[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
TREASURY DEPARTMENT FISCAL YEAR 2008 BUDGET
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, FEBRUARY 7, 2007
__________
Serial No. 110-5
__________
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COMMITTEE ON THE BUDGET
JOHN M. SPRATT, Jr., South Carolina, Chairman
ROSA L. DeLAURO, Connecticut, PAUL RYAN, Wisconsin,
CHET EDWARDS, Texas Ranking Minority Member
LOIS CAPPS, California J. GRESHAM BARRETT, South Carolina
JIM COOPER, Tennessee JO BONNER, Alabama
THOMAS H. ALLEN, Maine SCOTT GARRETT, New Jersey
ALLYSON Y. SCHWARTZ, Pennsylvania THADDEUS G. McCOTTER, Michigan
MARCY KAPTUR, Ohio MARIO DIAZ-BALART, Florida
XAVIER BECERRA, California JEB HENSARLING, Texas
LLOYD DOGGETT, Texas DANIEL E. LUNGREN, California
EARL BLUMENAUER, Oregon MICHAEL K. SIMPSON, Idaho
MARION BERRY, Arkansas PATRICK T. McHENRY, North Carolina
ALLEN BOYD, Florida CONNIE MACK, Florida
JAMES P. McGOVERN, Massachusetts K. MICHAEL CONAWAY, Texas
BETTY SUTTON, Ohio JOHN CAMPBELL, California
ROBERT E. ANDREWS, New Jersey PATRICK J. TIBERI, Ohio
ROBERT C. ``BOBBY'' SCOTT, Virginia JON C. PORTER, Nevada
BOB ETHERIDGE, North Carolina RODNEY ALEXANDER, Louisiana
DARLENE HOOLEY, Oregon ADRIAN SMITH, Nebraska
BRIAN BAIRD, Washington
DENNIS MOORE, Kansas
TIMOTHY H. BISHOP, New York
Professional Staff
Thomas S. Kahn, Staff Director and Chief Counsel
James T. Bates, Minority Chief of Staff
C O N T E N T S
Page
Hearing held in Washington, DC, February 7, 2007................. 1
Statement of:
Hon. John M. Spratt, Jr., Chairman, House Committee on the
Budget..................................................... 1
Hon. Paul Ryan, a Representative in Congress from the State
of Wisconsin............................................... 6
Hon. Henry M. Paulson, Jr., Secretary, U.S. Department of the
Treasury................................................... 12
Prepared statement of.................................... 14
TREASURY DEPARTMENT
FISCAL YEAR 2008 BUDGET
----------
WEDNESDAY, FEBRUARY 7, 2007
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 10:00 a.m., in room
210, Cannon House Office Building, Hon. John Spratt (Chairman
of the committee) presiding.
Present: Representatives Spratt, Edwards, Cooper, Allen,
Schwartz, Kaptur, Becerra, Doggett, Blumenauer, Berry,
McGovern, Sutton, Andrews, Scott, Etheridge, Hooley, Moore,
Ryan, Barrett, Bonner, Garrett, Hensarling, Lungren, Simpson,
Conaway, Campbell, Tiberi, Porter, Alexander, and Smith.
Chairman Spratt. I call the hearing to order, and welcome
our witness today. He happens to be an old personal friend.
About 30 years ago, or longer than either one of us care to
admit, I was working at the Office of the Secretary of Defense,
for the Comptroller, when a young JG in the Navy by the name of
Hank Paulson joined us in the office there. We worked together
at their for the next 18 months, two years as part of the
defense effort. And I, for all these years since had not had an
opportunity to continue our friendship, but have enjoyed
renewing it since he is come back to Washington. And I was
never surprised by any of the many achievements that he has
racked up in the course of his career. And the President could
not have chosen better in selecting Hank Paulson to be
Secretary of the Treasury. So we are very, very pleased to have
you here today to talk about the President's budget.
Mr. Paulson, you have expressed some concern, like Mr.
Bernanke and others, having become part of the administration's
economic team, about the entitlement obligations of this
country into the future. And we understand those concerns and
we share those concerns, but just as a matter of background,
since you weren't here, what happened before you came, let me
bring you up to where we have been over the last six years.
Six years ago, as the economists at OMB looked out over the
next 10 years they foresaw nothing but surpluses coming up,
$5.6 trillion in all. We had a tentative understanding in both
houses and both parties of Congress that as we got to this
point, with unprecedented surpluses, we would make
unprecedented use of the surplus we had in Social Security. We
would forswear ever borrowing against that surplus and spending
it.
Instead, what we wanted to do was to take the surplus in
Social Security and use it to buy down outstanding debt, reduce
the debt owed by the Treasury to the public so that over time
we would add to net national savings, lower the costs of
capital, and by 2020 or so, when Social Security went cash-
negative, the Treasury would be in better shape than ever, with
less debt otherwise to pay the public, would therefore be
better situated to meet its obligations under Social Security
and for that matter, Medicare, too. The idea that I am talking
about had a corny name, ``black box,'' but had a serious
substantive core to it. And that was the core idea of reducing
the publicly-held debt.
We implore President Bush to embrace this idea, adhere to
this idea in the budgets he sent us, and not to continue
borrowing and spending the Social Security surplus. I have made
the response to the President, for example, on his Saturday
morning address the weekend after he sent his budget up here.
That was 2001. I said, Mr. President, it may seem like we are
sitting on an island of surpluses, but we are surrounded by a
sea of debt, long-term debt. And at least part of the largess
that we find, the $5.6 trillion in surpluses ought to be used
to retire some of that long-term debt so we can make assuredly
solvent the obligations of Social Security and Medicare well
into the future.
The Bush administration took a different path, one occurred
mainly by substantial, some would say massive tax cuts, $1.7
trillion in all, over a period of 10 years. Well, it turned out
that the 10-year surplus of the $5.6 trillion was overstated by
as much as 25, 35 percent. When other factors began to take a
toll; recession, terrorism and other things began to take their
toll on the budget, the Bush administration did not make any
kind of mid-course correction. They went full speed ahead. And
as a consequence we have seen debt accumulations on a scale
that has not been experienced since the Second World War. If I
could have chart number eight, I think it is, Chris.
This is just a simple back-of-the-envelope way of looking
at the debt accumulation over the last six years. When
President Bush came to office we had outstanding debt, subject
to limit, total statutory debt of a $5.7 trillion. That debt
today, six years later, is $3 trillion greater, nearly 60
percent greater. The debt that will be incurred under this
budget, in the remaining two years of the Bush administration,
is indicated by the home budget deficit, which is about $450
billion in each of the four coming years. Even if your budget
submitted today is adopted, that means we will add about $4
trillion in debt during the course of this administration, as
compared to or contrasted with $5.7 trillion outstanding at the
time the Bush administration took office.
That is a concern to all of us and I am sure it is to you.
And the ways to mitigate it by saying, ``Well, we have to look
at it as it pertains to GDP''; one way to look at it is by
looking at what it has done to debt service, because of all the
entitlements of all the mandatory spending items in the budget,
this one is truly obligatory. The others can be manipulated,
with great political expense. But debt owed, the interest that
has to be paid to service the debt, is substantial and it is
crowding out the resources that we might otherwise use for
reform of Medicare and Social Security.
So that is where we are. And the budget we receive today we
hope might be at least a first step towards a change in course,
but we have been through this budget and you will forgive our
skepticism, but we think the revenues are overstated, and we
think the spending is understated, and therefore we think the
goal, a balanced budget in 2012, is doubtful at best.
Here are the major concerns we have: this budget assumes
that the alternative minimum tax will remain in full force and
effect from 2008 on, through most of the forecast period, for
most of the time frame of this particular budget. The AMT will
be there collecting money like a vacuum cleaner. CBO says over
a 10-year period of time, the AMT, Alternative Minimum Tax, if
not adjusted, if not indexed to inflation, will collect
$1,041,000,000,000 more than the regular tax system would
collect.
In addition, we find as we look through the budget that
everywhere that an assumption is made about economic
conditions, OMB is a bit more optimistic than CBO as a
consequence. When you accumulate all those differences, carry
them out over time, the difference in the year 2012, the target
year, is $608 billion in GDP and about $155 billion in
revenues. That means that the $61 billion surplus that you are
forecasting for that year, if it were derived by using CBO
numbers would instead be $94 billion deficit. So these are the
reasons we are concerned.
Let me show you our next chart. This is where we plot the
likely course of this budget. Assuming that something is done
to neutralize the effect of the AMT, so that it is not paid by
middle income taxpayers for whom it was never intended, and
assuming that war costs continue after 2009, your budget has a
placeholder of $50 billion after providing a supplement of $170
billion and a supplemental of $140 billion, it drops off
precipitously to $50 billion, without any real information as
to why. It has been described as a placeholder, or a plug. And
that in 2010, 2011, and 2012 there's no provision made for the
incremental costs of deployment in Iraq, the Persian Gulf, or
Afghanistan, or North American air defense. There is nothing
incremental in there, and that is hard for us to believe. Would
that it were so. I hope it happens, but I don't think it is
realistic forecasting to drop it out.
When we adjust your numbers for two things, an assumption
that the AMT will be neutralized one way or another, will not
collect that trillion dollars in additional revenues; and an
assumption that war costs will continue at a declining,
diminishing rate per the CBO's model which assumes that they
will drop off, the number deployed will decline to 75,000 in
the year 2013 in those two theaters; the divergence in curves
is dramatic. You can see it here. Instead of moving the balance
in 2012, the budget is in deficit by $145 billion, and over the
next five to six years, it goes deeper into deficit such that
at the end of the time frame it is $460 billion in debt.
This is a matter of major concern to us because we do not
believe the budget achieves its tagline which we heard
repeatedly yesterday; namely, we balance the budget but don't
raise taxes. The AMT does raise taxes by a substantial amount.
And if you factor in the AMT and war costs, you don't achieve
balance, it seems to us. If you disagree, we would love to hear
your construction of what you think the likely events are going
to be.
We are concerned too about some of the cuts you made. Let
me give you one for example. It is a small cut that accumulates
to a big factor, education and job training, function 500 of
our budget. You will be up there with the President in just a
few weeks asking for an extension of fast-track trade
negotiating authority. We think one complement to fast-track
negotiating authority is to have in place a robust job
retraining program, educational program, so that we will have a
workforce that is proficient, sharp, well-educated, competitive
with anywhere in the world. In other words, we believe we have
got to make those human capital investments to achieve that
goal if we are going to have a global free-trade economy.
We do not see that commitment to investing in human
capital. The function that deals with education and job
training is cut by nearly $4 billion next year and by more in
the out years, $4 billion. Education, the Department of
Education is cut by $1.5 billion. You can say that is not a
lot, but there are lots of us believe that one way to make our
entitlements more affordable is to make our workforce, our
people more productive. And we don't see that thrust in this
budget, and we have a great concern that this budget is going
to accumulate more debt and not achieve the other answer we
think the budget should be striving for.
So we have got a common problem in front of us. We have got
problems like cost of entitlements well into the future that
only we working together can settle. The difficulty of
resolving them is such that unless we sit down at a table, put
everything on the table, bring everything to the table, we will
never work the problems out. we can make nickel-and-dime
changes to Medicare, as I think you are doing here, but we will
not really resolve the problem until we work together.
Unfortunately I don't see this budget that is submitted
today as kind of a common ground. We are starting at a long way
apart, but we are still committed to working together with you
to achieve the goal we all seek and want, that is a balanced
budget as soon as possible, where we begin saving instead of
dis-saving, and we begin making the investments in human
capital that we think are necessary as a complement to our
economic policy.
Thank you for coming here today. We look forward to your
answers, your testimony. But before we do that, I want to turn
to Mr. Ryan for a statement on his part.
Mr. Ryan. I thank the Chairman for yielding. And I want to
welcome the Treasury Secretary. This debate we are going to
have about the budget is a good debate, it is going to be a
healthy debate. It is going to be about how we balance the
budget. I think both sides are going to agree the need to
balance the budget. Then the question then comes down to how we
balance the budget. The administration has made a proposal to
balance the budget without raising taxes by controlling
spending. That means this is going to be a big dialogue about
taxes. And I think it is important as we move forward in this
dialogue to let us just look at what the tax cuts did, what are
the tax cuts, where are we with respect to these tax cuts? And
I am going to go through a few charts and talk about this, and
how it relates to spending.
Chart number one, which you see here, this simply shows you
the difference in projections. And we are going to hear a lot
about differences in projections between OMB and between CBO,
how OMB has a slightly higher revenue projection than CBO. If
you look at that last three years, the blue line is OMB
projections; the red line is CBO projections; the green line is
what actually occurred. Both CBO and OMB have underestimated
the revenues that have come into the Federal Treasury. We will
only know what happens in 2007 after we go through 2007, but
the point is that both of these estimating agencies have under-
scored what revenues actually come in. Go to chart two, please.
Now let us take a look at what these tax cuts actually
achieve. What good are these tax cuts? Why are these tax cuts
important?
When the tax cuts occurred, we had high unemployment and
when you take a look at the so-called surpluses that the
administration inherited when they came into power in 2007, let
us remember that there were some actualized surpluses that
actually came in. What happened? Congress and the White House
paid down $600 billion in debt, gave people back some of their
money.
The rest of the surpluses were projections. Those
projections did not anticipate or foresee four things happening
in the next year that actually happened. They did not foresee
the 9/11 attack. They did not foresee the dot-com bubble
coming. They did not foresee the recession that happened. They
did not foresee the Enron scandals that happened, that crashed
our markets and reduced our revenues.
And so you had an economic perfect storm which was not
projected and therefore those projected surpluses turned into
actual deficits. But when those tax cuts kicked in and when
those tax cuts happened, you can see the peak of unemployment
at about 6.3 percent. Unemployment moved down precipitously. Go
to the next chart, please.
When you take a look at the tax cuts, before and after tax
cuts, look at job creation. We were losing about 100,000 jobs a
month before the tax cuts. After the tax cuts we had record job
growth to the point where we have now 7.4 million jobs created
since those tax cuts. Next chart, please.
Take a look at business investment. Business investment in
the prior 10 quarters before the tax cuts shrunk on average 5.9
percent a quarter. Business investment after the tax cuts grew
on average 6.9 percent a quarter. Next chart please.
Revenues. Now this is the real untold story. When we cut
these taxes--I served on the Ways and Means Committee, was one
of the authors of these 2001, 2003 tax cuts. We really
believed, because all of our estimators at CBO, at joint tax,
at OMB, at Treasury were telling us: ``you cut taxes it may
help the economy, it may produce jobs, to get us out of the
recession, but it is going to drive us deeper into deficit. It
is going to cost us revenues.'' That is what all the estimators
told us.
Well, let us take a look at what happened to federal
revenues after we cut tax rates. We cut tax rates on incomes
across the board. We doubled the child tax cut. We get rid of
the marriage penalty. We repealed or put on a glad path to
repeal the death tax. We reduced capital gains taxes. We
reduced income taxes. We increased expensing for small business
for three years.
Look what happened after all those tax rate were lowered.
Tax revenues boomed. Tax revenues did not go down. The deficit
did not go up. Tax revenues went up. Look at the next chart.
What did it do to the economy? What did these tax cuts do
to GDP growth and employment? Look at the GDP growth before the
tax cuts. Look at all those quarters going from 2000 to 2003.
GDP growth averaged 1.1 percent. From the tax cuts on, GDP
growth has averaged 3.6 percent.
And I want to conclude with this. You can go to the next
chart please.
As we have heard from nearly every witness who has come
before this Committee in the past few weeks, our biggest
budgetary challenge is on the spending side, our massive
entitlements programs are simply growing too fast to be
sustained.
