[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
    PRESIDENT'S FISCAL YEAR 2005 BUDGET WITH U.S. DEPARTMENT OF THE 
                      TREASURY SECRETARY JOHN SNOW

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS

                                 of the

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 3, 2004

                               __________

                           Serial No. 108-33

                               __________

         Printed for the use of the Committee on Ways and Means








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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana               JIM MCDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania           LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona               EARL POMEROY, North Dakota
JERRY WELLER, Illinois               MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri           STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel



Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.





                            C O N T E N T S

                               __________
                                                                   Page
Advisory of January 26, 2004, announcing the hearing.............     2

                                WITNESS

U.S. Department of the Treasury, Hon. John Snow, Secretary.......     5


    PRESIDENT'S FISCAL YEAR 2005 BUDGET WITH U.S. DEPARTMENT OF THE 
                      TREASURY SECRETARY JOHN SNOW

                              ----------                              


                       TUESDAY, FEBRUARY 3, 2004

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                            Washington, DC.
    The Committee met, pursuant to notice, at 2:00 p.m., in 
room 1100, Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                                                  CONTACT: 202-225-1721
FOR IMMEDIATE RELEASE
January 26, 2004
FC-11

 Thomas Announces Hearing on President's Fiscal Year 2005 Budget with 
          U.S. Department of the Treasury Secretary John Snow

    Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways 
and Means, today announced that the Committee will hold a hearing on 
President Bush's budget proposals for fiscal year 2005 within the 
jurisdiction of the Committee on Ways and Means. The hearing will take 
place on Tuesday, February 3, 2004, in the main Committee hearing room, 
1100 Longworth House Office Building, beginning at 2:00 p.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be heard from the Honorable John Snow, 
Secretary of the Treasury. However, any individual or organization not 
scheduled for an oral appearance may submit a written statement for 
consideration by the Committee and for inclusion in the printed record 
of the hearing.
      

BACKGROUND:

      
    On January 20, 2004, President George W. Bush delivered his State 
of the Union address in which he outlined numerous budget and tax 
proposals. The details of these proposals are expected to be released 
on February 2, 2004, when the President is scheduled to submit his 
fiscal year 2005 budget to the Congress.
      
    The Treasury Department plays a key role in many of the areas of 
the Committee on Ways and Means' jurisdiction, including taxes and 
customs.
      
    In announcing the hearing, Chairman Thomas stated: ``The 
President's budget will include tax and other proposals related to 
Treasury Department functions within the jurisdiction of the Committee 
on Ways and Means. I look forward to receiving the President's budget 
and discussing his proposals.''
      

FOCUS OF THE HEARING:

      
    Secretary Snow will discuss the details of the President's budget 
proposals that are within the Committee's jurisdiction.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person or organization wishing to submit written 
comments for the record must send it electronically to 
hearingclerks.waysandmeans@mail.
house.gov, along with a fax copy to (202) 225-2610, by close of 
business Tuesday, February 17, 2004. In the immediate future, the 
Committee website will allow for electronic submissions to be included 
in the printed record. Before submitting your comments, check to see if 
this function is available. Finally, due to the change in House mail 
policy, the U.S. Capitol Police will refuse sealed-packaged deliveries 
to all House Office Buildings.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, in WordPerfect or MS Word format and MUST NOT exceed a 
total of 10 pages including attachments. Witnesses are advised that the 
Committee will rely on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All statements must include a list of all clients, persons, or 
organizations on whose behalf the witness appears. A supplemental sheet 
must accompany each statement listing the name, company, address, 
telephone and fax numbers of each witness.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman THOMAS. We are going to ask our guests to find 
seats, please.
    Good afternoon. Today begins our first in a series of 
hearings to examine President George W. Bush's proposed budget 
for fiscal year 2005. We are honored to have Secretary John 
Snow of the U.S. Department of the Treasury join us today. 
Welcome. Look forward to hearing your testimony.
    Mr. Secretary, since your appearance before the Committee 
during the last year's budget hearings, Congress passed and 
President Bush signed into law a tax relief to put more money 
back in the pockets of hardworking Americans. Since the 
President took office in 2001, his sound economic policies have 
pulled our country out of recession and created more and better 
jobs. I will ask you about what I believe to be the undeniable 
record in the area of economic growth, productivity, and 
interest rates remaining low, and what this bull stock market 
means in terms of the future of revenue in 2004.
    Additionally, the President's common-sense economic 
policies continue to funnel more money back into the U.S. 
economy. I again want to talk about the enhanced economic 
growth and how it translates into more Federal revenue, not 
only to help with us the deficit, bring our budget in balance, 
but provide us with the wherewithal to do those kinds of things 
that this society needs to do for itself.
    However, pretty obviously, our work is unfinished. Once 
again, this year President Bush outlined plans during his State 
of the Union address. He detailed important policies in his 
budget to assist and continue that economic growth, especially 
making the tax relief enacted in 2001 and 2003 permanent. We 
cannot inflict a tax increase on the U.S. economy at a time 
when we are beginning to experience growth and prosperity.
    After passing a monumental Medicare bill last year, we now 
turn our attention to other health care challenges facing 
Americans, including the large number of families and 
individuals who lack health insurance. We will explore policy 
options to enhance access to affordable and quality health care 
so more Americans can enjoy the peace of mind health insurance 
offers. The recently enacted health savings accounts (HSAs) in 
the Medicare bill allow Americans to save money on a tax-free 
basis to better prepare for medical expenses. These accounts 
encourage Americans to take vital steps today to ensure their 
health security tomorrow.
    We look forward to you and the President's plans about 
other saving structures. It will be an important step forward 
if we can assure Americans that their thrift is being 
recognized in tangible ways by their government eschewing taxes 
either on the initial savings, allowing a tax-free buildup, and 
exploring ways in which there is no tax or tax reduction on 
payout. Partners in this area is what we need to pursue.
    I now recognize the gentleman from New York, Mr. Rangel, 
for any opening statement he may wish to make.
    [The opening statement of Chairman Thomas follows:]
    Opening Statement of the Honorable Bill Thomas, Chairman, and a 
        Representative in Congress from the State of California
    Good morning. Today begins our first in a series of hearings to 
examine President George W. Bush's proposed budget for Fiscal Year 
2005. We are honored to have Secretary John Snow of the U.S. Treasury 
Department join us today. Welcome--we look forward to hearing your 
testimony.
    Mr. Secretary, since your appearance before the Committee during 
last year's budget hearings, Congress passed, and President Bush signed 
into law, tax relief to put more money back in the pockets of hard-
working Americans. Since the President took office in 2001, his sound 
economic policies have pulled our country out of recession and created 
more and better jobs. The results are undeniable: record rates of 
economic growth; productivity has surged at the fastest pace in 38 
years; inflation and interest rates remain at historically low levels 
and a bull stock market escalated $2.5 trillion after the tax reduction 
on capital gains and dividends encouraged investment.
    Additionally, the President's common-sense economic policies 
continue to funnel more money back into the U.S. economy. Enhanced 
economic growth translates into more federal revenue that will help 
reduce the deficit and bring balance to our federal budget.
    However, we cannot leave our work unfinished. Once again this year, 
President Bush outlined plans during his State of the Union address and 
detailed important policies in his budget to continue the U.S. economy 
down the path to prosperity, including making the tax relief enacted in 
the 2001 and 2003 economic growth packages permanent. If these tax 
cuts--like the marriage penalty relief and the child tax credit--are 
allowed to expire, working families will face harmful tax hikes 
resulting in smaller paychecks. Furthermore, inflicting a tax increase 
on the U.S. economy would prove detrimental at a time when we are 
experiencing growth and prosperity.
    After passing a monumental Medicare bill last year, we now turn our 
attention to other health care challenges facing Americans, including 
the large number of families and individuals who lack health insurance. 
We will explore policy options to enhance access to affordable and 
quality health care so more Americans can enjoy the peace of mind 
health insurance offers.
    The recently enacted Health Savings Accounts (HSAs) in the Medicare 
bill allow Americans to save money on a tax-free basis to better 
prepare for medical expenses. These accounts encourage Americans to 
take vital steps today to ensure their health security tomorrow. We 
look forward to hearing your plans to make HSAs more accessible to more 
Americans. Mr. Secretary, being a trustee of Medicare and Social 
Security, we're interested in your perspective on how to tackle the 
funding challenges facing these programs.
    I now recognize the gentleman from New York, Mr. Rangel, for any 
opening statement he may have.

                                 

    Mr. RANGEL. Thank you, Mr. Chairman. Mr. Secretary, thank 
you so much for the cooperative spirit in which you have 
conducted your office with this Committee. We, in the Minority, 
are very concerned about the nonchalant way it appears as 
though the Administration is dealing with the deficit.
    It has been said that former President Reagan at one time 
said that deficits really don't matter, and we are concerned 
that even if the President was able to cut the budget in half 
in 5 years, that the interest on the indebtedness would be a 
heavy burden that we would be passing on to the generation that 
follows.
    In addition to that, it seems as though there are items 
that have been omitted, which I have shared with you earlier. 
It is as though Iraq doesn't exist in the future as it relates 
to expenses of occupation, which everyone believes that we will 
and do have an obligation to do that. At first I didn't think 
the President was serious about exploring the possibility of 
life on Mars, but we in the Minority are pleased to hear that 
he is serious, but we don't see it in the budget, so we don't 
know how to effectively deal with that in our campaign.
    There are other items--the President talks a lot about 
privatization of Social Security, but we have been led to 
understand that that is a very expensive project, and yet it is 
not in the budget, and, of course, the rebuilding of Iraq would 
be included in that. So, I hope in your testimony that you 
might deal with that since we will have a limited time to 
explore which way the Administration is going as it relates to 
the change when Mr. Bush took office where we enjoyed a $5.6 
trillion, 10-year surplus, and now it looks like we will be 
having a turnaround in terms of a record-breaking deficit.
    So, I look forward to your testimony as well as working 
with you, and as I said earlier, if you have any information 
that Paul O'Neill shared with you concerning Saddam Hussein, we 
will be interested in hearing about that as well. Thank you, 
Mr. Chairman.
    Chairman THOMAS. Thank the gentleman. Any Member who has a 
written statement will be made a part of the record, without 
objection. Mr. Secretary, nice to have you with us. Again, your 
written statement will be made a part of the record, without 
objection, and you may address us in any way you see fit in the 
time you have available.

     STATEMENT OF THE HONORABLE JOHN SNOW, SECRETARY, U.S. 
                   DEPARTMENT OF THE TREASURY

    Mr. SNOW. Mr. Chairman, thank you very much, Congressman 
Rangel, for those opening statements. It is always an honor and 
a privilege to be here before this Committee.
    When I appeared before you a year ago to talk about the 
2004 budget, you will recall there were serious questions about 
the state of the American economy and what sort of a path it 
was on. Fortunately, the Congress acted on the President's jobs 
and growth bill, and as a result of that far-sighted 
legislation, the economy today is clearly on a much, much 
better path. Whereas a year ago there was talk of deflation and 
talk of a double-dip resection, we have seen the last half of 
2003 a period of resounding improvement in the U.S. economy 
with growth rates in the third quarter gross domestic product 
(GDP)--growth rates of 8.2 percent, with GDP growth rates in 
the fourth quarter of 4 percent; with businesspeople showing 
more confidence, with capital spending coming back, with small 
businesspeople placing orders for equipment, and with--too 
slowly, but with improvements in the labor markets as well, 
improvements that I think we will see strengthen as we move 
forward.
    So, the economy is clearly in a fundamentally stronger and 
healthier state today, and in large part because of the action 
you took as Members of Congress in passing the President's 
proposed jobs and growth bill. So, I commend you for that.
    This budget really has three overarching concerns. One is 
to continue the war on terror and to make the war on terror 
successful. That doesn't come cheap, but it is a priority that 
is absolutely critical to the well-being of the citizens of 
this country and one the President, as he said in the State of 
the Union message, will not shrink from pursuing. Second, the 
homeland security. This budget reflects continued investment in 
our homeland security, another critical priority. Thirdly, by 
calling for--by calling for making the tax cuts permanent and 
by calling for improved savings vehicles through the lifetime 
savings accounts (LSAs) and retirement savings accounts (RSAs) 
that Chairman Thomas referenced, we will keep the American 
economy on a stronger course and improve the path of the 
American economy.
    In addition, of course, we can't stop there. The President 
has called for tort reform, particularly malpractice tort 
reform, in a badly needed area; for an energy policy that makes 
America's energy supplies more secure and increases access to 
energy; for actions on trade, to maintain open trade policies 
and so on.
    It is critical that we keep the American economy on path 
for sustained growth. The tax cuts last year were critical to 
putting us on that path, and making those tax cuts permanent is 
essential to continue that path. The other side of that, the 
other side of that, just to be plain, is a tax increase on 
millions and millions and millions of Americans. We simply 
can't allow that to happen.
    With that, Mr. Chairman, I look forward to your questions.
    [The prepared statement of Mr. Snow follows:]
           Statement of the Honorable John Snow, Secretary, 
                    U.S. Department of the Treasury
    Thank you all for having me here today to talk about the 
President's budget.
    I believe you'll find that this budget reflects the priorities of 
our nation as well as the leadership of President George W. Bush.
    The over-riding theme of the budget, and the President's plan for 
the future, is that a safer world is a more prosperous world. That's 
why I'll be discussing both national and economic security here today.
Overview of the President's Priorities
    Decisions about how to collect and spend taxpayer dollars--for this 
is what a budget is--must be made with both caution and vision.
    The Fiscal Year 2005 budget proposal is, therefore, a plan that 
does three core things:

      One: Keeps Americans safe by providing the resources 
necessary to win the war on terror and protect our homeland;
      Two: Increases the economic security of our citizens as 
well, by strengthening our economy; and
      Three: Exercises the kind of spending discipline that is 
required by a government that respects the source of its money (hard-
working taxpayers!) and is unwilling to live with a deficit.

    Discussions of our budget and our economy are not, and should not, 
be separate. The two are inextricably connected.
    Today, our economy is doing better.
    Homeownership is up, unemployment rates are heading down, and GDP 
growth has been extremely strong.
    This Administration came to office when those indicators were not 
nearly as positive.
    The President inherited an economy that was in decline . . . one 
that was then battered by terrorist attacks and revelations of 
corporate corruption dating back to the 1990s.
    The President and his Administration took these challenges 
seriously and we have made serious progress in changing the economic 
direction of this country.
    The President's tax cuts--passed by you--have worked. They provided 
the stimulus that was necessary to turn the economic ship around . . . 
and they are now encouraging and allowing for the economic growth that 
is continuing into the future.

      Economic growth in the second half of 2003 was the 
fastest since 1984;
      New home construction was the highest in almost 20 years;
      Homeownership levels are at historic highs;
      Manufacturing activity is increasing;
      Inflation and interest rates are low;
      Over a quarter million jobs were created in the last five 
months of 2003.
      Unemployment claims--both initial claims and continuing 
claims--are falling, indicating improvement in the labor market;
      And last Monday, the Dow closed at a 31-month-high. This 
translates into more than three trillion dollars of growth in value in 
the markets.

    These economic indicators all point to the same conclusion: We are 
on a path to sustained economic growth.
    However, there is more to do. We are not, by any means, satisfied.
    There are still Americans who want to find work and cannot--and 
this Administration will not rest until that most critical need is met 
and until every American looking for work can find a job.
    Our budget addresses that need by continuing to focus on improving 
our economy.
    For example, the President's Jobs for the 21st Century plan, 
announced in his State of the Union Address, directs the resources of 
several branches of government toward matching skills with jobs, and 
helping workers acquire the skills they need to qualify for the jobs in 
their community.
    We can also encourage the creation of jobs by sticking to the 
President's six-point plan for growth.
    That includes making health care more affordable and costs more 
predictable.
    We can do this by passing Association Health Plan legislation that 
would allow small businesses to pool together to purchase health 
coverage for workers at lower rates.
    We also need to promote and expand the advantages of using health 
savings accounts--how they can give workers more control over their 
health insurance and costs.
    And we've got to reduce frivolous and excessive lawsuits against 
doctors and hospitals. Baseless lawsuits, driven by lottery-minded 
attorneys, drive up health insurance costs for workers and businesses.
    The need to reduce the lawsuit burden on our economy stretches 
beyond the area of health care. That's why President Bush has proposed, 
and the House has approved, measures that would allow more class action 
and mass tort lawsuits to be moved into Federal court--so that trial 
lawyers will have a harder time shopping for a favorable court.
    These steps are the second key part of the President's pro-jobs, 
pro-growth plan.
    Ensuring an affordable, reliable energy supply is a third part.
    We must enact comprehensive national energy legislation to upgrade 
the Nation's electrical grid, promote energy efficiency, increase 
domestic energy production, and provide enhanced conservation efforts, 
all while protecting the environment.
    Again, we need Congressional action: we ask that you pass 
legislation based on the President's energy plan.
    Streamlining regulations and reporting requirements are another 
critical reform element that benefit small businesses, who represent 
the majority of new job creation: three out of every four net new jobs 
come from the small-business sector! Let's give them a break wherever 
we can so they're free to do what they do best: create those jobs.
    Opening new markets for American products is another necessary step 
toward job creation. That's why President Bush recently signed into law 
new free trade agreements with Chile and Singapore that will enable 
U.S. companies to compete on a level playing field in these markets for 
the first time--and he will continue to work to open new markets for 
American products and services.
    Finally, we've got to enable families and businesses to plan for 
the future with confidence.
    That means making the President's tax relief permanent.
    Rate reductions, the increase in the child tax credit and the new 
incentives for small-business investment--these will all expire in a 
few years. The accelerated rate reductions that took effect in 2003 
will expire at the end of this year. Expiration dates are not 
acceptable--we want permanent relief.
    The ability of American families and businesses to make financial 
decisions with confidence determines the future of our economy. And 
without permanent relief, incentives upon which they can count, we risk 
losing the momentum of the recovery and growth that we have experienced 
in recent months.
    The tax relief is the key stimulus for increased capital formation, 
entrepreneurship and investment that cause true economic growth.
    Budgets work better when the economy is growing . . . because a 
growing economy means more jobs. That means more tax revenue . . . 
which leads to all-important deficit reduction.
    Which leads me to my next area of discussion.
Overview of the Budget Deficit Situation
    Let me be clear on this:

      The budget deficit that we face today is unwelcome.
      It needs to be addressed.
      The President's budget calls for cutting the deficit in 
half over the next five years.
      While addressing the deficit, we must remember that it is 
not historically overwhelming.
      It is understandable, given the extraordinary 
circumstances of recent history. Remember that we are fighting a type 
of war that we have never fought before. We are fighting an enemy that 
requires a much broader variety of government resources than anything 
we've ever confronted. And we began this fight when we were 
economically wounded.

