
larger record this year.
It is—it helps the share price, but it amounts to a redistribution
from workers and consumers to shareholders because in an infla-
tionary environment, as we are in right now, when highly profit-
able companies are using their profits to buy back shares and they
are raising their prices at the same time, what happens is: Con-
sumers pay more. Workers, even if they got a raise, are losing
those raises because they are losing them to inflation. And share-
holders do better, but as we all know, most shareholders—half of
the stock market is owned by the top 1 percent of Americans by
income, and 84 percent is owned by the top 10 percent of Ameri-
cans by income. This is how you get the redistribution upward.
Senator VAN HOLLEN. So, Dr. Owens, one of the proposals that
was in the House-passed Build Back Better agenda was a modest
excise tax on stock buybacks. I do not know if you are familiar with
the proposal and what your view of that is.
Ms. OWENS. Yeah, I mean, I think the other thing buybacks are
good for, aside from shareholders—and I completely agree with the
Secretary that buybacks do nothing for innovation, nothing for pro-
ductive investment, but you should remember they are also really
good for executives. Executives are frequently compensated in
stock. They announce a round of buybacks. Share prices go up. And
guess what we see in the research? In the days following one of
those buyback announcements, executives are more likely to cash
in that stock.
So I think if we want CEOs’ incentives, shareholders’ incentives,
corporate incentives aligned with what we care about in the real
economy, you know, building worker power, building an economy
that works for all of us, taking on buybacks is a critical piece of
that. The House-passed proposal could do that. President Biden put
out a proposal in his budget that is nice as well. I think there are
a lot of options here.
Senator VAN HOLLEN. Thank you. I guess my time is out.
Chairman SANDERS. You can take a little bit more.
Senator VAN HOLLEN. Well, we have a professor from the great
Smith School at the University of Maryland. Good to see you. So
I did want to press you on one issue, which is the House Build
Back Better legislation. And people can have disagreements, obvi-
ously, over the elements, but it is paid for. You would agree with
that?
Mr. FAULKENDER. I would not. As Senator Graham pointed out
in his opening statement, once you recognize that these temporary
measures are going to be made permanent, CBO estimates that it
will add $3 trillion to the debt.
Senator VAN HOLLEN. Right. But if you look at the—what CBO
does is the actual, the law, right, budget projection. It is paid for.
We have got lots of tax cuts around here. Some have expired by
law; some have been extended. But just in terms of the legislation
itself, it is paid for on its face. Right?
You are assuming that the Congress, future Congresses, will ex-
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tend the tax cuts. That is your assumption. Right?
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Mr. FAULKENDER. I am assuming future Congresses will extend
some of the spending programs; that is right.
Senator VAN HOLLEN. Right. And the tax cuts.
Mr. FAULKENDER. Yes. So if things like the refundable child tax
credit will be extended——
Senator VAN HOLLEN. And not the taxes, yes. Right. So I think
in terms of the near-term impact on inflation, to the extent that
you have got tax revenue coming in, offsetting expenditures, in that
sense, at least in the first number of years, it would be neutral.
I do not want to prolong the conversation. My time is up. Thank
you, Mr. Chairman.
Chairman SANDERS. Thank you very much.
Senator Padilla.
Senator PADILLA. Thank you, Mr. Chair, and I thank you for
once again putting the spotlight on how corporate greed drives up
costs for working Americans and hurts workers across the country.
As I have noted in this Committee before, I approach the topic
not just as a member of this Committee and as a member of the
Senate but as a parent. We have seen it firsthand, Angela and I,
when we go to the grocery store, when we are at the gas station.
Prices are up, and we know how it impacts working families. We
get the feeling, and the feeling is not good.
But these price increases—right. This is our job to lay out what
is causing it in our attempts how to address it. These price in-
creases that are in the news constantly are not just about rising
costs for small businesses that may be struggling to get by. The re-
ality is—and you have pointed out the evidence, Mr. Chairman,
that corporations across industries are posting record profits.
In 2021, corporate profits hit an all time high of nearly $3 tril-
lion, up 25 percent from 2020. Now estimates show that the earn-
ings of S&P 500 companies rose nearly 50 percent over the past
year, and no doubt, they boast about these statistics to their boards
and to their investors while they justify increased prices for Amer-
ican families, to the public, by citing the pandemic or supply chain-
related challenges.
And to add insult to injury, while some major corporations are
increasing costs for working families, they are issuing the stock
buybacks that were just mentioned and record executive compensa-
tion packages that enrich CEOs and shareholders.
Some have even tried to blame inflation on the critical assistance
provided to the American people to help them endure a once-in-a-
century global health pandemic. Or, some have even blamed work-
ers who are fighting for the right to organize and standing up for
fair pay and benefits and safer working conditions.