Take a look at this chart. This chart shows you that if we
keep the tax cuts permanent, which is the black line, the
bottom line, throughout our baseline period, that is where
revenues ought to be as measured by CBO. If we get rid of those
tax cuts and allow those tax cuts to expire, that is the red
line, the red line as scored by CBO. Not a lot of daylight in
between the two of those. But if we do nothing about spending,
if we do nothing about entitlements, that is the green line.
So even if we get rid of all these tax cuts, which produced
all those excellent economic growths; 7.4 million new jobs,
higher business investment, better international
competitiveness in the global marketplace; if we get rid of all
those tax cuts, we still have this spending problem. Without
reform by the year 2040, when my kids will be exactly my age,
Social Security, Medicare, and Medicaid will consume 20 percent
of our economy. That is equivalent to the cost of the entire
federal government today. In fact, even if we raise taxes to
balance the budget in the short term, as you can see, we will
go right back into deficits.
So with retirement of the baby boom generation, the
situation will just keep getting worse, even if we raise all
these taxes. So the question is, are we going to balance the
budget at a higher level of spending and a higher level of
taxes today, which would we know we will have much more
spending in the future because of these entitlements? Or do we
want to balance the budget at a lower level of spending rather
than a higher level of taxes and spending, so we would be in
better positions going into the future?
The question comes down to this. We have two fiscal
challenges. We have got this out-of-control spending with these
entitlements that we have to, on a bipartisan basis, come
together to figure out how to fix these problems, how to fix
these programs. We also have globalization. We also have
incredible pressures, incredible economic challenges unlike any
we have seen before, from countries like China, from countries
like India, that we have to be prepared for. We can no longer
take for granted that we are the leading economic power in the
world.
And so if we simply say we will meet the challenge of these
entitlements by just raising taxes, we will lose our economic
standing in the world and our children will not have the
standards of living that we now enjoy, let alone being better
than what we have right now.
So it all points to spending. Do we want to balance the
budget by controlling spending? or do we want to balance the
budget by raising taxes? Because even if we balance the budget,
that way or the other way, we are going to go right back into
deficits if we don't fix these entitlement programs.
This is the context in which this debate will occur. I want
to welcome the Treasury Secretary for coming with us today, and
I hope that his perspective adds a little bit to this debate.
Thank you.
Chairman Spratt. Mr. Secretary, welcome again, and let me
say that your statement can be entered in the record. You can
summarize it as you please, and you can go beyond it. The floor
is yours, and we welcome you, and we look forward to your
testimony.
STATEMENT OF HON. HENRY M. PAULSON, JR., SECRETARY,
U.S. DEPARTMENT OF THE TREASURY
Secretary Paulson. Well, thank you very much, Mr. Chairman.
Let me begin by saying I too remember fondly those days 32
years ago in the Pentagon. And then we both had more hair. It
was my first job----
Chairman Spratt. And I had less girth. [Laughter.]
Secretary Paulson. Me too. And it was my first real job.
And I got some great mentorship from you. And I very much look
forward to working with you over the next couple of years.
Let me go a bit beyond my statement, and I will shorten it
a bit, because I did it twice yesterday and you've got a copy
of it in the record. But I am very pleased to be here to give
you an overview of the budget.
We do start from a position of strength. Our economy
appears to be transitioning from a period of above-trend growth
to a more sustained level of about 3 percent growth, and as
Congressman Ryan mentioned, more than 7.4 million jobs have
been created since August of 2003. Our unemployment rate is low
at 4.6 percent, and as something that is very important to me,
over the last 12 months real wages have increased at 1.7
percent. So we are seeing these gains begin to translate
themselves into higher income for the average worker.
Strong economic growth is also benefiting the government's
fiscal position. In the first quarter of fiscal 2007 budget
receipts totaled $574 billion, an increase of 8 percent over
the same period in fiscal 2006. You know, as a result of the
revenue, increased revenue over the last two years, we have
brought the federal budget deficit down to 1.8 percent of GDP.
Now, the President's budget really reflects key priorities:
continued job growth, wage growth, economic expansion, energy
security, the importance of healthcare, and having a strong
economy, which is going to let us take on entitlement reform.
As Congressman Ryan mentioned, the budget also emphasizes
fiscal debt discipline.
I would like to say a word or two about the healthcare
proposal. Under the current law the tax subsidy of health
insurance purchased through employers will average more than
$300 billion a year for the next 10 years. That is the largest
tax expense that we have. And for that huge expenditure, we
have got a system in which rising costs are a burden to
families and businesses, and which millions of people have no
insurance at all. The President's proposal would make
healthcare more affordable and more accessible. It will give
all taxpayers who buy health insurance, whether on their own or
through their employer, and no matter what the cost of the
plan, the same standard deduction for health insurance: $15,000
for a family, $7,500 for an individual.
The President's proposal will help hold down healthcare
costs by removing the current tax bias that encourages
overspending. Costs would become clearer, giving patients more
power to make informed choices about their healthcare spending.
The proposal would also help jumpstart individual insurance
markets, so consumers have more choices than are available
today. Healthcare would be more consumer-driven, more
affordable, and more accessible for millions of Americans.
Energy security is another concern of the American people,
and it is a priority that is addressed in the President's
budget. President Bush has put forth an ambitious goal of
reducing America's projected gasoline consumption by 20 percent
over the next 10 years. We can achieve this goal by
dramatically increasing the supply and use of alternative
fuels, and improving fuel efficiency by reforming and
increasing CAFE. The expanded fuel standard will provide
entrepreneurs and investors a guaranteed demand for alternative
fuels, which will accelerate private investment and
technological development. Reforming CAFE will allow us to
increase the fuel economy of our automobiles as fast as
technology allows. With a more diverse fuel supply and a better
fuel efficiency we can make our economy less vulnerable to
supply disruptions, and confront climate change through
technologies that reduce carbon dioxide emissions.
Now, I will submit the rest of my statement for the record.
And Mr. Chairman, just to respond a bit to what you said: we
can talk about the differences in revenue projections and I
would be perfectly happy to discuss that. We put forward what I
believe are some reasonable estimates, you know, very similar
to the Blue Chip consensus. CBO has got a different estimate,
as you mention, that they--one results in 155 billion less in
revenues. The biggest difference in those projections really
have to do with the inflation rate. When you look at the
numbers, that is the most of it. And we are assuming 2.2. I
think they are at 1.8. CBO is 2.1. I have been in the business
world and in financial markets long enough to know that no one
has got a crystal ball. Both of these estimates are within the
realm of reason, they are both reasonable estimates. We think
ours is a reasonable estimate. But what they both show to me is
the importance of keeping the economy growing, and how
dependent, you know, what a big driver of the budget,
resolution of the budget issue, the economy is. And growth is
very, very important, and these assumptions are important. But
really, what is important is to keep this economy growing and
thriving.
I also will welcome the discussion of AMT. I am sure we
will get questions on that. You know, I am looking for ways to
bridge the gaps, and you mentioned at the end, we have got
differences on the budget, we have got the same goal. And that
same goal is dealing with these longer-term issues that are
going to be staring us in the face very soon, of entitlement
reform. And I do believe we wouldn't be too concerned about the
fiscal deficit we have right today, if it weren't for the big
problem staring us in the face.
A deficit of 1.8 percent GDP or, you know, I notice with
all of your assumptions you said--you took a look at the
administration's proposals and you thought that there would be
a deficit of 145 billion. That would be eight tenths of a
percent of GDP. I think we can balance the budget, and it is
important we work toward balancing the budget, and that is a
very important goal for both parties, and I think we can be
successful in doing that. And we have provided a budget that
will help us do that, but even if your forecast was right we
still had a deficit of $145 billion. That is eight tenths of a
percent of the GDP, and again, the major issue we have to deal
with is a big one; entitlement reform, and I know you agree
with that.
And so in any event, that is my statement and I stand ready
to take your questions. And again, thank you very much for your
gracious introduction, Mr. Chairman.
[The statement of Henry M. Paulson follows:]
Prepared Statement of Hon. Henry M. Paulson, Jr., Secretary,
U.S. Department of the Treasury
Chairman Spratt, Ranking Member Ryan, Members of the Committee: I
am pleased to be here today to provide an overview of the President's
budget for fiscal year 2008. As the Secretary of the Treasury, my top
priority is keeping America's economy strong for our workers, our
families, and our businesses. And the President's budget supports that
goal.
We start from a position of strength. Our economy appears to be
transitioning from a period of above-trend growth to a more sustainable
level of about three percent growth. More than 7.4 million jobs have
been created since August 2003. Our unemployment rate is low at 4.6
percent. And over the last 12 months, real wages have increased 1.7
percent. Economic growth is finding its way into workers' paychecks as
a result of low inflation. That means family budgets are going further.
Strong economic growth also benefits the government's fiscal
position. In the first quarter of fiscal year 2007, budget receipts
totaled $574 billion, an increase of 8 percent over the same period in
fiscal year 2006. As a result of increased revenue over the last two
years, we have brought the federal budget deficit down to 1.8 percent
of GDP.
The President has submitted a budget that reflects our strong
economy and our nation's priorities: continued job creation and wage
growth, vigorous prosecution of the war on terror, increased access to
affordable health insurance, improved energy security, and a strong
fiscal position from which we can address long-term challenges such as
strengthening Social Security and Medicare for future generations.
This budget supports a strong economy by maintaining fiscal
discipline. It maintains our current tax policy, which has helped our
economy rebound from recession to its current robust health. With a
steadily growing economy, tax revenues combined with fiscal discipline
should bring the federal budget into balance in five years. In fact, we
are submitting a budget that includes a surplus in 2012, which is
achievable if we keep our economy growing. While no one has a crystal
ball, our economic assumptions are close to the consensus of
professional forecasters.
The President's budget addresses important domestic priorities.
Health care is high on this list. Under current law, the tax subsidy
for health insurance purchased through employers will average more than
$300 billion a year for the next ten years. For that huge expenditure
we get a system in which rising costs are a burden to families and
businesses, and in which millions of people have no insurance at all.
The President's proposal would make health care more affordable and
more accessible. It would give all taxpayers who buy health insurance,
whether on their own or through their employer, and no matter the cost
of the plan, the same standard tax deduction for health insurance--
$15,000 for a family, or $7,500 for an individual. The President's
proposal would help hold down health care costs by removing the current
tax bias that encourages over-spending. Costs would become clearer,
giving patients more power to make informed choices about their health
care spending. The proposal would also jumpstart the individual
insurance market, so consumers have more choices than are available
today. Health care would become more consumer-driven, more affordable,
and more accessible for millions of Americans.
Energy security is another concern of the American people, and it
is a priority addressed in the President's budget. President Bush has
put forth an ambitious goal of reducing America's projected gasoline
consumption by 20 percent over the next 10 years. We can achieve this
goal by dramatically increasing the supply and use of alternative
fuels, and improving fuel-efficiency by reforming and increasing CAFE.
The expanded fuels standard will provide entrepreneurs and
investors a guaranteed demand for alternative fuels, which will
accelerate private investment and technological development. Reforming
CAFE will allow us to increase the fuel economy of our automobiles as
fast as technology allows. With a more diverse fuel supply and better
fuel efficiency, we can make our economy less vulnerable to supply
disruptions and confront climate change through technologies that
reduce carbon dioxide emissions.
Finally, the President's budget, by emphasizing fiscal discipline
and economic growth, lays the right foundation for dealing with
entitlement reform--a challenge we all have a responsibility to
address. Strengthening Social Security and Medicare is the most
important step we can take to ensure the retirement security of our
children and grandchildren, the long-term stability of the federal
budget, and the continued growth of the American economy. I look
forward to sitting down with Democrats and Republicans, without pre-
conditions, and finding common ground on these critical issues.
Mr. Chairman, the President's budget priorities--a strong economy,
national security, fiscal discipline, health care and energy
innovation, and laying the groundwork for entitlement reform--are the
right priorities for America and for the workers, businesses, and
investors who drive our economy.
I am confident that, working together, we will keep our economy
strong and chart a course for maintaining our global economic
leadership in the years ahead.
Thank you for the opportunity to discuss this today--and I now
welcome your questions.
Chairman Spratt. Thank you, Mr. Secretary. What struck us
in comparing OMB's economic forecast, its baseline forecast,
with CBO, was that with every indicia, OMB had chosen a
slightly better number than CBO had used. Granted they were
different, they were seemingly small differences like two and
three tenths of a percentage point, but cumulatively, over time
they amount to a substantial impact on the bottom line of the
budget. That was our concern. When you put them all together,
the impact as I said was $155 billion in the target year,
versus a surplus of $61 billion to a deficit of $94 billion,
which is a big swing. Maybe small changes, interest rates, job
growth, inflation, each of these. But nevertheless, the net
effect, cumulatively, over time, is significant and that gives
us a little concern about the validity of the bottom-line
number.
The administration's tagline yesterday, which came across
repeatedly in the testimony and in the questions put to Mr.
Portman is that ``we are balancing the budget without raising
taxes.'' But when we unpacked this budget that was sent to us
two days ago to see what the underlying assumptions were, we
found that to our surprise it was assumed that the AMT would go
into full force and effect after 2007. The patch that we would
put into place would not be renewed, and it would collect taxes
to the tune of a $1,041,000,000,000 more than would otherwise
be collected under the regular tax code.
Isn't that an increase in taxes, moving you towards the
goal of a balanced budget in 2112? And a big increase of $1
trillion?
Secretary Paulson. Let me address that, but let me--coming
back, just one other comment on the projection.
Chairman Spratt. Sure.
Secretary Paulson. Because you look at the projection,
there's two aspects to it. The biggest piece of it has to do
with the inflation rate. And there's another piece that has to
do with differing assumptions as to how long the baby boomers
will work. And you know, again, our estimate is very comparable
to many private-sector estimates. But you know, who knows? No
one has got a crystal ball. I think the message there is to
keep the economy growing. I would say the area that I just call
your attention to was the rate in which the tax receipts are
coming in. And I think people were surprised--I wasn't here a
number of years ago, when they came in at 14.6 percent. And
then in 2006 up 11.8. You know, the last quarter, the first
fiscal quarter of 2007, they came in at up a little bit over 8
percent.
And we were assuming 5.4 percent growth over this budget
window. In the last 20 years they have grown at 6 percent. So
there may be some room for some optimism there, on that part of
it.
Now in terms of your comment about the AMT--I am sure Rob
explained that yesterday, but let me explain what we did. I
think we were very transparent about this. We agree, I believe
this is the way you feel and other members of the Committee
feel, that the AMT would be, if it went into effect, would be
an unintended tax. It would be a cruel tax. It would hit the
middle-class hard. It would surprise a number of people who
wouldn't even see it coming.
What Congress has done, what the administration has done
over the last six years is patch it for one year. And what we
have done is just, what we have proposed is an additional--
which is in the budget--one year of AMT tax relief, and then
the assumption is that we are going to work together and we are
going to work on a bipartisan basis to solve this problem. And
I am not saying it is easy, it is a tough one.
Chairman Spratt. We had other witnesses from your
administration going back two, three years who said that it can
be done within the context of the tax code in a revenue-neutral
manner. In other words, you can go to deductions and credits
and preferences and what have you, and change these, to raise
enough revenues to neutralize the impact of the AMT. Could you
give us some idea of what these deductions and credits and
exceptions might be?
Secretary Paulson. Well, first of all in terms of
fundamental tax reform, maybe we will get to do that over the
next two years. As you probably noticed, our priorities, you
know, you can see in the budget, which is entitlement reform,
healthcare, you know, the incremental tax changes, I think that
the one regarding health insurance is a very important and big
incremental change.
So we don't have a fundamental tax reform proposal we are
coming here with. And so all I would say to you is that this is
something that we will need to work on together, and to solve
the problem.
Chairman Spratt. But in the meantime, without even having a
solution proposed you are assuming there will be a solution, we
will come together on some kind of a solution. It is a big one
particularly for an administration which has an aversion to tax
increases. You will have to increase some taxes in order to
offset the otherwise tax impact of the AMT.