    What's most important to remember is that we will be able to fight 
this war and climb out of the deficit.
    We can manage this deficit, and we can cut it in half over the next 
five years by controlling spending and growing our economy.
    Three-quarters of the discretionary spending increases during this 
Administration have been related to the global war on terror and the 
response to 9/11.
    Meanwhile, President Bush has reduced the rate of increase in non-
security-related spending every year he has been in office: to six 
percent in 2002, five percent in 2003, and to four percent in the 
current fiscal year.
    For Fiscal Year 2005 we're going to reduce the rate of increase in 
non-security spending to less than one percent.
    Total annual appropriated spending will increase by less than four 
percent next year.
    Holding the line on spending--while ensuring that our country is 
safe and our most important needs, from jobs to health care, are met--
will achieve deficit reduction when coupled with all-important economic 
growth.
    Again, this is why the budget cannot be discussed separately from 
the economy.
    Separating the two is what gets government into trouble.
    Make no mistake; President Bush is serious about the deficit.
    We see it as unwelcome, but manageable . . . and we intend to 
achieve: rapid deficit reduction.
    A recent CBO report raised concerns about this matter, and it is 
important to note that recent and short-term projected budget deficits 
and the existence of long-term deficits for Social Security and 
Medicare are not connected.
    These unfunded long-term net obligations are also a concern, and 
ones that this Administration has highlighted and invited bipartisan 
dialogue on.
    The President has been clear on this: younger workers should have 
the opportunity to build a nest egg by saving part of their Social 
Security taxes in personal retirement accounts. His vision for the 
program is economically wise, and it is that we should make the Social 
Security system a source of ownership for the American people.
Conclusion
    Are we dedicating ourselves to increased spending on the war on 
terror and protecting the homeland? The answer is yes. Yes, without 
sacrificing other necessities.
    And that is because a nation must be safe in order for it to be 
prosperous.
    A nation of entrepreneurs must also be able to plan, and to be 
relieved of as many burdens as possible, in order to be prosperous.
    All of the budget issues and policy proposals that I've discussed 
today may seem, at times, to be a complicated recipe. But these 
ingredients combine to make something that is simply put, and is of 
utmost importance--and that is economic growth.
    Growth is the key to every economic problem we confront. That's why 
we urge other countries to institute pro-growth policies. It's good for 
them, and it's good for the global economy that we are a significant 
part of.
    Thank you for hearing my testimony today. I'll be happy to take 
your questions now.

                                 

