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Sen. Toomey Questions Budget Committee Witnesses On Sequester

Sen. Toomey & Chairman of Large PA Employer Speak on Harmful Medical Device Tax

Tuesday, Feb 26

SEN. TOOMEY: Thank you very much Madam Chairman. Just to follow up on this, my own perspective on the question that Senator King posed is that the optimal size of government depends in part on how much growth you want to have. I think the evidence is overwhelmingly clear. Societies that have government expenditures smaller as a percentage of their economy have higher standard of living. They have higher growth, higher income, higher wages and greater wealth. And countries that have the government occupying a larger segment of the economy they have slower growth, fewer jobs, lower standard of living and lower income so a big part of this comes down to how much prosperity do we want? If we want more we'll spend less and it makes sense not only because the government spend money through a political process that's not following the kind of incentives the markets use but also that has to be paid for.

The spending always ultimately gets paid for by confiscating it from the more productive private sector - which brings me to the sequester, which I just want to stress for the record, that despite the description, the apocalyptic description about this, this is really small in the context of the total spending and the economy. The federal government has doubled its spending in the last ten years and we're talking about a 2 ½ percent reduction in spending from that 100% growth and, by the way, that's budget authority. The actual outlays for this year are about a 1 ¼ percent. That's one quarter of one percent of GDP. This is not some sort of severe austerity plan.

Now I think it could be done more wisely and I wanted to see if there was any disagreement on the idea that since the current law forces this across the board cuts with no opportunity to exercise any discretion, with respect to those spending areas that have more merit and those that have less, do you- could you comment on whether it makes sense for us, in the event that the sequester goes forward, to grant to OMB and the Defense Department in their respective areas the flexibility to make these cuts in a more thoughtful fashion, does that make sense to anybody?

MALPASS: I'll- short answer is "yes very much so" and I think the private sector response would be huge because it would show Washington, trying - rather than trying to maximize the damage from the sequester it would be trying to reduce the damage or make it less onerous than they've made it out to be.

SEN. TOOMEY: Any thoughts on that?

RAWLINGS: Yes. I'd disagree on that because while it sounds better to make flexibility, in fact if what it means is that we are going to stick with the level of the cuts of the sequester and leave it up there to NIH and NSF to make the cuts in a slightly better fashion they can do that, but if that becomes the new baseline, all you've done is succeed in cutting NIH and NSF letting them figure out -

SEN. TOOMEY: Let me interrupt because it's not, depending on how you formulate this - it's not necessarily the case that NIH per se has to take the cut. If the administration has the discretion across all non-defense categories, they might decide that- I don't know- that building taxiways, new taxiways on a seldom used airport somewhere should be a lower priority than NIH.

RAWLINGS: The problem is that it is going to look like a good solution- everyone is going to say great now they can make their own decisions, but the bottom line is going to be cuts in the areas where we need investment because our competitors are investing and we're reducing.

SEN. TOOMEY: Okay but that sounds like an argument that we can't cut anywhere and when we've had a government that has doubled in size in the last 10 years, to think that we can't find you know, a little over one penny on the dollar anywhere throughout this government strikes me as not very appropriate. Let me ask a specific question if I could of Mr. Ferguson because I know you touched on the medical device facts and as you may know, there is a bipartisan concern that this is a really really egregiously badly designed tax. That happens to be my view in part because it applies to sales, irrespective of whether a company is making any money, and, if I understood your testimony correctly, am I right in understanding that because of the medical device tax and if it stays in effect, you will forego expanding production in the United States of medical device manufacturing?

FERGUSON: Yes. Our future growth will have to be in Denmark or Australia.

SEN. TOOMEY: So this medical device tax, in your view, is this a pretty direct incentive to go overseas, go offshore, create jobs somewhere else?

FERGUSON: When combined with other issues the answer is yes and this is sort of the straw that broke the camel's back. But the other thing is that it falls directly on R & D because when you look at the size of this type of tax and its an expense and knowing places you got other employees or R & D or you gotta go look for cost savings someplace else.

SEN. TOOMEY: Thank you very much.

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