Secretary Paulson. I am not assuming a tax increase, okay?
When I look--and I know that we have differences with some
people up here on that, but when I take a look at the way this
economy is growing right now, and the way revenues are flowing
in, I want to keep this expansion growing. I just see working
with the budget numbers has just convinced me how sensitive all
these numbers are to growth of the economy.
And so I think continued fiscal discipline and keeping the
economy growing are what is baked into our proposal. And again,
all of it underpinning, saying if we have a strong economy and
a fiscal position which is strengthening, this puts us in a
good position to look at some of the bigger structural issues
which are the entitlement programs.
Chairman Spratt. Well, I would agree with you about the
differences between CBO and OMB being within a band of reason.
The only problem we had was it seemed like Treasury OMB were
cherry-picking in each instance, each indicia, you were picking
a somewhat higher ranking, as opposed to lower range. And I
have great respect for your professionals over there. I think
they do good work over there and I am glad we have got them.
This is just an impression we had.
But it seems to me we start off with higher growth in
revenues based upon the economic forecasting conditions that
you assume, and now we are adding another level to that higher
growth in revenues based on the sort of visceral expectation
that things are good and you expect them to be even better than
what you projected here. And you use or dedicate those revenues
somehow to the repeal--the revision of the AMT.
Secretary Paulson. Yeah. I am not projecting revenues to be
better than we have here. Our projection is a projection. It is
an inexact science. I don't think there is cherry-picking done.
It was very close to the Blue Chip consensus forecast. But
again it is hard to know. We don't know with certainty what is
going to happen next quarter, let alone four, five years from
now. So all we can do is make the best revenue projection we
can. And again, what they illustrate to me, when I looked at
them, is just the importance of how sensitive this fiscal
situation is to a growing economy where we have got revenues
coming in at the rate they are. That is key to the whole thing.
Now, I can't--both, as you said, are within a realm of
reasonableness. And again, which interested me was----
Chairman Spratt. But if it is not going to be this
additional spurt of revenues over and above what you have
already assumed, how do you replace the $1,041,000,000,000 in
revenues that AMT will collect if it is unadjusted and not
indexed? How do you replace those revenues elsewhere within the
tax code without raising taxes?
Secretary Paulson. I would say I even have a higher number,
because I am looking at them relative to the policy baseline.
So I have even got more with the----
Chairman Spratt. What is your number?
Secretary Paulson. It is 1.2. But looking at it over the
period which we are looking at it, it is a tough issue, and I
have got no answer other than that. It is one we have got to
work on together, and I think we can do it, you know, and----
Chairman Spratt. But it would mean repealing, trimming,
revising some deductions, credits, exceptions, maybe raising
rates or something like that, would it not? Otherwise how do
you coax more revenues out of the code?
Secretary Paulson. I have got to tell you I am not talking
about coaxing more revenues out of the code, okay? And so we
need to do this together. I would say to you that there are
enough moving pieces that I would be hopeful that we could work
together and achieve a balanced budget in 2012, and I would say
even your projections which we don't agree with, you know, what
I look at as a tough case, shows a strong fiscal situation in
the short term. And again, what we really need to do, I think,
is to focus on some of the longer-term structural issues.
Chairman Spratt. Well, this is a common problem. The AMT is
one of many we have got. It is a big one.
Secretary Paulson. Yeah.
Chairman Spratt. A trillion-two, by your calculation, over
the next 10 years. And we have got to work together to resolve
that. We don't have a rabbit to pull out of a hat, either, but
we look to Treasury for its expertise to come forward with
proposed solutions. It has got to start with you.
Secretary Paulson. Well, I sure look forward to working
with you on this, and I would say you are going to be strong
partners, including, you know, my friends at the Senate Finance
Committee, and the House Ways and Means. Because, you know, we
will have to do this together.
Chairman Spratt. We will be looking to you for the ideas to
get this negotiation rolling. Thank you very much for your
testimony, and now, Mr. Ryan.
Mr. Ryan. Thank you, Chairman.
We are going to have a long talk about revenues, I think
this year, first half of this year, and projections. First of
all, I think it is great that both CBO and OMB are basically
showing us very low inflation in the future. That is good. That
is good, basic fundamental.
Secretary Paulson. A high-class problem. Would we be so
lucky, right?
Mr. Ryan. Yeah, exactly. I mean, it is a luxurious problem
we have. So that is a good thing.
A couple points, and then I want to ask you questions.
Number one, we are going to look at different parts of this tax
package of the 2001, 2003 tax cuts. And I think there are those
who just believe that there is really no effect on the economy
if we just raise taxes, there is no effect on personal
behavior, or decision-making or on capital markets, if we just
raise tax rates, and that at will only get more revenues with
no other adverse consequences.
That is the way, that is the lens that we look at these
things through. Just take a look at capital gains taxes.
According to the Joint Committee on Taxation, when we wrote
this bill in 2003, they were telling us that over the following
three areas, you know, 2003, 2004, through 2006, that we would
lose $5.4 billion. Instead of losing $5.4 billion in capital
gains taxes over that period, we gained $133 billion over that
period. Similarly, the CBO forecast a loss of revenue, and
actually their forecasts were off 68 percent on capital gains,
because what we realized is if we taxed capital formation less,
we got more capital formation, we got more realizations, we get
more tax revenue. Higher revenues.
So when we go through this debate about just raising taxes
on this program or raising taxes on this class of assets, or
these investors, or these workers, it is very important to note
that reality and history has shown us over and over and over
again that tax rates do have consequences, that we don't just
bank the money and have no collateral damage in the economy. I
think the underlying point that is being made here is the eye
on the ball is to keep the economy growing. When our
constituents are working, our constituents are paying taxes,
they are collecting unemployment, and the fiscal situation is
brighter.
So with respect to taxes, I think one of the things we are
going to have a big debate about here is the so-called tax gap.
And this is something that all of us are interested in. We are
going to have some hearings in Ways and Means on this, I think.
I know you probably testified on this yesterday with Finance.
Can you get into the challenge of closing the tax gap? Can you
basically define the tax gap for those of us who aren't really
into this issue as well? We obviously want Americans to pay
their taxes. We want them to comply with the law. We want for
everybody to pay their fair share of taxes. We have very
complex code. Some of it is innocent noncompliance because of
confusion; some of it is people just cheating on their taxes.
How do we get that money, how do we get at that, and what is
the administration's proposal to address that? What is the
score associated with that proposal? And what else would you
have to do with respect to the IRS compliance and what kind of
things would you have to do to our constituents basically to
totally close this tax gap?
If you could discuss that I think it would be very
enlightening because we are going to have a long talk about the
tax gap as this year goes on.
Secretary Paulson. Okay. Well, we had a conversation about
that yesterday at the Senate Finance Committee. Let me just say
first of all we need to begin by defining the tax gap. And I
would define it as a difference between the taxes that are owed
and the taxes that are paid, because every now and then you get
proposals to close the tax gap which are really just changes in
the law in terms of increasing taxes.
The next thing I would say is that the data we have is not
as good as we would like. The last research that was done on it
really goes back to 2001, and we will be doing more research on
it under my direction.
Now we have all got to start by saying that this tax gap is
worse than irritating to all the Americans that pay their full
share of taxes, because those that don't pay their taxes create
a burden, and a greater burden for the all those that do. And
so it is something that is really worth focusing on and it is
something that when I came here, you know, Chairman Baucus made
such a big point to me about the importance of this that I
spent a lot of time about it, working on it with Commissioner
Everson at the IRS.
Now, we have a proposal which I think is a credible
proposal, which has got 16 legislative proposals, which if
enacted into law would for the most part require greater
information reporting--and I will get to that in a minute--and
we believe that that would would raise roughly $30 billion, 29
and a half billion dollars, over a 10-year period. We also have
a full IRS budget with--you know, we are going to continue to
invest in auditing and you know, the Commissioner has done a
very good job of going after abusive tax shelters, and going
after people that are underpaying their taxes. And we are going
to continue to do that. There is an IT component. There is a
service component to it, a research component, and so on.
But the point that I made, which I think you are looking
for me to get to, is that when we have done the research, our
research shows that the tax gap comes from under-reporting,
underpayment, and non-filers. But by far the biggest part of
the tax gap, just by far the biggest part, is under-reporting
by individuals. And when you look at this, it is under-
reporting of business income. And so, to a large extent these
are schedule C filers. These are small businesses, farmers, and
as you said, you don't know whether it is with malice
aforethought, or whether they just don't understand what they
need to do. But there is a big cash-based economy out there.
And so when you look at closing that, you know, the
conventional wisdom when I came down here was you simplify it.
You simplify the tax code and you will close the tax gap. That
I think is the best way to do it because you will get a portion
of that. But actually what you need to do if you are going to
go after these big dollars would be something I wouldn't
recommend by and large, because I think it would be bad policy,
and I don't think any of us would like it, which it be to make
it more complicated, and would be requirements for more
information. And so these would be the kinds of things----
Mr. Ryan. Like what?
Secretary Paulson. I will give you four or five examples.
One is just reporting, 1099s. If you are paying your plumber,
you know, filling out a 1099, having him fill out a fill out a
1099 send it to the IRS. We could go through all kinds of
examples that are very similar to that.
Then, another example is just to mandate that we use
electronic payments, whether it is credit cards or electronic
payments, and get the electronic receipts and send that to the
IRS. A big one which was tried when I researched it, I think
back when Dan Rostenkowski was running Ways and Means 25 years
ago, he got the idea of withholding. And so this was
withholding on capital gains and interest and you could do it
on pension payments, you could do withholding on everything.
And I think that was in force only for a short time, because
members of Congress got many postcards and nasty telephone
calls and letters. So that is another way.
But my point is not to say this is not important and we
shouldn't go after it. My point is that we shouldn't look at
this as a pot of gold that we are going to use to tap into to
fund everything anyone wants to fund. We need to keep working
on it, and the proposals put forward are very serious proposals
that are not without controversy. There will be people that
will not like the amount of reporting we are suggesting in a
number of areas, but it is a way to make a dent and it.
So what I said to Chairman Baucus, if we can get--you know,
he has got to hold some hearings and we are going to come
forward with our proposals which we have, and we would like to
get those enacted. And the other thing I would like to do is to
demystify all of this, so that we are not looking at it as
where we understand that we could have policies to go after all
of these things. I think they would be bad policies in a number
of cases, and I wouldn't recommend them. But at least we can
have a discussion about which kinds of policies make sense, and
how we could go after the tax gap.
Mr. Ryan. I want to get on because I know we have a lot of
questions. I just simply want to bring up one more chart again,
just to try and drive home a point, chart number seven.
And this just simply says, shows you, the black on this is
all the percentage GDP. If we just keep tax cuts in place and
grow revenues, we will still have revenue growth. We will still
have more money coming in--even under these OMB or CBO. This is
CBO, which has underestimated revenue growth lately, as has
OMB. We will still have more money coming into the Treasury. If
we let all the tax cuts go away, if we bring the marriage
penalty back, cut the kids credit in half, bring the death tax
back in full force, raise taxes on capital gains, raise taxes
on dividends, and raise income tax rates up across the board,
we do all that and let the AMT hit everybody unabetted; that is
the red line.
The Green line is the spending line. This is the CBO
baseline. And so the green line shows that spending is the
problem. So even if we raise all the taxes that we have out
there, expiring provisions, and don't fix AMT, we still have
got to deal with spending. And so I simply want to encourage
you because as the Treasury Secretary, you know, the tax code
runs through you, a lot of entitlement programs run through
you. We need to have a better tax code that is going to better
position us for the global marketplace, be efficient in its
collection of revenues, but if we don't begin to reform these
entitlement programs, all of that is for naught and we'll go
right back into deficit. And with that I yield.
Chairman Spratt. Thank you, Mr. Ryan.
Mr. Edwards of Texas.
Mr. Edwards. Mr. Secretary, thank you for your
distinguished lifetime of public service to our country. I
respect that, and thank you for that.
My problem with this budget as well, as it has been
presented by you and other administration officials, and
listening to it being presented by my colleague, Mr. Ryan, is
that with all due respect it sounds like more of the same. The
same failed promise we have heard each year for the last six
years; that we can have a major defense build-up--which I
support--fight a war on terrorism, balance the budget, in spite
of having massive tax cuts.
The problem is those promises haven't proven to be true
despite the best of intentions. The reality is, just like in
the 1980s when we tried to fund massive tax cuts, under the
Reagan administration, we saw huge deficits. And the same thing
is happening 20 years later now.
I think the problem is this. The administration comes in
with a budget every year, says ``we are going to be able to
balance the budget in five years.'' and then the administration
puts proposed spending cuts in that budget proposal that don't
have a chance of a snowball in Hades of passing. Even under a
Republican-led house. So I hear Mr. Ryan saying we have got to
balance the budget by spending cuts. Well, for 12 years,
Republicans passed partisan budgets through this very
Committee. And guess what, they never had the courage--I think
that Mr. Ryan and Mr. Hensarling, and others in this room might
have, but they couldn't muster enough courage among Republicans
in the House to pay for their tax cuts by cutting spending. So
after all the deficit hawk speeches are finished and concluded,
we get a lot of deficit dove votes on the floor of the House.
This is happening again this year. The administration's
budget proposes an effective $1.9 billion tax increase on
military retirees, men and women who served our country for 20-
plus years, many of them in combat, and they are going to be
asked to pay, for example, up to $1000 more a year for their
healthcare premiums even though the same budget doesn't ask
members of Congress, or members of the President's Cabinet, to
make that kind of sacrifice.
So once again we are seeing a false promise, a well-
intentioned but false promise. And at some point, as you would
have in business, we would have to judge an administration or a
party in the House of Representatives by their record, not by
their other well-intentioned promises. And all the theories of
Mr. Ryan that we can cut spending and balance the budget and
pay for tax cuts and fight a war in Iraq just have not proven
to be true. The result has been my nine- and 11-year-old sons
are going to face a $3 trillion higher national debt, that they
will have to pay interest on till they day.
Mr. Ryan. Will the gentleman yield for----
Mr. Edwards. Not right now.
So my question to you, Mr. Secretary, is what would you say
to Republicans in the House who repeatedly vote for every
single one of the administration's proposed tax cuts, but they
refuse to vote for the spending cuts such as the cuts in
military retiree healthcare the administration is proposing
this year, to pay for those tax cuts? What would you say to
those members of Congress?
Secretary Paulson. Let me begin by responding to your
overall point, which is again, I think we have all got the same
goal, which is fiscal discipline. We have got the goal, as you
talked about----
Mr. Edwards. If I could interrupt just a second.
Secretary Paulson. Yeah.
Mr. Edwards. Since time is running short. I know we all
have the same goal, fiscal discipline and balanced budgets. The
problem is that if this Congress and the Republican leadership
for the past 12 years were accused of wanting to balance the
budget in a court of law, there wouldn't be enough evidence to
convict them. We have had the largest deficits in American
history. Please proceed.
Secretary Paulson. Let me say this, because I will say I
wasn't here two and three years ago, but I remember reading
about the debates. And I remember reading where the President
put forward a plan to cut the deficit in half. And I think
there is a lot of skepticism down here, a lot of skepticism
from Democrats. Frankly I wasn't that close to it, but I had
skepticism from where I was sitting. And so I think one of
the--and just take it, one of the pleasant surprises that we
all have is what has happened to the fiscal situation--in the
short term, granted, because we have the long-term problem of
entitlements. But in the short term, I believe that with the
constraint that has been shown in Congress--and there has been
some constraint. Not as much as we would like--but with the
constraint, coupled with the revenues coming in, there has been
an improvement, and a marked improvement in our fiscal deficit.