    Chairman THOMAS. Thank you very much, Mr. Secretary. You 
indicated that in the second half of calendar year 2003, the 
economy was clearly on the uptick. We obviously moved 
significant legislation in 2003. Some people have said that 
that was a happy coincidence. Can you folks perhaps present a 
more specific directed relationship other than a happy 
coincidence to what we did in taxes, especially in the risk 
capital areas and the turnaround of the economy? Is there a 
closer cause-and-effect relationship than coincidental?
    Mr. SNOW. Mr. Chairman, there is nothing coincidental about 
that relationship. It is a direct causal relationship. The 
maybe best evidence of that is simply to look at the equity 
markets. The equity markets are up some 26 percent from the 
time that that legislation began to be--appear that it would 
pass and the end of the year; restored some $3 trillion in net 
worth to the American economy. That is a direct reflection of 
the fact that you lowered the taxes on capital gains and that 
you lowered the taxes on dividends, lowered the taxes on equity 
capital, and the market capitalized that. The market saw that 
as something that would raise equity values in the future and 
earnings in the future, and they therefore capitalized it.
    I also would say that the spurt to the economy, Mr. 
Chairman, through the reduction in marginal tax rates, which 
affected so many small businesses, of course, the expanded 
expensing rules going from $25,000 to $100,000 had a clear and 
direct effect on the spending patterns of small business and 
the hiring patterns of small business, who have begun to 
expand. Now we see that larger enterprises themselves in the 
third quarter and the fourth quarter became more confident as 
they saw a stronger underlying economy, and we saw a very 
strong pickup in capital spending, 9 percent I think in the 
third quarter and comparable in the fourth quarter, which would 
not have happened unless the businesspeople of this country saw 
a more buoyant and expanding economy in the future and they 
invested to get ahead of that. So, I think there is a direct 
relationship, unmistakable direct relationship.
    Chairman THOMAS. We saw significant increases in 
productivity, but, of course, we haven't seen similar increases 
in jobs. Clearly, you can only juggle continued productivity 
until you reach a point where you have to add someone. What is 
it that we could do based upon the President's budget that 
would probably be the single most important thing to create 
comfort level for those folks who are moving beyond juggling 
productivity and deciding to add one or two more employees? 
What is it that we could do to give them a comfort level to add 
that additional employee and therefore affect positively the 
question of jobs?
    Mr. SNOW. I think the single most important thing you could 
do, the Congress could do, the Committee on Ways and Means 
could do, is remove the uncertainty about the permanence of the 
tax reductions that were put into effect last year. Uncertainty 
exacts a price and makes businesspeople and individual 
taxpayers far less willing to go spend money, to make 
investments; and making sure that small business realized they 
had lower tax rates, making sure that the additional $75,000 of 
expensing was available, allowing average taxpayers to know 
that they really did have that $1,500 or $2,000 of additional 
money coming in not just this year, but the year after and the 
year after and the year after, that makes people feel better. 
It makes them--when they feel better about their economic 
circumstances, they spend more, and that is what makes this 
economy go.
    Chairman THOMAS. Thank the gentleman. Mr. Rangel wish to 
inquire?
    Mr. RANGEL. Thank you. I don't know what small comfort, Mr. 
Secretary, the billions of people that are without work is 
going to get from your statement, but what I am concerned about 
is two major things with my limited time, and that is it 
appears as though the projected growth for the defense 
allocation is 7 percent, and they have received a 7-percent 
increase in your budget. What really bothers me is that the 
Veterans Affairs budget, they, too, have a projected growth of 
7 percent, but only a 2-percent increase has been allocated.
    Now, most every Member that I talked with have had problems 
with providing health benefits to our veterans, many of the 
hospitals and health institutions being closed and 
consolidated. At a time where we have over 2,000 men and women 
that have been wounded and harmed in Iraq in our hospitals 
throughout these United States, could you share with me the 
thinking as to why a priority hasn't been given to our 
veterans?
    Mr. SNOW. Mr. Chairman, I think I would reject the premise 
that a priority hasn't been given to our veterans. This is a 
matter that Secretary Principi could address much more--in a 
much more detailed way than I have. I sat through the budget 
deliberations of many, many Cabinet agencies, and I think if 
you ask Secretary Principi, who is devoted to the welfare of 
veterans, that he would say this was a reasonable effort in 
this budget to meet the needs of veterans.
    Mr. RANGEL. If the projected growth, average growth, from 
2001 to 2005 in the budget presented to the Congress on page 
368 is 7 percent, and in the case of defense you met the 
average growth, there is a 5-percent reduction if you only give 
them 2 percent. So, I--it is going to be painful to try to 
explain at a time where veterans' hardship has dramatically 
increased because of the war, but clearly, there is no way to 
say that it is given a priority when you haven't met the growth 
needs of this particular agency. So, I won't belabor that 
because the facts in your budget speaks for itself.
    Do you believe that after 2005 we will have a military 
obligation in Afghanistan and Iraq, and that will be necessary 
to put and leave troops there? The second question, since I 
know you have got to agree that we require a presence there 
after September 30, 2004, why, in God's name would the cost of 
that just be omitted from the budget submitted to the Congress?
    Mr. SNOW. Congressman Rangel, on that the answer is clear, 
because the costs aren't known at this time----
    Mr. RANGEL. Oh, Mr. Secretary, you----
    Mr. SNOW. Not being known, it is impossible to lay them out 
with any precision. They would be--they would be a cost that 
will--if, in fact, we come forward, and there has been some 
indication that we would need to, the Administration has been 
clear on that, that we could give you a better number on once 
we are much closer to the real facts there.
    Mr. RANGEL. Well, I know this is awkward for you, Mr. 
Secretary, because you have been such a successful businessman, 
so I won't belabor that because it only, I assume, would be 
embarrassing, but I don't know how many other future 
obligations that we know we are going to incur was omitted 
because we don't know the exact number. I do know we have a 
similar problem with the alternative minimum tax (AMT) relief 
and other things that will be coming before this Committee. I 
do hope that we can get some better answers to that. So, I 
would conclude my questioning. I think my time has run out, Mr. 
Chairman.
    Chairman THOMAS. Thank you very much. The gentleman from 
Illinois, Mr. Crane, wish to inquire.
    Mr. CRANE. Thank you, Mr. Chairman, and I welcome you, Mr. 
Secretary, to our meeting of the Committee. Question came up 
about unemployment rates, and my understanding was that 
December was 5.7 percent; is that correct?
    Mr. SNOW. That is correct.
    Mr. CRANE. That's lower than the decade of the 1980s or the 
1990s or even the 30-year historical average.
    Mr. SNOW. That is correct, Congressman Crane.
    Mr. CRANE. Very good. There has been a lot of focus on it, 
and I think it has misrepresented the condition of the economy 
today. I am concerned about unemployment, as everybody is, but 
I think we are making significant progress, and we have got to 
be sure that we don't divert that.
    One of the things that is of concern to me, profound 
concern to me, and I think we have got bipartisan concern on 
it, is the World Trade Organization's (WTO) ruling on our 
extraterritorial income (ETI) tax provisions and the fact that 
we have got to take some action on that as quickly as possible. 
The deadline is March 1st before we can anticipate retaliation 
beginning by the European Union (EU) against our exporters. 
This is something that I think we can replace with just a 
lowering of the corporate tax rate which, I have supported. I 
would like to emphasize that is for domestic manufacturers, 
whether you are an exporter or not an exporter.
    I hope that the Administration will be helpful in this 
endeavor because of that clock ticking. One of the fears I have 
is if, God forbid, we don't take corrective action before March 
1st, and they were to begin retaliation against our exporters 
over there, you could start a trade war internationally that 
would be very negative. Could you offer some insights?
    Mr. SNOW. Well, I am in broad agreement, Congressman, with 
what you say, particularly in terms of the need to act. It is 
critical that we act and act soon so as to avoid those 
sanctions. I know both the House and the Senate have been 
active in considering it and have come up with somewhat 
different approaches.
    The President is committed, the Administration is committed 
to being in compliance with WTO. I think we all acknowledge 
that is important. That is critical. We have to be there. We 
are in the forefront of having created WTO. We ought to be in 
compliance with its rules. It is important, though, that as we 
get into compliance, we do so in a way that doesn't prejudice 
the interests of U.S. businesses. I know that is a matter that 
is very much on the mind--your mind and the mind of the 
Chairman and others on the Committee. The Administration 
pledges to work with you to try and find answers to these--to 
this pressing, pressing issue.
    I would agree with your underlying premise that the 
existing tax system on U.S. corporations engaged in the global 
trade arena is prejudicial and should be addressed.
    Mr. CRANE. Mr. Secretary, under current law the tax cuts 
passed in 2001 and 2003 are scheduled to sunset, some as soon 
as the end of this year. What effect does this looming tax 
increase and the uncertainty of the Tax Code have on the growth 
of the U.S. economy? What would likely happen if we failed to 
extend the 10-percent bracket, the marriage penalty tax relief 
and other tax relief provisions passed in 2001 and three 
scheduled to expire this year?
    Mr. SNOW. Well, I think that would be a shame if that 
happened because millions and millions of people at the lower 
end of the income scale, who are the beneficiaries of the 
action the Congress took last year under the leadership of this 
Committee, would find themselves paying much higher taxes. They 
would lose the benefit of marriage penalty elimination. They 
would lose the benefit of the accelerated child credit, the 
expanded child credit, 10-percent bracket. Failure to address 
permanence for those provisions would exact a very sizable 
price to the people least prepared to pay that price.
    Mr. CRANE. Well, and also is it not correct that during a 
time when you have got economic uncertainty, to raise taxes is 
as counterproductive as it can be?
    Mr. SNOW. You can't think of anything more harmful to an 
economy that is coming out of a--the difficulties this economy 
has had and beginning to show good progress than a tax 
increase. It could halt this recovery in its tracks.
    Mr. CRANE. Thank you, Mr. Secretary.
    Chairman THOMAS. Thank the gentleman. Gentleman from 
California, Mr. Stark, wish to inquire?
    Mr. STARK. Thank you, Mr. Chairman. Mr. Secretary, welcome 
to the Committee. Perhaps you could help me out. I am having 
trouble keeping track of numbers. The Administration seems to 
have arranged to have a couple of hundred American soldiers 
killed looking for weapons of mass destruction, which were 
there a year ago but aren't there now. We had a $400 billion 
Medicare bill which now appears to be $530 billion. In your 
estimate of the cost of the HSAs, you are suggesting that it 
will cost $7 billion over 5 years. Now, the Joint Committee on 
Taxation tells me that it is going to cost $6.7 billion over 10 
years.
    What is your 10-year estimate for the recently enacted HSA 
program? If I suggested it was $16 billion, would anybody in 
the row behind you care to disagree with that?
    Mr. SNOW. I am told that the number--were you asking 
through 10 years?
    Mr. STARK. Yes.
    Mr. SNOW. Through 10 years, I think your number is 
approximately right. It is higher, of course, through 14 years.
    Mr. STARK. So, we have got Joint Committee on Taxation at 
$6.7 billion over 10 years, and you are at $16 billion over 10 
years.
    Mr. SNOW. I think that is approximately right. We are--I 
don't have that number up.
    Mr. STARK. Can you give us an idea of what the difference 
is there, why the difference?
    Mr. SNOW. I suppose it has to do with our optimism on how 
successful this program will be.
    Mr. STARK. I see. Okay. Well, let's talk about another 
program then that may be affected or impacted by the HSAs. I 
believe it is correct that the HSAs will reduce the Medicare 
part A payroll taxes. Given that your score is even higher than 
that of the Joint Committee on Taxation, could you give us an 
idea of how much of a reduction you see in the health insurance 
payroll taxes as a result? I know, because you are a trustee of 
Medicare, you would have some idea of how much are you going to 
report to us this will damage Medicare solvency. Could you 
explain to us a little about that?
    Mr. SNOW. Congressman, the effect on Medicare solvency will 
be quite modest relative to the funding problem that Medicare 
has.
    Mr. STARK. Well, because we don't agree on a funding 
problem, what--how modest; 1 year, 2 years, 3 years?
    Mr. SNOW. In terms of taking the time in when the funds are 
exhausted? Is that your question?
    Mr. STARK. Well, we generally refer to how long the 
Medicare Trust Fund is solvent, and does it change that 
solvency point by a year, 2 years, 3 years.
    Mr. SNOW. I would have to check that. As I say, I don't 
think it would have a major effect on the solvency period. 
There are--because it is so small relative to the total things 
that are driving the Medicare Trust Fund.
    Mr. STARK. Well, would it surprise you if we had heard that 
you as a trustee, not as the Secretary of the Treasury, you are 
going to report to us shortly that this is--that the solvency 
is going to be shortened by 2 years?
    Mr. SNOW. I think this would be high, frankly.
    Mr. STARK. Well, I certainly hope you are right. Although, 
I am sure we will get a report at 1 year and 2 years and be 
left hanging as to figure out what exactly is the correct 
amount. Thank you, Mr. Chairman. Thank you Mr. Secretary.
    Chairman THOMAS. Thank the gentleman very much. Gentlewoman 
from Connecticut wish to inquire?
    Mrs. JOHNSON. Thank you, and welcome, Mr. Secretary. It is 
a pleasure to have you before us.
    This is a difficult time, and difficult times always 
involve lots of controversies. I join my colleague from 
Illinois in urging our attention to the problems that we have 
with Europe and the need to pass a bill that not only will meet 
our responsibilities in the WTO, but will also give our 
manufacturers and the American businesses that have to compete 
in the global economy a more level playingfield from which to 
compete. While you do mention the research and development tax 
credit in your proposals, you don't line out any proposal, and 
I think it has to be really aggressive.
    So, I would like your comment, and then I have two short 
comments that I want to make and get your response.
    Mr. SNOW. Well, as I said, we are committed.
    Mrs. JOHNSON. Your microphone, please, Mr. Secretary.
    Mr. SNOW. Sorry. As I said earlier, we are committed to 
working with the Congress to bring the issue to a conclusion 
and within a timeframe that avoids the consequences we 
otherwise might face. That would be a shame if we took it that 
far. The principles here are we need WTO compliance, and we 
need it in a way that doesn't prejudice the interests of U.S. 
business. U.S. business is already being prejudiced, in my 
view, by the operation of the international tax system. So, 
some reform of the international tax rules, if it could be 
incorporated in the legislation, would be desirable.
    Mrs. JOHNSON. Thank you. As to the savings proposals that 
you have in your bill, in my estimation, all savings are not 
equal. I think the public responsibility and the public 
interest is that you be financially secure in your retirement. 
So, we want to encourage you to save so you will have some 
income to pair with Social Security to assure your financial 
security. Consequently, I think we ought to put more incentive 
on those savings that you are willing to convert to some kind 
of annuity or stream of income as opposed to just that money 
that you are willing to set aside to buy a yacht or a big home 
or whatever you want to in your retirement.
    So, I think, given the long-term budget protection--
projections that would confront any Administration of either 
party, I think thinking about the use of retirement savings and 
aligning our incentives with those uses that are more in the 
public interest is imperative at this time. Do you have any 
comment on that?
    Mr. SNOW. Well, I think that these proposals that we put 
forward include through the RSAs and the employer retirement 
savings accounts (ERSAs) clear incentives for additional 
savings for retirement. They simplify those plans. They 
encourage small business to establish through these custodial 
accounts, which simplify for the small business establishing 
retirement accounts--simplifies all that. I think your issue 
really is with the LSAs.
    Mrs. JOHNSON. Bottom line I think----
    Mr. SNOW. The lifetime savings.
    Mrs. JOHNSON. Determining simplification and merging and 
merging vehicles, but I think we really do have to look at 
lifetime streams of income.
    Last, I won't ask you to respond to this so that we can 
move on to others, but as important as permanency is, and it 
certainly is important, if we direct our attention to those 
things that expire soon and couple with it a real plan to 
repeal the individual AMT, then I think we will couple reform 
and simplification with the reform involved in permanency in a 
way that will be very, very good for families and middle-income 
earners, and that plan is, I think, imperative today. Thank 
you.
    Mr. SNOW. Right. Right. On that I would just object that 
while we have patched the AMT for the 2005 budget, we have 
indicated that--in fact, the President has directed the 
Treasury to do a study on the AMT, and hopefully that study 
would lead to some proposals that could be included in the next 
year's--in next year's budget. That is such a complicated 
subject, and it touches the regular income tax in so many ways 
that it is hard to conceive how you could deal with the AMT 
problem as you are suggesting without also coming forward with 
reforms of the regular tax system. My hope would be that we 
could do that in a revenue-neutral way.
    Chairman THOMAS. Thank the gentlewoman. Gentleman from 
California, Mr. Matsui, wish to inquire.
    Mr. MATSUI. Thank you very much, Mr. Chairman. Mr. Snow, 
thank you for being here today. We really appreciate it.
    I would like to discuss with you the whole issue of Social 
Security. On page 5 of your written testimony in the last 
paragraph, up to the third to the last paragraph, you talk 
about the President stating he has been clear on this: younger 
workers should have the opportunity to build a nest egg by 
saving part of their Social Security taxes in personal 
retirement accounts. Back in January 2001, when the President 
raised this issue in his State of the Union address, of course 
we had projected at that time the $5.6-trillion surplus. Then 
in December of that same year, the President's commission came 
up with three recommendations, and all three of the 
recommendations actually were fiscally sound in the sense that 
it all costed out. All three either had cuts in benefits, tax 
raises, or they had borrowing from the general fund or from the 
public in terms of paying the transition costs.
    The President, in his campaign and most recently, has 
stated that he wants to see private accounts, future--current 
retirees and those about to retire would not see any loss of 
their benefits, both the survivors benefits, disability 
benefits and obviously retirement benefits, and at the same 
time there would not be any tax increases by way of payroll 
taxes or general fund borrowing. In view of the fact that we 
will anticipate deficits even if they do begin to reduce 
itself, the trend line begins to reduce itself on these 
deficits, we will still not have a surplus. Most estimates are 
that if you take 2 percent of payroll or 18 percent the payroll 
tax and dedicate that to personal accounts, or private 
accounts, this undoubtedly will drain the system even further 
than it is today. How will the President be able to follow 
through on all these commitments about no increase in taxes, no 
borrowing and making sure that current and future retirees are 
able to maintain their benefits given the fact we no longer 
have the surplus and the transition costs?
    Mr. SNOW. Congressman, the issue you raise is there whether 
we have the personal accounts or not. The system today is 
simply not financially self-sustainable, and the argument for 
the personal accounts is that it would create a greater control 
on the part of people over their retirement income.
    Mr. MATSUI. If I may correct you, if you don't mind.
    Mr. SNOW. Sure.
    Mr. MATSUI. I think a better way--and I really want you to 
finish your comments. However, your premise I think, is 
incorrect. I think a better way to put it is that personal 
accounts or private accounts do not actually go in the 
direction of solving this 28 percent of payroll--28 percent of 
benefits cut that in 2041 we will see unless we take some 
action. Private accounts will have nothing to do with that. 
Private accounts, as you know, it is a legitimate issue to 
debate, but private accounts will not help you or me or anyone 
else in the public solve the issue of the deficit in the Social 
Security system.
    Mr. SNOW. What it does----
    Mr. MATSUI. I think you know that.
    Mr. SNOW. Yes. Well, I didn't get a chance to finish my----
    Mr. MATSUI. I am sorry.
    Mr. SNOW. Yes. What the personal accounts do is change the 
nature of the Social Security system in a way that that is 
beneficial to people, I think----
    Mr. MATSUI. Maybe.
    Mr. SNOW. Because it becomes less of an intergenerational 
transfer and more of a wealth accumulation concept. It 
continues to have, of course, the guaranteed benefits inside of 
the system, the promised benefits, the unfunded benefits, 
unfortunately, inside the system. It creates in addition to 
that, through these private accounts, a wealth creation or a 
wealth accumulation process through those accounts.
    I would agree with you, the underlying problem of Social 
Security remains its lack of financial solvency.
    Mr. MATSUI. Well, where were you going to get this 
transition money to do what the President has said; no tax 
increase, no borrowing, and at the same time no cuts in 
benefits for current and future retirees, and at the same time 
allow individuals to have 18 percent of the payroll tax go to 
private or personal accounts?
    Mr. SNOW. Congressman, as I said, the issue is there 
whether you have transition to personal accounts or transition 
to something else. There is a gap that has to be met. I am 
agreeing with you.
    Chairman THOMAS. The gentleman's time has expired.
    Mr. MATSUI. Okay.
    Chairman THOMAS. The gentleman from New York, Mr. Houghton, 
wish to inquire.
    Mr. HOUGHTON. Yes, thank you, Mr. Chairman. Mr. Secretary, 
great to see you. Thank you very much for the great job you are 
doing.
    I have two questions. One is the on the AMT, and the other 
is the value of the dollar. The AMT is creeping up on us, and 
there are lots of things such as Social Security, Medicare and 
things like that that we are worried about, but this is one of 
them. I understand the cost of fixing this, if fix it we must, 
is around $700 billion, and the question is how are we going to 
handle that?
    The second thing--we get pretty paranoid about our own 
economy, although we have got the greatest country, and we have 
got a very booming economy now. There is something going on 
overseas with the value of the dollar, and I don't understand 
that. Are they saying something to us that we ought to hear?
    Mr. SNOW. Well, let me start with the AMT. The estimates 
vary somewhat on what the continuing patches would cost, what 
the loss revenues to the government from continuing patches 
would be. Some number like the one you are talking about is in 
the ballpark, and it is a big number. That is why I say it is 
important that we confront, we deal with it. It is a serious 
issue, and it has to be addressed, and I think it has to be 
addressed in the context of the whole tax system because of the 
interplay between the two. The home mortgage deduction, 
charitable deductions, a whole range of other deductions are 
directly affected by the AMT, and they are going to disappear. 
So, the effect of this is a fundamental change in the existing 
tax system.
    I would hope that we would be before you in a year's time 
with a proposal to deal with the issue, and I would hope to 
keep the Committee informed in the process. I would hope we 
could do it in revenue-neutral or as close to revenue neutral 
as possible. My main point is I think it requires us to think 
about the whole tax system, not just the AMT.
    On the question of the dollar, and the euro, of course, 
that is a subject I say very little on except to emphasize our 
policies, which I have reiterated over and over again. We favor 
a strong dollar. We think it is good for the country, but we 
think the value of currencies, not just the dollar, but the 
dollar vis-a-vis other countries, the exchange value of 
currencies is best set in open, competitive markets, so we 
encourage flexibility.
    The virtue of flexibility is it allows a healthy adjustment 
process to occur in the world's economies. That is why we are 
suggesting to the Chinese they would benefit from flexible--
from a more flexible currency. It is why we take that message 
to all corners of the world, because the failure to allow the 
currency to adjust builds up pressures, imbalances inside an 
economy that put the economy at risk. I think greater 
flexibility is a healthy thing and a good thing to encourage 
appropriate adjustment processes in international currency 
markets.
    Mr. HOUGHTON. I guess the genesis of my question has been 
such a precipitous fall in such a short period of time that it 
may be saying something to us that we ought to hear.
    Mr. SNOW. The subject of the relative value of the U.S. 
currency versus other currencies is a subject I stay away from 
because it only can cause mischief. What we want to see, of 
course, is flexible exchange rates, and the play out of demand 
and supply forces on a global basis. We think that is the best 
formula for getting the right results for our economy and for 
the other economies of the world.
    Mr. HOUGHTON. Well, certainly I wouldn't want to be accused 
of causing the Secretary of the Treasury mischief. Thank you 
very much, Mr. Secretary.
    Mr. SNOW. Thank you.
    Chairman THOMAS. Thank the gentleman. Gentleman from 
Michigan, Mr. Levin, wish to inquire?
    Mr. LEVIN. Thank you, Mr. Chairman. Welcome Mr. Secretary. 
This Administration and President Bush together already have a 
growing credibility gap with so many of the American people, 
and now this budget I think is only going to add to that 
credibility gap. I went back and looked at the statements of 
the President and yourself, just a few of them. In 2001, the 
President said, my budget protects all $2.6 trillion of the 
Social Security surplus and for Social Security alone. That 
turned out not to be correct. In the next year, after September 
11th, he said, in quotes: ``Our budget will run a deficit that 
will be small and short term.''
    I wonder if anybody in the world can call $500 billion 
small. You were here last year, and you said the tax cut plan, 
I quote, ``will create hundreds of thousands of additional jobs 
by the end of this year. About 500,000 additional jobs by the 
end of this year.'' The truth of the matter is in 2003, private 
sector employment fell, and manufacturing jobs of 516,000 were 
lost. In that same appearance you said: no, we are not in a 
structural deficit. Well, if you add making permanent the tax 
cuts, the Congressional Budget Office says that adds a trillion 
dollars to the deficit if you look at it over 10 years. Then 
you refer to the AMT. The Urban Institute estimates if you make 
the tax cuts permanent and repeal the AMT, that's another 
trillion dollars. I don't know how that is anything but 
structural. Then you say in your testimony: unemployment claims 
are falling, indicating improvement in the labor market.
    So, I want to ask you this: a recent report indicates that 
the number of people who exhausted their regular unemployment 
benefits last month and are out of work, 375,000 added to the 9 
million, plus another million who are underemployed. According 
to that estimate, when you project that through June, close to 
2 million people will be laid off, looking for work and out of 
work. So, can you tell me, with those data--those people; they 
are not just statistics--375,000 in 1 month alone exhausting 
their benefits, projected to be 2 million, why this 
Administration will not support the extension of the Federal 
extended benefit program when there are $20 billion in the 
trust fund that can be used for this purpose?
    Mr. SNOW. Congressman, this Administration has been pretty 
responsive on that subject, I think three times now has 
supported, has supported extension.
    Mr. LEVIN. How about now?
    Mr. SNOW. Well, I said when--when this issue has come up 
before, the Administration has responded and has supported the 
extensions.
    Mr. LEVIN. Will you support it now? It has come up. It has 
been raised in the House, it has been raised in the Senate. I 
just want you to answer the question.
    Mr. SNOW. Well, that is a question for the President to 
answer, not from me. In the past when that issue has come up 
three times, the Administration three times has supported 
extension. If I could just take a minute to----
    Mr. LEVIN. Let me just ask you, what is the 
Administration's policy--we have raised it time and time 
again--about the extension of the Federal extended benefit 
program? Are you for it, or are you not? The President has not 
supported any of the efforts. So, you--just you, the Secretary 
of the Treasury, you can't buck it to the President--what is 
the Administration policy on the Federal extended benefits 
program?
    Mr. SNOW. Our policy is to do those things, Congressman--as 
I think you know--to do those things that create permanent jobs 
and that create the incentives for permanent jobs. I would 
dispute your numbers on the jobs. There were actually some 
250,000 jobs created in the United States in the last 4 months 
of last year after the tax bill was passed.
    Mr. LEVIN. What was the total lost in 2003 of jobs if my 
figure is wrong?
    Mr. SNOW. The private sector estimates that a couple 
million jobs will be created this year.
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from California Mr. Herger wish to inquire?
    Mr. HERGER. Thank you, Mr. Chairman. Mr. Secretary, I want 
to commend the Bush Administration and you for recognizing a 
serious problem facing our Nation, a very low rate of personal 
savings. Considering that personal savings as a percentage of 
disposable income was 10.9 percent in 1982, and as of 2002 the 
rate of personal savings in America had dropped by almost two-
thirds to 3.7 percent of disposable income, one of the lowest 
savings rates in the industrialized world, could you please 
comment on the importance of savings for our country's future 
and how the Administration's proposals, LSAs and RSAs, are 
designed to make it easier for individuals and families to 
save?
    Mr. SNOW. Thank you very much, Congressman. I appreciate 
the chance to talk about that. The subject is close to my 
heart. You are absolutely right, our savings rates are too low 
in the United States. The personal savings rate has actually 
fallen below 2 percent, and we need to do better. The current 
tax-preferred savings devices are well intentioned, but they 
are so complicated, they are so difficult to understand, they 
are so--they exact such a price if you want to take the money 
out early or use it for another purpose that people aren't 
inclined to save as much as they otherwise would in the first 
place.
    The people who are most affected by this--and I think that 
is important to focus on--are lower, lower income and middle-
income people because they don't have that surplus, they may 
need that money. However, if they are restricted in how they 
can use it, they don't put it in in the first place. They don't 
have tax accountants and tax lawyers to help them figure out 
how to comply with all the current savings vehicles that are 
enormously complex.
    So, while I give great credit to Members of this Committee 
and others who have been in the forefront of trying to advance 
this issue of simplification and making more savings vehicles 
available, I think the time has come when it would make sense 
to streamline the whole thing and create the three accounts we 
talk about as the principal accounts. Our studies, our analysis 
indicates that would significantly increase the total volume of 
savings in the country and particularly affect savings on the 
part of people at the lower income levels.
    Mr. HERGER. Thank you very much.
    Chairman THOMAS. Does the gentleman from Maryland wish to 
inquire?
    Mr. CARDIN. Thank you, Mr. Chairman. I do. Let me thank the 
Secretary for being here and for his commitment and his work 
for our Nation.
    I must tell you, though, I am very disappointed with the 
Administration's budget as it reflects the national deficit and 
the growing debt. I remember when I was first elected to 
Congress and I had the good fortune to have you in my district 
as an advisor on fiscal issues, and I always remember your 
advice to me. You said, balance that Federal budget. That is 
the best thing we can do for our economy. You were a real hawk 
when trying to balance the budget at that time, and we had 
large deficits when I was first elected to Congress. Now we are 
being presented a budget that has the largest deficit in the 
history of this Nation.
    I agree with the Administration that this Congress should 
not start placing blame as to how we got here, but we have got 
to work to reduce that deficit, and it seems to me the way to 
do that is restraint, but not just on the spending side, but 
also on the revenue side. The former President Bush showed some 
courage when he helped us turn the path from deficits back into 
surplus or back into balance and surplus, followed by President 
Clinton, but we don't see that coming forward. We see 
discipline, so-called, on some parts of the spending, but not 
all, and then another series of tax proposals that, according 
to the Budget Office, will hemorrhage another $2 trillion in 
revenue over the 10-year period.
    So, I just want to express myself that I think there is 
many of us who want to deal with this deficit, but it is very 
difficult to do it when you have a selective discipline and you 
are not willing to consider the entire package to bring our 
budget back into balance.
    I want to follow up on Mr. Levin's point, though, with the 
unemployed, and Congressman Crane's point. We can use a lot of 
ways calculating how many people are unemployed today, and the 
insured unemployment rates are different than those people who 
are unemployed. As you know, in the last couple of months 
several hundred thousand Americans have given up and aren't 
seeking employment, and, therefore, they are no longer counted 
in the unemployed rates. The one thing we know is that there 
are 3 million fewer private sector jobs today than there was a 
few years ago. We also know that those people who are returning 
and finding employment are finding employment at lower wages 
than they were when they were employed originally. We also know 
we had the money in the Unemployment Trust Fund.
    I guess in your answer to Mr. Levin you suggest that, well, 
only the President can make that decision is probably good news 
because maybe it is an open issue on the extension of Federal 
unemployment benefits, and I hope that is the case. However, I 
do note that in the President's budget there is no money 
available for the extension of Federal unemployment benefits. I 
can tell you, at least what I learned in school in economics, 
that if you extend help to those people who are unemployed who 
can't find employment, that is a good remedy for trying to 
improve the economy. Their dollars get spent pretty quickly and 
help the economy grow, and that is a more important aspect to 
economic growth than anything else you can do.
    So, we had a hearing before our Committee, and there was 
genuine agreement among all the witnesses, the economists, from 
the far left to the far right that unemployment benefits during 
this period of time is in our Nation's interest. So, I would 
just urge you to take this issue up, try to work with us. As we 
are looking for a balanced approach as far as fairness is 
concerned, those people who can't find jobs today through no 
fault of their own are being left out in the cold. I appreciate 
your response to any of the points I raise.
    Mr. SNOW. Right. Congressman, first of all, let me say 
that, as I said before, that the Administration has been 
responsive in the past three times it has come up.
    Second, on the issue of jobs, jobs come from growth, and we 
have got to keep the growth going in the economy. There is no 
doubt that the economy is growing, growing at a pretty good 
rate. We want to sustain that and making the tax relief 
permanent is a way to send the signals that will allow the good 
growth rates to be sustained.
    Finally, the job market is improving. The initial 
unemployment insurance claims are coming steadily down. 
Aggregate hours worked has been rising. Temporary work has been 
rising. Those are good leading indicators, precursors of a 
pick-up in the job market. I follow closely the private sector 
surveys and the blue chip surveys, so-called. Private 
economists, their forecasts all indicate a much stronger labor 
market in the months ahead, somewhere between 150,000 and 
250,000, 300,000 jobs a month. That is what you would expect. 
As the economy's recovery is sustained, jobs will come back.
    Mr. CARDIN. Thank you. Thank you, Mr. Chairman.
    Chairman THOMAS. Does the gentleman from Texas Mr. Johnson 
wish to inquire?
    Mr. JOHNSON. Thank you, Mr. Chairman. Thank you for being 
here, Mr. Secretary. I am glad to see that you mentioned the 
association health plans. I think those are important, and 
hopefully we can twist the other body's arm a little bit and 
get them done. I think we look forward to working with you to 
make that happen. As you know, I am on that other Committee, 
too.
    I am glad to see the savings initiatives for the LSAs, 
RSAs, and ERSAs, whatever you want to call them, are back in 
your budget this year and have been moved to the top of the 
list in your blue book. As you know, Senator Thomas and I wrote 
a letter to you about a week ago, a couple weeks ago, to let 
you know that we are hoping they will be introduced in bill 
form in the near future. We want to let people have the 
opportunity to save for their needs, wants and dreams without 
being penalized. It only makes sense that when we tax 
something, we get less of it, and our tax policy currently 
punishes savings. You made the statement that we have a low 
savings rate, and you are right. I think it is right at zero, 
if I am not mistaken, and we need to curb that epidemic.
    The only significant changes that I see that you have made 
in these proposals are the contribution limit has been set at 
$5,000, and that the ERSA section, there is a simple ERSA for 
employers with fewer than 10 employees. Both of these are great 
changes, I think. I hear some criticism from some of these 
proposals, and I would like you to talk to me about them, if 
you could.
    I wonder if you could explain to me if there is any 
difference between a Roth individual retirement account (IRA) 
once it is fully phased in and an LSA, except that the LSA has 
no income cap and no 5-year holding period. Can you tell me 
what the fuss is about eliminating an income cap and a 5-year 
holding period? I think these are the only differences between 
the Roth and the LSA, and I think Roth IRAs are really popular 
with the American public today.
    Mr. SNOW. Congressman, that is what we have done in effect 
is the contribution is with after-tax income, as with a Roth 
IRA. Then there is the tax-free buildup inside--inside of the 
LSA, and that is a very nice feature, and then it is at the end 
subject to the tax on all that buildup. That is the Roth IRA, 
except that now we have taken off the eligibility limits and 
allow people to draw the money down if they want to use it, so 
it does become a LSA with broad usage.
    Mr. JOHNSON. After 5 years.
    Mr. SNOW. After 5 years. I think it is going to attract a 
lot of additional savings. There is a dispute on that, there is 
a debate on that. Some people say it will simply replace 
savings; people will take money out of other accounts and put 
them into this account. The studies we have indicate that, 
quite the contrary, that this will lead to a total increase in 
the savings of the United States. You are absolutely right. I 
responded in my letter back to you and Senator Thomas that we 
have savings rates that are too low, and we need to increase 
our savings rates very much in this country.
    Mr. JOHNSON. Thank you for that comment. I appreciate that. 
Why do you think lower income individuals would be more likely 
to use an LSA?
    Mr. SNOW. Lower-income people don't save today very much. 
Lower-income people, not having the surplus available to them 
of wealth to draw on, need to--feel the need to call on their 
savings for emergencies that come up and don't have any other 
source to draw on. So, they are reluctant to put their money 
into an account where they can't draw it out, and that is very 
understandable.
    Mr. JOHNSON. One other question, if I could. Could you give 
me your take on private access bonds as far as transportation 
is concerned?
    Mr. SNOW. You are talking here of these special bonds?
    Mr. JOHNSON. Yes, or construction.
    Mr. SNOW. Construction bonds? I am not particularly 
enamored of them, as you might imagine, Congressman, if they 
use the full faith and credit, if you are talking--we are 
talking about the same thing. I have sent a letter to Congress 
indicating we on the highway bill would not like to see special 
bonding bills to fund highway spending. I think what you are 
talking about is different and is actually in the budget, if I 
understand the reference you made.
    Mr. JOHNSON. No, I was talking about highway spending.
    Mr. SNOW. I don't think you are talking about the same 
thing that I am referencing. Let me just check.
    Chairman THOMAS. The gentleman's time has expired. I 
believe, based upon the Secretary and the Secretary of 
Transportation's letter, there may be a number of letters 
exchanged over what exactly is meant in the initial letter.
    Mr. JOHNSON. Right, Mr. Chairman.
    Mr. SNOW. That is a fair comment.
    Chairman THOMAS. The gentleman from Washington, Mr. 
McDermott----
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    Chairman THOMAS. May inquire.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. As a representative 
of an Administration who has no credibility whatsoever in 
international affairs, given weapons of mass destruction and 
al-Qaeda and so forth, it has gotten to the point where if the 
President said it was snowing outside, everybody would get up 
and go to the window and look. As the Secretary of the 
Treasury, you have set a record of three tax cuts and the 
largest deficit in the history of the country. I want to read a 
quote to you and ask you what you think about it.
    The budget deficit puts a hole in the buck of every 
American every day of their lives. It threatens the very 
foundations of our culture, and we must seize and act upon this 
historic opportunity to solve this, the most pressing issue 
facing the country. Do you still stand by that quote?