But with the growing consolidation of corporate power and in-
creasing inequality amid record corporate profits, it is evident that
corporate greed is what is increasing the costs for American fami-
lies, and as we continue our recovery, we must ensure that the
economy works for all Americans.
And so with that as a basis, my first question is going to be di-
rected at Secretary Reich. While large oil and gas companies—we
talked specifically about record profits while prices are going up,
and I wanted to focus on the oil and gas industry for a moment
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24
pump the profits of five of the major oil companies increased by
$154 billion last year. Now these companies have also spent nearly
$13 billion on stock buybacks over the past year.
As working families are paying the price amid these higher gas
prices, it is outrageous that oil companies continue to reap billions
in profits and use those profits to further enrich their executives
and shareholders. That is why I am a proud co-sponsor of the Big
Oil Windfall Profits Tax Act, which would establish a per-barrel
tax to capture the windfall profits of the largest oil companies and
return that money to consumers in the form of a quarterly rebate.
I know Senator Whitehouse has talked about this earlier. The
measure would provide consumers much needed relief while main-
taining American competitiveness and reducing pressure on infla-
tion by targeting corporate profiteering.
So, Mr. Secretary, I know you are joining us virtually, but can
you spend a minute talking how a windfall tax can help counter
the outsized power of these large corporations and reduce infla-
tionary pressure?
Mr. REICH. Yes, Senator, and I think it is very important. A
windfall profits tax is exactly what is needed right now when oil
companies, for example, are showing, as they are, historical profits.
They are making huge amounts of money. They are raising prices
at the pump at the same time. They do not need to raise those
prices. They could easily absorb any cost increases, but they are
not absorbing those cost increases. They are—instead, as you point-
ed out, they are taking their windfall, their huge windfall profits,
and they are buying back shares of stock to help their shareholders
and executives.
And so people are going to the gas pumps. They are spending
their own money at very, very high and rabid rates to fill their gas
tanks. And that money, a large portion of that money, is going to
executives and major investors. So you want a windfall profits tax
that enables—that stops them from doing that and actually rebates
that money to consumers.
We did it in World War II. We did it in World War I. We did
it under emergency circumstances. There is no reason we should
not be doing it now. In fact, there is every reason we should be
doing it.
Senator PADILLA. Thank you very much.
And, Mr. Chairman, I know my time is up. I will submit some
additional questions for the record. I just wanted to appreciate the
distinction and the emphasis on not just taxing profits, taxing
windfall profits because that is what is happening now through the
exploitation at the pump. Thank you, Mr. Chair.
Chairman SANDERS. Well, thank you, Senator Padilla.
Let me close by saying this. This hearing has focused on inflation
taking place at the same time as we are seeing record-breaking
profits, we are seeing record-breaking levels of stock buybacks, we
are seeing high dividends, we are seeing and living through a mo-
ment in American history where the people on top are doing phe-
nomenally well while working people are struggling.
Now this hearing actually has been criticized. I got a letter this
morning from the Chamber of Commerce, who strongly criticized
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the basis, the hypothesis, underlying this hearing. But when we
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25
talk about corporate power in America, it is important to under-
stand that the Chamber of Commerce itself has spent $1.4 billion
in lobbying in the last 20 years.
During this hearing, we referred to the fact that pharmaceutical
industry profits are soaring. And yet, at a time when we want to
lower the cost of prescription drugs, it turns out that the pharma-
ceutical industry, to defeat that initiative within Build Back Better,
spent some $300 million on lobbying alone, not to mention adver-
tising and campaign contributions.
So while this hearing today focused on corporate profits and in-
flation, in truth, what we are touching on is an issue much broad-
er, and that is the incredible power now held by corporate America,
not only over the economic life of this country but the political life
of this country and the media life of this country. And I think it
is fair to say that never before, at least in the modern history of
this country, have so few had so much in terms of financial re-
sources and in terms of political power.
And the challenge that we are facing right now is whether we
are going to live in a government—live with a government that
works for all of us or is dominated by big money and trusts and
works for the very few. Unfortunately, right now the latter is the
case. The rich get richer, and working families struggle. The
wealthy buy political campaigns. So I would hope that this hearing
today is simply a start in focusing on this massive disparity, not
only in wealth but in economic and political power as well.
And with that, let me thank our panelists for being with us and
the Senators who participated, and let me conclude this hearing.
And let me just say that I want to thank the—all information for
all Senators—as information for all Senators, questions for the
record are due by 12:00 noon tomorrow with signed hard copies de-
livered to the committee clerk in Dirksen 624. E-mailed copies will
also be accepted. Under our rules, the witnesses will have seven
days from receipt of our questions to respond with answers.
With no further business before the Committee, this hearing is
adjourned.
[Whereupon, at 12:30 p.m., the Committee was adjourned.]
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
[Prepared statements submitted for the record follow:]
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