Mr. Edwards. The deficit will be 240-something billion
dollars this year proposed, and the largest deficit in American
history, prior to this administration, was 292 billion. But
with time being up, could you answer the question, what would
you say to Republican House members that vote for the tax cuts,
but don't vote for the proposed administration's budget cuts to
pay for the tax cuts?
Secretary Paulson. I would say to encourage them, I would
encourage them to vote for the budget cuts to pay for them,
obviously.
But I want to come back and again, I think it is--with an
economy that is growing, growing, and growing, it is unfair to
talk about deficits in absolute terms rather than as a
percentage of the GDP. Just as someone who makes $100,000 can
afford a bigger mortgage on a home than someone who makes
$25,000 or $50,000. And I would say when you look at this
deficit in the context of the size of this economy, it is--I
would like it to be smaller, and the reason I really want it to
be smaller is because of the big problem we see coming down the
road.
Chairman Spratt. Mr. Barrett of South Carolina.
Mr. Barrett. Mr. Chairman, thank you, but in all due
respect I would yield my time to some of the members that were
here on time. So I will ask my question a little bit later. But
it will yield 30 seconds to the Ranking Member.
Mr. Ryan. The member from Texas just mentioned--look, I
just make a point to clarify. The case I made and the charts I
used used aren't theories. They are facts, actual data that
occurred. The last chart I used--I guess you could call it a
theory. It was a projection into the future, but it wasn't a
Republican projection of the future. It was the Congressional
Budget Office protection of the future that Peter Orszag, your
nominee, produced for us.
So these weren't theories. These are facts and data of
information that actually occurred, as the case----
Mr. Edwards. As is the $3 trillion national debt over the
last six years.
Chairman Spratt. Mr. Garrett of New Jersey.
Mr. Garrett. Thank you. And we all can hear the phrase,
``pay for tax cuts.'' Just remember, the flip side of that. Who
pays for tax increases? And that is the American family. So the
groundwork always seems to be laid on the other side so far, in
the hearings that we have here, that we need to pay for the tax
cuts. Just remember that at any time you talk about paying for
tax increases it is going to be our constituents, our families,
and our district who are going to be paying for that, every
dollar coming out of their paycheck and sent down here to
Washington.
That being said, Mr. Secretary, thank you. I appreciate
your coming here today and it is commendable the way that you
and this administration, the President have addressed the, I
will say, the revenue side of the fiscal picture in this
budget. You know, many naysayers have been declaring for years
that the tax cuts just as we have heard right now, the 2000 and
2001, 2003 were unsustainable. And these same people have been
saying that the only way to bring back the budget into balance
would be to rescind them, which is a tax increase. But I
believe and I think you would agree with me, Mr. Secretary,
that such an action would negatively impact upon the American
economy. And that this budget lays out a different, and in my
opinion, better approach than that.
I would like to just quickly address two points, though.
One is with the AMT, the alternative minimum tax, which I
believe the Chairman has spoken about already, the alternative
minimum tax. I might call it the alternative maximum tax, the
way it impacts upon families and their budget. It hurts
American families. I come from the fifth District in the State
of New Jersey, the Northeast, which is an affluent State. It is
a donor State. And my district in particular, because of high
State and local taxes, while counted as a deduction against the
normal tax code they are not counted, as you know, with regard
to AMT. So in 2004, one out of every four tax returns in my
district were subject to the AMT, raising taxes for these folks
by over $4000. So I am just curious as to your thoughts, again,
on AMT relief and specifically related to the whole aspect of a
State and tax deduction, that was the first question.
And the second question, totally switching gears for you to
something else that probably hasn't come up here so far, and
that is GSE and GSE reform. This is an issue very important to
me. I want to compliment yourself and the administration on a
tougher tone that you have struck in pushing for a brighter or
clearer distinction that is being considered in the primary
mortgage market activities and secondary mortgage market
activities.
That being said on a positive note, I am disappointed in
what appears to be a softening, however, on your position on
portfolio limitations, and what that may mean as far as risks,
overall, to GSEs and risk to the economy as well. In addition
to that, I know you are in negotiations right now with House
leaders on the other side of the aisle attempting to find a
compromise with regard to a housing fund in GSEs. This housing
fund would drive the market of Fannie Mae and Freddie Mac as
well.
We have seen this as being nothing more than a tax on
middle-class America in the sense that they will pass these
costs, whether it be before taxes or after taxes, to the people
that use GSEs, use Fannie Mae and Freddie Mac. Ambassador
Portman was here the other day and made the point that what we
need to do is keep our taxes low, not raise any taxes, and I
commend the administration for doing that. But in the defense
of negotiations that are going on right now, we may be seeing
that in one critical portion of our economy, the real estate
and housing market, we may be seeing a tax increase looming, if
we have these negotiations go down that road.
So if you could address those two points for me, with AMT
and the State and local tax aspect on it, and more specifically
on the GSE reform and where your negotiations may be headed?
Secretary Paulson. Okay. Well well, thank you. First of
all, on the AMT, I see it the way you do. This was an
unintended tax, going back to 1984. And it just wasn't indexed,
and so we have the problem we are in right now. That is why we
have proposed the one-year relief, and what I have said, it is
something we really need to work on and solve.
In terms of GSE reform, let me say you are right; we are in
negotiations. I feel very strongly that we need a regulator
that is independent, got more muscle, and a number of other
changes. I also know people feel very strongly on both sides of
this issue. I have never witnessed anything quite like this. It
is the closest thing I have seen to a holy war. And all I can
say to you is we will not satisfy people on both sides. I don't
want the perfect to be the enemy of the good. And I think we
can work something through where we get the things we need to
protect against this--you know, there is real systemic risk,
and I think we can get the things--I am hopeful that we can get
the things we need, but I will just say to you there may be
some people that think we should get more and they may just be
disappointed.
Mr. Garrett. Hopefully I am not disappointed, but thank you
very much.
Secretary Paulson. I hope you won't be, either.
Chairman Spratt. Mr. Allen of Maine.
Mr. Allen. Mr. Secretary, thank you very much for being
here. Just to begin, my friend Mr. Ryan, who's left for a
moment, and I have a long-running debate in these chambers and
I have to respond to something he said, and then to ask you a
question. Mr. Ryan said that reality and history have shown us
that tax rates do have consequences, and I agree with that, but
I would point out that from 1960 to the present, there have
been only five years when tax revenues to the federal
government went down. In 1971, 1983, 2001, 2002, 2003, those
years being really the anomalies in the last 45-plus years.
And I guess the point I would make is that in 40 years of
tax increases and tax reductions where revenues almost always
go up to the federal government, what some very distinguished
economist sitting in your chair here earlier this year said.
They said tax cuts could stimulate the economy, at least in the
short term. They don't recover all the revenue that you lose.
But they also said spending can stimulate the economy. And
unfortunately, what we have been doing in the last six years,
in my view, is we have been doing both. It is stimulation on
steroids; vast increases in spending, and tax cuts larger than
the economy could withstand.
My question is about healthcare. You mentioned it in your
comments and I wanted to come back to it, particularly because
it seems to me that from all of the work I have done in
healthcare and all the different people that I have talked to
about the cost drivers of the American system, I think they
would say the rapid growth of medical technology is a primary
cost driver, that the over-use of some drugs and procedures and
tests is another cost driver, and that underlying it all is a
very complex multiple insurance plan. It is a system that is
far more complex than other developed countries in the world.
But in your statement you seem to say, well, it is the tax
code again, that we are encouraging overspending and therefore
if we simply change the tax code we will get a different
result. What I am concerned about is this: It seems to me that
if you push people away from employer-based healthcare plans,
despite all the problems we have with those plans, into the
individual market, you are basically going to push older and
sicker people, or people who have some healthcare problem in
the past, into a situation where they can't get healthcare, or
they can't get it at an affordable rate. And in small States
like mine, I don't believe the individual market could possibly
provide enough choices with a very small risk pool to make any
significant difference in cost.
And my question is, how do you deal with that critique of
the administration's proposal?
Secretary Paulson. Well, let me begin by saying I think you
are absolutely right, if you are saying to me that the
healthcare issues we face are significant, they are complex. It
is hard to imagine any one proposal would be a solution. Social
Security, we may disagree on what the right policy choices are,
but I think they are pretty well-defined and the analytics are
pretty good, and we could come together and forge a permanent
solution rather quickly. Healthcare, there are going to be a
number of intermediate incremental steps we are going to need
to take.
So the way I look at the tax component is, just as the way
I stated, it is the biggest preference in the tax system and so
you've got to begin by saying this, we certainly can do better
than. We can certainly do better than something that provides
big benefits to those who get employer coverage, nothing to
those who are uninsured, 17 million who are self-insured, and--
and something that has got biases and distortions in the
system, okay, where the bias is toward the more expensive
coverage, which in essence is just prepaid health insurance for
whatever, everything from glasses to cosmetic surgery or
whatever on the high end.
So that what this is is a step, and it is a step in the
right direction. And I just will say this. We have done a lot
of work on this, and the idea of saying that this is going to
lead to any kind of significant weakening of the employer-
provided health insurance, I think is wrong. What the data
shows is that most of the bigger companies, 200 or more
employees, provide health insurance 97, 98 percent or something
and they need to. That is very important to their employees,
that is a way for them to differentiate themselves. The
research also shows that there is a trend among smaller
companies, which is to provide--fewer of them providing
insurance over time. In 2000, 69 percent of the employers
provided health insurance. In 2006, it was 60 percent.
So, what this proposal does is I think first of all, it
removes biases, and it will give you greater access. There will
be three to 5 million more people who will have insurance as a
result of this. Affordability, portability--but we need to look
at it as part of an overall plan. Secretary Leavitt will talk
with you about his affordable choices and some of the things he
wants to do to help build pools and make insurance more
available at the State level.
And when you talk to people at the State level, the one
thing they can't deal with, you know, they can do a lot of
things but they can't deal with our tax code. So again, think
about the tax code. You know, I welcome your ideas, welcome--
there may be improvements, suggestions, but when you look at
this proposal, and your people can find questions,
imperfections--again, I said, you know, when talking about
GSEs, let us not let the perfect be the enemy of the good. What
we currently have in terms of the way the preference, corporate
tax preference works, let me tell you that is not close to
perfect. So we sure should be able to do better than that.
Mr. Allen. My time has expired, but I would appreciate it
if you would provide me with information on what kind of
backstop there would be for those people who are forced into--
who can't get insurance in the individual market, at a later
time. My time has expired. I thank you very much.
Secretary Paulson. Thank you.
Chairman Spratt. Mr. Hensarling of Texas.
Mr. Hensarling. Thank you, Mr. Chairman. First, I am sorry
that my friend from Texas who lectured us on courage has exited
the room. I think every witness who has appeared before this
panel has told us that the number one fiscal challenge we face
as a nation is runaway entitlement spending. That at least
several have said, I believe, that we may be the first
generation in American history on the verge of leaving the next
generation with a lower quality of life, less freedom, less
opportunity. I do not recall the gentleman from Texas embracing
entitlement reform spending in any of his proposals, nor do I
recall receiving any support from the other side of the aisle
on a Republican budget that did that, so when they gentleman
from Texas will embrace the entitlement spending reform, I will
be happy to sit for his lectures on courage.
Mr. Secretary, you've heard a lot already about massive tax
cuts, which is a current theme in this Committee. If I can have
chart number five, please.
When we hear the phrase ``massive tax cuts,'' and I am
looking at this chart and I am kind of eyeballing it here, tax
revenues have gone from roughly, oh, I don't know, one-nine,
when President Bush took office. Apparently there was declining
for a couple of years. He put into place the pro-growth tax
policies, and they seem to skyrocket from there. as I
understand it revenues are up 14.6 percent in 2005, 11.8
percent in 2006, and 8.1 percent for the first quarter of
fiscal year 2007. Are those figures correct, Mr. Secretary?
Secretary Paulson. Yes, they are, sir.
Mr. Hensarling. And I believe your forecast, which is in
line with the Blue Chip forecast, will have revenues over the
five-year budget window growing at approximately what was at
five-point----
Secretary Paulson. Four percent.
Mr. Hensarling. Five point four percent. So I am personally
still looking for the massive tax cuts that I have heard about.
And still, what I think I see is massive revenue growth. In
nominal terms, do we have the greatest amount of tax revenues
we have had in the history of the nation?
Secretary Paulson. Yes, we do.
Mr. Hensarling. We also hear about massive budget cuts, and
I do want to thank our Chairman, because 95 percent of the time
I hear somebody used the term ``cut,'' what they really mean is
that some budget function doesn't grow as fast as they want it
to grow. Now, in the Chairman's case, I think he alluded to an
education function being cut, and I think he used the term in
its correct sense. I think it might, however, need to be put in
a broader context. If I have done my research properly, and I
am going to OMB numbers, since President Bush has been in
office the education function is up 107 percent from 2001 to
2006. And as I can eyeball all the different function
categories, I am having a hard time seeing any other budget
function increase as precipitously as the education function.
Mr. Secretary, do you know how much the administration has
increased that function? Do you have that number?
Secretary Paulson. I don't have it in front of me, no.
Mr. Hensarling. Okay. Mr. Secretary, although I want to
reserve judgment until I see the final details, I very much
want to compliment the administration on your proposal to take
the tax code bias out of the choice of healthcare. I mean,
empowering people, empowering taxpayers to choose the
healthcare that is right for them and their families, as
opposed to having a third-party employer pick it for them, I
think is a huge reform.
I mean, we all know in this Committee room that until you
find the key to trying to reform healthcare costs, ultimately,
you cannot solve the budget crisis that we face in future
generations. So a proposal that will help healthcare become
more affordable, accessible and give families--not Washington
bureaucrats, but families--the choice of their control is a
very, very important step forward. And I certainly think you
for that.
And contrary to my usual pattern, with eight seconds to go,
Mr. Chairman, I will yield back the remainder of my time.
Chairman Spratt. The gentle lady from Pennsylvania, Ms.
Schwartz.
Ms. Schwartz. Thank you, Mr. Chairman. And thank you,
Secretary Paulson. I appreciate the opportunity to follow up on
some of the questions that were asked about the healthcare
proposals, the tax proposals. I wanted to follow up on some of
them.
What I am going to try to do since I only have five
minutes, and I hope you will as well, is to ask questions
somewhat briefly, and if you answer them somewhat briefly,
maybe we can get through a few tight questions, if I may.
The healthcare proposals that the President has put out on
the tax side, to me, seems to be moving in absolutely the wrong
direction, and I think you acknowledge them to some extent. And
that is, to really discourage or create fewer incentives for
employers to cover insurance. You said yourself that smaller
companies are dropping coverage. You almost said ``anyway,'' so
we ought to acknowledge this maybe, your implication, and
help--just individuals the opportunity to purchase in the
private marketplace.
This seems to me to do two things: is to ignore the way
insurance works, which is that it is most affordable and most
accessible when you pool the risk with the largest group of
people. What you are doing instead is actually saying ``We are
going to make Americans be more on their own when it comes to
purchasing healthcare.'' Not the way the insurance market
works. So I want you to speak to what have you heard from the
insurance industry or do you know about the insurance market
that suggests that putting more people in the individual
marketplace will in fact make it more affordable more
accessible. there is nothing that indicates in any of our
history that is going to happen.
Secretary Paulson. Well, let me, even before addressing
that, let me just tell you that I could not disagree with you
more strongly about your first statement, because there is
nothing in this that discourages corporations from providing
healthcare. It is still deductible to corporations.