    Mr. SNOW. I was referencing--you are quoting from something 
I said back in----
    Mr. MCDERMOTT. Do you want to turn the microphone on so it 
can get on television?
    Mr. SNOW. Congressman, thank you for giving me that quote. 
It comes from me; it was a quote I made in the mid-1990s when I 
was very concerned about running a structural deficit when we 
had full employment. The deficits that we have seen here are 
the result of high unemployment, of a weak economy, of a 
recession that President Bush inherited, and of the 
consequences of the war on terror, and the war in Iraq, and the 
meltdown of the stock market and the corruption in----
    Mr. MCDERMOTT. Corruption you said?
    Mr. SNOW. Corporate suites that affected the stock market.
    Mr. MCDERMOTT. You weren't referring to Halliburton; you 
were referring to something else?
    Mr. SNOW. Well, I am talking about what produced the 
Sarbanes-Oxley Act of 2002 (P.L. 107-204).
    Mr. MCDERMOTT. How long are you going to----
    Mr. SNOW. This American economy has had a series of shocks 
that are absolutely incredible, Congressman.
    Mr. MCDERMOTT. How long are you going to blame this on the 
last Administration? You had 3 years to correct this. We have 
no jobs, we are still in the same problem; and your answer 
today to us to give certainty to this situation is to make 
permanent the tax cuts. That is the fourth tax cut you will 
have proposed in your Administration and you are telling us 
that the Congress is supposed to ignore these deficits. 
Deficits in this situation don't really mean anything, folks. 
We could just pile them up as high as the sky because--I don't 
understand that.
    If you could just tell me one thing. If we extended the tax 
cuts, where will the interest rates be in November? When you 
were at CSX, you were worried about your ability to borrow 
money with low interest rates; today we have low interest 
rates. Now, where are they going to be in November if we keep 
going up with this deficit?
    Mr. SNOW. Congressman, let me try to respond as carefully 
as I can. The deficit today is too large. It is unwelcome, and 
it needs to come down. The budget before you brings it down.
    Mr. MCDERMOTT. When?
    Mr. SNOW. Well, within 5 years it is down well below the 
historic average of the deficit as a percent of GDP.
    Mr. MCDERMOTT. Your budget the other day--the last couple 
years said that the budget deficit by about 2008 would be $14 
billion and it is $570 billion--whatever the number is, I don't 
know what the number is. You are telling us it reins it down, 
and we are supposed to believe you. We are supposed to believe 
there were weapons of mass destruction; we are supposed to 
believe all this stuff. Last month in December we got 1,000 
jobs created, and you tell us there is an economic recovery.
    Mr. SNOW. Well, there is clearly an economic recovery.
    Mr. MCDERMOTT. Not in my district.
    Mr. SNOW. Four-percent growth rate in the fourth quarter, 
8.2 percent in the third quarter; the purchasing index at the 
highest level for new orders in 20 years; exports rising; 
manufacturing sector coming back; capital spending of the 
business sector up 8, 9 percent. There is clearly a recovery. 
We are disappointed that the jobs haven't come back faster; but 
as I say, the private sector estimates indicate a very sizeable 
pickup of jobs in the coming year. We ought to stay on this 
course because it is the right course----
    Mr. MCDERMOTT. Explain to me then, if you have a recovery--
and you are very pleased. The stock market has gone back up, I 
know, I have been watching. Yet, where are the jobs, Mr. 
Secretary? Ordinary people need jobs. You heard from Mr. Levin 
about the people who have lost their jobs, and now there are 
three people looking for every job that is out there, and they 
are catching--instead of a $20-an-hour job, they are getting a 
$5-an-hour job. Where are the jobs?
    Mr. SNOW. Congressman, the jobs come with a strong 
recovery. We are in the midst of a strong recovery. They always 
lag the recovery. That is understandable.
    Mr. MCDERMOTT. Until after the election. I see.
    Mr. SNOW. As I have indicated, the private sector 
economists who make the forecasts on this see a pick-up this 
year of roughly 2 million jobs. We want to see that happen. I 
would like to see more.
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from Georgia, Mr. Collins, wish to inquire?
    Mr. COLLINS. Yes, sir, Mr. Chairman. First of all, Mr. 
Secretary, you and the President and others in the 
Administration have spoken about the Chinese currency. What is 
the latest on the Chinese working with us on the valuation of 
their currency?
    Mr. SNOW. Congressman Collins, there is good news to report 
there. The Chinese premier Mr. Wen was in Thailand meeting with 
the President and other officials, myself, Secretary of State 
Powell in December; late November, early December. We continued 
the dialogue that I had had with him back in September where I 
suggested in the course of our conversation in Beijing that it 
would be advantageous for China and for the world trading 
community if China would move to flexible exchange rates.
    Mr. COLLINS. So, the news is good news?
    Mr. SNOW. Well, what the news is----
    Mr. COLLINS. I have got another question I want to get to, 
and I don't want you to ramble.
    Mr. SNOW. They are putting in--they can't go to it 
immediately, but they are putting in the financial architecture 
that would allow them to go to it.
    Mr. COLLINS. Very good. Mr. Secretary, there are two 
deficits that I am worried about. One is the budget deficit. Of 
course, the budget deficit comes from two areas; one is income, 
the other is spending. We are in a war against terrorism which 
is requiring a lot of extra money for both the war effort and 
for homeland security. However, when I am looking at the 
revenue tables, I see there has been a drastic reduction in 
income coming in. We have in the year 2001 and 2002, compared 
to the year 2000, a reduction of some $162 billion just in 
individual income tax; also in the area of corporate tax, some 
$117 billion deficit compared to the year 2002. It even went 
down farther with the revenues in the year 2003.
    So, there is a reason there that we are running short of 
money, but yet I feel like if we had not put the infusion of 
money back into the payroll checks, the economy would not be as 
strong as it is, and I don't consider it to be strong either.
    The other deficit I am worried about is in the area of 
trade. Retail sales are up 25 percent, but you have--revenues 
are down coming in from corporate taxation. Where are we 
getting our product for retail sales? Imports? Is that the 
reason we have such a high trade deficit?
    Mr. SNOW. Yes, Congressman Collins. The exports continue to 
be--to lag behind imports.
    Mr. COLLINS. Well, you have been in business a long time, 
Mr. Secretary. You have managed some of the largest 
corporations. It is called competition; is it not? You always 
have to compete in business. You compete in anything that you 
go with. What are we doing? What are you proposing or what is 
in this budget that will help the American worker through their 
job placement be more competitive in the world market? What are 
you offering here?
    Mr. SNOW. I think we are offering a number of things, but, 
most importantly, making the tax cuts permanent.
    Mr. COLLINS. That is to the individual. What are you doing 
to help business to be able to compete in the world market with 
other businesses and other parts of the world? Since that is 
where the competition exists. The competition exists between 
workers here and workers there, but it is through the companies 
they work for, multinational companies. What are you offering 
in this budget that will help us to be more competitive in the 
world market?
    Mr. SNOW. Congressman, we are competitive----
    Mr. COLLINS. No, sir.
    Mr. SNOW. When we have low cost of equity capital. We have 
lowered the cost of equity capital. We want to make that 
permanent. We have lowered the capital gains taxes. We want to 
make that permanent. Why is equity capital important? Equity 
capital is important----
    Mr. COLLINS. I understand----
    Mr. SNOW. Because it funds the new companies, the new 
ideas.
    Mr. COLLINS. I understand where you are coming from there, 
but if we are competitive, and equity capital is the answer, 
why is the trade deficit continuing to increase and retail 
sales are going up? Why are imports more coming in than exports 
going out?
    The investments, sir, are being made in other countries. 
Yet, it is this high technology excuse that I keep hearing 
about. Yes, it has happened, it is there. However, they are 
building plants in other countries to put the technology in, 
and not here. I think we need to look at what we are doing in 
this country if we are going to be competitive in the world 
market.
    Just look at your tax rate, sir, on the corporate tax 
rates. The average Organization for Economic Cooperation and 
Development nation is 31.4 percent, and we are 40 percent. Does 
that not tell you something? Yet, you are coming up here with 
all these other types of tax incentives that you want to push 
forward. You had better look at what the corporate America, 
what the people of the workplace is having to compete with 
around the world.
    Mr. SNOW. Well, as I said earlier in answer to two or three 
questions, I think we need to make sure that the prejudicial 
treatment through the Tax Code of our businesses is dealt with. 
I have made that clear.
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from Georgia, Mr. Lewis, wish to inquire?
    Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Chairman. 
Mr. Secretary, thank you for being here today. In a word or 
two, can you tell us, what is your vision as Secretary of the 
Treasury, what is your vision for this Administration during 
the next year? How will you use your position as Secretary of 
the Treasury? What type of America do you want leave for the 
next generation?
    Mr. SNOW. Well, I want to support the President in his 
major thrusts that are incorporated and reflected in this 
budget: the war on terror, which we have to be successful in. 
That goes to the--that goes to our responsibility to protect 
the American citizens and to give them a sense of security. We 
need to make sure that the homeland is secure, and we need to 
make sure that we are doing everything we can to bring the 
terrorists to justice.
    We also need to make sure that people feel economically 
secure; that there are jobs; that the economy is growing and 
expanding; that they have access to health care. This budget, 
of course, provides for expanded access to health care by 
importantly lowering, creating an opportunity to lower the 
costs of health care.
    I think we need to be concerned about pensions and the 
security that employees have in their pensions. I think we need 
to encourage people to save and become part of an ownership 
society, which is very much part of the President's vision for 
America.
    So, homeland security, and personal economic security 
through savings plans, through pension plans, through enhancing 
people's ability to live in a society that rewards their 
savings and investing activities, those would be the main 
thrust I would see the Treasury working on.
    Mr. LEWIS OF GEORGIA. I appreciate that very much, Mr. 
Secretary. All those things may be good, but in your heart of 
hearts, how do you believe that we can accomplish all of that? 
With limited resources, with permanent tax cuts, how can we do 
it? Can a nation--can we afford these tax cuts?
    Mr. SNOW. Congressman, I think we can't afford to go the 
other way. I think it would be a terrible mistake to put a tax 
increase on the American people, and that is the effect of 
eliminating these tax reductions.
    Mr. LEWIS OF GEORGIA. I am not suggesting, Mr. Secretary, 
that we increase taxes, but can we afford--can we go down this 
road and continue to cut taxes and make the tax cuts permanent? 
How much would it cost the Treasury during the next few years?
    Mr. SNOW. Congressman, we can afford it. We absolutely can 
afford it, because the budget that has been put forward puts 
the government on a path to reducing that deficit, cutting it 
in half over the course of the next 5 years.
    Why do we worry about deficits? Well, you worry about 
deficits because deficits, if they are entrenched and large, 
lead to reactions in financial markets. They lead financial 
markets to demand a risk premium for inflation, which takes 
interest rates up. Higher interest rates----
    Mr. LEWIS OF GEORGIA. Mr. Secretary, isn't it true that the 
true cost of the tax cuts would not be realized until long 
after this Administration is gone, 2011?
    Mr. SNOW. No, Congressman. If the tax cuts were imprudent, 
the financial markets would already be registering that in the 
price they charge for funding the debt of the United States. In 
fact, funding rates for the U.S. debt, interest rates are 
generally at their lowest level in 40, 45 years. So, the 
financial markets are giving us the benefit of the doubt saying 
we will solve the problem.
    Mr. LEWIS OF GEORGIA. Mr. Chairman, could I just--I want to 
know, Mr. Secretary, why was not anything in this budget, any 
resources, for our military efforts in Iraq and Afghanistan? 
Why was that left out?
    Mr. SNOW. The Administration acknowledged that there well 
could be a supplemental at some point once it was understood 
better what the facts were, what was required and what the 
needs would be. That is why.
    Mr. LEWIS OF GEORGIA. Thank you, Mr. Chairman.
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from Ohio, Mr. Portman, wish to inquire?
    Mr. PORTMAN. Thank you, Mr. Chairman. I do. I appreciate 
the dialogue with my colleague from Georgia, and I appreciate 
him giving you a chance to talk about your vision. I think the 
budget reflects the vision, and I support it. I think it is 
important that we back up and talk a little about the deficit. 
Mr. McDermott said we can't keep blaming it on what happened in 
the previous Administration, but the fact is you did inherit an 
economy spiraling into recession. You did have the tragedy of 
9/11 which had a huge impact on the economy.
    We can talk about the corporate scandals from 1990s and the 
stock market bubble and so on, but it is even more interesting 
to me to look at the deficit, and looking at your numbers and 
Office of Management and Budget's numbers, I think about 30 
percent of the deficit is due to new spending, some of which 
was needed in the war against terrorism. About 40 percent of 
it, as I look at it here, was due to the economy going down. 
So, the biggest plurality was the economy, about 10 percent new 
borrowing, and about 18.5 percent--let us say 20 percent--was 
due to the tax relief. My question to you would be that 20 
percent which is due to the tax relief, what impact has it had 
on our economy over the last couple of years?
    You talked about some of the data from 2003, a 26-percent 
increase in equity markets, you said, with over $2.5 trillion, 
over half of America's families now taking advantage of that; 
the economic growth in the second half of 2003, the fastest 
growth since 2004. That 20 percent, what impact did it have on 
the economy, which, after all, is the biggest determinant of 
our deficits?
    Mr. SNOW. Congressman, if we had not seen the 2001, 2002, 
and 2003 tax relief, I think we would have had--I think the 
evidence is clear, we would have had a much deeper and a much 
longer and a much harsher recession, and millions of additional 
people would have been unemployed, and the growth rate for the 
American economy would have been much, much lower. There simply 
can't be any doubt about the fact that the actions of the 
Congress in adopting those proposals which you adopted have 
made the recession shorter and less steep, less harsh than 
otherwise would have been the case, to the benefit of millions 
and millions and millions of Americans. Through the actions 
last year, you have put the economy on a course for a strong, 
strong recovery.
    Mr. PORTMAN. That is the key to getting the deficit down, 
isn't it, as we saw in the late 1990s? Restraining spending was 
important. I commend you in this budget for keeping non-
homeland, non-defense discretionary spending under 1 percent.
    In your budget, you also though talk about taxes, and you 
said that we shouldn't allow taxes to increase. You call it 
permanence; I say not allowing the taxes to increase, which is 
really what would happen. Why is that important to the economy 
and, therefore, the deficit?
    Mr. SNOW. It is important, it is critical because the 
uncertainty about taxes is a restraint on the economy. If the 
American public ever--business and taxpayers thought their tax 
rates were going to go up, they would react in a very negative 
way. There would be less investment on the part of business; 
small business would be far less buoyant about their outlook. 
Individual taxpayers, who I now talk to on a regular basis, 
wouldn't be doing the things they are doing that are helping 
the economy, taking vacations, traveling, buying cars.
    Mr. PORTMAN. Hopefully investing in savings.
    Mr. SNOW. Hopefully investing in savings, too, once we get 
these vehicles put in place.
    Mr. PORTMAN. Mr. Secretary, I couldn't agree with you more. 
Let me also say that I commend you on your Internal Revenue 
Service (IRS) budget. I do think some more funding is necessary 
on the enforcement side. You have increased enforcement by 
about 10.7 percent. I always have believed that there is a fine 
balance between service and enforcement, but they are not 
mutually exclusive. This Congress didn't think so when we 
passed the IRS Restructuring and Reform Act of 1998 (P.L. 105-
206).
    You mentioned the savings investments, the initiative for 
savings. I have just got to tell you, I do differ with you, as 
you know, on the LSAs. We have talked about this for a year now 
and in response to that previous question, let me just correct 
you. There is a huge difference between a Roth IRA and an LSA. 
With an LSA you can put the money in and take it out for any 
purpose. With a Roth IRA, yes, you can take it after 5 years if 
you use it for one purpose: first-time home buyers only. 
Otherwise you have to keep it in until you are 59-1/2 years 
old. Even when you are 59-1/2, Mr. Secretary, you still have to 
have had it in there, in terms of the earnings, for 5 years.
    Just so the record is clear on that, there is an 
incorrection earlier in your statement about that.
    Mr. SNOW. I was responding to the structure. It has got the 
same basic structure.
    Mr. PORTMAN. Well, I wrote your quote down a little 
differently there. They are different vehicles, and that is my 
concern. I strongly commend the Administration for focusing on 
savings. It is fantastic. This Committee and this Congress has 
done that over the last 8 years, and we have simplified and 
added the ability for people to put more into their 401(k)s and 
IRAs and other vehicles, and I really commend you for pushing 
on that. Let us do it for long-term savings.
    Chairman THOMAS. Thank the gentleman.
    Mr. SNOW. Congressman, I don't see the war you see, I 
really don't, between longer term savings and making these 
plans generally available. I don't--I know the argument is 
made, but I think it is probably an invalid argument. The LSAs 
could be incorporated by annuitants, by companies that sell 
annuities for the first part of it. There is--you can merge the 
two to get the benefits. Talking to a number of people in the 
industry, I think we are beginning to see some softening of the 
position on this where many in the financial community see 
these vehicles as a tremendous opportunity to market a product 
that will bring large numbers----
    Mr. PORTMAN. I really am not so concerned about what people 
in the financial community want to market about as----
    Chairman THOMAS. The gentleman's time has expired. This is 
the first exchange on this matter for this year, but I am quite 
sure it won't be the last. Does the gentleman from 
Massachusetts, Mr. Neal, wish to inquire?
    Mr. NEAL. Thank you, Mr. Chairman. Mr. Secretary, welcome. 
I had only intended to speak to AMT, but I want to follow up on 
what Mr. Portman said; that we might disagree and bicker over 
the official date of when the recession settled in, but there 
is one fact that is not in dispute, and that is that the Bush 
Administration inherited record surpluses. Only in this 
institution, Mr. Secretary, could the Majority party vote to 
rip $1.2 trillion out of the budget over the next 10 years and 
then complain about deficits. That is the predicament we are in 
today. Let me speak specifically to this AMT issue, that you 
are going to do a study on.
    Mr. SNOW. Yes.
    Mr. NEAL. Well, I want to tell you, if I can politely, Mr. 
Secretary, that I have now filed legislation in the last three 
sessions of this Congress to repeal the AMT, and I have never 
had one call from a Member of the Administration saying that 
they were interested in working with me on any segment of that 
proposal.
    I would be delighted to participate in these discussions 
with you. I suspect that the reason that we are only studying 
the AMT as opposed to doing something about it once again is 
because of its cost, isn't it, in part?
    Mr. SNOW. No, Congressman, it is not. It is much more than 
that. This is a tax which will affect many, many, many millions 
of Americans who aren't aware that they will be affected by it.
    Mr. NEAL. Mr. Secretary, there is nobody in this body and 
this Committee that has looked at AMT more than I have. I am 
well familiar with the point you are making. However, the truth 
is it gets worse year after year after year.
    Mr. SNOW. Mr. Neal, I would look forward to talking to you 
about this subject and looking at your legislation. We are 
going to need a lot of good ideas on how to deal with this 
problem, and I look forward on drawing your counsel.
    Mr. NEAL. Let me just pursue it a bit. One of the 
difficulties that those of us have on this side is the 
suspicion that we are not fixing AMT because it doesn't square 
with tax cut rhetoric here. Since it only impacts middle-income 
Americans and not lower income Americans and upper-income 
Americans any longer, we really don't deal with it because of 
the fact that it is easier to stuff tax cuts into the budget 
than it is to deal with AMT. Is that a reasonable suspicion 
that some of us might hold?
    Mr. SNOW. We want to deal with AMT because it is a real 
issue, it is a serious issue, it has far-reaching implications 
and effects on millions and millions of Americans who are 
unsuspecting about those effects, and we want to do it in a way 
that makes sense and is sound. That means taking into account 
the regular tax system as well, because it has such dramatic 
interaction and effects on the regular tax system.
    Mr. NEAL. Would you agree with this statement: that if the 
Bush tax cuts are made permanent, the AMT gets worse?
    Mr. SNOW. No, I don't think I would agree with that.
    Mr. NEAL. Do you want to pursue that?
    Mr. SNOW. Well, I don't----
    Mr. NEAL. You can't give it to the people on one hand, Mr. 
Secretary, and take it away on the other and call it a tax cut 
or tax relief.
    Mr. SNOW. You heard me say earlier that we would seek to 
find a solution to this problem working with the Congress in a 
budget-neutral way.
    Mr. NEAL. We had an opportunity here a couple of years ago, 
rather than to pursue just the discussion of tax cuts versus no 
tax cuts, to find some middle ground on an issue like tax 
simplification, which we could all buy into, all join hands and 
get together on it. That is where we ought to be heading, and 
that is just a quick suggestion.
    Let me ask you about another question, Mr. Secretary, that 
I think is near and dear to the hearts of all of us who are 
watching those 134,000 American troops brilliantly perform 
every day in Iraq. It is those corporate tax evaders who have 
set up shop in Bermuda. What are we going to do about it?
    Mr. SNOW. Well, if you will see in our budget, we have 
toughened up the enforcement significantly at the IRS. We are--
--
    Mr. NEAL. Do you think that they are really Bermuda 
corporations, or do you think they are American corporations 
with fictitious addresses?
    Mr. SNOW. Well, I think it is a fact, a fact question, 
obviously. We want to go after tax havens. We are dealing with 
the interest, the income-stripping through the proposals that 
are in this budget. We are trying to negotiate treaties with a 
number of those tax haven countries. I think we are making real 
progress on it.
    Mr. NEAL. We could do more to promote the credibility of 
the Federal Tax Code by shutting down some of these loopholes 
and going after these evaders. We could all stand shoulder to 
shoulder on it and stand up and cheer for those kids that are 
in Iraq by saying that this group that sets up these phony post 
office boxes in Bermuda ought to pay their share like you and I 
do, Mr. Secretary.
    Mr. SNOW. Congressman, I am with you. We want to go after 
abusive tax shelters anywhere we find them. I agree with you.
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from Illinois, Mr. Weller, wish to inquire?
    Mr. WELLER. Thank you, Mr. Chairman. Mr. Secretary, good to 
see you this afternoon. Thank you for joining us. We appreciate 
your time.
    As you know, we have been very focused on the economy, 
focused on creating jobs in this country. I have enjoyed 
working with you, as I know the others in the Committee have, 
as well as the President, to find ways to improve this economy 
and to create jobs.
    The jobs in the economic growth package that we worked and 
put together last year and signed into law by the President is 
working, it is having a real impact. We have seen record 
economic growth. We have seen almost 300,000 new jobs created 
in the last few months; the stock market, the barometer of the 
confidence in the economy, certainly has gone up significantly. 
However, as we work to continue moving forward on growing the 
economy and creating jobs, we have some decisions before us.
    I certainly want to salute the Administration for 
recognizing that there are tax consequences that we need to 
consider, the repeal of the marriage tax penalty, the doubling 
the child tax credit, the lower rate for low-income Americans, 
the 10-percent bracket need to be extended at the end of this 
year; otherwise, we will see a tax increase on families. I 
think in Illinois there are 3 million children who benefit from 
the child tax credits, so the parents of those children could 
see higher taxes of up to $300 per child unless we extend the 
child tax credits. Obviously there is 3 million Americans today 
that no longer pay Federal income taxes because of the 10-
percent bracket and our efforts to widen it, and of course the 
President's leadership in helping the low-income working 
families. So, that is real progress.
    A provision that I would like to discuss with you, Mr. 
Secretary, is the one that I consider to be the most pro-
manufacturing provision that was in the jobs and economic 
growth package, and that is a provision--the bonus depreciation 
provision and incentive that we worked to create to encourage 
business to invest capital assets, company cars, computers, 
telecommunications, equipment, renovate their buildings as an 
incentive, which, of course, creates jobs because somebody has 
to do the work and assemble that particular asset.
    One thing I noticed just looking at the impact of bonus 
depreciation. We have seen tripling of business investment. The 
electronic sector says they have seen a 38-percent increase in 
demand for electronics and computers. The aviation sector has 
seen a 45-percent increase in demand for their manufactured 
products. In most cases they find that the bonus depreciation 
was the deciding factor in making that business decision.
    Also, I would note even our own Ways and Means analysis 
says that total business equipment investment was $929 billion 
in the fourth quarter, which is the highest level of equipment 
investment ever. I was wondering, from your perspective, Mr. 
Secretary, you are a former business executive, do you agree 
that the bonus depreciation has worked?
    Mr. SNOW. I think it has been effective, certainly. I think 
it has, but as you know, it was meant to be temporary. I think 
that the economy is coming back now in a way that it has 
sufficient momentum to continue to encourage capital spending 
without the added advantage that that provides. Clearly it had 
an effect, it had a major effect, in my view. The fact that it 
is coming to an end probably is encouraging greater use of it 
now, which is also beneficial. Businessmen make decisions to 
invest--having been one of them--when you see a strong economy 
with order books strong, and they think of the taxes, I think, 
in conjunction with what is the business outlook. The business 
outlook right now, as I talk to the business community, is 
awful darn strong.
    So, I know you are asking me whether I see the need to 
continue that depreciation, the 50-percent depreciation--which 
was 30 percent, I think, and then we took it to 50 percent. It 
has had its effect, I don't think it is required now to keep 
the economy going.
    Mr. WELLER. Well, many of us feel it should be extended 
because we want to keep that demand for manufactured goods 
going, because it is working, it is creating opportunities for 
people to get new jobs as a result of an increase in demand for 
manufactured goods. It is working. We are seeing the 
manufacturing index up significantly. While you did not include 
it in your budget because you feel, well, let it expire and 
that will be an incentive, but do you expose an extension of 
the bonus depreciation?
    Mr. SNOW. Congressman, as I said, I think it has a useful 
effect; it has worked, it has helped keep the economy stronger 
than it otherwise would have been. It is not in our budget, but 
I am not saying that it is tax policy that we find a great deal 
of fault with. It is effective tax policy at the right time. I 
am just raising the question of whether it is needed at this 
time.
    Mr. WELLER. All right, thank you.
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from Tennessee, Mr. Tanner, wish to inquire?
    Mr. TANNER. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for being here with us today. Mr. Secretary, how 
would you categorize increased interest payments on the 
national debt, as just further mandatory spending? Or how would 
you characterize the increase interest payments on the debt 
that continues to go up?
    Mr. SNOW. It is an obligation that has to be met. It is an 
unavoidable obligation of the Federal government.
    Mr. TANNER. So, if it is an unavoidable obligation, it 
means that one way or another the American taxpayers have to 
come up with the money to pay interest on the debt that comes 
before any other spending. Would that be fair?
    Mr. SNOW. Congressman, I would agree with the thrust of 
what you are saying. The United States--it is inconceivable the 
United States would fail to meet its obligations, and interest 
is an obligation.
    Mr. TANNER. Well, let me then ask, this January, for the 
first time that I know of, the Comptroller General said that 
the unsustainable borrowing that is going on is driving the 
Nation toward a fiscal crisis. This is what somebody said in 
this town for the first time: our fiscal gap is too great to 
grow our way out of this problem. He went on to say: based on 
reasonable assumptions, it would require double-digit real GDP 
growth for decades to grow out of this problem. That is not 
going to happen. It is time we recognize reality.
    Do you agree or disagree with that assessment, sir?
    Mr. SNOW. Congressman, I agree that we can't grow our way 
out of the deficit; that growth alone won't get us there. 
Growth is a necessary condition, but not a sufficient 
condition, to get us out of the fiscal deficit. That is why the 
President has called for the tight spending controls.
    Mr. TANNER. The other question, other than the fact that we 
no longer can assume to grow out of this, I would categorize 
this if we were in an airplane as in a death spiral. Something 
has got to change, or the airplane is going to hit the ground. 
Your budget over the next several years forecasts every year 
with I say fairly optimistic growth figures; still, the 
receipts of the government not keeping pace with the 
expenditures. You said earlier that this leads to a reaction in 
financial markets.
    Following up on what Mr. Collins said, we have experienced 
in our country the most rapid drop in foreign direct investment 
in the history of our country. In 2000, the United States 
received $314 billion in direct foreign non-governmental 
investment, and last year it was just $30 billion. For the 
first time since 1950, both France and Germany received more 
foreign direct investment than we did. I would say, in answer 
to what you told him, that the results are already in in the 
foreign markets. The London Financial Times reports that, with 
regard to our structural ongoing budget deficits, that we will 
not be considered creditworthy if we continue to behave like we 
are behaving.
    Now, I don't believe that, but I do think, sir, that to 
submit a budget that doesn't balance--and optimistic revenue 
projects by 2009, and then to come here and add another $1.2 
trillion on top of that with further tax policy is going to 
result, just that alone--Since your May 2000 economic plan for 
this country--that alone is going to be at 4 percent which will 
result in an additional $100 billion a year in interest on this 
debt. That is a tax increase of mammoth proportions, far, far 
more than any tax bill we could dream up, $100 billion a year 
every year for which we receive absolutely nothing.
    To make it further worse, if I could, is that the amount of 
accumulation by foreigners of this debt is growing at such a 
record pace. Over $500 billion in the last 20 months is being 
bought by foreigners. So, now we are not only writing checks 
for interest for which the American people get nothing, we are 
writing them to foreigners.
    Mr. Secretary, I plead with you, I plead, beg of you to 
look at this again and see if there is not some way we can work 
together to rein in what is a death spiral if we were in an 
airplane. If you--I plead with you. Thank you.
    Chairman THOMAS. I thank the gentleman. The gentleman's 
time has expired. Does the gentleman from Missouri, Mr. 
Hulshof, wish to inquire?
    Mr. HULSHOF. Thank you, Mr. Chairman. Mr. Secretary, 
welcome. It is great to have you here again. I think a couple 
of points need to be underscored, and then I would like to ask 
a couple questions.
    I think it is beyond dispute that as President Bush was 
being sworn into office, the economy had begun a slowdown. That 
recession that our economy experienced has turned into a 
recovery. You have rattled off a number of areas, in fact, 
where the economy is improving. In fact, in today's Wall Street 
Journal the manufacturing index once again showed improvement, 
which is great news especially in light of some of the 
political discussions that we have had here on Capitol Hill.
    What I want to talk about, in fact, what I have queried to 
some of my colleagues, is that even with the economy improving, 
the one thing that could pull the rug out from underneath the 
economy that is imminent, that will occur unless Congress acts, 
is dealing with the foreign sales corporation (FSC) and ETI 
problem. We know that that is imminent because of what the EU 
has indicated is a deadline. I wanted to follow up on some of 
the comments you made earlier, because I think you stated, if I 
am--and correct me if I misstate your position--that the 
Administration, rather than just a repeal of the FSC and ETI, 
the Administration would support some reform along with that 
repeal. Is that a fair assessment?
    Mr. SNOW. Yes. Absolutely. We want to make sure that in the 
process of repeal nothing is done that prejudices the 
competitive position, and hopefully improves the competitive 
position of U.S. global enterprises.
    Mr. HULSHOF. Well, and thank you for that, because, again, 
to my friend Mr. Neal--and I know that he has been very 
passionate about this issue on corporate inversions, and we 
share that. There certainly is a difference in my mind with a 
company that sets up 2,100 post office boxes in another country 
for the sole purpose of trying to avoid its tax liability; that 
is completely different than a board of directors answering to 
shareholders, making a legitimate business decision to move its 
corporate headquarters off of our shore into some other country 
because--something again that needs to be underscored to the 
American tax-paying public--our Tax Code places our American 
companies at a disadvantage. We had hearings in this great hall 
in other settings where--or other occasions where 
DaimlerChrysler is just that, DaimlerChrysler and a German 
company, because in part the disadvantage that our tax laws put 
them and their legitimate business decision to move to 
Stuttgart.
    So, along with that reform, what are the areas specifically 
that the Administration would point us to as most needing 
reform?
    Mr. SNOW. Well, there are several things that would come to 
mind. One would be the uneconomic limitations on the use of 
foreign tax credits. That is an area I think deserves to be 
looked at. I would also look at rules that have the effect of 
increasing the cost of U.S. companies marketing U.S.-produced 
products abroad or providing services abroad to foreign 
customers. These would be top of the line sort of things.
    I do want to go back to the point you made. It is not the 
Administration's view that every time a company goes offshore, 
that that is an abusive tax shelter. Clearly that is not the 
case. Sometimes companies go offshore because of the effects of 
our own Tax Code on them vis-a-vis the tax regime of 
competitors they have. The critical thing is every business has 
to remain competitive. So, I take your point very much.
    Mr. HULSHOF. This Committee--and my time is short. I will 
try to get this last question out before the gavel comes down. 
This Committee worked on a tax bill before that had corporate 
tax rate reductions. I know there are some--again, there is 
some dispute here on this side of the dais about whether that 
should be specifically for manufacturing. Then, of course, we 
have got this definition, what is manufacturing, or whether it 
should be more broad-based. Again, what view does the 
Administration have about the tax rates for corporate?
    Mr. SNOW. Well, I think there is a case to be made for 
going down that route to help make American companies more 
competitive. I think the case is much better if it is done 
across the board rather than targeted on particular industries. 
One problem with targeting particular industries is you are 
likely to find that a lot of people who weren't in those 
industries all of a sudden become new entrants for purposes of 
the Tax Code.
    Chairman THOMAS. The gentleman's time has expired.
    Mr. HULSHOF. Thank you, Mr. Chairman.
    Chairman THOMAS. Does the gentleman from California, Mr. 
Becerra, wish to inquire?
    Mr. BECERRA. Thank you, Mr. Chairman. Mr. Secretary, thank 
you very much for being here and certainly for your patience as 
we go through all these different questions.
    By the way, let me also thank you for the conversation we 
had prior to the commencement of the hearing with regard to the 
Individual Taxpayer Identification Numbers (ITINs) and the work 
that the Treasury will be doing to try to make sure that we 
affirm the sanctity of ITINs. Thank you very much for that.
    Something you said, Mr. Secretary, a while back; it has 
probably been about 30 to 45 minutes. You talked about your 
priorities. Congressman Lewis asked you about that, and I would 
like to key on that because I thought it was important.
    You mentioned the war on terror, the need to make sure the 
homeland is secure and economic security for Americans. Those 
are the three that I heard most. I would agree with you on 
those three, but I think going along with some of the questions 
that have been asked--and I would join with Congressman Tanner 
in his line of questioning that just concluded--I think a 
number of us are very concerned about the fiscal health not 
just of the Federal budget, but of the American economy. Any 
American who has a mortgage and owns a house or has taken out 
an auto loan to purchase a car or a personal loan to buy the 
new clothes washer, has to pay on that loan. It can be very 
expensive if you have a high interest rate. As I look at where 
we are today, according to your numbers, with a more than a 
$500 billion deficit for the fiscal year, and if we make these 
tax cuts that the President is proposing permanent, you would 
add another $2 trillion to the deficit over 10 years.
    I did some quick math because I think for most Americans, 
including my parents when I was trying to explain to them these 
things, they lose it when you are talking not just billions but 
trillions. So, I did some quick math here on the calculator. 
The cost to each and every American of a $2 trillion increase 
to the size of the debt, $2 trillion over 10 years in deficits 
would be $6,800 for each and every American man, woman, and 
child in this country.
    If we talk just about the $520 billion or so deficit that 
the Administration is predicting for 2004, that is $1,800 for 
every man, woman and child in America. That is a tax on every 
man, woman, and child in America.
    If you are talking just in terms of the households, because 
not every child obviously files an income tax return, but just 
the tax filers, and there are some 130 million tax filers of 
the 290 million or so Americans, that would be a tax of $3,900 
on every tax filing family in this country by this current 
fiscal year deficit.
    If we are going to add to it another $2 trillion and on top 
of that we have got the costs of Iraq and Afghanistan, we have 
got to deal with the AMT for middle-class Americans, who 
otherwise pay more in taxes, it is going to add up and add up.
    You add all that to the $4.4 trillion debt that we 
currently have, and that must be something on the order of 
$15,000 per every man, woman, and child in this country that we 
have to pay, or our children and grandchildren have to pay. It 
adds up.
    If it is going to grow over the next 10 years by some of 
the policies that the President is proposing to more than $6 
trillion, to about $6.5 trillion, I think a lot of us are 
wondering, how will be able to do what we need to do?
    Then a final comment I would make is that--and I am going 
to ask for your response--is that it seems that the President 
is trying to hold the line on certain spending, non-defense, 
non-homeland security spending, which means, for the most part, 
education, health, the environment, veterans' benefits, it 
seems like, for the fiscal year, we are going to save about $12 
billion.
    Now, if the math I did is correct and the information I got 
from the Brookings Institution is correct, the tax cut benefits 
in that same fiscal year, this coming fiscal year, for the 1 
percent richest Americans, just the 1 percent richest 
Americans, will be about four times greater than the cuts you 
will make in every education program, health care program, 
veterans program, senior program, and environmental program.
    Why would we want to go down a road where we continue to 
give such massive tax cuts to folks who are extremely wealthy? 
Many of them would be willing to sacrifice a little bit, along 
with our soldiers. Now I have to make cuts to the Even Start 
Family Literacy program, which your budget eliminates 
completely; the Eisenhower Math and Science programs, which 
would be killed completely as well; the Vocational and Adult 
Education programming, which we need for a lot of people who 
have been losing their jobs--that would be slashed by 35 
percent.
    You eliminate completely all the money for dislocated 
workers who lost their jobs as a result of the North American 
Free Trade Agreement. Give me a sense of how we can have some 
comfort and stability for the markets that this is the right 
way to go.
    Mr. SNOW. Thank you, Congressman. Let me just try and put 
that in perspective. First of all, the Administration has in 
this budget shown a path to reduce the deficit to below 2 
percent of GDP, which by historical standards is quite low.
    Mr. BECERRA. That is still about a quarter of a trillion 
dollars every year.
    Chairman THOMAS. The gentleman's time has expired, and the 
Chair notes the ability to ask a question until the red light 
comes on. That doesn't mean the Chair is going to indulge a 
verbal answer. The gentleman's question deserves to be answered 
and perhaps it might best be answered in written form.
    [The information follows:]