What this proposal does was, it tries to put some fairness
into the situation, and that there is 20 percent of those that
get insurance from corporations are getting a huge tax benefit
that is--and what this does is give everyone became same tax
benefit regardless of whether they are getting insurance from
their employer or what they are getting the gold-plated from
the employer or----
Ms. Schwartz. I don't think anyone would disagree if we
were just simply including individuals in that fairness in the
individual marketplace. The concern we have, that in fact it
actually--the President is saying, what you are saying, is that
``the employers are being too generous, we want them to stop
providing comprehensive coverage, we want them to reduce the
coverage,'' and I think for many of my constituents, they are
already saying that they are seeing their co-pays go up, they
are seeing deductibles go up. We are already seeing a shift,
dramatically, to the individual employee, but this would
encourage employers to reduce the benefits package they
provide, and potentially--160 million people get coverage
through their employer right now.
Secretary Paulson. And it is very interesting, and a huge
percentage of those 80 percent get coverage below the level at
which they will get the deduction. So all this does, it doesn't
encourage employers to not provide coverage. What this does is,
it treats people fairly.
Now, but your question, which has to do with the individual
market, and access. And there is no doubt that there needs to
be more to be done to help develop that market, and a lot will
be done at the State level. But I would say the conversations
that some people have had, and I have not had these
conversations directly, but there have been conversations and
there is going to be work that needs to be done on this, with a
number of the insurers who are providing this insurance saying
something like this would provide a big impetus and it would
help jumpstart the market.
Ms. Schwartz. I guess what I would say that just in terms
of careful about time, I think the notion of jumpstarting the
market is interesting, but it doesn't tell us what you mean by
that. Given what we know certainly about the marketplace again,
and in Philadelphia--I don't think it is that different than
the rest of the country--is that it is very hard and very
expensive to buy insurance individually in the private
marketplace. there is not, there is not now an easy way to find
affordable and accessible healthcare for individuals, and
particularly if you are sick or if you dropped your insurance
before and have pre-existing conditions. And so while we have
tried to do some good work here to help make sure that the
coverage that people can buy is meaningful, but given the
expense I think what you are suggesting is that it will somehow
magically be more--will work out, and I want to make sure
people can afford it, that there is some ability in the private
marketplace. Otherwise we should be moving in exactly the
opposite direction, which is helping to create broader pools
and helping people be able to purchase healthcare and share the
risk in broader ways, rather than going one-on-one.
Secretary Paulson. Well, I would say this is all about
broader pools, and that a big part of this--again, this to me,
what we are doing at the employer level with this tax benefit
is about fairness, affordability, access. Work has to be done.
And when Secretary Leavitt is up here, he will tell you about
the work that he is doing at the State level to create these
pools. And again--as you work to do that, when you are talking
about certain people that are sick or that are in certain
categories, that is an issue that we are going to all have to
keep working on.
But there is 47 million people right now who are uninsured;
there is a waitress, there is a construction worker. They get
no chance, they get no benefit at all from the tax system. This
would give them----
Ms. Schwartz. I believe my time is up but let me just one
other question. Of the 47 million, I understand that the
estimates that you have is at best, this whole shift to the
individual market would actually maybe benefit 3 million people
of the 47 million; is that correct?
Secretary Paulson. No, we certainly did not say--I don't
know where you got that. We have an estimate that says that
three to five, which I believe is a conservative estimate. We
have got people working on others.
Ms. Schwartz. It is somewhere between three to five. It is
about 6 percent, 7 percent of the people----
Secretary Paulson. This is an important step in the right.
But again, as you look at it, I don't know how I or anyone
defends a tax code which gives--of the people that get
insurance from the employers, 20 percent who happen to be with
the employers that provide the most gold-plated service, the
other 80 percent with employers are not getting the same
benefit. You have got 47 million people uninsured, 17 million
self-insured, no benefit.
Ms. Schwartz. Mr. Secretary, let me say I agree there is a
lot that we have--more we have to do about this, and a much
longer discussion to have, but I think our time is up.
Secretary Paulson. It is, and it will take a while to work
this--and a way to think about this is one part of a broader
effort.
Chairman Spratt. Mr. Alexander--first of all, Mr. Campbell
of California is not here. Mr. Alexander of Louisiana.
Mr. Alexander. Thank you, Mr. Chairman.
Mr. Paulson, the OMB Director and CBO Director both have
been here and talked about our debt, our nation's debt. I
mentioned the other day that we see all up and down the halls
the plaques that the Blue Dog members have up that show
somewhere, I think a little less than $30,000 per man, woman
and child, that is owed.
CBO and OMB, their numbers are hugely different. OMB
director says it is somewhere closer to $400,000 instead of
30,000. What is the debt of our nation?
Secretary Paulson. What is the debt of the nation? There
are a number of ways you can look at it, and I think the reason
you get some confusion is, when you look at--you can look at
the public debt that is outstanding, the treasuries which are
outstanding, which are roughly $4.4 trillion that is
outstanding held by the public. Then there is another big
percentage, about 44 percent, of the total debt is in the
Social Security and the Medicare trust funds. And that is where
a big portion of it is.
Mr. Alexander. So I guess it would be accurate to say we
don't know?
Secretary Paulson. No, it would be over $8 trillion.
Mr. Alexander. Okay. When we see on the chart a growth of
revenue to the Treasury Department, and we also see that we
have a debt increase of $3 trillion during the Bush
administration, as has been said here, how does an increase of,
say, $1 billion in debt affect the growth of money coming into
the Treasury? If we know that tax cuts fuel the economy,
increase that Treasury income, then we have to assume that if
we borrow $1 billion and put it into the system, that is to
increase in a positive way the Treasury income, don't we? How
do we know how much it affects it?
Secretary Paulson. I think I see where you are going. But
there are different ways of looking at it. Chairman Spratt has
mentioned that obviously the debt, one way it affects
negatively, having the debt, is the interest we pay, which I
think the Chairman's numbers were $280 billion a year. And so
that is part of the cost. And so there is no doubt that that
the reason we would like to be operating with a balanced budget
is because we are concerned if debt levels get to be too high.
And I guess the way I would put it, if you are looking at a
family, if you are looking at a business, or if you are looking
at a government, there is an appropriate debt level, where it
is a healthy, appropriate debt level. And our outstanding
public debt, which is one thing I look at, which had averaged
46 percent of GDP in the 1990s, right now is 37 percent, and it
is headed down. If we were just looking at that, that would be
something that with an economy this size would seem to be
prudent.
But the reason I think there is so much angst around the
fiscal situation doesn't have to do with, you know, the current
fiscal situation. It has to do with the growth of entitlement
spending and the rate at which this--the rate at which these
benefits are growing, and the debt will be piling up, we will
be in a situation in a number of years, where there are some
very tough choices we will have to make if we don't solve the
problem. And there it will be either taxes that are a lot
higher higher, discretionary spending that is a lot lower, or
benefits that are much, much lower. And so that is what I think
all the discussion is about.
Mr. Alexander. Thank you. Thank you Mr. Chairman.
Chairman Spratt. Mr. Doggett of Texas.
Mr. Doggett. Thank you, Mr. Chairman. I see that Mr.
Edwards has returned from the briefing that he organized for
our Texas delegation with the Adjutant General to talk about
our National Guard meetings. But I do think Mr. Hensarling, in
referring to him, raises an important matter. And that is the
tendency to look at the mess that has been created over the
last six years, the $3 trillion of debt. And then the first
issue that is always up is how can we cut Medicare or Social
Security to deal with it?
I don't think it took courage and frankly, I think it would
have been foolhardy for Mr. Edwards or any other member on the
side of the aisle to have embraced the Republican plan to
privatize Medicare and Social Security. The Social Security
privatization plan is unfortunately still in this budget. This
President will not give up on privatizing Social Security, and
there are millions of seniors who I think are mighty pleased
that neither Mr. Edwards nor anyone else has embraced that. And
as long as that is on the table, it is very difficult to sit
down and discuss, as we have said repeatedly to Secretary
Paulson and others, the notion of entitlement reform, because
this President is determined to make Social Security ever
weaker with private accounts.
I wanted to address the second aspect of the mythology that
Mr. Hensarling and other members have raised today, and that is
that we can solve all of our country's problems with no tax
revenue increases, because I know, Mr. Paulson, from the
proposals you are defending this morning you certainly don't
agree with that position. You have embraced a proposal under
which President Bush would raise taxes on 30 to 38 million
Americans who have comprehensive health insurance; have you
not?
Secretary Paulson. Sir, you must have come in late to the
hearing.
Mr. Doggett. I just looked at your proposal calling for
affordable choice. It raises taxes on 30 to 38 million people.
Secretary Paulson. Either you came in late, or I have put
you to sleep. Because the point we made was we proposed a one-
year patch, relief for one year----
Mr. Doggett. No, sir. I am not talking about the AMT. I am
talking about the affordable choice program that you endorsed
this morning, that the President talked about what it was going
to do to provide relief to folks, but didn't bother telling
them he was going to raise taxes on 30 to 38 million people.
And you had endorsed a proposal.
Secretary Paulson. I don't believe--I don't see where we
are going to be raising taxes----
Mr. Doggett. Well, you are going to be raising taxes on
anyone who has comprehensive health insurance. That is part of
your proposal. You provide in your budget documents for
significant increase in revenues in order to pay for your
affordable choice program. In fact, one estimate I have seen is
that the year after next you are going to raise taxes by a
total of $236 billion on those people, on their comprehensive
health insurance program with the new Bush health insurance
tax.
Mr. Ryan. Will the gentleman yield for clarification?
Mr. Doggett. I would like for the Secretary to answer,
first. This is a program you said is so important.
Secretary Paulson. Well, I don't know anything about the
new Bush health insurance tax.
Mr. Doggett. Well, it is in your budget documents, Mr.
Secretary.
Secretary Paulson. You are going to have a very interesting
discussion with Secretary Leavitt, I guess, when he is here,
because----
Mr. Doggett. Well, I do plan to ask about it this
afternoon, but you are the Secretary of the Treasury, and you
had endorsed, you would have a much bigger hole in your budget
than you do if you didn't raise revenue. And you are raising
revenue. I understand if you just listen to the President's
State of the Union address, you would never know that was part
of the proposal, but he has got a proposal to raise taxes on 30
to 38 million Americans who have comprehensive health
insurance. He says that is going to encourage--it is going to
redesign the marketplace. But nevertheless, if you are out
there and if you got a good insurance program, you are going to
be paying higher taxes on it----
Secretary Paulson. Okay, so you are talking about the tax
preference on health insurance----
Mr. Doggett. I have been talking about a $238 million
increase in taxes that the Bush administration is proposing the
year after next on people who have comprehensive health
insurance, that tax.
Secretary Paulson. I got to tell you I don't know what you
are talking about. But if----
Mr. Doggett. Look at your budget documents, and I welcome a
follow-up, and I will ask Secretary Leavitt, and I will move on
to something else.
Secretary Paulson. Now let me ask you--are you talking
about the standard deduction for health insurance?
Mr. Doggett. I am talking about the fact that people who
have comprehensive health insurance are going to be taxed on it
under the Bush plan, and they are not today. And for every one
of those 30 to 38 million Americans, that is a tax increase. It
is a Bush tax increase.
Secretary Paulson. Let me say to you, what this does, this
health insurance is a standard deduction. It gives the same
standard deduction to everyone, no matter what their health
insurance plan is, and it treats----
Mr. Doggett. Well, thank you, Mr. Secretary. I don't think
that is a really responsive to my question. But let me ask you
about the other tax increase that the Chairman asked you about.
Secretary Paulson. What is the tax increase that you are
talking about? What----
Mr. Doggett. I am talking about the tax increase that the
Bush administration has proposed on people with comprehensive
health insurance, that you have included in your budget
documents as an attempt to offset a portion of what you call
your affordable choice program. And it is a tax increase as
real as any that anyone has ever talked about here.
But me ask you about the AMT since you talked about that
with the Chairman----
Chairman Spratt. Is there something you want to say to
that?
Secretary Paulson. Yes. I guess I am confused as to what
the Congressman is talking about.
Chairman Spratt. I think what he is talking about the
exclusion from ordinary income, from employee-provided
premiums, which will be repealed and replaced with a standard
deduction.
Secretary Paulson. Yes, absolutely.
Mr. Doggett. The Bush health tax.
Secretary Paulson. Okay, now, the health tax----
Chairman Spratt. The 20 percent of the population, the
health coverage population, by your estimates, who will be
disadvantaged by that.
Secretary Paulson. Okay, now, in terms of the----
Chairman Spratt. I don't accept that characterization, but
I understand----
Secretary Paulson. I don't either, so let me just again
look at it, and say what this does, and address his question
about the tax. What this is is a standard deduction that
everyone who has health insurance gets, whether they get it
through the employer, whether they get it themselves in the
individual market. What this does is, there will be--it is a
$15,000. So those, 20 percent of those in the employer-provided
health market, 20 percent of those people, who get a plan that
is a gold-plated plan, where the premiums are greater than
15,000, will pay more taxes unless they restructure their
health insurance. Eighty percent will end up better from a tax
standpoint.
Mr. Doggett. Let me just say, your own revenue estimates
show this Bush tax increase, and if you are out there and you
call it ``gold-plated'' but it is a comprehensive plan to cover
your child with disabilities, you are going to be paying more
taxes. And you said you can't institute this plan to cover what
I think Ms. Schwartz appropriately identified as a 7 percent
solution, to cover 7 percent of the uninsured, unless you add
this kind of additional revenue.
Secretary Paulson. Congressman, we need to spend some time
off-line, because what this will do is, from a--the vast
majority of people will be better off. And this is revenue-
neutral.
Mr. Doggett. I understand full well your claims, and the
very fact that you just told me it is revenue neutral makes the
point. It costs something to provide this additional coverage,
and 30 to 38 million people are going to pay higher Bush
insurance taxes as a result, to make it revenue-neutral.
Secretary Paulson. Well, there will be 20 people at the
high end that get gold-plated insurance plans will have--they
will either have the opportunity to restructure their
insurance, or they will pay more taxes, but there will be 80
percent that will be much better off.
Mr. Doggett. Thank you. Thank you for acknowledging that.
Thank you, Mr. Chairman.
Chairman Spratt. Okay. Mr. Porter of Nevada.
Mr. Porter. Thank you, Mr. Chairman.
Chairman Spratt. Excuse me. Mr. Barrett is not here, Mr.
Smith is not here, Mr. Bonner is not here, so you come next.
Mr. Porter. Thank you.
Mr. Ryan. Mr. Porter, would you just yield for a minute?
Mr. Porter. Happy to.
Mr. Ryan. Thank you.
There is a lot of confusion on our side and on the other
side as to what this is, this healthcare thing. Employers can
deduct the cost of providing healthcare benefits to their
employees now, and they always will be able to under this plan.
That is not the issue. And I know that is not what the
gentleman from Texas said, so I don't want to be putting words
in your mouth.
The question then is, to the individual on their taxes,
right now they get healthcare benefits from the employer and it
is not taxed. It is given to them in a tax-free way. This
proposal changes this to make that taxable, and it transfers
that tax benefit from the employer benefit to the individual so
that the individual, whether it is an individual with their
own, a single person or a family, they get a tax benefit on
their income tax, $15,000 for family plan, $7,500 for the
individual plan. And the numbers that I have to call into
question is, 100 million people get health insurance from their
jobs and that is the plans. It is mathematically impossible
that 38 million people are going to have their taxes increased.
It is their estimate that 20 percent----
Secretary Paulson. 20 percent at most.
Mr. Ryan. 20 percent of those plans cost more than 15
grand. that means 80 percent of those plans cost less than 15
grand and these individuals will see their taxes go down. What
happens to the 20 percent above 15 grand? Well, they will
probably restructure, maybe they will get a tax cut, I don't
know, but we know that that is not 38 million people. So I just
want it clarified. For our guys too, this is not talking about
taking away the tax expenditure on the business side; it is
transferring the tax expenditure on the individual's side to
the actual individual, rather than attaching it to the benefit.
That is----
Mr. Doggett. Will the gentleman yield?
Mr. Ryan. Sure.
Mr. Doggett. Well, there is a study that the Lewin group
has done, since the Treasury has not provided these numbers
themselves, that shows it is 30 to 38 million people. And
whether it was 30 to 38 million or three to 5 million people,
they are going to have a tax increase and it is a very clear
tax increase and the estimate of the Lewin group is that it is
hundreds of millions of dollars the year after next.
Mr. Ryan. Reclaiming--and I haven't seen the study that--
and I have a hard time buying that, but--Mr. Porter, thank you
very much for your time.
Chairman Spratt. Mr. Porter.
Mr. Porter. Thank you, Mr. Chairman.
Mr. Secretary, it is good to see you again, yesterday at
ways and means, and now here again this morning.
Two points. One, to follow up on a conversation that we had
yesterday. We were talking about how we got to where we are
today, and there is no question that we have substantial
deficit and a debt. But if we look back through the early part
of 2000, as the recession was starting to have a major impact
on our country, we had 2001, we had 9/11 and billions of
dollars in our economy that were impacted by the attack on our
homeland, to New York and here in D.C. We also had to rebuild
the military that was drastically cut for a decade, or eight to
10 years. Our military was underfunded, under-built to protect
our homeland. So as we talk about where we are today, I think
it is important to keep in history, that a lot of this has to
do with some things, from a natural disaster to an attack on
our homeland. And we are doing everything we can to address it.
But I would like to visit one more time some of the
successes of this proposal of reducing impact on families and
taxes. Now we look at Nevada as an example. Currently we are
building 40,000 new rooms for visitors. Our unemployment rate
is as low as it has been in four decades. We are drawing 70,000
people a month. Our room occupancy is around 97, 98 percent.
All of those are a bellwether for the economy. And we
talked, in Ways and Means and in this Committee, about the
attitudes of Americans. I would like to cite, and if we could
add it to the record, New York Times, they did some research in
March. They asked people how they felt about the economy, how
they felt about the direction of the country.
``And more than ever, Americans cherish the belief that it
is possible to become rich. Three quarters think their chances
of moving up to a higher class are the same or greater than the
last 30 years. Compared with their social class when growing
up, people said their current class was 48 percent higher,
compared to 30 years ago when the likelihood of moving up from
one's social class to another is about 40 percent greater.''
And I enter this into the record because I think we are all
in all we are hearing is how miserable people feel. I think
that the policies of returning hard-earned dollars to Americans
is making a difference. I think that needs to be taken into
consideration, that people appreciate the fact that we are
reducing our expenses.
On another issue, very specific, something that has not
been brought up, and that is Yucca Mountain. And I know there
are those that think it is out of sight and out of mind, but if
you look at the history of Yucca Mountain in Nevada, It is been
a $9 billion hole, and even those proponents should look
closely at the waste, the gross waste of dollars. It is close
to five or $600 million a year. Hoping to reduce debt in this
budget to something substantially less than that. But I think
as a Committee, as we are looking at ways to save money, and
the budget hawks that may support burial of nuclear waste in
Nevada need to look at the fact that it is a colossal waste of
taxpayers' dollars, close to $9 billion, and we need to find
alternatives.
So I guess it is not really a question regarding the
economy, regarding Yucca Mountain, but could you address the
impacts that these things have had on the growth of our
economy, from 9/11 to our catastrophic national disasters?
Secretary Paulson. I just want to say one thing real
briefly on mobility. When people talk--and I have spent a lot
of time looking at the growing divergence of income. But the
one bit of good news is the mobility you've talked about, that
dynamism. Because what the numbers show is that of those in the
bottom quintile, half of them will have moved out of that, in a
10 year period. And those in the top quintile, half of them
were not there 10 years earlier. And so there is great
mobility.
And in terms of the tax cuts, I saw it firsthand, in terms
of what they did, and in terms of inspiring investor
confidence, and corporate confidence to invest in the economy,
changing behavior. I think one way we probably all can see it
is when you look at small businesses. And you know, the top
individual rate is often the small-business rate with the
schedule C filers. You know, you probably know a lot of small
businessmen who every extra penny they have they plow back into
their business, and they are a big driver of growth. And so I
would say you are right, that has changed behavior, and it is
an important part of this economic growth.
Mr. Porter. Now, Mr. Secretary, it may seem parochial to
mention the Nevada experience, but people who do not travel do
not enjoy tourism and travel, and we would not be at a 97
percent occupancy if the American people didn't feel
comfortable, and believe in the future of our country. Thank
you.
Secretary Paulson. Thank you.
Chairman Spratt. Mr. Blumenauer.
Mr. Blumenauer. Thank you, Mr. Chairman. Just a general
comment. I find it somewhat optimistic on the part of the
administration bringing us this budget predicated on a one
percent limitation to non-security and domestic spending,
something that my Republican friends have been unable to
achieve even once in the 12 years that they have been in power.
And somehow the administration thinks that with Democrats in
charge we will do that in the next four years. Somewhat ironic.
The second irony is that the Treasury Department and the
President do not place a higher long-term priority on extending
the tax codes than dealing with the alternative minimum tax,
which is rapidly morphing from a tax on lawyers, doctors, and
lobbyists. It doesn't get the hedge fund managers, and the
typical CEO, but it does get the lobbyists, the lawyers, the
doctors, the accountants. But this is rapidly morphing into a
tax on two-income teacher, firefighter, plumber--the plumber
that you referenced, that 89 percent of married families with
children will pay the ATM by 2010, under the priorities that
have been advanced by the Bush administration's budget. I find
that ironic, that concern about tax reduction and
prioritization, and I think it is a sadly mismanaged set of
priorities, which I hope our Budget Committee will address.
Mr. Secretary, I was pleased to see that the Global
Environmental Facility, GEF, received not only the 8 million
that was pledged, but it appears in this budget as I read it
that there will be a commitment towards paying off our past
shortfall. I know you are a noted person who is concerned about
the environment as part of your resume, which is something I
was pleased to see, and I really commend you and the
administration for meeting this commitment, and I hope we can
continue to do so in the future.
My question to you deals with issues surrounding debt
cancellation. Impoverished countries have benefitted from the
2005 debt agreement reached recently in the UK. Your sort-of
counterpart, Gordon Brown, has named 67 countries as requiring
full debt cancellation. I am wondering what your thoughts might
be about our being able to go forward under the confines of
this budget, or work that we can do within the budget Committee
or the Ways and Means Committee, where we need to revisit it to
be able to move in this direction, as a way to help put the
underpinnings under these poor countries.
We appreciate what the President has done in this budget
with HIV-AIDS. I personally hope we are able to do a better job
keeping our commitments for water and sanitation, but I wonder
if you have some observations also----
Secretary Paulson. First of all, I thank you for the
question and I talk with Gordon Brown fairly often, and this is
a topic that he is very passionate about. And it is one that
the administration worked very closely with him a year or two
ago, fashioning that very important agreement.
The poor developing countries is a very important issue,
and it is important when we do it, we do it in a way in which
we think has got a reasonable chance of being sustainable, and
so we come together as a group. And one of the things we have
been spending a lot of time talking about is the importance of
keeping nations from coming in afterwards, and then
individually loaning, or unilaterally loaning money to increase
their problem again.
So this is something that we will continue to focus on. And
I think right there, it has got to be part and parcel of some
credible economic program. And I would also just put in a plug
for trade and for Doha, because if we don't get a Doha
agreement, the poorest countries are going to be the ones that
are going to be paying the biggest price for that.
Mr. Blumenauer. I appreciate your comments, and I
appreciate your courtesy, Mr. Chairman. I would hope that as
you move forward, that there is--I appreciate that we need some
standards and for these countries themselves, I hope there is
some sensitivity, particularly as we deal with their water and
sanitation.
Secretary Paulson. Very very much so.
Mr. Blumenauer. Thank you.
Chairman Spratt. Mr. Simpson of Nevada.
Mr. Simpson. Thank you, Mr. Chairman. Thank you for being
here, Secretary Paulson, we appreciate it, in this fun give-
and-take that we have.
I want to take you back if I could to something you said
when you were talking, when you answered Mr. Edwards'
questions, relative to the deficit and the debt. You said,
speaking of Congress, the need to maintain the economic
policies to stimulate growth and so forth, and the spending
restraint. And you said, referring to Congress, ``there has
been some restraint down here. Not as much restraint as we
would like to see.''
Given that in the six years that I think the President has
been President, this Committee and Congress has adopted the
discretionary budget cap put fourth in the President's budget
proposals, our 302 cap is always reflective of the President's
cap on discretionary spending. What additional spending
restraint are you talking?
Secretary Paulson. Well, it was a general statement in the
sense that I think we all recognize a need for greater
discipline. The President has talked a fair amount about
earmarks, and so I think there is a number of things that we
could do better. But I take the comment that the previous
speaker made, which is we, holding nonsecurity discretionary
spending to one percent a year would be better than we have
done in the past. And it is not easy, and I don't mean to imply
that it is easy.
Mr. Simpson. Well, what bothers me, I guess is that I
continue to hear the administration and the officials talking
about spending restraint, we need to make sure that Congress
exercises exercises spending restraint. As a member of the
Appropriations Committee, we have had some tough times trying
to live under the budget caps, but we have done so. And I get
this feeling that the administration is trying to shift the
blame to Congress for not being fiscally constrained enough to
hold it down, and we have done a good job.
And as far as mentioning earmarks, hey, you know I was at
an event yesterday with the President when he held up this big
stack of earmarks and all this kind of stuff. Then the CR that
we just passed the House, you will notice that we eliminated
almost all the earmarks out of that. There were some that were
left in, particular from the Senate side, but most of the CRs
were left out, or most of the earmarks were left out. Guess how
many dollars we saved.
Secretary Paulson. Not a lot.
Mr. Simpson. Zero. Because that money went into the
agencies and now guess what. Now, we go to the agencies and ask
them to fund the projects. The only thing that changed with
that was the discretion of which projects are going to be
funded, whether it is going to be that by the administrative
branch of government, or whether members of Congress are going
to have some control over a very small portion of that budget.
Earmark reform is not going to save a dollar. Should it be more
transparent? Yes. Should we look over it better and make sure
they earmarks are justified? Yes. But in terms of saving
dollars in fiscal constraint, all I want is the administration
to acknowledge that it is a joint problem between the
administration and Congress. And certainly he is going to
propose spending programs to be eliminated. Some of them we
have done. Some of them we disagree with the administration.
And that is the way it is. He is going to propose, as an
example, on the public schools, the county payments for those
counties that have lost forest timber revenue, he is going to
propose, as he did in his budget, the way to pay for that for
the next five years is to sell public lands. He proposed it
last year.
So we are going to have to find another way to do it. And
we will work within that budget. But the acknowledgment that we
have actually had fiscal constraint and fiscal spending
discipline on the discretionary part of this budget, I think,
by the administration, would be a good thing. And what we
really have two do, in a bipartisan fashion is work on the
mandatory spending of Social Security, and Medicare, and
Medicaid, and no matter what anybody says, everybody that looks
at it knows that we have got to address it because you can't
continue the growth that it is on.
Secretary Paulson. I would say amen. And so I clearly see
that both Congress and the administration deserve a lot of
credit for the fiscal situation we have right now in the short
term, which is a stronger fiscal situation. And so we have a
strong economy, revenues coming in, and there has been
restraint when you look at, you know all of this after the
natural disasters and hurricanes, and 9/11, the war, and
funding all of that. And so you are very right to focus on the
big problem.
Mr. Simpson. I appreciate that. And I would say to my
friend from Texas, Mr. Doggett, that it is difficult to meet
and talk about saving Social Security, the Treasury Department
Social Security, because the President would have to propose
private accounts.
Put everything on the table. I don't care what the
proposals are. Let us sit and talk about it, and have a
bipartisan solution to this. It may include private accounts,
it may not, I don't know. But let us work it out, and quit the
politics of blaming each other for it and try to find a
solution.
Thank you Mr. Chairman.
Chairman Spratt. Mr. Berry.
Mr. Berry. Thank you Mr. Chairman.
Mr. Paulson, thank you for being here. We don't run
across--I am looking at your resume here. Dartmouth, MBA from
Harvard, we don't have too many of those at the Rice Paddy
Motel coffee shop in Gillett, Arkansas. And we don't have
access to this kind of expertise very often.
So I would like to--I have been around here since 1993.
Most of the discussions I have ever heard about the economy or
public policy or whoever, certainly from your side of the
aisle, would indicate that the only thing that matters is the
tax rate, that if you just cut taxes the economy just bubbles
up out of the ground. And if you raise them, that horrible
things happen. Now, to the best of my memory in that short
period of time, we have raised taxes and had a successful
economy, and we have cut taxes and incurred huge debt. So my
first question is, is there anything that impacts the economy
besides taxes?
Secretary Paulson. Obviously, many things. We have a very
diverse, very, very strong economy, great entrepreneurial
spirit. There are many things that impact the economy. Taxes
happen to be an important one.
Mr. Berry. I asked this question of Director Portman
yesterday. Do you all ever recognize the value to the economy
that the American people get because they spend less than half
as much of their money for food as any other nation in the
world? Does that ever occur to anybody at the Department of
Treasury? Can you get a report on that and the value of it, and
what would happen if we doubled the price of food? Not now, but
at some future date?
Secretary Paulson. Sure.
Mr. Berry. I would love to see that information. I would
associate myself with the remarks of the gentleman from Idaho
about earmarks. I think we know more how to spend money than
the administration, whether it is this administration or
another. And I think it ought to be transparent, and I think it
is a good thing.
I think you have been given the most difficult task of
making chicken salad out of chicken litter, and I don't think
it is going to be an easy thing for you to do. I appreciate
your willingness to come up here and tell us how good things
are going to be, and how wonderful the world is going to turn
out to be in spite of the fact that we have completely
ignored--if we came forward today and proposed just borrowing
over the next two years $1 trillion, let us just float a $1
trillion bond issue. And let us take it and divide it up among
the people according to how much money they make, whoever makes
the most money gets the most. Would your former--the company
that you headed before you came here, would you all be
interested in buying those bonds, and doing that?
Because essentially that is what we have done. We have sold
$3 trillion worth of bonds and given the money to the people
according to how much money they make. Doesn't borrowing money
and giving it away, doesn't that stimulate the economy too? You
know, like I said, I am just a poor dirt farmer from eastern
Arkansas, but I can add and subtract. And I am curious, am I
right about that? If you borrow money and give it away to the
people, doesn't that stimulate the economy?
Secretary Paulson. There will be a short-term stimulus,
sure. I would just say, Congressman Berry, a couple things.
First of all, if you think I am sitting here saying everything
is going to be bright and rosy in the future, you've
misunderstood me. The one thing I will say is we all can be
pleased that we have a strong economy today. We have a strong
economy today, and that puts us in a stronger position to solve
some of the problems we need to solve.
But frankly, since coming to Washington, although I have
had a pleasant surprise on the short term, that frankly, in
January, if you had asked me last January whether the economy
would be as strong as it is this January, I wouldn't have
guessed it. And it looks like we have made a transition to a
sustainable rate of growth, and that this expansion--I would
say the problem--I see a huge problem, which is the longer-term
problem of entitlements.
Mr. Berry. I understand all that.
Secretary Paulson. And that is bigger than I thought it was
before coming here.
Mr. Berry. Let me ask you this. What would our economy look
like today if we hadn't borrowed $3 trillion?
Secretary Paulson. I have got to tell you that is an
unknown, what the economy would look like. I would do you this:
I know that the tax relief played a very big part in getting
this economy back up and going, where we needed to get it.
Chairman Spratt. On the Republican side, Mr. Conaway.
Mr. Conaway. Thank you, Chairman. Last week we had Mr.
Orszag here, and I challenged him to begin parsing his
adjectives better. You used the word ``huge'' earlier in
connection with something. We always use the word
``massive.''you all use the word ``massive.'' We do that I
think in order to try to augment the strength of our arguments,
as opposed to just letting the argument lie where it is.