    The tax proposals included in the President's Budget, including the 
permanent extension of the Economic Growth and Tax Relief 
Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief 
Act of 2003 (JGTRRA), are important measures to insure economic growth 
and well-being. Faster economic growth is the best way to increase 
everyone's standard of living. With these proposals in place, over the 
longer term the ratio of federal receipts to GDP will be above historic 
norms. Longer-run deficits therefore result from the rapid growth in 
outlays rather than from insufficient revenues.
    The President's tax proposals will benefit taxpayers at all income 
levels, especially low-income taxpayers. Permanent extension of EGTRRA 
and JGTRRA will lower the share of individual income taxes paid by 
lower-income taxpayers and increase the share paid by high-income 
taxpayers. Conversely, failure to extend EGTRRA and JGTRRA would 
increase the share of individual income taxes paid by lower income tax 
payers.
                                 
    Mr. SNOW. I would just close with the Chairman's counsel 
there by saying that you--that the tax reductions being made 
permanent is about $980 billion, say $1 trillion, but the 
revenues to the Federal Government over that period are $28 
trillion. The GDP of the United States--this will comfort you a 
lot--is $150 trillion. So, we need to put these numbers in 
perspective.
    Mr. BECERRA. Thank you, Mr. Secretary.
    Chairman THOMAS. In other words, there is a difference 
between spending and investing. Does the gentleman from 
Florida, Mr. Foley, wish to inquire?
    Mr. FOLEY. Thank you very much, Mr. Chairman. I appreciate 
the Secretary's appearance today, and I do take some umbrage at 
some of the self-appointed judge and jury comments of the 
Minority party today challenging this President's credibility. 
It troubles me that we sat and looked at Khobar Towers and two 
embassy bombings, World Trade Center bombings, and we were all, 
some of the other side of the aisle saluting this President, 
the greatest President that ever lived, having lied to the 
American public, having dragged us through an impeachment 
battle, and never responding to the terrorists who were there 
gathering strength and aiming their weapons of mass destruction 
against us.
    I know some on this panel had a chance to meet Mr. Saddam 
Hussein. I had no interest in meeting him. He is a mass 
murderer. He is a demon. He killed over a million people, and 
for those to suggest somehow that this President has not acted 
appropriately in conducting this war is absolutely asinine. 
Charles Taylor removed from Liberia, Libya now working with the 
United States to disarm, Pakistan and India finally talking 
together; these are things that are achieved through the 
strength of this President.
    Talk about the economy. Yes, we inherited, I think, an 
economy spiraling out of control in 1999. Look at your 
statements prior to the 2000 election. Look at your statements, 
the declining value. I think most Americans recognize we were 
on the way down, not the way up.
    Job loss. People don't blame September 11th for job loss 
today?
    Let me tell you what tourism is like and has been like in 
Florida: 25-percent reduction in international arrivals to 
Orlando alone. That is waiters and waitresses, that is taxicab 
drivers, that is the entirety of an economy that has suffered 
because of September 11th.
    Now, some don't want to admit that that is still a 
hemorrhaging problem, but it is. I think this Administration 
has acted appropriately on so many fronts, and I would like to 
ask a question.
    There are some considerations in the bill on depreciation, 
reducing to a more reflective life of the asset. What are your 
thoughts on bringing a depreciation schedule to more properly--
I think you answered Mr. Weller on the computer situation; I am 
talking about interior improvements and things of that nature. 
As businesses use and expend, shouldn't we be reducing their 
value commensurate with their useful life?
    Mr. SNOW. Well, I think--Congressman, first let me thank 
you for those good comments, those good opening comments with 
which I would like to be associated. We forget sometimes where 
we have come from and the burdens that have been visited on 
this economy. When I talk to businesspeople around the world, 
they marvel that the American economy has been able to continue 
to move forward in the face of all the things you mentioned, 
absolutely marvel, and they wonder at it. How could it be? Of 
course, it is a tribute to the American people and their 
resourcefulness and their energy and their drive; it is a 
tribute to the Congress for having taken the actions you took; 
a tribute to the President for the leadership he provided.
    I was in--I will just tell you a little story along those 
lines. I was with a homebuilder in Charleston, West Virginia, 
last week, and he took me to the house site, the home site. He 
said, ``I stood here on September 12, 2001, and I thought, my 
gosh, will I ever be able to sell any of these homes? Will 
anybody have confidence in America? Will America spiral out of 
control?'' He then said, ``I will always be with this 
President, because he provided the leadership that the country 
needed at that most difficult of all times. That leadership 
reassured the Nation at a time that was critically important, 
and it didn't''--he said, ``It didn't just help us on the 
security front. It helped us in a critical way on the 
economy.''
    That is what you are talking about, absolutely. Sure, I 
think we should get the useful lives as reflected in the budget 
more in line with the wear-out rates on those assets. I agree 
with you.
    Mr. FOLEY. Thank you. What do you see the progress--
obviously, I think we are going to start seeing some job 
hirings. It usually lags. When the economy starts picking up, 
the market is reflective of more consumer confidence, and I 
would expect shortly jobs to start filling in, if you will.
    Mr. SNOW. Congressman, I think this is a unique situation 
we have got. That recession we had was, in the manufacturing 
sector, really very deep and widespread. Many, many businesses 
today are reluctant to start hiring until they are absolutely 
confident. That is why putting those taxes in on a permanent 
basis would be helpful.
    All the signs we see indicate that the labor markets are 
getting considerably stronger. Capital spending is way up. New 
orders are way up. The manufacturing sector is coming back. 
Exports are coming back. The life signs of this economy are all 
good, and that always leads to jobs. I am confident we will see 
a nice pickup in jobs in the months ahead.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from North Dakota wish to inquire, Mr. Pomeroy?
    Mr. POMEROY. I thank the Chairman. I found the remarks of 
the gentleman from Florida very interesting, and particularly 
the threat of the weapons of mass destruction reference that he 
uses. You might want to update your script. The Administration 
itself is calling for a commission to inquire as to how our 
intelligence could have been so dramatically, tragically 
incorrect on that one. That is for--that is for another----
    Mr. FOLEY. You feel they never existed?
    Mr. POMEROY. That is for another day. I do want to inquire 
of the Secretary as to the savings plan. I noted with from your 
statements that this is an issue close to your heart, and the 
people most affected are low--and middle-income savers, that is 
where we most need to focus. Those are your words, Mr. 
Secretary?
    Mr. SNOW. Yes.
    Mr. POMEROY. The savings proposal advanced repeals the tax 
deductible IRA. Now this has been a feature of the saving 
landscape for more than 20 years. There are more than 36 
million households with traditional IRAs. You repeal those from 
the Tax Code going forward.
    Another saver's incentive aimed at the modest and middle-
income bracket that this Committee has moved forward and passed 
into law is the saver's credit that, in particular for 
households under $50,000, produces a new and powerful savings 
incentive. It is only 2 years old. We already have been able to 
measure more than 3.5 million households responding to the 
saver's credit incentive. This also is repealed in the saver's 
proposal.
    Now, as I understand it, the saver's proposal does move 
into place these new LSAs and RSAs, and as they work, a family, 
for example, a family of four, could put $5,000 per individual 
into a tax-sheltered LSA account. Of course, then the RSA would 
go on top of that, and so a--for the mom and the dad, if they 
were both working, they could put an additional $5,000 per in 
those accounts.
    So, it appears to me, Mr. Secretary, that what you have 
moved forward is something that allows additional tax shelter 
for affluent households to tax shelter more than $30,000 of 
income each year. On the other hand, if you are talking about 
households that might be making $30,000, which is much more the 
case in North Dakota, they have lost the two savings vehicles 
that provide the most direct incentive for savings and have 
some proof in the marketplace. How do you explain that?
    Mr. SNOW. Well, I think, Congressman, that the savings 
opportunities for lower--and middle-income people clearly go up 
under these proposals. They are enhanced opportunities for 
savings as the complexity, the burdens, the restrictions that 
are associated with current savings vehicles are removed.
    Mr. POMEROY. Well, Mr. Secretary, I just would like to 
clarify your comments on those areas. Those are easily said 
things, it is too complex, it is too cumbersome. We have 36 
million traditional IRAs out there. In addition, this 3.5 
million that have already responded to the saver's credit is, I 
believe, a level of market receptivity that goes beyond what we 
might have anticipated. Indeed, what these two represent--a tax 
deductible IRA and a tax credit for savings--are powerful 
financial incentives to save among groups for whom the decision 
made with the discretionary dollar is hardest, because they 
don't have many discretionary dollars. So, you provide a 
powerful incentive for them to save.
    Now, you have said you have got all kinds of studies to 
show that this is going to increase the rate of savings at 
lower and modest income households. Are those public studies, 
sir?
    Mr. SNOW. I think those are Administration studies.
    Mr. POMEROY. Would you be content to release them to this 
Committee?
    Mr. SNOW. I think we would certainly be prepared to sit 
down and talk to you about your studies. They not only show 
what you just said, they also show that the total savings, the 
aggregate savings of the country would rise. That is the real 
focus here, the aggregate savings of the country, because----
    Mr. POMEROY. Well, Mr. Secretary, aggregate savings are 
achieved by the tax shelter so that affluent households can put 
$30,000 each year into these tax-sheltered accounts. If that is 
what are you after, that is one thing; but that is not 
advancing in any way the savings interests of modest-income and 
middle-income families struggling to save for their retirement, 
and I believe that is where we need to have our emphasis.
    Mr. SNOW. Congressman I would just close on this by saying 
that wealthy families have ample opportunities to save today. 
Where we need to improve the savings landscape is with lower 
income and middle-income families.
    Mr. POMEROY. Now on that one, just a quick follow-up, Mr. 
Chairman. You removed the caps on eligibility. So, would you be 
agreeable then to placing existing caps back on tax 
deductibility?
    Mr. SNOW. I think our proposals are properly structured as 
reflected in the budget.
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from Wisconsin, Mr. Ryan, wish to inquire?
    Mr. RYAN. Thank you, Mr. Chairman. Mr. Secretary, I want to 
ask you two questions, one on the permanence issue of tax 
policy and one, first, on the transportation letter that you 
and Secretary Mineta just sent to the Congress yesterday. This 
is a fairly significant letter that I think is going to receive 
a lot of attention here on Capitol Hill; and on the three 
principles you lay out here, I just want to ask you this.
    You say that if the transportation bill that is coming 
before Congress does not--does increase the gas tax, does have 
bonding authority put into it, or finances the transportation 
outside of the trust fund, are you saying that the President 
will veto that legislation if it breaks any of those 
principles?
    Also, just a second follow-up to that, you have the number 
$256 billion in here for the 6-year transportation trust fund 
bill. If this bill goes over that amount, are you also saying 
that the President is going to veto that legislation?
    [The information follows:]

                                    The Secretary of Transportation
                                               Washington, DC 20590
                                                   February 2, 2004
The Honorable William M. Thomas
Chairman, Committee on Ways & Means
U.S. House of Representatives
Washington, DC 20515

    Dear Chairman Thomas:

    As you continue work on the surface transportation reauthorization 
bill, we would like to discuss key elements of the Administration's 
proposal and key principles that we urge you to consider.
    The Administration proposal, ``Safe, Accountable, Flexible and 
Efficient Transportation Equity Act'' (SAFETEA), as modified by the 
President's FY 2005 Budget, contains historically high levels of 
guaranteed investment for highways and transit, providing $256 billion 
over 6 years--a $45 billion, or 21% increase over TEA-21. This $9 
billion increase above the original SAFETEA proposal reflects both 
revised Treasury estimates of Highway Trust Fund receipts, and the 
Administration's recognition of the higher levels enacted in the FY 
2004 Omnibus Appropriations Act. At this funding level, all revenues 
paid by highway users. would be spent on transportation infrastructure 
and safety programs, and the balances of the Highway Account of the 
Highway Trust Fund would be spent down for additional transportation 
infrastructure investment to the maximum extent possible.
    SAFETEA strikes the appropriate balance between investment in our 
infrastructure and the need for spending discipline, consistent with 
current law. In developing our funding level of $256 billion, the 
Administration adhered to three important principles:

    1.  Transportation infrastructure spending should not rely on an 
increase in the gas tax or other Federal taxes.
    2.  Transportation infrastructure spending should not be funded 
through bonding or other mechanisms that conceal the true cost to 
federal taxpayers. Private activity bonds, like those allowed for in 
the Administration's bill, are appropriate because there is no Federal 
involvement or liability. SAFETEA would allow States and municipalities 
to issue up to $15 billion in tax exempt bonds for transportation 
facilities that are privately developed and operated. The only Federal 
cost involved is the exclusion from Federal income tax of the interest 
on these bonds. Tax credit bonds, bonds issued by special purpose 
entities, and earmarked Treasury bonds all burden the Federal taxpayer 
and are, therefore, unacceptable.
    3.  Highway spending should be financed from the Highway Trust 
Fund, not the General Fund of the Treasury. All spending for highways 
should be authorized and appropriated from the Trust Fund and derived 
from taxes imposed on highway use, thereby maintaining the link between 
Trust Fund revenues and highway spending.