Numbers go up, numbers go down, and we ought to be able to
understand it.
But in that vein, my brother colleague from Texas augmented
one of his positions by saying that he was offended--is
challenging the change in VA benefits, the co-pays or whatever
it is we may be asking this budget to do, and I certainly agree
we ought to talk about those. But he seemed to want that, then,
by saying that members of Congress aren't sharing
proportionally some sort of a burden.
So, I am not in the least embarrassed by how much I make or
we make, the benefits. I defend it all the time in my district,
I voted for the pay raises. But if my good colleague from Texas
is in fact wanting to augment his argument that Congress, and
the staff, and the Secretary of the Treasury, others, ought to
share in this by taking pay cuts or a reduction to benefits,
then let the bidding begin.
But it ought to begin on his side. If he is not serious
about that line of logic, which is very emotional one, and one
I don't agree with, but it is very emotional, and it appeals to
an awful lot of folks. If in fact he wants to continue using
that line of logic, which he has used in the past, used again
today, then I would encourage him, I guess, as part of next
week's unveiling of the new agenda, to include I guess the
opening bid, which would allow us on this side to begin, you
know, raising that bid.
A comment was made about earmarks. I would argue that there
were--there was, or is, member-directed spending in the
Continuing Resolution. I would argue that our good colleague,
the chairman of the Appropriations Committee singlehandedly
directed an awful lot of spending, moving monies around within
that CR. It took 137 pages to do what normally takes two to
four pages to do, and so there was member-directed spending in
the Continued Resolution.
Looking forward to more conversations like this. I don't
have anything to add other than just to say we have got some
tough decisions to make, and whether you raise taxes and this
economy goes to the tank, or you spend more money or whatever
we do, I am continually impressed by the resiliency of this
American people, this American economy. It thrives in the face
of things we do here in an attempt to make it better. And most
the time it just continues to trudge along, and overcomes them
amidst the challenges that we put in the face of it, whether it
is a complicated tax code scheme that is criminal on its face,
or other over-regulations, or other losses, all the kinds of
things that we have got out there, that this economy can
continue to thrive, and goodhearted Americans get out there and
work every single day, in spite of what we do here in these
chambers.
So Mr. Paulson, thank you very much for your service. You
do have a tough job. Chicken litter, I guess that is a phrase I
am not real--I know what it is, but I just haven't heard the
more genteel phrase. But I look forward to working with you.
And with that Mr. Chairman, I yield back.
Secretary Paulson. Thank you.
Chairman Spratt. Mr. McGovern of Massachusetts.
Mr. McGovern. Thank you, Mr. Chairman, and thank you, Mr.
Secretary, for being here. I appreciate your testimony. I am a
new member of this Committee and one of the things I have come
to appreciate from your testimony and listening to others is
that there is no simple quick-fix solution to the mess that we
are kind of confronted with. We are going to have to talk about
entitlement reform, we are going to have to deal with issues of
not only tax cuts, but tax increases. I think there is a lot of
controversial issues down the road that if we are honest we are
going to have to deal with them.
I am also a bit concerned however, that we all talk about
numbers. Sometimes we forget that there are people behind these
numbers. So when we talk about cuts in programs or we talk
about ``we are not going to raise the amounts in some of these
programs to deal with inflation,'' to deal with increased
participation, that there are people that fall through the
cracks, and I think we need to keep that in mind.
I have limited time so I just wanted to ask, I have a
couple of sets of questions. The first is, Mr. Secretary, when
are we going to have to raise the debt ceiling? That is, when
is the administration going to make a formal request to us to
raise the debt ceiling?
Secretary Paulson. The best estimate of that would be
sometime this fall.
Mr. McGovern. Will the administration make a formal request
to Congress asking it to be increased?
Secretary Paulson. Yes.
Mr. McGovern. The other area I just wanted to focus on a
little bit is the issue of the war cost. We have spent over
$300 billion already on Iraq. If I add all the numbers up, if
we do everything in your budget, which is I think kind of
lowballing it, looking at some of these out years, that will be
over $600 billion, and almost all that is not paid for. And I
guess my question is, is the administered ever going to
actually consider paying for the war? In the form of a war tax,
or maybe a user fee, to make it more comfortable for some of my
friends on the other side of the aisle?
I ask the question for a couple of reasons, not just
because of the budgetary impact, and when you are talking about
several hundred billion dollars, that is a lot of money. And we
have no idea how much it is ultimately going to cost. Surely it
is costing much more than was advertised when the war began.
But I also ask it because right now the only people that are
really paying the price of this war are the troops and their
families. They are the only ones being forced to sacrifice
here. And I am not sure the American people would object to
stepping up to the plate and doing their part, which is to make
sure that this war is paid for, and not put on the backs of our
kids and our grandkids, and our great grandkids.
And I ask that question because I think it is the right
thing to do, I think we should be paying for this thing. All of
us need to be sacrificing. And it is a little bit disconcerting
that in a time of war, we are giving people tax cuts. And we
can argue about whether the war stimulates the economy, we can
go back and forth on that. But I think at a minimum I think
that it wouldn't be too much to ask that all of us sacrifice,
and that we actually pay for this war also.
Secretary Paulson. Okay, all of us owe a great debt to the
men and women who are in the war in Iraq, and it is--I would
say one thing I know will be very important to them is when
they come home, they come home to a strong economy, which is
growing and providing opportunity.
Mr. McGovern. Well, how does paying for the war undercut a
strong economy?
Secretary Paulson. I didn't say it did. I would also just
remark that when Congressman Conaway talked about just what a
remarkable thing our economy is, which is pretty amazing when
we look at, as you said, the cost of the war and all the other
things we have funded, and again look at how strong our fiscal
situation is right now. No, I appreciate your--I hear the
spirit in which you made it.
Mr. McGovern. Again I appreciate your response. And again,
I think it is the right thing to do, and I don't think it would
be terribly controversial for the President to say, look, you
know, as part of our national sacrifice we are all going to pay
for this war. And you know, you can repeal the user fee or the
war tax when the war is over with, or you know, have it sunset.
But it just seems to me--I mean, to a lot of people, and I have
talked to a lot of soldiers who are fighting this war. It is a
little bit disconcerting, when I think a lot of people in the
military think they are fighting this war and it is all on
their backs and we are not doing our part.
Secretary Paulson. I understand the feeling.
Mr. McGovern. Thank you.
Chairman Spratt. Mr. Conway--no, you have already gone, I
beg your pardon. Mr. Lungren.
Mr. Lungren. Thank you, Mr. Chairman, and thank you very
much for being here, Mr. Secretary. I apologize for missing
most of your testimony, as I was at another Committee.
Let me just be one to say that I share the concern that
you've expressed, the administration has expressed about
earmarks. I was absent from this place for a number of years
and surprised--alarmed, frankly, I came back to see the
proliferation of earmarks here. And just so that the record at
least reflects this member's views: while the earmarks
themselves may not be that large in terms of the dollars in the
budget you deal with, frankly there is a psychological impact
of earmarks here, which is if members get their earmarks in
they are far less likely to vote against a bill that spends
more money than they believe ought to be spent. And that I
believe is one of the dynamics that we refuse to admit around
here. We need our own discipline, and that is why I hope that
you and the administration will continue to fight for the
legislative line-item veto, or enhanced rescission, whatever
you want to call it, because we use the word ``transparency,''
but transparency only is a means to help us do what we need to
do, which is to get this budget under control. So I hope you
don't believe that all of us here disregard the importance of
earmarks.
As I understand your testimony and the testimony that we
had from Rob Portman yesterday, with the administration's
budget and the projected budget for the next five years we will
be at about 18.5 percent of GDP for the tax revenues; is that
correct?
Secretary Paulson. Yes.
Mr. Lungren. And that is slightly above the average for the
last 40 years, including those years going back to the Vietnam
War through the present time; correct?
Secretary Paulson. Yes, correct.
Mr. Lungren. So essentially, we are asking the same
sacrifice of the American people that we have asked for the
last 40 years in wartime and in peace; is that not correct?
Secretary Paulson. Yes, it is.
Mr. Lungren. The other thing I would wonder is, what are
our overall tax rates on the American people in comparison to
the tax rates that we see in Germany, France and Japan?
Secretary Paulson. They would be--Germany, France and Japan
have much higher tax rates.
Mr. Lungren. And as I understand it, even with the deficits
that we have been running, the U.S. Federal debt as a shared
GNP is falling, and is at 37 percent. And that compares to
Germany at 52 percent----
Secretary Paulson. The public debt outstanding, yeah, 37
percent.
Mr. Lungren. Right. With Germany, in comparison, at 52
percent, France at 43 percent, and Japan at 79 percent, is that
pretty accurate?
Secretary Paulson. I don't know those numbers off the top
of my head, but that is directionally right.
Mr. Lungren. So systems that have significantly higher tax
rates than we have are suffering under far greater public debt
burden?
Secretary Paulson. In the case of those countries that is
absolutely true.
Mr. Lungren. Do you have an idea what the unemployment
rates of those countries are at the present time?
Secretary Paulson. They are clearly, in Germany and in
France, much higher than in the U.S. and in Japan, higher.
Mr. Lungren. I don't have the folk wisdom that some other
members have expressed here, but I do remember a statement
years ago. I think it was Pete Wilson, when he was first
running for statewide office in California, said that the
greatest social welfare program is a job, and to the extent we
can establish an economy that generated jobs, primarily in the
private sector, we would be doing the best thing that we could
for the average American.
Do you have a recollection of what the sustained
unemployment rate was in the 1970s?
Secretary Paulson. I don't, but it was well above where it
is here. This is--maybe the Chairman does. We were both--the
1970s were not a great time for our economy. We had
``stagflation'' and so it was----
Mr. Lungren. The reason I bring that up is we like in this
Committee to compare what is happening now with what has
happened in the Clinton years, which I happen to think the
Clinton years in some ways benefitted from the legacy of the
Reagan tax cuts, which when they came into effect came into the
context of an economy that had a much higher sustained rate of
unemployment, economists saying that you couldn't have--well,
full employment they were defining as no more than 94 percent.
That is, we would run this economy into a tailspin if we had
less than 6 percent sustained unemployment rates. We had higher
inflation rates. We had higher tax rates.
And as we look at the difficulties--and there are
difficulties. I am one of those who believes we ought to be
concerned about the debt. But as we look at that, we should
also ought to look at the alternatives of what we had before,
when we had higher tax rates, which higher rate of inflation,
which higher rates of an appointment, with economists agreeing
that we could never have the kind of vigorous economy that we
have had, that is the sustained literally with few recessions,
compared to what we were seeing through the 1960s and 1970s.
Chairman Spratt. Mr. Lundgren, we got to move on.
Mr. Lungren. I appreciate that.
Chairman Spratt. To answer your question there were 22.7
million jobs created during the years of the Clinton
administration, which vastly outdistances what has happened in
this----
Mr. Lungren. All after the Reagan sustained tax cuts that
we basically have followed, then, along with the Bush----
Chairman Spratt. That is the subject of another hearing.
Mr. Andrews of New Jersey.
Mr. Andrews. Thank you, Mr. Chairman.
Mr. Secretary, in answer to Mr. McGovern's question a
moment ago, you indicated the administration will be submitting
a request for increase to the debt ceiling. When do we expect
that request, and how much of an increase to the debt ceiling
will you be asking for?
Secretary Paulson. I don't know the answer to either of
those, because it is going to be very dependent on the way
which revenues come in. But it would be sometime in the fall.
Mr. Andrews. Thank you. In your testimony you indicate that
the projected surplus under the administration's budget
proposal will lay the foundation for dealing with entitlement
reform. I am a little skeptical that it is really a surplus by
2012, and here is why. I am correct, aren't I, in that every
dollar of the projected Social Security surplus during this
five-year window is applied to the deficit; is that correct?
Secretary Paulson. That is the way it works under the law.
Mr. Andrews. And if we were to express the operating budget
of the federal government, net of Social Security, my reading
of the budget tells us that we would be $187 billion in deficit
by 2012; is that correct?
Secretary Paulson. I can't confirm that number.
Mr. Andrews. In addition to that, there are some other
costs which are not built into the five-year plan. One is the
alternative minimum tax. There is a plug, but it doesn't extend
to 2012. If Congress takes action that would shelter 39 million
people from paying the alternative minimum tax, which I think
is likely, that increases the deficit in 2012, doesn't it?
Secretary Paulson. You know, I have to answer this question
a number of times, but clearly, what I have said is we are
going to need to work together on solving the alternative
minimum tax.
Mr. Andrews. I mean, as a logical proposition, unless we
raise taxes on someone else, or cut spending to offset the tax
relief for people under AMT, it is would increase the deficit,
right? Okay. If I read the budget document correctly there are
no war costs built into fiscal year 2012 at all. Now, I hope
there are none. I hope that we are successful in resolving the
conflict, and we are not spending any money in Iraq or
Afghanistan. I strongly doubt that. But am I correct in my
assumption that there is zero war costs built into 2012?
Secretary Paulson. Yes, because what we have done is we
have a placeholder for 2009. It is difficult to estimate.
Mr. Andrews. It certainly is, I understand that. And here
is the calculation I have done. If you take the net budget
deficit, net of Social Security, is 187 billion. If you add in
the AMT, the CBO tells us that would cost us $93 billion. If
the war is costing us about what it is costing us today--I hope
it isn't but if it is that is $87 billion, and then if you add
interest on further debt we would have accumulated in the first
four years, that takes us to $393 billion deficit.
Now, we further compound the problem. Those numbers are
built on the administration's revenue assumptions, which I hope
are correct, that revenue will grow at the rate that you
project. If you use the CBO's revenue numbers, though, you
would have a falloff of $155 billion in revenue, which means
that the deficit would be $548 million before you get into the
Social Security surplus. Even applying the Social Security
surplus you would have a deficit after that.
Now, here is my concern. David Walker was here 10 days ago,
and testified that if no policy changes by the middle of the
next decade, we will have a deficit that is 5 percent of GDP,
because of the onrush of the baby boom retirees. This budget
really doesn't change policy. It continues the existing policy.
Are you confident that this existing policy is going to
avoid the problem I just talked about, given the fact that
there is no war cost, there is no AMT built in here, that we
are spending every dollar of Social Security surplus? Can you
approach 2017 with a high degree of confidence that are going
to be ready to deal with entitlement reform?
Secretary Paulson. I can't unless we start dealing with
entitlements now. In other words, I would have different
numbers. Your chairman had different numbers. Under his
assumption that there was a deficit of eight tenths of a
percent GDP. We think we can balance the budget. But the forest
through the trees is the problem you have pointed at, and I
would say of all the things most frustrating to me coming down
here is to be able to look at this big structural issue we see
ahead of us, and it is like we are flying into the side of a
mountain, and we have got time. We can avoid it but we can't--
we need to come together.
Mr. Andrews. I see my time is up. I would agree. I am just
concerned that we are not really changing the direction of the
plane. I think that proposed in the next five years takes us
right to the mountain again.
Secretary Paulson. Let us deal with the big issues then,
because I would say the fiscal deficit today of 1.8 percent of
GDP is not our problem. The problem is the structural issue
coming up with the entitlements.
Mr. Andrews. Thank you very much, Mr. Secretary.
Chairman Spratt. Mr. Secretary, we have three members who
have waited patiently. Do you have the time to entertain us?
Secretary Paulson. I am certainly not going to tell them if
they waited they cannot go. I will try to--I realize part of
the reason we have gone over is I have been too loquacious
myself. So let us go on and I will try to be very, very brief.
Chairman Spratt. Mr. Etheridge.
Mr. Etheridge. Thank you, Mr. Chairman.