    If a surface transportation reauthorization bill that breached any 
of these three principles were presented to the President, his senior 
advisors would recommend that he veto the bill.
    We look forward to working with you to ensure timely enactment of a 
fiscally responsible 6-year authorization bill. Our States, counties, 
and cities are depending on the certainty of a multi-year authorization 
bill to plan properly for improvements to their surface transportation 
infrastructure. Thank you for your consideration.
            Sincerely,
                                                   Norman Y. Mineta
                                        Secretary of Transportation

                                                          John Snow
                                          Secretary of the Treasury

                                 

    Mr. SNOW. No, we are saying that--as reflected in that 
penultimate paragraph on the second page, that if any of the 
three principles are breached, the President's senior advisors 
would recommend a veto.
    Mr. RYAN. Okay. So, you will recommend a veto. You can't 
say whether or not the President himself will decide whether or 
not. Is that what you are saying?
    Mr. SNOW. No, I can't speak for the President. This letter 
was----
    Mr. RYAN. I am just trying to understand some of the 
language in this letter. Is the $256 billion within that 
recommendation?
    Mr. SNOW. Well, the $256 billion is within the 
recommendation and the principles.
    Mr. RYAN. Okay.
    Mr. SNOW. So, the principles are the framework.
    Mr. RYAN. It is the principles and the $256 billion, okay. 
Last point, because I know our time is moving around here: you 
have heard all of these Members talking about making the tax 
cuts permanent. Let's just examine what the facts are in this 
case here.
    We are not talking about the making the tax cuts permanent; 
we are talking about preventing massive tax increases. What 
will happen is, if these tax cuts expire, they will increase. 
So, the questions here are whether or not we are going to 
increase taxes on the American workers and whether or not we 
are going to take the marriage penalty from $1,000 and cut it 
in half to $500.
    The child tax credit, whether or not we are going to take 
the marriage penalty which we have eliminated, put it back into 
place; whether or not we are going to raise income tax rates on 
every worker who pays income taxes or not; whether or not we 
are going to take the small business tax rate, which is now 
down to the level of the corporate tax rate, and make small 
businesses again pay higher tax rates than small businesses; 
whether or not we are going to cut 401(k)s, IRAs, stop making 
pensions portable; whether or not we are going to raise taxes 
on capital, like dividends and capital gains.
    So, I think it is important that we put this in 
perspective, that what we are talking about here with this tax 
bill, which is clearly a source of the recovery we are 
experiencing, is whether or not we are going to increase taxes 
massively on all sectors of the American economy--the 
investment sector of our economy, the capital sector, or the 
working sector, the labor sector. So, my quick question is, 
have you established an economic and analytical link between 
the recovery we are now undergoing and the tax cuts that took 
place in July?
    Mr. SNOW. Absolutely.
    Mr. RYAN. Could you elaborate on that, please?
    Mr. SNOW. The clear, causal effect we estimate that those 
tax reductions have raised GDP by a few percentage points and 
the failure to have enacted these tax proposals would have 
increased unemployment by millions of jobs. The failure to 
proceed, as you suggest, would result in about 111 million 
taxpayers having an average tax increase of about $1,500. It 
would mean 5 million individuals and families, who currently 
have no income tax liability, having a tax liability. A family 
of four earning $40,000 would have a tax increase of $2,000.
    I could go on and on, but the consequences would be 
devastating for the economy, and we would never see--in my 
view, we would never see that $19.5 trillion economy that we 
had in our budget forecast out there in 2014, and we would 
never see the $150 trillion or so of GDP over those intervening 
years if--if the terrible mistake of failing to act to make 
these permanent were to occur, because this is a tax increase.
    Mr. RYAN. Well, Congressman Hulshof and I were the authors 
of a bill to make those tax cuts permanent or to prevent that 
tax increase, and we will again be introducing that legislation 
to do so. We look forward to working with you on it.
    Mr. SNOW. Thank you very much, Congressman.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from Texas, Mr. Sandlin, wish to inquire?
    Mr. SANDLIN. Yes. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary, for coming today. I want to ask a few little 
questions building upon this idea of permanency. If tax cuts 
were made permanent in 2011, the 1 percent of households with 
the highest income, it looks like, will receive about one-third 
of the total benefits of the cut. Would that be correct?
    Mr. SNOW. Congressman, I have--I will have to check and 
see. I am not sure. What I am sure of is that the top 
taxpayers, the top 1 percent, 2 percent, 5 percent, pay more of 
the national income tax bill after this tax bill than they did 
before.
    Mr. SANDLIN. Certainly, because they have more money. Now 
that would amount to an average tax cut of about $58,220 for 
filers in the top 1 percent in 2011; is that correct?
    Mr. SNOW. I would have to confirm that. I don't have that 
in front of me.
    Mr. SANDLIN. Okay. Then in the middle, folks that are in 
the statistical middle of the middle class, they receive about 
$655 per year; is that correct?
    Mr. SNOW. Congressman, again, I would have to go back and 
check those numbers.
    Mr. SANDLIN. If that was true, then it seems that we are 
getting our priorities a little bit mixed up; would you agree?
    Mr. SNOW. Congressman, the statistics I have--and I will be 
happy to share them with you and the Committee--indicate that 
the tax, the proportion of the total income taxes paid by top-
income people, the top 2 percent, 5 percent, 10 percent, rises, 
is higher than it was before the tax reductions were put into 
effect.
    Mr. SANDLIN. Okay.
    Mr. SNOW. So, they are paying a higher share of the burden.
    Mr. SANDLIN. Okay. Those proportions and those averages and 
those burdens are all charming answers to a different question. 
The point I am making is that the folks in the top 1 percent 
are going to get $58,220 a year, and the folks in the middle 
are going to get $665 a year; and we would could reverse that 
and make sure the folks in the middle have more of the tax cut, 
regardless of any proportions or burdens or other fancy average 
that is come up with by the Treasury.
    Speaking of those priorities, now the budget does show $936 
billion for permanent extensionary cuts.
    Now let me ask you some things that we have not talked 
about today. I notice that the Administration has proposed $3.6 
billion in funding for first responders to help local agencies 
respond to terrorist attacks and things of that nature; is that 
correct?
    Mr. SNOW. If you say so. If it is in the budget, then I 
would agree.
    Mr. SANDLIN. All right. That would be an 18-percent cut to 
our first responders, the folks that are on the frontlines of 
responding to terrorist attacks. That would be an 18-percent 
cut.
    Now we move on to the Federal Aviation Administration, 
where you propose $2.5 billion in funding for the air traffic 
control system. Would that sound about right to you?
    Mr. SNOW. Congressman, if it is in the budget, if you are 
reading it, I agree with it.
    Mr. SANDLIN. All right. So, then you would agree that would 
be a 14-percent cut for our air traffic control system.
    We have got $19.1 billion for the U.S. Department of 
Agriculture's discretionary spending programs, things like food 
safety, which is very hot right now, forest management, 
conservation, rural development programs; and that would be an 
8-percent cut, which you would agree with because it is in the 
budget.
    Then, as has been brought out today, I notice that this 
entire budget has not one thin dime in it for anything on the 
war in Afghanistan or the war in Iraq, not a penny; isn't that 
correct?
    Mr. SNOW. Yes. However, we have indicated there may well be 
a supplemental.
    Mr. SANDLIN. Well, there may be a supplemental, that is 
right, which means this entire budget is a sham. If we know we 
are going to spend money and we know we have a budget, it ought 
to be in the budget, not coming up with some interim thing that 
is not correct, smoke and mirrors, to say we are going to have 
another budget later.
    The budget needs to reflect exactly what the government is 
going to spend. We need to be able to compare the revenues and 
what we are going to spend, and this thing is a sham.
    Mr. SNOW. I think the sham would be if we put in numbers we 
didn't know.
    Mr. SANDLIN. Do you think we are going to spend anything in 
the war? Can you anticipate what we will spend? Don't you have 
a request of about $50 billion right now for the war in Iraq 
and Afghanistan, or is that incorrect?
    Mr. SNOW. Congressman, we will bring forward the numbers 
once we have a handle on them.
    Mr. SANDLIN. Don't you have a proposal for about----
    Mr. SNOW. I don't know what that number would be.
    Mr. SANDLIN. What did you spend last time? What was the 
last request, $87 billion? Don't you know about what it is 
going to be? You know that there is some amount of money that 
is going to be required, and there is nothing in there.
    Mr. SNOW. No. The circumstances there are changing.
    Mr. SANDLIN. Oh, you think you are going to get all our 
allies to chip in and pay for this like they have done in the 
past?
    Mr. SNOW. I am saying it is a fluid situation. The 
environment is changing, and we will know more about it when we 
submit that supplemental, if in fact we do.
    Mr. SANDLIN. Well, let me ask about education then. We have 
got $13.3 billion in Title 1, which is $7.2 billion below the 
authorized amount. I see my time is out, but I would just like 
to make--just in closing make the point that Pell grants are 
cut, the Community Orientated Policing Services program is 
reduced by 83 percent, almost eliminating it, and certainly we 
have lost manufacturing jobs.
    I would like to give you this chart at the end. We talked 
little about jobs, showing Nevada is the only State in the 
whole Nation since January 2001 with an increase in 
manufacturing jobs. It just seems like when you said we are on 
a path to substantial economic growth, it was just the top 1 
percent, no teachers, no veterans, no workers, no one else. 
Thank you.
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from Arizona, Mr. Hayworth, wish to inquire?
    Mr. HAYWORTH. Yes, thank you, Mr. Chairman. I appreciate 
the time. I appreciate my friend from Texas for offering a 
really stark relief about the roles that we play here in the 
Congress of the United States, because from that side of the 
aisle we have heard--at least what I have heard so much of is 
great objections to money being spent. Now we hear some 
different areas where there are alleged deficiencies, and we 
will debate just what effectiveness can mean in that regard.
    We have also heard again the shopworn observation that 
anyone who succeeds is somehow not entitled to tax relief. That 
would include scores of small businesspeople who create the 
jobs that fuel the economy.
    That is a debate for another day and we will go ahead and 
concede that many on the other side of the aisle think there is 
no higher and better use of the people's money than to send it 
here to Washington, D.C., to be utilized by the government. 
That is--that could be a legitimate view in some people's 
minds. However, those of us on the other side believe that 
people are empowered when they have their own money to save, 
spend, and invest.
    In the State of the Union message, the President took a 
look at another area of great concern to Americans, and that is 
health care. Mr. Secretary, by some estimates, over 40 million 
Americans currently are without health insurance, and many say 
they don't have health insurance because it is too expensive. 
By your estimates, how many Americans would be able to obtain 
health insurance as a result of the proposal we have heard 
about from the President for a refundable tax credit for health 
insurance?
    Mr. SNOW. Congressman, we have varying estimates on that, 
but I think it would reduce the number of uninsured by 4 to 6 
million.
    Mr. HAYWORTH. Four to 6 million?
    Mr. SNOW. Of the 40--I think that is right. I will correct 
the record if it is wrong, but that is my recollection.
    Mr. HAYWORTH. Something else that was mentioned by the 
President and really part of legislation we passed, as part of 
Medicare reform again, is a proactive stance to be taken by the 
American people in terms of saving their own funds, tax free, 
the HSA proposal. As we move to see that be implemented, what 
would be the number of uninsured who would be able to get 
insurance through HSAs through their proactive action?
    Mr. SNOW. I have actually heard higher numbers on that. 
That is a terrific program. It makes people better consumers of 
health care. It helps to drive down health care costs as they 
become better consumers, it also helps them to buildup, 
accumulate some wealth that they can use for health care. So, 
it reduces the number of uninsured, but even more importantly, 
in some ways it just changes the dynamics of health care 
delivery.
    Mr. HAYWORTH. This again points out--remembering the 
comments of my friend from Texas, this points out another 
fundamental difference. When we allow people to have their own 
resources, to spend their own dollars rather than looking to a 
government bureaucracy, a Washington bureaucracy and a command 
and control model.
    I think the people of the Fifth District of Arizona are 
pretty smart. They are going to make decisions based on what is 
good for them and their families, and if they have those 
resources tax free, that can make all the difference in the 
world; and that, again, is another part of this debate.
    Good people can differ, but I think we have profound 
promise at our doorstep in terms of HSAs and what that can 
engender for the American people.
    So, we look forward to working with you and the 
Administration to again put citizens back in charge of their 
health care, rather than looking at command and control. I 
thank the Secretary and thank the Chairman.
    Mr. SNOW. It won't surprise you that I am in fundamental 
agreement. The debate really is on over reliance on markets in 
choice and competition versus government provision of health 
care. I think the evidence is pretty clear that as we move more 
and more into a choice competition and market-based health care 
system, we will get better coverage and better health care and 
better results.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from Michigan, Mr. Camp, wish to inquire?
    Mr. CAMP. Thank you Mr. Chairman. Mr. Secretary, thank you 
for being here. I just want to comment on a portion of the 
President's budget and that is on the adoption tax credit. 
Thank you for your effort there. As a Co-Chairman of the 
Congressional Coalition on Adoption, I think making an adoption 
credit available to more people will be beneficial.
    I also want to mention, I do think that the lower taxes and 
lower tax burden have created a pro-growth economic 
environment, and I think particularly driving that has been the 
50-percent expensing for small businesses. The lower capital 
gains have helped with that growth. Obviously, the lower income 
tax marginal rates have helped as well. In Michigan, though, we 
have seen a great deal of loss of manufacturing jobs, most 
recently with the announcement of Electrolux, which is located 
in my district, taking 2,700 jobs in a community of 8,000 
people to Mexico.
    I appreciate the increase in the trade adjustment 
assistance in the President's budget, which I think will be 
helpful to those employees, but I wondered, to what extent do 
you see these policies affecting the manufacturing sector? Some 
of the recent information we have gotten shows that that does 
continue to grow after 3 years of contracting. Particularly in 
a State like Michigan we are very hard hit.
    I wonder if you could just comment on the manufacturing 
sector and how you see the President's policies affecting that 
in a positive way.
    Mr. SNOW. Well, first of all, Congressman, let me say the 
manufacturing sector is a vital part of this economy. I grew up 
in a part of the world where it was--Ohio and Michigan and so 
on, where you saw manufacturing everywhere.
    It remains a vital part of our economy. We sometimes lose 
sight of the fact that manufacturing activity in this country 
still accounts for a big part of the economy. It is about $1.6 
trillion. If we only had a manufacturing economy and nothing 
else, we would be the fifth or sixth largest economy in the 
world. So, our manufacturing economy is 50 percent larger than 
the whole economy of China, plus.
    It has been a difficult time, and this recession that 
started in manufacturing back in the summer of 2000 hit with a 
particular harshness and brutality. It has been a brutal time 
for the manufacturing sector. I am aware of that.
    It is beginning to come back. That is the good news, it is 
beginning to come back. I unfortunately can't say that all the 
jobs will come back but, it is beginning to show some good 
progress.
    Keeping the economy strong is absolutely the centerpiece. 
If we don't have a strong economy, then our manufacturers can't 
do well. We also have to address this issue of the fairness of 
the international tax system on manufacturers and producers in 
the United States, something that we have talked about before.
    We also, it seems to me, have to be focused on getting the 
rest of the world growing faster. One reason our manufacturing 
sector has suffered is growth rates in Japan and in Europe have 
been so low, anemic growth rates, which means that our 
manufacturers don't have the market.
    So, there is a whole collection of things we need to be 
doing--including I would say--tort reform, continuing to focus 
on lower-cost health care, and an energy policy that makes 
reliable energy available.
    Mr. CAMP. Thank you. Just shifting gears a little bit to 
the LSAs and RSAs, it seems to me that if a small 
businessowner, particularly, can save significant amounts 
through those two individual accounts that that might make them 
less likely to maintain an employer-sponsored pension plan for 
their employees, such as a 401(k).
    Do you believe that those accounts may in some unintended 
way undermine or significantly diminish the employer sponsored 
accounts?
    Mr. SNOW. Congressman, that has been a subject that we have 
examined, have looked at, looked at hard actually, because we 
have heard from a number of people on this subject. In our 
view, the LSAs will not have that effect.
    We had talked about earlier--the Chairman knows--an 
eligibility amount of $7,500, and we reduced it to $5,000. 
Reducing it by that amount, I think, tends to deal with the 
issue you were raising and the Chairman raised with us, too, 
and mitigates that effect. I can't say we eliminate it 
entirely, but we make it far less of a problem.
    Mr. CAMP. All right. Thank you very much.
    Chairman THOMAS. I thank the gentleman. Does the 
gentlewoman from Ohio, Ms. Tubbs Jones, wish to inquire?
    Ms. TUBBS JONES. I do, Mr. Chairman. Thank you very much. 
Secretary Snow, how are you, sir?
    Mr. SNOW. Good, thank you.
    Ms. TUBBS JONES. The last time we met we were talking about 
a budget, and I asked you why there was no inclusion of dollars 
in the budget for the war on Iraq. If I recall your answer, it 
was that the President doesn't want to go to war and that is 
why there is no money in the budget for Iraq.
    Now we have been to war. We are still at war. Why is there 
no money in the budget for Iraq, and we are over there?
    Mr. SNOW. Well, last time when you asked me the question, I 
gave you the best answer I could, which was I don't know what 
we are going to be doing in Iraq.
    Ms. TUBBS JONES. Let me get the script, and I will bring it 
to you. Regardless of that answer, the question is, why is 
there no inclusion of Iraq in this budget?
    Mr. SNOW. The Administration has indicated that in all 
likelihood there will be a supplemental at some point, but only 
when we have a better handle on what would be required in that 
supplemental.
    Ms. TUBBS JONES. So, in fact, the budget that you have 
presented, or that the Administration has presented, for this 
upcoming year does not fairly reflect what you anticipated the 
cost to be for our country?
    Mr. SNOW. It reflects it as well as we can reflect it at 
this time.
    Ms. TUBBS JONES. Now, would you, as a businessman, present 
a budget like this to your board and they be accepting of it, 
knowing that you know there are going to be expenses in Iraq, 
sir?
    Mr. SNOW. Congresswoman, if there was an expense that I 
thought was coming, but I didn't know what it was, I would tell 
the board just that.
    Ms. TUBBS JONES. Just wait on you, right?
    Mr. SNOW. Which is what we are doing with the Congress.
    Ms. TUBBS JONES. Okay. Let me ask you a few more questions. 
When you put in place the tax cut that the President proposed 
and that we are discussing, it was anticipated that so many 
jobs would be created by that tax cut. Do you recall what that 
number was, sir?
    Mr. SNOW. Yes, I think I said there would be--we 
anticipated something like 500,000 jobs after the tax cuts were 
put into effect. We fell short of that.
    Ms. TUBBS JONES. The 5,000 jobs per----
    Mr. SNOW. Well, it was in the period subsequent to the tax 
cut's being put into effect in 2003. We fell short of that, but 
there were 250,000----
    Ms. TUBBS JONES. Wait a minute. Back up. You said that 
there were 510,00 jobs per month that would be created by the 
tax cut; did you not, sir?
    Mr. SNOW. Oh, no. No, no, no, no. The private----
    Ms. TUBBS JONES. What was the number? What is the number?
    Mr. SNOW. Well, as I say, I think we foresaw something on 
the order of, annualized, a million jobs and in our numbers--I 
would have to go back and check--and we got half a year of it. 
So, 500,000 would be a rough estimate, and we got half of that. 
Of course, it takes a while for the full effect of the tax plan 
to take effect. The private forecasters are now saying that we 
will have something like 2 million jobs created.
    Ms. TUBBS JONES. No, actually the private forecasters said 
500--excuse me, 306,000 a month. That was--the Council of 
Economic Advisers said 306,000 a month; and we are nowhere near 
that, are we, sir?
    Mr. SNOW. I don't recall that number. I do know----
    Ms. TUBBS JONES. Well, here. It is on a piece of paper. I 
will let you read it later. Let me go on and ask you another 
question then, sir.
    Mr. SNOW. Okay.
    Ms. TUBBS JONES. Of this year's $521 billion deficit, the 
tax cuts amount to $272 billion; is that a correct statement, 
sir?
    Mr. SNOW. I think that is our budget number, yes.
    Ms. TUBBS JONES. In 2009, when the Administration projects 
that it will have cut the deficit in half to $239 billion, the 
tax cut extension it demanded yesterday will cost us $183 
billion. Is that correct, sir?
    Mr. SNOW. Congresswoman, I don't have the numbers there. If 
you are citing from our budget, I will agree with our budget.
    Ms. TUBBS JONES. Well, here we go again. The last time it 
was--you are the Secretary of the Treasury; is that correct, 
sir?
    Mr. SNOW. I don't have the budget in front of me.
    Ms. TUBBS JONES. You came before a congressional hearing, 
Committee on Ways and Means, and you should have had it in 
front of you so you could answer some of the questions.
    Mr. SNOW. We do have the budget, and I will tell you. Here, 
let's take a look at the budget.
    Ms. TUBBS JONES. Let me go to another point. You said 
earlier, Mr. Snow, that you are estimating that under the 
health service--HSAs that we will have an additional 4 billion 
or 15 billion--excuse me, 4 billion persons that will have 
health care available to them with the HSAs. Is that what you 
said, sir?
    Mr. SNOW. Four billion, no.
    Ms. TUBBS JONES. I said 4 million, sir. I didn't say 4 
billion; I said 4 million.
    Mr. SNOW. That is our estimate, and I said I would certify 
that for the record, what our estimate is.
    [The information follows:]

    There may have been some confusion during testimony over the 
specific health proposals being discussed and the estimates for 
coverage relative to them. The proposed Health Insurance Tax Credit is 
designed to make health insurance more affordable for low--and 
moderate-income individuals and families. We estimate that between four 
and five million currently uninsured individuals will use this credit 
to help them purchase health insurance coverage.
    With regard to Health Savings Accounts (HSAs) that are already part 
of current law, the President has proposed a new above-the-line 
deduction for high deductible plan premiums that could be used in 
conjunction with HSAs. The principal purpose of this proposal is to 
slow the rapid increase in health care expenditures by encouraging 
individuals to be more cost conscious in their day-to-day health care 
decisions and to help level the playingfield between insurance 
purchased in the employer and individual markets. Even so, the combined 
proposals are also meant to encourage uninsured individuals to obtain 
health insurance coverage, although the extent of that additional 
coverage cannot be estimated with a specific degree of accuracy at this 
time.
    In addition to tax incentives for the purchase of health insurance, 
the President's budget includes other proposals, such as Associated 
Health Plans (AHPs) and provisions related to Medicaid and SCHIP, which 
will further reduce the number of uninsured individuals.

                                 

    Ms. TUBBS JONES. Under the tax credit there would be some 
additional millions.
    Mr. SNOW. There would be some additional.
    Ms. TUBBS JONES. Well, maybe it was 4 billion in total for 
both of the programs. I believe I made a note. Under your 
budget, the HSAs is estimated to cost $25 billion and the tax 
credit $16 billion.
    Mr. SNOW. Over the life of the budget, through 14 years, I 
think. Is it?
    Ms. TUBBS JONES. I don't believe that is what you said, 
sir. If you do the numbers or do some addition and 
subtraction--can I finish? Or if I can't, Mr. Chairman, Mr. 
Secretary, I am going to have some other questions for you I 
would like to submit to you in writing, because the people from 
Ohio who are out of jobs are looking for your idea of how we 
are really going to get jobs back in this country.
    Mr. SNOW. Congresswoman, we are committed to getting jobs 
back. I think the growth path that the economy is on right now 
is the surest way to produce those jobs.
    Ms. TUBBS JONES. They haven't so far.
    Mr. SNOW. Well, they have begun to and I think we will see 
many more jobs created in the year ahead.
    Ms. TUBBS JONES. Thank you, Mr. Secretary. Thank you, Mr. 
Chairman.
    Chairman THOMAS. The gentlewoman's time has expired. Does 
the gentleman from Florida, Mr. Shaw, wish to inquire?
    Mr. SHAW. Thank you, Mr. Secretary. I compliment you for 
the thick skin that you have developed. I know it is not easy 
to be sitting there for several hours answering questions from 
Members and particularly Members of the other party.
    I would like to go back, and I know my colleague, Mr. 
Matsui, questioned you with regard to page 5 of your prepared 
statement regarding Social Security. I complimented you for 
including in your statement reference to the young people.
    This Committee, and I as Chair of the Subcommittee on 
Social Security, have been holding hearings on college 
campuses. We have gone to the University of Missouri and then 
just a week ago we went down to Boca Raton to Florida Atlantic 
University. All the time, I am concerned that there seems to be 
apathy among our young people; and the young people should be 
the ones that are really charged and most involved in this 
debate. You recognized this in your speech, and the President 
has recognized this.
    Young people coming through the system today will pay more 
in than their mothers and fathers, and the program is not near 
as safe as it was. What we used to have, when it was first 
created, 40 workers per retiree, now has dwindled down to 
three-point-some, and before long it will be two-point-some. 
Beginning about 12, 14 years from now we are going to see that 
we don't have enough money coming in to pay the benefits. We 
are going to have to find the money to pay off the Treasury 
bills unless Congress acts now.
    I know you have championed, as the President has, 
individual accounts. However, there is one thing that does 
concern me, that I think we need to be sure the record is quite 
clear on.
    I know Mr. Matsui used the word ``privatization.'' There is 
no one that is responsible, that I know of, that is saying that 
we are going to privatize Social Security. The Social Security 
Administration is going to stay in place. The Social Security 
Administration is going to be the one that is responsible for 
paying out the benefits, and that is where the checks are going 
to come from, and we are going to have to continue to pay money 
into the Social Security Administration in order to keep 
afloat.
    I do--and connecting this to the budgetary problems, when 
we start putting money, if we do it directly from the Treasury, 
putting money into the IRAs, that money, those accounts, will 
be there and they will grow and their growth, as well as their 
very existence if the beneficiary lives to retirement. Under 
all the plans that I am aware of, that money, or the value of 
that individual account will then go back to the Social 
Security Administration to help pay benefits. This is an 
important thing, and I think we need to start looking at it 
right now.
    What effect is that going to have on the Federal budget? Do 
you have to call it an outlay and treat it as an expenditure 
when it is money that you are actually investing in the future 
of the Social Security system and in all likelihood will come 
back to the Social Security Administration?
    I think the Federal budget--I have been concerned for many 
years--isn't really an accurate snapshot of where we are or 
where we are going because it is strictly on a cash basis.
    Another example which I think is somewhat outrageous is, if 
we buy a Federal building or build a Federal building, the 
entire cost of that building goes out in the budget as if it 
were paying rent instead of being able to capitalize it.
    We need to start thinking about capital budgeting in some 
way, as you did in the private sector; and I think all of us, 
all of us do that have had any experience in business. Would 
you like to comment on some of that?
    Mr. SNOW. Yes, yes, I will. I would, Congressman, begin 
with complimenting you for your role in calling to the 
attention of the American public the issue we confront.
    Somebody observed that the demographics is destiny. What we 
are dealing with here is the immutable laws of demographics. As 
the baby boomers retire, we are going to find in just a few 
years--just around the corner we are going to find that the 
number of workers paying in, the ratio of workers paying in is 
going to decline quite remarkably compared to the people 
receiving benefits. That fundamental equation is what is 
driving the results here.
    You are absolutely right. Nobody is talking about 
privatization. What we are talking about is some private 
individual accounts to supplement the Social Security system. 
Social Security, as you have pointed out many times, is a 
sacred commitment, and violating that commitment is 
unthinkable. The system is not on a financially sustainable 
basis at the present time.
    That is why the President made that an issue in his 
campaign 4 years ago. It is why he called for the national 
commission. It is why he has proposed these accounts. Due to 
the President's efforts and people like you, we are getting 
that national dialogue, which will point at some point to the 
resolution on capital budgeting.
    I agree with you, we need to move in the direction of 
capital budgets because our current budgets don't properly 
reflect the real financial conditions for the reasons you 
articulated. I very much agree with those sentiments.
    Mr. SHAW. Thank you, Mr. Secretary. My time has expired, 
but I just want to close by saying we have to work together to 
give the young people of this country a wake-up call as to what 
is in store for them by a Congress that refuses to act on their 
behalf.
    Chairman THOMAS. We thank the Chairman of the Subcommittee 
on Social Security. Mr. Secretary, on behalf of the Committee, 
I want to thank you for allowing every Member who wished to 
inquire the ability to inquire. It doesn't always happen, and 
we are very appreciative. Without any further comments, the 
hearing stands adjourned.
    [Whereupon, at 4:47 p.m., the hearing was adjourned.]
    [Additional questions submitted by Ms. Tubbs Jones to the 
Honorable John Snow, and the response follows:]

                                               Washington DC, 20515
                                                   February 5, 2004
The Honorable John W. Snow
Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Avenue, N.E.
Washington, DC 20220

    Dear Secretary Snow:

    Thank you for your recent testimony before the Ways and Means 
Committee on President George W. Bush's Fiscal Year 2005 budget. As I 
mentioned during the Committee Hearing, I am respectfully seeking 
information related to the Administration's estimates of participation 
in both the proposed Health Insurance Tax Credit Program, and the new 
Health Savings Accounts (HSAs).
    I understand that the Department of Treasury is responsible for 
calculating the cost or revenue estimates for these two programs. In 
calculating these estimates, assumptions are made with respect to the 
number of taxpayers projected to participate in the programs, and the 
coverage status of those taxpayers both before and after enrolling in 
the particular program. Other assumptions are also made. Accordingly, I 
would like to know the following projections for the specified 
programs, all of which I believe you have calculated in order to derive 
your cost estimates.

    1.  Relative to the proposed Health Insurance Tax Credit program, 
please provide your projections of the number of taxpayers who will 
claim the refundable tax credit:

      A.  The number of taxpayers anticipated to receive the full tax 
credit (e.g., individuals whose incomes are under $15,000 and families 
whose incomes are under $25,000).
      B.  The number of taxpayers to receive a partial tax credit 
(e.g., those with incomes above the levels specified in 1 a).
      C.  The number of taxpayers who are projected use the 90 percent 
premium cap option instead of the dollar limit.
      D.  Please provide an estimate of the number of taxpayers 
claiming the tax credit who were previously uninsured.
      E.  Of the previously insured in (1c), how many taxpayers 
claiming the credit have previously participated in an employer-
provided program, and how many individuals have participated in public 
programs such as the Children's Health Insurance Program and Medicaid?

    2.  I am also requesting the following information from your 
estimate of the impact of Health Savings Accounts on the budget.

      A.  How many individuals are anticipated to establish tax-
preferred HSAs as enacted in House Resolution 1?
      B.  Of the number cited in (2a), how many individuals have been 
previously uninsured, and what is the expected income distribution of 
participants?
      C.  Please provide the number of individuals projected to use the 
deduction for high-deductible policies as proposed in the President's 
budget.
      D.  Of the number cited in (2c), how many individuals have been 
previously uninsured?
      E.  What is the average tax benefit or savings for those who 
establish HSAs?
      F.  What amount of Hospital Insurance payroll tax revenue and 
Social Security payroll tax revenue is projected to be lost as a result 
of HSAs?

    I would appreciate a response to the questions above prior to the 
Ways and Means Hearing scheduled for Wednesday, February 11, 2004.
    Please contact Mr. Brian Gage or Ms. Shashrina Thomas of my staff 
at (202) 225-7032 by Tuesday, February 10, 2004, or by facsimile at 
(202) 225-1339.
    I look forward to working with you throughout the duration of the 
second session of the 108th Congress, and thank you for your attention 
to this matter.
            Sincerely,
                                              Stephanie Tubbs Jones
                                                 Member of Congress

                                 

                                    U.S. Department of the Treasury
                                               Washington, DC 20220
                                                     April 13, 2004
The Honorable Stephanie Tubbs Jones
U.S. House of Representatives
Washington, DC 20515

    Dear Ms. Tubbs Jones:

    I am writing in response to your letter to Secretary Snow 
requesting information related to the Health Insurance Tax Credit 
proposed in the President's Budget and the new Health Savings Accounts 
(HSAs). I apologize for the delay in responding to your letter.
    The proposed Health Insurance Tax Credit is designed to make health 
insurance more affordable for low--and moderate-income individuals and 
families. You requested information about participation in this credit. 
We estimate that between four and five million currently uninsured 
individuals will use this credit to help them purchase health insurance 
coverage.
    You also requested information about HSAs, which, as you noted, are 
already part of current law. The President's new proposal for an above-
the-line deduction for high deductible plan premiums could be used in 
conjunction with HSAs. The principal purpose of this proposal is to 
slow the rapid increase in health care expenditures by encouraging 
individuals to be more cost consciousness in their day-to-day health 
care decisions and to help level the playingfield between insurance 
purchased in the employer and individual markets. Even so, the combined 
proposals are also likely to encourage some uninsured individuals to 
obtain health insurance coverage, although the extent of that 
additional coverage cannot be estimated with any degree of confidence.
    In addition to tax incentives for the purchase of health insurance, 
the President's budget includes other proposals, such as Associated 
Health Plans (AHPs) and provisions related to Medicaid and SCHIP, which 
will further reduce the number of uninsured individuals.
    I look forward to working with you to help make health care more 
affordable and to increase health insurance coverage.
            Sincerely,
                                                  Gregory F. Jenner
                            Acting Assistant Secretary (Tax Policy)

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