And Mr. Secretary, thank you, and thank you for being here
today, I will be try to have my stuff as tight as I can, too,
so you can get in. I appreciate you taking the time. Let me
just ask you a couple of quick questions.
Yesterday, the Federal Reserve Board chairman, Mr. Bernanke
said spreading economic opportunity as widely as possible is
important, and here is what he said about it, he said,
``policies that focus on education, job training and skills,
and that facilitate job search and job mobility, seem to me to
be promising means of moving toward that goal.'' In effect, if
we are going to be involved in our economy, close the gaps on
the debt, and provide opportunity to education, is that piece,
and those things around it. Would you agree with that
statement?
Secretary Paulson. Yes.
Mr. Etheridge. And I think we do. Now, that being said, let
me just share--because I believe budgets really are moral
documents as well as numbers, and I think too many times we get
engaged in budgets and we forget it is about people who are on
the ground. And if we cut at the federal level and do our job,
it rolls to the State, to the local, and business gets caught
in the gap. And ultimately it is a combination of those who
make it happen. In this budget, when we talk about defense of
this country, we are cutting COPS programs by 95 percent. Those
are people that are on the ground helping people. First
responders are being cut roughly 65 percent and a variety of
education programs, about 44, are being eliminated. We may
agree with some or may disagree, but I happen to know a lot of
them, having been a State superintendent for eight years, that
are absolutely important to the local units, because they catch
students who fall through the gaps.
And as we look at those issues--let me give you one more
and then I will let you respond. It gets back to our issue of
where we have built up huge debts and we are borrowing money
from overseas. And it piggybacks on something some other
colleagues have said. Historically, when we ran a national
debt, a deficit, we sold the money by and large to ourselves.
We sold bonds, we bought them through Treasury notes, et
cetera. Currently we are seeing that debt explode, is probably
the best way to put it. It is being bought by countries like
Iran, Venezuela, Libya, Saudi Arabia, a host of other people.
They are being bought through European or Caribbean banks.
Does it bother you that a lot more of our debt is being
held by foreign countries? In some cases those countries that
we have--China is a large purchaser. And the list is long. Does
it bother you that we are selling it on the market, they are
picking it up, they are people who we are trying to deal with
diplomatically, and they have leverage on our debt?
Secretary Paulson. there is a good number of things that
bother me. That is not high on the list.
Mr. Etheridge. Why?
Secretary Paulson. Trying to be very brief. We have, as I
said, about $4.4 trillion of treasuries that are held in the
public markets. And if we are going to be growing ourselves at
the rate we are growing, and not saving, and there are these
big global imbalances, we need people to buy our treasuries and
there is a great--these are very liquid markets, and there is
great diversity. Let me just take China as an example.
The two biggest holders of our debt are--the Japanese own
roughly $650 billion. The Chinese about, I think the last I saw
was $346 billion. And of that, part will be held by the
government, central banks, and part will be held by
individuals. Our treasuries trade about $1 billion a day, so
the Chinese hold less than one day's trading volume. And people
own our debt because they believe--they've got confidence in
this economy, and it gives them the best risk-adjusted rate of
return.
So again, as I look at those numbers very carefully and
there is a great diversity, we are part of the global economy.
And so there are some other things I worry about but that is
not--I am not discounting it. I am just saying it is not high
up the list for me.
Mr. Etheridge. Well, I had another question, but I will not
go there because I am running out of time, Mr. Chairman. But
the point is that you talk about the growth we are having over
the last several years, and you can just give a yes or no
hopefully on this one. With the large deficit we are running
with borrowed money, isn't that having an impact on our GDP,
because we are infusing an awful lot of money that we aren't
generating?
Secretary Paulson. I would say this. The current account
deficit, which is part of the reason we have got the holders
overseas, we have really reached a fortunate point in time,
that gets right--for four quarters in a row, our exports have
been growing faster than our imports. And so you look at the
latest GDP number. We had one percentage point of growth in
there for exports. So it is getting better.
Chairman Spratt. Mr. Becerra.
Mr. Becerra. Mr. Chairman, thank you.
Mr. Secretary, thanks for staying over. I appreciate it
very, very much. I will try to make my questions somewhat
pointed so that hopefully you can give me some directed answers
as well.
As I mentioned yesterday when you were testifying before
the Ways and Means Committee, the disconnect that I think
occurs between an economy that you and others have said is
moving and booming, and the fact that Americans are feeling
very insecure about their future I think has to do with the
fact that today more and more we are seeing the disparity
between what we produce and who gets it. More and more we see
folks who are wealthy getting far more than those who are
middle class. And today, nothing more than the CEO salaries of
some of our large corporations is testament to that, when you
see people making tens of millions of dollars in one year, and
you've got workers who are finding they have to fight to just
struggle to maintain their wages at the previous year's level,
and maybe get a small increase.
As we talk about our choices and our priorities, I look at
the fact that we are spending all--the President's budget
spends all the Social Security surplus monies in the trust fund
over the next five or six years for nothing related to Social
Security, that we still have seen the highest deficits we have
ever seen, record deficits, and while they are coming down,
they are still massive.
And today we pay more simply on interest on what we owe in
our national debt than we have ever paid before. Some $250
billion is spent by this government simply to pay the interest.
It doesn't reduce the principal of what we owe. It is not money
available in the future for us to reduce taxes or to provide
more services. It just goes to pay interest, like somebody who
is paying interest on their mortgage, you are never doing
anything to the mortgage in this case. All we are doing is
paying interest on the national debt.
And so when we think about that in our choices and
priorities, and realize that today we have men and women who
are sacrificing for this country, especially in places like
Iraq and Afghanistan, I have to ask you as Secretary of
Treasury, do you think it is appropriate for us, for this
government, for the President to be proposing that we further
cut taxes that will principally benefit the wealthiest in this
country? And some estimate that if you play these tax cuts out,
that the individuals who are making about $1 million or so a
year will get about $162,000 in tax cuts in 2012 dollars. So as
you play these out in perpetuity, you are giving folks who are
millionaires this massive tax cut, and then have folks who are
right now in Iraq making small money, for the purpose of
defending our country and its freedoms. So the question is
first, is it appropriate for us to be cutting taxes at a time
of war, when this country has never before this war and this
President cut taxes when we are in a state of war?
Secretary Paulson. I have said I do believe that the tax
policy makes sense. And again I think what you are doing is you
have mixed two facts; one of which is a greater divergence in
income, which is a trend that is been going on for some time.
It is related to a number of things. Technology has got to be a
big part of it; and the President's tax relief which, you know,
a lot of that was at the low end.
Mr. Becerra. but if we are not doing anything to reduce the
debt burden, today a child born--while we are speaking a child
will be born in this country. That American child today has
what I would consider a birth tax stamped right on his or her
forehead, that is about $29,000 today that that individual is
born owing as part of the American family, for that massive
debt of over $9 trillion.
And so maybe we have room for tax cuts, maybe we have room
for wise spending programs, wise services that we provide, but
at a time when we have servicemen and women who are sacrificing
their lives, should we be skewing tax cuts towards mostly folks
who are making a massive amount of money?
Secretary Paulson. Well, I would focus on that child is
being born today, and what is coming down the road, and I just
see a huge need, very important need to deal with this growth
in the entitlement programs.
Mr. Becerra. There, I agree with you, but can I ask you--I
am going to run out of time real quickly. I wanted to get into
these fee increases for veterans' healthcare, the short-
changing of the No Child Left Behind education program that the
President passed by about $15 billion for 2007 authorization
levels, but let me just ask one last question.
The enforcement of the tax laws, where we have so many
people who are not paying taxes when they owe it, where you
have many good hard-working Americans who do, how do you deal
with that tax gap of some $345 billion the IRS estimates that
we don't collect, when your proposals that you provide in
essence talk about collecting $3 billion a year over the next
five years, of that $345 billion that people are stealing from
the American taxpayers, under their noses, when--when you don't
collect the taxes that someone owes, another American has to
increase taxes----
Chairman Spratt. Mr. Becerra, he answered that in some
length earlier. We will get that in the record for you.
Mr. Becerra. That is fine.
Chairman Spratt. Just so he can give a brief answer to it.
Secretary Paulson. Thank you, Mr. Chairman, but I will be
very brief, and I appreciate because I did go into some depth.
I would say that the number I think to focus on, which was last
developed in an estimate in 2001 was 290 billion. And we have
proposals to deal with this----
Mr. Becerra. At 3 billion a year?
Secretary Paulson. Well, I would say to you they are very
serious proposals, and I would like to get those enacted and I
would like to talk--you know, we also have a very robust audit
function. I would just say to you, because you care a lot about
the individual taxpayer and the honest taxpayer, many of the
things we would have to do to go beyond that would place a very
big burden on the taxpayer who is paying his full share because
it will be greater reporting requirements. And you will get my
answer----
Mr. Becerra. I look forward to working with you on that
issue. Thank you Mr. Chairman.
Chairman Spratt. Thank you, Mr. Becerra. Ms. Kaptur of
Ohio.
Ms. Kaptur. Thank you, Mr. Secretary, for remaining for the
rest of us. You have a very important job. And in your
testimony you paint a very rosy picture about the economy, even
indicating real wages have risen 1.7 percent, which isn't a
whole lot, but what you don't say is it is disproportionately
shared. Those in the top one percent have had a relative income
increase of $146,000 a year, while the average middle-class
family in our country actually has fallen behind $1300 a year
since the beginning of the Bush administration. They are paying
more for gas, they are paying more for medicine, they are
paying more for healthcare. Job growth is sluggish. During the
Clinton administration, we had about 227,000 jobs being created
annually, and by this administration 66,000. It is a quarter of
what had happened before. We have a negative savings rate in
this country. Our trade deficit knocks off almost a full point
or more off our GDP, with nearly $1 trillion of trade deficit,
and we have the highest vacancy rate in housing in over 40
years. I am very worried about that. All across the country,
and what is happening in the mortgage market.
So my question to you is very--I have a couple simple ones.
Has the Bush administration in its seven years of submissions
to the Congress ever submitted a balanced budget to the
Congress? The Bush administration. I know you haven't been
there for the full seven years, but in any of the years, have
you ever submitted a balanced budget, yes or no?
Secretary Paulson. Have we achieved a balanced budget?
Ms. Kaptur. Have you submitted a balanced budget, in any of
the seven years that you have----
Secretary Paulson. I haven't been here. You will have to
ask someone else that question.
Ms. Kaptur. Sir, you are the Secretary of Treasury.
Secretary Paulson. I can tell you we have submitted a
budget----
Ms. Kaptur. You have never submitted a balanced budget.
Please be realistic about what you have done. What is the
amount of debt, the accumulated debt that the Bush
administration has added to this economy? How much? over the
seven years? Three point nine trillion, do you know that
number?
Secretary Paulson. I know the number.
Ms. Kaptur. All right, thank you very much. Three point
nine additional trillion dollars onto the nation's debt. Are
you aware that interest payments on that debt has now grown to
nine percent of our total budget, totaling nearly $300 billion
a year, which is enough to fund half the federal agencies we
have to fund in terms of discretionary funding? Are you aware
of that? Nearly $300 billion a year in interest that we are
paying?
Secretary Paulson. I am aware of what the interest is.
Ms. Kaptur. Are you aware of that 95 percent of the new
issues, the new securities issues for that debt are purchased
by foreign interests, 95 percent?
Secretary Paulson. We just addressed the foreign holding.
Ms. Kaptur. Alan Greenspan told me a few years ago that
when I tried to encourage him to sell the debt in small
denominations like Roosevelt did to the American people,
through postal savings stamps, he told that we didn't need to
do that because 20 bond houses on Wall Street handle all of our
issues. Is that still true?
Secretary Paulson. We have 20 primary dealers.
Ms. Kaptur. Okay, 20 primary dealers. Can your office sends
me those dealers, please? The names of those dealers?
Secretary Paulson. Sure.
Ms. Kaptur. All right, and do they receive a fee for this
service they provide? Can you also give me how much they make
in those annual fees, please? Do you have that information.
Secretary Paulson. We will send you the information we
have.
Ms. Kaptur. All right, is Goldman Sachs one of those
dealers?
Secretary Paulson. I believe they are.
Ms. Kaptur. All right. Are you the former CEO of Goldman
Sachs?
Secretary Paulson. Yes.
Ms. Kaptur. Are they still a dealer in our public
securities?
Secretary Paulson. They are still----
Ms. Kaptur. Thank you very much. Could you also provide
this to me for the record: for our earned income tax credit,
States like Ohio are foregoing over $250 million to our
citizens who don't get those refunds. In my congressional
district probably $20 million is foregone by the public that
should be receiving, working people should be receiving those
dollars back. Could your staff make a recommendation to us on
how every single American who qualifies for the EITC can get
it, and how much you can simplify the procedures for that? Or
does Congress have to do that for you?
Secretary Paulson. Well, this is a very high priority of
mine, and we are doing a good deal of work on this right now.
Ms. Kaptur. All right. Finally, thank you very much, I
would appreciate the recommendations of your staff on how to
simplify the filings for that.
Secretary Paulson. We are working with Chairman Rangel on
that.
Ms. Kaptur. All right. Finally, are you aware of a deal
that was signed during the Reagan Administration with the U.S.
Treasury, and I suppose the Federal Reserve, with the Saudis,
having to do with how petrodollars would be recirculated in our
economy as a backup? Over $1 trillion? Are you familiar with
that agreement?
Secretary Paulson. No, I am not.
Ms. Kaptur. Could you ascertain for me if it is still in
effect, the amount, and who might have signed it, and whether
or not it has expired? Thank you very much. I appreciate that.
How soon can expect to receive the names of the dealers and the
fees that they are paying for handling our public debt
securities?
Secretary Paulson. We will do that as soon as we can get it
together for you.
Ms. Kaptur. Within a month?
Secretary Paulson. We will get it to you as soon as we can
pull it together
Ms. Kaptur. Thank you, Mr. Secretary, very much.
Secretary Paulson. I am delighted I stayed for your
questions. Let me just make a couple of comments.
I begin by saying that I was on Wall Street in 2000, 2001.
I saw the impact of the bursting stock market bubble. So I
think part of the economy you were talking about in such
glowing terms was an Alice in Wonderland economy, the stock
market bubble burst. We went into a recession. There was a 9/11
attack. I would respectfully suggest you are being a bit too
pessimistic about this economy, which is growing nicely. The
numbers I cited were for the average, you know, for the average
worker, you know, compensation being up in real terms, 1.7
percent.
Ms. Kaptur. Mr. Secretary, please. You have to look at the
distribution of that. I hear what you are saying.
Secretary Paulson. I am talking about the average. You
know, I am very aware of the distributional effects. The
average worker has over the last year seen real gains.
But I will get back to you with as much of the information
as I can get together.
Ms. Kaptur. In a most incredible statement that was ever
made, and I will end with this, Mr. Chairman, when Alan
Greenspan was head of the Federal Reserve in 2000, when we were
finally beginning to balance our annual budgets and pay down
our long-term debt, and it was coming down after severe effort
by this Congress, by Leon Panetta, by President Clinton, by
many members of Congress who lost their seats because they
voted to try to balance that budget over a series of years, and
I can remember Alan Greenspan saying publicly, ``You know, now
that we are getting to the point were we might actually sell
off all these debt securities and balance our budget, well, you
know, we are in uncharted waters. We might not want to do this.
We don't know what having no debt might mean for the future.''
That statement has troubled me ever since he made it
because I was so proud as an American that we were finally
paying off our bills.
Chairman Spratt. Ms. Kaptur, we have got to let the
Secretary go because he is due out of here at 12:30.
Thank you for your forthright answers, for your
forbearance. We are glad you are where you are, and we are
looking forward to working with you.
Secretary Paulson. Thank you, Mr. Chairman.
Chairman Spratt. Thank you very much.
[Whereupon, at 12:38 p.m., the Committee was adjourned.]